Lyft: So did you make 8.74% or lost 11.64%?

Lyft (NYSE: LYFT) listed for trading this Friday. While the promoters and VCs made a killing, what if you were not allocated the shares and wanted to make a quick buck? You could buy shares when they listed at $87.24 or wait a bit while the shares climbed higher still to $88.60 and that's when you decided to buy the shares only to see you incur substantial losses. Lyft closed at $78.29 implying a loss of 11.64%. 

While the financial media will keep ranting and raving about $20 billion or $24 billion or $22 billion, the simple fact of the matter is you made losses in case you bought the shares to make a quick buck. It's of course quite possible that the share price will recover in subsequent days but now the share price will have to climb atleast 13% before you even break even. 

Just goes to show that there are no free rides for retail investors.

 

Shareholder Beware?

"The Shareholders hereby agree to pay management Rs. 14.86 crores in the 1^st year, Rs. 70.72 crores in the second year, Rs. 114.1 crores in the third year, Rs. 182.09 crores in the fourth year as franchisee fees when previously no such fees were being paid out"

Should such a resolution surprise and shock the shareholders or should they just willingly play along in the better interests of management?

Something like this is happening at Tide Water Oil (NSE: TIDEWATER) and the shareholders seem to be blissfully unaware.

Sometime in 2014, the brand ENEOS was transferred to a JV company, JX Nippon TWO Lubricants India Private Limited, with management affiliations. Prior to this no franchisee fees were being paid out on the ENEOS brand. However, after the brand was transferred out to this JV with management interests, franchisee fees started shooting the sky. 

Since 2015 franchisee fees are being paid in highly disproportionate amounts so much so that the cumulative franchisee fees paid out is roughly double the incremental sales.

 

  In 2018 for instance, compared to a sales growth of -2%, the franchisee fees grew 60%. From 1.6% in 2015, franchisee fees have skyrocketed to almost 16% of the sales without any tangible benefits accruing to the company or shareholders.Shareholders would be well advised to read the postal ballot notices and check for new fees or charges being paid out and try to understand the rationale behind the same before parting with their hard earned money.

Leveraged Buybacks

 
Home Depot ( NYSE: HD) has had a fantastic run so far on the exchanges. The stock is up 133% compared with a 52% return in the S&P 500 over the past 5 years.

One reason for this spectacular run could be the generous dividend and buyback program. But has it been a bit too generous?

As can be seen the past 4 years have generated $36.76 bn in FCF. However, stock repurchases and dividends amounted to almost $47.19 bn i.e. a shortfall of almost $10.43 bn. While the FCF grew 34%, the buybacks and dividends grew 46%. This was financed primarily by debt issuances of $10.57 bn. Already the buybacks have caused the stockholders equity to turn negative and raise the debt almost 100% over the past 4 years.

While this strategy may give a short term boost to the share price, its long term implications are quite detrimental to the company. Could there be another Macy's in the making?