🎵 TikTok chooses Oracle (as chaperone)

Tuesday, September 15, 2020 by Robinhood Snacks | Disclosures
_This guy needs a Driftwell_

This guy needs a Driftwell

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Hey Snackers,

"In the right environment, our burgers...could decompose." — McDonald's, trying to bust the myth that its burgers don't decompose. Very reassuring.

Stocks jumped yesterday, clawing back losses from the S&P 500′s worst week since June and the Nasdaq’s worst week since March.

Deal
1. TikTok chooses Oracle as its American partner (sorry Microsoft)

A TikToker and a database walk into a bar... The wait to see who TikTok’s US parent will be is over and it’s… anticlimactic. Yesterday, Oracle confirmed it struck a deal with TikTok-owner Bytedance to become a “trusted technology provider” (read: not owner). Oracle would reportedly be managing TikTok’s US data. The deal still needs approval from the US and China. Somehow, this endless saga only started last month.

  • #1: Trump says he'll ban TikTok on concerns that Americans' user data could be shared with the Chinese government.
  • #2: Change of plans. The ban will happen unless an American company strikes a deal to acquire TikTok's US operations by September 20th.
  • #3: Oracle and a Microsoft-Walmart tagteam emerge as the leading suitors.
  • #4: China throws a wrench into acquisition talks, saying it needs to approve the sale of TikTok and its algorithms.
  • #5: Microsoft gets rejected by TikTok. Oracle does "Say So" Doja Cat dance.

Less of a parent... more of a guidance counselor. While Oracle will possibly get a stake in TikTok’s US assets, this isn't an acquisition. The "tech provider" role is vague, but it likely means TikTok will be moving its data to Oracle's cloud (and off Google's, where it is today). Oracle could also get TikTok to use its marketing software for ads. TikTok is a big sexy catch of a customer, so Oracle stock jumped 4% on the news.

THE TAKEAWAY

Is this a good deal for the US?... It certainly is for TikTok — the Tok gets to keep its 100M American users without giving up ownership of its business. But Trump has insisted the only way TikTok can avoid getting banned is a sale to a US company (this isn't that). Will Trump back off that demand? A few reasons he might:

  • Jobs: The US gets an American TikTok HQ with 20K employees.
  • Popularity: Trump will avoid the wrath of American TikTokers ahead of the election.
  • Connections: Oracle's founder/Chairman/CTO Larry Ellison is pretty tight with Trump.
Sip

Introduce the problem... then solve the problem. After decades of pumping you full of caffeine and sugar, Pepsi wants to help you chillax. That's why it just intro'd Driftwell, the ASMR of the canned drinks world:

  • Driftwell (to sleep): The Millennially-packaged mini cans contain enhanced flat water with blackberry lavender (sounds pleasant, whatever that is).
  • "Sip into relaxation": What Pepsi wants you to do. Driftwell's calorie- and sugar-free drink contains relaxing L-theanine (the star of green tea) and magnesium.

The problem/solution premium... The health shift we've seen in recent years means junkier foods/drinks have lost steam. Sugary sodas are being replaced with CBD-vegan-gluten free kombucha. Pepsi's "problem" drinks are waning, but now it can make double the $$$ by offering "solution" drinks, too. And these premium drinks command premium prices:

  • $4: Price of a minican 10-pack of Pepsi — then you need Driftwell to sleep.
  • $18: Price of a minican 10-pack of Driftwell — then grab a Pepsi to wake you.
THE TAKEAWAY

"Functional drinks" are 2020's big bev trend... These provide more than just sugar/alcohol/caffeine — they feature 1 ingredient with purported health benefits. Coke launched Coke Energy with B vitamins and guarana. ABInbev's Bud launched hard green tea and coconut water. DrPepper invested in "smart energy" drink Adrenaline Shoc (sounds healthy). Sales of functional bevs came in at nearly $32B in 2019, up 7% from 2018. We can expect to see growth accelerate during an anxiety-inducing health crisis.

Fly

The cash runway doesn't look good... Pun 100% intended. Delta, like other airlines, is strapped for cash. Domestic travel is down ~60% from last year and daily costs are still sky-high (Delta's losing $27M/day). The government's $25B in airline bailout funds runs out on October 1st, and mass layoffs are expected. As a cherry on top of the cash-crunched sundae, US airlines just permanently scrapped their $200 change fees for domestic flights. Sooo...

  • Delta will use its SkyMiles program to raise $6.5B. It's using the frequent flyer program as collateral to borrow the money (basically, mortgaging your miles).
  • If Delta can't pay back the $6.5B loan, it won't get its planes taken away. Instead, the lenders will get to keep the $$$ Delta makes from lucrative SkyMiles sales.

Please explane... Airlines earn money from frequent-flier programs by selling miles to banks and retailers that award them to customers. American Express is able to drop you those sweet travel rewards points since it bought them en masse from airlines. And each time you swipe your Delta co-branded card, Delta gets a little money from AmEx.

THE TAKEAWAY

Delta is a credit card company now (more than ever)... Few things drive loyalty like the metallic traveler status. In 2019, $4B in sales from Amex made up 8% of Delta's revenue. Delta expects annual AmEx sales to hit $7B by 2023. Delta is also AmEx’s largest co-branded account, making up 20% of AmEx balances worldwide. Delta’s passenger sales fell 60% in the 1st half of 2020 — But sales to American Express dropped just less than 5%. With its passenger biz decimated, Delta's leaning into cards more than ever.

What else we’re Snackin’
  • Green: Google announces that its carbon footprint is now zero — it invested in offsets to compensate for all of the carbon it ever created.
  • Sold: ViacomCBS will sell CNET Media Group to Points Guy-owner Red Ventures for $500M — it's trimming down its editorial biz to focus on streaming.
  • Shmoney: Chip supplier Nvidia is acquiring chip designer Arm from Softbank for a massive $40B.
  • Zon'd: Amazon plans to hire 100K extra employees in the US and Canada, continuing its pandemic-induced hiring spree.
  • Drugz: Big pharma company Gilead agreed to acquire cancer-drug company Immunomedics for $21B. Immunomedics stock doubled in value on the news.
  • YouTok: Google's YouTube is launching its own version of TikTok with "Shorts." It's testing the feature in India before expanding to more countries.

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Tuesday
  • The big Apple product event (we're expecting a new watch)
  • Earnings expected from Adobe and FedEx

Disclosure: Authors of this Snacks own shares of Delta, Amazon, and Apple

ID: 1331806