The Best One Yet - 2019’s IPO profit problem, Restoration Hardware plummets 22%, and Brexit’s “big” day

Episode Date: April 1, 2019

Lyft popped 8% on IPO day, and it reflects a bigger theme with 2019’s tech IPOs: Profits don’t matter (yet). March 29th was circled for years on calendars — We’ll look at what happens now that it didn’t happen. And Restoration Hardware drops hard even though it’s betting on a unique new-old strategy.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. It's Monday, April 1st, and this is the best snacks daily we've done in April. We love it. It was also the best quarter for stock markets in 10 years, Nick, just ended on Friday. A lot of bests going around. Now, Jack and I jumped in. We found three wonderful stories for you guys over the weekend. This is what we commit our weekends to. First of all, 2019 is the year of the tech IPO. Lyft just showed us its key theme, which is that investors want unprofitable, companies. It's weird. It's a little bit crazy, but unprofitability has become a right of passage. Our second story is restoration hardware. This bougie furniture company, its stock dropped 22% Friday, even though its unique, counterintuitive strategy is kind of working. Guys, this stock is now more affordable than basically anything they sell there, which is a wonderful thing. Finally,

Friday was the big day for Brexit. It was supposed to leave the European Union, and guess what? It didn't happen. Instead, you got more failed politics. We're going to break down the three options since Brexit Day didn't have a Brexit. Here's what's going to happen next. Now, before we jump into that, we got to talk about a norm core, like normal, hardcore relationship that's going on right now between Forever 21, the clothing store, and the U.S. Postal Service. You got to check this out. Forever 21 has a full fashion line of clothing, like tops, bottoms, belts, purses that are entirely made out of USPS like envelopes and shipping products. We're talking like handbags here that look like a priority mail envelope. We're talking belts that are in the shape of like that USPS yellow tape that

you desperately wrap your boxes in. Yeah, it's kind of like one of those cool pieces of artwork that are entirely made out of license plates, except Newman from Seinfeld loves this Forever 21 gear. It's an incredible partnership. It's kind of though so random. It's like when you find out two friends from high school happened to have like 14 kids and are married and like you've never like saw them together. But Nick, classic snacks daily style. We dove into the history of the USPS logo. It started as Mercury, the Roman messenger god back in like 1790. It switched to a Paul Revere style delivery boy on horseback. And then in the 70s, they switched to the eagle. But this logo looks so 90s. And that's because it is. Hasn't been refreshed since 93. We're just impressed at this odd-com.

couple got together and they're living their best life. Now, before we get into our first story, here's some important information you need to know. You're tuned into snacks daily. We spoke to the lawyers and we got to get some. The snacks about to hear rain food is air candy. They don't reflect the views of the Robin Hood family. It's all informational just so. You know, we're not recommending any securities.

It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you. Robberhood Financial. For our first story, Restoration Hardware Stock dropped 22% on Friday. And its CEO, though, said some incredible things that really kind of validate the strategy. It was unreal.

First of all, Nick, you just committed a branding faux pie. It's no longer restoration hardware. It's just R-H. That is the company name now. It got rid of the hardware because they want to emphasize what they call the lifestyle. Yeah, I guess Restoration Hardware isn't concerned about doing the same thing Kentucky Fried Chicken did, which was to just shorten its name to the abbreviation. It's so true. But classic snack style, we jumped in to look at the earnings report.

And the revenues rose, the profits were solid, but the stock dropped 22% basically because of concerns about the high-end housing market. Yeah, we focused on one juicy detail from the earnings report. The CEO specifically mentioned the December stock market dip, okay? Nick, remember right before Christmas Eve, stocks were 19% down from October. He said that that deeply affected restoration hardware customers. December was horrible for the markets, and that's right when restoration hardware. I'm sorry, RH was trying to sell things. Yeah, think about it. RH customers are super high-end homeowners, and they own lots of stock themselves. So they must have

been bruised and battered by the stock market drop and a little less eager to buy a $2,000 legrest. RH's bread and butter customers just they weren't having a fun holiday, and that means RH wasn't either. Now, another great line from the CEO in The Earnings Report. We love this. This guy deserves his own Bartlett's book of quotations. Here's the quote from the CEO of Restoration Hardware. We believe the last 10 years will be looked back upon as the lost decade of retail. Yeah, he looks around at what other retail stores are doing, and he's not into it.

That's why R.H. has built up these. insane, expensive stores that are truly like destinations. They don't even call them stores. They call them galleries, and they basically feel like museums in a really nice European city. The CEO says that they have a unique path, which is to build offline stores, physical stores that are architecturally inspiring and immersive. Those are direct quotes.

And by the way, he's putting his money where his mouth is. Last year, we reported on this. Restoration Hardware dropped $50 million to build a single store. store in New York's meatpacking district. $50 million for one gallery. Right. And that store, Nick, in New York and the meatpacking district is on trend to reach $100 million of annual sales, which was the company's target. It's a good payoff. So Jack, what's the takeaway for our buddies at RH, the artist formerly known as Restoration Hardware? Contrarian opinions are the ones that really matter. It's so true. RH could, it could just focus online, just do the whole e-commerce

thing. That's the bigger trend. That's the Amazon lifestyle. And it's a Instead of being a sheep and following the rest of the pack, it's making a counterintuitive bet. It's spending big on physical brick and mortar retail. Everyone else is digital first. These guys are physical stores. It's contrarian, and that's why it matters. It's a bold take. For our second story, Lyft just jumped 9% at Friday's IPO, but all we want to talk about

is the one theme that says about 2019's upcoming tech IPOs. I'm really sorry to be a Debbie Downer. Like, Lyft's IPO was great. but we need to point out that it is completely unprofitable. We have to have the talk about profitability. Lyft hit a $15 billion valuation when it was last valued over the summer as a private company. Right. Thursday night, it set shares at $72.

That was a $24 billion valuation. And after Friday's great IPO, where shares jumped 9%, it's worth $27 billion. And here's the theme. More and more, more valuable as Lyft gets, the less and less. less and less profitable, Lyft seems to get. Yeah, yeah. Grab your Ti-83 because we're going to break down the cost and sales. Costs for Lyft last year were $3 billion approximately.

The revenues were only about $2 billion. That's a loss of $1 billion. And about half of that feels like it's coming from the random promo codes. It sends us like midweek 1 p.m. to 3 p.m. for 10% off like a lift pool. Right. And profits are very important for shareholders. Like you need to eventually get profits because. because profits get returned to shareholders as dividends. That's why you want to own stock.

So here is the theme, the fascinating theme of 2019. It's not just Lyft. It's a lot of other IPOs that are extremely unprofitable, not just kind of unprofitable. Yeah, the bench for IPOs for 2019 is stacked. Let's talk about it. Like never before. We got Uber, Pinterest, Airbnb. Maybe we work will be around the corner. All these companies are unprofitable. Another tech company, Spotify, listed its shares last year, it still has billions of dollars in losses. That's just extremely unprofitable. Yeah, clearly, though, it's okay for a company to IPO without profits because last year, 76% of the companies listing shares publicly for the first time were unprofitable.

So if investors want profits and these companies are so unprofitable, why is there so much popularity around the stocks? They're really two reasons why. First, the number one goal for tech companies that are scaling up is to grow. like really, really fast. And to grow fast, you have to pay lots of money for things like marketing and commercials and promo codes. The second is that these companies are usually ambitious. Lyft just isn't trying to do a car share service. It wants to replace car ownership entirely. So the hope is that giant profits by replacing car ownership entirely will eventually be there in the future. And that's why Lyft's valuation is getting higher. And by the way, Jack,

there's some like pretty good role models here for Lyft, right? Yeah, you got face Facebook, Amazon, Twitter. All three of those companies were unprofitable when they IPO, but now they're like profit powerhouses. And so shareholders' hopes came true. So, Jack, what's the takeaway for our buddies over at Lyft and all these extremely unprofitable companies? Companies are staying private much longer. It's just a fact. For years, only like private venture capitalists and big deal celebs who could invest early on have invested and now profited. We're talking like DeCaprio, Ellen, Nause, legends like Ashton Coucher. Yeah. Back in 1999, the median age of a company that was doing an IPO was four years old. They were like young companies.

Now, get this, guys. Last year, that average age? 12 years before a company IPOs. Right. So for 12 years on average, there was this red carpet exclusivity to DeCaprio and Nas. And by the time they finally IPO were like desperate lifties. We've been using Lyft forever.

and now we can finally invest. It's like a rush. There was clearly pent up demand for this kind of thing because you just couldn't get lift shares earlier. And we see it in lift share price increasing last week. For our third and final story, we're heading up to platform 9 and 3 quarters to chat about Brexit Day, which was on Friday, and it didn't happen because this was the third time a proposal was voted down. And Brexit is a hairy beast, so we're breaking it down in three parts for you. First you got the if, then you got the when, and then you got the how. All right, so first the if. and a half years ago, the Britons voted to have a political decision to basically stop having an open door policy with its neighbors in Europe. Then you had the when. When is this going to happen? The when was

supposed to be March 29th, 2019. It was circled on calendars as the day Brexit would be done. Right. That was the deadline. It was Friday. We missed that deadline. Okay. But we want to talk more about the how. This is where all the drama is and it's still happening right now. Prime Minister Theresa May has had three plans on how Britain would Brexit. They're each really long, not that fun. They're 500 pages-ish. And they go over all the specifics about what goes down, what trade agreements stay, how things work out. Yeah, it's basically a divorce agreement. And the awkward thing is, Parliament has voted all three of them down. And Theresa May is so desperate. She said, if you just pass one of my deals, I will quit. And you guys can move on without me. Now Brexit is delayed until like April 12th.

So the thing everyone wants to know is, so like what happens next or keep on being these like Brexit incidents. Basically, there are three paths that remain and that's what we got to talk about. Yeah, one of them is Theresa May could go for a fourth try. She could whip out a fourth deal proposal with Europe and hope that it quickly gets voted before the April 12th deadline. The second option is that Britain could just delay again. It could set like a new later deadline where they can argue about specifics and how like until then. It's basically like a procrastination professor, please give me an extension situation. Exactly. Exactly. And the third one is the scariest one. It's the hard Brexit. It's also the default

option if nothing else happens. On April 12th, in two weeks, Britain will just no longer be a part of the EU without any deal or agreement in place. This is like straight up ghosting. Hard Brexit is the default now. It's what's going to happen if they can't figure out the how. Yeah, this has consequences. like food and medicine coming from outside of Britain, it might not be able to get in. Like, imagine if you're a McDonald's manager trying to figure out where you're going to get the sesame seeds for the buns. There's no trade agreement for those. So a third of the food from Britain comes from the EU.

And then this was a crazy stat we found. It's projected that if hard Brexit happens, food prices in the UK could rise like five to 10%. And imagine the chaos that could happen at the borders. food and human beings like going through the channel to France, what's going to happen at that border? Like there's no border currently and they're going to have to figure something out. Totally. And Canada has already even issued a travel warning because there's so many protests around Brexit just dealing with the how. So Jack, what's the takeaway for our buddies across the pond handling Brexit?

National crises can quickly become international crises. Let's take a step back to 2008. Europe had a huge recession and that was true. triggered because of the U.S. housing market financial crisis. And it could all happen again, but the other way around this time. Now, guys, get this. Britain is losing a cool $1 billion every week because of Brexit. Yeah, get this. Britain's GDP is 2% lower today than it would have been had it remained. And that's going to get even worse if it actually brexit's. And then get this. These are just really big numbers. And you know what? That means they can have a really big ripple effect.

It could ripple to Europe and then it could ripple to the United States. lot of ripples. So, Jack, why don't you whip up the snacks daily takeaways for us? All right. With Lyft, we're seeing that companies are staying private for much longer. It's just all pent up. I can feel how pent up this stuff is. Our buddies over in Brexit, I'm telling you, that's a national crisis, but those things can become international crises. It's all about one word, ripples. And finally, as our buddy John Steinberg, founder of Cheddar, says, contrarian bets are the only ones that truly matter, and that's what restoration hardware is doing. Put

that on a pillow. Time for our snack fact of the day. This one is freakishly depressing and coming to you from an area code you recognize. In the United States on mobile phones last year, there were 48 billion, with a B, robocalls made. That is terrifying. Let that sink in. Get this. This is even more depressing. About three to five percent of those robocalls, that was people getting duped by scams. Do not give your social security number. Oh, and if you're wondering if this is more than last year, Yeah, it's about 60% more. Couple other great stories that we're covering in our Snacks Daily email newsletter. First, we're doing a little bit more on this best quarter in 10 years that just went down in stock markets.

Definitely. And then we got Blackberry, which stocks searched 15% on Friday because it's no longer a clickety-clack smartphone company. Snackers, that was great. I love today's podcast. We'll hit you again tomorrow. Can't wait. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood

Markets, Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only, is not intended to serve as a recommendation to buy or sell any security, and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC member FINRA SIPC.