Sunday Finds + 3 Thoughts From Last Week
Podcasts Lyft and Playboy Group this week...
Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
Chit Chat Money Podcasts From Last Week
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1. Spotify’s R&D is out of control
It is frustrating being a shareholder of Spotify because they could be much more efficient on the operating expense side but they simply choose not to.
This isn’t out-of-control marketing spend, either. Last quarter, Spotify spent close to 60% of its gross profit on research and development expenses (most of which is going to its close to 10k employees).
For reference, back in 2006, everybody’s favorite reinvestment maniac Amazon spent 33% of its gross profit on R&D. And this is one of the most aggressive spenders on R&D in modern history.
Something has to change at Spotify. I wouldn’t be surprised if an activist comes knocking (or just a loud investor) and tries to get the employee count much more in line with the size of the company.
The Science of Hitting newsletter (paid) covers this in more detail:
2. A wild Silicon Motion investment
We had a small investment in Silicon Motion that we bought this year. The semiconductor company was getting acquired by MaxLinear and was trading at a massive discount to the acquisition price. Long story short, the companies only needed approval from the Chinese regulators to push the deal through.
Since Silicon Motion operates in a low-tech part of the market, we believed that the regulators in China would approve the deal.
They did just that last week, sending shares of Silicon Motion up 80%, as there was no regulatory hurdle to getting the deal done anymore. Luckily, we decided to sell our shares on this stock pop even though there was still a good amount of returns left if the deal was formally consummated.
Why? Because, well, things got weird. MaxLinear came out with a shocking press release that same day saying that it was backing out of the deal because Silicon Motion had suffered a material adverse effect on its business. Shares of Silicon Motion crashed in after-hours trading and are now below $60, essentially the lowest they’ve been since the deal announcement.
Silicon Motion announced the next day that it intends to enforce the merger, meaning we likely have an international court case coming up to decide whether Silicon Motion or MaxLinear is in the right here (I don’t know the details on what happens next). Seems a bit similar to the Twitter case last year!
Sometimes, you just get lucky with an investment, as we sold our shares of Silicon Motion just a few hours before it collapsed. What a strange situation.
3. So Worldcoin has launched
The guy who runs OpenAI and invented ChatGPT (Sam Altman) has now launched a cryptocurrency called Worldcoin. In order to join the network, users have to stare into an orb that gets their biometric identity, “proving” that they are real humans and not a robot. It seems like way too much of a coincidence that the guy who started this AI identity mess has now invented the “solution” to it.
Apparently, if you sign-up for Worldcoin they just give you some of the currency for free. I see no reason why that strategy won’t turn out horribly!
Here is what signing up for Worldcoin looks like…
…and here is the company’s full press release from the day of the roll-out:
Call me crazy, but I’m not giving my biometric information to a start-up claiming we are on the way to “AI-funded UBI.”
See you next week,
Brett
***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***
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3 Intriguing Reads
The Return on Hassle Spectrum — Dollars and Data
At first glance, I see his point. That’s six years of doing research to find properties, visiting those properties, taking out debt to buy them, looking for tenants, and maintaining each property for only $30,000 a year. Given that The FI Couple has 11 rentals, they are netting less than $250 per rental per month. That’s a lot of work for not a lot of money. Additionally, when you consider the amount of risk they are taking on (via leverage), this seems like a bad deal.
1 Good Podcast
Smart, Funny, and Insightful Tweets:
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Another great "Sunday Finds" - and thanks for the shout out!