The Best One Yet - Google kills its VR headset, Schwab’s secret profit puppy, and Emerson Electric’s burn book

Episode Date: October 16, 2019

At Google’s product day in New York, the focus should’ve been on what it took away (a VR headset) not what it unveiled (more Pixel products). Charles Schwab enjoyed record 3rd quarter profits, and that’s driven by customers who aren’t doing anything with their money. And Emerson Electric was founded by a Civil War vet, but now it’s getting trolled by a hedge fund for owning 8 private jets.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, this is Wednesday, October 16th. Great day on the markets. Great day on this podcast. Are you thinking, Jack? The best one.

This is the best snacks that we ever done. Actually, this mix is wild. This T-Boy starts off with Google's big product day in New York City. We're not looking at the new products that unveiled. We're looking at the products it killed. We'll also mention the products at Unvell. It sounds kind of dark, but we're going to do it. Second story, Charles Schwab just revealed its secret profit puppy.

It's not when you invest. It's when you don't. invest. Do less Charles Schwab customers. Do less. Third and final story, Emerson Electric. Ever heard of it? Probably not, actually. Used to kind of be a client of mine full discussion. It's kind of like it's not as big a company as you expect. Emerson just got trolled and bullied by a hedge fund. We're looking at why it's got a fleet of eight airplanes despite its size. It has its own airline this company, and a hedge fund is not happy about it. And we're not even talking about the internship program that's got running on those things. But before we hit those stories, we got a snack fact of the day from Chris

that was so good, we had to make it our intro. Chris, this is fantastic. You deserve your own ticker symbol for this thing. Chris, by the way, Ocean Springs, Mississippi. Fellow warden class made of mine, great guy. What do we got? They points out that stocks that have clever ticker symbols perform better than stocks with boring ticker symbols. And they didn't just stop there. They like mixed it up with a few examples for us. Now, back in 1984, a study took a look at companies with like clever ticker symbols. Yeah, the kind that you're going to remember, the kind you want to bring home to mom and dad. The kind we talk about on this podcast and fantasize about all the time. The kind where you're like, why didn't someone else think this, oh wait, they did, this makes sense. Okay, so there's a toy company

with the ticker symbol, grin. There is a ATM company with ticker symbol, cash. Explosives, boom. B-O-O-O-M. So the study looked at these companies with clever names, and guess what? They performed twice as well in the stock market as the boring ticker symbol named companies. Great work, Chris, whose name could be a ticker symbol. We'll tweet out the studies he can take a look. Looks like there's a return on cleverness. It snacks about the hair ain't food, it's 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. Nope. It's not a research report or investment advice. Not an offer or sale of a security. Right. Snacks is digestible. Business news for you. Robahood Financial, LLC, member FINRA slash SIPC.

For our first story, Google just had its big product day in New York, but we're going to focus on what didn't get announced. Put on your black turtleneck, Google, because it's time to unveil some products. I love where you went there. They were actually at Hudson Yardts, fancy, new, kind of like a glorified mall on the West Side of Min Hat. Yeah, it is. It's right over the train tracks over there. But the new products appearing at this Made by Google event.

Jack's doing air quotes over there. We're just going to quickly run through the four. You got the pixel four camera. Yeah, which is their new smartphone. They have an Excel version that's like the size of your body. Pretty much. Then there's the Google Wi-Fi, which is like a router plus. a smart speaker. Then they have pixel buds two, which are headphones, but no chord. Right. Airpods-ish.

Take it on the AirPods. And there's a $649 Chromebook. Yeah. So that's pretty standard. It's Google. I'm sure they're great products. Yeah. But there's one thing that they're eliminating that we had to focus on. The Daydream. Nick, have you heard of the Daydream? I haven't, but I'm not going to lie. I'm impressed with the name. And guess what Daydream's slogan is? I know what it is. This speaks volumes. Dream with your eyes open. People are thinking like, what is Daydream? talking about virtual reality goggles. The real deal. Yeah, like you put this over your face and there's a screen and you're not where you are. You're in some fantasy world.

Here's the thing. Google's going to discontinue making one of the core headsets because it's just not catching on the way they hoped it would. A quote from Google, there hasn't been the broad consumer or developer adoption, we hoped, because they need customers to buy these things. Right. They can use them. But they also need developers to make games and make virtual reality like worlds.

They're right in the middle. And unless one's taking off, you can't really get the other. So Google is killing its daydream hardware, the actual like goggle headset thing you put over your face. But Google's got like quite a history here when it comes to virtual reality. Remember Google Glass back in like 2011? I don't remember the glass as much as I remember the people wearing it and being like, really, you guys going to wear that thing? They were really obnoxious.

They'd go into bars and you don't know if you're being recorded because they're wearing... Hey, look, I'm wearing the future. I'm wearing the future. Now, they actually have Google Glass version 2, which is being adopted in business to like make factory floor workers like robow workers. And they've also got something called like cardboard. which is Google's virtual reality headset that's just made a cardboard. It's like the lab goggles you got in seventh grade chemistry class,

except it's made of cardboard and you slide your smartphone right in there. It's $15, and I'm going to throw this out there. Jack and I think it looks cooler than Google Glass. Here's the thing, though. Only early adopters and like really niche hardcore tech users are using virtual reality. Right. It just hasn't take off. Case in point.

Can you name one person who's a friend of yours who's using virtual reality headset? Honestly, I can't. And if you can, can you name too, because we're pretty sure it stops at one. So, Jack, what's the takeaway for our buddies over at Google? Honestly, virtual reality has been a disappointment. But this doesn't mean Google is leaving it completely. No, Google's cutting that one product, but it's actually going to like Android the whole situation here. So if you know Android, you know we're talking about the smartphone software. Google makes the software that is used on 80% of smartphones globally.

Right. Apple, on the other hand, makes the iPhone and the software, the operating system, iOS, that goes into that iPhone. Right. So Apple has a package deal, but Google is cool just making the software and letting other people make the actual phones. True. They make their own phones the pixels, but not all of the ones they use Android. Most Android phones, like by far the majority, are made by Samsung or Nokia or LG or whatever. So Google's been disappointed when it comes to virtual reality, but it's not getting out of it completely. It could still make the software and make money from that. For our second story, Schwab just announced record third quarter earnings, and that kind of explains why it's okay killing its commissions. Charles Schwab. The context,

first discount brokerage, 1975, Stanford MBA. He built a company based in San Francisco to disrupt New York-based brokerages. Named it after himself. Two weeks ago, they announced that they're ending trading commissions when it comes to trading stocks on the platform. We covered this on snacks. It triggered a race to zero. TD Ameritrade, E-Trade, Fidelity. Boom. They all dropped the fee to buy or sell a stock to zero. I feel like it's like that movie where one person raises their hand, and then everyone raises their hand. Me three. Schwab just announced record profits yesterday for the third quarter. What this shows, though, is that it has a profit puppy, and it's not what you'd expect.

It's really not what you'd expect. It's like, was that a doxent? No. It's the cockapoo. So, the revenue last quarter was $2.7 billion, and that came in three different key, like, product categories. Okay, so the first one you probably expected, it's trading revenues. It's when you as a consumer may trade stock, on Charles Schwab's platform. Right. So to buy a stock, you used to pay five bucks to Schwab. When you sold a stock, you used to pay five bucks to Schwab. Now that's dropping to zero.

That only represented six percent of Schwab's revenues last quarter, and it's about to represent zero percent because it's killing commissions. And the other way Schwab made money was basically through asset management. This is managing people's money. So Schwab will create a fund that you might like put your 401K in, and it takes like one percent of all that money. And that was about 30 percent of its revenue. Now, 60 percent of its revenue.

Let's repeat that. 60% 6.0. The majority came from interest revenue. Interest revenue. Let's unpack that a little bit. Okay, so let's say you got your Schwab account. You're feeling good, but not too confident quite yet. So you put it in a hundred bucks.

Yeah. But you haven't bought a stock yet. No, you're not going to buy it. Your money is just sitting in the account. It's hanging there. It's doing nothing. What Schwab does, at the end of the day, it takes all of that money that's doing nothing from all of its customers and it puts it in a giant duffel bag.

This is kind of an oversimplification. It's more of a briefcase. It puts it in a fund and it takes that money and it lends it out on the other side. But here's the thing. When it lends that money out to other people who need to borrow that cash, it's doing it at a high interest rate. Right. So Charles Schwab actually offers mortgages, for example. So it takes your money that you're giving for free and just leaving in your account, turns around, lends it out for like 4%. In exchange for that service, Schwab gives you a return on that money. It pays you an interest rate, but it's less than the amount that it was lending to someone else. It's actually 0.2%.

So the difference between what Schwab can lend the money out for or just invest it in low-risk investments, that's how it makes the money. And it turns out that last quarter, a lot of Schwab customers sold off stocks and just left the money that remained in cash. Yeah, they got nervous because of the trade war. And that was a huge boost to Schwab's business. Turns out Schwab's best customer is the one who's not doing anything. And that's why stock rose 5% yesterday.

So, Jack, what's the takeaway for a buddy who just goes by Chuck? That profit puppy that Chuck loves, it's under threat from bank disrupting companies. In theory, banks should be rewarding you for keeping your cash and getting to do some fun things with it. Yeah, Schwab is so pumped that you're leaving money cash, just doing nothing in the account. It's making money. It should give some of that return back to you. But that phenomenon, it's not exactly happening because when you look at the national average when it comes to checking and savings accounts, it's only 0.01% interest. But now a bunch of banks are coming in and offering a better rate on checking accounts and

I'm brokering accounts. All right. So you got like Goldman Sachs, which has a 1.9% rate on Marcus. Citizens Bank is offering a 2% checking account. You got Ally with like a 1.8%. And those are just a few examples from publicly traded banks.

So instead of your money sitting there and doing 0.2% returns, that's what Charles Schwab is offering right now. You could get a lot more with these other banks. And Chuck Schwab could lose some customers. For our third and final story, this one's wild. Emerson Electric.

Everyone relax. We've never. covered this company on snacks. People wanted us to cover this company. No, they didn't. No, no, no. We did this at our own volition. It's kind of an obscure company, but it just got called out, are you think what I'm thinking? A modern day burn book just happened yesterday. Total trolling situation. We know what you're thinking. Who is Emerson Electra? It's a company from the Show Me State based in St. Louis, Missouri.

It's worth a cool of $42 billion, a K.A. 3.5 lifts? Three and a half lifts. More or less based in St. Louis. founded in 1890 by a Civil War veteran. North or South? North. They're also the first company to sell electric fans in the U.S. because you've got to start somewhere.

Yeah, someone's got to be the first one. Now they do like storage systems, electric motors, a whole other bunch stuff. But a big moment for them yesterday. Its stock hasn't been doing that well. In the last 10 years, the stock of Emerson has been much less than its peers. Its peers has been three times as good,

its competitors. And if you just invested in the S&P 500, instead of investing in Emerson. So basically just invested in the general stock market, your returns would have been twice as good. So it is underperforming the market in a big way. Now, there's a hedge fund that goes by D.E. Shaw, and they bought up 1% of Emerson Electric stock

because they noticed there was something wrong in the force. And they think they can fix the force for Emerson stock. So on Tuesday, D.E. Shaw, the hedge fund, released some paperwork, a research report that said basically everything that Emerson's doing is kind of wrong. kind of an open letter, which is a letter written to humiliate. Right. This isn't like the open letter that's like, hey, I've got a problem with like, you know, pollution. The letter said Emerson is wasting a lot of money and should be making way more profits than it is. Opening slide,

quote unquote, change is needed at Emerson Electric. Now, there's a bunch of examples of specific changes that are needed at Electric. Right. One of them they called out was like an acquisition that had a extreme shareholder dissatisfaction result. Another used a verb that was just unnecessarily harsh. They said their investment in network power destroyed value for the company. So these are aggressive, kind of personal verbs, but what really got Jack and I curious was the more specific information about Emerson Electric and what it's been up to. Emerson Electric owns eight private jets and one helicopter. It has 40 people managing that fleet of eight jets and a helicopter. And that fleet of private jets has gotten so big that they now have a coveted internship program

to be part of the staff of 40 that's running the whole show. That's right. Emerson Electric, which makes storage systems and electric motors and was founded by a Civil War veteran, has an airline just for the executives. Not only that, they've got 18 facilities just in the city of Houston. So if you flip through this slide deck, slide by side, you just see like example of wasteful spending after wasteful spending. They literally have a Google Maps up that then highlights 18 different locations in a single city and basically says, you probably could have done what two or three. It's like Emerson, what are you doing here? So, Jack, what's the takeaway for our buddy spending big over at Emerson Electric? The hedge fund's like,

we're doing this to help you, Emerson, not hurt you. Right. One of the key final lines is we would like to work together to unlock value for all shareholders. And that's what came from the hedge fund. Now that D.E. Shaw owns 1% of the stock of Emerson, it hopes the stock goes up. And it's recommending a couple ways to get there. Right. Here's the prescription. First, they want Emerson to reduce spending by a billion dollars a year. Fugality. That's their first prescription. Second, they want to change up how leadership does its thing. They want to keep the board members on their toes and make them get reelected each year instead of each three years where they could get cozy, complacent, and just lose their hunger and just kind of enjoy some private jets. So stocks often jump

when these activist campaigns begin like it did yesterday for Emerson. And that's because profit-boasting prescriptions like these could end up being followed. Jack, can you whip up the takeaways for us over there? Google Daydream Virtual Reality HeadTet is getting killed, but Google could just Android this thing, aka Focus on Software and let others do the hard hardware staff. Charles Schwab made a record profit in its final quarter ever that included trading commissions. But its profit puppy is cash that's basically doing nothing and just hanging out in an account. Emerson Electric just got humiliated by a hedge fund. This is kind of a bully move.

You can't sit at the cool table with us, active investor kind of thing. But that could boost profits. Snackers, time for our sales. snack fact of the day. This one was tag teamed by Josh Kersey of Bradenton, Florida. And Anton Volgajage from Michigan. So here's how it went down. Josh asked on Twitter, what is the largest private company in the U.S.? I responded. We thought he knew the answer. And maybe he did. I don't know what he was thinking, but my guesses were Coke Industries and Cargill. In the meantime, Anton jumped in to answer the snack fact and complete the circle of life. He said that I got it reversed. It's actually Cargill first.

than Coke industry. So Cargill is the largest privately held company in the United States. Right. Agricultural company, 150,000 employees, and over 100 billion in revenues every year. Based in Minnesota and owned by the Cargill family, which is the fourth wealthiest family in America. Snackers! You guys look fantastic today. We should do this. Before you head out, I got one request for you. If you're listening on your phone, why don't you take a screenshot the podcast situation and post it to your Instagram story. and tag Robin Hood Snacks. Let us know we want to see it, and we'll catch you tomorrow. We would really appreciate it because that helps us grow.

The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who 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.