STARBUCKS

Starbucks’ Banner Years of Growth Are In Trouble As Weaker Consumers Push Back on Higher Prices, Long Waits, and Political Controversy

You can mix and match milk, syrups, and additions galore — but no amount of special orders seems to help Starbucks ($SBUX) with its Trenta-sized cup of problems. The coffee giant is facing a series of challenges after years of banner growth, managing over 38K global stores, including thousands in international markets like China.

Sound of the Siren: Starbucks’ reputation has waned among its affluent consumer base over the past two years. First, due to its controversial anti-union stance — and later, because of its employees’ views on the war in the Middle East. But the biggest issue is on its menu. Repeated price hikes have pushed many customers away, creating a “nightmare” situation for the world’s most valuable coffee company.

• With customers cutting back, Starbucks has now reported two consecutive quarters of sales declines — down 3% year-over-year in its latest earnings report.

• Along with slowing revenue, the company has had to beef up wages and offer deals to boost demand — leading to a 7.5% drop in profit for the quarter.

Serving Investors a Cold Brew

In tough times, Starbucks could once rely on CEO Howard Schultz, who led the company on three separate occasions. However, Starbucks’ latest serving of economic angst comes at a trying time for the brand, which will now rely on a new face to fix the company’s issues — CEO Laxman Narasimhan.

• Narasimhan, who took over in Mar. 2023, says the company is “making real progress” despite a “complex” consumer environment.

• Service speed and quality improvements, especially for mobile pickups and drive-thru orders, are underway to address customer complaints.

Cloudy With a Chance of Profits: Starbucks is hardly the only brand struggling with customer pushback over higher prices. McDonald’s ($MCD) and Yum Brands ($YUM) have also seen declining sales this earnings season, and all three brands are offering discounts to bring back customers. However, Starbucks’ recent missteps have put Narasimhan — a former PepsiCo exec — in the hot seat. With criticism from an increasingly skeptical activist investor, Elliott, and former CEO Schultz, many analysts are uncertain whether he can solve Starbucks’ unique issues.

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LARGECAP RECAP

☁️ Microsoft’s Cloud Revenue Falls Short, Overshadowing An Otherwise Strong Quarter for the Tech Giant

You’d think double-digit growth would be enough to satiate tech investors, but for Microsoft ($MSFT), a 15% year-over-year (YoY) revenue increase wasn’t enough to keep its stock from dipping. On Wednesday, shares fell as its closely-watched Intelligent Cloud and Azure Cloud segments missed analysts’ estimates, dimming an otherwise bright quarterly performance. Making matters worse, the company lowered its outlook for the coming quarter.

• Azure and other cloud services grew 29% YoY, slightly below the 30% expected by analysts. This is the first time since 2022 that Microsoft’s cloud growth didn’t surpass estimates.

• The company’s Intelligent Cloud segment missed analysts’ consensus revenue estimates, coming in at $28.52B (+19% YoY).

Forward-looking: Microsoft’s cloud shortfall overshadowed a 61% acceleration in its Xbox revenue, plus a 19% rise in search and news advertising revenue — both near-records for the divisions. Despite this, cloud and AI revenue remains the star of the show. Microsoft notes that nearly a third of its Azure growth was driven by AI, with big-name brands like TikTok representing up to a quarter of its revenue. This means full speed ahead, especially as competitors like Google ($GOOG) and Amazon ($AMZN) continue pouring money into AI — even with the industry’s prospects feeling a little more dreary.

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Markets & Economy

US job market cools as Fed weighs next move: June hiring hit pandemic-era lows, though layoffs remain scarce. The Fed is considering a rate cut due to rising labor costs, which could make job hunting more challenging. [Read]

Bank of Japan signals policy shift: The BOJ plans to cut bond purchases by half and raise interest rates to 0.25%, the highest in 15 years. This shift addresses rising inflation and currency pressures, significantly moving away from its ultra-loose monetary policy. [Read]

Supreme Court approval hits new low: Public confidence in the US Supreme Court has plummeted to 43%, nearing an all-time low, following controversial rulings on abortion and presidential immunity. [Read]

Business & Wealth

StubHub faces lawsuit over deceptive pricing: Washington, DC’s Attorney General is suing StubHub for misleading pricing practices, claiming over $118M in hidden fees since 2015, complicating its planned IPO. [Read]

Uber teams up with BYD for EV push: Uber ($UBER) is partnering with Chinese automaker BYD ($BYDDY) to add 100K electric vehicles to its platform. This collaboration aims to accelerate the transition to zero-emission vehicles with global expansion plans, excluding the US. [Read]

Intel announces job cuts amid cost-saving efforts: Intel ($INTC) plans to eliminate thousands of jobs to save up to $10B annually by 2025 while continuing heavy R&D spending to maintain its semiconductor leadership. [Read]

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DIGIT OF THE DAY

Going For Gold In The Olympics? The Reward For Victory Can Reach $768K

Like a pot of gold at the end of a rainbow, a golden paycheck awaits Olympic medalists — though the amount varies by country. While the International Olympic Committee doesn’t offer prize money, many nations generously compensate their athletes. Besides cash, rewards can include free food, cars, or holiday vouchers.

• Among the top cash payouts, Hong Kong leads with gold medalists earning $768K — followed by Singapore offering $745K and Kazakhstan providing $250K.

• In addition to cash, South Korean medalists can choose between a lifelong monthly pension or a lump sum, while Malaysian winners receive luxury apartments.

How does the US compare? Gold medalists in the US get just $38K — and some countries, like Great Britain and Norway, don’t offer direct cash bonuses for gold medals. For instance, Lily Zhang, the top US table tennis player with six national titles and four Olympic appearances, mentioned in an interview with WSJ that despite her successes, her parents still push her to consider a “normal job” due to the uncertainties of a sports career, including potential injuries and fluctuating income from competitions.

Read: While athletes chase gold, cities like Paris grapple with hosting costs — are the 2024 Games worth it?