Post Corona: The Four
6-min read
There is a stereotype that cat people are generally women who live and die alone with their cats. I find, like most stereotypes, there is some truth to this. The cat people of cat people are … bat people. It all started with a simple tweet.
Twitter is a bipolar lover (I have some experience here) in that you just don’t know who you’re waking up with. When I tweet something, I have a general idea how people will respond, but occasionally you tweet something and you wake up with Linda Blair, after the dark prince has taken purchase of her soul.
My job as an academic is not to be right as much as to catalyze a discussion that helps craft better solutions. If the previous sentence sounds like a cheap effort to smear Vaseline over the lens of all the stupid things I say, trust your judgment.
Anyways, it appears that CEOs of $7 billion tech firms and a number of women who run bat rehabilitation centers (yes, a real thing) were offended and came to the defense of mammals of the order Chiroptera. In sum, our winged friends not only are the apex predator of the most dangerous animal in the world (mosquitos), but play a key role in the production of tequila — they pollinate the agave plant.
And suddenly … I came to love bats.
The Four — Amazon, Apple, Facebook, and Google — are an invasive species that, over the last decade, have compromised the immunities of the retail and media sectors. Spend has rushed toward digital, where apex predators take 1 of 3 e-commerce dollars (Amazon) and 2 of 3 digital marketing dollars (Google/Facebook). Covid-19 is just finishing the job that the search and social firms started.
Retirement Strategy
The only investment strategy, portfolio, or retirement planning any person needs is the following: Buy the stocks of firms that are unregulated monopolies and nothing else. I’ve followed this dictum for a decade, and it’s worked … well.
However, within your portfolio of the Four it’s fun to speculate who accretes or leaks value, relative to each other, as it might inform the future and provide some insight into general business strategy. My online Strategy Sprint is a breakdown of this formula.
Every hedge fund manager I’ve spoken to in the last month has one static feature in their screens for alpha-dislocation: cash on balance sheet. So, speaking of cash. Google has almost enough to buy the skies, as in Boeing/Airbus.
Apple and Google could partner to buy all cryptocurrencies (aren’t we all just fed up hearing about Bitcoin and Ethereum?) and every professional basketball team in the US. Bezos, worth $139 billion, who is in the midst of the mother of all midlife crises, could buy every top football team (the top 3 European soccer teams plus every team where they give each other Parkinsons) and still have the cabbage to buy ViacomCBS (post-acquisition) and take his date to (Paramount) movie premieres in style, after purchasing Ferrari ($28 billion).
Apple
The iconic tech firm saw its stock recast in 2019, experiencing a near doubling of its P/E ratio. There’s likely been a flight to safety, and the iPhone continues to be the most profitable item in the history of business, commanding Ferrari-like margins with the production volumes of Toyota. In addition, the firm’s recurring revenue business (services) is now a healthy 18% of revenues.
However, it’s hard to imagine that the upgrade cycle for an item that will set you back one month’s household income in Eastern Europe doesn’t get delayed/extended. In addition, Apple’s opportunity in healthcare has been inflated. Stories of emergency services being alerted by an Apple Watch when someone collapses in Zumba make for great media but won’t translate to shareholder value.
The stock remains in a trading range of +/– 20%, as it’s fully valued. The outlier here is if they announce a recurring revenue bundle #gangster.
Facebook/Google
Facebook and Google’s business will have the rebound pattern the president is hoping for the economy, a V (keyword “hoping,” won’t happen).
Search terms and ads on Google/Facebook have plunged 20% in the last 30 days. The recovery will be equally as bloody … upward. The duopoly’s share of the digital ad market is predicted at 61% in 2021.
In 2010, I was doing work with the Four Seasons. Great firm — nice people, Canadian (redundant). During the Great Recession, the luxury hotel brand had to cease all print advertising, as revenue per room had declined 25%. And a strange thing happened when demand returned: the absence of print marketing didn’t seem to make any difference. Multiply this phenomenon by a million, and you have what will happen over the next 6 months. Thousands of the biggest advertisers globally are about to use this forced abstinence from broadcast media (with business down 30-50%) to kick the habit, and never return.
The two largest radio firms, iHeartRadio and Cumulus Media, will likely be Chapter 11 (again) within 12 months. Radio advertising is projected to decline 14% in 2020. Covid-19 has a mortality rate of 4.1% in the US (note: this may decline dramatically as we get our act together on testing). Among US media firms, the death rate will be 10-20%. Firms ranging from Condé Nast to Viacom are furloughing/laying off people as Facebook and Google ramp up hiring. How do you identify the best people at News Corp, Time Warner, and Condé Nast? Simple, they will be working at Google by 6/1.
Even harder hit are the digital marketing firms that aren’t Facebook or Google. BuzzFeed and Yelp have seen display ads on site decline 40-70% vs. last year … suddenly in the ICU. Vox, HuffPo, and Vice will follow. Some will make it out. Some.
Google goes sideways to up. Facebook sideways to down, as every lie they’ve told is a debt to the truth, and that debt is coming due. Libra is dead, and while they should be the primary platform at the epicenter of a vast state-sponsored virus tracing effort, they are not. It’s no accident the social media firm was excluded from Apple and Alphabet’s contact-tracing program.
Facebook used to sit with the cool kids at lunch, but word got out that he killed a dog, filmed it, and made a meme of it. Big tech is disarticulating, as one of these firms is not like the others. One of them is run by a sociopath whose fabric softener is to exploit his top executive’s gender, personal loss, and engagement as a likability shield to drive shareholder value.
Amazon
Amazon will be the first $2 trillion value firm by the end of 2021. Whether it’s an explosion in streaming media, grocery home delivery, or the ultimate supply chain for essential goods, one firm stands alone on the iron throne. No company is adding more market share or revenues than the Seattle giant. Even among the Four, Amazon stands alone on the podium of medals awarded to firms whose revenues have increased during Covid-19.
Amazon Fresh orders are up 323% YOY as of March 2020. The company hired 100,000 fulfillment center and delivery workers in March, then another 75,000 in April. Its NYC employees increased 24%. Amazon is Ben Johnson, juiced up on the steroids of tax avoidance, government subsidies, flaccid antitrust, and cheap capital that make the firm a species no other retailer can compete with.
Honey, where’s my Glock?
If the supply chains of Walmart and Amazon were to be interrupted, I believe people in Florida (granted, we’re talking about Florida), would grab their Glock, head to Publix, and clear the shelves. Amazon is not only delivering food to our doorstep, but beginning to do what our government has been unable to do — test for Covid-19. Imagine Walmart with the largest cloud business, most innovative tech hardware (Alexa), and fastest-growing media business (AMG) with the potential to be the fastest-growing healthcare firm in the world. Ok, no need to imagine … it’s Amazon.
Stalin said one death is a tragedy, millions a statistic. Big tech (even Facebook) has stepped up and filled the void created by a level of federal incompetence that, on a smaller scale, would be deemed involuntary manslaughter. The Four are being solid citizens, and their employees are demonstrating grit and courage (e.g., Amazon warehouse workers). Unsurprisingly, big tech is using this cloud cover to lobby governors and legislators to delay and obfuscate regulation and antitrust.
The question we, and our elected officials, will face post corona is: Are big tech firms run by good people who have demonstrated admirable citizenship, or are they a threat to the ecosystem and should be broken up? The answer is yes.
Life is so rich,
P.S. Spoke to gangster Scott Harrison, founder of charity: water, about generosity. Find us on Apple Podcasts, Spotify, or wherever you listen.
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Class
This article just shows us again how out of touch, boughten and paid for, our politicians are. Scott Galloway has been talking about the need to break up the four monopolies for several years. And… the monopolies just keep growing and becoming richer… and more powerful.
What a great summary of the current scenario and how it is likely to play out.
Great NMNM piece again Scott. A comment about the Ad spend pre and post-Corona virus? There has been a lot written about the existential threat posed to traditional media and journalism by the shutdown. Since consumers aren’t buying, companies have stopped advertising in the more analog, local media. Is this temporary or is the accelerant in the meltdown of the ad industry? As far as I can tell, a full-page ad in the New York Times costs about $125K +/-. The only real metric, unless you include a link or a coupon in the ad, are impressions. That same budget, spent on a digital platform can generate myriad metrics and the data-capture potential is huge. I love print pubs and local journalism as a reader but as an ad-buy, it’s gotten harder and harder to justify. TV has similar issues. I shudder to think about what will happen to traditional broadcast TV and live sports when Geico, Progressive, State Farm, and Liberty Mutual and come to the same conclusion.
Brad, whith fake accounts, fake ad metrycs.
“Facebook used to sit with the cool kids at lunch, but word got out that he killed a dog, filmed it, and made a meme of it.” – #Winner.
Love how you word the truth harshly, like it should be here.
How much will COVID/post-COVID kill off the already sketchy WeWork “model”?
Thank you for your commentary on the higher education sector. Really….thank you.
Love the wisdom combined with blunt, hard, undiluted saying-it-how-it-is
Facebook killing a dog was the best thing I read today. (ok that came out wrong but…you get the gist)
Love how Scott can stay just mildly politically incorrect.
I also really like bats. Your interview with Scott Harrison from Charity Water was excellent.
Love the insight. The success of the unregulated monopoly has hit its peak. They operate in the real world where politics, special interests and plain common sense will, post Covid, put sand in the gears. Trees would seem to grown into the sky -on paper, why not? What seems logical at times just doesn’t come to pass. E.g. Jack is still at Twitter and the stock price is down from a few months ago when it looked like he was ‘out.’
*grow*
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Mercola advertising knows no shame.
So are you saying, buy Tequilla?
Always interesting and provocative. Your last point — which I will call a corp gov point — is interesting, but corporations do not have the same accountability to the broad population as governments. Nor should they. They would cease to be able to attract risk capital if they were not responsive to the capital that is invested in creating them. But they always prove more capable of solving societal problems than government bureaucracies. Thus, fascism appeals to all — just make the corporations subordinate to an all-powerful government. But if we truly want to create an un-fascist economy, the government should have as little control as possible over the corporations, and the corporations should be accountable to a broader array of investors. Under the current securities law regimes, management of public companies are rarely really responsible to investors. Private equity demands results and societal good, but is not responsible for all things. Your answer to it all — “Yes” — seems correct.
Can you do a future post on how you’d break them up? I remember the AWS spin-off prediction last year. Haven’t heard anything else in terms of specifics.
Prof Scott- after reading your content I get three times the number of neurons snaping away. I think break up of the tech companies is the way to go…its the way to find out the new normal…the little people get a shot at participating in their local region
All sounds good, unless the warehouse and delivery workers revolt. Or push their state/local/federal government to crack down.
I spend 2-3 hours a day reading…. nowhere on the internet i get educated and getting a good ol laugh simultaneously. Thanks for everything.
I laughed incredibly hard at “Honey wheres my Glock?” I’m a 19-year-old at USC and you make things big concepts much easier to understand. Thanks Professor!
No spousal unit in Florida would really have to ask where his or her Glock was. It’s usually within arm’s reach.
How many of these monopolies actually pay a living wage with benefits? How many rely on overseas slave labor? Wonder if the sheep will ever figure out they are pawns of the 1%?
@Scott – Do you view Google(Alphabet) as an “at risk” company when it comes to online privacy and regulation as GDPR & CCPA-like regs begin to popup and tighten restrictions for online consumer privacy globally? Is this something that could hinder share price growth?
I lol’d there although the FBOOK pile-on is long in the tooth, would like them swapped out for MSFT in the hourglass
Really enjoy reading these succinct write ups and comparisons. The question I keep asking myself “Are we net better off with the amzn Monopoly?”
Gret article. I couldn’t agree more
Love you articles Prof. I do have a feature request if it doesn’t sound presumptious, could you kindly migrate the site to work without JavaScript? Thanks would be mighty kind of you!
Zuck, get down!! Shots fired!
Thank you, a great update – “we never know what we will know” (Taleb) comes to mind! Never be arrogant about your position. The market place will sort you out – or a virus will sort you out!
I am stupid to buy whatever stock Scooter thinks is a monopoly?
It’s one thing to have a lot of cash on your balance sheet but it’s a whole different ballgame when your cash burn rate is measured in days or weeks due to unforeseen events that wipe out all the cash on your balance sheet.
Boeing was pretty close to an unregulated monopoly for decades. It was a duopoly, just like online advertising is a duopoly (google/facebook). Boeing isn’t doing so great right now. Not a foolproof strategy on its own.
Spot on with your analysis. My only worry is the siren of hubris that time and again infects and destroys the soul of a company. Can’t see it yet and hope it doesn’t come. But didn’t see this Godzilla flu bug either!
Your prognosis for broadcast ad revenue is right on the money. We are now subjected to late night cable type junk ads on all shows lately, and the vacuum that will be Big League Sports going forward is going to truly suck.
That made my day!
I assume your mea culpa refers to your Carnival Cruise plug a lifetime (at least 3 weeks) ago. Now that people see cruise ships as the floating cesspools they are, I have to turn my worries to the Faangs. We learned recently that black swans are all over the place, so I wouldn’t put all my eggs in the tech basket. What about a massive EMP attack from a solar flare? Not as crazy as it might have seemed a couple of months ago. Anything can happen. It may be worth holding onto some old school companies that make things that hurt when you drop them on your foot. Fortunately, my man in Omaha has that covered.
Thought provoking as always!
Great post as usual but I don’t think your AMZN GOOG chart above is correct – I don’t see that 2015 drop anywhere on the charts.
Always a good read…I love the insight.
Awfully generous of you to include ManU as a “top European football club” 🙂
As a ManUtd supporter for 36 years, I’m sad to agree with you.
Aren’t Facebook not included in the contact-tracing initiative because it’s about adding that capability to devices? That requires cooperation between companies that own smartphone operating systems. Facebook would have been no use.
Interesting analysis!
Always a pleasure to read
As always……I love it!
Delightful read! Question is who decides who are the good and sane people who decide what firms need breaking up. Better to let nature run its course.. all is well!
Thanks Scott-Most enjoyable.
OUTSTANDING. you’ve found your muse again.