Jim Letourneau's Blog

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Herbalife's $2 Billion Conference Call

Herbalife ($HLF) took a major bath after fumbling through a few seemingly simple questions from David Einhorn. I've never fully understood how multi-level marketing (MLM) worked. Whenever it was explained to me, I'd see pictures of pyramids in my head, with me at the bottom. Since I was already at the bottom, I saw little incentive to buy stuff I didn't need to enrich those higher up the pyramid. 

Terms like "lineage" appear to be replacing "downline" and/or "upline" but the game hasn't changed much. It is intentionally confusing so that people at the bottom of the pyramid can't figure out how badly they're being ripped off.

So it was quite refreshing to listen to Einhorn's simple questions get the Herbalife obscufication treatment that you'd expect from someone selling their best friend a bottle of magic beans... I mean pills, or vegetables or whatever it is. 

You can get the details of the exchange HERE.

The market didn't think much of how Herbalife management answered Einhorn's questions and trimmed Herbalife's market cap by $2 billion in a single day.