EARNINGS

Q2 Earnings WIll Be Mysterious

This week, we’ll enter an earnings season that some newsletter writers would call unprecedented if they couldn’t think of another word to describe it. 

Companies will share how they performed in the second quarter—the three months that featured a coordinated global shutdown of the economy and a reopening attempt that’s going better in some countries than in others. 

High-level: S&P company earnings are projected to decline 44% in Q2, which would be the largest drop since the financial crisis (when they fell 67% in Q4 of 2008). All 11 sectors of the index are expected to post negative earnings. 

Here’s the but...

Earnings projections in the coronavirus era are about as useless as rinsing a dish before you put it in the dishwasher. More than 180 S&P companies have pulled earnings guidance, leaving analysts scrambling to figure out ways to determine whether a company hit its goals, given the circumstances. 

So unprecedented times calls for unprecedented financial metrics.

• “Investment pros everywhere are concocting homegrown methodologies and bespoke formulas to help them gauge a company’s health,” writes Bloomberg, whether that’s parsing an exec’s words or evaluating dining trends. 
• Traditional financial measures like earnings per share are likely to be ignored in favor of broader narratives about companies’ experiences with closing and reopening. 

First up? 

As always, it’s the banks. Investment banking should be a bright spot given the surge in trading activity that followed the market crash.

• At one point, daily equity trading volumes in the U.S. increased 90%, per the FT.
• JPMorgan predicts a 50% annual increase in markets revenue in Q2.

What won’t be bright spots: M&A fees, earnings from lending and interest, and larger reserves set aside for loan losses.

Zoom out: Bank stocks significantly trail the S&P 500, which is down only 1.4% this year.

EDUCATION

A Back-to-School Public Health Conundrum

This week’s Friday Puzzle is early. As back-to-school season approaches...

• The U.S.’ working parents are overwhelmed and need the flexibility typically provided by schools, especially as some workplaces return to the office. 
• But COVID-19 cases are still rising in most states, and it may not be safe to send kids back to school.

There’s no easy solve, but the workforce desperately needs one

Yesterday, Education Secretary Betsy DeVos pushed for schools to reopen, stressing that “kids cannot afford to not continue learning.” She added that schools that don’t reopen should not get federal funding, a policy President Trump has also suggested. 

• Public health experts such as former FDA Commissioner Scott Gottlieb and Dr. Tom Inglesby of Johns Hopkins said the administration shouldn’t be pressuring schools when safety is unclear. 

Congressional Democrats oppose the reopening push, too. House Speaker Nancy Pelosi said the administration is being reckless in its aggressive approach. When Congress returns next week, No.1 on the to-fight-about list is another coronavirus relief bill, which may include measures to help schools.

COWORKING

WeWork: From Punching Bag to Profitable

In an interview with the FT published yesterday, WeWork Executive Chairman Marcelo Claure said the beleaguered coworking company is on track to earn its cash flow positive badge next year. 

WeWork has been on a journey. Last fall, WeWork had Brew writers exhausting We-[insert verb here] puns by melting down after an IPO filing revealed sketchy accounting practices and governance. In November, main investor SoftBank stepped in with a $5+ billion bailout. 

• Claure said he turned the ship around by 1) slashing jobs 2) renegotiating leases and 3) selling assets. So...by making it a smaller ship. 

WeWork had to adjust for COVID-19, too 

Some tenants refused to pay or tried to wriggle out of leases. But Claure said revenue has held steady—and that the Great Workplace Revolution has even benefited WeWork. 

Some companies (including Microsoft, Citigroup, and TikTok owner ByteDance) are turning to WeWork facilities as satellite offices closer to employees’ homes, while some remote workers are using WeWork for shorter slices of the workweek. 

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MUSIC

At Least You Don't Have to Leave Your Tailgate

Country star Brad Paisley resisted the urge to stage dive while performing at Live Nation’s first drive-in concert series, “Live From the Drive-In” in St. Louis Friday night. A review by the St. Louis Post-Dispatch: 

• “Paisley, in his first live show since March, came off especially earnest and thankful for fans who ventured out to see him.”
• “Applause seemed off in this setting, so horn honking was a big deal.”

CALENDAR

The Week Ahead

We'll learn a lot about COVID-19's effects on the economy this week, from company earnings to important data like June retail sales. 

Monday: PepsiCo earnings

Tuesday: Consumer Price Index for June; earnings (Wells Fargo, JPMorgan, Citigroup, Delta); Bastille Day 

Wednesday: TAX DAY; NBCUniversal’s Peacock streaming service launches nationally; earnings (Goldman Sachs, PNC, UnitedHealth Group, U.S. Bancorp, BNY Mellon)

Thursday: June retail sales; earnings (Bank of America, Morgan Stanley, Netflix, Truist Financial, Johnson & Johnson, Abbott Laboratories, Domino’s Pizza)

Friday: Housing starts; BlackRock earnings; World Emoji Day

GAMES

As great as WIS (working in sweatpants) is, it’s okay to admit you miss hanging out with your coworkers and just...talking about everyday things.

To recreate some of that fun, Morning Brew built an online Mad Libz game to help you connect. You can choose from various situations—including “company party shenanigans”—to form a story that simultaneously makes no sense and all the sense in the world.

Try out the game, then get your entire office playing.

WHAT ELSE IS BREWING

• Three senior execs at Ubisoft, the French developer of videogames like Assassin’s Creed, resigned following an investigation into allegations of misconduct. 
• White House adviser Peter Navarro said President Trump will likely take more action against Chinese-owned apps WeChat and TikTok. 
• Qualcomm will invest $97 million into Reliance Jio Platforms, becoming yet another U.S. player to grab a stake in India’s telecom superstar.
• NBA whisperer Adrian “Woj” Wojnarowski was suspended without pay by ESPN over an f-bomb he sent to Sen. Josh Hawley in an email.
• The Washington Redskins will announce today they'll retire the team's nickname, per Sports Business Journal.
• Deal deals deals: Analog Devices is close to acquiring Maxim Integrated Products, and MultiPlan will go public via a merger with special purpose acquisition company Churchill Capital in a deal worth about $11 billion.

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BREW'S BETS

Learn more about investing: WSJ columnist Jason Zweig has an entire website devoted to blogs, resources, and books around investing. His first column came out 12 years ago yesterday and it remains relevant today.

Productivity course: Join the Brew and entrepreneur Nir Eyal for a 2-week workshop helping you prioritize your time and become a less distracted, more productive person. Due to high demand, we've extended the registration deadline. Sign up now to reserve your seat.

Boost your mornings: We know a good newsletter when we see one, and The Newsette consistently delivers. You'll get news, tips, and interviews that will inspire you to win the day in under five minutes. Check it out here.

Hodgepodge of interesting stories: The tricky math of herd immunity. Why so many people in China pick “weird” English names for themselves. And 19th-century gay marriages.

FROM THE CREW

Start Talking

On Mondays, we'll present some of the thorniest business topics of the day, give you a jumping-off point with resources, and encourage you to debate it with friends, family, and coworkers. 

Today’s topic: Let's run it back to one of our stories—should schools reopen? 

• When schools are reopening and what that may look like. (The Cut)
• Lessons from reopening schools abroad. (NPR, WaPo)
• Teachers are being forced to choose between health and their jobs. (Time)
• Why one epidemiologist thinks schools should reopen. (Vox)
• Students need schools to reopen, but it’s going to take $$$. (NYT Editorial Board)
• Nonmedical vaccine exemptions and school liability could complicate things further. (Education Dive)

BREW CROSSWORD

We got a really fun one for you this week.

The sample clue: What LeBron and others are living right now (10 letters). 

Play the Brew Crossword here.