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I think the subtle rise in annual net income estimates is an encouraging sign of progress. That’s especially true considering Nike added $500M in incremental cost headwinds for the year related to tariffs. Based on how estimate trends unfolded inter-quarter, it looks like analysts were waiting on commentary surrounding this change before reflecting it in estimate revisions. Furthermore, this cost headwind will shrink over time as it negotiates with vendors, tweaks its supply chain and hikes some pricing.

For the full year, as we’ll dig into in more detail throughout the piece, wholesale-related demand and gross margin headwinds should keep easing through the remainder of 2025. That should mean full-year wholesale revenue grows while the large GPM headwind fades away. This is thanks to North America, as strength here will offset ongoing weakness in China. Much more on that later as well. For the Nike Direct bucket, ongoing double-digit digital declines related to reduced prices will continue to weigh on results and generate negative overall segment growth for the full year. That digital traffic trend could actually get worse in Q2 before things start to improve. Some signs of improvement… many more needed with North America expected to keep leading the way.

Win Now – Overall Progress Report:

“On our last call, I said it was time to turn the page… I believe this quarter reflects the many ways we're doing just that.” – CEO Elliott Hill

The theme of the quarterly call was Nike turning a corner. Last quarter, they told us that would be the worst financial period for this turnaround. That expectation was reiterated this week, as growth rates trough and NIKE enjoys some early success with operational changes.

The first focus areas for change were the running segment, wholesale partnerships and North America overall. As we’ll see throughout this piece, improvements are most pronounced in these three areas, clearly showing that the changes are working. They’re “getting some wins under their belt.”

And while that’s true, the team cautioned against getting overly excited about the pace of the overall business recovery. There are many more categories in need of fixing, with those repairs early on in their impact journeys. Furthermore, the macro backdrop is not amazing for clothing vendors right now. They have a ton of things within their control to improve underlying financials, but macro cooperation will not be a supportive tailwind at this stage.

Win Now – Sport at the Center:

As a reminder, the main piece of its Win Now approach is placing Sport at the center of operations (“Sport Offense”) by segmenting teams by individual brand (Nike, Jordan and Converse) and sport. They reorganized 8,000 employees this past quarter and believe this has tightened communication around more local, specific objectives, making Nike better at catering to needs on a by-sport or by-market basis. 

Running is perhaps the best example of tighter, by-sport focus leading to fundamental momentum. The company has changed product delivery to fixate on comfort, stability and the ability to wear shoes for everyday use cases. Sounds rational. They’ve overhauled the Vomero (type of running shoe), with strong sell-through rates for the Vomero Plus telling them the approach is well placed. Redesigns for the Pegasus (also a shoe) and some other models are expected to generate similar momentum, while newness in Nike All Conditions Gear (ACG) added outdoor high-performance running apparel to the mix. They added a dedicated team for this segment as part of the overarching mission to group talent and focus into more granular buckets. All in all, Nike Running grew by more than 20% Y/Y, and they’re looking to extend the effective work and learnings from this category to the rest of their sports. Again, all of these sport-based recoveries will be on different timelines, but their strategy working in running bodes very well for it working elsewhere.

It sounds like Global Football/Soccer and basketball will be the next priorities. They’re gearing up for the 2026 World Cup with “several football streetwear collections” and a various array of cleats at all different price points. They’ve debuted a new “Scary Good” marketing campaign to amplify new product traction.

As an aside, that’s another point of differentiation Nike is looking to leverage. It has products at all cost levels that cater to all different kinds of consumers. That should mean product innovation can be even more impactful and help them win all types of consumers. Their addressable market is uniquely massive in shoes and apparel, but they’ve done a poor job catering to all facets of it. That leaves a lot of lucrative low-hanging fruit to take advantage of. This company reminds me of Starbucks in so many ways.

“The longer-term vision is for the impact of the Sport Offense to be felt far beyond the traditional sports where we currently compete. We now have dedicated teams to bring our creativity to additional market opportunities.” – CEO Elliott Hill

Win Now – Better, More Focused Stores:

The Win Now objective also involves redesigning storefronts to cater to more specific activities and deliver more compelling product displays. For example, they revamped the House of Innovation location in New York City, which has already yielded a 10%+ uplift in store revenue. They upgraded a smaller location in Austin that also led to “significant sales increases,” showing this concept can be applied to many different store models.

Win Now – Reinvigorating Marketplace Health:

Aside from improving stores, taking better care of wholesale partners and fixing the digital shopping environment are top priorities. Repairing wholesale relationships is the furthest along. They’ve worked hard to ship higher-quality inventory to partners like Dick’s Sporting goods and more proactively manage product display areas at retail partners. They updated 1,300 of these display areas across Dick’s, Nordstrom and other partners during the quarter. It was not giving retailers compelling products to sell to customers, as it was prioritizing digital channels too much, rather than simply focusing on generating demand wherever a customer shops. They’ve become far more channel agnostic, and the byproduct here is happier wholesalers generating more revenue for Nike.

An impactful tool within that pivot has been cutting hefty, constant discounting on their digital storefront. Not only did that greatly diminish Nike’s brand quality perception, but it also burned the trust of some retailers, as they saw Nike simply undercutting them. No longer is this the case. In North America specifically, where marketplace fixes are the furthest along, promotions fell by 50% Y/Y while markdown rates also improved. Their reliance on selling the classic franchises they’re trying to phase out (another current revenue headwind) also diminished

Like in previous quarters, higher digital pricing is leading to significant digital traffic headwinds and is why that channel is expected to generate negative growth this fiscal year.

Conversely, these changes are leading to positive spring wholesaler order book growth and Nike’s confidence in this channel returning to positive growth for the year. Wholesale’s margin drag related to old product liquidation should also diminish during the second half of the year. This specific bucket is nearing much healthier results.

“Given the steady progress on exiting the first half with a healthy marketplace, we do expect the benefit from less inventory clearance to start to take shape in our margins in the second half of this year.” – CFO Matt Friend

Win Now – Lifestyle Segment Recovery:

The lifestyle category recovery is not as far along as the performance category. It continues to struggle, as Nike picked other areas of the business to fix before this one. Nearly all focus has been spent on the performance side of the business to date.

“While the sports performance teams are finding a higher gear, our sportswear teams have work to do to get sharper on the consumers we're serving. We see it in our results. Our business continues to decline.” – CEO Elliott Hill

Still, there are very subtle signs of this category starting to find its footing. Its Air Force 1 franchise is "stabilizing" and Air Jordan 1 inventory levels are getting back to a healthier place. The Dunk franchise has a lot of inventory still to address, which is happening through wholesale channels and, as briefly mentioned, weighing on gross margin.

More on Various Stages of Geography-Specific Turnarounds:

The North American market is the most advanced in its recovery. EBIT still fell by 7% Y/Y, but wholesale returned to positive growth for the first time in a while and Nike Stores was flat. The overall revenue decline there was all Nike Digital-driven, as it greatly reduces discounts to support its overall marketplace.

China is probably the market with the most remaining work to do. Running delivered nearly 10% Y/Y growth in the market, but EBIT fell by 25%Y/Y and everything else struggled. They’re in a tough situation there right now with double-digit declines in shopper traffic and underwhelming conversion rates as well. They are investing in stores and product assortment to better cater to the Chinese consumer. At the same time, it will take a while for changes to be implemented across its large 5,000-store footprint. And after that, it will also take a while for consumer awareness to build and for sales trends to respond. That means a lot of near-term cost without a lot of near-term financial contribution, hence the bad numbers

Despite this, following trips to China, leadership is confident in that market being a key source of future growth. The same sport-centric focus in North America will be brought to China, and they’ve already piloted a few stores and products in recent weeks with strong receptions. Throughout fiscal year (FY) 2026, this market will be an overall financial obstacle. Deep discounting on the digital site will probably continue and consumer momentum stemming from operational changes won’t come overnight. Things should look a lot better during FY 2027.

While North America is ahead on “return to sport” and wholesale recovery, EMEA is closest to overall marketplace health normalization. They’re “close to repositioning Nike Digital as a full-price business,” but traffic and demand patterns “remain soft.” That’s likely because price boosts in that market have been more rapid and aggressive than elsewhere. They’ve had to do that amid a sharply promotional environment throughout Europe.

Asian-Pacific + Latin America (APLA) is mixed. Overall digital discounting fell in the region overall, but there were a few material offsets to that strength. Some markets are experiencing  inventory gluts that are forcing more promotional discounts in those specific countries. Inventory continues to grow there despite a desire to shrink it; they’re going to need to be more aggressive on pricing in the near-term. So again… mixed. Like the business overall, performance growth was strong and lifestyle growth was very weak.

Other Notes:

Much better quarter with many more reasons for optimism… but? Still with a lot more progress needed. Like for Starbucks, there was such a big mess to fix here. Nothing was going well and there weren’t prospects for improvement. Now there are. Hill is doing his absolute best to right the ship. I think he’s focusing on the right things and implementing the right changes. Things should continue to improve, and as Nike finishes repairing the remaining parts of its business, this can get back to steady growth between 5%-10% per year with a ton of margin catch-up left to enjoy.

If I was going to go with exposure to this sector (which is not my favorite place to invest), I think I’d pick On Running at this stage, but Nike has surpassed Lululemon in terms of investment quality in my mind and is a compelling turnaround play. Elliot Hill > Calvin McDonald.

Basic Niche:

Cloudflare makes the internet fast and secure. They have a massive global Content Delivery Network (CDN) to move traffic closer to the end user, which cuts web latency. They actively assist clients in optimizing traffic, speed and consistency as well. NET doesn’t sell physical firewall hardware, but instead a virtual, cloud-native “Magic Firewall” to supplant these hardware needs. It offers web application firewalls (WAFs) for app-level security and Magic Firewall is for network-level security. Magic WAN is Magic Firewall’s partner in crime; it connects networks while Magic Firewall protects them.

Workers Platform & AI Tools:

Workers Platform is its serverless (so fully managed by Cloudflare) product suite for millions of developers to build, maintain, secure and deploy applications. This enables caching of content and apps across Cloudflare’s global network for faster delivery. Its newer Workers AI product allows developers to access models and GenAI tools (like sentiment analysis) to build and customize apps hosted by Cloudflare’s network. Workers AI pairs seamlessly with its “Vectorize.” Vectorize offers a style of data querying that allows for visualization of patterns.

Another key example of Cloudflare’s GenAI tools is its R2 product. This allows cloud workloads and data to freely move among public clouds with no tax. This is key in a multi-cloud world and is popular for model building and implementation. Models are voracious users of data and data is routinely hosted in many clouds. That's where R2 comes in handy.

Zero Trust & More on Network Security:

Cloudflare also offers its Zero Trust Network Access (ZTNA) program. This directly competes with Zscaler and many others. Zero trust means that a user or device must be constantly verified (or never trusted) as it moves through the network. Cloudflare does this in a seamless manner, minimizing user friction. It considers device type, location, usage patterns (or signatures) and other contextual clues to better authorize permission requests. This way, it knows when to block those requests or when to require more information. It then deploys a minimal privilege approach to ensure only the necessary permissions are granted to workers. Nothing more, nothing less. Zero Trust ensures an adversary can’t breach the most vulnerable part of a tech stack and move freely throughout it thereafter.

Secure Access Service Edge (SASE) is a term for how Cloudflare conjoins web performance like SWG, Magic WAN with security use cases like data loss prevention (DLP), Magic Firewall, email security and broad threat intelligence capabilities. This drives vendor consolidation, controls costs and augments performance. Cloudflare One is its overarching product bundle subscription combining this suite.

Cloud Access Security Broker (CASB) is a security tool to provide firms with a bird’s-eye view of application usage. This has both security and performance optimization implications. It hosts and secures client data and uncovers suspicious activity or deviations in typical usage patterns to flag threats. It plugs into NET’s Secure Web Gateway (SWG), which is essentially a digital security guard ensuring protection of a firm’s secure network and assets from the open internet. It ties closely to NET’s DLP and URL filtering tools.

It offers Distributed Denial of Service (DDoS) attack protection to augment its security and network capabilities. This form of hacking aims to inundate and overwhelm networks with traffic. This is delivered through a product called Magic Transit and boasts higher success rates, scalability and cost efficiency. That recipe is a cliché for Cloudflare products. They think they’re one of one in terms of handling massive traffic spikes without ballooning costs or issues. While alternatives route separate networks for DDOS-specific functions, sacrificing interoperability, Cloudflare provides non-siloed service.

More on GenAI:

Browser Isolation is Net’s managed service for providing users with a purely secluded environment to search and scrape the web. This will be an increasingly important tool for its GenAI inference products that are now building steam. Inference is where Cloudflare expects to realize the bulk of GenAI’s financial value. Models are trained once and periodically updated with new data. After that, the value of those models lies in their ability to connect dots and drive insights (or inference). That’s where Cloudflare thrives. It offers a managed cloud platform to do all of that app and model work in a secure and compliant fashion.

NET continues to shoot for $5B in ARR for 2028. It just crossed $2B, meaning it’s targeting a roughly 35% CAGR from now to then. Very good.

Go-to-market:

About a year ago, Cloudflare aggressively overhauled its go-to-market. It parted ways with underperforming salespeople, upleveled talent pickiness, realigned incentives and prioritized large enterprise contracts more effectively. Additionally, they shifted focus to pool of funds contracts, which are similar to CrowdStrike Falcon Flex in that they entail an upfront commitment and an ability to draw down that commitment at a client’s preferred pace and with any module of their choosing. The improvements since that change have been consistent, and that was no different this quarter. Its go-to-market force is quickly catching up to its already world-class product suite. That’s a tough combination for anyone to compete with and is one Cloudflare now has in place.

Quarterly bookings set a new record as it accelerated the number of seasoned sales executives ready to optimally sell its products. They think that acceleration will carry through to the end of the year. Its $1M+ and $5M+ customer segments enjoyed their fastest rate of growth in 3 years and a record for both in terms of net new customers. New pipeline generation is surpassing internal expectations. And more generally speaking, their start-of-year goal to meaningfully accelerate revenue growth began to play out, with a point of Q/Q growth improvement.

Macro is not improving for NET, they’re just dominating.

Some of the Important wins during the quarter included:

The Media Segment Unlocking Another Product Category (or “act”) for NET:

As search engines morph into answer engines that greatly reduce the number of overall queries leading to traffic for their own website, Cloudflare is positioning itself to help. They’re assisting publishers unlock the value of their proprietary content in the age of agentic AI by safeguarding this information when needed, and monetizing it via agent calls. Subscription and ad-based revenue rely on people actually going to these publishers, which is and will continue to be increasingly challenging as chatbots increasingly give us answers rather than sources to explore. For context, CEO Matthew Prince noted a study saying it’s 10x harder to get traffic from Google than it was just a few years ago, making new ways to harvest financial value from content imperative. And? Charging agents for access to this information doesn’t rely on direct traffic.

This is why Cloudflare has enjoyed uniform excitement when approaching publishers with needed tools to protect against agents while embracing their inevitability. Many publishers have already signed on and even pure-play AI companies have enthusiastically joined the fold as well, knowing they’ll need healthy publishers to feed their models information for the long haul. As a company that controls and oversees so much of the world’s internet traffic, they have a fantastic point of view (and highly capable products) to ensure publishers can keep getting paid and ChatGPT can keep getting useful data to feed its models.

As Prince noted, these media deals are not large in financial value, but could create new avenues and methods for NET to monetize more agentic API calls down the road – even for free users where the team is especially excited to realize more value and dollars. The opportunity expands so far beyond publisher to AI company payment facilitation that “Cloudflare has begun referring to this as “Act Four” of their product roadmap evolution. They’re not sure how the actual business model for this act will evolve, but they’re confident in considerable operational value leading to more monetization.

“The same rails that we are building to power payments from AI companies to publishers, we believe, will be used to facilitate transactions between AI agents, whatever they happen to be doing for you online.” – Founder/CEO Matthew Prince

Workers Platform Winning Workloads from Competitors:

Cloudflare’s Workers platform continues to win a lot of cloud workload market share as it remains in hypergrowth mode. Their ability to optimize utilization rates for highly expensive GPUs while also localizing inference tasks across its entire network, thanks to having high-performance compute capacity and a unified network infrastructure that means all of its servers can run every single service. Customers don’t need to tap into compute from across the globe to use a product with this vendor. They view this as a “fundamentally different,” cheaper and better architecture than any others. They’re finding it seamless to win hyperscaler workloads for a customer’s most valuable and latency-sensitive workloads, with easy up-selling opportunities thereafter. 

This past quarter, they won a $15M one-year contract for Workers AI, as that development platform continues to shine and show incremental productivity and performance advantages. This “rapidly growing AI company is now “doing all of their inference from a hyperscaler to Cloudflare.” Cloudflare scales better with them than their previous vendor. Another leading digital travel firm signed a 4-year contract worth nearly $1M per year for the Workers platform as they also move workloads away from hyperscalers. This company is now testing NET’s zero trust security suite. Generally speaking, Workers platform growth continues to accelerate as its core cost, value and efficiency differentiators shine.  

Act One Products Still Growing Very Nicely:

Per Founder/CEO Matt Prince, DDoS and WAF continue to be the “easiest way to see the fundamental architectural edge that NET has over anyone in the space.” It’s where Cloudflare shows off the graceful handling of vast and malicious traffic spikes as part of DDoS attacks with far better performance, without ballooning costs and while using a much smaller portion of its network capacity than others require. As Prince explained, competitors offer siloed “scrubbing centers” that can handle certain amounts of this traffic, but can’t scale nearly as large as NET’s conjoined network. These have to routinely hand off work to each other as they get overwhelmed with traffic, which leads to higher costs, a more complex web of compliance, inferior performance and higher latency. Because all of NET’s servers are capable of running all of its products and tasks with more scale, they diminish these cost and performance bottlenecks.

This leads to more data transfer costs, inferior performance and higher latency. NET’s foundation does not run into bandwidth issues amid spikes and does not routinely fail during the most important times to succeed.

Other Notes:

Great quarter. I view this company similarly to Palantir. I love everything about the team, product suite, optionality, positioning, runway and margin trajectory. I cannot get comfortable with the valuation. I am confident NET will continue to win more market share, effectively expand into more product categories and profitably compound revenue. I’d just need to own it at a more reasonable multiple and I’m not holding my breath for that to happen.

Trade Desk & DIRECTV are building a customized iteration of TTD’s Ventura Operating System (OS) that matches DIRECTV's existing user interface. The integration should bolster DIRECTV's overall reach over time as manufacturers adopt this solution. It should also support a healthier ad business, considering this is connected right to TTD’s ad engine. They get to tap into a better product without relying on a walled garden like Amazon Fire TV.

Trade Desk enjoys a better, more margin-rich supply chain with this customer. They get a great partner to go sell the packaged solution to smart TV manufacturers. They also get to connect more biddable ad impressions to their buyers in a more efficient manner thanks to the streamlined ad supply chain. That cleanup also entails eliminating the unnecessary parties from this equation, creating more margin and take rate opportunity for remaining players. And finally, this announcement means better data pipelines, enhanced targeting and improved ad returns.

This week, Trade Desk announced “Audience Unlimited.” This allows companies to more affordably and seamlessly tap into TTD’s unmatched base of high-fidelity open internet 3P data. Why does that matter? Because Amazon, Alphabet, AppLovin and many others will continue to be formidable alternatives in advertising placements. Mega-caps don’t provide the unbiased placement that TTD does and AppLovin is mainly operating in different channels… but they’re still all pursuing the same market.

And while it’s a massive industry where there will always be many winners, Trade Desk needs to continue standing out to keep taking their fair share. This launch should provide a leap forward in their already strong ability to compete. How? By removing the friction associated with advertisers creating larger target copycat audiences on Kokai. 

TTD is great at helping companies leverage their own 1P data for successful "concentrated data seeds” and strong campaign performance. These seeds are nurtured and lead to great returns. But? 3P is sort of like the pollinator once these seeds have already matured. These pollinators extend the reach and vitality of that single base of 1P data.

The Trade Desk is world-class at using this 3P data to augment existing data profiles. It specializes in creating larger lists of similar audiences and targeting them. It effectively gives companies the same level of return on ad spend with these new cohorts as they have with current buyers. 

So if these capabilities were already in place, what’s the news? Trade Desk is simplifying the buying format under its 3P data marketplace. It’s not creating an entirely new product… TTD is making it a lot easier to realize the value from an existing product. It’s infusing its latest-and-greatest AI technology to categorize, rank and gauge the relevancy of 3P data. Their marketplace was somewhat daunting for the average buyer. This will help communicate what customers should actually want to purchase for their Trade Desk campaigns. Thanks to TTD’s scale and negotiating power, it’s able to collect 3P data and acquire more of it efficiently. This means it can pass some of that savings onto buyers, generating more data purchasing value for them. Savings should mean that more companies leverage this 3P differentiator, enjoy better campaigns (which this is proven to do) and feel motivated to spend more on TTD’s platform.

“This activates precision targeting at scale with third-party data without the complexity of unpredictable costs or reconciliation challenges.” – Press Release

There are two “modes” in which this will be offered. First is performance mode. This is fully managed and comes with Koa (its AI copilot) as an integrated end-to-end sidekick. It automates data incorporation based on pre-set campaign goals and guardrails. All of this work is openly trackable for marketing departments, with the data included in overall campaign costs. If customers would rather pay with an à la carte (some do), they’re free to apply this data to campaigns at their leisure. Their choice.

Second, TTD will offer control mode. This enables manual governance for data purchases. It will provide the same data-driven recommendations as performance mode, but decision-making is done by people. Under this plan, advertisers pay between 3.3%-4.4% of overall impression costs, rather than having costs included in their overall invoices.

To summarize & contextualize, savvy advertisers all want to use 3P data. They all know it helps. But? They’re deterred by unpredictable variable pricing and not knowing what they should buy. Enter Audience Unlimited. Initial agencies will get access to this product by the end of the year, with a full release set for early 2026. I’m excited about the impact this will have on TTD’s ability to target and demonstrate incremental value vs. the field. It’s lowering the barrier to using one of its best assets.

Weakness in Mercado Libre shares this week was (in my opinion) mainly likely related to a large soybean sale Argentina made to China in place of U.S. farmers. Some outlets are reporting that this angered the U.S. administration and endangered the $20B U.S./Argentina swap line agreement.. If this falls through, it could lead to a lot more Argentinian currency volatility. That would make nominal revenue growth more challenging for MELI while it persists. Milei/Trump are meeting in 2 weeks to sort this out. I think that’s the probable outcome, but we’ll see. For now, there could be more short term share price volatility but that is not overly important for the long term investment case.

There was also news that Amazon is removing merchant fees for new sellers through the end of Black Friday to win over merchants. Amazon has been in Brazil for over a decade and has run countless promotions. It’s a competitive market because it’s such a large, attractive market, MELI will need to keep winning its fair share against them, Shopee and all of the other fierce competition in that region. I am confident it will do just that, considering its ubiquitous brand, vast selection, compelling subscription, financial service cross-selling, unmatched fulfillment network and world-class team.

Galileo CEO Derek White is stepping down to pursue another unnamed opportunity. They’re currently looking for his replacement. Not news you root for but also not monumentally important either. The Technisys founder is still very involved and this has been the worst of their 3 operating segments. Wouldn’t mind some fresh voices leading the way. 

Some on X posted about Yipit data pointing to a 22% decline in SoFi personal loan volume for August. That wasn't great to read, but it was so misleading. That is a 22% month over month decline. Not Y/Y. Y/Y personal loan growth for the quarter through August was 59% Y/Y per that same data release. That bodes quite well for Q3 results. I reached out to the company and fortunately got a response from someone with an opinion I fiercely trust. They said M/M is very noisy due to various seasonality-based items. They then brought up Noto's September 8th Goldman Sachs remarks (like I did in the Discord earlier in the week) to remind us that credit continues to perform well. These remarks came after the August data cited. They reminded me that the IR team cited those comments with full and more complete knowledge of the August data Yipit called out. They finally reminded us that in that Noto interview he said that "demand was strong," which is completely contradictory to the Yipit data.  Yipit didn’t do anything wrong here. They reported data. Some people just grossly misinterpreted that data and arrived at unduly negative conclusions.

Next, Fitch released a credit report calling out higher delinquencies for some 2022 SoFi vintages. The company has been very candid about some 2022 originations underperforming, which is why they pulled back on growth for a few quarters. We already knew this. Fitch is reacting. And furthermore, I’d again remind everyone that Noto told us credit is performing well for weeks following what this data considers.

Finally, Level One options are finally rolling out for SoFi. Their Invest Product is greatly under-monetized and this should help them catch up. This was a big hole in the brokerage toolkit and that hole is now being plugged. Good for customer lifetime value. Good for retention. Good for revenue & profit. It sounds like there are many more iterations to come for this product category.

RBC channel checks are pointing to upside for Zscaler’s upcoming quarter results. TD Cowen also came away from private interviews with leadership quite optimistic about the company’s growth trajectory and optionality.

Uber is buying a data labeling company called Segments.ai. The company can efficiently collect, categorize & glean valuable insight from vast sums of data. The foundation is purpose-built for AV sensor-based data but highly relevant for Uber’s existing business too. 

It’s a great vendor for accelerating AI model training & inference, as well as for overall LLM performance gains. With Uber’s giant pile of ride-sharing and delivery data, adding these new tagging capabilities will effectively unleash the value of Uber’s leading scale. It will help mightily in making sense of and monetizing the information created from Uber’s operating history, while also providing Uber another important sensor data labeling service for driverless cars as well. That capability can be sold or used as bargaining chips for fleet access in AV partner negotiating rooms.

Beyond the lucrative utilization edge Uber can provide AV fleets, this is turning into yet another source of real value Uber can provide to potential partners better than anyone else can. It’s great to be the scale leader. 

Segment.ai is tiny so there’s no disclosed deal value. Importantly, the founders are staying with Uber and joining the Uber AI Solutions team.

Kalshi debuted parlays for the Monday Night game this week. That's sending both of these companies lower. We've been told by the respective teams that DKNG/FLUT products would remain differentiated based on the format of being a market maker rather than an exchange. That allows them to structure bets in more unique ways and manage risk more efficiently to enable that broader menu. That doesn't seem to be holding Kalshi back from expanding into the highest-margin betting these two vendors provide – parlays. The limits are surely lower, but the tax advantage Kalshi (probably temporarily) enjoys means it can offer better odds to gamblers. The introduction leaves micro-bets and live betting as the two main forms of differentiation here, but it's unclear if Kalshi will eventually offer these too. 

The news makes me somewhat less confident in DKNG CEO Jason Robin's conviction in their product remaining far better than prediction market offerings. It makes me more skeptical, but I am not ready to give up on this name. It’s a structural grower that’s taking market share and gearing up for a multi-year 80% FCF CAGR while trading for 17x forward FCF. It’s dirt cheap despite strong fundamentals.

There are a few ways this prediction market stuff will shape up in my mind. If we get regulatory clarity and this is allowed to continue, DKNG and FanDuel can enter 11 new states at normal business tax rates. If that clarity comes and prediction markets aren’t allowed to continue, DKNG and FanDuel go back to the status quo. This past week, there has been some commentary from the CFTC as well as Senators from both sides of the aisle on potentially wanting to restrict or prohibit this type of product. But regulators and politicians are always unpredictable and we’ll have to wait and see what they decide.

With all of this in mind, I am sticking with this name. Even with this added competitive threat, New York state volume growth looks very good (talked about it last week), while other state data points to nearly 20% volume growth for the quarter. The importance of that data rises well above the opinion of any keyboard warrior claiming DraftKings and FanDuel are done and makes me want to be very patient here (especially at the dirt cheap multiple).

PayPal has announced Google and Perplexity partnerships, Adyen, JP Morgan and Fiserv partnerships, and agreements with global digital wallets representing 2B people all in the last year. It is creating better products, more thoughtfully delivering and charging for those products and more openly trying to partner with the rest of the ecosystem. This week, PayPal World (interoperable digital wallets and checkout adoption) added Ooredoo (big in the Middle East and Northern Africa) as another integrated payment provider. More global payment interoperability. More acceptance. More local currency payment. More P2P destinations. Less friction. More volume. That’s the idea here. The program overall is now pushing 2B consumers. Furthermore, PayPal’s deal discovery engine (Honey) announced a new integration with OpenAI that will infuse shoppable Honey links right into ChatGPT’s outputs. More high-profile partnerships.

Nu applied for a U.S. Bank Charter. They’ve spoken a ton about wanting to cater to underserved Latin Americans in the USA (~20M people). The preliminary step in that long expansion process is done. We’ll see if they successfully get a charter this way (not at all a given) or maybe end up needing to buy a small bank for their charter. 

The USA’s competitive landscape is a different animal compared to the markets Nu has already successfully expanded into. It is fiercely competitive and a lot further along (~10 years) in terms of digital service adoption rates. That’s why the first area of focus will be “better serving existing customers who are based in the U.S.” After that, they plan to target those 20M underserved consumers, rather than playing an expensive game of chasing the whole market. They’ve established a proposed board for the U.S. business and relocated co-founder/Chief Growth Officer Cristina Junqueira there to gear up for future growth.

I’m excited by this news. I think the company will eventually enter dozens more counties, and the USA is a great option. I do not think they should go after the entire market, as it’s a battle they likely cannot win, but I do think they have a great shot with chunks of the population.

OpenAI debuted a video sharing app called “Sora” that some think is a threat to Meta’s kingdom. I’m not concerned. I think there’s a much better chance of this quickly flaming out like so many others before it have. Meta is also buying Rivos to boost its in-house semiconductor design capabilities.

There are some Google Cloud layoffs this week. I would expect this to unfortunately be a somewhat consistent theme going forward. Hyperscalers continue to extract more automation and efficiency from AI work. That displaces the need for some talent. Good for Alphabet margins. Need the labor market to pick up this slack elsewhere.

Amazon announced 3 new Echo devices, an Alexa Home Theater, Ring 4K camera (with new AI-enabled facial recognition, Alexa greetings and community pet-finding), an updated Kindle, updated Fire TV kits and a new streaming stick at a device event this week. Amazon also launched a new private label food brand (Amazon Grocery) with 1,000 items for $5 or less. This replaces Amazon Fresh and Happy Belly Brands.

Hims COO stepped down and assumed an advisory role a few months after joining the company.

Citizens JMP reiterated an outperform rating on Duolingo with a $500 price target. They continue to be optimistic about this growth engine, the impact of AI and also a shift to web-based checkout (away from Apple) as a margin tailwind.

Nu launched a teen credit card with tight repayment guardrails to allow consumers to safely build credit. If a customer misses a payment, their bank account will be drawn from to cover the outstanding debt.

Tesla beat delivery estimates by 11% and beat the high end of the estimate range by about 1%. 

Cava launched in Miami. Its COO is also stepping down. I’d assume they got a promotion elsewhere, considering the team’s excellent performance since going public.

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