The Best One Yet - Grocery Outlet IPOs today, YouTube’s huge change, and Adobe reveals why Silicon Valley loves software

Episode Date: June 20, 2019

Grocery Outlet’s “WOW!” IPO (listen to the pod — you’ll see what we mean) is the convergence of two major retail trends. YouTube may be launching a separate version for kids and even disable its profit-powering auto-play. And we noticed Adobe’s stock hit a record high and it highlights why Silicon Valley loves software.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 is Thursday, June 20th. This is the best one yet. This one's actually straight of PD-O-Y. Markets rose because of a word from the Fed. We're talking Jerry Powell, chairman of the Fed. So what he said was we're not going to cut interest rates right now. The Nation Central Bank is going to keep rates low. What he hinted was that if the economy suffers, he might lower rates. The Nation Central Bank has the markets back. Now, we went in while Mr. Jerry was talking about this to find three wonderful stories. The first story is grocery outlet. This is, this. This is, this. This is a grocery store that's IPOing this week, and it has a passion for wow. W.O.W. Exclamation point. We're looking for the two trends that it's all over. Second story is Adobe. It just announced its earnings. Its stock is at a record high. This is a software company we don't usually cover. But it reveals the one thing Silicon Valley loves about software. Third and final story, YouTube, it might be making one of its biggest strategy changes ever. And it's all because of the kids.

The kids. The kids. Now, speaking of huge kids, Shaquille O'Neal. Yes, talk to me. Dial 444 SHAQ. Easy. I got it on speed dial, Jack. And you get the first Shaquille O'Neal branded Papa John's pizza joint in Atlanta, Georgia. Coming at you live from the Georgia Tech campus, this thing.

Shaquille O'Neal just recently got his seat on the board. He's become the new face of the company. Great way to do it. Since John Schnatter kind of like left. Stick yourself on the face of the walls of the company. And it's not just the face of the company. No. He's the footprint of the company.

Exactly. Get this. The Papa Johns in Atlanta has sized 22 footprints smacked right on the floor. there. Like a T-Rex. Now we know we've got some Georgia Tech Snackers out there. We wouldn't mind a picture to show that this thing exists. Also, please tell us what the area code of Georgia is because 444 shack, not working for us. In the meantime, listen to these keywords and they're on our stores. You're tuned in the snacks daily. We spoke to the lawyers and we got to get some legal out the way. It's snacks about to hear 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. Snacks is digestible. Business news for you. Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, we got to talk about grocery outlets IPO today.

And it's a great example of two things. We love covering on this line. And it's a great story that was sent to us by our buddy Logan. We just said on Monday. We love it when you hit us up on Twitter with ideas. We don't actually know Logan. No, we don't know. He's a fan of the other.

You're a snacker. So I'm a fan of him. And he said he really wanted to hear about grocery outlets, so we decided to jump into this. So grocery outlet, we just learned, is the nation's largest and fastest growing extreme value grocery store. Now, here's the pitch from a grocery outlet. We are Trader Joe's Meets Dollar General. That's actually our version of their pitch. Yeah, they don't actually say that to other people.

The company has $2.3 billion in annual sales, and it's growing fast, which is kind of surprising for a grocery chain, 10% growth. It's based in the Bay Area. They got 300 independently run stores. And again, they're focused on this extreme value concept aggressively. The company says itself that the typical basket, which is what they're calling like, I love that they use that term. Yeah, that's just like what you buy at a grocery store.

You want those kind of visuals. The price is 40% lower than a conventional grocery store basket. So, Jack, I'm on the website right now, and they've got like a live update of how much they're saving customers. They claim they've saved customers in 2019. It still tick it up. $85,3,000, $3,000. This is like that national debt chart, but it's actually a good thing. You guys try to check this out, it's going to be completely different.

So it saves people so much money that naturally it performs well during a recession. The last recession we had in America was 2009. That year, sales jumped 15% for grocery outlet. Now, classic snack style. Jack and I dove into the pre-IPO paper here, the S-1 because that's critical. Yeah, and then we saw a wild claim by this. I want to point out, we had a lot of fun with this because they had a lot of fun with the S-1, too. They claim that they, quote, unquote, deliver treasure hunt shopping experiences.

What do I need Indiana Jones to go down aisle six? People die on treasure hunts? The company is also the home of the wow, which they put in all caps. It's WOW, and it's a power wall of incredible deals that meets you right when you walk in the store. Now, this one got us just, we couldn't sit down after we hear this. They also, when you check out of a grocery outlet, the cashier takes your receipt, takes out of Sharpie, circles how much money you saved, and then gives you the receipt. It's company policy. Get this, we check out the wow wall on the power wall on Facebook.

Why wouldn't you? There was a deal. It was like eight jars of tomato sauce for one dollar. We couldn't even do the math on it. At some point, they're like paying you to take the tomato sauce. So the secret sauce of this company is the special relationships it has with suppliers. One of the key things they boasted about in their S-1 was that they have a 30-year-on-average relationship with their 15 top suppliers. Yeah.

And it's also kind of that friend that you can always rely on. Right. So if you're a supplier, you've been trying to sell this tomato can to shop right. Shop right, we won't take it because the little dented. You know who to call. Grocer outlet. They're your friend. It specializes in accepting canceled deals from other grocery stores.

And when there's like a packaging change order, it'll take that for a discount. That's how it gets you such good prices. Now, that is a unique twist within its business model. It also shows an incredibly interesting risk about its business model. Yeah. What if those relationships with those key suppliers ends? Last time I checked out, relationships don't always work out. Also, another key risk, it's in the grocery war with Walmart, Amazon, all these,

which we talked about last week. Tough timing. It's a tough industry to be in. Tough place. So, Jack, what's the takeaway for our buddies who, we learned about over at grocery alley. This is a perfect example of two major retail trends. We love covering this on Snacks Daily, extremification and experiential retail. All right, on the extreme side, you got luxury retailer stocks who had an all-time high.

You also got low-end stocks like Dollar General at an all-time high. And then on the experiential end, did we mention that is a treasure hunt shopping experience? Can we try this out? We live in the Bay Area. We got to jump on this thing. For our second story, we kind of talk about Adobe, whose stock just hit a record high thanks to software. Adobe. The PDF. You know what we're talking about.

They're kind of a big deal. You can't edit this kind of a thing. So the company is based in San Jose. Everybody uses Adobe, but no one ever talks about it. Because they invented the PDF. The PDF. What does that even stand for? Ninety-three baby.

Actually, we look this up. It stands for portable document format. So if you're creating something on your computer and you're not using Microsoft Word, not using Excel, not using Google Docs, you're probably using an Adobe product. It's almost definitely Adobe. Now, here were the earnings that were just released yesterday. They rose to a record $2.7 billion, which was up 35%. And the stock hit a record high because of that.

Now, Adobe as a company, is worth $130 billion by market cap. Right. That means if you take all the shares of Adobe, they're worth $130 billion. That's more than Nike. And guess what? It's seven lifts. Lift is our favorite unit of measurement. It's the perfect one.

It's like an inch, but of seven of them. Now, how does Adobe make money? It's software as a service or SaaS. Right. So the company also just becomes so integral to like whatever you do at work that people have to end up paying for them. Right. If you're going to create good looking PDFs or like image files, you kind of need Adobe. It's bread and butter services are Adobe Illustrator and Adobe Photoshop. Now that's what you know from like your office work.

But what people don't really know is that Adobe's getting into like the consumer game too. It wants to help out your social media. They just downloaded it Adobe Spark. True. And we downloaded it. We set up an account. We have a free quick graphics app actually to make your social media. posts.

Gorgeous. So if you already were spending like 15 minutes trying to like brainstorm a post idea, this will give you the tools to spend another 15 minutes making it look really pretty. Yeah, it'll look like professed design quality books. We're talking like full background step and repeat style. That's free, but it thinks like if we can get you to use our free service, maybe those are premium use services eventually. So they got the office already covered and now they're getting into the consumer game.

So Jack, what's the takeaway for our buddies pdfing all the way over to Adobe? This is why Silicon Valley loves software companies. Now we're going to get like a little walkie here, drop a little bit of math, but we're going to keep a high level. Hang in there. Hang in there. Back of the envelope, even though most of you're probably driving right now. So the main revenue source for Adobe is subscriptions to the software we just told you.

Now, last quarter, in terms of revenues, it brought in $2.5 billion from those subscriptions. Very nice. And the cost of getting those subscriptions to customers was only $300 million. Yeah, basically it's setting you like a password and a new username to get new customers. So $2.5 billion revenues, only $300 million cost. That's an 85% gross profit. All you did to do. Very high.

Very high. And let's compare that to a physical. product, for example, Harry's razor blades that they send out. Yeah, for every new customer, they have to create a razor blade, ship it to you. They got to put the razor blade together. Get packaging for it.

You got to get the shave gel in there. Meanwhile, Adobe's just creating a username and password. Now, it's got some other prices like research and development, but this is why Silicon Valley love software. Because of those juicy profits software can keep. For our third and final story, YouTube may be moving kids into a separate app

creatively named YouTube Kids. Very nice there, Google. So context. YouTube was acquired by Google, you know, for like $1.6 billion back in 2006. I was almost a freshman. Billions were like a new thing back then. And now it's allegedly worth $100 billion. Fancy investment by Google.

One of the best acquisitions ever by Google. Now, why is what it's doing right now a big deal with kids? Kids stuff on YouTube is actually one of the most popular things that's generating millions, if not billions, in ad dollars. Now, we jumped into like the kids-focused YouTube situation, and there's some freaky shows. out there. We ended up on Ryan's Toy Review, which is a YouTube channel with 20 million subscribers. Are we reviewing Ryan's Toy Review right now? It's this little kid who gets paid apparently to open up to unbox toys on screen and kids watch it and then go ask their parents for those.

So it's kind of like advertising except it's extremely strategic and apparently very dangerous. So the FTC is investigating YouTube because YouTube has been a really bad babysitter for your kids. It's got a lot of recent snafews here. For example, you know, know, illegally collecting data on kids under the age of 13. That's not watching. That's not cool. It doesn't really work with anyone. And then a report by Harvard University showed that videos of kids were being promoted

as like the next video to watch for pedophiles on YouTube. Not working out that well for that. So according to the Wall Street Journal, Google is thinking about a big move. A really big move. It may switch off the autoplay feature that automatically plays recommended videos when your videos down. Now, the autoplay feature is critical. This is like the Simon to YouTube's Garfunkel situation. It's been really good for profits at YouTube, and it's caused the length of time watched to increase.

And today, a billion hours of video are watched every day on YouTube. Now, if you've seen the YouTube video, you may not even have realized it, but autoplay was all over your life at that moment. It was all over it. You've watched the video. It was six minutes long, and before you realize it, another video had come up on. It's great if you watch music videos, because then you watch another music video. Yeah, if you're like that guy who's DJing, you know, the house party and like the situation. But it could also be potentially seriously harmful to society.

Right. It could, for parents, you know, you put on a harmless video. you think your kids just watching a nice, like... Something nice. And then something awful comes up after by accident because the algorithm messed up. Or let's say you're watching a video and then it turns into one about like how the earth is flat. 20 hours later, you've watched 50 videos on it and now you think the earth is flat. Yeah.

YouTube can radicalize. Like you watch one conspiracy theory video, suddenly you think the earth is flat. So Jack, a couple key strategic issues here. So what's our takeaway for our buddies over at YouTube? Protection of kids can change industries. Love for kids, it turns out is a pretty bar. part is an issue most of the time. And when kids are in danger, we've seen politicians act and change in districts.

Couple great examples here. Look at cars. Exactly. Guess what is required in every new car made in the United States today? A backup camera because it's so easy for a kid to be behind the car and maybe accidentally get hit. Yeah. And I think that that happened. And even though these backup cameras are terribly expensive and study show not cost efficient, they're in every car now.

They're now required. Another one, vaping. Let's go back in time to yesterday. San Francisco, the like board of San Francisco. voted to ban vaping in the city because of underage kids. Again, to protect kids. So when kids are in danger, politicians in general can act. The one big exception we've seen is guns.

But concern for kids, in this case, could change YouTube. Fundamentally. In a huge way. Jack, can you whip up the takeaways for us for Thursday? Grocery Outlet is the first extreme value grocery store I've ever heard of in its IPO. I want to know what discount they give you if the cashier doesn't circle the savings. Adobe's popular design software is why Silicon Valley love. software. Goes by SaaS, but just software for short.

Third and final story, YouTube might make a special version of YouTube just for kids, and it might kill autoplay. Because AutoPlay is killing society. Now, time for our snack fact of the day. Sent it by RSTD's Ortiz Jr., a great snacker. I like this one. This snack fact hits home. Now, American Airlines saved over $40,000 by making one simple change. It removed one olive from the salads that are served in first class. You know an accountant on that team is freaking out and may have gotten a bonus. Don't even start at the Olive Garden, two olives for one person, and then one additional

olive for every additional person. You've got to appreciate some good Olive Man. They are strict with that policy. All of math is what drives profits. Put that on the pillow. Another big story you need to look out for. Slack. It just priced its shares at $26.

The direct listing is tomorrow. It's not an IPO. It's kind of like an IPO because it lets the chairs. We're going to cover it and we can't wait. Logan, thanks for tweeting that great story. And Snackers, reach out. to us. We love hearing from it. Get it our way. Talk to you tomorrow. The Robin Hood Snacks podcast you just heard reflects the opinions of only the host 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 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 is the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.