Weekly Reads
Weekly Reads - July 31, 2023

Please read the Unison Asset Management Social Media Disclaimer


Meta’s replication of TikToks on their platform can be finally deemed a success with the revenue run rate of Reels closing in on TikTok with the company’s investment in AI recommended content helping narrow the gap between the two rival platforms.

Just last year TikTok was unceremoniously crowned as the platform to unseat Meta as the number one social media platform in the world. TikTok was rapidly gaining subscribers while Meta saw their first ever decline in active users in the company’s history. Meta was far too slow in recognizing users' shifts to short-form video over classic feeds and stories which allowed TikTok to quickly gain market share and force the giant to make significant investments in their platform to catch up. After a rocky year, these investments are paying off with Meta’s short-form video product Reels topping 200 billion plays per day and reaching $10 billion in annual revenue run rate. These are stark improvements to the 140 billion plays and $3 billion revenue run rate last fall. Insider intelligence estimates that TikTok generated $9.9 billion in worldwide revenue last year and forecasts $13.2 billion in global ad revenue this year. It could be as early as next year that Reels could surpass TikTok’s global ad revenue as management has promised Reels monetization parity and engagement on Reels improves. It’s fair to say that after one of the worst years in company history, the script has been flipped with Meta back on the offensive and primed to regain market share.

The demise of Yellow is a great example of the destructive nature of uninhibited M&A and how competitive disadvantages will eventually cripple the success of any company regardless of its pedigree or size.  

The biggest bankruptcy in U.S. trucking history is officially coming with Yellow, the country’s 3rd largest less-than-truckload (LTL) carrier ceasing all operations on Sunday. This bankruptcy does not come as a shock as the ninety-four-year-old company has seen a steady deterioration over the years. Yellow’s downfall came on the back of poor M&A decisions throughout the last two decades saddling the company with massive debt. From 2003-2007 the company spent over $2.5 billion dollars in M&A with hopes of becoming the largest LTL company allowing it to leverage its scale into greater operating and cost synergies. These hopes were quickly dashed as the financial recession took hold, pressuring the company’s debt-laden balance sheet. The company struggled to integrate these acquisitions at a time in which other carriers were undercutting Yellow on price in hopes of accelerating the company’s demise. The company was able to survive as they found outside funding and negotiated wage cuts with union workers. Over the following few years, Yellow offloaded many of its business segments to raise extra funding and cut its capex spending on its network to secure its survival. These choices led Yellow to become the worst LTL service provider forcing them to become a low-cost provider to keep business. This change in the operating model lead to constant operating losses and market share losses to providers who invested in their network. The final nail in the coffin came after failing to secure a deal with its union workers this year after management refused to take pay cuts and union workers resisted Yellow’s plea for more concessions from workers. Yellow is a great case study on how M&A can backfire and create competitive disadvantages that can push a company into a down spiral that can never be fixed.

Tesla’s price cuts and a weaker macro back drop have created a price war on EVs with some of most popular EVs selling below MSRP as traditional automakers balance market share gains with profitability.  

A new report from automotive research and listing site iSeeCars.com shows that 20 popular new car models are priced within 2% of MSRP and six of those models are currently on average selling below MSRP. Out of the six models currently selling below MSRP, four are EVs/Hybrids which include: the Chrysler Pacifica Hybrid, Ford F-150 Hybrid, Hyundai Ioniq 5, and Hyundai Ioniq 6. The rest of the top 20 has five other EVs trading only slightly above MSRP, which is unexpected in the recent U.S. new car environment with new cars often selling at a premium upwards of 8% to MSRP. The last time this study was conducted in February only three models were priced below MSRP and only one was an EV. The EV environment is in a much more sensitive position with recent price cuts from Tesla and Ford alongside slowing demand for EVs. Ford recently cut its EV production run rate target to 600,000 EVs in 2024 signaling that demand for EVs might be slowing down. If this slowing demand trend continues, we could see further price cuts and promotions as many traditional markets have published their EV targets and there could be severe ramifications if they fail to meet these targets.