What if the minimum wage were $15/hour?

Tuesday, July 9, 2019 by Robinhood Snacks | Disclosures

Snapchat’s got a scar for every day since Facebook copied it

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Hey Snackers,

This was Amazon's first job posting 25 years ago.

This is ours today. We're hiring a Snacks News Writer — "The Third Snacker." If transforming business news into a digestible daily ritual is your thing, we want you on our team.

If not, jump right on into your Snacks below.

Wait
1. WeWork is reportedly slow-playing its IPO, borrowing $4B first

Disrupt the 1st person plural... The We Company has visionary visions to turn real estate into utopias, starting with its WeWork office spaces. It's already stealthily filed to IPO, but the WSJ just reported that it's first taking a pit stop with the banks to borrow $4B. Achieve goal #1 of the IPO now so it's better ready for goal #2 later:

  • Goal #1: Raise money. With the IPO, We planned to create millions of new shares of itself to sell to the public for cash.
  • Goal #2: Go public. All of We's investors (We founders, We venture capitalists, We employees) have We shares that are just pieces of paper. When it's a public company, it becomes easy to sell those shares for cash.

A $47B cash-burning machine... WeWork's biz model calls for a ton of spending. Right now, it's hugely unprofitable (it lost $1.9B last year — that's more than the $1.8B it generated in revenue). Here's how WeWork happens:

  1. It signs leases for huge office buildings.
  2. It WeWorkifies them by optimizing dead workspaces and cutting them into different sized, rentable pieces (small enough for one woman entrepreneurs, big enough for Amazon). Then it tosses in draft lager taps and ironic wallpaper.
  3. It collects rent from WeWork tenants.
THE TAKEAWAY

Sometimes it's safe to wait... Going public is like going pro. If WeWork raises $4B in cash now by borrowing, it can afford to take another year playing in college to refine its profit skills before facing the judgemental eye of the public market. Look what happened to Uber and Lyft — those money-losing companies both went pro this year, and their stocks are below where they began trading on IPO day.

Rebound

Something happened over Spring Break... Snapchat changed. Parent company Snap shares have nearly tripled since February, driven by analysts upgrading their price targets for the stock. And that's been driven by Snapchat strengthening — and then flexing — the two biceps of tech apps: growth and engagement.

Left Bicep = "Growth"... The last time Snap updated us in March it had 190M daily active users. To grow beyond that, it's made two key moves:

  1. Viral filters: That gender-swapping filter in May more than doubled the number of daily app downloads from 600K to 1.5M.
  2. New app: Finally updating its glitchy Android app increased the number of people snapping by 6%.

Right Bicep = "Engagement"... To enhance the time users spend in the app, Snapchat launched games in April:

  • Bitmoji Party: Snapchat's 1st original game was deeply multi-playered so you could spend time with your friends' digitally-better-looking avatar versions of themselves.
  • Bitmoji Tennis: Just launched last week, the new game lets you hit a microphone button to yell at your opponent — without having to leave the app.
THE TAKEAWAY

Snapchat is covering steps #1 and #2 (growth and engagement)... Now it's gotta focus on Step #3: making money. A shocking 90% of all Americans age 13-24 use Snapchat, so the app's trying to monetize them through ads — and its revenues impressively rose 39% in the 1st quarter. But investors eventually want profits, and that means nailing step #3 as it flexes its growth and engagement.

A room full of brains and calculators... That's the Congressional Budget Office, a non-partisan government agency that takes proposed legislation and calculates the economic impact. Its newest report dives into the "Raise the Wage Act" — which would increase the minimum wage nationwide to $15/hour by 2025. It'll likely pass in the Democrat-controlled House of Reps, but it’s unlikely to become law right now.

Paying people more is a trend... Although the federal minimum wage ($7.25/hour) can't even buy a Chipotle burrito (pre-guac) after not being increased since 2009, 29 states plus DC have increased theirs during that period. Here's who'd win and lose with a nationwide livable wage.

  • Winners: 17M people would get their pay upped to $15. And 10M more would likely get raises because a rising tide lifts bigger boats, too. Plus, 1.3M working-poor would escape poverty.
  • Losers: The CBO predicts 1.3M Americans would lose their jobs, as managers don't think they're worth $15/hour, or decide to use machines instead of costlier humans.
  • One caveat: These are just predictions based on economic theory and math. The CBO isn't Professor Dumbledore.
THE TAKEAWAY

Companies would lose, at first, for sure... Higher wages = higher costs = smaller profits. McDonald's has been lobbying against an increased minimum wage for that reason (but actually ended its fight recently because wage hikes seemed inevitable). But longer term, the CBO tells us that 27M Americans will have more money... which they will spend... which could increase companies' profits. We'll know for sure when the theoretical becomes real.

What else we’re Snackin’
  • iProblems: Apple falls 2% after an analyst warns the iPhone XS may wind up being "one of the worst selling iPhone models in the history of Apple"
  • Later: Abercrombie just launched buy now, pay later installment plans
  • Rocketing: Virgin Galactic (aka Sir Richard Branson's rocketship side hustle) now wants to go public, becoming the first publicly listed human spaceflight company.
  • Touché: Target announced its own deals early to compete with Amazon Prime Day (which happens next week)
  • Pre-hate: Instagram's new feature will identify mean posts, then ask you if you're really 100% sure you want to be mean
  • Fined: British Airways was hit with a record fine of $229M for violating the European Union's new online privacy rules (aka "GDPR")
Snacks Daily Podcast

Today's 15-minute Snacks Daily pod:

  • Biting deeper into Snap's silent spring awakening, WeWork's debt-apalooza, and the CBO's minimum wage refereeing (which they charge more than $15/hour for)
Tuesday
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