Thursday Jul.25, 2019

Tesla is cannibalizing Tesla

_"Who wants a ride in my Model 3?"_

Hey Snackers,

FYI, it's National Intern Day (not sure about paid vs. unpaid, but someone deserves a free lunch).

Both the S&P 500 and Nasdaq hit fresh record highs yesterday — and earnings-palooza continues today with Google, Amazon, and Starbucks.

Facebook's living its best life (as it shrugs off the $5B fine)

Fun fact... Facebook's stock price is just 5.5% away from its record high. That's despite Wednesday's big official settlement with US regulators for handing over 87M users' personal details to Cambridge Analytica.

Facebook knew this was coming... So it guestimated back in April for investors that a $3B-$5B fine was coming. It even put money aside to prep for the government's hammer. A+ for FB's forecasting department.

The fine: $5B. Even though that's a record fine from the FTC, it's equal to less than 1% of Facebook's net worth (when measured by its $577B value by market capitalization).
Strings attached: Hardly any. A huge criticism is that the privacy of 2B humans is controlled by 1 human — Mark Zuckerberg — who owns majority voting power at FB. This settlement installs a new "independent privacy committee" within the board that he'll have to check in with monthly.
Personal accountability: A tad. Zuck must personally certify (with a real-life signature) every quarter that his company is following every privacy order from the settlement. Pinky swear.

BTW, Facebook also announced profits. Big ones... In the Western world, we're obsessed with Facebook-owned Instagram, which doesn't have Zuck brand baggage. In the rest of the world, Facebook's rep is fine and people use WhatsApp and Facebook at a carpal tunnel-inducing pace. Facebook's investigations aren't over, but they've barely slowed it down so far. Here are the Q2 highlights.

Revenues up 28% to $16.9B
Operating profit up 14% to $6.6B (if you exclude the big fine)
Monthly users up 8% to 2.4B

Chew

Dunkin' launches a sausage partnership with Beyond Meat, revealing its core virtue

How many hogs does it take to make a breakfast sandwich?... Trick question. At Dunkin', it's none for the newest addition. Through a partnership with plant-based Beyond Meat, the coffee icon is piloting a meat-free sausage sammie. It hits 163 Manhattan locations next Wednesday (yes, there are that many there), joining fellow chains Hardee's, Carl's Jr., and Tim Hortons by putting Beyond on the menu.

2 key ingredients... highlight why this particular partnership is special for both brands.

Breakfast: It's the only meal in fast food that's actually growing (breakfast sales rose 1% last year, but were flat for all the other meals) — So Dunkin' is giving Beyond Meat prime-time menu real estate.
Price: $4.29. That'll get you one Beyond Sausage sandwich. And it's the same price you'd pay for any other Dunkin' sandwich — Dunkin' isn't charging a premium for fancy non-meat meat (Beyond's CEO nailed it with 👇this👇 quote):

“It takes a lot of money to buy a Tesla — It takes $4.29 to buy this. And you can basically be making the same statement about who you are, what you care about, where your values are.”

Dunkin’ is America's food democratizer... The chain takes exclusive trends and brings them mainstream. Case study: espresso. After Starbucks and your local obscure-bean artisan coffee shop dominated unpronounceable espresso options, Dunkin' jumped in last year — now it's trained 100K employees on 9K espresso machines to make sub-$4 lattes. It's the same goal for plant-based meats.

Cannibalize

Tesla's record sales quarter... turned out to be unprofitable

95K brand new Tesla owners are happy... Shareholders not so much. Tesla stock dropped 13% after Elon announced that all those cars sold in the 2nd quarter cost the company more than they sold for — a loss of $408M last quarter. We're here to explain how a record quarter of sales could be so 😔.

Tesla is eating itself... Cannibalization. It's an aggressive term for when one of your products is so good that it's eating sales of another. For a while, Tesla's only models were the high-end S and X, starting at $72K and $77K. "High-end" translates to "I-don't-care-how-much-it-costs" customers, which translates to profits. Now Tesla's pushing its cheaper Model 3 (starting at $39K) to become the 1st mass-production electric car company — and the 3 is eating S sales.

Exhibit A: In California, where parents dream of their kids' first self-driving ride, the number of Model S registrations at the DMV fell 54% last quarter — and the number of cheaper Model 3 registrations doubled.

The Model 3 is too good... That's the problem. Styles, looks, performance — Squint your eyes and the Model 3 looks like a Model S. But it's way cheaper. Companies can avoid cannibalization by clearly differentiating products to make the more expensive one objectively better. Now Tesla needs to learn how to not just sell a ton of cars, but do it profitably.

What else we’re Snackin’

Departed: Uber just lost 2 more board members: Arianna Huffington and investor Matt Cohler
Pains: Tupperware plummets 19% because of the US/China trade war
Worst: Boeing announces its worst quarterly loss ever — $2.9B — because of the 737 Max crisis
FYI: Tinder's new "Traveler Alert" feature will warn LGBTQ users if they enter a country that criminalizes coming out
Move: Ford stock dips on disappointing earnings, a day after it trolled Tesla with an electric F-150 video
Switcheroo: DoorDash's tip issue we mentioned yesterday (your delivery guy not getting them)? The CEO is now changing that

Thursday

Earnings from Alphabet, Amazon, Starbucks, Hershey, and Boston Beer

Disclosure: Authors of this Snacks own shares of Tesla, Amazon, and Beyond Meat.

20190725-909744-2740082

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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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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 | TechCrunch

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.

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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.

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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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