Weekly Brief #34
Meet the credit card networks...Apple joins the OpenAI board, KKR buys Varsity Brands, Walmart sued for deceptive pricing, French parliamentary election results, and another Paramount buyout offer.
Good morning investors 👋,
Happy Friday and welcome, or welcome back, to the 34th Weekly Brief.
One of the top highlights this week: Amazon hit $200 a share for the first time in its history, (post split) fueled by a ‘bullish call on its path to increased retail profitability’ by analysts at Bank of America. (Announcements of a new discount store and an AI-powered Alexa update also helped the stock rise.)
Let’s get into it.
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Transparency
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In this issue:
💳 Visa, Amex, and Mastercard analysis
👩⚖️ Walmart sued for deceptive pricing
🇫🇷 French (parliament) election results
FEATURED STORY
💳 Meet the card networks
You swipe your card, insert it, tap it, and buy stuff online—simple acts of spending your money. Most likely on things (crap) you don’t need. Sometimes, it’s with your debit card; other times, with your credit card (if you have one). Regardless, someone is making money off you. Usually, it’s the company you’re buying the crap from that profits. But the cards you use? They’re making bank. Quite literally for some. Say hello to Visa, Mastercard, and American Express—the companies that run our financial world.
(I’m currently writing a Deep Dive issue for next Wednesday (at the latest) on these companies, so I don’t want to write much about it in this issue. As of now, here’s a brief, causal, simplified overview of their business model (which you might already be familar with)):
What’s a card network?
Picture this scenario: You’re headed to your local Loblaws to buy some Bick’s pickles. Why a specific brand? I have no idea, but that’s beside the point.
You walk into Loblaws, grab your pickles, and you know what? That gum at the register looks good too, so you decide to buy it.
“That’ll be $53.24,” says the cashier.
Why are the pickles and gum so expensive? Again, I have no idea, but let’s imagine it’s 2080 and inflation has gone haywire.
“Uh, credit please… American Express Platinum,” you politely and seemingly smirkingly respond.
You take out your hunk of metal, tap it on the screen…and it declines.
“Sorry, we don’t accept Amex,” says the cashier.
Feeling the embarrassment from the line of people watching, you then take out your Visa Infinite, swipe the card, it approves, and you leave the store, happily ever after with your overpriced pickles and some gum.
Loblaws is the merchant selling the products to you in this transaction. Visa, as the card network, manages the transaction for Loblaws and takes a fee for doing so. You, as the consumer, don’t pay the fee; Loblaws does. This fee is typically around 2% of the total transaction for Visa. (The reason Amex isn’t accepted at as many locations as Visa is because Amex charges double this fee.) Visa just made $1.07 in this case. That, in an oversimplified way, explains what a card network is.
In better words: When a cardholder makes a purchase using a credit or debit card, what a card network does is processes the transaction, verifies the card details, checks the available credit or funds, and transfers the money between the merchant’s bank (acquirer) and the cardholder’s bank (issuer).
(I’ll be in your inbox next week for a stock and business analysis on these three companies. Consider following me on Blossom Social for some more updates on the markets in the meantime, and for a look at my personal stock portfolio and my recent trades. I’ll see you then (figuratively, of course.))
FINANCE
🍎 Apple joins the OpenAI board
Apple is set to join OpenAI’s board as an observer, in a similar way to what Microsoft is doing, as part of its deal to integrate ChatGPT into their devices via Apple Intelligence. Phil Schiller, head of Apple’s App Store, will take on the board observer role later this year, as per Bloomberg.
Observers can attend but not vote in board meetings. Microsoft holds a similar position after investing $13 billion into OpenAI and with the investment, entitles Microsoft to half of OpenAI’s profits (49%) until repaid. (Apple won’t pay OpenAI, and instead will provide exposure to ChatGPT through its millions of users.)
🤝 KKR to buy Varsity Brands
KKR & Co., the private equity firm that recently joined the S&P 500, has agreed to acquire Varsity Brands, a manufacturer of sports uniforms and school yearbooks, from Bain Capital for approximately $4.75 billion, including debt.
KKR will own Varsity Brands through its Americas equity fund and plans to offer stock in the company to all employees, a benefit usually given exclusively to senior executives. Bain Capital had bought Varsity Brands in 2018 for around $2.5 billion. The company manufactures and distributes team sports equipment and apparel for brands like Under Armour and Nike, and also produces school yearbooks and cheerleader uniforms.
BUSINESS
👩⚖️ Walmart sued for deceptive pricing
The US Court of Appeals for the Seventh Circuit this week reversed a lower court’s decision, now allowing people to argue that Walmart’s pricing strategy was a “bait-and-switch” and violated consumer protection laws.
In June this year, Walmart settled with New Jersey regulators for $1.64 million over unlawful pricing practices. Now, Walmart faces another class action over allegations of ‘deceptive pricing,’ where customers were charged more at the register than what the price said on the shelves (yikes).
According to Reuters, a judge said that ‘consumers reasonably expect shelf prices to be accurate.’ With which he’d be correct.
🎥 Skydance and Paramount; the story ends.
After months and months of negotiations, Skydance Media, the company behind “Top Gun: Maverick” and “Mission: Impossible,” has agreed to acquire National Amusements, the company that controls Paramount Global, for $1.75 billion, finally ending the Paramount buyout saga.
The deal, pending approval, includes a 45-day period for Paramount to seek better offers (as if they didn’t already have some). If finalized, the deal marks a massive shift for Paramount, which has struggled in the streaming market, despite the company’s expectation that Paramount+ will turn a profit in the U.S. next year.
POLITICS
🇫🇷 French parliamentary election results
As the week ends, so did the first round of France’s parliamentary elections. After Macron called the snap election a few weeks ago, he did not win a clear majority after Sunday’s election. Marine Le Pen’s National Rally (RN) won the most seats but is projected to fall short of the 289-seat majority, with estimates of 190 to 220 seats, including support from Les Républicains.
The New Popular Front alliance is projected to win 159 to 183 seats, while Macron’s Ensemble coalition is expected to win just 110 to 135 seats. However, there are discussions about Macron forming a larger coalition among the ‘moderate size’ parties which could help him in the polls.
How it works:
French parliamentary elections do not elect the French President. They determine who controls the government. France operates under a semi-presidential system with both a President and a Prime Minister. The Prime Minister is appointed by the elected President from the winning parliamentary party. (It’s a lot.)
In the first round of parliamentary elections, a candidate needs to have more than 50% of the vote and at least 25% of the total registered voters to win outright. If no party meets this, a second round is held.
The second round of parliamentary elections takes place a week after the first round (in this case, this Sunday). Only candidates who received at least 12.5% of the vote in the first round are eligible to participate in the second round. The party with the most votes wins in the second round, even if they don’t win an absolute majority.
Then, finally, the president is elected in a seperate presidential election. This whole political process is pretty complicated. (Although, I guess Europe is like that for the most part.)
📚 Book of the Week
Note: I don’t recommend books that I haven’t read or that I would never read. The books I recommend are books I have already read or that I will eventually read.
The Business Case for AI — Kavita Ganesan
Book Description:
AI is much more than a sexy marketing gimmick. At its core, it’s a powerful business tool that can make operations and decision-making more efficient, employees more productive, and customers delighted.
Unfortunately, leaders who want to take advantage of artificial intelligence often don’t know where to start. The process can feel overwhelming—from analyzing existing processes and software systems and choosing where to apply AI automation, to preparing every tier of the organization for the transition.
In this practical guide for business leaders, Kavita Ganesan takes the mystery out of implementing AI, showing you how to launch AI initiatives that get results. With real-world AI examples to spark your own ideas, you’ll learn how to identify high-impact AI opportunities, prepare for AI transitions, and measure your AI performance.
Get ready to discover:
What’s true, what’s hype, and what’s realistic to expect from AI and machine learning systems.
Ideas for applying AI in your business to increase revenues, optimize decision-making, and eliminate business process inefficiencies.
How to spot lucrative AI opportunities in your organization and capitalize on them in creative ways.
Three Pillars of AI success, a systematic framework for testing and evaluating the value of AI initiatives.
Simple and compelling, The Business Case for AI gives leaders the information and resources they need without statistics, data science, or technical jargon. Whether you want to jumpstart your AI strategy, manage your AI initiatives for better outcomes, or simply find inspiration for your own AI and machine learning applications, The Business Case for AI is your blueprint for AI success.
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— Jacob
(This isn’t literal. Words of expression. Check moomoo’s terms!)
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