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Musk’s SolarCity Offer Wipes Out His Cousins’ Stock Options

• Will Tesla-SolarCity Deal Pay Off for Investors?
• Awards will be cancelled if $2.6 billion deal closes
• Lyndon and Peter Rive are among 15 top-paid U.S. executives

Tesla Motors Inc.’s $2.6 billion offer for SolarCity Corp. is wiping out stock awards given to Elon Musk’s cousins.

Lyndon and Peter Rive, who serve as the chief executive and chief technology officer of SolarCity, were granted combined stock options of about $128 million in the San Mateo, California-based solar company in September, placing them among the 15 highest-paid U.S. executives in 2015, according to the Bloomberg Pay Index. The options will be canceled for no consideration, according to a Monday regulatory filing.

The awards are nearly identical to those offered to Musk at Palo Alto, California-based Tesla in 2012. The billionaire is the chairman and largest shareholder of both companies. Under the awards’ terms, the Rives would have had 10 years to earn the options by achieving sets of goals, with half tied to SolarCity’s stock price and half tied to operational results such as increasing customers, and lowering the cost of generating solar wattage. Every time the company achieved a target in both categories, they would earn 1/10th of the options.

Jonathan Bass, a spokesman for SolarCity, said the company had no further comment beyond the filings.

Musk initially offered $26.50 to $28.50 a share in Tesla stock, which was criticized as a “bailout” for the solar company by Angelo Zino, an analyst at S&P Global Market Intelligence. Investors in SolarCity said that the bid was too low, while Tesla shareholders questioned the wisdom of Musk combining his electric-carmaker with the clean-energy company.

Under the new agreement, SolarCity investors will receive $25.37 a share in Tesla stock. The deal, which allows SolarCity to solicit competing offers through Sept. 14, now goes to the companies’ shareholders for approval.

Amazon, once a big spender, is now a profit machine

Until last year, Amazon was known as much for its ubiquity in online retail as it was for the bold and expensive visions of CEO Jeff Bezos. The company would spend mightily, only to assuage investor fears with promises of a bright future. Many of those investments, like cloud computing, have become huge and profitable businesses. Some — like the failed Fire Phone —have fallen flat on their face. Now, however, Amazon appears to have hit its stride as Bezos' long-term visions for the future begin paying off big time. For the fifth straight quarter, Amazon has earned a profit. This time around, that profit is bigger than it's ever been before, and by a large margin.

For the second fiscal quarter of 2016, Amazon posted a profit of $857 million, or $1.78 a share, on revenue of $30.1 billion, making these past three months its most profitable quarter in its history. Those earnings handily beat Wall Street expectations, with investors putting Amazon at EPS of $1.11 a share on revenue of $29.56 billion. Year over year, Amazon's profit is up 832 percent while sales have jumped 31 percent from the second quarter of 2015, when Amazon made a profit of only $92 million. After a brief and perplexing dive, Amazon's stock is now up 3 percent, and its share price has jumped more than 40 percent in the last 12 months.

AMAZON POSTED ITS BIGGEST QUARTERLY PROFIT IN THE COMPANY'S HISTORY

So where is this money coming from? Multiple places, in fact. Amazon has begun turning the corner on its more costly sectors like international retail. It's also ramped up investment in cloud computing with the highly profitable Amazon Web Services. Lastly, the company is figuring out ways to cut its logistics costs as it adds more delivery flexibility for its Prime subscription service, which continues to grow and now sits at 60 million members in the US alone. This past week, Prime launched in India. Despite its obvious free shipping perk, Amazon continues to use the service as a way to bring new products, like video streaming and food delivery, to new markets.

"It’s been a busy few months for Amazon around the world, and particularly in India — where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies — including original content featuring top Indian creators and talent," Bezos said in a statement. "The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response."

AWS, Amazon's cloud computing platform used by companies as big as Netflix and Spotify, continues to grow. The division more recently added Salesforce as a primary customer, Amazon says, and it posted profit of $718 million on $2.9 billion in sales. That's a 135 percent jump in profit and 58 percent jump in sales compared with the year-ago quarter. For the second straight quarter, AWS earns Amazon more profit than its entire North American retail division.

Amazon's international retail division still loses it money, but it's closing the gap. This past quarter, the division posted an operating loss of $135 million, down 29 percent from $189 million in the second quarter of 2015.

It's an open question whether Amazon can continue to sustain this profit growth, but the answer may not arrive for some time. Due to the huge success of the company's second annual Prime Day, which occurred on July 12th and broke sales records, the fiscal third quarter ending September 30th may result in yet another big beat. Worldwide Amazon orders rose 60 percent from last year's Prime Day, which amounts to a potential bump of $600 million in additional sales. For the current quarter, Amazon forecasts sales of $31 billion to $33.5 billion.

The Battle for Smart Phones: Apple achieved one billion Iphone sales...

Apple CEO Tim Cook.

A few days ago, Apple sold its one-billionth iPhone. Apple CEO Tim Cook announced the milestone on Wednesday.

"We never set out to make the most, but we've always set out to make the best products that make a difference," Apple CEO Tim Cook said in a statement. "Thank you to everyone at Apple for helping change the world every day."

One billion phones is, no doubt, an impressive number, but does it really mean anything? The iPhone helped define the modern smartphone market, but some have questioned its ability to compete with new, high-quality Android flagship models.

When it first arrived in the market, the iPhone met a mixed reception. Some lauded the touch screen design, while others scoffed at its high price tag. In fact, then-Microsoft CEO Steve Ballmer actually laughed at the iPhone back in 2007.

However, little did Ballmer know that Apple's revenue from the iPhone alone would eventually eclipse Microsoft's entire revenue, and that trend would continue. In 2015, Cook said that, during a certain quarter, Apple was selling 34,000 iPhones an hour, 24 hours a day. At one point, Apple's total revenue was more than double that of Microsoft's and more than Google's as well.

Still, that's the past. In early 2016, Apple announced its first decline in iPhone sales. In Apple's recently announced Q3 earnings, Apple reported its second straight quarter of declining iPhone sales, selling only 40.39 million iPhones, a 21% drop from the same quarter a year prior. At that time, the iPhone generated $24 billion by itself. Microsoft's total revenue, as reported by its 2016 Q3 earnings, was $20.5 billion.

Those numbers are still pretty high, but they represent a massive decline in Apple's major sales driver. In that sense, the billionth iPhone doesn't mean much.

"It's always great PR for vendors to hit milestones," said Forrester vice president and principal analyst J. P. Gownder. "Unfortunately for Apple, the company hit the billionth iPhone mark in an environment of year-over-year declines. Why? Because the iPhone has saturated a number of markets, leaving Apple with a big gap: The company needs to find the "next big thing" to drive growth, since many of its major products (including iPhone and iPad) are seeing declining sales."

The first few years of the iPhone were marked by excitement. Long lines wrapped around Apple's retail spaces in malls around the country, and certain models routinely selling out within the first week. However, an upgrade cycle marked by simple iterations and waning innovation has made new iPhone models feel stale.

The iPhone laid the foundation for the current smartphone market, but Apple's innovation hasn't kept pace with its biggest rivals. While Apple did make an AI pivot at the latest WWDC, only time will tell if its efforts were enough.

With that being said, the iPhone is still one of the most popular smartphones on the planet, and a status symbol for many users. Apple has finally begin targeting emerging markets with the iPhone SE, and one billion iPhones sold means that there will be demand for iOS apps for quite some time.

"A billion iPhones ensures the vitality of the developer ecosystem for a long time to come," Gownder said. "iOS is a de facto go-to for most developers, alongside the even larger Android ecosystem, and iOS enjoys many high-income users."

Additionally, the iPhone is still massively popular with businesses, and likely gained some more fans with Apple's renewed stance on security. So, the question then becomes when the lack of innovation around things like AI will matter to the enterprise, and if that will force a further drop in iPhone sales.

Twitter still has revenue problems, and its stock is down big

Twitter missed Wall Street’s revenue estimates. Again.

Twitter reported Q2 earnings on Tuesday and investors aren’t happy.

The key issue is likely Twitter’s Q3 guidance. The company says it is targeting $590 million to $610 million in revenue next quarter. Early analyst estimates pegged that number at $678 million, according to Yahoo Finance. So that’s a big discrepancy.

The Q2 numbers weren’t fantastic either. Twitter added three million new monthly active users last quarter — what analysts expected — bringing the company’s new total to 313 million. But Twitter also reported profits of 13 cents per share on revenue of $602 million for the quarter, which is lower than expected.

The stock was immediately down more than 10 percent on the news and seems to be hovering there.

Wall Street was looking for profits of 10 cents per share on $607 million in revenue. (Interesting note: These are basically the same expectations Wall Street set last quarter, and Twitter missed on revenue then, too.)

So here’s Twitter’s dilemma: CEO Jack Dorsey has effectively been in charge of Twitter for the past year, and it’s clear that the company’s growth problem is still a problem. On top of that, Twitter has now missed revenue estimates two quarters in a row, and significantly cut its Q3 guidance. So there’s a clear revenue problem to go along with the growth problem. Not good.

To state the obvious, this kind of production (or lack thereof) doesn’t help Dorsey’s case for running two companies (remember, he also runs Square). It also puts pressure on the board to consider broader options for the company, namely selling. Twitter is in the very beginning stages of trying to transition its business to look more like TV, but it doesn’t have a lot of runway left.

We are still digging through all the data now and will update this story as we learn more. For those interested, Twitter will hold a call with press and investors at 5 pm ET Tuesday, and we’ll be listening in. Unfortunately, you won’t be able to watch the call on Periscope this quarter — Twitter isn’t doing that any more.

Photographer: Daniel Acker/Bloomberg

The Only Winners in Volkswagen's Diesel Mess Are Drivers

A half-million tainted cars head to the scrap heap, and owners walk away with up to $44,000.

Jeremy Malczyk's 2012 Volkswagen Jetta Sportwagen is no prize. It has 70,000 hard miles on it, and the interior has been finely detailed by his two young children: beige leather buffed with beige Cheerios. But the vehicle comes equipped with a two-liter diesel engine doctored to cheat on emissions tests, so it will likely fetch almost $22,000 (PDF) in Volkswagen's buyback program. A similarly used Sportwagen without the dirty diesel would fetch about $9,000 on the open market.

A U.S. District Court in California may approve the details of a massive Volkswagen repurchase program as early as Monday, and checks are expected to trickle down this fall to U.S. owners of some 482,000 Golfs, Beetles, Jettas, and Passats, as well as Audi A3 sedans sold with engines that violate emissions standards. It will mark a painful hit for Volkswagen—part of a $15.3 billion settlement with the Environmental Protection Agency—and a windfall for owners of otherwise deeply depreciated vehicles.

“I bought it just before I kind of found Jesus, financially,” Malczyk said of his four-year-old Sportwagen. “So this is going to be kind of a nice way to reset.”

The average purchase is expected to range from $12,500 to $44,000, with values pegged to the value 1 of each car just before the diesel scandal broke in September 2015. All of the afflicted vehicles will be considered in “clean condition,” even if the wheels are falling off. Tacked onto the value of each car will be a “restitution” payment equal to 20 percent of the vehicle value, plus $2,987.

All told, owners stand to make at least double what their cars were worth just before news of the scandal.

“Financially, consumers are going to do far better than if diesel-gate never happened,” said Ernie Garcia, chief executive officer of Carvana, an online used car dealer in 14 U.S. cities. “My guess is most of them will be able to make a decision on this very quickly.”

Regulators pushed Volkswagen to spread payments widely. Owners who are upside-down on car payments–owing more than their car is worth–will be offered loan forgiveness or an even larger payout, up to 130 percent of the value of the car. Even a former owner who sold one of the afflicted cars after news of the scandal will be eligible for half the restitution payment, with the other half going to the current owner of the car.

This is all in addition to the $500 cash cards that the company has already scattered to owners.

“It is certainly the most comprehensive and thorough compensation package I’ve ever seen an automaker offer owners,” said Karl Brauer, senior analyst at Kelley Blue Book.

After Volkswagen takes the tainted vehicles off the road, what will become of the nearly half-million cars unfit for use in the U.S. remains unclear. There may eventually be a fix for the diesel engines, and owners retain the right to keep their cars and wait. Those who do will still be able to collect the restitution payment and, in theory at least, the company could eventually put the repurchased cars back on the road.

A direct injection diesel engine (TDI) of a Volkswagen Passat.

 

Photographer: Miles Willis/Bloomberg

But the timeline on any potential fix stretches to July 2019, and environmental groups are already bracing for a fight. The California Air Resources Board estimates that any modification would still allow more NOx pollution than cars that fully comply with clean-air laws.

“Honestly, I think [Volkswagen will] probably just junk them,” said Bloomberg Intelligence analyst Kevin Tynan. “They’ll have already spent all that money to buy them back. They’re not going to spend more to retrofit them.”

Brauer, at Kelley Blue Book, expects from 70 percent to 90 percent of owners to take the buyback. “I think Volkswagen’s approach is, ‘We’re going to assume scrap value on all of these,” he said.

It's a staggering number of cars to toss onto the scrap heap. Volkswagen needed the past 18 months to sell as many new vehicles in the U.S. The company is still trying to figure out how to make amends for diesel gamesmanship on its larger, three-liter engines. There are 85,000 of them on the road in the U.S.

Malczyk, meanwhile, is one of a few people who knows exactly what to do with his tainted Volkswagen while he waits to sell it back to its maker. He’s going to wreck it, or at least flog it extremely hard in the coming weeks. Oil changes? Pass. Car wash? Nah. An impromptu rally course through the hardwoods of Connecticut? Sure. None of those will affect his payout.

"I guess I could just park it for six or seven years," he mused. "It would be the last diesel wagon in America and there's always going to be some geeked out diesel fan who's into these things."

What Sank Yahoo?

Blame Its Nice Guy Founders...

Two Stanford University students put their studies on hold to create what was at one time an essential part of the internet. Then they stopped taking risks.

Marissa Mayer 

The epilogue in the long, sad story of Yahoo!, the web portal with the perpetually ebullient exclamation mark, is finally being written. After emerging as the top bidder in a five-month auction, Verizon Communications has agreed to buy the historic web franchise’s core assets for $4.83 billion.

Yahoo Chief Executive Officer Marissa Mayer will assist with the transition until the sale is complete and then depart the company with a comfortable parachute worth more than $50 million in cash and stock. So let’s not weep for her. But inevitably, a passel of eulogies will be crafted about her failed four-year attempt to turn around the company. These reflections will be largely unfair, because the decline and demise of Yahoo isn’t totally her fault. It’s at least partially the fault of its founders, Jerry Yang and David Filo.

The early story of Yahoo is now Silicon Valley mythology. As graduate students at the Stanford School of Engineering in 1994, Yang, a math-oriented Taiwanese immigrant, and Filo, a quiet programmer from Louisiana, created a directory of links called Jerry and David’s Guide to the World Wide Web. It was a handy map to what was then an unnavigable digital landscape, and web surfers loved it. The following year, when Sequoia Capital invested in the newly renamed startup, it brought in a former Motorola executive named Tim Koogle to be CEO.

The move reflected the reigning conventional wisdom of the time—bring in an experienced chief executive and go public early. But while they stepped aside to become “chief Yahoos,” as their business cards said, Filo and Yang stayed intimately involved. Filo, as the technical leader, wrote the very first version of Yahoo search and made the bulk of decisions about the company’s underlying technical architecture. Yang stayed close to strategic decisions and was instrumental after the dot-com crash in replacing Koogle with Terry Semel, the longtime co-CEO of Warner Brothers.

Semel brought with him a core group of native media execs whose names are now familiar in Silicon Valley, like Jeff Weiner, the CEO of LinkedIn, and Dan Rosensweig, CEO of textbook rental service Chegg. This was the origin of what would become Yahoo’s enduring split-personality: Was it a technology company or a media company? Sitting on perhaps the most valuable piece of real estate on the web, shuttling between its offices in Santa Monica, California, and Sunnyvale, Yahoo executives tried to be a little bit of both.

We now know what it takes for technology companies to succeed: fierce, often unpleasant, founders who are able to make hard choices and place unpopular bets. During the years that Yahoo was banking on the media business, Jeff Bezos of Amazon.com, for example, expanded into unprofitable lines of online retail, brooked a painfully hollow stock price, cut workers, and finally spawned a completely different business in the cloud, called Amazon Web Services. At Google, Larry Page and Sergey Brin brought in Eric Schmidt as CEO, but they governed as a triumvirate of equals, inventing an insanely profitable text advertising business that augmented web search results, rather than distracting from them like Yahoo’s eye-ball burning banner ads.

During the 2000s, Yahoo’s biggest mistakes were failures of will. Semel, billed as a “deals guy” from Hollywood, could have bought Google in 2002, as Fred Vogelstein reported in Wired. Yahoo also came close to buying Facebook in 2006, until Semel lowered his offer from $1 billion to $850 million after a disappointing earnings report, alienating an already reluctant Mark Zuckerberg in the process, according to David Kirkpatrick’s book, The Facebook Effect.

These acquisitions probably looked like risky, uneconomical moves that Yahoo investors might hate. That’s the whole point. Web companies need the unique power of founders to do unpopular things. Page advocated for Google to buy the money-losing video sharing site YouTube in 2006; Zuckerberg made what seemed like an outrageously overpriced bet on the photo app Instagram in 2012. This is how tech companies survive—the ability to take risks.

Yang took over as CEO from Semel in 2007 but was either too nice or too unwilling to make hard decisions. In retrospect, he should have fired more employees, and banked hard toward technology and the emerging smartphone revolution. In what now looks like his biggest blunder, he turned away one of the best exits Yahoo would ever see, Microsoft’s unsolicited $45 billion bid in 2008, an effort by then CEO Steve Ballmer to compete with Google.

In what should now be the canonical photo of Yahoo’s decline, from the Allen & Co. conference in Sun Valley, Idaho, that June, Yang was pictured sitting with Page and Brin, his head in his hands, presumably bemoaning the overture from the big, lame software blunderbuss from the north. The photo reveals Yang’s confusion at the time about Yahoo’s true enemy. It was not Ballmer and his gang of Windows fanatics. It was the Google guys, there listening supportively across the table from him.

Jerry Yang, left, and David Filo in Sunnyvale, California, in 2007.

After that, it was pretty much over for slow-footed Yahoo, trying to navigate a fast-changing internet landscape with uninspired CEOs like Carol Bartz and Scott Thompson at the helm. In periodically leaked missives, executives bemoaned that Yahoo was spreading itself too thin over too many lackluster products. Without a steadier hand from its founders, Yahoo had lost its way culturally as much as strategically. It was fat with layers of accountants, lawyers, and product managers, people whose job it was to mitigate risk, rather than take it. Yang didn’t respond to requests for comment, and Filo declined to comment through a spokeswoman.

The founders did make big contributions. In 2005, Yang helped orchestrate what would be the company’s best deal: the sale of its businesses in China to Alibaba, along with a $1 billion investment. He deserves tons of credit for that. It’s also likely that his voice was not always heard. In 2012, Yang left the company’s board of directors after its disastrous decision to hire PayPal’s Scott Thompson as CEO and then promptly fire him upon discovering he fibbed on his résumé. For his part, Filo has been the picture of corporate loyalty in an age sorely lacking it. He joined the Yahoo board when Mayer took over the company and, by all accounts, remains an inspirational figure.

But by that time, the mistakes of the past loomed too large. Perhaps there was a short window of opportunity for Mayer to bet the company on a bold acquisition or a new product, but it closed fast. She made strange moves, spending a huge chunk of her figurative and literal capital on a $1.1 billion deal for the also-ran social network Tumblr in 2013. Tumblr, like so many other Yahoo acquisitions (Flickr, et al.) went nowhere fast, perhaps because there were not enough nutrients in the Yahoo soil for any startup to thrive.

Others have chronicled more of Mayer’s mistakes. But now it’s all ancient internet history, to be parceled out and puzzled over by business school students. It’s time for us to mourn Yahoo. Sorry, I mean—Yahoo!