Here’s the revenue hit Facebook will take as Diageo and Starbucks join the list of companies pulling ads from platform


Diageo and Starbucks just became the latest companies to halt advertising on social-media platforms over ineffective policing of hate speech.

Shares of Facebook Inc.
FB,
-1.73%
,
which operates Instagram and WhatsApp in addition to its namesake platform, erased early losses to rise 0.6% in midday trading, while Twitter Inc. shares
TWTR,
+0.19%

rallied about 2%. Both stocks took big hits Friday after other advertisers paused spending.

“Diageo
DGE,
-1.87%

strives to promote inclusion and diversity, including through our marketing campaigns. From 1 July we will pause all paid advertising globally on major social-media platforms. We will continue to discuss with media partners how they will deal with unacceptable content,” the U.K.-based spirits and beers maker said in statement.

On Sunday, coffee giant Starbucks
SBUX,
-0.33%

said it was “pausing” advertisements on all social-media platforms, and would “continue discussions internally, with our media partners and with civil-rights organizations in the effort to stop the spread of hate speech.” On Friday, Unilever
UN,
+1.23%

ULVR,
-2.33%

said it would halt U.S. advertising on Facebook and Twitter through year-end. Its Ben & Jerry’s ice-cream unit had previously announced a Facebook ad pullout.

Coca-Cola
KO,
+0.13%

said on Friday that it would “pause paid advertising on all social-media platforms globally for at least 30 days.” On Saturday, another iconic American brand, Levi Strauss & Co.
LEVI,
-2.55%
,
announced on Twitter that it, too, it would pause ads on Instagram and Facebook:

Late Friday, Facebook Chief Executive Mark Zuckerberg announced policy changes, during a “virtual town hall,” to hide or block content considered hateful or that could harm voting, with no exception for politicians, an approach Twitter has previously applied to the high-profile account of President Donald Trump and others. Twitter hasn’t been as consistently a target of the boycott call but has come under a new wave of scrutiny, and shares have fallen alongside those of Facebook.

“We invest billions of dollars each year to keep our community safe and continuously work with outside experts to review and update our policies,” a Facebook spokesman said Monday. “We know we have more work to do.”

The spokesman added that the company will continue to work with civil rights groups and other experts “to develop even more tools, technology and policies to continue this fight.”

Twitter’s vice president for global client solutions Sarah Personette said in a statement that the company’s mission “is to serve the public conversation and ensure Twitter is a place where people can make human connections, seek and receive authentic and credible information, and express themselves freely and safely.” She added that Twitter is “respectful of our partners’ decisions and will continue to work and communicate closely with them during this time.”

Read:Facebook’s Zuckerberg was reportedly talked out of making moves against Trump as far back as 2015

The boycotts stem from a #StopHateforProfits campaign announced by a coalition of civil-rights and other groups, including the Anti-Defamation League and the National Association for the Advancement of Colored People, which has asked Facebook advertisers to show that they won’t support companies that prioritize profits over safety.

Since the launch of the campaign, the list of companies opting to pause advertising is growing, but Facebook is still looking at less than a 5% hit to revenue, said Rohit Kulkarni, executive director at MKM Partners, in a note to clients.

Firstly, he said Facebook makes the bulk of its revenues from mobile direct ads and small-business marketing. “FB has more than 160 million registered businesses globally and 8 million paying advertisers,” said Kulkarni, who noted that Ad Age’s 100 biggest advertisers spend less on a proportionate basis with Facebook.

“Procter & Gamble
PG,
+0.75%

is the largest advertiser in the world, but we think it accounts for less than 0.50% of FB’s revenues,” Kulkarni said. Due to COVID-19, he said MKM had already expected leading advertisers to scale back on spending in the second half of this year, “implying a lower marginal headwind” for Facebook. Wall Street is estimating 1% year-over-year growth in the second quarter and 7% in the third. “We believe near-term Street estimates are reasonable and that there is upside potential given ad market recovery.”

He said Snapchat parent Snap Inc.
SNAP,
-2.10%

could benefit from “near-term uncertainty with advertiser policies related to [Alphabet-owned
GOOGL,
+1.93%

GOOG,
+1.85%

YouTube] and Instagram.”

Tim Rostan contributed to this report.



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Kim Kardashian West’s beauty business is valued about $180 million less than Kylie Jenner’s


The difference between being one of the most recognized people in the world and being one of the most admired is worth about $180 million dollars, according to global beauty company Coty. Inc.

Coty
COTY,
+8.61%

announced Monday a “strategic relationship” in which it paid $200 million for a 20% stake in reality TV star Kardashian West’s beauty business, KKW Beauty. Under terms of the deal, Coty will be responsible for the “portfolio’s development” in skin care, haircare, personal care and nail products, and Kardashian West will “lead all creative efforts in terms of product and communication initiatives.” Coty had disclosed earlier this month that it was in talks with Kardashian West regarding a possible collaboration.

The investment implies a $1 billion valuation for KKW Beauty.

Wells Fargo analyst Joe Lachky said he didn’t expect the deal to have a material impact on Coty’s financials in the near term, given the small ownership stake, but he said it could become “more material” over time as it includes a licensing agreement that puts Coty in charge of expanding the brand outside of cosmetics and fragrance.

Coty’s stock
COTY,
+8.61%

rallied 8.5% in midday trading Monday. It has still lost 60% year to date, while the S&P 500 index
SPX,
+1.09%

has slipped 5.8%.

Meanwhile, the language in Coty’s release Monday was similar to that used in an investment the company closed six months ago with Kim’s younger half sister, Kylie Jenner.

In January, Coty said it closed on the “strategic partnership” announced in November 2019, in which Coty said it paid $600 million for a 51% stake in Kylie’s beauty business, Kylie Cosmetics.

That implies a $1.18 billion valuation for Kylie Cosmetics.

Don’t miss: Coty’s $600 million deal with Kylie Jenner is designed to hang on to her social media star power.

At that time, Coty said it would be responsible for the “portfolio’s development,” while Jenner will “lead all creative efforts in terms of product and communications initiatives.”

There was a not-too-subtle difference, however, in the language Coty used to describe the sisters.

On Monday, Coty said about Kim:

“Karadashian West is one of the world’s most recognized personalities with 300 million followers across her personal and brand social media channels, as well as being an influential voice among beauty consumers globally,” Coty said in a statement.

In November, Coty said about Kylie:

“Kylie is one of the world’s most admired personalities with over 270 million followers across her personal and brand social media channels, as well as being one of the most influential voices among beauty consumers globally.”

Apparently, being admired is worth a lot more than being recognized.



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Gap hopes it can burnish its image with a new Kanye West clothing line, repeating the rapper’s brand success with Adidas


UBS analysts saw what Kanye West did for Adidas AG and think the controversial rapper and fashion designer could do the same for ailing Gap Inc.

Gap announced Friday that it has partnered with Kanye for the Yeezy Gap collection that will include items for men, women and children at affordable prices. The clothes are coming to the namesake clothing chain’s stores and to the website in 2021.

“When Adidas
ADS,
-2.10%

began partnering with Kanye West five years ago, it began a resurgence for the brand,” wrote Wells Fargo analysts led by Ike Boruchow.

See:Nike’s COVID-related sales decline is a bump in the path to long-term growth, analysts say

“Bears will likely point out that an additional $700 million in sales (in the best case scenario) is not material to Gap’s $15 billion sales base, but we would argue that, much more importantly, this partnership could provide a positive halo effect to the ailing Gap brand (and share price) that has struggled to rediscover its ‘cool’ over the past decade, while driving incremental traffic and purchases from new and lapsed customers.”

Gap stock closed Friday up 18.8%. The stock has lost more than 31% of its value over the past year while the S&P 500 index
SPX,
-2.42%

is up 3.3%.

Gap’s portfolio also includes the Banana Republic and Old Navy brands.

Wells Fargo upgraded Gap earlier this week, calling the move “idiosyncratic.” The upgrade was based on the strength of the Athleta brand and the company’s real estate, but analysts say the call drew “largely (and loudly) negative incoming call volume.”

Read:More consumers are willing to head back to stores than to dine out at restaurants, S&P Global says

Wells Fargo rates Gap stock overweight with a $19 price target.

“While this announcement was unexpected, it is highly aligned with our view that Gap ownership and new management have taken on a new ‘all options on the table’ mentality, and are highly committed to finding new and creative ways to unlock value from their portfolio,” analysts said.

Cowen analysts agree there are a number of benefits for the Gap, including a connection to a premium and relevant brand.

“Gap’s creative direction and merchandise execution has been highly inconsistent; these efforts may set the brand in a new positive direction and drive greater appeal to a younger customer,” wrote analysts led by Oliver Chen.

Analysts say there are risks, like the challenges of launching a new brand while trying to execute a turnaround, and the possibility that Yeezy Gap could cannibalize Gap’s core merchandise.

But given the Friday stock move, Cowen says the partnership could yield a $1 billion topline benefit by 2025.

Cowen rates Gap stock market perform with an $11 price target.



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Dell, VMware stocks rally as resolution to ownership ‘soap opera’ gets a new teaser trailer


Shares of Dell Technologies Inc. and VMware Inc. stood out like tiny green islands in a sea of red Wednesday as analysts chimed in on the seemingly neverending ownership “soap opera” between the two companies following a report that a strategic shakeup was in the works.

Late Tuesday, shares of Dell
DELL,
+7.90%

and VMware
VMW,
+2.45%

started rallying in the extended session following a report in The Wall Street Journal that Dell was actively considering strategic options for its 81% stake in VMware, which it gained in its 2016 acquisition of EMC Corp. for $67 billion. VMware provides cloud computing and virtualization software and services. Those options range from a spinoff of VMware to just acquiring the rest of the company outright.

On Wednesday, Dell shares surged as much as 12% while VMware shares were up nearly 9% as the broader market dropped. At last check, Dell shares were up 8.5% at $53.18, and VMware shares were up 3.3% at $154.08, while the S&P 500 index
SPX,
-2.74%

dropped 2.3% and the tech-heavy Nasdaq Composite Index
COMP,
-2.28%

fell 2%.

The desire, or hope, of some other arrangement between Dell and VMware that would give investors more of a sense of closure is not new. Back in 2018, there were rumors of a reverse merger where VMware would acquire Dell.

Tuesday’s report, however, was enough for Stifel analyst Brad Reback to upgraded VMware to a buy from a hold and hike his price target on the stock to $196 from $166.

“We have long believed Dell would ultimately buy-in the ~19% (~$12.5B) of VMware that it does not own in order to gain full control over VMware’s substantial [free cash flow] of about $4B annually and still expect this to be the ultimate outcome,” Reback said.

A spin-off of VMware, on the other hand, would make less sense, Reback said, “given the secular headwinds that Dell’s core hardware business faces.”

Reback, along with several other analysts, were also quick to point out a stipulation in the report that a tax-free spinoff of VMware wouldn’t be possible until September 2021, or the five-year anniversary of Dell’s acquisition of EMC.

Wedbush analyst Daniel Ives, who has an outperform rating on VMware and a $175 price target, questioned whether the talks could be “another head fake for investors” in the “Dell/VMware soap opera,” but made an argument for the spin-off.

“The likely path in our opinion and the one most appetizing to investors would be a tax free spinoff for this stake which is worth roughly $50 billion,” Ives said. “The Dell ownership structure has been an albatross around the VMware story and ultimately causes the stock to trade at a discount, a dynamic that would be removed if Dell (and its Board) ultimately decided to head down this path.”

Ives estimates that if Dell divested it VMware stake “this would add $15 to $20 per share right out of the gates,” but that it is “too early to pop the champagne yet as we have seen many twists and turns in this strategic relationship which could potentially end with no changes to the structure at all.”

Mizuho analyst Gregg Moskowitz, who has a neutral rating on VMware and a $152 price target, said the prospect of Dell and VMware becoming more “traditional” in their relationship would be welcome by many investors.

“However, this review is reportedly at a very early stage and may not result in a desired outcome for VMW holders; as such, we believe that investors should approach this news with some caution,” Moskowitz said.

The Mizuho analyst said he was surprised by the magnitude of the share moves given all the unknowns but the best outcome for VMware shareholders would be an outright sale of VMware to another company but that “the list of potential interested buyers is very short.”

Jefferies analyst Brent Thill, who has a hold rating on VMware and a $160 price target, said a partial or full divestiture of VMware by Dell is the “most likely outcome.”

With a partial divestiture of about half its stake, Dell would be able to pay down a considerable amount of debt and save about $1 billion a year in servicing costs, Thill said. Selling the whole stake would not only double that savings but leave Dell with about $6 billion to $7 billion in net cash “to pursue M&A of complementary software assets,” he said.

Of the 28 analysts who cover VMware, 19 have buy or overweight ratings, eight have hold ratings, and one has a sell rating, along with an average price target of $172.17, according to FactSet data.

Of the 19 analysts who cover Dell, nine have buy or overweight ratings, and 10 have hold ratings, along with an average price target of $54.06.



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The North Face parent VF Corp. sees sales uptick as people head outdoors, or to their backyards, during coronavirus pandemic


With lockdowns lifting around the country, consumers are heading to the great outdoors, or to their backyards, for activities like camping and hiking that require merchandise that VF Corp. brands offers, positioning the business for increased sales, the company says.

VFC’s
VFC,
-5.94%

portfolio includes The North Face, Timberland and Eagle Creek.

Speaking at the Stifel Cross Sector Insights Virtual Conference on Wednesday, VFC Chief Executive Steven Rendle highlighted four trends, which he says were growing even before COVID-19 and are accelerating after the pandemic, including an “appreciation for the outdoors.”

“[W]e’ve seen a nice uptick, as an example, in our North Face equipment business,” Rendle said, according to a FactSet transcript.

See:RH is planning to open hotels and sell houses, but analysts ask whether it can pull it off

“People purchasing tents and sleeping bags at a higher rate and then sharing the experiences that they’re creating with… their families in the backyard, sleeping outside, cooking dinner over their camp stoves, but really trying to generate some new excitement in a stay-at-home environment.”

Some are vacationing in the wild.

“[A]s states and countries begin to reopen, we are seeing an uptick in outdoor participation in national parks and outdoor environments where people typically would take a more multiday approach to the outdoors,” Rendle said. “And our North Face, Timberland, SmartWool, Icebreaker brands are very, very well-positioned.”

Even when consumers aren’t camping, they’ve become more casual during these lockdown periods.

VFC is also the parent company for Vans, an athletic brand known for its laid-back, skateboard lifestyle aesthetic.

“[T]he work that we’ve done to reshape our portfolio [to] position ourselves in this total addressable market of outdoor, active and athleisure, and this area of work lifestyle is really paying great dividends, Rendle said.

VFC is positioned to capitalize on the tailwinds of “being purpose-led and performance-driven, enabling us to… be well-suited to accelerate as everything comes back to a new normal,” he said.

Read:Tractor Supply benefiting from consumer trends like gardening and the move to rural communities, analysts say

NPD Group analysts have also taken note of a shift in consumer apparel shopping behavior. Shoppers were once snapping up items like pajamas and loungewear to be comfortable at home, a trend that Target Corp.
TGT,
-1.65%

highlighted. Now, they’re moving toward recreational gear.

“Apparel was a low priority early in the COVID-19 crisis when consumers were focused on things like groceries and other in-home necessities, but we’re seeing evidence that apparel is once again entering the spending consideration set,” said Maria Rugolo, apparel industry analyst for NPD in a May 28 report.

“Warmer weather is spanning much of the country, allowing consumers to extend their mostly homebound routines to the outdoors, and expanding their apparel needs beyond comfort and above-the-keyboard dressing.”

Baird analysts also note the fitness and outdoor trend, but remain cautious. The lack of tourism is a headwind, analysts say. High unemployment is a deterrent to spending, and whether there is another stimulus package is to be determined.

Don’t miss:Mnuchin says Trump administration will ‘seriously look’ at sending out more stimulus checks

Baird rates VFC stock outperform with a $66 price target, citing recent momentum for both The North Face and Vans brands.

In addition to these trends, Stifel analysts cite VFC’s move to more direct-to-consumer sales and growing brand strength abroad as assets for the business.

“Compared to other brands in the portfolio, Vans and Dickies reportedly performed better and will likely be leaders in portfolio stabilization,” analysts said. “Vans benefits from consumer engagement and built in China growth. Dickies benefits from a small but growing Asia business, and sales through partners that had been deemed as essential businesses, like Walmart.”

Stifel rates VFC stock buy with a $75 price target.

VFC reported fiscal fourth-quarter earnings that missed expectations in mid-May.

VFC shares fell 6% in Thursday trading, and have fallen 40% for the year to date. The S&P 500 index
SPX,
-5.89%

is down 7.1% for 2020 so far.



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