This is an email from Buy/Sell/Hold, a newsletter by Marker.
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🔲 What the surprise Square-Tidal deal is really about 🔲
The Buy/Sell/Hold Analysis
In a deal that basically no one was anticipating, payment service Square announced yesterday that it will acquire a majority stake in Tidal, the music-streaming platform co-owned by Jay-Z, for $297 million in cash and stock. Square CEO Jack Dorsey revealed the acquisition on Twitter — the other company he runs — where he preemptively raised the obvious reaction: “Why would a music streaming company and a financial services company join forces?!”
The thread that followed offered mostly vague PR-speak answers to that question: “New ideas are found at the intersections, and we believe there’s a compelling one between music and the economy.” While that’s probably to be expected at the announcement stage of a distinctly unexpected partnership, the immediate market reaction was tepid, with Square shares dipping about 6.75% on Thursday. But there are a few reasons — perhaps not so lofty as those Dorsey suggested — that this deal isn’t as utterly random as it sounds.
For starters, the motivation for buying Tidal could be as simple as Square making a high-level acqui-hire: Jay-Z, whose rep for street cred and entrepreneurial acumen continues to top itself — luxury giant LVMH just bought into his champagne brand, and he’s a backer of soon-to-IPO Oatly — will join Square’s board. Perhaps this will continue whatever dialogue he and Dorsey may have started while yachting together over the summer. Bottom line: There’s no downside to Jay-Z’s counsel and halo effect.
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And it’s plausible that in a world where the business of being a musician really is more of a business, for indie artists as well as mainstream stars, serving as their fintech solution of choice (for merch payment processing and other tools similar to those Square has developed for its business customers) could be worth something over time for Tidal. This hardly has to be a game-changing, risk-it-all gambit to pay off: The acquisition price is a sliver of Square’s $100 billion-plus valuation, and even the company’s official announcement said it expected no material impact on revenue or profits this year.
If that sounds more like a “why not?” than a “hell yeah!,” well, maybe that’s the point. And that’s even more true for Tidal, and especially Jay-Z. One of Tidal’s early selling points, along with superior sound quality, was its artist-first attitude, paying a significantly higher royalty than Spotify and Apple Music in hopes of attracting exclusive content. But it has never come close to challenging those rivals — by 2018, it reportedly had around 3 million subscribers, and has basically been mum on that subject ever since. (Spotify has more than 155 million paid subscribers; Apple Music has more than 60 million.) Tidal does not disclose financials, but a Billboard report says that although the company’s revenue grew 13% in 2019, its losses grew around 52% — from $36 million to $55 million.
Perhaps this deal bolsters Tidal’s original mission, or maybe it suggests a new game plan in the offing. But either way, the acquisition price is a nice improvement over the $56 million that Jay-Z and a coalition of artists paid for Tidal just over five years ago.
In other words, maybe Jay-Z didn’t succeed in making Tidal into a dominant new streaming-music player, but with this deal, you certainly can’t call the enterprise a failure: It’s just been co-signed by one of the most successful entrepreneurs alive, and plugged into a $100 billion fintech giant that now has a board seat with Jay-Z’s name on it. Maybe Dorsey didn’t acqui-hire Jay-Z; maybe it’s the other way around.
— Rob Walker
⚡ Instacart’s value doubles — again. The soon-to-be-public grocery delivery startup announced on Tuesday it had raised another $265 million in VC funding at an eye-popping valuation of $39 billion. That’s more than double its previous valuation of $17.7 billion just five months ago. That makes Instacart — which has grown its army of grocery-delivering gig workers to half a million during the pandemic — one of the largest unicorns set to enter an already frothy IPO market since Airbnb and DoorDash. With the vaccine rollout being ramped-up following Johnson & Johnson’s FDA authorization, it’s unclear how long high demand for grocery delivery will last, but clearly, investors believe Instacart’s IPO will remain a hot ticket. Buy.
⚡ Ro pulls off the wildest pivot of the pandemic. The online pharmacy startup that got its start selling erectile dysfunction medication directly to consumers has recently taken on a very, very different venture: coronavirus vaccinations. According to Fast Company, Ro is now working with the New York Department of Health to offer at-home vaccinations for seniors. If it seems strange that the same company selling you nicotine gum is also giving homebound patients shots and monitoring their reaction, it’s because it is strange — but it’s also a testament to the eagerness of local governments to turn up the speed and volume of mass vaccinations beyond the limits of current processes. Buy.
⚡ Alamo Drafthouse files for Chapter 11. After swapping out its founder for a new CEO in April, furloughing its employees, and struggling along with the rest of the movie industry for nearly a year, the Austin-based dine-in theater chain filed for bankruptcy on Wednesday and announced it was selling itself to private equity investors. Some theaters are beginning to reopen more broadly this month, but Alamo’s plight shows that some national chains are too far gone to receive the boost needed to fully return to business as usual. Hold.
⚡ Amazon fights to flip votes in anti-union campaign. Last Sunday, President Biden delivered a brief but forceful speech that unofficially endorsed Amazon workers’ rights to unionize in Bessemer, Alabama, without explicitly mentioning the e-commerce giant by name. His pro-labor message arrives amid a fraught environment with 5,800 workers facing an end-of-the-month deadline to cast their vote. Over the past few months, Amazon has engaged in union-busting schemes, including launching the site doitwithoutdues.com, which implores workers to save $500 in union dues for groceries and school supplies, and allegedly convincing local county officials to lengthen the green traffic light outside the warehouse to limit organizers’ time to talk with workers. Amazon’s worried that a unionization precedent could thwart a retail business that hinges on speedy delivery, but after a year in which it raked in $386 billion in sales and more than $22 billion in profit, it can afford to throw its workers a bone and remain king of the hill. Sell.
📈 The Number: 62%
That was the drop in Golden Globes viewers on Sunday compared to last year, according to Nielsen ratings, per the New York Times.
Throughout the pandemic, we’ve seen ratings drop for live TV events like the presidential debates (the first one was down 13% compared to the first Clinton-Trump debate four years prior) and the Super Bowl (down 15% in 2021 compared to 2020). But last Sunday’s Golden Globes, which pulled in only 6.9 million viewers, saw a far steeper plunge, pulling in less than half its 2020 audience, and its smallest audience since the TV and film awards show launched in 1996. Compare that to the Saturday Night Live episode immediately following the election in November that had 9.1 million viewers, or the video game Fortnite’s live event in June that had an audience of 20 million.
The Golden Globes’ unprecedented blunder might be explained by the show’s unique appeal over the Oscars and Emmys, which relies heavily on in-person shenanigans. Besides the usual fashion commentary and red carpet interviews that mark these events, celebs attending the Golden Globes also party throughout the show, with snippets of their banter caught on camera and many of them famously ending up sloshed during acceptances speeches, reaction shots, and digs from the hosts. Unable to recreate those moments over the awkward remote video feeds set up in celebrities’ homes, this year’s Globes ended up feeling more like a drawn-out Zoom mash-up than a piece of entertainment.
What’s more, the Hollywood Foreign Press Association — the entity behind the Golden Globes — has come under fire for its racial inequity, with no Black journalists in its 87 member group. Hosts Tina Fey and Amy Poehler mocked this news during the event: “The Hollywood Foreign Press Association is made up of around 90 international no-Black journalists,” Fey said during the opening monologue, reverting to the clichéd awards show defense mechanism of turning its real-world disparity into a forgettable laugh line. For a show already struggling to adapt to the moment, its decision to make yet another weak-kneed, self-referential quip about racial controversy was early evidence of a night’s worth of stagnation.
— Jean-Luc Bouchard, Senior Editor, Marker
📖 Marker Read of the Week: How Supreme-style merch drops — from McDonald’s chicken nugget pillows to Ben & Jerry’s sneakerheads — took over corporate America.
🔎 Marker’s New Fixation 🔎
If you’ve been confused by talk of non-fungible tokens (NFTs) over the last few weeks, you would be forgiven for not quite understanding why the auction house Christie’s is currently auctioning a hideous digital image with a high bid of over $3.5 million, or why basketball fans have spent $230 million trading highlight clips you can watch for free. In principle, NFTs are bits of code on a blockchain that simulate scarcity for otherwise endlessly reproducible pieces of digital art, and are meant to allow artists to bypass intermediaries and engage directly with fans. Not fully understanding the many explanations of it that I’d read, I set out to purchase a piece of crypto-art myself to learn more. I encountered intermediaries at every step of the way demanding their cuts of transactions, like the crypto exchange Coinbase on which I bought the cryptocurrency Ether, required to purchase NFTs, or the crypto wallet Metamask, which allowed me to place bids on an NFT trading site like OpenSea and takes its own cut. What I am supposed to own at the end of it all is not so much the piece of art itself, which is just an unprotected image file, but a digital receipt on the Ethereum blockchain with my claim of ownership over it. And what am I supposed to do with that — see if the MoMA wants to exhibit it? The experience left me frustrated (I currently have a $12 bid out on a piece of digital art, on which I have so far paid nearly $20 in fees), with a sense of inevitability about the continued need for institutions and intermediaries to validate authenticity and value — and, sadly, to translate a piece of blockchain code into something that people can stare at and congratulate me on owning.
— Kaushik Viswanath, Senior Editor, Marker
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