Sunday Finds + 3 Thoughts From Last Week
Bentley Systems, Zoom Video, and Buffett's 13F
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.
Podcasts From Last Week:
Zoom Video Is More Than Just Virtual Meetings, With Sean Emory (Ticker: ZM)
Investing Power Hour #33: What Is Buffett Buying? Masa Son Full Tilt, TCI Letter To Alphabet
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1. Are big tech companies bloated? The debate rages on…
This week, TCI Fund (owner of $6 billion in Alphabet stock) wrote a letter to Alphabet’s management asking them to reign in expenses.
The main points? They think Alphabet has hired too quickly, overpays employees vs. peers, and is spending too much money at Other Bets. The data presented in the short letter is pretty convincing, I’d give it a read if you’re more interested in this topic.
Now, a lot of people think it is disingenuous for an outside investor to believe they know better than the people actually running a business. But sometimes, an outside perspective and a fresh set of eyes can be extremely helpful, and I think this is one of those situations.
Some big tech companies (Alphabet, Meta, Amazon) got caught up in the e-commerce/digital advertising bullwhip in 2021 and hired too many people. Now, in 2022, minority investors are helping them realize these mistakes. This should be a symbiotic relationship, not a combative one.
Unless the global economy goes through a major downturn, there’s no reason that Google Services (a monopoly on digital advertising) should not see increasing operating leverage over multi-year periods.
They don’t need to pull an Elon Musk and fire half the team (that would be idiotic), but slowing hiring and paying a bit less will make everyone — including employees who get paid lots of stock comp — happier in the long run.
And speaking of other big technology companies…
2. The losses at Alexa are as bad as Reality Labs
There was another article about the money suck that is Alexa/devices at Amazon released this weekend:
So $3 billion a quarter equals around $12 billion a year. Which, coincidentally, is around the $10 billion - $15 billion annual loss projection over at Meta’s Reality Labs division.
Man, does having AWS give you the flexibility to do whatever you want financially…
Seeing this story, I thought I’d do a Twitter poll (you have to click on it to see the poll) and see what the general consensus is around Alexa and Reality Labs.
The majority of people (70% as of this writing) chose Reality Labs as the division with the worse potential. While I agree that Reality Labs will probably be a net negative for Meta’s business, I disagree that it is worse than Alexa/devices at Amazon.
At least Reality Labs has some semblance of a business model that could (emphasis on could) become an extremely profitable hardware/software platform in the future. Does that warrant $100 billion in spending? Not sure.
But what is the business model of Alexa? It sure seems like this is just a science project with $12 billion in funding a year and no path toward getting a positive ROIC. Every other company found out that voice technology was a bust. Time for Amazon to get the memo.
3. Can we now admit crypto is a net negative for society?
I want to close out this week by asking the question on a lot of people’s minds, and it is whether crypto will ever recover after the continuous exchange collapses of the last few weeks.
Maybe the cat is out of the bag and there will always be some zealots who are “building” something in this space.
But my guess is the charlatans, hacks, true believers, and all the other people who got tricked or wanted to trick people into believing in cryptocurrencies will eventually move on to some other grift. That’s what has happened throughout modern history, and I don’t think it is unreasonable to expect it to happen with crypto.
By now we can conclude with high confidence that this “industry” was a complete sham and a net negative to society. Even if it sticks around in a much smaller size this decade, the majority of people now understand that it was all just magic beans and that the emperor had no clothes.
Sure, maybe Bitcoin is fine if you subscribe to the “digital gold” argument, but don’t forget how much energy and other resources are wasted keeping that system running. Energy that would otherwise go to helping people improve their lives around the world. Given that by definition Bitcoin is a zero-sum game for investors, this energy waste makes it a net negative in my view.
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 Good Reads
As we messaged, I was trying to make sense of what, behind the PR and the charitable donations and the lobbying, Bankman-Fried actually believes about what’s right and what’s wrong — and especially the ethics of what he did and the industry he worked in. Looming over our whole conversation was the fact that people who trusted him have lost their savings, and that he’s done incalculable damage to everything he proclaimed only a few weeks ago to care about. The grief and pain he has caused is immense, and I came away from our conversation appalled by much of what he said. But if these mistakes haunted him, he largely didn’t show it.
Infrastructure Funds: Why Do These Exist Again? - Sanjay’s Substack
Once you do a little digging, you’ll soon realize that in order for infrastructure investments to produce returns both stable and large enough to benefit investors (after accounting for fees), these businesses have to be treated as private equity investments. This then transforms what seems to be a stable, low-risk asset class into one that is perhaps “stable,” but produces worse returns when compared to other investments of the same risk profile.
TCI Fund Management Letter to Alphabet - TCI Fund
Alphabet pays some of the highest salaries in Silicon Valley. As detailed in Alphabet’s Schedule 14A filing, median compensation totaled $295,884 in 2021. An analysis by S&P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US.
1 Good Listen
Qatar: A History - The Rest is History
It is finally here. Tom and Dominic are embarking upon their mighty World Cup themed extravaganza. Every day they will be releasing a new episode, each one based upon a different country that is competing in the tournament. 32 days, 32 countries, 32 episodes, fasten your seatbelts and enjoy the ride.
First up is Qatar. How did this tiny country in the Middle-East come to play such a prominent role in world affairs? Oil money, controlling the narrative, and western security are all part of the story.
Smart and Funny Tweets:
