In what seems like ages ago, it was only back in October of 2015 when I penned an article titled “Crying Towels”: Silicon Valley’s Next Big Investment Op. It opened with the following:
“Nothing focuses the mind more than either the lure of riches or, the loss of them. And there has been no other group caught up more in the lure for riches than: the disruption class.
Disrupting is what it’s been all about over these last few years. However, there’s another disruption on the technological horizon heading right towards Silicon Valley itself, and that brewing storm is – disruption of the disrupt-ers.
The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle. For a glimpse into the event horizon that is the future. All one needs to do is look no further than what myself and a few others have dubbed the “canary in a coal mine” of all that’s Silicon Valley: Twitter™.”
At that time I was taken to task by many in “The Valley” of whom I refer to as the “aficionado crowd.” There’s nothing wrong with that, nor an I complaining about it. What I did take issue with (and still do) was that the arguments made against any of my observations added up to nothing more than the worn out meme of, “It’s different this time.” And most of this was coming from those in the “elite” circles, not your run-of-the-mill IPO dreamers.
So with that in mind; “It’s different this time” is shaping up to look a lot more “like it’s 1999.”
Once again Twitter is in the news, but there’s a difference. Twitter is currently jettisoning nearly one-third of its total office space onto the San Francisco sublease market. It would seem the once heralded songbird has been comatose on the bottom of its cage, for so long, the most prudent “next big thing” would be to reduce the size of that cage. User growth be damned.
It appears that once you are no longer one of the favored recipients of central bank fueled sustenance – you must resort to those nasty, filthy, natural laws of the business world that were thought to be purged from the Silicon Valley business lexicon for good. i.e., generate net profits – or perish. “It’s different this time” doesn’t fly when the rent is due is all I’ll say.
In an eye-opening article by Wolf Richter, it would seem the revelation of that once “songbird” of Silicon Valley is not tweeting quite the happy tune. To wit:
“It’s the largest sublease space now available in San Francisco.
The largest of the floors, at 78,792 square feet, is at its 1355 Market location, the iconic former San Francisco Furniture Mart that Twitter moved into in 2012. The floor comes with “600 workstations, 49 conference rooms, multiple collaboration/lounge areas, 2 kitchens, 2 training rooms, and a Mother’s room,” according to the brochure.
It also listed three floors at the adjacent One 10th Street building that it moved into in 2014. The floors, 34,950 square feet each, are also fully furnished with similar amenities, and earned a “2016 International Interior Design Association – Honor Award,” according to the brochure. Twitter spared no expense before its IPO to dazzle investors with its buildings and show them what noble material it was made of.”
Remember when the questioning of “spectacular” amenities being acquired by companies that couldn’t produce net profits was met with scoff and scorn? You know, muck like when they did the same back in say 1999? What was that first go-to line of defense? Hint: “It’s different this time!” Sure it is.
If you needed any further proof as to help solidify the telltale sign that “it was not different this time.” Reread that last line in the above quote from the article. Once again, hint: “Twitter spared no expense before its IPO to dazzle investors with its buildings and show them what noble material it was made of.” Today, that line says so much more in hindsight than anything ever argued or said in defense of those transactions at the time by all of its defenders. And it’s only going to get worse, much worse.
It would seem not to outdone, forgotten, or left behind in all that is new in “The Valley.” Non other than Cisco™ is once again just as relevant to this discussion as it was when the wheels seemed to be coming off the first bandwagon as the 90’s closed.
In what can only be described as a “Wait…what?” moment for employee evisceration. Cisco announced it will layoff (once again) thousands. And just like Twitter – they mustn’t be alone. And for proof, all one needs to look at is the current state of the most prime rental market to everything “The Valley:” San Fransisco.
This is a headline you would not expect when the “markets” are at all time highs. Let alone, a flourishing tech boom. To wit: “San Francisco Rental Market Shows Signs Of Cracking Under Pressure Of Excess Supply.”
It would seem that the prime area that gave rise to the “FREE” business model are needing to offer their own “free” as to possibly entice some of those renters that may still live in shipping containers, under stairwells, or in a box in the middle of someone else’s apt, to rent their own digs. Once again, to wit:
“New buildings aren’t the only ones offering incentives. Craigslist is also flooded with listings like the one below offering free rent and a $500 gift card to interested renters.”
When was the last time you heard the term “offering incentives” and “San Francisco rental” of anything in the same sentence? Yep, it’s different this time.
In my original article back in October I also made this observation:
“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.
There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.
However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.”
Back in October even the very thought, let alone the audacity to publicly assert “it wasn’t different this time” was met with near heretical fervor. Yet, here we are, nearly 3/4’s deep into 2016 – and where are all the “unicorn” IPO’s? (insert crickets here)
Sure, there are some signs of a mad dash to get some IPO’s into this market. After all, there will be some wanting a last bite at the apple, for if you can’t get out at lifetime highs – when can you? But it’s in the who’s not, as opposed to who is that should, and is, raising eyebrows.
One of the most cited revelations being used as to thwart or deflect any criticism that the “great IPO apocalypse of 2016” is now over was reported by Bloomberg™ when Liz Meyers of JPMorgan Chase™ stated that the bank “…has more than 20 global IPOs lined up and ready to go.” Fair enough, but as I said, it’s who isn’t there that makes all the difference in my opinion.
Where is AirBnB™, Uber™, Dropbox™, and a host of others? Remember Theranos™? I’m sorry, too soon? Or, is the term “can’t forget about it soon enough” more inline?
These are just a few of the names one would assume would be at the forefront of an IPO market that has all but been dead since late 2015. Especially where all three of the main indexes (Dow™, S&P™, Nasdaq™) are simultaneously making never before seen in history highs. And yet? Nope, it would seem the most important barometers of financial health and wealth at all time highs just aren’t market condition “friendly” enough.
Might I suggest you reread that last line once more and let it resonate for a bit. For it puts things into a little more perspective in my opinion.
Here’s another very poignant statement (again for perspective) from the interview with Ms. Meyers. To wit:
“Technology companies specializing in software and disruptive internet are among those most likely to file for IPOs in coming months, and account for more than a dozen of the deals JPMorgan plans to launch before year-end, Myers said. However, the highest-value tech deals are likely to wait until 2017 and 2018, she said.”
In October of 2015, if you were to have even suggested that the “unicorns of unicorns” wouldn’t even be considering an IPO till 2017 or even 2018? You would have been laughed out of any tech conference or “in the know” party event. That, or verbally accosted by some next in rotation fund manager or “Valley” aficionado. I know, because I was a recipient of such. Yet, here we are, and that is precisely what the deal is. i.e, No deal – maybe next year. And it’s still a very big maybe.
What you are also not hearing, is what you should be, when markets are posting record highs on a near daily occurrence: Job growth. Especially in the tech sector, and more importantly; in “The Valley.”
If you look closely enough the cracks are growing ever larger in the Silicon Valley facade of “eye balls for ads” business model. A model by the way, which accounts for the plethora of all current Silicon Valley models in one form or another. Whether directly, or indirectly. And to see just how deep these chasms may reach, one needs to look no further than what many deem as the holy grail to everything of what an “eye balls for ads” model should be: Facebook™(FB.)
In what can only be described as another “Wait…what?” moment, it was announced that none other than Procter & Gamble™, the largest advertising buyer in the world, is moving away from targeted ads on FB. Reason? “Limited effectiveness.” The problem?
“On a broader scale, P&G’s shift highlights the limits of such targeting for big brands, one of the cornerstones of Facebook’s ad business. The social network is able to command higher prices for its targeted marketing; the narrower the targeting the more expensive the ad.”
There’s only one thing to say to that in my humble opinion, and it is this: Uh-Oh.
Combine this revelation with FB once again changing its terms so that all those who still thought FB was the greatest platform to build a following, or an audience, are once again – screwed. More fundamental questions begin to ask themselves. For instance:
If the social media “giant of giants” with all that “collected data” that was its main selling point for higher ad dollars (I’ll state it is the cornerstone of the whole “eyeballs for ads” model) and for others (which I am of this group also) would say is their raison d’être: can’t deliver worthy results with its prime ad vehicle to what must be the single most captured, and collective site of pet owners and foodies on the planet to purchase enough air freshener and such that the worlds largest ad buyer didn’t find value enough to continue? It’s a very telling sign. And I’m of the opinion – it’s not only a bad omen. But rather – an ominous one at that.
If publishers and others decide to leave FB along with those that frequented them since these new rules go into effect, and the largest ad buyer is stating its prime ad product isn’t worth continuing, and the greatest amount of current ad revenue is coming from other Silicon Valley type companies in the form of advertising for app installs. Can anyone one else see where this “it’s different this time” train is running to?
But not to worry I guess, for hope is on the Verizon™ (pun intended.) After all, Yahoo™ finally did sell itself. The only issue?
We’re at never before seen in history market highs – and one of the main players in the buyout is none other that AOL™.
If it is different this time, maybe only a box of Kleenex® is all that will be needed.
But I doubt it.
© 2016 Mark St.Cyr