Canned Meat vs. SAAS The Ultimate Showdown

Author

Chris Schaum
September 14, 2023

In this issue:

PDD: a Chinese holding company that merges agriculture and e-commerce Temu. This business is the Jack in-the Box of Chinese holding companies. Do you want a taco and a hamburger? Or an e-commerce platform and agricultural research?

Box : Is it a product? Is it a company? it’s Box… somehow it is still a company.

Hormel Foods: Nuts, SPAM, all the food that might be fit to eat. Should there be a SMAM index? I'm starting to think so after this report.

In every issue:

● Recent interesting earnings reports

● Government Data Release calendar

The highlights:

PDD: $136B market cap beat earnings by $3.17..

Why we care: Can you imagine your business growing 66% year over year, let alone… 66% year over year with revenue of $7.7 billion? That's what PDD did. This Chinese consumer juggernaut is not just fighting to take over your youtube ads, they’re fighting to take over multiple markets at once.

Agricultural produce, apparel, shoes, bags, mother and childcare products, food and beverage, electronic appliances, furniture and household goods, cosmetics and other personal care, sports and fitness items and auto accessories…. And I could keep going.

Temu has tons of crazy youtube ads.

So what’s their secret? Jiazhen Zhao said:

“Growth this quarter can be attributed to two factors. The first is the positive industry trends. And second, is the early positive feedback towards our high-quality development strategy.Our business is closely tied to the overall consumption market. And we noticed a continued improvement in the market trends and also consumers increasing witness to shop. We think this is inseparable from the introduction and also implementation of various pro consumption support measures.”

All of this growth is coming primarily from the Chinese market. Their government is pushing hard to regulate and control the exploding e-commerce world. They have the tiniest toe hold in the US with TEMU.

I’m going to be watching PDD; I hope you do, too. Let’s not fool ourselves. It may end up being too good to be true... Matt Paulson thinks they're sketchy already.

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BOX: $3.85B market cap: 1 cent beat.

Box is one of those businesses that I’m continually surprised even exists! It’s more of a product than a company. They had to raise so much money that at one point, Aaron Levy had only 1.5% equity left as a founder. However, to his credit, he did such a good job running the company, that the board increased his equity to around 8%.

And yet, they are still providing cloud-based services in a world that could have swallowed them up years ago…they have over 1,700 customers paying more then $100,000 a year.

That said, Saas darlings like Box are still getting pinched.

Dylan Smith said:

“to put a finer point on that, that's why even in this challenging and pretty heavily scrutinized IT budget environment, we are still seeing healthy adoption of our suites and Enterprise Plus offerings as that value proposition really is resonating, so that is showing continued momentum in order to bring in these capabilities that do help bring in the -- enable the cost savings even for customers, who aren't on Enterprise Plus or warrant previously, but it really is the seat growth that has been more impacted as, in many cases, you don't necessarily need to expand the number of seats in order to capture those cost consolidation opportunities as a customer.”

All of this cost consolidation is coming from a product that has 77% margins. So, BOX has plenty of room to squeeze margins out of their products… and their customers may end up driving them to do it.

Slower seat growth is a major issue. Many SAAS (software-as-a-service) businesses are run on a cost-per-seat basis. Sales teams try to get as many seats as possible to attain larger deals. As companies constrain head count and redistribute teams, this could end up being a large pinch point for companies.

Aaron Levie said:

“So I think there's a bunch of positives in the data, but just at a more muted level because that seat count growth that is obviously core to our engine has been more muted as a result of the macro.”

Aaron Levie Ceo and Co-Founder of Box

Hormel Foods : $21B market cap: Miss by 1 cent.

When I say Spam… what do you think of? Awful email?

Not today! Today, we’re talking about glorious canned meat.

SPAM…

While the meat variety is not always a popular item, Jim Snee still put on a master class in identifying silver linings on the Hormel earnings call.

“In an increasingly dynamic and competitive environment, we grew volume across all our segments, delivered adjusted diluted net earnings per share in line with last year and made further progress addressing the near-term challenges impacting the business during the quarter. This progress included reducing inventory, continuing to build momentum in the Planters snack nuts business, and driving adjusted operating margin improvement compared to last year.”

In terms of SPAM itself Jim said:

“We've talked about some elasticities in our international SPAM business, primarily in the Philippines. That's a sizable legacy market and we've seen significant pricing activity over the last several years, but with that came some higher-than-expected elasticities. The team has already done some work to really drive consumer demand. We're seeing a rebound in offtake. And so there is a really good plan in place for a recovery there. We've also talked about some of the commodity headwinds at international [Technical Issues]. And so what we anticipated there is weaker than we thought.”

Ahhh fried SPAM

This really begs the question:

If a low cost, legacy product like SPAM is having challenges in a market like the Philippines, what does this say about the emerging-markets economy as a whole?

After all, there are not many lower cost food staples than SPAM.

Data Releases.

Why we care: While alternative data is on the road to taking over, nothing moves the market like government and stalwart financial data. Understanding this data can help craft your messaging and deals.

September 15th: NY Fed Manufacturing

September 21st: Fed Employment, Existing Home Sales

September 26th: New Home Sales

September 27th: Durable Goods

Examples of ways to use this info:

● Set up a 5 min call with your clients and prospects. "Susan—can we chat for 4-6 minutes? I read about the how Nvidia is forecasting a 1 trillion dollar 10 year data center turn over and thought it might be of interest to you”

● Cold email: Subject: "Who is going to be impacted more mid market or enterprise?" Body— John, Last week both Sales Force and Workday reported earnings. One thing that was interesting was their leaders talked about how they are focusing on enterprise customers more than any other market. This could lead to some interesting opportunities for businesses like yours. Can we chat for 4-6 minutes to see who this might be valuable to?

● Meeting with your boss: a lot of big tech is focused on multi-lining their customers and heading up market, how can we use this to our advantage?

● Call with a client: "Kenny- did you see the unemployment rate this week? They came in at X. Are you seeing that in your market?"

● Linkedin Posts: 3 ways Ulta is crushing Saas. Put in some new lipstick, it’s time to pucker up for investors.

● Forward them the newsletter!

Thanks for reading!

If you have a tip or feedback, I’d love to hear it.

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