Tag Archives: Meme stocks

Palantir CEO Paid $1 Billion to Lose Money

Palantir CEO Alex Karp earned compensation worth about $1.1 billion in 2020, primarily through equity awards granted shortly before his software company went public.

More here.

This company is losing $100 million a month and has never turned a profit in 18 years of existence. I know, I know, Amazon. But Amazon and Google turned a profit in 3-7 years. In my work investing in early stage tech startups, I routinely see even young companies that have reached the breakeven point. Why can’t Palantir?

Palantir is losing $100 million a month and has never turned a profit in 18 years of existence. #palantir #stocks

It’s no wonder that the CEO is able to pay himself so well. He and a couple other co-founders control the voting shares in the company even if they sell their shares. The votes each of their shares has rises whenever they sell, so they maintain control. This arrangement is so controversial they’re actually being sued for it as we speak.

Palantir reminds me a lot of WeWork. Charismatic founder, heavily hyped tech company, nonexistent earnings, ironclad founder control, and excessive CEO pay. And we know how that turned out.

Indeed, Karp seems to be cashing in as fast as he can while things are good:

At the time of the New York Stock Exchange listing, Karp owned about $1 billion worth of Palantir stock. He’s since sold about $350 million worth at share prices ranging from $9.10 to $31.59, according to SEC filings.

Dig into these posts for more on Palantir:

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Departing GameStop CEO Gets $179 Million Payout

GameStop CEO George Sherman will be leaving the company soon, but not empty handed:

As a condition of his exit, GameStop is speeding up the time frame for Sherman to receive the shares, generating the award.

Sherman, who has been CEO since April 2019, forfeited $98 million worth of stock this month because he did not meet performance targets, GameStop disclosed last week.

Still, he stands to receive a stock payout currently worth $179 million because GameStop granted him more shares linked to his tenure at the company rather than to his performance as most companies do with their CEO, said Eric Hoffmann, a vice president at compensation consultant Farient Advisors LLC.

This strikes me as bad policy and poor corporate governance, especially for a company that is losing a lot of money and facing rapidly declining sales. Why should an executive be rewarded simply for sticking around, as opposed to actually accomplishing something?

Why should an executive be rewarded simply for sticking around, as opposed to actually accomplishing something? $GME

I am hoping the new board, which will be chaired by Chewy founder Ryan Cohen and includes several other former Chewy executives, will put a stop to payment for no performance. After all, GameStop is already being robbed enough:

Two dozen cars squealed up to a GameStop store in Emeryville early Thursday and their occupants smashed the front door glass, broke inside and rifled the store shelves, police said.

An unknown amount of goods, including collectible figurines, was taken from the store at 3980 Hollis Street shortly after midnight.

Dig into these posts for more on GameStop:

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Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

Palantir Is Growing at a Snail’s Pace

Despite its lofty valuation, Palantir Technologies Inc. is barely growing:

In the fourth quarter, he points out, Palantir signed 21 deals worth more than $5 million, and 12 of more than $10 million. But he adds that it isn’t clear how many of those are actually new customers, as opposed to new projects with existing customers.

He notes that given total customer count went to 139 at year end from 132 one quarter earlier, it would seem that most of the new work is from previous customers. “New customer growth is what will ultimately be required to show the commercial momentum the market wants to see longer term,” he writes. “In this regard, the data is still mixed.”

Seven new customers, net, in 3 months? Not terribly impressive for a company with a market cap of $43 billion and a forward price/earnings ratio of 169. That ratio implies a company that is growing like crazy, not signing a couple of customers a quarter.

Other reports have indicated growth in their core government contracting business has slowed to a crawl. On the commercial side, 20% of revenue comes from a single customer. The business in general is concentrated in a handful of large customers, any one of whose departure would sting, big time.

Until Palantir grows at a rate to justify its buoyant stock price, I’ll be keeping my distance.

For more on Palantir, check out these posts:

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Photo: “PandoMonthly – April 2012 – Sarah Lacy Interviews Peter Thiel” by thekenyeung is licensed under CC BY-NC-ND 2.0

In GameStop, An Unlikely Community

I spent some time browsing the GME sub* on Reddit yesterday, curious what some of the stock’s most fervent supporters are saying. What I found surprised me.

The most striking discussions were intensely personal. One poster described saving up his GameStop winnings for sex reassignment surgery, a lifelong dream (usernames redacted):

Other posters, who call themselves “apes” in a reference to the movie Planet of the Apes, were extraordinarily supportive. Some even expressed a determination to hold the stock to help the original poster, even though one person selling or holding won’t have a material impact on the price. There were a few salty words for hedge funder Ken Griffin though:

It struck me that, in a time when people are forced to be apart, humans have managed to create community in the most unlikely of places. It says something about the human spirit than even in a disembodied online world, where the topic is an intangible financial instrument, brotherhood (and sisterhood) flourishes. I find it rather beautiful.

That said, I encourage the posters to simply support each other as people, rather than tying that to a stock. Take it from a professional investor: a stock doesn’t know you own it and doesn’t care about you. It’s a legal construct that gives you ownership rights in a company. And truth be told, it’s a shaky business. I’d hate to see such nice people get hurt.

For more on GameStop and the Reddit trade, check out these posts:

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*A sub, or subreddit, is a thematic category on the discussion website Reddit

Photo: “Gorilla ‘Kibo'” by to.wi is licensed under CC BY-NC-SA 2.0

Hedge Fund Loses Half Its Value on GameStop Trades

Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

More here.

The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

…a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

For more on GameStop, check out these posts:

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Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

GameStop To Dump CEO

GameStop plans to fire its CEO, Reuters reports:

GameStop Corp is looking for a new chief executive to replace George Sherman as it pivots from a brick-and-mortar video game retailer to an e-commerce firm, three people familiar with the matter said on Monday.

It would be the biggest shakeup at GameStop since Ryan Cohen, the co-founder and former chief executive of online pet food company Chewy Inc, joined its board in January and began laying the groundwork for a shift in culture and strategy, people familiar with his work at GameStop said.

Numerous top executives have already left, likely under pressure from Cohen:

The CEO replacement is the latest in a string of changes pursued by Cohen since he joined GameStop’s board.

Former Chief Financial Officer Jim Bell and Chief Customer Officer Frank Hamlin are among the senior executives who have left the company in recent weeks.

Cohen has brought in executives from Chewy and Amazon. But Chewy and Amazon still sell physical goods, albeit online. Video games are becoming increasingly digital, leaving GameStop with no item to ship to you. Perhaps GameStop could process those digital transactions, but I don’t see why the game publishers wouldn’t just do that themselves and keep 100% of the revenue.

This leaves them with consoles, primarily. But new consoles only come out every 5-7 years, not enough to sustain a brick and mortar business with 5,000 stores.

No matter who he brings in, Cohen faces an uphill battle. The video game industry has simply changed in ways that make it difficult for a company like GameStop to survive.

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Photo: “Ryan-Cohen” by bill.jerome is licensed under CC BY-SA 2.0

Reddit Up, Michael Jordan Down as GameStop Soars

Social-media trading star Keith Gill, known by his social-media nickname Roaring Kitty posted what is believed to be a screenshot of his trading portfolio to Reddit Wednesday afternoon that may show a massive position in videogame retailer GameStop Inc. made up of almost $19 million in equity and $8.9 million in options.

If Gill’s screenshots can be taken at face value, he has made $25.2 million on his GameStop wagers at a profit of more than 938%.

More here.

While Gill, probably the most famous trader from Reddit’s Wallstreetbets, made huge gains, another big name may have been burned by the stock, albeit indirectly. Michael Jordan, majority owner of the NBA’s Charlotte Hornets, had sold part of the team to hedge funders Gabe Plotkin and David Sundheim. Both lost massive sums in the GameStop short squeeze. As their business partner, this puts Jordan in an awkward position:

2020 was a historically bad year for NBA finances, thanks to the pandemic shutdown, absent ticket revenue, and a hit to the NBA’s China business. If cash is tight, can Jordan still count on Plotkin or Sundheim?

Jordan’s own net worth is down $500 million in the last year. Perhaps he should make a Reddit account?

For more on GameStop, check out these posts:

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Photo: “Michael Jordan” by mccarmona23 is licensed under CC BY 2.0

Could the Government Sue Wallstreetbets Over GameStop?

Traders on Reddit’s Wallstreetbets who are pumping GameStop stock could get in trouble with the law. From Lawyer Monthly:

There’s no clear indicator that what occurred is illegal, but it certainly falls within a shady area.

A large number of the investors who joined in, certainly in the later stages, were just jumping on a trend that could earn them money. That’s not the case for those who kicked things off, and that’s where there may be problems. However, even then, it’s not clear because “pumping” a stock for fun, provided that you’re not releasing misleading information, doesn’t technically fall foul of the law. There’s a strong argument that the subreddit thread didn’t have the capacity on their own to change the market substantially. In addition, they didn’t release misleading information to induce others to buy. For these reasons, the SEC and FCA may well decide that although dubious, there were no illegal manoeuvres.

I would expect the most at risk posters to be people with large positions who were early to a campaign to lift a stock like GameStop. Others have been successfully sued by the SEC for buying a stock and promoting it online message boards. However, there are two significant legal precedents in the US that may protect the Reddit traders.

If you want to participate in these runs on meme stocks, the safest way to do so is quietly. Let others do the talking and, if necessary, take the hit.

Nonetheless, if you want to participate in these runs on meme stocks, the safest way to do so is quietly. Let others do the talking and, if necessary, take the hit.

For more on GameStop, check out these posts:

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Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

Palantir Stung By Slow Government Contracting Business

Palantir Technologies’ business is largely driven by government contracts. So far in 2021, despite a new Department of Energy contract, the overall picture is not looking good:

The Department of Energy win could potentially add $18 million in incremental revenue per year, but Mielczarek says that, otherwise, the investment firm’s Dotted Line tracker shows that Palantir “had a fairly quiet first quarter for government bookings.”

Besides an early January $8.5 million Army TITAN prototype award, there were no other government contract wins in the quarter.

Palantir’s business is largely driven by government contracts, and so far in 2021, it’s not looking good

This stock trades at a rich multiple, so it needs rapid growth to justify that. The numbers aren’t much better on the commercial side of the business:

“Palantir’s commercial sales increased by 4% in the December quarter,” Mielczarek noted. “The new sales strategy is showing potential, but we believe that it is too early to bet on.”

Add that to the fact that 20% of their commercial business is a single customer, and this looks like an overvalued, moderate growth company with some serious embedded risks. I’ll be avoiding this stock.

For more on Palantir, check out these posts:

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Photo: Palantir co-founder Peter Thiel. “Peter Thiel” by jdlasica is licensed under CC BY 2.0

AMC Shareholders Could Lose Most of Their Ownership. Again.

CEO Adam Aron told FOX Business Network’s “The Claman Countdown” Monday that the company has asked its shareholders to approve up to 500 million shares, even though there is no intention of using them all at this time.

Aron insists he doesn’t plan to issue them all at once:

And we’ve asked our shareholders to approve up to another 500 million shares, not that we would use any amount like that any time soon. But we’re going to make sure – AMC was a very successful company for 100 years – we’re going to make sure that AMC theaters is around and is a very successful company for the next 100 years …

More here.

The thing is, AMC has only 450 million shares outstanding. This would more than double their share count, meaning every existing shareholder loses most of their ownership stake in the company. Perhaps they don’t intend to issue them all at once, but something tells me they won’t be issued over 100 years either. If you only intend to sell a few in the near term, why not authorize just that, rather than a wholesale dilution of the existing shareholders?

This comes on top of a massive dilution last year. AMC had about 100 million shares in the fall of 2020. They’re now at 450 million. And they could go to a billion at any time if this proposal goes through.

That would mean anyone who’d owned shares as of fall 2020 would’ve lost 90% of their ownership stake in the company. Granted, it’s a stronger company with the additional capital, but this level of dilution is rare.

How is the stock reacting to all this? Just fine, thank you. In fact, it’s gone up approximately 5 fold since the end of 2020, despite 80% dilution, which is headed to 90% if these additional shares are issued.

This defies all logic. I suspect the retail investors piling into AMC don’t know about the dilution or don’t know what dilution is.

As much as one would like to pull for a classic American institution like AMC, I suggest doing so by attending a movie, not buying what’s left of the stock.

For more on AMC and Wallstreetbets, check out these posts:

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Photo: “AMC Theaters” by JeepersMedia is licensed under CC BY 2.0