QUOTE OF THE DAY
“Snaplications is basically a Snapchat ‘lens’ that gives users the ability to apply for a job … by sending a 10-second snap." — McDonald’s Australia COO Shaun Ruming, explaining the fast food chain’s plans to snap up new talent.
MARKET CORNER
Market Snapshot
- Oil continued its winning streak on Monday, posting a fifth straight positive day. On the flip side, the dollar saw its first decline in three days
- Stocks and treasuries were little changed as investors exercised caution with rising geopolitical tensions in Syria, Russia and Egypt
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Believe It or Not, Airlines Don’t Totally Suck Anymore
Despite endless negative press and miserable, cattle-like plane conditions, passenger complaints against airlines have reached an all-time low, according to the annual Airline Quality Ranking. Alaska Airlines and Delta took the top honors, with reigning four-year champ Virgin America knocked down to third place. Airlines also lost fewer bags, had fewer delays and booted fewer passengers in 2016—all good signs for an industry Americans love to hate.
Denied boardings are down, but they still happen
A United passenger learned this the hard way over the weekend. A viral video shows three "Aviation Police" forcibly removing and dragging a man—later revealed to be a doctor—down the aisle of a plane at the airline’s hub in Chicago. United CEO Oscar Munoz—who was hired to clean up the carrier’s culture—apologized Monday "for having to re-accommodate these customers." Interesting choice of words, Mr. Munoz.
While overbooking is routine in air travel, customers are usually offered increasingly lucrative vouchers before boarding. It’s unclear why United waited until after boarding to rectify the situation. Between this and leggings-gate, it’s no wonder United dropped to eighth place this year...
So why isn’t any of this surprising?
It all comes back to a little thing called PRASM: Passenger Revenue per Available Seat Mile. This is THE premier metric for investors, and highlights the point that every empty seat really hurts the bottom line. Clearly, airlines have a strong incentive to maximize PRASM, and history shows that they will go to great lengths to fill each and every seat (hi United!). So, how do they do this? Enter, overbooking.
But airlines must improve some things to keep the blessed customer happy––and they are laser-focused on improving the "passenger experience". That means meals are returning to economy, WiFi is improving and the middle seat isn’t quite as miserable as it used to be. Improving the in-flight experience may have worked thus far, as shown in the report card, but overbooking is still an issue on passengers’ radar. And when maximizing PRASM goes wrong…boy, does it go wrong.
Whole Foods Could Be Headed to the Chopping Block
After six consecutive quarters of declining same-store sales, Whole Foods (+9.98%) is looking for a life raft. Luckily, activist hedge fund Jana Partners came to the rescue yesterday, announcing a nearly nine percent stake in the Austin, Texas-based high-end grocer. Jana’s first strategic suggestion? Whole Foods should sell itself to help mitigate its "chronic underperformance." Yikes. As more grocers catch on to the organic food trend, Whole Foods’ market share has been eaten away, forcing the company to bail on its target of 1,200 store locations. Last year, it announced a new, smaller concept store called 365, but it may need more than that to turn the tide.
E-Commerce’s Battles Expand to India
Yesterday, Indian e-tailer Flipkart raised $1.4 billion, primarily to expand its technology offering, thanks to Microsoft (-0.23%), eBay (+0.44%) and Tencent. The Amazon (+1.36%) competitor got some much needed dough, but its valuation took a hit. Founded in 2007 by two former Amazon employees (Bezos would be so proud...), the company is now worth a cool $11.6 billion, significantly less than its 2015 valuation of $15 billion. Why? Flipkart is facing stiff competition from major e-commerce players like Alibaba and Amazon, with the latter pledging to spend $5 billion to expand its operations in India. India’s e-commerce market is expected to triple by 2021, and every company is looking to gain the upper hand. Let the e-commerce battle rage on.
What Else Is Happening…
- Two trucking companies will merge to form one of the nation’s largest shipping providers
- The World Bank, WTO and IMF say free trade must be defended in the face of protectionism
- SpaceX has European competition, Avio, which went public yesterday in Milan
- Tesla briefly passed GM’s valuation during trading Monday
Economic Calendar
- Monday: Labor Market Conditions Index (-); Janet Yellen Speaks
- Tuesday: NFIB Small Business Optimism Index; 10-Year Treasury Auction
- Wednesday: Delta Earnings; Import/Export Prices
- Thursday: JPMorgan, Citigroup, Wells Fargo Earnings; Weekly Jobless Claims; Consumer Sentiment
- Friday: Consumer Price Index; Retail Sales
WATER COOLER
Video Game Companies Succeed With Unusual Teams
Demand for video games is at an all-time high with revenue reaching $75 billion in 2016—more than double the amount of global sales for movie tickets. Why the jump? We can thank eSports’ rising popularity. However, the workforces behind this booming industry might surprise you:
- Rocket League, a soccer/racing hybrid game (sounds pretty awesome) is made by Psyonix, which has just 81 employees. Despite the small team, Rocket League has accumulated nearly 30 million players in under two years and hit $110 million in revenue after one year.
- Not only are the workforces small, many of them are also only temporary. "Call of Duty: Advanced Warfare" had a much bigger development team—2,000 people—but over 300 were temporary contractors.
- 34% of the industry is a "liquid workforce," meaning developers are either self-employed, independent contractors or temporary employees.
- Riot Games was the superstar of the videogame industry in 2016. The shop behind League of Legends brought in $1.6 billion worth of in-game revenue with only 2,500 employees. eSports: it’s big business.
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THE BREAKROOM
Question of the Day
You start in the top left corner of a 6x6 grid with the goal of getting to the bottom right corner. You can only move to the right or down. You can't move diagonally and you can't move backwards.
How many different ways are there to get from the start to the finish?(Answer)
Stat of the Day
$2.3 Billion: That’s how much U.S. Customs and Immigration Services has spent to digitize the H-1B foreign worker Visa application process. Spoiler alert: it hasn’t gone well. The surge in demand for expedited visas was too much to handle, hitting the congressionally set limit of 85,000 in just one week. Expedited service can cost applicants anywhere from $2,825 to $6,225.
The Dregs: Yesterday’s story about Netflix incorrectly stated the name of Neil Hunt, who is leaving the company after 18 years. He will not be joining Headspace. We meant to refer to former Spotify Premium director Robert Lamvik, who will be joining the meditation app.
