Issue #7 | Big Tech's Shopping Spree
Welcome to E-MERGE!
Being at home for too long can stir temptations if left unchecked. I'm talking bad habits like working from bed, munching on junk food, or seeking for the latest retail discounts. That's why it's more important than ever to stick to a good and healthy regimen to stay sane.
In today's issue, I take a dive into some of Big Tech's interesting shopping habits as of late. First, we take a glimpse into the future of food delivery with potential consolidation in the works. Next, we drive by your favorite movie theater chain to see how business is doing (hint: not so great). Finally, we take a trip overseas and see how $8 billion is being put to work in one of India's hottest tech companies.
🛵 food delivery | uber + grubhub
Grabbing grub has taken a different meaning these days. Some are hungry for pizza delivery and Chick-fil-A; others are feasting for attractive deals.
In recent headlines, Uber is reportedly making moves to acquire Grubhub, the oldest of the major food delivery companies in the U.S. Although details aren't publicly available yet, an official agreement could be made between the ride hailing giant and the food delivery company as soon as this month. This takeover deal would value Grubhub at $6 billion. Upon the announcement, Uber said that it was offering $900 million in bonds, in which the proceeds will be used for "working capital and other general corporate purposes, which may include potential acquisitions and strategic transactions."
The pandemic is hitting at a pivotal moment in the food delivery industry. Over the past year, large food-delivery companies were already seeking for "value-enhancing" opportunities, whether it's through mergers or public listings, to shore up their finances. On its journey to profitability, Uber kept its eye on the prize, sought consolidation deals, and focused on markets where Eats is the No. 1 or No. 2 player. As of last week, it exited out of 7 unprofitable Eats markets in an attempt to adhere to its strict top-2 strategy. By teaming up with Grubhub, Uber is doubling down on its delivery initiatives as a means to keep up with delivery orders and capitalize on cost savings worth north of $300 million.
Credit: The New York Times
Not everyone's on board with this mega-merger though. Restaurants have been fighting to expose the unethical practices being made by 3rd-party delivery services, who are charging large, yet opaque fees and creating one-sided promotions. In fact, there's evidence that these services could actually be hurting restaurants in the long term. In times of Covid-19, restaurants are forced to partner with the companies that were squeezing them out in the first place. However, this time around, the livelihood of U.S. restaurants are at stake, with every one in four stores projected to shut down indefinitely. A merger between the second- and third-largest food delivery service would be a devastating blow to both restaurants and customers. Less delivery options means less negotiating leverage for restaurants to set commissions. Less delivery options also means you’d probably have to foot a bill at a unreasonable price.
Potential consolidation between food delivery companies isn't new news. Experts believe the power of scale would help these companies overcome their current headwinds of high costs and razor-thin margins. A particularly interesting thing to note: Grubhub had an upbringing, much different than that of its peers. It was a public, consistently profitable company that thrived well before "Uncle Masa" entered the picture. With competitors like DoorDash and Postmates rich in VC funding, the rules of the game were rewritten (profit and unit economics weren't as important) and the industry adapted a "growth-at-all-costs" mindset. Given its outdated playbook, Grubhub tried and struggled to adapt to these rules. In the battle for survival, capital matters. This adage holds especially true to the age-old brick-and-mortar business that's in need for some: theaters.
🎞 media | amazon + amc
Rumour has it, Amazon is interested in buying struggling movie theater chain AMC Entertainment. At first glance, the move might seem questionable. Amazon has already invested $6 billion on original content into its streaming platform Prime Video. With capital pouring like free flow tap into streaming services, the strategic move to acquire the indebted theater chain doesn't seem to add up.
Credit: No Mercy / No Malice - Scott Galloway
So what could we then assume about their long-term outlook on their film and distribution strategy? Amazon already boasts a plethora of content, offering a total of 70 new TV series and a dozen of original films in 2019. Using theaters as a distribution arm to showcase its original content on the big screen could draw crowds from their couches and accelerate the e-retailer's efforts to become a top player in the film industry. It's important to note that blockbusters and box office hits are still quintessential as they are relevant in the era of streaming. Within the past decade, the U.S. box office grossed $11 billion worth of ticket sales, on average, per year.
Last September, Amazon Studios head Jennifer Salke mentioned that releasing films in theaters wouldn't be the studio's endgame. Instead, it would serve as another way to lure in customers into its bread-and-butter subscription service, Amazon Prime. With Amazon having more rein in its movie distribution chain from production to marketing to theatrical release, the company has the opportunity to enhance its Prime offerings in real life (IRL), understand moviegoers' habits, and bring in new Prime subscribers. Besides adding new subscribers to its platform, the strategy would offer the studio another avenue to earn more money from its own films.
Credit: Gifer
Interestingly enough, this isn't the first time a streaming giant or production studio has considered looking into snatching up a brick-and-mortar theater company. Last year, Netflix was in talks with American Cinematheque into purchasing the historic Egyptian Theater on Hollywood Boulevard. In 2018, Amazon expressed interest in acquiring Landmark Theaters, which was eventually sold to Cohen Media Group. With a major DOJ ruling that once prevented co-ownership of studios and theaters undone, stakes for struggling cinema chains are on the table. In trying times, this could usher in a new wave of attractive deals from studios and streaming giants who have money sitting on their balance sheet to spend.
On a separate, but similar note, the acquisition rumor comes at an unprecedented moment in the film industry at large.
Theaters are quickly trying to get businesses back up and running as soon as the stay-at-home order eases. Many are hopeful for a July opening, which falls on schedule for the release of potential summer blockbusters like Christopher Nolan's Tenet. But if you've been proactively trying to steer clear from any virus hotspots during this outbreak, chances are you won't be dying to see the live-action remake of Mulan. Without considering a worst-case scenario of a second outbreak, the industry could be seeing losses up to 40% in box office receipts.
To topple the bad news, major studios are turning heads after seeing the success of Trolls World Tour, a film that would forever change Hollywood. Upon hearing about theater closures, Universal Pictures willingly decided to release the film on schedule as a premium video on demand (PVOD), making it available as a digital rental on platforms like Apple TV. After much hype, it was announced that the Trolls sequel made more money for Universal Pictures in its first 3 weeks of digital release than the original did in its 5-month run in theaters (🚩).
The viability of PVOD, the aftermath of theater closures, and the power of streaming prove that the future for theatrical releases is uncertain. Although we all could appreciate a good film on the big screen, it's hard to beat convenience. A deal between Amazon and AMC could set a new precedent in how studios collaborate with their distribution counterparts and release films. In times of immense change, breaking barriers and building trust are important for growth and survival. Don't leave it to Amazon to be the only ones exploring new ways to grow; Facebook has been trying to double down on one lucrative, yet underutilized market for years.
📱 e-commerce | facebook + jio
April 22, 2020: Facebook injected $5.7 billion into Jio Platforms, a high-flying internet services giant in India, for a 10% stake.
May 3, 2020: Silver Lake invested ~$750 million into Jio.
May 8, 2020: Vista Equity Partners chipped in $1.5 billion for a 2.3% stake, valuing the budding tech firm at a whopping $65 billion. Following the announcement, Saudi Arabia's $320 billion sovereign wealth fund and General Atlantic are considering jumping in on the action.
So, what's the fuss?
Launched in 2016, Jio Platforms was created as a subsidiary of Reliance Industries, one of India's largest and most valued conglomerates. Reliance Industries has worn different hats and has operated across various sectors ranging from oil refining and petrochemicals to telecom. Like a good (but heavily indebted) parent company, Reliance Industries treats Jio Platforms like a promising son and has poured more than $30 billion over the years in hopes that it will be a leading tech player on the global stage.
Credit: Reuters
And the investments have definitely helped Jio Platforms mature into the company it is today. The tech company houses a multitude of popular mobile apps and a music-streaming platform in its ecosystem. More importantly, it currently operates its fledging telecom venture, Jio, which has accumulated over 388 million subscribers since its inception to become the leading telecom provider in India. Let's quickly zoom out for a bit: India is home to the world's second-largest smartphone market and boasts hundreds of millions of users who are eager to participate in its growing digital economy. 600 million people in India have yet to gain internet access, giving tech companies and startups an opportune window to fill in the gap.
Facebook's investment speaks volumes about its move into India. Most of its previous attempts to break into the Indian market ended with India's Prime Minister Narendra Modi giving the tech giant the giant no-go. Ironically, Facebook does operate the most used mobile app in the country: WhatsApp. 400+ million users in India are on the messaging app, yet WhatsApp didn't make a single buck last year at the government's discretion. Nowadays, Facebook seeks to partner with local companies like Jio to extend its reach into the Asian markets and finally make its way into digital payments and mobile commerce. For example, by uniting JioMart, Jio's small business initiative, with the power of WhatsApp, Facebook can provide the digital tools needed to help entrepreneurs build relationships with customers and grow their businesses. The operational synergies between the reliable communication app and the high-profile digital connectivity platform would be unparalleled to anything else on the current market.
From global tech conglomerates like Facebook and Alibaba to private equity firms like Vista, anyone that invests into India's local tech ecosystem are trying to partake in the nation's budding digital economy. For Jio, the stakes are higher than ever, as it tries to ride this wave into becoming a Google or Facebook in its own right. With the competition hotter than Mumbai and heavier than Phaal curry, e-commerce giants like Alibaba, Amazon, and Flipkart need to wipe off the sweat and tears and muster up all the luck they can get. They're going to need it.
🐦tweet of the week
🤝 other deals
Clubhouse, a spontaneous voice chat app, has agreed to a new $12 million investment led by Andreessen Horowitz. Like a crossover between Slack and sports talk radio, you can drop in and out of conversations on a whim. Think Houseparty but for audio.
Apple spokesperson: "Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans." Apple recently acquired NextVR, which specializes in recording live events like concerts and sports matches to be experienced in VR.
AppLovin paid $500 million for mobile game developer Machine Zone, which was last valued at $5 billion in 2016. Yikes.
Even pizzerias need to get with the digital times. Slice, an online ordering and marketing platform for pizzerias, raised $43 million.
Online car seller Vroom files confidentially for a June IPO. Its rival Carvana, a better-known online car seller, seen its stock jump seven-fold since its 2017 IPO.
Facebook is buying Giphy, my go-to search engine to find funny GIFs, for $400 million.
Like any good makeover, KKR struck a $4.3 billion deal with Coty for a majority stake in the latter’s professional beauty and retail hair businesses.
Podcasting startup Luminary Media raised more than $30 million at a valuation that's a far cry from the $200 million it claimed last year.
Battered with furloughs, salary cuts, and hamstrung businesses, Endeavor, a global leader in entertainment, sports, and fashion, secured a $260 million loan to help it get through these tumultuous times.
Speaking of sports, it's been over 2 months since sports was canceled. However, this isn't stopping this startup from making headways into the world of e-sports. Fantasy sports app Sleeper scored $20 million in a celeb-studded round led by stars like Kevin Durant, JuJu Smith-Schuster, and Baron Davis in an attempt to make fantasy more enjoyable and engaging.
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Thanks for your interest and have a great week!
Jeff