Three Things (10/23)

Young Americans fuel rural resurgence

Gone country … New USA Today reporting highlights a growing trend of young Americans moving away from large metropolitan areas to small towns and rural communities. This shift, which began during the pandemic, has continued well into 2024. According to a University of Virginia study, adults aged 25 to 44 have driven population growth in these areas, reversing decades-long trends of urbanization.

The migration is largely fueled by several factors, including the rise of remote work, the high cost of living in major cities, and a desire for more affordable housing. In cities like San Francisco, where the average home costs $1.3 million, younger people are opting for rural towns such as Jefferson, Georgia, where homes average $410,900 (Source: Zillow). Remote work, though scaled back by some companies, remains at about 20% to 25%, allowing more flexibility in where people choose to live, per Goldman Sachs estimates.

This shift is not just about affordability. Rural areas are also drawing people for their space, natural beauty, and growing entrepreneurial opportunities. As a result, rural America is seeing a modest population resurgence after years of stagnation. The U.S. Department of Agriculture notes that rural populations grew by 0.25% from July 2020 through June 2022, driven by net migration gains.

While many rural counties continue to lose residents, others, especially those near urban centers or with strong recreational appeal, are benefiting from the influx. This migration is reshaping local economies, boosting housing demand, and providing new opportunities for businesses in smaller towns across the country.

Activist calls for CAKE breakup

Split menu… Activist investor JCP Investment Management has built a 2% stake in Cheesecake Factory (CAKE) and is advocating for significant changes, according to a new WSJ report. JCP, known for its involvement in the restaurant industry, is urging Cheesecake Factory to spin off three of its smaller brands—North Italia, Flower Child, and Culinary Dropout—into a separate public company. The investor argues that these brands could achieve faster growth under independent management.

Cheesecake Factory, based in Calabasas, Calif., operates over 300 locations across the U.S. and Canada. The company has been publicly listed since 1993, but its growth has slowed in recent years, particularly compared to industry peers like Texas Roadhouse (TXRH). JCP believes that a strategic split would allow the spun-off brands to focus on growth while Cheesecake Factory could streamline its operations.

This push for change comes as Cheesecake Factory prepares to release its Q3 earnings on October 29. During Q2, the company posted a 24% year-over-year increase in adjusted earnings per share and saw comparable sales rise by 1.4%. It also opened five new restaurants in Q2, with a total of 22 new locations planned for 2024.

News Corp takes AI to court

Copyright conundrum …News Corp (NWS) is suing Perplexity AI, accusing the startup of mass copyright infringement. In a lawsuit filed this week, News Corp alleges that Perplexity copied content from The Wall Street Journal and New York Post without permission and is seeking an injunction to stop the use of its content.

Perplexity's search engine uses AI to scrape and summarize web content, allowing users to “skip the links” to the original articles. News Corp joins other publishers like The New York Times (NYT), Wired, and Forbes in claiming this practice drives away traffic and revenue while attributing inaccurate information to its outlets. 

Perplexity, a rapidly growing AI startup, is reportedly in talks to raise $500 million, potentially valuing the company at $8 billion. This growth mirrors that of other AI companies, but Perplexity now faces scrutiny from media outlets.

There are competing forces at play when it comes to Gen AI products that scrape and summarize existing content. On one hand, media experts argue that publishers need to find ways to ensure their content is pulled into AI tools accurately—and that these tools don’t erode the necessary role that journalists play in a functioning democracy. As one scholar put it, “We don’t want a mono-culture of content that’s created by a handful of [language] models.”

On the other hand, as generative AI becomes more powerful, discoverability is increasingly vital for any company that publishes content, including publicly traded companies as investors turn to Gen AI tools for stock research. Investor relations teams, for example, are rethinking their FAQ pages to provide clear and accessible information for both investors and AI tools. 

One more thing: Goldman Sachs (GS) has upgraded Warby Parker (WRBY) to Buy, raising the price target from $15 to $18 due to strong margin growth potential, new insurance partnerships, and increased market share. Warby is up about 20% year-to-date, though still far from its all-time high of $54.49 in 2021.