🗞 6 Most Concerning Results From Q3

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 😬 6 Most Concerning KPIs from Q3

• 📺️ Are the Streaming Wars over?

Let’s dive in!

Featured Story #1

6 Most Concerning KPIs from Q3

Last week, we dug through some of the most impressive KPIs the FinChat analyst team found during Q3. This week, we’re taking the opposite spin on things.

Here are 6 of the most concerning KPIs the team found this quarter:

1.) Starbucks - Transactions Growth

Iconic brands like Starbucks hold weight.

But, is the stumbling coffee giant ripe for a turnaround?

For those paying attention to the financial news, this one’s no secret. Starbucks has been experiencing collapses in its store traffic, and this quarter was no exception.

Starbucks reported an 8% overall decline in transactions compared to last year, driven primarily by its North American stores which saw 10% declines.

The coffee giant replaced its CEO with the former Chipotle leader Brian Niccol to help reignite the brand. In his first address to shareholders, Niccol said “we've drifted from our core… To welcome all our customers back and return to growth, we need to fundamentally change our recent strategy.”

1-Month Stock Performance: +4%

2.) Crocs - HEYDUDE Brand Revenue

Crocs acquired HEYDUDE for ~$2.5 billion at the end of 2021. At the time, HEYDUDE was nearly doubling sales each year and Crocs believed it could leverage its wholesale relationships to supercharge growth. However, less than a year after the acquisition, HEYDUDE’s sales began to decline.

This quarter Crocs saw a 17% revenue decline at its HEYDUDE brand driven by particular weakness in its wholesale channels and an oversupply of inventory from last year. While addressing their efforts to revamp the brand, CEO Andrew Rees stated “it will take longer than we had initially planned for the business to turn the corner”.

1-Month Stock Performance: -30%

3.) Unity Software - Net Dollar Expansion Rate

Video game development platform Unity has been attempting to regain the trust of its customers ever since its ill-fated attempt at increasing prices last year through a new runtime fee model.

So far, there seems to be little progress on that front. This quarter Unity reported its worst all time Dollar Based Net Expansion Rate of 94%. That means customers are either spending less with Unity each year or Unity is losing customers all together. Likely, it’s a combination of both.

1-Month Stock Performance: -21%

4.) Match Group - Total Payers

Online dating conglomerate Match Group, which is home to apps like Tinder, Hinge, and Match.com, has been struggling to grow the total number of payers across its apps for a little over two years now.

For the past year, Match Group’s management team has pointed to the price increases at Tinder as cause for the payer decline. But now, having lapped Tinder’s large price increase, the company is still seeing year-over-year declines in its paying users.

1-Month Stock Performance: -20%

5.) Celsius Holdings - North America Revenue

Popular energy drink maker Celsius, saw a rapid decline in its sales from North America this quarter due to an inventory destocking issue with its largest distribution partner Pepsi.

Though investors knew the issue was coming, the “he said, she said” nature of this over-stocking situation has led to lingering concerns about overall end-market demand for Celsius’ products.

1-Month Stock Performance: -25%

6.) Redfin - Market Share

Real estate brokerage company Redfin initially gained popularity thanks to its unique model of employing salaried brokers instead of earning off commissions.

However, this cost structure appears to now be working against them. While the housing market has been difficult in its own right (elevated mortgage rates leading to less people moving), Redfin is also ceding market share.

With just $170 million in cash, negative cash flow, and more than $1 billion in debt ($209 million of which is short-term) on its balance sheet, investors seem to be getting increasingly worried about bankruptcy risk.

1-Month Stock Performance: -25%

Platform Update

Introducing Common Size Financials

This week, the team at FinChat launched a new feature that allows users to easily visualize financial metrics as a percentage of overall revenue.

Using the “Common Size” toggle across the financial tabs, you can quickly convert nominal figures into percentages.

Featured Story #2

Are the Streaming Wars over?

Over the last decade, there has been a digital arms race between the world’s most IP-rich companies and the wealthiest tech giants in an effort to come out on top in the streaming TV market.

For a long-time, the “Streaming Wars” looked uncertain. Legacy media businesses and new entrants alike were launching new apps, offering low-priced bundles, investing in new content, and ultimately, losing billions of dollars along the way.

To give some context, here’s a brief timeline of just some of the streaming app launches over the last decade.

• 2007: Fox/NBC Universal Joint Venture launches Hulu

• 2011: Amazon launches Prime Video

• February, 2017: Google launches YouTubeTV

• April, 2018: Disney launches ESPN+

• November, 2019: Apple launches AppleTV+

• November, 2019: Disney launches Disney+

• May, 2020: Warner Brother Discovery launches HBO Max

• July, 2020: Comcast launches Peacock

• March, 2021: Paramount launches Paramount+

And the list goes on and on.

But after more than a decade of these streaming wars, there’s one company that’s standing head and shoulders above the rest… Netflix.

Not only is Netflix the largest standalone streaming app by engagement and subscribers, it’s also one of the few streaming companies that actually generates meaningful profits.

But it doesn’t stop there. Even at its significant size, Netflix is still growing subscribers the quickest.

Over last 24 months, Netflix has added more than 60 million total paying subscribers.

To put that number in context, over the same time period:

• Disney+

• HBO Max

• Paramount+

• Hulu

• Peacock

• And ESPN+

Added 65 million total paying subscribers combined.

While all the competitors in the space will likely continue to invest in their streaming offerings, Netflix is now playing with a lead. Its revenue advantage gives Netflix the flexibility to invest more than its peers into additional types of content (sports, live events, etc.) without compromising profitability.

Meme of the week

It’s that time of the quarter again. Every investment fund with more than $100 million in US stocks has to file a 13F and report their holdings.

And as always, the market was giddy to see what the “Oracle of Omaha” Warren Buffett bought and sold this quarter. Berkshire Hathaways’s 13F, which also includes the investments of Buffett’s lieutenants Todd Combs and Ted Weschler, reported two new positions in Domino’s Pizza and Pool Corp.

Use FinChat’s Super Investor tracker to see the rest of Buffett’s buys and sells along with many of the other best investors in the world.