Tuesday Aug.13, 2019

Death of a hybrid salesman

_The first ever kombucha-powered car_
_The first ever kombucha-powered car_

Hey Snackers,

Natty Light Seltzer. Now a thing.

Didn't distract markets from the growing US/China trade war — China devalued its currency (again) to counter upcoming US tariffs. That latest escalation dropped the Dow 391 points to start the week.

Private

For the 1st time ever, mysterious Saudi Aramco reveals its financial details

Not Big Oil. Biggest Oil... Saudi Arabian Oil Co — aka "Aramco" — just stuck its financial statements up on the web for the first time ever. It didn't have to (it's not publicly traded), but it's trying to pique some investor intrigue. Here's what Earth's most profitable company looks like:

  • Private: Saudi Aramco has 1 shareholder — the Kingdom of Saudi Arabia — since 1976, when the government took full control of what was then an American company. It's still 100% private today.
  • Public-curious: In April it interacted with public markets for the first time, offering $15B in bonds to raise some money for itself.
  • Public: The Saudi government is thinking about IPO-ing Aramco to sell some shares to the markets in exchange for cash — that's why it wants to show what some of its numbers look like.

The home run record was 16. Then Babe Ruth hit 29. Then he hit 54... Aramco is the Bambino of profits. Behold, its elusive financial stats from the 1st half of 2019:

  • Profits: $47B. That's double what Apple made. Double. (And almost 8x Amazon).
  • Dividends: It delivered almost 100% of that profit to its 1 single shareholder as a dividend so government services for 33M people could be paid for.
  • Oil: It pumps out 10M barrels of crude oil per day. Only Russia and the US (two countries) produce more oil than this company.
  • Fun Fact: And it's still got half-a-century's worth of reserves to tap from the ground.

Operation: Modernize... The next Saudi King (Crown Prince Mohammed Bin Salman) was all the rage trying to modernize his intensely conservative country (women just got the right to drive). That plan was put on ice after the murder of journalist Jamal Khashoggi (believed to be at the Crown Prince's order). Now he's venturing out of the moral doghouse and the finance world doesn't seem to mind. The biggest IPO ever could be coming.

Charging

The car industry begins going all-in on electric, phasing out hybrids

Can I borrow your car charger?... GM and Volkswagen are ditching the hybrid technology that Toyota made famous with the Prius back in the 90s. Here's a cheat sheet on conventional vs. hybrid vs. electric as they go long on plug-ins.

  • Conventional: An engine burns gasoline, which pumps pistons up and down, which spins your wheels (we skipped over some physics and engineering).
  • Electric: A battery powers a motor which vrooms you forward. The downside — pricey batteries make e-cars $6K-10K more expensive than conventional ones on average (but tax incentives and gas savings make up for some/all of that).
  • Hybrid: A little bit of both. Drivers want to help Mother Earth, but crave the warm-fuzzy feeling of an engine. Hybrid tech costs about $2K extra compared to a conventional car.

Hybrid upped America's MPG... but barely. According to the WSJ, the carmakers are realizing hybrid isn't cutting greenhouse gases enough for the future, especially with Europe and China's aggressive environmental plans. Ford, Volvo, and Toyota though are sticking to hybrid because some customers aren't ready to go cold turkey with regular unleaded.

Companies can only make so many bets... A car CEO has a ridiculous menu of expensive things she could invest in — autonomous driving, car sharing, pickup trucks, hybrids, and electric. Each buck spent on hybrid tech is a buck not spent on those other things. More car bosses believe hybrid's era is coming to a close soon.

Subscribe

Nike unveils its 1st kids kicks subscription box: "4 pairs/year for $20/month"

If baby Jordan went back-to-school... he'd subscribe. A stealthy sneaker club startup called Easy Kicks has been delivering shoes to 10K member families. Turns out it was Nike all along. Easy Kicks just got rebranded as "Nike Adventure Club" for kids 2-10, and it's Nike's 1st-ever subscription service:

  • The tiers: 3 options — Get 4 pairs of sneakers per year for $20/month, 6 pairs for $30/month, or 12 pairs for $50/month.
  • The feel-good: Send back the kicks and Nike donates or recycles them.
  • The asterisk: Pediatricians say that's way too many shoes for even fast-growing kids.

Subscriptions — so hot right now... From Dollar Shave Club razors to Lola tampons, subscriptions guarantee recurring revenues for the biz and build brand loyalty (plus, customers don't have to shop/think anymore). Now, Kid-scriptions are gaining traction because they grow so fast (😭) they constantly need new stuff. Here's who else has boxes for size "24 months" up to "16 husky":

  • Walmart partnered up with kids' clothing startup Kidbox.
  • Foot Locker invested in Kidbox rival Rockets of Awesome.
  • Algorithm-powered fashion subscription Stitch Fix launched a kids version last year.

It's all about the upgrade... The biggest surprise for Nike was how offering different price tiers let users test it — and then commit. Intensely. Most began at the cheap $20/month option, craving more adorably small kicks. And then they paid up for the fancier tier ("just $10 more for 2 more pairs!"). Nike's pricing strategy was the real winner.

What else we’re Snackin’

  • Full: Yum Brands' CEO is retiring after 25 years – he's the man behind the Doritos Locos of Taco Bell
  • Closer: CBS and Viacom are apparently in the final stages of a deal to merge (that includes Nickelodeon, MTV, and Paramount Films)
  • Hungry: Smithfield Foods is the world's biggest pork producer, but now it's getting into plant-based meat
  • Headline: Verizon's Yahoo acquired Tumblr for $1B in 2013 — now it's selling off the website to WordPress for a "nominal" amount (aka "barely anything")
  • Carbs: John Deere's stock is down because corn production is up — corn surplus means lower prices which means farmers can't afford new tractors
  • No-IPO: Postmates plans to drop its IPO plans next month

Tuesday

Disclosure: Authors of this Snacks own shares of Amazon and Volkswagen

20190813-925539-2790572

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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).

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Kering Warns Profit to Tumble Following Gucci Woes in China

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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.

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FTC Moves to Block Tapestry’s Acquisition of Capri

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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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