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How the CFOs of Block and are decoding where consumer spending is heading



Good morning.

The proverbial consumer has become the central focus of the economy this summer, the key to deciphering the murky outlook ahead. Consumer spending, which makes up 68% of the U.S. economy, is tenuous and poised to decline. So what are companies learning about consumers?

With confidence slipping and households growing more cautious about spending, CFOs are looking to their internal data to gain more granular insights into consumer behavior and to craft strategies to respond effectively. This week, consumer-facing companies like Block and reported earnings, giving a glimpse into how they’re adapting in uncertain times.

“We have a number of signals into the health of consumers and businesses across our ecosystems,” Block CFO Amrita Ahuja said in a call discussing the company’s second-quarter earnings. “We’re tracking these trends in real time. And we’ll use them to act quickly and prudently to guide our business decisions.”

That insight is likely one reason Block, formerly known as Square, said Thursday it’s cutting investments in areas like sales and marketing by $250 million this year, including slowing down its pace of hiring.

Block’s earnings were a mixed bag, with revenue falling 6% to $4.4 billion in the quarter—largely tied to volatility in crypto assets—although both revenue and earnings exceeded Wall Street’s estimates. It was the cost trimming, however, that Raymond James analyst John Davis saw as the “key highlight” of the report, since it “should more than offset any potentially lowered gross profit estimates,” he said. After tumbling 7% late Thursday, Block recovered somewhat in Friday’s trading session.

Ahuja said Block looks at metrics like consumer engagement with products, along with product adoption and frequency of transactions, to gauge consumer health. Those metrics show stability in both discretionary spending (that is, necessities like food and utilities) and non-discretionary (splurges like travel or clothing). Data from both Square payments and CashApp showed steady growth in verticals like food and drink, retail, and personal care even as consumers grappled with inflation and slower economic growth.

We’ve seen a diverse range of use cases [in CashApp] including gas, utilities, travel, food and grocery, and big box discount retailers,” Ahuja said. “But we also recognize the environment has changed. And we’re prepared to adapt to uncertainty and maintain discipline by pulling back on operating expenses, particularly those that are less efficient.”

Meanwhile, is leveraging tech investments in its own ecommerce platform to strengthen its foothold in what it sees as a traditionally inefficient corner of the retail industry. The online retailer adopted a Warby Parker-like business model of selling direct to consumers and bypassing middlemen, buttressing that model with a staff of data scientists and an in-house logistics system that can better manage supply-chain hiccups.

“We’ve leaned heavily into technology to create efficiencies and to help our employees be safer and more productive,” Carparts’ CFO Ryan Lockwood tells me. “We’ve built a foundation that we can now leverage instead of trying to play catch up in a difficult economic time.”

While Carparts aims to offer discounts to its brick-and-mortar competitors, it’s managed to avoid the margin squeeze that big discount retailers like Walmart and Target have seen as prices inflate. The company’s revenue grew 12% to $176 million last quarter for a net profit of seven cents a share, with both figures topping analyst estimates.

Unlike online retailers willing to sell goods at a loss to spur the volume of sales, CarParts has always been profitable on every transaction, Lockwood says. The company also avoided the volatile swings in consumer demand when lockdowns and fiscal stimulus turbocharged online spending in 2020 and 2021 before slowing dramatically this year.

At a time when many digital-retail stocks are slumping and startups are struggling for funding, Carparts is aiming to be an outlier that can tap growth by doing what ecommerce has always done best: find an inefficiency in a stagnant market and draw in customers with a better retail experience.

“The auto world is a really difficult place for consumers—the pricing isn’t transparent, and it’s not really clear what things should cost because it’s an occasional purchase,” Lockwood says. “No one’s ever enjoyed their car repair experience—I don’t know if I’ve ever heard heard someone say that. The industry has wanted some disruption for a while from the consumer side, and we’re looking to meet that demand.”

Kevin Kelleher

Twitter: @kpkelleher

Big deal

Finance executives at U.S. companies are starting to sharpen their scissors as they evaluate their budgets in the coming year. Gartner surveyed more than 200 CFOs and finance leaders in July to ask where they’re planning to spend more—and trim costs. Real estate spending is most likely to see cuts, with 35% saying they plan to reduce their real-estate footprint, although 9% are willing to spend more. Finance and operations are two other areas that may see smaller budgets. IT costs remain popular inside corporate budgets, however, with 40% planning to increase spending in the era of digital transformations. Sales and R&D are two other areas that may see an uptick in spending.

CFOs are likely to boost spending in IT and sales, but cut in real estate and finance.

Courtesy of Gartner

Going deeper

Some early warnings signs are emerging that banks are beginning to tighten standards for corporate loans. The Federal Reserve’s July survey of senior loan officers showed both stronger demand and tighter standards for commercial and industrial loans. Meanwhile, banks reported tighter standards but weaker demand for most most categories of commercial real estate loans, particilarly for subprime borrowers. As for consumers, demand for mortgages was unsurprisingly lower, although lending standards remained unchanged for households borrowing for new homes. “Over the second half of 2022, banks, on balance, reported expecting lending standards to tighten across all loan categories,” the Fed said in discussing survey results.


Some notable moves from this past week:

Blake Jorgensen was appointed CFO and executive vice president at PayPal, effective August 3, 2022. Jorgensen has 40 years experience, most recently serving as executive vice president of special projects at Electronic Arts for five months and before that as CFO at the gaming company for ten years. He was also Levi Strauss’ CFO from July 2009 to August 2012 and CFO at Yahoo before that. Jorgensen replaces John Rainey, who departed to become Walmart’s CFO in May after seven years at PayPal.

Brian Savoy will become CFO and executive vice president at energy-holding company Duke Energy, effective Sept. 1. He replaces Steve Young, who has served as CFO since 2013 and will be appointed as chief commercial officer at the company. Previously, Savoy had served as Duke’s chief strategy officer, chief transformation and administrative officer, chief accounting officer and controller after having joined Duke in 2001 as a manager in its energy trading unit.

Brad Watkins joined wealth-management firm Oppenheimer & Co. as CFO as of Aug. 1. Watkins, who will also join the firm’s management committee, had previously worked at KPMG since 2003, spending the bulk of his time in that company’s New York Financial Services Audit Practice and becoming a partner in 2015. Watkins succeeds Jeffrey Alfano, who resigned as Oppenheimer’s CFO in March to pursue other opportunities. Salvatore Agosta had served as interim CFO since then.

Rambus, a maker of computer chips and silicon IP, tapped Desmond Lynch as CFO and senior vice president, effective August 1. Lynch had served as Rambus’ vice president of finance since 2020 and before that held senior finance roles at Knowles Corp., Renesas Electronics, Amtel, and National Semiconductor. He replaces Keith Jones as CFO, who will resign on Aug. 5 to join Adeia, an IP business.


“Waterways could become an Achilles’ heel… If an accident were to occur under the current conditions, blocking a shipping channel, the effects would be far more severe than in normal times.”

—Deutsche Bank analysts in a report warning about what could become the next shock to global supply chains: rivers drying up from droughts. Even as the global supply chain recovers from disruptions in sea and trucking shipments, low river levels are the limiting the ability of boats to transport some goods, Fortune‘s Alena Botros wrote. The problem is acute in Europe, where a blistering heat wave and climate change is affecting the Rhine River, which stretches from Switzerland to the Netherlands, but major rivers in other countries are also drying up.

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Coinbase’s near-term outlook is ‘still grim’, JPMorgan says, while BofA is more positive about firm’s ability to face crypto winter



Coinbase's near-term outlook is 'still grim', JPMorgan says, while BofA is more positive about firm's ability to face crypto winter

Coinbase is well positioned to successfully navigate this crypto winter and take market share, Bank of America said in a research report Tuesday. It maintained its buy recommendation following the exchange’s second-quarter results.

The results warrant “a muted stock reaction,” the report said. Net revenue of $803 million was below the bank’s and consensus estimates, while its adjusted $151 million loss before interest, tax, depreciation and amortization was better than the street expected. Importantly, the company remains “cautiously optimistic” it can reach its goal of no more than $500 million of adjusted EBITDA loss for the full year, the report added.

Coinbase shares fell almost 8% in premarket trading to $80.74.

Bank of America notes that Coinbase had no counterparty exposure to the crypto insolvencies witnessed in the second quarter. The company also has a “history of no credit losses from financing activities, holds customer assets 1:1, and any lending activity of customer crypto is at the discretion of the customer, with 100%+ collateral required.” These rigorous risk-management practices will be a “positive long-term differentiator” for the stock, the bank said.

JPMorgan said Coinbase had endured another challenging quarter, while noting some positives.

Trading volume and revenue were down materially. Subscription revenue was also lower, but would have been much worse were it not for higher interest rates, it said in a research report Wednesday.

The company is taking steps on expense management, and in addition to the June headcount reductions, is scaling back marketing and pausing some product investments, the note said.

The bank says the company’s near-term outlook is “still grim,” noting that the exchange expects a continued decline in 3Q 2022 monthly transacting users (MTUs) and trading volumes, but says Coinbase could take more “cost actions” if crypto prices fall further.

JPMorgan is less optimistic than Bank of America about the company in the near term, saying pressure on revenue from falling crypto markets will have a negative impact on the stock price. Still, it sees positives including higher interest rates, from which the firm will generate revenue. It also sees opportunities for the exchange to grow its user base, leveraging almost $6 billion of cash. The surge in crypto prices in July, and the forthcoming Ethereum Merge are also seen as positive catalysts, it added.

The bank maintained its neutral rating on the stock and raised its price target to $64 from $61.

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Elon Musk sold $6.9B in Tesla stock in case he’s forced to buy Twitter



Elon Musk sold $6.9B in Tesla stock in case he's forced to buy Twitter

Elon Musk sold $6.9 billion of his shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk tweeted late Tuesday after the sales were disclosed in a series of regulatory filings. 

Asked by followers if he was done selling and would buy Tesla stock again if the $44 billion deal doesn’t close, Musk responded: “Yes.”

Tesla’s chief executive officer offloaded about 7.92 million shares on Aug. 5, according to the new filings. The sale comes just four months after the world’s richest person said he had no further plans to sell Tesla shares after disposing of $8.5 billion of stock in the wake of his initial offer to buy Twitter.  

Musk last month said he was terminating the agreement to buy the social network where he has more than 102 million followers and take it private, claiming the company has made “misleading representations” over the number of spam bots on the service. Twitter has since sued to force Musk to consummate the deal, and a trial in the Delaware Chancery Court has been set for October. 

In May, Musk dropped plans to partially fund the purchase with a margin loan tied to his Tesla stake and increased the size of the equity component of the deal to $33.5 billion. He had previously announced that he secured $7.1 billion of equity commitments from investors including billionaire Larry Ellison, Sequoia Capital, and Binance. 

“I’ll put the odds at 75% that he’s buying Twitter. I’m shocked,” said Gene Munster, a former technology analyst who’s now a managing partner at venture-capital firm Loup Ventures. “This is going to be a headwind for Tesla in the near term. In the long term, all that matters is deliveries and gross margin.”

At the weekend, Musk tweeted that if Twitter provided its method of sampling accounts to determine the number of bots and how they are confirmed to be real, “the deal should proceed on original terms.” 

Musk, 51, has now sold around $32 billion worth of stock in Tesla over the past 10 months. The disposals started in November after Musk, a prolific Twitter user, polled users of the platform on whether he should trim his stake. The purpose of the latest sales wasn’t immediately clear.  

Tesla shares have risen about 35% from recent lows reached in May, though are still down about 20% this year. 

With a $250.2 billion fortune, Musk is the world’s richest person, according to the Bloomberg Billionaires Index, but his wealth has fallen around $20 billion this year as Tesla shares declined.    

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The rent is too d*mn high for Gen Z: Younger generations are ‘squeezed the most’ by higher rents, BofA says



The rent is too d*mn high for Gen Z: Younger generations are 'squeezed the most' by higher rents, BofA says

Most of Gen Z is too young to remember the 2010 New York gubernatorial candidate Jimmy McMillan.

But over a decade later, they would probably agree with his signature issue (and catchphrase): the rent is too damn high.

This July, median rent payments were 7.4% higher than during the same period last year, according to a Bank of America report released Tuesday. 

The national median price for a one-bedroom apartment has been hitting new highs nearly every month this summer. It was $1,450 for July, according to rental platform Zumper. In the country’s largest city, New York, average rent exceeded a shocking $5,000 a month for the first time ever in June. 

But inflation in the rental market hasn’t hit each generation equally, and no one is getting squeezed harder by the higher monthly payments as Gen Z. Those born after 1996 have seen their median rent payment go up 16% since last July, compared to just a 3% increase for Baby Boomers, BofA internal data shows. 
“Younger consumers are getting squeezed the most by higher rent inflation,” BofA wrote.

The great rent comeback

Early in the pandemic, landlords slashed rents and gave significant COVID discounts to entice tenants to stay instead of leaving urban areas. Once those deals started expiring in 2021, many landlords suddenly raised payments once again, sometimes asking for over double their pandemic value. 

Young people across the board have been hit hard, and rent burdens compared to age can be seen even within a single generation. Younger millennials had their median rent payment grow 11% from last year, while the median payment for older millennials rose 7%. Gen X experienced a 5% median rent increase, according to BofA. 

It’s not a surprise, then, that Gen Z feels so strapped for cash. The majority of young people, 61%, said they want to receive their wages daily instead of twice a week, a practice typically reserved for workers living paycheck to paycheck, according to a report from the Center for Generational Kinetics, which specializes in research across the generations. Rising rent inflation has even priced nearly a third of Gen Zers out of the apartment search altogether. Around 29% of them have resorted to living at home as a “long-term housing solution,” according to a June survey from personal finance company Credit Karma.

It’s no wonder—the rent really is too high.

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