B (3:12)

That's right, and this is true. When I was ready to sign up for Public, I hit the stopwatch on my phone to time the process and for me, my brokerage account was funded in 4 minutes flat. I don't know if that's a world record, but I definitely felt metal worthy.

A (3:23)

Not sure who deserves the medal in that case, John, you or Public. Or get started at public.com brewmarkets that's public.com BrewMarkets paid for by Public Investing.

B (3:32)

Full Disclosures and Podcast Description well, let's.

A (3:35)

Take a minute or several to talk about Amazon, which is the Mag7 company that like the others is of course a a major tech business, but it's also still a marketplace and it's also still trying to figure out how to compete in one specific area of retail and that is grocery. So we wanted to break it all down as well as go through some of the other reasons that this behemoth is hitting the headlines yet again. But John, let's take a glimpse at the company's recent earnings.

B (4:01)

Right, so these are from last week. Amazon is a 2.7 trillion dollar market cap company and from the earnings report the was a highlight of all of the tech endeavors, the Trainium AI chips, the robo taxi investments and Annie Jassy really highlighted the cloud. That's aws, the Amazon Web Services saying AWS is growing at a pace we haven't seen since 2022. We continue to see strong demand in AI and core infrastructure and we've been focused on accelerating capacity, adding more than 3.8 gigawatts in the past 12 months, more than any other cloud provider. So they're staying the course. And he also highlighted Grocery, pointing out that the company expanded same day delivery of perishable groceries to a thousand cities and they're looking to expand to over 2,300 communities by the end of the year.

A (4:47)

There is so much going on, we're going to get to groceries, we're also going to get to the cloud. But before we do that, I just want to say, John, I printed out Just the press release, right, for Amazon's third quarter results, which came out right before Halloween last Thursday. And I've got to tell you, as I page through this, there are pages and pages and pages of bullets, which is where the company points out all of the highlights from the quarter. And I've got to tell you the very fact that as you look through these, the things that jump out at me, the way they've empowered sellers with gen AI tools, right, specifically calling out what they're doing to help their 1.3 million independent sellers in the marketplace. They then talk about the Summer I Turn Pretty, which has been aired on, you know, Amazon's video service, drawing 70 million plus viewers globally. They talk about, you know, other agentic AI apps. They talk about the building out of the cloud. They talk about Trainium, it's custom AI chip. They've got pictures on here of data centers. They've got pictures in this press release of boxes full of stuff that they sell. They've got a picture of Thursday night, Thursday Night football. That's football. So just before we sort of unpack some of the specifics here, I just want to point out that taking a massive step back on Amazon and one of the reasons why I personally am utterly obsessed with this company and the job that CEO Andy Jassy fills is any one of these for Amazon could take a bit of a turn in any one particular quarter. But it's got so much going on, it's hard to imagine everything going wrong all at the same time in this business. It's pretty diversified.

B (6:21)

It's incredibly diverse. In fact, sometimes when I hear so much talk about the cloud and aws, which is so important, I forget about the Amazon marketplace. I mean, Amazon, what was it? Oh, right, a bookseller.

A (6:31)

And I think you were saying just we were chatting, Amazon Web Services now, two thirds, right?

B (6:35)

Two thirds of the profit in the.

A (6:37)

Last quarter of the last quarter. So I sort of think about at this point, Amazon Web Services, the cloud service, as the piggy bank available to the rest of Amazon to go experiment in next gen technologies. And it's pretty important that the cash machine that is that cloud business continues to do well now in terms of the market mindshare. The fact has been, for several years, while AWB is the industry's largest cloud provider, Microsoft and Google have been catching up. Yes, they've been growing faster on, off a smaller base. Last week we saw that Google's cloud revenue was up 34% in the last quarter. Microsoft's Azure up 40%. Now when you take a look at Amazon stock, it's only been up about 1% since the beginning of the year. Right. And a big reason why it hasn't been as much of a juggernaut as the other tech stocks is folks have been saying we really need to see that growth in cloud to pick up to make sure that you're staying ahead of your competitors. Well, well, this is the quarter that feels as though Amazon turned around and said, no, look, we've got this, the cloud. Actually, that specific segment reported growth that beat forecasts.

B (7:41)

Yes. Revenue was up 20% year over year to $33 billion. And as you were saying, the stock price was up about 1% as of last week. Then the stock was up 11% jump on Friday after the earnings. Then today, Amazon announced their first agreement to provide computing with OpenAI. And as a reminder, OpenAI had been exclusive to Microsoft until last month. They renegotiated that deal. So OpenAI is going to spend $38 billion for Amazon Cloud Services. And the stock was up another 5% today on that news. And so that's what the market was looking for.

A (8:18)

I got to tell you, we need to talk about OpenAI for just a minute. Right. I don't go off the reservation, but let's just chat about this. OpenAI has just announced it's now split into two pieces. The for profit piece is and the nonprofit piece. In the for profit piece, Microsoft is its single biggest shareholder. Right. So OpenAI's got its shareholder, its nonprofit. Microsoft's got something like 27% shareholding. So that announcement goes out. OpenAI now says, I'm focusing on profit. I'm allowed to do that because I'm a for profit. And then it turns around days later and says, actually, guess what, Microsoft, our biggest shareholder, we're going to strike a deal with your massive competitor Amazon.

B (8:54)

Yes, exactly. They're going, they're going into business with everyone.

A (8:56)

They're going into business with everyone.

B (8:58)

And I think that's important because the market wanted to see if, if they're going to business with everyone, is Amazon going to get in on this. And now they are. They're getting into business with this company that plans to spend trillions of dollars.

A (9:08)

In total. Yeah, in total. Starting with Open Eye spending 38 billion for Amazon Cloud services. Just to put, put that in context, that is smaller than OpenAI's $300 billion deal with Oracle and 250, 50 billion dollar commitment to Microsoft. But this, from Amazon's perspective, is the kind of expansion that the markets wanted to see was available to it. Shares of Amazon did go up 5% on that specific news. But grocery, yes. As much as we're seeing conviction in cloud, as much as we're seeing success in that deal with OpenAI, grocery seems to be the expression I use is pushing food around the plate rather than going on a diet.

B (9:46)

Ah, yes, exactly. And I think Amazon, that makes no.

A (9:49)

Sense to anyone other than me. So we actually dig into it.

B (9:52)

No, I like that analogy. That makes sense. They've been pushing the food around on the plate because Amazon has been trying to get into grocery and having lurching starts and stops. They acquired Whole Foods in 2017 for $13 billion. And you know, at the time still Whole Foods was known as that expensive place that had organic food that was sometimes locally sourced, strict ingredient standards. And, and there's been growing pains for. How does Amazon scale that up? Yeah, and they haven't been growing. That's the problem. Amazon and Whole Foods market share of grocery has not gone above 4% in all of these attempts.

A (10:26)

Well, Whole Foods in particular, which I think we should talk about, when Amazon bought Whole Foods, there were die hard Whole Foods fans who were in uproar and said no. The whole point for Whole Foods is that it's this independent curated, sort of bastion of organic and sustainable and it really stands for something and it has a mission that's completely misaligned with the big scale, you know, no bars, you know, take no prisoners approach of Amazon. That's the opposite of what they are. And, and it was a real issue and there was a concern that Amazon and Whole Foods would be so culturally misaligned that there would be real problems. And, and to your point, Whole Foods has not really grown since that acquisition. Moreover, Amazon has really struggled to figure out what to do with Whole Foods and how to pull it into the family. Now if you walk into a Whole Foods, which I did in preparation for today, you see areas where you can return purchases from Amazon. It's almost become a sort of depot, depot for four shipments. But Grocery in the United States is still controlled by Wal Mart. Right. And Amazon and Wal Mart have been jostling for each other's turf for years now. We saw Amazon Prime Days and Prime Weeks, right, Being explicit targets of Walmart who've gone and launched their own special deals, events. And now we've seen Amazon, to your point, announced that they were going to do same day deliveries because the whole, the nugget that sits inside grocery that's so important is same day delivery for perishable Goods. And Amazon's been going after it. But Walmart does control over 20% of the grocery market right now. This is the last battle field that both of them are going after.

B (12:02)

And part of the change that Amazon is trying to do to remake Whole Foods, to make it work. There was an article in the Wall Street Journal that highlighted one location of Whole Foods in Chicago where they got rid of the coffee shop and installed a 3,800 square foot kiosk called Amazon Grocery. And there you can get Kraft Mac and Cheese and Chips Ahoy.

A (12:21)

Can you imagine in Whole Foods, Kraft Mac and Cheese and Chips Ahoy.

B (12:25)

And it's in the middle, but they're trying to have their cake and eat it too. By, by you walking into Whole Foods and it's a Whole Foods, but sort of like hidden inside it is this place you can get Pepsi if you want to.

A (12:35)

Yeah, it's like the 711 that's hidden inside the store. Well, just at this point, and we saw this in that this clip has been making the rounds. John, you pointed this out where John Mackey, who was a co founder and longtime CEO of Whole Foods, went on a podcast last month and he talked about an activist investor who threatened to take over the board and fire him and other executives. And so Whole Foods just decided that selling was going to be the best thing.

B (12:57)

Yeah, that was back in 2017. He's sort of making the rounds, making it clear he didn't want to be part of Amazon and he's not really happy with these changes. There was one other quote he said when people are saying that the quality of Whole Foods has declined, he said, quote, it's not my problem any longer. I married my daughter off to the richest man in the world. And so he's sort of wiping his hands of it. And I just want to say, finally, the Amazon grocery world is very confusing to me. When I lived in la, there was an Amazon Fresh, there's Amazon Direct, there's Amazon to go. Here in New York you can get Whole Foods delivered and you can get Amazon Fresh delivered. The distinction is confusing to me. So I think that's what these next steps are, is bringing a cohesion. Amazonification of Whole Foods is coming, really.

A (13:50)

Just going to market in one very clear, unconfusing way. Just a final thought on Amazon and again to draw the analogy with Walmart, we talk often about bellwether stocks, which are stocks of companies who are so large and so important either to an industry or to the economy as a whole, that when they announce something Everybody takes notice because it indicates that there might be repercussions for the US economy more broadly. Now, if you think about Walmart, which is one of the biggest employers in the United States, whenever Walmart makes an announcement about, for example, how many people it's going to hire for its stores over the holidays for the market says that is an indicator of the health of the retail industry overall. What struck me very recently was I think Amazon has now become that for white collar jobs. And I'm gonna be really specific. Last week Amazon announced job cuts of 14,000 workers. A first move in layoffs that will exp will affect as many as 30,000 specifically corporate jobs. This isn't in the warehouses, this isn't in the whole food stores. These are the kinds of jobs that people have been saying, is AI going to displace them? Now this sparked a whole debate. If you watch the news around what was the purpose for this? Was it AI or was it just that there had been something called labor hoarding after the pandemic in which companies went out and over hired because they had felt the negative effects of underhiring or laying off too many people? During COVID and Andy Jassy actually the CEO came out and said this is also about culture. We need a culture of excellence. And so we're going to be much more aggressive about reviewing performance and, and frankly, you know, letting go of folks who, who we feel for various reasons aren't the right fit for this moment in time. The reason I bring this up, it may feel like a small point. I do think it is the beginning of a broader trend that we're going to see for layoffs like this to come. So hold that thought. We're going to keep tracking this. We're going to absolutely keep on watching. Let's take a quick break. And when we come back, the farmer war waging in the world of acquisitions. And now a word from our sponsor, Surf Air Mobility. Surf Air Mobility is doing something really intriguing with their platform designed combine three things. A nationwide flight network, AI enabled software and future electrified aircraft.

B (15:54)

That's right. Surf Air Mobility's whole mission is to reinvent short haul aviation, which as you can imagine represents an enormous market. They currently have over $100 million in annual revenue and they're targeting a $100 billion market opportunity by 2035.

A (16:08)

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B (16:19)

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A (16:28)

Air Mobility Inc. Well, there is a new drug war. It is one shaking up the merger world and it is mesmerizing the market. We have Pfizer and Novo Nordisk battling over who gets to buy Metcera, the biotech company focused on obesity treatments. And the drama unfolding around the competing bids is why this deal is our Monday merger moment. Now, what I'm about about to say is pretty dense, but stick with us because this is so unusual that I promise you the market has all eyes on where this one goes. So here's the context. Back in September, Pfizer announced it had entered a definitive agreement to buy Metcera, which is also a public company. It trades on the NASDAQ. Now, Metcera's stockholders would get 47.50 per share in cash up front. So that's about $5 billion of cash to shareholders out of the gate, plus an additional $22.50 per share in cash over time if Mitzera drugs hit certain clinical and regulatory milestones after the acquisition, all in a total offer of up to $7.3 billion. Now, the market reaction to Pfizer's proposal was generally mildly positive, seeing the long term strategic benefit of diversifying because several of Pfizer's key current drugs are going to come off patent. Now, according to Pfizer, it has all the regulatory approvals it needs to wrap up and it's ready to complete the deal, quote shortly following the Metsehra stockholder meeting, which by the way, is just next week. So here is the problem and the drama and the theater. Pfizer's competitor Novo Nordisk just lobbed in an incredibly aggressive alternative bid for Metsera on Thursday just a couple of days ago. And it's an unsolicited offer, meaning that Sarah didn't ask for the bid, apparently. And the total offer for this one is up to $9 billion. Now, Novo's proposal is structured in two steps. It's creative, it's cunning, and it may even, according to M and A experts who I called on this, be unprecedented. So again, stick with me. In step one, right after signing a definitive agreement, Novo would send Metseras $6 billion in cash and in exchange, Novo would get non voting preferred stock, equating to about 50% of Metsera's share capital. Ten days later, Metcera would turn around and send Most of that $6 billion in cash out to its stockholders as a special dividend. Most, not all, can't hold that thought. Now, it's a more complicated way for Novo to get cash upfront to Metsera shareholders compared to Pfizer's method. But it also totals about a billion dollars more getting to those target shareholders than under Pfizer's proposal. Now, in step two, Metsera shareholders would get up to another 21 bucks, 25 per share in cash based on clinical and regulatory milestones, very much like the concept agreed between Metcera and Pfizer. Only at this point, though, would Novo buy the remaining common shares of Netcera and take full ownership. So basically, before step two is complete, Novo is taking a whole bunch of risk. Regulators could block the deal and that would leave Novo with a financial instrument in Metsera, but not actual control of it, which is completely wild. Now, Novo is also in the thick of its own internal drama with seven board members resigning on October 21st. That was reported to be the result of the controlling shareholder, which is the Novo Nordisk foundation, blaming the board for inaction. While the company has lost its head start in GLP1s, the Danish maker of Wegovy and Ozempic, has seen its stock drop more than 55% over the past year. So this is a massive move for Novo to turn up and make an unsolicited bid for another big company while dealing with its own shakeup, including a new CEO in place only for a couple of months. In my own personal view, I would not be remotely surprised if board discussions on this Matsera situation was ultimately the straw that broke that board's back. Well, Metsera has announced that its board believes Lenovo offered to be a superior company proposal, basically one worth dumping Pfizer for. And by the way, Novo would pay for a $190 million termination fee that Metcera owes Pfizer if that deal doesn't go ahead. Well, Pfizer is apoplectic, releasing a statement on Friday that it has launched legal proceedings against Metsera, its board and Novo Nordisk, and lobbing in a second suit today due to just to double down on the point. Now, the suits allege many things, including that the funky two step deal structure is designed to avoid antitrust review. Saying it is a, quote, illegal attempt by a company with a dominant market position to suppress competition. Alleges that Sarah's directors are breaching their fiduciary duties. This is a massive deal. Saying they're basically doing poorly executing on their duty of care towards Macera shareholders. And as evidence, Pfizer points at that board getting an indemnification provision from Novo, which Pfizer claims is, quote, designed to cover their unlawful conduct. And there's more. The suits also claim that the dividend component of the Novo offer violates Delaware law and that Novo's counter wrongfully interferes with the deal agreed with Pfizer, who's asking courts for a temporary block on Metcera from terminating its contract. I know this is dense. I know there was some jargon in there. There is so much going on in this deal. But here's the other nugget. When an American Goliath Pfizer goes head to head with a Danish one, Novo to buy an American target, we cannot ignore the overhang of politics. Just eight days after Pfizer announced the deal with Metcera, Pfizer unveiled a landmark deal with the White House to drop the prices of certain drugs for patients in America and to launch a new direct to consumer pharma portal called Trump Rx, which leaves the market wondering if Pfizer, whose earnings are out tomorrow, will ultimately hold the trump card. We're going to keep on watching. There's our bell. 4pm on the east Coast. The markets have closed and we don't have a ticker tape. So let's throw it over to our human ticker. John.

B (22:29)

That's right. The S&P 500 finished up nearly 2:10. The Dow was down half a percent today and the Nasdaq finished up half a percent. Market headline shares in Berkshire Hathaway jumped 2% this morning on earnings before easing back down to finish in the red. The company reported that earnings rose 34% from a year ago to $13.5 billion. The increase was due in part to a 200% growth in insurance underwriting income up to nearly $2.4 billion, reflecting lower catastrophe losses and improved results at auto insurer Geico. The company also reported that cash on hand and equivalents reached a record high of nearly $382 billion. Shares in Berkshire have fallen more than 10% from their high in early May, right before Warren Buffett announced he's stepping down as CEO at the end of the year.

A (23:15)

And with it, there goes those famous shareholder letters that Warren Buffett writes every year. Well, it is only Monday, but we've got a lot going on this week. We have got earnings coming out from Palantir pretty much any moment now. We've got uber, we've got McDonald's, we've got Kava, we've got a whole host of the big fan favorites coming up. And, of course, hundreds and hundreds of companies are releasing their earnings over the next few weeks. If any of those in particular catch your eye. We've had one request for Macy's from a listener already. Let us know. Drop us an email. We'll make sure to cover it. That's it for today's Brew Markets Daily.

B (23:46)

And Brew Markets Daily is hosted by Anne Berry and produced by John Crateau, Tarkab Deletif and Emily Milian. Our technical director is Uchenawa Ogu, Brittany Dottocco handles audio, and the president of Morning Brew Inc. Is Devin Emery.

A (23:57)

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. Sam.