Wednesday May.25, 2022

Ads falter

Empty ad space (Zoran Milich/Photodisc via GettyImages)

Hey Snackers,

It’s hard to find words for events like yesterday’s. At least 18 children and a teacher were killed in an elementary school shooting in Uvalde, Texas — after gun violence became the leading killer of young Americans during the pandemic. Our hearts are with those who have lost loved ones to senseless violence.

Stocks closed mixed after Snap dragged the tech-heavy Nasdaq down more than 2%. The Dow ended slightly higher, putting it in a better position to break an eight-week-long losing streak — its longest since 1923.

Deteriorating

Snap’s profit warning sends tech stocks tumbling on fears of an ad-market crash

Fall from grace… In the time it took you to lose your Snapstreak, Snap lost $15B in market cap. Shares plummeted 43% yesterday — the worst day ever for the Snapchat parent. Driving the plunge: Snap warned investors that it expects growth to slow as macro conditions continue to “deteriorate” (CEO Evan Spiegel mentioned inflation and war… and even the supply chain).

Quick reversal: Just four weeks ago Snap gave a relatively upbeat forecast for the current quarter. But Spiegel said the economic environment has gotten worse than expected since then.
Bumpy road ahead: As a result Snap pumped the brakes on revenue, earnings, and hiring expectations for the year.

Snap’s ghost casts a long shadow… Snap’s ominous update halted the tech industry’s fragile rebound attempt: social-media stocks alone lost about $165B in market value after the warning, as the Nasdaq fell 2%. But those that rely on digital ads got hit hardest:

Bad news for ad views: Shares of Twitter, Google, and Meta all fell by around 5% yesterday. Smaller platforms had it even worse: Pinterest plunged 24%.

Advertisers are tightening their belts… just like everyone else. Snap’s ad business is relatively modest: Meta made 30X more $$ last year. But Snap’s surprise statement caused concern, partly because its ad biz has outperformed its larger rivals’ by adapting more quickly to Apple’s privacy updates and sustaining strong user growth. So if Snap’s struggling, other companies highly dependent on digital advertising might be on track to do worse. Cue: Meta’s market cap shed $53B yesterday — more than twice Snap’s entire valuation.

Rezzy

Hotels experiment with NFTs, trying to do for room reservations what StubHub did for concert tickets

Checking in at the meta-lobby… don’t forget your crypto wallet. The hospitality industry is warming up to NFTs as a way to turn vacay cancellations into tradable tokens. Reservation “no-shows” and last-minute cancellations account for up to $100M in lost sales for US hotels every year. Now hotels are turning to the blockchain to make up for it:

For hotels: Pinktada, a new booking platform, teams up with local resorts to take room reservations in hotspots like the Caribbean and Hawaii and turn them into NFTs.
For guests: They can reserve rooms by buying those NFTs from Pinktada at a lower rate than if they booked a refundable room from the hotel. If they need to cancel, there’s an option to gift or resell the rezzy on Pinktada's NFT marketplace (think: StubHub for hotels).

Welcome to CaaE… or Crypto-as-an-Experience. NFT sales have plummeted as speculative investments get crushed by higher interest rates. But a growing variety of industries — from cattle farming to fine dining — are turning to the blockchain for real-world applications. The hotel biz is just the latest:

Crypt-el: Last month NYC’s NoMo SoHo became one of the first US hotels to offer NFT-based packages with IRL perks like late checkout and free breakfast.

Sounds like a travel dream… at least for hotels. While they get to offload extra inventory and keep the sales from last-minute cancellations, travelers take on the burden of reselling their room — or being stuck with it if they can’t. Plus bot-operated ticket resellers could lock up blocks of rooms during popular travel periods, hoping to flip them at a profit. It's TBD how or if the trend will catch on as major hotel players like Hilton or Marriott sit on the sidelines.

What else we’re Snackin’

Clicky: The consumer-tech boom is slowing: Best Buy’s sales fell 8% from a year ago, when people stocked on WFH gadgets and Switch consoles. BB lowered its forecasts, but isn’t expecting a recession.
Unmusk: Volkswagen’s CEO said VW would overtake Tesla to become the world’s largest EV seller by 2025. While OG carmakers aim for Tesla’s lead, supply crises are complicating the road ahead.
Cologne: Abercrombie lowered its annual forecasts after a surprise quarterly loss. The early-2000s staple took a hit on surging transportation and materials costs, which even $80 ripped jeans couldn’t help.
Prep: The Atlantic hurricane season is expected to be “above normal” for a seventh year straight, with as many as six major ’canes. A bad Gulf Coast storm could knock out already tight oil-refining capacity.
Dewy: Glossier founder Emily Weiss is out as CEO of the Gen Z-fave minimalist beauty brand, famous for its ’grammable packaging. Chief commercial officer Kyle Leahy is taking over as Glossier tries to regain its shine.

Wednesday

Earnings expected from: Nvidia, Snowflake, Williams-Sonoma, Dick’s Sporting Goods, Toll Brothers, and Guess
Twitter, Amazon, and Meta shareholder meetings

Authors of this Snacks own shares of: Twitter, Google, Snap, Apple, Amazon, and Tesla

ID: 2217540

Latest Stories

Matt Phillips

World out of balance: It costs the US 3¢ to make 1 penny

The cost of producing the US penny rose 13% in fiscal 2023 to 3.07 cents. Yes, that means that Uncle Sam loses more than two cents for every cent it produces. (And no, you can’t make it up on volume.)

For the record, that’s the 18th-straight year the penny’s face value has been below production costs, fueling calls for abolishing the lowest value denomination coin. Canada started to phase out the penny in 2013, joining Australia, Brazil, Finland, New Zealand, Norway, and Israel, according to Smithsonian Magazine.

3.07¢

Pop Quiz!

What’s the world’s busiest airport?

Don't be a sucka

Rani Molla

Netflix is going to stop sharing subscriber numbers

After posting subscriber numbers that beat expectations today, Netflix says it’s no longer going to share those numbers starting in the first quarter of 2025. That’s a big deal since subscriber numbers have long been one of the main metrics that investors have looked at.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” its shareholders letter read. “But now we’re generating very substantial profit and free cash flow.” The company said that it will focus on revenue and operating margin as its main financial metrics, while it will look at time spent on the platform to gauge customer satisfaction.

Another way to read this? They’ve hit market saturation and just aren’t going to be growing that much anymore, and they thought they’d end on a good note. Going forward they’re focusing on how to get more money out of the customers they do have.

They’re doing so by cracking down on password sharing and charging for extra members. They’re also pushing people to ad tiers, which are more profitable than non-ad tiers.

“Scaling ads to become a more meaningful contributor to our business in ‘25 and beyond,” Netflix said.

Netflix’s ads membership grew another 65% in Q1 over the previous one, after rising 70% the quarter before, and 40% of signups in ad markets continue to be for those ad plans.

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Adios, ERP

By one measure, stocks haven't looked this bad in decades

Earnings are important, but they aren't everything in the stock market.

Dow Jones Industrials Average Closes Day 477 Points Up

Rani Molla

Meta’s not telling where it got its AI training data

Today Meta unleashed its ChatGPT competitor, Meta AI, across its apps and as a standalone. The company boasts that it is running on its latest, greatest AI model, Llama 3, which was trained on “data of the highest quality”! A dataset seven times larger than Llama2! And includes 4 times more code!

What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

Meta’s battle with ChatGPT begins now

What is that training data? There the company is less loquacious.

Matt Phillips

Today’s earnings: Who’s making money edition

Here are some some notable numbers out this morning, as earnings season gathers steam. Thursday’s main event will be Netflix after the close of trading. (Keep an eye on its advertising business.) But until then...

Parts distributor Genuine Parts beat, offsetting weak sales with cost control.
Credit card company Discover jumps, as delinquencies stabilize.
Builder D.R. Horton benefitted from the fact that there’s still no houses to buy.
Credit score giant Equifax was hurt by the fact that nobody wants mortgages.
KeyCorp, Comerica latest banks bummed by depositors demanding higher rates .
Insurance Marsh & McLennan did well by investing cash at high short-term rates.
Private equity giant Blackstone’s results were meh, due, in part, to lack of exits.

7.13%

The 30-year fixed rate mortgage is back above 7%, according to weekly numbers from the Mortgage Bankers Association, the highest level in four months. High borrowing costs are creating havoc for would-be buyers, as affordability lingers at the low levels not seen consistently since the late 1980s.

Rani Molla

12h

Amazon’s spy ops on rivals: shell companies, printed docs, and a fake Japanese streetwear brand

Some companies check out rivals’ websites, stores and public filings to stay abreast of the competition. Amazon made its own fake shell company and brands, transacted hundreds of thousands of dollars per year undercover on competitors’ platforms, and kept its intel operation a secret for nearly a decade even from others at Amazon, according to a fascinating investigation by the Wall Street Journal.

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

Exclusive | Inside Amazon’s Secret Operation to Gather Intel on Rivals

April 18th

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More taxes, eh?

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Capital gains taxes won’t fix Canada’s terrible housing market

Canada's proposed solution to its housing crisis may exacerbate the problem instead.

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Worldcoin pivots to the blockchain… with a 'humans only' discount

Worldcoin, the “proof of personhood” crypto project launched by OpenAI’s Sam Altman, said it plans to launch its own ethereum layer-2 (L2) blockchain dubbed World Chain. The pitch: a blockchain where it’s both easier and cheaper for people to transact than bots.

Worldcoin has made waves for its iris-scanning metallic orb that promises a future where people can mathematically prove they’re real humans and not AI bots.

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses.

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees.

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

Worldcoin, Sam Altman's Crypto Project, Is Building a Layer-2 Chain

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses.

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

Rani Molla

Ad-ing up

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Turns out Netflix makes more money if it just acts like regular TV

Streaming companies will let you watch ad-free, but it will cost you.

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Smooth sailing? Not for superyachts

Sales of the luxury boats sank 17% last year. Meanwhile, Super-SUPER yachts (over 650 feet long) took the biggest sales dip, falling around 40%. Part of the problem: a pandemic-era backlog has led to a three- to four-year waitlist for new yacht orders. Meanwhile Russian oligarchs — former MVP customers — are largely out of the boat-buying business due to sanctions.