Post Corona: The Four
There is a stereotype that cat people are generally women who live and die alone with their cats. I find, like most stereotypes, there is some truth to this. The cat people of cat people are … bat people. It all started with a simple tweet.
Twitter is a bipolar lover (I have some experience here) in that you just don’t know who you’re waking up with. When I tweet something, I have a general idea how people will respond, but occasionally you tweet something and you wake up with Linda Blair, after the dark prince has taken purchase of her soul.
My job as an academic is not to be right as much as to catalyze a discussion that helps craft better solutions. If the previous sentence sounds like a cheap effort to smear Vaseline over the lens of all the stupid things I say, trust your judgment.
Anyways, it appears that CEOs of $7 billion tech firms and a number of women who run bat rehabilitation centers (yes, a real thing) were offended and came to the defense of mammals of the order Chiroptera. In sum, our winged friends not only are the apex predator of the most dangerous animal in the world (mosquitos), but play a key role in the production of tequila — they pollinate the agave plant.
And suddenly … I came to love bats.
The Four — Amazon, Apple, Facebook, and Google — are an invasive species that, over the last decade, have compromised the immunities of the retail and media sectors. Spend has rushed toward digital, where apex predators take 1 of 3 e-commerce dollars (Amazon) and 2 of 3 digital marketing dollars (Google/Facebook). Covid-19 is just finishing the job that the search and social firms started.
The only investment strategy, portfolio, or retirement planning any person needs is the following: Buy the stocks of firms that are unregulated monopolies and nothing else. I’ve followed this dictum for a decade, and it’s worked … well.
However, within your portfolio of the Four it’s fun to speculate who accretes or leaks value, relative to each other, as it might inform the future and provide some insight into general business strategy. My online Strategy Sprint is a breakdown of this formula.
Every hedge fund manager I’ve spoken to in the last month has one static feature in their screens for alpha-dislocation: cash on balance sheet. So, speaking of cash. Google has almost enough to buy the skies, as in Boeing/Airbus.
Apple and Google could partner to buy all cryptocurrencies (aren’t we all just fed up hearing about Bitcoin and Ethereum?) and every professional basketball team in the US. Bezos, worth $139 billion, who is in the midst of the mother of all midlife crises, could buy every top football team (the top 3 European soccer teams plus every team where they give each other Parkinsons) and still have the cabbage to buy ViacomCBS (post-acquisition) and take his date to (Paramount) movie premieres in style, after purchasing Ferrari ($28 billion).
The iconic tech firm saw its stock recast in 2019, experiencing a near doubling of its P/E ratio. There’s likely been a flight to safety, and the iPhone continues to be the most profitable item in the history of business, commanding Ferrari-like margins with the production volumes of Toyota. In addition, the firm’s recurring revenue business (services) is now a healthy 18% of revenues.
However, it’s hard to imagine that the upgrade cycle for an item that will set you back one month’s household income in Eastern Europe doesn’t get delayed/extended. In addition, Apple’s opportunity in healthcare has been inflated. Stories of emergency services being alerted by an Apple Watch when someone collapses in Zumba make for great media but won’t translate to shareholder value.
The stock remains in a trading range of +/– 20%, as it’s fully valued. The outlier here is if they announce a recurring revenue bundle #gangster.
Facebook and Google’s business will have the rebound pattern the president is hoping for the economy, a V (keyword “hoping,” won’t happen).
Search terms and ads on Google/Facebook have plunged 20% in the last 30 days. The recovery will be equally as bloody … upward. The duopoly’s share of the digital ad market is predicted at 61% in 2021.
In 2010, I was doing work with the Four Seasons. Great firm — nice people, Canadian (redundant). During the Great Recession, the luxury hotel brand had to cease all print advertising, as revenue per room had declined 25%. And a strange thing happened when demand returned: the absence of print marketing didn’t seem to make any difference. Multiply this phenomenon by a million, and you have what will happen over the next 6 months. Thousands of the biggest advertisers globally are about to use this forced abstinence from broadcast media (with business down 30-50%) to kick the habit, and never return.
The two largest radio firms, iHeartRadio and Cumulus Media, will likely be Chapter 11 (again) within 12 months. Radio advertising is projected to decline 14% in 2020. Covid-19 has a mortality rate of 4.1% in the US (note: this may decline dramatically as we get our act together on testing). Among US media firms, the death rate will be 10-20%. Firms ranging from Condé Nast to Viacom are furloughing/laying off people as Facebook and Google ramp up hiring. How do you identify the best people at News Corp, Time Warner, and Condé Nast? Simple, they will be working at Google by 6/1.
Even harder hit are the digital marketing firms that aren’t Facebook or Google. BuzzFeed and Yelp have seen display ads on site decline 40-70% vs. last year … suddenly in the ICU. Vox, HuffPo, and Vice will follow. Some will make it out. Some.
Google goes sideways to up. Facebook sideways to down, as every lie they’ve told is a debt to the truth, and that debt is coming due. Libra is dead, and while they should be the primary platform at the epicenter of a vast state-sponsored virus tracing effort, they are not. It’s no accident the social media firm was excluded from Apple and Alphabet’s contact-tracing program.
Facebook used to sit with the cool kids at lunch, but word got out that he killed a dog, filmed it, and made a meme of it. Big tech is disarticulating, as one of these firms is not like the others. One of them is run by a sociopath whose fabric softener is to exploit his top executive’s gender, personal loss, and engagement as a likability shield to drive shareholder value.
Amazon will be the first $2 trillion value firm by the end of 2021. Whether it’s an explosion in streaming media, grocery home delivery, or the ultimate supply chain for essential goods, one firm stands alone on the iron throne. No company is adding more market share or revenues than the Seattle giant. Even among the Four, Amazon stands alone on the podium of medals awarded to firms whose revenues have increased during Covid-19.
Amazon Fresh orders are up 323% YOY as of March 2020. The company hired 100,000 fulfillment center and delivery workers in March, then another 75,000 in April. Its NYC employees increased 24%. Amazon is Ben Johnson, juiced up on the steroids of tax avoidance, government subsidies, flaccid antitrust, and cheap capital that make the firm a species no other retailer can compete with.
Honey, where’s my Glock?
If the supply chains of Walmart and Amazon were to be interrupted, I believe people in Florida (granted, we’re talking about Florida), would grab their Glock, head to Publix, and clear the shelves. Amazon is not only delivering food to our doorstep, but beginning to do what our government has been unable to do — test for Covid-19. Imagine Walmart with the largest cloud business, most innovative tech hardware (Alexa), and fastest-growing media business (AMG) with the potential to be the fastest-growing healthcare firm in the world. Ok, no need to imagine … it’s Amazon.
Stalin said one death is a tragedy, millions a statistic. Big tech (even Facebook) has stepped up and filled the void created by a level of federal incompetence that, on a smaller scale, would be deemed involuntary manslaughter. The Four are being solid citizens, and their employees are demonstrating grit and courage (e.g., Amazon warehouse workers). Unsurprisingly, big tech is using this cloud cover to lobby governors and legislators to delay and obfuscate regulation and antitrust.
The question we, and our elected officials, will face post corona is: Are big tech firms run by good people who have demonstrated admirable citizenship, or are they a threat to the ecosystem and should be broken up? The answer is yes.
Life is so rich,