Cryptocurrency lender Celsius Network LLC filed for bankruptcy protection Wednesday, a month after halting withdrawals in the wake of a collapse in digital currency prices that stretched the platform’s business model past the breaking point.
The chapter 11 filing in New York follows weeks of market speculation about Celsius, which built itself into one of the biggest cryptocurrency lenders on a pitch that it was less risky than a bank, and with better returns for its customers. But it overextended itself offering lofty yields to crypto depositors and making large loans backed by little collateral, leaving itself little cushion in the event of a market downturn.
Both Apple Inc. and Amazon.com Inc. had rare earnings disappointments on Thursday, which may lead investors to look in another direction for big holiday returns.
This column warned that the two tech giants could stumble this quarter, as the supply-chain issues that had been affecting other industries took a bite out of both Apple
AAPL,
+2.50%
and Amazon
AMZN,
+1.59%.
It appears those issues will continue into the normally huge holiday quarter for the consumer-focused companies, while a natural rival of both — Microsoft Corp.
MSFT,
+0.37%
— offered a huge holiday forecast just a few days earlier.
Read: The Tech earnings boom is fizzling out, as Apple and Amazon face the same issues as everyone else.
Apple reported a rare revenue miss — its first since the December quarter of 2018 — with revenue of $83.4 billion coming in $1.7 billion below analysts’ estimates of $85.1 billion for its fiscal fourth quarter. Since the pandemic, Apple no longer gives revenue guidance, but the bulk of the revenue shortfall came from iPhone sales, which came in $2.1 billion below analysts expectations. Sales of Macs and iPads, however, exceeded estimates.
Apple’s Chief Financial Officer Luca Maestri told analysts that the ongoing supply constraints hurt its revenue by around $6 billion, and that the impact will be larger in the December quarter. The products most effected were the iPhone, the iPad and the Mac, and the constraints were caused by both semiconductor shortages and manufacturing disruptions because of the COVID-19 pandemic.
Amazon reported an even sharper-than-expected drop in earnings, with a huge surge in expenses, as it tried to shore up staff and dealt with unprecedented supply-chain issues. Amazon’s costs to fulfill and ship orders increased to $18.5 billion from $14.71 billion. Amazon reported third-quarter earnings per share of $6.12, a drop of nearly 50% from the year-ago and below analysts’ average expectations of $8.90 a share.
These higher fulfillment and employee costs, like Apple’s supply-chain constraints, will continue in the fourth quarter, usually the biggest for consumer-related tech companies. Amazon CEO Andy Jassy said in a statement that Amazon expects to incur “several billion dollars of additional costs” in its consumer business, as it deals with “labor supply shortages, increased wage costs, global supply-chain issues, and increased freight and shipping costs.”
The shares of both tech mega stars — which both trade over $1 trillion in market cap — tumbled in after-hours trading, with Apple falling 3.65% while Amazon lost 3.89%.
While neither company is seeing any loss of demand — in fact the opposite is occurring because they cannot keep up with demand amid the global shipping and product constraints — the news was a downer for investors counting on them to finish the year strongly. As consumer-focused companies could have a harder time meeting all the demand in the upcoming holiday season, corporate-focused tech giants — such as Microsoft — could be a safer play for now.
Earlier this week, Microsoft topped $20 billion in net income for the first time, with PC revenue beating expectations and the company’s fast-growing cloud business still its biggest driver. The company’s shares were up slightly in after-hours trading Thursday and were on the way to potentially surpassing Apple in market value in regular trading hours on Friday.
Microsoft is not the only software name trending higher heading into the holidays. Atlassian
TEAM,
+1.08%,
the maker of team collaboration software, saw its shares soar 9% on Thursday after blowing past Wall Street’s estimates and seeing revenue for its its cloud-based products soar 50%. On Wednesday, cloud-based software provider ServiceNow Inc.
NOW,
+3.45%
beat estimates, and one analyst on Wall Street raised its price target; its shares climbed 3.45% on Thursday.
Investors looking to stock up on tech stocks for the holidays might want to move away from the traditional players — like Apple and Amazon — and look at enterprise software developers and other cloud-computing players. They may be a bit more boring, but they are poised for more growth in the coming fourth quarter, and could be better stocking-stuffers than the more consumer-focused giants.
The company that has prided itself on its technology to outsource a lot of human work is suddenly referring the work right back to humans. Zillow Group’s automated home-flipping business has stopped pursuing new home acquisitions temporarily, Bloomberg reported on Sunday. In a statement for this article, a Zillow spokesperson said in an email it is “beyond operational capacity in [its] Zillow Offers business.” Zillow said it is now connecting homeowners looking to sell their home to its local Premier Agent partners.
The pause seems to be a case of poor planning—a surprising lapse for a company that has been in the online real-estate business for nearly 17 years. Rather than a cash issue, Zillow is saying it experienced supply constraints having to do with on-the-ground workers and vendors. Leave it to a technology company to develop an algorithm to predict home values, but mismanage the human aspect of its business.
To add insult to injury, Zillow’s biggest competitor seems to be handling high volumes just fine.
Opendoor Technologies
OPEN 3.20%
said it is “open for business and continues to scale and grow,” noting it has worked hard over the past seven years to ensure it can continue to deliver as it expands. While Zillow long predates Opendoor as a company, it mainly offered an online marketing platform for agents before adding iBuying in 2018.
Zillow said it purchased a record number of homes in the second quarter at 3,805, but that still paled in comparison to the 8,494 homes Opendoor purchased in the same period. It doesn’t seem as though the near-term business has completely flopped: The company says it is continuing to process the purchases of homes from sellers who are already under contract as quickly as possible. That means home purchases could still continue to grow sequentially in the fourth quarter, even with the pause. Zillow hasn’t publicly commented on its fourth-quarter buying forecast, but has said its third-quarter outlook implies a “step up” in purchase activity.
Rather than flip out, iBuying investors may want to look at Zillow’s news as an opportunity for its competitors. Opendoor is now active in 44 markets, including all but two of Zillow’s 25 markets. Zillow’s pause therefore spells a golden opportunity for Opendoor. Zillow hasn’t yet said when it will resume new home purchases, but an email from a Zillow Offers Advisor to an agent seen by the Journal suggests the pause will last through the end of 2021 at the least.
Zillow’s mismanagement also highlights a key strength for smaller competitor
Offerpad Solutions.
OPAD -0.24%
Led by a former real-estate agent, that company has long touted its ground game. Offerpad, which is now a publicly traded company after closing its merger with a special-purpose acquisition company in September, seems to have been ahead of the curve in terms of understanding how many workers to employ and where, which repairs need to get done and how to execute them efficiently. An analysis by BTIG Research shows Offerpad’s contribution profit per home sold was over 4.7 times that of Zillow’s last year.
Opendoor is now active in 44 markets, including all but two of Zillow’s 25 markets.
Photo:
Conor Ralph for The Wall Street Journal
But the news is also a signal that investors may want to start to tread more lightly around what has thus far been a banner year for the sector. The reality is that iBuyers have incredible amounts of market data, can plan acquisitions and inventory months in advance and have a number of levers to pull to slow or accelerate the business, according to Mike DelPrete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder. Given that, it is unusual that Zillow’s pause happened so suddenly and across all its markets.
The U.S. real-estate market has finally started to cool a bit. On Friday, Redfin reported the median home sale price rose 14% year-over-year in September—the lowest growth rate since December 2020. Meanwhile, closed home sales and new listings of homes for sale both fell from a year earlier, by 5% and 9% respectively.
Thus far, no other major iBuyer has said it was pausing new acquisitions this year. As Mr. DelPrete notes, it is possible Opendoor and Offerpad began to slow their own buying commitments as the market started to change, while Zillow missed the signs. More likely, Zillow, which has consistently prophesied what it calls the “Great Reshuffling” amid a permanence in remote work, just neglected to do its own reshuffling on the ground.
The U.S. mortgage market involves some key players that play important roles in the process. Here’s what investors should understand and what risks they take when investing in the industry. WSJ’s Telis Demos explains. Photo: Getty Images/Martin Barraud
Car dealer Brad Sowers is spending money to prepare for the coming wave of new electric models from General Motors Co. He is installing charging stations, upgrading service bays and retraining staff at his St. Louis-area dealership to handle the technology-packed vehicles.
But when he considers how many plug-in Chevy Bolts he sold last year—nine, out of the nearly 4,000 Chevrolets sold at his Missouri dealerships—it gives him pause.
“The consumer in the middle of America just isn’t there yet,” when it comes to switching to electric vehicles, he said, citing the long distances many of his customers drive daily and a lack of charging infrastructure outside major cities.
As auto executives and investors buzz about the coming age of the electric car, many dealers say they are struggling to square that enthusiasm with the reality today on new-car sales lots, where last year battery-powered vehicles made up fewer than 2% of U.S. auto sales.
Most consumers who come to showrooms aren’t shopping for electric cars, and with gasoline prices relatively low, even hybrid models can be a tough sell, dealers and industry analysts say.
Auto makers are moving aggressively to expand their electric-vehicle offerings with dozens of new models set to arrive in coming years. Some like GM are setting firm targets for when they plan to phase out gas-powered cars entirely.
Sales consultant Robert Mason Jr., center, spoke with Paul Sweeney, left, and his son, Jeff, who were purchasing a Chevrolet Trail Boss at Jim Butler Chevrolet in Fenton, Mo., on Friday.
Many dealers say that puts them in a delicate spot: They are trying to adjust, but unsure whether and how fast customers will actually make the switch. About 180 GM dealers, or roughly 20%, have decided to give up their Cadillac franchises rather than invest in costly upgrades that GM has required to sell electric cars.
A GM spokesman said the company expected some Cadillac dealers to opt out and is pleased that the roughly 700 remaining share its all-electric goals.
Past attempts by car companies to expand electric-car sales have largely flopped, saddling retailers with unsold inventory. Even now, some dealers say they are reluctant to stock electric models en masse.
“The biggest challenge is that dealers have a bit of ‘boy who cried wolf’ syndrome,” said Massachusetts dealer Chris Lemley.
Car companies have promised for years to make electric cars mainstream, but produced only low-volume, niche models, he said. He recalls
Ford Motor Co.
rolling out an all-electric Focus that sold poorly and stacked up on his lot. It was discontinued in 2018.
“So when we are told, ‘This time, we really mean it,’ it’s easy to be skeptical,” Mr. Lemley added.
Some shoppers also are unsure. Joe Daniel, an energy analyst at the Union of Concerned Scientists, said he was determined to buy an electric car, but eventually abandoned his effort after realizing there weren’t enough public charging stations near his apartment in Washington, D.C. Without a place to plug in, the purchase made little sense, he added.
“For EVs to take off, they need to be as convenient as gas-powered cars—that’s the whole point of this big purchase,” Mr. Daniel said.
Gone are the long waits at charging stations: Chinese electric-vehicle startup NIO is pioneering battery-swap systems, challenging Tesla and other rival car makers. Here’s how NIO and Tesla are racing for the world’s largest EV market in China. Photo illustration: Sharon Shi
To solve problems like this, President Biden has said he wants to spend billions of dollars to upgrade the country’s charging infrastructure as part of a push to incentivize battery-powered cars.
Ford, GM and other major car companies say they are confident in their new electric-vehicle offerings and are training dealers to sell and service them.
Still, some auto retailers say they worry about the long-term implications for their business.
Tesla Inc.’s
influence on the electric-car market has created a new standard for car shoppers, offering an online transaction and a simplified lineup with no price negotiation. Other electric-vehicle startups, like Rivian Automotive and Lucid Motors, say they’ll likewise sell directly to consumers and bypass traditional dealerships.
Some car companies are now following their lead, initially stocking dealership lots with few if any electric models and allowing customers to order more directly from the manufacturer.
Volvo Cars CEO
Håkan Samuelsson
recently said that all future battery-electric vehicles would be sold exclusively online and the price would be set centrally, eliminating the ability to haggle. Dealerships will help deliver vehicles to customers and perform other services, like maintenance, he said.
“The marketplace is moving from the physical dealership to online. That’s what will happen in the next 10 years,” Mr. Samuelsson said.
Howard Drake,
a GM dealer in Los Angeles, said he is considering converting two of his showrooms. Rather than separate models by brand, he is considering two stores—one for electrics, the other for gas-powered vehicles.
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“These are really different customers,” Mr. Drake said. “A Hummer EV buyer probably doesn’t want to be sitting next to some guy buying a gas-guzzling pickup truck.”
Mr. Sowers said he sees encouraging signs. GM recently dropped the sticker price of the all-electric Bolt and helped boost sales for the model in February. But he said his electric-vehicle inventory will remain light because he is uncertain about longer-term demand.
“It’s still very early days,” Mr. Sowers said.
As soon as dealers figure out how to sell EVs, another business problem awaits in the service bay.
Troy Carrico worked on a Chevrolet Corvette.
Electric vehicles typically have fewer mechanical parts and don’t require the same type of service that gas engine cars need, such as oil changes. That work right now is a big profit center for dealerships.
“There’s going to be an impact, but it might take three or four years to see the full effect,” Mr. Lemley said. “That’s really my biggest question mark heading into all of this.”
Consulting giant McKinsey & Co. has reached a $573 million settlement with states over its work advising OxyContin maker Purdue Pharma LP and other drug manufacturers to aggressively market opioid painkillers, according to people familiar with the matter.
The deal, reached with 47 states and the District of Columbia and expected to be publicly announced Thursday, would avert civil lawsuits that attorneys general could bring against McKinsey, the people said. The majority of the money will be paid upfront, with the rest dispensed in four yearly payments starting in 2022.
McKinsey said last week it is cooperating with government agencies on matters related to its past work with opioid manufacturers, as state and local governments sue companies up and down the opioid supply chain. At least 400,000 people have died in the U.S. from overdoses of legal and illegal opioids since 1999, according to federal data.
The consulting firm stopped doing opioid-related work in 2019 and said in December its work for Purdue was intended to support the legal use of opioids and help patients with legitimate medical needs.
While some companies have reached deals with individual states to avoid trials, the McKinsey settlement marks the first nationwide opioid pact to come from the flood of litigation that began in 2017. A much larger, $26 billion deal with three drug distributors and Johnson & Johnson has been in the works for more than a year but is still being negotiated.
The Wall Street Journal reported last week that McKinsey was close to a settlement with states and that a deal could be worth hundreds of millions of dollars. The negotiations occurred as hundreds of exhibits describing McKinsey’s work to boost OxyContin sales were made public in recent months during Purdue’s chapter 11 bankruptcy case in White Plains, N.Y.
Memos McKinsey sent Purdue executives in 2013 that have been made public in bankruptcy court filings included recommendations that the company’s sales team target health care providers it knew wrote the highest volumes of OxyContin prescriptions and shift away from lower-volume prescribers. McKinsey’s work became a Purdue initiative called “Evolve to Excellence,” which the U.S. Justice Department described in papers released last year in connection with a plea agreement with Purdue as an aggressive OxyContin marketing and sales campaign.
According to bankruptcy court records, McKinsey sent recommendations to Purdue in 2013 that consultants said would boost its annual sales by more than $100 million. McKinsey recommended ways Purdue could better target what it described as “higher value” prescribers and take other steps to “Turbocharge Purdue’s Sales Engine.”
Stamford, Conn.-based Purdue pleaded guilty in November to three felonies, including paying illegal kickbacks and deceiving drug-enforcement officials. The drugmaker filed for chapter 11 protection in 2019 to address thousands of opioid-related lawsuits brought against it. Purdue said in a lawsuit filed last week against its insurers that creditors have asserted hundreds of thousands of claims in the bankruptcy case and collectively seek trillions of dollars in damages.
McKinsey also advised other opioid makers on sales initiatives. The firm’s work for
Johnson & Johnson
came up in a 2019 trial in a case brought by Oklahoma against the drug company for contributing to the opioid crisis in the state through aggressive marketing of prescription painkillers. The trial ended with a $572 million verdict against Johnson & Johnson, which was later reduced to $465 million and is still on appeal.
The vast majority of the money McKinsey will pay in the settlement will be divided among the participating states, with $15 million going to the National Association of Attorneys General to reimburse it for costs incurred in the investigation, one of the people familiar with the deal said.
The settlement also includes some nonmonetary provisions, like requiring McKinsey to create a repository of documents related to its work for opioid makers, the person said.
The holdout states include Nevada, which said Wednesday night that its investigation into the consulting giant continues “and we are conversing with McKinsey about our concerns.”
Purdue has been negotiating with creditors, which include states, since filing for bankruptcy, but finalizing a deal has been slowed by demands from some states that the company’s owners, members of the Sackler family, contribute more than the $3 billion they have agreed to.
States have been keenly focused on ensuring any settlement money from the opioid litigation goes toward helping alleviate the impact of the crisis, including through beefing up treatment programs and helping overstretched law enforcement. The states are looking to avoid the outcome of the 1990s tobacco litigation, when a $206 billion settlement was often spent to fill state budget holes. The McKinsey settlement documents say the money is intended for abatement, the person familiar with the deal said, though state laws differ widely on how settlement funds can be earmarked.
Write to Sara Randazzo at sara.randazzo@wsj.com and Jonathan Randles at Jonathan.Randles@wsj.com
