The Best One Yet - WeWork’s bailout, McDonald’s got more money from fewer diners, and Nike & Under Armour’s CEOs are out

Episode Date: October 23, 2019

Without its IPO, WeWork was about to run out of cash in weeks — now it’s signed a bailout deal that drops its valuation from $47B to about $8B. McDonald’s had fewer diners last quarter, but it squeezed more sales out of all of them. And both Nike and Under Armour’s CEOs announced they’re leaving yesterday and their replacements reveal the companies’ growth plans.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 Wednesday, October 23rd. We are at peak earnings report season. Are you thinking what I'm thinking on this one? The best one, yeah. It's the best snacks daily we've ever.

Serving it up for the Snackers. What if we got for our first story here? We work just got bailed out. Big. This was a bailout, people. We're talking valuation change. The valuation dropped from $47 billion the last time we worked made money to $8 billion now. We've got a winner too.

The winner is Adam Newman. The CEO. The loser is pretty much everyone else on her. There's a lot of losers in this deal. It's actually kind of a sad story. It's not a great story, though. McDonald's had fewer diners last quarter, but somehow had more sales. Ipso facto don't know how they did this. It's like squeezing more juice out of the orange except squeezing more ketchup out of the pack.

Pitching not like thinking you got to roll up a little bit. It's hard. And our job of the day is our third and final story. This one sounds new. There's a couple new openings for CEO of Athletic Apparel companies. Unfortunately, they're closed. They've already been filled. LinkedIn's like, you might be good for this job. Yeah, it's too bad. It's already taken. The CEOs of Under Armour and Nike just stepped down on the same day.

We're curious what that means. We're looking at both changes. But before we get into that, we have to talk about Pizza Hut, which is making another pizza innovation. Right, two weeks ago, they were like, oh my God, we're going to change the world. They came out with like a double-stuffed cheese-it pizza. Cheese-its stuffed with cheese. Jack was getting freaking out over here.

He had a traumatic experience as a child with the cheese situation. When I was 10, I had stuffed crust pizza from pizza. Barely survived this. You want to explain the ordeal? The cheese is so stretchy. It was in my mouth, but started stretching down my throat. I had to pull it out like a rope. It's like a mime.

As it keeps on stretching. I can visualize this thing. I'm miming this thing right now. Jack was too lactose tolerant as a kid. I was lactose too tolerant. In the meantime, pizza hats like, you know, we're going to kick things up a notch. They're unleashing something. They're calling the garden specialties.

Yes, this is a pizza topped with plant-based meat from Kellogg. Great name for the plant-based meat from them. The plant-based meat is called Incogmedo. A brilliant move, Kellogg. Now, this is like the Garden of Vest Meat. meat on top of this pie. It's being tested out in Phoenix, Arizona, where apparently everything gets tested out. But there's more.

Dry heat on that, Wally's. Pizza Hut is testing out a circular box. Right. Because you know the corners where there's no pizza cover here? Complete wasted space on that thing. Wasted cardboard. Anyone in, like, a New York apartment's like, you could put a whole kitchen in that space right there. And now, like the Teenage Meat and Ninja Turtles, you can actually throw the circular pizza

box like a frisbee. Exactly. Now, it's also plant-based fiber. So they got plant-based on plant-based going on here. Innovation in the pizza space. Impressive. up let's hit our three stories. For our first story, the WeWork bailout is happening.

Everyone seems to re-reporting this. Yeah, the company hasn't announced it publicly. Yes, it's not officially official. But everyone else is. And yes, Nick, bailout was the right word. Exactly. The company was broke. It was running out of cash really quickly.

WeWork is an incredibly unprofitable company, and it's gone like four months since the summer when it was planning to have an IPO. And the IPO would have raised a lot of cash for the company. And instead of raising a lot of cash at the IPO, it has been burning more and more money with its unprofitable business. Which left us at this situation. WeWork was weeks away from running out of cash and it needed a check fast.

So it had a matrix situation. Oh, total matrix situation. Red pill or blue pill? Neo! The red pill was taking a bailout of sorts from J.P. Morgan Chase, the big New York City bank. Which also was an investor. The blue pill was taking a bailout from SoftBank, its biggest investor, which is based in Japan. Which was also an investor.

So SoftBank is going to add billions of dollars of cash. to WeWork. That's basically the red pill situation, and they've decided to take the red pill. In return, SoftBank gets to take a majority control of the company and be like the master of decisions from here on out. So get this. SoftBank at this point, if this deal goes through, and it looks like the board has approved it, SoftBank will have invested $13 billion in WeWork. But then what would this leave WeWorks valuation? WeWorks valuation is worth a paltry $8 billion now. That means a lot of cash and a lot of value has just disappeared. If you bought a house and did a ton of renovations.

We're talking to the sink, the bathroom, the whole thing. The master balcony. You do the bathroom again, because why not? So you bought the house, you put in like $300,000 in this house. And then you find out the house is only worth like $10,000. That's the situation. WeWork has lost and destroyed tons of money and value. Now, SoftBank, which has come to the rescue in this situation, has even apologized to its

investors for what they say is putting too much faith in the former CEO, Adam Newman. Let's talk about Adam. Can we talk about Adam, please? He got a golden parachute in this deal. Golden Parachute is an understatement. It turns out Adam Newman is expected to walk away with $1.7 billion in cash. Let's break down where he's getting this $1.7 billion. Because it's not just like a single check here.

SoftBank. SoftBank is going to pay him $185 million for a consulting fee. I feel like we should be whipping up air quotes on this thing. Adam Newman also has lots of WeWork stock. Right. He's going to sell a third of his own stock to SoftBank. And that stock is worth $970 million. Okay, so that brings us up to like a little over a billion dollars right here.

Now, he also took out a $500 million credit line with a bank. So this is wild. Adam Newman, the CEO of WeWork, took out a loan from a bank like a while ago. J.P. Morgan Chase. And so he owes J.P. Morgan a cool half a billion dollars. His collateral for that loan was his WeWork stock. Right. So, you know, that was the equivalent of the loan he took out. So he went ahead and bought like five or six or seven properties, like homes, like extravagant

Like a really big mortgage situation. He bought it all with his credit card, basically. And now SoftBank is paying down that credit card balance. SoftBank is going to wipe out $500 million of Adam Newman's debt. That's $1.7 billion in value for Adam Newman. And now what is Adam losing? He's losing his super majority insane shares. Yeah.

Which get 20 votes for each share that he had. Now they're just going to get one vote for every share, you know, just like a normal stock. He also has to work exclusively with WeWork and nobody else for four years. I think, like, Adam, just get out of here. We don't want you working. You'd think they'd want to say, Adam, hey, go do something to a competitor. Then finally, he's stepping down from the board of directors, so he won't have, like, a voice at the table when they're deciding major company decisions.

So Snackers, Jack and I have a whiteboard up here. If you're keeping score, it pretty much comes down to this as the final. Adam Newman walks away a billionaire. And we work employees walk away with stock options that are now basically worthless because the value has dropped so much. From $47 billion to $8 billion. You're right. It's incredibly unfair. So, Jack, what's the takeaway for our buddies over at WeWork?

WeWork was a bubble that WeWork popped itself. Okay, so the value, again, it was $47 billion. It inflated all the way up to there back in August, and it's now plummeted down to $8 billion. Year after year, investors were giving WeWork more and more money at higher and higher valuations because people basically believed Adam Newman was a guy. And one of the people he convinced was SoftBank, the company that invests in technology firms. convinced them that this was a tech company when it's really a real estate company with a real estate model. Adam Newman's preaching was working in the private markets, but once the IPO was

getting ready, public investors weren't buying it. It was the IPO document, the S-1 that we work released. It's very own paperwork that brought down the company. Deep unprofitability, and now we have an emperor's not wearing any clothes situation. The emperor's Adam, unfortunately, he's still a billionaire. For our second story, McDonald's just did more with less last quarter. it somehow boosted sales despite fewer human customers. Those are some great depression skills right there. I know what you're thinking. Like, what were they doing?

Were they taking a wheel off one of the happy wheels toys? Everyone's got a very old relative or stories from an old relative. Yeah. Great depression. They like took one piece of thread and made six sweaters out of it. Totally. This is a complete Hanukkah situation. That's McDonald's here.

Suddenly one last, a little bit of oil lasts, like 12 nights, eight nights. Nick, you're ready to talk about comparable sales? Talk to me about comparable sales. Comparable sales at McDonald's last. quarter rose 4.8% in the U.S. But can you tell me about comparable sales? All right. Comparable sales is when you make the stats apples to apples. Because McDonald's, it might have fewer stores, it might have more stores.

You want to give an apples to apples comparison, so you cut out the news. You're looking at just the same stores as the previous year. So each store on average somehow had 4.8% more sales last quarter than the year before. But they also admitted on the earnings call that traffic, like the number of feet walking in the store, fewer feet. So they squeezed more money out of fewer customers. So if you went to McDonald's in the last three months, turns out you probably spent more money than you realized you spent.

This is a moment to think about. Snackers, I want to know how this happened. There's definitely someone in the driver's seat right now, looking to someone on the right in the passenger seat saying, what did we do wrong? All right. We got three possible answers. Here's what they did.

Number one, the increased prices. Yeah, by 3% overall. That drove Jack and I nuts. A 3% price increase? You're not going to notice that. Well, your $1.Mick whatever is now $1.3. Insert it on here. Your $5.5.5.15.

Actually, those costs, though, that price increase, was just designed to cover the increased cost of workers. Right. Because there's been so many minimum wage increases. Yeah, they need to pay for that. Yeah. They packed that into the Big Mac price. Your McWhatever. It costs a little bit more 3%.

All right. The second way they increased sales despite lower traffic was tech. Yeah. Didn't you know McDonald's cares about tech? McDonald's has acquired like three tech companies recently. Yeah, true. First of all, they're really upgrading their kiosk. They have digital kiosk, so you can order with a little touch bag.

Very into the kiosks these days. But they also have artificial intelligence that changes the menu on the drive-thru. This is one of the companies they acquired. Based on the weather. Right. So if it's like 96 degrees with 46% of humidity, not in Phoenix, Arizona, they're going to change things there. Suddenly you're like, whoa, I didn't know McFlory. This is McFlory season.

I didn't know McDonald's, Jay. just as McFurries. You're going to see McFurries everywhere because their driving menus going to be pushing McFurries hard because they know it's hot out. They can sense your sweat. The third way they managed to boost sales despite a drop in traffic. Promotions. Not just any promotions. We're talking like the two-for-five-dollar mix if you sub-out three-for-one on the six-for-two deal.

I'm tempted by this every time I'm on a road trip and I stop progress. Not going to lie, totally get confused by these numbers. They kind of make you feel dumb because you're like, I guess I would have to do for the three-for-one special if I don't do it for the two-for-six. The actual promotions were a two-for-five-dollar. dollar mix and match situation and a buy one Big Mac, get another Big Mac for just a buck. Sounds like a steal. So Jack, what's the takeaway for our buddy, Ronald McDonald? Lower foot traffic wasn't part of Ronald's plan.

This is a major concern for investors, and that's why they drop the stock 5% on Tuesday. McDonald's is investing multi-years and multi-billions of dollars for these kiosks and for renovated stores. That's a signal neck. I know what they're trying to do. Oh, I know what you're thinking. They're trying to get more customers into the restaurants. Investors know what that looks like.

Yeah, and less happened last quarter. That was not part of the plan. Smells like desperation. McDonald's didn't say explicitly why traffic fell. This is wild. We know what it is. But part of it was the chicken sandwich wars of the summer. I was brutal.

Popeyes and someone else. I think it was Chick-fil-A. Also, healthier food options are stealing away some customers from Mickey D's. Very true. And I hear Pizza Hut may have a veggie plant-based pie. For our third and fourth. final story, Jack, laced me up over here. Nike's CEO is stepping down. Oh, and guess what? Under Armour's CEO is stepping down. The Adidas CEO is like, did I sleep in? Did I, like, where's my email?

He woke up this morning. He's like, hey, I'm still here. I need a pay race. Now, not just CEOs are stepping down. Committed, long-term monogamous, faithful CEOs of Under Armour and Nike are both stepping down. This is not a Tinder situation. You got Kevin Plank, CEO of Under Armour. Since he founded it in Grandma's basement in 1996. Kevin, what are you doing down there? I told you I'm starting an apparel company. It's a true story. He started like sweat-wicking synthetic material for jocks.

That's an actual recording right there. Now, Nike's Mark Parker has been CEO since 2006, and he took over from Phil Knight himself. In the Phil Nate, the guy who invented and created and founded Nike. And the guy who paid some dude like not enough money for the swoosh. No, that was definitely a raw deal. Now, both are not fully leaving. They're actually going to remain with the company. as executive chairman of the company.

In other words, the new boss's boss. Right. Basically, they're saying, hey, we're going to step away from the day to day. Must be nice. Nike's move tells us a few things about where the company's going. The focus is digital. Digital, digital, digital, digital. The incoming CEO, his name's John Donahoe.

Nice guy. Former eBay CEO. Okay, pretty nice. Current chairman of the board at PayPal. All right, it's a good company. Former CEO of Bang, the consulting company. Heard of it. And current CEO of Service Now, a key.

cloud company. This guy is all over payments. He's all over digital. He's all over tech. We're pretty sure he invented Bitcoin. Now, he's in a good position because Mark Parker left the company in a good place. Exactly. He tripled revenues. He kept Nike cool. The stock is at an all-time high. He also picked this out on social issues like signing Colin Kaepernick, and he stood for things that got Nike more fans. So now Nike is doing digital. Now, Under Armour, on the other hand, doesn't tell us that much about what they're doing. No, the move isn't clear, but investors are pumped. Yeah, investors are just happy something's happening. Right after Kevin Plank announced he's stepping down, the shares jumped by 6%.

I feel like that's borderline, like, personal. Yeah, it's kind of rude. I would not be happy about this. Give the guy like a honeymoon before you celebrate. He's leaving. Wait a day investors. Now, the company emphasized yesterday, it still wants to be a quote-unquote louder brand. Which you know our takeaway on that, do less under armor, be a little quiet.

Yeah, Plank will continue making the company a louder brand as the brand chief. And a title I didn't know exists. They've continued to hint that they're not going to get into athletic leisure and continue focused on performance apparel that swicks away every last widow bit of swicks. Now, remember, Under Armour had an unbelievable stretch of double-digit sales growth. It lasted 10 years, up to every quarter, 10% sales growth. But then in 2017, that sales growth stopped dead. It actually started shrinking.

And Nick and I, you've heard us. We think it's because they miss the athlete's your track. So, Jack, what's the takeaway for our buddies who are CEOs at Under Armour and Nike? Both Under Armour Nike are desperate to go direct to consumer. And Nike just got a strategic edge in that department. In the past, these companies relied on department stores, middlemen essentially, to buy Nike and Under Armour Gear. You had Sears, Sports Authority, J.C. Pennies, Macy's. And what happened to them?

Like three of those companies don't exist anymore. And the others are struggling. So Nike's new CEO is an e-commerce guy through and through. He's going to hook you up through Nike.com. They want you on Nike.com. And on their own stores and direct-to-consumer. Jack, can you whip up the takeaways for us over there? WeWork is getting bailed out by software.

Bank, its biggest investor because it's about to run out of money. And former CEO Adam Newman is walking away with the biggest and most unfair deal. McDonald's squeezed more money out of fewer customers last quarter. It's a concerning sign that store traffic fell and that's still a sign for McDonald's. Still an issue. Third and final story, Under Armour and Nike both announced their CEOs are stepping down. And Nike CEO replacement shows a focus on e-commerce and digital. And we didn't really see that with Under Armour.

Now time for our snack fact of the day. Perfect timing world series. what have we got? Thick World Series starts today. Technically. In D.C. Big number here. 68.5 million.

Not so many fans attended a major league baseball game last season. We know the first thing you're thinking out. How does that compare to every other sports league? I'm a little frustrated. We don't have the NHL numbers here, but we can carry on. 22 million for the NBA, so there's about three times as many baseball fans. And 17 million for the NFL, although they have fewer games. Now, I know what you're thinking.

There are fewer games. We could expect this. The NFL is 16 games a year. Basketball is 81 and baseball has 162. So that affects the numbers a little bit there. But even minor league baseball had 50 million tickets sold last year. Snackers. Love to have any with us today.

Let's do this tomorrow. Be there. Same shirt? No. Okay. We'll change. We'll change close. 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.