Tesla Buys $1.5 Billion In Bitcoin
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Tesla Buys $1.5 Billion In Bitcoin

Cryptocurrency’s price soars after electric-vehicle maker says it soon expects to accept customer payments in bitcoin.

By CAITLIN OSTROFF
Tue, Feb 9, 2021 12:39amGrey Clock 4 min

Tesla Inc. said Monday that it bought $1.5 billion in bitcoin, a disclosure that follows Chief Executive Elon Musk’s promotion of the cryptocurrency and other digital-currency alternatives on Twitter.

The electric-vehicle company also said it expects to start accepting bitcoin as payment for its products soon. Bitcoin prices jumped more than 10% after the announcement, according to cryptocurrency research and news site CoinDesk.

Tesla disclosed its bitcoin purchase in its latest annual report, saying the move aims to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Tesla said a board committee had approved changes to company rules on investments, adding that it can also invest cash in gold bullion and gold exchange-traded funds among other assets.

The bitcoin purchase, likely among the largest by a public company, comes after a rally in 2020 when the price more than quadrupled. Tesla is joining a handful of other companies that have disclosed bitcoin holdings. Software developer MicroStrategy Inc. acquired about $425 million worth of bitcoin last summer, and its CEO, Michael Saylor, has become an outspoken proponent.

Companies holding bitcoin in their treasuries face an accounting risk: Because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them—even a temporary one—can force a company to write down the value, taking an impairment charge. MicroStrategy posted a net loss in the third quarter of 2020 because the price of bitcoin dropped temporarily in September.

Tesla said it would analyze its holdings in the cryptocurrency each quarter to see whether impairments are warranted based on bitcoin prices. “If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed,” the company said.

Sharp changes in the digital currency’s valuation might be why companies have acquired millions, rather than billions, of dollars’ worth of the cryptocurrency, said Michel Rauchs, founder of Luxembourg-based digital-assets consulting firm Paradigma Sarl: “It is definitely greater risk but greater reward there.”

Bitcoin recently traded Monday at $43,602.68, according to CoinDesk. Its price averaged $34,730.12 in January and is currently more than eight times higher than bitcoin’s 2020 low of a little under $5,000.

Mr. Musk has shown growing interest in bitcoin in recent years, after tweeting in 2018 that the only cryptocurrency he owned was one-quarter of a bitcoin a friend had given him—which today would be worth more than $10,000. Around Jan. 29 the Tesla chief changed his Twitter biography to “#bitcoin,” which sent prices for it higher, before removing that reference.

“I think bitcoin is really on the verge of getting broad acceptance by sort of the conventional finance people,” he said last week on the social-networking app Clubhouse. Mr. Musk said he needed to be cautious with his public statements about cryptocurrencies because “some of these things can really move the market.”

Tesla didn’t respond to a request for comment. The company said in its report that it updated its investment policy in January but didn’t disclose the exact timing of either its board decision or its bitcoin purchase.

“He’s already telegraphed it to the market,” said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares, referring to Mr. Musk’s mentioning bitcoin in his Twitter biography. “One of the world’s largest corporations doing this—I think it opens the floodgates.”

Recently, Mr. Musk’s tweets about dogecoin, a cryptocurrency started as a joke in 2013, have helped drive up that virtual currency’s price.

Tesla has struggled to maintain cash while ramping up vehicle production, but its shares soared some 480% in the year ended Friday as investors piled into electric-vehicle makers and the company reported a string of quarterly profits. Tesla took advantage of that surge by selling billions of dollars in new stock, shoring up its cash position. The company’s cash holdings totalled around $19.4 billion at the end of last year, up from around $6.3 billion at the end of 2019.

Mr. Musk’s tweets have drawn regulatory scrutiny, including from the Securities and Exchange Commission over a 2018 post in which the CEO said he had secured funding to take Tesla private. Mr. Musk and the SEC later settled in a deal requiring the company to sign off on any written statements he made that could be deemed material. He has since mocked the regulator on Twitter.

The SEC is unlikely to challenge Mr. Musk over his bitcoin tweets, said John Coffee Jr., a Columbia University law professor who specializes in securities law, especially after a federal judge rebuked the commission when it sought to hold the CEO in contempt in 2019. Tesla didn’t respond to a request for comment about whether Mr. Musk had sought approval for his bitcoin commentary.

Mr. Musk’s online remarks can move markets. After touting online shopping site Etsy Inc. in January, the stock rose more than 8% on the open. Shares in CD Projekt SA, the maker of the troubled Cyberpunk 2077 game, rose more than 15% after Mr. Musk praised the game. Both stocks retreated later. Last year, Mr. Musk tweeted that he thought Tesla’s share price was too high. The market agreed, and the stock fell before recovering.

An affinity for bitcoin seems a natural fit for Mr. Musk, who has bristled at government constraints. Last year he battled local authorities in California that ordered his lone U.S. car plant closed as part of broader measures to curb the pandemic. Mr. Musk reopened the facility after several weeks, daring authorities to arrest him. They didn’t.

Part of bitcoin’s appeal for some holders is that it isn’t circulated or controlled by a government or nation. Unlike opening up a bank account to store dollars, euros or yen, starting a bitcoin account doesn’t require providing identifying information. Bitcoin is effectively anonymous, and law enforcement can’t freeze a bitcoin account as they could a bank account.

Payments company Square Inc., which shares bitcoin advocate Jack Dorsey as its CEO with Twitter Inc., acquired about $50 million worth for its corporate treasury in October. Massachusetts Mutual Life Insurance Co. acquired $100 million worth in December to hold in its general investment account.

Companies might have grown more optimistic about bitcoin after the March 2020 selloff, when it recovered faster than the broader stock market, said Joel Kruger, a currency strategist at LMAX Group.

The added wrinkle with Tesla is the plan to accept bitcoin from customers. Few companies now accept bitcoin directly as payment; Overstock.com Inc. is among the few that do. Some large companies experimented with bitcoin payments in 2014 and 2015, like Dell Technologies Inc. and Expedia Group Inc., but most later dropped it for lack of use.

While Tesla’s move would be high profile, a more substantial development is expected later this year, when PayPal Holdings Inc. plans to allow its customers to use their bitcoin holdings for payments.

Mr. Musk’s ties to the financial-services industry date to the 1990s, when he invested most of the $22 million he earned from the sale of an internet business into a new startup, X.com, that became PayPal. EBay Inc. bought PayPal for $1.4 billion in 2002.

As the largest shareholder, a 31-year-old Mr. Musk collected more than $100 million. He used the money to start Tesla and Space Exploration Technologies Corp., the rocket company he also runs, as well as solar-cell company SolarCity, now part of Tesla.



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Nike Reverses Course as Innovation Stalls and Rivals Gain Ground

Shoe giant stumbled as CEO John Donahoe pulled away from retailers and relied on old hits. Now it says it’s refocusing on cutting-edge footwear for athletes.

By INTI PACHECO
Tue, Apr 23, 2024 10 min

In late February, Nike boss John Donahoe led a virtual all-hands meeting where he delivered a message to his staff: The company wasn’t performing at its best and he held himself accountable.

Two weeks earlier, Nike had announced it would lay off more than 1,600 employees .

Now, as the CEO spoke at the meeting, critical comments started to fill the chat window on the Zoom call while more than 20,000 employees watched.

“Accountability: I do not think that word means what you think it means,” an employee wrote. “If this is cost cutting, how about a CEO salary cut?” another wrote. Soon a cascade of laughing emojis filled the screen.

Some colleagues warned others that their posts weren’t anonymous and the chat might be monitored. The attacks went on for several minutes. “I hope Phil is watching and reading this,” an employee wrote, referencing the retired Nike co-founder Phil Knight .

The virtual protest illustrated the depths of the dissatisfaction within the sneaker giant and concern for its strategy. “How did we actually get here?” wrote one product manager.

Since the pandemic, Nike has lost ground in its critical running category while it focused on pumping out old hits and preparing for an e-commerce revolution that never came. The moves, current and former employees say, have eroded a culture of innovation and edginess that made Nike one of the world’s best-known brands.

Donahoe had told The Wall Street Journal in 2020 that his No. 1 priority when taking over the company was “don’t screw it up.” Four years later, the company is unwinding key elements of the CEO’s strategy that have backfired as a growing number of upstarts nip at its heels.

Among the reversals: As Covid raged and more shopping moved online, Nike cut ties with longtime retail partners such as DSW and Urban Outfitters and tried selling more merchandise directly to consumers. It is now asking some of those stores for help clearing out its overstuffed shelves and warehouses.

“I would say we got some things right and some things wrong,” Donahoe said Thursday, in an interview at Nike’s Beaverton, Ore., headquarters.

Losing its roots

The strategic missteps have animated a debate inside the company about its identity. In its zeal to boost digital sales, some current and former employees say, Nike veered from its roots as a maker of cutting-edge footwear for serious athletes. It has opened itself to competition from newcomers such as On and Hoka, which have borrowed from the playbook that fuelled Nike’s rise—including focusing on sport over lifestyle, and taking risks on innovation.

Nike’s once torrid growth has stalled . Sales for the quarter ended Feb. 29 were flat compared with a year earlier, and shares in the company have declined 24% over the past year, compared with a 19% gain in the S&P 500.

Donahoe in the interview acknowledged the brand lost its “sharp edge” in sports and needed to boost its “disruptive innovation pipeline.” The CEO said the brand’s marketing got fragmented and that with people going back to bricks-and-mortar stores, it was clear Nike needed to invest in its retail partners.

Nike executives said in interviews that the company became too cautious after the pandemic and overly reliant on older products that were reliable sellers. They said the company has made significant changes in recent months to refocus it on putting out cutting-edge footwear.

“We were serving consumers what they know and love,” said John Hoke , Nike’s recently named chief innovation officer. “The job is to of course do that but also to show them something new, take them someplace new.”

Donahoe said Nike is going through a period of adversity and layoffs that has created uncertainty, but that the company will get through it. “Our employees have been through a lot,” he said. “Nike is actually at its best, like a great sports team, when our backs are against the wall.”

Knight, who is chairman emeritus of the board and the company’s largest shareholder, said in a statement that Donahoe has his “unwavering support.”

Donahoe said employees’ responses to the all-hands meeting reflected one of Nike’s biggest strengths: how much its staff cares about the company. “We welcome and encourage that,” Donahoe said.

Shift into digital

Donahoe took over Nike just before the pandemic, at a delicate time. Though he inherited a market leader and one of the world’s best-known brands, Nike was seeking a refresh after it dealt with complaints about its workplace culture that led to a management shake-up .

The Evanston, Ill., native had been CEO of eBay , where he doubled the e-commerce platform’s revenue during a seven-year stint that ended in 2015. After a sabbatical—during which he says he had a life-altering experience at a 10-day Buddhist silent meditation retreat—Donahoe went on to run cloud-computing company ServiceNow .

When he took the helm of Nike in early 2020, his marching orders from Mark Parker , his predecessor and current executive chairman, and Knight were clear. He was to turn the world’s biggest shoe maker into a tech company more directly connected to consumers through its own apps, which in turn collect valuable data from shoppers.

Parker said when he stepped down that Donahoe was the right candidate to lead Nike’s digital transformation.

Donahoe was just the fourth CEO in the company’s more than 50-year history. The only other outsider to get the job said he was ousted in 2006 after a short stint because he focused too much on the numbers .

Donahoe started out with a 100-day global listening tour that was cut short after a month when the pandemic hit.

Covid lockdowns fuelled a surge in online shopping. Digital channels accounted for 30% of Nike’s sales in May 2020, about three years ahead of schedule.

Donahoe saw it as an acceleration of an inevitable shift and adjusted Nike’s plans accordingly. A few months in, he redoubled the company’s bet that it could make more money by selling products directly to consumers through its stores and digital channels. He said he believed digital sales would reach 50% of the business, and Nike should transform faster to define the marketplace of the future. It was time to act.

By late 2020, Nike dropped about a third of its sales partners and sold less merchandise to clients such as Foot Locker , DSW and Macy’s . There had been a plan to phase out wholesale clients since 2017, but with digital sales growing quickly, Donahoe said there was a need for urgency.

Executives were divided over whether Nike’s own stores, which include both factory outlets and specialty shops selling higher-priced new releases, could fill the sales void left by the retailers the company was cutting out.

In meetings, finance chief Matt Friend and Nike president Heidi O’Neill supported the aggressive exit from retail that Donahoe was pushing, while others favored a slower transition, people familiar with the matter said.

Some executives felt the specialty stores in particular worked better as marketing tools and that cutting off so many retailers so fast would backfire, the people said. Donahoe and his allies prevailed.

Nike teams were tasked to come up with a new global supply-chain process. Selling directly to consumers increased the company’s liabilities, including by shifting storage and shipping costs from wholesalers to Nike. The company would also absorb the losses from discounts if the merchandise didn’t sell quickly and inventory piled up.

One of the casualties of Donahoe’s 2020 transformation was a multibillion-dollar operation dedicated to developing footwear sold for under $100. The company deprioritised more-affordable footwear that usually sold to the sales partners that Nike was leaving behind. The move left Nike skewed toward higher-priced shoes.

The first evidence of cracks in Nike’s new approach appeared early last year when Foot Locker Chief Executive Mary Dillon said during an earnings call the brand had reversed course and was sending the retailer a wider assortment of Nike products. By the summer, Macy’s and DSW were saying the same thing.

The message was clear: Nike needed help selling merchandise.

Nike veterans said cutting off wholesale clients was one of the biggest mistakes the company has ever made. After digital sales hit the 30% of the total mark early in the pandemic, they dropped back, and haven’t reached that level since—let alone the 50% target Donahoe had foreseen.

Donahoe said in the interview the goal at the time was to lean more on specific partners, such as Dick’s Sporting Goods and JD Sports , which he considers to be more aligned with Nike, rather than make a dramatic shift in strategy. Nike deprioritised making lower-priced shoes because of supply-chain disruptions during the pandemic, but it is now making more of those products, he said.

“I don’t see it as a reversal of the strategy,” Donahoe said of the return to more retail chains. “I see it as an adjustment.”

Rising competition

Competitors have been using the sneaker giant’s playbook at its expense. Smaller brands like On, Hoka and New Balance have captured significant pieces of the market for both hard-core and everyday runners—and their popularity is spreading to the mainstream.

Often quoting Knight, the Nike co-founder, former employees said the principle always was to first capture the market for hard-core athletes with innovative performance gear, and the casual consumer would follow.

In early February, Hoka owner Deckers Outdoor tapped Nike alums to take over both the parent company and the shoe brand. Hoka had $1.4 billion in sales for the year through March 2023, compared with about $352 million three years earlier.

Hoka didn’t respond to requests for comment.

“When you’re the biggest, there’s always going to be people coming after you,” Donahoe said. Competitors give Nike an incentive to try to understand what consumers want and to figure out how to come up with something bold and different, he said.

Nike still dwarfs its competition . During Donahoe’s tenure, Nike sales have grown 31% to $51 billion in 2023. That is more than double the results of Adidas, its closest competitor by far. New Balance reported sales reached $6.5 billion last year, and upstart On almost hit the $2 billion mark.

The race to hit revenue targets came at a cost for Nike. Executives turned to the brand’s lucrative franchises, including Air Jordan and Dunk, and ramped up the releases. The strategy diluted the exclusivity prized by die-hard Nike sneaker shoppers.

Donahoe said in the interview that Nike ramped up production to meet demand on its SNKRS app, which fans use to buy the latest limited releases. In early 2021, Nike was meeting less than 5% of the demand for some releases on the app and consumers were frustrated, Donahoe said, adding the goal is to meet something closer to 20% of demand for the exclusive styles.

Now, sneaker resellers say they have seen release after release of Nike’s limited-edition kicks that don’t sell out on the SNKRS app, and that in the secondary market—a space that the brand closely monitors —prices are tanking.

Nike executives in March said they would pull back on franchise releases.

Donahoe said “franchise management has always been something Nike has done.”

Nike’s digital sales, a figure that includes direct and partner e-commerce sales, declined for the quarter ended Feb. 29. Friend, the finance chief, told analysts in March that Nike expects total sales to decline at least until the end of this year.

Struggle for innovation

The pursuit of sales growth from limited-edition sneaker releases led Nike to neglect its running category, long considered the core product of the company, former employees said.

This month in Paris, Nike unveiled its new product line for the Olympics, including running shoes with a new cushioning system that uses the company’s Air technology.

In interviews at the event, executives said the company had become somewhat risk-averse during the pandemic, when working remotely stifled creativity. Martin Lotti, chief design officer, said the company had spent too much time looking to its past.

“If you drive a car just by looking in the rear view mirror, that’s not a good thing,” Lotti said. “The bigger opportunity is the windshield.”

Current and former Nike executives believe the future of the company is in its app ecosystem , like the Nike Training and Running Club or its SNKRS app, and the data it can harness from them to help design and sell products. Inside the company, leaders have long tried to draw comparisons to Apple when talking about Nike’s innovation and design culture.

The sneaker giant has been acquiring smaller data analytics startups for at least a decade. Two years ago, it also bet on the NFT craze .

One of Nike’s biggest tech investments is a multibillion-dollar process to migrate multiple software programs into one single system. The new platform, known as S/4HANA, is still not operational and is three years behind schedule. The software is designed to help day-to-day operations, such as procurement and inventory management, and speed up digital sales.

As part of its accelerated focus on digital sales, Nike hired about 3,500 people to join what the company calls its global technology group, which includes consumer insights and data analytics. Executives at the time said they were investing in “demand sensing,” “insight gathering” and a new inventory system.

Former Nike employees with knowledge of the consumer insights strategy said executives misinterpreted the data in ways that overestimated demand for retro franchises.

During February’s round of layoffs executives trimmed layers of management across the company’s insights and analytics teams. A large technology innovation team, tasked with developing software to implement Apple’s new Vision Pro augmented reality system in day-to-day design tasks, and a separate artificial intelligence team were also eliminated.

Executives at Nike say it is entering a “supercycle” of innovation and that the new Air line of products enhances athlete performance.

At the Olympics preview event this month, the company took over the historic Palais Brongniart in central Paris with a three-day event to unveil its new Air line. Guests wandered through a museum-like, conveyor-belt installation highlighting Nike’s product evolutions and research and development programs. Athletes including runners Sha’Carri Richardson and Eliud Kipchoge modeled the new gear. Retired tennis great Serena Williams narrated the company’s lavish introduction video before appearing on stage.

Outside, 30-foot orange statues of Nike-sponsored athletes including LeBron James, Kylian Mbappé and Victor Wembanyama stood guard.

Donahoe’s relationship with Knight goes back to the early 1990s, when he was a Bain consultant on Nike projects. He joined the Nike board in 2014 and is one of the directors of an entity Knight created called Swoosh LLC, which holds roughly $22 billion worth of Nike shares and controls a majority of Nike’s board seats. Donahoe calls Knight his “greatest hero in business.”

The current CEO said he meets with his predecessor, Parker, every week.

Donahoe said that he and Parker share an approach to management he calls “servant leadership” that was embodied by some of his sports heroes, including basketball coaches Phil Jackson, John Thompson, Mike Krzyzewski and Tara VanDerveer.

“It’s never been about me. It’s about your players. And are you doing everything you can to allow your players to make the adjustments to win? And when you have a win it’s about the players and when you have a loss you say it’s on me, right?,” he said. “And that’s what I’ve always tried to embody, including during this period of time.”

This week, Donahoe is facing another test: the company is notifying several hundred more workers whose jobs are being cut.

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