Nvidia Revenues Surge 262%, Red Lobster Files for Chapter 11

Key Takeaway

• Nvidia's revenues surged 262% year-on-year to $26 billion, driving its stock close to $1,000 and prompting a 10-to-1 stock split.
• Red Lobster filed for Chapter 11 bankruptcy due to financial losses from the "Ultimate Endless Shrimp" deal and supply chain issues with Thai Union.
• The Red Lobster saga involves complex financial engineering, including controversial REIT transactions and ownership changes since its sale by Darden Restaurants.

Nvidia's Strong Earnings

Nvidia reported a significant increase in revenues, up 262% year-on-year, reaching $26 billion for the first three months of the fiscal year ending in April. This impressive performance has been a key driver for the company's stock, which is nearing the $1,000 mark, having roughly doubled so far in 2024. The company also announced a 10-to-1 stock split aimed at making stock ownership more accessible to employees and investors. "Such pie-splitting exercises should not create shareholder value, but these days just about anything can send Nvidia’s stock price off to the races," noted Sujeet Indap.

Red Lobster's Bankruptcy Filing

Red Lobster Management LLC has filed for Chapter 11 bankruptcy, citing financial troubles exacerbated by the $20 "Ultimate Endless Shrimp" deal. CEO Jonathan Tibus claimed that this promotion resulted in an $11 million loss and significant supply chain issues due to an exclusive deal with Thai Union Group Plc. Tibus alleged that Thai Union exerted "outsized influence" on Red Lobster's shrimp purchasing, leading to higher costs and shortages. Thai Union, however, disputes these claims but supports the court-supervised restructuring process. "We are confident that a court-supervised process will allow Red Lobster to restructure its financial obligations and realize its long-term potential in a more favorable operating environment," Thai Union stated.

Historical Context and Financial Engineering

The Red Lobster saga traces back to a decade-old boardroom showdown when it was part of Darden Restaurants. Activist hedge fund Starboard Value took a 6% stake in Darden, criticizing the management and eventually leading to the sale of Red Lobster to Golden Gate Capital for $2.1 billion in 2014. Golden Gate later sold the bulk of Red Lobster's property to American Realty Capital Partners for $1.5 billion and a 49% equity stake to Thai Union for $575 million. Golden Gate completely exited Red Lobster in 2020. The financial engineering involved in these transactions, including the creation of a real estate investment trust (REIT), has been controversial. "These 'opco-propco' financial engineering gambits are understandably controversial for the added permanent risk that they create by separating the real estate," noted Indap.

Street Views

• Toni Sacconaghi, Bernstein (Neutral on Tesla):

  "It [Cybertruck] has a much smaller total addressable market, and has proven extremely difficult to bring to market."

• Craig Irwin, Roth Capital (Bearish on Tesla's strategy):

  "Delaying a smaller car—which Wall Street refers to as the Model 2—was the largest strategic bungle at Tesla to date."

• Pierre Ferragu, New Street Research (Neutral on Tesla's Model 2 strategy):

  "It doesn’t really make sense to claim it should have come sooner. A lot of the cost base of Model 2 will be possible tomorrow, not yesterday."

Management Quotes

• Nvidia:

  "[The company will split its shares 10 to 1 in order] to make stock ownership more accessible to employees and investors."