Good morning and happy Friday, especially to McDonald’s executives.
In its earnings report on Thursday, the fast-food giant announced a 10% rise in same-store sales in the second quarter, as well as $2.3 billion in net income, an astounding 94% jump from last year.
The chain credited the successful quarter in large part to a marketing campaign centered around the 52nd birthday celebration of purple blob mascot Grimace, which subsequently sparked a viral movement of creepy TikToks. What’s next — a Happy Meal celebrating the Hamburglar getting his Ph.D. in criminology?
Morning Brief
•
Welcome to the digital-ad fire sale!
•
The US economy is still hot, hot, hot.
•
How do you fix the internet?
Please do not delete this text.
Please do not delete this text.
Tech
Netflix Lowers Ad Placement Fees
While Netflix plays the bad cop on password-sharing, its advertisers are getting the good cop.
Netflix has lowered prices for ad placements on its cheaper, ad-supported tier subscriptions, The Wall Street Journal reported on Thursday. Meanwhile, Twitter is taking a similar approach with a carrot-and-stick twist, lowering prices while simultaneously threatening to strip brands of their verified status if they don’t spend enough on ads.
Low, Low Ad Prices
Netflix introduced its ad-supported tier in November as a way of luring more potential binge-watchers onto its platform, and while it has grown steadily, it’s not been a growth bomb. It selected Microsoft as its partner for finding and placing ads in its content, and Microsoft was so confident it baked a revenue guarantee into the deal. Sadly, it looks like advertisers have not flocked to the plan, and one source told the WSJ that Microsoft has had to pay Netflix the maximum amount it can under the terms of the deal to make up for the less-than-guaranteed revenue.
Per the WSJ, that deal is now being re-worked, and Netflix is courting advertisers with discounted rates:
•
Some advertisers are now being offered placements of $39 to $45 per 1,000 viewers, the WSJ reported, compared to a previous rate of around $45 to $55.
•
Twitter (we’ll call it ‘X’ once they actually manage to change the sign on the office) has also dangled lower prices for brands, up to 50% off certain placements until July 31 according to emails seen by the WSJ. For extra motivation, it also warned that after August 7, if brands spend less than $1,000 on ads over a 30-day period, they’ll lose the gold-verified ticks on their accounts.
While Twitter is a slightly special case, the digital advertising market has been broadly soft for a while now, and the rock-solid marriage between tech platforms and advertisers is in need of some counseling. One Big Tech company that’s performing surprisingly well on ads is Meta. Its ad revenue growth for Q2 beat expectations on Wednesday, and Wall Street was so pleased that it overlooked the fact the company’s metaverse-related losses (remember the metaverse?) hit $40 billion.
Zuckceptional: Mark Mahaney, senior managing director at Evercore ISI, told CNBC that Meta’s ad gains were partly down to its mad dash to rebuild its ad tools after Apple’s iOS changes last year gutted its revenue. “They had to scramble, they scrambled hard, it really hurt their business. But I think they’re coming out the other side now,” Mahaney said. He emphasized this was not a general trend in digital advertising: “I think it’s Meta-specific, internet advertising is not inflecting back up like this.”
– Isobel Asher Hamilton
Please do not delete this text.
Please do not delete this text.
Macroeconomics
Strong Economy is Flexing its Stamina
The US economy is still a giant version of the little engine that could,chugging along faster than nearly anyone expected.
On Thursday, just a day after Chairman Jerome Powell said the Fed no longer projects a recession, Commerce Department data showed that national GDP grew at a 2.4% rate year-over-year in the second quarter, outpacing most analyst expectations. I think I can, I think I can, I think I can… buy this thing, says the still-spending American consumer.
Lobbing Softballs
The soft-landing bulls are readying for a victory lap. The Fed’s interest rate hiking campaign, which reached a 22-year high on Wednesday, has apparently slowed generationally high inflation rates. But so far, it’s pulled off the feat without crimping a labor market still flirting with historically low unemployment. Initial claims for unemployment benefits, a sort-of proxy for unemployment, fell by 7,000 last week.
However, some of Powell’s Fed peers still view the hot job market as a buoy for inflated prices. And yet that strong labor market may also be fueling economic growth. Wage gains finally surpassed inflation in June, the first time in roughly two years, according to the Labor Department. Meanwhile, The Conference Board’s monthly Consumer Confidence Index this month hit its highest mark since July 2021. And that continued consumer spending, coupled with strong business investment, is driving GDP growth:
•
Consumer spending grew 1.6% year-over-year in the second quarter, according to the Commerce Department. That’s down from the near-shopoholic 4.2% growth seen in Q1, but still stronger than most economists’ expectations.
•
Meanwhile, business investment lept to 7.7% year-over-year growth in Q2 from just 0.6% in Q1. That reflects both a strengthening in supply chains and a massive influx in government investment in projects like EV battery and computer chip manufacturing plants.
“To me the most important signal out of [Thursday’s data] is that households continue to consume,” Eric Winograd, senior economist at AllianceBernstein, told the Financial Times. “And I don’t think we should expect the consumer to weaken until the labor market does.”
Too Hot to Handle? Thursday’s data amounts to good news, though some fear it’s too good. “This is the closest we’ve come to a Goldilocks scenario since the onset of the pandemic,” Diane Swonk, chief economist at KPMG LLP in Chicago, told Bloomberg. “What the Fed has to worry about is whether or not there will be a later rebound in inflation.” That’s… deflating. And not in the way Jerome Powell hopes.
– Brian Boyle
Please do not delete this text.
Please do not delete this text.
SPONSORED BY PATENT DROP
Silicon Valley’s Got Secrets
All those giant tech companies we rely on for everything from dating to delivery? They’ve got big plans to continue dominating our lives.
Most of those plans are kept under lock and key. But there’s one way to peek into their secret schemes: Patent Drop, a free, twice-weekly newsletter.
Patent Drop delivers an exclusive look into the future of tech big and small, by peering through a unique lens: the patents those companies file with the SEC.
Not only that, reporter Nat Rubio-Licht provides 50,000 curious readers with enterprise reporting, expert interviews, and differentiated analysis.
One thing that folks on both sides of the congressional aisle can agree on is wanting to bring Big Tech to its knees.
A proposed bill sponsored by Senators Elizabeth Warren (D-Mass) and Lindsey Graham (R-SC) would create a new regulatory agency to target anti-competitive behavior and consumer privacy issues within the tech industry.
Rein ‘em In
Big Tech has been in the crosshairs for some time, and even though the public has witnessed plenty of whistleblowers and hearings with CEOs from Meta, TikTok, and Google, not much has changed.
Warren and Graham aim to make a difference this time around with their bill that would create a new Digital Consumer Protection Commission:
•
The agency would bar companies like Amazon, Meta, and Google from favoring in-house products over competitors. Platforms would also be required to let users know when their data is collected and targeted advertising would be limited. And along with the Federal Trade Commission and the Justice Department, the new agency could authorize mergers and review past deals.
•
Another target: national security. If passed, platforms like TikTok would have to sell their companies to an American owner or have a US-based subsidiary.
Think of the Children: Graham also has taken issue with how toxic and harmful the internet can be, especially to younger people. In an op-ed for The New York Times, he said, “Giant digital platforms have provided new avenues of proliferation for the sexual abuse and exploitation of children, human trafficking, drug trafficking and bullying and have promoted eating disorders, addictive behaviors and teen suicide.”
This coincides with another pair of bills working their ways through Congress right now — the Kids Online Safety Act and the Children’s Online Privacy Protection Act 2.0 — that’ll try to child-proof the internet. Lobbyist group NetChoice believes the bill will do more harm than good, saying these types of laws limit parental authority and free speech.
-Griffin Kelly
Please do not delete this text.
Please do not delete this text.
Extra Upside
•
Out of juice: Tesla knowingly inflated dashboard driving-range readouts, Reuters reports.
The gaming industry is projected to grow 2.5X by 2030.* And Virtuix is giving investors an exciting opportunity to tap into this growth as they bring their ultimate gaming experience to millions of homes around the world. The company has $16M in revenue so far and $35M raised from investors, including Mark Cuban. Become a Virtuix investor before the opportunity ends on 8/10.**
