Let Them Eat Cake

Let Them Eat Cake

How many times have you heard that sugar makes kids hyperactive, or that caffeine will keep you up all night, or that cigarettes make you jittery? Well, research now shows that this is not true for everyone. In fact, it can have the opposite effect on some people and in moderate amounts. No, you’re not necessarily crazy, you’re just different.

There have been at least twelve trials of various diets investigating different levels of sugar in children’s diets. That’s more studies than are often done on new drugs coming to market. None of these studies detected any differences in behavior between children who had eaten sugar and those who had not. These studies included sugar from candy, chocolate, and natural sources. Some of them focused on children with attention deficit hyperactivity disorder (ADHD) and some only included children who were considered “sensitive” to sugar. In all of them, the children behaved the same after eating something full of sugar or something sugar-free. Yet, the myth that sugar makes people hyperactive defies scientific evidence.

Sugar can actually calm kids down. When sugar enters the bloodstream and reaches the brain, it temporarily increases calming neuro chemicals like Serotonin. But sugar isn’t good for you, and corn syrup is even worse, so you have to choose your poison carefully. Dark chocolate is a lot healthier than milk chocolate and can help reduce cortisol levels as well as lower the levels of epinephrine and norepinephrine, which make kids (and adults) anxious and nervous. Chocolate is also rich in Tryptophan, which is a biochemical precursor that helps with the production of Serotonin. So, the next time your kid is bouncing off the walls, why not try giving him a little chocolate to calm him down?

Chocolate Cake

Other good sources of Tryptophan include milk, eggs, Cod and spirulina, but unless your kids are a bit odd, I suggest you just stick with the milk and eggs. So, to get even more bang for the buck, get your kid to eat a real egg before he gets the chocolate egg. Wait, can’t you get milk, eggs and chocolate all together in a piece of dark chocolate cake? I think I’ve found the perfect food!

Like sugar, caffeine and nicotine can also relax some people. Central nervous system stimulant drugs like methylphenidate are used to treat children who suffer from ADHD. Caffeine is also a central nervous system stimulant and thus is being studied as a potential aid for this condition. Some folk medicine treatments for ADHD even recommend combining caffeine and sugar.

Cup of Caffeine

According to an article in the June 2001 issue of “Monitor on Psychology,” caffeine seems to calm hyperactivity and reduce aggressiveness in kids with ADHD. In one analysis of studies reported in the article, caffeine didn’t work as well as traditional ADHD stimulant drugs, but it helped calm hyperactivity better than no treatment at all. Additionally, a 2003 Canadian review of studies published in the journal “Food Additives and Contaminants” noted that caffeine has been used successfully to treat ADHD and has been shown to increase performance by ADHD children in attention tests.

So, to summarize, for those with a fabulous genetic predisposition, the perfect relaxing meal could be either of the following:

1. a couple of eggs, a cup of coffee with milk, and a bit of chocolate or
2. a piece of dark chocolate cake with a cappuccino

This might even work well for some people at night. Caffeine works by blocking the receptors in the brain that make you feel sleepy, but some people are resistant to that effect. I happen to be one of them. If your brain is resistant to caffeine, then a warm drink of any kind, including coffee, will help relax you and ease you into sleep.

Nicotine is not just a stimulant. It is also a known relaxant, primarily because it increases levels of Dopamine in the brain, a hormone / neurotransmitter that causes sensations of pleasure. Nicotine produces pleasure by attaching to the nicotinic acetylcholine receptor found on certain nerve cells. In response to nicotine, these nerve cells release a chemical signal called glutamate, which tells connected neurons to release dopamine. The more these nerve cells are excited, the more Dopamine is released and the more pleasant the feeling.  Unfortunately, Nicotine doesn’t come by itself–and you really don’t want the side effects that come with smoking. Too bad we can’t brew a relaxing cup of nicotine-laced coffee before bedtime.

Evidence like this makes me skeptical of any medical advice the “experts” give that is supposed to apply to everyone. Much of what we are led to believe, even if it is scientific, only applies in some cases or sometimes doesn’t even apply at all to some individuals. Not everyone responds the same way to the same chemicals, hormones, foods, or other environmental factors. So, if something doesn’t feel or seem right, it just might not be right for you. Maybe we should all just listen to Professor Lupin. Eat some chocolate. It’s good for you.

“The mood-enhancing properties of chocolate are well known in both the Muggle and wizard worlds. Chocolate is the perfect antidote for anyone who has been overcome in the presence of Dementors, which suck hope and happiness out of their surroundings. Chocolate can only be a short-term remedy, however. Finding ways to fight off Dementors – or depression – are essential if one is to become permanently happier. Excessive chocolate consumption cannot benefit either Muggle or wizard.”

Professor Lupin – Eat Chocolate

Beat a Hero

Hero Hater Jonah Jameson in Spiderman

Just as Jonah Jameson, publisher of the Daily Bugle, just can’t credit Spiderman for his heroic acts, Wall Street has again dissed its latest hero, GoPro, maker of the Hero series action camera, which just demolished expectations for the fourth quarter of 2014 with a year to year increase of over 75% in revenue for the holiday quarter. GoPro (ticker GPRO) is crushing the competition and had the hottest selling video camera of the holiday season.

GoPro Be a Hero

So, why did the stock initially jump up during the earnings announcement only to reverse course during the company conference call and crash and burn for the past few days? Is Wall Street populated by manic depressives, schizophrenics, idiots or just paranoid jackasses? The apparent cause of the stock price crash was a discrepancy between the tremendous holiday quarter and the merely-average projections for a 42% year over year performance for the next quarter, which still exceeds revenue expectations and are in the expected range of earnings estimates ($.15-.17 per share compared with average expectations of $.17 per share). It also didn’t help to find out about the resignation of the COO, Nina Richardson, which immediately sent Wall Street’s analysts in a panic, taking the momentum out of the stock.

Robert Duvall as Max Mercy in The Natural

Is GoPro a hero or a goat? In the movie The Natural, Max Mercy, the shady newspaper reporter played by Robert Duvall, had the following to say about whether or not Roy Hobbs, the hero of the story, would help the Knights win the playoffs. I think this quote is completely applicable to Wall Street stock analysts today:

“They come and they go…. I’ll be around here longer than you or anybody else here. I’m here to protect this game. I do it by making or breaking the likes of you. And after today whether you’re a goat or a hero, you’re gonna make me a great story.”

I don’t normally dig into the details of company financials, but something just didn’t smell right and my Spidy senses were tingling, so I did a bit of checking. What I discovered is that Wall Street, for all its high-powered talent and number-crunching ability, didn’t do jack to figure out what actually happened here. The issue seems to center around the difference between the revenue projections for the first quarter of the year. During the conference call, Citibank analyst Jeremy David asked why revenue was expected to go down by 47% from Q4 2014 to Q1 2015, compared to a decrease of only 35% between Q4 2013 and Q1 2014. GoPro responded that they were projecting average 41% growth last year, so that is what they used. This projected slowdown in growth must have sent his mis-guided Spidy senses tingling. Citibank is among the most negative of all GoPro analysts.

After only a couple hours of digging around, the cause of this entire first quarter estimate problem became clear to me. It all seems to revolve around a delay in shipment of the Hero3 cameras that were supposed to be available for the holiday quarter of 2012. The Hero3 was a dramatically improved camera that could take 4K video and was announced in October of 2012. However, GoPro had trouble getting orders out the door, so most of their sales were pushed to January 2013. I found customer comments on various web sites (including Slickdeals.net and Facebook), discussing shipping delays. Reviews of the Hero3 on Amazon.com started with only four reviews in October and November, with a relatively small number in December, further indicating that most customers were not able to get their cameras for Christmas that year. And the smoking gun … the SEC S-1 Registration Statement dated May 19, 2014 from GoPro, which said:

“Revenue and units shipped for the three months ended March 31, 2013 were impacted by production delays of our HERO3 Black edition capture device in the fourth quarter of 2012. These production delays correspondingly delayed shipments until the first quarter of 2013, which resulted in revenues in the first quarter of 2013 that did not reflect the traditional seasonality in our business. The three months ended March 31, 2014 were not similarly affected.”

So, what does this mean? Simply that the first quarter of 2013 had an inflated number of sales due to GoPro not being able to get them shipped out for Christmas. This is clear in the revenue numbers, since there is an 8% decline in sales from Q1 2013 to Q1 2014 and an even larger and unusual decline from Q1 to Q2 of 2013 compared to Q1 and Q2 of 2014. The result is a bunch of stock analysts who can’t figure out why first quarter sales are projected to be 47% down this year compared to only 35% down last year (Q1 2014) and only down 31% the year before (Q1 2013). Sometimes you have to do more than crunch numbers. You also have to read and investigate. Isn’t that what stock analysts are paid to do?

So, I went back and adjusted the revenue for Q1 of 2013 to account for the delayed 2012 holiday season sales and placed the revenue in line with how GoPro has been growing for several years. I decreased revenue for Q1 2013 by 33%, which places it just under the revenue for the second quarter and shows about the same growth quarter to quarter as in 2014. This small adjustment changes the outlook going forward. GoPro has consistently issued conservative (low) guidance, and based on my revised numbers, I believe that this is what happened last week. By my estimates, the first quarter of 2015 is probably going to be another large earnings beat. Here are the charts to back it up.

The following chart shows GoPro revenue by quarter using actual numbers and the one below shows revenue with the adjustment to the Q1 2013 revenue (revised down by 33%). The second chart shows more even continued upward growth.

GoPro Revenue by Quarter

GoPro Revenue by Quarter with Adjustments

The following chart shows GoPro revenue by year using actual numbers and the one below shows revenue with the adjustment to the Q1 2013 revenue (revised down by 33%). They both show a decline in the previous unsustainable growth rate of 266% in 2011 to a more sustainable rate. However, the second chart shows a bigger growth rate for 2012, when the Hero3 was supposed to have been sold, but was delayed. This shift in revenue leads to lower, but still great growth in 2013, which is when the Hero3+ was released (Oct 2013), followed by another surge in growth after the Hero4 was released (Oct 2014). If correct, 2014 would have seen revenue growth of 55%, not 41%. Although the change does not affect what happened in 2014, it changes the trend. Increasing the 2014 revenue growth would also increase the earnings per share growth upwards as well.

GoPro Revenue by Year

GoPro Revenue by Year with Adjustment

This leads to the final charts, which show revenue projections adding in GoPro’s estimate of 42% revenue growth for 2015. At this rate, current earnings estimates should fall in line with their projected range of $330-340M for the first quarter of 2015. However, the upward trend looks even stronger to me. If the trend really is in line with my revisions to Q1 2013 revenue, then GoPro might be looking at smashing estimates for Q1 2015 with 55% growth (about $364M) assuming all things stay relatively stable.

Of course, this is all guesswork. No matter how many charts and numbers we can put together, nobody can predict the future. But if I were a Wall Street analyst, I’d spend a little more time looking at the numbers we already have. Come on Citibank, get your act together! What do you say about them apples???

GoPro 2015 Revenue Projections

GoPro 2015 Revenue Projections with Adjustment

GoPro Revenue Projection Increase

April 28th, 2015 UPDATE:

GoPro Inc. is scheduled to release its quarterly results today after market close. Analyst estimates still don’t make sense to me. If you add up the projected revenue numbers for the first two quarters of this year, which I even think are low, and subtract them from the annual revenue estimate, GoPro would have to fall flat on its face during the Christmas quarter to only deliver $1.73B in earnings for 2015. We will find out after 5PM today how GoPro fared in the first quarter. I’m betting on an upside move. Short seller interest is incredibly high at over 61% of the floated shares. If they are right, the stock will crash tomorrow. If they are wrong, it will soar upward as they all rush to cover their short positions.

Here are the current analyst estimates the day GoPro is scheduled to release its quarterly results:

Earnings Est	Current Qtr. Mar 15	Next Qtr. Jun 15	Current Year Dec 15	Next Year Dec 16
Avg. Estimate	0.18	0.16	1.39	1.69
No. of Analysts	15.00	15.00	16.00	15.00
Low Estimate	0.16	0.08	1.07	1.18
High Estimate	0.25	0.22	1.55	1.87
Year Ago EPS	N/A	0.08	1.32	1.39

Revenue Est	Current Qtr. Mar 15	Next Qtr. Jun 15	Current Year Dec 15	Next Year Dec 16
Avg. Estimate	340.99M	333.72M	1.73B	2.06B
No. of Analysts	12	12	15	14
Low Estimate	334.72M	300.90M	1.58B	1.77B
High Estimate	355.90M	362.70M	1.81B	2.20B
Year Ago Sales	NaN	244.60M	1.39B	1.73B
Sales Growth (year/est)	N/A	36.40%	24.20%	18.70%

Earnings History		Jun 14	Sep 14	Dec 14
EPS Est	N/A	0.06	0.08	0.70
EPS Actual	N/A	0.08	0.12	0.99
Difference	N/A	0.02	0.04	0.29
Surprise %	N/A	33.30%	50.00%	41.40%

EPS Trends	Current Qtr. Mar 15	Next Qtr. Jun 15	Current Year Dec 15	Next Year Dec 16
Current Estimate	0.18	0.16	1.39	1.69
7 Days Ago	0.18	0.15	1.38	1.68
30 Days Ago	0.17	0.15	1.38	1.67
60 Days Ago	0.17	0.15	1.38	1.68
90 Days Ago	0.17	0.15	1.26	1.57

Invest in Me

Tuition Costs

In 2012, a Florida state task force on education recommended adjusting tuition by major. Science, technology, engineering and math (STEM) majors would cost less, while some majors, such as psychology and the performing arts, would cost more. This recommendation has not been implemented, but here is the basic idea.

“Tuition would be lower for students pursuing degrees most needed for Florida’s job market, including ones in science, technology, engineering and math, collectively known as the STEM fields…. The purpose would not be to exterminate programs or keep students from pursuing them. There will always be a need for them … but you better really want to do it, because you may have to pay more.”

Kevin Stange, a professor of public policy at the University of Michigan, studies the outcomes of differential tuition and has found that higher prices tend to dissuade students from pursuing a particular major. The generally accepted consensus is that a $1,000 change in costs is associated with a 5 percentage point difference in enrollment rates. A study from Hanover Research found that for every $100 increase in tuition, enrollment decreased by 0.5% to 1%.

Sounds reasonable, no? It is good to consider the value of an education and treat it like an investment, because that is partly what it is–an investment in one’s future earnings potential. But people also have to live with their choice of employment and can’t just choose a path for its simple economic return. Unfortunately, pricing tuition by major is a centralized government solution that, like most government solutions, probably will not work out as expected. This is because the actual cost of providing educational services may be more or less than the artificially determined price and because any time that bureaucrats are allowed to determine the cost or benefit of a product without any market input, they typically fail miserably.

Instead of increasing tuition across the board, many universities now charge more for majors with courses that are more costly to provide. Degrees in biology and engineering, for example, typically involve smaller class sizes, higher faculty salaries and cutting-edge labs with expensive equipment, so they charge more. Today, 45% of large public research universities differentiate their pricing this way. At the University of Texas at Austin, which started charging different tuition rates in 2004, engineering students pay $5,107 each semester, while liberal-arts majors pay $4,673. This is a market-based solution that makes sense. Sure, a technical education may be worth more in earnings power, but it can also cost more to provide.

Tuition Debt

If the cost of a technical education is artificially lowered, while liberal arts majors are artificially raised, people will object to their representatives to stop the policy. But even more importantly, students will vote with their dollars. They will simply attend schools in other states where the tuition is lower. Besides, do we really trust the government to decide what majors are best? When has the government ever made good economic decisions for us? It will be highly subjective to adjust the cost of different majors based on their perceived value to each state government. Determining the market value of a course of study is something best done by the market, not by the government. This means allowing the market to finance an education based on cost, risk, and expected return. Thinking about the value of an education is a concept that is going in the right direction, but I think it would be better to treat educational expenses like the investments they are.

How about financing educational expenses based on the expected return on investment over the first 10 years or so or their working life? For instance, if a degree is projected to net one student an average salary of $70K per year, while another student is projected to net only $35K per year, the first student might be offered up to double the amount of money in tuition loans or scholarships over the same payback period. Furthermore, it is likely that the risk the loan would not be repaid can be correlated with high school grades and college assessment scores (e.g. SAT or ACT scores). If banks were to make investment decisions on a per student basis, this would directly link the value and cost of the education and thereby influence the educational decisions that students make without any need for government interference.

If I have stellar grades and SAT scores and choose to pursue a high-paying major, I would have the opportunity to borrow more and/or to borrow it at a lower rate of interest because my risk and return factors lower the investment risk. Maybe I could then afford a higher-cost technical bachelor’s degree plus a masters degree on top. On the other hand, if I have low grades and SAT scores and choose to pursue a low-paying major, I would have great difficulty borrowing enough to cover my costs for just a bachelor’s degree or would have to pay a higher rate of interest. Like mortgage applicants with low scores, I might have to pay 20-30% of the tuition costs out of pocket first (or use grant or scholarship money) before I receive any financing.  An education that results in lower financial returns might be more expensive, but it might not. If I have great qualifications (e.g. grades and scores), I might be able to finance it over a longer term at an affordable rate.

Lower-paying majors should not necessarily cost more than higher-paying ones. Maybe they actually cost less to provide. But, in the end, somebody has to bear the financing risk. It makes sense that students should bear most, or at least a significant amount, of this risk, but I think we still want to enable people to pursue an education for reasons other than pure financial return. This is America and we want people to have the freedom to pursue happiness, but not at the expense of everyone else. I think we benefit as a society from a broadly educated and diverse population. So, maybe we need a better balance between publicly-funded and privately-funded education costs.

Student Debt

Adding more responsibility to the financing of an education would limit public exposure to bad investments by lowering losses on student loans that don’t pay off for investors. Considering that the government is often the investor, this will result in a better value for the taxpayers and for the nation as a whole. But why do all degrees have to cost so much? Student debt is at all-time highs, even for those who choose majors that will not generate enough income to pay off their huge loans. Maybe some education programs could be structured for completion in less time–say three years instead of four. Some schools seem to be trying to extend degree programs to five years rather than shorten them, which might be the opposite of what we really need. Does an art major need as much time as a physics major to achieve competency?

Why should everyone need the same amount of time to achieve proficiency in completely different courses of study? All doctors need to attend medical school, but does a brain surgeon require the same amount of study and preparation as a gynecologist? I actually don’t know the answer, but I suspect that the amount of preparation time is not equal and we should not expect it to be. I certainly would not want anyone messing with my brain if he didn’t spend a lot of time practicing and preparing, and I don’t mean playing the game Operation.

I have no problem with people who want to pursue lower-paying careers, or even pursuing education for the hell of it. Stay in school forever if you want. Just don’t expect me to pay for it. I just want students to be primarily responsible for evaluating the cost and value of an education and to be able to make an appropriate decision.