The End of Snap & TeslaSeptember 28, 2018
Snap and Tesla were sold this week. They just don’t know it yet.
If every morning the four largest retailers — Walmart, Kroger, Home Depot, CVS — met, and their sole focus was putting #5, Target, out of business, then Target would go out of business. This is happening to Snap, the #5, as the four biggest apps — Facebook, WhatsApp, Instagram, and Messenger — have their cannons squared on the “camera” company.
Instagram created an exact clone of Snapchat three years ago. Within three months, Stories had nearly as many users as Snapchat. Since that time Snap has seen its user growth drop to single digits; Instagram Stories’ growth rate per quarter averages to 33%. Snap has also provided the blueprint for Instagram’s march to becoming one of the most popular messaging apps in the world behind WhatsApp, Messenger, and WeChat. Instagram now has twice Snap’s user base.
Evan is William Wallace, and Facebook Inc are the English. It’s fun to root for Mr. Wallace, but we’ve been to this movie. Snap is now on a wooden slab where it will be emasculated, disemboweled, drawn, and quartered. This is a good example of why monopolies suck and the DOJ should move in on Facebook. Snap is/was a great firm that lit up the startup scene, providing wind at the back of the SoCal VC community and the entrepreneurship programs at USC and (the vastly superior) UCLA. Instead, office subleases in Venice are about to get much less expensive. However, the good news is homes in Palo Alto will continue to skyrocket in value. #yay.
The “American technology and camera company” can take some solace in that, similar to the movie starring the immensely talented, and raging anti-Semite, Mel Gibson, the empire is ill. There is something very unhealthy brewing at Facebook Inc. For the first time I’m considering selling my stock in the social network. Facebook now feels like the information-age KGB, minus the charm.
The KGB has a code, and its agents love their country. Facebook is run by people who appear to have no code or anything resembling honor — no loyalty to country or each other, and no unifying principle (other than let’s lie and get much, much richer). It feels as if the finger-pointing is just getting underway at the social network. The latest? Great research from Penn professor Kathleen Hall Jamieson showing our election was flipped by Russia using Facebook. Hey, everyone, lean in.
From Bad to Worse
The customer data on Snap has gone from bad to worse. Evan is the next Tom from Myspace, if Tom married a supermodel and was dreamier. If Evan was smart enough to come up with Snap he’s smart enough to know he’s the walking dead, and that every day the value of his firm declines. So, what to do? Simple, sell. Only Snap is a terrible investment and a nightmare for investors, as the firm is controlled, via two-class stock, by a 28-year-old who is already a billionaire, so he is a terrible fiduciary for shareholders, as he will not sell to the highest bidder. There are only two relevant criteria for who will acquire Snap:
1. It can’t be Facebook. After his advances were rebuffed, Zuck has taken Evan behind the gym every day for the last 24 months and kicked the shit out of him.
2. Who Evan would work for.
The River or the Mouse
So, who are the buyers? It comes down to a pretty small number of candidates, as even when Snap goes below $5/share (within six months), the acquirer needs to show up with an $8-10B bag of cash (the value of News Corp) in exchange for a firm whose user base declined last quarter and is hemorrhaging money. However, they are still the platform among a cohort of hard-to-reach teens who are stupid — spend all their money on stupid shit (high margin).
So, my money is on Disney or Amazon. The Seattle firm is the frontrunner, as they just announced a deal with Snap where a Snap filter can ID via visual search an item and take you to the product page on Amazon. The Great White Rhino has been social commerce, and Snap needs to do something … anything. However, like any deal involving one guy who’s in charge, this firm will trade for “soft” reasons.
Snap’s CFO came from Amazon, where he was VP of finance. The CEO and his top finance people become twins who can communicate nonverbally as they go to war together every 12 weeks, into a battle called the earnings call. This means Tim Stone can call Jeff Bezos at home on his cell and, if they want, short-circuit the awkward dating that is M&A and determine if there is a deal to be done. The other potential suitor is Disney, as they have the balance sheet, are arguably one of two firms that have been able to scale creativity (the other is HBO), and Robert Iger is someone any young man can learn (a lot) from. As they launch their DisneyFlix product, Snap could be an interesting point of distribution to grab a larger teen audience.
I’m already getting a ton of shit for tweeting the above. The robot army that is @tesla fanboys is coming for @profgalloway this morning, as they can’t understand why anybody would root for the SEC, vs. Edison.
Yes. You can.
At UCLA, most of my friends were Jews from the San Fernando Valley. One of the things I love about NYC is I’ve forged friendships with people from different backgrounds. My closest friend at Stern is a premier scholar in machine learning from India whose father was an officer in the Indian army. Two other close friends are from Brazil and El Salvador. Something all three have given me is an appreciation for one of the pillars of our success as a nation: the rule of law. In these three countries there is a moving part called corruption that can hit you like an invisible bus after years of hard work.
When Elon Musk committed blatant market manipulation (“funding secured”) for the sole purpose of scratching his id, he waved his middle finger in the face of our system. The excuses we make for “innovators” are unhealthy and un-American. Many are drafting off the perversion of having a criminal gang in the White House. But the US, more than a nation of innovators, is a nation of laws. We benefit, every day, from the notion that justice is blind. The Edison of our generation (and he is a genius) stuck his chin out and dared us to hit him. The SEC found its voice and complied.
The End of Tesla as We Know It
Our Edison will be, at a minimum, banned from being officer or director of a public company. Narcissism, a weak board, lack of impulse control, idolatry of innovators, and the SEC finding its voice will thrust Tesla into the arms of another, as the stock will decline (further), and the firm, which has real assets, will be acquired.
In addition, the auto industry is a competitive, low-margin business, and is about to catch up to Tesla. The Germans are coming for rocket man, and they are angry. Just as I wouldn’t want to be a German SaaS company squared in the sights of US tech firms, Tesla has poked the Bär and stirred some of the best-run firms in business from their electric slumber. Check out the new Audi electric SUV.
To validate the thesis there is no adult supervision, Tesla decided to send board member and brother of Elon, Kimball, on a charm tour — CNBC, etc. I was on earlier in the day, wearing a hoodie. I looked like an aging skateboarder, couldn’t answer simple questions from the crisp-minded Melissa Lee (impressive woman), and hated myself for it. But I felt better after seeing Kimball on CNBC, sporting a cowboy hat, who looked and sounded plain stupid. Apple or Google are the most likely suitors, as the car is a platform of sorts, and one can see Apple employing their high-margin luxury brand, vertical distribution, and artisan strategy on Tesla.
Conversely, Google could also use the (car) platform as a means of jumping ahead on self-driving and serving up ads/info/media while in/on this platform. It says something bad about our economy when any industry digresses to iOS or Android. The valuation prohibits another auto firm from acquiring Tesla, as the markets assign a tech, vs. auto, valuation to the firm. Tesla shareholders (note: I do not have a long or short position in TSLA) are also about to start hating @elonmusk.
Youth, hubris, monopoly power, and narcissism will take two great firms off the market as the NASDAQ continues to shrink, moving us closer to a hunger-games economy with four religions (Apple, Amazon, Facebook, and Google), 3 million lords, and 350 million serfs.
Life is so rich,
P.S. Please check out my podcast, Pivot, co-hosted with Kara Swisher. First episode dropped this morning.
P.P.S. Met one of my heroes on the Acela this week — EU Commissioner for Competition Margrethe Vestager. An impressive woman who is fearless, fiercely intelligent, and fighting for the EU middle class.