📈 What’s behind the ~$800B equity surge


December 15, 2020

PLUS: How do you actually break up Facebook?

December 15, 2020
The Hustle
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ADM

On Friday, we asked readers what startups could be done with the domain name OnlyPhans.co, owned by one of our writers who really likes puns. The most popular answer — by far — was to create something for psychedelic rock band Phish, whose fans are called … phans.

Get at us, Phish!

The Big Idea
Equity gif

A record ~$800B of equity has been raised in 2020. What’s going on?

A common reframe over the past few years has been that private markets are the new public markets.

Translation: Startups can score big funding rounds + fat valuations without going public and courting extra scrutiny.

WeWork — which has seen its valuation implode from $47B to <$5B after September 2019’s failed IPO attempt — is the most salient example of the pitfalls of going public.

This year has been different: with a record ~$800B in equity raised by nonfinancial firms, per The Economist.

1) Pandemic stimulus and 2) low interest rates

Those 2 factors have contributed to an especially hot public equity market this year:

  • Carnival Cruises kicked things off with a $6B+ debt and equity offering in April.
  • Tesla, whose shares are up ~9x in the last year, has announced plans to issue $10B in new shares since September.
  • Conglomerate Dahaner ($2.5B) and engine maker Rolls Royce ($2.6B) pulled in 9 figures in May and November, respectively.

The accommodating markets have also led to a boom in special purpose acquisition companies (SPACs).

Equity is more expensive than debt

A major reason for this is that most governments allow interest payments to be deducted from taxes.

Despite this, companies have been happy to tap equity markets, which do have notable benefits, per The Economist:

  • It’s permanent capital that doesn’t need to be repaid
  • It’s more flexible than debt, because there’s no interest
  • When shares are “frothy” (as they are now), it’s a great way for founders to raise cash without significantly diluting their stakes

Recent tech IPOs have put the ghost of WeWork far behind

As highlighted by the Wall Street Journal, new public tech companies are trading at ~24x the total of their 12 months of revenue prior to an IPO, the highest ratio in the last 2 decades.

Recent tech entrants have been treated very kindly:

  • DoorDash ($51B) is worth nearly 2x Yum Brands, owner of Pizza Hut, Taco Bell, and KFC
  • Airbnb ($78B) is worth as much as Marriott, Hilton, and Hyatt combined
  • Snowflake ($93B) is worth more than Goldman Sachs

Things are getting so crazy that gaming startup Roblox and fintech firm Affirm just delayed their much-anticipated IPOs to review the process.

In other words, they’ll likely tap the equity markets for much more cheddar.

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Snippets

  • Vaccines rolled out for health care workers yesterday, but regular folk will likely have to wait until the spring before they can stroll into Walgreens or CVS for the shot.
  • Reddit — one of the world’s great deposits of meme — just upped its game by acquiring lip-synching video app (and TikTok competitor) Dubsmash. We wrote more on Reddit’s rise here.
  • The FTC is on a rampage: The federal agency just requested data on how users’ information is collected from 9 companies — including Amazon, ByteDance, Discord, Reddit, Facebook, and YouTube.
  • Google tools (e.g., Gmail, Docs) were down Monday AM, leading one school administrator to call Google outages the “new snow day” because of how many students use the tool. That’s an A+ analogy right there.
  • A gender discrimation case at Pinterest just ended with a $22.5m settlement. Francoise Brougher — Pinterest’s former COO — says she was fired for speaking up about misogyny at the social network.
  • Pump it up! Apple Fitness+ — built around the Apple Watch — is live now. You can do yoga, strength, and other fitness classes starting at $9.99/mo (and there’s a free trial period).
  • CONGRATS! Andrew Wilkinson — who has dropped tons of knowledge with Trends and on the My First Million podcast — took WeCommerce Holdings public in partnership with billionaire investor Bill Ackman. WeCommerce creates and invests in services built for the Shopify ecosystem.
Lux Life
laptop

The luxury market is transitioning to ecommerce — and China is leading the pack

Despite its reputation for counterfeits (e.g., “Dolce & Banana,” “Abibas shoes”), China is a critical player in luxury goods.

According to Bain & Company, the Middle Kingdom accounted for 33% of the $300B+ of the global luxury market in 2018.

Ecommerce now makes up 23% of all luxury goods sales — nearly double last year’s figure — and China is leading the way.

A very different customer journey in China

According to Jing Daily, product discovery in China isn’t done by browsing on a large ecommerce platform like Amazon.

Rather, the buying journey typically starts on a social or streaming platform (Trends covered this, er, trend here).

This approach — known as social commerce — is ubiquitous in China and is a comparatively easier way for luxury retailers to control their brand online (check out Burberry’s Lunar New Year “Ratberry” promotion).

Luxury ecommerce sales will reach $58B in 2020, up 48% YoY

Chinese ecommerce giant Alibaba is leading the way with its Tmall Luxury Pavilion app, which was launched in 2017 and wooed luxury retailers with fully customizable social features:

  • Cloud pop-up stores
  • Shoppable digital lookbooks
  • Integration with Tmall livestreaming

Today, it boasts 200+ luxury brands each running their own virtual boutiques with Alibaba taking a 5% commission on all sales.

Last month, Alibaba was at the center of a $1.1B joint venture, partnering with online luxury platform Farfetch, Swiss luxury house Richemont, and the investment arm of Kering.

We can laugh all day at couterfeits like “Pizza Huh” or “Johnnie Worker Red Labial,” but China’s luxury ecommerce innovations are worth knocking off.

So close, yet so far.

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SPONSORED

What’s the food industry cookin’ up for 2021?

Two words:

Health. Conscious.

(Wait… is that one hyphenated word? We digress.)

Stress levels and anxiety are at an all-time high, so it should come as no surprise that most of the up-and-coming food trends revolve around eating — and living — better.

With that in mind, ADM has narrowed down 5 areas that they expect to influence every part of the health food business:

Check out 5 Healthy Food Trends for 2021.

From sustainability to gut health, this peek behind the curtain will give you a great grasp on what the coming year will hold.

*Cheers with glass of kombucha*

Read the Trends →

The Breakup
Facebook gif

Um, how do you actually break up Facebook?

Breaking up Facebook is like playing laser tag drunk.

It’s a great idea at first blush… but if you think through the actual logistics, it gets complicated.

In the wake of the US government’s antitrust suit against the giant social network, experts are chiming in on what a FB split might actually look like.

One problem: Facebook has deeply integrated its products

WhatsApp, Instagram, Messenger, and old-school FB all have different front ends — but they now share back-end connections and the same master messaging platform.

Facebook CEO Zucky McBuckFace said that this move was intended to provide more security; others believe the main motivation was to stave off a potential breakup.

According to the Wall Street Journal, the apps present different challenges:

  • Instagram is very plugged into Facebook’s advertising infrastructure, and employees are split across teams.
  • WhatsApp has little advertising integration and its messaging encryption is largely independent of the mother ship — though at least one former FB engineer says its back end could be harder to break off.

There are other remedies than a break

Facebook’s former security chief (Alex Stamos) says you could keep the integrations but force Instagram to operate “separate advertising, policy, and product teams.”

There’s also no guarantee that the new companies would compete.

Further, tech analyst Benedict Evans says a breakup could:

  • Reduce privacy, as advertisers have more leverage and options.
  • Slow content moderation, by fragmenting the moderation and abuse teams that FB spends billions of dollars a year on.

As with drunk laser tag, there will always be unintended consequences.

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This is a big deal
tv screen

Pornhub’s site crackdown could be a sign of things to come for online platforms

On Monday, the adult website Pornhub removed 10m+ videos.

The move is the culmination of a wild sequence of events over the past 10 days:

  • Dec. 4, 2020: The New York Times publishes an investigation into Pornhub, which showed the site helped to facilitate child abuse by allowing anonymous people to upload videos.
  • Dec. 10, 2020: Credit card companies Visa and Mastercard (and later Discover) blocked payments to Pornhub’s parent company, Montreal-based MindGeek.
  • Dec. 14, 2020: Porhhub deleted millions of videos and will now only allow “verified users” to upload videos.

This has some big implications in the online publishing space — particularly related to Section 230, a law that absolves internet giants of liability for the content on their platforms.

Tech writer Casey Newton tweets: “If you wonder what the internet would be like without Section 230, Pornhub’s response to losing its payment processors offers a pretty good preview. ‘Verified’ content only; everything else disappears.”

The Hustle Says

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Investing fact of the day
VOC ships

Source: Dutch Docu Channel

The world’s first “IPO” took place in 1602.

It was the Dutch East India Co., which had a royal charter that granted it a 20-year monopoly on spice trade with the East Indies.

The company’s de facto ticker was VOC, which was the acronym for its Dutch name (Vereenigde Oost-Indische Compagnie).

The merchants that ran VOC formed a limited liability company and sold an interest in the company to investors in exchange for a % of profits… which were highly volatile because — well, it’s the frickin’ spice trade and there’s no guarantee the ship is making it across the Atlantic (twice).

At its peak, VOC was worth ~$8T in today’s money and things got really crazy in 1634 when VOC started bringing back tulips, precipitating one of history’s greatest bubbles.

TRENDS

Bigger than Starbucks with a 54% profit margin…

Our Trends analysts came across a staggering fact:

There are more public storage facilities in the US than there are Starbucks, McDonald’s, Pizza Huts, Dunkin’s, and Wendy’s combined.

In 2019, the public storage industry was estimated at $39.5B.

If that wasn’t amazing enough – some of the top players in the storage unit industry operate at a 50%+ profit margin.

The more we read into the numbers, the more we knew we had to dig deeper.

So, the Trends team put together a comprehensive report on the storage unit industry and outlined exactly how you can get a piece of this massive pie.

When you read through the report, you’ll learn:

  • Why the storage unit industry has such an extremely low rate of failure (less than 10%)
  • The “secret sauce,” behind the most successful storage unit businesses including how to estimate local demand for storage
  • Major challenges to look out for before diving into the storage industry.
  • Inside insights on opportunities in the space.
  • And much more.

If you’re not already a member of Trends, sign up today for a $1 trial to get access to the full report.

Get Access →

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