Media And Crypto | The Daily Peel | 2/15/22

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Market Snapshot

Inflation and rate hikes and war — oh my! That was the sentiment du jour on Wall Street yesterday as traders struggle to make sense of whatever the hell is going on in the world. With that, markets struggled across the board, leading the Dow to fall 0.49%, while the S&P slid 0.38%, and the Nasdaq lost just 0.24 pts, or 0.00%.

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Let’s get into it.

 

Macro Monkey Says

Real Inflation — Let’s get a few things cleared up. First, inflation is definitely super high; this is confirmed. Second, the metric most commonly used to measure inflation (CPI) is pure garbage (remember “Owner’s Equivalent Rent”?).

So if both of these things are true, how can we be sure inflation is what we think it is? Well, let’s see if companies like Harley Davidson or Walt Disney have anything to say about that.

It turns out they do. As illuminated by the WSJ, consumer-facing firms like the two listed above and many others are finding creative ways to manage inflationary cost pressure… by taking more money from you. Sure it might hurt your wallet, but honestly, some of these strategies are pretty damn impressive.

First, let’s take a look at the company whose logo is ritually tattooed on way too many customers’ bodies. Harley Davidson doesn’t like to raise prices. Their customers are loyal to them, so they want to return the favor with minimal price increases. However, Harley has no problem sneaking in other fees to cover their ass.

Last year, the motorcycle king added a materials surcharge between $850 and $1,500 across all their products to stomach rising costs a little better. And man, did it work out well. Both revenue and EPS beat in Q4, leading to that +20% jump $HOG saw last week.

But for some firms, the loyalty of customers really doesn’t matter. Just look at Disney, whose parks and other product costs might be the most inelastic of any consumer product. The Mouse House eliminated several free services at their (in)famous parks, such as cutting the formerly free airport shuttle service “Magic Express” and charging $15 for fast-pass reservations, which also used to be free.

This allowed the firm to keep base ticket prices the same, at $109, despite the fact that parents of young kids would 100% pay just about any price to visit the “most magical place on Earth.”

But restaurants, unfortunately, find themselves in a totally different situation. Lacking the loyalty and inelasticity that the previous firms wield, restauranters had to get creative. Rather than adding fees or increasing costs, many food establishments have simply kept prices the same but cut portion sizes.

Grocery stores have adopted a similar strategy, and while many customers don’t even notice the difference, the ones that do are pissed. So pissed, in fact, that big dawgs like the Consumer Financial Protection Bureau and Joey B’s administration have started looking into what they call “junk fees.”

It’s unclear exactly what these agencies may do to remedy the issue, but the problem of hiding “junk fees” is so widespread that we could soon see executive action to protect your wallet.

But don’t be surprised if they raise your taxes in order to do so.

 

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What's Ripe

Splunk ($SPLK) — Isn’t it great how rumors seem to move markets more than actual news? Just another layer that makes our world fun, and yesterday’s prime example was none other than Splunk. 

The biggest SaaS company you’ve never heard of was approached by Cisco with a $20bn buyout offer, sending Splunk’s shares on a 9.1% rise up to the acquiring price. 

Analysts aren’t too sure, however, with many saying Cisco is gonna need to shell out more dough to get a deal done. Stay tuned. 

Rivian ($RIVN) — A big part of creating a great company is creating a great team to back that company. For Rivian, that team of backers was already as A-list as it gets, with Amazon and Ford both holding multi-billion dollar stakes in the firm. Some said it was impossible to form a better team of investors, but George Soros (probably) said, “hold my beer.

One of the greatest investors of all time, Mr. Soros’ family office revealed a $1.3bn stake in the pre-revenue EV maker made over the course of last quarter, purchasing 20mn shares. After yesterday’s 6.5% return for Rivian, that one-day gain alone nets Soros roughly $75.8mm. Not a bad way to start the week, but that’s what happens when you have the right capital structure. 

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What's Rotten

Moderna ($MRNA) — Dr. Anthony Fauci, once Moderna and other vax makers’ best friend, is now enemy #1 to these companies. 

America’s Doctor just a few days ago went on CNN and tanked Moderna’s stock price by 11.7% when he said that annual COVID boosters might not be necessary, indicating a fresh dose every 4 or 5 years should do the trick. 

This led to heavy adjustments in analyst assumptions for revenue growth down the line, weighing on Pfizer, BioNTech, Novavax, and others as well. 

Peloton ($PTON) — Peloton must be lost in Six Flags or something because everything about this company is a roller coaster. 

Shares, the news cycle, even the CEO seems to change on a daily basis. In the latest drop off, freshly appointed CEO Barry McCarthy shoved a cork in any conversation around selling the exercise company after he moved from his residence in CA to the company’s home city of NYC and said, “If I thought it was likely that the business was going to be acquired in the foreseeable future, I can’t imagine it would be a rational act to move across the country.” 

Investors cried, and shares promptly sank 5.3%.

 

Thought Banana

BTC & Binance Billionaire — C’mon, you didn’t really think the SPAC boom was over yet, did you? There’s plenty of fun left to be had, and a star-crossed combo of old media and new money is leading the charge.

At the end of last week, it was announced that a 5-year old Chinese digital currency company would be making a $200mn investment in a 104-year old American media firm. Binance and Forbes may not seem like they have much in common, but according to the CEO and Founder of Binance, Zhao Chengpeng (“CZ”), who also happens to be the whale-iest whale in all of the digital currency space with his $96bn, web3 companies will rely on content generation for growth.

$200mn is a whole lot of money and will be used to facilitate Forbes’ planned SPAC merger. $400mn had already been committed by other institutional investors, but Binance’s funding replaces half of that and will make the world’s largest crypto exchange the second-largest holder of Forbes after its public debut.

If it wasn’t clear enough already from things like Crypto.com Arena, FTX Arena, and that crazy-smart Coinbase ad from the Super Bowl, digital currencies are starting to have a real impact on society. Purchasing a massive stake in one of the world’s most-read media outlets has gotta be the most direct iteration of this trend yet.

So yeah, it sounds weird and will likely be even weirder in practice, but sometimes weird is good. Just pray that Forbes doesn’t start shilling sh*tcoins soon.

Wise Investor Says

"Courage taught me no matter how bad a crisis gets... any sound investment will eventually pay off." — Carlos Slim Helu

 

Happy Investing,

Patrick & The Daily Peel Team

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