Episode 18: Whole Lotta Love
Xmas is less than 100 days away. Yep. It will be an unusual holiday season as many families have remained distant due to COVID concerns. The combination of no vaccine plus the start of flu season means most families will not reunite this year around cheap wine and chewy stuffing, especially those with elderly parents. It also means brick and mortar retail spending will suffer, and their loss will be Amazon’s gain. Of course, 100 days until the year’s end is also the siren for anyone running a company. This time of year produces panic at the reminder of completing and reporting fiscal years, preparing performance reviews, finalizing budgets for 2021, and holding Board meetings where the “armchair quarterbacks” get to question everything you’ve done. How fun!
Hurricane Sally pounded the Gulf this week and produced massive flooding in the region. A section of the newly constructed Pensacola Bay Bridge washed away. High winds exceeded 100mph, leaving 150,000 without power. Unfortunately, another tropical storm, Wilfred, is poised to hit the same area next week. Most of California and the west coast remains on fire, and breathing conditions are worst in the world. Breonna Taylor’s family reached a $12M settlement in a wrongful death lawsuit with Louisville’s city after the 26-year-old black woman was fatally shot in her apartment. In response to several highly publicized killings of African Americans, there has been a string of ambushes and shootings of police officers. Two wrongs don’t make a right, yet chaos continues.
The government announced that starting Sunday, a ban on TikTok downloads and the use of WeChat due to national security and data privacy issues. Commerce Secretary Wilbur Ross said his office would order a full ban of TikTok by November 12. Of course, this occurs as Oracle and Walmart are planning an investment in TikTok. In a deal that remains fluid and highly politicized, TikTok parent company ByteDance would keep a material stake in the company and set up a new American-HQ to house the popular video service. A full-blown acquisition of TikTok became impossible after the Chinese government refused to accept any agreement that would see TikTok's artificial intelligence algorithm acquired by a foreign company.
The world appears to be transitioning from avoiding coronavirus to living with it as we passed the 30 million case mark. There has been a spike in Europe's COVID cases, especially France and Spain, driven mostly by asymptomatic young people. However, politicians are ruling out lockdowns this go around. Much of Europe has opted for coexistence with COVID. Europeans have mostly gone back to work and school, leading relatively normal lives but with hard-won lessons from the pandemic's initial phase: 1) the need to wear masks and practice social distancing, 2) the importance of testing and contact tracing, and 3) the need to focus and plan locally. Wearing a face covering has become part of Europeans' lives, much in the way it has been a good health practice in Asia for two decades. In what appears to be a real moment of insanity, Michael Caputo, a longtime Trump loyalist and acting Head of Communications for the Department of Health and Human Services, erupted in a bewildering video post on FB about the virus and CDC and then abruptly apologized. Here is a link to the video.
On the economic front, the Fed signaled interest rates would stay at 0% until 2023. Low rates have spurred a boom in home refinancing, which created a spike in mortgage-backed securities issuance. Much of the demand for mortgage securities comes from the Federal Reserve, which said it would purchase an unlimited amount of mortgage bonds to backstop the credit markets. Asset bubbles, "free" money and ballooning debt, and a growing government. I've seen this movie before and didn't like the ending. Yet for now, there is more unprecedented nonsense in the markets. Snowflake, an eight-year-old data management startup, posted $265M in revenue last year and is still unprofitable went public. The price for the IPO was set 40% above the initial range based on anticipated demand. The stock debuted at the elevated price of $120 per share and ended the day up 134%, representing a $70 billion valuation. Snowflake's primary investor was VC firm Sutter Hill who has put in about $200M and owns 17% of the company Sutter Hill's stake is worth over $11 billion. Frank Slootman, who has taken a few notable companies public, including Service Now, joined the company as CEO only 17 months ago. His equity stake of 6% is worth just under $4 billion. The CFO, Mike Scarpelli, who followed Slootman to Snowflake, and his 1.9% stake is worth $1.2 billion. Other notable investors in the deal and their return in a single day: Berkshire Hathaway ($1 billion) and Salesforce ($280M). I'm happy for you, Frank and Mike, and Warren and Marc, all the hard work you've done is finally paying off (eyes rolling back in my head).
The world of AI continues to amaze and develop. An autonomous ship is about to begin trials before it sails across the Atlantic Ocean using only AI and solar energy. The Mayflower makes the voyage in April 2021, following the same path the Pilgrims did in 1620. The 3,000-mile journey will take 12 days rather than the two months it took the Pilgrims. The autonomous shipping market could reach $135 billion by 2030. Walmart is ramping up its efforts to compete with Amazon. The nation's largest retailer signed a deal with Zipline to deliver health and wellness products by drones. The drones will deliver packages within a 50-mile radius in under one hour without emitting greenhouse gases. But AI is not foolproof. The back-up safety driver inside an Uber self-driving vehicle that fatally hit a woman in Arizona in 2018 has been charged with homicide. She was watching an episode of The Voice on her phone, according to internal camera footage. It is noteworthy that prosecutors did not charge Uber with any criminal liability.
On the lighter side, the Big 10 reversed the decision to eliminate football this year and resume play mid-October. This decision is undoubtedly an economic one as other power five conferences such as the ACC, SEC, and Big 12 are committed to playing the season. The music group, The Chainsmokers, have closed their debut venture fund, Mantis, with $35 million. It's unclear how music and investing overlap, but I hope the group's financial decision making is better than their music. Pepsi has announced Driftwell, a newly enhanced water beverage it claims will improve sleep quality. The idea came from an internal competition within Pepsi, where employees developed new product ideas. The calorie-and-sugar-free noncarbonated water, flavored with blackberry and lavender, contains 200 milligrams of L-theanine and 10% daily magnesium value. Taco Bell introduced its custom wine—Jalapeño Noir—as a pairing with its toasted Chalupa to get in on the beverage fun. Canada is the only country offering the product, and for now, winemakers in Napa Valley are breathing a sigh of relief. Cardi B is getting a divorce from fellow high hop artist, Offset. The "power couple" has a daughter named Culture. Cardi B issued a statement, but much like her music and family members' names, I couldn't understand it.
I. Below are the articles I found interesting the past week:
Remote work is here to stay. That’s a celebration for many, including myself. Many employees have said goodbye to unbearable commutes and traffic, overpriced lunches, rigid schedules, and those god awful cubicles. Remote work culture will continue to evolve and improve. Careful thought and ongoing discussion need to happen in companies about the implications of remote working and how to optimize all stakeholder success.
The five levels of remote work—and why you’re probably at Level 2
You can’t argue with the success of Netflix. The company boasts more than 200 million subscribers to the video streaming service in a little over 20 years. The company is valued at over $200 billion, approximately the same as the Walt Disney Company. That’s astonishing considering Disney owns Disney Theme Parks, ESPN, ABC, Marvel Studios, Lucasfilm, Pixar, 20th Century Studios, Hulu, etc. Corporate culture is one of the primary advantages of Netflix. CEO Reed Hastings embraces an innovative approach to employee management, including no dress code, unlimited vacation, and no pre-approval for expenses. As a CEO, I adopted the unlimited vacation policy years ago and will never go back. The right employees won’t abuse it, and the bad ones managed out. Most importantly, Hastings encourages employees to question everything. Friction is encouraged. This approach to management creates a challenging culture but fosters innovation. Some may consider this a harsh and unpleasant work environment, but it’s hard to argue with its success.
Netflix CEO embraces ‘no rules,’ but work is anything but chill
We are now six months into the pandemic, and the science is unfurling rapidly. It appears we will have a vaccine available by year-end that can inoculate the most vulnerable in our population, but a mass-produced and distributed vaccine will not be ready until mid-2021. As it relates to COVID, the biggest question is who to trust, especially given the political season and various agendas. Here’s a link to a resource center that helps answer that question.
II. The rest of the best
Companies sidestep traditional IPOs by choosing SPACs, direct listings
The folly of decoupling from China
Fighting COVID by truly understanding the virus
III. Stats that made me go WOW!
- According to Reed Hastings, CEO of Netflix, its IPO was at $1 about 20 years ago, and now it’s $500. A $10,000 investment would be worth $5 million.
- Billionaire hedge fund manager, Steve Cohen, agreed to buy the New York Mets for $2.4 billion. This would represent a record for a North American sports franchise. (I think he got confused and thought he was buying the Yankees.)
- More than 70 products from Amazon Basics, the company’s budget-friendly private label line, have caught fire, smoked, or exploded, according to 1,500 customer reviews.
- The US penny cost nearly twice what they’re worth as currency to produce, and the US Mint lost $72 million on the 7 billion pennies it minted last year.
IV. Name that Tune!
As I write this email, I am listening to "Whole Lotta Love" by Led Zeppelin.
The English rock band formed in 1968 and is one of my favorite of all time. Plant, Paige, Bonham, and Jones. All icons. But none more so than John “Bonzo” Bonham, also known as “Beast.” This month we remember the 40th anniversary of Bonham’s tragic death from alcohol poisoning. Toxicology reports showed that Bonham had consumed around 40 shots of vodka over 24 hours. Bonham is considered by many, including Rolling Stone magazine, to be the best drummer of all time (sorry, Neil Peart). Bonham was known for his distinctive style, instincts, fast kick drumming, and hard-hitting power. Rather than replace Bonham in the band, Led Zeppelin chose to disband in 1980 out of respect to their deceased bandmate. The group was inducted into the Rock and roll Hall of Fame fifteen years later.
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