Thread by @micscofie1d

Get ready to dive into the deliciously addictive world of Starbucks $SBUX where coffee meets creativity & caffeine runs rampant. Whether you're a latte lover or just a casual sipper, grab your mug & let's explore the buzz behind one of the world's most iconic coffee chains.

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1| Intro:

Starbucks is an American multinational chain of coffeehouses and roastery reserves. It was founded in 1971 in Seattle, Washington, and has since grown to become one of the largest coffeehouse chains in the world, with over 36,000 stores in 83 countries.

2| Starbucks is one of the most recognizable brands in the world, known for its high-quality coffee, cozy atmosphere, and ubiquitous presence in cities around the globe. $SBUX also sells a variety of other beverages, food & merchandise.

3| With its focus on ethical sourcing, sustainability, and social responsibility, Starbucks has also become a leader in the global business community, demonstrating that it's possible to be both profitable and socially conscious at the same time.

4| Company History:

Here is a thread covering the company history from the time they were founded in 1971 by Jerry Baldwin, Zev Siegl, and Gordon Bowker:

https://twitter.com/micscofie1d/status/1651943046768885762?s=20

5| Mission:

"With every cup, with every conversation, with every community – we nurture the limitless possibilities of human connection."

6| Number of Stores:

$SBUX has 36,170 locations all around the world.

Top 5 countries with stores:

▪️ US - 9,265
▪️ China - 6,019
▪️ Japan - 1,630
▪️ Canada - 943
▪️ UK - 318

Starbucks has more than double the stores than both Dunkin' (11,300) & Tim Horton's (5,300) combined.

7| Business Model:

Starbucks operates its stores under two models:

🔸Company Operated
🔸 Licensed Stores

Company-operated stores are owned & operated by Starbucks itself. They have full control over these stores including store design, menu offerings & employee training.

8| Licensed stores are owned & operated by 3rd party companies/individuals who have entered into a licensing agreement with Starbucks. They operate the stores themselves and are responsible for their own staffing, training, and operations. Starbucks receives a % of their revenue.

9| Advantage of licensed store model is that it allows $SBUX to rapidly expand into new markets without having to bear the full cost of opening new stores. Downside is $SBUX has less control over operations which can lead to inconsistencies in the quality of customer experience.

10| How does Starbucks differentiate itself?

Starbucks has a number of strategic initiatives and programs in the works to help set it apart:

▪️ Store Design
▪️ Digital Marketing
▪️ New product offerings
▪️ Sustainability Initiatives
▪️ Mobile Rewards Program

11| Store Design:

$SBUX experiments with new store designs to enhance the appeal & experience - Starbucks Reserve Roastery, a high-end coffee shop that offers a more immersive coffee experience & Starbucks Pickup store, a smaller format store designed for on-the-go customers.

12| Digital Marketing:

$SBUX places greater emphasis on digital marketing & social media to connect with customers & create loyalty. For example, they launched a number of successful social media campaigns, such as the #RedCupContest & the #PSL (Pumpkin Spice Latte) campaign.

13| New Product Launches:

$SBUX is constantly innovating & introducing new products to its menu to keep up with changing consumer tastes and preferences. Recent examples include the Cinnamon Caramel Cold Brew, Iced Toasted Vanilla Oatmilk Shaken Espresso & the Pistachio Latte.

14| Sustainability Initiatives:

$SBUX is committed to sustainability & reducing its environmental footprint & promoting social responsibility. $SBUX has set a goal to make 100% of its cups reusable by 2025 & has invested in renewable energy projects around the world.

15| Mobile App - Is it a bank?

$SBUX launched the Starbucks Card Mobile app & a renewed loyalty program in 2009 to attract customers and increase sales. Customers can load money onto their Card accounts through the app & pay for their drinks with it.

16| In FY 2022, $10.36B was loaded onto Starbucks Cards by customers. If $SBUX was a bank, it would be the 160th largest bank in terms of total assets. 85% of US banks have less than $1 billion in total assets, which shows exactly why $SBUX has become huge in this space.

17| Starbucks is not bound by regulations around storing customer funds in segregated bank accounts. $SBUX can use these funds, which count as REVENUE once money is uploaded, however they like, allowing them to seek out opportunities in areas such as expansion and operations.

18| Breakage occurs when a customer has a balance on a gift card or rewards account but forgets to use it before it expires. This is a significant source of profit (2022: $196M) as people forget to use their gift cards, resulting in unclaimed funds that $SBUX can use elsewhere.

19| Overall, Starbucks' neo-bank approach is a win-win for the company and its customers, as it provides a more convenient way to pay for drinks, valuable rewards, collects customer data for marketing, and generates profits for Starbucks.

20| The Positives: Starbucks has several competitive advantages:

1⃣ Wide geographic presence: $SBUX has a large global footprint with over 36,000 stores in 83 countries, which gives it an advantage in terms of economies of scale and the ability to reach a wide customer base.

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2⃣ Strong brand identity & customer loyalty: $SBUX has built a powerful brand over the years that is instantly recognizable and highly respected. Customers have a strong emotional attachment to the brand and its products, which has helped to create a loyal customer base.

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3⃣ Diversified product offering: Starbucks offers a range of products beyond just coffee, including tea, food, and merchandise. This diversified product offering helps to differentiate it from competitors and provides additional revenue streams.

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4⃣ Digital Presence: $SBUX mobile app has over 32 million active users, allowing customers to order ahead, earn rewards & pay with their phones. In the US, the 32 million in mobile app users is 2nd only to Apple pay app users with 45 million users.

Credit: @EconomyApp

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5⃣ Vertical integration: Starbucks $SBUX has integrated its supply chain by owning its own roasting facilities, which helps to ensure consistent quality and supply chain control.

25| The Challenges:

1⃣ Increased competition: $SBUX faces competition from other coffee chains like Dunkin', $DNUT, Tim Horton's, Costa & Nero. Some of its competitors have been investing heavily in digital tech & loyalty programs which could erode Starbucks' market share.

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2⃣ Changing preferences: Consumer preferences are constantly evolving & $SBUX must adapt to these changes to remain relevant. This includes offering healthier food options, accommodating different dietary requirements & catering to changing trends in coffee consumption.

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3⃣ Supply chain disruptions: $SBUX relies on a global supply chain to source its coffee beans, and disruptions in this supply chain could lead to shortages or quality issues. This could impact the company's ability to serve its customers and maintain consistent quality.

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4⃣Labor costs: are a significant expense for $SBUX, and the company has faced criticism for its low wages & not letting employees form unions. This could impact its ability to attract and retain employees and could also affect its reputation among customers.

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5⃣ Economic & political uncertainty: $SBUX operates in many countries & economic/political instability in any of these regions could impact its business & changes in trade policies/tariffs could affect the cost of raw materials, which could impact profitability.

30| Importance of China:

China is the biggest market for $SBUX outside of the US with the store count in China at the end of 2022 going above 6,000. They plan to open 600 new stores in China each year for the next 5 years, with the aim of reaching 10,000 stores in China by 2025.

31| China Revenue:

Revenue for China in FY 2022 was $3.01B 🔻 18% YoY due to the country being under lockdown in the 2nd half of the year but in general revenues YoY have been greatly increasing and will continue to do so with more stores being opened nationwide.

32| China App users:

With China being a huge smartphone market, the app usage has started ticking up as well. They have 17M people using their mobile app, which is a CAGR growth of ~20% in 5 years. More app users = repeat sales + breakage revenue.

Credit: @InvestmentTalkk

33| Financials - Balance Sheet:

Cash: $SBUX has a mixed balance sheet with over $3.19B in cash and $14.93B in total debt at the end of Q1 2023.

Oct 2020 Cash: $4.35B | Debt: $20.97B
Oct 2021 Cash: $6.45B | Debt: $17.15B
Oct 2022 Cash: $2.82B | Debt: $20.99B

34| There are a few reasons that debt has ballooned for $SBUX since 2019. Once was due to Covid and they had to close down stores in 2020, but its also to take advantage of low interest rates, using debt to fund expansion across the globe and to fund share buybacks.

35| Financials - Income Statement:

Revenue: For Q1 2023, $SBUX earned $8.72B in revenues 🔼 8% YoY. Their revenue has gone up every single year for more than a decade except for 2020.

Oct 2020 Revenue: $23.52B
Oct 2021 Revenue: $29.06
Oct 2022 Revenue: $32.25B

36| Gross Margin:

GM has been very consistent for $SBUX over the years hovering in the 25-30% range. Again Covid affected this back in 2020 but they have bounced back towards the mid 20s.

Credit: @stratosphere_io

37| Financials - Cash Flow:

FCF: At the end of Q1 2023, FCF was $1.07B which was 🔻 YoY from $1.45B but $SBUX is FCF positive for FY 22 to the tune of 2.56B.

Oct 2020 FCF: $114M
Oct 2021 FCF: $4.52B
Oct 2022 FCF: $2.56B

FCF is🔻 YoY mainly due to the share buybacks.

38| Financials - Dividends:

$SBUX has a yearly dividend is at $2.12 with a dividend yield of 1.85%. They have been a serious dividend compounder over the past decade.

39| Valuation:

Below valuation is courtesy of @Quartr_App:

▪️ FY 2023: 4.23x sales, 41.6x FCF & 33.4x earnings
▪️ FY 2024: 3.78x sales, 36.7x FCF & 28.4x earnings
▪️ FY 2025: 3.42x sales, 32.6x FCF & 24.5x earnings

40| Analyst Estimates:

As of today, 4.30.23, the price of $SBUX stock is $114.29 and the market cap is ~$131B. Below are the estimates from Wall St. analysts:

41| Based on the chart above:

🥉Worst Case: is a $86 PT which presents a 24.75% downside from today's price.

🥈Base Case: is a $113.48 PT which presents a 0.71% downside from today's price.

🥇Best Case: is a $136 PT which presents a 19% upside from today's price.

42| So, there you have it - the inside scoop on Starbucks. From its early days as a small coffee shop to its current status as a global phenomenon $SBUX has come a long way. Who knows what exciting new developments & innovations are in store for the future of this beloved brand?