Klarna Wants to Replace Humans with AI & Spirit Leverages Southwest Debacle?
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Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, as Southwest tries to calm a spiraling PR crisis, a refreshed spirit wants to steal its customers. Then Klarna filed for its long-awaited IPO. Will investors buy now or wait until later? It's Monday, March 17th. Let's rock.

Welcome back to the week and happy St. Patrick's Day to everyone of Irish descent and pretty much anyone else who wants to have a good time. And there are a lot of you. While only one in nine people in the U.S. claim Irish heritage, about 61 percent of Americans plan to celebrate St. Patrick's Day. And that means big business for your local bar, which treats the holiday like the alcohol soaked version of Black Friday.

Friday. According to Moody's, St. Patrick's Day is the number one day for beer consumption in the U.S. with sales jumping 174% above the average. Toby, dry January has never felt more distant. We could not

be further away from those early aughts of the year, but I have to call you out for a second, Neil. You're wearing absolutely zero green right now. Just a startling lack of holiday whimsy on display right here. Plus, you are very vulnerable to a leprechaun's pinch, which is

Actually, the reason you're supposed to wear green in the first place, according to folklore, green makes you invisible to leprechauns, which is a fun fact that I bet will hit a lot harder later today when everyone is having a good time at a bar. Now, a word from our new sponsor, Sophos. Ooh, I am excited to tell you all about Sophos. Okay, I'm excited.

I'll bite. Why are you excited about Sophos? Well, they provide cybersecurity for growing businesses. You don't have a growing business, though. Yes, but knowing that if I did, Sophos would be there to provide enterprise-level tech and real-world expertise to keep it safe. It helps me sleep better at night. Ever heard of putting the cart before the horse, Toby? No, I don't see how that is relevant here. As long as I have my cybersecurity figured out, the business part will come in

no time. I am excited to see what you come up with. In the meantime, if you actually own a business, big or small, you deserve enterprise-grade protection with Sophos. Learn more at Sophos.com. That's S-O-P-H-O-S dot com. Clark

Klarna, the sweetest fintech you use for buy now, pay later purchases, is finally going public. After years of anticipation and valuation swings and lots of lattes bought in installments, Klarna filed its IPO prospectus on the New York Stock Exchange under the ticker Klar.

Klarna was founded in Sweden in 2005, but became a household name during the pandemic when BNPL helped fuel lockdown-induced online shopping. But like a lot of its peers, Klarna suffered from rising interest rates and a VC bubble bursting. In 2022, it raised funding at just

$6.5 billion valuation, an 85% drop from the $45.6 billion it was valued at a year before. But recently, Klarna has bounced back, bringing in $2.8 billion in revenue last year and net profits of $21 million, a sharp turnaround from heavy losses just a year earlier.

Its one-year makeover has given it the confidence to explore this long-rumored IPO, where it is aiming for a valuation of about $15 billion. Neil, this is a company that arguably might be more interesting for what's going on behind the scenes. Klarna has embraced AI wholeheartedly, replacing 700 full-time customer service agents with an in-house AI chatbot, as well as multiple large SaaS vendors.

And now it's riding that increased efficiency into the public markets. You're absolutely right. There's a lot of juicy storylines to dig into with Klarna's IPO. The A plot is the IPO of a major fintech company and one of the few buy now pay later giants to go public. The B plot is this major test for AI's promise to transform the workforce. As you mentioned, Klarna has bear hugged AI like few other companies have. It's been developing its

own in-house AI system based on OpenAI's ChatGPT, and its CEO has said the quiet part out loud while many tech CEOs, when asked about whether AI will replace human workers, they kind of hedge a little bit and they'll say, no, it's a compliment and we want our human workers to work alongside AI. He's come right out and said that he hopes, he's bragged that

AI will automate his workforce and he hopes to dwindle his workforce from 5,000 people working at Klarna at a peak to ultimately just 2,000. Right, and I do think that he is not someone who shies away from controversy either. I mean, saying that you're replacing 700 full-time contract employees to save...

$40 million annually. That's not usually a popular talking point, but to him, that's exactly where he wants to take this company. Now, some people who have worked at Klarna before have pushed back and said that, hey, maybe this narrative around AI is more of a gimmick than anything

actually something he truly believes in because what's a great way to cover up your workforce dwindling from 5,000 in 2023 to 3,500 by the end of 2024? To say that, no, it's not because we wanted to lay people off. It's because we're replacing them with much more efficient AI. So it's definitely...

He's putting his neck out on the line saying this is what we think the future of business is. And you can't really argue with the results. It did have a remarkable turnaround in profitability right around the time where AI became big. So maybe he is putting his money where his mouth is. Now, in terms of buy now, pay later, that sector that has grown a ton over the past six years or so where you can pay online in installments had that big boom during the pandemic. There was that big slump after the pandemic, but now it's coming back.

back in a big way. It is still very popular. I mean, just look at the recent holiday season from November 1st to December 31st. The usage of buy now pay later services jumped nearly 10% year over year, mounting to $18.2 billion in total online spending. That's about 7.5% of overall online sales. So as much as people bought

over the holiday, 7.5% used by now, pay later. Klarna, Affirm, Afterpay are the giants in this space. Whether they will be successful on the public markets is a different question entirely. Affirm went public a few years ago, and its stock has fallen 57% since its IPO, and the market is

quite turbulent right now. It's not exactly a time when a big company would want to go public. So we are watching to see whether Klarna will actually go public or get cold feet in the next month or so. That's probably the C-plot. I mean, you've already taken us through the A-plot and B-plot. The C-plot is just the health of the overall IPO market, which right now it's a

there's a lot of volatility. There's some plunging share prices we've seen earlier in the year. So it's been a pretty cold market, which a lot of people thought that under this current administration, the IPO market was going to come roaring back to life. There are signs of life. Klarna is a big one. There's another company, CoreWeave. They operate data centers. They're filing for an IPO that should value the company at more than $35 billion. So it's

been a kind of rocky start to the year for the IPO market. But Klarna is one of those names that could turn around the whole year if it goes well. You are well aware that stocks have taken a bruising from the rapid fire tariff announcements coming from Washington, D.C. But there's been another high profile casualty of the policy uncertainty, the U.S. dollar.

The greenback is having its worst start to a year since 2008, declining more than 4% since New Year's Day. The slump, depending on how long it lasts, could have dramatic impacts on everything from Fed rate cuts to inflation to where you decide to go on vacation. At a very high level, the strength of a country's currency reflects demand for that currency and by proxy, the expectation of economic growth. Generally, if your currency is gaining, it means your economy is looking good. Congrats.

And that's been the story for the U.S. dollar for more than a decade, as America's economic growth has sailed past those of peers like Europe. But events of the past few weeks have shaken those foundations. Trump's trade war with every country on Earth, combined with Europe's massive spending plans to rebuild its military and infrastructure, have been ripping through currency markets, sending the dollar to its biggest weekly loss against the euro since 2009. Toby, the dollar is looking a little less almighty.

Right. Some of the reasons why the dollar is weak and one, it has been those steep increase in tariffs, but also it is what's happening in Europe that is causing this surge of optimism for that particular economy, which has driven the dollar down sharply. The Wall Street Journal's dollar index has declined seven of the past nine weeks and the dollar affects so many things. Obviously, global investment flows is a big one, but also you said the direction of transatlantic tourism, if the dollar becomes weaker, certainly maybe more Europeans are going to

head our way instead of vice versa, which has been the status quo for the last decade or so. So what are some implications of a weaker dollar? One, it might make imports from places like China more expensive, which could potentially actually lead to

a boost of inflation, which could make it harder for the Federal Reserve to cut interest rates. Yeah, strong dollar, which has been the case for a long time, is great for American vacationers abroad. Recently, the U.S. dollar last year hit its highest level versus the Japanese yen in 34 years, which led to a huge surge in tourism to Japan for the food. And last week, we talked about the skiing as well. So why does Trump and J.D. Vance, who's the vice president of

want a weaker dollar. They've been very vocal about wanting a weaker dollar, and that's because it would boost American manufacturers and exports. If the dollar is strong, it makes us selling goods abroad much more expensive. Sometimes you hear when the dollar is strong, multinational companies hop on their earnings calls and say, this strong dollar really hit our

earnings overseas. I remember companies like Pepsi say this strong dollar. It's bad for our it's bad for our sales in foreign markets. So they've been quite vocal saying we want a weaker dollar to help domestic manufacturing because it would make it easier. The U.S. consumer would be the victim of that strong dollar does make things challenging.

cheaper for American goods. Buying stuff from abroad, a weaker dollar, makes stuff more expensive. And so this is actually just a stated policy goal of the Trump administration right now. They could actually go as far as to seek currency agreements or policy shifts that would intentionally weaken the dollar to help U.S. exporters, to help U.S. manufacturing. This is something that has happened before. In 1985, there was a group of governments that got together and agreed to something called the PAP.

Plaza Accord. That was against this similar backdrop where U.S., France, Japan, the U.K., and actually West Germany at the time all agreed to collectively devalue the dollar against their currencies because they thought the strong dollar was hurting the global economy. And that was against a very similar backdrop, which was high inflation, high interest rates in a very strong dollar. So it's a very intentional policy decision by this current administration.

Spirit Airlines is back from the dead. The budget airline known for its bare-bones flight experience said it has finalized its debt restructuring and is ready to emerge as a beautiful yellow butterfly from Chapter 11 bankruptcy. What was the first thing it did after finding itself on more solid financial footing? Pick a fight with one of its rivals. Remember when Southwest shocked the world last week by announcing plans to ditch its

bags fly free policy, a decision that was maligned by analysts and customers alike. Well, Spirit CEO Ted Christie decided to jump onto the dog pile as well, saying, I think it's going to be painful for a little bit as they find their footing, and we're going to take advantage of that.

But even as Christie is throwing shade at Southwest Way, Spirit still has some ducks it has to get in a row. It still reported a net loss of $1.2 billion last year, more than double the year prior. And it's been the subject of not one, but two doomed merger attempts,

courtesy of Frontier Air and JetBlue. So yes, Neil, Spirit has got some pep in its step, but it's not like it's just smooth sailing ahead. No, it is much smaller than Southwest Airlines. The way Spirit thinks it can win in the new aviation market is by moving, uh,

moving up market is now offering flight options with tiered prices so you can pay more on Spirit to get extra legroom, which is a policy it didn't have before. It's selling these bundled fares that include bigger seat, priority boarding, free bags, internet service, snacks and drinks, which is a big departure from its previous

Thank you.

these lounges and the business class. Like that is where the money is had right now in airlines and Spirit thinks that it needs to skate where the puck is going to win back customers. And you did mention that Spirit is still a lot smaller than its rival. It's definitely punching up right now when it's going after Southwest. Southwest averages 3,600 flights per day. Spirit averages just 3,000.

700 per day. So this is definitely one of those things where I think it's more of a marketing stunt in a way. Although I will say that a lot of airline CEOs have come out and say, we do think Southwest customer base who were attracted to those bags fly free policy is up for grabs right now because that was the main reason people were opting for Southwest as well as it is the US's largest domestic carrier. But I think that

All these CEOs are licking their chops and saying, all right, this is a very disgruntled fan base right now. Of course, I'm going to go out in interviews and say, we're coming for your customer base. Come check out Spirit because, you know, a lot of people are mad. I mean, this is a little bit of an exaggeration, but these are both Texas-based enterprises.

Luka Doncic trading to the Lakers and Southwest getting rid of their bags fly free policy. It created similar levels of fury and uproar from specific customer bases. So, of course, you're going after these angry customers right now. Up next, it is our winners of the weekend.

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Welcome to Winners of the Weekend, the Monday segment where Toby and I pick two things that had a better weekend than Rick Pitino. Toby, you won the pre-episode fashion show, you catwalk queen. So you get to go first. It's because I'm wearing green nail. Holiday spirit never goes out of style. My winner of the weekend are NASA astronauts Suni Williams and Butch Wilmer, who are about to be reacquainted with a little thing we call gravity.

The pair of now infamous astronauts are set to return to Earth after spending three-fourths of a year aboard the International Space Station, far exceeding their originally planned mission due to technical issues with Boeing's Starliner capsule. NASA insists that the pair has not been stuck this whole time, but were intentionally kept hanging in zero Gs for technical and budgetary reasons.

The pair's replacement Uber home was actually delivered by SpaceX last year, whose Dragon capsule has been in orbit for months now. But a separate SpaceX Crew Dragon arrived at the ISS yesterday morning with two new astronauts clearing the way for them to head home. A splashdown off Florida's coast is expected later this week, as long as the weather holds. Neil, just to reiterate how insane this trip was, Wilmore and Williams expected to be gone just a week when they launched on Boeing's first astronaut flight. They hit the

nine-month mark earlier this month. Williams and Wilmore have been true champs about all this, saying that they love being in space and that they're not stranded and that they're staying occupied. And NASA has provided everything for them that they needed on their very much extended stay. And that may somewhat be genuine because astronauts don't get that many chances to be in space. So they've

both spent a quarter century at NASA and they've only been to space twice. And so it's unlikely or doubtful whether they'll be going back to space. So for them, this might be their last chance. They've worked their entire life for this. This might be their last chance to ever be in space. So yes, they've had a few months, uh,

more than planned in space but i think they're thinking to themselves now this is my last chance i'm not gonna be able to go back to space so might as well enjoy it while i'm here that's a very optimistic take one more pessimistic take is the fact that we talked about budgetary concerns so what is the budget for keeping two astronauts in space you know nine months instead of nine days as was originally planned they're not getting any overtime or additional compensation a

their usual salary for the extra months that they've spent working from space. This is according to a former retired astronaut who's familiar with how the government structures these contracts. So I don't know if maybe if you imagine you were meant to be on a project for a week and then instead you ended up working in nine months. You're right. It is space. It is a very cool place to work, but they're not getting that overtime pay that you might expect given their

So looking ahead in the next few days after this crew switchover happens, Williams and Wilmore will eventually descend to Earth, hopefully barring any weather mishaps here on our on our blue planet. And they will return to their families. We can't wait for them to do that. My winner is a law schools because.

They are swimming in applicants. According to the Wall Street Journal, the number of people applying to the U.S.'s nearly 200 law schools has surged 20.5 percent compared to last year, making it one of the biggest influx of applicants in recent memory. Some schools, such as the University of Michigan, have seen demand surge even more, up 30 percent annually, making it their most competitive year on record.

There are a number of factors contributing to the spike in aspiring 1Ls. One is the current tough job environment for white-collar workers. When your employment prospects are dim, you go to grad school to level up. Another could be more tech-related. Law offers the prospect of a stable, high-paying career at a time when AI advances are threatening certain professional services positions.

also helping the LSAT tweaked its test, which could have attracted more people to take it. And law school applications have historically jumped in election years when the legal profession is in the spotlight, as it is now with all the cases surrounding the Trump administration's executive actions.

Toby, while this is great for law schools, it is not great if you're applying to one. Yeah, people were saying that when they saw the amount of applications roll in, there was gasps in the room at some of the top law schools. They couldn't believe the numbers were as high as they were. I was doing a little bit of digging and just realizing

reading people's reactions as to why they think it is. Obviously, there's all those factors. Yeah, tough job market, election year. These are all things that pull people into the law profession. But the changes to the LSAT were probably the biggest thing here. They took away the logic game section, which for a lot of people were

it was just a brutal section for most of the test takers. So now people are saying, I'll take the LSAT. Now that this horrible section is gone, I'll give it another shot, which is why you saw so many applicants because you might as well give, if the test got much easier, you might as well give it another shot. Some people are saying their scores jumped 15, 20 points on this revised test. So I do think that was a big factor,

with why we're seeing these massive application numbers. And we are seeing massive application numbers. I mean, if you're applying to law school, I will say good luck. Georgetown University Law Center received 14,000 applications to fill 650 spots. The University of Michigan will take 320 people in this class. They received more than 89 applications.

applications. So you're right. The floodgates have been opened and law schools are about to see their acceptance rate drop dramatically. Okay.

Okay, it is Monday, so here is what you need to know about the week ahead. The Fed is meeting on Wednesday at a pivotal point for the economy, with tariffs and potentially higher inflation spooking investors. Stocks posted their worst week in two years last week, and the S&P 500 briefly fell into correction territory, down 10% from its record high. The Fed is

Yeah, I mean, if you're talking about an economy right now that is gripped by a lot of uncertainty, one thing seems pretty certain, and that is interest rates will stay where they are.

The wait-and-see approach has been something that we've seen echoed a lot from Jerome Powell because there's just so many economic policies that are up in the air right now. So it's very hard to make an interest rate decision before you understand which tariffs will go into effect and which won't, which are just bargaining chips and which are not.

Wait and see is the name of the game right now. Disney's live action adaptation of Snow White hits theaters on Friday, but what should have been a slam dunk blockbuster has turned into a colossal dumpster fire. Disney dramatically scaled back promotion following an

unending string of controversies since the project was first announced in 2021. The movie is going to cost Disney $450 million all in with production, advertising, and prints, and it may be lucky to make back even a fraction of that. Right, it is...

One thing that you see these movies do when you invest so much money into creating something like this is you start selling tickets like a month in advance, a month and a half in advance. You try to start recouping your investment. Right now, Fandango only started selling Snow White tickets just 10 days before its release, which just shows how much Disney has kind of shrunk this movie from the spotlight. It had this very toned down story.

opening premiere. So it is one of those things where it could end up being a big egg on the face moment for what should have been just, yeah, pretty much an easy tentpole franchise for Disney to prop up. The NCAA tournament begins this week, which means it's time to acquire a second or third monitor at work and start developing intense opinions about colleges you only learned about earlier in the day.

After the play-in games today and tomorrow, the men's tournament gets going for real on Thursday. The top four seeds are Auburn, Duke, Houston, and Florida. On the women's side, the top four seeds are UCLA, South Carolina, USC, and Texas. Toby, the best week in sports has arrived. I'm very excited right now. And I know a lot of you listening probably aren't sports fans, but do fill out a bracket. And you might be thinking, what is my chances of snagging that elusive perfect bracket?

It's one in 120 billion. So good luck to all you. Maybe flipping a coin is the way to go. Also in sports, the baseball season will soft launch in Japan this week when homegrown superstars Shohei Otani and the Dodgers take on the Cubs over two games. To give you an idea of Otani's ridiculous popularity in his home country, tickets at the Tokyo Dome are going for $1,000.

as much as $2,000. I mean, it truly is the era's tour of Japan right now. Otani is the biggest face in baseball right now. MLB is trying to expand its global reach, so it makes a ton of sense for them to do a little stint over in Japan to start the season. And finally, in related news to baseball's return, the first day of spring is on Thursday. Boy, am I glad to see you. I am glad as well, but I will caution you because...

New York actually has a lot more seasons than just four. There's winter, there's full spring, there's second winter, and then there's spring of deception. And right now I feel like we're in the spring of deception because we got some 60 degree days, but I think we're going to get plunged back into one more winter before spring is actually here. All right, let's wrap it up on it.

that a high note. Thanks so much for starting your morning with us. Have a wonderful Monday and a very happy St. Paddy's Day. For any questions, comments, or feedback, send an email to morningbrewdaily at morningbrew.com. And if you're enjoying the show, share it with a friend, family member, or coworker. Toby, who should everyone listening share it with today? I want you to share the podcast with someone who is considering a law school. It might be good to arm them with some facts as to what they are up

against. That is a very good point. Let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham and Olivia Lake are our associate producers. Uchenoa Ogu is our technical director. Scoops Dardaris is on audio. Hair and Makeup is splitting the G. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.