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Alex Wilhelm 0:10
Hello, and welcome back to Equity, the TechCrunch podcast about the business of startups, where we uncover the nuances behind the numbers and headlines. This is our Monday show, looking at the weekend and the week ahead, but today is Tuesday because yesterday was a holiday in the US. Good morning. This is Alex. Today is February 20, 2024. And today we have a banging show for you.
On the pod we have stocks and crypto, a very nice Series C, TikTok in crisis, Walmart buying Visio, a huge ransomware story, the future of MariaDB, and then AI talent and San Francisco. let’s go!
0:50
Let’s start with the world of money and that means stocks. Stocks in Asia were mixed, but up in China, where key lending rates were cut more than expected as the country looks to shore up its economy. This could be the starting gun for a global shift towards falling interest rates. Stocks in Europe are massively higher today and they are set to open lower here in the US to start this short week of trading. On the earnings front, fewer names came in compared to last week. you are most welcome. Today we’re going to hear from Palo Alto Networks, Workiva and Sprout Social. Wednesday will bring us numbers from Nvidia and Etsy, Wix, Five9, DigitalOcean, Olo and Vimeo. And then on Thursday we’ll hear from Intuit, Block aka Square, NuBank, Grab, Carvana and Fiverr. I’m eyeing Sprout Social for SaaS, Nvidia for AI chips, Digital Ocean for cloud storage. And then of course Nubank for fintech.
1:49
Next crypto, where there is once again good news to report – for the second week in a row. This time Bitcoin is up nearly 5% in the past week to just over $52,000 and the Ethereum token is up nearly 10% in the past week to just under $3,000. Spot trading volumes are increasing again after a sharp decline at the beginning of the year. And turning the clock back a bit, Coinbase’s earnings last week were stellar, and some are saying crypto winter is over.
2:24
To start off my favorite part of the show, i.e. the big news that matters, I want to talk about a French startup called Planity. It has put together a $48 million Series C. This is a very big round. And it was led by Infravia Capital Partners, while existing investors Crédit Mutuel Innovation, Revia and BpiFrance’s Digital Venture Fund also participated. What does the company do? Well, it is building vertical SaaS for hair salons, barbers, and similar personal beauty businesses. I like vertical SaaS deals because it feels very startup-like: find an industry that’s using old technology, build a bunch of software for them, and bring them out of the stone age. And it turns out that Planity was really on to something because today, over 40,000 businesses use its software; This generates lots of tasty recurring revenue. But Planity also has something else to offer, namely payments. Now Stripe, which is the vendor that Planity uses for payments, has a white paper on the company. So we got some more data. Stripe claimed that while Planity had 35,000 business customers, its service had 8 million monthly users. So now with over 40,000, that figure has likely increased, and that many monthly users means a lot of payments, which means a lot of revenue for the startup. For example, Toast, whose model is somewhat similar though more restaurant-focused than Hair, is worth about $12 billion today. Essentially, vertical SaaS plus payments is just a good business model. And if you want even more data to illustrate that point, just ask Shopify.
4:03
Let’s talk about TikTok while turning the page. The company is once again in trouble and this time the European Union is formally investigating the company’s compliance with the Digital Services Act or DSA. The investigation into TikTok is focusing on the protection of minors, advertising transparency, data access for researchers, and risk management of addictive design and potentially harmful content. This is what TechCrunch says. Now, what is DSA? It is the EU’s online governance and content moderation rulebook, which came into widespread use across thousands of platforms and services from Saturday. But scale matters here because since last summer, larger platforms like TikTok have faced additional requirements in areas like transparency and risk. And these are the rules under which the video-sharing platform is now being investigated. Why do we care that TikTok is in trouble everywhere else? Well, fines for DSA violations can reach up to 6% of global revenues. That’s why TikTok is in trouble here. It’s going to be very, very expensive. Surely TikTok faces regulatory pressure around the world, including concerns about its parent company and potential government influence? Add new DSA case to that list.
5:20
Next up, Walmart is buying Vizio. And I know you must be thinking in your mind why is this on equity? But don’t worry, I’ll explain. To start things off, American retail giant Walmart is going to drop around $2.3 billion for Vizio, the famous manufacturer of televisions, however, this deal is not designed in such a way that Walmart can get higher margins from selling consumer hardware. No, instead, it’s all about the ads. And yes, you can sigh now. I pulled data from Walmart’s latest earnings report that was released this morning. And I can put it all into perspective for you. The company grew 5.7% last quarter. Not bad, not great. That’s fine, in a way, given the state of the global economy. However, Walmart’s global advertising business grew 33% in the quarter, which is even faster than its reported 23% e-commerce growth. So why does it matter? Well, not only are ads driving major growth for Walmart, they’re actually higher margin than its traditional business and improving the overall company’s gross margins. Therefore it is advisable to invest more in advertising work. But why do we care about TV deals over equity? Simple, one thing we’ve seen in recent years is how important ad-based revenue and profits are to tech giants, regardless of where they start in that field, as long as they interact with consumers. , they become advertising companies over time. Microsoft is putting ads in Windows, Amazon makes a lot of money on advertising. Instacart makes a lot of money from ads, Uber makes a lot of money from ads, the list just goes on. And it looks like Walmart is no different. It’s simply coming to the same conclusion from a different sector starting point. Perhaps we should update our thinking to the extent that any company that introduces a one-of-a-kind screen will ultimately make their user experience more cluttered by filling it with ads. And the reason is simple. Who doesn’t want more profits?
7:14
And then how about some good news? I have good news on the ransomware front, which is probably a phrase you’ve never heard before. But listen to me. A coalition of international law enforcement agencies, including the US FBI and the UK National Crime Agency, have disrupted a prolific ransomware game called Lockbit. Good news, and in an announcement on Tuesday, Europol confirmed that the months-long operation resulted in the compromise of Lockbits, primary platforms and other critical information that enabled their criminal enterprise. In practice, a few dozen servers in Europe, the UK and the US were manned and, critically, I think over 200 cryptocurrency wallets were seized. Why do we care? Well, since it first emerged as a ransomware-as-a-service operation in late 2019, writes TechCrunch, Lockbit has become one of the world’s most prolific cybercrime gangs. And according to the US Department of Justice, Lockbit has been used in nearly 2,000 ransomware attacks against victim systems in the US and around the world, earning it more than $120 million in ransom payments – and that’s how I was shocked. That’s a lot of money, a lot of incentive to behave badly. Now, I think Lockbit and other forms of ransomware are one of the reasons why we’ve seen cybersecurity software companies grow so much in recent years. And until so much capital was raised due to the failure of the venture. I’m always curious about cause and effect here, like let’s say Lockbit is removed and completely destroyed. Does this mean we have more or less of a market for cybersecurity products given the long-term threat?
8:54
But enough about regulation and cybercrime, let’s get back to the deals. MariaDB is a company that built its business on a fork of MySQL, raised $230 million while remaining private, and eventually went public via SPAC in late 2022. And since then, as with many SPAC companies, MariaDB has seen its value evaporate. Why? Well, there has been a lot of disappointment in its earnings report. And its value is currently too low to remain a public company on the New York Stock Exchange. For this you must have a market cap of $50 million. And MariaDB doesn’t do that but there is a potential buyer on the horizon. California-based K1 Investment Management has, and I quote, submitted an unsolicited non-binding indicative offer that would value the company at about $37 million. So this is a mess and it’s not how we thought this company would turn out to have a bad public life and certainly SPACs have been bad, but oh my god, poor MariaDB. You feel bad about it. But I think there’s something else that really matters here. I believe this deal may indicate that we will see more investors looking to buy cheap assets before they potentially become more expensive when interest rates drop at the end of the year. Kind of a side note from MariaDB and its backers and employees that they’re struggling so much, but it could be good news for deal volume in the back half of the year.
10:20
Finally I want to talk about the Wall Street Journal report that came out over the weekend and got a lot of discussion on Twitter. Essentially, it said that AI is bringing talent and investors back to San Francisco. The pandemic shook up the places where tech people lived and worked. But now the founder and his supporters are heading back to the city via the bay. Why? Well, customers, talent and, I would say, simple proximity to the epicenter of AI work in the US and probably the world, those are just some of the reasons. Now, I lived in San Francisco for most of the last tech cycle. And I have to admit that I have a big soft spot for the city and the Bay Area in general. But what I learned while there, and what people forget, is that San Francisco is a fast-growing city. It booms and then busts, people flock there and then they leave and it happens in waves that happen again and again and again. for now. Today, however, as the enterprise market shrinks worldwide, it is returning to its concentrated roots. And that means Northern California in 2024 will once again be like NorCal in years past, only this time we’re focused on AI.
11:38
And that’s our show for this lovely start to the week. But if you need even more equity before we come back, you can check out the equity pods on X and Threads. And if you want even more from me I’m Alex on X. The show has two sister shows, including Found, all about founder stories, and Chain Reaction, exploring the future of the crypto economy. We’ll talk to you soon; Equities bounced back on Wednesday. And we’re back on Friday.
Equity is hosted by myself, Alex Wilhelm, and TechCrunch senior reporter Mary Ann Azevedo. We are produced by Theresa Loconsolo with editing by Kel. Bryce Durbin is our illustrator and a big thank you to the Audience Development team and Henry Pickwet, who manages TechCrunch Audio products. Thank you very much for listening, we’ll talk to you next time.
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