Power Sheet – June 15, 2016

-Uber raises still more capital outside of public markets. Back when “the sharing economy” was first hot, plenty of companies jumped on the trend and went nowhere. Remember Ecomodo, Crowd Rent, Share Some Sugar, and OhSoWe? Me neither, but Fast Company recounted the story last year. Uber founder Travis Kalanick succeeded where they didn’t by thinking through the market potential of his idea and designing his business model more carefully than anyone else. As the company has succeeded spectacularly, he has rejected conventional thinking by refusing to go public, instead raising capital from venture firms, big institutions, strategic investors (like Microsoft), and a Saudi sovereign wealth fund.

Now he’s borrowing $3.5 billion. But wait – if you borrow that much, won’t you have to register with the SEC and file financial reports that disclose competitive information, thus losing a big advantage of staying private? No. Uber is borrowing all that money as a leveraged loan, originated by banks and then sold to big institutions, not to the public. So even at a valuation of $68 billion, Uber won’t have to give up valuable information to competitors.

-IEX Group is likely to get government approval for a new stock exchange. If you read Michael Lewis’s Flash Boys, you know how this unlikely story started. Now sources tell the WSJ that the SEC staff will recommend approval of the bid by Brad Katsuyama and the company he formed, IEX Group, to start a new stock exchange. The formal vote is expected Friday. Katsuyama’s simple innovation is to add an electronic speed bump to trading, hindering ultra-high-frequency traders that he and some big mutual funds have called abusive.

The proposal has been extraordinarily controversial, drawing vehement attacks from established markets such as Nasdaq. Some opponents warn the system would force traders to rely on “stale quotes.” It’s all a little hard for average investors to understand: IEX wants to delay trades by less than one-thousandth of a second. Katsuyama thought that would be a big deal, and he was right.

-Starbucks makes millions of dollars a year just by holding customers’ money. Retailer loyalty programs are not a new idea. Neither are stored-value cards. But 15 years ago Starbucks had an idea for combining them and pushing them hard when most retailers didn’t quite see the point. Now Starbucks customers in the U.S. and Canada make 41% of their transactions using those cards, reports MarketWatch, and the company holds $1.2 billion of customers’ money. That’s more float than Discover Financial Services. CEO Howard Schultz has always run Starbucks differently from competitors, to the point where it’s getting hard to say just who its competitors are.

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What We're Reading Today

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