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Many employees can't afford a hefty medical bill that pops up out of the blue. But it happens. And employees who are financially stressed are understandably more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out of pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more@aflac.com Frumarkets that's aflac.com Frumarkets
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Sony Music now living on a prayer after adding 45,000 songs to its its library, we look at the company's recent catalog purchase, one that was music to investors ears block from a payments app to a banking ecosystem powered by Buy Now, Pay later, we dig into the latest earnings results from the Jack Dorsey founded Fintech and AI giants making new friends on Wall Street. First Anthropic and now Open AI. What's driving their deals with private equity? We break it all down for Monday, May 11th. It's Free Markets Daily and I'm Ann Ber. More market details to come. But first Anthropic did it. Now OpenAI's doubling down on it. That's partnering with Private equity with the maker of Chat GPT today launching a new specialized entity called the Open AI Deployment Company. It's a partnership with a consortium of major private equity firms that includes TPG Ticker, yes, tpg, Brookfield Asset Management Ticker, bam, Advent International and Bain Capital. And it's been formed to accelerate the adoption of artificial intelligence within large enterprises. Well, to get on with getting that adoption moving, OpenAI is also buying tomorrow a UK based applied AI consulting firm. And it's doing that specifically to deploy 150 engineers and AI specialists to embed AI tools into the operations of those private equity firms and the companies they own, otherwise known as portfolio companies. Well, OpenAI's announcement comes just a week after Anthropic unveiled the formation of a new firm with private equity heavyweights Blackstone Ticker, BX, Apollo Global Management ticker ago, Hellman Friedman, General Atlantic, Leonard Green, GIC, Sequoia Capital and the diversified financial services firm Goldman Sachs. Well, that AI native enterprise services company will work with the private equity players to bring Claude into their core business operations and into those of their portfolio portfolios. So why are Open Eye and Anthropic doing this? They've got so much buzz already. What is the point? Well, one thing I can say about private equity after a long time both investing capital and running companies for the sector is this. When it decides to do something, it gets on with it. Because unlike public companies, which can take a while to get board consensus or just the will to make moves that will be subject to intense quarterly investor scrutiny, the concentrated ownership of private equity bet companies gives them permission to move quick, quickly. And the biggest private equity firms even have employees that are dedicated to rolling out operating initiatives at their portfolio companies, and often with the benefit and the heft of centrally negotiated preferred pricing. Well, of the group in cahoots with Anthropic, Blackstone alone has over 250 portfolio companies and Apollo has over 190. Then you take a look at the group that's just partnered with OpenAI and it has about 2,000 portfolio companies between them. So these partnerships get the AI power players to scoop up a lot of well capitalized, well supported and fast moving new clients in one fell swoop. And just as a comparison, check this out. Compared to the numbers, the client count of Palantir, which as of December 31st had 954 customers but one over the course of time. So rapid adoption by name is private equity when you choose to do it. And for OpenAI and Anthropic, it's right what they need as they gear up for their IPOs. We're going to keep on watching. Coming up in a moment, a spin through the headlines that are moving the markets today, including earnings out of Monday.com and Duncan's return to the stock market. But first, this episode is brought to you by Charles Schwab Is Recency bias
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skewing your potential stock picks? Is attribution bias messing with your retirement plan? Overconfidence describes our tendency to overestimate our abilities. Loss aversion helps explain why losing a dollar hurts more than gaining a dollar. Well, Financial Decoder, an original podcast from Charles Schwab explains how these cognitive and emotional biases can affect the decisions you make about your financial life.
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Host Mark Reape, head of the Schwab center for Financial Research, and his guests offer actionable insights on what you can do to help fight off these decision making biases. Download the latest episode and follow@schwab.com financial decoder or wherever you listen. Well, so far today the markets have been drifting higher, building on record high finishes that we saw last week for the S&P 500 and NASDAQ. So let's take a quick spin through some of today's market headlines. And what better way to kick off doing so on a Monday than with, well, Monday, because shares in Monday.com ticker mndy gained nearly 4% today after beating earnings expectations. The results come in after a rough stretch for the work management software company. Monday's stock has fallen around 50% this year already. That's amidst buckle spheres with investors worried that I could disrupt its business model.
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But Monday, which we use here at the office, pulled an Uno Reverse this quarter itself leaning into AI. The company said its newly launched AI platform helped drive 24% year over year revenue growth and that products accounted for roughly 10% of new recurring revenue for the quarter. And its co CEOs are clearly bullish about what's ahead saying quote we believe the best chapter of Monday.com story is the one we are writing now. And with coffee fueling investors through another busy earnings season, Dunkin, which I still call Dunkin Donuts. Maybe yes, why not? But yes, we're focusing on the coffee, but of course Donuts is what brought them. They may be heading back to the public markets not its first time ringing the bell. Previously going public in 1968 and in 2011 under different owners, Dunkin, now reportedly through its parent brand Inspire Brands, has confidentially filed for an ipo. And if it moves forward it could become one of the biggest ever restaurant offerings. Because along with Dunkin' Inspire owns other fast food chains including Arby's and Baskin Robbins.
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Well, private equity firm Rock Capital, which backs Inspire, is reportedly seeking a valuation of around $20 billion. The fast food IPO pipeline appears to be heating up because just last month Blackstone backed Jersey Mike's also filed for an IPO looking for a valuation of at least 12 billion. And just to put this in comparison, Starbucks ticker SBUX has an enterprise value of around $142 billion, much bigger of course reflecting its global scale, whereas Dutch brothers an interest one ticker bros. Sits closer to the $8 billion mark. Well meanwhile over in the music world though I am sad to leave Duncan because it is my favorite coffee and my favorite donuts for what it's worth. But nevertheless, the Music World shares and Sony Music ticker so NY jumping over 8% today after announcing it will acquire Recognition Music Group's entire song catalog. Well, that collection includes more than 45,000 songs and some of these are absolutely iconic. It ranges from Journeys Don't Start Believing to Rihanna's Umbrella, both of which happen to be amongst my favorites. While financial terms were not disclosed, but Reuters reported that the deal is thought to be valued at around $4 billion.
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Sony is partnering with Singapore's sovereign wealth fund GIC and acquiring the catalog from Blackstone, which began building its presence in music rights in 2021, when it committed $1 billion to a new fund that would eventually become the recognition portfolio that Sony is purchasing. And finally, your next burger could come from overseas and a broader effort to bring down soaring beef prices. The Trump administration is reportedly looking to temporarily reduce tariffs on beef imports, and according to the Wall Street Journal, those changes could happen as soon as Today,
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beef has become one of the stickiest sources of inflation for US consumers, with ground beef prices up 40% from five years ago. And those higher costs are of course starting to pressure company bottom lines. We've seen a number of firms talk about it in their earnings releases, most recently Shake Shack Point rising beef prices as a headwind in its quarterly report. Shares are down around 23% year to date. The administration also reportedly plans to expand loans and capital access for US Ranchers alongside a broader set of policy changes, of course, to try to stimulate domestic beef production. Well, let's take a quick break and when we come back, in response to a listener request, we have the latest from fintech company Block, including why its Cash app may have a competitive advantage over its competitors such as Venmo. This episode is brought to you by Charles Schwab Overconfidence, Loss Aversion Recency Bias could attribution bias be messing with your retirement plan? Financial Decoder, an original podcast from Charles Schwab explains how these pesky biases can affect the decisions you make about your financial life. Host Mark Reape, head of the Schwab center for Financial Research, and his guests offer practical strategies on what you can do to help beat back these decision making biases. Download the latest episode and follow@schwab.com financialdecoda oreveryou listen
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Well, we recently got a note from a listener named Adam who left a comment on our YouTube page asking us to, quote, dig into XYZ when their financials drop. Well of course, XYZ is the tick of a block, the fintech company founded by Jack Dorsey, famously also the co founder of Twitter. While the company's original business was a point of sale system called Square, I first remember seeing the Square device. And then of course it's got the software associated with it where a merchant would plug that device into their phone at places like farmers markets when I went to go buy flowers. And that made it easier for folks who are independent vendors to receive credit card payments. Well, five years ago, Square rebranded to Block as the company expanded from just payments into a broader banking ecosystem that includes the Cash app and afterpay with its Buy Now, Pay later products. Well, those products and especially Cash app are fueling the company's growth. And investors sent shares up last week after Block reported strong earnings. Well, we're going to get into that expansion strategy in just a moment, but John, let's start with a recap of those results.
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That's right, Block. And as you mentioned, ticker XYZ on the New York Stock Exchange market cap of $44 billion. And for the quarter that just ended the Q1 revenue of $6 billion, which was up 5% year over year, the company reported adjusted earnings per share of $0.85, which beat by $0.17 and adjusted EBITDA came in near $1 billion which was up 24% year over year and represented an all time high for the company. Some other highlights, the company attributed the beats to higher transaction volumes for both the Square payment system, which they still have, and the Cash app borrowing lending service which is growing. The company also raised its full year guidance and all of this together sent shares up over 6.5% last Friday.
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So all round, pretty robust news coming out of Block. But it's been getting headlines for very different reasons. It's really, really become sort of the lightning rod for a lot of the commentary around the tech layoffs that we're seeing in the wake of AI. So these higher transaction volumes aside, let's take a look at what's been going on with the Block labor force. The company did say in February that it would lay off 4,000 workers, which is a whopping 40% of its team base, and said that it was driven by efficiency gains from AI, especially when it comes to code creation. Well, Jack Dorsey, the CEO, decided to sort of address this head on again last week in his letter to shareholders and he summed it up as follows, quote, a significantly smaller team using the tools we're building can do more and do it better. We were early and deliberate in this strategy. Now it's interesting because I do remember when the February headlines came out, the street was kind of split. Some said this is definitely AI. Others said actually the company was bloated that it had gotten too much headcount relative to its peers over time. And that Dorsey was using AI as kind of the COVID the air cover to try and make some difficult decisions, which many people thought he perhaps ought to have done sooner.
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And we've heard that speculation across many tech companies is there an a washing of over hiring in the previous years. And as that might be possible, Jack Dorsey did lead with AI all throughout his investor letter. And he put some numbers around it, quote, production code changes per engineer are up. There's so much more productivity. Each engineer is 2.5% more productive with these AI tools.
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2.5 times. Yeah. Huge. Yeah.
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And that incident rates after a code change are down more than 70%. So incident rate is. Something didn't go right with the code and that's down 70%, meaning the resulting code is more reliable after going through that AI process. So one other number, the adjusted earnings figure excludes restructuring charges due to the layoffs, which are over $850 million. So it's a reminder that those layoffs do cost the company money. $850 million.
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Yeah. Certainly expensive. But again, when it comes to the way in which folks are analyzing the stocks, they tend to say to themselves, look, this one time situation, we're going to add back that number. We're going to factor, we're going to remove it from the calculations around how it's valued. Well, I was really excited to see what happened with this one, John, and very glad that Adam reached out asking for us to cover this because last fall I interviewed Block's chief financial officer, who's also the chief operating officer, Amrita, on our assisted podcast after earnings. And I really, really enjoyed that conversation because Amrita had absolutely no issues asking, sorry, answering questions that folks often try to duck answering. And so specifically, and this was sort of seared in my memory, I remember asking her what distinguishes her and Block from Venmo, because she'd said, I remember she led. She, you know, it was a good media training note where she said, there's no one who competes like us. And I said, well, actually, Venmo feels very similar.
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Yes.
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How are you different? And she totally didn't miss a beat. She leaned into the question, which I really appreciated, and she said that while Venmo and Cash App have similar products, when you look at it just from a peer to peer payments perspective, she said, well, look, Block's trying to do more than that. It's trying to be a financial ecosystem. And very interestingly to me, she pointed out that Cash App is particularly popular in the middle of the country and in the south versus Venmo being more coastal. And that Cash app is now attracting younger users. And she said that this was becoming a strategic focus for the company, saying, quote, one of the areas we can truly be disruptive is with the next generation with teams. And she went on to describe how teens can exchange money with friends on the Cash App, bring more users into the ecosystem. And she says, well, hopefully because their communities are on Cash app, there's more that they can do. And then as they as basically as the kids grow up, you know, have them sort of graduate into using other tools and other products in Block's ecosystem.
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It makes perfect sense. If you're on Cash app and your friend wants to get money from you, well, I'll download the Cash app so I can receive the money. And it is more robust outside of the peer to peer than just Venmo because as you mentioned, these users graduate into Block's other products. And so if you're on the Cash app, suddenly you can get into the Buy now, pay later or the Cash app loans. And so these younger people grow up into the ecosystem. And it's an advantage for Block because they have the data from these customers for years. And so Amrita pointed out that Block can make better lending decisions based on having better data than the traditional credit scoring companies.
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Well, related to that, let's take a quick look at the consumer lending volume that Block reported. That's through Cash App Borrow and also by Buy Now, Pay Later. All of this up 82% year over year for the first quarter of this year. While it says, quote, maintaining healthy risk loss outcomes across new and mature cohorts. So basically saying our underwriting process is healthy and we're not seeing too many charge offs. So look, overall share price up 12 year to date, up 45 year over year. One of the fintech companies at the street is leaning into and saying, we like this one. We also take a quick look to see what the analysts are saying. Most of them are saying buy, majority buy or strong buy on this one. So we're going keep watching this one because I do feel as though they're sort of Block sort of getting its mojo. It's making some bold moves. It's got a very sort of interesting narrative behind it. It's got a very articulate management team which is half the battle that's getting investors both retail and institutional to understand the story and the growth vectors here. So definitely one that's worth keeping our eyes on.
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And while not a direct comparison. But you brought up the idea of Venmo, which is owned by PayPal.
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Yes.
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And so both PayPal and Block have similar market caps near $40 billion. And to to compare, the stock price over PayPal holdings are down 36% over the last year. And you pointed out that block is up 45%.
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PayPal also too, going through real leadership turmoil over the last six to 12 months. So lots going on. Block in comparison actually has been relatively stable up at the top. Well, thank you for the note, Adam. We do love to hear from listeners, so if you have a company you'd like for us to dig into, email us. We'll get you that email address at the end. Ping us here, Send us Messages, comments on YouTube or Spotify or Apple or wherever it is that you listen. There's always a comment section. Get in touch. We do love to hear from you. Well, it's 4pm on the east Coast. There it is, the closing bell. With the markets wrapping up for the day, we don't have a ticket tape, but instead we'll throw it over to our human ticker.
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Our producer John and the markets once again managed to build on last week's record setting close the Dow up 2.10of a percent, the S&P 500 up 2.10of a percent, and the Nasdaq finishing up 1.10of a percent for another record high.
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Well, tomorrow is Tuesday, so it is Money Movers Day, and we're going to welcome onto the show Tony Bancroft, the portfolio manager of the Commercial Aerospace and Defense ETF at Gamco Investors. It's a pretty interesting conversation because Tony has a fairly unique perspective. He was previously a lieutenant colonel who has actually flown equipment made by many of the companies held in the ETF that he manages. So come back tomorrow for that conversation. That's it for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry, produced by John Coteau, talkob delatif, Avni Leroy and Emily Miller. Our technical director is Utena Wago. The president of Morning Brew Inc. Is Devin Emery. If you enjoyed today's show, please share with a if you made it this far and you didn't enjoy the show, please pass along to an enemy.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.
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If you can't afford childcare or can't afford to take a sick day, that's not just your bad luck. It's actually bad for our economy. I'M Katherine Ann Edwards, an economist, and I'm editor Robyn Rousey. On our podcast Optimist Economy, I break down how our lives intersect with the the economy, whether it's wages, Social Security, the national debt. And I ask the questions that you're actually thinking, like, is AI going to take my job? Americans deserve a better economy than the one we have, so let's talk about how to get there. Every Tuesday on Optimist Economy. Wherever you listen to podcasts,