John Couteau (4:11)

So Surf Air Mobility believes they are redefining short haul aviation with a combination of AI enabled software and future electrified aircraft. Their software platform, Surf os is designed to improve the efficiency and reliability of air mobility.

Ann Barry (4:25)

Powered by Palantir, Surf OS aims to streamline flight operations connecting airports that are often underutilized to enable faster, more accessible air travel.

John Couteau (4:33)

Surf Air Mobility's approach aims to address the air mobility market, which is estimated to reach $100 billion by 2035.

Ann Barry (4:40)

More details about Surf Air Mobility visit surfair.com Morning Brew this is a paid advertisement for Surf Air Mobility Inc. Full Disclosures in Podcast Description well we are off to the races with earning season and we thought to dig into a couple of the big ones that caught our eye. Starting with let's go with dining because we have seen eat that's Brinker do pretty well so far this earnings season. John Chipotle on the other hand, that's ticker 6 CMG. That's for Chipotle Mexican Grill market cap $45 billion shares down a whopping 20% this morning. Hot off the earnings coming out, it did ease back closer to an equally disappointing 15% down and it's down 45% year to date. Well, just to set the stage a bit, total revenue increased by 7 and a half percent to $3 billion. But that's mainly because there were new restaurants that were opened right?

John Couteau (5:33)

They opened up 84 new restaurants.

Ann Barry (5:34)

So same store sales though, which is the golden metric. This is what everybody looks for in both retail and restaurants because that is for a store that's been open for at least 12 months, you're truly looking apples to apples. They were essentially flat. But the key kicker here that really got everyone down is the company lowered guidance and said that it expects full year comparable restaurant sales declines in the low to single digit range. Now this was once a golden child. It had a stellar CEO who went over to Starbucks. We're going to come back to that in a moment. But at the mom, Chipotle is just really struggling.

John Couteau (6:08)

That's right. And the CEO on the call said Chipotle is overindex to a younger consumer who is particularly under pressure. So we keep talking about this. People are spending less and the consumer. But I found this one thing interesting. I live here in Manhattan, I don't own a car. I did not know that there are things called Chipotle which is the drive. Drive for Chipotle.

Ann Barry (6:28)

Yeah.

John Couteau (6:28)

And so there does seem to be a little bit of hope there on the earnings call quote, they continue to perform well and are helping enhance guest access and convenience as well as increase new revenue, restaurant sales margins and returns. So that's one area that Chipotle is trying to expand. But again it seems like it's fast casual is taking a big hit this summer. We've seen the numbers down ever since July and Chipotle is no exception.

Ann Barry (6:52)

Yeah. And just interesting that this Chipotle and to your point are in areas where people are much more using their cars to get around where we're really seeing a hit. And fast casual, we're seeing it too in Carver. We're seeing it in Sweet Greeners, in the urban centers by the office blocks where folks, you know, walking to go pick up their lunch. That's what people are saying. No sandwiches made at home will do.

John Couteau (7:09)

How do you think the through works? Because isn't part of it where you lean over the sneeze guard and you point at the protein you want? And I just, I don't know how that works.

Ann Barry (7:17)

I think there's app magic to some of this. I think there's that magic to some of this. Well let's talk about Starbucks and talk about again that all important same store metric because Starbucks released earnings today. Profits missed forecasts. But the CEO really tried in the media rounds today to focus everybody's attention on yes, same store sales growth because the company had its first positive quarter of that in nearly two years. Years. So sort of middling. Good news. I personally thought this was a fairly mediocre sign that good things were to come. And the share price, they did nudge up 1% day in response to that.

John Couteau (7:51)

And that's also positive on a global scale. So it was pretty flat in the United States and then a little bit of growth in China.

Ann Barry (7:58)

It's interesting, I saw Brian Nicholl, the CEO of Starbucks, getting interviewed on CNBC this morning and he made quite a concerted effort to sort of give a shout out to the team in China saying they're really trying to figure that market out. You know, earlier this year he'd announced that he was looking at strategic alternatives for the Chinese business.

John Couteau (8:13)

Partnerships.

Ann Barry (8:14)

Partnerships the company's been losing share to Luckin Coffee, which is a local competitor, had been rumored to be on the chopping block. So sort of up for sale is one option that's being explored right there. So we'll keep on watching this one again also to see can Brian Niccol do at Starbucks what he had done before he left Chipotle, which was really get that business humming, including I think getting Chipotle off the ground. Let's take a look now at the Mag 7. Always important. You know, I know that people I think are getting a bit of mag 7 fatigue, John. And we see that in some of the comments actually that folks send after listening to the podcast or watching us on YouTube. Nevertheless, it is 30ish percent of the S P500. So here goes. Starting with Microsoft market cap nearly $4 trillion right around Apple Nvidia of course knocking both of those off the pedestal. Revenue at Microsoft up 18% to $78 billion, beating estimates as it also did when it comes to earnings per share which again saw a beat but there fight by 12 and a half percent. Now the areas that really saw I think SOR outsized performance relative to expectations was revenue in productivity and business processes hit $33 billion, which is an increase of 17%. And the reason that that particularly caught my eye is that's the area I think folks in the market are really eyeing to see if AI is actually paying off in a tangible way.

John Couteau (9:38)

Right, that's very interesting. And that includes the Microsoft 365. That's the, that's their classic software enterprise.

Ann Barry (9:44)

The Office suite.

John Couteau (9:45)

Yeah, the Office suite. And I just want to point this out. I was looking Microsoft's earnings information today so I went to their investor relations website and I wanted to see their slides, the press release financials and of course I was unable to open any of them. I don't have the Microsoft 365 on.

Ann Barry (10:03)

My computer on your Mac, right?

John Couteau (10:05)

Yep, that's right. And they have. It's an Excel spreadsheet, it's a PowerPoint document. So hats off to Microsoft. They're not putting these things in a PDF. You have to convert them if you want to, if you want to see those earnings. But. So that's one area. But of course, the other one where things are doing well is the cloud.

Ann Barry (10:23)

Exactly. Can I just. Before we talk about the cloud, though, can I just do a massive shout out to our producer, John? The music to my ears that you went to the investor relations website and tried to download all the primary information. One of the things we do try to avoid is other people's headlines. We do like to go straight to the source. We love going through earnings calls, transcripts and actually getting into that underlying source data itself. Well, the cloud, as you say, was a standout for Microsoft as your cloud saw revenue up 40%, topping estimates, which was a relief, actually, because I feel as though, you know, outage on Wednesday when it came to Azure services, businesses around the world are being impacted. I really think if cloud revenue at Microsoft hadn't been stellar, people would have absolutely jumped on that and been really stressed about it.

John Couteau (11:08)

Without a doubt would have been very bad timing, which was pointed out. And then also this week, you know, the news was about Microsoft's investment in OpenAI. OpenAI restructured. And so I just want to. To recap that. Microsoft has committed $13 billion investment into OpenAI. That's a 27% stake and the terms of the new deal, OpenAI has committed to spend $250 billion on Azure. And so that's where that money is coming in, so from the cloud. So things like ChatGPT queries are going to run on Microsoft's cloud infrastructure. And on Wednesday's earnings call, the CEO Satya Nadella of Microsoft said the relationship with OpenAI is, quote, one of the most successful partnerships and investments ever seen. We continue to benefit mutually from each other's growth across multiple dimensions.

Ann Barry (11:55)

I've got to tell you, that word mutually jumped out and another word for that is circular. You know, that's. And I think it's the kind of thing that the market's looking for at the moment. I think they're trying to read between the tea leaves. So just to go back over the numbers you just articulated, John, $13 billion committed by Microsoft to open it AI. It's an investment that's made for 27 stake. OpenAI committing to $250 billion spend back with its Investor Microsoft. These are the kinds of things that's getting a lot of at the moment. Now the Microsoft share price was down 2% this morning. There is just a little nervousness as we seen up the top with Meta. It feels like it's extending over to other names in the mag 7 just because there's been such a great run. Microsoft is up 25% year to date off the back of already strong 2024. So the stakes are high. Expectations are high for these. Also high for Alphabet.

John Couteau (12:45)

Yes. And they delivered according to what the markets saw today. They're obviously the parent of Google Ticker Go and the market cap is $3.4 trillion. Their shares were up as much as 5% today and Alphabet is up 50% year to date.

Ann Barry (13:02)

Why do I find GOOG so funny? I mean I just say that ticket all the time. I still get a chuckle out of it.

John Couteau (13:07)

It's hilarious.

Ann Barry (13:07)

Okay, good.

John Couteau (13:09)

And so Google Alphabet, I should say, hit record revenue of $102 billion, which beat expectations. And on the earnings call, Alphabet CEO put that 100 billion in perspective saying quote, Five years ago our quarterly revenue was at 50 billion. Our revenue number has doubled since then and we are firmly in the generative AI era. Alphabet raised its its estimates for capital expenditures. So that's the thing we keep talking about spending on AI to a range of 91 to 93 billion. Last year they spent 52 ish billion dollars and so they're nearly doubling their AI spend.

Ann Barry (13:45)

I just want to hone in on that quote from Sundar pichai, the Alphabet CEO. And just to say that again, what John said five years ago, our revenue is at $50 billion. Our revenue number has doubled since then and we are firmly in the generative AI era. I think one of Sundar Pichai's superpowers is the art of storytelling, right? The way that he just broke that down into a sound bite that everyone can understand, it feels very impressive. It is objectively impressive and we can really intuitively understand it. More CEOs are going to have to do that I think in order to get the message across on why this astronomical amount of capex is justified. Well, just like Microsoft, Google's cloud division popped just over billion in quarterly revenue up 34% year over year. Cloud is something people have been watching very closely to see if those high double digit growth rates can be sustained. Now the one area that we were keeping an eye on is search, right? We've actually talked a lot, you and I John, about what chat, GPT and Gen AI might do as folks start to substitute those apps for the traditional search engines. But it looks as though Google's doing all right so far for the last quarter, reported $56.6 billion in search reven revenue up nearly 15% year over year. That being said, this predates the launch of OpenAI's Atlas browser.

John Couteau (15:05)

That's right.

Ann Barry (15:05)

Right. And I didn't see much conversation around it in the earnings call transcript today, but definitely looking out for that as we go into the end of the year.

John Couteau (15:12)

Exactly. A highlight on cloud. And then sometimes you forget this is such a big company. Alphabet. They also have Waymo. And so I just wanted to point out to you that Waymo aims to open service in London coming soon, so maybe the next time you visit there. And they're also expanding domestically. Dallas, Nashville, Denver and Seatt on the docket.

Ann Barry (15:29)

And also to your point, they have so much going on over there. Let's just talk about YouTube for a nanosecond brought in $10 billion in revenue, up nearly 15% year over year. YouTube is eating our eyeballs.

John Couteau (15:40)

Yes. And more about that later when we talk about the markets. And just to put a wrap on the earnings roundup, we love hearing from the audience.

Ann Barry (15:48)

Yes.

John Couteau (15:49)

What companies they want to hear us cover? Put it in your comments or send us an email. Next week we're going to hear From Palantir, Shopify, DoorDash, Live nations and hundreds of other more. So drop us a note if there's one that you want to hear about.

Ann Barry (16:03)

We'll break it down. Meantime, let's take a quick break and when we come back, AI leaves Chegg on the brink of extinction. Can returning CEO Dan Rosenzweig save it? Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value in fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard makes institutional quality the standard for their across the board, They've got over 80 bond funds managed by a team of 200 experts, from analysts to traders to sector specialists. The bond market is complicated, but Vanguard can help make it make sense with scale, consistency and zero drama. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio that's vanguard.com audio all investing is subject to risk. Vanguard Marketing Corporation Distributed this episode is.

LifeLock Advertiser (17:01)

Brought to you by Lifelock It's Cybersecurity awareness month and LifeLock has tips to protect your identity. Use strong passwords, set up Multi factor authentication, report phishing and update the software on your devices. And for comprehensive identity protection, let LifeLock alert you to suspicious uses of your personal information. Lifelock also fixes identity theft, guaranteed or your money back. Stay smart, safe and protected with a 30 day free trial@lifelock.com Podcast terms apply.

Ann Barry (17:29)

A textbook company at risk of extinction seeks a CEO who's brave or foolhardy enough to take the job well, someone has stepped up to the seat at Chegg. That's ticket C H E G G and as far as turnarounds go, this one is set to be so hard that we wanted to dig into who exactly it is who signed up to try it. Well, to set the stage, let's take a look at Chegg, whose share price is down 98% over the past five years. Well, the online education company founded 20 years ago, started life as a textbook rental business and it challenged the stranglehold that incredibly expensive textbook publishers had on getting learning materials to students. They were democratizing access to learning materials. Well, check went public in 2013 and added homework help and tutoring to its services. And when you look at its stock price, it hit a high of nearly 114 bucks a share in February of 2021, boosted of course by a shift to remote learning during the COVID pandemic. But since then, the stock has wiped most of its value, and in April of this year it risked being kicked off the New York Stock Exchange because its price was so low. So that market cap, which peaked at nearly $15 billion, sits today at only about 110 million. What a crazy fall. Well, it is a textbook example, yes, pun intended, of how technology can so quickly disrupt the disruptor. Because in May of this year chegg laid off 22% of its workforce, citing adoption of AI as the reason. And its revenue has continued to drop, resulting this week in check laying off another 45% of those who are remaining. Well, at the same time, the company announced that its CEO only 18 months into the job, although a long time at the company before that, is being replaced by his predecessor and executive chair of the board, Dan Rosensweig. Now, Rosensweg is no stranger to bobbing and weaving between old school and tech forward industries, which is a good thing. So let's take a look at what he's done. In 1983 he began working at Ziff Davis, selling magazines, yes, print magazines to independent computer Retail stores by cold calling them his. He worked his way up to become publisher of PC magazine, successfully expanding its readership. And then his path evolved from there on from print media to digital. He had a leading role at CNET, a technology review website. And then in 2002 he went over to online search, becoming chief operating officer of Yahoo. Remember them? For five years. Years after that, he had a quick stint at a private equity firm called Quadrangle. And then after that, another very quick stint as just under a year as CEO of the rhythm game Guitar Hero, which, by the way, I loved reading about because I love Guitar hero. Well, in 2010, he started his 14 year tenure at check, taking it public and diversifying the business model. So when you take a step back, Rosenzweig's done a lot of moving around. He's seen a lot in different roles and he's seen them in different changing industries. He's also familiar with struggling publicly companies. He sits on the board of Rent the Runway, which has seen its share price drop almost 99% over the past five years as it struggles to make a profit. It's been on the brink of bankruptcy several times. And he's on the board of Adobe, share price down 24 over the same period as it wrestles with competition in generative AI. But whether Rosen swag can be part of the solution rather than being there observing all these problems remains an open question. Question now, on the same day that he became CEO, Chegg released a statement saying that it spent a year evaluating, quote, a range of potential outcomes, including being bought and going private. But it decided, I put this in air quotes, to remain a public standalone company after, quote, thoughtful consideration of multiple proposals. Look, I know nothing about what's actually going on inside this business, but here's one person's view. I'm pretty willing to bet that no one turned up to buy it other than an absolute bargain basement price. This company is low on cash. It's burning what little is left and investing behind. It doesn't look appealing without a clear strategy for dealing with AI. So can Rosenzweig change people's minds? We're not going to know for a while. We're certainly though going to keep on watching. Well, it's 4pm on the east Coast. The market's wrapping up. There's the closing bell. We don't have a ticker tape, but we'll throw it over to our human ticket, our producer, John.

John Couteau (21:51)

That's right. Indices all down across the board. Today The S&P 500 was down 1% the Dow was down a quarter of a percent and the Nasdaq finished down 1 1/2 percent. And of course we talked about Alphabet and YouTube a moment ago. YouTube TV now has about 10 million subscribers and it is flexing its muscle over carriage negotiation with Disney. The two sides have until midnight tonight to reach a deal to keep Disney properties like ABC, ESPN and FX on YouTube TV. I'm aware of the situation because the New York ABC channel has been running warnings during Jeopardy and Disney is just the latest as in the past few weeks YouTube has had carriage showdowns with few Fox and Comcast's NBCUniversal. Oh, and about Comcast, its shares were down over three and a half percent today as the company announced it is earnings that it lost 104,000 broadband customers last quarter alone. Big changes come to the way media is delivered.

Ann Barry (22:44)

Lots and lots going on there. Well, a final thought today, we couldn't wrap the show without touching on what's going on in the trade wars between the United States and China. President Trump and China's Premier Xi Jinping have just wrapped their first, first in person meeting in six years with a slight reduction in US Tariffs on Chinese imports. Now in return, China has promised to take quote, very strong action on chemicals used to produce fentanyl. Also agreed to buy large amounts of soybeans, which is very important for the agricultural industry here in the US and has also agreed to ease some details to come controls on exports of processed rare earth minerals for a one year period. Just to zoom in on that, China sits on about 70% of access to the world's rare earth minerals and controls at 90% of processing this incredibly precious stuff. And just one other nugget that I'll let in there. I was at actually an event at JP Morgan this week listening to some of their leaders talk about trends that they're seeing. And one factoid that was presented by one of JP Morgan's speakers is that China graduates every year, more engineers than the entire west combined. So if you think about that race for leadership in STEM and in science, it really is intense. Well, US Levies on Chinese imports will after these concessions still sit at historically high levels of 47%. And look, as we know, this Trans Pacific relationship is volatile. We have no idea if this is going to stick. The details are pretty limited. We've got some high level nuggets today, but we're going to keep watching because one other thing that's really important here, President Trump did tell reporters that another topic that had been discussed as part of this conversation was how to bring an end to the conflict in Ukraine. That's it for today's Brew Markets Daily.

John Couteau (24:30)

Brew Markets Daily is hosted by Ambery and produced by John Couteau, Tarkab Delatif and Emily Milian. Our technical director is Lonnie Fiskas. Jim Orzo handles audio, and the president of Morning Brew Inc. Is Devin Emery.

Ann Barry (24:41)

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.

Instacart Advertiser (24:59)

And now, a scary story brought to you by Instacart. Saturday was busy, but now it's Sunday. So you're rotting in bed, and that's when you start to smell something rotten, and it's not you. You follow the smell to the laundry room, where you find a full pile of of laundry and an empty container of detergent. Panic sets in. But then you open Instacart and order everything you need to get your life back together delivered in as fast as 30 minutes for one less Sunday. Scary. We're here.