The Weekly Zeed: Chugging Along
The he-cession, Palantir popping off, and a massive rail merger
Welcome to ZeedRound, the weekly newsletter that talks about startups, markets, and trends but doesn’t make you drink up the acronym soup.
In this week’s newsletter, we discuss the so-called “he-cession,” a potentially duopolistic railroad merger, and Palantir’s massive hype train…
💵 Palantir’s pop-off era
This past week, we once again learned that government contracts are highly profitable.
Palantir, the data software startup that works with American intelligence agencies and the various branches of government, reported its first billion-dollar quarter, sending the stock soaring by 7% post-earnings. Like most companies in its space, it cited AI and efficiency demands as contributing to the gains, and the gains are massive—revenues were up by a whopping 48%.
Financially, critics are concerned about the potential of overvaluing the company; it has a price-to-earnings ratio of nearly 700 (vs. the S&P 500 average of 35-ish), which those critics interpret as there being too much hype versus too little value. Additionally, many are concerned over the company’s deep ties to the U.S. government for security reasons, ties that are too sprawling to detail in this segment.
Regardless, Palantir is popping off with its financials, and the momentum doesn’t appear to be slowing any time soon.
🇪🇺 Mistral, with (possibly) more money
If you thought OpenAI releasing a set of “open” AI models this past week would take up all the news headlines, think again. Per The Financial Times, Mistral, a startup dedicated to open-source AI in Europe, is trying to spin up $10B in funding to commercialize its chatbot and develop new models, with Abu Dhabi’s AI fund AGX potentially being involved.
Mistral’s strategy thus far has been far different from OpenAI’s and others, preferring to focus on democratizing AI at a lower cost as opposed to paywalling it all. It’s a tougher business model to balance, but it could be paying dividends for Europe’s startup scene.
☕ A war on…coffee?
On July 30th, the United States’ 50% tariff on Brazilian coffee imports kicked in, and with around 35-40% of beans coming from the South American nation, that could have a major impact on the coffee economy. China seems to be taking advantage of this: Per a social media post from the Chinese embassy in Brazil, China has just approved over 180 Brazilian coffee companies to import beans to their country.
Is this a war on coffee? It’s too soon to tell, but it might mean that Brazil no longer needs to rely on the U.S. as much to generate export revenues. What does it mean for you? Most likely, your already-way-too-expensive matcha latte may cost a bit more than you’re used to quite soon.
🛢️ A liquid gold holdup
Does it matter who you buy your oil from? If you asked the U.S. government, the answer would be a wholehearted yes. The Trump administration is reportedly at a standstill with both China and India on key trade deals due to the fact that both nations purchase a lot of Russian oil.
Since the start of the Ukraine/Russia war, China has purchased over $158B in crude oil from Russia, while India is close behind with nearly $120B. Why? Simply because it’s cheaper than the average market price.
The two countries’ buying tendencies could cause further holdup in both ceasefire negotiations between Russia and Ukraine and trade deals for China, while India has reportedly already been slapped with a whopping 50% tariff due to their Russian oil shopping spree.
👖 A rare moment of frugality
American first-hand consumerism tends to know no bounds, but maybe everyone is finally coming around to secondhand things, too. On Monday, secondhand clothing marketplace ThredUp posted incredible Q2 earnings results, with revenue beating estimates and increasing by 16% year-over-year.
Like pretty much every CEO nowadays, ThredUp lead executive James Reinhart said that they’re integrating AI rapidly, but the real culprit here seems to be an increased Gen Z interest in pre-owned clothing. Love to see cheap people unite!
🛍️ Some e-xcllent e-commerce
In what is possibly a counterpoint to the above frugality trend, we may have some clues that American consumers aren’t as worried about spending in a tariff-heavy environment as once thought.
How do we know that? Well, e-commerce giant Shopify just reported earnings and blew estimates out of the water, with the company’s CFO saying that the supposed tariff hit to revenue “did not materialize.” And Shopify isn’t the only one to toot the revenue horn in the space; Amazon and eBay both posted strong sales growth in recent days as well.
In other words, people still love spending money online—shocker, right?
🐭 Disney heads upstream
NFL fans, you might be getting an easier way to watch games if Disney’s recent report is true. According to the company, the House of Mouse’s ESPN has come into agreement with the NFL to acquire NFL Network, NFL Fantasy, and the RedZone broadcasting service, which means that you might soon be able to bundle your Disney+ Andor fix and your “he down there somewhere” streaming.
Separately, Disney reported strong earnings and showed growth in both parks and streaming revenues, along with another major addition to the portfolio: $1.6B to the broadcast rights for WWE.. The company is getting deeper into the cord-cutting game as consumer sentiments towards local channels shift, and it’s betting on major existing media properties to do it.
There’s really no way around it: The job market is pretty bad for new grads. Historically bad, even; in March, 5.8% of new graduates were unemployed, which is the highest since 2012 if you don’t include the pandemic. According to a new report, the worst of it has hit the male graduates, in what Bloomberg columnist Allison Schrager is calling a “he-cession.”
Why would the job market be tougher for men than it is for women, despite it previously being the other way around for literal decades? Schrager has three main theories:
Historically male-dominated fields (finance, engineering, etc.) aren’t hiring right now, so male grads are going to try to work in hospitality, but those industries already hired during COVID (“…it would explain why male college-educated unemployment is showing up in hospitality services and not elsewhere,” says Schrager).
Men often work in jobs with more sensitive business cycles (construction, manufacturing), while women statistically work in more hardy sectors such as education/healthcare. (Also, as Schrager notes, “Younger workers also tend to be the first laid off [or not hired at all] when the economy starts to turn.”
The previously noted male-dominated roles (financial analyst, data entry, etc.) are more likely to be outsourced to AI at the entry level, with Wall Street experimenting with replacing low-level analysts.
Regardless of the real reason, it will be interesting to see if the trend continues and whether or not a bigger psychological/fundamental issue is at play. It’s great that women are getting more opportunities with their degrees than in recent years, though.
This is a segment where we get to talk about a key trend/moment from this week’s news. This week, we’re talking about a major merger in the railroad industry that could end up creating a duopoly…
Thus far, this year has been one in which the merger-and-acquisition market has bounced back due to both regulatory and political landscape changes, and it looks like two of the United States’ biggest railroad companies are looking to take advantage of that.
Union Pacific and Norfolk Southern made an announcement in late July that the former intends to buy the latter for a cool $85B, which would create the first coast-to-coast railroad network in U.S. history. That coast-to-coast factor would significantly contribute to streamlining freight efficiency, as both rail companies already have a major piece of the market in the rail-based delivery market.
According to industry data, Union Pacific currently holds the largest market share among major U.S. railroads, coming in at 36.84%, while Norfolk Southern holds a lesser but still significant 18.48%. In other words, the combined entity would hold over 55% of the market, potentially creating a monopolistic entity—but it might not end up being the only one to hold that title. Most analysts expect the railroad merger to force the hand of CSX, which holds approximately 22% of the market, to explore acquisition options, with Berkshire Hathaway (which also owns the Burlington Northern Santa Fe railroad) reportedly being in talks to do just that.
The question becomes, then, is a potential duopoly in the railroad industry bad for consumers and the greater market at large? Critics say consolidation could drive up prices due to a lack of options, and there’s the issue of union workers having less bargaining power, too. Proponents, on the other hand, say that having a unified railroad network would provide efficiency gains that could then be passed on to the consumer.
Regardless, the Surface Transportation Board must approve, deny, or restrict the Norfolk Southern/Union Pacific merger under current U.S. law. The outcome could determine the economics of freight delivery (and consumer price flexibility) for years to come.
This is a segment where we talk about the stuff we’ve been reading, listening to, or using; feel free to submit your own in the comments below!
A mouse worth its cheddar: Earlier this year, I decided to switch from my Razer Basilisk V3 mouse, mainly because the thing kept disconnecting and reconnecting (blame Razer’s frustrating Synapse software for that one). I ended up going with the Logitech MX Master 3s, which has been awesome and (in my opinion) more comfortable. That link above isn’t even an affiliate link—this is just a really good mouse for productivity that also happens to have great software.
Why mattering matters: I recently read Zach Mercurio’s The Power of Mattering, which was released back in May, and I think it’s a great look into the psychological and sociological factors that go into leading great teams. It’s also just a solid book on how to treat people around you in such a way that both makes them feel better and causes everyone involved to perform at a higher level. Highly recommended read.
Well, well, Wall Street: A report out of Wharton Business School just sounded a new alarm for AI, and one that feels very possible in a real-world scenario. According to the study, “dumb” (not trained) AI agents were placed into a financial market scenario, and they immediately colluded with each other to fix prices, which is, you know, illegal in the real world. Most market movements on Wall Street are made by algorithms now, so this feels like the next step that regulatory bodies may need to get ahead of before it gets out of hand.
That’s it for this edition of ZeedRound Weekly! Drop your thoughts, takes, and suggestions in the comments below, and we’ll see you next week!
Can confirm there is a war on coffee. The same beans from Costa Rica I roast increased from roughly $8/lb to nearly $11/lb over a few months. Some have jumped even far more!