The Saturday - 1/16/2021 Edition
Volume 2, Issue 1
Morning!
No one wants to be the guy wishing people a Happy Thanksgiving on December 9th or a Happy New Year on January 16th, but I’ve been out for a while and some might argue 2021 could already use a reset, so… happy new year!
There’s a ton of stuff to get to, so without further ado:
It’s Saturday January 16, 2021.
A Different Kind of 230
Section 230 of the 1996 Communications Decency Act has been a hot topic over the last few years and the events of January 6th all but guaranteed that it would remain in the spotlight for the foreseeable future. A little backstory:
In 1991, a gossip blogger accused a competitor of being a scam on an online message board. Naturally, the competitor was displeased and decided to sue… the internet service provider (CompuServe) that hosted the forum where the defamatory message was posted.
CompuServe argued that it was only a distributor of content and did not monitor posts, so therefore it could not know when defamatory content was posted on its servers and could not be held liable for it. The court agreed.
In 1995, however, an anonymous poster accused Stratton Oakmont - the now-shuttered OTC brokerage of The Wolf of Wall Street fame - of committing securities fraud on a bulletin board hosted by a company called Prodigy.
Unlike CompuServe, however, Prodigy had historically tried to monitor content on its messaging boards. Accordingly, because no good deed goes unpunished, the court ruled that this made Prodigy a publisher (rather than a mere distributor) and found them liable for defamation.
The Prodigy ruling rightfully spooked proponents of the early internet, who were concerned that blanket civil liability for content posted on web servers could threaten the web’s very existence. As a result, Congress passed Section 230, which shielded internet platforms from civil liability relating to hosted content, even if those platforms occasionally make editorial decisions.
The issue today is that 1996 Internet and 2021 Internet are two completely different beasts. In fact, both Democrats and Republicans agree that Section 230 needs to be overhauled. If only masks were so simple an issue! But I digress…
While debates around Section 230 primarily revolve around Facebook and Twitter, the law benefits a much wider range of platforms, including Zillow and AirBnb.
In 2016, a hacker modified the description of a $150M home for sale in Bel-Air and the owner sued Zillow. Relying on Section 230, the judge dismissed the case. This application seems reasonable and good policy to me; if Zillow, Redfin, etc., could be civilly liable for content in any listing on their platform, their service likely wouldn’t exist today.
AirBnb, however, better captures the nuances and shortcomings of a “one-size-fits-all” policy to govern the world wide web. Much like Zillow, Section 230 protections are essential to AirBnb’s business model. Who would want to operate that platform if the hosts (i.e. the people renting their homes) could sue the company for defamation every time they disagreed with a guest’s review?
While the guest review hypothetical isn’t all that controversial, AirBnb has also gotten a little… creative with its use of Section 230. As the WSJ reported on Sunday:
Since 2016, Airbnb has cited Section 230 in seven lawsuits it filed in federal courts against local governments to avoid responsibility for listings on its site that violate home-renting laws.
Basically, AirBnb is saying: “Hey, we’re just a platform. We can’t be held liable for booking stays in areas where those bookings or stays aren’t allowed.”
I don’t know. I’m not sure that’s what Congress had in mind in 1996 and, thankfully, most (though not all) judges in the AirBnb cases seem to agree.
Regardless of one’s stance on Section 230, the need for fixes seems obvious. The biggest question, in my opinion, is whether politicians can get anything done. This issue isn’t going away.
New Developments
Three stories covered by The Saturday in 2020 have had major developments since we last spoke.
Affirm: last October, we talked about Affirm becoming the latest PayPal Mafia offshoot to hit public markets. On Wednesday, Affirm debuted in style on the Nasdaq, with an 80%+ IPO pop, valuing the company at $12B.
If you look closely when shopping online (and even in some brick and mortar stores), you might come across Affirm at check-out time. The consumer finance upstart now partners with over 6,500 retailers, allowing their customers to pay for purchases over many months.
Arguably the biggest winner? Shopify. Six months ago, the Canadian e-commerce giant agreed to make Affirm its exclusive point-of-sale financing partner, in exchange for which Shopify received warrants to buy over 20 million shares in the now-public company.
Shopify’s haul as of market close Wednesday? $2B. Affirm is up another 20% since.
Plaid + Visa: in November, we covered the DOJ’s antitrust suit aimed at blocking Visa’s $5B acquisition of banking API company, Plaid. On Tuesday, with potentially years and tens of millions of dollars worth of litigation ahead of them, the would-be couple decided to go their separate ways.
My first instinct was that this must be crushing to Plaid’s team members and, in particular, its founders. It’s not every day that you can have a $5B exit!
On second thought, however, this might be worse for Visa. They lose out on an opportunity to add a premier fintech solution to their suite of payment services. Plus, I’m no valuation expert and billion dollar valuations are thrown around loosely these days, but if Nikola still has a $7B valuation after being exposed as a fraud…
We’ll see what happens. My guess - and to the extent it could somehow be construed as investment advice, it’s not - is that Plaid ends up going public at some point in 2021 and may fetch a loftier valuation. SPAC season is still in full effect, never forget that!
Jack Ma: The Saturday admittedly covered Ant Financial’s (failed) IPO too. many. times. Some stories just won’t go away!
Well, Ant founder Jack Ma has now reportedly vanished. He was last seen in public on October 24th and no one has heard from the gregarious billionaire since.
In addition to inexplicably missing a number of engagements, Ma’s companies (Ant and Alibaba) are under significant regulatory scrutiny, rumors are flying that Alibaba may soon be nationalized, and Ma’s net worth is down $10B+, although the latter might be the least of his worries at the moment.
There’s obviously more to the story; China has legitimate needs for regulatory reform and Ma might be on a silent retreat. Still, this feels a little ominous. For more, I’d recommend reading this article by Wired.
Privacy Frenzy
In 2014, Facebook acquired messaging app WhatsApp for a staggering $16B - for scale, that’s 16x what it paid for Instagram. Naturally, Facebook eventually planned on monetizing the free app.
Recently, WhatsApp rolled out a new privacy policy, stating that it would soon begin sharing more information directly with its parent company.
When word got out that privacy rules might be loosened, the encrypted app's users were upset. So upset in fact that, on Friday, Facebook announced that it would delay the roll out of the new privacy policy until May 15th.
It may have been too late. Once details of the new privacy policy were announced, WhatsApp downloads fell 17%, while rival Telegram added 25 million users in 72 hours and other rival Signal saw a 43x increase in downloads from the previous week, rocketing to #1 on the App Store. Even the world's richest man had an opinion:
Beyond likes and retweets, Elon helped send Signal stock flying up from $0.60 to as high as $70.85 within three days. Impressive stuff, especially when you consider the fact that the Signal messaging app is not publicly traded!
Enter Signal Advance, Inc., a random OTC company and America’s latest (accidental) unicorn. Blessed with the good fortune of sharing a name with a popular messaging app, the surge in stock price raised Signal Advance’s market cap from $50M to $6.49B at its intraday peak. And before you say it… keep in mind that, as an OTC stock, Signal Advance doesn't trade on Robinhood; sophisticated Fidelity folks must've been the ones pumping it!
The kicker? Despite the mixup being widely reported for a week, on Friday, Signal Advance finished the trading week at $13.54, up a casual 23,000%+ from its pre-mixup price and still boasting a $1.24B valuation.
Cue executives’ timely “planned 10b5-1 stock sales”?
Have a great weekend!