gracen1qf: Help Making Money

You’ve doubtless heard about the Airbnb fiasco – being dubbed #ransackgate by some – that’s been exploding the last couple of days. If you’re not familiar with the story, we first covered it here, and there’s some terrific source material from the woman who’s home was ransacked and robbed here and here.

Today Y Combinator founder (and Airbnb investor) Paul Graham wrote this:

I’ve just learned more about this situation, and it turns out Airbnb has been offering to fix it, from the very beginning. From the beginning they offered to pay to get her a new place and new stuff, and do whatever else she wanted.

The story Arrington wrote yesterday about Airbnb not offering to help was bullshit. He asked a company spokesman what Airbnb was doing to help her. The spokesman, who’d been told by their lawyers that he couldn’t go into detail about that because of the precedent said “I can’t comment on that.” So Arrington, in typical Arrington fashion said “Well, unless you tell me I’m going to write that you’re not willing to do anything for her.” And he did. Really not cool.

I’ve talked to the Airbnb guys and they are already doing everything they could be doing to help this woman.

Even if you don’t believe they are nice guys (which they are, among the nicest of all the people we’ve funded), do you really think they are so dumb that they don’t realize it’s not worth the bad PR to save money and effort in this situation?

A few thoughts:

1. What the hell?

2. Airbnb’s Christopher Lukezic told me on Wednesday that the company was not responsible for EJ’s losses, that they would be paying anything for her losses, that they are just a service to match people and that they were helping the police find the people who did this. This was on the record, and it was a call we emailed about first. I didn’t take him by surprise. And I read this back to him before I posted.

3. Paul Graham says instead “The spokesman, who’d been told by their lawyers that he couldn’t go into detail about that because of the precedent said “I can’t comment on that.” So Arrington, in typical Arrington fashion said “Well, unless you tell me I’m going to write that you’re not willing to do anything for her.” And he did. Really not cool.

That’s a lie. What he said is what I wrote in no. 2 above, and what was in the original post.

4. Following publication of that Post, Airbnb Brian Chesky called me and I updated that post with his comments, mentioning that there was some miscommunication. I retweeted that there was an important update, and added a bold header at the top of the post mentioning the update.

5. I then added another update, an email from Lukezic. And another update pointing to a guest post by Chesky on the issue. It is absurd to think that I made up the statements that Lukezic made to me in our first interview. It wasn’t even really relevant to the story.

6. Chesky repeatedly thanked me for the updates by email and on the phone. If Lukezic wants to publicly call me a liar, he should do so directly.

7. I’ve seen this exact behavior before with the Scamville stuff a couple of years ago.

The real problem here isn’t some mixup in communication with me. The real problem is that the victim wrote that follow up post yesterday calling Airbnb out and making new allegations of an attempted cover up.

It kind of feels to me that what Airbnb really wants to do is call the victim, EJ, a liar. But they’re certainly not going to do that (although if they have evidence that she’s lying, they should be talking about that). Instead, they focus on us, call me dishonest and suggesting that the whole story is “bullshit.”

One thing I love about our readers is that they’re independent thinkers. Often they don’t agree with my opinions, and say so loudly. But this goes too far. I’m not the person who grossly mishandled a PR crisis. I’m not the person who made factually inaccurate statements on the record. I’m not the person who tried to convince a woman who’s life has been shattered to remove a blog post.

At least have the decency to stand up and say you’re wrong, Airbnb, and apologize for the lies. Because hiding behind investors, and attacking the press, is both dishonorable and stupid. That’s no way to gain customer trust.

PS – If you review our historical coverage of Airbnb, it’s hard to say there’s anything but a pattern of cheerleading the company on since it launched in 2008. And we’ve been massive, unquestioning supporters of Y Combinator over the years as well. I don’t know what Paul Graham means by “typical Arrington fashion,” but I do know this. It’s not my job to fix it when companies do stupid things.

Last August I wrote an article that highlighted the wide spread between the earnings yield on the S&P500 and the yield on treasury bonds. At the time the S&P 500 was in the 1,050-1,100 range which produced an earnings yield of around 7% based on consensus earnings expectations.

Meanwhile 10 year treasury yields had plunged below 3% in anticipation of QE2, producing a net spread between the two of more than 4%. Stocks were a better investment than bonds back then, and soon afterwards the equity market began a rally that took it some 25% higher before today’s list of concerns induced a pull-back. Treasury yields also rose over than time though in recent weeks they’ve dipped back below 3%.

Which brings us to today’s comparison. This morning The Wall Street Journal noted that 2011 full year earnings estimates provided by equity strategists are around $95. Consensus earnings using bottom-up forecasts are higher, which was the point of the article but that’s another story. $95 in earnings on today’s S&P500 of 1,280 is 7.4%, compared with 10 year treasuries of 2.9%. The spread between the two is back to where it was last Summer, in fact it’s even wider. Bonds are once again an unattractive investment.

This is not to ignore the risks currently facing investors. U.S. GDP growth has been disappointingly weak, and the headwinds from high gas prices as well as continued soft housing are weighing on the near term outlook. In addition the European debt crisis meanders on, with the entire world acknowledging Greece’s inability to satisfy its obligations while the EU and IMF persist in throwing good money after bad.

This week’s vote on austerity in the Greek parliament will usher in another round of tax revenue and privatization targets that are unlikely to be met. For this reason the Euro looks vulnerable, and if there are any surprises they’re likely to be negative ones.

Our equity accounts remain fully invested. We think there are good values to be found in selected stocks. One of our biggest positions in Microsoft (MSFT). It’s been a value trap for many investors, but they’ll likely earn $2.58 a share this year and $2.77 next (their fiscal year end is June), and with cash net of long term debt of $38 BN or $4.50 per share the stock is at a P/E of 7.5.

We have also been adding to positions in retailers – specifically we like Family Dollar (FDO). Their low-income customer base will benefit from cheaper gas, and slower growth tends to help this sector as cash-strapped consumers trade down. But FDO also has the opportunity to improve its margins; their sales revenue per square foot is only $163 whereas Dollar General (DG) manages $194. FDO’s operating margin is only 7.3% compared with 10.7% at Dollar Tree (DLTR). Improving these metrics should allow FDO to grow earnings faster than its peers. Holders of their stock include a number of value-seeking investors such as Pershing Square, Lone Pine and Paulson. Nelson Peltz offered $55-60 for the company earlier this year, and management’s rejection suggests they should have some concrete plans to raise the stock price themselves.

In Fixed Income we continue to focus our interest rate risk around the two year sector of investment grade bonds. We don’t like the risk of longer maturities – yields are way too low given the U.S. fiscal position. We continue to have some exposure to emerging market currencies where inflation, interest rates and growth are higher. However, we have trimmed this back recently as we think the EU/IMF/ECB management of Greece’s unsustainable debt load is looking more likely to induce a crisis before the inevitable restructuring. This would be negative for the Euro, and therefore positive for the US$ against most currencies including emerging markets.

Disclosure: Author is Long MSFT, FDO

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gracen1qf

Wednesday, August 3, 2011

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