The Saturday - 5/29/2021 Edition
Volume 2, Issue 20
Good morning!
After an abridged version last week, we’re back with a full edition. Let’s get right into it.
It’s Saturday May 29, 2021.
Chutzpah
When we first discussed Amazon’s antitrust woes in November, the company had been accused of anti-competitive behavior by the European Commission, but its woes in America were (mostly) limited to an unflattering report from the House Judiciary Subcommittee on Antitrust.
On Tuesday, Amazon’s luck ran out, when Washington D.C.’s attorney general filed an antitrust suit against the Seattle giant.
(For those interested, the actual complaint is available here. Only thirty pages, interesting stuff.)
In short, DC’s AG took aim at the Most Favored Nations provisions that sellers must agree to in order to sell their goods on Amazon’s marketplace. Under these clauses, sellers are prohibited from selling their items cheaper anywhere - including on their own websites - than they do on Amazon.
While sellers are technically free not to transact through Bezos’ platform, the DC AG argues that this “choice” is somewhat illusory; Amazon controls 70% of all online retail sales in the US. It’s closest competitor - Walmart - has 5.3% market share.
Beyond the charge that Amazon uses its dominance to prevent sellers and other marketplaces to compete on price, however, the DC AG makes an additional, more interesting claim: that Amazon’s business practices result in higher prices to consumers.
While Jeff Bezos has long referred to his company as the “most customer-centric company in the world” and has certainly reduced shipping costs and time, the complaint argues that Amazon’s fees (ranging from 15%-40%), combined with the Most Favored Nations provisions, result in inflated prices to consumers. Sellers can avoid Amazon’s fees by selling on other websites, but they can’t lower prices and pass those savings on to consumers…
So that’s DC’s side of the story. We’ll hear counter-arguments some day, but the point of this story isn’t the antitrust suit. It’s about how Amazon responded…
The very next day after being sued for anticompetitive behavior, Amazon made an announcement:
LOL.
Rolling up MGM’s 4,000 films and 17,000 TV shows into Amazon Video is one way to respond to an antitrust suit! You have to respect it.
Now all that’s left is for Amazon to buy America’s second favorite meme stock - movie theater chain AMC - to complete the vertical and dominate entertainment in the same way that it dominates online retail…
Meme Stocks
OK, that last sentence was just an excuse to post this:
Divorce Finalized
Recent regulatory filings revealed the specific terms of the WeWork-Adam Neumann divorce. In exchange for walking away, Neumann received this pretty sweet package:
$200M cash payment;
$245M stock award;
Refinanced a $432M personal loan on “favorable” (i.e. presumably non-market) terms; and
Allowed to sell $578M in stock back to the company.
Not bad! You’d almost think that the guy had a stellar track record.
Alas…
Adam Neumann might not have taken WeWork to the promised land, but he managed to get himself there.
Good for him, I guess?
Green Pivot
During the first half of the 2010s, Exxon Mobil and Apple competed fiercely for the coveted title of “Most Valuable Company In The World.” The two traded the top spot a few times through 2014, when Exxon’s market cap topped out at $446B.
Things have changed.
While Apple is now worth over $2T, Exxon’s market value has dropped down to less than $250B. And while oil traded at over $100 per barrel last decade, its price is now suppressed and the push towards green energy is stronger than ever.
Exxon, however, has a different outlook.
Despite its competitors’ increasing commitments to green energy and efforts to achieve carbon neutrality, Exxon remains bullish on oil and gas. In anticipation of a rise in global demand, the company is still seeking to increase its investments in oil fields.
Although this strategy isn’t unreasonable coming from an oil company, it certainly isn’t the more popular approach and one activist investor group decided to take matters into their own hands.
Engine No 1 is an activist investor that was formed in 2020 and immediately took aim at Exxon, by buying a modest $54M stake in the company, but spending an additional $30M on efforts to gain four board seats. Their strategy was simple: get the word out, get board seats, and force management to cut emissions. Exxon, on the other hand, spent $35M to oppose the activists.
(For those into the backstory, I recommend this ~15 minute podcast.)
On Wednesday, Engine No 1’s efforts were rewarded, with two of their nominees selected to join Exxon’s board.
In isolation, Engine No 1’s victory has been overblown.
While most news outlets portrayed this battle in David vs Goliath terms - where masses of small retail investors were attempting to overthrow a big bad company’s board - it’s Wall Street who made the difference: Blackrock and Vanguard both voted for the two new directors. These are hardly underdogs - Blackrock and Vanguard manage a combined $15T and collectively own 14% of Exxon - and both had already committed to net zero initiatives. No surprises here.
In addition to this, Engine No 1 still has an uphill battle to achieve its ultimate goal: they only control two out of twelve board seats.
Still, two other events also took place on Wednesday, affecting the industry:
In the Netherlands, a court ruled that Royal Dutch Shell was partially responsible for global warming and ordered the company to halve its emissions by 2030; and
In America, shareholders of Chevron - the country’s second largest oil company, after Exxon - voted in favor of a proposal to force the company to cut carbon emissions.
Green energy activists joining America’s largest oil company’s board would have been unthinkable a decade ago. For this to happen on the same day that Europe’s largest oil company and America’s second largest oil company were ordered to cut emissions is… not nothing.
Somewhere in Ohio, John D. Rockefeller is turning in his grave. Perhaps that’s a good thing.
You Should’ve Seen Their Face!
Speaking of energy, this might be my favorite story ever.
One of the oldest tricks used by law enforcement to identify illegal cannabis grow-houses is to scour energy usage records. All those vents and heat lamps use a lot of power, so if a property consumes excessively large amounts of electricity...
It’s a tried and true method.
So it is that, earlier this week, drug warrant-wielding police officers raided a warehouse in Birmingham, UK and found… 100 bitcoin-mining computers.
Bitcoin mining’s massive energy consumption has recently gone from anecdotal to a growing issue. Two weeks ago, Elon Musk announced that Tesla would stop accepting Bitcoin over energy concerns. Then, on Wednesday (busy day for energy stories!):
Iran […] banned crypto mining for four months after a series of unplanned blackouts in cities. President Hassan Rouhani told a cabinet meeting that crypto mining was draining 2 gigawatts of electricity from Iran’s power grid each day, according to the BBC.
For those wondering, 2 gigawatts is equivalent to the power of 2.6 million horses, according to the US Department of Energy. Whatever that means.
Anyways…
The point is that the crypto industry will have to reckon with these energy issues eventually. With mining revenues exceeding $78M per day, the good news is that someone somewhere is incentivized to find a solution.
In fact, efforts are already underway.
On Tuesday, Michael Saylor - CEO of Microstrategy, the software company that is up nearly 300% in the last year after converting nearly all its cash into Bitcoin - announced the creation of the Bitcoin Mining Council, an organization committed to publishing energy usage data and addressing concerns relating to the industry’s carbon footprint.
We’ll see how that plays out.
As for our bitcoin miners in Birmingham:
“My understanding is that mining for cryptocurrency is not itself illegal, but clearly abstracting electricity from the mains supply to power it is,” Sgt. Jennifer Griffin said in a statement on Thursday.
Not quite the bust they were hoping for.
Have a great weekend!