Companies are struggling and a debate is raging over whether ad-revenue dependent media companies can grow and thrive in the age of advertising behemoths like Google ($GOOGL) and Facebook ($FB). Amazon ($AMZN), meanwhile, grew its advertising revenue by 60% with analysts pegging its advertising revenue at $4.5b in 2018 - larger than combined revenues of Twitter ($TWTR) and Snapchat's ($SNAP) ad business. David Carey of Hearst Magazines has some thoughts about the future (audio).
Though somewhat redundant given prior pieces he's written, Benedict Evans doubles-down on why so much disruption is going to come from the Big Four. In a word: scale. In another: mobile distribution. Still, it seems - maybe in light of the recent Russian ad-buying scandal - that people are more focused than ever on the Big Four (Five, if you want to include Microsoft ($MSFT)). Indeed, here, The New York Times highlights how even massive companies like Snapchat ($SNAP) andUber are struggling to deal with the behemoths. On point, Google, which has previously invested in Uber, announced earlier this week a $1b investment in Lyft. Snapchat, meanwhile, much to the chagrin of pundits, is marketing an $80 dancing hot dog costume for Halloween. On one hand, it's brilliant to create consumer products based on your digital product. On the other hand, however, when your target market is the millennial, an $80 price point for a Halloween costume strikes as a, uh, a bit rich maybe...?
The ubiquitous Uber-for-X designation doesn't seem so ubiquitous anymore. That's because a lot of those companies have failed or are failing. Take Shyp, for instance, an on-demand logistics/shipping service where couriers came to your home, packaged your wares (Ebay anyone?) and shipped them for you. "Came" being the operative word. The company announced that it's retrenching back to SF, abandoning service in Chicago/LA/NYC. Choice quote (after getting $50mm in venture capital from Kleiner Perkins), "'Investors are looking to put capital into businesses that are cash-flow positive." Funny how that works. With so much "tourist capital" (read: sovereign wealth funds, pension funds, Fidelity Investments in the case of Snapchat ($SNAP)) flowing through venture capital, expect a lot more coverage of "busted tech" to come.
WHAT YOU NEED TO KNOW FROM THE PAST THREE WEEKS (PLAYING CATCH-UP EDITION)
- Distressed Investing Hindsight. Avaya. Phone systems? Who would've guessed this could go wrong? Psssst: don't tell anyone but apparently Avaya and Goodman Networks are apparently in 30-day grace periods.
- Fintech. Cracks in P2P lending by way of bankruptcy (Argon Credit).
- Fraud. Theranos announced that it's letting go 41% of its work force - which we believe is a precursor to bankruptcy. Why file? To sell IP. If they actually even have any. And address litigation. Meanwhile, Snapchat, on the heals of a possible IPO, is being sued for misleading investors. Toss in ethical issues around Hampton Creek and others and we may start seeing some fraud-related bankruptcies a la 2001.
- Grocery. Is Kroger's buyout announcement another leading indicator of future distress?
- Media. Ev Williams, founder of Twitter and Medium, acknowledges that the ad-supported media model is broken while significantly cutting headcount. It seems that $150mm VC funding can't help produce a new business model.
- Retail. It looks like the Trump Job Preservation Tour forgot to schedule stops at KMart, Sears and Macy's (meanwhile Sears unloaded Craftsman and JC Penney shed its HQ). Next up: Kohl's? Ugly 20% drop after a nasty comp store sales drop and forecast cut. Apparently, omnichannel customers are the key to the riddle. Meanwhile, Amazon is sniffing around American Apparel (as is Forever 21, reportedly) and Boohoo is focused on Nasty Gal. Gap - mostly due to a 12% comp sales increase at Old Navy - showed positive signs while Neiman Marcus cancelled its IPO, a clear negative.
- Taxi Companies. Uber is the death of traditional taxi companies and new tech companies that support the taxi companies (Karhoo). Which means those companies must really suck since Uber burned $3b in '16.
- Wearables. Pebble. "Acquired." Vinaya. Bankrupt. Does someone want to raise us a Jawbone?
- Fast Forward: With Amazon and Apple in the mix, music streaming services are struggling to make money and Soundcloud may be the closest victim. Restructuring professionals will remember that Rdio already went through bankruptcy and sold to Pandora.
- Fast Forward II: Remember Exco?
- Rewind I: Platinum Partners. It's amazing how funds get away with this nonsense: 17% returns for 13 years.
- Rewind II: Athleisure. Financials-related Uh oh (Finish Line). And bankruptcy-related uh oh (Yogasmoga). But like most things, Amazon gives zero $&%s.
- Rewind III: Coal. Maybe Trump will help the "clean coal" industry after all. And yet solar continues to progress, as does wind (in the UK and elsewhere). Ps, $361 billion is an awfully large number. And now things are progressing on the storage side thanks to Elon Musk.
- Chart of the Week: