Monday Aug.30, 2021

🏦 What the SPAC

_Chewy earnings call: Zoom face ready [Justin Paget/Stone via GettyImages]_

Hey Snackers,

Swiss farmers are airlifting cows to help them migrate to the mountains. Weather forecast: cloudy with a chance of milk rain.

Stocks jumped for the week, with the tech-heavy Nasdaq index gaining nearly 3%. At the big Fed meeting on Friday, Chairman Jerome Powell said the central bank could begin rolling back its economy-boosting money policy this year.

SPAC-y

SPAC popularity has grown, along with scrutiny of the IPO alternative

SPAC at it again... Since last year, special purpose acquisition companies have dominated the public market. SPACs go public for the sole purpose of one day acquiring a real company and taking them public. DraftKings, Virgin Galactic, and Opendoor all went public by merging with SPACs. Wild stat: SPACs have accounted for ~70% of all IPOs in 2021. So far this year, SPACs have raised a record-breaking $129B — already more than they raised in 2020. But as SPAC popularity has grown, so has scrutiny:

SPAC lawsuits have tripled this year, including against billionaire Bill Ackman’s SPAC. Many cases involve allegations of misleading investors.
Short-selling firms have increasingly scrutinized companies that went public via SPAC. The CEOs of e-truck startups Nikola and Lordstown resigned after a short-selling firm alleged they exaggerated their tech and misled investors.
SPACs tend to lose a third of their value post-merger on average, according to a study spanning 2019 to 2020. The 50 biggest SPACs have lost 20% in value this year.

Not always SPAC-tacular… SPACs offer a faster, and sometimes cheaper, way for companies to go public. A SPAC merger usually happens in three to six months on average, while an IPO can take 3X to 4X longer. Companies that go public via SPAC are also allowed to make sales projections to prospective investors, while IPO companies can’t. Plus, SPACs can sometimes help companies avoid initial mispricing. But with increasing scrutiny of SPACs, we may see more regulation in the future.

SPACs can be a double-edged sword… SPACs’ advantage — a faster, more frictionless path to going public — might also be their weakness. Companies that go public via SPAC sometimes face less oversight than those that IPO. Meanwhile, newly-public SPACs may not be able to provide as many disclosures to investors since their acquisition target has yet to be named, and financial diligence may be narrower. But all investments carry risk – and even the IPO review process, designed to help protect investors, isn’t a guarantee that companies' disclosures are completely accurate.

Zoom Out

Stories we're watching...

The Delta effect... Pfizer's Covid vaccine received the first full FDA approval last week, with Moderna's expected next. The official greenlight could boost vax confidence — and sales. President Biden wants Americans to get booster shots this fall. Meanwhile, more employers are using “sticks” instead of carrots: CVS, Chevron, and Disney mandated employee vaccination, and Delta is hiking health insurance premiums for unvaccinated workers. But some countries — many in Africa — are still waiting to get their first vaccines.

Equal and opposite rehack-tion... Google and Microsoft committed $30B to improve national cybersecurity at President Biden’s summit last week. This month, hackers stole sensitive data on 50M T-Mobile customers in a major cyberheist — the company’s third in two years. Global cybercrime losses skyrocketed to nearly $1T in 2020, and the cybersecurity market is expected to more than double between 2021 and 2028.

Events

Coming up this week...

Keep the e-kibble crunching... Chewy's sales soared 47% last year as its 19M pet parents ordered goodies online for their pandemic pups. Now, Chewy hopes its popular recurring Autoship feature – for everything from Star Wars toys to pup puzzles – will keep online sales strong as in-store browsing returns. We’ll see how pet parents feel when Chewy reports earnings Wednesday.

Zoom face ready… Zoom's sales last quarter more than tripled from last year thanks to all our WFH'ing. Since most companies are planning on hybrid workforces, Zoom could lose business to the IRL office life. But as many employers delay return-to-office dates, Zoom might not be sweating when it reports its latest earnings today.

ICYMI

Last week's highlights...

Uber: A CA judge ruled that Prop 22 is unconstitutional — now the future of the gig economy is up in the air (again).
Tap: TikTok and Instagram are launching in-app shopping tools to make impulse purchases even easier.
WFH: Nine in 10 companies plan to leverage a hybrid working model — to make remote feel closer, Salesforce is betting on Slack.

What else we’re Snackin’

Live: The 10 best US cities for renters, based on price and quality of life.
Watch: The "clickbaitification" of Netflix — it's all about the thumbnail.
Wonder: Why you need to protect your sense of awe, and how to foster it.
Tap: A look into the key components inside your smartphone — chips and all.

This Week

Monday: Earnings expected Zoom
Tuesday: Earnings expected from NetEase and Crowdstrike
Wednesday: Earnings expected from Chewy, Okta, Asana, Campbell Soup Company, Five Below, and Vera Bradley
Thursday: Weekly jobless claims. Earnings expected from Broadcom, DocuSign, Hormel, and American Eagle Outfitters
Friday: August unemployment rate

Authors of this Snacks own shares of: Microsoft, Uber, Delta, Nikola, CVS, Disney, Moderna, Netflix, and Google

ID: 1819443

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Do you want to run the State Department of McDonald’s?

A couple of days ago, a tweet making fun at McDonald’s hiring a “Manager for Diplomatic Relations” went viral.

At first glance, the idea that McDonald’s, a burger franchise known for its double quarter pounders and perfectly salted fries, is expanding its diplomatic influence with policy makers in Foggy Bottom and the world at large sounds comical. But it’s actually crucial.

There are more than 40,000 McDonald’s locations spread across 115 countries around the world, and 90% of these stores are independently owned and operated franchises that pay royalties to the parent organization to operate. Tens of thousands of franchises operated by different owners with different beliefs, priorities, and values can get complicated, fast.

As we noted in Snacks in February, McDonald’s received heavy backlash from franchisees in countries including Saudi Arabia, Oman, Jordan, Kuwait, and Pakistan after McDonald’s Israel donated thousands of free meals to IDF personnel. But it wasn’t McDonald’s, as an entity, that made the donations. It was the owner of the company’s Israel franchises, who was acting under his own volition.

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The data doesn’t lie: Taylor Swift is the biggest pop star on the planet

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Nuke stocks up on AI excitement

For most of humanity, the thought of “nuclear-powered AI” sends a shiver down the spine. But the stock market is all for it! Just check out the list of top performing S&P 500 stocks this year. Just behind established AI plays — Super Micro Computer and Nvidia, you’ll find Constellation Energy, the largest operator of nuclear plants in the U.S. NRG Energy, which also operates nuclear plants, isn’t far behind. Bloomberg reports that CEO of power distributor Exelon — which spun off Constellation in 2022 — says in the Chicago area alone, AI could drive a 900% jump in demand for energy from data centers.

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China makes Apple remove WhatsApp, Threads, Signal and Telegram from app store

In its latest move to restrict foreign tech, Beijing has ordered Apple to remove a number of popular messaging apps from its app store there, including WhatsApp, Threads, Signal and Telegram.

These apps had only been available through VPNs but were popular nonetheless, according to the Wall Street Journal.

Apple said the Chinese government asked them to remove the apps in the iPhone maker’s second biggest market over “national security concerns.” Last week, China told its state-owned telecoms to phase out the use of US chips by 2027.

Exclusive | China Orders Apple to Remove Popular Messaging Apps

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Tesla's recall reveals just how bad Cybertruck delivery numbers have been

Thanks to a recall of Tesla’s Cybertrucks, we now know how many of them have actually been delivered: 3,878 since the EV company began releasing them to customers in November.

In its third and fourth quarter earnings report, Tesla said that its current Cybertruck production capacity was greater than 125,000 a year. Musk had previously said he expected to produce 250,000 Cybertrucks a year by 2025.

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

The recall is over an issue with the gas pedal pad that, the National Highway Traffic Safety Administration says when pressed, “may dislodge, which may cause the pedal to become trapped in the interior trim above the pedal.” The cause of the issue: “unapproved” soap that the manufacturer used to aid in getting the pad on the pedal.

A Cybertruck customer this week posted a TikTok about a terrifying incident in which this happened and “held the accelerator down 100%” in his 6,000+ pound vehicle. Thanks to some quick thinking where he held down the brake and put it in park, he wasn’t injured.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

Tesla recalls the Cybertruck for faulty accelerator pedals that can get stuck

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

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Cocoa hits $11,000

Cocoa prices are breaking records on an almost daily basis — with cocoa futures closing at (another) all-time high of $11,020 per metric ton yesterday.

That’s up 158% since the start of the year, and over 4x on the typical prices seen in 2022 — as crop production continues to fall short of demand.

Major cocoa-producing nations like the Ivory Coast and Ghana, which between them grow about two-thirds of the world’s cocoa, have seen excessive tree failure due to disease, changing weather patterns, and hot, dry conditions causing devastating droughts.

As such, consumers are starting to see the effects of the largest cocoa supply deficit in over 60 years: “shrinkflation” and reduced-cocoa recipes might soon hit your favorite chocolate bars, and Hershey stock was recently downgraded. Unfortunately, the worst may still be yet to come: the International Cocoa Organization expects production to lag behind demand by 374,000 tons for the 2023-24 season.

Why the World of Chocolate Is in Crisis

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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

4/18/24

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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