Max subscribers — my portfolio has not changed since the last update.

Nike told investors that it was “staying disciplined on costs.” Still, demand creation expenses rose 15% Y/Y despite the revenue declines. SG&A overall did fall by 2% Y/Y due to lower overhead expenses via layoffs. GPM expansion was driven by lower product, warehousing and logistics costs. Strategic pricing actions (sacrificing revenue for margin) helped too.

Nike removed most of its annual guidance. I think this was the correct decision. It’s wise to try to get as much bad news out of the way as possible for new leadership. It’s also wise to let a new CEO take their time on perfecting the new plan. Lower the bar for their future success. Previous annual guidance for fiscal year 2025 called for a mid-single digit decline in revenue, 20 bps of GPM expansion and positive SG&A growth. What it did tell us this quarter is that internal expectations have “moderated” since its previous annual guide. It still sees Y/Y revenue declines improving during the 2nd half of the year.

For Q2, it guided to -9% Y/Y revenue growth, which missed estimates by about 2.3%. It also guided to 150 bps of GPM contraction due to more markdowns, wholesale revenue mix, supply chain deleveraging and more. This is materially worse than expected.

It’s no secret. Just like countless consumer discretionary brands, Nike has fallen on harder times. Some of that is macro-related and some of it is product assortment and innovation related. There’s also an increasingly popular opinion that Nike’s brand is decaying and slowly dying amid strong competition from Hoka and On Running. If that’s the case, this weakness would likely prove to be structural. If not, it won’t. I’m in the “it won’t” camp. Still, whether the brand is truly losing its shine or not, results are currently ugly and a new CEO has just been named.

He will surely come with a significant pivot in Nike’s current strategic approach, and what that pivot looks like will take time to solidify. This is why Nike removed annual guidance and postponed its investor day. This is a massive company that has, for whatever reason, lost its way. Turnarounds for this type of name don’t manifest overnight. All of this is to say that I don’t really think this quarter matters; Hill doesn’t even start his new job for 10 more days.

“We are reporting our results in a transitional moment, as John retires and Elliott joins as our new President and CEO on October 14th… Elliott is a beloved NIKE veteran who brings a powerful connection to our employees and culture, a deep love for our brands and a passion for sport. Over his [previous] 32 years with Nike, he built a proven track record of leading our global teams, brands and businesses ” – CFO Matthew Friend.

Nike has been “moving aggressively to shift its product portfolio and re-energize the brand’s momentum through sport.” Changes to realize this objective have included the removal of several middle management layers to accelerate pace of innovation. “Speed Lane” is a key piece of this push, which is its new approach to product delivery that aims to shorten time to market through “hyper-localized design and closer work with manufacturing partners.” It has been instrumental in turbo-charging Nike’s launch of sub-$100 shoes and 6 other product lines. The savings pocketed from cutting ties with managers as well as more savings from reduced small parcel fulfillment and other efficiency initiatives will amount to $1 billion for this year. That will be reinvested back into the business.

Beyond organizational restructuring, it expedited the sunsetting of older brands like Dunk and Jordan 1, which, altogether, represent a mid-single digit percentage impact to revenue growth. That headwind will remain in place throughout fiscal year 2025. The most noticeable impact here is on its digital business, where sunsetted franchises delivered -50% Y/Y growth. Wholesale fared much better, which is prompting Nike to shift more of the remaining inventory to that channel. That will be a margin headwind and is another reason why delivering compelling newness is so important: It nurtures direct channel demand to deliver better marketplace balance and operating leverage.

“Partner feedback on our future product pipeline has been very positive.”

CFO Matthew Friend

A lot of Nike’s weakness is being driven by lower traffic across its channels. This was most severe for NIKE Direct and digital. Overall, marketplace inventory levels got a bit more bloated Q/Q. This meant “requiring higher levels of promotional activity in Q1 to drive conversion.” Traffic trends did improve month-over-month (M/M) in August, but still missed internal expectations. During the call, Nike also called the “multi-brand environment” very competitive and warned investors that it will “take time to expand market share.” For evidence, its spring 2025 order book results were “lighter than planned.”

There are some subtle green shoots that point to its new innovation resonating. For example, Nike sees new product revenue contribution doubling this year vs. last year. This will help offset some (definitely not all) of the accelerated product sunsetting headwind and other current demand headwinds.

“Comebacks take time. We’ve had some early wins, but have yet to turn the corner.”

CFO Matthew Friend

The clearest signs of Nike’s recovery can be seen in its “Performance” segment. It delivered strong growth across men’s fitness and soccer while generating compelling results in men’s and women’s running. Both running segments delivered positive growth and sharp Q/Q improvements (easy comp but still). It just launched its largest running campaign in several years to nurture this momentum. Early consumer reception was called “strong.”

Interestingly, the most notable piece of running strength is “in footwear.” That was a bit of a surprise to me, considering the most legitimate competitive threat for Nike comes from current running shoe vendors. Overall revenue from new performance shoes rose by double digits Y/Y. Furthermore, the spring 2025 order book points to 10%+ Y/Y unit growth for the year. That likely doesn’t mean 10%+ Y/Y revenue growth, as new introductions of cheaper shoes will likely mean unit growth leads revenue growth.

“Running has been one of our toughest fights over the past few years and is one of our biggest opportunities. We are focused on driving a comeback here.” – CFO Matthew Friend

“As we look to the spring, newness and innovation for footwear will take a step forward with growth in the mid-to-high single digits Y/Y. We expect to see Q/Q gains in newness and innovation as a percentage of total footwear.”

CFO Matthew Friend

This segment continues to struggle. It shrank by more than 10% Y/Y, while Nike “expects declines to continue through the year.” This is for Nike and Jordan. Leadership thinks they need to improve in their ability to react to changing consumer preferences here. The company is currently prioritizing full price sales to “protect the long term value” of the brand, which is amplifying revenue declines for this segment.

Retail sales in China “moderated” for Nike and the industry. It “was not immune,” as the firm saw sharper traffic declines than expected, lower conversion rates, bloated inventory and more promotional pressures. It remains the top sports brand there and also remains confident in the long-term opportunity while expecting near-term weakness to endure.

As many of you know, I’m a sucker for ubiquitous, global, powerhouse brands with what I view as temporary struggles. The massive intangible value stemming from these iconic brands motivates bright individuals to keep pushing for change until that change actually works. The Nike Swoosh, with its activist attention and new team, is a perfect example. It inherently invites loud, pro-shareholder voices to the table to demand better performance. To me, this isn’t a dying brand. This is a brand with broken assortment and innovation… and now a new CEO with a track record of doing better in these areas. 

That’s exciting, but I still think it’s too early here. The issues plaguing Nike are less concrete than some of the other struggling consumer titans. Consumer preferences are hard to precisely calculate, and so its ability to facilitate better launches will likely take time. It needs to do better with mining its massive database to guide the product roadmap and needs to fully embrace those learnings. No more trial and error on new products. I could easily see this making its way into my portfolio at some point… just not yet. I need to see the new CEO’s actual plan (again, he hasn’t started yet) and I need to see real green shoots of that plan bearing fruit. Hopefully that happens in the coming quarters.

Tesla barely missed delivery estimates for Q3. Emphasis is on barely, as the 0.1% shortcoming could be called a rounding error. Still, this estimate had come down quite a bit and it did miss more elevated whisper numbers by about 1.0%. Interestingly, Chinese demand fared better than in the USA and Europe, despite the Chinese market being considered the most competitive in the world. This was almost surely aided by deals on car insurance and lower-cost financing offered to consumers to spur demand. Deliveries in North America and Europe were the sources of the small miss here. This could be why Tesla just cut U.S. pricing by $2,500 for Long Range Model 3 and Y vehicles.

The combination of price cuts, other demand incentives and the small deliveries miss could weigh on profit margins this quarter. Emphasis on could, as there are other variables such as energy margin expansion and layoffs that will offset the likely continued Auto GPM pressure. We shall see how these puts and takes play out in a few weeks.

As many of you know, I’m not bearish or bullish on this name. I’m not a shareholder and would never short it. I think that gives me a relatively objective opinion on what’s happening here. So here’s why I think Tesla’s financial results have worsened lately:

This is macro. This is not EV competition catching Tesla; this is not Elon’s antics weighing on demand; this is not the world deciding combustion engines are actually the future. This is macro. Rate hikes directly make its cars more expensive, and that obviously weighs on demand. There’s been some plug-in hybrid momentum recently, but that doesn’t interrupt the overarching trend of our global auto fleets going electric. You’ll notice that while Tesla’s margins have tanked, they’re still by far the most profitable EV maker on the planet. They do have the luxury of scale and maturity that other programs don’t, but the point remains.

I expect the recent 50 bps cut to ignite demand and I expect several more cuts over the next 12+ months to incrementally fuel that fire. The end of 2024 should mark a trough in auto demand if Tesla’s products remain high quality and better than others; that seems to be the case for the business. The caveat? Who knows how handsomely the stock will be rewarded but better business results, as it already trades for 90x forward earnings (2.60x forward net income PEG) and 148x forward free cash (1.65x forward free cash flow PEG).

JP Morgan downgraded Mercado Libre to neutral. The caution is mostly related to the red hot stock and sky-high expectations that come with it. It also mentioned Meli’s credit investment cycle and how that could weigh on margin expansion in the near term. To me, this just seems like JP Morgan taking their win after they have been so right about this name.

Pivotal Research started Alphabet with a buy rating. It sees the Giant’s commanding global search market share as safe. It also thinks its deep presence in consumer hardware (through Android) and willingness to offer incentives to manufacturers set it up to be the default AI option across many vendors. It doesn’t view potentially higher traffic acquisition costs (TAC) as preventing the firm from realizing a compelling return on invested capital (ROIC) from these initiatives. Finally, like everyone else, it called out Google’s massive headcount and opportunity for reductions to power more profit growth. My least favorite source of operating leverage, but a source none-the-less.

Barclays reiterated its underweight rating for Apple. Its channel checks are pointing to -15% Y/Y global growth for iPhone 16 thus far, with shorter wait times. It also cited potential cuts to semiconductor component orders as more evidence. That -15% estimate is miles away from Wedbush’s +12% Y/Y estimate, with dozens of other analyst guesses filling in that wide range. Modeling Apple iPhone growth with alt-data has historically been challenging for analysts. It’s a very complex, multi-faceted supply chain. 

Cowen sat down with SentinelOne CEO Tomer Weingarten this week. It doesn’t see geopolitical tensions in the Middle East as material to this business. It also came away with the impression that new logo momentum is accelerating and its net new ARR guidance is comfortably attainable. It also called the Lenovo deal a “blueprint for other partnerships.” Keep them coming. 

Jefferies reiterated its overweight rating for The Trade Desk. Its channel checks point to 2025 being a “breakthrough year” for fully biddable programmatic streaming ads. This confidence is in part related to highly encouraging Disney commentary on some streaming clients now only buying biddable impressions and spending over $100 million per year. It sees next year revenue coming in a full 6% ahead of current consensus. Happy all time highs.

Cowen interviewed Zscaler’s CFO this week and concluded the following as part of a buy rating reiteration: Billings growth is solid. Changes in go-to-market are working and give leadership confidence in the faster growth that it guided to for Q3 and Q4. Furthermore, Zscaler is not feeling any pressure to cut prices to win business. Good news for revenue. Good news for margins. 

Last quarter averages were as follows:

Last quarter averages were as follows:

This week, the FDA took a popular weight loss compound called Tirzepatide off of its shortage list. This reclassification comes with more restrictive rules, including preventing 503A pharmacy players (like Hims) from compounding replicas of the formula. The FDA explicitly made it a point to “clarify policies” for drug compounders about these updated rules.

Hims doesn’t sell Tirzepatide-based products. Instead, it sells Semaglutide, which remains on the drug shortage list. So why should investors care? A few reasons.

First, Hims was planning on expanding into Tirzepatide products. This diminishes its ability to do that and could shrink its overall opportunity. Weight loss is expected to be a key growth driver for it in the coming years. Secondly, removal of the drug from the shortage list happened more quickly than expected. That is prompting some to think the same will happen for Semaglutide and could slow Hims growth starting in 2025 (not this year). Finally, Citi thinks the workarounds that Hims has planned will meet fierce legal blowback from richer competition. It will probably try to legally mimic the formulas for Tirzepatide just like it said it would do for Semaglutide. It’s just not clear if that will be allowed. And regardless, more noise is likely coming.

Hims was also added to the S&P SmallCap 600 Index on Friday.

Since starting the Amazon position, the key theme in my writing has been margin expansion. Amazon has more control over its bottom line than pretty much any other large or mega cap; it has countless levers to pull to juice margins. Over the last two years, leadership has gotten far more aggressive in pulling these levers. It started with the national fulfillment localization project (that is now mostly complete) and a shift to more profitable 3rd party selling. From there, it pushed to debut more services for merchants, allowing Amazon to better monetize its existing capacity. At the same time, it delivered a long-awaited profit inflection within the international segment. Looking ahead, new bet maturation from Kuiper should start to lead to real revenue to actually extract value from front-loaded investments (maybe Zoox eventually too). It will also continue to grow its underpenetrated ad load, which means highly margin accretive revenue generated from its existing digital real estate.

But wait… there’s more. Most of Amazon’s advertising opportunity thus far has come from sponsored listings on its marketplace. Now, the advertising opportunity is rapidly expanding to its newer ad-supported Amazon Prime Video tier. For this year’s up-fronts, Amazon surpassed its internal goal to reach $1.8 billion. This is well ahead of other streaming players like Netflix, but still just 20% of Disney drew in (between linear and streaming) two years ago. The rapid growth for Amazon points to its advertising tech stack investments bearing fruit while the relative smallness of this business depicts a long runway. Amazon has already paid for the content shown on Prime Video; this is about turning those costs into more revenue and profit dollars. Overall, sell-side estimates point to Prime Video ad revenue representing 6%-7% of current, annualized, total ad revenue in 2025. That would boost overall revenue by about 0.6% on its own, with the boost to EBIT dollars being larger.

My friend StockMKTNewz on Twitter (not X, sorry) posted a great chart on Amazon’s usage of robots throughout its fulfillment footprint. Over the last decade, usage has ballooned from 1,000 to 750,000, with explosive growth expected to continue. That means more automation, more efficiency and more margin.

Reports swirled that over 70% of Amazon’s remote employees were considering leaving following the 5-day, in-person work week mandate. That inspired a lot of mocking from the peanut gallery across social media. But? Those mocking do not understand why this change was made. Amazon can say it was about productivity or collaboration, and there’s probably some truth to that. The big reason for this, in my mind and many others, was to cut more excess headcount without needing to pay severance. It is a highly unfortunate reality still stemming from over-hiring through the pandemic. GenAI-fueled automation has only compounded this issue further. Voluntary quitting was likely the main goal of this decision and I am highly confident that the true number of people who leave will be far lower than 70%. I’m also confident that there will be some nuance and exceptions in offering flexibility to highly talented employees.

I’ve gotten a lot of questions over the last week on Nu price action and rising short interest in the name. As a reminder, this company has tripled in a short period of time and remains a somewhat speculative investment. Speculative investments are volatile, and these 20%+ moves in both directions will surely continue.

I wanted to address where I think this current anxiety is stemming from and why I’m not concerned. Over the last few quarters, Nu has openly and aggressively expanded its credit underwriting to lower quality borrowers. This has led to rising delinquency rates and rising net charge-off (NCO) rates that have been cited in various media publications over the last few weeks.

These articles aren’t wrong, they’re just incomplete. That’s what I’m here for. Rising delinquencies and NCOs are as planned and entirely within the risk tolerance of leadership. Specifically, they told us credit health within this expansion project was actually a bit better than expected as of last quarter. In this unique case, investors should not be solely focusing on loss metrics. The most important metric to track is risk-adjusted net interest margin. This directly shows you how effectively they’re pricing risk when accounting for and deducting all NCOs. If this is rising, they’re collecting more than enough incremental net interest income to offset the higher risk. Expanding margin lines (especially gross margin) are also strong pieces of evidence. Here’s the data, which really should have been included in some of the other pieces that I read:

Other News:

Federal regulators are considering cracking down on fintechs that use sponsor banks to accept and store their consumer deposits. New regulation could require sponsor banks to be far more hands-on in these relationships. This includes direct oversight over ledgers on a by-user basis and more headache/cost for the chartered entity. Tighter regulation against non-chartered fintechs is good news for alternatives with charters… like SoFi.

SoFi, through a partnership with PrimaryBid will also allow public companies to tap into a new “Directed Share Platform” (DSP) to earmark chunks of cash raises for investors. This will come with lower minimum investments to improve access for retail. SoFi plans to offer this with far more processing automation, slicker integration and lower cost for companies looking to bolster their balance sheets. A key way that SoFi can differentiate its Invest platform is through unique access to things like IPOs. As the IPO market likely heats up in 2025, this gives it an ability to offer more value and flexibility to companies looking to raise public money and could lead to more high profile IPOs on the platform.

“SoFi now offers companies going public a turnkey, 100% digital way to offer IPO shares to employees and other people who helped build their business, and whomever else they want to direct the shares to.”

CEO Anthony Noto

Raymond James downgraded Disney to neutral due to macro concerns surrounding its parks business. Disney also laid off about 100 people across TV teams as part of continued cost cutting efforts.

Nvidia’s Jensen Huang told investors that production of its new Blackwell chip platform is on schedule. He called the demand “insane.” Nvidia and Accenture also formed an AI adoption joint team.

Brian Niccol removed the roles of Chief Merchant Officer and Chief Product Officer as part of ongoing restructuring as he leads Starbucks into its next phase of growth.

Zscaler named Adam Geller as its new Chief Product Officer. He was Senior VP of SaaS and other departments at Palo Alto, a Senior Director at Symantec and the CEO of Exabeam.

Alphabet’s Waymo is live in Austin, Texas and will integrate its driverless technology into the Hyundai Ioniq SUVs.

Mastercard and Amazon Payment Services are partnering across the Middle East and Africa to enable acceptance of this card network.

Uber added AVride as another autonomous delivery partner. It will add that company’s robots to its UberEats product in the USA.

Meta announced “Movie Gen” as a new GenAI tool that offers rapid text-to-video functionality and seamless video editing. This is not yet publicly available. Happy all time highs. 

All of this data continues to point to a soft landing or a very mild recession being the two most likely outcomes of this current economic cycle. A severe recession and/or stagflation were the things to avoid; it looks highly likely that neither of those outcomes will happen. Cooling inflation… full employment… falling unemployment rate… resilient economic output data… rate cuts have now begun… multiples are far more reasonable than during the last rate cut cycle. Compelling setup.

Happy weekend.