Morning Brew Daily - Need to Know Earnings Roundup & UK blocks $69B Microsoft-Activision Deal

Episode Date: April 26, 2023

Episode 47: Neal and Toby rip through a huge week so far in earnings reports. Microsoft, Alphabet, McDonalds, Spotify; who isn't reporting? They share their biggest takeaways and what it could mean for you. Plus the UK blocked the $75 billion deal between Microsoft and Activision Blizzard. Also why Millennials are just too tired to get into the stock market before it bounces back. And gone are the days of free labor - we wrap up with the highest paying internships of 2023. Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew Daily show. I am Neil Fryman. And I'm Toby Howell. On today's show, we're going to attempt the most exciting earnings recap in business news history. Find out if we can pull it off. I'm not guaranteeing anything, but we're going to try. And if you take melatonin to help you fall asleep, do not believe what you see on the labels. We'll explain why.

Then we'll head across the pond as UK regulators have horn swagled Microsoft and blocked their mega deal with Activision Blizzard. Then we'll talk about how battle-scarred millennials are hoarding cash and potentially missing out on some juicy returns in the process. Neil, it's Wednesday, April 26. Let's ride. Neil, before we jump into our show, I want to talk to our listeners one-on-one real quick. Go ahead. I'll just leave the room. Yes. Hey guys, it's Toby. I have a quick favor to ask of you. One of my favorite things to do before I go to sleep is read through our comments section. Twitter is nice, Instagram is lovely, and YouTube is absolutely delightful. But one comment section always gives me some bad dreams. and that's Apple Podcasts.

It's not that they're bad reviews. There's just not that many of them. So please, for the sake of my sleep quality, if you're an Apple podcast listener, pause this podcast and toss us a little review, maybe even give us five stars, especially if you've been enjoying the show. And if you listen on any other platform,

send us a carrier pigeon, maybe some smoke signals. We'll feel the good vibes too. Don't do it because it helps us in the podcast algorithm rankings. Do it for my sleep schedule. All right, Neil. That's my skill.

You can come back into the room. That was very compelling. Take us into the show now. You need your sleep. I do. I do. All right. Let's get into the news.

So there have been so many earnings reports recently. About 44% of the S&P 500 market cap is reporting this week alone. We thought to ourselves, okay, what is the best way to give you the most interesting information from those reports, which there are some, while leaving out all of the stuff that you don't need to know, of which there also is a lot of stuff you don't need to know. So we came up with this and it's called the one juicy nug. And Toby and I read through all of these reports and we selected one interesting nugget of information from each of them that tells a story about the company or the state of our economy more broadly. Ready to go? I'm waiting.

I got lots of nugs. Let's do it. Let's start with Alphabet. So there's this great Stevie Wonder song. Might be my favorite. Don't you worry about a Bing? and is playing all over Google headquarters right now. Despite all of the concerns about an AI-infused Bing

grabbing market share from Google Search, Google Search is still the king. It returned to revenue growth last quarter, and that's assuring investors that people aren't just chat GPTing everything they need to know just yet. We do know that Google is adding AI to its existing search engine and also planning a completely new search engine product in the future, so it needs to figure out how it's going to make money from that.

All right, Neil, Microsoft, on to Microsoft. now, it's big tech brother. Microsoft had a couple juicy nugs that I'm not going to mention, like it's cloud computing division once again driving the majority of growth, but I'm not talking about that 31% growth number. Instead, I'm going to talk about Microsoft Teams. The headline number is that it surpassed 300 million users up from 280 million last quarter, but that growth may be slowing soon. Microsoft has agreed to stop bundling Teams software with its office productivity suite after a lot of companies, Salesforce and Slack, kind of complained about antitrust concerns. Overall, though, if I had to rank them, Microsoft 1, Google Zero when it comes to this earning cycle.

All right, let's move on to McDonald's. So McDonald's has been jacking up prices and customers have kept coming to the Golden Arches, spending an average of $7.77 per visit. But there are signs that consumers are feeling the effects of inflation and pulling back on spending. So what does that look like at McDonald's? Well, the CEO of McDonald's said that customers are not adding fries to their order as much as they used to. And this is a sign that McDonald's may not be able to keep raising prices and retain customers like it had been. And I'm going to sneak in another nug because I created this segment and therefore I can cheat. You might think that McDonald's wouldn't do well in Europe because they're so snobby about their food over there. But in fact, McDonald's in Europe is larger than its next nine closest competitors combined.

Wow. Let's stay in the food industry and move to Chipotle. Chipotle crushed earnings and it all comes down to one word, avocado. The essential ingredient in any burrito blow has plummeted in price thanks to a bigger than expected harvest that has resulted in a big surplus of the green gold. So the whole pale price for a carton of avocados is down 67% since June, and that's significantly impacted Chipotle's bottom line. And I'm also going to cheat here with my second nug about Chipotle because they're definitely keeping tags on the TikTok crowd.

One example is TikTokers have been ordering the fajita casidia, which is basically like a Philly cheese steak and a tortilla. Went viral on TikTok. They actually added it to their menu. They're going to keep adding some of these viral food items going forward. Chipotle leveraging TikTok, you love to see it. Let's stay in the food and beverage space. Hope has been trying for years to chip away at Gatorade's dominance in the sports. drink market, but that yellow flavor must have some radioactive chemical that makes it invincible

because Coke keeps failing. In 2021, it paid $5.6 billion for the sports strength body armor to give it a one-two punch with Powerade to take on Gatorade. But that's been a flop so far. This week, Coke said sales declined in its sports drink category for the second straight quarter. Not only is Coke facing an uphill battle to dethrone Gatorade, it's facing new threats from upstarts like prime hydration. The energy drink for from influencers Logan, Paul, and KSI. That did a 250 million in retail sales last year. Prime. Prime, baby, prime.

All right, stick with us. We got Pepsi up next. Pepsi figured out a little known business hack this last quarter. If you charge more money for your products, you can make more money. So volume, which is the number of potato chips and sugar water that the company sold, actually fell 2% across all categories,

but prices were up 16% overall. That is a recipe for an, overall increase in revenue. The most popular products in Pepsi's stable of brands, Lays, Doritos, Cheetos, and Sun Chips, all experienced double-digit revenue growth. Big snack company. Let's go to Auto. GM is zapping the Chevy Bolt. This incredibly ugly car was GM's first electric vehicle that was meant for the mass market. Intended to go toe to with the Tesla Model 3 at an affordable price point, but the bolt got drubbed by the Model 3, had old battery technology, and some of them caught on.

on fire, which led to a total recall. So GM is moving on to newer EV models that are made with updated technology. But it's also kind of funny because it seems that the Bolt is finally living up to its promise right when it's getting the Axe. Production and sales of the Bolt have hit records and the company plans to make more than 70,000 of them this year.

Guess it doesn't see a future for the Bolt. Bye-bye Bolt. All right, last one. We're almost running out of music. Our last juicy Nug comes from Spotify, And here it is, Spotify is definitely getting more expensive this year. After raising prices in 46 markets last year, CEO Daniel X said the company is definitely looking to do so again. Spotify and Apple have kind of been locked in this Uber and Lyft early days battle where they're battling for market share.

But now Spotify has entered its profitability era and wants to follow in Coke and Pepsi's footsteps and start charging people a little bit more. All right, inflation man, hitting everything from burritos to the Beatles, I guess. Yes, yeah. And breathe, Neil. And breathe. That was fun. That was some juicy nugs. There was a lot of nugs.

A lot of juice. Was there anything that I said that stood out to you that you want to talk about? Honestly, the McDonald's one is crazy to me. The fact that it's bigger than all its rivals in Europe, its nine closest combined. And then the fries nugget is also. McDonald's has been good at tailoring their menu for various markets. I just think it's interesting, too, that the general consensus here was a lot of these food brands were raising prices, but consumers either didn't care or didn't have any other options to go to

and just kind of kept coming in, like foot traffic rows and McDonald's. Chipotle aptly absolutely crushed it. Like, their volumes didn't fall at all. And so it is this thing where inflation is being passed out of the consumer, and the consumers basically go, all right, well, we still got to eat. Yeah, I guess if we had to combine all of the individual nugs into a much bigger nug, then the pattern would be companies are raising prices. people are still paying for it, but this is not going to last.

And pretty much every CEO from McDonald's one to Coke said, like, all right, we're, we're, we're putting so much pressure on the consumer here. Like, we're going to have to stop hiking prices at some point soon. And Chipotle was already there. It says that it's going to pause raising prices in the near future. Thanks, Chip. Or now. So keep harvesting those avocados, please.

Yeah, avocados got so cheap. Love that. All right. Let's move on. So some huge tech news broke, just as we were getting into the office this morning, the UK's anti-trust regulators blocked Microsoft's deal to buy Activision Blizzard for $69 billion, which I should add would be the biggest gaming deal ever and one of the 30 biggest acquisitions of all time.

Because of this, now it's in serious jeopardy about this decision by the UK's regulator. So why block it? British regulators said that buying Activision Blizzard would give Microsoft an unfair advantage in the exploding cloud gaming industry, lead to higher prices, fewer choices, and overall less innovation in the British gaming sector. And Microsoft already has an advantage, it says, with 60 to 70% of the cloud gaming market in the UK.

Microsoft and Activision are planning to appeal. I honestly think there's a little bit more to this story than UK regulars are telling us because they made cloud gaming kind of the center piece of this. But cloud gaming is still pretty tiny. It made up less than 1% of global internet traffic in 2022. So I do think that they're getting some pressure. I think it comes down a lot to Call of Duty and the titles that Activision owns.

So that's been the big thing that Sony, who makes PlayStation, has been, like, beating down regulator stores saying that, listen, if they take Call of Duty, which is one of the biggest selling video games in the world and bring it only to Xbox, that is anti-competitive practice right there. So they're basically, Microsoft's been trying to barter with these people. They offered Sony, they offered Nintendo, these 10-year agreements to allow call duty to still be on their gaming consoles. But it's not good enough. And you see all this regulatory fracas. Yeah, this is happening all over the world. The EU has a deadline for itself to make a ruling by May 22nd. And the FTC led by Lena Khan, who apparently does not want to see any tech companies merged with any other ones, has been on this huge antitrust spree, has already sued to,

block this deal over competition concerns. So this is, this is definitely a serious blow to Microsoft's hopes to buy Activision. There's no way around it. It definitely, either way, it extends the timeline by many, many months. And investors have really responded this morning, like with pretty dramatic moves. Microsoft stock is up 8%, which amounts to, you know, maybe $100 billion because Microsoft is a $2 trillion company. And then Activision is down nearly 9%. So this is seen as a very considerable move that could delay or fully vanquish this acquisition. Yeah. Also, I just want to give a quick shout out to Candy Crush, which is in the hidden gem

of the Activision Blizzard portfolio, a lot of people talk about Call of Duty, but Candy Crush just absolutely rips, like, does over a billion in revenue every year and is one of like the leading gaming, mobile gaming companies. And that is a thing that people are saying Microsoft actually wants Activism Blizzard for Candy Crush, not necessarily like these AAA gaming titles. Is there any antitrust concerns over Candy Crush? That would be a first. If the UK authorities were like, yeah, we can't let this go on because, you know,

they'd have too much control of the, what is like a Candy Crush kind of game? The bejeweled, I guess. Yeah, the Vajoled matching games. So, yeah. We'll keep a quick eye on that. Jam-packed first half of the show. But before we jump into our next story, we're going to take a quick break. It's time to refresh your yard during spring.

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Don't pass go and own it all. Only at Yamava, celebrating its 40th anniversary. You win? Details at yamava.com must be 21-20. Please gamble responsibly. Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion. If the sleepy time bear took the amount of melatonin contained in some of these gummies, he'd never wake up. A new study was published yesterday that measured melatonin levels in 25 different sleep gummy products.

And 22 of those were mislabeled, meaning that they had at least 10% of melatonin levels above or below the amount listed on the label. Most had more melatonin them was advertised, typically 20, 30 or 50% more. But in one case, what product had 3050% more melatonin? Plus five of the products listed CBD as an ingredient, and the researchers found all of them had slightly higher levels of CBD that indicated on the label. So why is this a big deal? Well, there's been a surgeon patient and parents calling poison control about their kids ingesting too much melatonin. From 2012 through 2021, calls to poison control centers over melatonin ingestion, spiked 530%. And in 2020, melatonin was a substance most often mentioned.

calls about children to poison control centers. Honestly, I blame smartphones for all this. I was not expecting that. I know you're not expecting that. But here's my spiel. So the number of Americans using melatonin supplements has more than quintupled between 2000 and 2018. And what happened right around the mid-2000s, smartphones came out. People started, I mean, 2007, it's a little bit beyond when they started quintupling. But here's the thing. People aren't sleeping as well anymore. And so people are relying on these melatonin supplements. It's really boosted this industry.

And this is why we're seeing some not so great products being pushed in the, in the melatonin world, because everyone wants that silver bullet. They want the thing that helped sleep better. I don't know if it's smartphones because people are saying, people are attributing it to the pandemic. Oh, interesting. Yeah. That's why these kids were running around, you know, being at home instead of running

around in the playground at school. and parents were like, please stop bothering me, take this and go to bed. And so they're saying like the restlessness around the pandemic and disrupting sleep patterns is what has led to the spike in melatonin. Yeah. Are you melatonin guy? Have you ever? No, I fall. I mean, we got up early.

So as soon as I, you know, hit the pillow, I'm actually asleep in three minutes. Yeah. No, I've definitely, I see the appeal, though, because like everyone wants to have that sweet, sweet release from sleeping. Yeah. I read our podcast reviews. or bed. That's my melatonin. But yeah. And then so the FDA doesn't regulate these supplements, which is very loosely. Yeah. It's just a wild concept that somehow they can skirt around these regulations. And this is why we see such a wide variety in the amount of melatonin these gummies.

Yeah. Well, it's considered a dietary supplement, not a medication. And apparently the rules around dietary supplements are just quite loose. And then there's been some industry pushback from from the study being like, look, this is not a big deal. Like, if, If you take a little more extra melatonin, if you're an adult, this is not a big deal. Like, we're just going to top you off. What's the problem? Yeah. Well, I did read a scientist said that if you have so much excess melatonin your body,

you'll probably just process it and excrete it. It doesn't actually affect you that much. It is a naturally producing hormone. Yeah. That's what it is. In your brain. Except for that these gummies contain roughly a thousand times as much melaton as your brain produces.

So it is. It leads to weird. dreams as we were talking about. It definitely jacks it up there. If you have a weird melatonin dream, write it in, I want to hear him. Email us. We'd love to hear that. Okay, Neil, let's jump to millennials now. Millennials really love cash. But Toby, doesn't everyone really love cash? Well, yes, but hoarding cash is not exactly ideal if you're trying to grow that cash. So, according to an Ernst & Young research report, nearly half a millennial sought safety in cash during last year's market route. That's compared to 34% of Gen X and just 24% of baby boomers. And Neil, that

nerveness can really cost you in the long run. Yes, because there's this other JP Morgan study that said that investors who weren't in the stock market on the S&P's 10 best days in the last 20 years got half of the gains of people who were invested in the market over the entire period. So pulling your money and missing out on just a few days, you will return half of what other people did over just a couple, maybe a little over a week. And the best days can often happen next to the worst days. So a lot of volatility. In the past 20 years, seven of the best market days occurred within about two weeks of the 10 worst days. So if you pull your money on a really bad day and get spooked, you could, you know, the evidence says that you could miss out on a huge day next.

It's crazy. Yeah. We have the exact numbers. If you fully invested $10,000 in the last 20, in the 20 best days of 2022, you'd have $64,000. And if you missed the 10 best days, you'd have $29,000. Crazy discrepancy there. Yeah, you can't blame people for putting their money in cash now because these yields are huge. Yeah. It's actually ironic right now because here we are kind of saying millennials,

paper hands, you took your money out. But we are entering almost this golden age of cash. And by that, I mean that you can park your money into these high yield savings account, get three, four, even five percent interest. Marcus, which is Golden Sacks Consumer Bank, is offering 3.9%. We've talked about Apple, which is offering 4.15%. So we're kind of entering the golden era of sticking your money under the mattress if your mattress was yielding 4% in the process.

But it seems like either people aren't listening to this podcast or they don't know about these high yield savings accounts because there was this recent bank rate survey and only 7% of Americans with short-term savings are earning at least 4%. I know 20% are earning just 3% and more. Yeah. And the average is earning 0.24%. Crazy. So, yeah, I was talking to my mom and I was like, what is your saving account earning?

And she was like, I don't know, like basically nothing. And I was like, yo, don't you listen? She listens to the podcast. Yes, there are many options to, but even people say that might not be keeping up with inflation in these savings accounts. So there are pitfalls there. I think the, I think the takeaway here is that people pull their money out, millennials have pulled their money out of the.

stock market when they get spooked, even though maybe like a more professional financial advisor would say, keep it in, just dollar cost average over the course of your lifetime. And so you don't miss out on the best days, even when you take them out on the worst days. They're scarred, man, millennials. They're scarred. They've seen a lot. All right. The final story goes out to all of our college student listeners because we want to help you get rich from your upcoming internship. Glassdoor released the 25 highest paying internships in the land yesterday. And well, if you want to get paid a lot, you need to work in tech and finance. Do not do what we're doing. Shocker, I know. So 16 of the top 25 were tech companies, five were in finance, and three were consulting. Let's run through the top five. We have

Stripe. Average monthly salary is $9,000, and that equates to more than $100,000 for the course the year. Roblox, which is that gaming platform, also pays $9,000 a month. Navidia, 8300. NVIDIA, sorry, 8300. Someone correct me on that the other day. I'm not going to get it wrong. Coinbase 8200 and meta, about 8200 as well. I am just blown away by these things. The fact that technically you're making over 100 grand if you kind of prorated it over the entire year is just wild.

But then we were talking before the show and we were basically saying, well, these internships are incredibly competitive. Yeah. It's probably harder to get these than almost a real job there because of how many college students want to work at these. top tier tech companies. So I go back and forth between like, holy crap, they're making so much money too good for them. They deserve to make this money. I mean, do you think an engineer who's like a junior at Stanford or, you know, another West Coast or really any college is that much, you know, worse than a more senior engineer? You're paying $400,000. You're like, are they, you know, you're probably getting more than a quarter of the value that you're getting from. Right. Well, it's

interesting because whenever you hire an intern, you have to spend like a week or two getting them all set up. And then by the time they're set up, then you have a few weeks of working. And then by the time the internship's over, you're offboarding them. Super crazy turnover. Right. How much work did you actually get done? Like, was it work? But I guess it's also like a recruiting technique too, like if you can plant these seats with these high, high quality engineers. Yeah. Get them in the pipeline.

One company I thought was interesting was Rivian came in at 24 on the highest paid list. which is this automobile electric vehicle maker that is paying their interns really, really well. I guess I want to be like a tech company, be like a, you know, because auto companies now need to get as many tech workers as, you know, manufacturing workers because robots are just making everything

and you need people to code your software. You're totally right. My brother has an internship at Honda coming up. Really? And he's a computer science major. Oh, at Honda? There you go, yeah. Wow.

That's what, yeah. Shout out Henry. Shout out Henry. That is our show. I hope our earnings recap was somewhat exciting. I know it can be dry. You can always reach us at Morning Brew Daily at Morningbrew.com. And don't forget to rate us on Apple Podcasts as well.

Help Toby out. Let's roll these credits. Show's producer and editor is Emily Milliron. Our supervising producer is Bryce Belloff. Our technical director is Eugennawaogu. Sam Velas and Raymond Lou are our APs. Sam, great job with the graphics. And Billy Minino is on audio.

Dan Bousa, VP Technical and Production Operations. Hair and makeup said, screw you guys. I'm getting an internship at Roblox. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. You can't reason with the sun.

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