03/12/14 - 12:06 PM EDT
Let's start with the obvious disclosure: I love Twitter. As I've written numerous times, it has become my primary news feed and I use it for disclosure and conversation. But as the company appears to struggle with user engagement, especially with its stock in the nosebleed section of valuation, several things are clear. I believe the company needs to do a better job marketing to users who don't realize they never need to tweet. But there's something else for those who do want to tweet: Outside of merely posting a simple tweet, Twitter is not user-friendly. I started thinking about this after watching CNBC's Carl Quintanilla's interview Tuesday with Twitter co-founder Biz Stone. Stone, who doesn't work at Twitter any longer, said he believes there is 'plenty of room' for improvement. (Easy for him to say!)READ FULL POST
03/12/14 - 09:33 AM EDT
What you may have missed, including takes on Nu Skin, Clean Harbors and pharmaceutical mega mergers. It was a light week as I am working on new stories, but here is a roundup from last week's Reality Check. Plus, as an added bonus, there is a new red flag. Keep an Eye on Nu Skin - The next date that counts will be March 18, which is the deadline for the company to file its delayed 10-K. As I wrote on here last week, the company disclosed that its audit committee had hired "outside counsel" to help with an internal review of Nu Skin's China operations. But why would the audit committee be involved in a review of the company's China operation -- whose operations are being probed by the Chinese government? And why would the audit committee hire outside counsel?READ FULL POST
03/05/14 - 09:54 AM EST
My weekly summary, including takes on Harley, Clean Harbors and RealPage. Here's what you may have missed over the past week on Reality Check, my Herb on TheStreet blog and even social media. What I'm hearing on Harley, from one of my contacts: "Any way you look at it, they are stretching to get the revenue dollars and they are able to charge those marginal credits. More so, the numbers look great at the outset -- but look out down the road if you haven't planned on a huge increase in (credit) losses." What ITT Didn't Say: ITT Education, in a press release, told the Consumer Financial Protection Bureau it has no business suing the for-profit education company....READ FULL POST
03/04/14 - 11:44 AM EST
After seeing RadioShack's horrific fourth quarter results, including a challenged balance sheet and its last-ditch and latest survival plan, which includes shutting 1,100 stores, it dawned on me: I live within seven minutes of two radio shacks. Twenty-five minutes of seven. And probably an hour of dozens.And therein lies its problem with its too-little-too-late attempt to turn things around: I don't go to Radio Shack to buy milk or bread or get our prescriptions filled.I don't need the convenience of a Radio Shack.And when I do go, with the notable exception of buying a burglar alarm battery that went on the fritz overnight -- something only they have -- I almost always walk out empty handed.READ FULL POST
03/03/14 - 12:41 PM EST
Some quick takes, post-earnings, on Reality Check Watch List companies: Boulder Brands - it's still unclear why Boulder, the gluten-free play, rose after reporting earnings last week. The company missed on GAAP numbers (not that GAAP matters to BDBD investors, who have been encouraged to look at "adjusted" non-GAAP results) and guided down for 2014 for the third time since November. Even adjusted results aren't what they're cracked up to be. Adjusted EPS would have missed, but instead beat after adding back restructuring and relocation-related charges, which added 2.5 cents to earnings per share. Without it the company would have missed by $0.01. As I wrote in a broader piece on Reality Check, the company reiterated on its call that it believes gluten-free is a trend. I say it's a fad...READ FULL POST
03/02/14 - 12:47 PM EST
The best part about Berkshire Hathaway CEO Warren Buffett's annual investor letters is that they always provide some kind of reality check.This year, in one sentence, he takes on one of the biggest diversion tactics of all -- one promulgated by many companies as the way they should be viewed, and then gullibly accepted by investors: EBITDA or earnings before interest, taxes, depreciation and amortization."When Wall Streeters tout EBITDA as a valuation guide, button your wallet," he wrote.Here's the windup to that comment (emphasis added by me):"I won't explain all of the adjustments - some are tiny and arcane - but serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others in no way lose value. With software, for example, amortization charges are very real expenses. ..."READ FULL POST
02/28/14 - 08:21 AM EST
ITT Education Thursday insisted that the Consumer Financial Protection Bureau's suit against the operator of for-profit schools "never should have been filed." According to the press release: "The complaint overwhelmingly focuses on issues that are unrelated to consumer finance, and attempts to cast a negative light on aspects of ITT Tech's activities that are extensively regulated by other government agencies. The core claims concern a mere six months of loans, but the Bureau knows that independent third parties provided those loans, and the loan programs ended years ago. Significantly, ITT Tech did not make any money, in interest or fees, from those third-party programs, which were designed to help students during the recent economic downturn. We are disappointed that the Bureau chose to sue rather than work with ITT Tech...."READ FULL POST
02/25/14 - 10:12 AM EST
This update to our Reality Check of two weeks ago on RealPage: Not only did the apartment-management software company miss fourth-quarter revenue and earnings, but it missed and guided down on perhaps the most important metric of all: Organic growth -- and not in a small way. At RealPage, the target was 20% to 25%. As recently as a quarter ago, the company appeared to be exceedingly confident it would easily hit it. Consider this exchange between analyst Jobin Mathew of Deutsche Bank and CFO Tim Barker - Mathew: "In the past, you've always talked about kind of your target growth model of operating between the 20% to 25% range. So looking out into 2014, without actually providing a guidance number, do you think you could step up closer to the high end of your target range?" Barker: "Yes, we like to provide consistent guidance one year out...READ FULL POST
02/24/14 - 12:42 PM EST
Here's a reality check: I've been on the wrong side on raising red flags over Netflix's metrics, which have been trumped by a stock that prices the company as a monopoly with pricing power. Last quarter's strong subscriber growth helped fuel investor confidence. Now comes the company's deal to pay Comcast for better service. It's good news for customers because faster service means less annoying buffering. But as for investors -- one small detail is missing: What are the costs? I get it: Strategically Netflix may not want to disclose prices until it has negotiated similar deals with all other cable companies and Internet service providers. Still, analyst after analyst is saying that deals like this will ultimately lower Netflix's costs. Maybe they will but... until the costs are disclosed, the ultimate impact is anybody's guess....READ FULL POST
02/21/14 - 03:11 PM EST
A just-published academic paper on multi-level marketers supports the notion that the multi-level marketing industry has a serious unresolved issue or two.Before you go dismissing this as just another academic paper, consider the authors: FTC senior economist and pyramid scheme expert, Peter van der Nat and Bill Keep, dean of the business school at The College of New Jersey. In 2002 they co-authored a highly regarded paper explaining what differentiates a legitimate multi-level marketer from a pyramid scheme.In this piece, which doesn't pick on any company in particular, Van der Nat and Keep give an exceptionally well-spelled-out history of multi-level marketers, but then dive into the deep-in-the-weeds legal decisions and "continuing concerns."Perhaps nothing in the paper is more compelling to multi-level marketing aficionados as their discussion of internal consumption. This is when distributors get compensated for sales to themselves and other distributors. A key issue in the debates on Herbalife, Nu Skin and others is how much compensation comes from internal consumption vs. genuine external sales.READ FULL POST
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