Break a leg, Harry Potter

MARKETS

• U.S. markets: Earnings drove markets higher, while the VIX fell 8%. All 11 S&P sectors finished up.
• Hot stocks: Netflix surged 10% after crushing earnings Monday. Twitter rose 12% after winning support from a Morgan Stanley analyst.
• Earnings today: Alcoa, American Express, Morgan Stanley.

AUTO

Musk Continues to Battle His Model 3 Demons

Fifty years from now, historians of the American auto industry will describe two famous assembly lines: Ford's to produce the Model T and Tesla's to produce the Model 3. The former is revered for its innovation. The latter? So far, it's looking like a flat tire.

It gets worse: Tesla (-1.21%) has suspended its Model 3 assembly line for several days. It told workers to take a vacation or stay home without pay.

Trying to play things cool, the company said, ‘Nothing to see here, folks—just a planned break to help us with the bottlenecks and ramp up production.' But based on the company's failure to consistently meet targets, these reassurances don't seem so...reassuring.

Why the Model 3 is so important to Tesla

Yes, we've been chirping about Model 3 production setbacks for months, but Tesla has staked much of its future on its ability to make and sell this electric car.

• Starting at $35,000, the Model 3 is the company's first "mass-market" vehicle (aka one we could maybe afford one day).
• It hopes to boost output to 6,000 cars per week in June. Considering it's only hit around 2,000 so far, that seems like a Herculean task.
• Tesla needs to start making money. Already $10 billion in debt, Musk promised the company would be cash-flow positive in Q3. And you know what they say about Musk's promises...

But there may be a silver lining

China threw Musk (and Trump) a bone by announcing it'll phase out rules requiring foreign automakers to set up joint ventures with Chinese counterparts. And that's great news for Tesla, which is eyeing a Shanghai plant. The last thing Musk wanted was to link up and share tech with a Chinese partner.

So despite the Model 3 problems, Musk should sleep better tonight.

No, seriously. He's "sleeping at the factory" to oversee production. And apparently, his couch looks so uncomfortable, hundreds of people pitched in on GoFundMe to buy him a new one. Keep in mind, he's worth nearly $20 billion...

TECH

Apple Is Launching A New News Service

After consulting with its favorite morning newsletter, Apple (+1.38%) has decided to release its own premium subscription news offering. Wait a second...

The service will combine Apple News with newly acquired Texture—a magazine aggregator that charges $9.99 per month. The result could be your one-stop-shop for Michael Cohen updates.

At least, that's the hope. As Apple looks for more ways to drive revenue, it's been turning to its services division for answers. How's that worked out? Services revenue surged 23% to $30 billion in 2017, and paid subscriptions across all its services grew 58% to 240 million. So...pretty well.

And from here, the iCloud's the limit

Apple continues to expand offerings like Apple Music, iCloud, Apple Pay, and the App Store. And it's breaking into original video content.

What it might cost you: There's no price-point yet. But, if Cook sticks with Texture's $9.99 model, that'll price Apple Music, two TB of iCloud storage, and Apple News at $10 a piece.

PR

In the Wake of Arrests, Starbucks Will Have Employees Undergo Training

Starbucks (+0.67%) is taking a drastic step to improve its image following the arrest of two black men at a Philadelphia store last Thursday. On May 29, it'll be closing more than 8,000 company-owned locations (more than half its U.S. total) to put ~175,000 employees through an afternoon of racial-bias training.

What will that training look like? According to Starbucks, it'll "address implicit bias, promote conscious inclusion, prevent discrimination and ensure everyone inside a Starbucks store feels safe and welcome." Among those helping to develop the cirriculum? Sherrilyn Ifill, President of the NAACP Legal Defense and Educational Fund and former Attorney General Eric Holder.

What prompted the move: Police handcuffed the men after they refused to leave the store following a dispute with a Starbucks employee. They were waiting to meet a third person and hadn't ordered anything yet.

Then, a viral video of the incident sparked protests over racial discrimination that've boiled over to the national stage. And now CEO Kevin Johnson is trying to control the damage.

MARKETS

The Dow Was Feeling Goooood

We're only three days into Q1 earnings season, and the bulls are roaring.

Goldman Sachs (-1.65%) stepped up to the mic and announced a clean earnings beat, making it the fifth bank this season to top expectations. Profits soared 26% YoY and ROE hit a five-year high at 15.4%.

Johnson & Johnson (-0.93%) didn't need baby powder for this one, delivering a rash-free earnings and revenue beat. Prostate cancer drug Zytiga and blood thinner Xarelto led the charge, leaving J&J optimistic about the rest of 2018.

UnitedHealth (+3.57%) wasn't impressed by its Dow counterparts, announcing that profits rose 31% YoY and revenue jumped 13% since last quarter.

What's driving these sky-high earnings? Low corporate tax rates. Analysts said lower tax rates would lead to a big earnings season. And so far, they appear to be right.

What else: The IMF added to the good news, saying the global economy could grow 3.9% this year—that would be its best performance since 2011.

WHAT ELSE IS BREWING

• Nate Silver's FiveThirtyEight is moving from ESPN to ABC News. Both are Disney companies.
• Thirteen crypto exchanges are being investigated by the New York Attorney General.
• Low tax rates helped boost big bank earnings by more than $2.5 billion in Q1 (WSJ).
• One passenger died when a Southwest Airlines 737 made an emergency landing in Philadelphia after an engine exploded.

WATER COOLER

FROM THE CREW

From our office, to your inbox. We’ll keep you in-the-know about all the latest happenings from our perspective.

Irritated Slytherins said J.K. Rowling ‘could never top Harry Potter.' And Rowling said, ‘Hold my Butterbeer.'

Even before its Broadway debut this Sunday, "Harry Potter and the Cursed Child" is already casting love potions. It's the most expensive nonmusical Broadway show ever, costing $68.5 million to produce. And eager Muggles are spending up to $286.50 per act. Yes, in true Harry Potter fashion, there are two parts to this 5-hour spectacle.

Now, we don't know about you, but we're huge Harry Potter nerds. Hardly a day goes by where we don't finish up the newsletter and shout: "DOBBY. IS. FREEEE!"

So naturally, we think it'll be a hit. But we want to hear from you. Do Rowling and her partners cash in on their 31% share of the play's profits? Do they take a page out of Rowling's past successes, when 500 million books were sold and the movie franchise grossed $7.7 billion at the worldwide box office?

THE BREAKROOM

VENTURE THIS RESPONSES
Yesterday, we asked whether you'd team up with The Athletic, a young subscription-based sports website. 66% are out, while 34% see a bright future. Here's what you said:

"Having a good writing team is not enough of a competitive advantage over other sites that are available for free. Social media posts still dominate the sports information world."

"Content is king. With ESPN swinging and missing on just about everything they do these days, people will pay for high quality content with no gimmicks."

SIP ON THIS
If you thought Americans had an issue with gambling, it's time to turn your attention to our friends down under. Australians lose $18.4 billion a year gambling. On a per-capita basis, that's more money than any country in the world.

GUESS THAT LOGO

Breakroom Answers