Morning Brew Daily - Spotify Laying Off 17% of Staff & Tesla Losing Their Tax Credits?

Episode Date: December 5, 2023

Episode 206: Neal and Toby explain why Spotify is planning to lay off 17% of their staff following the successful release of Spotify Wrapped. Plus, Bitcoin has never been hotter and why Tesla's cheapest model might be losing its tax credit. Also, Venezuela has approved a referendum to claim territory in oil-rich Guyana and Toby shares his favorite trends. Finally, why newspaper puzzle games might be the new million dollar investment. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Disclosure: This is a paid advertisement for Autonomix’s Regulation A+ Offering. Please read the offering circular at invest.autonomix.com Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. On today's pod, is Bitcoin finally living up to its promise of digital gold? Then all the good vibes from Spotify rap are long gone as the company announced another round of layoffs yesterday. It's Tuesday, December 5th. Let's ride.

Toby, we are hurtling toward the end of 2023 and time released the finalist for its person of the year. We're not ones to miss an opportunity to turn this into a betting game. So I've handicapped the possible winners and you can give me your thoughts. So the finalists are Hollywood strikers, Xi Jinping, Taylor Swift, Sam Altman, Trump prosecutors, Barbie, Vladimir Putin, King Charles III, and Jerome Powell. So I've done my own little sports book here. King Charles is the long shot at 75 to 1. Then Trump prosecutors, Putin, and Hollywood strikers at 55 to 1.

Xi Jinping at 30 to 1. Now we're getting to the contenders, J. Powell at 20 to 1, Barbie at 15 to 1. and I've got a toss-up between Taylor Swift and Sam Malmann as the favorites at 8 to 1. First of all, that would be a heck of a dinner party, the time people of the year nominees. I'm liking the value of Jerome Powell at 20 to 1. That's the one that seems like the best value to me, but it's very, very hard to kind of break it down between Sam Altman and Taylor Swift. Those are the two that I wrote down beforehand. I think they're going to go Sam this time because they like to go a little bit more serious

and the whole existential threat of AI, who do you have your money on? I was, yeah, I'm debating between Taylor Swift and Sam, obviously. I mean, I do think Taylor Swift had the most incredible year of any human possibly ever. So I think in actuality, I think she really is the person of the year because a lot of people are working on AI. But Sam Altman, I think, will ultimately get it. So he's my pick.

And I think eight to one, we could make some money. That's good value. All right, before we jump into the news, I have one last. idea for the Times person of the year, Yahoo Finance. Now, you might be thinking, Toby, Yahoo Finance is just the number one finance platform that empowers everyday investors. It's not a person. But to that, I say, one time, time it made all of us the people person of the year in 2006, so I might not break the rules again. Toby, I think you just called it. Let's start a movement Yahoo Finance for Times Finance

Platform of the Year that also has a purple color scheme. The people want it, we want it. So head to finance. yahoo.com today or download the Yahoo Finance mobile app to get it directly on your phone. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179 like the next grill three burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together. Shop Spring Backyard Days for seven days at the Home Depot. Now through May 6th. Exclusion supplies to homebop.com slash price match for details.

Unfortunately, we have some layoff news to start the show today, and this time it's out of Spotify. CEO Daniel Eck announced yesterday that Spotify is laying off 17% of its workforce for a total of about 1,500 employees. Now, this is both surprising and not. It's surprising because Spotify has had a great year thus far. its stock is up around 150% and it posted an unexpected profit in the third quarter. But it's also not surprising because much like Mark Zuckerberg, Daniel Eck has been in efficiency mode all year. In total, there have been three job cuts, including this last one, with a stated goal of making Spotify leaner and more cost efficient.

Part of the issue is that Spotify may have overhired coming out of the pandemic. Its workforce nearly doubled in size to over 8,000 workers in under three years, which ended up pushing the company away from its goal of profitability by 2024. Neil, this is an especially dissonant announcement to hear because we're fresh off Spotify RAP and all the good PR vibes that come along with it, but also because this company was profitable as recently as last quarter, and yet it still feels the need to cut costs. They definitely waited for after Spotify Rapp to make this announcement, but it does feel a little like a startup that is maturing. And I think they, yes, they were profitable for one quarter, but that is not going to please investors

over the long term. They need to become a very profitable business over the long term. So, I think the company I was comparing Spotify to is Uber. So Spotify launched in 2008, Uber launched in 2009. They both pursued this growth at all costs. Right now, both Uber and Spotify are opting for profitability, sustainability, over breakneck growth. Yeah. I think the first thing you said to me when this news broke was, Wow, I cannot believe Spotify has so many employees. It just shows how maybe they got a little over the top front of their skis coming out of the pandemic. And a lot of that probably comes down to how big they bet on podcast, actually.

I know we're a podcast. I know people listen on Spotify. But remember, Spotify kind of splashed a ton of money around. Obviously, you have the big Joe Rogan deals. But maybe nothing is more emblematic of kind of that wasteful growth mindset than the 20 million deal that gave to Prince Harry and Megan Markle. they only ended up, the royal couple only ended up making a single podcast out of that deal. So it just is kind of emblematic of exactly what they were kind of shooting for, which was dominate the podcast space versus what they actually got, which was just a single podcast out of Harry and Megan.

There are also other ways that Spotify has been trying to boost margins. One of them is that price increase over the summer. It was the first time since 2011 that Spotify increased prices. So that's just another way to raise revenue while also cutting costs in various ways by pulling back on their podcasting unit. They've done three rounds of layoffs this year. Some of those have happened in the podcasting unit. And now this kind of mega layoff with 17% of your workforce going. Yeah, I also think this is exactly where we are at in terms of the vibe session we've been talking about.

The Morning Brew Daily listener I follow on Twitter, Michael Muir-Flor, pointed out that economists and even us on the show have kind of looked at every economic indicator, and saying, look, the economy is doing very well. But then you see these layoffs in the middle of the holiday season in the midst of a, quote, good year for Spotify. It's what's leading to some of this negative sentiment that even though things are trending in the right direction, you still sometimes see this setback in terms of why some people think the economy is not as good as it actually is. It does appear that layoffs do spike in December and January as companies are kind of looking

forward to the new year and just looking at their books and seeing where can I tweak things to to make the next year better. But overall, in terms of layoffs, this year has been below the pre-pandemic trend. We've had 13 million layoffs and discharges in the U.S. economy this year, but in 2019, the rate was 16 million. Still a big number right there. Still a big number. Okay, if you've noticed an uptick in people saying, to the moon, it's because Bitcoin is kind of back. The world's largest crypto shot above $42,000 yesterday to reach its highest level in 18 months. Bitcoin is putting together a heck of a year. It's up more than that. than 150% on track for its biggest annual gain since 2020. And this is the same year that the

crypto industry's two most prominent people, SBF and CZ of Binance, were found guilty of crimes. Go figure. It's never too wise to try and explain Bitcoin's movements, but the recent rally can probably be pinned to two developments. One is the Fed stopping its interest rate hikes and planning to cut rates next year. The specter of lower borrowing costs has been propping up the stock market as well. And the other is that a Bitcoin spot exchange traded funds seems to be imminent, which is seen as Bitcoin's coming out party on Wall Street. Toby, are you ready to declare Bitcoin back? And when are you changing your profile picture to an NFD? Oh, I never, it never left, Neil. It was always an NFT. You could always buy a piece of Toby.

But I think another thing to keep an eye out for in the crypto market, specifically with Bitcoin, is something called the halving, which is Bitcoin has this pre-program event that occurs after every 210,000 blocks our mind. Essentially what it means is every four years, a halving occurs where the number of Bitcoin rewards that a miner gets for mining a block gets cut in half. Usually what that corresponds to is a rise in Bitcoin's price because, again, to incentivize miners to kind of support the blockchain and keep Bitcoin running, you need the prices to go up because you're getting half the rewards.

So this is a four-year cycle. the next having is slated to occur in around April. So that could be another one of those factors that is pushing Bitcoin higher. One person who was very quick to comment on Bitcoin's rise is El Salvador president, Naibu Keli, because remember, he poured $100 million into Bitcoin of the country's reserves, was kind of endlessly mocked by most of the people in finance for being all of his reserves, not all of them, but $100 million into. Bitcoin. Yesterday, he was very quick to say that now they are profitable. They are in the black

on their Bitcoin investment and have a profit of $3.6 million. Of course, he has the receipts. And hey, why not when you're back in the black? I do think it's funny how the market seems to be pricing in everything at once. I mean, stocks ripped in November for one of the bus months on record. Gold is also ripping on fears that, I don't know, geopolitical tensions. And then also, like, Bitcoin is up as well. So, it really is one of these, like, it's so over, we are so bad kind of things, where everything's to be coming up at once for all different reasons. All right, Neil, we got lost in the hype of the cyber truck last week, but today I want

to tell the people about an important development coming to Tesla's lowest price vehicle, the Model 3. Starting next year, it won't be eligible for the full $7,500 federal tax credit Tesla owners have grown accustomed to courtesy of the Inflation Reduction Act. Now, this is a ripple effect of the Treasury Department providing some extra guidance around the Inflation Reductions Act credit rules, especially involving foreign entity of concerns or FIACs. Countries like China, Russia, North Korea, and Iran are classified as FIACs according to the Energy Department, and the new rule state that, quote, an eligible clean vehicle may not

contain any battery components that are manufactured or assembled by a FIAC. It's a big shift towards cutting China fully out of America's EV future, but that is easier said than done given how thoroughly China dominates global battery production. Already critics of the new guidelines are saying that these requirements might have the opposite effect and make EV battery production so costly it could further entrench China's dominance. And we're already seeing some of the side effects of this new law with Tesla's getting more expensive. Is this a wise pass forward for the Biden administration if the goal is to increase EV production with the U.S.? This is a crazy balancing act that Biden wants to do. He wants to have his cake and eat it too. He wants to transition the U.S. economy to green energy, but at the same time, cut off China

and boost domestic manufacturing. So a lot of critics would say that you cannot do both of those at the same time. You kind of have to focus on one. If we want to make a green energy economy, unfortunately, China has a lot of the value chain. They produce so much of the rare earths minerals that are necessary for clean energy. they produce a lot of the battery components and the batteries themselves. So maybe do that first and then boost domestic manufacturing afterwards. But trying to do two at the same time is rife with minefields.

Yeah, absolutely. I mean, I'll just get into the specifics of you said those rare earth metals. China produces processes more than half of the words lithium, cobalt, and graphite, which are obviously crucial inputs when making an electric vehicle battery. It's also just this fine line of prompting more American-made battery parts versus is completely destroying the whole market. I mean, we're already seeing it because Tesla, who has one of the best integrated supply chains out there, and even they are struggling to meet the battery components that this new

regulations kind of pass. Interestingly enough, though, Tesla is advertising the credit reduction at the top of its website right now, saying, hey, get it while it lasts. It's obviously going to be cut a little bit in the future months. So maybe let's juice end of your sales by saying, get the $7,500 credit when you still can. Yeah, that's something they've been doing for years, is trying to just move as much cars as possible before the end of the year.

But here's the problem here, is if Biden wants to increase EV adoption, and a lot of that's to do with cost, right? So you want to subsidize EVs. Only 22 of the 100 electric and plug-in hybrid models right now qualify for this tax credit, and that's because they are made with certain foreign parts. Yeah. So you're basically saying 80% of all EVs right now are not subsidized. So that's the problem here is trying to do multiple things at once.

And maybe he'll be able to pull it off in which it would be an incredible feat. But when you're trying to cut out China from the supply chain, it also means you are likely to slow EV adoption as well. Okay, before we accidentally summon Elon by saying tax credit three times in the mirror, let's take a quick break. Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th,

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Let's head to Venezuela, which is threatening to seize two-thirds of its neighboring country's territory that's home to the most promising oil reserves on earth. Haven't heard of this? Okay, let's dive in. On Sunday, Venezuelan President Nicholas Maduro held a referendum that asked citizens to vote on whether a major chunk of neighboring Guyana would be, should be absorbed by Venezuela. By an overwhelming majority, 95%, they said yes, which is not surprising, given Venezuela

has a track record of shady elections, and Venezuelans are taught as kids that this portion of Guyana is rightfully theirs and was stolen back in 1899. So this territorial dispute has been simmering for a long time, but the stakes got much higher in 2015 because that year, ExxonMobil made one of the world's biggest recent oil discoveries off the Guyana coast. Suddenly, this truck of land and water became much more valuable, particularly to an economy like Venezuela that has cratered since Maduro took office in 2013. It is unclear what happens next, just because Venezuelans voted that the sland

should be theirs doesn't mean the government will actually invade in the short term. The most common theory for this, for why this vote was held, is that Maduro is desperate to distract Venezuelans from their misfortune, and the oldest trick in the autocrat playbook is to pick a fight with your neighbor. This is not just some small sliver of Guyana by enemies. It's 61,000 square miles. It makes up to two-thirds of Guyana, and it's actually larger than Greece and rich in minerals as well, but the big, the coup de resistance, if you will, I did not say that correctly.

It also gives access to the area of the Atlantic where it just found, ExxonMobil just discovered those massive oil fields. So 2015 absolutely changed, even though this has been a big part of Venezuelan's history, is that they have always laid claim to this chunk of land. Everything changed in 2015 when that oil was discovered. Right. And right now, I mean, I think we've talked about this last month because Chevron bought Hess in a major oil merger. And the only reason for that purchase was because Hess owns a third

of the oil fields off the Guyana coast. And there's no other more promising oil reserves right now than what's going on in those waters. And it's helped Guyana become the most, the fastest growing economy in the world. It's projected to grow 37% next year. So they are on a gold mine and everyone kind of wants a piece. Yeah, Guyana has such a interesting and rich history. It was a British colony back in 1890. So it's one of the English-speaking countries within South America. So it is very interesting to see how this territorial dispute kind of comes to a climax as soon as there's oil involved.

Okay, everyone listening, I want you to imagine your stuffed animal you loved growing up because today's Toby's trend, where I educate my stately millennial co-host, Neil, on a trend I've had my eye on, is all about plush toys. Toy sales as a whole are down 8% this year, but plush toys are. bucking that trend. Sales are up 4% year over year, growing from just under 850 million in 2020 to 1.7 billion as of October of this year. Now, what exactly is a plush toy? Basically, it's the Rolls Royce of stuffed animals. Think of plush toys in terms of thread counts on sheets, whereas a normal stuffed teddy bear might have 300 to 400 threads per inch. A high-end plush toy might have upwards

of a thousand. The CEO and co-founder of Beanie Baby says part of the rise in plushed toys is because, quote, soft sells. The more cuddly, the better. The sense of touch and feel makes kids feel safe and secure. Neal, I'm sure many parents out there listening to this are well aware of the plush toy obsession currently ripping through the market. But this is me letting any of our Gen Z and millennial listeners know that it's okay to capture the nostalgia of going to sleep, hugging something real nice and soft. Well, I don't know if they need to be alerted about this because it seems like what's really driving sales is these kiddults, as the industry says, but people our age who are really just want to hug something.

We just want to hug something these days. We want to hug something soft. And so the rise in plush toys seems to have been driven by Gen Z, millennials, Gen X, people even older, who are kind of revisiting the nostalgia of their past. But as I was reading about this trend, my initial thought was, hey, we're all like really lonely these days, right? The pandemic, we were all alone. we just need something to touch, something to hold,

when there was all this social disconnect. So to me, that maybe sparked the rise, and people seem to like it, so it's continued. It's also very similar to Pokemon or trading cards in the sense that a lot of, I mean, let's reference some of the brands here. Squishmolo is one of the biggest players in the space. First of all, they're on track to sell 30 million Squishmallows

during the fourth quarter of 2023, which is a lot more than I expected. but there are these ultra-soft characters, and they have these great licensing deals with the likes of Harry Potter and other IP. So you do kind of collect these Squish-Mollos, and there's a big resale market because they go in and out of production. So sometimes there's another brand called Jellycats. Jellycats stopped offering its baguette plushy in 2022, and now they're selling on eBay for upwards of $150. So it is kind of this buy-and-sell trading aspect as well. But you're totally right, like millennials and Kodil.

They do love a nice little plush, something nice and soft to hug. And they've driven Squish Malo's to be the best-selling toy in 2022. On top of Lego, on top of Barbie, Hot Wheels, and Fisher Price, they beat out all of those to become the biggest selling toy in the U.S. and Canada last year. Maybe we release a Morning Brew Daily Squish mallow? I think it goes pretty well for us. Oh, no. All right.

Finally, look out New York Times because there's a new games competitor looking to become the talk of your game. group chat. Yesterday, the publishing giant Hearst, which owns Cosmopolitan Esquire and a bunch of local newspapers like the San Francisco Chronicle, announced it was acquiring Pusmo, a puzzle gaming platform from two indie

developers. Pusmo is a website whose goal is to reimagine classic newspaper game pages just online. It has classic games like Crosswords, but also popular puzzles designed by one of the developers, Zach Gage, like Spell Tower and really bad chess. Gage is

extremely legit. And as someone who pays attention to this stuff closely. I feel pretty confident saying this is a savvy bet for Hearst. Games are exploding in popularity at a time when hooking readers on traditional news and making money from it is increasingly tough. The New York Times is the clear leader in the space and strengthened its position by buying Wordle last year. They also have a recent hit on their hands with connections, a matching game that Toby is very good at. But Pusmo and Hearst think they can break up the monopoly. And I also think they can. First of all, I was pretty behind prepping for the show. because I got lost playing all the games on Pusmo.

I had never explored this website before. If you like puzzles in any way, first of all, you've probably heard of Pusmo, but please go check it out. It's extremely fun to play around with. But also, you talked about how news organizations are using this to attract new readers. We talk about it a lot in the morning brew office. Some employees joke that Wirtle is their primary vector of communication with their families. The family group chat wouldn't be popping off unless people send their Wurtles score.

So it is not only a way to hook readers in, but to kind of build community around these games. So I do think as well, it is an extremely savvy bet from Hearst to get in on this action. I think as a publisher, the one thing you want is to establish a daily habit among readers or your audience to keep them coming back every single morning, every single day. And I think we did that successfully with Morning Brew newsletter. It was like news you had to, had to know to seem smart in front of your boss and things like that. And I think that's what drove Morning Brew to success. I think games are performing a similar function. Like people cannot get started on their day without finishing wordle, without finishing connections, without doing

spelling bee. And it's a way to connect socially as well. So I think this is just a an arena that I think a lot more publishers will lean into. And those like Hearst that can kind of get in on the ground floor, because I still think this is, this industry is so young and it has a lot of room to grow. I think will be at an advantage. Yeah, final thought on this. I think the differing approaches between Hearst and New York Times is interesting. New York Times has kind of built up this walled garden where all their games are tightly branded. They all live within their ecosystem behind a paywall. And in order to play them, you have to step inside their ecosystem. Hearst, on the other hand, plans to license out Pusmo. So other websites could potentially set up

their own Pusmo hubs and kind of have these games themselves. It's two different approaches. One necessarily isn't better than the other. But I am curious to see which one plays out better in the long run. Yeah, there is a whiff of rebellion against the New York Times because they are seen as these exclusive, you know, not mass appeal games. You need to pay however money, dollars a year to access these games. So I think there's a huge market, a huge underserved market for people that want to play games but don't want to pay for the New York Times. Give the puzzles to the people.

Give the puzzles to the people. And that is all the time we have for today. Hope you have a wonderful Tuesday filled with productivity, good coffee, and good company. If you want to reach us, send an email with thoughts, questions, concerns, compliments to Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Miliron is our editor and producer. Samantha Vela's and Raymond Loo are associate producers.

Yucenoa Ogu is our technical director. Billy Minino is on audio. Hair and makeup really wants a jellycat for Christmas. 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.