[Market Madness] Edition 0076
Half in the Bag (half the year, that is)
An end to Q2 and H1
Well folks, today marks the end of the second quarter and the first half of the year. The markets have appeared to cool off since yesterdays rally, as we started the day in the red but thereafter moved into the green. Given the volatility we’ve seen lately, a mixed day is likely ahead of us as investors reflect on the past quarter and adjust their outlook for the future given the ongoing news and developments.
Elsewhere, Asian indices were up, and European indices were slightly down, but closed their best quarter in five years. Here in the states, stocks are set to close for a record quarter as well, given the rapid bounce back. Many are hoping that closing off Q2 and moving into Q3 will be a new chapter in the recovery. As cases continue to rise and health experts call for increased diligence by the average person, we can only hope that we move in a better direction with respect to the virus.
Many firms are going back to the drawing board with respect to their reopening plans, with many pushing back their dates several weeks or indefinitely. There is currently no magic 8-ball that can help us figure out what the second half of the year will bring, but I’d suggest buckling up for a continued bumpy ride.
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Fundamentals
Tuesday Close:
Dow Jones Industrial Avg: +0.84%
S&P 500: +1.53%
NASDAQ: +1.87%
US 10 YR: 0.655%
Crude OIL: $39.42
Market Madness Portfolio: +1.16%
COVID 19 Global Cases: 10,509,968
Indices Overseas:
FTSE 100: -0.67%
Nikkei 225: +1.33%
Hang Seng: +0.52%
TEDRATE: 0.14
LIBOR (3 month): 0.29613%
J2 Global, a case study
I am a subscriber to Hindenberg Research, and they focus on forensic financial research. A new piece released today was really interesting to me; it follows a firm called “J2 Global” which positions itself as an ‘internet information and services company.’ Here are two headline notes from the summary section of the report:
J2 is a digital media roll-up that has acquired 186 businesses since its inception. Its CEO describes the company’s “acquisition system” as its “single great competitive advantage”.
We suggest the contrary and believe J2’s opaque acquisition approach has opened the door to egregious insider self-enrichment, which we approximate totals $117 million to $172 million based on publicly available information. (excerpted from report)
The firm presents itself as an interesting player in the space, an ‘acquisition machine’ that has generated 24 years of revenue growth with positive operating cash flow. Since inception, the firm has made 186 acquisitions and developed roughly $3 billion in acquisition capital.
A recent investor presentation highlights these incredible figures in a series of charts based on its recent and forward looking financial performance. (see most recent 10Q filing here.)
The figure above outlines some incredible performance metrics, suggesting that the company is going to the moon. What lies behind the surface is a golden highlight case study of corporate governance malpractice, under performance covered up through manipulations of accounting reporting, and conflicts of interest galore.
To get into the actual nuts and bolts of this case would be interesting to some, but a nightmare or a snooze-fest to others. Having taken a course on M&A, which focused on corporate governance and the market for corporate control (thank you Professor Wiggins!), I’ve come to find this case really interesting and timely. Much of what I’ve learned from my business education has been manipulated and ignored by J2 Global in pursuance of pure profit. What I have presented here would not even be considered the cliffs notes, but just a micro-snippet, as there is so much more to read in the actual report.
The folks at Hindenberg have done an incredible job putting this together, with the ultimate goal of having eyes take a look that could put a stop to the illegal actions at J2 Global. For anyone interested in real-time case studies or forensic financial analysis, Hindenberg Research is a great place to start.
Grab some popcorn and read the case research here: J2 Global: Troubling Related Party Transactions, Looming Impairments And A Suspicious History Of Insider Enrichment Spanning Decades.
Postmates interesting position
After having their past purchase action fall through the cracks, Uber now has set its eyes on purchasing food delivery company, Postmates. A special purpose acquisition company has also come forward with an offer. JP Morgan Chase is serving as the financial advisor for Postmates. Involved parties have declined to comment thus far. According to the WSJ, the deal coming from Uber values Postmates at about $2.6 billion.
From a regulation perspective, no one is quite sure how this deal will unfold. There were concerns by regulators on the Uber/GrubHub deal about industry consolidation and control. Postmates is much smaller of a player in the space, (fourth largest by market share) but some experts suggest antitrust concerns are always there when it comes to industry consolidation, particularly one with fewer players.
There is also the idea of the company to go public on its own listing. In past fundraising rounds, Postmates was valued around $2.4 billion. To remain individual in the market, this would be the best option for them. In a growing and competitive market like food delivery, their own IPO and future strategies to increase market share will be essential if they want to grow and be successful under their own listing.
Quick Takes
Bipartisan pressure on the Trump Administration grows to get to the bottom of the Russian bounty scandal. (via WSJ and via NY Times)
Dr. Fauci growing worried about resurgence of COVID 19 cases. He says its likely we surpass 100,000 new cases per day if we continue at the current rate. (via CNBC)
Top brands continue to pause social media spending. (via FT)
Goldman Sachs predicts national mask mandate to save economy from major downward hit. (via CNBC)
The PPP set to expire, with a lot of unused funds. (via NY Times)
Energy giant, Shell, follows BP’s path and takes $22 billion write-down on expectations of lower gas prices. (via WSJ)
E.U. set to remain U.S. travel ban in place as they look to open up inter-EU borders. (via WSJ)
A new virus in China has similar resemblance to 2009 swine flu and 1918 pandemic flu, according to Dr. Fauci. (via CNBC)
NY Times reports data uncovered by analysts that raises more questions in the Russian bounty scandal. (via NY Times)
Reader’s Corner
The editor is looking forward to the July 4 holiday. As a result, they’ll be taking off a few days to relax and enjoy a small break from the madness. There will be no Market Madness editions from July 2 — July 5. I’ll be back and ready to roll on Monday, July 6 to cover off on everything that happened on those days and anything new that July 6 brings. Thank you for understanding and I hope everyone enjoys some time to enjoy the holiday recess.
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