Comcast Dumps Struggling Cable Biz & Is Target in Trouble?

0:26Race the rudders! Good morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, you'll never believe how much a banana duct tape to a wall just sold for. Then Bullseye the Bull Terrier might be out of a job soon after Target reported some shaky Q3 earnings. It's Thursday, November 21st. Let's ride.

0:53The McRib is coming back. McDonald's semi-mythical sandwich containing boneless pork, barbecue sauce, onions, and pickles is returning to participating stores nationwide on December 3rd for a limited time. The McRib wasn't around in 2023 at all and was supposed to be on its farewell tour in 2022. So let's hope its comeback goes better than Mike Tyson's. But Toby, apparently there's something called the McRib effect that says during periods when the McRib is available, the stock market posts higher returns. Is this true at all? Yeah, this is big news, not just for your taste buds, but potentially your brokerage account.

1:31According to analysis from the finance blog of dollars and data, when the McRib is available, the S &P 500 has a higher average daily return than days when it's not available. when you annualize this, when you add it all up, the difference amounts to 19 % a year. So it is significant. Now, I do have to say that the blog post goes on to use the McRib effect to remind us that correlation does not equal causation and that causality in financial markets is pretty hard to determine if you just isolate one single factor. But to all that, I say, pass me the barbecue sauce and let's make some money, baby.

2:04And now a word from our sponsor, Yahoo Finance. Neil, yesterday and really the last month, has been a wild time for news. Corporate breakups, cabinet appointments, crypto going to the moon. It has been a lot. And it's easy to get lost in endless push notifications or your social media feeds where you're just inundated with headline after headline. That's where Yahoo Finance can step in to help cut through the noise. Instead of bopping all around the internet to stay up to date with financial news, it brings it to you all in one place. Market data, analyst insights, news sources you can trust. It's all there.

2:37It's one of our regular stops as we prep for this show every morning. We don't call it our purple prince for nothing. If you want to check out the best hub for financial news on the internet, head to yahoofinance.com. That's yahoofinance.com. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app. It's nice knowing you have help finding coverage that best fits your needs.

3:13Like a good neighbor, State Farm is there. The times, they are a changing in the media business. The media conglomerate Comcast is cutting loose most of its cable television networks and reconglomerating them into a new publicly traded entity it is for now calling SpinCo. On the chopping block are channels including MSNBC, CNBC, and USA. as well as some of Comcast's digital properties like Fandango and the review aggregator Rotten Tomatoes. Other parts of its media business are staying put, though, including the golden child streaming service Peacock still basking in some post-Olympics glow, as well as its NBC broadcast network and Universal properties.

3:55Oddly enough, Bravo was one of the only channels to avoid the spinoff Don't Sleep on Real Housewives, I guess. And even though Comcast is separating these channels from the mothership, it probably thinks the castaways can still be successful in their own right. Look, cable TV is a dying business, but even in a shrinking industry, scale matters. And analysts have predicted that Comcast could be eyeing other companies' cable networks to fold into the new entity, especially under a more M &A-friendly administration. But at the end of the day, Comcast is shedding its cable networks for exactly the reason you'd expect.

4:30the number of people paying for cable jobs every year, 4 million in the first six months of this year. So it is looking ahead to what can be by unburdening itself by what has been. Right, if Comcast really wanted these channels, it probably wouldn't be spitting them off. I do think you can look at this in two ways though. Comcast is dumping some problem assets, some of these non-growth assets because cable is dying. Or this is an opportunity for some pretty strong media names and media franchises to finally get their time in the sun after so much time and so much money was focused into streaming.

5:03MSNBC, CNBC, these are pretty big name media properties, well-established brands that maybe haven't gotten a ton of investment recently. But I do think it's probably a little hard to avoid the first interpretation. Cleaving off a whole business unit usually says, indicates about that business that you don't really want it around anymore. Yes, these channels and cable are going to still be around for a long time, but it's probably just not a growth business. Like a zombie business a little bit. And they're still very profitable. Cable TV is very profitable for these companies, but they just see no growth trajectory.

5:37And it is also a win for shareholders. Remember, a couple weeks ago, we were talking about an activist investor wanting to break up Honeywell because it's a big conglomerate that contains all these constituent parts that don't trade at a value of the sum of its parts. They think it trades at what's called this conglomerate discount. And Comcast thinks it's getting this conglomerate discount. And by shedding what has been known as a financial albatross, which are these cable TV channels, it thinks that shareholders will pump the stock. And the big question now is, what does this mean for the broader media business?

6:11What are these other companies going to do now that Comcast has essentially rang the starting bell on potentially a big cable TV purge? What is Disney going to do? What is Warner Brothers Discovery going to do? What is Paramount going to do? Those questions are going to be asked a lot over the next few months and years. Paramount and Warner Bros. Discovery, you just mentioned, took a combined$15 billion in write-offs earlier this year related to its cable business. Disney also took one as well, although it was a little bit smaller. They were basically telling investors that we are less valuable than we used to be.

6:44So Comcast peers have definitely thought about offloading some of its media businesses, but part of the issue with offloading these properties is who is going to buy them? It was like we said, it is not a growth business. Yes, they are cash flowing. So these companies are said, yes, these businesses are getting less valuable, but we do don't mind the cash flow. They still bring in money. But now Comcast has, I mean, you said rung the starting bale. Someone had to do it first. Maybe this is going to be the spin co is going to be kind of buying those properties or saying, hey, we'll take your your dead weight.

7:17We want to scale this thing up. or maybe they'll sell off some of these properties in Spinco to these other companies. We're not knowing for sure, but there does seem to be, this is just the start of some M &A activity in the future. It does seem like there's going to be a ton of consolidation. Already Spinco seems to be eyeing documentaries and food TV channels to bundle together into a more compelling product there. So this is very big changes in the cable TV business and the media business overall. So very exciting, honestly. Remember how earlier this year, Judge Amit Mehta ruled that Google had an illegal monopoly in internet search?

7:52Well, now he's got to figure out how to make it not a monopoly. And last night, the DOJ, which brought the monopoly case, proposed some ideas, one of which is a total whopper. It asked the judge to force Google to sell Chrome, the most popular browser in the world. If the judge accepts, it would present massive changes for Google's business and possibly rejigger the internet as we know it. As far as the DOJ sees it, Google Chrome is a key access point for people to use Google Search. As all of us who use Chrome know, you type in something in the URL bar that's not a URL. You are querying Google Search.

8:27If forced to hive a Chrome off, Google would have far less visibility into the activity from users who sign into the browser, making it harder to target them with advertising, which is Google's main line of business. Google, of course, is not feeling lucky about this. the company's VP of regulatory affairs, said the DOJ is pushing, quote, a radical agenda that goes far beyond the legal issues in this case. And in a likely plea to incoming President Trump, she added that a forced sale of Chrome would harm American technological leadership at precisely the moment it is most needed. Toby, the DOJ is swinging for the fences here in a way it hasn't done since it tried to break up Microsoft over 20 years ago.

9:06Yeah, it would really break up Google as we and almost the modern internet as we know it. Let's dive into Google's argument against all of this. Yes, it handles more than 90 % of online search queries, but it says that all that success is not due to a monopoly. It is due to the fact that its products are very quality. People choose it over other products out there. And it says that it does face tougher competition in the sector, especially like the advertising market as well with rising powers like Amazon. And it does have some grounds to stand on here. Google's lawyers say that spinning off Chrome would actually harm consumers because there are very few other companies out there that have the scale, that have the resources to maintain a secure browser and offer it to the market for free.

9:51So there's not that many out there, really, like Apple Safari maybe would do it. But providing browsers at cost for free to consumers, they say, is actually something that consumers really benefit from. And getting rid of that would end up harming them. Okay, but let's game this out. Let's say the judge doesn't buy that argument, and this is not going to happen until 2025 when this is just a proposal. The judge still has to approve it. What could happen to Chrome? Well, analysts are now valuing it, and it's certainly an estimate because we don't know, anywhere between 15 to 20 billion dollars.

10:25So someone's got to have that amount of cash to come and buy Chrome, which is the world's most popular browser. Who could it be? Spinco. Spinco. Definitely Spinco could be eyeing this. But potentially a lot of other big tech names, but who knows if they would be allowed to buy it. Certainly not in the current regulatory environment. One name that's been floated is OpenAI, because OpenAI has developed a bunch of search tools, and you can see how a browser would absolutely complement ChatGPT and ChatGPT Search, which has just released. So that is one potential name that has been floated it out. And again, this is a long way from happening, but you have to think of the potential suitors should Google sell Chrome.

11:06I mean, it's an unbelievable asset, but it doesn't generate any money on its own. It has to be paired with other services that make money for it to be worth anything. Right. It is what is called a loss leader that feeds into Google's search business in its advertising business that does actually generate the vast majority of its revenue. But you are right, though. One final question mark on this case, though, is the incoming administration because the Biden administration has been very favorable to these antitrust, you know, crusades against big tech. Who knows what will happen under Donald Trump's administration?

11:40Will they take a more lenient approach to Google? Will they keep up the drumbeat against big tech antitrust, these powerful tech companies? So that is the final question mark in this case that is still very much full of question marks. Target's logo is a bullseye, but it missed the mark with its latest earnings report sending its stock plummeting a whopping 21 percent yesterday to a new 52-week low. Disappointing third quarter sales missed Wall Street expectations by 20 percent and Target also cut its full year profit guidance an abrupt change from three months ago when it actually raised its forecast.

12:13So why is it getting eaten alive? Target's bread and butter is discretionary items. Its business thrives when you're making those sometimes impulsive purchases of toys or appliances or home goods. But Target said those categories showed weakness this quarter, even as its rival Walmart reported positive results in its discretionary division. Digital and in-person traffic actually did increase 2.4%, in part thanks to thousands of price cuts that Target rolled out. But it wasn't enough to keep up with high-flying rivals Costco, Amazon, and Walmart. So Neil, it all led to Target's largest single-day stock wipeout in more than two years.

12:50Seems like consumers in Target aren't really vibing right now. No, I mean, Walmart earnings on Tuesday, then Target earnings on Wednesday. I mean, it was like watching the Celtics play one night and then watching the Sixers play the next night. Just a total different story. Walmart is absolutely crushing it thanks to its grocery business, which accounts for 60 % of its revenue. As you mentioned, Target has just not invested in grocery. And that was fine for it in the past, you know, before the pandemic, because grocery has terrible margins. They're very thin and you get much higher margins on things like really expensive candles and sofas and other things that that Target sells.

13:32So that was doing fine for it until inflation happened and people started not buying those discretionary goods that are Target's bread and butter. and they started gravitating to those need-to-have items that Walmart sells as well. So right now, Walmart is just kind of eating Target's lunch, breakfast, and dinner. It really felt like Target was - In that order. Yeah, in that order. It really felt like Target was actually turning a corner. It posted a string of very weak results and then finally showed some success last quarter. It was very ebullying. Everyone was very happy because it raised its profit outlook for the rest of the year, but then it comes right around and just completely reverses that direction.

14:13Target has been trying everything. They've been throwing the kitchen sink at this. They've cut prices on 5 ,000 items. By the end of the year, they expect to cut prices on 10 ,000 items, and they are getting people through the door. But the problem with cutting prices is that it just doesn't lead to as much revenue. So it's one of those things where they're trying to drive up foot traffic. They're trying to get people back through the door, but it's just not translating to those top-line revenue gains that you want to see. and they're just competing with Walmart on reputation. Walmart has a reputation for those everyday low prices.

14:43It gets people in the door with its grocery business and in an inflationary environment, you just tend to gravitate towards the place where you think you can get the best deal. So a lot of headwinds that are kind of conspiring against Target. Oddly enough though, you zoom out to the broader retail industry and TJ Maxx, another one of those kind of discretionary spending, lower price places beat Wall Street estimates and raised its full-year profitability guidance. So they said they're seeing a strong start to the holiday shopping season. So anywhere you look, you can find different interpretations of what's going on in retail, but it does seem like people do want good prices, especially when they're kind of recovering from such an inflationary past couple of years.

15:28Up next, I really thought I'd never come, but it's finally time for Neil's Numbers!

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17:00and encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. Welcome to Neil's Numbers, the segment where I share three stats from the week's news that will feel like updating your brain to the latest operating system. For my first number, I'll begin with a question originally posed by Lucille Bluth. It's a banana, Toby. How much could it cost? Well, we have the answer,$6.2 million. The banana in question is a conceptual art piece, a banana stuck to a wall with silver duct tape. It sold at a Sotheby's auction yesterday for$6.24 million to crypto entrepreneur Justin Sun, who beat out six other bidders for the Potassium Prize.

17:42It's the work of Italian artist Maurizio Catalan, who called it a sincere commentary and a reflection on what we value. The auction house seems to agree, calling the duct tape banana a masterpiece that single-handedly prompted the world to reconsider how we define art and the value we seek in it. We've seen this banana before. Catalan debuted at Art Basel Miami in 2019, causing chaos in the art world. Crowds grew so heavy that the gallery had to rip it off the wall, which is not that hard, and hide it from public view. Now, I should mention, Sun won't take possession of the original banana. That thing is long gone, obviously.

18:18Instead, Hulk, get the banana, a roll of duct tape, a certificate of authenticity, and instructions on how to install it. Toby, this piece of art, nobody knows what it means, but it's provocative. I mean, I'm just looking at it right now, and it is provocative. It's beautiful. It is a banana taped to a wall. Just imagine that in your mind. You got it. I do want to dig into where this banana came from, though. It's a dull banana. and it was bought earlier that day from a fruit stand on the Upper East Side of Manhattan for 35 cents. I feel like the fruit stand, whoever was operating that maybe got a little shafted here because, you know, 6.2 million, 35 cents.

18:56Could have just taped it to his little umbrella and said, yeah, this is worth 10 million. That's a pretty good margins right there. You know what I think would be funnier though? Because as you said, you're not buying the actual banana. You're just getting the right to reproduce that work of art. But I think that you should have to keep the original banana taped to your wall for as long as possible. Then that is performance art because that thing starts shriveling up, starts leaking down your wall. That to me is worth a million, five million, six million dollars right there. But yeah, sure, this banana is whatever you want it to be.

19:27You can get deep and analyze it. I mean, the fruit does have a pretty tangled history when you put it in the context of imperialism or like labor expectations. So you can go down that route or you can just say this is a banana stuck to a wall that I think makes people really mad. And either way, apparently Justin Sun thought that was worth$6.2 million. For my second number, the most expensive shopping street in the world has been crowned. Via Monte Napoleone in Milan beat out New York's Fifth Avenue to become the first street ever in Europe to be named the priciest, according to a report by Cushman and Wakefield.

20:02On Via Monte Napoleone, a square foot sells for$2 ,047, up 11 % from last year. Meanwhile, Fifth Ave's prime square foot price stayed flat at$2 ,000, knocking it from the number one spot it held last year. So why is this street so expensive? Well, first, Milan is experiencing a luxury tourism boom, and the uber-wealthy are descending on the city in droves to take advantage of generous tax incentives. Second, it's a matter of supply and demand. I don't know if anybody has been on the street, but it is really short, which makes retail space more competitive and drives up prices. Gucci's parent company Caring bought a$1.4 billion building on Via Monte Napoleone this year, joining other luxury brands on the street, including Hermes, Versace, Cartier, and Bottega Veneta, all places I have definitely shopped at.

20:54Very well done pronouncing the street name. So I've been looking to maybe buy an apartment in New York City recently. And the spaces I'm looking at are modest, maybe 750 square feet. If they are priced at Via Monte Napoleone prices, I'd be looking at paying a nice$1.5 million a year in rent. So these are just astronomically expensive prices. You're right, though. It is a short street. Milan is becoming this it destination for the fashion world. So it makes sense that prices are going skyrocketing. But still,$2 ,047 per square foot is just astronomical. How could this possibly be profitable for them?

21:29For my final number, we have to talk about the cult of lamb chop among dogs. If you are a pup owner, you know what I'm talking about. According to The Atlantic, stuffed animal versions of the puppet from the 1960s TV show Lamb Chop are somehow the pet store Chewy's most popular plush dog toy and its second most popular dog toy, period. More than 20 iterations of Lamb Chop toys exist, including nautical Lamb Chop, tie-dye Lamb Chop, and mini-sized Lamb Chop, and all dogs seem to be obsessed with them. One reason for Lamb Chop's popularity, they're so versatile, depending on what kind of dog you have.

22:08If you have a gentle pooch, they love cuddling with the plush lamby. Lamb Chop is also easily rippable and devourable for your more active hunting dogs. Still, this is very hard to explain. As The Atlantic put it, is it really possible that dogs, which can be big or small, playful or shy, hunters or herders, could nevertheless share a preference for the same exact plush toy? I guess so. I guess so. One reason that they did give for why Lamb Chop Mania is sweeping through the dog world is that dogs are very attuned to what you, their owner, are feeling. So if you are excited about a toy and you hand them the toy and they clearly see that there's some joy on your face, maybe in some of these micro expressions, then of course they're going to want to play with that toy as well.

22:53But also, you're right, the versatility of it is pretty good. I mean, you can absolutely destroy it if you want, if you have a high hunting instinct, or you can cuddle with it. I'm speaking as if you, the listener, are dogs, but this is what dogs are going through. You can cuddle it, you can rip it apart, you can play tug-of-war with it, so it is pretty versatile. Although I talked to 10 ,000 other dog owners, and they said ball was their favorite dog's toy. So you could say ball mania is sweeping or rope mania is sweeping. But yeah, lamb chop, I mean, I don't want to be too cynical right here.

23:23It looks like a fun toy. And if I were a dog, maybe I'd play with it as well. Okay, let's sprint to the finish this Thursday with some final headlines. Elon Musk and Vivek Ramaswamy want federal workers back in the office. In a Wall Street Journal op-ed outlining their plan to curb government waste, the co-heads of the newly created Department of Government Efficiency, or DOGE, wrote that they want to ban federal employees from working from home and compel them to return to the office five days a week. Musk and Ramaswamy wrote American taxpayers shouldn't pay them for the covid era privilege of staying home.

23:55And if workers don't comply, it would result in a wave of voluntary terminations that we welcome. Should this be adopted by the Trump administration mandating fully in-person work for the country's largest workforce, two point three million people could set off fierce battles with federal worker unions. Yeah, let's dive into more things that this op-ed said because it was pretty long. Right, they went through their whole plan. Their whole plan. One big thing that people pointed out was that they actually pointed to a lot of Supreme Court rulings as kind of guidings. Remember the Chevron doctrine that was recently actually overturned by the Supreme Court?