The Big Tech Rotation of 2024
Things are getting strange. On social media, a feeling of angst has taken over the tech space. Apple and Tesla are said to be on the ropes while calls for Google replacing its CEO are on the rise. Other companies, including Meta and Microsoft, are riding PR highs. AI mania continues to add chaos to the mix. Oh, and Bitcoin is back at all-time highs. The signs support the theory that we are seeing a Big Tech rotation unfolding on Wall Street with carryover effects spilling over into Silicon Valley.
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Meta’s VR Predicament
With Apple Vision Pro now officially on sale, Meta finds itself in quite the predicament. After initially pooh-poohing Apple’s headset, there are signs of Mark Zuckerberg and company already pivoting to reinvigorate their own headset strategy. Such a change in mindset suggests Meta will be a different kind of competitor than Apple has seen in the past, and yet I don’t have confidence that Meta can compete against what Apple is selling.
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Autonomy Is the Missing EV Piece
News of GM dialing back its EV sales targets wasn’t met with much surprise. Elon Musk’s downbeat Tesla earnings call a week prior had already lowered EV demand expectations. However, the question remains: Is EV demand declining simply because of higher interest rates resulting in higher financing costs? It’s prudent not to box ourselves into such a narrow explanation. Instead, there is a bigger problem at play. EVs are waiting for, and needing, autonomy, but the technology has proven far more difficult to achieve than consensus thought.
With EVs in mind, the role that would be given to autonomy is straightforward.
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The FTC’s Uphill Battle Against Amazon
For the better part of the past decade, there has been talk of the U.S. government coming down hard on Big Tech. Upset and frightened by how a handful of companies have grabbed so much power, lawmakers and regulators have tried to sound tough about doing the hard work to protect the public. At least based on the early battles to date, the bark has been worse than the bite. Earlier this week, the FTC announced its long-awaited antitrust lawsuit against Amazon. The online retailer is said to be a monopoly via its digital storefront and seller marketplace. The FTC is going to need as much luck as possible to win this one.
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Higher Video Streaming Pricing Is a Good Thing
In what has become something of a quarterly tradition, people are once again sounding the alarm about video streamers raising subscription prices. Disney was the latest company to announce higher prices with Disney+ (with no ads) seeing a 27% price increase and Hulu (with no ads) seeing a 20% increase. Despite drawing anger and frustration, continued price increases end up being one of the better developments for an industry that has been dealing with its fair share of issues and challenges.
A common refrain that has accompanied video streaming price increases is that the cost of streaming is getting close to what the big cable bundle costs. This is then said to indicate failure on the part of streamers to push the video industry forward. A major issue with this line of thinking is that it ignores why the cable bundle was problematic.
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A Fintech Bulldozer
Earlier this week, Apple unveiled a new high-yield savings account in partnership with Goldman Sachs. The arrangement’s underpinnings point to a development in fintech land that can’t be ignored: Tech giants leveraging legacy financial institutions to offer new age financial services to their existing users. In the process, customer acquisition costs are kept to a minimum. This dynamic creates a scenario that will make it that much harder for what has been a bonanza of fintech start-ups to flourish.
Their names became familiar in many households during the pandemic: Robinhood, Venmo, and Affirm. Zoom in a bit more and companies like Stripe and Plaid have become well known by millions of small business owners. According to estimates, fintech start-ups raised more than $130 billion in 2021 with 100 companies having attained a $1+ billion valuation. Those are shocking totals that have since taken a major beating.
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The Art of the Turnaround
Bob Iger isn’t wasting time attempting to put Disney on his preferred track. Yesterday, the WSJ reported that Iger had axed Disney’s metaverse and membership teams – two initiatives in their infancy that were spearheaded by Bob Chapek. This follows a reorganization a few weeks back that returned power to the company’s creative executives. Disney is just one of a handful of companies that have been changing strategies to get a better footing in the marketplace.
We can look at Netflix’s move into advertising – something that executives had talked down and dismissed for years - as an acknowledgement of paid streaming becoming bigger than any one company.
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The Year of Paid Video Streaming Price Hikes
Paid video streaming has provided analysts and pundits plenty to talk about in 2022. Competition has intensified as Disney goes after Netflix for the subscriber crown (Disney has already won). Wall Street also turned sour on most streamers, driven by the higher competition and concerns with business model sustainability.
Set within this change and chaos, there is one theme that ended up being quite reliable: subscription price hikes.
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A Luxury Safe Haven
With recession and inflation concerns continuing to build in the tech space, attention has shifted to where pockets of strength will be found. One such pocket may come as a surprise: luxury. At first, the idea of high-priced gadgets and services selling well in a high inflation and slow growth period may seem like a stretch. However, continued supply chain issues and software’s ongoing invasion of new industries bode well for companies playing in the premium sector of the economy.
As inflation trends at close to 40-year highs, the question hasn’t been if households will continue to spend cash in the tech space but rather how they would allocate budgets to make better use of their remaining purchasing power.
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Inflation’s Impact on Tech Is Complicated
Inflation fears continue to grow. What had flown under the radar for far too long is now unavoidable. With inflation at 40-year highs, entire industries are needing to learn how to deal with a macro scenario that had been nothing more than a risk factor talked about in financial filings. While the tech industry won’t be able to avoid inflation, many software-driven companies are in a much stronger position than is being implied by financial markets.
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Measuring Tech’s Diffusion in Society
One of the main drivers behind starting Inside Orchard was analyzing how the lines that have traditionally defined technology are being erased. The “tech industry” is a term with a finite lifespan. We are heading to a point where tech will be so diffused in industry that it will be indistinguishable from society as a whole.
A question that has been raised is how to measure such diffusion. The answer can serve as a valuable tool for knowing which industries have either already experienced such diffusion or are about to undergo significant transformation. Get the timing right, and there are significant financial and product strategy rewards up for grabs.
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The Chip Shortage Was the Canary in the Coal Mine
The economy is in a strange place right now. One can confidently and accurately point to data suggesting the economy is in a good position in terms of customer demand, unemployment, wage gains, and household saving rates. At the same time, however, problems such as unfilled jobs and inflation suggest a perilous state.
When it comes to the good news, people have disposable income and are willing to spend it on goods. The demand picture is so strong that the supply chain infrastructure that was supposed to handle such demand has come to a halt. This brings us to the bad news, which includes signs of higher inflation. For the past 25 years, inflation has been mostly a nonfactor for people in the U.S. It’s one reason why we aren’t seeing as many news articles and online commentary as the topic deserves. Most people in a position to write such stories are too young to have experienced inflation exceeding 200 to 300 basis points. There is little to no recognition that inflation can single-handily destroy an economy (and society).
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New Age Financial Bubbles Are Forming
Last week, there were a number of events that caught my attention.
Dogecoin, a cryptocurrency which contains no value and is literally based on a meme, saw its price rise by 400%.
Coinbase, a cryptocurrency exchange platform, had its initial public offering and at one point during its first day of trading reached a $100 billion valuation. The company, which most people never heard of prior to last week, reached a market cap milestone that Uber, one of the most talked about companies of the 2010s, was unable to reach until just a few months ago. Only one of those companies has a valuation directly tied to crypto’s surge in price.
There is a publicly-traded deli in NJ apparently worth approximately $100M. It says something that my initial thought was that the NJ deli’s stock price (HWIN) was probably higher, not lower, following public awareness. I wasn’t too far off.
Coinbase, Dogecoin, and the $100 million NJ deli share something in common.
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