Tuesday Jul.14, 2020

🍿 Netflix's pre-earnings

_Investors waiting for the Netflix earnings like_
_Investors waiting for the Netflix earnings like_

Hey Snackers,

You can always take your passions to new heights — like this extreme couch potato who went paragliding... on his couch. Eating Doritos in front of the TV must hit different when you're 300 feet above the water. Don't try this (outside of) home.

The S&P 500 turned positive for the year (again). The moment was short-lived: stocks dipped by the end of the day, dragged down by Big Tech stocks.

Invest

India has over 600M people without internet, so Google's investing $10B

"The next billion users..." What Google counts instead of sheep to fall asleep at night. They'll likely come from India, the world's 2nd most populous country (barely short of China). Roughly half of India's 1.3B people have yet to get online. Google wants in on those ~650M, so it's investing big in the world’s fastest growing internet market:

  • The Google for India Digitization Fund will pour money into India's tech sector over the next 5-7 years. Expect spending on: equity investments, partnerships, and connectivity infrastructure.
  • Google will invest $10B there to make the internet "affordable and useful" for all those not-yet-connected. Longish-term goal: gain ad-revenue-driving eyes in the #1 untapped digital growth market.

"I know I'm not the only one"... As geopolitical issues with China heat up, more companies are looking to India. China already bans American tech giants like Google and Facebook for censorship reasons. Now America's security concerns are intensifying (think: TikTok bans, Huawei bans). Political and trade issues, like China's crackdown on Hong Kong and its new deal with Iran, create a tense situation that companies don't feel safe investing in.

  • Facebook invested almost $6B for a 10% stake in India’s biggest telecom, Jio Platforms, back in April (Intel and Qualcomm are now proud investors, too).
  • Amazon invested $1B to take Indian businesses online, and is investing $5B to expand its India operations. Walmart dropped $16B on Indian ecommerce company Flipkart in 2018.

India brings less spending power, but more numbers power... Tech companies like Google value users by their revenue potential. India's gross national income per person was $2,130 in 2019, compared to almost $66K for the US. But the US has 330M people, over 90% of whom are internet users — India has 1.3B people and only ~55% are internet users. A massive untapped market makes up for spending power differences.

Watch

Netflix is set to report earnings — investors are waiting for 1 key number

New Season out soon... We're talking Earnings Season, baby. Netflix is kicking it off on Thursday after the market closes. Investors have some thoughts before the numbers drop (don't they always). The stock has soared ahead of earnings, giving Netflix a larger market value than Verizon and post-Hamilton Disney.

  • The bulls think 2020 is the year Netflix becomes a utility. Home-bingeing has never been more important and Netflix’s obsessive content-hoarding gives it a big leg up over rivals: it reportedly has 2 years worth of fresh movies/shows stashed away.
  • The bears think 2020 is the year Netflix loses to subscripturation. A slew of new streamers have launched, and growth could slow on the competition/saturation. Netflix already takes up 72% of home streaming time.

Netflix and no chill... What investors really care about is 1 key nail-biter stat:

  • Net new subscriber growth: Netflix absolutely crushed it in April, adding 15.8M new paying subscribers in the 1st quarter (more than double the 7.2M expected).
  • Investors are waiting for another hit, but that's a tough act to follow. Netflix has forecast 7.5M net adds for this June quarter, but some bulls are expecting 10M-12M.

The thesis, the risk, and the result... Earnings expectations drive stock moves, so shares can be particularly volatile pre-earnings. Long or short term, investors formulate a thesis based on data and trends, then take a risk based on their projections. Investors who are bullish on Netflix could see their stock jump if new subscribers exceed expectations — and they'll likely see their stock drop if new subscribers fall short.

Snack

PepsiCo’s earnings reveal it should probably rename to SnacksCo

That feeling when you order Coke... And they ask if Pepsi's okay instead. Pepsi might not be everyone's soda of choice, but it's winning on one thing: snacks. With restaurants, sports stadiums, and movie theaters closed during the pandemic, PepsiCo's beverage sales plunged 7%. Good thing the snacks portfolio was there to save the day:

  • Frito-Lay sales rose 7%: Pepsi owns the four big Os (Cheetos, Doritos, Tostitos, and Fritos), plus Lays (you really can't eat just one).
  • Quaker sales rose 23%: Pepsi owns your entire breakfast with Quaker Oats, cereal, and those Chewy snack bars that you ate 1,000 of at soccer practice.
  • Pepsi's overall sales fell just 3% for the quarter thanks to the dippy-chewy snacks success.

The revival of "forgotten habits"... The pandemic has boosted Big Food brands like Pepsi, Kraft, Unilever, and Kellogg. Consumers have turned to these familiar, affordable names for corona hoarding. And stress snacking has gained new power in the WFH era. However...

  • Healthy-ish drinks sparkled: Pepsi Zero Sugar and Bubly sparkling water saw double-digit sales growth. Pepsi's juice biz (including Tropicana OJ) got a big immunity boost.
  • Healthy-ish snacks like SmartPop popcorn, Sun Chips, Bare dried fruit chips, and Sabra hummus are also part of the Pepsi fam. Which is why...

Pepsi needs to change its name (or at least rebrand)... When you think of Pepsi, you think of canned soda and Mountain Dew. But Pepsi has a lot more to offer than sugary soda. Its latest earnings reveal that those "didn't-know-it-was-Pepsi" products — like Quaker Oats and Naked juice — are thriving. Perhaps the whole brand could get a boost if Pepsi honed in on that value prop.

What else we’re Snackin’

  • Nom: Chipotle tests cilantro-lime flavored cauliflower rice at some US locations (brown rice is jealous).
  • WeMoney: WeWork expects profitability in 2021 after a massive cost-slashing effort that included cutting 8K jobs.
  • Vax-on: The FDA grants Pfizer and BioNTech "fast-track" status for their experimental COVID-19 vaccines.
  • SPAC'd: Luxury electric car maker Fisker will go public at a $2.9B valuation by merging with a SPAC (special purpose acquisition co).
  • Electric: Semiconductor maker Analog will buy its competitor Maxim for over $20B — the huge merger would create a chip giant worth $68B.

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Tuesday

Disclosure: Authors of this Snacks own shares of Alphabet, Amazon, and Chipotle

ID: 1243734

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