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- [00:01]
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American Eagle, the stock rise versus reality, how investors can buy foreign company shares and Elon's proposed pay package. Keyman leverage gone wild. For Friday, September 5th, it's Blue Markets Daily and I'm Ann Berry. More market details to come. But first, Tesla's proposed a new compensation package for CEO Elon Musk that could be worth up to a record setting $1 trillion. Now if he hits the milestones needed to get the full amount over the next 10 years, then Tesla shareholders would be delighted. The package is tied to the company growing eight times bigger to a value of at least eight and a half trillion dollars. Now that one trillion dollar package is eye popping, but it's the precedent for public company executives that this sets that pops my eyes. Investors have made it clear they want Musk, founder of SpaceX Neuralink, the boring company owner of X, to focus on Tesla as it grows in robotics and AI. Musk has made it clear that in return he wants voting control. Here is Musk speaking earlier back in May at the Qatar Economic Forum. To pay is a relevant factor then to your commitment to Tesla.
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Sufficient voting control such that I cannot be ousted by activist investors is what matters to me. And I've said this publicly many times, but let's not have this whole thing be a discussion of my alleged pay. It's not a money thing, it's a reasonable control thing over the future of the company. Especially if we're building millions, potentially billions of humanoid robots. I can't be sitting there and want to get tossed out.
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There you go. We heard it from Elon Musk, it's not a money thing. Direct quote from the man himself. Elon owns about 20% of Tesla shares as of the latest available data. And he has plenty, plenty of wealth and but here's what he doesn't have. Unlike mark Zuckerberg, Meta's CEO, who has more than 50% voting power over that company, or even the co founders of Coolweed who collectively control 80% of that business. Musk does not have technical control over Tesla today and as we just heard, he really cares about it. So the proposed package gets him to at least 25% equity ownership so long as he stays as CEO or as an executive in charge of product or, or operations. And he's expected to dial back his time spent in politics. And the package includes a proposal for Tesla to take a stake in Musk's X AI startup. That's to converge his focus to the parts of overlap amongst his different companies. Now, many in the market believe that Elon Musk from a business perspective is one of one. Tesla's board said that today, although one part of the package requires a commitment to putting together a CEO succession plan. Television Today's filing describes Musk as, quote, fundamental to Tesla becoming the most valuable company in history. So I don't expect to see many, if any, other public company CEOs get packages as rich as this one. But it does set a precedent for how founder CEOs can get what they want. What if Mark Zuckerberg decides to ramp up some side hustles and bring the Meta board to the negotiating table for more in the same way? What about Alex Carp at Palantir or Jensen Huang at Nvidia? These companies are now huge percents of the US equity market. So there are real implications here. Even when these big mega tech companies have benches of talent and they all do, including Tesla, key individuals are the faces of these firms and Tesla has just changed the game when it comes to show how far to go to keep these key people. Tesla stock up over 4% on the news. Now let's turn to our presenting partner. If you want to do more in Investing, check out public.com BrewMarkets Daily is sponsored by Public and we're going to throw it over to our producer John, who is excited. It's the end of the week.
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I love me some Fridays, Anne, because what does Friday mean? Payday. And what does payday mean? 401k days because one day when I'm retired, every day will be Friday.
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You've definitely got that TGIF vibe, John. My contribution is a bright sweater for the Friday filming. Today we'll look for a a limited time public users can earn an uncapped 1% match on all IRA transfers and rollovers. That's a 1% match. So get started at public.com brewmarkets that's public.com brewmarkets paid for by Public Investing.
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Full disclosures and podcast description on now.
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To a big name retailer that had a big week yesterday. Shares in American Eagle, the apparel company finished up over 38% in one day after the company reported earnings.
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That's right. And I saw headlines and memes all over social media proclaiming it the best day in the company's history. And of course accompanied by pictures of Sydney Sweeney and Travis Kelsey.
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Right, so here's, here's why I wanted to talk about this one. And it's fun to talk about retail, it always is. But with respect to American Eagle, in this particular moment, I just want to try to bust through some of the myths and legends on this topic and ask why There was a 38% share price and is it justified? So let's just start with the earnings. I'm a nerd. We all know this. I went to find the actual earnings report. I have it right in front of me and I got to tell you, they were fine. They were respectable. Total net revenue though of $1.28 billion was down 1% versus last year. Comparable sales down 1%. And then let's take a look at what the company gave with respect to guidance. So second quarter results just came out. That was yesterday. They said this coming quarter and the fourth quarter expect comparable sales. Low single digit growth doesn't set the world on fire. This isn't Nvidia gross margins. That's profit down year over year for both quarters. And here's the rub. For the full year 2025, the company has said sales will be flat and profit will be down. Down and flat are not the two numbers I expect to hear when I see a 38% share price increase.
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No, absolutely not. And the other thing in the report was that the executive chairman said that through the success of recent marketing with Sydney Sweeney and Travis Kelce, we have seen, quote, an uptick in customer awareness, engagement and comparable sales.
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Okay, so let's. This is where the myths and legends start kicking in. Right? Let's get into the timing of the statement. American Eagles quarter ended on August 2nd. The Sydney Sweeney campaign launched on July 23rd. So we had a week of the Sydney Sweeney effect hit the actual sales of this company. Right. So we don't really know how much impact was isolated for that one week or what is yet to come. Travis Kelce. Right. That campaign that only got announced on August 27, weeks after the end of this earnings period. So we are not going to know, right, until perhaps the end of the next quarter, really the end of 2025, the fiscal year, what the impact of these partnerships are going to be. And so I come back to the following. The executive chair said in those delicious teasing comments, right. That the campaigns of Sydney Sweeney and Travis Kelsey have seen an uptick in customer awareness. Fine.
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That's awareness.
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Awareness. That's right. Awareness isn't necessarily money yet. An uptick in engagement, which is fine, but that isn't necessarily money yet did tease an uptick in comparable sales. That is money. Right. But let's go back to what the company said, knowing all this about the rest of 2025 ending the year. They're saying approximately flat on revenue, down on gross Margin flat and down. Despite all of this, not what I expect again for a 38% share price increase. I like the optimism. I like to be optimistic. It's a Friday. But I'm not really buying the sustainability of that share price on this one. Let's take a quick break and when we come back, we're going to explore how to invest overseas. John, we have a question from the audience.
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That's right. We heard from Giles in Schenectady who wrote and I read the headlines about Nestle CEO being fired. And when I went to look at the stock, I kept seeing references to Nestle ADRs. What is that?
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Well, thank you for the question, Giles. I love this one because I love talking about global markets. And ADRs are one tool that enable US investors to get access to them. So most companies outside the US like Nestle are listed on their home exchanges. British companies on the London Stock Exchange, Japanese companies on the Tokyo Stock Exchange, German companies on the Frankfurt Stock Exchange. You get the picture. Shares are priced in local currencies, not US Dollars. And so navigating these differences can make it tricky for American investors to buy and sell stocks in those businesses directly. Now, an adr, which stands for American Depository Receipt, solves that problem. It's basically a ticket that lets American investors buy into foreign companies without their money leaving the US markets. So here's what happens behind the scenes. A US bank goes and buys shares of, say, Nestle, to use your example, Giles. And the bank does that in Switzerland, buying those shares on the S IX, the Swiss Stock Exchange. Then that U.S. bank, which can navigate the complexity of overseas exchanges and foreign currencies, something that the individual investor usually can't do. That U.S. bank having bought those shares, issues these receipts, the ADRs, to represent those Nestle stocks in this example. So you and I can then buy those ADRs here in America in US dollars in our regular brokerage account. So it's just the same way we'd go by Apple or Netflix stocks. And by the way, if the stock pays out dividends, that's going to reach you in dollars too. So you don't have to deal with foreign stock exchange administrative issues. You don't have to deal with different time zones and you don't have to deal with buying and selling Swiss francs. Now, for international companies, ADRs bring them access to the liquid US market. They trade side by side with US stocks. That's why it's app for investors like you and me. Adrs give us the opportunity to build global and therefore more diversified stock portfolios and to compare US companies directly with their international peers. And usually the ability to do that means that we can be better informed when we make our decisions on where to put our money. Now, a quick caveat. Because nothing is perfect, all adrs have some differences. Not all adrs are the same. Some are listed on big exchanges like the New York Stock Exchange or Nasdaq and therefore meet U.S. reporting standards. Others are less formal and trade over the counter or otc and they've got fewer disclosures. That's less information as a result. And you've got to remember always technically when you hold an adr, you don't own the stock directly, you own the receipt representing it. And so there's a few things you can't do with ADRs. For one, voting rights are limited because the bank, remember technically owns the shares, not you. So it's really the bank that gets to vote. Sometimes they'll give you the opportunity to express your opinion on what that vote should look like, but it's pretty limited. Similarly, corporate actions like stock splits and rights issues or spin offs, lots of things we're going to jargon bust in in future episodes, by the way. They don't always reach ADR holders in the same way. And then a company might pay dividends in yen or euros, which makes sense if they're Japanese or European companies. But with an ADR you get the dividend in dollars. You don't get to control the exchange rate or the fees because that's is the price of convenience. So think of ADRs as a great bridge into global investing. But it's more like streaming a concert than actually being in the arena watching it live. You see the performance, you hear the music, you get a lot of the experience. But you don't get to cheer in the crowd, you don't get to vote on the encore. And that Giles, is an adr. That's great.
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And next time we talk about international markets, I want to hear you say ftse.
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Oh, I'm happy to say footsie. We can actually just say that randomly. We could like FTSE Friday. There doesn't have to be a question from the audience or an extension skis. We can just get on with it.
- [11:50]
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All right, well, if you have a suggestion like FTSE Friday, please reach out to us and send an email or voice memo to Brewmarket show at Morning Bukom.
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Well, Wall street is looking to wrap up a week that saw the S&P 500 touch on an all Time high yet again. But John, take us through today because it's been a little bit of a roller coaster this morning to afternoon.
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Absolutely. Stocks started the day on a high note after a weak jobs report raised hopes that the Fed will cut interest rates this month. But the rally faded as the bigger worry of a weak economy kicked in. Some quick headlines. Shares in Lululemon were down as much as 20% after the athleisure brand cut its full year revenue and profit guidance. And yesterday, the CEO of Broadcom referred to a mystery client committing to $10 billion in new orders. Shares of Broadcom were up 15% on the news. And the widely held belief that that client is OpenAI.
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OpenAI coming out of the woodwork. You know, it's so interesting. John and I were talking about this earlier. We're hearing news about Broadcom, we're hearing news about amd, we're hearing news about Nvidia always. And you know what we're not hearing? We're not hearing a ton coming out on intel striking these kinds of partnerships right now. I've been talking a lot about chips lately, but we've got to start seeing some news coming out of that one just given the new government stake and all eyes on that one. Well, look, a final thought for Friday, for the week and also for today. I wanted to just touch very quickly on the news that came out yesterday that Goldman Sachs is investing in T. Rowe Price for a billion dollars. So Goldman Sachs, the big bank, the big financial services firm, T. Rowe Price, the big asset manager, and Goldman stroking a check for a billion dollars to buy a 3.5% stake. Now, a billion dollars is a lot of money for Goldman Sachs. It's not right. This is a company with a 224 billion dollar market cap. So why is Goldman doing this? Well, Tiro has a long history of actively managing money for investors and particular investors. And one of the things that Goldman Sachs wants to do is make sure it's got exposure to a new opportunity. And that new opportunity is retirement funds being able to invest in alternative assets. And alternative assets mean things like private equity. It can mean things like venture capital, it can mean things like private credit. So the two firms are teaming up to offer wealth and retirement funds that give access to private market products for individuals, financial advisors, plan sponsors and plan participants. That billion dollars almost being the handshake in the agreement. And just if we remember and go back to August 7th, you'll recall that President Trump signed an executive order to try to ensure that retirement funds do in fact, get more access to these alternative assets. Quote, More than 90 million Americans participate in employer sponsored defined contribution plans to the vast majority of these investors do not have the opportunity to participate in the potential growth and diversification opportunities associated with alternative asset investments. So this partnership between Goldman and tiro, the timing probably not coincidental. The reason we're shining a light on it is we are going to talk a lot in this show on what these alternative assets are. We're going to talk to people about hedge funds. I spent a long time working in private equity and where those private assets meet the public markets. Well, this show is the perfect place to talk about it. And so for all of you working hard, saving hard, putting money away for retirement, this new asset class is going to matter to you. We're going to bust the jargon, we're going to shine the light on it and we're going to keep watching all that's unfolding in this space. That's it, folks, for the weekend and for today's blue markets, Daily Brew.
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Markets Daily is hosted by Anne Barry and produced by John Curto, Tariq Abdelatif and Emily Milian. Our technical director is Uchena Waugh and the president of Morning Brew Inc. Is Devin Emery.
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Wake up on Monday with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily and we'll see you back here Monday afternoon, same time, same place.