August 10, 2023 | Peel #519

Silver banana goes to...

In this issue of the Peel:

• China is experiencing deflation with an annual CPI growth of -0.3% for July, indicating potential harm to the economy in the longer term.
• Toast Inc and Celsius Holdings stocks rose, while Upstart Holdings and Roblox stocks took significant hits.
• Dave Portnoy repurchases Barstool Sports from Penn Entertainment; ESPN (owned by Disney) enters sports betting.

Market Snapshot

Happy Thursday, apes.

Not only was it a tough day for markets as a whole yesterday, but an especially tough day for degeneracy assets. Thanks to Penn ditching David (Portnoy) and going the Goliath of ESPN for its sports book, betting and shares in betting plummeted.

You hate to see it, and so did the equities market overall. International macro shakiness has investors on edge while earnings for the day came in mostly weaker, not exactly pumping the adrenaline of bulls out there. The Nasdaq led the way lower with a 1.17% loss for the day as megacap names like Nvidia, Tesla, and Meta dragged everyone else down.

Meanwhile, treasuries joined stocks on their down day, particularly on the shorter end of the curve, with the 2-year rising back above 4.81%. Longer-dated yields like the 10-year and up were down slightly, suggestive of a mild rotation to longer duration assets.

Let’s get into it.

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Macro Monkey Says

The Big D, Deflation

Like when your group of friends tries to stop that one idiot friend from grabbing his keys after ~7 beers, China appears to be the only one not worried about China’s economy.

Just like drunk driving, this can only end well, right? Well, there’s only one way to find out, and as it stands right now, China looks ready to f*ck around.

In recent months, consumer and producer inflation in China have slowly drifted towards, and now into, negative territory. China’s annual CPI growth for the month of July came in at -0.3%, meaning that the country is now officially experiencing deflation.

"... there’s no truly perfect way of measuring economic statistics like inflation."

With the way these statistics are counted, “official” and “reality” likely remain quite different in any country as there’s no truly perfect way of measuring economic statistics like inflation. Now that we’ve got that out of the way…

As we discussed last month, deflation tends to harm economies far worse than inflation. Deflation:

• Destroys consumer demand as goods will be cheaper tomorrow than they are today, in theory, sparking a deflationary spiral
• Adds burden to borrowers trying to pay off a debt balance as, for example, a $100 interest payment to be made in a year’s time is an outlay of more purchasing power than a $100 payment now
• Is symptomatic of an economy in decline rather than growing, which over time, reduces the quality of life across the populous

While that sounds like a hellish nightmare, you’d see in the Soviet Union or the nation of Marx-opia, a 0.3% decline is probably not anything worth tweaking about yet.

Now, given the risks, that doesn’t necessarily mean nothing should be done, but when we take a look at China’s Core CPI, inflation is up 0.8% compared to last year. Maybe the Fed was right about this stuff being “transitory,” but they just got the country wrong.

"Maybe the Fed was right about this stuff being “transitory,” but they just got the country wrong."

Some of the key factors driving the deflation include:

• A drop in exports
• High youth unemployment
• Minimal direct social security benefits for individuals
• A battered and down-trending real estate/housing market

We apes may not be experts on the specifics of the Chinese economy, but let’s ask one question: do those drivers sound transitory to you?

Whether or not the trend of falling prices continues is anyone’s guess, but the minimal reaction from Xi and his boys in the Politburo, the country’s highest body of government and decision-making body of the CCP, suggests they don’t think they’ve f*cked around just yet.

But hey, we’ll find out.

What's Ripe

Toast Inc (TOST) ↑ 14.64% ↑

• If you’ve been to a restaurant before, you could’ve seen this one coming. The now seemingly universal food payment known as Toast has leaped over earnings expectations into one helluva green day.
• For the first time since at least the firm’s Fall 2021 IPO, Toast delivered actual positive free cash flow for the quarter. Revenue topped estimates, too, adding fuel to the flight.
• Sure, the company still posts a fat loss on the bottom line, but Peter Lynch was calling your name on this investment with all those times the waiter walked over with the payment system in hand. Just check the quote below.

Celsius Holdings (CELH) ↑ 20.45% ↑

• Is it hot in here, or is it just me? Not sure, but with stock moves like this, it’s starting to feel close to 100 degrees Celsius.
• Yet again, Celsius Holdings blew away Wall Street on Tuesday with a boiling-hot earnings report. The “functional drink” (basically just energy drink) company topped estimates with $326mn in sales for the quarter, 112% annual growth. Net income to shareholders shot up over 3x to ~$41mn as well.
• Given that you only heard about this thing in the past 3-4 years or so, it might surprise you to learn the company’s been public since the GFC. Following this report, the stock has crossed the +4,000% returns line since mid-decade lows.

What's Rotten

Upstart Holdings (UPST) ↓ 34.24% ↓

• The subject of one of the most (in)famous, humiliating, and zeitgeist-defining 
   had itself a day even worse than Mark Minhervini did following that interview. Please go watch it again.
• Anyway, independent of that sh*tshow, Upstart ramped up the sh*tshow going on within its business after reporting earnings earlier this week. The “AI consumer lender” (I just threw up in my mouth) missed on both the top and bottom lines by fairly wide margins.
• Adjusted earnings were about half of what was expected at $5mn, and those are the BS “adjusted” figures, too. Basically, higher rates, inflation, student loans coming back online, and lack of fiscal stimmy slammed the brakes on any kind of growth for the firm.

Roblox (RBLX) ↓ 21.94% ↓

• Touching grass is back in style, according to Roblox’s recently released earnings report. What’s bad for shareholders is (hopefully) good for the rest of us.
• The online video game/metaverse, allegedly even more addicting than Fortnite and crack cocaine, for those of us under 17, missed on both its top and bottom line without offering much explanation. Using our brains and reality, we can only assume that summer vacation, good weather, and lack of C-19 protocols dragged kids off their screens and into the good ol’ real, physical world.
• Roblox thinks they’re better than you and calls revenue “bookings” like the pretentious nerds they are. Regardless, those bookings came in $4mn shy of the $785mn expected, while losses of $0.46 just missed the $0.45 estimate.

Thought Banana

Mickey Mouse Gets in on Gambling

One of the best to ever set foot on the mean Streets of Wall is shaking the tapes once again. Legendary stock trader Davey Day Trader of DDTG is bringing the tomfoolery so back to markets, and we couldn’t be more hyped.

As of yesterday, Davey Day Trader, who is also the founder of Barstool Sports under what we can only assume to be an alias of “Dave Portnoy,” has repurchased the sports media outlet from (former) minority shareholder Penn Entertainment ($PENN).

What the hell is going on? Just days ago, Portnoy was at his DDTG ways telling people to shut up and buy $PENN shares. Now, they’re separate entities once again.

"... Portnoy was at his DDTG ways telling people to shut up and buy $PENN shares."

There are a lot of moving parts here, so let’s break it down for the apes out there:

• Over a 3-year period finalized only 5-months ago, Penn Entertainment bought 100% of Barstool Sports for $551mn in two payments, mostly to get into sports betting
• With Barstool, Penn racked up a ginormous audience of young betting freaks and “Call Her Daddy” viewers, along with acquiring basically a walking sexual harassment lawsuit in the rest of Barstool
• 5 months and a whole lot of unwanted media attention later, Penn has brokered a deal with Disney, owner of ESPN, as well as Portnoy to…

1. Give 100% of Barstool Sports back to Dave
2. Rebrand Penn-owned Barstool Sportsbook as “ESPN Bet”
3. Get ESPN (and Disney) into the sports betting biz

Simple enough, right?

Obviously, Dave released a rant about the change-up almost immediately. Now that the guy owns 100% of Barstool Sports once again “for the first time in a decade,” according to himself, they plan to shift focus to “content, content, content, content.”

"Not sure if that’s a good or bad thing for civilization as a whole, but it’ll be entertaining for sure."

With no outside investors to worry about, early signs indicate the OG Barstool you knew and loved back in the day. Not sure if that’s a good or bad thing for civilization as a whole, but it’ll be entertaining for sure.

Now, Barstool is all Portnoy once again. Penn is back focused solely on the gambling game and no longer involved (nearly as much) in the media side. And, of course, Disney and ESPN are finally in on sports betting, meaning you can now gamble right alongside Mickey and Iron Man all you like.

Can’t imagine a way for this to go wrong, but regardless, we are BACK.

The big question: How will Penn shares fare going forward, especially among retail traders mostly eyeing Barstool? Will Barstool lean back into its dastardly ways of old? How will ESPN’s foray into betting shape the company from an investor and consumer perspective?

Banana Brain Teaser

Yesterday — By changing the second letter of each word below, you can make another valid word. Can you change each word such that the second letters will reveal an eleven letter word when read downwards? Therefore, what now reads AWPYRNUCEPA will be a real word.

• bake, swap, opal, dyed, arks, snow, lump, aces, melt, spun, rant

Answer: Investigate;

• bike, snap, oval, deed, asks, stow, limp, ages, malt, stun, rent.

Today — What do the following word pairs have in common?

• Tubs, Star
• Jolt, Inks
• Dabs, Czar
• Pint, Ohms
• Beet, Adds

Shoot us your guesses at [email protected].

Wise Investor Says

“Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.” — Peter Lynch

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team

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