Spotify Unable To Turn A Profit On Their Free Users, Plus Gannett Gunning To Buy Tribune Publishing

morning-brew1111211

“Who throws tantrums? Two-year-olds throw tantrums” — Former Federal Reserve Governor Bob Heller, who feels that the Fed shouldn’t back down on a June rate hike just because it has the potential to upset the market. Yes, Heller is comparing the Fed to a parent and the market to a crying baby.

MARKET SNAPSHOT

Big Picture

  • U.S. stocks finished lower, with the utilities sector hit hardest as fears of a June rate hike dampened the appeal of dividend-paying stocks (a majority of the utility sector)

Alternatives to Watch

  • The aforementioned rate scare caused gold to drop to three-week lows as the cost of holding gold increases greatly when the dollar grows stronger

Market Movers

  • Shares of both Apple and its suppliers finished significantly higher after reports surfaced that the iPhone creator just put in a massive order for between 72-78 million new phones

__________
CORPORATE PRIMER

Hot Off the Press

People may not be reading newspapers, but they’re sure reading about them: yesterday, Tribune Publishing (owner of, you guessed it, The Chicago Tribune) rejected yet another buyout offer from media giant Gannett (the largest U.S. newspaper publisher). Gannett has been relentlessly pursuing an acquisition of Tribune, and this new offer was the highest yet, at $475 million. If that’s not hot enough for you, a new player has entered what is now a love triangle: billionaire entrepreneur Patrick Soon-Shiong, who will be issued 4.7 million shares of Tribune at $15 a pop—adding another obstacle to Gannett’s pursuit which would now have to acquire Shiong’s shares. Expect to read more about this in the papers in the weeks to come.

That “All In” Life

Y’all were sleeping on Bayer, huh? Time to wake up—the unassuming German pharmaceutical giant just confirmed an absolutely massive, $62 billion offer to acquire Monsanto, which would create the largest agrochemical company on the planet. Monsanto executives are open to the offer, but were actually hoping for a slightly larger number. On the other end, numerous Bayer higher-ups are concerned that if the deal is accepted, the combined company would focus too much on the unpredictable, ever-changing agrochemical market and not its pharmaceutical guns. Bayer took the risk, spooking investors who worry that Bayer would need to take on too much debt to make the deal happen. The reward? TBD.

Tencent Wants To Go Mobile

Mobile games…we’ve all been there. You just looked at your phone to answer a text…one hour later, your troops are laying siege to your friend Billy’s supply base. Tencent, one of China’s largest internet holding companies, is capitalizing on the addiction we know all too well. The company has confirmed interest in buying a majority stake in Supercell, the Finnish company responsible for games like the smash hit “Clash of Clans” and “Boom Beach.” Tencent owns U.S.-based Riot Games (makers of the hugely popular PC game “League of Legends”)—so why would it want Supercell? Here’s our ten cents: why not?

Fiat’s Foul Play

Is anybody in the auto industry honest anymore? Last fall, we saw Volkswagen’s massive emissions cheating scandal unfold (and it’s still unfolding). Last month, it was Mitsubishi. Then last week, Suzuki. Now, Germany’s Federal Motor Transport Authority has accused Fiat Chrysler of rigging emissions tests. If found guilty, Fiat could face a sales ban in Germany, the company’s second largest European market. Following the news, Fiat shares dropped 5% as investors were left dumbfounded once again with the prospect of yet another automaker failing to learn the single biggest lesson of the year: don’t be Volkswagen.

__________
OTHER STORIES

__________
ECONOMIC CALENDAR

  • Monday: PMI Manufacturing Index (-)
  • Tuesday: Best Buy, HP Enterprise, AutoZone Earnings; New Home Sales
  • Wednesday: Costco, HP Inc., Tiffany Earnings; International Trade
  • Thursday: GameStop, Abercrombie & Fitch, Royal Bank of Canada, Dollar General, Dollar Tree, Deckers Earnings; Weekly Jobless Claims; Durable Goods Orders; Pending Home Sales Index
  • Friday: U.S. Q1 GDP (2nd Revision); Consumer Sentiment; Janet Yellen Speech

SPOTIFY’S NUMBERS: UNVEILED

Don’t have Spotify Premium, but use the free version and find the ads really annoying? Rest assured, you’re not Spotify’s favorite customer either—only 10% of Spotify’s revenue comes from its freeloading users. Here’s some more just-released inside info on the still-private company that continues to disrupt the music market:

  • First, some background: many music streaming services, like Apple Music, are subscription-only. But Spotify has kept its free tier option in addition to its monthly, ad-free subscription plan, which has angered many artists (cough Taylor Swift cough).
  • So how many Spotify users subscribe? Only 30% are paying customers, meaning 90% of all revenue is made off of a minority of users.
  • In fact, even Spotify itself admits the free tier model has been unprofitable. But don’t worry too much about the company: last year, it raked in $2.18 billion from its 89 million users, nearly a billion more than its 2014 revenue.

INTERVIEW QUESTION OF THE DAY

There are n people, each with a unique number from 1 to n. There are n identical lockers, each of which contains a paper with a unique number from 1 to n on it. However, you have no idea which locker contains what number. The purpose is for everyone to find the locker with his own number. Each one can open at most n/2 lockers and, once he looks at the number, he has to close the locker. If another person wants to see the same locker, he has to open it again himself. They can’t exchange information with each other. Prove that there exists a certain constant where no matter how big n is, those people can always devise a strategy so all of them can find their own numbers with probability larger than that constant. (Answer)

__________

STARTUP OF THE DAY

Facebook has acquired another player in virtual reality (VR): Two Big Ears. Cool name, right? Two Big Ears specializes in “spatial 3D audio in cinematic and gaming experiences.” Translation: through Two Big Ears’ technology, VR becomes even more immersive for both high- and low-end user experiences. To see the (very cool) tech in action, check out this YouTube video—and make sure you’ve got headphones on.

__________
FOOD FOR THOUGHT

“It’s like if you can’t beat it, eat it.” No, this quote doesn’t apply to everything we encounter, but it does apply to Japanese knotweed, a “savagely invasive plant” that has become Pittsburghers’ vegetable of choice. It’s so abundant and popular that businesses have even turned it into beer!

[protected-iframe id=”d54386390b81ee1fc329d832a447f2bd-97886205-61771510″ info=”//s3.amazonaws.com/downloads.mailchimp.com/js/mc-validate.js” ]