Morning Brew Daily - Klarna Losing Millions on "Burrito Loans" & People Love Trader Joe's

Episode Date: May 21, 2025

Episode 587: Neal and Toby talk about Klarna’s mounting losses from customers failing to pay off their ‘buy now, pay later’ loans. Then, a Chinese EV battery maker emerges as a winner from the US-China trade war with one of the biggest IPOs of the year. Plus, Axios just released their Harris Poll 100 which shows which brands customers trust the most, and Trader Joe’s tops the list, while Tesla continues to fall. Next, a match to find out who is the best of the worst as Manchester United faces off against Tottenham for a spot in the Champions League.  Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Visit endthecampaign.com for more Listen to Morning Brew Daily Here: https://www.swap.fm/l/mbd-note  Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Palindrome Dates  02:40 - Klarna Woes 07:40 - Chinese EV IPO 11:20 - Beloved Brands 15:45 - Europa League Final $$$ 19:40 Headlines  Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tech can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI. Good morning, Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell. Today, Trader Joe's has been ranked the most reputable company in America, but there's one name that sank far down the list. Then-Clarma users are buying now, but they're not paying later.

It's Wednesday, May 21st. Let's ride. Here is some potentially useless information. Starting yesterday, every date written out. now in the American format for the next 10 days will be the same backwards. It's palindromes all the way down. Tuesday was 52025. Today is 52125.

Tomorrow is 5225, et cetera, et cetera, until we hit May 30th when the streak will sadly end. It's not useless, Neil. I'm about to drop this fun fact in every single meeting I have from today until next Thursday when the streak ends. It feels like the universe is telling us to slum. down and reflect, or at least double-check the date before signing anything. But I'm already looking ahead to the next palindromic date on the calendar. I've got March 3,33 circled. Let's have a

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Lateralized debt obligations that helped craft the economy in 2008 are back, but this time it's subprime mortgages going under. It's burritos. Klarna, the Buy Now Pay Later Giant said this week that its customers are struggling with that pesky second part as consumer credit losses shot up to $136 million, 17% higher than the first quarter last year. year. Those losses came on the back of a lousy consumer confidence reading, a sign that BNPL is increasingly becoming a burden that debt-saddled Americans can ill afford to bear. An uncertain macro environment has also put a damper on Klarna's IPO dreams as a Swedish company

pressed pause on its long-awaited public debut, citing the destabilizing impact of tariffs. Through it all, the company has been trying to channel its inner Chamath, Friedberg, Sax, and Calicanus and going all in on AI. Its CEO presented its earnings call on Monday using an AI generated avatar of himself, though there have also been some rumblings that its AI aspirations have gone too far. Earlier this month, Clarnas CEO, Sebastian Schemikovsky said that the company began hiring human gig workers since AI by itself wasn't enough to provide quality customer service. Neil Klarna has so many different balls in the area right now from replacing workers with AI to navigating an uncertain economic environment. And it's got to figure it out now, or there

won't be a later. Yeah, a lot of people were watching these earnings after Klarna signed this eyebrow-raising deal with DoorDash, which means you could essentially put your $10 takeout delivery order on credit, which has led to a lot of jokes about collateralized burrito loans. But if you're looking at the consumer confidence measures that are plummeting second lowest in American history and you're like, well, people are broke and you can certainly look at Klarna's earnings as evidence of that. They reported a net loss of $99 million for the three months to March, which is up from $47 million a year earlier. So losses have more than doubled those consumer credit losses are also skyrocketing. So if you're looking for a gauge of the health of the American consumer, you can certainly look to Klarna's credit. approach to maybe find some answers. Yeah, and Klarna is trying to say that this is not actually

alarm bells going off, going off because the rise in unpaid balances is pretty low. In their words, it's still very low. The share of its total lending of these, I wanted to say subprime mortgages that have gone bad, but these loans that have gone bad rose from 0.51% to 0.54. So they're saying in the grand scheme of things, a lot of people still are paying off their burritos. But let's also talk about this big shift that they've gone through when it comes to AI. Klarna was on the forefront of this AI push. They said that an one AI system could replace 700 human customer service workers, but they've also said we might have gone too far.

They said that maybe cost became too predominant of an evaluation factor and that quality suffered as a result of that. And so now they are trying to invest in the human aspect of customer support again. Shamikovsky said that we want to have a human in the chain at all times, basically to because they provide superior customer service to an AI bot. So it has been this interesting pivot from all into AI to introducing some more human touch back to Klarna. Still, this company's workforce has shrunk dramatically as it's pivoted to AI, showing that

they're still all in on this technology, which they said they wanted to be chatty, or open AI's favorite guinea pig back in 2023. They used to have 5,000 employees. Now they're down to about $33,000, which is a 40% decrease. And the CEO wants to get that number down to about $2,500. They've also, at the same time, grown their revenue per employee, which is not a surprise. That used to be $575,000 in revenue per employee. Now they're over $1 million.

And actually, I didn't even mention the coolest part of this introduction of consumer support workers back into their chain. they are doing it in an Uber type setup where some agents who just are fans of the company, who maybe live in rural locations or even abroad, can just step in and pick up a shift on their consumer customer support hotline because he's like a lot of our customers love Klarna. They're very knowledgeable about the product. So rather than hiring or outsourcing to a call center like that, they're bringing in agents ad hoc like you do and hire an Uber driver. So, Shemakovsky cannot stop innovating when it comes to customer service.

First, you try to do it. I don't know if that would lead to better quality if you have people pop in and try to help somebody. No, it's certainly a question, but he's constantly pushing the boundaries here. It doesn't, we will only know in the future if those boundary pushing was actually the right strategy or not. Moving on, batteries are big business, and I'm not talking AAA or even a 9-volt. Contemporary AmperX technology company limited, the world's largest maker of batteries for electric vehicles went public in Hong Kong yesterday in the biggest listing of the year anywhere around the globe, shooting up 16% in its first day of trading. C-A-T-L, as it's commonly known, raised $4.6 billion

to ramp up its quest for global battery domination, not that it isn't dominant already. The company supplies battery packs to the leading auto manufacturers, including Tesla, Volkswagen, Ford, Mercedes, Benz, and Moore, cornering the market with a commanding 38% share. Its financials are similarly impressive generating sales of $50 billion last year and $7 billion in profits. You're probably listening to this thinking, wow, CATL is a dog. How do I invest? Well, if you're in America, you can't, which is the plot twist you didn't see coming. CATL and the folks in D.C. are not on good terms, with the Pentagon blacklisting the company over alleged ties to the Chinese military. And as it's been caught up in these geopolitical tensions between the U.S. and China, CATL,

blocked American investors from piling into its public listing. Toby, if there's one company that showcases the kind of environment we're in right now, CATL is a pretty good choice. Yeah, it's pretty amazing that it's been able to have the success that it's had because the Pentagon blacklisting, it's got congressional scrutiny on it. It's part of a global trade war. But through it all, it did just have the biggest IPO of the year with no American money flowing into it, which was just something that kind of seemed a little bit unfathomable,

even just a few years ago because that's where we're, all the deep-pocketed institutional investors are. That's where the deep-pocketed, you know, recreational investors, retail investors are. And yet here, CATL just had its Hong Kong listing. And now two of the biggest IPOs of the year have been outside of the U.S. There was also one in Japan that brought in nearly $3 billion. You have to go down to Venture Global and CoreWeave to find the first two U.S.-based IPOs that even crack the, top three. So it has been fascinating to see this kind of globalization of capital that has happened that you don't need the U.S. investor in order to have a successful debut. Right. Just go back 11 years

and another Chinese giant company went public. That was Alibaba. Where did it go public? That was the New York Stock Exchange. And Alibaba felt like it needed to list in the United States because you're right. That's where the capital markets were leading. But we've seen this financial decoupling over the few months, especially as capital has left, the United States. And I think the CATL public listing is probably a really good example of this, but its business is doing just fine. And that's because the EV market in China is going nuts. EV sales searched to 11 million last year, which is a 40% increase compared to the previous year. It wants to expand in Europe. That's what it's raising all this money for, is to build a $7 billion battery plant in Hungary to service the European market.

and it's going toe to toe to toe with BID on making a super fast charging battery. It says it can now charge a car for over 320 miles on five minutes of charge. I can't even charge my iPhone and get three hours out of it. It can charge a battery in five minutes, get 320 miles. Yes, definitely a company to keep your eye on. Probably the biggest company that you should know about in terms of the global world order right now that you maybe didn't before today. What did Trader Joe's Patagonia, Costco, Toyota, and Arizona beverages have in common

besides sounding like the perfect ingredients for a little weekend day trip? You're all Gaga over these brands. These companies ranked in the top 10 of the Axios Harris Poll 100, which measures the public perception of the most visible U.S. companies across categories like trust, character, culture, products, and vision. The top five were in order, T.J.'s Patagonia, Microsoft, Toyota, and Costco, with Arizona beverage company, Apple, Nintendo, Home Depot, and In-N-Out, all ranking in the top 20. What's not in the top 20? Any of Elon Musk's companies, which have suffered a steep dive in the

reputation rankings as he's taken more political public positions. Take Tesla, for example, in 2021, the automaker was in eighth place, but last year it fell to 63rd, and this year, it's a bottom feeder at 95. SpaceX also dropped 36 places from the previous year to 84. Harris Poll, CEO, John Gersimba, trying to explain the plunge, saying, quote, consumers are looking not just at the product, but who is behind the product, what values they represent? That's increasingly a reputational risk for leaders like Musk. Toby, what's your takeaway from this? What can we learn about businesses at the top of the rankings and the ones that rank poorly? I do think that inflation expectations and consumer sentiment did drive a lot of the rankings this year.

It's part of the reason why Trader Joe's is at the top. One, they have this very clear value system. They're very firm on their corporate values, but also they haven't really raised prices. And I think a big stat that illustrates why it's at the top is 78% of Americans have noticed increasing costs of groceries over the past year. So it makes sense that Trader Joe's top the rankings because they have been able to keep prices down. So this singular shift towards prices and inflation led some of those more price-conscious companies to rocket up the rankings.

and then also some other names that I think were interesting as they've rise and fallen through the ranks. Deep Seek, the Chinese AI company debuted at number 46 on the list. That is above Open AI that comes in at number 55 on this list. State Farm only fell seven places after its role in the California wildfires coming in just ahead of Draft Kings at 63. And then Home Depot was actually one of the biggest risers, jumping 24 spots to reach number 15. We're going to talk about this later in the show, but they just came out and said, we are holding prices steady. So, again, it speaks to this price-conscious consumer.

And then outside of Tesla, Google was one of the biggest followers, dropping 23 spots to number 40. So just some interesting reshuffling amongst the middle of the rankings as well. Let's take a break and then talk about some really, really bad soccer teams. We're the Hartford, with decades of experience ensuring millions of unique small businesses. When it comes to your small business insurance, Thank you. One size absolutely does not fit all.

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between two very, very bad soccer clubs. Manchester United, a once proud Titan of European football, is taking on Tottenham, a less proud and less Titanic member of European football in the Europa League final where stakes won't match the quality of the game. Manu and Tottenham are both stuck in their worst seasons of top flight football in their history, mired just above the relegation zone in the Premier League in 16th and 17th place. But they both have a lifeline to claw back some pride and money today. The Europa League is basically the NIT tournament to the Champions League's March Madness. And while winning grants you a nice trophy, the real prize is a ticket back to the big kids table and a chance to earn a lot of cash. Any club that even makes it to the Champions League earns over

$21 million just for showing up. If you make a deep run, that can net you $100 million or more. So despite unfathomably bad seasons from both, Tottenham have won just a single game since February. Both clubs have a chance to backdoor their way into the European elite and earn a small fortune at that. Neil, I'm a Manchester United fan, and it's almost embarrassing to think that somehow we will be playing Champions League football after the sorry arse season we've had. Just for some background for people who may be new to European soccer,

imagine that during the baseball season, MLB clubs are playing a concurrent tournament against teams from Canada, Mexico, South America. This tournament is running during the same time as the MLB season. It's just international in scope or continental. That's what happens in soccer. But there isn't just one tournament going on. There's a couple different ones. And there's the Champions League, which is the one that,

the Dodgers, the Tigers, the Phillies would be. And then there is the NIT, the second tier one, which is the Europa League. And that would be like where the Reds, Braves and Red Sox, the mediocre teams are playing. Somehow Manchester United in Tottenham, despite being terrible in their quote-unquote MLB season, made it to the finals of this Europa League. And there's so much money at stake. And it's not just that winning would be good. It's that losing would be bad because these, especially a team like Manchester United, makes financial plans going forward. with the understanding that they would be in the Champions League and the $100 million that comes with it.

And you might think that Manchester United, wow, like there's a global brand. They must be just like raking in money. But they're actually in a very dire financial situation. They are $1 billion in debt. They're clocking up three straight seasons of losses. So is Tottenham. I haven't even mentioned that. But together, those two teams have lost 300 million pounds over the past three years.

So it's not just like a nice to have. need to have. Can you give us a metaphor that doesn't involve baseball now, too? What if people don't understand the baseball season? Use the NFL now to explain the baseball season to then explain the Champions League. No, you did very well there. But I also think this just shows how unprecedentedly rich the top flight of British Shocker of English Shocker is right now. The Premier League League just has insane wealth and adept. The fact that 16th and the 17th place team can meet at the second highest level of European competition is kind of crazy. Just simply existing in English soccer means that you're going to receive a million of $150 million per season because of its lucrative TV deals.

So the entire league as a whole is just richer than most of the other leagues spread across Europe. So I do think that it's no quid in set. Nine of the top 18 revenue generating clubs in Europe are English. And it just shows the depth and the – not – I was going to say the quality of this league. but I won't even mention the product on the field, but the depth of this league is just astounding when it comes to how much money these teams are bringing in. All right, so who's winning this game?

I honestly want them both to lose. It's truly embarrassing. If Manchester United win, I guess I am rooting for it deep down, but I feel embarrassed that we would win and make it to the Champions League after the season that we just had. Let's sprint to the finish with some final headlines.

Google hosted its big I.O. conference yesterday to show off all its AI and search upgrades, but a piece of hardware is stealing a lot of the headlines. Google unveiled its Android XR Smart Glasses prototype at their Buzzy keynote. Set on Warby Parker frames, which caused the glasses company to jump 15% on the announcement, they contain a discrete camera and a display in the right lens. You can prompt Gemini by pressing on the frame and asking it to identify a painting or pick which guidebook is best for an outdoorsy type for a trip to Japan or even do live translation. Again, still just a prototype, but according to reviews, quickly catching up to

meta's Rayband glasses. In non-glasses news, Google also introduced a $250 a month AI ultra subscription that gives you access to all its most powerful models. And speaking of live translation, Google Meet can now do AI-powered live voice translation, starting with English and Spanish. So, Neil, no shortage of cutting edge announcements. Meta and Rayband versus Google and And Warby Parker, Choose Your Fighter. This has been a hugely successful product for meta, these smart glasses. And now Google, I guess, has shed the nightmares of Google Glass back in 2013. And they're looking to see Zuck make all this money with these smart glasses.

And they're like, hey, you know, guys, we pioneered this thing. Like, don't remember. We laid the foundation for all of you. It's time for us to get back in the ring. I just don't know whether the Warby Parker look will supersede the, the Rayvan look. Yeah, the glasses wars are certainly kicking off in earnest. But also, I was just cruising Reddit and X as this keynote was going on. And one user's kind of summed up the general sentiment pretty well and said, serious question, are they going to talk about something else other

than AI? So when we talked about that Harris Axios poll and Google falling in the rankings, maybe their over-reliance on pushing AI narratives have contributed to that. So it's interesting to see those two things kind of happen in parallel and see kind of this negative pushback from an audience on social media. Home Depot zagged while other retailers have Zicked and announced yesterday that it does not plan to implement price increases for customers even as tariffs raise costs. It's trying to keep prices low by doing some supply chain magic, diversifying its sourcing to make use of its large domestic supply base.

However, the company warned that some specific products may become unavailable or see price adjustments if tariffs make them impractical to stock. The announcement comes on the heels of Walmart announcement. it will raise prices on certain items due to the impact of tariffs, saying that the magnitude of those costs increase is too great for the company to absorb fully. So, Neil, two roads diverged in the retailer woods, and Home Depot is taking the one that eats the tariffs. Well, it might have to do with wood because Home Depot sells a lot of lumber.

But so far, there haven't been any tariffs on lumbered, even though that's threatened. We get 30% of the software lumber consumed in the United States. imported. Canada accounts for 80% of that. If lumber gets tariff, then I don't know whether Home Depot can keep its prices steady as it has, but it just might be a quirk of what these two retailers sell. Walmart is raising prices mostly on like strollers and electronics and toys, which Home Depot doesn't really sell. So Home Depot's going on the offensive and saying, wow, we have a really diversified supplier base. Over 50% of our stuff already comes from the United States. We are just going to hit the gas pedal and try to take market share away from our competitors that

are raising prices. Next up, turns out Magnus Carlson is about as good at chess as 143,000 randos. In the largest online chess match ever held, dubbed Magnus Carlson versus the world, 143,000 people working together, managed to draw the former world champion in a marathon 46-day game on chess.com that ended yesterday. Carlson, who was favorite heavily to win, said, all, the world has played very, very sound chess from the start. Okay, Toby, so they tied Magnus Carlson, Big Whoop. How would these 143,000 people do against one gorilla? That is a good question, but this was not the first versus the world match that they've had.

I mean, it goes back all the way to 1999, where Gary Kasparov played against more than 50,000 people on a Microsoft network at that time. He actually won that game after four months. Magnus Carlson draw, so actually Drew. so take that with a grain of salt. But one thing that was interesting, too, is that people in the comments were kind of rallying for one pathway or another

because everyone would vote on each move. And a lot of people were saying, like, don't draw. I know we can force a draw. That would technically be a giant win for us. But I want to keep playing against Magnus Carlson. How many times do you get this opportunity? And then the final thing that we need to caveat this was is that it wasn't classical chess.

This was freestyle chess where the bishops and the knights actually get rearranged to start the board at the beginning. you're not just following these very set opening moves. Carlson loves playing it because he's basically conquered every other aspect of chess, so he likes this new wrinkle to it. So I do think in classical chess, Magnus Carlson would still be favored against, you know, everyone on Earth.

But the fact that it was freestyle means that the world had a chance here. And Carlson was pretty complimentary of how the world did. Finally, Justin Jefferson running a go route against a Lithuanian car mechanic could be coming to a screen near you. Yesterday, the NFL owners approved a resolution that allows the league's players to try out for flag football at the 28 Los Angeles Olympics, effectively handing the gold medal to Team USA, which would presumably dominate any other country. The NFL players seemed amped for a chance to represent their country, something they aren't typically able to do, like athletes in basketball, hockey, baseball, or soccer. Jefferson, the Viking star wide receiver, said, quote, playing in the Olympics and getting the gold medal,

is a dream. And following the announcement, fans were also dreaming of their flag football dream team starting five. I mean, how can you not? The caveat here is that only one player from each NFL team can try out for countries given Olympic teams. So that is good for international players because they can go and represent their countries. But for Americans, that means we can only pick, you know, one player from the Vikings, one player from the dolphins and et cetera, et cetera. I put together a little list because why wouldn't you? I QB. I'm going with either Patrick from the Holmes or Lamar Jackson if we want a little more mobility. Running back, easy pick Christian McCaffrey, but I also think maybe Bijan Robinson from the Falcons,

very shifty. And then wide receivers are pretty easy. Any combo of Justin Jefferson, Jamar Chase, and Tyreek Hill. It is very funny to imagine us playing, you know, Spain in flag football and trotting out this lineup of NFL players. But it makes sense because the NFL is making this major push into international. They have seven games internationally on the calendar this year. So what better stage to, you know, show football to the world than with your NFL players, just absolutely dominating flag football.

It's just wild. Like, flag football is going to be an Olympic sport in three years. A legit Olympic sport. I hope it's a good product. If it is, like, just a tough where, I don't know, the past rush rules are just a little funky and it's just not that exciting. But if you get, you know, these players in open space, it is going to be compelling television. That is all the time we have. Thanks so much for starting your morning with us and have a wonderful Wednesday.

Two more days until Memorial Day weekend. Almost time to fire up the smoker. If you have any thoughts on the show, don't keep it to yourself. Send an email with questions, comments, or feedback to Morning Brew Daily at Morningbrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lute is our producer. Our associate producers are Olivia Graham and Olivia Lake. Scoop Stardaris is on audio. Hair makeup is just glad they're a Liverpool fan. Devin Emery is our president and our shows of production of Morning Brew. Great, show today, Neil. Let's run it back tomorrow. You can't reason with the sun. Trust us. We've tried. This summer, it's time to put that angry ball of fire on mute. Columbia's Omnishade technology is engineered to protect you from the sun's harsh rays that can burn and damage your skin. The sun is relentless, but so is our gear.

Level up your summer at Columbia.com to spend more time outside and less time slathering on allolotion. You're welcome. Columbia. Engineered for whatever.