The Best One Yet - Amazon throws shade at competitors, Lemonade raises $300M, and Keurig Dr. Pepper falls 4% on cocktail K-Cups

Episode Date: April 12, 2019

Jeff Bezos’ annual letter to Amazon shareholders ripped on eBay and professed love for gut instincts. Keurig Dr. Pepper stock fell 4% because its new K-Cup partnership with Budweiser seems dubious. And insurance startup Lemonade raises $300M with an insurance business model based on you not hating it.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is snacks. Daily. It is Friday, April 12th. And, you know, we saved the best of the week for last. This was the best one yet. We loved it. Markets didn't budge. No. Investors were totally bored. That's going to end today because we have big bank earnings. Very nice. Looking at you, big banks. But yesterday, we're going to cover three great stories. Fantastic mix. First is about Amazon. Specifically, CEO Jeff Bezos. He's out of the tabloid and doing what he does best. Letter to shareholders. Called out a bunch of companies. competitors a little shade thrown on eBay. Andy told us how Amazon decides what new products to make. There's a key word there. We'll get to that soon. Second story is Curig Dr. Pepper. It fell 4% because an analyst has no confidence in the new product, which is K-cups for cocktails. K-cups are out in general. Jack has a personal connection to this company. We'll get to that in a bit. And a bit. Third and final story is Lemonade. The online tech insurance company raised $300 million with a business model based on one thing.

you not hating it. It just wants to be friends. Now, before we get into all that, Jack, do we have to issue our first... Is this a spoiler alert? No, it's not a spoiler alert. It's season eight, spoilers aren't a thing anymore.

For Game of Thrones, this Sunday, most expensive movie series ever at a cool... What was it? Like, 15 million per episode. Not too shabby. The final season kicks off Sunday night. Now, classic snacks style.

We were curious about a little more of the numbers behind this thing. Oh, of course. Jack, can you give me the odds of who's actually going to win the game. The New York Times has a great reading guide, we recommend for season eight, but oddsshark.com has a betting guide.

Very important source. On who will actually win the Game of Thrones. Okay. So I don't even remember who's alive anymore. Who is number one to win it? The weirdest of the Stark siblings is Brand Stark, and he's the favorite to win the Game of Thrones. He's just misunderstood. And number seven is the Knight King.

Okay. Number 12, last and least in this list. of odds to rule Westeros. Cersie Landis. Classic. Makes so much sense. Now just get ready for a lot of Winter is coming jokes

from your friends all weekend long. Brad is coming. Lame jokes are coming. Where's our food? Burrito is coming. Now before we get to our stories, listen to these important ones. You're tuned in the snacks daily.

We spoke to the lawyers and we got to get something legal out the way. It snacks about the hair rain food. It's air candy. They don't reflect the views of the robberhood family. It's all. informational just so you know we're not recommending any securities nope it's not a research report or investment advice not an offer or sale of a security right snacks is digestible business news for you

robberhood financial LLC member finra slash sipc for our first story amazon shareholder letter just i mean this pulled a book out of morgue it was ripping on competitors bragging about amazon web services this got intense daytime tv style man on top penned this whole thing. Jeff Bezos. And last year, I checked out last year's, actually, I read last year's letter by accident. Jack was reading the wrong letter for the first 10 minutes. So last year's letter was an epic culture brag. He said Amazon has the number one hiring, number one hard workers, number one skills, number one tech. No joke. This thing had like the hashtag number sign pound key thing and the number one all over the first paragraph. The whole intro is just one characters. This year was

an epic brag about its platforms. We're talking specifically Amazon Web Services, and third-party sales. Now, third-party sellers, that got us really interested because it's a technical term, but we're really talking about just other companies. When I pitched this story to Nick, he said, what our third-party sales? It's like mom-and-pop companies selling stuff through Amazon instead of building their own website. So we aren't just talking about mom and pop, so we're also talking about like your Nikeses out there, your Casper mattresses.

Casper has an Amazon store. Right. And believe me, they did not want to do this at first, but now they feel like they have to. So Amazon just opens itself up for business and lets companies use it. Sales from third-party customers have grown from 3% of total sales in 99 to 58% of sales today. That's an incredible surge. And basically there's like, there are two reasons for this. So first of all, you got the fact that prime members make good customers.

Yeah. And they come to Amazon to buy things because they don't have to pay for shipping. Right. They'd rather go to Amazon for that Casper mattress than probably go to Casper. And the second reason is tools. Amazon gives all these sales tools and helps you figure out where the shipping is going to and all that stuff. Now, this is where Amazon got a little dirty. He specifically said.

Jeff. Are we on the first same basis? Yeah, we are. Let's go with that. Jeff B said specifically, this is why customers use us and not eBay. Now, this is not the first time he has ripped on and tossed shade on another company. Yeah. Last year.

I didn't read this last year. I read this earlier because of my mistake. Cross-town rival Microsoft. Microsoft got dissed bad by Amazon. Bezos said specifically, we don't use PowerPoint at Amazon. And then this year, they use memos. Oh, memos. Now, this year, Amazon also decided to rip on other retailers.

He said, I challenge our top retail competitors. And then in parentheses, you know who you are. Exclamation point. To beat Amazon's $15 an hour minimum wage. Which obviously annoyed a lot of retailers to the point where Walmart's like VP, had a tweet out that said, hey, Amazon, pay your taxes. Wow. Wow.

It's getting deep. It's getting dirty. So, Jack, what's the takeaway for our buddies over at Amazon? Amazon creates things based on hunches. Now, there are a lot of ways to come up with a new business. You could wait for the data to come in, get a team together, and then spend months innovating off that data. Yeah.

And finding a customer problem and then building a solution for it. Jeff's like, you know what? I'm going to go with my gut on this one. They have an incredible track record of starting projects just based on gut feelings. Get this. Alexa. Amazon Web Services. Echo.

These work products and concepts that were built on a hunch. So he encourages his employees, but also others, to try things out based on hunches, and then listen, learn, iterate, get data, fail. Fail big. But one of them is going to be big. Now, Amazon Web Services, that is now a third. billion dollar in annual revenue business. It is 10 times the size of Twitter. It's more than a McDonald's. And it's like half the size of Facebook. I think that's a big deal. It's a really

big deal. Amazon Web Services, something most people have never heard of, is half as big as Facebook. And what Jeff's showing us is that he now has 560,000 employees, half a million employees who are working on a hunch and doing everything he says. Snackers, you know the rules. When we own shares of companies we talk about, we tell you. I own Amazon. For our Second story, Currig Dr. Pepper, terrible name, fell 4% yesterday, basically because it's trying too hard. Dr. Pepper, do less? I'm telling you, do less?

Now, Jack, do you want to come clean? You didn't want to cover this story. We feel, we'd be remiss if we didn't tell you. I have bias against Curig because it used to be called Green Mountain Coffee Roasters. It did. It was one of Vermont's many business successors. Right. You got Ben and Jerry's.

Right. And you got Ben and Jerry's. You got Burton snowboards. There you go. You got seventh generation. You got a Vermont maple syrup industry. And you used to have Green Mountain. We used to have Green Mountain.

But they dropped the name because Kureg, the maker of the K-cup coffee machines. Right. Kind of just took over. Right. It bought Currig in 2006. And then that company acquired Snapple Dr. Pepper. And then there were just too many names. So they cut out the Green Mountain part of it.

It looked more like a sentence than a company name. Very poor branding move. Now, the shares fell 4% yesterday because a single. Analyst basically said, look, the home brew machines that the whole company is based on, they're not growing. Yeah, you've probably seen these K-Kermakers. They have the little K-cups. It's a little pod.

You close it. And like 30 seconds later, you have a cup of mediocre coffee. Wonderful experience. 22% of U.S. homes have these machines, but they just can't get past that 22%. No one else wants them. And then they had this new branding issue, which is the K-cups themselves just being bad for the environment. Exactly.

A Vermont product, making plastic things. you can't even recycle you guys I'm holding jack down right he's freaking out now currig is getting desperate yeah it this was this was a key thing here it recently announced a new partnership that that kind of shows us this was a desperation meets desperation partnership it's with budwiser and it's for cocktail pods like basically a k-cup coffee machine but for cocktails yes this is an automated bartender machine the actual machine is pretty innovative it shows they still got some strength it's called drink works it costs 300 bucks. Each pod costs about $4.

And these pods are literally filled with like a Moscow mule or like an old fashion. It's not, it's a new fashion pod, but it makes old fashioned drinks. They're marketing, they should run with that. So their strategy here is like, not only are we struggling to get past 22% of homes that have us, but the homes are only using them in the morning. Now, this strategy is really interesting because now if you have a drink works, you can curry coffee in the morning and you can drink works in the evening. Yeah.

one pretty hilarious problem about this machine. It's accessible to children. And so kids can make cocktails with this machine. You're 13-year-olds like Tom Cruise in that movie cocktail, whipping out, you know, a gimlet. And you're like, how did you do this? Oh, I threw the pot in. They actually need like a child tamper-proof case for this machine. And they've said they're working on that.

So, Jack, what's the takeaway for our buddies over in Currig? This is a great example of the Razor Blade business model, not working. I love the Razor Blade business model concept. Here's how it works. Basically, a company gets you to buy one cheap product, let's say a razor. Right. But then they make money by charging you for the things you definitely need to keep using. The refills.

The refills, the razor blades. It actually goes back to the printer and ink model. A printer was like $20, but then an ink cartridge would be like $200. Like $400 just to print color on double side. So one problem for curing, it's trying to do this, but its cheap thing is way too expensive. Exactly. It's patent on these K-cups in the pods. That expired in 2013.

Then you've had a rush of competitors who now have cheaper products. So the cheap razor blade that they were supposed to have. It's like $300. It's too much, too expensive. And the whole model's thrown off. And it's lacking green mountains. For our third and final story, Jack, I'm going to say it up front. I love the takeaway in this one.

Renters Insurance Innovator Lemonade just raised $300 million. Which means they're worth $2 billion. That's their valuation. With a beat. Now, we can relate because we can empathize with anyone listening. We're both renters. We're living the renter lifestyle. I just told my landlord that our heater is still making noise and I haven't turned it on six months.

Which I think means there's an animal on Nick's heater. There are probably major issues here. So Lemonade is an artificial intelligence powered bot that digitizes the entire insurance process for renter's insurance. Exactly. It was started in 2016 as an app. It basically, you know, snack style, Jack and I jumped in and went through the application process. We did it with a false identity. And it works.

Five minutes worth of questions, you end up getting a quote, around like $10-ish maybe. $10 a month for renters insurance. Now, last year, they did about $57 million in revenue. And this year, they're expecting to almost double that with $100 million of revenue and $425,000 domiciles. I think that's what it's called. Very technical. Insured.

Now, what are they going to do with this new 300-mill? They're going to go international. and they're focused on expansion to Europe next. Yes. And this means they need to lawyer up. Big time. Insurance is a super regulated market with lots of legal issues.

And in fact, if you were wondering how regulated it is, lemonade isn't even available throughout the United States. It's only available in half the states because it's still catching up with all the regulations in each one. Yes, according to Wikipedia

and it's not offered in Vermont. Now, here is the key, interesting element of lemonade. They have a unique marketing feature that they're basically using to, I'm going to use a Silicon Valley term here and say hack growth. Yes. So here's how it's called a give back system. Oh, it's called the give back system. And here's how it works. You pay, Nick said, approximately $10 a month. That's what you pay for rent and insurance. That is lemonade's

revenue. And it takes some of that and keeps it for itself. And then it takes the rest and it sets it aside for like disasters and claims for insurance. Let's say that issue in my, uh, in my apartment in that heater is in fact a giant mouse. And it goes through and destroys our house, Lemonade would take that amount they've set aside to fix and buy the new things that the mouse destroyed. And this is how insurance works. Everybody pays into a big pool of money. And then when one of those members of that like money family has a disaster, they're covered. They got to payout. Now here's the thing that lemonade does. Let's say you live your whole life in this wonderful

apartment, renting it out, and then boom, there are no issues. No disasters. Instead of keeping that money for itself that it could have used to pay a claim, it distributes a deal. It distributes it to a charity of your choice. Wow. So lemonade says it's very transparent. It says it just takes a fixed amount of everyone's plan. And if there's no disasters, that's a win for everybody because charity gets the money. Very nice. Now, to show that they put their money where their mouth is, they've certified themselves as a B corp, which is like a B-gooder corp. Very nice. I'm not sure exactly what that means, but it means they're benevolent. Let's go with that for the B. And then we did the math on this, and we wanted to see how much we think they're giving

back? Yeah. The company showed off that they gave back like $160,000 last year. Yeah. And we did the math, and it seems like that's about one half of a percent of revenue. Now, Lemonade, if we're wrong, let us know, but that's what we think you're giving back. Doesn't seem like a huge number. So, Jack, what's the takeaway for our buddies based in New York over at Lemonade? Lemonade's business model is convincing you not to hate that. I love this. We're about to break down the whole insurance model. Here's how it works. Basically, it begins with this. people hate paying insurance. It's really do.

And then when you actually need your insurance, sometimes they don't even cover your claim and you are furious that you've been paying all these months. So because of that, people tend to inflate the amount of damage that was done to their property or they flat out lie about what was in the apartment when it did get broken into so that they get more claim money. Insurance companies are like, you know what, these guys are going to lie to us anyway. We're going to jack up the price they pay at the beginning. And then you hate your insurance company even more. Do you see, it's a vicious cycle. It goes on and on.

So Lemonade is banking on its give-back policy, making you trust them that they're not trying to screw you over. And that trust is apparently worth $2 billion. It's a really big bet lemonade is making. Jack, can you whip up the takeaways for us before the weekend? Amazon is creating things based on hunches. Some become big failures. Some become $30 billion businesses. And then Kyrig Coffee Machines is a great example. right now of the razor blade business model not working the k-cup era by the way it may is it over yet it's

done it's pretty close third and final story was lemonade its business model is to convince you not to hate that and investors just threw a few 300 million dollars on that bet now time for our snack fact of the day before the weekend jack pet day it was actually national pet day yesterday but we decided to wait today to get some good information Washington Post knew that yesterday was pet day they were all over this so if Publish a story saying the percent of pet owners claiming to be like happy humans. Okay. So we've got a pretty obvious divide here.

You got your cats and you got your dogs. Well, the benchmark is no pet at all. Right. 32% of people who had no pets claim to be very happy. Very nice, very good for you. Dog owners were a little higher. You got a little alpha there. 36% of dog owners claim to be very happy.

Cats on the other hand. Oh, my God. Only 18% of cat owners claim to be very happy. Cat owners. I feel like we should talk. A couple other great stories. We're covering in the Snacks newsletter. First is Uber.

It officially filed its big piece of paper for investors to go public. Literally like a big piece of paper. A giant like 200 page thing. We break it down in the Snacks Daily Newsletter. Very long. We spent a lot of time in this. And then banks, a big group of them are reporting earnings today. Earning season is officially kicking off.

Now, we love to have you guys on the pot with us this week. We cannot wait until Monday. It's going to be a great one. And before Game of Thrones on Sunday, find your buddies who would love snacks daily every day and get them to subscribe. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets, Inc, or any of its subsidiaries or affiliates. The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security.

The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.