The Best One Yet - ♨️ “The greatest fraud in coffee history” — Luckin plummets 76%. YouTube will rip off TikTok. Altria’s Juul collusion.

Episode Date: April 3, 2020

China’s Luckin Coffee lost $5B in value in 5 minutes on word the company made up its numbers last year. YouTube pulls a Facebook-on-Snapchat and copies TikTok because it wants mobile video. And Marlboro-owner Altria is being told by the government it should reverse that whole Juul investment it made — because it was really a collusion deal.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 3rd. Nick, I'm looking at these three stories. Yep. And they're making me feel like we got some days of our lives vibes. Snackers, cute Gabby Hernandez over there.

The first story is fraud, the second deception, the third collusion. There are no heroes in today's Snacks Daily. Still managed to make this one way better than yesterday's Snacks Daily. This is the best one yet. Our first story is about luckin coffee. And under three years, it managed to surpassed. as Starbucks as the biggest coffee chain in China. Then on Thursday, it managed to lose 76% of its value in five minutes.

Brutal day. We're looking at the biggest potential coffee fraud in the history of coffee. Jack, you know this is why I don't drink coffee. You get the on milk latte, hold the coffee. Looks like, I told you so. Second story. YouTube is planning a new product that looks very nice. It also happens to look a lot like TikTok. YouTube's calling this Operation Tick-Tac because it's basically pulling a Facebook and copying a competitor's core problem. Yeah, it's a situation where they've got some mobile first envy. Kind of feel bad for them. Our third and final story, Marlboro cigarettes, made a huge investment in the e-cigarette giant jewel, basically in order to pre-disrupt themselves. And now the government has a problem with everything Jack just said. We're going to role play how collusion works in business. It's actually adorable. By the way, this breakup is going to be better for everyone. Now, Snackers, Nick and I literally eat economic data.

with our breakfast. You stir up the cold oatmeal, you made it the night before, throwing some maple almond flavored almond butter, and then you get the monthly GDP report to tap it all off. Yesterday morning, though, left an awful taste in our mouth. We got the weekly jobless claims, which have been devastating for two weeks in a row. We're talking 10 million people laid off so far in just the last couple of weeks. And that's probably an underestimate because gig workers, like Uber drivers, they technically weren't employed in the first place, so they technically weren't laid off, but they are out of work. March was bad. April is expected to be worse. It feels like horrendous human damaging economic reports has become the

new normal during this corona economy. And by the way, when we say new normal, new normal is not like very normal at all. Yeah. These are unprecedented times we're covering on snacks daily. But with so much disruption at all of our lives, we want to make the snacks that we serve you every day the same as it's always been. We're basically whipping these things up to be consistent, upbeat, optimistic, and as aggressively self-deprecating as we can be. I want to rip on Nick for being a fancy New Yorker from the Upper East Side as much as possible. I have nothing negative to say about you, Jack. I happen to love that slamming salmon sweater. That's cute. I doubt you'll stay true to that statement. Anyway, Snackers, we want this

pod to be one part of the corona economy that is unchanged for you every morning. Or as you may like to call it, the best one yet. Snackers, thank you for snacking during this crazy time. Let's go make a teapot. Let's hit our three stories. out the way. 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.

You know, we're not recommending any securities. 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, YouTube is reportedly developing a TikTok knockoff.

because it's got mobile envy. So we're looking at when Facebook knocked off Snapchat because that is the perfect parallel copycat of this copycat story. We're talking the old Facebook Snapchat playbook over there, Jack. Now first, let's start with the great social app migration. First, the young people left dry Facebook for the warmer waters of Instagram. Then they left Instagram for the warmer climates of Snapchat. Then they left the warm Snapchat waters for the sunny land of TikTok.

Yeah, that's pretty much. John started. Facebook to Instagram to Snapchat to TikTok. Yep, and YouTube thinks people will leave TikTok for what it's whipping up, which is called shorts. Before we get into the meat of this story, let's clarify, Alphabet is the corporate parent of both Google and YouTube. So if we mention YouTube, Google, and Alphabet, we're talking about the same thing. Shorts, though, is the name of what Alphabet's reportedly new social media service is going to be within the YouTube brand. Now, shorts, its goal is to copy most of TikTok's features. We're talking short. amateur videos, take it on phones only, which means vertical video. It's also a short,

un-clever, way too literal name for an app, shorts, but I guess it gets to the point. Now, TikTok is mobile first, which is why its videos are all in vertical orientation on your phone. And YouTube was founded back in like 2004 out of the desktop era, so everything is horizontal orientation, so it fits nicely on a MacBook screen. And when you're like watching a YouTube video on your phone, you get those funky, like, black things on either side. It's not fun. Yeah, those big black bars. Even YouTube on a mobile phone, like comes with those big black bars at the top and bottom. They're like curtains ruining your watching experience. So YouTube's got mobile envy. That's why they're creating shorts, but it's really a TikTok knockoff. Now, shorts is expected to launch before the end of this year, and that's thanks to reporting by the information, which leads us to a very important question.

Can YouTube rip off TikTok successfully? Yeah, they pretty much can because Facebook was pretty much able to rip off Snapchat. Yeah, Facebook ripping off Snapchat is the perfect parallel. Snapchat's key feature was videos and pictures that expire in 24 hours. Boom, Facebook decided to whip up stories for Instagram, which pretty much crushed Snapchat's growth. So, Jack, what's the takeaway for our buddies over at YouTube? It's easier to get users to try out a new feature than a new product. Snackers, one reason why Facebook was able to snatch Snapchat's growth, its copycat didn't require a new app download. No, Stories was just suddenly right there on Instagram at the top with those circles.

with that awkward like rainbow ring around your profile picture. All one billion Instagram users could suddenly try out Snapchat's core feature. Interestingly, Google kind of has the same advantage. It's got an estimated 3.9 billion Google accounts it can work with. And it'll be super easy for all those 3.9 billion accounts to just try out this new feature called Shorts within YouTube. And that's because Shorts is just a feature inside the YouTube app. Just like Stories was a feature inside Instagram.

We've got a great chapter. 16 to Zuck's book on how to rip someone off. If you're going to rip off someone's product, make it a feature, not a new product. For our second story, this one's wild. Luckin coffee just plummeted 76% because apparently 2019 didn't happen for their books. Luckin just accused its own chief operating officer of fudging their numbers to make the sales look better than they actually were. This is like coming home and telling your parents, yeah, I used white out on the entire report card. Yeah, it's actually pretty easy to turn a D into a B.

Luckin's like, it's like we walked into Luckin and said, you said it was decaf, and they're like, it's not decath. Luckin coffee is a tech company that's also making coffee. They went from startup to IPO in less than two years. This company moves fast. Starbucks, its top competitor, has been in China since 1999, and Starbucks has 4,200 Chinese stores at this moment. Get this Snackers.

In less than three years, Luckin now has 4,500 stores. stores in China. More than Starbucks. Now, Luckin specializes in small stores where you can order your coffee ahead of time through an app and then just run in, grab it, and go. I've done this in Beijing, and it's fascinating. And by the way, they're basically a coffee delivery network, because if you want one when you're on the road, you check the app and they'll deliver to you via scooter. This all sounds pretty exciting, which helps explain how the stock surged from $18 to $50 recently as it announced its next venture coffee vending machines in offices and coughing vending machines in airports. But now Snackers, that stock price is down to just $6,

a.k.a. about the price of a cup of coffee. Here's the reason why. Luckin voluntarily confessed yesterday that it's COO, a guy named Jan Liu, made up a whole bunch of crucial numbers, and now he's being suspended while Luckin investigates the whole thing. Turns out $310 million of 2019 sales, they didn't happen. In fact, Luckin just told investors to ignore all of 2019's earnings. Now, instead of ignoring 2019's earnings, they just sold the stock. The stock fell by 76%. They lost $5 billion of stock value in five minutes. If you're trying to calculate that in other terms like snacks, that's about three quarters of a lift. Oh, by the way, when I say they, I actually mean Nick and me because we still own Luckin' stock, so we took some serious pain yesterday.

Very true. Now, this whole story actually goes back a few months to when whistleblowers inside Luckin, suspected something was shady, and then a group of people started investigating. These charismatic whistleblowers actually got 1,500 Luckin workers on their side and got them to watch 981 stores like a hawk 24-7. They literally had the cameras out. They got 11,260 hours of video footage. The goal of these Luckin insiders was to determine if the numbers that Luckin was reporting to the public were actually true. And then an unattributed group wrote a 89-page paper of their findings that was then leaked to a short-seller. Those findings read like a John Grisham. manuscript meets a CIA report. This thing is incredibly entertaining and devastating to read at the

same time. There's an entire section at the beginning, just called red flags. All right, here's the first red flag. Management at Luckin has sold half of their stock, which is a little suspect since they only IPOed like a year ago. Oh, by the way, a darker red flag. Turns out the chief marketing officer was previously sentenced to 18 months of prison in China. Okay, those are a little shady, but they're just red flags, like not necessarily something bad. You want the smoking gun evidence? Boom, page two. They literally have a section called Smoking Gun Evidence. They read through 25,000 customer receipts, and they found some discrepancies. Turns out the number of items sold per store per day, for example, was inflated by 88% in the most recent quarter. That's right. These insiders

added up the bills of 25,000 receipts, and they're like, that is not what we reported last quarter. So, Jack, what's the takeaway for our buddies over at Luckin? Was this fraud one bad apple, or is the whole bushel tainted. Snackers, China has a command economy, so the central party has orders that are followed. Nick and I have heard reports that Chinese business managers are under such pressure to deliver those orders that it leads to fudge numbers quite often. Oh, and by the way, the Chinese government owns shares in a lot of these companies that have gone public from China. This is why Western investors often take Chinese official government data with a grain of salt. But Luckin has felt different. It's been publicly traded, regulated by the SEC. I...

on Nasdax Exchange here in New York. Honestly, though, a headline like we saw yesterday, Chinese company inflates growth figures, sounds pretty familiar. Yeah. By the way, Snackers, if you're on your Snacks Challenge run, this is a key moment. You're a little over halfway there, so turn around and go back home. For our third and final story, the company behind Marlborough cigarettes is being sued by our government. They want Marlboro cigarettes to undo its investment in Jewel. Yep. The Vaping Giant. Now, a little backer. round here, Snackers. We're going to whip up a little context. San Francisco-based Jewel tried to disrupt cigarettes by removing smoke and basically using vapor

instead. Yeah, and by doing that, Jewel became the dominant leader in the growing smokeless cigarette, aka vaping trend. On Jackson my chart of, like, how to visualize things with musical artists, we're putting e-cigarettes as like the Selena Gomez to the cigarettes Madonna. Now, Jewel's entry was bad for the, like, OG cigarette industry. That's why Altrio, which owns Marlboro Cigarettes, which is also the number one tobacco giant, acquired a 35% stake of jewel. Basically, Altria was trying to pre-disrupt itself. Now, that investment in Jewel has been terrible for Altria, but that's a different story. We're talking about something else today.

Which brings us to rule number one of capitalism in the big book of capitalism. Jack, can you whip up the chapters? Companies must compete with each other, not collude with each other. Competing is when all companies try to make the best product at the lowest price. colluding is when companies chat with each other about prices and they agree not to undercut each other's prices. We're literally talking about getting on phone calls and doing anti-democracy right now. Yeah, we are. Now, it feels to me like Ticketmaster and Stubbubb are definitely colluding that like there's going to be a $20 convenience fee associated with each ticket. Then you got to pay the $5 printer fee and the $2 you just bought a ticket fee, which they seem to stick on at the very end.

Stubbubb's like Ticketmaster, we're good, right? We're not going below $20, right? $20. I don't know what you're talking about, but we're on board. No, it's actually a fact that Russia and Saudi Arabia are colluding right now on oil supplies for the world. And that's because they're not companies based in the United States. They're their own countries, and they're able to do this in the international world. Right. Collusion is illegal in the United States, and the referee who decides whether companies are colluding is the FTC, the Federal Trade Commission. They made an allegation yesterday. They claimed that Altria agreed not to compete in return for a substantial ownership interest in Jule.

Kind of sounds like collusion, and as punishment, the FTC is demanding that Altria undo its $12.8 billion investment in Jule. Now, Altria has a lot of lawyers who are already overworked, but they managed to come up with this response very quickly. We are disappointed with the FTC's decision. We believe we have a strong defense and will vigorously defend our investment. I mean, Jack, there is nothing scarier when you hear someone has a strong defense, dying to see where that goes.

So, Jack, what's the takeaway for our buddies over at Altria? Collusion is hard to prove because companies know that it's illegal, so they avoid having a paper trail. So here, Snackers, is our dramatic, definitely oversimplified reenactment that Jack and I spent zero time prepping. All right, so I'm going to be Altria talking to Nick, who is Joel. Thank you. All right, Joel, you got to stop lowering your prices on e-cigarettes. Stop making your product so good because it's really harming our regular cigarette business. No.

I'll give you $12 billion, though, if you stop. Now will you stop? Okay. Okay, great. We'll make money on cigarettes. You make money on e-cigarettes and we'll both win here. I'm kind of on board for this. Okay, now delete this text message. Burn the hard drive. We never had this conversation. No, you delete them. And then Jule goes and puffs a mango, pineapple, bubble gum flavored vape pen. It's the only thing you got to do if you're Jule. We used a little artistic discretion here, but that's how collusion, which is illegal, can still happen in practice. Jack, can you whip up the takeaways for us over there? YouTube is jealous of TikTok's mobile video dominance, so it's creating shorts. Like stories on Instagram, shorts will be just a feature on YouTube, not a new product. Key distinction. Luckin went from a handful of coffee beans to a $12 billion company in under three years. Really impressive, except that its CEO fudged a bunch of numbers, so its value fell by $5 billion in five minutes. Our third and final story, Marlborough and Jewel didn't want to compete. So they collude it instead to maximize profits. That's the FTC's allegation, but collusion is like kind of hard to prove. Just listen to a phone call we just made. Now, time for our snack fact of

the day. Going to throw this out there. Long time listener, first time barker. We're talking the official profit puppy of Snacks Daily at Robin Hood Snacks. Her name is River. She's our new puppy and she hails from the Mad River Valley of Vermont. I just want to point out she has a racing stripe on both of the top of her head and the bottom, unprecedented in puppy world. She is going to grow up to be a really, really fast puppy. But we raise her because, like, this quarantine situation we have in Vermont, kind of a good time to rescue a puppy. In the meantime, River was able to both pee on Jack's bed and submit this snack fact

that's a three-parter. What do we got, Jack? True story. The middle of that Altria story, River peed on the bed. Okay, this is her first snack fact ever. So she started modest. The smallest dog breed in the world is a chihuahua, which averages, about six pounds. Meanwhile, the largest dog breed in the world is the old English Mastiff at a cool

343 pounds, aka one-fifth of a lift. Now, 343 pounds, that's not the average. That's the biggest dog ever. Unprecedented. But that's a lot bigger than a six-pound chihuahua. In the meantime, if you want more of river, you can get more of river. You don't really have a puppy unless you have a puppy Instagram account. So she's at the Mad River Pup, part Chihuahua, part dachson, And beautiful. Part Australian toy healer, part unknown. Snackers loved being with you this week. This was definitely our best snacks daily yet. Now, many of you have registered for the snacks break, which is happening today at 3 o'clock Eastern time. We're actually at capacity. Thank you for signing up. We hope to do more of them, assuming people don't get scared of like our podcast faces once they actually see it.

Yeah, we'll do one of these again, hopefully, and we'll give you another opportunity to register. Jack, I had a blast. Can't wait till Monday. See you guys then. 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, 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.