☕️ Starbucks pulls a "BYOD"

Thursday, March 19, 2020 by Robinhood Snacks | Disclosures

When you're the only one who BYOD'd

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Hey Snackers,

Reality TV comes back to reality: contestants on the German TV version of "Big Brother" have been secluded from the world since Feb 10th — producers finally broke the coronavirus news to them. The show (ironically, centered on people confined in a house) will go on.

US markets tanked again. The Dow lost 1.3K points and the S&P 500 fell 5% as the viral sell-off hit a new low. The Senate approved the House's 2nd coronavirus aid bill — it'll provide paid emergency leave to affected people as well as additional food, medical, and unemployment benefits.

Order
1. After years of prep, Walmart's online grocery biz has its big moment

Virtually stocking up on nut butters... Online grocery shopping has surged in this virus economy — whether it's delivery or curbside pickup, the less human contact required, the more popular a service becomes. But one player in the e-grocer surge stands out aggressively: Walmart. While the market has plummeted, Walmart stock just hit an all-time high.

  • 1/3: That's the fraction of shoppers who bought online groceries in the past week, according to a recent survey.
  • Nearly half were 1st-time egrocery customers.
  • 58%: Walmart's huge share of those new e-grocery customers (Amazon trails with 14%, Target with 10%).

Walmart is America's grocery... With 11.5K stores worldwide and 2.2M employees, Walmart is also Earth's biggest brick-and-mortar retailer. And it's spent the past 5 years aggressively expanding its ecommerce infrastructure:

  • 3.2K locations let you pickup groceries curbside, while 1.6K spots deliver to your door.
  • 90% of Americans live within 10 miles of a Walmart, which also helps.
  • 56% of Walmart's sales are now from groceries.
THE TAKEAWAY

Coronavirus is giving e-grocery its moment... Online grocery is still in the toddler stage with early adopters. Walmart's ecommerce biz is still unprofitable, but its online sales grew 37% last year (largely thanks to groceries, and its ecommerce sites are live in 10 countries). After you try e-ordering Walmart's asparagus and cashew butter, investors think you'll stick around for the cheap socks and absurd number of locations (likely) nearby.

Buyback

It's a BYOD event... "Buy The Dip" refers to a strategy of buying stocks when their prices are low (taking advantage of "sale" price), and eventually selling if the prices rise (quick reminder: they can fall, too). Starbucks is kind of doing the same thing, but with its own stock — we're calling it: "Buy Your Own Dip" (not to be confused with Superbowl-related "bring your own dip").

  • Starbucks will buy back about $2B of its own stock from investors.
  • In the past month, Starbucks' stock price has fallen nearly 40%. Hence, the dip.
  • FYI, by splurging on its own shares, the coffee legend reduces its assets (cash) which can boost its return on equity.

Stock buybacks are (kind of) like gifts to shareholders... By buying back a large amount of its own shares (reabsorbing them), a company can improve its stock's price because the number of shares outstanding falls. The fewer shares are out there, the more your ownership/earnings per share increase. Another way to reward shareholders is through paying out dividends to them.

  • In 2019, Starbucks reportedly returned $12B to its shareholders through dividend payments and repurchases of 140M shares.
  • The 40M shares Starbucks is now buying back make up around 3% of its outstanding total (and would cost around $2B at the current stock price). Might not be the best time to make multi-billion purchases buuut...
THE TAKEAWAY

Starbucks is flaunting its confidence... when no one else is. Nervous companies are cancelling buybacks and dividend payments — the biggest American banks already cancelled buybacks on growing concerns that the virus will hurt business and cash could be tight in the future. But for those who can swing it, buybacks are easier/cheaper when the stock price is low. Even mid-outbreak, Starbucks is optimistic in its:

  • Stores: Starbucks has banned sipping-in but will still let you take coffee to-go or drive thru in the USA and Canada. Also, 90% of its China stores are now reopened.
  • Delivery: Its new partnership with Uber Eats will be available nationwide by end of April. Nice timing.
What else we’re Snackin’
  • Bubi: Fox will buy streaming service Tubi for $440M to bump its streaming game and provide more reach for its ad partners
  • Awkward: Tesla is ordered to shut down manufacturing at its Fremont, CA factory... 1 day after Elon said he'd "personally be at work" there
  • Homey: Shares of struggling meal-kit deliverer Blue Apron soar 70% because ordering groceries takes a lot of work to turn them into dinner (and lunch and breakfast)
  • Banned: Amazon forbids its warehouses from stocking nonessential items (eg, jade rollers) on virus shortages through April 5th
  • SOS: Boeing asks for $60B in aid for itself and the wider US aerospace industry, looking for support from both private and public sources
  • Closed: The NYSE will temporarily close its trading floor and move fully to electronic trading on March 23 after some traders tested positive for COVID-19
Snacks Daily Podcast

Apple did something no other company has done: make a big product announcement mid-coronavirus crisis.

The most exciting part: It's (finally) killing its (really) problematic thin keyboard.

Tune into our 15-minute pod to learn why even America's most valuable company suffers mess-ups (even the Fruit has had product fails).

Thursday

Disclosure: Authors of this Snacks own shares of Starbucks, Tesla, and Amazon and fractional shares of Apple

ID: 1124116

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