Wendy's Cut Corners. Now a Hedge Fund Wants to Buy It

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Wednesday, October 28th. In today's episode, we'll talk about why Anthropic's IPO filing has given AI stocks a boost. We'll also break down what Visa's earnings tell us about consumer spending and why Wendy's could be going private soon. Then stick around to the end of the show to find out about Instagram's plans to take on YouTube and Netflix. We got a great show for you today. Let's go. Stocks kept rallying on Tuesday. The S&P 500 jumped 0.6% while the NASDAQ gained 1.2%. It was the second straight day where chips and AI stocks led the rally. The semiconductor index was up 3.6% yesterday. So the tech and AI stocks that were getting beat up earlier in the month are starting to bounce back. And I think a big reason for that is Anthropic's S1 filing earlier this week. I think many investors, including myself, thought that Anthropic's S1 was going to be a total disaster. Instead, the numbers in the filings were surprisingly solid. We broke down Anthropic's S1 on yesterday's show, so go check that out if you missed it. But essentially, Anthropic is seeing explosive revenue growth right now, and their operating loss has been shrinking. Actually, there are a couple more details that I want to point out that I forgot to mention yesterday. First is that Anthropic generated $3.5 billion in free cash flow in the first half of this year. If you compare it to the same period last year, they burned $1.6 billion in cash. So that's a pretty dramatic turnaround. The other thing to point out is that Anthropic says they make an 85% gross profit margin on serving their existing AI models, which to me is very impressive. Now, this number doesn't include the cost of developing new models, so that doesn't mean the entire company is making an 85% profit, but it does suggest that Anthropic has gotten much better at delivering AI to their customers efficiently. And one last note from the S1, their customer base is diversifying. By the third quarter of this year, 79% of the revenue came from outside their top five customers, and they have about 250 corporate clients spending at least $10 million a year. So overall, the S1 has been a positive vibe shift for the AI trade. I think investors got some evidence that an AI lab company like Anthropic is growing and generating cash, which means the spending on chips and AI infrastructure is unlikely to slow down anytime soon. The next test when it comes to AI will come today after the closing bell. Microsoft and Google report earnings. We also have a Fed meeting this afternoon as well. So a big day coming up. We're going to break everything down on tomorrow's episode. So definitely get subscribed if you haven't already and tune in every day to stay in the loop. Let's run through some headlines, starting with Visa. Visa reported earnings last night, And the company says that consumers are still spending even with higher prices and all of the economic uncertainty. For the third quarter, revenues jumped 13% from a year ago to $12.14 billion. That was just ahead of expectations. And adjusted earnings per share came in at $3.48, also beating Wall Street estimates. And the amount of money that's moving across Visa's network is kind of wild. In the third quarter alone, payment volumes reached more than $4 trillion, which was up 9% from a year ago. So this includes the value of purchases on Visa cards around the world. Another notable figure from their earnings report was an international cross border travel volume was up 14% thanks to a rebound in Middle East travel and visitors coming to the US for the World Cup. Now, Wall Street likes to pay attention to Visa earnings because they have a direct insight on how consumers are spending money. And according to Visa CFO, people are still spending money across all income brackets. Now, spending by their highest income customers was growing the fastest, but the company wasn't seeing signs of weaker spending amongst their lower income customers. So I guess that is an encouraging sign when it comes to the health of the consumer. But you know, despite the record quarter, Visa stock is pretty flat this morning in reaction to the earnings report. I guess the one nitpick that analysts found was Visa's client incentives, which jumped 21% to $5.1 billion in the third quarter. This is basically the money that Visa pays to big banks like Chase for them to keep using Visa cards. And Visa expects incentives to grow even more next fiscal year as deals covering about 25% of their payment volumes come up for renewal. Overall though, I'd say it was a solid quarter for Visa and the stock has gone up more than 15% this year. You know, Visa isn't a very sexy business or anything, but I got to say, they did an incredible job building out the payment infrastructure that works all over the world. And at this point, they essentially act as a toll booth on trillions of dollars worth of transactions. Let's shift gears and talk about Wendy's because they might be getting bought out by a hedge fund soon. The hedge fund Tryon, which is run by the activist investor Nelson Peltz, has offered to buy Wendy's for $1.4 billion to take the company private. Wendy's has been really struggling lately. Same store sales at their restaurants have fallen six quarters in a row and the stock hit a 13 year low. Wendy's did get a new CEO and he's been pretty blunt about the company's problems. One of the problems was that Wendy's cut corners on ingredients and food quality to save money. You know, I don't know why these companies seem to think that consumers won't notice when that kind of stuff happens. Now, on top of that, service at their restaurants became inconsistent and they also relied too heavily on one-off promotions so all of that led to declining sales and now Burger King passed Wendy's as the number two burger chain by U.S. sales so Nelson Peltz is coming in and he argues that fixing all this will take significant investment and several years and that Wendy's would have more flexibility to do that as a private company away from the pressures of reporting results every quarter so we'll see if Wendy's ends up agreeing to this buyout offer. Regardless, though, something does need to change at Wendy's to get things back on track. Let's talk about some stocks making moves today. Shares of Vertiv are ripping higher this morning after the data center infrastructure company crushed earnings and raised their full year outlook. Vertiv makes liquid cooling and power management systems that keep AI data centers from overheating. And business is heating up right now. Third quarter sales surged by 61% from a year ago to $4.3 billion. Wall Street was expecting around $3.75 billion. So that's a pretty sizable beat. On top of that, adjusted earnings jumped by 78% to $2.21 a share, blowing past the $1.82 that analysts were expecting. So they easily beat on top line and bottom line, and they also are raising their full year sales guidance to $14.65 billion. Vertiv CEO says that the AI build-out is actually accelerating and showing no signs of slowing down. Now, Vertiv stock has had a rough few months. The stock is down around 40% from its highs from back in May, but shares are bouncing back today up more than 15% at the time of this recording. Now, on the flip side, shares of Robinhood are sliding this morning after a massive slump in crypto trading weighed on their third quarter results. In Q3, Robinhood's total revenues grew by 12% from a year ago to $1.42 billion, but overall profits fell from $556 million down to $468 million. The big drag was crypto trading revenue, which fell by 55% from a year ago as crypto prices have come down from their highs last year. Now, Robinhood is seeing growth from other areas, most notably from prediction markets. Revenues there grew by 500% in the third quarter. But here's the thing, though. A lot of that prediction market volume is for sports. And last quarter, there was the World Cup and the start of the NFL season. So we'll see if that keeps up. And on a side note, I personally don't think it's a great idea having sports trading and investing in the same app. But that's just my opinion. I am a little biased, though. Anyways, the market wasn't happy with Robinhood's results. Shares of the company are down around 7% this morning in reaction to this report. Let's wrap the show with a fun fact. Instagram is coming for YouTube and Netflix. Instagram is testing a new format called Features that lets creators post horizontal videos up to 90 minutes long. So instead of watching a 30-second podcast clip and then going to YouTube to find the full episode, you could watch the whole episode directly on Instagram. Instagram is also trying to get you to watch more on your TV. They just launched an app for Apple TV and they're even building a feature that turns your phone into a TV remote. Honestly, I think this is a pretty smart move by Instagram. Now, funny enough, Instagram actually tried something similar before. They had a feature called IGTV back in 2018, but it was a major flop. Instagram says a big reason for the IGTV flop was because it forced people to watch long videos vertically. I also feel like 2018 was a totally different media consumption environment. I think we are a lot more addicted to our phones now and scrolling on Instagram and TikTok. And by the way, speaking of TikTok, they're also embracing longer content. Yesterday, TikTok announced a partnership with the streaming service Tubi called the Creatorverse Incubator. Tubi is going to fund 12 TikTok creators to turn their content into 10 original TV series across genres like reality, horror, and animation. It's too bad they don't have business and finance as a genre, because I would probably apply. But yeah, big picture, these short-form apps are now trying to take some market share from YouTube and Netflix. And honestly, I think it's gonna work, especially Instagram. I think they're in a good spot here. These days, a lot of people would just rather scroll through Instagram or TikTok than find a show to watch on Netflix. And if TikTok and Instagram make it easier for people to watch their creators they already know on TV, that's gonna take time away from people watching Netflix. So yeah, I think Netflix could be in some long-term trouble here. And it could be why their stock is getting crushed lately. They're kind of getting crushed from both ends. They don't have the best shows anymore. The best shows are on Apple TV. All their shows are mediocre and people would rather just watch TikTok and Instagram at that point. Let me know in the comments on what you guys think. Do you like that Instagram is embracing long-form videos? And do you think that it's a legit threat to Netflix? Drop your thoughts in the comments on Spotify and YouTube. And who knows, you might find full episodes of The Rundown posted directly on Instagram soon. Well, all right, guys, that's The Rundown for today. Hope you guys enjoyed today's episode. Thank you guys so much for listening, watching, and commenting. Shout out to Mike and V for all the work behind the scenes. And we'll see you guys back here tomorrow.