Sears Surges on Rumor; Pandora Plunges on Paltry Profits

Sears Surges on Rumor; Pandora Plunges on Paltry Profits

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The rumor mill was humming more quietly than usual on Wall Street this weekend, freeing the way for the nuclear deal with Iran to dominate headlines and affect markets. While President Obama hailed the Geneva agreement, which allows for international inspectors to gain access to Iran and scales back the Middle Eastern country's nuclear program, not everyone shared the president's satisfaction. Israeli Prime Minister Benjamin Netanyahu, for instance, referred to the same agreement as "a historic mistake." The impact on Wall Street was equally equivocal: The Dow Jones Industrial Average added just 7 points, or 0.1%, to end at 16,072.

Helping the Dow advance modestly were shares of retail giant Wal-Mart which added 0.8% after investors cheered the decision to make the current CEO of Wal-Mart International, Douglas McMillon, the next CEO of the entire $260 billion enterprise. Mike Duke, who took the reins of Wal-Mart in the depths of the financial crisis in February 2009, will have had the role for about five years when he steps down at the end of January. The curse of Wal-Mart's unprecedented ubiquity in the world of retail is a natural ceiling on growth prospects, something shareholders hope McMillon can alleviate.

Sears Holdings would love to face the problems Wal-Mart's facing. Far from being too pervasive to continue growing quickly, Sears' sales are shrinking at Seinfeldian rates, and the company lost more than half a billion dollars in the last quarter alone. Sears stock surged 7.3% Monday after a Sunday New York Post report claimed the company was in active talks to pawn off its Sears Canada locations to raise capital. Sears released a statement today vehemently denying the way the Post report was phrased, but the stock remained in positive territory until the closing bell.

Lastly, shares in music streaming service Pandora slumped 4.3% Monday, a steep intraday pullback that still leaves Pandora stock with 200% returns in 2013. Investors weren't blown away with the company's third-quarter results last Thursday, despite a 50% jump in revenue, improving market share, and solid growth in mobile. Despite these achievements, the company still wasn't profitable in the period, losing $1.7 million because of increasing marketing costs. Content acquisition costs, a routine cost of business in the music streaming industry, are what concern me when it comes to Pandora. The high cost of streaming per hour of music needs to be offset by an increase in advertising or subscription revenue, something I'm not convinced can be done forever.

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