The Saturday - 11/21/2020 Edition
Volume 1, Issue 9
Morning,
A bit of housekeeping: next week, I’ll be trading my laptop for mojitos and will return to The Saturday on the first weekend of December. I miss you already.
Let’s get into it. It’s Saturday November 21, 2020.
Airbnb
More than (almost) anything else, 2020 was the year of public listings. They came in all shapes and sizes; IPOs, direct listings, SPACs, some were big, some were scams, some didn’t even happen.
On Monday, Airbnb filed its Form S-1 with the aim of going public sometime in December. In a year of public offerings and just a few days after DoorDash announced its own IPO plans, Airbnb might very well be the listing of the year.
The company that started 12 years ago with a single air mattress in a San Francisco apartment, now has over 4 million hosts and 7 million properties available on its platform and, in 2019, it averaged 2.2 million stays per night. For scale, Marriott, the world’s largest hotel operator, had 1.3 million rooms total across all its hotels. In other words, Airbnb’s actual, average occupancy was 169% of Marriott’s maximum potential occupancy.
While it’s not yet known how much the company will try to raise, it is expected to list on the Nasdaq at a roughly $30B valuation. This marks a remarkable turn for a company that was in crisis mode a few months ago, when it raised capital at a lowly $18B valuation.
Contributing to this jump: turning an unexpected profit during 2020Q3, thanks to strong local travel and steep spending cuts. While it’s worth noting that Q3 has been profitable for 3 straight years (despite Airbnb never having a profitable year), management must be given some credit for pulling this off during a pandemic.
My two cents - which is worth exactly two cents and, thus, is not investment advice - is that this will be a winner on the long-term. Airbnb has become ubiquitous to Millenials and Gen Zs, and, for many, it’s the first stop when trying to book a vacation. I have a hard time imagining it going anywhere but up.
Time will tell.
Apple’s Concession
In September, we discussed the App Store-based feud between Apple and pretty much the entire world. On Wednesday, Apple made new concessions, announcing that it would cut its 30% fee on in-app purchases down to 15% for developers who produce $1M or less in annual revenue.
In typical Silicon Valley fashion, Apple touted this concession as the start of a new era of “creativity and prosperity,” while disgruntled companies like Spotify and Epic Games panned the move as “window dressing” and begged antitrust regulators to intervene.
So which side is right?
Apple claims that the cut will benefit the “vast majority” of developers, which is technically true; 98% of developers generate less than $1M per year. On the flip side, however, those sub-$1M developers account for only 5% of App Store revenue. Over 80% of apps are free!
Ultimately, the cut is only expected to make a $600M dent in the App Store’s $18B+ yearly revenues, so I’m not convinced that this buys Apple a whole lot of goodwill. With that being said, the App Store has generated $155B in revenues for developers over the years and the likes of Facebook don’t make sympathetic antitrust victims.
I guess that as long the move buys Apple $600M in goodwill, it’s in the green?
Emails You Shouldn’t Send
Two weeks ago, Better.com announced a $200M fundraise that valued the 6 year old online mortgage company at $4B. This is a meteoric rise for the company that seeks to reduce the mortgage pre-approval process to mere minutes and aims to compete with Rocket Mortgage and LoanDepot.
On Friday, however, Forbes published a bizarre exposé on Vishal Garg, the company’s CEO. The article details many accusations from a variety of plaintiffs against Garg, including embezzling funds and stealing the technology that powers Better.
Lawsuits were filed by former business partners and former investors, including Goldman Sachs. Garg denies the accusations, Better stands by him and, in an improbable twist, Goldman drops its suit to invest in Garg’s new company. Too late for a spoiler alert?
Frankly, the story read a little bit like a hit piece; there were more accusations than hard facts. The quotes though? Those don’t paint the most flattering picture of the 3,000+ employee company’s CEO.
The article begins with this gem of a company-wide email allegedly sent by Garg:
HELLO — WAKE UP BETTER TEAM . You are TOO DAMN SLOW. You are a bunch of DUMB DOLPHINS and…DUMB DOLPHINS get caught in nets and eaten by sharks. SO STOP IT. STOP IT. STOP IT RIGHT NOW. YOU ARE EMBARRASSING ME.
Later, Forbes goes on to discuss a deposition in the suit filed by his former business partner where, apparently unfazed by the presence of a stenographer recording his every word, Garg told the alleged victim that he would “staple him against a f*****g wall and burn him alive.” Colorful stuff!
Admittedly, we’ve seen more incriminating emails, but that’s not a great look either. Just a friendly reminder that not everything should be put in writing or said in front of a stenographer… ya dumb dolphins!
On Podcasts
Before saying goodbye until December, I wanted to touch on an acquisition that I missed two weeks ago: Spotify’s $250M acquisition of Megaphone. In terms of deal size and name recognition, this isn’t quite Morgan Stanley acquiring E*Trade or Uber acquiring Postmates, but in many ways, it’s just as interesting.
Music streaming is a competitive industry, where platforms have a relatively difficult time differentiating themselves from one another on the listener side and compete on price on the artist side. The Beatles sound just as good on Spotify or Apple Music and Taylor Swift could grant a platform exclusive rights to her catalog at any time (if she owned her catalog, that is).
Podcasts, on the other hand, are a land of opportunity. As people increasingly eschew reading newspapers and magazines, podcasts have stepped in to fill the void. Think of The Wall Street Journal’s The Journal or Bloomberg’s Odd Lots.
On top of this, with the advent of bluetooth and (more recently) AirPods, audio is almost always accessible. By acquiring Megaphone, Spotify has not only acquired a leading podcast hosting company, but it adds another vertical to its podcast empire.
Over the last two years, the Swedish company has also acquired narrative-centric podcast company Gimlet (who produces The Journal), The Ringer (Bill Simmons’ sports and pop culture podcast), and The Joe Rogan Experience (the second most popular podcast on Apple Music, with a catalog of over 1,500 episodes).
Spotify already had a great platform that earned it 320 million users without the benefit of being the “default” music app on any phone. Now, it also owns content and production, into which it can plug in its powerful ad insertion technology.
Either Spotify is making moves or I’m just in a bullish mood today.
Have a great weekend and an even better Thanksgiving!