Weekly Reads - November 7, 2022
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The fastest growing social media platform TikTok has hit a bump in the road with management cutting revenue projections from $12 - $14.5 billion to $10 billion this year. It is reported that during a staff meeting management blamed staff for not driving sales in the platform’s advertising and ecommerce business segments. Insider reports from former employees blamed management’s overspending in several areas from salaries to social events. Insiders noted that TikTok offered employees in junior roles six figure salaries in order to attract talent from rivals and hosted luxurious events across the world with one event in Spain costing $2.5 million. While TikTok’s revenues have exploded from just $1 billion in 2020, the company is dealing with growing pains as it scales its platform internationally. On Tuesday the Financial Times revealed that TikTok has undergone a restructuring of its U.S operations leading to hundreds of staff leaving the company. In Europe, turnover grew six-fold in 2021 with the company posting pre-tax losses of $896 million according to filings from the UK’s companies House. These issues alongside Beijing’s crackdown on Chinese Tech giants have delayed TikTok’s IPO plans for the foreseeable future.
Comcast and Charter have named their streaming joint venture Xumo consolidating a bunch of streaming assets the companies have acquired into one core strategy. Xumo is the aggregation of the Comcast’s free ad-supported platform FAST, 4K streaming device Flex and streaming platform Peacock. Xumo operates similar to Roku and Apple TV with Comcast and Charter offering both the hardware and software to the end consumer in order to create an ecosystem inclusive of streaming devices, content, and advertising. Xumo is expected to launch in 2023 via Walmart, Costco, and Charter retail channels with additional distribution planned. Xumo seems to be a last-ditch attempt for Comcast and Charter to protect their TV business which has been bleeding customers to streaming platforms such as Netflix. With Xumo, Comcast and Charter can redeploy their streaming assets in a way that could help prevent customers from turning to other video gateways such as Apple TV or Amazon Fire TV. Xumo will mirror the offerings of the Amazon Fire TV with Xumo’s FAST service offering hundreds of linear channels for free and Peacock offering original content and ad free entertainment. Xumo is an obvious copycat of these other streaming devices and is more of a defensive play to stop subscriber churn rather than a true streaming challenger. Peacock has had little traction in becoming a top name in streaming and Comcast FAST service is not very different to the dozens of free ad-supported streaming services you can download. With streaming becoming more competitive every year it is unlikely that Xumo can make any significant impact with its subpar lineup of streaming options.
Investor sentiment around Carvana continues to deteriorate with shares being cut in half in two trading sessions after disappointing quarterly earnings. Carvana now boasts a market capitalization of just $1.3 billion versus the $60 billion valuation the company was trading at last year. Carvana was a stock market darling last year as COVID boosted the demand and prices for used cars and investors sought companies that would be lock down resistant. The environment has changed drastically with used car prices declining and rising interest rates weakening consumer demand for used vehicles. The Manheim Used Vehicle Index dropped in October for a fifth straight month down over 10%, the biggest decline in the 28-year history of the index. Wall Street has been the toughest critic of Carvana with Morgan Stanley stating the company could be worth as little as $1 per share as declining used car prices and rising interest rates add material risk to the company’s outlook. This is a far different stance than last year when sell-side analysts had buy ratings on the stock despite the company trading on inflated operating numbers due to COVID. With investors shunning the once high-flying stock it will be up to Carvana’s management to bolster its balance sheet to survive until used car prices and interest rates normalize.