Darwin and Sears, Darwin and SNAP

One of the most fundamental concepts of Darwinism is evolution. You evolve or you die. Unfortunately, Sears the retailer that revolutionized the industry during the late 1800s and early 1900s by selling its wares through a catalogue, goods that were delivered from its main distribution center in Chicago, is now beset by serious issues. Ironically, the catalogue has now been replaced by the internet; brick and mortar has been partially replaced by distribution centers and Amazon has replaced Sears as well as many other retailers as the first stop for shoppers. This past week Sears announced that same-store sales, those that have been opened for at least one year, dropped 15.3 percent and that revenue fell 25 percent to $3.7 billion from $5.0 billion over that same period. Sears and Kmart, another challenged retailer that Sears purchased in 2004, expects a net loss for the third quarter in excess of $190 million. This unfortunate turn of events for Sears should serve as a lesson for any business owner, small or large. SNAP, especially in technology. One minute you’re all the rage, on the cutting edge and the next you are fighting for your life. Did we just say Snap? For those that are not familiar with Snap, the company provides camera-like functions via an online application. Unfortunately, they have settled right into the cross-hairs of Facebook and their latest quarterly results indicate that this has become a onesided battle, with Snap on the losing side. Quarterly revenue for Snap came in nearly $30 million below the consensus estimate while earnings per share also disappointed. Furthermore, both the number of daily active users as well as the average advertising revenue per user also came in below what Wall Street analysts expected. Most telling is the average revenue per user. Snap reported $1.17 while Facebook reported $5.07. Average Revenue per user for Facebook has risen by 26.43 percent over the trailing twelve months. It is with great sadness that baseball fans mourn the death of Roy Halladay who passed away a week ago when the light plane he was piloting crashed into the Gulf of Mexico. Why mention him within a business column? It is because during Halladay’s rookie season in 2000, while pitching for the Toronto Blue Jays, his earned run average (ERA) was 10.64. This is of note because it is the highest single-season ERA in history for any pitcher with a minimum of 50 innings. However, adapt and change is what Roy went on to do. He went on to win more than 200 games, play in 8 all-star games, win two Cy Young awards and pitch a perfect game in the 2010 World Series. This as well as his reported unparalleled work ethic makes him a shining example for those in and out of the business world. On a lighter note and as long as we are talking baseball, in response to this question posed by a financial news anchor “if this were a baseball game, what inning would we be in,” a guest responded “most likely in the latter part – of the first game. However, have you considered that perhaps we are actually playing a doubleheader?” Repatriation of capital overseas. Under current tax law, companies with liquid assets or equipment and property would potentially pay 35 percent which is the current corporate tax rate to bring those assets back to the United States. Under the proposed Tax Cuts & Jobs Act those rates would be reduced to 12 percent on liquid assets and 5 percent on plants and equipment. We believe companies like Cisco Systems, Microsoft, Alphabet (GOOGL), Apple, and IBM which have a combined $1.3 trillion overseas would benefit greatly from the passage of this proposal. Should they repatriate some or all of those assets, they would most likely use a portion of this for hiring. Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.