Wall Street Breakfast: Snap! | Seeking Alpha

Snap!

New Episode Drop! Weekend Bite, a Seeking Alpha original series. This week we’re joined by Chris DeMuth Jr., Founder of Sifting The World, to discuss complicated mergers in the market. Specifically, what’s happening with Twitter vs. Elon Musk, and Spirit Airlines’ complicated situation with Frontier and JetBlue. Someone will not be free to roam around the cabin.

The tech sector rallied broadly on Thursday, with the Nasdaq ending the session up 1.4%, until Snap (SNAP) sharply dented sentiment with its quarterly results. The Snapchat owner posted its weakest-ever quarterly sales growth as a public company, with revenue that increased just 13% in Q2 (7 percentage points below the low end of its April forecast). Net losses swelled by 178% Y/Y to $422M, prompting shares to plunge 27% in extended trading, after losing nearly three-quarters of their value over the past year.

Bigger picture: Macroeconomic conditions and rising inflation are seeing companies pull back on advertising spend, while changes to Apple’s (AAPL) privacy policy have also slammed digital-ad-focused businesses. Snap has tried to search for new sources of revenue, including paid and premium services, but noted that it “was not satisfied with the results we are delivering.” The company also didn’t issue guidance for the current quarter, though it will “substantially” reduce its hiring rate and tightly control operating expenses.

“While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition,” announced CEO Evan Spiegel. “We are evolving our business and strategy to re-accelerate revenue growth, including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our top-line growth.”

Outlook: Snap’s results come ahead of earnings from Twitter (TWTR) this morning. Other heavy hitters in the digital ad market, like Google parent Alphabet (GOOGL) and Meta Platforms (META), will report next week. (121 comments)

Grain export deal

An agreement to release 18M tons of wheat, corn and other crops from Ukraine is set to be signed today following the Russian invasion in February that blocked key ports in the Black Sea. It’s a big deal for Ukraine, which has been traditionally referred to as the “Breadbasket of Europe,” as well as many developing nations that rely on its grain across Africa, the Middle East and Southeast Asia. It also raises hopes that an international food emergency could be avoided, with prices spiraling in recent months and exacerbating an inflation crisis.

Snapshot: Officials from Russia, Ukraine and the United Nations all plan to be at the signing, which will take place around 8:30 a.m. ET. Substantial differences had remained in recent days over providing safe passage for cargo vessels, including how to demine ports and assure that private vessels aren’t carrying military equipment. Enforcement will also be key, as well as how to prevent threats of further attacks.

Looking to get the talks over the finish line, the U.S. has clarified that financial sanctions against Russia don’t apply to agricultural trade. That could clear a path for Russia’s food and fertilizer exports to get back on the market following an economic war against the Kremlin that has been waged by the West. Ahead of the ceremony, U.S. State Department spokesperson Ned Price said Washington would focus on holding Moscow accountable for carrying out the agreement, but stay tuned for further details.

Go deeper: Besides freeing up grain that is currently trapped in Ukraine, there is a challenge of how to store or export the country’s coming summer harvest of an estimated 65M tons. An agreement will also have to be strong enough to convince sea crews, privately owned freighters and their insurers who may be fearful to wade into the current environment. (5 comments)

#PotStocks

Long-awaited cannabis legislation has been finally introduced by a group of Senate Democrats, which would decriminalize weed at the federal level. Pot stocks soared over the past week on word of the imminent release of the bill, but have quickly turned sour in a common “buy the rumor, sell the news” trade. Others see slim odds of the legislation passing the Senate, though it will definitely shape the conversation around cannabis legalization and portions could make their way into other measures before the end of the year.

Cannabis Administration and Opportunity Act: The current bill is very much similar to an earlier version that was drafted a year ago. It includes a provision for expunging prior federal marijuana convictions, allowing states to set their own cannabis laws and providing grants for marijuana small businesses. Additions to the measure include setting an impaired driving standard, cannabis business access to banks, and penalties for possessing or distributing large quantities of marijuana without a federal permit.

“For far too long, the federal prohibition on cannabis and the War on Drugs has been a war on people, and particularly people of color,” Senate Majority Leader Chuck Schumer declared. “[The bill] will make criminal justice reforms. It will protect public health and safety. It will be a catalyst for change.”

Super cycle? Marijuana sales are expected to top $28B in 2022, marking a 20% Y/Y increase, according to Roy Bingham, co-founder and chairman of BDSA, a cannabis market research firm. (149 comments)

Look ma, no wheel!

There’s been several big robo-taxi announcements this week from an industry that hopes to change the way people think about mobility. Baidu unveiled its all-electric Apollo RT6, a production-ready model featuring a detachable steering wheel that should hit Chinese roads in 2023. Over in the U.S., Amazon’s (NASDAQ:AMZN) Zoox became the first self-driving tech company to achieve a five-star federal crash rating from the NHTSA and applied for a permit to test-drive in California.

Backdrop: Unlike Alphabet’s (GOOGL) Waymo, Zoox has developed its robot-taxi from scratch, rather than modifying existing vehicles with its technology (Cruise’s (GM) Origin is trying to do the same). Amazon scooped up the startup for $1.2B in 2020, and shortly thereafter unveiled its VH6, which has room for four passengers and can drive up to 75mph on a highway. There is no steering wheel in the vehicle that’s produced at Zoox’s “Kato” factory in Fremont, California – just down the road from robo-taxi hopeful and EV leader Tesla (TSLA).

In general, most companies that have jumped in the driverless game without steering wheels and pedals have had to apply for an exemption from Federal Motor Vehicle Safety Standards. Zoox has taken a different route, choosing to self-certify with the NHTSA so that it won’t be subject to limited production or periods of manufacturing. It does come with increased responsibility, however, with the company liable for the safety of its vehicles and giving regulators a clearer view into the technology.

Quote: “We really invested the extra time and resources [which] basically lets us control our own destiny,” said Jesse Levinson, Zoox co-founder and chief technology officer. “We can compete with, for example, Uber (UBER) and Lyft (LYFT), and make money, and be very cost competitive even in the early days of this technology.” (12 comments)

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