Category: Media & Entertainment

Don’t Give Investors A Reason to Say “No”

Don’t Give Investors A Reason to Say “No”

Investors Allocate Premium Valuations to That Which They Understand

My theory is that institutional investors implicitly penalize complexity. I base my theory largely on 23 years of capital markets experience and intuition and admittedly have little data to support it. I believe that investors will invest a dollar in Company A assuming that “A” has a simple story (one that may be tracked by observing revenues, operating profits, earnings and user growth) before they will invest a dollar in Company B, where in the case of B there are multiple business drivers and a lack of user metrics. I believe this to be true even if B has slightly better top-line growth, bottom-line growth and a slightly more attractive valuation. In other words – transparency and simplicity is preferred over complexity – even if all else isn’t necessarily held equal.

The primary drivers for the above behavior are threefold:

1.) Institutional investors have limited resources;

2.) Institutional investors are concerned for their jobs (rotation of assets from active to passive investment products, fee compression and market volatility account for numbers 1 & 2);

3.) Human nature – it’s easier to support an investment idea when one understands the drivers at a nuanced level.

Therefore, many investors will follow the path of least resistance and invest where they are comfortable and avoid complexity.

Remove Friction Points from Your Investor Story

Public companies must remove obstacles that prevent investors from participating in the stock. Much like software companies work to remove friction points from the user experience, companies ought do the same with investors – don’t give investors a reason to say “no” to your story.

Where possible Enterprise Technology companies ought to disclose user metrics. I understand that to disclose the number of users would not tell the full story for many companies. For example, one could not neatly attach a user count to consulting revenue. It would be equally difficult in many cases to attribute services revenue to a defined user set. Certain offerings are not billed at the user level, therefore it is difficult to arrive at a user count. This should not prevent you from working to arrive at some aggregate user count even if doing so would only partially tell your company’s story.

I can imagine a line in a quarterly press release that would read as follows: “User count was 15,000 as of 9/30/18, up 5% from a year ago. This user count is relevant to approximately 70% of our business from a total revenue standpoint.”

The above disclosure probably isn’t useful if it describes less than half of your total revenue. However, increasingly Enterprise Technology companies are moving to subscription billing models that incorporate user counts into the pricing equation and therefore lend themselves to a reported user metric. If you are new to this publication, we are big fans of recurring revenue models (our recently published article: “Every Company Should Consider Adopting A Subscription Revenue Model“).

Consumerization of Investor Communications

Last, the benefit of this disclosure goes beyond transparency and simplicity. I believe there is an investor psychology benefit. Investors intuitively understand “user-driven” business models as most investors – particularly younger ones – are abundantly familiar with user-driven companies from their day-to-day lives: Netflix, gym memberships, premium apps, AMZN Prime. This familiarity helps grease the skids on the investor due diligence path. We have experienced the “Consumerization” of Enterprise Technology. Think of this as the “Consumerization of Investor Communications”.

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Technology News from the Week: June 25th 2018

Technology News from the Week: June 25th 2018

Technology news items that caught our attention this week:

Waymo to launch robo-taxis in Europe: Link

Phoenix AZ as petri dish for autonomous driving: Link

Kroger is launching a fully driverless delivery service: Link

In the “Service, Maintenance, Repair” category: the US Army is using machine learning to predict when combat vehicles need repair: Link

Amazon to acquire online pharmacy PillPack: Link

Amazon plans start-up delivery service for its own packages: Link

Disney gains DOJ approval to acquire Fox assets: Link

CEORater Podcast: why we believe Disney will defeat Comcast in the quest for Fox: Link

Facebook launches Instagram Lite: Link

States agree not to fine Equifax over cyberbreach: Link

Technology News from the Week: June 18th 2018

Technology News from the Week: June 18th 2018

Technology news items that caught our attention this week:

Google’s AI can now lip read better than humans after watching thousands of hours of TV: Link

Instagram takes a shot at YouTube, further distances itself from other social media platforms by rolling out long-form video: Link

One million people use Bank of America’s AI-powered virtual assistant “Erica”: Link

GM is considering an IPO for autonomous driving unit Cruise Automation: Link

Amazon faces push back related to its facial recognition platform “Rekognition”: Link

AT&T launches new streaming service – “WatchTV” – $15 per month for 30 channels: Link

Disney is willing to divest more Fox assets for deal clearance: Link

U.S. venture capitalists didn’t fund this Duke professor’s powerful facial recognition platform, so the Chinese government did: Link

Gamers rule the world. Now they have their own stadiums: Link

Twitter finds new life with young people. On Instagram: Link

Content Is King – Or – The Rate of Decline Is Always Underestimated

Content Is King – Or – The Rate of Decline Is Always Underestimated

Viacom founder Sumner Redstone once said that “content is king”. The time was the 1990s. Whether to own content assets or distribution assets was the question of the day. Technology, Media and Telecom (“TMT”) companies were positioning themselves for the “information superhighway”.

Today, content assets enjoy premium valuations. Look no further than Netflix (although the book of Netflix has yet to be written. Let’s see how the world views the company when Disney begins to pull content from Netflix in 2019), which is up 62% YTD, while Charter, Comcast and AT&T are down 22%, 22% and 16% respectively over the same period as consumers opt for OTT streaming services over cable bundles.

“Cord-Cutting” and “Cord-Nevers” are hardly new phenomenons. Cracks in the cable bundle began to appear years ago. Companies and analysts have modeled cable subscriber declines for multiple quarters. What is surprising is that companies and analysts are surprised by the rate of decline. Within the Technology sector history has taught us that the rate of decline is always greater than one initially estimates. When things “go south” they tend to go south quickly.

Perhaps it is human nature that companies tend to not position themselves for change fast enough. Change is difficult to accept. Thus, companies underestimate the rate of change. They are slow to on-board new DNA and new ways of thinking that may help them build muscle within the “new discipline”. As a result, disruption tends to come from new market entrants rather than from incumbents. Incumbents become observers rather than change agents. It is only logical that capital would flow toward the disruptors and away from those disrupted.

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15 Minutes of Fame: The Intersection of User-Generated Video, Social Media and Mobile Devices

15 Minutes of Fame: The Intersection of User-Generated Video, Social Media and Mobile Devices

Everyone Wants Their 15 Minutes of Fame

It’s a primary reason why Instagram “Stories” are so popular. That and the feature’s ease-of-use. Instagram has created an engaging, almost frictionless user experience that enables anyone to vlog their life in a series of micro videos with a 24-hour shelf life – i.e “Stories”. Stories is the platform feature that single-handedly kneecapped Snap before its March 2017 IPO (we reviewed in our piece about CEO overreach). We covered the “Stories” topic in episodes 58 and 67 of our CEORater Podcast.

Snap recently countered by opening its Stories feature to platforms outside of snapchat whereas Instagram remains within Facebook’s walled garden. Were the two platforms equal, Snap’s counter move likely would have provided an advantage. However, the two platforms are not equal. Instagram continues to enjoy the ease-of-use advantage over snapchat (a powerful advantage) and Facebook’s walled garden is an expansive one with 2 billion-plus monthly active users (“MAUs”).

Mobile Devices that Best Leverage Social Media Platforms Will Win

The “Stories” feature matters not only for social media companies but also for mobile phone OEMs as consumers increasingly record and consume mobile video. Therefore, mobile phone camera features, in-phone storage (external storage devices add friction to the user experience) and battery life will increasingly matter.

Here’s a look at four mobile phones across attributes:

Mobile Phone Pic

Platform Cloud Vendors Also Win

Facebook stores Instagram videos. Google stores Snap’s content. Expect cloud service leader AWS (Netflix on AWS) to make its mark as companies that were built on top of AWS roll out video content (Amazon/Open Tube?)

Hollywood “Validation”

The mobile video phenomenon extends beyond user-generated content to professional content. For example, Steven Soderbergh’s forthcoming theatrical feature – “UNSANE” –  was recorded entirely on an iPhone.

We published CEORater Podcast episode 120 subsequent to posting this article.