How Investors Respond to CEO Apologies

CEO Apologies: Investors Don't Forgive and Forget

By Robert Williams, Founder

Boy, was this a bad year for CEOs or what?

CEOs now earn an average salary of $ 10.5 million, up nearly 10% over the prior year.

Yet the riches didn’t stop a handful of them from saying incredibly stupid things.

As I’ll reveal today, when a CEO delivers a mea culpa, it should be treated as the ultimate “Sell” indicator.

With that in mind, here’s my list of the DUMBEST CEO apologies of the year.

I also underscore the subsequent price underperformance of each.

DUMBEST APOLOGY #1: Mt. Gox CEO, Mark Karpeles

On February 17, 2014, Karpeles offered the following apology to Bitcoin traders whose accounts had been frozen by the exchange…

“We sincerely apologize for this incident and understand your concern… [funds] should be able to resume withdrawals soon.”

Two weeks after his apology, the entire exchange collapsed.

Hackers made off with over $ 460 million in Bitcoins.

Since that day, Bitcoin has underperformed the S&P 500 by 54.29%.

(A new threat to Bitcoin and the U.S. dollar just emerged from the shadows. Full story.)


Also in February – right after AOL Inc. (AOL) announced its best earnings in a decade, the company’s CEO made a huge healthcare blunder that had employees in an uproar.

Armstrong was explaining why the company was delaying contributions to retirement accounts when he brought up the fact that two employees “had distressed babies… [And] we paid $ 1 million each to make sure those babies were okay in general.”

Unsurprisingly, employees didn’t appreciate that he was blaming sickly newborns on corporate policy changes.

Armstrong reversed the policy in the face of the backlash and apologized for his comments:

“We heard you on this topic… On a personal note, I made a mistake, and I apologize.”

Right after the baby-blaming comments, AOL’s stock dropped more than 10 points.

DUMBEST APOLOGY #3: General Motors CEO, Mary Barra

There are bad CEO apologies, and then there’s the apology from General Motors (GM) CEO, Mary Barra.

Barra had finally addressed the public after 13 people died due to faulty ignition switches – a tragedy investigators say was preventable. In fact, a Congressional investigation revealed that GM had rejected a proposed fix all the way back in 2005 because – you guessed it – the repair was too costly and time-consuming.

Worse yet, records show that GM first found out about the ignition switch problem 13 years ago, in 2001.

GM’s official statement in March says that it “deeply regrets the events that led to the recall.”

Shareholders certainly weren’t impressed. Since then, shares have underperformed the S&P 500 by 15.68%.

DUMBEST APOLOGY #4: T-Mobile CEO, John Legere

At an event in Seattle on June 18, Legere announced T-Mobile’s (TMUS) test-drive program. But he also called out the other mobile carriers for their outrageous data plans.

Not only did he call them “greedy bastards,” but he went as far as saying that the industry is “raping” its customers. Seriously.

He quickly apologized for the indiscretion the following day on Twitter…

“The drawback to having no filter when I speak… sometimes I need a filter. Genuinely apologize to those offended last night.”

Since then, shares have underperformed the S&P 500 by 20.09%.

DUMBEST APOLOGY #5: Microsoft CEO, Satya Nadella

Microsoft (MSFT) CEO Satya Nadella couldn’t have chosen a worse time to voice this pig-headed comment.

On October 9, Nadella joined Microsoft board member Maria Klawe on stage at the Grace Hopper Celebration of Women in Computing.

Here’s what he said to Klawe (who also happens to be President of Harvey Mudd College and a computer scientist) on the subject of equal pay for men and women and how women should ask for raises:

“It’s not really about asking for a raise, but knowing and having faith that the system will give you the right raise. That might be one of the initial ‘superpowers’ that women [who] don’t ask for a raise have. It’s good karma. It will come back.”

Keep in mind, the “system” is one where women are paid 78% as much as men. It’s even worse in Silicon Valley, where men with graduate degrees earn 73% more than women with the same qualifications, and men with bachelor’s degrees make 40% more.

Amid the ensuing commotion, Nadella quickly backtracked:

“I answered that question completely wrong. Without a doubt, I wholeheartedly support programs at Microsoft and the industry that bring more women into technology and close the pay gap. If you think you deserve a raise, you should just ask.”

Talk about a flip-flop.

If Microsoft’s share price is any indication, investors are distinctly unimpressed with the new CEO’s politically incorrect faux pas. The stock has underperformed the S&P 500 by almost 3% since his comments.

Onward and Upward,

Robert Williams

Founder, Wall Street Daily

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By Robert Williams

Wall Street Daily

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Kenya’s Tea Industry in Hot Water

Tea Industry in Kenya Struggling as Prices Fall

By Commodities Research Team

Kenya is one of the world’s biggest tea exporters. In fact, hundreds of thousands of tea farmers have earned a living for generations in this east African country.

But the industry is screeching to a halt. This year, farmers sold 40% less than the three previous years because they have started to switch to alternative crops. You see, good weather and big harvests have led to a glut of Kenya’s specialty black tea market.

Tea farmers are so discouraged by the drop in sales that they are switching to crops in higher demand. Some are even considering building on their plots.

Tea farmer Augustine Bushenei adds, “This tea crop has become useless because the price has gone down, while fertilizer and pesticide prices have shot up. We may pull it all up and keep cattle. We have kids in school, we rely on tea for our food and clothes.”

The pressure is definitely on.

Not Enough Cups

Compared to a decade ago, Kenya now produces 50% more tea – boasting $ 1.3 billion from the crop last year.

It’s true that the tea crop is one of the country’s biggest earners, but, thanks to more competition, tea prices have been under pressure.

Farmers in Kenya are crying out for government help, looking for them to cushion price swings and possibly find new export markets.

“The doom and gloom is justified. I don’t see a big bounce happening anytime soon – and you know… I think until we reduce supply, in effect we are pricing our tea too low. We have to reduce our supply in order to get higher prices,” says Aly Khan Satchu, an economic analyst.

What’s more, 70% of Kenya’s tea leaves go to only five countries. And due to political turmoil in four of them – Egypt, Sudan, Afghanistan, and Pakistan – purchasing numbers are taking a hit.

Meanwhile, consumption in Britain (ironically) has reached a plateau. It appears that the Brits are turning a new leaf, as coffee is on the verge of being its No. 1 drink.

And “the chase” continues,

Commodities Research Team

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By Commodities Research Team

Wall Street Daily

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Notable 52-Week Highs and Lows of the Day 11/21: (INTC) (FL) (BERY) High; (LXRX) (MCP) (AMDA) Low

52-Week High:
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Will DISH Network’s Ascent Continue?

Will DISH Network’s Stock Surge Continue?

By Richard Robinson, Ph.D., Equities Analyst

Despite Wednesday’s nearly 27-point decline on the Nasdaq, shares of DISH Network Corp. (DISH) rose sharply in heavy trading.

DISH Network rose more than 10.04%, or $ 6.81, to close the day at $ 74.66 with more than 14.5 million shares trading hands.

Shares of DISH Network have risen more than 45.6% in the previous 12 months, and currently trades near the stock’s 52-week high.

Now, given the relatively flat quarterly financial performance of DISH, investors are left wondering if the stock can move higher from these levels.

Poor Quarterly Results

In the latest quarterly release ending September 30, 2014, DISH Network booked revenue of $ 3.67 billion. This represents a 4.9% increase over the $ 3.50 billion announced in the same quarter a year ago.

Unfortunately, the reported revenue growth remains 72.4% behind the industry average of 11.6%.

And despite the revenue increase, it appears that the additional revenue had no impact on DISH’s bottom line.

DISH also experienced a sizable decline in earnings per share in its most recent quarter compared to the same quarter a year ago. In its release, the company announced that EPS declined 32.6%, falling from $ 0.46 per share to $ 0.31 per share.

But wait, there’s more bad news…

DISH Network will likely see another decline in earnings in 2015, as expectations are for an earnings contraction of 14.5%, falling from $ 1.86 in 2014 to $ 1.59 in 2015.

Making matters worse, operating income for the company fell last quarter, too.

DISH reported a decrease of 7.6%, with operating income falling from $ 420 million in Q3 2013 to $ 388 million in this latest quarter.

Furthering the gloom, net income for the most recent quarter was $ 145.5 million versus $ 314.9 million last year, a difference of 53.7%!

So this all begs the question…

Why is DISH Network stock rising?

Simple… It’s happening because of reasons other than its financial performance…

You see, the FCC began an auction of wireless spectrum last Thursday, and DISH looks to be a big winner based on results so far.

Bids in the FCC spectrum auction rose by $ 7.5 billion on Tuesday with large markets now priced above $ 2.50/MHz/POP.

How does this impact DISH?

DISH Network sits on a lot of spectrum that’s much more valuable than the AWS-3 spectrum now being priced.

This means that at today’s closing price of $ 74.66, DISH stock is currently priced at about $ 1/MHz/POP if we use a 6x EBITDA as a gauge.

Thus, if the prevailing value of spectrum remains above $ 2/MHz/POP, the stock is trading at a serious discount to its real value.

Possible DISH Merger?

But the price differential in the spectrum isn’t the only positive effect on the stock…

You see, the AWS-3 auction could pave the way for a merger between DISH Network and the nation’s fourth-largest telecom operator, T-Mobile US, Inc. (TMUS).

Back in September, Bloomberg reported that DISH was in talks with Deutsche Telekom, the parent company of T-Mobile, about a possible merger. Upon completion of the auction, both parties may seriously pursue the deal.

And a combined company will boast a significant bandwidth portfolio on all AWS-1, 3, 4, as well as H-band spectrums.

The combined company’s bandwidth would dwarf competitors Verizon Communications (VZ), AT&T (T), and Sprint (S), while allowing deployment of high-quality LTE services with extremely fast video delivery and enhanced application download and upload speeds.

Such a merger would make a combined company the preeminent global telecom provider – and would certainly push DISH significantly higher than the $ 105 estimate based on current trends.

It’s certainly something to think about…

Good investing,

Richard Robinson

The post Will DISH Network’s Ascent Continue? appeared first on Wall Street Daily.
By Richard Robinson

Wall Street Daily

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Get Ready to Rock Out to Some “Beats” in 2015

Apple iOS Will Soon Include Beats Streaming Service

By Martin Denholm, Editor-in-Chief

File this one under: “Bound to Happen.”

According to the Financial Times, Apple (AAPL) is preparing an iOS update that will push its new Beats streaming music service to iPhones and iPads in the New Year.

If you remember, Apple forked out $ 3 billion in May to buy Beats Electronics from hip hop artist, Dr. Dre, and music producer, Jimmy Iovine, who co-founded the firm in 2008.

The acquisition was notable both for its size – thought to be the biggest in Apple’s history – as well as its “What?” factor.

After the announcement, some analysts wondered why Apple would spend so much on a streaming music service, given that it already boasts iTunes. They’ve questioned Apple’s goal here.

Well, they’re clearly not paying attention…

Apple and Beats: Musical Fusion or Musical Madness?

Yes… it’s true that most of Apple’s acquisitions tend to be small, unknown companies. Ones brimming with incredible talent and innovation that Apple quickly rolls up into its existing business.

So in that regard, the Beats buyout is different from its normal acquisition strategy.

But there’s a method behind what some analysts called madness.

While iTunes is an unquestionably massive digital music platform (it’s the world’s largest music downloading service), and iTunes Radio launched last year, the iTunes star is fading amid competition from popular streaming music services like Spotify, Pandora (P), and Rdio.

And streaming music becomes the new normal, iTunes downloads are declining.

Enter, Beats…

Known mostly for its headphones, Beats also launched its own subscription-based streaming music service earlier this year.

That’s when Apple pounced…

Apple Dances to the Beats

In keeping with his promise to launch new products this year, Apple chief, Tim Cook, wasted little time in snapping up Beats.

He explained the decision to The New York Times: “Could Eddy’s team [Eddy Cue is Apple’s iTunes chief] have built a subscription service? Of course. But you don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service. [Iovine and Dre] are really unique. It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find.”

To that end, both Iovine and Dre will join Apple, too.

So for Apple, it’s essentially a shortcut (albeit a $ 3-billion one) into the streaming music business, as Cook aims to “continue to create the most innovative music products and services in the world.”

Not only that, it makes a major splash in the industry and send shockwaves through its rivals.

While Beats only has 250,000 paying subscribers, compared to Spotify’s 10 million, pushing Beats to every single iPhone and iPad user via a pre-installed Apple update is an unquestionable game changer for both Apple and Beats.

In addition, of course, Apple will grab revenue from Beats’ other products – headphones and speakers, sold to consumers individually, as well as integrating its audio technology into computers and car manufacturers’ sound systems.

And while some doubt the quality of the BeatsAudio equipment (despite having Dr. Dre’s name and reputation behind them) he remains a star attraction, with significant pulling power.

For Apple, this is all about branching out and branding. The company hopes Beats will help it both shake up the streaming music business, as well as adding strong name and brand recognition to its existing reputation.

Look for Beats to hit an iPhone or iPad near you in the New Year.


Martin Denholm

The post Get Ready to Rock Out to Some “Beats” in 2015 appeared first on Wall Street Daily.
By Martin Denholm

Wall Street Daily

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