Sunday Finds + 3 Thoughts From Last Week
Sweetgreen and Trex Company
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.
1. Watch WeCrashed. Trust Me
I’m assuming since you read this newsletter or follow Chit Chat Money that you enjoy learning about investing/finance. If so, I cannot recommend the mini-series WeCrashed on Apple TV+ enough. It goes through the short rise and fall of WeWork, with a cast of characters you likely know well like Benchmark Capital, Softbank, Scott Galloway, Elliot Brown at the WSJ, and yes, Adam Neumann.
Jared Leto plays Adam Neumann and it was an absolute masterclass. I don’t think I’ve laughed so hard watching a character in a long time. He captures the absurd founder mentality that Neumann had to a T.
Two companies I thought of that have Neumann-like founders: Square (now Block) and Tesla. So far, they have created tons of value for shareholders, but with similar antics from the two people who started the companies. It just shows the fine line between ambitious and crazy within the start-up world, and how you can only see the difference in hindsight. If you have made a ton of money in Square and/or Tesla, ask yourself whether you bet on the right company or just got lucky betting on the Adam Neumann who actually ended up succeeding with a business model that worked.
2. Is Buy With Prime a Shopify killer? Maybe.
There was a sneaky Amazon announcement that sent Shopify stock down 20% this week:
Today, Amazon announced Buy with Prime—a new benefit for Prime members that will extend the convenience of Prime shopping to online stores beyond Amazon.com. Buy with Prime will initially be available by invitation only for merchants using Fulfillment by Amazon (FBA) and will roll out through 2022 as merchants are invited to participate, including those not selling on Amazon or using FBA.
This is bringing the benefits of Amazon’s fulfillment/delivery network outside of Amazon.com, which is a big philosophy change from the Seattle giant. Unless Shopify has $100 billion to spend on capex this year (they don’t), there’s nothing they can really do to stop this from happening. It is not a direct competitor (Amazon bowed out of e-commerce website building a long time ago) but will see an Amazon product likely land on hundreds if not thousands of Shopify sites this year.
Personally, I am concerned for Shopify here for one reason: I think I would use Buy With Prime exclusively when shopping on a site that offers it. And I don’t think I’m alone in that. You know the shipping is going to be free and fast and that returns will be hassle-free, so why use anything else?. Just a hunch, but unless Shopify has a way to counteract this initiative, they are going to lose a good chunk of payment volume (the source of most of their revenue) to Buy With Prime. Over time, it may even cause Shopify to embrace FBA along with competitors BigCommerce and Wix.
Let me know why my thinking is wrong here.
3. If you’re a Netflix investor, this is what you signed up for
A lot of commotion this week (and rightfully so) when Netflix released a dud of an earnings report, causing the stock to tank 37%(!) in just the last five trading days. If you hold shares of the company, as a ton of people do, this was not a very fun week. But I think it is…kind of what you signed up for?
Let’s look at Netflix’s past drawdowns. In 2006, the stock went through a drawdown of approximately 75%, and in 2012, it was down over 80%. There have also been numerous 20%+ drawdowns along the way. Right now, the stock is down 69% from all-time highs, so pretty close to what has happened in the past, but still not the worst of what investors have experienced. Stuff like this is par for the course when the narrative shifts on a battleground stock.
That’s not to say you should just ignore a stock when it falls 37% in a week. And if you really think the business quality has deteriorated, then you should sell your shares, just like Bill Ackman did this week. But if the volatility is what’s scaring you, then this is the wrong stock to own.
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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Catch up on Our Shows From Last Week
3 Good Reads
A Cautionary Note About Home Prices - Pragmatic Capitalism
My first big concern is that aforementioned ratio of income as a percentage of home value. The recent surge in prices has already pushed many people out of the market. And so we’re going to see disposable income per capita as a percentage of house prices continue to shoot up in the coming quarters.
The Game You Don’t Need to Play - There’s More to That
However, the way I keep myself grounded is the realization that I can choose the games I want to play, and the ones I want to opt out of. For example, I want to play the game where I create great stories, and have that be the magnet that draws people to my work. The game I don’t want to play, on the other hand, is one where I seek out powerful creatives to tie my name to. I’d rather direct my attention to the quality of my own labor than to invest it in the whims of someone else’s preferences.
The Case For American Seriousness - Katherine Boyle
The encouraging news, though, is that the loss of American seriousness is the deterioration of institutional will, but not our capability or desire to build new things. America is still the country that immigrants traverse the world to get to because of their unwavering belief that this land is far better than the nations they’re leaving. And they are right. It is why more than 50 percent of unicorn co-founders in Silicon Valley are foreign-born, because it’s the last and truest place in the world where you can still build something new.
1 Good Listen
Nvidia: The Machine Learning Company - Acquired
By 2012, NVIDIA was on a decade-long road to nowhere. Or so most rational observers of the company thought. CEO Jensen Huang was plowing all the cash from the company’s gaming business into building a highly speculative platform with few clear use cases and no obviously large market opportunity. And then... a miracle happened. A miracle that led not only to Nvidia becoming the 8th largest market cap company in the world, but also nearly every internet and technology innovation that’s happened in the decade since. Machines learned how to learn. And they learned it... on Nvidia.
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