US Buying from Mexico Over China & Uber is Profitable Again

0:26Race the rudders! Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, for the first time in decades, the U.S. is buying more from Mexico than from China. Then Tony Romo and Jim Nance better watch their backs because Spongebob and Patrick are coming to a broadcast booth near you for this Super Bowl. It's Thursday, February 8th. Let's ride.

0:57I just want to start the show today by giving a quick shout out to everyone listening who bought a Morning Brew Daily hoodie yesterday. I was behind the scenes in our Shopify store seeing where all the orders were being shipped out to and it was so cool seeing all those lines crisscross the country. The support from you all was awesome yesterday and Toby and I really can't wait to see everyone rocking these out in the wild we do have a few left in stock in case you missed out yesterday toby how can the people get their hands on this beautiful hoodie you can go to your browser and type in shop.morningbrew.com or you can head to any of our socials at mbdailyshow or find the link in the show description wherever you are listening to this also youtube viewers will notice that i am still wearing my hoodie whereas neil forgot his i am a company man well I practice good hygiene and it's in the laundry.

1:46Fair enough. Before we jump into the show, we have a quick word from our good friends over at Veeam. We got an incredible comment on one of our LinkedIn posts promoting our hoodies yesterday. Ooh, I did see this. This is a direct quote from a listener. Surely this sweatshirt is inspired by Veeam since it provides multi-layered protection. And honestly, I immediately got defensive because that's better than any Veeam ad I've come up with. Hey, we have smart listeners, okay? But yes, maybe you should watch your back. Also sounds like Veeam definitely needs to drop some hoodies as well. Probably would leave you feeling very comfortable and very secure.

2:19Check out Veeam.com today to learn more. That's V-E-E-A-M.com today. 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. Like a good neighbor, State Farm is there.

2:51Global trade has been weird this year, everyone. Shipping routes have been affected by conflict in the Middle East, and our relationship with China continues to be tense. But the U.S. and Mexico? We are still tight. So tight, in fact, that for the first time in two decades, the United States imported more goods from Mexico than from China. Flashback to 2020 and 2021, and this flippening was far from a sure thing. During the pandemic, we couldn't get enough of Chinese-made electronics, toys, COVID tests, furniture, you name it, we bought it. But that trend reversed in a big way in the last two years as tensions and tariffs continue to chip away at our relationship with China.

3:32Enter Mexico, who is more than happy to pick up the slack. Not only are we friendlier with our neighbors to the south, but also 80 percent of goods from Mexico come in by land, which is a whole lot easier than by sea. Shout out to Paul Revere. Neil, the trade winds, they are a shifting. They are. I think this is an important milestone, and it reflects this word that's been floated over the past couple of years, which is decoupling. The U.S. and China have been very tight trade partners. They make, we buy a ton of stuff. But from tariffs that Trump placed on Chinese goods that Biden has largely maintained, there's increased geopolitical tensions over the next generation of tech and possibly military.

4:13There is the war in Ukraine that happened that completely reshuffled trade flows around the globe. China did not immediately come to Ukraine's defense like the U.S. and its allies did. That disrupted trade. And then you have Biden's push to restore reshore manufacturing among trade allies of the United States and in the United States itself with this 2022 Inflation Reduction Act. I think all of that has conspired to really increase the pace of decoupling that the U.S. and China are undergoing right now. I think there is a very healthy debate over the extent of that decoupling and whether it may have been over exaggerated.

4:50Yeah, if we want to kind of dive behind the numbers, there is some stuff we have to bring up. Some companies may be rooting goods that were actually made in China through other countries to avoid U.S. tariffs. And then also Chinese companies have been pouring billions of dollars into setting up manufacturing facilities in Mexico also as a way to sidestep these U.S. tariffs. So again, even though we see those numbers declining, there might be some more going on behind the scenes. Let's talk winners in this, though. Obviously, Mexico is a big winner, but also South Korea. like Mexico, South Korea is subject to a lot lower tariffs because it has this free trade agreement with the United States.

5:25And also in December, if we look back to last year, U.S. imports from South Korea were the highest ever on record. So Mexico a winner, South Korea also a big winner. Yeah, Mexico's foreign direct investment increased 19, I'm sorry, 21 % last year, whereas all foreign direct investment in developing countries fell 9%. So manufacturing in Mexico is undergoing a boom right now. Tesla wants to build a plant there. That has been put on ice a little bit. But you can see the momentum growing for Mexico. This is also a good opportunity to talk about, you know, what Trump would do if he regains office.

6:00And obviously, he launched this big trade war in 2018 with China. He only wants to ramp that up. He's floated putting a tariff of at least 60 percent on goods from China. And on any imports, he's floated a tariff of 10 percent from literally anywhere in the world. So if Trump is elected in November, we can expect continued shakeup of global trade. All right, let's move on. Should we talk some earnings now? Let's talk some earnings. Now there was a tasty slate of them yesterday and you know us, we're all about digging into them, cutting out all the boring parts and just bringing you guys the juiciest of nugs.

6:34Neil is cringing over there, but I will forge ahead anyways. And up first we have Disney. It's showing signs of life. Bob Iger called his shot for the new year saying that the company has turned a corner and then proceeded to announce a lot more cool stuff. Disney is investing$1.5 billion for a stake in Fortnite maker and longtime collaborator Epic Games, which is a major jump into the gaming world. Also, Taylor Swift's era tour movie is coming exclusively to Disney +, which is a big boost for that platform. And finally, a new Moana movie is set to come out in November, which is cool because I love Moana.

7:08And people love Moana. It was the most streamed movie anywhere last year. So I think Disney saw that momentum and just wants to keep riding it. Yeah. 11.6 billion viewing minutes. But also it kind of surprised everyone by saying it would grow earnings per share by 20 % this upcoming year, which was a lot higher than Wall Street expectations. Also, this Epic Games partnership just makes too much sense. They've collaborated a lot. We've seen Marvel characters in Fortnite and they will be collaborating to release more games and new games in the future. So, I think investors just felt like a renewed sense of optimism that Disney has kind of figured it out and, yeah, in Moana, of course.

7:47Well, yeah. I mean, Disney needs to figure it out because its cash cow of TV networks is just continuing to crater sales at that unit, fell 14 % last quarter. It's just on a downhill. So, Disney is, as we talked about yesterday with its big streaming deal with Fox and Comcast, It needs to sort of lean into streaming and start making money over there. It looks like those losses have slowed. It only lost$216 million in its streaming division compared to$1 billion a year ago. So it seems like it is successfully trimming costs over there, which it needs to happen for Disney to be successful in this next decade.

8:25Let's talk Uber now. And if I had to describe Uber's earnings report, it would be the company's bar mitzvah. It's finally becoming an adult. Uber posted its first annual profit as a public company last year in what CEO Dara Khosrowshahi called an inflection point that shows it can grow profitably at scale. And what scale it is, Uber shares hit a record high this week with its market valuation nearing $150 billion. To put that in perspective, Uber's rival Lyft, and I'm putting that in bear quotes, is worth $5 billion. Toby, this is a grown-up company that's firing on all cylinders right now. Its traditional ride-hailing business and its newer delivery service, Uber Eats, are both killing it.

9:06I mean, let's give it up for Uber. Of all the zerpy companies that kind of rose during that time, Uber seems like the only one who's fully figured things out, become a healthy, sustainable business. It always did feel like they were going to eventually turn a corner once they kind of toned down the expand at all costs, beat lift at all costs mindset, and it could rein in spending and kind of focus on profitability again. And that's exactly what it's done. The only cracks you see are maybe at the perimeter where some of the businesses they want to expand into. Their freight business, for instance, was down 17 % from year over year.

9:42Again, it's not a huge part of their business, but you are seeing Uber trying to expand in these different areas and sometimes meeting some more resistance than their accounting. But their core business, extremely healthy. Yeah, it's pretty remarkable because I remember five years ago when everyone was saying the only way Uber could be profitable was when they had self-driving cars and they didn't have to pay drivers anymore. And, you know, obviously we're so far, we're maybe even farther away from self-driving cars than we were five years ago, but Uber is still profitable. So I think you have to say kudos to Dara for turning this ship around.

10:13Let's keep it in the car industry a little bit. Up next is Ford. Two things that stood out to me about this legacy automaker is that its profitability is getting crushed by EVs. It lost$4.7 billion on electric vehicles last year and projects bigger losses ahead. To put things in perspective, if Ford weren't selling things like the Mustang Mach-E or the Ford F-150 Lightning models, its adjusted operating profit would be 50 % higher. The other nug that stood out to me is that Ford's, quote, pro business, which is made up of the cars it sells directly to companies, absolutely crushes. That unit made$7.2 billion of operating profit last year and is forecasted to rise to at least$8 billion in 2024.

10:57Yeah. Analysts were absolutely slobbering over this pro business, which I did not know Ford Ford has sort of a B2B arm, but they called it one of the best businesses in all of autos. Another analyst called it Ford's Ferrari. And I guess they sell these fleets to companies, and then they can sell services on top of that, like software and fleet management systems. So, I mean, this is just like a beautiful business that Ford has carved out for itself, and it's driving most of its profits right now, subsidizing all of this investment into EVs that's losing money. They are in such a rock and a hard place because you can't say we're giving up and we're reducing investments in EVs because you've already gone so far down this rabbit hole.

11:40And yes, you could achieve this huge bump in profitability, short-term profitability, but that would just leave investors with a really sour taste in their mouth if they said, oh, now you're pulling back from this EV revolution. So, definitely a rock and a hard place. The only way out is through at this point. I think they'll continue investing in EVs. Moving on to Snap. Oh, Snap. The only things certain in this world are death taxes and Snap plunging after its earnings disappointed investors. The social media company lost more than a third of its value, plummeting 34 percent after revealing lower sales growth than expected last quarter.

12:14It is the sixth straight time Snap has sold off majorly after delivering its quarterly earnings report. And Snap's meager growth was so shocking because of how poorly it compared to Meta, which is in the exact same line of business of selling ads on social media. Meta, as we talked about last week, was on a rampage last quarter, growing ad revenue 24 % year-over-year. Snap, on the other hand, could only muster a 5 % increase. Yeah, and then Snap also laid off workers before its earnings call. And it's so interesting, because just the perception of Snap is so different from any of the other big tech companies out there.

12:48When big tech trims headcount for Meta, it's the year of efficiency. Investors applaud these efforts. And then with Snap, they just don't have the same leeway because they're not bringing in the same profits that these other companies are. I do think that Evan Spiegel is trying to position themselves a little differently right now because one of his quotes from the earnings call was, I do think advertisers are looking for an alternative to these very large big tech advertising companies. And he is kind of presenting Snap as like, hey, remember us. We are here as well. And if you want more direct response advertising, come to us.

13:20So it might just be a matter of positioning or it just might be that it's just not as good of an ad product. Doesn't seem like a very compelling. Absolutely. Our finals earning call we want to cover is Chipotle. Chipotle crushed and burrito season ahead looks to be fruitful. Foot traffic rose 7.4 % in the quarter, even as other restaurant chains are seeing the opposite trend. Its CFO said the return of carne asada contributed strong same-store sales growth. Imagine being Ford and you have to make these multi-billion dollar decisions to invest in EVs or not. Whereas at Chipotle, bringing back carne asada is the big decision you have to make.

13:58But yes, the past quarter went so well for Chipotle. Some analysts were joking that it's time to make room for it in the magnificent seven. In with Chipotle, out with Tesla. Yeah, that might be, you know, a little jokingly. But yeah, Chipotle is crushing it and it's expanding. It's going to open up to 350 new restaurants in 2024. And if you're living in the Sunbelt from Texas to the Carolinas, that's where Chipotle is going to focus. It says it doesn't have much penetration there, which I didn't know. But apparently there aren't as many Chipotles as there could be in the Sunbelt. And that's where a lot of people are moving.

14:32So that's sort of the target area that CO has targeted for expansion. And then automation is also a big thing for 2024. Remember, they have this robot that scoops out avocados called the Autocado. So, the Chipotle CEO really is all in on increasing efficiency through automation. So, I think that's another theme to look out for the year ahead. All right, before I have to pronounce Chipotle wrong, one more time, we're going to take a quick break.

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16:01Welcome to Neil's Numbers, the segment where I share three stats from the week's news that will expand your mind more than any mushroom can. First up, if you've had a fast car stuck in your head this week, you are not alone. The Tracy Chapman classic from 1988 shot up to number one on the iTunes top songs and top music video charts after she performed it with country singer Luke Combs at the Grammy Sunday night, leaving no household in America with a dry eye. That emotional performance was everywhere on social media the past few days, primarily because a Tracy Chapman sighting is so rare. She hasn't gone on tour since 2009 and hasn't made a single public appearance in the past three years.

16:42But the influence of big, burly Luke Combs changed all that. He got her approval to cover her song last year, and his excellent rendition of Fast Car was one of the most popular tracks of 2023. So seeing them both on stage, fusing past and present, and showcasing the power of music to transcend generations has fueled a remarkable rediscovery of the song. It is so good. I mean, truly hearing it performed at the Grammys, but then also I've just been bumping it around the office, and it's just an incredible song. fast car i don't know i guess you can bump the luke combs version maybe i don't know i hope we're listening to it in another 40 years because it's just that good what's interesting too is that we've seen so many of these songs recently discover rediscover and research usually on the backs of a movie or a tv show i mean we had that uh running up a hill from kate bush from stranger things we have had a bunch of these murder on the dance floor from salt burn this one was just because a cover so it is interesting to see all the different ways that these older songs get resurfaced.

17:42Yeah. I mean, had you heard of Fast Car before this? Yes, I heard of it. It's a classic. And also just award shows in general are enjoying a little bit of a renaissance. We have the viewership numbers for the Grammy Awards, 16.9 million. That's a 34 % increase from last year's ceremony. So maybe award show in general, this shows that they still have an impact and can make a really big, you know, cultural moment out of something. Before I reveal my second number, I'm going to ask Ms. Frizzle to cover her ears. And that's because for the first time on record, most American students traveled to school in a private vehicle, the Washington Post found.

18:17In 2022, 53 % of U.S. students got dropped off at school or drove themselves, according to the National Household Travel Survey. 33 % took a school bus and 11 % walked or biked to school. Compare that to 1969 when 42 % walked or biked, 38 % took a school bus, and 16 % took a private vehicle. The decline of the iconic yellow school bus and the rise of the pickup line had been written on the walls for years. But COVID supercharged it, facing major shortages of drivers. School districts cut back on their bus service, while remote work boosted the number of parents who dropped their kids off at school.

18:54What do you make of this milestone? This is such a crazy problem that there are certain schools that are actually paying parents to drop their kids off at school. $300 a month,$3 ,000 a year per household in Philadelphia. They are literally paying parents to act as school bus drivers at this point just because of all the combination of trends. I want to go back to the 1960s, though, when everyone was walking and biking to school. It does feel like that's how you should arrive at school. There should be these schools in community. But as we've kind of expanded the geographical footprint of schools, we need more space.

19:27And it usually requires more community to get to. So crazy trend, though. How did you get to school? Well, I lived two minutes away. And so I would drive because it was very exciting to me to get my license and drive. But then once I got my license, my brother wouldn't ride with me. He would ride his bike to school to prove a point, to save the environment, whatever you want to say. Maybe I was just that bad at driving, though. I also walked. I had my cello on my backpack, and I would just walk to school. It was literally 30 seconds away. And, you know, I take that for granted now, seeing how many people have to get driven to school.

19:56For my final number, I want to tell you about a retro item that's back in style, physical bank branches. Yes, JPMorgan Chase plans to build 500 new branches in the next three years, doubling down on a brick and mortar strategy it's pursued for years. For context on just how big JPMorgan is betting on physical branches, consider that only 17 banks have more than 500 branches currently. And J.P. Morgan has close to 5 ,000. In the age of mobile apps and digital banking, investing in branches might seem a little surprising. But executives say it's a winning strategy that has more than paid for itself.

20:30And that's because these branches aren't intended to be where you go for simple transactions like depositing a check. They're aimed at more lucrative services like wealth management, business loans, credit cards, financial guidance. I love these kind of counterintuitive, I don't want to call it a marketing play, but plays by these big companies. It's really smart that they're bringing in local people to run these branches. So even though you're this giant behemoth of a national bank, it has this local bank feel. When you walk in, you maybe see someone from your community. So it makes a lot of sense if you think about it and if you thought about it in terms of the digital revolution.

21:05It doesn't make sense. So I do love this alchemy that they're kind of playing around with. Yeah, I think they just want to provide those higher value-add services. And obviously, they're targeting more wealthy communities where they can get someone to, you know, maybe they can get that small business to get a loan from you there, or you get that really wealthy client into your wealth management services. So, you know, this is very strategic. But they do cite data that shows that Gen Z and College Aid's kids choose their bank partly on where they can get to a branch easily. And I think we saw this, we've talked about this recently as well, how retail can't just rely on e-commerce.

21:39They've been opening up brick and mortar branches as well because it's smart marketing. You need people to experience it in person. Brick and mortar is back, baby. Let's move on. A little game called the Super Bowl is coming up this weekend. And even though some of you might be paying attention to Taylor and Travis or the commercials, my attention will be fully focused on the broadcast booth. That's because alongside the standard CBS Talking Heads, there will also be a SpongeBob SquarePants themed alternate broadcast on Nickelodeon. Neil, I am locked in for this. We have the voice actors for SpongeBob and Patrick Starr donning headsets in the booth.

22:1411-season NFL vet Nate Burleson and Noah Eagle, real people, will do color and play-by-play. Sandy Cheeks and Larry the Lobster will be down talking to players on the field as sideline reporters, while Dora and Boots will be our rules experts when called upon. This is obviously an effort to engage younger fans with the broadcast, but this is also a full-on production in a great use of augmented reality. They are transforming Las Vegas' Allegiant Stadium into Bikini Bottom. Are you pumped for this, Neil? I'm so pumped. I remember, Nick, this is not the first time Nick has done a game like this.

22:46They started it back in 2021 with a playoff game between the Saints and the Bears, and that notched 2 million viewers. It was the most viewed show on Nickelodeon in nearly four years. So this was obviously very successful for them. I think it also got a lot of shelf life after the fact because when you score a touchdown, they send slime all over the field in this augmented reality type technology. And it looks very fun. So it did have this second life on social media, which I think they're hoping for as well. Also, I think a big reason is that this provides a more accessible price point for advertisers who still want to kind of be around the Super Bowl, but don't pay that premium price.

23:26Nickelodeon's ad spots sold for around 200 to 300K, whereas on CBS, that are going to run you about$7 million for a 30-second spot. So there was some early discussion about maybe these ad slots weren't selling. Back in January, it looked like demand was a little tepid because one of the issues is beer brands and adult-focused advertisers cannot advertise to children on Nickelodeon or they don't want to. And so those are the main advertisers of the Super Bowl. But it looks like enough brands got on board with this in our buying ads. Yeah, we're definitely seeing a good trend of these alt-casts gaining traction.

23:59Eli and Peyton Manning started theirs with Monday Night Football. And Disney is doing the Super Bowl in 2027 for the first time in a while. And they've definitely explored sort of splitting the game up to target various audiences rather than having this one monolith. Very interesting trend to watch in the in the sports media space. Finally, let's talk about the fight over the soul of butter chicken. In India, this is really happening. two rival restaurant chains are going to court over who invented butter chicken, that classic tandoori chicken and tomato cream sauce that's become famous all over the world.