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Subscriptions building revenue for companies, but sapping wallets



Wonder where your paycheck is going? You might want to look into your monthly subscriptions.

Subscription services are on the rise — and taking up a significant chunk of people’s paychecks. These seemingly small monthly charges are adding up as people pay per month instead of owning an asset outright. Analysts and financial planners say the popular revenue model could result in more personal debt and weigh on people’s ability to save.

Zach Perret, CEO of fintech company Plaid, said U.S. income is increasingly “encumbered” with recurring payments. He pointed to a few reasons: young people are renting things like cars and furniture instead of owning, installment payments for expensive items like a Peloton bike are more widely available, and subscription services are booming.

“What that leaves us with is a lot of income that is spoken for in a person’s paycheck,” Perret told CNBC in a phone interview. “The percentage of free cash flow, or unencumbered income, is a lot lower now than we might have seen in the past.”

Subscriptions are becoming a popular way to buy things online, or stream media. Forty six percent of consumers in a recent McKinsey survey subscribe to an online streaming service like Netflix. But consumer goods, or so-called boxes, are also on the rise. E-commerce subscription market has grown by more than 100 percent per year over the past five years, according to the consulting firm. The target audience for these tech offers tends to be “younger urbanites,” according to McKinsey.

“Fueled by venture-capital investments, start-ups have launched these businesses in a wide range of categories, including beer and wine, child and baby items, contact lenses, cosmetics, feminine products, meal kits, pet food, razors, underwear, women’s and men’s apparel, video games, and vitamins,” McKinsey consultant Tony Chen wrote in the company’s 2018 report.

A $4 or $8 subscription for streaming or makeup might not sound high — but it adds up and might result in “accumulating consumer debt,” according to Chantel Bonneau, a financial advisor for Northwestern Mutual. Bonneau said it comes down behavioral economics.

“What it leads to is that people aren’t saving as much,” Bonneau said. “People don’t have that same mentality that you need to subscribe to savings.”

She also pointed to Instagram targeting, and use of data. Subscription services seem to find a way onto consumers’ social media feeds, prompting them to buy things they might not otherwise. Those recurring payments are easy to forget about since they’re on “auto pilot,” she said.

People are also way off when it comes to estimating monthly spending on these services, according to a report from Waterstone Management Group. Eighty four percent of Americans underestimated the recurring monthly expenses. On average, people said that they spent $79.74 a month. But that total increased 40% to $111.61 when they were asked to consider specific names such as Spotify, Netflix, and Dollar Shave Club.

The subscribers are simultaneously dealing with debt burdens. Excluding mortgages, U.S. adults over the age of 18 have an average $29,800 in personal debt, according to the latest findings from Northwestern Mutual’s 2019 Planning & Progress Study. Among the generations, Gen X reported the highest levels of personal debt with $36,000 on average. They’re followed by Baby Boomers at $28,600 and millennials at $27,900 on average. More than one-third of people’s monthly income is already going toward paying off debt, the study found.

The revenue model is working well for the tech companies themselves, and isn’t likely to reverse. The model has also resulted in some high-profile deals. Unilever bought Dollar Shave Club for $1 billion in 2016, and grocery chain Albertsons bought meal-kit company Plated for $200 million.

Gene Munster of Loup Ventures said about half of the 800 early stage companies his firm looks at each year have subscription revenue models.

“Most of the large tech and media companies now have at least a portion of their revenue from subscription,” he said.

Munster said the model caught on after Salesforce went public in 2004 and Netflix became a household name. There was a flurry of software IPOs, followed by companies like Microsoft, Adobe and Autodesk shifting to a subscription model. In the past five years, Munster said most tech companies are turning towards a “mobile first subscription business.”

“Recurring revenue is nectar for investors given it provides predictability,” he said. “This is evidenced by the higher earnings multiples investors reward these subscription business.”

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Handicapping the market from here — what history tells us about the odds the comeback continues



A view of the New York Stock Exchange (NYSE) is seen at Wall Street on June 29, 2020 in New York City.

Angela Weiss | AFP | Getty Images

Can history help handicap where markets head from here after the extraordinary path stocks have taken so far this year?

 The violence and velocity of the crash-and-surge moves in the major indexes has placed this market in rare company, with relatively few precedents to mine for hints of what has tended to come next.

Yet, predictably, the probabilities don’t line up in a single direction. So an investor trying to decipher the lessons of the past has to play a game of Always, Usually, Seldom and Never, classifying the evidence accordingly. 


The S&P 500 rebounded by nearly 20% in the second quarter, only the tenth calendar quarter since World War II when it gained more than 15%. Following the prior nine quarters, the index was always up the following three months, for an average of 9%, with the smallest advance an impressive 4%, according to Bespoke Investment Group.

In the ferocious bounce and follow-through rally off the climactic market low in late March, a series of rare “breadth thrust” readings were registered, measuring intense momentum and voracious demand for virtually every stock following the comprehensive liquidation through March.

One of these readings, tracked for years by Ned Davis Research, comes when at least 90% of all S&P 500 stocks surpass their 50-day moving average. This threshold was reached May 26. In the prior 19 times this has occurred since 1967, the S&P was always up over the following year, by an average of 17%.

Unanimity is rare when it comes to historical patterns, so these so-far foolproof setups have won plenty of attention and lend some weight to the “don’t fight the tape” bullish case.

Still, these analyses cover very narrowly defined conditions, and neither ten nor 19 instances from the past remotely approaches a statistically robust sample.


Then there’s the fact that they don’t quite fit with some circumstances that usually occur in situations like the one this market is in.

Let’s not forget that the power and persistence of the recent rally has come in part as a not-quite-equal reversal of similarly rare downside momentum and oversold conditions of the preceding collapse.

This whipsaw, on a net basis, left the S&P 500 down by about 4% year to date through six months. The index has been negative at the halfway mark 35% of all years since 1928. Over the second half of those years, the index usually delivers subpar returns. On average, according to Cornerstone Macro technical strategist Carter Worth, the second half of these years produced a 0.7% gain. Of the past six times the S&P was underwater at June 30 (2000, 2001, 2002, 2005, 2008 and 2010), it fell further four times, though the last instance in 2010 the S&P ran higher by 22% in the second half to salvage the year for the bulls.

Speaking of usually, July is usually a good month for stocks, the best of the summer months, showing a gain three-quarters of the time the past 20 years.

Then again, while stocks usually do fairly well in election years, they usually do quite poorly leading up to an election in years when the incumbent party loses the White House, as this chart from LPL Financial shows. Of course, no one knows how the election will break, even as President Trump trails in the polls, but the market usually seems to foretell the result. Or maybe it’s all just coincidence.


Then again, even if the political setup is a challenge, this might be an offsetting comfort to bulls: The market has seldom regained more than three-quarters of a bear-market-sized decline – as the S&P 500 has now after a 35% crash – and failed to continue rising back to and above the old peak. In other words, such a sizable bounce has rarely ended up as a doomed bear-market rally. An exception was the initial rebound from the 1929 crash.

The market has likewise seldom followed one quarter’s 19%-plus drop with a 19%-plus rally, as it has the past two quarters. And, once again, the only other such occurrences were during the Great Depression: once in 1932 and once in 1938.

Stocks also have seldom got into serious difficulty soon after retail investor survey performed by AAII has shown more than half its respondents bearish on the equity outlook, as has repeatedly been the case during this three-month recovery.


Historical analogies such as all of the above always reliably draw the response from some people that history is now irrelevant because today’s situation is “unprecedented,” whether due to Federal Reserve activism or the vagaries of a pandemic or whatever other reason.

In general, these objections miss the point that the specific circumstances are always different, but the markets tend to metabolize information in familiar ways based on crowd psychology and the feedback loops inherent in capitalism.

Yet perhaps it makes sense at least to nod in the direction of current conditions that do seem a bit exceptional.

The S&P 500 has never been as concentrated in technology  – broadly defined – as it is today. The S&P tech sector plus FANG – Facebook, Amazon, Netflix and Google parent Alphabet – now account for more than 40% of the index. Spin this as a positive (higher valuations justified due to superior growth and profitability) or negative (extreme concentration risk in similar digital business models) as you like.

There is also a distinct rhythm to markets that, perhaps, makes it a bit more prone to producing extreme momentum readings of the sort that the bullish outlooks above are based on.

Frank Cappelleri of Instinet tracks the NYSE TICK index, a gauge of how many stocks were up or down on their last tick – a proxy for all-or-nothing order flow. Eight of the 12 lowest TICK readings in history have come this year.

And 10 of the 19 breadth-thrust readings since 1967, described above that showed a 100% one-year win rate for stocks thereafter, have occurred in the past ten years.

Does any of this matter in handicapping the market? Perhaps best to take it all as useful context, rather than prophesy — recognizing that the weight of the evidence seems to favor further upside in coming months but offers no guarantees.

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EU grants conditional clearance to Covid-19 antiviral remdesivir



An employee of Egyptian pharmaceutical company Eva Pharma works on the production line of Remdesivir, a broad-spectrum antiviral medication which has been approved as a specific treatment for Covid-19.

Fadel Dawood | picture alliance via Getty Images

The European Commission said on Friday it had given conditional approval for the use of COVID-19 antiviral remdesivir following an accelerated review process.

The EU executive said the drug, produced by Gilead Sciences Inc, was the first medicine authorized in the European Union for treating COVID-19 following a “rolling review” begun by the European Medicines Agency at the end of April.

The agency reviews data as they become available on a rolling basis, while development is still ongoing.

The Commission said on Wednesday it was in negotiations with Gilead to obtain doses of remdesivir for the 27 European Union countries.

However, that may prove difficult after the U.S. Department of Health and Human Services announced it had secured all of Gilead’s projected production for July and 90% of that for August and September.

Remdesivir is in high demand after the intravenously-administered medicine helped to shorten hospital recovery times in a clinical trial. It is believed to be most effective in treating COVID-19 patients earlier in the course of disease than other therapies like the steroid dexamethasone.

Still, because remdesivir is given intravenously over at least a five-day period it is generally being used on patients sick enough to require hospitalization.

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A factory is challenging perceptions



From cars to tables and computers to radios, factories manufacture a host of products integral to modern life. In many cases these facilities can be energy intensive and, if we’re being honest, not very pleasing to look at.  

As concerns about sustainability and the environment mount, however, a number of firms are attempting to reduce the impact of their operations with factories and offices using clever design, interesting materials and renewable sources of energy.

Earlier this week, designs for a new furniture factory in Norway were released, with the firms involved in its development hoping it will be sustainable, aesthetically pleasing and technologically advanced.

Known as The Plus, the 6,500-meter-squared building will be located in Magnor, Norway and surrounded by trees, with the site also functioning as a 300-acre park.

The architecture practice involved with the project’s design is the Bjarke Ingels Group (BIG) and their client is Vestre, a Norwegian furniture manufacturer established in 1947.

Construction work is due to start in August and when finished, the facility will be home to a range of sustainable features. According to BIG — which has offices in Copenhagen, New York, Barcelona and London — the building’s façade will be formed of local timber, recycled reinforcement steel and low-carbon concrete, while 1,200 solar panels will be installed on its roof. Overall, it’s hoped that greenhouse gas emissions from The Plus will be 50% less compared to a conventional factory.

A dedicated website outlining the plans for the building states that more than 90% of water used in production will be recycled. It adds that the factory will use “self-learning industrial robots” and driverless electric trucks. The robots will, according to the site, be able to apply color coatings to products using artificial intelligence and “object recognition” technology.

The Plus is one of many sustainability-focused buildings currently in development. Drinks giant Diageo recently announced plans for a carbon-neutral whiskey distillery in Kentucky.

In a statement issued Monday, Diageo, which produces drinks including Johnnie Walker, Smirnoff and Guinness, listed a number of features that it hopes will boost the sustainability of the distillery and its operations.

These include: the facility running on 100% renewable electricity; the use of LED bulbs indoors to boost energy efficiency; and all vehicles operated there being electric.

Meanwhile, last week, Australian tech firm Atlassian unveiled plans to construct what it described as “the world’s tallest hybrid timber building.”

The design will incorporate timber and a façade of glass and steel that will also use solar panels and have “self-shade capabilities.” Plans are also in place for a staggered outdoor garden to be integrated into the structure.


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