The Best One Yet - Peloton takes down Flywheel, Supreme Court says you can sue Apple, and the “Unsexy Companies of the Day”

Episode Date: May 14, 2019

Spin studio chain Flywheel has been taken over by one of its investors because it’s losing the fitness wars to tech-focused Peloton bikes. Apple fell on word from the Supreme Court it can be sued over for its App Store monopoly. And as trade war drama dropped markets big, our “Unsexy Companies of the Day” earned some air.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 Tuesday. May 14th. This is the best one yet. Straight up TBOY. Markets tanked again.

Not the best one yet for markets. China opened up trading with another announcement that 60 billion of new tariffs are going to hit the U.S. Boom. Happy Monday. In retaliation for what happened Friday. Markets started the day down. The Dow was down like 400 points. Then what happened by lunch?

Trade war on markets don't go well together. They don't. The Dow was down by over 700 points. And sweet green salads aren't going to make that feel better. Now, three wonderful stories that we found. Can I start things off with Peloton? Can you please kick that on? Peloton, the at-home spinning bike phenom is preparing to IPO.

But it has claimed its first official death victim. Flywheel. Oh, by the way? No, I wouldn't say official death, but first victim. Yeah, that was a little aggressive. We'll go with first victim. What do you call them Peloton? Peloton, Apple of spinning.

Apple of fitness. Let's go with that. I like that more. That's a nice lead into the second story. Apple. Very good transition. The apple of Apple. It shares dropped by 6%.

Some of that is due to the trade war. A little bit. The other part is due to a new Supreme Court decision by all the guys and girls wearing black robes in D.C. That is making it open season to sue Apple. If you wanted to sue the apps for, apparently this is your chance. Third and final story is the unsexy companies of the day. We have been waiting to cover this. Electric utilities, we never come.

Not the kind of things out there. We have neglected them. I'm sorry. But yesterday was your day. It was the perfect day for the unsexy companies. So we rounded it all out. Before you get into those great stories, Big memo.

We're not talking about Uber's IPO today. No, so we're going to talk about Uber's IPO right now. Uber's stock fell again. And the CEO, Darikos Roshahi, felt the need to send a letter to all the employees to just kind of keep the face. He's sitting on that flight back from New York probably. He's got his laptop out, his business class meal. This letter was not fair and balanced. He was very optimistic.

It was very like, don't worry about the bad stock. This is a combination of mom telling you it's okay that prom didn't work out. And like your coach saying, this lacrosse game isn't over yet, there's still a fourth quarter. The coach is like, look at Jimmy on the bench right now. He used to be on the field. He's on the bench. He's probably going to get on the field again. No personal connection to these stories.

Just that's our vibe off of this. He pointed to Facebook and Amazon in particular and said they had bad IPOs too and look at them now. And then he pointed out and said, you know what, during times of negative market sentiment, the pessimists do all the talking. So he said, we're going to be judged in the long term by our long term performance, and that is okay. And then he said, you know what, I'm going to be back in the office. We're going to have a big team all-hands meeting. The whole company will probably be there. And Dara will answer questions from the audience.

Which means, like, Ned from a county, he's going to be like, um, Dara, quick question, Ned from a county here? What's happening with my stock options? That's what all the employees are wondering. That's the key question. Now, before we get into our key 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.

The snacks about to hear rain food. It's air candy. They don't reflect the views. of robberhood family. It's all informational just so. 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, the Supreme Court just gave permission to all of humanity to sue Apple. Apple is back on the market, baby. If you wanted to sue it, now you don't have to sue it. Now you don't have to choke on your AirPods.

Way easier now. Favorite courtroom movie? A few good men? My cousin Vinny is what I was looking for, but I'll accept a few good men. I feel like that makes me sound really principled. I like going with a few people good men on their phone. It's a really good movie. No, Judge Judy style, we got some good courtroom drama.

Apple stock is down 6%. And the Supreme Court, Washington, D.C., ruled yesterday. That consumers have the right to sue Apple for abusing its App Store monopoly. Now, the reason is this App Store monopoly, Apple is basically like that. toll guy on the road who's just nabbing you every time you try to cross the bridge it's toll booth willie you're like going across you're like i'm just trying to have a nice weekend they're like i just want seven dollars from you actually i just want to download the netflix app and watch some stuff on my phone and every time you buy a paid app in the app store on an iPhone apple takes a cut it's taking a cut

of that and all at monthly subscriptions like on a monthly basis so if you pay 10 bucks a month uh it's going to take 30% of that every cut in the first year and then like later on Boom. 15%. It's still there. Huge fan of Tone It Up, which is an at-home fitness app. Huge fan of Headspace at home meditation app. The triceps.

They're coming along over here. Thank you. Both of those costs like $100 a year. Apple is just taken like 30% or 15% depending on first year or second. So these are examples of like some of the more expensive apps out there where Apple is getting a huge piece of the action. And the app economy is a huge economy, right? And Apple controls the iPhone. So Apple made $14 billion with a B, last.

year on this toll tax situation. Just on this App Store tax. And by the way, in terms of the context of what Apple's actually doing, it's essentially free money for Apple. I mean, look, it built iOS for the iPhone, which is great. Very nice. It built the app store. It did build the road that we're driving the bridge over to get to our weekend getaway situation. But now people kind of need that bridge. And is it fair that Apple can collect money, toll booth, willy style? I don't know.

It's kind of a monopolistic situation. It is. So, Jack, what's the takeaway for our buddies over at Apple? This is a blow to Apple's new services strategy. Now, we've been talking about this a lot on snacks. The transition from hardware, Apple, iPhone sales to software sales. It is a bot-mitzvah-esque transition this company is making. It is, and it's because people aren't buying as many iPhones.

Right, so they need to start making money off the services on all those iPhones we all have. They want you buy an Apple TV. They want you buy an Apple music. They want you buy an ICloud. And this is the key advantage that Apple has over competition like, say, Spotify. Yeah, it controls the app store. It controls the software on your iPhone, and everybody's using the iPhone. So if you're an app producer or, let's say, a company like Spotify, that could be frustrating.

And there's a lawsuit involving Spotify as well. Spotify says it's being treated unfairly in the app store because Apple is pushing up Apple music to the top of the results when it should be pushing Spotify. So Apple has the domination with the iPhone when it comes to phones. The question is how far that will go with apps? And the Supreme Court suggesting it can't behave like a monopoly with the app store. So you can sue Apple. For our second story, Jack, I'm massaged my glutes because the spinning studio chain flywheel is getting foreclosed on by its top like Lender. Skies out, thighs out for the story. Amen to that. Flywheel. Everybody know what flywheel is?

Yeah, why don't we give some context here. It's soul cycle's more intense cousins. Right, it's like soul cycle, you get, you know, the candles, and like you're part of the tribe, and like you ride with the pack. Yeah. Flywheel, it's like, it is a little more chaotic. There's a screen up there. It's saying you're doing 40 beats a minute, and you're not doing it fast enough. So you are living a miserable life if you can't hit the right beats per second.

All right. Nick's had some scars at these two studios. I just want to say Jesse at the Flatiron One. I'm still have nightmares. So we're talking about the high-end spinning studio industry. Soul cycle and flywheel. are the leaders, and they had a strong start in like 2009, 08, 10, 11, 12. You have like 40 studios, they're international for Flywheel, and it was founded by the

Soul Cycle co-founder. And you compete against the people around you, right? There's a scoreboard, and you can see if you're a top performer. Guilt is a powerful motivator. All right. So what's happening with Flywheel and SoulCycle? We might have, we were actually getting ready to like cover their IPOs, but they've all been sort of put off and postponed.

Right. SoulCycle was going to have one in 2015 they first five. In 2018, they put that on ice. And the latest news is that Flywheel's major investor, which is actually their lender, just like, you know, the guy offering you your mortgage for your home, has taken over the company. Yeah, they own 75% of the company. And they basically foreclosed on the company and said, we don't like the way this is going. I'm worried about where this is going. I'm not sure I'll get paid back.

So I'm going to change the direction of the company. Now, we noticed something really interesting here at Snacks when we looked into the news. And it was the way that this company, the investment firm that took over the, that took over the, over a flywheel frame the whole thing. They said we're excited to partner with flywheel on growth opportunities for the at-home flywheel bike. That's a really nice way to put a positive spin on taking over a company and saying its direction is wrong. And we're killing their studio business. Now, the reason we were so focused on this was not just the error of positivity, but the focus on the at-home fly-wheel bike, because that's the reason that flywheel and SoulCycle are in trouble.

Yeah, the second we saw this story, we thought to ourselves, Peloton. Peloton. This is a Peloton story. On my glutes. Peloton is the epic tech company that has taken spin bikes that you see at these studios and put them at home jacked on a little iPad that gives you kind of the in-studio experience at home. And then scale the entire thing internationally. Sorry for sounding all infomercially there, but I had to explain to the snacks audience what this is.

Now, it basically is a combination of first you got the hardware. You've got bikes that they produce and they've got like an at-home treadmill, which they call tread. Right. And then they make software and they also create the digital content that goes on the iPads that you have an instructor. So you're logging on to this physical thing. You've got the bike in your home you got from Peloton.

Boom. Then you've got the software so you can actually follow on with classes. And then how you paying for this whole thing? So the economics is that you buy a $2,000 bike and then you pay $39 a month for a subscription. So this is for like at home, busy people. Maybe you have kids and like need to stay home and get their stuff done at home. Now, this combination of hardware and software means that they've taken the physical studio experience and brought it to home bikes in a really immersive way.

Yeah. Like people are cheering you on on the eye. iPad. You got your headphones on. Yeah, you're like watching. The music is bumping. I'm doing the 30-minute hip-hop class and I see that like Randy over there in, you know, New Hampshire has done, is on his 50th class and they give him a shout-out. And this, you know, venture capitalists see this and they think it's profitable. Right. I'm like, hey, Randy, great. To expand the business, you don't need to build new studios and buy new real estate. You just need to sell more bikes. Now, Peloton's growth has come so fast. It's now planning on an IPO within the next year of this. And it has stunted

the growth of flywheel and sole cycle. And its valuation, as it's expected. in this upcoming IPO is around $8 billion. It's stealing those flywheel customers. By the way, flywheels at home bike that we mentioned before, it's getting sued by Peloton because it's kind of a similar technology. Yeah, it's kind of ripping off the strategy. So, Jack, what's the takeaway for our buddies spinning hard in third's position over at Peloton? Peloton is the Apple of Fitness.

It does hardware, it does software, and it connects. It's all a digital company in the end. They have thousands of videos. We're talking live for those 30-minute hip-hop classes and delayed so I can do that 30-minute hip-hop class later in the day. So Peloton is able to hire the top spinning instructors, the ones who have like cult-like followings, huge Instagram followings, and that just do the best job because they can pay them more. And it turns out a Wall Street Journal interview over the weekend showed that Peloton instructors

feel like they're being treated like pro athletes. They get physical therapy. They get makeup done before they go on camera. They get a DJ to sync their audio. They feel good and they're producing better. And that's a competitive advantage they have over instructors at SoulCycle and FlyW. And if Peloton can do this for spinning, what's next? They got another app that's doing yoga, walking, strength training, and it's only 19 bucks a month.

So they're making money off of where core product, which really isn't bikes. It's content. They're disrupting gyms and studios. For our third and final story, electric utility companies, come on up. You are our unsexy company of the day. Finally, we're talking about electric utility companies. The people have been asking. They are bringing sexy back.

I think they brought it back in with yesterday. We're talking about the least sexy company we've talked about. We're talking about ACDC voltage. We typically talk about like self-driving autonomous meal kit machines. And companies that are doing innovative things. With this subscription model? With a subscription model. But today, it's power lines and telephone poles.

And that like thing in your house you flick when the power goes off that makes it look like a pro because he brought it back on. We're giving love where love is due to these electric companies because they were the only stock. that rose yesterday. The only one's having fun. We're talking American electric power company, which was up 1.3% on Monday. And then DTE Energy based in Detroit, Michigan. The stock was barely up, but barely up was good yesterday. And then New Yorkers might hate this one because you've had some bad experiences with the wait times, but Con Edison, the utility company, boom, a 0.3%. We really didn't want to just be negative on snacks today. So we went out and we look for stocks that actually gained. You want to feel good story. It's the unsexy companies. These were the

Only ones. And we'll tell you why. Now, the reason why these electric utility companies have been a shelter from an international storm. Everybody's talking about the trade war right now. It's an international thing, but it's affecting the prices and companies in the U.S. in pretty much every way. Except there's one exception. Utilities. Exactly. Because when it comes to electricity bills, you're going to pay that regardless if your silly putty from China is more expensive. It doesn't really matter, like, if the economy is growing or not. Everybody pays their electric utility. And then the other kicker is that these electric companies, they essentially have a monopoly in their local markets. Yeah. You pretty much have one choice for your electricity. In fact, if they want to raise prices, these companies have to kind of ask local governments for permission to do that. They're super tightly regulated. Exactly. They're monopolies, which is good for profits, but they're regulated, which is bad. So that's why it's not a sexy company. They don't change much. But we're giving them the attention they deserve. So, Jack, what's the takeaway for unsexy companies of the day in the utilities? utilities are like wearing sweatpants staying in on Friday night and watching reruns so classic not super exciting

sometimes you just need to do that though but you just have it's rainy if it's cold out if you don't want to see your friends just stay home with utility stocks they're straightforward than are less risky and sometimes you just got to do not all the time but yesterday they were the winners jack can you whip up the takeaways for us the supreme court says apple cannot act like a monopoly with its app store Tallbooth Willie $1.25. Second story is Peloton. It is aiming to disrupt the entire gym, not just the spin studio. The Apple of fitness.

And one studio is down. And third and final story, utilities. They're like reruns and sweatpants for stock markets. And that is okay. And they were good yesterday, not good always. No one's judging you. Now, time for our snack fact of the day. This one has to do with a report straight out of like some French muckraking journalism.

It's a French documentary. It highlights Amazon's... destruction zones, which is a term. A real thing. Which is their term. Destruction zones. Maybe a translation thing we're going with. This is when Amazon can't sell stuff from its warehouse and it needs to just get them out of there. Throws them away into dumpsters. Now, according to this reporting, documents show that Amazon destroyed three million

products in France last year. I don't know why we're using the word destroyed. We don't know if it's fire. It just means throw it away. Throwing insults at these toys. Kind of a sensationalist headline there, but I'm all about highlighting waste because waste is brutal. And this was a big number. A couple other big stories happened yesterday. Check out our Snacks Daily newsletter. First, another lawsuit, Tiva Pharmaceuticals is getting sued by 44 states for colluding and lifting prices of generic drugs. And then Impossible Foods, the competitor to

Beyond Meat, just raised a $300 million round of financing. Thank you for snacking with us today. By way, can I throw this in? Investors in that round? Katie Perry, JZ, Serena Williams, and Trevor Noah. All-star lineup. I don't like what you're thinking. Now, remember to send us in some facts today with your name and your hometown at Robin Hood Snacks. Thanks for snack and we'll be there for you tomorrow. Can't wait. 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.