Facebook: Phony Technology Caring
Facebook’s stock gapped 5% lower (Friday Jan 12th) on the back of Mark Zuckerberg’s new vision to help users have more ‘meaningful social interactions’ on the platform by showing less content from businesses and media; said differently, the platform has become such a clusterfuck of ads, fake news and curated garbage, that something needed to be done to salvage the host (Facebook users).
Investors should have gotten a big hint when Zuckerberg embarked on his spiritual trek across middle America, searching for deeper meaning in life. Perhaps this whole ‘awakening’ is a bad case of economic survivor’s guilt. It seems to be a bug that’s spreading quickly across Silicon Valley — a laundry list of leaders deeply worried about the zombie technology addiction they’ve unleashed (still holding onto their winnings of course!).
Content Creators: Work Hard, Paid Pennies
The internet has a structural problem: content creators aren’t getting paid. The ad revenue model worked reasonably well until it didn’t.
Facebook and Google currently represent over 60% of all U.S. digital ad revenue. Publishers feed content (free of charge) to Facebook in the hopes that traffic flows through to their own sites to monetize. In practice, Facebook does everything possible to keep users from leaving their platform (i.e. prioritizing content that has no outgoing links).
Facebook’s valuation at the surface (28x 2018 PE) looks reasonable given the street’s growth outlook (20% annual revenue growth). However, this ain’t an electric utility and rapid shifts in the technology competitive landscape are unpredictable at best.
There’s also the elephant in the room for Google and Facebook. Whether digital ads are effective at all and if there’s even a measurable ROI, Proctor & Gamble easily shaved $100 million from the digital marketing spend and found it had no impact on sales….
- CEO on a vision quest to heal the world (Jesus complex)
- Facebook and Google hitting the upper bound of their online ad duopoly
- Companies questioning the value of their digital ad spend
Not a great set-up for a stock to beat generally inflated analysts’ expectations, and that is the Achilles heal of every growth stock.
CES and Crowdfunding: Fantasy Tech
Yves Smith at naked capitalism did an excellent tear down of crap tech in general and the wads of dip-shit venture capital (VC) money getting thrown at it. But this extends beyond CES and big VC money. There’s a deep scam ecosystem in the crowdfunding tech innovation world.
Aido the home assistant robot is one of the best examples. It was heralded as the do-it-all bot that played with your kids and kept your house safe. Backers on Indiegogo gave the company nearly $900k to build and ship Aido to their homes. This is the future the company promised:
Ultimately, what they got was a handycam Youtube video showing the founder being interviewed by various ‘experts’, showcasing a rather glum motionless robot desk side:
Crowdfunding has become a field of broken promises and unattainable tech visions of the future. We suspect there are many more ‘Aido’s’ that will float to the surface.
Oil: The Billionaire Prince Won’t Pay
Nothing quite like millennials running the show. The Baby Chief of Saudi Arabia, Mohammad Bin Salman (32-year-old avid ‘Call-of-Duty’ gamer), rounded up a large swath of his imperial family and threw them in the Ritz-Carlton on charges of ‘corruption’ in late December. The charges are trumped up of course. It’s simply Kingdom family politics at its finest where corruption is always relative.
This is nothing more than an old-fashioned shakedown. As the oil price has cratered so has the Saudi’s foreign reserves, which are the funds that help keep the ‘Disney Land of the Desert’ humming along.
The over 300 hostages were able to ‘earn’ their freedom if they handed over 70% of their personal wealth to the kingdom. To nudge them in the right direction, upside-down beatings were routinely administered.
Most have paid, however Prince Al-Waleed Bin Talal, the Warren Buffett of the Middle East (worth $19 billion – ownership includes stakes in Citibank and Twitter), has bluntly refused. Baby Chief Bin Salman is demanding $6 billion from Prince Bin Talal for his release. If the stand-off continues to escalate, there’s a high likelihood the politics will boil over to the oil market.
With oil prices hovering around $70/barrel, we believe there’s plenty of monetary incentive for U.S. shale producers to continue to flood the market, acting as a potential ballast to any political tensions in Saudi. U.S. oil production currently stands at a 9.64 million barrels per day, the highest monthly level since May 1971.