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Morning Cents: June 15, 2020

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June 15, 2020 – Quibi’s murky future, Deutsche Bank’s comeback and a short-lived milk boom.

Today’s newsletter is 1175 words, a 7-minute read. Let’s get to it:

Quibi on Pace to Hit Less Than 30% of Year-One Paid Subscriber Goal

The ground is shrinking for Quibi. The short-form video platform, a new entrant into the streaming wars, is on the verge of completely whiffing on its subscriber goal for year one, according to The Wall Street Journal. The company projected 7.4 million signups throughout the first year. Now, Quibi will be lucky to get to two million paying subscribers.

Why It Matters

Quibi’s arrival came incredibly hyped up as one of the most well-capitalized media startups ever. Its unique format, episodes in 10 minutes or less, seemed like a unique solution to an underserved space within the streaming wars.

But the company has been plagued by missteps. It’s 90-day free trial made no guarantee of subscriber retention, and the app’s puzzling decision to launch without the capability of watching on TV resulted in a scramble to add the feature. There’s also discord in the executive suite — The Wall Street Journal published a deep dive into the tumultuous relationship between founder Jeffrey Katzenberg and CEO Meg Whitman.

Katzenberg blames “everything” on the effects of the Covid-19 pandemic, and the company made a decision “to reduce its marketing in light of protests sweeping across the U.S. following the killing of George Floyd, according to The Wall Street Journal.

However, the clock is ticking. Based on how much cash Quibi is burning, the company will need to raise an additional $200 million by the second half of 2021. And even with a stable of top talent producing content for the platform, the future looks very murky.

Numbers to Consider

  • 5 Million – The approximate difference between actual subscribers and Quibi’s goal for year one.
  • 4 Million – The number of downloads Quibi received from April 6 to May 28, although only 30 percent became active users, according to Apptopia.
  • $1.75 Billion – The amount of funding Quibi has raised from investors.

(FULL STORY – VARIETY) (DEEP DIVE – WALL STREET JOURNAL)

The World’s Best-Performing Big Lender? Deutsche Bank

Deutsche Bank AG has had its struggles, battling persistent operational and legal problems for years. But a year into a turnaround plan that has scored some key, early victories, it is “the best-performing large bank stock in the world.”

Why It Matters

This bank has reversed course, choosing to abandon a strategy of going toe-to-toe with Wall Street’s giants. Instead, it’s ushered in a plan centered around sharp cost cuts, reducing U.S. operations and dumping risky assets. With new Chief Executive Christian Sewing leading the management team, investors are optimistic about the changes the bank is making and the impact of Germany “spending heavily to keep its economy afloat.”

Investors and analysts still advise caution when considering the bank’s turnaround. It’s difficult to predict the long-term effects of the coronavirus pandemic, and Deutsche Bank has tried to restructure itself under less severe circumstances, many times before. Other issues include the bank’s relatively low price-to-book ratio, its inability to make money and curb spending, legal troubles in the U.S. and Europe, scrutiny over ties with Russia and business with President Trump.

Deutsche Bank doesn’t have anything to write home about yet – it’s shares are far from pre-2016 prices. But the initial signs are encouraging.

“At the end of the day, Deutsche Bank is sitting at the right place,” said Andreas Thomae, senior portfolio manager at Deka Investment, a German investment firm, according to The Wall Street Journal.

Numbers to Consider

  • $9.39 – Deutsche Bank AG’s share price.
  • 19 Percent – How much Deutsche Bank’s shares have risen this year, compared to an index of European bank stocks that have fallen 35 percent.
  • $1.5 Trillion – Germany’s spending, in U.S. dollars, to keep businesses and households afloat in response to the pandemic.

(FULL STORY – WALL STREET JOURNAL)

Why Milk’s Best Sales in a Decade Won’t Save Struggling Dairy Farmers

Milk is having a moment. The quarantine lifestyle of the Covid-19 pandemic has caused a spike in demand for dairy products, reversing a decade of declining numbers.

Why It Matters

While the dairy industry hoped for a lucrative 2020, built on reduced milk supplies and strong demand, the pandemic erased a large chunk of the market. Plus, about half the milk on U.S. farms is used to make cheese; around 50 percent of that is sold to burger chains, pizzerias and other institutions.

So, in the interim, rise in demand has caused a price jump. And farmers are trying to use the opportunity to boost their balance sheets in the process. But analysts say it’s short-lived. The industry still faces reduced demand from restaurants and foreign buyers as a fallout from the pandemic. Once government purchases slow and restaurants refill their inventories, prices should drop again.

Numbers to Consider:

  • $3 Billion – The relief funds the U.S. Department of Agriculture promised to buy dairy, meat and produce to be distributed through food banks.
  • 80 Percent – How much future prices for Class III milk, used to make hard cheeses, have surged at the Chicago Mercantile Exchange.
  • 7 Percent – The rise in sales of cow’s milk at supermarkets in the U.S. since March.

(FULL STORY – WALL STREET JOURNAL)

A Quick Look

Tonik raises $21 million to launch digital bank in the Philippines (LINK – TECH CRUNCH)

  1. Tonik Financial, a two-year-old startup in the Philippines, raised $21 million in new funding to launch its digital bank targeting the Southeast Asian market this fall.
  2. The startup has raised $27 million to date and is hoping to capitalize on the $100 billion of unsecured consumer lending in the Philippines (Disclosure: Tech Crunch stated it could not independently corroborate this market estimation).
  3. Digital banks have growing in popularity in Western countries, and the ideas are slowly drifting to Southeast Asia – in the Philippines, “over 70 percent of the population remains unbanked.”

Worth Your Time

It’s A Niche World After All: The internet killed newspapers, right? Well, not exactly. The evolution of media is a bit more complicated than that. As media continues to trend toward a wide array of niches, Ben Thompson examines what factors drive success and where it’s headed. (LINK – STRATECHERY)

Making Oil History: BP’s $17.5 billion write-down will be the largest by an oil major in years. The nationwide shutdowns caused by the pandemic is accelerated the world’s shift to a lower-carbon economy. While prices are down and demand is weak, the British energy giant may leave some of its oil and gas in the ground. (LINK – WALL STREET JOURNAL)

A Dangerous Undertaking: Football had the luxury of waiting and seeing when it came to the pandemic. But now that the NFL season is coming back into focus, we’re forced to confront an unfortunate truth – football isn’t social distancing compatible. Is it too dangerous for the NFL or college football to return in the fall? (LINK – WALL STREET JOURNAL)

A Couple Cents on Social

Watch Justin Oh sit down with Hindon CEO Noah Krimm (YOUTUBE)

Catchup on Justin Oh’s long-form discussion with Austin Hankwitz from last week (YOUTUBE)

Show us what your favorite excel model looks like (TIK TOK)

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See you tomorrow!

— Justin Birnbaum

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