💴Tesla cashes in on its high

Friday, February 14, 2020 by Robinhood Snacks | Disclosures

Tesla: "Let's get this bag"

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Hey Snackers,

"Underwhelming." How Nestlé described demand for its low-sugar chocolate bar, Milkybar Wowsomes — it was (Nes)quickly taken out of production.

Markets dipped on word of a spike in deadly coronavirus cases.

Raise
1. Tesla is finally cashing in on its stock price, offering $2B in new stock

Time to get money... Tesla's stock has been having a moment — its market cap is now $144B, worth nearly double Ford and GM's combined $83B value. Now, Tesla is cashing in by issuing $2B worth of new stock — 2 weeks after Elon said raising money "doesn't make sense." Tesla stock dipped at first (because new shares dilute the value of existing shares), but quickly bounced back.

Unusual move for a large, public company... but it makes sense. That's because swings in a stock price don't directly affect the company -— A Tesla stock surge doesn't influence its bottom line. Unless the company decides to issue and sell new shares:

  • IPO: An Initial Public Offering price does matter, because the company is directly selling new shares for the first time to the public (the higher the stock price, the more $$$ the company collects).
  • Secondary Market: Once those shares are in the hands of regular investors, we are the ones who benefit or lose from the stock price's rise/fall. When you own a stock and sell it high, you get money, not the company.
THE TAKEAWAY

Tesla shares are kind of like second-hand Gucci bags... Gucci only makes money off the initial purchase — not when the original buyer sells the special edition purse for a higher price years later. Neither do publicly-traded companies when you sell their shares. But by offering new shares to the public, Tesla can raise cash to fund its projects, like the 4th Gigafactory that's currently finding space in a forest near Berlin.

Eat

The classic Heinz ketchup bottle... hasn't changed much during the company's 151-year history. Condiment legend Heinz merged with mac-n-cheese icon Kraft back in 2015 to form Kraft Heinz. The food giant's latest 5% drop in quarterly sales knocked shares down 8% Thursday — probably a result of Kraft's lack of healthy food options:

  • Think of processed pantry puppies like Jell-O, Oscar Mayer, Capri-Sun, and Lunchables — all Kraft Heinz brands. All boasting unpronounceable ingredient lists.
  • Consumers have been moving away from super-processed foods, towards healthier/trendier "whole" foods snacks like Greek yogurt, almond butter, and protein bars that show off their (lack of) ingredients.

Kraft's labels are in pain... The company had to write down the value of its old-school brands by $15B last year — just yesterday, Kraft Heinz announced that Maxwell House coffee is worth $213M less than you thought. Add that all up and Kraft Heinz's stock has plunged over 70% in the past 3 years, and 40% in the past year alone.

THE TAKEAWAY

Kraft needs to ketchup to the times... because it's getting left behind by its rivals. Its sugary Big Food peers have been busy acquiring cool, health-centric startups — without having to innovate themselves:

  • Kellogg bought RXBar, when it was the fastest growing nutrition bar in the US.
  • General Mills bought Annie's Organic and Epic meat-based bars.
  • Hershey's acquired SkinnyPop popcorn.
Block

Not so fast... Microsoft scored a huge win by snagging the Pentagon's $10B cloud computing contract (aka the "JEDI" deal) back in October. Cloud-competitor Amazon wasn't so pleased, so it appealed the decision in December. Now, a federal judge ordered a temporary block on JEDI in response to Amazon's lawsuit.

  • JEDI: Over 10 years, Microsoft would modernize/build the Department of Defense's IT in the cloud (cloud: think a Google Doc stored on the internet, vs. an OG Word Doc stored on your laptop). Microsoft's servers would store/crunch government data.
  • AWS: Amazon's cloud-computing giant makes up 12% of Amazon's revenue, but a whopping 63% of its profit. Amazon claims President Trump sabotaged its bid because he doesn't like The Washington Post (which Amazon CEO Jeff Bezos owns).

The DoD is America's largest employer... That means big data. And big data means big cloud cash — cash that's now on the line because of this temporary block. If the judge decides the DoD needs to reconsider its decision, Microsoft could lose the biggest cloud contract in US history.

THE TAKEAWAY

Cloud is the new oil... Like oil back when everything in the economy needed to be shipped and delivered in trucks, today's economy runs on cloud computing — Companies are moving to cloud providers to store their data and manage their biz apps, instead of doing it themselves. Now cloud leaders like Amazon, Microsoft, Oracle, and IBM are increasingly fighting over these big cloud deals.

What else we’re Snackin’
  • Makeover: Snapchat is testing (another) new redesign
  • Stream: Around 20% of America's TV-consumption is done via streaming, according to a new report (and Netflix is on top)
  • Sub: Rihanna's Savage x Fenty line is accused of duping customers into signing up for a $50/month subscription service through deceptive marketing
  • Arriving: Tripadvisor predicts that its Experiences and Dining biz will eclipse its OG hotel revenues this year
  • Double: Roku revenues jumped 49% thanks to more advertising bucks

Sign up for Robinhood, our commission-free investing app, and get a free stock. Already on Robinhood? You'll still get a free stock for getting a friend to sign up (they'll get one too).

Snacks Daily Podcast

Biting deeper into our 3 stories. And the Westminster Dog Show is America's 2nd longest running sporting event. What's the first? Listen to today's 15 minute Snacks Daily pod.

Friday

Disclosure: Authors of this Snacks own shares of Amazon

ID: 1090892

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