Monday Jul.12, 2021

🚀 Inside the space race

_Spotted, UFB: Unidentified Flying Billionaire [Marc Ward/Stocktrek Images via GettyImages]_

Hey Snackers,

You've heard of inflation, but have you heard of "shrinkflation"? The price stays the same, but the portions get smaller. Recent victims include Cheerios and Cocoa Puffs.

Stocks closed at record highs again last week. Investors shrugged off "the economy is overheating" worries in favor of "recovery could slow down" worries. Big Tech growth stocks benefited: Amazon, Microsoft, and Apple shares notched fresh records.

Launch

Inside the Space Race: Branson, Bezos, and the future of the space industry

Comet me, bro... The Space Battle of the Billionaires has moved from the Twitter sphere to the thermosphere. Yesterday, Virgin Galactic founder Richard Branson boarded Virgin's VSS Unity, traveling faster than three times the speed of sound to reach the edge of space. Branson just became the first billionaire founder of a space company to go to space on his own spacecraft (meta). Next up is Jeff Bezos, who announced his own trip before Branson decided to out-space him. The former Amazon CEO plans to take off on a Blue Origin spaceplane on July 20, along with his brother and a mystery bidder who's dropping $28M to join them — or $2.5M per minute of ride time.

Spaghetti Apollo-gnese... Apart from fueling billionaires' egos, these trips are major endorsements for NASA-sponsored space tourism (think: restaurant bookings on the ISS). NASA is leaning on private companies to help commercialize space. In May last year, Elon's SpaceX became the first private company to send humans to space. In May, Virgin completed its first human spaceflight, a critical step before it flies space tourists — ETA: early 2022. While $250K tickets to space make headlines, tourism is still a tiny sliver of the space industry.

Satellites: One of the largest space industry subsectors, providing everything from WiFi, to telecom, to GPS and weather sensing. SpaceX's Starlink project has already launched 1K+ high-speed internet satellites into low earth orbit — and is accepting $99 preorders.
Defense: The real-life Space Force. For fiscal year 2022, the Pentagon requested $21B to invest in outer space security. Defense giants Lockheed Martin and Boeing both have space divisions.
NASA missions: Boeing is developing a spacecraft for NASA flights, and Elon's SpaceX won a $2.9B contract to develop a NASA lunar lander, beating out Bezos' Blue Origin (RIP Prime Moon delivery).

This isn't sci-fi... The space industry is taking off in a real way. Space startups raised $7B in 2020, double what they raised in 2018. Today "space customers" mainly consist of governments and companies paying to launch satellites, cargo, and astronauts into space. In the not-so-distant future, they could be commercial space tourists. In the more distant future, they could be space colonizers on the Moon and even Mars (see: Elon's Martian vision).

Events

Coming up this week...

Waiting for the drink trolley like... Delta is rolling up with earnings for the quarter ended in June. Compared to 2020's tomato juice numbers, 2021 might look like champagne: TSA traveler volumes are back to 85% of pre-pandemic levels, and Delta's expected to report a sales increase from last year (no shocker there). Domestic recreational travel is rebounding — Fourth of July flyers even surpassed 2019 levels. But international and business travel, which brings in 75% of airline profits, remains grounded. Bill Gates said that half of biz travel may never return.

Get DJ D-Sol in here... Goldman Sachs' DJ-ing CEO David Solomon (aka: the banker who drops bangers) is dropping earnings instead. It's Big Banks earnings week, with Chase, Citi, Goldman, and others unveiling their numbers. In April, Chase and Goldman revealed record quarterly profits thanks to the IPO-palooza. Corporate and investment banking made up nearly half of Chase's revenue that quarter, and most of Goldman's. Despite a record first half for M&A activity, analysts expect that trading and loan revenue has slowed from last year.

Zoom Out

Stories we're watching...

Big week for stablecoins... Stablecoin = a type of cryptocurrency whose value is tied to an asset like the dollar or gold. USD Coin, one of Earth's largest dollar-pegged stablecoins, made headlines last week. Visa said it'll allow cardholders to pay with USD Coin at 70M merchants worldwide. Merchants will get paid in fiat (aka: regular) currency. Meanwhile, Circle — the firm that operates USD Coin — is going public via SPAC at a $4.5B valuation. While crypto mainstream-ification is advancing, regulator scrutiny of the crypto market is also heating up.

Feeling the pushback... Big business in the US. On Friday, President Biden signed an exec order to curb the dominance of companies in industries including shipping, agriculture, healthcare, and tech. The goal: promote competitive markets and limit corporate dominance in everything from railroads to prescription drugs. It's part of a broader effort to confront consolidation and perceived anti-competitive pricing in big industries — and it has big companies on edge.

ICYMI

Last week's highlights...

Antitrusted: BMW and Volkswagen were fined $1B for colluding to avoid building greener car tech.
Blocked: Didi's mega IPO party gets cut short, as China blocks app downloads and signups for the ride-hail giant.
Fitted: Torrid's hot IPO: how the plus-size retailer is tapping into a major, underserved market.

What else we’re Snackin’

Work: Or not. Why "the Great Resignation" is gaining steam.
Visualize: Big Tech giants, compared to the size of economies. Apple > Russia.
Think: The link between self-reliance, individualism, and well-being.
Interview: How to answer the dreaded "Why should we hire you?"

This Week

Monday: Earnings expected from Simulations Plus
Tuesday: Earnings expected from Chase, Goldman Sachs, and Pepsi
Wednesday: Earnings expected from Citi, Bank of America, BlackRock, Wells Fargo, and Delta
Thursday: Weekly jobless claims. Earnings expected from UnitedHealth and Morgan Stanley
Friday: Earnings expected from Charles Schwab and State Street

Authors of this Snacks own shares of: Amazon

ID: 1717038

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Do you want to run the State Department of McDonald’s?

A couple of days ago, a tweet making fun at McDonald’s hiring a “Manager for Diplomatic Relations” went viral.

At first glance, the idea that McDonald’s, a burger franchise known for its double quarter pounders and perfectly salted fries, is expanding its diplomatic influence with policy makers in Foggy Bottom and the world at large sounds comical. But it’s actually crucial.

There are more than 40,000 McDonald’s locations spread across 115 countries around the world, and 90% of these stores are independently owned and operated franchises that pay royalties to the parent organization to operate. Tens of thousands of franchises operated by different owners with different beliefs, priorities, and values can get complicated, fast.

As we noted in Snacks in February, McDonald’s received heavy backlash from franchisees in countries including Saudi Arabia, Oman, Jordan, Kuwait, and Pakistan after McDonald’s Israel donated thousands of free meals to IDF personnel. But it wasn’t McDonald’s, as an entity, that made the donations. It was the owner of the company’s Israel franchises, who was acting under his own volition.

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Nuke stocks up on AI excitement

For most of humanity, the thought of “nuclear-powered AI” sends a shiver down the spine. But the stock market is all for it! Just check out the list of top performing S&P 500 stocks this year. Just behind established AI plays — Super Micro Computer and Nvidia, you’ll find Constellation Energy, the largest operator of nuclear plants in the U.S. NRG Energy, which also operates nuclear plants, isn’t far behind. Bloomberg reports that CEO of power distributor Exelon — which spun off Constellation in 2022 — says in the Chicago area alone, AI could drive a 900% jump in demand for energy from data centers.

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China makes Apple remove WhatsApp, Threads, Signal and Telegram from app store

In its latest move to restrict foreign tech, Beijing has ordered Apple to remove a number of popular messaging apps from its app store there, including WhatsApp, Threads, Signal and Telegram.

These apps had only been available through VPNs but were popular nonetheless, according to the Wall Street Journal.

Apple said the Chinese government asked them to remove the apps in the iPhone maker’s second biggest market over “national security concerns.” Last week, China told its state-owned telecoms to phase out the use of US chips by 2027.

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Tesla's recall reveals just how bad Cybertruck delivery numbers have been

Thanks to a recall of Tesla’s Cybertrucks, we now know how many of them have actually been delivered: 3,878 since the EV company began releasing them to customers in November.

In its third and fourth quarter earnings report, Tesla said that its current Cybertruck production capacity was greater than 125,000 a year. Musk had previously said he expected to produce 250,000 Cybertrucks a year by 2025.

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

The recall is over an issue with the gas pedal pad that, the National Highway Traffic Safety Administration says when pressed, “may dislodge, which may cause the pedal to become trapped in the interior trim above the pedal.” The cause of the issue: “unapproved” soap that the manufacturer used to aid in getting the pad on the pedal.

A Cybertruck customer this week posted a TikTok about a terrifying incident in which this happened and “held the accelerator down 100%” in his 6,000+ pound vehicle. Thanks to some quick thinking where he held down the brake and put it in park, he wasn’t injured.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

Tesla recalls the Cybertruck for faulty accelerator pedals that can get stuck

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

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Cocoa hits $11,000

Cocoa prices are breaking records on an almost daily basis — with cocoa futures closing at (another) all-time high of $11,020 per metric ton yesterday.

That’s up 158% since the start of the year, and over 4x on the typical prices seen in 2022 — as crop production continues to fall short of demand.

Major cocoa-producing nations like the Ivory Coast and Ghana, which between them grow about two-thirds of the world’s cocoa, have seen excessive tree failure due to disease, changing weather patterns, and hot, dry conditions causing devastating droughts.

As such, consumers are starting to see the effects of the largest cocoa supply deficit in over 60 years: “shrinkflation” and reduced-cocoa recipes might soon hit your favorite chocolate bars, and Hershey stock was recently downgraded. Unfortunately, the worst may still be yet to come: the International Cocoa Organization expects production to lag behind demand by 374,000 tons for the 2023-24 season.

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World out of balance: It costs the US 3¢ to make 1 penny

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.

3.07¢

Pop Quiz!

What’s the world’s busiest airport?

Don't be a sucka

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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.

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