Friday Feb.21, 2020

🍕Domino's DIY Win

_Tastes better when you Do It Yourself_
_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

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