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Why Is Starbucks (SBUX) Stock Down Today?

Ryan McQueeney
Updated

Shares of Starbucks Corporation SBUX dipped about 3% in morning trading Tuesday. As the drink maker finally rolls out its controversial new rewards program, some investors are not sure that the stock can keep up its recent impressive run.

Much of Starbucks’ movement today can probably be attributed to a downgrade from Deutsche Bank. Brett Levy, an analyst for Deutsche Bank, downgraded SBUX from “Buy” to “Hold” today, claiming that all of the company’s positive factors have already been priced in to the stock’s current price.

While Levy remained confident in the company’s execution and long-term strategy, he cited near-term expectations from investors, as well as operational changes and an already high valuation as reasons why the stock could flat-line soon.

Levy also mentioned Starbucks’ tweak to its loyalty program, which he said could slow down traffic to stores. Much to the chagrin of some of the company’s most frequent customers, Starbucks launched an updated version of its loyalty program today, making things more complicated and less rewarding.

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The new program rewards customers with two stars per dollar spent, whereas the old system gave customers one star per visit, regardless of how much they spent. In the old system, it took just 12 visits to receive a free drink, but the new program requires a customer to rack up 125 stars.

For customers that spend big on Starbucks’ more expensive drinks, this change probably won’t be too big of a deal. However, those that buy low-priced items, such as regular coffee, will see the number of trips between them and a free drink nearly tripled.

Overall, the changes probably won’t push away any diehards, but Levy is right to be concerned that the new program may change traffic flows as frugal spenders look elsewhere.

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