Newsletter: Published Tuesday, 3 July 2018.
- Amazon as a short;
- Appen is an actual data miner;
- Softbank and unicorn hunting.
👀 A LOOK OUT
Every once in a while Amazon announces it will start doing a thing and the companies already doing that thing will watch their share prices fall off a cliff.
The assumption is that Amazon is so good and smart and efficient that it will generally outstrip everyone else.
Amazon has also managed to convince its investors that it doesn’t need to make money off that thing for a while, so it will undercut the existing companies by doing that thing for pretty much free.
Over the weekend, it announced it had bought a startup called PillPack for about $US1 billion, signalling it will probably start filling prescriptions online.
On cue, all the share prices of drug chains and retailers fell. Same thing happened to food and beverage suppliers when Amazon acquired Whole Foods.
This is so predictable that it does prompt the business idea that companies like Amazon could short industries they are about to disrupt.
To short a share means to take a position the price will decline. You do this by borrowing those shares from someone else and then immediately selling them at the higher price and giving them back to the person you borrowed them from when they’re worth less in the future.
(🚨 Important! Spaceship Voyager Index Portfolio and Spaceship Universe Portfolio do not use shorting as a strategy.)
This Bloomberg reporter suggested this strategy 12 years ago, where a fund could invest in free online productivity software while simultaneously shorting Microsoft.
“The startup wouldn’t be burdened with the objective of making a profit....as the stock went down, the money would come rolling in.”
Or you could just do what Nas the Rapper has done and be exceptionally good at picking Amazon takeover targets.
PillPack is the second startup backed by rapper Nas’s venture capital fund, Queensbridge Venture Partners, that has been acquired by Amazon for more than $US1 billion.
The other one was Ring, a home security startup acquired for a reported $US1.2 billion.
So, kudos to Nas, a new album and an Amazon takeover in the space of a month.
And kudos to you, because Amazon is in both your Spaceship Voyager Universe and Index Portfolios.
Appen is an actual data miner.
One of the extremely frustrating parts of Artificial Intelligence training is that there just isn’t enough data to go around.
Which is funny when you think about it, because by all accounts just existing these days means you’re essentially producing data which can be used to train and inform machine learning.
But the fact is, most of your data is random and isn’t helpfully sorted in a neat format that lends itself to training and retraining machines.
Sydney-based Appen is a rather clever business that develops and cleans up enormous data sets so other businesses can mess around with AI.
Using a global bank of freelancers, Appen collects all kinds of behavioural and computer data and then assembles it into a clean set.
They then sell these sets to large global technology companies who need reliable sources of data.
According to the company, 8 out of the 10 largest global tech companies are now using their manufactured datasets.
It won’t actually say whether or not its customers are Facebook or Microsoft, but it is possible that they are.
Investors broadly like this business idea and shares in Appen have enjoyed a 250% increase over the last twelve months and the company has been bumped up into the ASX200.
Aside from their Sydney base, Appen also opened a Chinese office, home to some fabulously ambitious AI companies who might be in great need of high quality data sets.
Important! We're sharing with you our thoughts on the companies in which we invest for your informational purposes only. We think it's important (and interesting!) to let you know what's happening with Spaceship Voyager investments. However, we are not making recommendations to buy or sell holdings in a specific company.
That said, you have exposure to Appen in your Spaceship Voyager Universe portfolio.
🦄 THE HUNT BEGINS
Softbank is undergoing a transformation from a domestic telecommunications company to a “unicorn hunter”.
I think that generally means “venture capital fund” or “asset manager” or even “investment holdings company”, but “unicorn hunter” implies power and magic, so let’s roll with that. We are called Spaceship Voyager after all.
Softbank owns Softbank Mobile (previously Vodafone Japan) and uses that cash flow to fund new investments, mostly in late-stage startups around the world.
And at last week’s AGM, Masayoshi Son - the wonderfully colourful Softbank CEO - announced he was switching his time from managing the telecoms business to finding new investments. He will be the Unicorn Hunter.
He will hunt using Softbank’s investment vehicle, The Vision Fund, which raised over $US100 billion last year. That makes it the largest venture capital fund on earth.
This fund has positively stormed the world of dealmaking in the last few years, buying large stakes in disruptive technology companies like WeWork and Alibaba and basically all the ride-hailing rivals; Uber, Didi Chuxing (which has just arrived in Melbourne), Ola and Grab.
Interestingly the share market is not responding with as much wild enthusiasm as perhaps one might expect from a Unicorn Hunter.
Taking into consideration the market value of the stakes the firm holds in Alibaba Group and ARM Holdings, analysts think SoftBank shares should be trading 50% higher than what it’s trading at now.
The founder of **Uniqlo - Tadashi Yanai - and co-founder of Alibaba - Jack Ma - sit on the 16-person board.
With luck, one of them will be able to hunt, shoot and shower with cash a startup that will explode.