Restaurants (Short Kitchens, Long Bikes)

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Options abound for food these days - particularly if you live in an urban area. You can get your food sent to you in kits (Hello Fresh and Blue Apron), as groceries (Amazon Fresh, Fresh Direct) or from restaurants via the gazillion delivery services that are duking it out with one another AND capitalizing upon the rise in co-cooking kitchens (Caviar, Postmates, Grubhub and UberEats). We could fill 6 minutes of a$$-kicking reading just by continuing the list.

Here's the thing: much like the consumer products e-commerce space - where shipping is cutting into retail margins bigly - food delivery is killing your favorite restaurant. Why? Well, Captain Obvious, there are too many hands in the pot. As The New Yorker highlights (must read), "over-all profit margin has shrunk by a third, and that the only obvious contributing factor is the shift toward delivery." Ruh roh.

The piece is shocking in how ignorant every seems to be about the effect of delivery services on restaurant margins. This bit also struck us, "It’s worth noting that, even while charging restaurants steep rates, most delivery platforms are not yet profitable, either. Their hope is that order volumes will one day become high enough—and couriers will deliver enough orders per hour—to push them into the black." The alleged answer? A kitchen within a kitchen. Uber "is nudging restaurants to embed “virtual restaurants” inside their kitchens—picture a burger joint housing, at Uber Eats’s behest, a cookie company that exists only as a menu on the delivery provider’s site. DoorDash, an Uber Eats competitor, has started to experiment with leasing remote kitchen space to restaurants so that they can expand their delivery radii. If such practices catch on, it’s easy to imagine a segment of the restaurant economy that looks a lot like, well, Uber, with an army of individual restaurants designed to serve the needs of middle-man platforms but struggling to make a living themselves." This is "progress" folks. 
 

Hollywood (Long Data)

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We previously wrote about Moviepass and how its controversial subscription service - now apparently at 1.5mm members (PETITION Note: it was at 1mm merely two weeks ago when we wrote about it) - seeks to make the most out of an industry in apparent decline by leveraging data. Now the company says that it has weaponized that data to influence movegoers to go to certain films - an equally tantalizing and scary proposition. And, so, by extension, the company now wants to get into the moviemaking business to capture some of the upside of those efforts. Moreover, it is getting into the targeted ad business. The company is funded by Helios and Matheson Analytics Inc. ($HMNY), which just happens to be the second most shortest stock on the NASDAQ Composite. Clearly investors don't think that Moviepass' business model is real. 

Co-working Spaces (Holy WeWork Batman)

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Brookfield Asset Management Inc. and Onex Corp. are reportedly prepping a $3.7b offer to purchase IWG Plc, a commercial real estate company and office space owner. Those who have been around the restructuring industry long enough will recall that IWG is the successor entity to Regus, which filed for bankruptcy nearly 15 years ago after it expanded too quickly in the midst of the dot-com boom. Now, putting aside "location location location," which, admittedly, is, uh, we guess kind of a big deal in real estate, it's important to note that IWG actually owns its office space. It also has nearly 3k locations. Its main competitor, WeWork, in contrast, does not own most of its 283 lease rejections...uh, oops, we mean, locations. Which, naturally, means that it is valued at 7x BAM and Onex's offer for IWG. Because, you know, pixy dust. 

Since we're on the topic of WeWork, we might as well note that news out of its WeLive division has been scant ever since Bloomberg reported a few months ago that the concept wasn't gaining traction. Notably, however, Node, a co-living company based in London and New York just launched its third Bushwick-based location. Things are only going to get harder for WeWork as it tries to justify its lofty valuation.

GoPro is in Trouble

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Long the "Hardware is Hard" Narrative

GoPro Inc. ($GPRO) announced extreme guidance this past week. Extremely bad guidance. The hardware-manufacturer-wouldbe-software-developer-wannabe-content-provider-aspiring-drone-player lowered guidance for revenue and gross margin and offsetting measures like job cuts, exec compensation cuts, and discontinued products (discounted drones anyone?). Disputed reports abound that JPMorgan has been hired by Nick Woodman to shop the company. Doesn’t sound like he’ll be doing many guest Shark Tank appearances anytime soon. The company has a $300mm credit facility and $150mm in converts. With negative operating cash flow and and increasingly bad trends, Woodman may soon be fielding pitches from restructuring bankers. 

But at least he's still in business. Luma, a home WiFi system maker reportedly had to effectively sell for parts to First Alert. Investors included Andreesen Horowitz, Accel Partners and, get this, Amazon Alexa Fund. Similarly, Eero, the mesh Wi-Fi router startup, laid off 20% of its workforce. It has raised $90mm in VC. Yes, hardware is hard.

But not all tech is "busted" and not ALL hardware is "hard." Apparently 16% of Americans now own a smart speaker. In case you weren't convinced that "voice" may be a VERY big piece of the future. As we noted around this time last year on PETITION, mass adoption of voice has the potential to disintermediate brands and cause more retail distress. 

Trickle Down from Auto Disruption (Short Insurance)

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We’ve spent a good amount of time in the last year discussing the second order effects of autonomous cars. But, clearly Google is thinking ahead. This week Waymo LLC, the driverless-car unit of Alphabet Inc., partnered with an insurance-tech startup called Trovto nail down the mechanics of “micro-duration” insurance for riders. This would be “usage-based” insurances, covering riders for very discreet periods of time and very particular use cases. Risk could be assessed based on the duration of the ride (and, presumably, the trajectory?). This could be a game changer as far as insurance revenues go. Choice quote: “As much as 80% of the premiums paid to car insurers are at risk of disappearing in coming decades if autonomous vehicles make driving safer and prompt big changes in car ownership.” Yikes.

Recruiting (Short Perks That Will Disappear As Soon As Downturn Hits)

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New Startups Target Millennials

We previously snarked about the ridiculousness of private equity recruiting. Rather than just make fun of the problem, we figured we'd offer some constructive suggestions. First, we note that Bravely, a New York-based startup recently raised $1.5mm in seed funding; it provides a platform that connects employees with expert communication and conflict coaches for off-the-record b*tch-sessions. Some VP busting your chops about a misplaced comma in the latest-and-greatest all-nighter-induced pitchbook? See Bravely. Some Partner just throw you under the bus while on a call with the client? See Bravely. If this is anything less than the equivalent of the shrink in Billions telling young professionals how "alpha" they are and how much value they provide to their respective firms, then fire up the "Busted Tech" column: it'll be there soon. And if that doesn't entice you to join the PE/investment-bank/biglaw ranks, maybe this will. After all, who WOULDN'T want to sleep where they work? Basically everyone other than millennials, it seems. We guess this explains WeLive.

Long Sleep, Short Sears?

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Because this is Sears Holdings Corp. ($SHLD) and the logo looks crappy and the strip mall photo wildly uninviting, people are going to write-off its efforts to create "experiential" specialty stores focused only on appliances and mattresses. Hard not to. These guys can't do anything right. To be clear, though, it's not like the rest of the mattress industry is a no-brainer. How do you decide between Casper,Leesa, Purple, Saatva, Tuft & Needle, or blah & blah (how much space do we have in this newsletter?). Particularly when they're pulling shenanigans like this (a must read)? Anyway, mattresses are one item that people still want to touch, feel, and test. Given that nobody actually goes to Sears, that might actually be the spot to do just that: smaller likelihood of crowding. Or bedbugs. Go against the grain, we say. 

Automotive & "Talking Your Book"

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Faraday Future Keeps the Drama Coming

The New York Times Magazine does a deep-dive this week into the future. One of the reporters says about self-driving cars, "...I think we're all radically underestimating how much will change once they arrive." On the road to this radically transformational future, there'll surely be winners and losers. We've talked about this before. Faraday Future, the would-be challenger toTesla, looks more and more like a loser every time we read something about it. But let's take a step back: we're wildly aware of investors talking their book, so to speak, in an effort to affect bond pricing, bond trading, or management behavior in the midst of restructuring discussions. They may plant something fundamentally untrue in, say, Debtwire, with the hope that the market will read it and market forces will bend to their benefit. Oldest trick in the book. But we're not sure we've ever seen the next-level sh*t reported here: that is, that someone purportedly created a fake FF powerpoint presentation to suggest an imminent bankruptcy and force out the company's main financier. Choice response: “These documents were not created by Faraday Future, nor were they created on behalf of Faraday Future or at Faraday Future’s request,” said a spokesperson. Interesting. Was this the work of some sloppy lawyer or banker who left a pitch-book sitting around? (Haha, probably yes). Inquiring minds want to know.

Automation (Long Robots, Short Humans)

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There Will Be Blood

This is a must read by Josh Brown on the rise of the robots. It's particularly relevant in a week where the FANG stocks went absolutely bananas. From a (financial) survivalist perspective, his point is hard to argue (and easier to support than investments in these stocks on the basis of valuation). That said, there does appear to be conflicting narratives on the automation point. Contrast this (oil & gas jobs are never coming back) with this (there aren't enough people to fill oil & gas jobs). Curious. We tweeted at Josh to see if he had thoughts on this contrast but he hasn't responded. Maybe because we only have 194 Twitter followers. Public service announcement: please follow us on Twitter.

Unicorns (Short the Hype)

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Calling Out Digitally-Native Vertical Brands (DNVBs)

"You know what? F*ck unicorns." Let's not lose perspective here: a number of tech startups (or, shall we say, alleged "tech" startups) are valued at $1b+ merely because the market is awash in so much money and such a hunger for yield that deals are getting priced upwards. To think that a $400mm exit is anything short of successful is bonkers. Meanwhile, a number of those unicorns are digitally native vertical brands (DNVBs). Think Warby Parker. And thisthrows some serious shade on them. Choice quote, "Given all of the expectations surrounding Digitally-Native Brands and their limited optionality, it’s unlikely that many of them will be around in their 47th year, let alone as independent companies. There will always be exceptions to this rule—Dollar Shave Club, Glossier, Proper Cloth—might outlast the pack as brands that either successfully exited or are mostly in control of their future. But other than these rare exceptions, over the next few years this gold rush will probably turn into a bloodbath" (emphasis ours). In other words, don't count the chickens until they hatch. 

Unicorns 2.0 (Scooping Up Retail)

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Hudson's Bay & WeWork Say "Let's Make a Deal"

Hudson's Bay Co. ($HBC) was a real newsmaker this week. The company sold its Lord & Taylor NYC location to WeWork for $850mm. It also got a (convertible preferred) equity infusion of $500mm through a joint venture between WeWork and the Rhone Group. Which means that Softbank basically owns a piece of Fifth Avenue now. Regulate THAT misdirection/obfuscation. Anyway, HBC will use the proceeds to pay down its $1.6b of debt and, presumably, pretty itself up for a potential take-private transaction. For sure, the future is uncertain. P.S. This re: WeWork (firewall). Bankruptcy Judge ABC: "And so, Banker XYZ, on what valuation basis is the company's plan of reorganization viable and feasible?" Banker: "Our valuation and size today are more based on our energy and spirituality than it is on a multiple of revenue." Judge ABC: "Come again? Bankruptcy plan confirmation denied!" Going forward, whenever we have a typo or a busted link we hope you'll only judge us on our energy and spirituality.