Weekly TLDR - Liquidity is Out of Stock
Weekly TLDR - Liquidity is Out of Stock
In this week's TLDR, we talk about a dry fundraising environment, broken ride-sharing business models, home price acceleration, and the revival of Meta’s former crypto payments dream (sans Meta).
The TLDR
In this week's TLDR, we talk about a dry fundraising environment, broken ride-sharing business models, home price acceleration, and the revival of Meta’s former crypto payments dream (sans Meta).
Chart of the Week
Inflation expectations are higher than ever. Much has been written about the impact on consumers but what happens to companies that are currently holding sizable warchests of cash (Apple, Berkshire Hathaway, Google, Amazon etc). With inflation threatening to decrease the buying power of these cash holdings by 8%+ per year, the onus is really on these companies to put their cash into use. Waiting will no longer be very acceptable from shareholders. We expect increasing dividend yields, new share buyback programs, and increased M&A activity from the cash rich.
Stock Market TLDR
Lyft and Uber are planning on adding fuel surcharges to riders. Lyft and Uber are both looking to add “small fees” on rides to help drivers offset rising gas prices. It is interesting that both ride sharing companies are asking consumers to bear the burden of increasing fuel fees while food delivery companies like Doordash are bearing the burden themselves. It goes to show how brittle the ride sharing business models are to changes in their cost structure. With ride sharing prices being more expensive than traditional taxis in many markets and the encroachment of driverless taxi services, both Lyft and Uber will be under a lot of pressure. A bold prediction here; lookout for a merger between Lyft and Uber to consolidate the market and reduce price competition.
GM buys Softbank’s stake in Cruise for $2.1 billion. Softbank previously owned a 10% stake in Cruise which puts the valuation of Cruise at $21 billion, down from the $30 billion valuation in its latest round. Softbank probably took a discount to get out of its upcoming $1.35 Billion payment but this sale and a delay of a Cruise spinout has the market concerned about how things are going. Cruise is scaling up its driverless ridesharing business in San Francisco currently so all eyes should be on how that business progresses and regulatory approval in other cities.
Debt and Equity financing drying up. Interest rate volatility and geopolitical instability has led to a drying up of both debt and equity financing. The financial sector will see a hit on their underwriting revenues and companies looking for an acquisition, leveraged buyout, or IPO will face a tougher environment for acquiring funds. If you are still sitting on that “acquisition candidate” stock, it may be a while before the market appetite returns unless the acquirer is someone like Apple, Amazon, Google etc that are still sitting on piles of cash and looking to put it to work before inflation gobbles it up.
Big China tech layoffs. Both Tencent and Alibaba are looking to make large layoffs of 10-15% of their workforce. This would equate to >50,000 employees between the two companies. The recent stock price performance, regulatory scrutiny are being used to justify the lay-offs, which makes sense. I wonder how the Chinese government is going to feel about being highlighted as the reason why tens of thousands of folks are now unemployed…
Zillow expects home prices to pick up despite increasing rates. Zillow economists predict home prices to continue to rise despite the increase in interest rates. Near historic lows in home supply is the stated cause alongside potential homebuyers trying to get in before rates increase even more. Homes in the US have increased 18.8% versus last year. The last time home prices have increased that much, it was before the 2008 housing crash… Longer-term, there is something to be said about how real-estate investors relied on a low rate environment to grow huge real estate empires. An increasing rate environment may easily outpace rental growth and put many of these investor models at risk and where a few insolvent businesses may end up flooding the market with a huge supply of homes.
Crypto TLDR
Ex-Meta employees raise $200M to realize former employer’s crypto dreams. Some of us might remember when Facebook tried to build a crypto payments network that was met with massive regulatory resistance and unceremoniously ended in January this year when Silvergate Capital acquired Meta’s Diem technology assets for $182 million. Many key employees that worked on this project had left Meta and are now building Facebook’s vision, sans Facebook. One of these efforts is Aptos, which recently announced a massive funding raising round of $200 million led by a16z, with participation from Tiger Global, FTX Ventures, and Coinbase Ventures. Although the valuation for this funding round is unknown, it puts Aptos well into unicorn territory, according to its founders. Aptos is building its own blockchain that it hopes will support high volume payments at scale.
Bored Ape NFT creators launch ApeCoin. Yuga Labs, the creators of some of the top NFT collections out there including the Bored Ape Yacht Club and Mutant Ape Yacht Club, the former of which sells for about 100 ETH a pop, has recently launched a new cryptocurrency called ApeCoin that the team plans to be the primary token for the BAYC ecosystem and future Yuga products. Popular exchanges like Gemini, Coinbase, and Crypto.com are already supporting the new cryptocurrency, and it’s currently trading at a whopping $1.9 billion market cap just a few days after launch. This news follows another big announcement from Yuga Labs of purchasing major rival NFT collections CryptoPunks and Meebits from Larva Labs.
Taiwan’s largest cryptocurrency exchange is raising for a $400 million valuation. The cryptocurrency private equity hype is not just contained in Silicon Valley, Asian markets are hot for private crypto startups as well. Taiwan’s largest crypto exchange, MaiCoin, is reportedly raising a Series C funding round that could value the company at $400 million. Furthermore, the company sees exceptional growth in its next few years and plans to go public on the Nasdaq within two years. Cryptocurrency exchanges all over the world, armed with boatloads of cash, are seemingly aggressively expanding their international market share and it’ll be interesting to see who comes out on top after the dust settles.
Coinbase is testing out a subscription service. Top US cryptocurrency exchange Coinbase is testing a subscription service with a small group of beta users. Called Coinbase One, the service will remove trading fees for subscribers, provide dedicated 24/7 phone support, as well as $1 million in account protection. Coinbase’s primary source of revenue is commissions from trading and this is an unreliable revenue source. For one, trading volume is hard for Coinbase to control and volume falls off in a bear market. Secondly, like stock trading commissions, crypto trading commissions are likely to fall to zero in the long run. Coinbase One could be one way Coinbase stabilizes and diversifies its revenue sources.
South Korea is gearing up for crypto. The president-elect of South Korea, Yoon Suk-Yeol, wants South Korea to play a bigger role in the development of cryptocurrencies. Crypto is already immensely popular in South Korea but the previous administration hasn’t been too friendly to the burgeoning asset class, likening it more to gambling. Yoon’s presidential election is thus a big win for the South Korean crypto industry. So far, he has proposed to legalize previously banned initial coin offerings (ICOs) and not to levy taxes on crypto capital gains of up to 50 million won ($40,000). Yoon’s election and promises to embrace crypto is yet another major government win for the industry, after positive news came from both the US and EU in the past couple weeks.