The Bank of Starbucks

Briton Ryle

Written By Briton Ryle

Posted June 20, 2024

I haven’t floated in warm Caribbean water looking at cool fish through my snorkel mask since the pandemic. So this January my two kids, stepdaughter, and whichever significant others are in play next year will fly into Roatan and then take the hour-long ferry to another Honduran barrier island, Utila.

reef 2

You can see a little white water in this picture from the house’s porch, where the waves break over the coral. That’s part of the Mezo-American reef system, which starts in Honduras and runs past Guatemala, Belize, and Mexico’s Yucatan peninsula. It’s the second largest reef system in the world, after Australia’s Great Barrier Reef. 

Utila is a small island, 17 square miles. Here’s an aerial view of the town and main harbor. The house I rented off AirBNB (NASDAQ: ABNB) is down on the end of that spit of land that curls around the harbor…

aerial utila

Anyway, I hadn’t planned on writing a travelog. The point was to talk about the $132 AirBNB will make in net interest income from my $1,500 deposit…

The Net Interest Income Secret

AirBNB makes plenty of money from the fees it collects. But the net interest income it generates from renter deposit money is significant. 

Net interest income refers to revenue a company can generate from its “interest-bearing assets.” 

Net interest income is a key metric for banks, and insurance companies – it’s the money they make from investing deposits or premiums. And, if you can feel your eyes glazing over at the thought of a longwinded discussion about banks, don’t worry – I don’t want to talk about banks any more than you wanna hear about it. 

But companies that can “double-dip” with a profitable business model that also generates cash that the company can invest have an easy path to higher stock prices. 

Like AirBNB.

In 2023, AirBNB held an average of $7.2 billion in customer deposits. The company invests that money in various securities. And last year, those customer deposit investments paid off to the tune of $638 million in net interest income. And that $638 million in net interest income accounted for roughly 30% of AirBNB’s total pre-tax income for 2023. 

Think of it like AirBNB made an 8.8% profit on customer deposits. On my $1,500 deposit, that’s $132.

The Bank of Starbucks

Starbucks has probably the most effective gift/prepaid card program of any retailer. Customers load around $10 billion onto their cards a year. And at any given moment, you can expect to see around $2 billion of cash stored, waiting to be spent. 

You can think of this cash as customer deposits, just like in a bank – with one important distinction. With a regular bank account, when you go to make a withdrawal, you get cash. But when you make a withdrawal from the Bank of Starbucks, you get – coffee! (And maybe some whipped cream…)

I find the context here hilarious. Imagine going to an ATM and instead of cash, it spits out a bunch of coffee beans. 

Anyway. One of the most amazing stats to me is the percentage of money that’s sitting on a gift card or rewards card that never gets spent. For Starbucks, 13% of card money went unspent in 2023. 

From an accounting perspective, this money remains a liability on the ledger. But from an operations perspective, it’s free money. And if we do the math – that 13% of the $10 billion that Starbucks customers load onto their cards that doesn’t get spent – it’s a lot of free money. 

Most companies have to pay interest when they borrow money. Companies that can use customer deposits to fund operations – and also turn a profit on those deposits – like AirBNB and Starbucks are like banks in disguise. 


Briton Ryle
Chief Investment Strategist
Outsider Club


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