☕️ Roasted
The downfall of Starbucks...Big Tech earnings continue; Rivian recieves $827 million in funding; Sony and Apollo offer Paramount $26 billion; U.S. investigates TD Bank for fraud; and more.
Good morning friends and enthusiasts 👋,
Happy Friday and welcome to the 25th edition of Weekly Brief. A warm welcome to the 4 new enthusiasts who joined J. Nicholas this week. We now have 288 subscribers (28.8% to our 1,000 subscriber goal).
The S&P 500 fell ~2% this week following the Fed’s widely expected decision to hold rates steady. During a press conference, Fed Chair Jerome Powell said it's “unlikely the next policy rate move will be a hike,” leading to a drop in the markets. However, the markets then recovered almost entirely on Thursday.
In other news: Big Tech earnings continue, Rivian recieves $827 million in funding, Sony and Apollo offer Paramount $26 billion, U.S. investigates TD Bank for fraud, Cash App to invest profits into Bitcoin, and more.
Let’s get into it.
IN THIS ISSUE
☕️ The downfall of Starbucks
📈 Big Tech’s Q1/Q2 earnings (cont.)
🇿🇼 The sixth official currency of Zimbabwe
On this day. On May 3, 2016, a wildfire so extreme forced the evacuation of more than 80,000 people in Fort McMurray, Alberta—the capital of Canada's tar sand industry—causing billions of dollars in losses. (Not to be confused with the title of this newsetter issue.)
FEATURED STORY
☕️ The downfall of Starbucks
After releasing its Q2 earnings report this week, Starbucks, the world’s largest coffee chain, seems to be losing its grip on the out-of-home coffee market after pushing its pricing power a bit too far.
Starbucks is pretty known for its high prices, but in the past year specifically, their average drink cost has surged by 20% to $6, while inflation has only risen by 4%. It turns out, lots of people are now considering this too much for a cup of coffee and turning to competitors for their daily caffeine hit.
Almost every metric in Starbucks’ earnings fell short of Wall Street’s expectations, causing the stock to plummet by 16% within a 24-hour period. Transaction volume declined, revenue dropped by 10% year over year, and EPS growth, which was projected to be up 15%, fell by around 14%.
“We didn't communicate the value we provide in a more aggressive manner.” — Starbucks CEO Laxman Narasimhan
As a result of raising prices too much on an already pricey product in an economy with already high prices, Starbucks is starting to face the consequences, with consumers switching to other coffee brands.
But it gets worse.
Usually, when a company experiences such a terrible quarter and its share price drops, that company will buy back shares at the lower price. The problem of course, is that Starbucks cannot afford to do this. Starbucks has a massive amount of debt (over $11 billion) and spends nearly 60% of all their cash towards paying dividends alone.
In other words, Starbucks is stuck in a sticky position where its share price is dropping, revenue is decreasing, consumers are backing away from their product, their CEO is blaming a communication error for this decline (instead of the increase in prices), and the only real option they have to restore investor sentiment, which is to buy back shares, is unavailable to them.
Speaking of coffee chains
🍁 Tim Hortons (TSE: QSR) : This week, Tim Hortons officially kick-started the Smile Cookie campaign, a fundraising effort selling cookies with 100% of proceeds supporting charities in local communities. The first-ever Smile Cookie campaign started in 1996 and over the years has raised a total of over $110 million. In 2023, the Smile Cookie campaign raised a record-breaking $20 million1 for over 600 charities and community groups.
FINANCE
📈 Big Tech’s Q1/Q2 earnings (cont.)
This week, Apple (AAPL) and Amazon (AMZN) released eearnings, finishing off Big Tech’s amazing first quarter of 2024. Here’s how they performed (in USD):
AMZN Q1 2024:
Earnings per share: $0.98 vs. $0.83 expected
Revenue: $143.30 billion vs. $142.50 billion expected
AWS revenue increased to become a $100 billion/year business.
Net income was $10.40 billion, or $0.98 per share, up 230% from $3.17 billion, or $0.31 per share a year ago. Revenue rose 13% to $143.30 billion from $127.40 billion the previous year.
AAPL Q1 2024:
Earnings per share: $1.53 vs. $1.50 cents expected
Revenue: $90.75 billion vs. $90.01 billion expected
Announced a $110 billion share buyback, the largest ever in U.S. stock market (and corporate) history.
Net income was $23.64 billion, or $1.53 per share, down 2% from $24.16 billion, or $1.52 per share a year ago. Revenue rose 27% to $90.75 billion from $28.65 billion the previous year. iPhone sales declined 10%, Mac sales were up 4%, iPad sales were down 17%, but their service business rose 14%.
💰 Cash App to invest profits into Bitcoin
Block, the parent company of Cash App, announced in its Q1 earnings report released this week that it will invest 10% of its gross profit from Bitcoin products into Bitcoin purchases, expanding its investment into cryptocurrency. In the first quarter, Block’s Bitcoin gross profit increased by 59% year-over-year to $80 million.
CEO Jack Dorsey said that less than 3% of the company’s resources are invested into Bitcoin-related projects. The company reported $6 billion in revenue and $2.1 billion in gross profit for the quarter, surpassing expectations. Additionally, Block disclosed a $573 million investment into Bitcoin by the end of the quarter. Block’s stock surged over 7% following the announcement.
BUSINESS
📺 Sony, Apollo offer Paramount $26 billion
In the latest development of the Paramount saga, Sony Pictures Entertainment and Apollo Global Management have offered $26 billion in cash to take the company private. This move comes after a bid from Skydance Media to merge with Paramount (while keeping Paramount public) and meetings with Warner Bros. back in December of 2023.
Sony would become the majority owner of the combined company, merging Sony Pictures Entertainment with Paramount. Paramount, led by Shari Redstone, is considering its options, which include both offers from Sony-Apollo and Skydance. If Sony and Apollo officially acquire Paramount, it would reduce the number of major Hollywood studios to four.
🚙 Rivian recieves $827 million in funding
Rivian Automotive announced Thursday that it received an $827 million incentive package from Illinois to expand its Normal facility.
The plant, which produces electric delivery vans for Amazon, has a capacity of 150,000 vehicles annually. The funds will go towards plant expansion, infrastructure, and job training and will boost its total capacity to 215,000 vehicles per year. Rivian’s shares rose nearly 10% following the news.
Fun fact: Amazon is the largest shareholder of Rivian and has a 17% stake in the company from a $700 million investment.
POLITICS
🇿🇼 The sixth official currency of Zimbabwe
For the sixth time in the country’s history, Zimbabwe is introducing a new currency, the ZiG, to support its economic stability and prevent collapse. The ZiG is backed by gold and foreign currency reserves. Unlike its predecessor, the ZiG can be exchanged for other currencies and traded internationally.
“It will be wonderful if we can work on the currency convertibility aspect, to make sure that it’s a strong currency that is convertible and has all the features of a global currency.” — Zimbabwe Finance Minister Mthuli Ncube
🇺🇸 U.S. investigates TD Bank for fraud
Toronto-Dominion Bank is under investigation by the United States after a connection to a $653 million money-laundering and drug-trafficking scheme. Da Ying Sze, the main defendant, allegedly trafficked millions of dollars through various financial institutions, which included TD.
The U.S. Department of Justice conducted ‘extensive surveillance’ to track Sze’s activities, which led to the discovery of large cash deposits in multiple financial institutions. The bank said it is cooperating with law enforcement and regulators and is actively working to strengthen its anti-money laundering measures.
Thank you for reading today’s issue of Weekly Brief. Don’t forget to check out this week's Book of the Week below, and have a great week ahead (that’s a mouthful).
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📚 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.
Bad Blood — John Carreyrou
Book Description:
In 2014, Theranos founder and CEO Elizabeth Holmes was widely seen as the next Steve Jobs: a brilliant Stanford dropout whose startup “unicorn” promised to revolutionize the medical industry with its breakthrough device, which performed the whole range of laboratory tests from a single drop of blood.
Backed by investors such as Larry Ellison and Tim Draper, Theranos sold shares in a fundraising round that valued the company at more than $9 billion, putting Holmes’s worth at an estimated $4.5 billion.
There was just one problem: The technology didn’t work.
Erroneous results put patients in danger, leading to misdiagnoses and unnecessary treatments. All the while, Holmes and her partner, Sunny Balwani, worked to silence anyone who voiced misgivings—from journalists to their own employees.
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