Headlines this week - Oct 23, 2022
The risks of super-apps. A revolution in digital advertising. Uber's diversification. AI transforming content creation. Challenges for European telecom consolidation. Electric cars and Foxconn
IN SUMMARY - TOP 15 THEMES THIS WEEK
Kakao, a Korean super-app, has an outage that reveals emerging consumers’ vulnerabilities - Kakao is the Korean equivalent to WeChat in China: a super-app that people use for almost anything, from banking to online deliveries. This is also close to what Elon Musk would be envisioning for Twitter. Kakao is in the news these days because a recent, days-long outage has left millions of people without access to many “vital” services. This has raised questions about Kakao’s preparation for this kind of problems, and there are claims for regulators to act. Analysts also point to similar risks with “Big Tech” companies, in the West. Kakao’s CEO has just resigned, as a result of all this (WSJ)(Bloomberg)
Netflix presented results this week, and they’re back to subscriber growth - Shares jumped as a result of the announcement, and the company looks optimistic, even if they also said they will no longer project subscriber numbers. They claimed that all their competitors are losing money with streaming, and used this to justify the new ad-based offer, as a way to extract more money from the current subscriber base, or at least improve retention (WSJ)(FT)(WSJ-NoMoreForecasts)
The online advertising market is getting more competitive than ever, in (potential) detriment to Google & Facebook - We are seeing announcements by new entrants from different businesses, including (obviously) Netflix, but now also Uber, which is launching a new global advertising unit, that expects to add a revenue of $1bn in just 2 years. This is seen as a trend by Richard Waters from the FT, who sees changes in the sector, and emerging pressures on Google and Facebook, who have dominated it until now. The (disappointing) results of Snap, also this week, would also be consistent with this picture of advertising money shifting to other vehicles (FT-Uber)(FT-RichardWaters)(WSJ- Snap)
Uber enters the (fast-growing but challenging) fast deliveries market - Apart from their ambitious advertising plans, Uber is also making moves to enter the (already crowded) market for fast deliveries, where startups like Gorillas are struggling to deliver on investors’ initial expectations. The point for Uber’s entrance could be that they can leverage their scale to succeed where startups can’t. This week they’ve announced a partnership with a UK frozen-grocery chain (Bloomberg-Uber)(FT-Gorillas)
Financial markets start to believe that “generative AI” will transform content creation - Stability AI, the company building the (open-source) Stable Diffusion model for visual artistic creation, has had a funding round at a valuation around $1bn. People see applications of this software to design, film, augmented reality, video games, advertising and e-commerce, and concern is growing about potentially “toxic” ones, e.g. creating realistic violent or offensive images. Meanwhile, Jasper, another AI tool, focused on text creation for marketing & communications, has received a valuation of around $1.5bn (Bloomberg-Stability)(TechCrunch-Jasper)(NYTimes-Concerns)(WSJ-Concerns)
4 themes emerge as key trends for Deep Learning in 2022 - They were summarized this week in a VentureBeat post: (1) Scale (building increasingly large neural network models) will remain an important path for growth; (2) Unsupervised learning (using non-annotated data to feed the models) keeps gaining traction; (3) Multimodality (using a mix of different data types to feed the models, e.g. images, text, video and other formats) will be key to make models more flexible; (4) Lots of challenges remain, even for the most advanced models, e.g. responding to complex descriptions, or doing meticulous, step-by-step reasoning (VentureBeat)
European telecoms receive negative feedback about potential in-market M&A deals - The advocate general at the EU Court of Justice was expected to confirm a previous judgement against the regulators that blocked the TEF O2UK-ThreeUK merger in 2016. But she has now said that she sees “no justification for requiring a higher standard of proof” to show that the merger would have led to a rise in consumer prices. These comments were against previous expectations of a more favorable opinion to in-market M&A in European telecoms. Maybe linked to this mood, Cevian, the activist investor that was pushing Vodafone to sell several European operations, has now said they’re selling their stake in the company (FT-Opinion)(FT-Expectations)(FT-Cevian)
In the US, AT&T wins, Verizon loses - AT&T’s were perceived as a massively positive surprise, with the stock jumping +7% on the day, and with the company beating expectations both in profits and in new wireless subscribers. They are expecting a revenue growth of around +5% for the whole year, driven by new adds, rate increases and customers’ upgrading to premium plans. Meanwhile, Verizon’s results were disappointing, with lower than expected new adds, and a revenue growth slowdown (WSJ-AT&T)(WSJ-VZ)
Also in the telecom space, Ericsson’s 3Q22 results were badly received - There were several interpretations about what’s happening. First, overall economic deceleration is expected to also decelerate capital investments from telecom operators, and this would directly affect Ericsson’s P&L. Meanwhile, activist investor Cevian, which controls around 5% of Ericsson’s shares, talked about a “swamp of losses” and said that it was “driven by the divisions outside Networks, namely Cloud Software & Services and Enterprise”, pointing to a potential change in management priorities (FT-Results)(Bloomberg-Cevian)
Satellites are revolutionizing in-flight WiFi connectivity - There are expectations of a massive deployment of in-flight WiFi services in most airlines, supported by low-orbit satellite constellations. Satellite companies see this as a big opportunity, but it is not clear that this will create any value for airlines, as these services will probably be “added” as a feature to most airline tickets, with limited impact on revenues or profitability. Starlink has created a specific unit, Starlink Aviation, which will start selling a (very expensive) service for private jets (WSJ)(Reuters-Starlink)
The shock wave after the US bans against the Chinese chip industry keep expanding - This week we learned about the impact of the export bans on two different vendors: Lam Research, a US-based provider of wafer fabrication equipment and related services, is expected to be hit by the cancellation of its contracts in China. Meanwhile, ASML, based in Amsterdam, said they are expecting to avoid a significant impact on their revenues (Bloomberg)(Bloomberg-ASML)
On top all these industry challenges, Nvidia is telling us we have reached the end of Moore’s Law - In an interview, Nvidia’s CEO J. Huang explains he sees a large opportunity in supporting the increasing needs of AI workloads, but that there is a challenge to keep making progress, because we’re now close to the physical limits to create more efficient chips (as “we can’t shrink atoms”). So we have practically reached the end of Moore’s Law, and “we have to do something different”. He sees the solution in “changing the way we compute”, shifting to more specialized, ad-hoc models (“go domain by domain of application and get accelerated with new computer science”) (Protocol)
Tesla’s results: making progress, and expecting demand to remain strong even in a recession scenario - Tesla posted its highest quarterly revenue ever, close to +56% vs. previous year, and Elon Musk claimed they were “recession-resilient” and that demand remains strong, even if (due to changes in how they produce and distribute the cars) they cut their forecast for FY2022. Some investors are worried that this change could be a first sign of more structural problems, that might affect demand. Part of the problem is that the company’s valuation still looks pretty high (WSJ)(NYTimes-InvestorConcerns)(FT-InvestorConcerns)(WSJ-Valuation)
Recession or not, excitement about electric cars keeps growing - The motor expert at the WSJ claims electric cars have plenty of advantages vs. traditional ones, even if he admits that now they might be too expensive, so it could be advisable to wait before buying one. Analysts believe the US Inflation Reduction Act, and the tax credits for electric vehicles that it will introduce, will be a “game changer” (at least for trucks). Also, charging infrastructures (a key adoption barrier) are being designed and deployed, even if some obstacles remain. Meanwhile, leading Chinese vendors are preparing to enter Europe, and European car brands are worried (WSJ-Expert)(Protocol-GameChanger)(Bloomberg-FutureGasStation)(WSJ-EVChargingBarriers)(Bloomberg-ChineseVendors)
Foxconn confirms it wants to expand from smartphones into electric cars - Foxconn, the largest iPhone manufacturer, said this week that they would like build 40-45% of the World’s electric vehicles (a similar figure to what they have today in digital devices). This would only be possible if the EV industry (including Tesla) would shift to adopt a similar supply chain model as the one for digital devices. A big if… For now, they’re showing clear signs of their bet to become a leader in this space, with several new models announced this week. For some analysts, this is driven by the need to diversify production away from China (where they’re building most devices right now, but where they don’t produce any of their cars) (FT-FoxconnAmbitions)(Bloomberg-NewModels)(FT-Diversification)