💳 Discovering Capital One’s deal
Hey Snackers,
Air Canada had to pay a passenger after its customer-service chatbot made up a refund policy. At least that hallucination made more sense than what ChatGPT recently spewed out, which users reported as a mix of English, Spanish, gibberish, and emojis like ✨💅.Â
Stocks barely budged yesterday after the latest Fed meeting minutes showed the US central bank is in no rush to cut rates. Amazon will replace Walgreens in the Dow — the first change to the index since 2020. After the bell, Nvidia shares spiked on AI-popping earnings.
Capital One’s $35B bid to buy Discover would create America’s largest credit-card lender
Charge it to the card… Capital One agreed to scoop up Discover Financial Services in a $35B all-stock deal — the biggest proposed merger so far this year. Capital One is one of the US’s largest credit-card issuers with 100M+ customers in the US, Canada, and the UK. But Discover has something Capital One doesn’t: a credit-card network that competes with Visa, Mastercard, and American Express. Discover’s network is used by 305M+ cardholders. By merging, the two could better compete in the payment-processing market, which Visa and Mastercard dominate.
Cash back: The deal would create the largest US credit-card company by loan volume and could save Capital One $1.5B/year (#synergy).
Networking: If the merger’s approved, Capital One expects to add at least $175B in payments and 25M+ cardholders to Discover’s payment network by 2027.
Ballooning balances… Capital One has long catered to customers who carry higher balances and have lower credit scores (think: <660) compared to rival card issuers like Amex. That’s because higher-risk borrowers are typically charged higher interest rates, which can translate to more $$ for lenders. Meanwhile, nearly half of Americans are leaning on debt to get by, racking up a record $1.1T in credit-card balances. Lofty rates aren't helping: the average annual percentage yield (APY) on a US credit card is ~21.5% — the highest since the Fed began tracking it in 1994.
Tough times can be good timing… By uniting, Capital One and Discover would be better poised to capitalize at a time when consumer debt and interest dues are ballooning. But skeptics are concerned over the duo’s potential to raise rates on cash-strapped borrowers. Advocates say the merger could finally introduce real competition for Visa and Mastercard, and possibly reduce swipe fees. But only half of investors expect that the deal will go through.
Nintendo’s reportedly delaying the Switch 2, as gaming giants look beyond consoles
Banana peels on Rainbow Road… Nintendo shares fell after weekend reports that the Japanese gaming icon could delay its next console till March 2025. The Switch’s successor was originally set for a year-end release, perfectly timed to stuff Santa’s bag. A delay would mean Nintendo would miss out on holiday shopping. It could also mean a year with few original games in the warp pipeline as Nintendo saves hit titles (Mario, Zelda) for its next console.
Superstar: With 139M units sold, the seven-year-old Switch is estimated to be the third-best-selling console ever. The Switch’s top seller, “Mario Kart 8 Deluxe,” is the sixth- best-selling game of all time.
Choose your character… Compared to the Switch, rival consoles may as well be NPCs. Estimates peg sales of Microsoft’s Xbox Series X and S at 27M, while Sony said it’s sold 55M PlayStation 5s. Last week Sony shaved its forecast for yearly PS5 sales by 4M, adding that the console is entering “the latter stage of its life cycle.” Sony won’t be releasing any major PS5 games for a year+, with analysts saying its gaming profit margins are drifting toward decade lows. Meantime, Xbox recently quashed rumors it was exiting the console biz when it said that it’s working on next-gen hardware. Still, Microsoft’s focus may be shifting to software:
POV switch: Microsoft’s gaming revenue jumped 49% in the quarter following its $69B acquisition of Call of Duty developer Activision Blizzard.
Co-op: Yesterday, Nintendo confirmed rumors that several previously Xbox-exclusive games are headed to the Switch.
Consoles aren’t the endgame… The gaming industry is stuck in an unskippable cutscene of mass layoffs and delayed games. Despite consoles now being widely available after years of pandemic shortages, gaming sales haven’t rebooted. Cue: Xbox sharing its games, PlayStation licensing IP like “The Last of Us,” and Nintendo aggressively moving into the theme parks and movies biz with new Super Nintendo Worlds and hit flicks like “The Super Mario Bros. Movie.”
What else we’re Snackin’
ChipOnvy: Nvidia crushed quarterly estimates, with revenue more than tripling from a year ago. Rivals have launched competing AI chips, but Nvidia’s lofty sales forecast suggests it doesn’t expect a slowdown.
SmallStep: Intuitive Machines’ robo-spacecraft Odysseus could land on the moon tonight. If successful, it would be the first commercial vehicle to touch down on the moon and the first US spacecraft to do so in 50+ years.
GameOn: Apple launched a sports-focused iPhone app, Apple Sports, giving users live scores, betting odds, and viewing directions. The app’s debut coincided with the new MLS season, which Apple TV will broadcast.
InGear: Ford and the United Auto Workers reached a labor deal in Kentucky, averting a 9K-worker strike at the automaker’s most profitable plant. Last year saw 33 major US strikes, including the UAW’s, the most in 20+ years.
Beyonder: Beyond Meat is giving its plant-based patties a makeover (picture: less sodium) to try to woo back consumers. Its sales have fallen 29% over two years as consumer health doubts persisted.
Thursday
MLB spring training
NASA spacecraft scheduled to make the US’s first lunar landing in 50+ years
Earnings expected from Moderna, Newmont Mining, Wayfair, Block, Keurig Dr Pepper, Carvana, Live Nation, and Bookings
Authors of this Snacks own shares of: Amazon, Apple, Block, Microsoft, Moderna, Newmont Mining, and Nvidia