Business

Higher fuel and other costs are biting airline profits in the third quarter.
American and Spirit joined Alaska and Southwest in cutting profit estimates for the summer.

An American Airlines plane takes off above Spirit Airlines planes and other aircraft at Los Angeles International Airport (LAX) on June 1, 2023 in Los Angeles, California. 
Mario Tama | Getty Images

American Airlines and Spirit Airlines on Wednesday joined other carriers in warning that higher costs will hit profits during the bustling summer quarter.
American said it expects adjusted earnings per share to come in between 20 cents and 30 cents in the third quarter, down from a previous forecast of as much as 95 cents a share, citing more expensive fuel and a new pilot labor deal. The carrier halved its operating margin from a forecast earlier this summer to 4% to 5%.

Spirit Airlines expects negative margins of as much as 15.5% in the three months ending Sept. 30, down from an earlier estimate of -5.5% to -7.5%. The budget airline also cut its revenue forecast for the third quarter.
Airlines have lost the pricing power they commanded last summer when capacity was more constrained coming out of the pandemic, even though demand has been strong.
Fare-tracking company Hopper on Tuesday said it expects fares to continue dropping in the fall shoulder season, with domestic U.S. tickets averaging $211 in September and October, down 30% from the peak of summer.
Shares of American and Spirit were down in premarket trading on Wednesday. Southwest Airlines and Alaska Airlines cut their third-quarter forecasts earlier this month.
Airlines start reporting third-quarter results in mid-October. More

Moderna said its experimental mRNA-based flu vaccine generated a stronger immune response against four strains of the virus than a currently available flu vaccine.
The late-stage trial results cleared the way for a path to approval in the U.S. 
The results come as Moderna tries to beef up its pipeline and become a company known for more than its blockbuster mRNA Covid vaccine.

A nurse prepares a flu shot at Huntington Village Pediatrics, in Huntington, New York on December 8, 2021.
Steve Pfost | Newsday | Getty Images

Moderna on Wednesday said its experimental mRNA-based flu vaccine produced a stronger immune response against four strains of the virus than a currently available flu vaccine in a late-stage trial, clearing the way for a path to approval in the U.S. 
Shares of Moderna rose 4% in premarket trading Wednesday following the announcement.

The results come as Moderna tries to beef up its pipeline and become a company known for more than its blockbuster mRNA Covid vaccine, which won more approvals from U.S. regulators this week. Moderna expects its Covid shot – its only commercially available product – along with its flu jab, and other experimental respiratory vaccines to make up to $15 billion in sales by 2027.
Wednesday’s results are also a sigh of relief for Moderna after the company pushed back its experimental flu shot program in April. An initial vaccine formula didn’t accumulate enough data to determine its efficacy, so the company reformulated the shot. 
That appeared to pay off in the latest phase three trial. Moderna compared the flu vaccine, dubbed mRNA-1010, to a currently approved seasonal flu vaccine from GlaxoSmithKline called Fluarix. 
An interim analysis of the trial found that mRNA-1010 produced higher antibody levels for all four influenza strains recommended by the World Health Organization – two each for influenza A and B – compared to Fluarix. Moderna’s flu shot also generated higher seroconversion rates, which refers to the development of specific antibodies against a virus.
Moderna said the safety findings were similar in the trial to previous ones, which found muscle pain, headache, fatigue, pain and swelling as the most common side effects of mRNA-1010. 

Also on Wednesday, Moderna said it is ending a separate phase three trial on the first version of its flu vaccine. That study did not generate enough cases to provide efficacy data. 
Meanwhile, Moderna on Wednesday said it expects a decision from the Food and Drug Administration on its mRNA vaccine for respiratory syncytial virus in adults 60 and older by April. The FDA approved RSV vaccines for older adults from Pfizer and GSK in May. 
“Our mRNA platform is working,” Moderna CEO Stephane Bancel said in a press release. “With today’s positive phase 3 flu results, along with previous results in Covid and RSV, we are now three for three on advancing respiratory disease programs to positive phase 3 data.”
The company will hold a virtual event at 1 p.m. ET on Wednesday to discuss research and development updates with investors. More

Ford plans to double production of a hybrid version of its F-150 pickup truck amid slower-than-expected sales of the automaker’s all-electric vehicles.
Ford expects to increase sales of the V-6 hybrid model for the 2024 model year to roughly 20% in the U.S.
The F-150 hybrid production was announced in connection to Ford revealing refreshed versions of the truck for the 2024 model year.

2024 Ford F-150 PowerBoost Platinum hybrid

DETROIT — Ford Motor plans to double production of a hybrid version of its F-150 pickup truck as the company grapples with slower-than-expected sales of its all-electric vehicles.
Ford expects to increase sales of the V-6 hybrid model during the 2024 model year to roughly 20% in the U.S. The automaker declined to release specific production figures, but it likely equates to tens of thousands more of the hybrid vehicles.

Achieving that production target may be more difficult than usual, as Ford and its crosstown rivals face a potential strike by the United Auto Workers later this week that could shutter some or all of their U.S. factories. Ford, General Motors and Stellantis must achieve separate deals with the UAW for 146,000 autoworkers by 11:59 p.m. Thursday to avoid potential work stoppages.
The hybrid plans follow Ford CEO Jim Farley saying in late July that the Detroit automaker would quadruple the company’s production of gas-electric hybrids as it continues to increase EV production but at a slower pace than previously announced.

2024 Ford F-150 Powerboost Platinum hybrid

“We are balancing growth, profitability and returns,” Farley said during an earnings call. “At the same time, we believe demand for our internal combustion and our hybrid portfolio will be durable with the window of growth … potentially longer and richer than most expected.”
Kumar Galhotra, president of Ford’s traditional “Blue” business unit, said Tuesday he believes the F-150 could become the best-selling hybrid in North America, a crown historically owned by Toyota Motor’s RAV4 or Prius.
Ford’s renewed focus of hybrid vehicles, including pushing back a target to hit 2 million by 2026, may be good for the union, as it retains many engine manufacturing jobs for the foreseeable future.

Hybrid vehicles typically include internal combustion engines with small batteries that can improve performance and fuel economy. They differ from plug-in hybrid electric vehicles that have larger batteries and need to be plugged in like all-electric vehicles to utilize the benefits of the electrification.

 2024 Ford F-150 Raptor

Ford declined to release specific pricing for the 2024 F-150 with a 3.5-liter V-6 “PowerBoost” hybrid model, which is at least a $2,500 option on current models and standard on a roughly $83,000 F-150 Limited model.
John Emmert, Ford truck general manager, said the decision to increase production followed demand for hybrid models outpacing production capacity for the F-150 and Ford Maverick small pickup. For the Maverick, hybrids amount to more than 60% of its sales.
“I certainly think that hybrid, our PowerBoost hybrid, help folks transition into full electric,” Emmert told CNBC. “Hybrid is a step toward electrification, and for some people right now that electrification isn’t the best solution for them.”
This isn’t the first time Ford has announced a dramatic change in its engine lineup to boost fuel economy and performance. The automaker is well known for its twin-turbocharged EcoBoost engines, which many questioned when announced for the 2011 pickup but now powers a majority of F-150 vehicles sold.
“We build an F-150 for every use case for every customer’s needs,” Emmert said, citing some customers still need V-8 engines for towing and range, while the all-electric F-150 Lightning may not be ideal for some in rural areas.
Ford said the hybrid engine will be available for the same price as the company’s 3.5-liter V6 EcoBoost engine.

The 2024 Ford F-150 includes a new tailgate design that allows customers to access the vehicle’s bed like a traditional door as well as a traditional drop-down tailgate

The doubling of F-150 hybrid production was announced in connection to Ford revealing a refreshed versions of the truck for the 2024 model year. Ford said the entire lineup will start at $35,570 but declined to release other details. The 2023 F-150 starts at $34,585.
The F-150 hybrid will feature an available 430 horsepower and 570 lb.-ft. of torque. Ford said the hybrid will offer the most of any F-Series pickup outside of the Raptor and Raptor R V-8 performance models, however it did not release the full range of specifications.
Aside from exterior and interior updates, the 2024 F-150 includes a new tailgate design that allows customers to access the vehicle’s bed like a traditional door as well as a traditional drop-down tailgate and a host of new safety and convenience features. More

The Centers for Disease Control and Prevention on Tuesday recommended that all Americans ages 6 months and older receive updated Covid shots from Pfizer and Moderna.
CDC Director Mandy Cohen signed off on a recommendation formed by an independent panel of advisors to the agency earlier Tuesday.
The first doses of the new shots will be available at some locations within the next 48 hours, according to the CDC.

A vial of the Moderna coronavirus booster vaccine targeting BA.4 and BA.5 Omicron subvariants is pictured at Skippack Pharmacy in Schwenksville, Pennsylvania, Sept. 8, 2022.
Hannah Beier | Reuters

The Centers for Disease Control and Prevention on Tuesday recommended that all Americans ages 6 months and older receive updated Covid shots from Pfizer and Moderna, clearing the way for Americans to start receiving the shots within days.
CDC Director Mandy Cohen signed off on a recommendation formed by an independent panel of advisors to the agency earlier Tuesday. The first doses of the new shots will be available at some locations within the next 48 hours, according to the CDC.

“We have more tools than ever to prevent the worst outcomes from COVID-19,” Cohen said in a statement. “CDC is now recommending updated COVID-19 vaccination for everyone 6 months and older to better protect you and your loved ones.”
Thirteen CDC advisors voted in favor of the “universal” recommendation for Americans during the panel’s meeting Tuesday, while one voted against it.
“I think that it’s clear that vaccination is going to prevent serious illness and death across all age groups. It is a vaccine-preventable disease,” said Dr. Beth Bell, clinical professor at the University of Washington and member of the panel, during the advisory meeting. “And so, for that reason, I favor the universal recommendation.”
Dr. Pablo Sanchez, a professor of pediatrics at Ohio State University, voted against the recommendation due to “limited data” on children, infants and other populations, while noting he is “not against this vaccine.”
The advisory panel’s recommendation comes a day after the Food and Drug Administration approved the two mRNA jabs, which are designed to target the omicron subvariant XBB.1.5. An updated shot from Novavax, which uses protein-based technology, is still under review by the agency. 

The FDA approved Pfizer and Moderna’s new vaccines for people 12 and older. The agency authorized the shots under emergency use for children 6 months through 11 years old. 
The new shots are part of a push by public health officials to update Covid vaccines annually to target more recent strains of the virus — a similar approach to the yearly flu shot. The jab rollout comes as the virus starts to take a stronger hold in the U.S. again.
Hospitalizations have increased for seven straight weeks, and rose more than 15% to 17,418 for the week ended Aug. 26, according to the latest data from the CDC. That number remains below the surge the nation saw in summer 2022.
But the CDC “anticipates further increases” as the U.S. enters respiratory virus season this fall and winter, which is when Covid, respiratory syncytial virus and flu tend to spread at higher levels, CDC epidemiologist Dr. Megan Wallace said during the meeting on Tuesday.

A resident receives a Covid-19 booster shot at a vaccine clinic inside Trinity Evangelic Lutheran Church in Lansdale, Pennsylvania, U.S, on Tuesday, Apr. 5, 2022.
Hannah Beier | Bloomberg | Getty Images

The updated vaccines are expected to help prevent people from getting seriously ill and being hospitalized from Covid infections caused by newer variants. 
Pfizer, Moderna and Novavax have all released initial trial data suggesting that their new shots produce robust immune responses against the now-dominant EG.5, or “Eris,” variant. That omicron strain is closely related to XBB.1.5 and accounted for 21.5% of all U.S. cases as of Sept. 2, according to the CDC.
Both Pfizer and Moderna also have released initial trial data indicating that their new shots were effective against another omicron variant called BA.2.86. Novavax on Monday said it was still testing its vaccine against BA.2.86. That strain has been detected in small numbers across the U.S., but health officials worldwide are watching it closely due to its high number of mutations. 
Moderna’s XBB.1.5 vaccine “provides a substantial increase in responses to both the variant in the vaccine, and cross-neutralization of other variants — and this is regardless of prior infection status,” said Dr. Fran Priddy, executive director of clinical development for the Covid vaccine program at Moderna, during the advisory meeting Tuesday.
The upcoming arrival of the new vaccines comes months after the end of the U.S. Covid public health emergency. 
The end of that declaration means manufacturers will sell their updated shots directly to health-care providers at more than $120 per dose in the private market. Previously, the government purchased vaccines directly from manufacturers at a discount to distribute to all Americans for free. 
During the advisory meeting, Moderna said the list price of its vaccine is $129 per dose and Pfizer said the list price of its own shot is $120 per dose. Meanwhile, Novavax said its list price is $130 per dose.
The vast majority of Americans will be able to get the new vaccines at no cost through private insurance or government payers like Medicare.
For the uninsured or underinsured, the Biden administration plans to offer shots for free through its temporary “Bridge Access Program” at health centers, clinics and eventually pharmacies across the U.S. Free vaccines through the program will not be available after December 2024, according to the CDC’s website. 
The CDC’s Vaccines For Children program will provide free Covid shots to children whose families or caretakers can’t afford them after the shots move to the commercial market. More

The main ingredient used in many popular over-the-counter cold and allergy medications doesn’t actually work, an advisory panel to the Food and Drug Administration said.
In a unanimous vote, advisors said oral versions of phenylephrine – found in versions of drugs like Nyquil, Benadryl, Sudafed and Mucinex – aren’t effective.
The FDA could potentially begin a process that removes phenylephrine from the market, which would force manufacturers to pull cough and cold medications from store shelves. 

Cold and flu medicine including Nyquil sits on a store shelf on September 12, 2023 in Miami, Florida.
Joe Raedle | Getty Images

The main ingredient used in many popular over-the-counter cold and allergy medications doesn’t actually work to get rid of nasal congestion, an advisory panel to the Food and Drug Administration declared Tuesday. 
In a unanimous vote, 16 advisors said oral forms of phenylephrine – a nasal decongestant found in versions of drugs like Nyquil, Benadryl, Sudafed and Mucinex – aren’t effective at relieving a stuffy nose. 

The FDA typically follows the advice of its advisory committees but it is not required to do so. The agency could potentially move to begin a process that removes phenylephrine from the market, which would force manufacturers to pull widely used cough and cold medications from store shelves and reformulate those products. 
That could affect Procter & Gamble, the manufacturer of all versions of Nyquil, and the Johnson & Johnson spinoff Kenvue, which manufactures Tylenol and Benadryl products.
The Consumer Healthcare Products Association, a trade organization representing manufacturers and distributors of OTC drugs, said Tuesday that it is “disappointed” by the advisory panel’s vote.
“We encourage FDA, before making any regulatory determination, to be mindful of the totality of the evidence supporting this long-standing OTC ingredient, as well as the significantly negative unintended consequences associated with any potential change” to phenylephrine’s regulatory status, Scott Melville, the organization’s CEO, said in a statement.
Pulling phenylephrine from the market could also affect retail pharmacy chains, which rake in revenue from selling over-the-counter cold and allergy pills.

Retail stores in the U.S. sold 242 million bottles of drugs containing phenylephrine last year, up 30% from 2021, according to data compiled by FDA staff. Those generated $1.8 billion in sales last year, the data said.
Without oral phenylephrine, patients will likely be forced to seek out liquid and spray versions of the drug or entirely new medications, which were not included in the review by the FDA advisors. 
The two-day advisory panel meeting was prompted by researchers at the University of Florida, who petitioned the FDA to remove phenylephrine products based on recent studies showing they failed to outperform placebo pills in patients with cold and allergy congestion. 
The same researchers also challenged the drug’s effectiveness in 2007, but the FDA allowed the products to remain on the market pending additional research.
Yet FDA staff, in briefing documents posted ahead of the meeting this week, concluded that oral formulations of phenylephrine don’t work at standard or even higher doses. A very small amount of the drug actually reaches the nose to relieve congestion, the agency’s staff said. More

TKO, the merged WWE and UFC, began trading on the New York Stock Exchange.
Endeavor owns 51% of TKO; WWE shareholders own 49%.
Eventually, the company aims to make acquisitions and expand beyond combat sports.

Ultimate Fighting Championship and World Wrestling Entertainment executives decided to name their new publicly traded company TKO to honor the companies’ expertise in fighting, but they have broader aspirations than just owning combat sports.
TKO began trading on the New York Stock Exchange on Tuesday, culminating a merger of two live-entertainment juggernauts that was announced in April. The combined company is 51% owned by Endeavor Group Holdings, which owns assets including UFC and Hollywood talent agency WME, and 49% owned by WWE shareholders.

Shares rose 2.4% on Tuesday.
The first 18 months of the company’s existence will revolve around integrating UFC and WWE, Mark Shapiro, TKO’s president and chief operating officer, said in an interview with CNBC. That includes eventually going to market together for international media rights and bringing together the company’s production efforts and back offices, Shapiro said.
After that, TKO plans to swing into acquisition mode to grow the company, he said.
“We will ultimately be in the marketplace looking for other sports properties that we can bolt onto the flywheel enhanced by Endeavor,” Shapiro said, adding the company has a strong desire to expand internationally.
Endeavor also owns Professional Bull Riders and two tennis tournaments — the Mutua Madrid Open and the Miami Open. The “flywheel” includes Endeavor’s representation of professional athletes through WME, its expertise in negotiating media rights, product licensing and enhancing live events to boost venue fees. Shapiro also envisions direct-to-consumer options with TKO that don’t exist yet.

WWE currently streams on NBCUniversal’s Peacock in a deal that concludes in 2026. Shapiro said other streaming entities have already expressed interest in bidding on the rights when that deal expires.
In the coming months, TKO executives will also negotiate new media deals for WWE “Raw” and “SmackDown” on traditional pay TV. NBCUniversal and Fox currently own those rights.

Who runs TKO?

Vince McMahon, 78, is the executive chairman of TKO and Ari Emanuel is the CEO. Shapiro made it clear who will be the company’s leader.
“Ari Emanuel is running the company,” Shapiro said. “Vince will play a role. He’s got experience and influence. But he understands the role of CEO is Ari’s. This is not a shared position.”
McMahon has earned a reputation as a force of personality, both as a WWE character and behind the scenes, in his more than 40 years running WWE. He’s also had some recent legal issues. On July 17, according to a recent filing, federal law enforcement agents served a federal grand jury subpoena on McMahon stemming from allegations of sexual misconduct. No charges have been brought in the investigation.
Shapiro noted Emanuel has already proven he can run a company along side a sports league co-founder with a big personality and checkered past. Dana White, UFC’s president, has dealt with a number of controversies in his personal life, including slapping his wife in a recorded video, while brashly and unapologetically staying in his job.
“Me leaving hurts the company. Hurts my employees. Hurts the fighters. Doesn’t hurt me,” said White during a media event earlier this year “Do I need to reflect? No, I don’t need to reflect. … I own this. I’m telling you that I’m wrong.”
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
WATCH: Vince McMahon explains why he sold WWE to Endeavor More

Cannabis ETFs are soaring as investors warm up to the industry again.
Last month, the U.S. Department of Health and Human Services called on the Drug Enforcement Agency to ease restrictions by changing marijuana’s Schedule I classification to a Schedule III substance.
The uptick in the ETFs ends a dry spell for an industry that has been hemmed in by federal regulations.

An employee of Aurora Deutschland GmbH, a manufacturer of medical Cannabis products, inspects a flowering Cannabis plant in a greenhouse in Leuna, Germany September 11, 2023. 
Lisi Niesner | Reuters

Marijuana-related ETFs are soaring in September as investors flood back into the sector after months of waning interest.
The upswing in the funds, the most significant seen in recent years, stems from last month’s recommendation by the U.S. Department of Health and Human Services to ease restrictions on marijuana after a review of its classification under the Controlled Substances Act.

It marked a swift turnaround for a quasi-legal industry curtailed by the anemic pace of federal reform. The spike caps several quarters of slow growth, and even losses, for some funds.
ETFMG Alternative Harvest (MJ) and AdvisorShares Pure US Cannabis (MSOS), in particular, are vastly outperforming the Dow Jones Industrial Average and the S&P 500 so far this quarter as of Tuesday afternoon. MJ and MSOS have soared about 47% and 56%, respectively. The Dow and S&P are both up marginally, by about 0.5%.
“This is effectively a continuation of what’s the most material element in how these stocks trade, which are federal catalysts,” said Canaccord Genuity analyst Matt Bottomley. “Velocity is so much higher on these federal headlines.”
Last month’s announcement also sent shares of several cannabis companies higher, including Canopy Growth, Tilray Brands and Cronos Group.
Marijuana equities have suffered in recent years, as many investors pulled away from the industry, leading to a capital crunch. Even as 39 states have legalized marijuana for recreational or medical use, the sector has struggled because the Schedule I classification and federal prohibition have limited access to financing and a broader market.

AdvisorShares, the largest cannabis fund manager, saw its Poseidon Dynamic Cannabis ETF shutter last month. The fund’s last day of trading was Aug. 25. On Sept. 1, it liquidated assets and paid out its shareholders.
At the time of the closure announcement, fund co-founder Morgan Paxhia told CNBC that it was not “immune to the broader macroeconomic environment and, more specifically, the dramatic shift in investor sentiment that has impacted the cannabis industry.”

Federal reform looms

The HHS recommendation, made at the direction of the Biden administration and addressed in a letter to the Drug Enforcement Agency, has signaled to stakeholders that more robust federal reform could be around the corner.
Potential changes include the Secure and Fair Enforcement Banking Act (SAFE), a congressional bill that will enable banks to provide services to legal marijuana businesses. Substances under the Controlled Substances Act present a risk for banking institutions while federal laws remain unchanged.
“Each time legislation like the Safe Banking Act has been presented, we’ve seen a corresponding uptick in investor interest,” said Sundie Seefried, the CEO of Safe Harbor Financial, a digital-first, commercial-banking institution. “This milestone could be a turning point, offering the much-needed stability in the regulatory environment that investors have long sought.”
SAFE Banking is making its way through Congress, with a Senate Banking Committee vote expected soon. Meanwhile, the DEA has initiated its review of marijuana’s classification and will send a proposal to the attorney general, who has the final say about whether to reclassify it.
Bottomley said it will become “more and more likely that institutional capital that otherwise wouldn’t be invested in the space starts entering the space,” as these processes play out, but whether the momentum continues “really depends on, are we going to hear next from the DEA in time?”
“If it goes radio silent into the fall, and then into January, I wouldn’t be surprised for the sector to go sideways,” Bottomley added.
— CNBC’s Christopher Hayes contributed to this report. More

BIG TECH keeps getting bigger. So far this year the combined market value of America’s five digital behemoths—Alphabet, Amazon, Apple, Meta and Microsoft—has soared by half, to around $9trn. That is almost a quarter of the total for the S&P 500, an index of America’s largest companies (which has risen by just 17% in the period). The five account for almost 60% of sales, profits and spending on research and development of all the technology firms in the index. They are widely expected to be the main winners from the artificial-intelligence (AI) revolution.Governments view this dominance with increasing trepidation. On September 12th America’s Department of Justice began a courtroom showdown with Google and its corporate parent, Alphabet, in the biggest antitrust case in two decades, accusing it of abusing its internet-search monopoly. This month an eU law labelled the big five as digital “gatekeepers”, which bars them from bundling certain services and discriminating against third parties on their platforms, among other things. The tech giants have grown so gigantic, the world’s trustbusters argue, that they suck all the oxygen out of the technology ecosystem, driving challengers to extinction or, at best, making it hard for anyone else to prosper. Just ask Snap, Spotify or Zoom.Like natural ecosystems, though, commercial ones present opportunities for newcomers. To keep growing at the blistering rates their investors expect, the big five pay most attention to markets vast enough to make a meaningful difference to their revenues, which collectively touched $1.5trn last year. That means they ignore certain areas that are smaller but potentially still lucrative. The ingenious companies that identify such niches and are able to exploit them don’t just get by, but thrive in the shadow of the giants.Take Garmin. Founded in 1989, the company pioneered the commercial use of GPS-navigation systems. By 2008 it had nabbed almost a third of the market for portable navigation devices, mostly dashboard-mounted units for cars, which accounted for some 72% of the company’s sales. Then Google released its Google Maps app, first, in 2008, for Android smartphones and then, four years later, for the iPhone. At this point motorists could simply use their phones to find their way, rather than forking out for a dedicated device. By 2014, Garmin’s revenues from its automotive segment had slumped by half compared with six years earlier, to $1.2bn.image: The EconomistA year later big tech delivered another blow. Apple launched its first smartwatch, which risked undermining Garmin’s growing business of selling devices for fitness and outdoor enthusiasts. This time, though, the smaller company withstood the assault (see chart 1). It focused on high-end watches and fitness trackers, some of which sell for several times the price of the top-end Apple Watch. In doing so it has built a loyal user base of mountaineers, runners and other assorted fitness fanatics; in April Mark Zuckerberg, Meta’s exercise-fanatical boss, posted a photo of his Garmin watch after finishing a 5km run in good time.image: The EconomistGeorge Livadas of Upslope Capital, an investment firm, believes that Garmin is one of the few companies that has created a premium brand in a market with an available Apple alternative. Today its total annual revenues of almost $5bn are roughly twice what they were when the first Apple Watch hit the shelves. Smartwatches and fitness trackers contribute almost 60% of the firm’s sales (with most of the rest coming from professional navigation systems for ships and aircraft, see chart 2).Another company to successfully exploit an underserved tech niche is Dropbox. Steve Jobs, Apple’s co-founder, once dismissed the San Francisco-based cloud-storage firm as a “feature, not a product”. Founded in 2008, the company has battled Apple, Google and Microsoft (and for a while, Amazon) throughout its life. Its bigger rivals all bundle cloud storage with other services; customers that sign up for Google’s Gmail, for instance, receive some free online storage. But those offerings, though often free of charge, lack Dropbox’s functionality.According to Rishi Jaluria of the Royal Bank of Canada, early on Dropbox recognised that many users needed more than just a place to stash files. Photographers and other creative types want to store high-resolution files without worrying about file size, to cite one example. These demanding users are often ready to pay for the convenience. By developing features that appeal to them, most recently an AI-powered search tool to find and summarise documents, Dropbox has continued to attract new subscribers.An exploitable niche can also be geographic. MercadoLibre, an Argentine e-commerce firm, is a case in point. Its days might have seemed numbered when Amazon entered Brazil and Mexico, its biggest markets, in 2012 and 2013, respectively. Not so. A decade later MercadoLibre accounts for a quarter of all e-commerce trade in Latin America. The closest Amazon has come to challenging the regional shopping giant is in Mexico, but even there its market share is half that of its rival.MercadoLibre has succeeded by adapting its business model to local conditions. It quickly identified poor infrastructure, which raised costs for sellers and degraded the buying experience for shoppers, as a hindrance to growth. Over the past decade the firm has invested in its own logistics network, which transports 90% of its parcels. Its payments service, MercadoPago, is a popular option in a region with rampant fraud. Small innovations like offering points towards free delivery have helped it win over price-conscious Latin Americans. The company also plays up its local roots to win over customers. Ariel Szarfsztejn, its head of commerce, describes it as “built by Latin Americans”. In April, as Amazon was slashing its workforce worldwide, MercadoLibre announced plans to hire 13,000 people.Witness the fitnessFinding your niche is not enough to guarantee success for big tech’s challengers. Garmin, Dropbox and MercadoLibre have other things going for them. All three still have at least one of their founders in executive roles. Winning against big tech requires an obsessive focus on product development and the stomach for long-term investments. It helps to have experienced operators at the helm who aren’t swayed solely by quarterly targets.Crucially, the three companies also make money—a big selling point for investors at a time of rising interest rates, which make the promise of tech hopefuls’ future profits less attractive than earnings in the here and now. In 2022 Garmin, Dropbox and MercadoLibre raked in $974m, $553m and $480m, respectively, in net income. That is a fraction of Alphabet’s $60bn or Apple’s $100bn. But the trio’s operating margins look healthy for smart-watch, cloud and e-commerce businesses. The market capitalisation of Garmin has tripled since 2015, to over $20bn. MercadoLibre’s has quintupled, to $70bn. Dropbox is worth $10bn, not too far off its peak amid the pandemic-era mania for all things digital. Who said anything about extinction? ■ More