Friday Feb.21, 2020

🍕Domino's DIY Win

_Tastes better when you Do It Yourself_

Hey Snackers,

Sometimes in life, we don't know where we stand... Like this pasta restaurant in the Italian Alps, after the ridge dividing it from Switzerland melted. Lasagna's identity crisis.

Markets inched down a tad Thursday, but Six Flags took a rollercoaster plunge (not the fun kind). On the bright side, Baby Yoda toy made its big debut — it moves.

Grub

Domino's wins with its DIY attitude (and its takeaway-only HOV lanes)

Anything you can do, I can do better (alone)... Domino's just delivered a hot box of tasty earnings — without relying on food-delivery middlemen. The pizza chain beat both sales and profit expectations in the 4th quarter, sending shares up a steamy 26%. Extra impressive, given Domino's DIY attitude:

Delivery app middlemen like DoorDash and Grubhub promise to boost restaurants' sales, but they take a cut of that money.
Restaurants don't want to splurge on their own delivery app/drivers, so they'll partner with apps for tech + exposure despite the fees. Shake Shack, Starbucks, and Wendy's are all listed on partner apps.
Domino's is 1 of the only big chains that refuses to work with outside delivery apps — it thinks commissions are lame and wants to have control over its customer service (and guard against cold pizza).

Domino's is one of the OGs... that popularized delivery — it was always DIY. But now with increased competition from the apps, it's rolling up its sleeves to beef up its delivery/carryout game:

Online: Introduced online-ordering for carryout, and an app that shows real-time GPS order tracking. Its AnyWare platform lets you even order via Alexa, Slack, or Apple Watch.
Speed: Introduced designated lanes in stores to cut wait times for carryout — it's also building more stores to be closer to pizza lovers and slice delivery times.

DIY carryout could be Domino's future... Efficient carryout operations can hurt delivery middlemen — if there's a Domino's 8 min away from your house, you prob won't be down to pay for delivery/tip on Postmates. Carryout now makes up nearly half of Domino's orders, up from about 30% in 2012. And carryout is more profitable than delivery (no drivers to pay). Maybe Domino's will scrap dine-in altogether (have you ever actually sat down in one?).

Acquire

Morgan Stanley snatches up E-Trade to go after sub-millionaires

Sharp left on Wall Street onto Main Street... The intersection Morgan Stanley just landed on by buying E-Trade. MS is an OG Wall Street bank that has historically done big deals for large institutional clients, corporations, and million/billionaires. But it just dropped $13B for a discount online broker. Why?

Main Street push: MS wants to manage money for regular people — it thinks gaining retail investors will be a more durable (and less risky) biz model.
What E-Trade brings: 5M retail customers and their $360B in assets (an average of $72K per customer). MS will also get E-Trade's online banking biz, which is clutch.

Wall Street thought E-Trade was a goner... E-Trade used to make 18% of its revenue from stock trade commissions ($7 on each buy and sell). But after Robinhood introduced commission-free trading in 2013 (disclosure: that's us), brokerages were under pressure to go to $0. In October, Schwab ended its commission fees, and E-Trade kinda had to follow. Its stock plunged 14% that day as a big source of revenue was erased. But MS still sees strength in E-Trade...

So it's paying a huge premium to buy E-Trade — 34% more than its October value before its commissions got killed.
E-Trade shareholders celebrated (its stock rose 22% yesterday). It wasn't so cool for MS shareholders (MS fell 5%).

This deal saves MS loads of time... and time is money. Goldman Sachs — MS' arch rival — has spent 4 years trying to become a retail bank with its Marcus savings account — and it's still losing money on that unprofitable division. Making a product/market shift takes time for any business. But by acquiring E-Trade, MS just became a retail bank overnight — and it's already profitable on day 1.

Sell

Victoria's Secret goes private at $1.1B — could go 1 of 2 ways

It was a public Secret... But now it's a private Secret (and less of an oxymoron). Victoria's Secret is being sold by its parent L Brands — the lingerie legend and its teen-friendly offshoot Pink will be taken private at a $1.1B valuation. Private equity firm Sycamore Partners gets 55% of VS, while L Brands keeps the rest of its former child. L has been struggling lately...

L Brands' market value has fallen 75% in the past 5 years, from $29B to $6.4B.
The decline's been driven by Victoria's Secret, which hasn't aged well in the era of inclusivity and bralettes. The $1.1B value is less than the Gap (which is struggling) - by over 80%.
That leaves L Brands with just its Bath & Body Works chain (because hygiene is not a fad).

We hear a lot about private companies going public... not so much the opposite (except for Elon's tweets). PE firms usually take out big loans for these buyouts, which they often pass on as debt to companies like VS — this has resulted in quite a few bankruptcies (Toys R Us, Payless), but also some successes (SeaWorld, Canada Goose).

VS (badly) needs a makeover... The brand has lost touch with customers. If Sycamore Partners is just bargain hunting — like stripping a car for parts — VS could be done for. But this could also be a great opportunity to rebrand, by focusing more on the athleisure-minded Pink line. Plus, new ownership could help distance VS from the controversial Les Wexner, who's stepping down as chairman/CEO.

What else we’re Snackin’

Pop-box: Dropbox shares pop 16% after the cloud company's CEO said it aims to be profitable by the end of the year
Peacock'd: ViacomCBS shares plunge 15% after its CEO tries to convince investors of a new streaming plan (hint: it didn't work)
Burn: Peloton shuts down Flywheel's bikes after winning a patent lawsuit — but it'll give used-Pelotons to bummed-out Flywheelers
Unveil: Quibi, the short-vid streaming app that has raised $1.4B, gives the world a 1st glimpse into its product
Copy: Target whips up its own luggage brand to take on suitcase brand-icorn Away

Friday

Earnings expected from John Deere

ID: 1096956

Latest Stories

Rani Molla

17m

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.

21m

Frozen Dead Guys

The audacious and expensive world of cryogenics

Jamie Wilde

US-NORWAY-TRADITION-DEATH-FESTIVAL-OFFBEAT

3.07¢

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.

Meta’s not telling where it got its AI training data

Today Meta unleashed its ChatGPT competitor, Meta AI, across its apps and as a standalone. The company boasts that it is running on its latest, greatest AI model, Llama 3, which was trained on “data of the highest quality”! A dataset seven times larger than Llama2! And includes 4 times more code!

What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

Meta’s battle with ChatGPT begins now

What is that training data? There the company is less loquacious.

Matt Phillips

Today’s earnings: Who’s making money edition

Here are some some notable numbers out this morning, as earnings season gathers steam. Thursday’s main event will be Netflix after the close of trading. (Keep an eye on its advertising business.) But until then...

Parts distributor Genuine Parts beat, offsetting weak sales with cost control.
Credit card company Discover jumps, as delinquencies stabilize.
Builder D.R. Horton benefitted from the fact that there’s still no houses to buy.
Credit score giant Equifax was hurt by the fact that nobody wants mortgages.
KeyCorp, Comerica latest banks bummed by depositors demanding higher rates .
Insurance Marsh & McLennan did well by investing cash at high short-term rates.
Private equity giant Blackstone’s results were meh, due, in part, to lack of exits.

7.13%

The 30-year fixed rate mortgage is back above 7%, according to weekly numbers from the Mortgage Bankers Association, the highest level in four months. High borrowing costs are creating havoc for would-be buyers, as affordability lingers at the low levels not seen consistently since the late 1980s.

Rani Molla

Amazon’s spy ops on rivals: shell companies, printed docs, and a fake Japanese streetwear brand

Some companies check out rivals’ websites, stores and public filings to stay abreast of the competition. Amazon made its own fake shell company and brands, transacted hundreds of thousands of dollars per year undercover on competitors’ platforms, and kept its intel operation a secret for nearly a decade even from others at Amazon, according to a fascinating investigation by the Wall Street Journal.

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

Exclusive | Inside Amazon’s Secret Operation to Gather Intel on Rivals

April 18th

11h

What’s happening

13h

Tesla pushes for a massive Musk pay package as the EV maker rides the struggle sedan

Jamie Wilde

Read

13h

Big Banks Earnings Wrap: Investment banking rebounds, but interest rates are a double-edged sword

Nia Warfield

Read

Time’s ticking

4/17/24

Big tech vs. big government

Jack Raines

More taxes, eh?

4/17/24

Capital gains taxes won’t fix Canada’s terrible housing market

Canada's proposed solution to its housing crisis may exacerbate the problem instead.

SWITZERLAND-DIPLOMACY-ECONOMY-SUMMIT-DAVOS

Jack Morse

4/17/24

Worldcoin pivots to the blockchain… with a 'humans only' discount

Worldcoin, the “proof of personhood” crypto project launched by OpenAI’s Sam Altman, said it plans to launch its own ethereum layer-2 (L2) blockchain dubbed World Chain. The pitch: a blockchain where it’s both easier and cheaper for people to transact than bots.

Worldcoin has made waves for its iris-scanning metallic orb that promises a future where people can mathematically prove they’re real humans and not AI bots.

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses.

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees.

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

Worldcoin, Sam Altman's Crypto Project, Is Building a Layer-2 Chain

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses.

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

Rani Molla

Ad-ing up

4/17/24

Turns out Netflix makes more money if it just acts like regular TV

Streaming companies will let you watch ad-free, but it will cost you.

Earnings

4/17/24

Companies report things

Nia Warfield

4/17/24

Smooth sailing? Not for superyachts

Sales of the luxury boats sank 17% last year. Meanwhile, Super-SUPER yachts (over 650 feet long) took the biggest sales dip, falling around 40%. Part of the problem: a pandemic-era backlog has led to a three- to four-year waitlist for new yacht orders. Meanwhile Russian oligarchs — former MVP customers — are largely out of the boat-buying business due to sanctions.