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In case you missed it:
Salesforce (CRM) just had its worst day in 20 years. 😳
After an unusual revenue miss, the stock fell nearly 20%. Investors were unsure if generative AI is a growth tailwind or a competitive headwind. It also raised concerns about slowing software demand. Most cloud stocks fell in sympathy.
Let’s put recent insights in context with visuals.
Today at a glance:
💳 PayPal: Building an Ad Network.
🛒 Costco: More Than Memberships.
☁️ Salesforce: From Growth to Profit.
🎟️ Live Nation: Ticketmaster in the Hot Seat.
Stay tuned for our biggest monthly report yet dropping tomorrow.
📊 Earnings Visuals May 2024 Edition includes 100+ companies.
This high-resolution report, available only to Premium subscribers, is jam-packed with visual breakdowns of the businesses shaping our world.
Here's a sneak peek at the companies featured in tomorrow’s report.
PayPal: Building an Ad Network
The digital payment giant, with over $400 billion in quarterly payment volume, is entering the advertising arena with a new platform built on the spending habits of its 427 million users.
The company hired Mark Grether, former head of Uber's ad business, to lead this initiative. Uber's ad revenue will reach a $1 billion run rate in 2024, highlighting the potential of this new venture for PayPal.
Here's what you should know:
🎯 Targeted Ads: Leveraging its vast transaction data, PayPal will deliver personalized ads based on your purchases and spending habits, aiming to connect merchants with the right customers and boost sales.
📱 Data Collection by Default: PayPal will automatically collect this data, though users can opt out.
🤝 Merchant Benefits: PayPal's Advanced Offers platform, already launched, uses AI to analyze transaction data and provide personalized deals, showcasing the potential value for merchants.
🔍 Privacy Concerns: The move raises privacy concerns as PayPal will use your financial data for advertising. The company assures users of transparent privacy controls, but the specifics are yet to be revealed.
💰 Revenue Diversification: This foray into advertising follows JPMorgan's launch of Chase Media. PayPal seeks new revenue streams in a challenging context, with active accounts steadily declining.
🔮 What's Next? PayPal aims to shape a new era of "commerce discovery," but success hinges on addressing privacy concerns, maintaining user trust, and delivering value to merchants. While the scale and size of this new business are still unknown, it could boost PayPal’s earnings due to its high-margin nature.
Costco: More Than Memberships
Costco reported its quarter ending in April, with comparable sales up 6.5% after backing out gas prices and currency swings, ahead of the 5.9% consensus. Increased traffic was the main driver. The company has 878 warehouses, 25 more than a year ago, and over 81% are in North America.
E-commerce grew nearly 21%, an acceleration partially attributed to gold bullion sales that started last September. New app downloads grew 32% to 35 million.
As illustrated below, Costco has razor-thin margins, focusing on low prices.
💳 Members Only: Costco counted 75 million paid members at the end of April, up 8% year-over-year. They pay $60 in the US and renew at a 93% rate. Executive members, paying $120 for additional rewards, represented 46% of paid members and 73% of Sales. The last membership price hike was in 2017.
📈 Not the Whole Story: Membership fees remain crucial to Costco’s business model but are no longer the sole driver of profitability. In the past 15 years, membership fees declined from 86% to just over 50% of the company’s operating profit. Costco has shown economies of scale and benefits from a more favorable revenue mix.
Salesforce: From Growth to Profit
Salesforce experienced its worst day on the stock market in 20 years, with shares plummeting 20% after reporting its first revenue miss since 2006. The company's revenue grew 11% to $9.1 billion, missing Wall Street estimates by $20 million.
Here's what you should know:
📈 Record Profit: Salesforce's operating margin reached a record 19% after significant layoffs in 2023, impacting roughly 10% of its workforce. Margin expansion should continue throughout the year, with a projected 20% operating margin in FY25.
📉 Slowing Growth: Current Remaining Performance Obligations—the best indicator of future growth—rose 10%, missing estimates of 12%. The company attributed the slowdown to broader macroeconomic challenges and internal execution issues. However, the FY25 outlook remained unchanged, with revenue expected to grow 9% year-over-year.
🤖 AI Focus: Despite the miss, management emphasized the company’s commitment to generative AI and its potential to drive future growth. Salesforce believes it is well-positioned to benefit from the AI boom, with its Data Cloud contributing to 25% of the deals valued above $1 million.
🔮 What's Next? Salesforce’s margin expansion has been remarkable. Now, the company must demonstrate its ability to maintain growth in a challenging environment and capitalize on the AI opportunity.
Live Nation: Ticketmaster in the Hot Seat
Live Nation Entertainment has a massive influence in the live event industry:
🎸 60% of concert promotions at major US venues.
🎟️ 80% of primary ticketing at major concert venues.
In 2010, the US government approved a merger between Live Nation and Ticketmaster. The Justice Department is now challenging that decision in a fiery antitrust lawsuit.
Here’s what you should know:
🩸 Bad Blood: The chaos surrounding the Taylor Swift Eras Tour ticket sales in 2022 put a spotlight on Live Nation's dominance. Fans faced technical glitches and exorbitant fees, leaving many without tickets and causing widespread outrage. The debacle led to a Senate Judiciary Committee hearing, where lawmakers scrutinized Live Nation's control over the ticketing industry.
🎫 Monopoly Power: Live Nation is accused of locking venues into exclusive deals and bullying artists into using its services—violating a legal agreement laid out when the Justice Department approved the merger with Ticketmaster.
💸 Inflated Prices: These tactics allegedly cause higher ticket prices for fans through various fees (from “service” to “convenience” fees).
💔 Breakup Time: The government demands the separation of Ticketmaster from Live Nation. It doesn’t sound good for Live Nation, as ticketing, while representing less than 13% of revenue in FY23, accounted for more than half of the company's adjusted profit.
⚖️ Live Nation’s Defense: Live Nation denies being a monopoly and argues that its market share has decreased. They claim their size and scale actually lower costs for consumers and blame artists and venues for setting high ticket prices.
🔮 What's Next? This legal battle could reshape the multibillion-dollar live music industry. The outcome could range from Live Nation being forced to divest Ticketmaster to implementing changes in its business practices. Fans and artists hope for increased competition, lower prices, and a smoother ticket-buying experience. But Live Nation won't be going quietly into the night.
That’s it for today!
Stay healthy and invest on!
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Disclosure: I am long CRM and LYV in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
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