Life

The Tech IPO Drought Is Over, Plus Abercrombie Continues Its Effort To Change

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Scheduling note: the Brew will be off this Monday with the markets closed for Memorial Day. We’ll see you back in your inbox bright and early on Tuesday!

 

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“Ultimately we’re in the service business. We will always have an important human element” — McDonald’s CEO Steve Easterbrook, responding to the idea that raising the minimum wage (the so-called “Fight for $15” movement) would cause companies like McDonald’s to replace workers with robots.

MARKET SNAPSHOT

Big Picture

  • U.S. stocks finished a mixed bag ahead of Fed Chairwoman Janet Yellen’s hotly-anticipated speech today

Alternatives to Watch

  • It finally happened: after a six-month hiatus, oil prices finally broke $50 yesterday (more on this in a bit)

Market Movers

  • US Foods Holding Corp. went public yesterday in the second-largest IPO of 2016, and shares quickly surged 8.4%, reinvigorating an IPO market that’s had a lackluster year so far

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CORPORATE PRIMER

Twilio Breaks the Drought

Twilio, another one of those darn Silicon Valley unicorn startups, announced plans to go public with a $100 million IPO in the coming months. Before we get into the details, an introduction: Twilio is a cloud-based communications platform that allows you to embed messaging, voice and video communication into your apps. Anyways, yep, it’s an IPO. This would typically be business as usual, but tech IPOs have been unusually absent in 2016, with only four so far this year, and no high-profile ones. Subpar market conditions, specifically a number of major tech stocks plummeting this year (and maybe a bit of superstition), had Twilio hesitant for a bit, but its high growth won over. See you on the NYSE, Twilio.

Dollar Stores Shine

Where do you go with a wallet stuffed full of singles? The dollar store, of course. And with consumers making it rain with their singles lately, Dollar Tree and Dollar General couldn’t be happier. The discount retailers reported better-than-expected profits and remain the standouts in the hurting retail sector. Falling management payroll costs and tax bills in lower income jobs have attracted lots of customers and increased their spending power. Dollar Tree plans to expand into perishable goods (like frozen foods), while Dollar General hopes to open 7,000 new stores by 2020. The future looks like a big dollar sign, and investors are digging it: shares of Dollar Tree and Dollar General rose by 13% and 4.5%, respectively.

Abercrombie: The Sequel

Abercrombie has been working hard to revamp its “sexy tween” image and cologne-soaked merchandise due to customers’ growing distaste for the brand. Unfortunately, its reputation preceded it: the stock fell over 15% yesterday on a poor earnings report: revenue fell 3% this past quarter, driven by steep declines in customer traffic. Executive Chairman Arthur Martinez says the slowdown is an industry-wide issue—which is true—but a poor excuse after three years of annual sales declines. What’s next for ailing Abercrombie? Some plans include price adjustments and possibly selling to third parties like Amazon. If you can’t beat ’em, join ’em?

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WORLD MACRO

Crude Comeback

Remember when oil was under $30 dollars a barrel? Well, oil is nothing if not scrappy. Yesterday, the energized commodity briefly jumped over $50. Did everyone suddenly run out or something? Pretty much. Oil’s gotten a big boost from production outages across the globe: wildfires in Canada, military conflict in Nigeria and Venezuela’s economic woes, combined with slowing U.S. production, have taken four million barrels a day out of production. In other words, good for oil, bad for everyone else. The inspiring comeback story, worthy of an ESPN 30 for 30, will get more interesting as legendary oil cartel OPEC meets next week.

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OTHER STORIES

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ECONOMIC CALENDAR

IN MEMORIAM: HIGH GAS PRICES

Do you have special travel plans this Memorial Day weekend? So does everyone else: the American Auto Association expects over 34 million Americans to travel this weekend, the most since 2005 and a 2.1% increase over last year. But there’s more than meets the eye:

  • Most would agree that gasoline prices play a big role in determining how much travel takes place. As discussed above, it’s true that oil prices have been rising of late, and gas is now running at $2.30 a gallon, up a third from 2016 lows.
  • But (there’s always a but), gas is still 17% cheaper than last year and a whopping 37% below 2014. In fact, the AAA believes U.S. drivers will save $150 billion on gasoline this year compared to 2014. We’ll take it.
  • As for air travel? You might be surprised to hear that it’s only expected to rise 1.6%, despite the 40 most popular U.S. flights going for 26% cheaper than last year. A possible explanation: those jaw-dropping security lines you’ve been hearing all about (and possibly missing your flight over). It turns out some things aren’t worth waiting for.

INTERVIEW QUESTION OF THE DAY

A farmer has five haystacks in one field and four haystacks in another. How many haystacks would he have if he combined them all in one field? (Answer)

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BUSINESS TERM OF THE DAY

White Knight — A company that is the target of an unwelcome takeover bid may search for another “savior” company, sometimes to preserve the company’s core business and other times just to negotiate better takeover terms.

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FOOD FOR THOUGHT

Sony has sold 40 million PlayStation 4 consoles, making it the fastest-selling game console ever. For some context, Microsoft’s Xbox One sales are estimated at a bit above 20 million. Looks like PlayStation has won this battle handily, but the endless war between PlayStation and Xbox is far from over.

 

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