The Best One Yet - The $399 iPhone, SmileDirectClub’s California problem, and Goldman’s WeWork worry

Episode Date: October 15, 2019

SmileDirectClub has become the worst performing IPO of 2019, but fell another 13% Monday after a new California law was signed by California’s governor. The 3rd quarter earnings season kicks off this week with big banks, but we’re looking at Goldman’s venture investments like WeWork and Uber. And an analyst’s deep dive into Apple’s Asian supply chain reveals it could be coming out with a cheaper model because, you know, services.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 is Tuesday, October 15th. Welcome to the best one yet. This is the best snacks daily we've ever done. Jack, what is going on? Market slipped a tad because that mini deal we talked about with China, a little questionable. Maybe smaller than we thought. All right, what's our first story over here, Jack? Smile Direct Club is the worst IPO of 2019. It's official. And it fell another 13% on Monday. Because of a stroke of a governor's pen, like poetry. Second story. Goldman Sachs reports earnings today. Yep. But we're not talking about its investment banking business. We're talking about something else. We're talking about its venture investments. Jack, are you thinking Uber and WeWork?

Over here? Goldman Sachs is a proud partial owner of Uber and WeWork. Actually, not so proud. Third and final story, Jack? We've got boots on the ground in China. And those boots? Think Apple is revealing a $400 iPhone SE2 right after New Year's. This could be an aggressively down-market move, Snackers.

We know what you're thinking. Teaboy Tuesday. This is the best one yet for a Tuesday we've ever done. And what does that mean? What was the plan this week, Jack? Well, we asked a question, who should get the Nobel Prize of Business, which is not a Nobel Prize that even exists. No, we made up the category because sometimes you've got to do that, which deserves a Nobel

prize. Now, we got some awesome submissions from Snackers. And the goal was to describe why in less than five words. The Nobel committee is busy, and they can only read five words for your. submission. And this is what you submitted. The first submission was Walt Disney because Disney is still everywhere, according to Grand Dizi. The second, Henry Ford, because its car, the Model T, became the car. Trey and Zerry, great idea. And then this third one, I mean, I don't know who this came from. Beyonce for making music, money and honey. Looks like the submission here is from a Jack Kramer. That's from a

JK Kramer now. That's my Twitter handle. You guys better vote for me. Full disclosure, we're talking to him right now. Finally, Jeff Bezos, because Prime. Prime. That one's from Yajou Wang and Mr. Zarelli. Both sent that in. Both could win the prize. Now, Snackers, here what comes next. You can vote for the winner at Robin Hood Snacks.

The winner gets a free T-Boy t-shirt from Robin Hood Snacks. We've got the poll going all today on our Twitter feed. Snackers, we'll see you there. Snackers, about to hear-hain food. It's air candy. They don't reflect the views of the Robin Hood family. It's all informational just so you know. 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, LLC, member Fenra slash SIPC. Jack, say cheese. First story. We got Smile Direct Club.

It's officially the worst IPO of 2019. And Jack, I think it just kind of got a little bit worse. Let's talk about what this company does. They basically send you a mouthpiece, like a football. mouthguard. You chomp into it. It shows those teeth. You send it back to an orthodontist, and they're like, we could straighten this tooth and this tooth and this tooth. And then they send you a little clear braces, right? They're like judging your incisors over there. You're like, hey, I was just born this way. It's not my fault. So the stock IPOed a couple months ago.

It fell 13% yesterday and is now down 58% from its IPO price. And basically their focus is this concept called telemedicine. Because after you get that whole mouthpiece situation Jack was unveiling to you, everyone, you go through the telemedicine experience. I'm smiling right now saying cheese. So you might have like one physical interaction through these mouthpieces, but then the rest is kind of over the phone and online, right? Exactly. You're doing that with the orthonautist there. Now, what hit Smile Direct Club to start to week was this little thing called AB1519. A, B. 1519 in the state of California. Sounds in. It's innocent, sounds innocuous. Turns out it actually kind of carried some heft.

It's a bill that was just signed by the governor, and it's not good for Smile Direct Club. It's not terrible for Smile Direct Club either. It basically says that dentists will get to continue to regulate Smile Direct Club and all other orthodontists in the state for like another five years. Yeah, there's something basically called the Dental Board of California. They're not going to ban Smile Direct Club or they're going to attack Smile Direct Club or anything like that, but they're going to do something a little bit different. Well, they're going to be watching some sort of. Smile Direct Club and regulating it and claiming that they're just trying to protect customers because they're nervous about Smile Direct Club's business model. So if you're Smile Direct Club, this isn't

going to affect like your daily grind day-to-day, how you're interacting with customers, but it just means there's like a little extra watchdog on your back. So bear in mind, dentists and orthodontist, the status quo is opposed to Smile Direct Club's like whole business model. They're getting disrupted just like taxis get disrupted by like your Uber's and your lefts. But the orthodontist claim is, look, teeth is a serious matter. Like, you're straightening bones that exist in your mouth and that you show off every time you smile. It shouldn't be done virtually. You should sit back in a chair, open up your mouth, have some saliva dribble out of your face, and do it in person.

Someone's got to make you wear those night braces that basically looks like a giant space age helmet. So it's not clear what their motivations are totally protecting consumers. Also probably a little bit protecting their industry. But this bill basically came about because orthodontist had been pushing for some. something that can maybe push back against Smile Direct Club. Smile Direct Club was opposed to these added regulations, but now they're the law. So, Jack, what's the takeaway for our buddies over at Smile Direct Club? Smile Direct Club predicted this could happen to itself in its own S-1 document.

Jack, it sounds deep. It's so true. Smile Direct Club's IPO paperwork. It's S-1. In August, included all the risks just like this. And one of the top risk was, look, it's adverse changes in laws, regulations and rules could adversely affect our business. That's exactly what's happening. When Jack and I look back at a moment like this for a company like Smile Direct Club, it has some key reminders for us. Policy changes can affect companies quickly. And that's why companies spend a lot of money on lobbying governments. And lobbying and policy matters are especially important when you're taking on a well-organized, well-funded incumbent like dentists and orthodontists. But if you're ever wondering about a risk like this and whether it affects a company you're

curious about, check the IPO paperwork, the S-1. For our second story, Goldman Sachs announces earnings today, but everyone's like looking at Uber and WeWork instead. Yes, Goldman really rode the Uber and WeWork unicorn party to the top. A lot of rainbows. But it has fallen off that unicorn. It's got some serious bruises. We expect to see them today. Jack, those horns come out of nowhere and those things are sharp. We have covered on Snacks Daily the disastrous WeWork IPO that actually never was. Right. This has become like the cautionary tale of like overhype, over investing, overvalued companies. But for Goldman, we expect this WeWork story to be about real dollar profit losses. Yeah, remember, Goldman actually invested early on just like a venture capital firm in big startups,

the kinds like WeWork and Uber. So today, Goldman Sachs announces its third quarter earnings. Typically those are about interest rates, mortgages, you know, the list, the top charts of best book runners, best equity placements, whatever. It was like a lot of jargon. But this time, we expect it to be about WeWork and Uber. All right. So here's the thing with Goldman and its venture capital experiences. Goldman actually owns 1.4% of WeWork, going back to 2014 when they started doing deals with them. Nick, unlike you and me, Goldman has the opportunity to invest in these gigantic privately held companies before they become public companies. Must be nice. Goldman's made a ton of money on these kinds of investments, but let's look at WeWork.

Right. If WeWorks valued at $47 billion, as people thought it was before the IPO, that 1.4% investment is worth quite a bit of money. But if WeWork is only worth like $15 billion or maybe less, then Goldman's 1.4% of WeWork is only worth $200 million. Right. Instead of the $650 million at $47 billion, it's only $200 million. And that represents a loss. Yeah, about a $450 million loss that we expect to see in the earnings report today. Now, here's the thing about Goldman. They also invested in Uber and a bunch of other private companies that also have IPO this year or going to IPO soon. And there's been a unicorn slaughter in 2019. All of their stocks are way down, including Uber's. Uber's stock is down 35%. So that means Goldman's going to take a hit. Right. So if Goldman's reporting earnings today, they've got to

account for that along with all that other mortgage, banking, trading, and other typical financial stuff that goes on with banks. So Jack, what's the takeaway for our buddies over at Goldman? Goldman, it's not just about we work in Uber. Goldman's got a lot of other problems. Right. The Apple card just came out last quarter, but there's not a single mention of Goldman Sachs in the commercial to buy Apple.

Yeah, there's like a three-minute-long TV commercial. And, Nick, this credit card is supposed to be Goldman Sachs and Apple teaming up for a credit card. I know. I know what you're thinking. The commercial is very clear. They're like, Apple designed this credit card. It was all Apple in California, designed in California.

No banks. No banks. No banks. No banks. We didn't involve any banks in the process. Yes, yeah, it's like totally anti-bank. These banks are losers. On top of that, Goldman makes a lot of money on IPOs, and we've been seeing what IPOs have been doing lately. Yeah, the IPO market is dry. Postmates just delayed its IPO. WeWork has canceled its IPO. These are the events that Goldman Sachs makes millions of dollars in banking fees on. Right. IPOs are Goldman's profit puppy. And losing them could be a problem. So in Goldman's earnings, we expect weakness with Uber and WeWork, bad IPO business, and awkwardness with.

the Apple card. For our third and final story, Apple, it's always been fancy. But Jack, is it going down market for like the first time? Maybe, maybe. Could be. What are we talking about? What's the context here? Tell us about this cool guy. Apple's doing pretty well right now. There's rumors that the iPhone 11 sales are stronger than expected. So Apple just hit a new milestone today. It's in the Platinum Platypus Club, if I believe. Well, it's actually more valuable than Microsoft, which has been the number one most valuable company in America for some time now. And it's worth over a trillion dollars, hence the platinum platypus status. Now, let's talk about Ming Chi Kao. Yes. By Ming Chi, by way, do you mean Jason Bourne's best friend? Ming Chi Kal is an analyst who is based in China and sources

key information from Apple's Asian supply chain. We're not talking about like Googling things, looking through numbers, or just interviewing a couple higher-ups. We're talking about guerrilla intelligence. This guy's like hanging out by the dumpster at some factory where they make iPhone screens. And he's like grabbing the screens from the trash can and trying to figure out like what that could mean for the next iPhone. He's like pulling out a ruler. He's like two inch screen. Two inch screen. Oh my God. It's two inch screen. So then he posts on his blog yesterday that he thinks a $399 iPhone is coming out in early 2020. Not only that, he thinks this very particular model. If it looks the way he thinks it looks based on all the supply chain stuff, it could become a key growth

driver for Apple. So Ming Chi-Kow is totally stealing Apple's thunder with those big product unveils they like. Very true. Yeah. He's calling this thing the iPhone SE 2. I like how he chose to name it himself and went with the most boring possible Apple name they could come up with. Now, this thing is going to look like the iPhone 8. So it's actually not small and like actually, it won't actually fit in your pocket like the SE does. But it's got the processor of like an iPhone 11. It's like the max situation here. So you got like a, are you thinking Batman Jack? It's got a modest exterior but a lot packed inside. It walks amongst us like another mortal,

but it has power beyond your belief. Now, this sounds like a really good phone for just $400. And Ming Chi Kow believes this will drive upgrades from the iPhoneers who are holdouts still using the 6 or the 6S, which is five years old. But before you get excited, keep this in mind, Apple will probably withhold some pretty fun features from this thing because they don't want, like, everyone to go to it.

They want you to pay up for something. They're going to make you pay for the 3D touch by getting the 11 for $500 more. Now, here's something Jack and I found fascinating, which it's really easy to lose context on. How few people in the world actually use and can afford iPhones? Most people have Android, and Android phones tend to be a lot cheaper than iPhones. We're talking 80% of the world uses Android and just 20% uses iPhone. Even in the United States, 51% of Americans use Android phones and 49% use Apple. So this $399 option, it could actually make iPhones and the Apple Club accessible to like most people who can't get a mortgage just for their phone.

So Jack, what's the takeaway for our buddies over at Apple who are kind of dressing down a bit? This underlines the new Apple strategy. Get phones in as many hands as possible so that we can sell monthly subscriptions. But now Apple's done a twist. It doesn't care if these new phones that are cheaper for retail prices end up hurting high-end phone sales. Right. Because if it can get $200.000. million more people using a phone because it's cheaper, those 200 million more people who could sign up for Apple Music, ICloud, Apple TV Plus, and other services, which Apple is so obsessed about. They just want you in their ecosystem. Jack, can you whip up the takeaways for us over there? Smile Direct Club, not smiling today because it's facing added regulation in California.

And that's why lobbyists get paid a lot of money. Goldman Sachs announces earnings today, but the focus will be on its struggling Uber and we work investments. Unicorns are like a lot of fun riding up, a lot more painful when they kind of fall down. Third and final story, Apple, might go down market with a $399 iPhone coming this winter. It's got quite a new strategy. Just get people to use its phones not have to withhold rent for like a year. Don't worry about the price. Yeah, I did. Don't worry about the price. Don't worry about the price. Time for our snack fact of the day.

This one sent in with like a bit of lactic acid from Kelly Johnson in Chicago, Illinois. Kelly, Johnson, I actually am signing up for a half marathon right now inspired by this snack fact. Because Kelly sent this one in like mid run pretty much. She's a snacker and a marathoner. And the Chicago Marathon was this past weekend. It goes through 29 different neighborhoods in Chicago. But what Kelly wanted to point out to us is that the impact of the race from people getting hotel rooms, hanging out, getting drinks, loading up, carboloading, getting pasta is pretty significant. I'd say so. In 2018, it set a record 378. million dollars of economic impact for Chaitown.

Up by 40 million from 2017. Snackers, happy Tea Boy Tuesday. Don't forget to vote in the poll today. At Robin Hood Snacks on Twitter. See tomorrow. This is Jack. I own options in Smile Direct Club stock. 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 and 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.