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Friday, January 30, 2015
How Preet Bharara Became The Southern District's Million Dollar Man
How do you become fearless and financially secure enough to make enemies of New York’s wealthy and politically powerful? A seven-figure check from Amazon certainly helps.
Getty Images Spencer Platt
Manhattan U.S. Attorney Preet Bharara has jailed a hedge fund billionaire, taken one of the most successful hedge fund traders of all time out of the money management business, extracted multibillion settlements and guilty pleas out of global megabanks, and is now in the midst of an investigation of New York state powerbrokers that's already garnered an indictment and arrest of Assembly speaker Sheldon Silver.
He's a man who, many believe, gives few fucks. But while a righteous, fearless, take-many-prisoners philosophy of law enforcement may be the central motivation for his lonely crusade, there's another factor worth taking into account. It's easier to make enemies of the rich and powerful when you are already financially secure, and in 2011 Preet Bharara became a dotcom millionaire.
But only just. Bharara was an early investor in Quidsi, the parent company of Diapers.com, which was co-founded by his brother, Vinit. When Amazon acquired the company for $545 million in 2011, Bharara earned his cut. The number has not been previously reported, but was "a little over one million" in cash, a spokesman for the U.S. Attorney's office told BuzzFeed News.
Bharara has typically demurred when asked by reporters to disclose just how much he made, saying at a conference hosted by The New York Times' finance site DealBook that he is not independently wealthy "compared to the people in this room." He also said that when he goes out to eat with Vinit, his younger brother picks up the tab, since he "came into a little bit of cash."
For a financial disclosure covering 2010, Bharara listed his shares as being worth between $1,000,000 and $5,000,000. His total profit from the investment can't be determined because it's not known how much he put in initially. On a 2009 questionnaire he filled out in connection to his appointment, he said his net worth was $1.65 million. That same questionnaire put the value of his 42,949 shares at $206,000. Bharara has three children and has earned a government salary for most of his professional life. In 2000 he started as an assistant U.S. attorney in the Southern District, and in 2005 he became Democratic senator Charles Schumer's chief counsel.
In a 2013 financial disclosure, in which Bharara was not required to list his net worth, he listed a number of assets, none of which were individually valued at more than $500,000.
Bharara has shown no sign of slowing down his high-profile public corruption investigations, saying in a press conference following the Silver arrest to "stay tuned." Bharara has repeatedly said that he doesn't have ambitions beyond his U.S. Attorney job, despite frequent speculation that he has his sights set on higher office. One avenue for advancement was blocked when his neighboring U.S. Attorney, Loretta Lynch of New York's Eastern District, was nominated to replace Eric Holder as Attorney General.
Bharara told the Times in August that he has no interest in elected office. "My concern is I'm not sure I have a taste for anything but this."
Luckily, It's a taste he can afford, for now.
Bharara's confirmation questionnaire from July, 2009 (via Main Justice )
Bharara's financial disclosure covering 2010
Shake Shack Is Now A $1.7 Billion Company
The gourmet burger chain had a huge opening day on the New York Stock Exchange, with shares rising more than 130%. Will the good times last?
NYSE / Valerie Caviness
Shake Shack, the gourmet burger chain that started out of a hut in New York City's Madison Square Park, is now a $1.7 billion company — all based on just 36 restaurants in the U.S. and another 27 overseas.
Celebrity restauranteur Danny Meyer's lauded fast casual hotspot held its initial public offering on the New York Stock Exchange Friday, and the response from investors suggested much confidence that the chain will eventually grow into a major presence across the U.S. Aggressive trading led to the opening price spiking to $47 per share, more than double Shake Shack's pricing of early shares at $21 each the night before.
After Meyer and his team rang the NYSE's opening bell, which included chanting and cheerleaders throughout the exchange's cavernous trading floor, the air of the room filled with anticipation as the trading price for shares of Shake Shack rose into the high $20s, then through the $30s and approached the $50 mark. By 3p.m., the stock was up by 130%, an opening day rally more reminiscent of a late 90s tech company than a burger chain.
Meanwhile, the street outside the exchange filled with the smell of Shake Shack's beloved burgers, which it was serving to the public free of charge out of a pair of food trucks it had lined up on Exchange Place. The trucks would later roam the city handing out free burgers to celebrate the IPO.
Inside the exchange, reporters and NYSE employees toasted the Shake Shack crew with burgers and cups of frozen custard as traders negotiated the stock's opening price. As the numbers on trading monitors grew higher, multiple IPO attendees remarked on the stock's huge "pop", or spike in price.
"This is insane!" one trader exclaimed. "It's like the GoPro of burgers!"
(Last June, GoPro went public on the NYSE with the stock popping by a more modest 31% on opening day.)
A frazzled assistant ran a cup of custard over to Meyer, who was beyond thrilled with the day's events, especially after the stock's huge pop netted him an estimated $400 million windfall. Shares of Shake Shack have continued to stay in the $48 dollar range throughout most of Friday and into the afternoon.
All morning, the floor buzzed about how high Shake Shack had climbed ahead of and even after its $47 per share opening. Some worried about a crash later in the day, as shares had climbed to unsustainable heights ahead of opening. Indeed, a buzzy restaurant brand declining in value after a manic opening day is not out of the realm of possibility — other names in the space, like Noodles & Company and Potbelly, have failed to maintain their high opening day share prices after only a few days or weeks of trading.
As for what's next in the fast casual food business, one restaurant industry analyst told BuzzFeed News that after Chipotle and other ethnic food concepts like Zoe's Kitchen and Noodles & Company, burgers represent only the tip of the iceberg.
"These concepts continued to grow very strongly," said Bonnie Riggs, restaurant industry analyst at consultancy NPD Group. "They've done an outstanding job in satisfying consumers need to place your order and get freshly prepared, good tasting food that they feel is reasonable and affordable."
Investors can now buy shares in fast casual food covering categories including Mexican, sandwiches, burgers and noodles, but many other popular concepts have yet to hit the markets. Riggs said craze for high-end salad places like Chopt and Sweetgreen is getting plenty of attention, and is likely to produce a public company at some point — although a fast-casual pizza business could come first. "After burgers, now, we're starting pizza," she said. "Then we'll start on freshly prepared healthy food, like salad, that's a bit healthier for you."
Can Love Defeat Hate? Maybe Not. But It Can Get You A Free Big Mac
After pushing back against reports of a new “Lovin’ Beats Hatin’” advertising slogan, McDonald’s has released its lovin’-themed marketing campaign.
McDonald's
Love might not be able to conquer all, or save ousted McDonald's CEO Donald Thompson's job. But for a limited time, it will be accepted, occasionally, as legal tender in exchange for a burger and fries at McDonald's outlets.
In late October, the Wall Street Journal reported McDonald's would soon roll out a new advertising campaign built around the slogan "Lovin' Beats Hatin'", a play on (but not a replacement of) its long-running "I'm Lovin' It" line. A Super Bowl ad would help kick off the campaign, the report said.
The internet responded with a healthy round of ridicule, and McDonald's claimed there had been some degree of "misreporting" around the story, without fully denying it.
"It's highly speculative and premature to talk about Super Bowl ads and future campaigns," a McDonald's spokesperson said at the time.
But it's no longer highly speculative: here's the McDonald's Super Bowl ad. The's no Lovin' Beats Hatin' tag line, but it's all about the lovin', most specifically a cloyingly sweet central premise involving giving people free food in return for them showing some love to the people closest to them.
Starting Monday, Feb. 2, McDonald's will be randomly accepting a new form of payment. Customers who enter participating McDonald's restaurants* across the US at randomized, predetermined times between Monday, Feb. 2 and Saturday, Feb. 14 from 6 a.m. to 6 p.m. local time each day will be selected to participate to Pay with Lovin'. Once a selected customer has completed his or her order and presented a method of payment, the restaurant Guest Service Manager or Lovin' Lead will explain that McDonald's is doing something special that day, and the customer will be given the option to pay for his or her order with an act of Lovin' instead. For instance, breakfast might cost a friendly fist bump to the crew member on duty, lunch could be paid for with a call to a loved one and dinner could go for a compliment.
Jay Z Is Spending $56 Million To Compete With Spotify... And Dr. Dre
The hip-hop mogul’s most ambitious business move is a big-ticket bid on a hi-fi streaming service.
Dr. Dre became the richest man in music last year in part by successfully building a digital streaming platform, Beats Music, and now Jay Z wants a piece of the action. The hip-hop superstar made waves in the music industry this morning with the announcement of his $56 million bid (464 million Swedish Krona) for Aspiro AB, the Swedish parent company of two streaming services, WiMP and TIDAL.
Pending shareholder and regulatory approval, Project Panther Bidco, a subsidiary of Jay Z's S. Carter Enterprises, will acquire all shares of Aspiro in an all-cash deal. Aspiro's board has recommended that shareholders accept the offer.
WiMP and TIDAL are marketed differently, but are essentially the same service. TIDAL, which launched last fall, is the U.S. version of WiMP, a four-year-old Spotify competitor that's only available in Scandinavia. Much like Spotify, TIDAL offers a large catalog of music — 25 million songs — for on-demand streaming.
But unlike Spotify, and most popular streaming services in the U.S., TIDAL uses a high-fidelity 16-bit streaming protocol, making it a leader in the growing trend of premium audio. It also doesn't offer a free tier. A subscription to TIDAL costs $19.99 a month, twice the cost of the most expensive version of Spotify.
Apple's $3 billion purchase of Beats Electronics last year included slightly less than $500 million for its Beats Music subsidiary, with many predicting that the streaming service will play a critical role in revitalizing Apple's own iTunes. The deal earned Dre, a co-owner of Beats Electronics with Jimmy Iovine, a reported $620 million — the most money a musician has ever earned in a single year.
Jay Z, who is a longtime friend and collaborator of Dre's, most notably on his 2006 comeback album Kingdom Come, has his own history of big ticket business moves. In addition to his clothing company, Rocawear, and full-service music company Roc Nation, he famously bought (and later sold) a share in the New Jersey Nets, helping to move the professional basketball team to Brooklyn in 2012. In 2013, he launched the sports agency Roc Nation Sports in partnership with the Creative Artists Agency.
Frederick M. Brown / Getty Images
US GDP Rises At A 2.6% Annual Rate
The slight slowdown in the growth rate caps off the strongest year for the economy since the 1990s.
Bureau of Economic Analysis / Via bea.gov
The U.S. economy continued to grow in the fourth quarter, although not at the white-hot rate it had been in the second and third quarters of this year. The Commerce Department reported that gross domestic product grew at a 2.6% annualized rate in the fourth quarter.
The fourth quarter did not match the booming annualized growth rates of 4.6% and 5% in the second and third quarter respectively, bringing the year to a muted end. The 5% clip the economy reached in the third quarter was the fastest quarterly growth rate since 2003.
Overall, the economy grew only 2.4% in 2014 compared to 2.2% in 2013. But 2014 did have an especially strong labor market that created almost 3 million jobs, the biggest single-year job creation figure since the booming late 1990s.
The Commerce Department attributed the fall of at the end of the year to greater imports (which subtract from GDP) and less spending by the federal government, while spending by consumers increased by over 4%, compared to just over 4% in the third quarter. The fourth quarter number is, however, only an estimate that will get revised twice in the coming months.
Thursday, January 29, 2015
Chipotle, But For Cheeseburgers? Shake Shack IPO Sets Expectations High
The “fine casual” burger chain will hold its initial public offering Friday, with the buzz swelling to the point of cultish fanfare. But how much will Shake Shack have to grow to live up to the hype?
Keith Bedford / Reuters
It's easy to see why the buzz around the initial public offering of Shake Shack, the New York-based upscale burger chain, is reaching the point of frenzy. Burgers have remained the most popular item ordered across all classes of restaurant in the United States, and in the booming fast-casual dining space where Chipotle is king, Shake Shack is the first to hit the public markets.
"It seems to be that our desire for and our love affair with burgers doesn't end," said Bonnie Riggs, a restaurant industry analyst at consultancy NPD Group. "We're ordering burgers at all types of restaurants for different reasons."
What's more, Shake Shack burgers are good. Really good. Just ask the analysts and prospective early investors who, according to sources, salivated over celebrated Manhattan chef Danny Meyer's masterpieces when Shake Shack served them on its road show to drum up potential interest in the IPO.
The strategy appears to have worked in charming the financial forces controlling investment in the earliest available shares of Shake Shack, those up for grabs before the company even begins its first public trade on the New York Stock Exchange Friday. The expected price range for the IPO has already increased from $14 to $16 per share to $17 to $19 per share as of Thursday.
"This is going to be an extraordinarily well-attended IPO," said John Gordon, a restaurant industry analyst and founder of the Pacific Management Consulting Group. "Five Guys and Smash Brothers did not get an IPO done, so they beat the other burger chains. Shake Shack is the first real fast-casual burger operation to come to market."
Shake Shack's Manhattan beginnings have also worked in its favor, both to attract early investors, many of whom are familiar with its storied product, and to command a high average ticket per customer.
"They're based in New York City, and sales numbers per store are extremely large in Manhattan," Gordon said. "But there's only one Manhattan, and as you get further out, there's no way you can hit those numbers. Stores in other parts of the country aren't going to hit those sales numbers."
Kathleen Smith, an IPO expert and principal at ETF manager Renaissance Capital, agrees, adding that Shake Shack may not be able to cultivate the kind of following it has from New York investment industry types outside of the city.
"When Fairway went public, a lot of New Yorkers were familiar with it and it reached great heights, then it came back down to earth," Smith said. "They have high margins in their New York locations; the question is how do you hold up those margins, because it's a different kind of economy. New Yorkers will pay for it. [Another] question is, when do you add stores and what do the stores look like that you're adding?"
Shake Shack is already considering the answer to this question, and its filings surrounding the IPO, the company said it plans to have 450 locations across the U.S. in the long term. There are currently just 30 Shake Shacks in America.
According to Smith, the 450 figure doesn't seem too extravagant.
"We didn't question that number," she told BuzzFeed News. "It passed our sanity test."
But in Gordon's estimation, the average Shake Shack ticket is roughly $15 per person, higher than the $10 per person figure the company has ascribed to the average check. This, he said, will potentially make it difficult to find enough locations for Shake Shack to be able to scale its business and an IPO valuation of around $600 million.
"Generally what happens is every restaurant that IPOs says they can get to a certain number of units," Gordon said. "Whether restaurants work or not, it's a very complex situation of finding enough people, pricing appropriately, and finding the right locations, which has been difficult for a decade. The average ticket is about $15 per person, that is going to mean that it's not going to work for everyone everywhere. It will have to be in densely populated urban areas with a higher income bracket."
Another potential hurdle for Shake Shack is the issue of the fast-casual bubble. Call it the Chipotle effect: Fast-casual chains like Noodles & Company, The Habit, Potbelly, and others have boomed in recent years, experiencing huge pops on IPO day and then slowly but surely coming back down to earth in the following weeks and months as interest dies down.
"These IPOs have really gotten kind of out of hand," Gordon said. "There almost needs to be an asterisk that the first years, the price to earnings multiple is always high, because investors continue to chase the next Chipotle. Everyone wants to get in on the next Chipotle, but the world has changed a lot."
Gordon adds that there remains a general shortage of publicly traded restaurants, as many were delisted or bought out by private equity from 2008 to 2011, and the industry is struggling to recover.
"So there is demand and interest for restaurant IPOs," Gordon said, "but historically they IPO and then they cool off."
Smith remembers this very theory manifesting itself in the form of Potbelly and Noodles & Company, shares of which are currently down 41% and 29% from their respective IPOs in the last two years. She believes Shake Shack could be setting investors up for a similar disappointing return once the IPO hysteria dies down.
"It's going to be a hot deal on day one," Smith said of Shake Shack. "It's a bit of a cult stock. You could get a 50 times earnings multiple, which is a stress on the name. It's starting to defy fundamental logic. They have some things working in their favor, like a high ticket value, [but] what they're targeting is a huge jump from their current base."
Still, other industry experts believe as long as Shake Shack is serving burgers — the kind that are so good they're unlike anything else in this burger-loving nation — then it should be able to thrive.
"What fascinates me about Shake Shack is that when I started doing this 37 years ago, the most popular thing people ordered in a restaurant was a hamburger," said Harry Balzer, chief food industry analyst and vice president at NPD Group. "And the most popular item people ordered yesterday was a hamburger. It can't lose! As a consumer, we all have this desire to try new things we already know. In this case, I don't have to go far to find people saying I'll try a new hamburger."
Amazon's Most Recent Innovation: It's Making A Profit
The massive retailer also revealed that it spent over $1 billion on its streaming video service in 2014.
Getty Images Matthew Lloyd
Amazon has tried a lot of new things in the last year, from becoming a smartphone maker to offering delivery within hours, not days. And Thursday, the company announced another novel development: An unexpectedly profitable quarter.
Amazon's earnings of $214 million were well above analysts expectations. As usual, Amazon continued to grow its sales quickly, going from $25.6 billion in the fourth quarter of last year to $29.3 billion this year. The sales figure, however, was slightly below analysts' expectations of $29.7 billion.
Relative to such giant revenues, the company's $214 million in profit may seem modest, and it's short of the $239 million it made a year ago. But the profit is a change from losses of $126 million and $437 million in the last two quarters.
Investors were happy with the results, sending Amazon shares up over 8.5% in after hours trading.
Like many American companies with large overseas business, Amazon's bottom line suffered from a strengthening dollar in 2014, which diminished foreign currency earnings. The company said its sales in dollar terms would have been $895 million higher had exchange rates been unmoved in the last year.
Amazon stock is down almost 20% in the last year, after enduring two quarters with bigger losses than usual. The third quarter loss of $437 million — the biggest quarterly loss in the company's history — more than offset its full-year profit in 2013, while it also suffered an embarrassing $170 million writedown of its Fire Phone inventory. For all of 2014, Amazon reported a net loss of $241 million.
But these big losses, as Amazon's patient investors know, are due to the company's enormous investments in infrastructure and new businesses. Amazon founder and chief executive officer Jeff Bezos said in a statement that Amazon spent $1.3 billion on Prime Instant Video last year. Some of that firehose of cash was directed toward producing original TV shows, including the hit Transparent, which recently won a Golden Globe for best TV series.
Bezos also said that Amazon Prime membership grew 53% in 2014, even though the price jumped from $79 to $99. Bezos said the company spent "billions" on free shipping for Prime users.
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