Wednesday May.01, 2019

Facebook's 5th makeover

_Makeovers and Groups. Facebook's trying both_
_Makeovers and Groups. Facebook's trying both_

Hey Snackers,

MySpace had just launched. Britney dropped "Baby One More Time." And Y2K became a thing.

Stocks are officially off to their best 4-month start to a year since 1999. Happy May.

Social

Facebook rolls out dating and one big redesign

Welcome to Zuckapalooza. Now please update your FB app... Mark began Facebook's F8 developer conference with a preview/tour of the redesigned Facebook: aka "FB5" (it's rolling out to users starting today). Facebook Dating is also expanding to the US later this year and 14 more countries right now — Swipe right on any friend or indicate a friend-of-a-friend "Secret Crush."

Operation FB5-star is a Group team effort... Go look at Facebook's app in the App Store — it has about as many 1-star as 5-star ratings. It's polarizing. This redesign is intended to improve that by focusing on Groups:

  • Better privacy: Worried those embarrassing freshmen year pics may go viral? Facebook's concerned, too. So it's emphasizing Groups and Messaging, which keep posts more contained.
  • Admins = Policemen: It doesn't have enough humans or AI to stop extreme content from reaching innocent eyes. So it's de-emphasizing the newsfeed, and letting your Group's Admin take down bad stuff.
  • Potentially worse isolation: Limiting chats to Group life means conspiracy theories, hate, and misinformation could potentially thrive even more.

This could hurt profits. It doesn't matter... It's not clear how this privacy focus will affect the Book's ad-tastic business model. But 18-29-year-olds are ditching Facebook fastest (usually for Insta, which Facebook also owns) because FB posting is too public. So it's disrupting itself with a more private version before a competitor does.

Chew

Bacon and Donut Sticks power McDonald's to a record high

Pop the top-shelf McFlurry... McDonald's just notched its 15th-straight quarter of sales growth, jumping 5.4% globally. But McD's suffered two menu casualties: Its fancy burgers (the "Signature Crafted Recipes" lineup) is 86'd and its late-night menu is getting trimmed.

Ronald has settled into a 2-carb diet... And it's working. McDonald's credited a pair of promotional foods for the strong 2019 start:

  • Donut Sticks: Added to the menu in February, the 280-calorie balanced breakfast headlined McD's new 2-for-$5 "Mix and Match" deal.
  • Bacon Day: The one-day event in January let you toss bacon on the side of any order. That delivered a single-day sales pop and an opportunity for diners to experience new menu options.

The Breakfast Wars just got kicked up a notch... Fast food sales were flat last year overall, but breakfast sales rose 1%. Breakfast is now the last quick-serve food frontier because it's the meal you most likely prepare at home. Donut Sticks were McD's latest Breakfast War attack — Here are the other recent battle moves:

  • Burger King introduced a $5-a-month coffee subscription in March.
  • Panera redesigned its morning menu in April.
  • Dunkin' launched two new sausage & egg-white breakfast bowls this week.
Trillions

Apple about to hit $1T valuation (again) as iPhone era fades

When a realtor brags about the house's plumbing... walk right out the door. Now Apple's boasting in the first paragraph of its earnings about iPad and Watch sales — But they're just a sliver of company revenues. Overall, Apple's profits fell 16% because fewer people are upgrading to $1K iPhones (your $750 iBrick is still solid).

Cash hookups are rising... as sales are falling. Apple's got a case of "lack-of-iPhone-growth," so it distracted shareholders with goodies:

  • The dividend is growing by 5% — Each quarter, Apple will wire almost $4B worth of company cash to stockholders based on the # of shares they own ($0.77 per share, to be exact).
  • It'll spend $75B to buy back some Apple shares — That increases the value of all the other shares out there by removing some from the market.
  • The result: Apple stock rose 5% Tuesday because investors will get cash hookups.

Apple's become a giant ATM... Even though business is shrinking, Apple has so much past and future profit that it's expected to surpass Microsoft today to become the #1 most valuable company again.

  • The past: $225B in the bank from the good ol' iPhone days that it'll continue dishing out to shareholders as dividends + share buybacks.
  • The future: 900M people use iPhones right now. And Apple will make more money by mooching services off them like Apple TV+, Apple News+, Apple Music, Apple Pay.

What else we’re Snackin’

  • Streaming: Netflix reveals the seven projects the Obamas are working on
  • Lift: General Motors profits benefitted from its investment in Lyft
  • Frapp'd: Starbucks unveils its summer drink lineup (S'Mores, Mocha Cookie Crumble, and Insta-worthy Dragon Drink included)
  • Sold: Altice drops $200M to buy streaming network Cheddar
  • Out: Alphabet's Eric Schmidt (long-time Google CEO) is stepping down from the board
  • Side-Effect: GE warns the halted Boeing 737 sales are a risk to its profits because it makes the engines

Wednesday

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Chipotle continues to go on a tear, hitting a sales record

Hey it might not be the kind of AI stock investors are all hot and bothered over, but don’t sleep on the burrito business.

Chipotle posted much better-than-expected results on Wednesday, with sales rising 14% to a record $2.70B in the first quarter, which is like a billion additions of guac.

Profits jumped 23% to $359M.

Chipotle has quietly cruised higher over the last year. It’s up 63%, compared to the 24.5% gain for the S&P 500 over the 12 months through Wednesday’s close. Not bad for a rice-and-beans based business model.

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Facebook reported impressive earnings. Record first-quarter revenue thanks to AI! Profit up 117% compared to a year earlier! But at the same time, its capital expenditures are going up and it’s expecting second quarter revenue potentially lower than analyst estimates. So in other words, the future doesn’t look as bright as the present.

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Why Tesla investors are holding on to hope for a cheap car

Despite terrible earnings numbers last night — declining vehicle sales, disappointing revenue and profit, enormous spending — Tesla stock is up more than 10% as of midday. That’s a welcome move for the car company, that’s been among the worst performers this year in the S&P 500.

Why the about face?

While Reuters reported earlier this month that Tesla is no longer making its long-awaited $25,000 mass-market car — news sent the stock, already suffering from headwinds across the EV industry, down even further— Tesla reported during its earnings that it’s going to make cheaper cars than it currently has.

Before the second half of next year, Tesla said it will release “more affordable models” that “will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.”

So rather than release the $25,000 Model 2, Tesla is incorporating some of that technology into its existing models. UBS called it the Franken-3Y2.

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Not so Gucci

French luxury fashion conglomerate Kering has seen its shares fall ~10% in the last 24 hours after reporting that sales at its flagship brand Gucci had dropped 21% in its latest quarter.

Kering’s other brands, which include Yves Saint Laurent, Bottega Veneta, and Balenciaga, fared slightly better — but the only real bright spot was the company’s eyewear division, where sales rose 24% (9% on a comparable basis).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

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Kering Warns Profit to Tumble Following Gucci Woes in China

Kering Warns Profit to Tumble Following Gucci Woes in China

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

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The FTC vs. Big Handbag

The Federal Trade Commission has sued to block big tech, big grocery, big vacuum, and now, big… “affordable luxury handbag.”

Yesterday, the FTC sued to block Tapestry Inc’s $8.5B acquisition of Capri holdings. The agency is worried that a merger between Tapestry, which owns the Coach and Kate Spade brands, and Capri, which owns Michael Kors, would eliminate competition in the market.

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

FTC Moves to Block Tapestry’s Acquisition of Capri

FTC Moves to Block Tapestry’s Acquisition of Capri

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

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On the other hand, Tesla shares are down nearly 60% since their all-time peak. The company has ceded ground in EVs, prompting a series of profit crushing price cuts to preserve market share. The cumulative loss in market value over that period is pushing $800 billion. Few corporate executives have presided over such a degree of value destruction.

And it could get worse, as people are bracing for an ugly update when Tesla reports after the close Tuesday.

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Smaller AI models are in

Tech companies that have long touted the enormity of their AI models are now saying size doesn’t always matter.

Microsoft is the latest tech company to introduce smaller AI models, as part of its Phi-3 tech family. Last week Meta released two smaller models of its AI Llama 3 and earlier this year Alphabet did the same. All are open sourcing these models to encourage wider adoption.

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.