PayPal is Crashing Out & Pepsi Slashes Snack Prices for Super Bowl

0:02Toby Maloney:Good morning Brew Daily Show. I'm Neal Freyman and I'm Toby Howell.

0:06Neal Freyman:Today why your Super Bowl spread could be cheaper this year. Then PayPal has very few pals on Wall Street these days. It's Wednesday February 4th. Let's ride.

0:21Toby Maloney:Good morning. Sorry if I'm a little low energy. Stayed up late watching the Westminster Kennel Club dog competition, and it did not disappoint. Penny the Doberman Pinscher was crowd best in show, taking down Zeta the Afghan Hound, Kota the Chesapeake Bay Retriever, and Cookie the Maltese, among other finalists. And talk about longevity. This dog show has been around 60 % of the time America has existed. at 150 years. It's the second longest continuously held sporting event in the United States, only behind the Kentucky Derby. And it's much older if you count in dog years. Toby, a worthy best in show.

0:56Neal Freyman:A worthy best in show, but man, I was pulling for the Chesapeake Bay Retriever. Kota, runner-up finish, which sounds fine, but also Dobermans have won five times. No Retriever has ever won. So I was hoping for a little bit of a Cinderella story. 150 years of Westminster Dog Show is crazy. Do you know why it's called the Westminster Dog Show? I don't. Something to do with paying homage to England? It's the Westminster Hotel, but the Westminster Hotel is long gone now. The name just stuck. So imagine, you know, you host your first dog competition at the Hyatt, and now it's just the Hyatt Dog Show forever.

1:31Neal Freyman:Westminster has great longevity in branding, if not great longevity as a business itself. And now a word from our sponsor, Sandals. Hey, Neil, can you do a Jamaican accent? I can't and won't. Why do you ask? Well, Jamaica has been at the top of my list for vacation destinations. I am pining for island time. Picture it. Powder white sand, turquoise waters. Just thinking about it has me feeling warmer already.

1:56Toby Maloney:Sounds like you should check out Sandals Adult Only Resorts. They let you explore the Caribbean's most beautiful islands like Jamaica and enjoy globally inspired dining across more than 10 restaurants per resort.

2:07Neal Freyman:There is no better place to experience the Caribbean than at resorts founded by a family from the Caribbean. For the latest offers, visit sandals.com. That's sandals.com. PayPal is crashing out. Once a Silicon Valley titan who boasted Elon Musk, Peter Thiel, Reid Hoffman, and more as former employees, the company has been brought to its knees. PayPal just had its second worst trading day ever after announcing a new CEO in underwhelming Q4 earnings, a double whammy leading to a 20 % stock wipeout. I'm hereby awarding the awkward first month of work award to Enrique Lores, who comes in as the new PayPal CEO after helming HP for years to take the reins on March 1st.

2:50Neal Freyman:Tough to look people in the eyes, though, when your hiring led to the stock puking all over itself. He will be tasked with turning around a ship that has no rudder and is in the middle of a hurricane. The gale force winds PayPal is facing include a dodgy retail spending environment that is eating away at the transactions that make up its core business. PayPal has also been lapped by more modern payment processors like BNPL giants and Stripe, while big boys Apple and Google Pay are always lurking. It's why the company sees anemic growth on the horizon, projecting four-year profits to eke up low single digits going forward.

3:24Neal Freyman:Neil, this was a company that hit$356 billion market cap during the pandemic. Yesterday, it closed just south of$40 billion.

3:33Toby Maloney:Yuck. It's an astonishing collapse, and people are getting strangely emotional about it. But PayPal was the great incubator of modern Silicon Valley. The guys who started it, they even have a name, the PayPal Mafia, because they went on to found some of the most recognizable tech companies today. But the business PayPal right now in its current form is just an absolute disaster. The one number to focus on, this is what Wall Street was focused on, is branded checkout. Now, branded checkout, this is what you see PayPal on your computer screen when you're checking out from a particular merchant. You see Apple Pay, Google Pay, PayPal.

4:07Toby Maloney:It used to be just PayPal. PayPal, this branded checkout accounts for half of PayPal's profits. It's a very high margin business, but there's basically no growth. Last year, growth was 6%. This past quarter, growth was 1%. So essentially flattened branded checkout. That is what PayPal needs to have much higher to be a sustainable business and keep its stock afloat because it's absolutely crashing out.

4:30Neal Freyman:So the outgoing CEO, his name is Alex Chris. He was tasked at beefing up its branded checkout business. He actually did call out like this is the new focus of PayPal right now. We definitely want to focus on this because it's a higher margin business for the company. So his heart was in the right place. The execution wasn't there. Also, the spending environment right now, the macro context isn't doing PayPal any favors right now because what do you need as a payment processor to make money? You need people spending their money. And if, you know, sort of retail market is cooling a little bit, if discretionary purchases are pulling back, that makes it hard for your business to grow as well.

5:10Neal Freyman:What is new CEO Enrique Lores going to do when he comes in? He has some skeptics immediately already because he's coming from HP, which is mostly a hardware company. You're stepping into a payments role. Do you know the payments world? He was also on the PayPal board for the last couple of years. Was there a conflict of interest in saying that, hey, I'm the new CEO now when you are tasked with leading a CEO search? So definitely some skeptics waiting in the wings and he's stepping into a company that is not doing well right now. Maybe the only way it can go is up though.

5:42Toby Maloney:It's not doing well right now and it hasn't done well for the past decade. And there's this very interesting post on X by David Marcus, who was the CEO of PayPal before he left for Meta. And he absolutely just dragged past leadership for failing to meet the moment when it comes to seizing the opportunities that payments presented here in the 2020s. He said, the leadership style shifted from product-led to financially-led. Product conviction gave way to financial optimization. He said they were totally late to buy now, pay later, and got crushed by Affirm, Klarna, and Afterpay. They built products that were very conservative, optimized for loss minimization.

6:22Toby Maloney:And then they made acquisitions like Honey. They bought Honey that added volume but not leveraged. So he did this really long postmortem diving into all the product decisions that, or non-product decisions, that PayPal has made since he left in 2014 that have basically created this business.

6:37Neal Freyman:And the valuation comparisons now are not favorable to PayPal at all, because if you look at some of these names that you mentioned, even if you just look at Stripe, which is a privately held company,$110 billion valuation, PayPal is sitting less than$40 billion, which is just crazy to think about for a company that basically pioneered the online payment states. How did it fall so much? How did it stumble so much so that this is the current state that it finds its business in?

7:06Toby Maloney:Execution, lack of execution. All right. With less than two weeks until Valentine's Day, the once steamy relationship between NVIDIA and OpenAI appears to be cracking, with huge implications for the artificial intelligence rates, not to mention a 7 p.m. reservation at the French Laundry. Here's what's going on. Remember back in the fall when NVIDIA said it would invest up to$100 billion into OpenAI, a historic partnership dubbed the largest computing project in history? Yeah, that deal seems to be, like everything else these days, on ice. A few days ago, the Wall Street Journal reported that NVIDIA's massive pledge had stalled out after some people inside the company raised concerns about OpenAI's business discipline.

7:43Toby Maloney:Then, NVIDIA CEO Jensen Huang essentially confirmed that the deal hadn't closed, telling reporters the$100 billion was, quote, never a commitment and they'll invest one step at a time. But this beef goes both ways. As NVIDIA gets cold feet about OpenAI, OpenAI is reportedly frustrated with NVIDIA. According to Reuters, OpenAI is not satisfied with NVIDIA's latest AI chips, and it's been poking around for alternatives since late last year. As more of the AI industry moves from training models to actually answering your chat GPT queries, NVIDIA's hardware isn't catching up. Sam Allman, CEO of OpenAI, tried to lower the temperature posting.

8:20Toby Maloney:We love working with NVIDIA, and they make the best AI chips in the world. We hope to be a gigantic customer for a very long time. I don't get where all this insanity is coming from. Toby, this is as close as the tech world gets to Bravo.

8:31Neal Freyman:So combined with that Sam Altman post that was trying to smooth things over, we also got a report from Bloomberg yesterday that said NVIDIA is nearing a deal to invest$20 billion in OpenAI as part of its latest funding round. So there's definitely a concerted effort at this point to say things are better than maybe these reports seemed. Although where there's smoke, there's fire. And one thing I want to point out is that you mentioned that Reuters was the one who reported that OpenAI is unsatisfied with NVIDIA's latest chip. Eight internal sources told Reuters, which is a lot of internal sources.

9:04Neal Freyman:So there is definitely something going on. Maybe it's a slight tiff. Maybe it's something bigger. But if you see smoke, there is some drama.

9:14Toby Maloney:I think that's what Sam Altman was remarking upon when he said, I don't know where this insanity is coming from. Well, at least eight people inside your company is saying that they're ticked off NVIDIA. Maybe that's just a way of getting back in the press at what Jensen Huang has been saying. But, you know, it's very steamy here and not in the romantic way. Every$100 billion counts for OpenAI. I know I'm saying that as a joke, but it's true because OpenAI is on the hook for$1.4 trillion in computing commitments, which is more than 100 times the revenue it was on pace to generate last year. NVIDIA saying, whoa, we're going to spend$100 billion with you last year and then now saying, actually, I'm not so sure.

9:53Toby Maloney:That has huge ramifications for pretty much every company across the AI spectrum because OpenAI has$1.4 trillion in IOUs to a lot of different companies. So they're watching to see OpenAI's fundings make sure they have enough money to get paid.

10:07Neal Freyman:And one thing that I think explains some of NVIDIA's trepidation is the fact that they do not want to appear overly reliant on OpenAI because they just saw that kind of horror show play out when it comes to Microsoft. Microsoft has been building out a lot of infrastructure. They essentially have a lot of exposure to OpenAI as well. And they just had the second worst day in stock trading history, basically, in terms of market cap loss because it is a contributing factor, their OpenAI exposure. So there's almost like an OpenAI valuation tax now. And so perhaps that explains why you're seeing a little bit of this.

10:48Neal Freyman:it feels like a relationship where you're like, I need some space from you. Like, I would just like to say I'm my own person here. I don't need you. And hence the reason why we're seeing this back and forth in the media.

10:58Toby Maloney:And the big picture is OpenAI used to be a kingmaker when he did a deal with them. Your stock would pop 30%. Now it's an albatross. As you scoop up snacks for your Super Bowl party, you could be in for a supermarket surprise. Prices for some of your favorite finger foods are coming down. PepsiCo, the maker of Tostitos, Doritos, Lays, and Cheetos, said it's cutting the price of its snacks by 15 % with the rollout coming ahead of the Super Bowl of snacking the actual Super Bowl. It's a response to everyone's frustration with the surging cost of groceries. The US head of food at Pepsi, Rachel Ferdinando, said she's, quote, spent the last year listening closely to consumers and they've told us they're feeling the strain.

11:37Toby Maloney:Cue the price cut, which could lower the cost of a classic Lay's potato chip bag to$4.29 from$4.99. Quick note, Pepsi is a food manufacturer, so it doesn't have the final say on prices. That's up to the retailer. However, Pepsi said that its top retailers are very on board and are so excited about this move that they're going to increase shelf space for Pepsi products by double digits. Toby, if snacks are getting a little cheaper, I think I may go nine layers on the dip this year.

12:02Neal Freyman:I'm coming over to your house to try that. I think what you're seeing here is something that I'm going to actually steal from Bloomberg's Joe Weisenshall. He said in reaction to this news, I think price over volume is officially dead after 14 straight quarters of declining sales volume, Pepsi is cutting prices in order to grow. What he's getting at is that the lever that Pepsi has been using to grow as a business is just raising prices. Not more people have been buying snacks. People have been cutting back on snacks, but their business has turned along all right because they realized that they did have some wiggle room in how high they could raise these prices.

12:37Neal Freyman:That's over now. Like that era is over. We've heard it from customers. People are tired of feeling ripped off by shrinkflation where prices were rising, but the packaging was getting smaller. So completely new era. They eat everything they could out of those price rises. And now they're giving people a little bit more bang for their buck.

12:55Toby Maloney:There was astonishing price hikes from Pepsi. They raised prices by double digit percentages in 2022 and 2023. Then they raised prices 4 % in each of the last two years. Overall, retail prices for salty snacks were about nearly 40 percent higher in June 2024 than they were in 2020. So if you're looking for where inflation has really hit hardest the most, it's in that salty snack aisle that Pepsi has that that makes accounts for a lot of Pepsi's food business. And then on the other front, Pepsi is facing a lot of pressure from GLP One drugs make America healthy again movement. movement. If you're looking for any poster child for a company that's had to pivot its products to account for new trends, it's absolutely Pepsi.

13:40Toby Maloney:It's introducing healthier versions of Cheetos and Doritos with no food dyes. It's got this Gatorade coming out made with less sugar, no artificial colors or flavors. It's changing its packaging to highlight simpler ingredients. So it's a big shit. Pepsi is a huge company and it's really had to do a complete 180 from its very unhealthy snack foods to really highlight how it's making things healthier with fiber and protein and all that.

14:04Neal Freyman:And one other thing to note is that the reason they're able to lower these prices is the fact that they're actually just simplifying their business a lot. They want to reduce their product range by 20 % in this year. So basically just saying, we're not gonna sell as many things going forward. And then also they just have a variety of reductions that are going forward, headcount reduction. They're closing at three plants. They're consolidating manufacturing lines and basically saying like, hey, this is all the reason we're able to offer these price decreases is because we're saving costs elsewhere in the business.

14:34Toby Maloney:If you had to pick one Doritos flavor to go. To go? Yeah. We're streamlining the product portfolio here, Joey.

14:40Neal Freyman:Well, you can't get rid of just like nacho cheese and cool ranch. So I think it's like the sweet chili one or something. Maybe sweet and tangy barbecue. There's a sweet chili one. We're killing it. Keep the stalwarts. Get rid of the peripherals. All right. we're going to take a quick break and come back with a story about the Trevi Fountain.

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16:15Neal Freyman:If you're traveling to Rome with the hopes of throwing a coin in the Trevi Fountain, make sure you come with some extra change in your back pocket. As of this week, foreign visitors must pay two euros to approach the iconic landmark to make their toss. If you've ever been packed in the small piazza during summer, you understand why officials made this decision, which exempts local residents. Overtourism is a massive issue, with 2025 bringing 10 million people to gaze upon the fountain's Baroque beauty. On peak days, visitors touched$70 ,000 or more according to Rome's assessor of tourism, Alessandro Onorato.