Amazon is Coming for Your Ad Revenue

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).

Rewind I: Wage Increases Squeeze Profits

Buffalo Wild Wings & Hersha Hospitality Trust Shine a Light on Jobs

When Toys R Us filed for bankruptcy a few weeks ago, we noted that part of its business plan - which, of course, gave JP Morgan ($JPM) and other DIP lenders comfort that the business is viable - included minimum wage increases to compete with Walmart ($WMT). Notably, Walmart subsequently had the opportunity to raise wages again and opted not to. Back in the beginning of the distressed dining wave, we highlighted, prior to the election, that minimum wage increases were increasingly cited as one of the causes for bankruptcy. Notably, in this week's onslaught of earnings reports, a number of firms - from the very successful Buffalo Wild Wings ($BWLD) to the not-so-much Hersha Hospitality Trust ($HT) - noted that wage increases were squeezing profits. We snarked on Twitter that BWLD's "Fiscal Fitness" program must be the new euphemism for "More Work, Fewer Hours" as the company announced hour curtailments to offset wage rate increases. The Philips Curve is finally kicking in, it seems. Maybe that has something to do with 3% GDP growth. 

Busted Tech: Early Call on Bodega

If your head was buried in the sand (or you don’t have a Twitter account), you may have missed the coverage of - and subsequent and violent objection over - a new startup called BodegaThis is the piece that started the whole debate. And subsequently “disrupted” our twitter feed with lots of people vehemently opposed to the cultural appropriation of the concept/term/business by a couple of nerdy ex-Googlers awash with Silicon Valley greenback. Turns out that maybe they shouldn't have been so cavalier about displacing the neighborhood egg-and-cheese maker. We mean: people were REALLY mad. People APPARENTLY really LOVE paying $3.50 for a bag of M&Ms and $36 for a pack of cigarettes; they REALLY love paying for Amazon Prime but - cough - like, never using it to purchase goods that they could -- cough, cough -- get at a bodega. Spare us. Here are the founder’s words. Anyway, no flaws to see here. Just a lot of defensive responses like this. If sometimes in the future we're writing a bit about some incumbent being massively disrupted by Bodega we may tar and feather ourselves. 

News for the Week of 01/08/17


  • 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 IPlatinum Partners. It's amazing how funds get away with this nonsense: 17% returns for 13 years.
  • Rewind IIAthleisure. Financials-related Uh oh (Finish Line). And bankruptcy-related uh oh (Yogasmoga). But like most things, Amazon gives zero $&%s.
  • Rewind IIICoal. 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