Table of Contents

• 1. DraftKings (DKNG) & Flutter (FLUT)

• 2. The Media Landscape – Netflix (NFLX) & Disney ( …

  • a. Netflix Houses

  • b. Disney Content

• 4. Amazon (AMZN) – Pharmacy, AI, a Sell Side Darli …

• 5. Meta Platforms (META) – Reality Labs Re-Shuffle

• 6. Shopify (SHOP) – Channel Checks

• 7. Lemonade (LMND) – The Puppet Master

  • Lemonade as an Investment:

  • A Review of How Lemonade Tries to Stand Out within …

• 8. The Trade Desk (TTD) – Case Study

• 9. Updated EBIT comp sheet for Growth Tech

  • Needed Overarching Data Caveats:

  • Needed Company-Specific Caveats:

  • Some Observations:

• 10. Market Headlines

• 11. Macro Data

  • Output data:

  • Consumption and Employment data:

There have been no changes to the portfolio since the mid-week update sent to Max subscribers.

1. DraftKings (DKNG) & Flutter (FLUT)

A few weeks ago, we covered the progressive sports gambling tax policy adopted in the new Illinois state budget. This implemented a step-series of effective tax rate hikes as sports gambling vendors crossed certain revenue thresholds. Rising tax levels for sports gambling over time (and also iCasino) are quite likely. Budgets and deficits need to be addressed and this is a very easy way to do that. 

Higher tax rates in isolation foster black market momentum and make converting gamblers to legal channels more difficult. And while that headwind may be inevitable, it’s not what was alarming here. DraftKings and Fanduel both do very well in New York despite that state’s up-to-51% tax rate. DraftKings also does very well in New Hampshire with its identical tax ceiling, but it’s a monopoly in that state, which makes winning far easier. Overall, higher tax rates have shown to accelerate the death of smaller, weaker players and expedite the consolidation process. They’ve made the big boys bigger and stronger.

What is alarming about the Illinois law is that it forces DraftKings and Fanduel to pay higher blended tax rates than anyone else. The key here is the relative disadvantage both will have to overcome in Illinois, as the smaller players are gifted with a cost base advantage. The changes in Illinois mean DKNG’s tax rate roughly doubles from 15% to 30% for a $60 million EBITDA hit (6% of next year’s profits). They’ll have promotional and marketing levers to reduce this impact, but the headwind will still be largest for this player and Fanduel.

Massachusetts was considered a state where tax hikes and a progressive tax policy were possible. Encouragingly, last month, a proposal to hike the rate there from 20% to 51% was struck down. New Jersey and Michigan are the two other states considered to be the most vulnerable (mainly just for flat rate hikes, but still progressive policy too). And? There has been nothing in the proposals or developments for either state suggesting a progressive system was imminent. That could always change, but isn’t likely at this point. That’s led to growing confidence in the tax status quo next year. New Jersey does have a proposed bill to hike the tax rate from a flat 13%-15% to a flat 30%. It doesn’t seem to be a priority – at least as of now. And even if it were, the proposal avoids the least compelling progressive tax outcome. Illinois is looking more and more like an anomaly in terms of tax policy. That’s great news for the budding duopoly in this space.

2. The Media Landscape – Netflix (NFLX) & Disney (DIS)

a. Netflix Houses

There were three Netflix expansion questions analysts have been asking for years. When will you introduce ads, when will you enter live sports and when will you go omni-channel? The ads and live sports questions have been answered with the new subscription tiers and purchase of NFL rights. Now its omni-channel plans are becoming clearer. Netflix plans to open two large “Netflix Houses” with experiential events and accommodations. Rumored attractions include a Squid Game replica of the Glass Bridge Challenge episode. In-person isn’t brand new to Netflix. It’s done some live plays and other small experiences around the globe like its Knives Out murder mystery party. This simply represents a larger push into the space.

The two planned destinations will fill currently vacant malls in the greater Dallas and Philly areas; they are tiny in size compared to Disney and Universal resorts. Still, if those two companies are any indication at all, this should be a positive financial driver for Netflix. The omni-channel leveraging of valuable IP has been the secret sauce of Disney and Universal for decades. The added consumer touch-points work to deepen the connection and relationship a fan has with a brand or character. Netflix has been missing that. Now? It’s plugging the gap.

b. Disney Content

The Acolyte’s (new Star Wars show) early reviews have been bad. Interestingly, Forbes and some other outlets are reporting large cohorts of “review bombers” dead set on bringing down the ratings. This appears to be anti-woke blowback as, incredibly, there are already 10,000 reviews on Rotten Tomatoes 3 episodes into the new season. The wildly popular Mandalorian show got 2,500 reviews during the entirety of its last season. I say this to point out how noisy the initial takeaway from the show has gotten. Let’s see what they have to say about how it drove streaming sign-ups during its next quarterly report.

Conversely, Disney’s Inside Out 2 movie is thriving at the box office. The film crossed $155 million in its opening weekend in the U.S. alone, which means the $200 million budget production will likely be very profitable. It should also be a great subscription driver for Disney+.

• Nielsen reported flat month-over-month Disney streaming viewing hours for May. Netflix fell a bit, Hulu fell a bit, and YouTube rose.

3. Datadog (DDOG) – Product Debut

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