QUOTE OF THE DAY
We are aiming to bring those who are slacking to full conformity."
Fingers are being pointed during OPEC production talks. You’ll see what we mean...
Market Snapshot
- The Dow and S&P closed lower, dragged down by Johnson & Johnson.
- Nasdaq hit a record high ahead of tech earnings.
- Oil closed higher on Saudi Arabia’s note to cut exports.
- Morgan Stanley passed Goldman Sachs in market cap.
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A Little Bit Gassy
The oil glut among the U.S. and OPEC (Organization of the Petroleum Exporting Countries) nations has left oil prices hovering around $50/barrel since 2014. Just nine years ago those prices struck highs of $156/barrel.
On Monday, OPEC, a group that has consistently blamed the U.S. shale industry for these low prices, made a rather unusual declaration: "this is partially our fault, it’s time to crack down."
Haaaaaaave you met OPEC?
OPEC consists of 14 oil-producing nations that contribute roughly 44% of the world’s oil reserves.
Back in May, OPEC announced it would extend oil production cuts of 1.8 million barrels per day to help raise prices. Think about it: the higher oil prices are the more money these oil-dependant economies make.
There’s one, small issue. These supply cuts haven’t boosted prices as intended. And it’s precisely the reason OPEC has been blaming the U.S. shale industry.
U.S. shale companies typically focus on short-term drilling projects that allow them to quickly produce oil when the market is ripe. Here’s why.
As OPEC cut production of oil and raised prices, shale drillers filed in to produce more of it and take advantage of the uptick in pricing.
The result put us right back where we started.
Except OPEC is now taking some of the blame
In order to keep up its end of the bargain, OPEC is starting to hold member nations accountable for more than just oil production. Exhibit A is Saudi Arabia.
Even though Saudi Arabia cut back on overall production, it is still exporting the same 7.2 million barrels per day. Now, rather than just cut production, the Saudi’s will lower exports by 600,000 barrels per day in an effort to decrease supply and raise prices once and for all.
Let’s just hope the shale industry is willing to meet it halfway.
Out With the Bengay
Samsung (-0.94%) knows a thing or two about innovation. 4K TVs? Too easy. Samsung VR? Piece of cake. Time for its latest and greatest (drumroll please): arthritis medication?
That’s right. Samsung is releasing a rheumatoid arthritis medication that will undercut the price of Johnson & Johnson’s Remicade.
After receiving FDA approval in April, Samsung is looking to expand outside of tech and take a piece of the $202 million biologic drug market (different than the drug market—read here).
And "Renflexis" should be the perfect test run. J&J’s Remicade is one of the top-selling drugs in the U.S, roping in $4.5 billion last year. Samsung is hoping to pocket some of that change with a 35% discounted version of the drug.
While this move might feel like a stretch from Samsung’s typical high-tech business model, it’s actually a genius value-add if you ask us: Samsung not only invents the devices that can give you arthritis, but will now sell you the cure for it.
Get That Checked Out
WebMD Health has been waiting pants down in the doctor’s office for far too long. On Monday, the doctor finally paid a visit.
KKR, a private equity firm, agreed to purchase WebMD for $2.8 billion, topping more than 100 bids for the health company.
If you want a clearer picture of the diagnosis, WebMD is the parent company of popular medical websites (like WebMD.com, Medscape.com, etc.) and a hub for searches like, "Should this mole be glowing in the dark?"
WebMD.com alone registers 70 million unique monthly visitors on its site, and together with Medscape.com, the two drive 80% of WebMD’s revenue through advertising. More recently, slowing ad revenue has had it on the lookout for buyers.
But that doesn’t seem to be a concern for KKR as it looks to scale its auto and healthcare-focused media business, Internet Brands.
As for that mole. Refer back to the headline for your answer.
The Good, The Bad, The Googly
Alphabet (-2.94%) reported earnings Monday. Revenue was up 21%, net income was down 28% and turns out Owen Wilson was never actually an intern.
The second quarter proved to be a mixed bag for Alphabet:
The Good: YouTube’s 1.5 billion monthly viewers helped lift Google’s ad revenue to $22.67 billion.
The Bad: Ads placed next to hateful content on YouTube kept big ad spenders like Wal-Mart and JPMorgan on the sidelines.
The Good: Google said clicks on paid ads were up 52%.
The Bad: However, revenue-per-click fell by 23% (mobile and YouTube ads command lower RPC than desktop).
The Good: Revenue in Google’s "other" business segment grew 42%, led by the cloud.
The Bad: A $2.7 billion E.U. regulatory fine weighed on Alphabet’s profits.
The Takeaway: With more traffic filing into mobile, Alphabet should continue to see clicks rise as revenue-per-click falls. But, if we step back and look at the big googly picture, its cloud business is the rising star.
Ad revenue makes up 88% of Alphabet’s $90 billion in revenue. The cloud business is expected pass that one day...
Tell Me More…
- Sundar Pichai, CEO of Google, is joining Alphabet’s board.
- Time Inc. (+2.53%) is looking to sell a majority stake in its monthly African-American women’s lifestyle magazine, Essence.
- Uber’s Southeast Asian rival, Grab, raised $2.5 billion in funding.
- Foxconn (+0.22%) is considering opening a factory in Wisconsin to produce display panels.
- The Tanzanian government slapped gold mine operator Acacia Mining with a $190 billion tax bill (not a typo).
Economic Calendar
- Monday Earnings: Alphabet (+)
- Tuesday Earnings: Chipotle, Domino's, JetBlue, McDonald's
- Wednesday Earnings: Anheuser Busch, Boeing, Buffalo Wild Wings, Ford, Hyundai, Whole Foods
- Thursday Earnings: Airbus, Amazon, Barclays, Deutsche Bank, Electronic Arts, Kia Motors, Xerox
- Friday Earnings: American Airlines, Chevron, Exxon
Economic Events: Existing Home Sales (-)
Economic Events: Consumer Confidence, Case-Shiller Home Price Index
Economic Events: FOMC Rate Decision, Crude Inventories, New Home Sales
Economic Events: Natural Gas Inventories, Initial Claims
Economic Events: Michigan Sentiment
(Wal-Mart) By the Numbers
Wal-Mart has been thrown some serious shade since Amazon bullied its way into the spotlight. Today, we’re here to give it the credit it deserves.
11,700—Wal-Mart locations worldwide.
260 million—average monthly store visitors.
45 million—average monthly web traffic.
10 million—number of items listed on Wal-Mart.com (2015).
2.3 million—Population of Lesotho, Africa (Just kidding, the number of Wal-Mart employees worldwide).
$486 billion—Wal-Mart’s fiscal 2017 revenue (for reference, Poland’s GDP is $482 billion and United Arab Emirates’ GDP is $407 billion).
Amazon may be disrupting the retail market space and putting Wal-Mart on the ropes, but let’s not forget that Wal-Mart is still the largest retailer in U.S. Not convinced? Consider this: Wal-Mart’s top line ($486 billion) still puts Amazon’s ($136 billion) to shame. Try to keep up, Jeff.
Question of the Day
In a village of 100 households, 75 have at least one DVD player, 80 have at least one cell phone, and 55 have at least one MP3 player. If x and y are respectively the greatest and lowest possible number of households that have all three of these devices, x – y is:
(Give up?)
Who Am I?
I was the youngest CEO ever appointed at GE.
I popularized the quality program, Six Sigma.
I was named "Manager of the Century" by Fortune.
During my 20-year tenure as CEO, GE’s market value grew by 4,000%.
Stat of the Day
20%
Trucks might only account for 4% of the cars on the highway, but they cause 20% of the traffic. Just some food for thought next time you’re stuck in bumper-to-bumper.
