Fully loaded

MARKETS

  • Global markets: The Mexican peso fell the most in four weeks yesterday after Finance Minister Carlos Urzua unexpectedly gave his two weeks.
  • The Fed: All eyes are on Chairman Jerome Powell as he begins two days of testimony on Capitol Hill this morning. He'll do just fine as long as he imagines the House Financial Services Committee members in their underwear.

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CONSUMER GOODS

Maybe Pepsi Is Okay

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You know this meme?
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Turns out, it doesn't matter whether people ask for Pepsi the first time. Because like Cindy Crawford, Pepsi has capitalized on new products and consumer-driven strategies to prove it's still got it.

Pepsi's latest earnings are a testament to that. Yesterday, the company reported $16.5 billion in revenue last quarter, up 2.2% annually. Adjusted earnings topped estimates. And Pepsi stock (-0.62%) has rallied about 20% since the start of the year.

So how does PepsiCo--a company that made a name selling Fritos, Cheetos, and super-sweet soft drinks--manage to keep people coming back for more even as fat and sugar vanish from the food pyramid?

By embracing change

Last quarter, Pepsi shined a spotlight on healthier, more natural options. As CEO Ramon Laguarta said, Pepsi is "trying to understand much better the consumer."

That means, for example, relying heavily on sugar-free LaCroix competitor Bubly and pH balanced Lifewtr in North America, where sales rose 2% last quarter. (FYI, carbonated water sales grossed over $2.3 billion across the U.S. last year, and flavored water sales jumped 72%.)

Still, Pepsi made a home in the "center-aisle," a region of processed foods that has quickly become the flyover states of the supermarket. That's why it's zeroed in on marketing and new investments.

  • Both Pepsi's ready-to-eat cereals and Aunt Jemima syrup returned to volume growth in Q2 thanks to increased marketing spend.
  • Pepsi unveiled caffeine-boosted Game Fuel--and is selling "every bit" of this gamer elixir it can make.

Bottom line: By pivoting to "healthier" brands and focusing on high-growth groups like sparkling water evangelists and gamers, Pepsi is proving it can keep up with industry-rattling change in consumer tastes.

SOCIAL MEDIA

How to Win Friends and Influencers

VidCon, a confab for online video creators, kicks off in Anaheim, CA, today. Imagine Shark Tank, but the entrepreneurs are online platforms, and they're pitching Emma Chamberlain instead of Mark Cuban.

Facebook is one of those platforms competing for video content that's especially popular among young people (over 40% of VidCon attendees are under 18).

And yesterday, Facebook (+1.76%) revealed new avenues for creators to monetize by a) improving ads on Facebook Watch b) streamlining its brand collaboration function and c) offering features that allow fans to pay creators directly.

  • Facebook Watch said it has more than 720 million monthly users...which is impressive until you remember that YouTube has 1.9 billion logged-in users who watch video monthly.

And while YouTube may be the frontrunner, there's a scrappy upstart on Facebook's right flank: Patreon. A platform that connects creators with supporters, Patreon takes a much smaller cut of subscription revenue than YouTube currently does and Facebook plans to.

Bottom line: Right now, YouTube is the go-to for launching a video career. But as part of Facebook's reinvention, it's aiming to become your destination for unboxing and makeup tutorials.

INVESTING

On the Hedge of Glory

Give your most refined golf clap to hedge funds, which reported their best first half to a year since 2009 thanks to a stock market rally that favored the bold.

Overall, funds jumped 5.7% from January through June, per Hedge Fund Research. Equity hedging funds gained 9.4% to earn bragging rights as the best-performing strategy.

Breaking it down a little further:

  • Activist hedge funds (think Bill Ackman's Pershing Square or Nelson Peltz's Trian) rose 11.4% in the first half.
  • Pershing alone returned more than 45% to come back from four straight years of losses.

This is the turnaround hedge funds needed. Last year, violent waves of volatility delivered hedge funds something far worse than a mouthful of Long Island Sound water--funds tallied their worst yearly performance since 2011.

But it's worth noting: For all their Ferragamo-clad glory, hedge funds as a group still aren't outperforming the S&P 500--that benchmark index returned almost 19% in the first half of 2019.

MEDIA

HBO Max Finds Its Lobster

HBO Max, the streaming service AT&T's WarnerMedia revealed yesterday, is paying a reported $425 million for the exclusive rights for Friends when the show's deal with Netflix expires in 2020. At least Monica can finally afford that apartment.

AT&T, though, can't afford to watch other heavyweights like Disney and NBC invest in their own direct-to-consumer streaming services without planting its own flag. So it's launching HBO Max next spring with 10,000 hours of content--both originals and classics.

  • Originals will include projects from David Simon and Anna Kendrick, while classics include Pretty Little Liars and The Fresh Prince of Bel-Air.
  • HBO Max is expected to cost more than HBO Now's $14.99/month. For reference, Disney+, coming this November, will cost $6.99/month.

So what about Netflix? It'll have to retool as it loses its two most-watched shows of 2018: Friends and The Office (Michael Scott's headed to NBCUniversal in 2021).

And now, the question that will ruin friendships...The Office or Friends?

AUTO

The Bug Runs Out of Love

Later today, the very last Volkswagen Beetle will be produced at a plant in Puebla, Mexico. It may not have been the sexiest car, or without some historical baggage with Nazi Germany, but the Beetle definitely left its mark on...

Your brother's arm: No punch backs.

Advertising: VW's famous 1960 campaign included the iconic "Lemon" spread, which some call the greatest ad of all time; Ad Age, for one, called it the Advertisement of the Century. It also marked the beginning of what ad people call "concept-based advertising."

Design: The car may look like a pile of fenders now. But when it was first developed, the Beetle was among the best-constructed and most space-efficient cars. It was created for mass appeal and distribution in postwar Europe, when ordinary people on the continent needed something reliable.

Attempted comebacks: Hoping to stir up nostalgia in 1998, Volkswagen released the "New Beetle." But the revamped version couldn't manage to recreate the original's staggering popularity. VW tried again in 2012, but by then it was Golf season.

WHAT ELSE IS BREWING

  • Ross Perot, a self-made Texas billionaire, philanthropist, and two-time presidential candidate, died yesterday. He was 89.
  • Marriott (-1.26%) faces a proposed $124 million fine from U.K. regulators for failing to protect customer data. Those GDPR enforcers are feeling bold this week.
  • IBM (-0.88%) has completed its $34 billion acquisition of software company Red Hat, a deal first announced last fall.
  • France plans to implement a new "ecotax" on plane tickets starting next year. Revenue will go toward funding environmentally friendly policies.
  • President Trump can't block critics on Twitter under the First Amendment, according to a ruling yesterday from a federal appeals court in New York.

BREAKROOM

Blind Data
New research from Stanford University illustrates how one social phenomenon has changed over the decades. Can you guess what it is? (Focusing in on the red line will help.) Picture

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Breakroom Answers


Blind Data
This chart shows the different ways couples have met. The red line is "met online." The blue line it displaced as No. 1 is "met through friends."

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Jul 10, 2019
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