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Comment by Asparagirl | Hacker News Reader

Arguably, Starbucks is a mid-sized bank that also sells coffee.

“Here's the shocking part -- Starbucks has about $1.6 billion in outstanding gift card balances. That info comes courtesy of its annual 10-K filing with the SEC. This essentially means Starbucks is getting a $1.6 billion loan from its customers at a 0% interest rate. And it's paying that loan back in coffee, not cash. It's already a great deal for Starbucks, but it gets even better. Some customers don't end up redeeming their gift card balances, which means the coffee chain doesn't even need to pay back the full "loan" amount. For the 2022 fiscal year, Starbucks reported $196 million in breakage, meaning unused gift card balances…”

https://www.fool.com/the-ascent/banks/articles/this-is-the-w...

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Starbucks gets prepayments for goods and services and just has a neat bit of accounting and marketing gimmick around it. Besides being a sensationalist take, it's also misunderstanding what makes a company into a "bank".

You can't withdraw your balance in cash, as you can with a bank account. You can't transfer your balance to someone else like you can with a bank account. And, unlike a bank, your Starbucks gift card balance expires after some period of time. Can you imagine your bank telling you that all the money in your account is theirs because you haven't used the account in a few months?

> And, unlike a bank, your Starbucks gift card balance expires after some period of time.

There are many jurisdictions in which gift card balances do not expire, such as California.

People still lose them and never redeem them.

People lose cash too.

And just like whoever finds that cash, Starbucks gets to use the gift card money.

Actually true in a technical sense. At least for Starbucks, their gift cards don't expire anywhere globally. In accounting terms though, the company still reduces the value of its gift card liability every year by about 10-15% [1], and claims that this is based on historical data.

Now clearly, there are circumstances in which banks do something similar and close accounts of account holders that are unknown. However, if that occurred at even one hundredth of the Starbucks breakage rate, all regulatory hell would break loose on the bank.

[1] Starbucks reports breakage of around $212.7m in FY22 ($181.1m in FY21). Their liabilities to Stored Value Cards are $1,641m and $1,596m respectively, coming out to a breakage ratio of 13.0% and 11.4% respectively.

    Besides being a sensationalist take

Anything from fool.com is as bad as forbes.com these day -- in my eyes. They pump out so much sensationalist garbage that masquerades as good investment advice. Fifteen years ago, they were really impressive -- the original authors.

I've heard similar things said about airlines, but I'm not convinced; this relegates every company selling something they'll exchange their products for a "bank" rather than what they obviously are - supermarkets, department stores, airlines, coffee shops, petrol stations. Apple, Amazon, Netflix, Spotify, Steam? Banks. Chipotle? Bank.

Even if it technically conforms to a broad sense of the word, what's the point?

I go to Starbucks to buy coffee. So it's a coffee shop.

I guess the way to look at it is does Starbucks sell coffee to make profit or does it sell coffee to get people to buy gift cards to make profit. The idea of a loss leader being part of the core visible business isn’t that strange. Even better if you can make money on both though!

Hopefully there is enough nuance in the world to recognise that they are both coffee shops and a bank. In the same way Google is both a search company and ads company.

This arguments feels like it's trying to be an inch too smart.

Consider the following: Amazon isn't really an online retail company; it doesn't really sell goods to the consumer. What it does is use "goods" that it delivers as a loss leader to get people to click on buttons to give Amazon money.

Starbucks is a coffee company, that introduces an optional extra step of gift cards for other consumer convenience reasons. The fact that there is a comically large amount of money held in the gift cards system is just that: a slightly comical fact.

Your attempted example isn’t the same though. It’s much more apparent if you look at the search example. Without search there would be no ads business (to a degree)but search itself only loses money and gets compromised in favor of the ads business

Starbucks annual revenue just hit $35 billion, so I'd say they're still overwhelmingly a coffee company enjoying a nice float on $1.6 billion.

Starbucks revenue, from coffee, was $32 billion. Their 'profit' from gift cards was 0.6% of that.

What was their profit from coffee? Comparing revenue with profit numbers says nothing.

Nit pick: It would be better to compare Starbucks coffee profits vs gift card "profits". Without expired gift card balances, the profit margin is zero (or negative) on gift cards.

That's why comparing revenue to profits to valuation to GDP doesn't make any sense at all.

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