Silver banana goes to…

In this issue of the peel:

• Let’s take a break from the whole “the economy is falling apart” thing today. The 2024 Olympic Games in Paris have already broken records for more than just the athletic performance and weirdness. Check out the full economic breakdown of the Games below.

• Palatinr and Uber joined the rest of the market in a huge recovery on Tuesday as solid earnings carried both of these companies. On the other hand, Jumia lost more than half of its market value, and Chegg needs to find its own cheat code.

• Google took a big loss from the DOJ and 38 Attorneys General in their latest antitrust case. Find out what a 134-year-old law means for the search giant and the rest of the tech ecosystem… at least, before the inevitable appeal.

Market Snapshot

Banana Bits

• Vice President and Democrat frontrunner Kamala Harris selects Minnesota Governor Tim Walz as her own VP. 

• X is suing an advertising coalition, alleging collusion over an advertising boycott.

• The U.S. services sector is still going strong.

• Amazingly, default rates somehow reversed and are now declining.

• Airbnb stock fell as fast as my bank account after all those extra fees.

• Johnson & Johnson’s former consumer healthcare unit, Kenvue, parent of brands like Band-Aid and Tylenol, crushed its latest earnings.

• Molson Coors is also keeping the party going with a solid quarter.

The Daily Poll

Previous Poll:

Will U.S. unemployment hit 5% or more by the end of the year?

Yes: 56.56% / No: 43.44%

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Macro Monkey Says

The Economics of the Olympics

From Athens in 776 B.C. to St. Louis in 1904 to Beijing in 2008, the Olympic Games have become an iconic global event built on pure, good ol’ nationalism.

Personally, I think the games peaked in St. Louis during the event’s marathon as only 14 of the 40 runners finished, with one guy drinking rat poison and brandy the whole race while the guy who won rode in a car for most of the course.

The games aren’t always confused with a frat’s beer Olympics. But they still manage to be fun, so let’s get into it.

The Numbers

The Paris games already hold a few titles, setting multiple world records, including the wildest opening ceremony anyone’s ever seen.

The 7th Summer Olympics of this millennium, this century’s Games have averaged an all-in cost of $21.5bn, mostly dragged higher by Beijing’s $52.7bn 2008 event.

According to the World Economic Forum, every single Olympic Games since 1960 has seen cost overruns, some more than double the original budget.

That’s already not great, but based on historic return expectations for host cities, any smart investor would short the f*ck out of ’em.

The benefits aren’t necessarily all financial, and outcomes vary, but the economics of the games are about as complex as the 1904 marathon in St. Louis

For example, total revenues of the Beijing games in 2008 clocked in at $3.6bn, roughly 6.8% of the total cost, according to the Council on Foreign Relations (CFR).

However, other benefits exist, like an influx of tourism or a fat paycheck for some medalists.

For many cities, like Rio and Athens, tourism is a substantial part of their local economies. The 2016 games, for example, blessed Rio with 1.17mn visitors, estimated to have generated an additional $1.2bn in tourism-linked revenues.

Even still, Rio required a bailout from the Brazilian government for cost overruns, which were mostly related to building out housing for tourists and athletes. The International Olympic Committee (IOC) requires at least 40k rooms, forcing the city to build 15k more.

Others see more long-term tourism success. For example, after the 1992 Barcelona games, the average number of international tourists boomed from 1.7mn in 1990 to 7.4mn by 2017, per the CFR, citing the Games as a large driver.

But perhaps the most benefit goes to the athletes themselves, not only for the glory but also, for some, the paychecks.

Hong Kong and Singapore’s gold medalists will be rolling in it, while U.S. gold medal winners earn $38k.

In addition to the cash, some countries get creative. Kazakhstan awards medalists three, two, and one-bedroom apartments for gold, silver, and bronze medals.

Malaysia promises a “foreign-made car” to anyone who makes it to the podium. South Korean medalists earn a pension in addition to a one-time check. 

Best of all, Polish canoer Klaudia Zwolińska is receiving a painting, a vacation voucher, an educational scholarship, and a diamond.

The Takeaway?

Outside the money for athletes, cities, and the IOC (which takes over 50% of TV revenue), the best benefits of the Olympics come from bragging rights and global recognition.

I didn’t know Sochi before the Russian “city” of 446k residents hosted the 2014 games.

Icons like Michael Phelps and Simone Biles, and I’m assuming other countries have their own, clearly experience the most benefit, especially with those sponsorship deals.

Maybe you can benefit too while, if you’re anything like me, sitting on your couch saying, “I could do that!” Much like the games themselves, the betting markets are wide open.

What's Ripe

Uber (UBER) 10.93%

• Very much unlike their average driver, Uber’s earnings report arrived on time and exceeded expectations. Clearly, we’re bumpin’ MadeinTYO’s Uber Everywhere.

• At least 23% more of us are booking, as that’s how much the firm’s bookings grew compared to Q2 2023. That helped earnings of $0.47/sh beat estimates by 51.6%.

• Revenue grew 16%, trips grew 21%, and daily active users grew 14%. Strong growth helped raise guidance beyond Street estimates, driving shares higher.

Palantir (PLTR) 10.38%

• While “unrelenting” is a good word to describe my caffeine dependency, it is an even better one to describe the AI demand that Palantir is experiencing, according to their CEO.

• With 27% revenue growth to $678mn, beating calls for $653mn, he’s def not wrong. U.S. commercial sales exploded 55%, guiding for 47% full-year growth.

• Government sales grew solidly as well, up 23%. While ChatGPT helps students cheat, I guess the real money is in artificially and intelligently blowing people up. 

What's Rotten

Jumia (JMIA) 53.82%

• Jumia shares experienced a significant decline due to poor earnings, including a 17.2% drop in sales.

• The African Amazon/Venmo missed the top and bottom line estimates as consumers heavily cut discretionary spending. But it wasn’t all bad.

• Jumia cut its cash burn by 55% to just $8.7mn and slashed its marketing spend by 19%. Plus, shares already boomed 215% YTD before yesterday’s massacre.

Chegg (CHGG) 22.18%

• Speaking of ChatGPT helping students cheat, the company they swagger jacked more than anyone else is flunking portfolios after its own Q2 earnings report.

• The company beat across the board by 2% on sales and 6% on earnings, but free cash flow swung from $25.3mn in the prior quarter to a loss of $3.7mn.

• Guidance was below estimates, margins fell, and subscribers dropped 8.4%. The “education” firm offers AI-based tools, but ostensibly, students prefer CheatGPT.

Thought Banana

Google Search: how to appeal antitrust case

The Alphabet starts with L this week.

On Monday, a U.S. judge ruled that Google and its parent company have illegally operated a monopoly in search and text advertising.

This is Big Tech's first loss in an antitrust case since Microsoft in 1998… the exact year Google was founded. So, let’s dive in.

What Happened?

According to U.S. Judge Amit Mehta, Google is guilty of violating Section 2 of the Sherman Antitrust Act of 1890.

If you’re wondering what the hell that means, you’re not alone. Search traffic from this alleged monopoly is approaching all-time highs on this 134-year-old law:

Damn, this Sherman guy’s parents must be proud… wonder what that’s like.

Anyway, Section 2 of the Act makes it illegal to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce…”

So, the three violations include 1) monopolizing, 2) attempting to monopolize, and 3) combining or conspiring to monopolize any industry in the U.S.

Google is (allegedly) guilty of all three.

The case has been ongoing since 2020 when the Department of Justice (DOJ) and 38 state attorney generals filed similar suits alleging Google is one helluva naughty boy.

According to the DOJ, 38 AGs, and our boy Amit’s beast of a 277-page ruling, Google’s primary violations include:

• Exclusive deals with Apple and Android-based smartphone makers.

• Revenue Share Agreements to prohibit partners from preloading alternative General Search Engines (GSEs).

• Foreclosure of the GSE advertising market through those restrictive agreements.

The Takeaway?

The court does not purely use Google’s market dominance to justify the “monopoly” label. But combined with absolute pricing power and other tactics described in (way too much) detail in our boy Amit’s analysis, the hurdle is (allegedly) cleared.

Other firms in Silicon Valley are now drowning in fear as much as they are in money in response to this ruling. For others, it may create a golden opportunity.

Partners and startups in the GSE space will, of course, be most affected. But, with AI-based competitors flooding the market, it’s a bad time to be Google.

The Big Question: How will the recent antitrust ruling against Google impact the future of search and text advertising industries?

Banana Brain Teaser

Previous

Five machines at a certain factory operate at the same constant rate. If four of these machines, operating simultaneously, take 30 hours to fill a certain production order, how many fewer hours does it take all five machines, operating simultaneously, to fill the same production order?

Answer: 6

Today

How many integers between 1 and 16, inclusive, have exactly 3 different positive integer factors? (Note: 6 is NOT such an integer because 6 has 4 different positive integer facts: 1, 2, 3, and 6.)

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper, Ankit, & Patrick

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