← Brew Markets
Brew Markets
What Ulta Breakup Means for Target & Soho House Goes Private in $2.7B Deal
00:20:04
What we can expect from Target's earnings this week and why Soho House went private
Loading summary
Transcript38 lines
- [00:01]
A
This episode is brought to you by LifeLock. Between two factor authentication, strong passwords and a VPN, you try to be in control of how your info is protected. But many other places also have it, and they might not be as careful. That's why Lifelock monitors hundreds of millions of data points a second for threats. If your identity is stolen, they'll fix it, guaranteed or your money back. Save up to 40% your first year. Make visit lifelock.com/podcast for 40% off terms. Apply.
- [00:32]
B
UnitedHealth shares are up again after Berkshire Hathaway stake, but is sentiment enough? Ashton Kutcher buys into Soho House what this says about travel stocks and Targets Earnings drop Wednesday why its breakup with Ulta is a sign of things to come for Monday, August 18, it's blue markets Daily and I'm Anne Barry. More market details to come. But first, it's a big week for retail, with Target earnings out on Wednesday morning and arch rival Walmart's due the very next day. Now it's been a rough run up to the numbers drop for Target, with Bank of America's analysts just downgrading the stock to a sell. Now the question is why? Well, here's one sign that we've been fascinated by telling us that Target is in the thick of an existential crisis, and that's the unconscious uncoupling of Ulta Beauty and Target announcing just last week the end of their partnership. The reason hasn't been provided, but I have my theory, so stick with me. I spent a ton of time in the beauty space on the boards of brands and the product developers who fuel them. And not just because it's fun, it is, but because there's major money in this sector. Well, to start with, it is massive, with roughly $700 billion of market value globally. And it's resilient. It spended off recessions with something called the lipstick effect, the theory that in economic downturns, people turn to small luxuries such as lipstick to cheer them up. Ulta, the giant beauty retailer, operates 610 mini outposts inside Target stores, a move that came about in 2021. With store traffic still suffering at the tail end of COVID Target and Ulta United for mutual support. And at the time it made a ton of sense. Well, let's listen to what Target CEO had to say six short months ago about how the partnership was going.
- [02:16]
A
Now we've nearly doubled the size of our beauty business since 2019. Amazing in store presentation and a great digital experience. Our partnership with Ulta Beauty and our assortment that includes some of the leading brands in the industry have combined to make Target an undisputed beauty destination.
- [02:35]
B
So in March, Target sounded upbeat, and it certainly needed a bright spot. The brand's been consistently losing share to Walmart in the world of general merchandise sales, all driving Target stock down over 20% versus five years ago. But in April, the very next month after that optimistic sound, Ulta CEO Keisha Stillman said plans to expand the partnership were on pause to quote, drive efficiencies and leverage the learnings that we've had to really unlock value. So my personal view at that moment, Stillman was only three months into her CEO job, tasked with turning around Alta's own issues like slowing growth. And I've no doubt that the board of Alta told her to take her time to assess the state of the business with fresh eyes before deciding whether to go even bigger with Target. And if I'd been alter CEO Keisha Stillman, I would have been tempted to stop investing in frontpeak Target, too, to focus my energy on getting my Alter back to being retail's beauty queen again. So while there's no official announcement on why the partnership will end when the contract does next year, my guess is that it's because Target's just not cool enough. And that's the heart of the problem for Target, as its stock now gets downgraded and the market asks the question, in the age of Amazon and Walmart, does Target need to exist? Well, going to we're going to be back on this topic later this week, breaking down what those quarterly numbers have to say now. If you're looking for a place to find fresh earnings data, try public.com Brew Markets Daily is sponsored by Public, the platform for folks ready to take investing seriously. Public combines a wide range of asset classes with the tools you need to build and manage your wealth, whether it's with stocks, options, bonds, crypto and more. And if you have questions about your investments, no problem, because Public has Alpha in AI powered research assistant that can help you find the answers you're looking for. Well, our producer John just signed up with Public over the weekend.
- [04:23]
A
That's right, Anne. And this is true. When I got 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 medal worthy.
- [04:35]
B
Well, I'm not sure who deserves the medal, you, John, or Public. Get started at public.com brewmarkets, that's public.com.
- [04:43]
A
Brewmarkets paid for by Public Investing. Full disclosures and podcast description.
- [04:48]
B
Now, when Berkshire Hathaway makes a major move, we sit up and take notice. And it certainly just made one. The investment giant founded by legend Warren Buffett, affectionately known as the Oracle of Omaha, recently disclosed that as of June 30, it held a new stock position. Five million shares of UnitedHealth, the beleaguered health insurance company. Now, before the news broke on Thursday, that position was worth over $1.4 billion. And today, UnitedHealth St stock has still been cruising up in response, hitting a high of over 316 bucks. That's up over 24% versus five short days ago. The best week for this stock since May 2009. So why does this matter? Well, to set the stage, let's recall what's been going on with UnitedHealth. Serving over 52 million consumers, it's one of the biggest health insurance companies in the world.
- [05:36]
A
And Ann, I read that UnitedHealth also owns Optum, which has a vast network of 135,000 affiliated doctors and clinicians.
- [05:42]
B
Yes. So the sheer scale of the company and the critically important nature of what it does means that its fate truly does matter. And until recently, UnitedHealth was a monster on the New York Stock Exchange, too, with a peak market cap of over $550 billion as recently as last year. But it's been plagued with issues ever since, from the tragic murder of a top executive in December 2024. And in May this year, its then CEO abruptly resigned. United States UnitedHealth then suspended its financial guidance for 2025. And in July, the company confirmed earlier reports that it was under a Department of justice fraud investigation. The stock sank down over 60% versus the prior year as a result. Now, recently appointed CEO Stephen Hemsley does think that recovery is possible.
- [06:26]
A
Yeah, and I read he bought $25 million of stock with his own cash when he came back in May.
- [06:31]
B
Yes, he did. Putting his money where his mouth is. The market loves that. And he's so super credible. Hemsley led the business once before, from 2006 to 2017 as CEO with the stock rising well over 300% on his watch. So back to Berkshire Hathaway. Well, its investment in UnitedHealth is a very tiny part of its portfolio. It's less than one half of a percent. But what this represents is much bigger. Berkshire is, in the eyes of the market, the gold standard for investing in the long term in stable cash flowing companies with an edge, a reason for beating out competitors, not just today, but over decades. And so its investment in UnitedHealth is assigned to the market to revisit its views on the insurer, no matter what its troubles have been. Hence the stock running up.
- [07:16]
A
All right, so is it too late for the rest of us who didn't buy last quarter? And with the stock popping again today.
- [07:20]
B
It'S a great question. And it is so easy to get fomo, especially since several hedge funds also disclosed that, like Berkshire Hathaway, they bought United stock in the spring. And you don't always get long term investors like Warren Buffett and hedge funds who are more agile in their trading, aligning in the way that they have on this name. But. But UnitedHealth isn't out of the woods quite yet. The market's been flooded with conflicting opinions on whether the stock can sustain its rise, given the major legal issues still looming. And UnitedHealth also just completed the purchase of a Medicis, a hospice company, literally last week. Integrations are hard, they're tricky. And UnitedHealth needs to prove that it can execute on integrating that business successfully on top of everything else it's got going on. So we and Warren Buffett, not alone in trying to figure this one out. We're going to keep watching. John. Let's turn now to a question from the audience.
- [08:11]
A
That's right, we heard from Rebecca in Austin and she wrote in hey, Anne, I read that Soho House is going private with Ashton Kutcher involved in taking it off the New York Stock Exchange. Cool players, but it's not a massive deal in the grand scheme of things, so why should we care?
- [08:25]
B
I love this, and I'm British, which means I love a healthy dose of cynicism, which is my national trait. Okay, there's definitely more to this than the $2.7 billion deal size, Rebecca, so stick with me. And indeed, there's more than just a celebrity angle, though I will actually say, because I've actually done deals that he's been in. Ashton Kutcher has been a pretty successful private investor. Well, let's set the stage with what's been going on with Soho House, which is the members club and hospitality company that IPO'd back in July 2021. Now, when it did that, there wasn't really a public company quite like it. There still isn't. So it always had its work cut out to balance, keeping the air of exclusivity at the heart of its clubs with the growth that the market demands. Since going public, Soho House has expanded to 46 plus locations around the world and 270,000 members in total. Although bedrooms at the clubs can be booked by non members, rather like a hotel.
- [09:17]
A
And Ann, when I talk to members, several of them say that the quality of services has gone down with the expansion.
- [09:22]
B
Yes, and it's not the only thing that apparently has gone down too, because we take a look at its share price that has also plummeted from a high of nearly $15 after its IPO. The stock has been bumping along, now below 7 bucks 50 for the past two years. Consistent profitability has been at the heart of the problem. Well, this deal has the buyers. We're going to come back to who they are in a minute. Purchasing Soho house for $9 a share. That's more than the $8.88 peak it's traded at over the past year. All those eights, by the way, is lucky in some cultures. So unfortunate for Soho House. So shareholders who've held over that time are getting their money back with this $9 per share deal.
- [10:00]
A
And I remember Soho House rejecting an offer in May. Last stock was down at $5 and it was its darkest hour. One research firm likened Soho House to the recently bankrupt WeWork.
- [10:10]
B
I remember that that was not a good day for Zoho House. Well, the company thought it could turn the business around, but, and we're going to talk about this a lot on this show, it's very hard for companies to do turnarounds while they're public. There is scrutiny from the market every single quarter for signs of improvement when realistically, it can take years to show real progress. And public investors often don't have that patience. And that's why private equity funds find the chance to buy companies like this one and take them off the stock exchange to do that hard work without quarterly pressure and scrutiny. I worked in private equity for a long time and I did this myself. Although that's a story for another time.
- [10:46]
A
We're definitely coming back to that.
- [10:48]
B
We will with the next example. But for now, here's why this deal matters. Let's look at who is buying Soho House. Well, there is a private equity fund involved here. It's called Yukaipa, which already owns a big stake and will hang on to it. There's the founder, Nick Jones, and yes, there's Ashton Kutcher joining the board. But what really catches my eye is that the new control buyer is Hotel owner MCR, which has 150 hotels, including some pretty iconic ones with a strong experiential flavor. Like the TWA at JFK airport in New York and the BT Tower in London, which is where I grew up.
- [11:21]
A
As a side note, I would never have guessed from the accent.
- [11:24]
B
Well, MCR will understand how to operate the hotel side of Soho House, given what it already does. But the private members club business is a fresh move to diversify. And that's the angle for me here. All the hospitality players, the stocks that we're following in the space in the sector, they're all moving to diversify. That's what I'm watching. And this is just a sign of the next wave to come. Big hotel brands like Hilton, the $63 billion market cap player, diversified into vacation rentals or timeshares ages ago. Now the Waldorf Astoria brand has moved into river cruises. The luxurious Four Seasons and Ritz Carlton hotel banners are now hosting travelers on yachts. And then, and this was the biggest one for me, there's Airbnb, the very company that made its name disrupting the hotel sector with home sharing. Yes, even BNB said on its earnings call earlier this month that will be diversifying, quote, going significantly more aggressively into hotels by including boutique properties on its platform. Now its share Price is down 14% since its IPO. Airbnb is under pressure to change things up. And just like the others, diversifying is the way it's doing it.
- [12:30]
A
And we'll keep watching these travel trends. The Soho House deal, there's lots more to it than meets the eye.
- [12:35]
B
Let's take a quick break and when we come back, you might be able to get those popular weight loss drugs for half off. We'll tell you how. Welcome back to Brew Markets Daily. Well, Danish pharmaceutical giant Novo Nordisk saw its stock price up today on positive news about its blockbuster weight loss drugs, Ozempic and Wegovy. The first boost came from the company's announcement that the U.S. food and Drug Administration has greenlit Wegovy for the treatment of mash, a serious liver disease. But what really caught our eye, the news that really drove the share price today is that Novo also announced a new partnership with prescription discount platform Goodrx. Goodrx will offer a 50% discount on Ozempic and Wegovy for patients paying out of pocket. That's good news Amongst a rocky 12 months for Novo, once Europe's most valuable company, even surpassing luxury titan LVMH in Denmark's own GM gdp.
- [13:31]
A
Yeah, it's been interesting to read why Novo Nordisk has seen its stock tumble nearly 60% over the last 12 months. The company Cut guidance twice this year and replaced its chief executive. And despite a sprint start in GLP1s with about 10 million Americans currently using them, Novo has struggled to scale up production fast enough to meet that demand. And that should have been a high quality problem to have.
- [13:50]
B
Yes, and instead of being a high quality problem, it just let in new entrants. And the market is getting bigger fast, with Morgan Stanley projecting GLP1 user numbers to double within within the next decade. Now, that shortfall led Novo to strike partnerships with telehealth pharmacies to produce compounded versions of the GLP1 drug. These ultimately came to be known as copycats. And it turns out that by letting those compounders come to be, they were letting a fox into the hen house.
- [14:17]
A
Yeah, and the most public fallout has been with telehealth platforms HIMS and hers, which, which share price has been a rollercoaster. It had a relationship with Novo that went sour when him's copycat compounds were sold for longer than anticipated.
- [14:29]
B
Now, by partnering with Goodrx, Novo gets to set a new price point for patients not using insurance. Another step in finding market share as it tries to fend off competitor Eli Lilly, whose Zepp bound has encroached on Novo's GLP1 turf. Novo Nordisk stock price was up over 4% today, while shares in Goodrx were which has been patiently waiting to pick its spots in the GLP1 market soared over 40% for the day. It's 4pm on the east Coast. The markets have closed. And while we don't have a ticker tape here in the studio, we're going to throw it over to our human ticker. Our producer John. How did the markets close out today?
- [15:07]
A
Well, The S&P 500 closed flat and shares in Meta were down over 2% today on the news that the tech giant is overhauling its AI operations for the fourth time in six months.
- [15:18]
B
Well, the market doesn't mind overhauls because if it understands them, there's forgiveness for it. And it says, you know what, there could be a benefit. Got to tell you though, four overhauls in six months. Starting to look like chaos over there at Matter.
- [15:29]
A
And let's move to the nasdaq, which ended flat, as did the Dow.
- [15:33]
B
Well, the overall backdrop for the indices today, the market was watching very closely. Where next for Ukraine and prospects for peace? Flat market, really, because there wasn't a solution that came out of the White House today. But we're going to keep tracking this as talks with European leaders in D.C. right now. Continue.
- [15:49]
A
But one sector that did move with conviction, solar energy stocks climbed today after clarification on Friday from the Department of Energy that some wind and solar projects will still qualify for Biden era federal tax credits that the market had feared would quickly disappear. Sunrun, the nation's biggest residential solar installer, as well as sector names SolarEdge and NextTracker have all seen their stocks up 20 to 30, 30% since the news.
- [16:14]
B
And another big mover that caught our eye today was Bitcoin miner and AI data center operator Terrawolf. Stock symbol W U L F. That's Wolf with a U. Now we weren't watching this one until last week when Google announced a $1.8 billion investment in exchange for an 8% stake. The search giant clearly liked what it saw because it today announced a further investment to up that stake to 14%. Terra Wolf shares up more than 10% today on the news. We'll keep watching this one as the rush to build our AI infrastructure continues and new stocks perhaps we were not paying attention to before capture the market's attention. And finally, we're going to be up late tonight watching more earnings results come in. We've got cybersecurity giant Palo Alto Networks just dropping its earnings. That earnings call happening at 4:30pm today after we drop the show market waiting earnestly for more details on its purchase of Cyberark. We'll be coming back to you tomorrow with details on the deal. That's all today, folks, for today's Brew Markets Daily.
- [17:12]
A
Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tariq Abdelatif and Emily Milian. Our technical director is Uchena Waugh and the president of Morning Brew Inc. Is Devin Emery. If you'd like to get in touch, send an email or voice memo to BrewMarketShow at morning Bukom.
- [17:28]
B
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 Cosa Tubusto Bibimos con Alberca Cascada, Tina, Yuna Regader and Crible Expedia B Vimos paraviajar.