🥵 Perplexity’s Booming AI Search Engine

MARKET UPDATE

Good Morning Investor! On Friday, shares of travel agency Expedia ($EXPD) surged 10%+ after exceeding expectations with robust second-quarter results, despite a challenging market environment, resulting in Lee Horowitz from Deutsche Bank reiterating a Buy rating on the stock.

TODAY’S BIG HEADLINES

The Zelle Scam Debacle

Perplexity’s AI Search Engine is Putting Google Under Pressure

ELF Beauty Gets Put Back on the Shelf

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FINTECH & FRAUD

The Zelle Scam Debacle 🧐

Zelle, Where Scams Thrive: The big bank-backed fintech company Zelle has seen growth faster than a teenager's shoe size, but along with this expansion comes a proliferation of scams that would make even the shadiest cryptocurrency schemes blush. You've probably experienced this yourself — someone posing as a long-lost cousin, claiming they're in "desperate need" of money to get home. Because apparently, Western Union is just too passé for modern-day con artists.

Uncle Sam Wants You... to Stop Getting Scammed: Well, the US government is now looking to intervene, with Zelle payments being subject to an ongoing inquiry by the Consumer Financial Protection Bureau (CFPB). It's like the financial equivalent of your parents checking your browser history — uncomfortable, but probably necessary. The CFPB is eyeing how the banks that own Zelle—including Bank of America, JPMorgan, and Wells Fargo, which accounted for 73% of the app's transactions last year—handle disputed payments. These scams typically lead to customers losing their funds without any chance of reimbursement.

• The regulator also wants to know how the banks vet accounts and whether they do enough to target those who prey on users — sounds like the typical banking regulatory scrutiny.

• Banks are, however, pushing back, claiming they have no legal obligation to reverse authorized transactions—even if they involve trickery. Looking out for their customers just like always!

I Licked it, so it’s Mine: Unlike in standalone payment apps like Venmo, Zelle transfers are often made through banking apps, giving some users the impression that they are subject to the same fraud protections as debit and credit card payments. But unlike its fintech peers, retrieving a scam Zelle payment is about as likely as finding a unicorn in your backyard. It's the financial equivalent of "no backsies" — once it's gone, it's gone.

A New Hope or Just More Red Tape?: Zelle is increasingly used for commercial transactions, and the senators' report recommended that these transactions be protected like regular card swipes. Because nothing says "progress" quite like making a new system work exactly like the old one. The lawmakers also said the CFPB should modify one of its existing regulations to standardize how scam investigations are conducted, requiring banks to reimburse customers for Zelle scams. It's like asking the fox to guard the henhouse, but with more paperwork.

ARTIFICIAL INTELLIGENCE

Perplexity’s AI Search Engine is Putting Google Under Pressure🥵

Google's Hot Seat in the Search Sauna: Tech giant Google’s ($GOOG) dominance over the search market is under more heat than a marshmallow at a campfire. The Mountain View, California-based tech company recently lost a landmark antitrust lawsuit just last week, ruling that the company was operating an “illegal” monopoly, thanks in large part to its exclusivity deal with Apple ($AAPL) making Google the default search engine on their devices.

• To make things worse, the world’s third most valuable private unicorn, OpenAi, just recently announced the release of their own “AI-powered” search engine to compete with Google, aptly named SearchGPT. It seems OpenAI is ready to give Google a run for its money - or should we say, a search for its money?

Perplexing Scenes: Following suit, in steps Perplexity, who tripled their valuation in a recent private funding round. To be specific, the company raised $250 million from investors – including SoftBank’s Vision Fund 2 – in a deal that valued the startup at $3 billion, triple the figure it secured only four months ago — because nothing says "visionary" quite like throwing money at AI startups like confetti at a tech wedding. This is thanks to the company’s rapid growth, with its AI search engine having answered roughly 250 million questions last month, compared to 500 million queries for the whole of last year.

May the Best AI Win: Despite investor sentiment towards AI spending having soured like milk left in a gamer’s mini-fridge, Perplexity is proving there's still an appetite for brainy tech. Wall Street is watching this AI showdown more closely than a cat eyeing a laser pointer, as these contenders duke it out for the $300 billion search advertising pie.

CONSUMER DISCRETIONARIES

ELF Beauty Gets Put Back on the Shelf💄

Out of Style: Despite being a rapid growth success story, returning a stunning 324% over the past two years - enough to make even Cinderella's fairy godmother jealous - E.L.F Beauty ($ELF) is experiencing the exact same consumer spending contraction as its peers, along with the fast food, luxury, retail and travel industries. After reporting quarterly earnings on Friday, the stock dropped a jaw-dropping 14.4% in a single day. Talk about a makeover gone wrong!

More of the Same, for Now: ELF managed to maintain its post-pandemic boom in demand by attracting customers for its affordable skincare and cosmetic products, reporting a beat on both sales and earnings forecasts, resulting in an initial pop for the stock. What followed, however, was some rather disappointing guidance - like finding out your "waterproof" mascara isn't so waterproof after all. Here's the rundown:

• Net sales rose 50% to $324.5 million in the quarter, beating estimates of $304.7 million. That's a glow-up even the Kardashians would envy!

• Adjusted earnings per share of $1.10 per share topped expectations of $0.84 cents.

• In response to the possibility of a Trump-led administration raising tariffs on Chinese imports, managment said that the tariffs impact would be addressed by raising product prices and diversifying supply chain operations.

ELF’s Vision: The cosmetics company provided forecasts which were below expectations, with the company forecasting 2025 sales to be between $1.28 billion and $1.30 billion, versus analysts' estimates of $1.30 billion. ELF also expects annual per-share profit to be between $3.36 and $3.41, versus analysts estimates of $3.42 per share.

MORE NEWS

Additional market-moving events🌎

Mortgage Rates: U.S. mortgage rates fell to 6.47% for a 30-year fixed-rate loan, down from 6.73% last week — the largest drop this year and the lowest level in 15 months. (NYTimes)

Delta's Latest Jab: Delta ($DAL) lashed back out at CrowdStrike ($CRWD), accusing it of negligence over its July IT outage. Both CrowdStrike and Microsoft ($MSFT) have denied responsibility for Delta's disruptions, which included over 7,000 canceled flights. (BBC)

FDA Greenlights Citius: The FDA approved Citius Pharmaceuticals' ($CTXR) Lymphir for treating a rare blood cancer, after rejecting it last year. (Reuters)

China's Car Market: Auto sales in China slipped 5% YoY in July, while EVs and hybrids accounted for 51% of new passenger car sales, surpassing gas-powered vehicles for the first time. (AP)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection. Lastly, on August 6th, we initiated a position in Celsius holdings.

Here’s how the stocks have performed since:

• Hims & Hers Health: $15.96 (📈+10.30%)

• PayPal: $62.72 (📈+3.45%)

• Celsius: $38.08 (📉-5.70%)

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