Mark Twain
This earning season has served several important functions. We have been reminded by big industrial names there is still a world that's growing and looking to move earth to become great (see CAT & DE). We have also learned that some businesses can keep them paying (Whole Foods -WFM) even when there are cheaper versions, while others seem to have lost the magic to get folks to fork over the dough (Starbucks- SBUX). But, last night after the closing bell rang, we were reminded of another lesson that goes beyond the stock market and investing.
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You can fool some of the people...
Facebook (FB) got rocked when it posted results that seriously disappointed Wall Street. Moreover, the conference call was excruciating to listen to as Mark Zuckerberg tried to sound cool on one hand and like a seasoned vet on the other. It sucked - just like the IPO. What I do find amazing is how many people continue to blame the investment banks and give Zuck a free pass. Sure, those Morgan guys called each day with voices dripping in excitement. They probably said you could hike the price and offer more shares. At some point the daily phone calls probably resulted in the shortest of possible conversations.
(phone rings)
Zuck: Go ahead
MS: You got it brother
(phone clicks)
They pushed that damn deal into a bloody mess and in the process fractured IPOs in general. It was the ultimate attempt to have it all. I don't hate people for being greedy, although that's not my style, but I do fault people for being phony and stupid! Still, even after that movie, the IPO, the cheesy wedding, the McDonald's honeymoon and that one restaurant in Paris where the happy billionaires didn't leave a tip - Zuck still had fans on Wall Street and Main Street. He lost a ton of the former last night and once he tries to monetize FB will lose a ton of the latter, too.
The free Silicon Valley pass is a joke and the kind of phoniness that dictates general media coverage of business and politics. I spoke with my 15 year old son about the company and the man last night and he said he thinks all Zuck cares about is paper stacks. Well, today those stacks will get a lot shorter as the stock opens at a new all-time low.
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Other CEOs will fret including Howard Schultz (SBUX) but he has been through ups and downs before and his grit comes from the core. Zuck hasn't been tested yet. This is a different game than beating a few college buddies out of a great idea.
Last night it sounded like he was wearing a shirt and tie and hoodie at the same time. Image isn't important at this point. You can be ordained the next Steve Jobs but as some point you must deliver. I would say the clock is ticking faster now because you can't fool all of the people all of the time.
How will Facebook earn a living, precarious or otherwise?
The Raging River
In the middle of the night
I go walking in my sleep
From the mountains of faith
To a river so deep
River of Dreams
Billy Joel
A month ago I shared an elevator with Jeff Bezos and told him to keep ignoring the street and to build Amazon into a great company. What Amazon has done is different than Facebook in that each initiative has been designed to make a lot of money... downstream. Between now and then, however, the stock is vulnerable to the street's need for instant gratification. While some firms (including Goldman) were still saying buy FB, the shares of AMZN have drifted from the initial spike on earnings results. I read a headline that said Bezos is "splurging" on warehouses. He's not building them to house skateboard ramps.
AMZN revenues:
Services (online marketplace for third party merchants and cloud) + 57% to $2.04 billion
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Retail (traditional business) +25% to $10.79 billion
Gross margin 26.1% from 24.1%
There are a lot of visionaries in Silicon Valley, but few can go from concept (theirs and others) to product to an operating company that generates sustained revenues and profits. I think those warehouses will pay off big time for AMZN even if the stock sinks a little first. I'm not sure about FB, which seems like a rudderless ship at the moment.
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