Notations From the Week (Weekly Edition) : On the State of Tech Courtesy the Team @ The information

 

The Tech Scenes continues its' state of flux.    We present a snapshot of the week that was in Tech courtesy the Fab Team at the Information:

The Briefing  By Martin Peers SUPPORTED BY SPLUNK December 2, 2021 Greetings! This is not the week to be tying the knot with a SPAC. Shares of Grab, a Southeast Asian food-delivery and ride-hailing firm that went public via a SPAC merger, fell 21% on its opening day today. Meanwhile we also got word—hats off to The Wall Street Journal for the scoop—that most of the shareholders in BuzzFeed’s SPAC partner, 890 Fifth Avenue Partners, withdrew their cash ahead of today’s vote on that deal. That hardly signals confidence in BuzzFeed’s business prospects.  High SPAC redemptions aren’t uncommon, to be sure, and won’t stop the merger from getting done. But it doesn’t augur well for how BuzzFeed shares will perform when they start trading on Monday, particularly in what appears to be an unforgiving market. Some other recent high-profile tech businesses have flopped after completing their SPAC mergers, notably WeWork (shares now down 19%) and scooter rental firm Bird Global (down 18%). It has long been true that most SPAC mergers end up with shares falling below their original SPAC selling price, which is typically $10. But you have to wonder why high-profile companies with established businesses continue to pursue SPACs as a means of going public. There’s certainly no speed advantage. Grab struck its SPAC merger agreement in April but only completed it this week. BuzzFeed finalized terms of its deal with 890 Fifth Avenue in June (and that was six months after the two companies began talking, securities filings show). It’s hard to believe either company couldn’t have gone public via initial public offering faster. SPACs don’t offer companies any certainty of how much cash they can raise, given how often SPACs see heavy redemptions (as in BuzzFeed’s case), which sharply reduces the cash available to the merged company. Advocates argue that for companies with an undeveloped business, SPACs are the better option. They can issue rosy projections about revenue growth five years out that companies going public via IPO can’t. (That’s hardly something to recommend the SPAC process to investors, however.) For established businesses like BuzzFeed, that should be less of an advantage. SPACs aren’t going away, for sure. But over time they seem likely to fade in popularity.   What Ails Grab and BuzzFeed? What are we to make of today’s SPAC developments for Grab and BuzzFeed? They’re wildly different situations, although there are parallels. Very few investors in the SPAC that merged with Grab took their cash back, suggesting the original SPAC shareholders were bullish about the future of the mashup of Uber- and PayPal-like businesses. But the public markets have not been kind to the ride-hailing industry, the biggest part of Grab’s business. Neither Uber or Lyft is currently trading above its 2019 IPO price. Grab’s performance today is likely partly a reflection of that history.             Grab’s timing also wasn’t opportune. Its most recent quarterly earnings, for the third quarter, showed revenue falling 9%, thanks mostly to lockdowns in Vietnam that froze both its ride-hailing and delivery business in that market. (Not that anyone should go by just the third quarter: The company reported much healthier revenue growth in the first half of the year.)             But Grab may be getting penalized for other issues, such as the fact that there’s no counterpart in the U.S. for a company that includes ride hailing, food delivery and financial services. And the company’s investor presentations are not a model of clarity: They’re clogged with numerous different metrics, from gross merchandise value to total billings to revenue. One thing is clear when you read past the alphabet soup of different profit metrics: Grab is losing hundreds of millions of dollars a quarter. Its shares will likely stabilize, but this isn’t likely to be a blockbuster investment for a while yet. BuzzFeed also faces long-standing investor wariness about prospects for midsize digital media businesses, particularly given their reliance on advertising. Other media firms such as Vice Media had tried and failed to pull off SPAC mergers. As The Information reported earlier this week, BuzzFeed centered its investor pitch for the SPAC deal around the potential of its commerce business instead of its bigger ad business. But commerce slowed sharply in the third quarter, undercutting that pitch, even though its ad business has done better than expected. The sizable redemptions mean BuzzFeed will have less cash flexibility, which could turn off potential investors. The SPAC had $288 million in cash: How much will be left following the merger’s completion, after all the shareholder redemptions, isn’t known yet. But according to The Wall Street Journal, it’s a “fraction” of the total. That’s hardly ideal. Still, depending on how BuzzFeed stock trades, it may be able to use its newly public equity for more acquisitions.  More Bad News for SoftBank It wasn’t a great day for SoftBank. It’s a big shareholder in Grab, whose public debut tanked. Meanwhile, the investment giant’s hopes of selling chip designer Arm Technologies to Nvidia hit another regulatory roadblock when the Federal Trade Commission sued to block the deal. As The Information wrote in October, regulatory clouds have been gathering over the sale. European regulators are taking their time, which is never good, and China remains another big hurdle. What’s the bet this deal gets abandoned? In Other News… Apple has told component suppliers that demand for the iPhone 13 lineup has weakened, Bloomberg reported. Google delayed its mandated return to the office in Europe, the Middle East and Africa past the original Jan. 10 date, Business Insider reported. New From Our Reporters Amazon Expands Trucking Program to Europe Modest Proposals: Facebook’s Decade-Old Missteps Should Be a Lesson for Web3 VC Investments in Consumer Crypto Startups Soar 26-Fold What We’re Reading China’s Digital Currency Challenge: Winning Hearts and Minds Investors Jump Into Metaverse A Clash Over Returning to the Office Looms Microsoft Says You Just Can’t Trust Google Crypto Exchange FTX, U.S. Affiliate Seek to Raise $1.5 Billion By Kate Clark, Berber Jin and Hannah Miller FTX co-founder and CEO Sam Bankman-Fried has told investors he is seeking a new round of funding for the global crypto exchange and he is also asking investors to buy shares in its U.S. affiliate, according to two people with direct knowledge of the matter. The new fundraising aims to value FTX at $32 billion and FTX’s U.S. affiliate at $8 billion, according to one of the people. Combined, the exchanges aim to raise a total of $1.5 billion. The new discussions add to a tremendous pace of fundraising for the two-year-old FTX, even by the standards of today’s heated environment for cryptocurrency startups. FTX in October announced $420 million in funding at a $25 billion valuation. That didn’t include the U.S. affiliate, which operates a separate exchange for Americans to buy and sell cryptocurrencies. The deal brought FTX’s total funding to $1.4 billion.    READ THE FULL STORY