Dear Silicon Valley: Better Ready Those “Crying Towels” – You’re Going To Need Them

“Nothing focuses the mind more than either the lure of riches or, the loss of them. And there has been no other group caught up more in the lure for riches than: the disruption class.

Disrupting is what it’s been all about over these last few years. However, there’s another disruption on the technological horizon heading right towards Silicon Valley itself, and that brewing storm is – disruption of the disrupt-ers.”

I penned the above back in October of 2015 in an article titled “‘Crying Towels’: Silicon Valley’s Next Big Investment Op'”

The reason for the above was in direct response to what I saw as not only a ridiculous premise that the return of Jack Dorsey to Twitter™ while simultaneously still holding the same position at Square™ was in anyway “a good thing.” but I also made the argument that in fact (as I saw it) this had all the appearances of desperation. Here’s how I put it then…

“No one else in all the world let alone Silicon Valley was up to the task? A multi-BILLION dollar publicly traded enterprise on the forefront of all that Silicon Valley represents can’t attract any other CEO talent who could devote 100% of their abilities? This makes absolutely no sense what so ever unless: the board, as well as many investors are panic-stricken on just how bad things are behind the scenes and figured; the best they could do was to bring (or convince) a person such as Mr. Dorsey back on as CEO, spin the narrative as much as humanly possible, and pray Wall Street buys it. Literally.”

Yet, the chorus of defenders via both the media, as well as what I deem the “aficionado set” held this up as some form of brilliance. And anyone questioning this “brilliance” was deemed to either “not just get tech” or worse – derided for not sharing in their own self-absorbed “brilliance.”

How’s that all working out? Here’s a hint, or as they like to say in “The Valley”, a picture. To wit:

(Chart Source)

With results like that, is it any wonder why one would read articles like this? Again, to wit:

“Twitter co-founder Evan Williams to sell 30% of his stock”

Now to be fair Mr. William’s states (and it was in April) this is not based on a “company context” but rather a “personal” and “actually pains” him to be selling at this point. Fair enough, but no matter the reasoning – the optics are quite stunning.

I have long since argued that Twitter was a microcosm for the entire “it’s different this time” model, and the one to watch as to try to glean clues into the health of tech. And it has not disappointed. For since then not only have former unicorns come and gone before ever making it to the green IPO pastures, but many who did have been left hobbled and tainted leaving soured tastes in many an investors mouth. Not counting the thinning of their account balances. For clues see: Twilio™, Snap™, Blue Apron™ just to name a few.

So with the above said, just like late-night TV: “But wait…there’s more!” And it’s a very important point that encapsulates just how “different” this time is shaping up to be. And it comes, once again, via Twitter.

Remember when the only metric that mattered to the “ads for eyeballs” model was Daily Active Users (DAU)? Well guess what? It’s now so “different this time” Twitter had to answer to the SEC back in June why it no longer reported this once important metric.

“The absolute number of DAUs is less important than the percentage change in DAUs because the key factor is whether engagement is increasing or decreasing on a relative basis.  Percentage change in DAUs is a performance indicator that is currently used by the Company’s management to evaluate the health of the platform, and the Company believes that sharing that metric with investors enables them to see the Company through the eyes of management. The Company also focuses investors on percentage change rather than absolute DAU numbers to avoid confusion when comparing the Company with other companies that disclose information regarding DAUs, but use different definitions of DAUs that may include different segments of their respective user bases.  For example, Facebook discloses total DAU, but includes in that number users who only log into its separate messaging mobile application without breaking out how many DAUs come just from that application. Accordingly, investors would not be able to compare performance between the Company and this other company.”

So let me get this straight – What I’m supposed to believe is that professional analysts (even the inept ones) can’t tell the difference, or understand, the relative meaning if given absolute numbers in comparison to what they mean as expressed via a percentage? Right, and I have some wonderful ocean front property in Kentucky one can have at a fantastic bargain, call me.

How about trying this one, for it might be more believable, ready?

“If we don’t use numbers that sound bigger than they really are? The headline reading, algorithmic, front-running, parasitical HFT bots will crush our stock!” At least I would be sympathetic to that argument, rather than laughing in hysterics at the one given.

But the reason for this is what’s important. i.e., “It’s different this time” metrics are now systemically needing to be either shunned or destroyed by their very creators and purveyors. And that brings us to that other metric which is also not only about to be shunned, but rather – eviscerated. e.g., Unicorn valuations.

Back in April I made this observation about Uber™ and argued the following. To wit:

“When a company’s head “PR” person quits smack dab in the middle of what can only be recounted as one of the most disastrous yearly beginnings in Uber’s short history (i.e., scandals, senior management leaving, CEO melt down caught on video with a driver, and more) and that company just so happens to be the most valuable start-up (e.g. a unicorn said to be worth some $68 BILLION), while also claiming the title of “disruptor of the disrupters”, and, is a cash burn machine with no concrete date for IPO? It’s the equivalent of a harnessed team of (e.g., all of The Valley’s) unicorns running smack dab, and full stride – into a concrete abutment. The resulting carnage will be legend.”

And here is that argument about a “down round.”

“In my opinion: They are all teetering on the edge of extinction if (or when) Uber has to do the near unconscionable act and hit the button and launch – a down round.

This I’m quite confident (just like when I stated most IPO’s were dead already but just didn’t know it a year ago) if it happens will force many in the current “unicorn stable” to tell their current investors: “After careful consideration it seems making a true net profit is once again a business fundamental which they can no longer circumvent, and will now liquidate in an effort to conserve any (if there is) possible cash or value.” Rather than face the executioner’s V.C.’s newly found funding wrath.”

Now, just this past Friday, the following was reported via The Information™. To wit:

Softbank™ rumored in talks to purchase Uber between $40 and $45 Billion.

Regardless of how one wants to report the above. $40 is a whole lot less than $70 in absolute numbers. And in percentages? Well, let’s just say it’s much closer to 1/2 than what it claims to be worth.

I’ll just leave the following for contemplation on the above revelations:

“…and I saw a pale unicorn approaching, and on its back rode a sock puppet, and its name was _________(fill in the blank.)”

© 2017 Mark St.Cyr