🥤 Coke's anti-Netflix earnings

Wednesday, July 22, 2020 by Robinhood Snacks | Disclosures

When Starbucks Mobile Rewards is the real significant other

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Hey Snackers,

Most innovative thing to come out of the Consumer Packaged Goods industry during corona-conomy: a box of white cheddar Cheez-Its attached to a box of Rosé. The only thing missing is a Disney+ subscription. And throw in a robe, while you're at it.

The S&P 500 and the Dow ticked up, but the techy Nasdaq index dropped on a Big Tech sell off. Tesla and Microsoft report today after the market closes.

1. Coca-Cola's sales plunge 28% but the stock jumps on a sweeter future

No more halftime truck-sized sodas... Coca-Cola's sales plunged 28% last quarter and profits plopped 30%. Over half of Coke's sales come from "away-from-home" venues — think: restaurants, sports stadiums, and movie theaters. Since those were corona-closed, expectations for Coke were pretty low. Coke stock actually jumped after the news because:

  • The worst is over, according to Coke's CFO. The April-June quarter put sales through the wringer, but he thinks the only place to go from that bottom is up.
  • Coke's sales improved in May and June as lockdown measures eased and businesses started reopening around the world. Investors like the way this is trending.

The anti-Netflix earnings report... Coke's earnings (and their effect on its stock) were the opposite of what we just saw with Netflix. The lockdown hero beat on sales and added 10M new paying subscribers, crushing the 8.2M expected. Buuut...

  • Netflix stock plunged 11% because the streamer expects new subscriber growth will majorly slow this quarter to just 2.5M new subs.
  • Netflix added 26M new subscribers in the first two quarters of 2020. For reference: it added 28M in 2019 in total.
  • The best is over for Netflix... At least, that's what investors think. The accelerated growth Netflix experienced in the corona-conomy will likely take away growth from this quarter. Netflix's disappointing forecast validated that.

Earnings are old news — investors care about new news... Earnings reports are mostly lagging indicators on how a company did in the past. Investors are most interested in leading indicators that point to how it'll trend in the future. Profits for the S&P 500 are expected to decline 44% this quarter, the biggest drop since 2008. But the major indexes are hitting all-time highs because investors believe the worst is over.


Angela Merkel must've watched Hamilton... EU leaders just agreed on a €1.8T ($2T) stimulus package to support their ailing economy. The Eurozone economy shrank 14.4% this year, compared to America's 4.8% drop. Months-long lockdowns and near-zero tourism crushed the bloc. Enter...

  • The package: $450B offered as grants (aka "free" money) and $415B as loans (aka debt). Also: $1.15T for a joint EU budget that'll run from 2021-2027.
  • The goal: Mediterranean countries were hit way harder than Northern ones. The package is meant to help them recover while not racking up insane amounts of debt.
  • The opposition: Some members (cough, the Netherlands) worry the deal could turn the EU into a money-transfer union, where richer states bail out more indebted ones.

"I'm just like my countr(ies)"... Europe isn't young or particularly scrappy, but it's hungry...for relief. ICYMI, Hamilton (aka the US' 1st Treasury secretary) got the US federal government to absorb states' debt. The EU is kinda emulating this:

  • It's the EU's 1st big issuance of common debt. The EU has a monetary union, not a fiscal union. 19 of the EU's 17 countries share the Euro as a common currency, and the European Central Bank controls interest rates and money supply (like the Fed in the US).
  • Member countries usually do their own fiscal policy. That involves things like taxation and government spending.
  • This unprecedented fiscal partnership could tighten the economic bond. Buuut: it still needs approval by individual parliaments.

It all goes back to Euro... The benefit of this package is that it could support the Euro's stability. While Dutch politicians don't want their citizens' tax dollars funding other countries' programs, economic stability is in everyone's interest. Without the bailout plan, Italy’s national debt risks imploding to a level that could destabilize the whole bloc. Helping struggling member states out now could be better than facing a big currency crisis later.


My lil' pumpkin spice Frappuccino... Starbucks wants more of your monogamous coffee love. To make sure that all 67 of the cold brews you consume per week come from its stores, Starbs launched its mobile reward program in 2009. It was a pioneer in the (then new) world of reward apps. Now it has sneakily become the fintech product of caffeine:

  • Over 19M Americans are active Starbucks Rewards Members. In 2019, the Starbucks Rewards app was the most popular mobile payment app in the US.
  • A shocking 48% of Starbucks' sales in May came from Rewards members thanks to corona-conomy mobile orders.

Getting even more intimate... with your wallet. Before, you had to digitally preload a Starbucks Rewards card to pay. Starbucks just announced you can link your credit/debit card and pay directly in-app this fall. You can also order on mobile, then pay with cash in person and still get "Stars". FYI: the new payment options give you half the points you'd get using a preloaded card.

  • Defining the relationship with customers is more important than ever when Starbucks expects sales to fall ~15% this year. Mobile-order perks are a way to reignite the spark at reopened locations.
  • Starbucks isn't the only one putting a ring on it: Wendy's just became the 1st big burger chain to launch a food-based rewards program. Panera, which has a whopping 40M loyalty members, is giving MyPanera+ Coffee subscribers unlimited brews through fall.

The restaurant Loyalty Wars are coming... and you’re the winner. Rewards programs used to be a differentiator. Now they’re becoming the norm. Delivery warriors like Uber Eats and DoorDash try to outdo each other with discount codes. Restaurant chains are increasingly dishing out perks to win your loyalty. Dunkin', Panera, and Starbuckss all offer coffee rewards programs, but our loyalty is limited. Expect some one-upmanship in this space as well.

What else we’re Snackin’
  • Spotlight: Spotify launches video podcasts worldwide — all users can watch vids or scroll their phone while the video audio plays in the background (burn to YouTube).
  • GiAnt: Alibaba's fintech arm Ant Pay goes for a dual IPO that could value it at over $200B (more than Goldman and Wells Fargo combined).
  • Green: Apple says its supply chain and products will be 100% carbon neutral by 2030.
  • Out: Microsoft-owned LinkedIn will cut 6% of its workforce (almost 1K jobs) as hiring slows in the corona-conomy.
  • Locked: Lockheed Martin, the world's biggest defense company, raises its 2020 profit expectations (it spent billions on corona-related costs, but the Pentagon is covering those).
  • OhSnap: Snap shares plunged on word its quarterly loss increased 28% from last year, though daily active users jumped 17%.

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Snacks Daily Podcast

Jeff Bezos added a casual $13B to his net worth on Monday.

But he doesn’t get everything right: in 2009 Bezos called advertising "the price you pay for having an unremarkable product or service."

Now Amazon is reportedly the largest ad-spender in the US.

Tune into our extra digestible 15-min pod to hear why billions move when Bezos changes his mind.


Disclosure: Authors of this Snacks own shares of Starbucks, Amazon, Chipotle, and Spotify

ID: 1253433

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