Facebook Is Losing Popularity In A Key Demographic, Plus Did Philly’s Tax On Soda Really Work?

By 08.23.17

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“Politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes but in a manner that is broadly similar to 1937.”

Grim words from Ray Dalio. Someone want to give this guy a cookie or something?

Market Snapshot

  • The Dow had its best single day performance since April 24th as tax reform picked up steam.
  • Defense stocks rose after the President’s pledge to continue engagement in Afghanistan.
  • Oil prices got a boost with news of reduced crude inventories.
  • With no update from Jackson Hole, the dollar held steady.

This Soda’s Flat

In January, Philadelphia became the first major American city to institute a sugary drinks tax of 1.5 cents per ounce. That amount might seem insignificant, but it resulted in a dollar price hike for some 2-liter bottles.

As expected, the beverage industry attacked this “soda tax” like a piñata. Like Pepsi (-0.29%), which blamed the policy for nearly 100 layoffs and a 40% sales drop in the city.

But eight months in, we’ve got our hands on some data.

So has the tax accomplished its goals?

Well, if the main purpose was to generate revenue for city programs like pre-K and libraries, then no. Philly came up about 15% short of its target.

Ok, that must mean Philadelphians must be drinking fewer sugary drinks, right? Not necessarily—they might just be buying soda elsewhere. Although carbonated soft drink sales decreased by 55% in Philly grocery stores, they rose by 38% just outside the city’s borders.

But there’s another way

Enter Singapore. The country of 5.6 million doesn’t have a whole lot in common with Philadelphia, but it does share the belief that sugary drinks are really bad for you.

And while Philly has all but declared war on the sugary drinks industry, Singapore has taken a foot-in-the-door approach to this sticky situation. Yesterday, the government announced yesterday that seven major soft drinks companies (including Coca Cola) have agreed to reduce sugar content in certain drinks to 12% or lower by 2020.

Companies playing nice with politicians? That’s weird…why? Because they’re not dumb—and are well aware that in 2017 less sugar often means more business.

So take your pick: Singapore’s campfire sing-along or Philly’s fiscal sledgehammer?

Dislike 👎

While Mark Zuckerberg was out on the campaign trail (just kidding…maybe), Facebook (+1.11%) was losing ground with key pimple-faced customers. EMarketer predicts that 3.4% fewer teens aged 12-17 will use Facebook this year than in 2016.

No, it doesn’t mean they’re foregoing Facebook for wholesome outdoor activities like tag and stickball. They’re still spending time on social media, but instead of Facebook, it’s Instagram and Snapchat (+7.00%).

Still, about a quarter of the earth’s population has Facebook accounts, not to mention Instagram’s 700 million monthly users. Still, it’s clearly more important than ever for Zuck & Co. to build rapport with younger users. Because as they grow, so will their wallets.

Dear Mark: 2020 is three years away…might we suggest focusing on your company’s approval rating?

Up the Food Chain

Unless you’re getting that chicken parmesan from a local hipster’s backyard farm, your dinner is sourced from a complex supply chain involving many countries, dozens of suppliers, and tricky cold-storage transportation.

With this many steps, a lot can go wrong—and very often, it does—so IBM (+0.47) is teaming up with some of the largest food companies in the world (Nestle, Unilever, Tyson, etc.) to better monitor the supply chain. Product recalls can be a disaster for companies as well as for the unlucky recipient of that bad burrito.

For IBM, blockchain is the key. You may think of it as that complicated, (but transformative) new tech that acts as the backbone of bitcoin. But that’s just one application. In food, blockchains will be able to trace and connect every single point in the supply chain.

Paper Jam

Across corporate America, seasoned veterans are being replaced left-and-right by tech-forward executives.

And why would newspapers be any different? The Los Angeles Times brought in a new chief, 54-year-old Ross Levinsohn, to guide the publication to the digital promised land.

But the Times might need a little more “push” than “guide.” The CEO of parent company Tronc (+5.31%) has admitted, “We haven’t really progressed to where we need to be.”

No, not really. Tronc, which rebranded last year to promote its online content, saw a 9% year-over-year decrease in Q2 digital ad revenue. It’s not alone—even the big boys are hurting—the New York Times reported a 2% decline in total revenue last year.

So into this fiery newspaper hell steps the digital media veteran Mr. Levinsohn, who has a MySpace acquisition and Yahoo exec seat to his name.

You’re our only hope, Ross Levinsohn. You’re our only hope.

What Else Is Happening…

  • The WSJ reports that Chevron (+0.57%) CEO John Watson intends to resign.
  • LG (-0.13%) will build a production facility outside of Detroit to supply electric vehicle components.
  • When it comes to installing robots, there’s China and then there’s everyone else.
  • The brain drain from Uber continues as Jeff Jones leaves to head up H&R Block.

Economic Calendar

  • Friday (August 18th):
  • Earnings: Deere & Co (+), Estee Lauder (+), Foot Locker (-)
  • Economic Calendar: Consumer Sentiment (+), Baker-Hughes Rig Count (-)
  • Monday:
  • Earnings: No Events Today
  • Economic Events: No Events Today
  • Tuesday:
  • Earnings: DSW (+), Intuit (+), Salesforce (+)
  • Economic Events: Redbook, House Price Index (+)
  • Wednesday:
  • Earnings: Express, HP, Lowe’s, Williams-Sonoma
  • Economic Events: MBA Mortgage Applications, New Home Sales
  • Thursday:
  • Earnings: Burlington, Dollar Tree, GameStop, Perry Ellis, Staples, Michaels
  • Economic Calendar: Jobless Claims, PMI, Consumer Comfort Index, Fed Balance Sheet, Existing Home Sales
  • Friday:
  • Earnings: No Events Today
  • Economic Calendar: Durable Goods Orders, Baker-Hughes Rig Count

Water Cooler

Brewified Term—Share Repurchase

A share repurchase is a company’s decision to buy back its own shares from the public in order to reduce the number of outstanding shares.

Company Basics

Let’s say you run a hot-shot newsletter company that we’ll call the Borning Mrew (BM for short). After a lot of positive news, your stock price hasn’t budged, so you decide shares are undervalued. You’re optimistic about the future of BM and want to allocate BM’s excess cash. One option would be to buy back stock and reward your stakeholders.

One Step Further

There are major implications to a stock repurchase. Let’s talk financials. On an income statement, a buyback will reduce your shares outstanding and consequently increase your EPS (remember, EPS = earnings/shares outstanding). On a balance sheet, your total assets will decrease by the amount of cash you decide to spend by repurchasing these shares. Since every share you repurchase becomes retired and cancelled (i.e they have no financial value), shareholder equity will decrease by the same amount.

Real-world application

Companies that routinely repurchase shares are able to increase earnings per share at a faster rate than would be possible through strictly operational improvements. One company that has repurchases down to a science? Apple. Read more about its successful strategy here.

Breakroom

Question of the Day –

What is the maximum number of pieces that a circular pie can be divided into by four linear cuts?

(Give Up?)

Who Am I?

  1. I am passionate about connecting average investors to IPOs.
  2. My shoe size is 22.
  3. I invested in esports team NRG eSports, which competes in League of Legends and Counter-Strike.
  4. I am a 15-time NBA All-Star.

(Any guesses?)

Stat of the Day

1.49 million

The number of U.S. households that could be powered by Bitcoin mining, according to Digiconomist’s Bitcoin Energy Consumption Index. Intensive mining operations for the cryptocurrency consume about as much energy as the country of Tunisia.

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