Tuesday Jan.11, 2022

🐐 Grand Theft FarmVille

GTA: Farm Edition [Moment via Getty Images]

Hey Snackers,

Leonardo DiCaprio finally won an Oscar in 2016. Now he has his very own tree species. After the star’s climate activism helped save a critically endangered tree in Cameroon, scientists named it Uvariopsis dicaprio.

Tech stocks jumped today, even though Jerome Powell said at his confirmation hearing that the Fed is prepared to raise interest rates. Omicron is causing a nationwide “sickout,” leading to empty grocery shelves, more flight cancellations, and some closed retailers (even a Walmart). Meanwhile, Facebook-owner Meta is mandating Covid boosters for all office workers.

Farm

GTA maker Take-Two says it’s buying Zynga for $12.7B, as pandemic mobile gaming booms

Grand Theft FarmVille... Instead of rolling in a sleek Zentorno, you're cruising on a goat. Take-Two Interactive agreed to buy mobile-gaming icon Zynga for $12.7B. Zynga makes hit apps like FarmVille, Words With Friends, and CSR Racing. Take-Two is known for computer and console franchises like GTA and NBA 2K — but has started snapping up smartphone games.

Take-Two said it would buy Zynga's shares for a 64% premium to their Friday price. Zynga shares soared 41% yesterday. Take-Two investors were less thrilled: The stock slumped 15%.
One of the gaming industry's largest acquisitions ever: The Zynga deal, expected to close by June, shows that Take-Two is serious about mobile.

Billions in the palm... Wild stat: Consumers now spend more on mobile games than on console and PC games combined. Zynga makes $$ through its in-game buying biz (tokens, etc.), plus its smaller ad biz (accidentally clicked mid-game). The pandemic supercharged scrolly-tappy gaming: In the first quarter of 2021, users spent a record $1.7B per week in mobile games. Also: Children’s screen time soared during the pandemic, and parents and researchers are worried about kids developing gaming addictions.

Zynga shares have plunged since August, when it saw audiences drop as pandemic restrictions eased (instead of WWF, you played IRL Scrabble). But last quarter, Zynga notched record third-quarter bookings and narrowed losses, while ad sales nearly doubled.
Mobile is booming: Take-Two said it expected mobile to make up more than half its bookings in the next fiscal year, up 5X.

Mobile can “maxim-eyes”... Maximize users while minimizing costs. We’re spending more time (and money) on our phones. Mobile now accounts for over half of the $180B gaming industry, and is the fastest-growing segment. While social-media games like FarmVille can cost less than $250K to make, GTA 5 cost $265M to develop and market (and took three years to create).

Jackpot

As mobile sports betting goes live in New York, gambling companies might not be feeling so lucky

Upping the ante… NY legalized mobile sports betting this weekend, just in time for yesterday’s college-football championship and next week’s NFL playoffs. Before, New Yorkers had to enter New Jersey to bet on sports. Now they can gamble from their couches. Last year US gamblers spent $40B betting on sports — double from 2020.

Betting apps from DraftKings, FanDuel, Caesars, and Rush Street started taking NY bets on Saturday. Five other companies are waiting for approval.
NY officials expect to generate $480M in gambling tax revenue this year, with most proceeds going to education and tax relief.

What happens in Vegas… hasn’t stayed in Vegas. Since the federal sports-betting ban was lifted in 2018, 30 states and DC have legalized live sports betting, but only 18 have legalized mobile betting. NY is the largest state yet to go mobile, but NJ has the highest gambling revenue of any state, snagging one-fifth of the US’s gambling bucks.

Atlantic City = cheaper hotels: Gamblers in NJ, the second state after Nevada to legalize gambling, have wagered 63X more than NY gamblers on sports betting.
Analysts expect NY’s betting biz will surpass NJ’s in 2024. Ohio, Maryland, and Nebraska plan to launch sports betting soon.

The house always wins… but it doesn’t necessarily win big. As gambling is legalized more widely, betting companies’ revenue is expected to 5X by 2026. But new markets don’t guarantee bigger profits: NY’s 51% tax on gambling revenue — 4X as high as NJ’s — will eat into apps’ profits as they grow. Shares of DraftKings and PointsBet have fallen more than 60% over the past year as the companies splurged to compete for customers.

What else we’re Snackin’

Hike: Goldman Sachs predicts the Fed will raise interest rates four times this year, one more than previously expected. The goal: Reel in (still soaring) prices while unemployment is nearly back to normal levels.
Jibbitz: Crocs’ quarterly sales spiked an expectation-beating 42% from last year. The “ugly” shoemaker’s Croc-star earnings throughout the pandemic have shown that functional is (still) the new fashionable.
High: Tilray shares spiked 14% after the pot giant reported an unexpected quarterly profit. Sales jumped 20% from last year on demand for “beyond the leaf” products like ready-to-drink cocktails and THC lagers.
mRNASAP: Pfizer announced deals to expand use of its mRNA tech beyond Covid vaccines, including a $1.3B agreement with gene-editing company Beam Therapeutics to develop treatments for rare genetic diseases.
Ad: Cable titan Discovery (which owns the Food Network) bought a 10% stake in OpenAP, an ad-targeting group that helps TV networks get more specific data on viewers. NBC, Fox, and Viacom have also invested.

Tuesday

Earnings expected from: Albertsons

Authors of this Snacks own: Bitcoin and shares of Zynga, Clear and Pfizer.

ID: 1983804

Latest Stories

37m

TikTok versus the United States

Casey Newton

Senate Takes Up Foreign Aid Package Passed By House

William Coulman & David Crowther

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).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

Kering Warns Profit to Tumble Following Gucci Woes in China

Good morning

What’s happening

Starbucks is challenging a labor watchdog’s power in a far-reaching Supreme Court case

Max Knoblauch

Read

What a US TikTok ban could mean for the rest of the market

Rebecca Moretti

Read

Goldman ditches its robo-advisory biz as it breaks up with consumer banking

Jamie Wilde

Read

Worse than expected

18h

Ugly numbers, but Tesla shares bounce

Rebecca Moretti, Rani Molla

19h

Just the start

Banning
TikTok

What it means for the rest of the market

Jack Raines

21h

The FTC vs. Big Handbag

The Federal Trade Commission has sued to block big tech, big grocery, big vacuum, and now, big… “affordable luxury handbag.”

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.

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.

FTC Moves to Block Tapestry’s Acquisition of Capri

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

Matt Phillips

23h

Tesla had a good ride, but the stock’s price destruction is historic

Few people have created as much value as Elon Musk. The iconoclastic entrepreneur took Tesla from a market capitalization of roughly $2 billion at the time of its IPO in 2010 to $1.2 trillion in early 2023. That’s a return of about 55,000%. Musk made a lot of people a lot of money.

On the other hand, Tesla shares are down nearly 60% since their all-time peak. The company has ceded ground in EVs, prompting a series of profit crushing price cuts to preserve market share. The cumulative loss in market value over that period is pushing $800 billion. Few corporate executives have presided over such a degree of value destruction.

And it could get worse, as people are bracing for an ugly update when Tesla reports after the close Tuesday.

Jack Raines

Opinion

4/23/24

Starbucks could use a CIO

Customers give Starbucks billions of dollars in prepaid credits each year. Should the coffee chain be investing it?

Starbucks American Coffee Chain Cafe In Amsterdam

Rani Molla

4/23/24

Smaller AI models are in

Tech companies that have long touted the enormity of their AI models are now saying size doesn’t always matter.

Microsoft is the latest tech company to introduce smaller AI models, as part of its Phi-3 tech family. Last week Meta released two smaller models of its AI Llama 3 and earlier this year Alphabet did the same. All are open sourcing these models to encourage wider adoption.

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.

Microsoft Makes a New Push Into Smaller A.I. Systems

wake up!

4/23/24

Morning earnings report

$127

The average bitcoin-transaction fee hit an all-time high of $127 on Friday.

The temporary spike came as the halving cut miner rewards and traders forked over huge sums of BTC (skewing the average) to be included in the first post-halving block.

Adding fuel to the fee fire was the launch of Runes, a new protocol that lets developers create memecoins on top of the bitcoin blockchain. The debut was so popular that fees popped as traders fought for limited block space.

4/23/24