Monday Jun.01, 2020

Record-breaking April: Savings ⬆️ Spending ⬇️

_Checking out the emergency fund_

Hey Snackers,

After last week's gains, the S&P 500 has recovered most of its losses from the COVID-19 stock market crash — By Friday, it was down just 10% from its February record high. But despite economic and market progress, it was a painful week for the US.

Protests broke out across the country demanding justice after the horrific murder of George Floyd. Over a dozen US cities issued curfews Saturday as some protests turned violent — Target, Walmart, and Nike closed hundreds of stores after incidents of looting.

Save

Americans have shockingly higher incomes than pre-COVID — what April meant for our wallets

Like Benjamins in the freezer... Despite 41M jobs lost in the past 10 weeks and a stunning 15% unemployment rate, Americans' household saving and personal income posted record increases in April. It's confusing, but it also makes sense. Check out these April stats:

Consumer spending plunged 13.6%, the biggest monthly decline on record. Not surprising given nationwide lockdowns. Americans mainly spent on essentials given the economic uncertainty. Buut...
Personal income jumped 10.5%, thanks to $1.2K government stimulus checks and $600/week extra in unemployment benefits. According to a new study, 68% of unemployed workers who can receive benefits are eligible for payments larger than their original salaries.
Wages and salaries fell 8% but that was more than offset by unemployment/stimulus checks. People made more money this April than last April, on average.
The personal-saving rate soared to 33% in April, meaning Americans saved 33% of their disposable income — an all-time high. That's a dramatic increase from 12.7% in March and is quadruple February's rate of 8.2%.

Americans are historically terrible savers... The United States is a more consumerist and debt-loving country with inequality that has many living on the financial edge.

78% of US workers were living paycheck to paycheck in January 2019 — around 40% of US households wouldn't be able to come up with $400 for an emergency expense.
Now that jobs and economic stability are far from a sure thing, Americans are turning to saving as a survival instinct in a time of crisis.

Too much saving could actually hurt the economy... A prolonged period of extra saving and conservative spending will slow the economic rebound — your not buying is someone else's not earning. Crucially, the enhanced unemployment benefits and small biz loans keeping many afloat start to run dry in July. So we need some combo of economic re-opening, COVID outbreak control, and more government emergency assistance. Fast.

Highs

Who's up...

Napping on the Pottery Barn couch... Williams-Sonoma is the CA-based home goods retailer behind Pottery Barn, West Elm and (wait for it...) Williams-Sonoma stores. Its stock surged 13% after unboxing some chic (yet comfortable) results: despite closed stores, WS sales actually grew thanks to its online prowess (it's now calling itself: "digital first"). Ecommerce sales jumped 30% on lockdown-induced home makeovers.
Less CBD protein powder promos in-feed (please)... Facebook-owned Instagram will share ad revenue with influencers for the first time (ever). Insta will run ads on IGTV, then give creators a 55% cut of revenue from their vids (Google does the same with YouTube). This move could help Insta lure more famous creators (like big YouTubers) onto IGTV. Popular creators = popular content = more users = more ad $$$ for Facebook. YouTube got Zuck'd.

Lows

...and who's down

A billion up in smoke... Earth's largest cannabis company, Canopy Growth, took a $1.3B hit last quarter. The Canadian pot producer saw a 14% decline in direct-to-consumer sales, which it blamed on "off-peak seasonal demand decline" and COVID-related store closures. Canopy burned its 2021 financial guidance and its stock dropped over 21% on the buzz-kill news.
When Liam Hemsworth can't extract you... Mobile-first streamer Quibi may be running out of time to turn its "meh" reputation around. Two months after launching, the $1.8B "quick bites" streamer hasn't lived up to the hype. Now advertisers are reportedly looking to defer payments over low viewership concerns. Those in-between moments in life Quibi was designed for aren't happening with COVID, so Quibi's adding AirPlay streaming in hopes that'll attract more at-home viewers.

What else we’re Snackin’

Communicate: How social distancing has turned our lives into software — Zoom is to in-person contact as Soylent is to milk.
Visualize: All of the world's money and markets in one visualization (quadrillions are a thing).
Quiz: Think you have an eye for great user design? Test it out in this weirdly engaging quiz.
Work: Little changes you can make when you've hit a wall working from home (upgrade your sweats game).
Draw: 54 ways coronavirus has changed our world (in little arrow illustrations).

This Week

Monday: Earnings expected from Autohome
Tuesday: Earnings expected from Zoom, Tiffany & Co, Dicks Sporting Goods, and Groupon
Wednesday: Earnings expected from Campbell Soup and Canada Goose
Thursday: Weekly jobless claims. Earnings expected from Slack, DocuSign, and AMC
Friday: We update the unemployment rate (it's expected to be ~20%) with the government's official May jobs report.

Disclosure: Authors of this Snacks own shares of Alphabet

ID: 1201840

Latest Stories

Matt Phillips

17m

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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The audacious and expensive world of cryogenics

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Jack Raines

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

11h

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

13h

What’s happening

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Time’s ticking

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More taxes, eh?

4/17/24

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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4/17/24

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

4/17/24

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.

Earnings

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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.