The Best One Yet - Snapchat’s 2 biceps of tech, WeWork’s pre-IPO debt-a-palooza, and the big minimum wage report

Episode Date: July 9, 2019

So far in 2019, Snap’s stock is up 160% — we’re looking at the 2 biceps of tech powering that silent comeback. WeWork wants to IPO, but first, it’s taking on some debt. A lot of it. And it’s the same strategy as a college athlete going pro. And the Congressional Budget Office’s minimum wage report reveals some key insights on the nation’s paycheck policy if everyone made $15/hour.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 is Tuesday, July 9th. And we got a T-Boy the best one yet. This is actually the best one we've ever done in July. Three stories today. First, we noticed that Snapchat tripled the stock since February. Not too shabby. Unbelievable. It's staging a silent comeback. It's focusing on two keys here. The two like biceps of tech. Boom. Growth and engagement. There you go. Second story is WeWork. It wants to IPO later this year. Who doesn't? But it's reportedly doing something else first. borrowing a casual $4 billion. A little IOU. By the way, if you're wondering why the strategy, blame Uber and Lyft for the strategy plans. The third and final story is the Congressional Budget Office. It just analyzed the $15 nationwide minimum wage proposal. It makes it a perfect opportunity to jump on to minimum wage discussions right now.

A little bit of good public policy. Now, before we get into all that, we got to talk about a report that we just noticed here. Yeah, the report summarized in four words. Spoiler alert. The rent is too damn high. Shocker. We're paying it every month, we're aware.

The nationwide average rent among, like, millennials who are renting is $1,190.30. If you're in San Francisco and you're trying to buy a home, first of all, don't live in San Francisco. Yeah, $1,190 is not the rent in San Francisco. It's going to take you on average 40 years to save enough for the home. For a down payment, just for a home. Just for the down payment. Clearly, people need, like, rent, and they'd love in a more affordable option than, like, the arm and leg you pay in San Francisco.

Sounds like a challenge. Sounds like an entrepreneur could come in here, and apparently they did. So we're talking about this company called PodShare, which basically specializes in glorified bunk beds. They're renting out like one of their 220 bunk beds in a communal home for $1,200. And then to describe the whole thing, they're just throwing a bunch of buzzwords together. A mentorship based housing through the cloud. I don't know what that means. What is that?

It's kind of confused. It's a glorified hostel that comes with like a free Netflix account. This is like, we work for housing, except if we work didn't care what the things looked like. If you don't have a buddy whose couch you can bump. And you have an affinity for plywood and you have $1,200 and want to, like, make it in San Francisco or New York? This could be an innovative option for you. Odd share might be the best job. In the meantime, listen to these keywords and then why don't know.

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 ain't 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, Snapchat is going through a silent turnaround. It's a silent Cinderella. We didn't see this one coming. No one saw this one coming.

No, it's been a great like five months for Snapchat shareholders. By the way, highlight we noticed, if you go to the Snap investor page, they refer to themselves in the third person. Snap is a camera company. That's what they used to call themselves. Well, that's what they still do call themselves. Which is strange because they're not really a camera company anymore. They're like a Netflix that's turned vertical and it's free. And they're also a bit mojic.

We're digressing a little bit though. Yeah. A little context here. Context, Snapchat has 190 million daily active users. And then this stat is wild. It is popular with Gen Z. It reaches 90% of all Americans between the ages of 13 and 24. Now, if you've been following Snapchat for the last few years like we have,

you've noticed they've been struggling because of the old Facebook copy game. Yeah. Snapchat basically got robbed by Facebook. which created Instagram Stories, which was basically Snap's entire business model. Snapchat came out with great ideas. Facebook kind of ran with them and used them for their whole larger audience. So the stock got depressed. It got down to $5 per share, which is way below the IPO price.

But meanwhile, Jackson, Vermont jumping off a dock. I'm in Hawaii trying to figure out how far I am from the mainland. That's when this weekend we noticed that the stock has nearly tripled since February. The stock is now trading near a highest point in a year. An analyst have been upgrading the stock for two key reasons, which we're calling the biceps of tech. Left bicep, what you got? Growth. Right bicep, what you call it. Love it. Run with that, Evan Spiegel. Now, you'd better have at least one of those biceps, but Snap is flexing both right now. Okay, so the first one we're going to focus on is left bicep growth.

Right. Growth is just getting more people to use your app in the case of SNAP. And some key initiatives that Snapchat's whipped out in the last few months, for example, a new fancy filter. The highly successful gender swap filter. We've all seen this. I turn into a woman. You could turn into a man, vice versa versus visa. Well, guess what? That viral feature caused daily downloads of the Snapchat app to double from 600,000 to 1.5 million per day. Wild. And then, just because Snapchat wasn't satisfied, they also whipped out a new app on Android, which got the number of snappers people snapping. That wasn't even like a new feature. That was just upgrading the app so it was less derpy. As the tech industry would say. And that increased the number of people snapping by

six percent. Jack, that's the left bicep. Can you roll up the sleeves, try to get a vein going, to show me what the right bicep looks like? I guess that's what it looks like. So engagement is getting existing users to use your product more often. And Snap's doing it with its games. Exactly. And not just any games. It just came out with more games focused on Bitmoji, which is like the avatar-like emoji-ish thing that's a better looking version of yourself that they bought the other year. A cuter version of yourself. It's the whole reason behind all of social media. Bitmojy. So the first game, it unveiled was Bitmoji Party, but Bitmoji Tennis, which it unveiled last week, has been hugely

successful. Now, this is like Nintendo Wii meets like your emoji tech situation. Yeah, you're like playing tennis on your little smartphone. With your phone, you kind of look like an idiot, but it's okay. With your friend who's on the other side of the neck. And then you can tap the microphone button and start yelling, you know, stuff to distract them while you're doing this. So it's kind of like you're actually playing tennis, but you're sitting on the couch with your friend. Which is perfect. I guess it's a four-on workout. And this successfully keeps you in the app longer, which is what engagement is. Exactly. So, Jeff, What's the takeaway for our buddies who are thriving over at Snap?

So step one and two are growth and engagement, but step three is crucial making money. Exactly. Growth and engagement set you up for monetization, but once you monetize, you have to capitalize it. All right, so Snap has more people in the app. It's got people using the app longer. Now they need to squeeze advertising money out of that success. Now, analysts have been noticing they've been getting better at doing this. In the first quarter, revenues rose 39%. Second quarter earnings is coming up soon. Profitability has never happened, and that's kind of step four for snap. For our second story, WeWork wants to go public with an IPO, but first it's stopping and it's going to borrow some money.

Now, WeWork is the co-working icon, which is turning into a lifestyle real estate guru. We like the new name change. Called the Wee Company. Works nicer on a shirt. Or, as the Wall Street Journal refers to it, very bluntly, a money-losing office-based manager. Jesus. That's the German way to describe what WeWork is. Wall Street Journal.

objective. Aggressive. Now, a reminder, we work wants to IPO because it's still a privately held company. But then we just heard this Wall Street Journal report that they want to borrow, you know, just three to four billion dollars before the big event. It's rare that a company would take on such giant amounts of debt prior to an IPO. Now, keep in mind, the point of an initial public offering is not just to get your shares out trading publicly as a private company. That is one reason. The other key reason is you actually raise money by issuing new shares. Right. So instead of raising money through stock issuance, the raising money, through debt issuance. And that's because they're still not ready to talk to public stock investors. It's like some high school kid is like, hey, mom, I need to borrow some money, but then he's

getting some money from dad too on the other side without telling either of them. It's kind of a weird situation. We've all been there. Now, interestingly, the CEO and co-founder of WeWork, Adam Newman, said that his company should be treated, quote, unquote, like a tech company. But we jumped into this one snack style. And when you look at WeWork with another lens, it is not a tech company. No, not at all. Let's walk through the business model a little. Okay, it signs entire office buildings. It signs leases so that it can like, we workify them. And then they bring in the construction companies and the engineers.

They renovate the interior of like entire 30, 40, 50 story buildings. Aggressively. They reworkify the whole place. They chop up like entire floors into tiny little units. So it could be, one could be just a desk, one could be a room, or you could rent the entire floor. It's a millennial safe space that's perfect. So to make it millennial worker friendly, they'll rewurcify the interior. One popular theme is naming every section like a neighborhood of the city.

It's a classic. Also, you got to have the neon sign that has something motivational, like stay sharp, which is a little ambiguous. It's work hard, play hard,ish kind of. And finally, you'll discover that there's lots of little curated areas that seem just perfect for sitting down and having a productive conversation. Or you can nap because you can nap too. So after spending gigantic amounts of money, we workifying these buildings, finally, only then do they start making money by charging rent. All that fancy wallpaper and all that we workifying, that is expensive. Yes, it's real estate. It's pretty much the opposite of tech.

Exactly. And it's not just real estate. It's reworkified real estate. So, Jack, what's the takeaway for our buddies over WeWork? This is like staying in college one more year before deciding to go pro. Just look at Uber and just look at Lyft. Both went pro this year with IPOs, and it's been kind of ugly for both. Their stock prices, Uber and Lyft, they're both below the stock price that they IPOed with.

It is not a good look. Now, WeWorks deciding it's going to take one more year, improve its skills, get its free throw game down. So that maybe it can make some profits. And that's exactly why it's borrowing some money before it IPOs. For our third and final story, Jack, yes. You with me? I'm here. Question for you.

Go. What would happen if we raise the national minimum wage to $15 an hour? That is a philosophical question. It's our third story. It just got real. It's our final story. Now, the CBO is the main subject of this story. The old congressional budget office.

Basically, when a politician has a crazy idea and they ask, can we afford this thing? Jerry, call up the CBO. They call up the CBO, which is a room full of calculators. Now, at Snacksdale, we've never covered the CBO. Right. But we got to give them a little credit. It is a nonpartisan public policy organization. It's part of the government.

It's based in D.C. I love this description, though. And they analyze proposals. They crunch numbers and they say whether something is doable. It's a room full of calculators. There's a proposal right now by Congress, and they need a bunch of calculators. They're questioning. One thing. Should the national minimum raise be waged? And that's the proposal in Congress right now. Should it go up to $15 an hour by 2025?

Right. Democrats are about to propose the Raise the Wage Act, which would more than double the nationwide minimum wage, which is currently at 725 an hour. And it's been hanging down there since like 2009. It's like a total joke. We're talking pre-Snapchat. And because of that joke's status of the minimum wage law, 29 states have gone ahead and done their own thing. That's the trend right now. They've increased the minimum wage to be higher than the. federal level. Right. So that's when the CBO comes in. The CBO is proudly. They're going to give us the scoreboard. Basically, who wins and who loses from the raise the wage act if it got passed into law. Think of the CBO as the referee who's just looking at the core numbers here. So the winners, 17 million people would get a raise to $15 an hour if the federal minimum

wage was increased to this $15 amount. And 10 million more workers would probably get a raise too because they were making, you know, close to 15 and they got to get a raise. That's the interesting key that you got to think about. Because if someone was making, let's say you're a line cook and you're making minimum wage at McDonald's, if your manager is making a little more than you, then when the minimum wage goes up to $15, that manager here or she's got to be paid a little bit more too. Otherwise, it's just awkward. And it's kind of weird. And so the losers of a new minimum wage increase would be the 1.3 million people who the CBO estimates would lose their jobs because of this. Let's say you're running that particular McDonald's branch and you notice, hey, now I got

to pay two line cooks $15 each. Maybe I'll start investing. and some automation and have these robots flipping the burgers instead. It could definitely replace some human workers with robots. Now, there's a key caveat here. Yeah, nobody knows what's going to happen with this law. That's always the a asterisk in the CBO reports. You can't predict the future. This isn't a back-to-the-future movie.

Not even the CBO can do that. But the CBO is a good place to start to think about it. So, Jack, what's the takeaway for our buddies at the CBO and the potential minimum wage increase? Well, we haven't talked about stocks yet, but higher minimum wages hurt stocks in the short term, but could be good in the long term. Naturally, the first thing you think of when the minimum wage goes up is that costs go up. And that means wages could hurt profits. And that's what Republicans have been highlighting. Right. Republicans tend to highlight that. And you know it. McDonald's has been lobbying against minimum wage increases for years. But higher corporate cost of wages, that could be offset in the future by revenues from consumers who now have a little more money in their pockets, as the Democrats have been pointing out.

Right. So if minimum wage increases, we just heard from the CBO, 27 million people are going to be making it rain with their higher. paychecks, breaking it home. That's going to be new business for new businesses. If this law passes, McDonald's may have to spend more because of it, but it could end up earning more because customers have more money. Jack, can you whip up the takeaways for us over there? Snapchat is improving in growth. It's improving in engagement. And now it's time for money and profits. Gladiator had Argento and Scott O is his horses. Apps have two biceps. Engagement and growth. Boom. Number two. We work might be staying in college one more year before going pro with its IPO. And that's why point the unusual move of borrowing some money before the IPO.

Third and final story, a $15 per hour minimum wage would definitely cost companies money in the short term, but it could make them money in the long term. And that's why we're talking to our buddies over at the CBO. Now, time for our snack fact of the day. This one sent in by Eduardo Gaetan from Bogota, Colombia. Great area. Zona Rosa fantastic. So he tells us that the gigantic island of New Guinea has by far the highest concentration

of languages in the world. We're talking 1,000 out of the world's 6,000 languages are crammed into an island that's just a little bit larger than Texas. That's a pretty big island. And he also sent us a backup factor. Well, we were impressed by both. You might wonder how 1,000 languages could be spoken on one island. Nearly half of those are spoken by fewer than 500 people. Now, clearly Eduardo was doing some weekend reading for July 4th.

Sounds like you had a little time off. Yeah, he was definitely reading guns, germs, and steel. Which is where the stat comes from. By our buddy, Jared Dunn. Now, a key story we're covering in our snacks newsletter. Amazon Prime Day. It starts in a week, and the competition is already getting ready with competition. Targets come out with some key numbers about what it's going to be discounting.

Snackers, thank you for snacking with us today. Great Tuesday. We'll be back with you tomorrow morning. Can't wait until once. As always. 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.