I have one question to ask... Has everybody lost their minds? I may have been a few weeks early with my "Welcome to Fantasyland" essay last month, but this is a market you could see coming. We were clearly entering the "silly season," as a broker I met early in my career used to call these types of periods in the 1990s.
Jul 21, 2023·edited Jul 21, 2023Liked by Herb Greenberg
Read the related party transactions in a number of revealing articles. You combine those lawsuits and illegal self dealing with accounting fraud investigation live at the SEC an you realize that if they go bankrupt after stealing from shareholders they will go to prison. Ever wonder why Carvana always offer a higher price for your car sight unseen than all competitors? That is because they only count revenues as "growth" they lose money on all they do except the bundling of car loans to third parties. A revenue dependent road to nowhere. Standard and Poors put out press release yesterday that debt deal where they converted to 12% pay in kind is likely a default. Reason Garcias are buying stock is because nobody but a short covering would buy this stock. Lawsuits await. They have no business model to make money. What a country when they can fleece shareholders. No wonder the little guy thinks market rigged.
It is indeed a sign of the times that a phrase like "Adjusted EBITDA" is commonly glossed over by "investors" instead of registering the "Danger Will Robinson" alarms that it should.
another really great piece. Your writing is fun to read, you make it look so easy.
Thank you for the link to the July 2000 piece on EBITDA. I love excellent articles on important topics that apply as much today as they did 20+ years ago. It helps answer the a question I get all too often - how can companies get away with these tricks? aren't the shenanigans clear to everyone? I mean, I don't believe Wall Street would let this happen.
Your 2000 article shows they do indeed let it happen...to say the least.
Since we walked away from this company due to our perception that the (heavily disclosed) insider dealing made it un-analyzable, we have not paid close attention. This run-down is simply staggering. Who, other than short-covers, buys this thing? Was there any layout of a credible path to actually free-cash-flow positive operations? Running a used car dealership without the service bays means they just own the most capital-intensive, lowest margin and riskiest part of the used car business. While they obviously strive to make money on unit sales, the principal path to profits for used car sellers is the service bays which have almost no cyclical risk and generate enormous ~40%+ profit margins. Even if they figure out how to finally sell a car at a profit, why would an investor pay a premium for a company that omitted a used-car dealer's most stable and highest margin profit line?
Thanks for the story Herb. I don’t really follow any of this stuff anymore but have
Always loved your writing style and ability to take an extremely complicated issue and bring it down to a very understandable level. Thanks for all the memories.
My pleasure, Kent. I fully get the "don't really follow any of this stuff anymore..." As you and I both know there are less toxic ways to live! And, truthfully, you can really just replace the names and dates and many of these are similar to the stories we discussed 10-20-30 years ago. The more things change...
Read the related party transactions in a number of revealing articles. You combine those lawsuits and illegal self dealing with accounting fraud investigation live at the SEC an you realize that if they go bankrupt after stealing from shareholders they will go to prison. Ever wonder why Carvana always offer a higher price for your car sight unseen than all competitors? That is because they only count revenues as "growth" they lose money on all they do except the bundling of car loans to third parties. A revenue dependent road to nowhere. Standard and Poors put out press release yesterday that debt deal where they converted to 12% pay in kind is likely a default. Reason Garcias are buying stock is because nobody but a short covering would buy this stock. Lawsuits await. They have no business model to make money. What a country when they can fleece shareholders. No wonder the little guy thinks market rigged.
Thanks for the comments, Rich. We should catch up.
It is indeed a sign of the times that a phrase like "Adjusted EBITDA" is commonly glossed over by "investors" instead of registering the "Danger Will Robinson" alarms that it should.
Herb:
another really great piece. Your writing is fun to read, you make it look so easy.
Thank you for the link to the July 2000 piece on EBITDA. I love excellent articles on important topics that apply as much today as they did 20+ years ago. It helps answer the a question I get all too often - how can companies get away with these tricks? aren't the shenanigans clear to everyone? I mean, I don't believe Wall Street would let this happen.
Your 2000 article shows they do indeed let it happen...to say the least.
Since we walked away from this company due to our perception that the (heavily disclosed) insider dealing made it un-analyzable, we have not paid close attention. This run-down is simply staggering. Who, other than short-covers, buys this thing? Was there any layout of a credible path to actually free-cash-flow positive operations? Running a used car dealership without the service bays means they just own the most capital-intensive, lowest margin and riskiest part of the used car business. While they obviously strive to make money on unit sales, the principal path to profits for used car sellers is the service bays which have almost no cyclical risk and generate enormous ~40%+ profit margins. Even if they figure out how to finally sell a car at a profit, why would an investor pay a premium for a company that omitted a used-car dealer's most stable and highest margin profit line?
Fantastic article!
Thanks for the story Herb. I don’t really follow any of this stuff anymore but have
Always loved your writing style and ability to take an extremely complicated issue and bring it down to a very understandable level. Thanks for all the memories.
Kent Holden
My pleasure, Kent. I fully get the "don't really follow any of this stuff anymore..." As you and I both know there are less toxic ways to live! And, truthfully, you can really just replace the names and dates and many of these are similar to the stories we discussed 10-20-30 years ago. The more things change...
Cheers,
Herb