The Best One Yet - Google gets a Fitbit, AIG’s anti-catastrophe quarter, and Quip flips the razor/razorblade model

Episode Date: November 4, 2019

Remember when we mentioned Google could acquire Fitbit last Friday? It did. So we’re looking to understand why Google’s paying almost double the normal stock price. Insurance giant AIG doesn’t like catastrophes, and last quarter had fewer than expected. And electric toothbrush startup Quip just launched a floss that turns the razor/razorblade pricing model on its head.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. This is Snacks Daily. It's Monday, November 4th. Welcome back from a great week. Good time, me, because we decided this should be the best snacks daily we've ever done. Nick and I are in New York. We have a New York state of mine this week.

Everything looks beautiful. I remember that taxi cab like it was yesterday. Is that Ralph? Yellow Chuckers. Beautiful stuff. Three wonderful stories we got to get to this. First up, Google acquired Fitbit. Nick, Pat on the back moment.

We predicted this on Friday morning. And it happened on Friday morning. Now, we know what you're thinking. kind of obvious. They're going to compete with Apple Watch and growing the wearable segment and start selling ads for when people don't even have a phone and computer anymore. Hey, Siri, show me an ad. Yeah, we get it. That's going to happen. But we're going to talk about the premium because Google paid 65% more than Fitbitz like standard stock price. And that's going to be related to our takeaway. Nick, do you like catastrophes?

Not really. They're not my thing. Neither does AIG. It's profits rose last quarter because of fewer natural disasters. We're going to dive into the insurance company that basically caused a lot of recession third and final story the not quite unicorn of the day is quip it's not quite it's almost in a billion dollarvation not really it's about a quarter of that it's on every podcast as an ad this is on a podcast as a story here good for them we're going to talk about how it's doing the razor razor blade model but backwards it's wild then before we jump into all that we got kind of an early snack fact we promoted it to the intro this is from matt collins in grand island new york we showed up to this podcast recording an hour old i what day is it what time is it anymore

Daylight savings happened yesterday. Messed with us. Fall forward. You got an hour less sleep, breath? You have dinner when you have breakfast and now breakfast when you have dinner? Look, that was a test. You're supposed to correct me. You had an hour more sleep.

No one really knows. All you know is that you're confused for a week. Now, there's an academic study that suggests that the kind of throwing off that we all had this weekend with the hours and it getting lighter earlier in the morning, darker in the afternoon. We're in pajamas right now. It actually causes lower stock market performance between, like, last. Friday and today, Monday. And that's because of a quote-unquote sleep pattern change in judgment, anxiety, reaction time, problem-solving, and accidents. Interestingly, yeah, Nick, it does cause more driving accidents.

So everybody, like the light differential in your commute to work, it could cause an accident, drive safe. You're also going to have that issue. You come to the office expecting coffee, but it's cold. I program it for 5 a.m. every day. Now, like, now it's 6 p.m. now? No, it's either 4 a.m. or 6 a.m. I'm not sure. We spoke to the lawyers and we got to get something legal out the way. It snacks about the hair ain't food.

It's air candy. They don't reflect the views of the Robberhood family. It's all informational just so. We're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you.

Robohood Financial, LLC, member FINRA slash SIPC. For our first story, Google is the proud new owner, of a Fitbit. The company. Not the device. How many steps do you think the Fitbit founders got and just running around freaking out about this thing last week? Apparently, Facebook made an offer as well to acquire Fitbit.

This was reported by a company called The Information, but it only offered half what Google was willing to put. Meanwhile, Google was willing to splurge on this thing a little bit. So we just mentioned last week the Apple's Wearables Division, which also includes the HomePod, which Snackers, I know some of you own. You mentioned it. There are a few owners of HomePod. Six.

Well, Apple's Wearables Division makes as much revenue. per year as Starbucks. The entire Starbucks, the company. But everybody else working on Apple Watch competitors, they're struggling. We'd love to hear you say competitors right now. But before we can do that, we've got to talk about what's gone wrong with wearables because every single one seems to have had an issue. Except Apple's watch. Pretty much. So GoPro. The stock today is down 95% from its peak, which happened shortly after its idea. Because how many friends you know are like sticking this thing on their head, surfing, and then actually coming home and watching those videos? Nick, do you Remember the flip camera?

It's a video camera. Our buddy Timmy, who are Snackers, know well. He's got a buddy named Phil Hastings. Who used to have one of these. Phil, Rivas, Hastings used to have one at Middlebury College. It's the original, like, transportable video camera. Exactly. It was kind of like a GoPro, but like it's not as cool.

It fizzled out and got acquired for just 600 million dollars. Then we had Pebble, which was like kind of becoming cool for it. I don't remember Pebble. I don't remember it at all. It shut down, essentially. But I think some of its engineers got acquired. Right. That happened in 2016.

Jawbone, another wearables fitness tracker. Great name. Sounds hardcore. You want to invite this thing over. It's got an inch. If you go to jawbone.com right now, it just says more info coming soon. Which we checked last year. That was the same situation. Finally, Fitbit was also struggling, just like these other, like, close to graveyard situations. Get this, Fitbit stock has been down 92% from its IPO price in 2015. Pretty much because of the Apple Watch. So, Jack, what's the takeaway for our buddies over at Fitbit and Google?

Why did Google pay almost double to acquire Fitbit? Back in September, life was good. Jack and I were wearing shorts. The sun was out. And the price of Fitbit stock was $4.10. That was right before Fitbit announced. It was trying to sell it. The entire company was worth less than a billion dollars.

You could have saved up some allowance and got this thing. You could have kickstarted this thing. Get a group together. Boom, you got Fitbit. It's all yours in 2020. All right. So it was $4.10 to share. But then Friday, Google acquired the entire company.

for 735 per share. So that means the stock just jumped. And the big question we want to know is, why did the stock jump so much just because it was getting acquired? Here's the deal, Nick. If you want to take control of an entire company, you have to pay more than just the stock price.

Without that wallet, now to buy a stock to buy a share of Fitbit, if you wanted one little Fitbit stock, that would have cost you $4.10. But if you want to buy all of the stocks... If you've got to bring the headquarters and the co-founders, the team in the snack bar. Like Google did, you're going to have to pay $7,

and 35 cents, which was a total of $2.1 billion. And when you look at a whole bunch of acquisitions out there, the average price for those acquisitions ends up being about 30% more than the stocks price at that moment. That's called the acquisition premium. You have to pay more to take control of the company. For our second story, AIG just swung to a higher profit because, you know, catastrophic events weren't as catastrophic. AIG.

American insurance group. Straightforward. You don't fool around with that kind of an agent. Nick, you remember 08? No geckos. Oh, eight, I remember. Yeah, they don't have a mascot. They don't have a mascot.

It's kind of lame at. 2008, Nick and I were in Milliken. We were doing late-night Philly cheese steaks, most likely. We turned a double into a triple and added Doug as our third roommate. We updated our Seinfeld VHS to DVD. So AIG was crucial in the financial crisis. About 2008. Prior to the financial crisis, AIG was selling insurance.

That's what it does. But it was selling insurance for mortgage security. So the only issue was, you know, if the housing market goes, bust, then they're going to cover it. So selling mortgage securities was kind of like selling volcano insurance for AIJ. It was making a ton of money unless the volcano erupted. Turns out the housing market went bust and then they had to cover it. Yeah, the volcano erupted.

And here's a trivia fact for everybody. The biggest quarterly loss in corporate history. This is a big number. Guess the number. Guess the number. To your partner, to the person next to you. I'll tell you the time. It was first quarter, 2009.

We'll tell you the number. It was $62 billion. That was the loss. And we'll tell you... We'll tell you the name. AIG. Yeah, I guess that part was obvious. This is the hall of shame for corporate history, and that's why the United States federal government had to put in $182 billion to bail it out.

That means that the U.S. federal government, aka you and us taxpayers, ended up becoming 80% owners of owning those shares. Now, AIG was successfully rescued by you and me, Pat on the back, and, and, and, you and, you and, you, the government actually got paid back in full and actually made like big profits on the whole investment. What it did is the government actually sold its shares in AIG. But it was messed up that we had to send a signal to the market that if you have a business that's recklessly risky, you might get bailed out by the government. Well, here's the funny thing about AIG's business.

When things get broken slash stolen slash destroyed, its profits get hurt. Yeah, that's how insurance companies work. Yeah, their main business is a property insurance in this case for AIG. AIG offered insurance policies for homes, buildings, machines, whatever other property is valuable. Yeah, so, so, like, all right, this thing, let's say you're watching the movie Jamongy, and what's the name of his parents' shoe factory? The shoe company was called Parrish Shoes.

It was based in Keene, New Hampshire. ACHO., a very charming place. Very beautiful place. So, let's say Parish shoe company's factory costs $100 billion. AIG might be like, okay, there's a 0.0001% chance that the alligators from the movie destroy this factory. So I'll offer you insurance for like $1,000 a month. Yeah, whatever.

That's unlikely, so whatever. Nick and I don't work in insurance. I have no idea if that $1,000 is money. month is accurate. Yeah, that could be completely different. But AIG makes money unless the building gets destroyed. So they have this really interesting item in their earnings report, and it's a line item called the net catastrophe losses. Net catastrophe losses fell for AIG by $404 million last quarter. That means the amount it's paying out to handle these catastrophes was actually less than it was the previous year. So there was like no avalanche in King, New Hampshire, and the building didn't

get destroyed. Those are the worst. So Jack, what's the takeaway for our buddies over AIG? Insurance is challenging to predict, especially when climate change is happening. Legislation has an impact on insurance. Natural disasters have an impact on insurance. But climate change has a game changer impact on insurance. AIG's annual report shows how many flood catastrophes, windstorm catastrophes, and wildfire catastrophes happened in the last year. Turns out they had to deal with 24 catastrophe events in 2016. That was like climate change related.

Then they had to deal with 22 climate. Change-related catastrophe events in 2017. Then in 2018, it picked up to 31 catastrophes, natural disasters that are very much linked to climate change. That caused $2.7 billion in damages. It came straight out of AIG's profits. They got to deal with us. And now they've got to predict how many in the future with climate change.

Good luck, AIG. For our third and final story, Jack, you got something a little over there. You got something in there. There you go. Spinach. It's out. It's out. It's out.

Quip, the electric tooth-braced startup. basically just launched its first other product. I think you're going with toothbrush or toothpaste, but you merged them. Yeah, that's what I do. We're talking about floss. They came out with floss. Quip now does floss. We're not talking about the viral dance thing that your dad's kid.

I don't know how they do this. It's kind of freaky. But the electric toothbrush startup, they've raised $62 million so far. And Jack and I have been curious because they're worth a couple hundred million dollars. They're very popular in newsletter and podcast ads. They love doing that. For $25 a month, you get an electric toothbrush. And then for less per month, you get just the head refilled on every three month.

And every three months, you also get toothpaste. Now, if you're under the age of 34, this has probably been marketed to you because you come home, you get off that bird scooter, you take off your bomb as socks, you put your all-bird shoes on the counter and then you lie back on your Casper. This is one of the original direct-to-consumer products that tries to change the way that you shop. One sec, Jack, let me move my Warby Parkers and put them over here. Now, toothbrushes and toothpaste hadn't had much innovation. And there's a reason why. It's because they're habits. You do it twice a day.

And so every few months, you've got to go to the CVS and refill it. So if you're Colgate, you're like, yeah, why am I going to add bells and whistles to this thing? We know you're coming back because if you don't brush your teeth, you'll be disgusted. That dentist will totally guilt you into this thing. But then a new industry came along and changed it direct to consumer. It says, stop going to the store. We'll just ship it to you every three months because you need a new one every three months. So Jack and I noticed last week that Kip launched this new kind of floss product that's not a floss to be hidden away in your bedison cabinet and like a little weird green thing.

It looks kind of like the toothbrushes, but differently shaped. It's a little more adorable. It's about the size of a lipstick container thing. And it's meant so you can whip it out on the go in public and floss without having to feel like you have to do that at home. I don't think you should floss in public. No, you probably should keep in. We all have that post-floss feeling where you're like, I hope I know one talks to me in the next two minutes. I were focused on the pricing of this deal. It reminded us of the razor, razor blade pricing model

that we learned about in business school. So Jack was at University of Michigan. I was at Warden, and this thing gets preached as soon as you get to business school. Razor blade, razor business model. Basically, they charge you practically nothing for the razor. Right, the initial product. Like the handle that you hold in your hand. They're like giving this away thing away for free like Oprah. But then the refills, the actual blades are so expensive that CVS literally locks them up behind a lock and key. I've heard in some countries they're used as dowries. Nick, that's absurd, but a great anecdote.

We can't actually bet that one. So, you know, you pay like five bucks for the handle and then like 30 bucks for the refills. Another industry you see this in? Printers. They give away the printers basically free. And then the ink cartridges are wildly expensive. Right.

You got to like mortgage your home and like take out six student loans to pay it for this thing. But then we looked at Quips Floss product. And we noticed it was charging $20 for the first can of. of floss. And then $5 for everyone after. So expensive up front, cheap for the refills. Jack and I are going for flipping back through the pages of our business schoolbooks.

Like, wait a second. This is the opposite of the Razor Razor Blade model. Now, for all you placers fans out there, like me and my wife, a 90 pack of placers on Amazon is $4.50. A quip three-month floss refill, which should give you about 90 flosses, just like the placers 90 pack. I'm following. I'm doing the math here. is five bucks.

So Quip is barely more expensive than placers, and maybe you're paying 50 cents for the convenience of the ship. So, Jack, what's the takeaway for our buddies over a quip? Subscriptionification. Great word. Has destroyed the Razor Razor Blade model. Think of all your subscriptions. Stack them up.

We've called that subscription. Streaming, meal kits, ride hailing. You've got subscriptions for almost everything in your life. You're counting up the number of times you pay X dollars a month for something. And because of that, customers are now focused. on the recurring price you pay, not on the initial price you pay. Not the upfront. It is backwards from how customers used to look at prices of things. This has flipped the razor razor blade model on its head because now you're focused on subscription,

not the initial thing you're buying. How many times am I paying X dollars a month for something? X. Jack, can you whip up the takeaways for us to start the week? Google is acquiring Fitbit paying a premium because control costs extra. If your company gets acquired, it's often for like 33% more than the same. stock was trading at. AIG is in the business of pricing risk.

It really messed up around the financial crisis. Now it needs to calculate the risk of like increasing catastrophes pretty much everywhere, courtesy of climate change. Quip just launched its second product, floss. Nick, yes. I remember our second product, this podcast. We used to have a newsletter. We still have the newsletter and we got the podcast.

Oh, and by the way, Quip is totally changing the razor, razor blade model. Snaggers, time for our snack factor today. This one straightforward, wild, straight out of Carly Persica, who sent us to this on Instagram. Carly is from Chicago. You Mishgrad, by the way, go blue. And apparently she's into the boating. The Panama Canal. Ever heard of it?

The French tried to build it in Panama in the 1800s. But we did. Then the Americans built it. It was kind of American territory for a while. Now it's controlled by the Panamanians. But what she pointed out to us is that the Panama Canal average toll is significant. You think the Golden Gate Bridge and the George. Washington Bridge, the GWB.

Can't we just easy pass this thing? You think those tolls are expensive? Not half, they don't have someone just collecting. To get through the Panama Canal, the average ship pays $150,000. Write a check. This thing won't be local. But that saves you like two weeks of shipping around South America. Oh my God.

The Cape of Good Horn? Good Hope. No, isn't it? Tierra del Fuego? It's both. Snackers, love to having you with us to start the week. Let's do this tomorrow, Jack. See you then.

You can wear flannel? No. Okay. Only one day. All right, we'll do it, too. 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, or any of its subsidiaries or affiliates. The podcast is for informational purposes only, 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.