For the Finance heads: Ackman's takedown of Herbalife (HLF)

[wawawowee]

For the few on NT who care/have the patience:. 

Ackman gave his presentation a few days ago and I just got done watching it in its entirety. 

Ackman's a beast. He's done it before with MBIA ( Amazon product ASIN 1118010418). The book is a great read btw. 

MLM are all shady, but how many reach ~$5bn market caps. I guess it says something about the times (as Ackman mentioned in presentation) or about our society where a scheme as obvious as an MLM appeals to so many. 

It's even more outrageous that the CEO of Herbalife has cashed out over $140MM in options over the past few years and that no one has brought this up with multiple major funds being invested in HLF. 

The PDF:

http://factsaboutherbalife.com/wp-content/uploads/2012/12/Who-wants-to-be-a-Millionaire1.pdf

The site:

http://factsaboutherbalife.com/

Webcast:

http://www.visualwebcaster.com/Pershing/91149/event.asp

The presentation is lengthy  (over 300 slides/ 3 hour presentation) but those who are interested should take a look. 

 

[xilegacy]

posting for later

 

[crcballer55]

Is this presentation supposed to be about how nobody has actually never bought Herbalife, yet it's an $5B company?

Personally, I know at least a half dozen people who have benefited from using their products and at least 4 others who directly sell it. Herbalife is no different form an MLM like Avon or Mary Kay. There will always be those who try to recruit people who have no sales skills and thus give the company a bad name. There are others, however, that are good at lead generation, believe firmly in the company's products, and are able to sell them effectively to people who will benefit.

 

[wawawowee]

Is this presentation supposed to be about how nobody has actually never bought Herbalife, yet it's an $5B company?

Personally, I know at least a half dozen people who have benefited from using their products and at least 4 others who directly sell it. Herbalife is no different form an MLM like Avon or Mary Kay. There will always be those who try to recruit people who have no sales skills and thus give the company a bad name. There are others, however, that are good at lead generation, believe firmly in the company's products, and are able to sell them effectively to people who will benefit.

His presentation isn't about that. They obviously make sales. Whether it's as much as Herbalife claims is one of the problems (their products don't actually sell at the MSRP).

The main gist of his argument is that most of the "sales" are within the distribution line itself. The end consumer demand just isn't there. That creates a situation where the name of the game becomes replacing the fools at the bottom (who initially buy in) who  feed the top. The retention rate is only 10%.  A classic pyramid scheme. 

Take a look at his presentation. It's 3 hours and deconstructs the company piece by piece. 

Take a look at:

http://factsaboutherbalife.com/wp-c...2/2012_StatementAverageCompensation2011EN.pdf

You have less than 2% of all active participants capturing 95% of the income and 95% of those that participate are literally pissing away money. 

 

[crcballer55]

Is this presentation supposed to be about how nobody has actually never bought Herbalife, yet it's an $5B company?

Personally, I know at least a half dozen people who have benefited from using their products and at least 4 others who directly sell it. Herbalife is no different form an MLM like Avon or Mary Kay. There will always be those who try to recruit people who have no sales skills and thus give the company a bad name. There are others, however, that are good at lead generation, believe firmly in the company's products, and are able to sell them effectively to people who will benefit.

His presentation isn't about that. They obviously make sales. Whether it's as much as Herbalife claims is one of the problems (their products don't actually sell at the MSRP).

The main gist of his argument is that most of the "sales" are within the distribution line itself. The end consumer demand just isn't there. That creates a situation where the name of the game becomes replacing the fools at the bottom (who initially buy in) who  feed the top. The retention rate is only 10%.  A classic pyramid scheme. 

Take a look at his presentation. It's 3 hours and deconstructs the company piece by piece. 

Take a look at:

http://factsaboutherbalife.com/wp-c...2/2012_StatementAverageCompensation2011EN.pdf

You have less than 2% of all active participants capturing 95% of the income and 95% of those that participate are literally pissing away money. 

I only saw the PDF since the actual presentation requires registration. Either way... a 10% retention rate is about average. Actually, in any sales, a 10% close rate is average. There will always be a large majority of washout for whatever reason. I'm thinking it's so high here because women are the main sales people and they typically require some sort of stability (guaranteed income) unless they're just doing this to help the household while they're trying to stay home and raise kids. A MLM and pyramid scheme are completely different since a pyramid scheme is a company without a legitimate product to sell.

I bring it back to this point. How is the last stat any different from the typical 80/20 rule, except skewed? If this were a true pyramid, wouldn't the SEC be getting involved?

 

[andycrazn]

For the few on NT who care/have the patience:. 


Ackman gave his presentation a few days ago and I just got done watching it in its entirety. 

Ackman's a beast. He's done it before with MBIA ( http://www.amazon.com/Confidence-Game-Manager-Streets-Bloomberg/dp/1118010418

). The book is a great read btw. 


MLM are all shady, but how many reach ~$5bn market caps. I guess it says something about the times (as Ackman mentioned in presentation) or about our society where a scheme as obvious as an MLM appeals to so many. 

It's even more outrageous that the CEO of Herbalife has cashed out over $140MM in options over the past few years and that no one has brought this up with multiple major funds being invested in HLF. 

The PDF:

http://factsaboutherbalife.com/wp-content/uploads/2012/12/Who-wants-to-be-a-Millionaire1.pdf


The site:

http://factsaboutherbalife.com/



Webcast:

http://www.visualwebcaster.com/Pershing/91149/event.asp


The presentation is lengthy  (over 300 slides/ 3 hour presentation) but those who are interested should take a look. 

was he the dude that exposed green mountain and shortly afterward the stock took a huge dive.

 

[wawawowee]

That was David Einhorn of Greenlight Capital. He asked an interesting question in an Herbalife earnings
Conference call earlier this year that also tanked the stock because the answer given was very evasive.

 

[mrbrown]

ill give this a watch.... maybe ill start a new herbalife but with marijuana

 

[dajoka004]

I've been sort of following what's been going on with this. I don't really know enough to comment on it though.

 

[rashi]

I went with a friend a few years back to a HerbaLife thing. I wanted to see what these people had to say from a nutrition stand point. Everything these people said was full of ****. High school degenerates with no background. I havent been following this story as of late, but yeah, HerbaLife isnt the only people pulling this ****. I have a flight tomorrow, going to listen to the podcast.

 

[703 hwy]

Hmmm....

 

[wawawowee]

Hmmm....

Give it some time.

Cases like this tend to play out over years. When HLF took a hit for the few days after Ackman's presentation, one of my friends asked me why I wasn't short. I told him that more often than not, there tend to be huge short squeezes after the initial move. Too many people scrambling and too many sharks in the water.  In essence this strong move up has just been an attempt at filling the gap. It's standard. 

In this case, it has been helped by factors such as major mutual funds holding the stock and most likely bidding it up. If you're a mutual fund manager, how do you explain losing money on a scam stock? Most fund managers are dunces not worth their pay so this can start a slippery slope for them.  It's simply easier and more prudent (in terms of their self interest) to bid the stock up until they can cut their losses short(er).

No fund manager , good or bad, will hold this equity in the face of so many questions/accusations. It's just not worth it from a risk/reward perspective when they can just go out and invest in a comparable stock. 

I think that in the long run HLF will take a big hit. It won't go out of business but it won't be a $6bn company. 

People like Loeb want to cut their losses short so he's talking it up because he knows the jig is at an end. 

 

[DB Cooper]

The lady who owns the Barber shop I go to always tried to get me to buy into this. Of course I always declined. Since then, every time I go in there she is always trying to recruit people to buy into it. All this talk about how it will lead to a healthier life and how it has changed her life. I think the real kicker was her consistent bragging that one day she will be making 20k a month. It's been almost 7 years and well...she still works at the shop.

 

[rashi]

Saw HLF CEO on CNBC earlier today. The stock was going down at every word.

 

[kote]

lol @ herbalife or any supplement/alternative medicine. You have to be religious to believe those things.

 

[tonton32]

Saw HLF CEO on CNBC earlier today. The stock was going down at every word.

i noticed this as well, and the SEC has apparently launched an inquiry