Is Starbucks A FinTech?
Is Starbucks A FinTech?
Is the mega coffee giant technically a fintech now that they handle so much finance in their operations? And uses tech!
Starbucks is the largest coffeehouse chain in the world. Founded near the historic Pike Place Market in Seattle by Jerry Baldwin, Gordon Bowker and Zev Siegl in 1971. In addition, Starbucks’ name became inspired by the seafaring classic tale “Moby Dick”, inspired by early coffee traders that crossed oceans to transport this favorite morning beverage.
Coffee enthusiast Howard Shultz joined the Starbucks team in 1981 and his leadership led the massive expansion of the coffeehouse around the world. To sell products, Starbucks uses a network of company operated stores and licensed stores such as convenience stores, grocery stores, specialty stores and warehouse clubs. Starbucks also sells its products on their website (Starbucks, n.d.).
Financial Information:
Four years of data were collected about Starbucks, 2018, 2019, 2020 and 2021, Starbucks had begun declining in profitability in 2019 and inevitably was hit by the corona virus lockdowns in 2020. However, Starbucks quickly recovered to 2018 levels and according to CEO Kevin Johnson, the company delivered record performance in the third quarter with revenue up by 10 percent in the United States market compared to 2019. Despite rising costs and labor, Starbucks earnings rebound has been dramatic. Starbucks is offsetting pressures by raising the prices of its products and moving toward premium coffee.
A year ago, it was facing a 17 percent operating loss while in 2021 its operating margin had jumped to 20 percent of sales (The Motley Fool, 2021).
Starbucks 10-K Filing
Starbucks objectives include remaining one of the most recognized brands in world, expand its existing market within the US and the world, particularly China, continue innovating new product offerings, and commit to a global social impact strategy that benefits communities it operates in, its employees and ethically sourcing its coffee.
There are many risks that Starbucks faces as a company. The first risk is the economic conditions in the US and international markets could affect Starbucks business and financial results. COVID-19 hurt Starbucks quite badly with its Chinese stores still suffering corona virus related consequences and store closures. Corona virus also created disruptions with the supply chain, with many products customers love being out of stock for weeks due to shortages (Meisenzahl, 2021). Another risk is Starbucks reliance on information technology, particularly for its rewards program. If the Starbucks application glitches, unhappy customers will complain because they are drawn to the Starbucks rewards program that is tied to the app, impacting the reputation of the brand.
Management highlighted some key financials in their discussion section. According to management, Starbucks total net revenues have increased from $23.5 billion in fiscal 2020 to 29.1 billion (an increase of 24 percent) in fiscal 2021. Starbucks operating margin increased to 16.8 percent in 2021 from 6.6 percent in 2020. This was mainly due to business recovery, catastrophe and service pay for employees and store partners.
Starbucks is performing better than it has in years mainly due to its expansion of its rewards program and its new drive thru locations. What is not going well is its supply chain shortages as it is upsetting many Starbucks customers that their favorite products are not always available to them. I believe Starbucks will stay in business for the next 20 years because of its loyal, repeat customers (SEC, 2021).
Stock
Like just about every company with a brick-and-mortar retail presence in the United States, Starbucks’ shares underperformed the S&P 500 in March 2020. Shares of Starbucks fell 16.2% in March as the coffee giant scrambled to respond to the COVID-19 outbreak.
In response, Starbucks CEO Kevin Johnson implemented a series of protective measures.
Such as doing takeout and delivery only, all employees wearing masks and protective pay for employees. That became diagnosed with COVID-19. Despite the initial drop in March 2020, Starbucks continued to grow, particularly in North America. Starbucks expanded its drive-thru locations which have had high volume orders. Furthermore, the mobile order pay method where customers pick up their online order is also popular. These two methods accounted for 70 percent of transactions since the pandemic began. Starbucks in currently the #4 food and drink store on both Google and Apple Pay. The stock also increased due to Starbucks tapping into its repeat buyers, which make up most of their buyers, through extensive reward programs.
Starbucks is tapping into its existing customer base through MOP, a heightened focus on drive-thru, and the power of its rewards program. By encouraging customers to spend more per transaction and increase the frequency of their visits, it’s paving a path toward higher profitability, independent of growing store count.
Starbucks is committing $20 billion toward share repurchases and dividends over the next three years. The company just raised its annual dividend to $1.96 per share, representing a nearly 10-fold increase in its payout since 2010, this being the 11th consecutive year Starbucks raised its dividend.
Initially, my recommendation to investors was to buy Starbucks stock. However, I realized although Starbucks stock is generally high performing, the negative ROE cannot be ignored. Until Starbucks fixes its ROE, it is not worth it for investors to buy shares. I suggest waiting and seeing how Starbucks performs in 2022 as it seems it is on its way to recovery. I suggest investing if the stock goes down to $90 from its current $114.
Sources
https://www.fool.com/investing/2021/08/04/5-must-see-numbers-from-starbucks-earnings/ https://www.google.com/finance/quote/.INX:INDEXSP?window=5Y&comparison=INDEXNAS DAQ%3A.IXIC
https://www.businessinsider.com/chipotle-and-starbucks-are-embracing-drive-thrus-2021-11 https://www.businessinsider.com/starbucks-shortages-get-worse-as-company-puts-hold-on-25- items-2021-6
https://finance.yahoo.com/quote/SBUX/financials?p=SBUX
https://www.fool.com/investing/2021/11/03/5-reasons-there-has-never-been-a-better-time-to-bu https://www.nasdaq.com/articles/why-starbucks-stock-fell-16-in-march-2020-04-08 https://www.insider.com/starbucks-fun-facts-2018-7#the-chantico-was-a-rare-flop-for-the company-according-to-employees-12
https://www.starbucks.com/about-us/
