Tech Brew Ride Home - (Bonus) What Wall Street Thinks of Tech w/ @howardlindzon

Episode Date: January 12, 2019

The great Howard Lindzon and I discuss how Wall Street is thinking of Tech right now, what Apple's deal is and what the prospects are for those big tech IPOs coming down the pike. This episode has a full transcript. Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the first TechMeme Ride Home bonus episode. So we're going to ease into this, everybody. One bonus episode this weekend and probably only one next weekend as well.

But we do want to get to two bonus episodes a weekend eventually so we can emulate the seven-day-a-week, 365 days-a-year resource that TechMeme.com is. Again, these bonus episodes are a chance to talk to people, not just have me talk to you about things, but have me. talk to people about the things that I've been talking to you about all week. First up, the great Howard Linson. If you don't know Howard, founder of Stocktwits, he is one of the great Wall Street and finance follows on Twitter. He's mostly a startup investor now, but Howard still plays the market and actively opines on it everywhere.

So I called up Howard to talk to him about what Wall Street thinks of tech as a sector at the moment. Over the last few weeks of 2018, we spoke a lot about the turmoil in the stock market and the way that tech stocks were sort of in the midst of that turmoil. So I wanted Howard's take on tech at the moment. But we ended up talking a lot about Apple's recent revenue restatement as well and the prospects of the slate of big tech IPOs

that are coming to market soon. It's a great conversation. But before we get to that, this first weekend bonus episode is brought to you by our old friends at WeWork Remotly. Take it from someone who founded three startups in the employment space. The new year is when people look for new jobs. It's very much a New Year's resolution industry. So if this is you, if you want to find a new job, a better job in the new year, check out WeWorkremotly.com.

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That's weworkremotely.com and find a remote job that is right for you. And now, the great, Howard Linson. Hey, happy new year. I feel like it was just three months or so ago that tech was basically the king of the world on Wall Street, like the first trillion-dollar companies were happening, something like eight of the top ten companies

in the world by market cap were tech. But the sentiment has changed, I guess. How is Wall Street thinking about tech as an industry right now? Well, I mean, the markets are not just about the public markets. The markets are about obviously early stage and startups and private equity and then international. But, you know, 2017 was really the wild year in the sense that there was just, you know, record low volatility. I think 2018, even in the scope of, you know, history. is just an average year in volatility.

So I think what set up to the end of 2018 was really 2017 was such a great year. Apple got to a trillion, so we crossed that checkmark off. Amazon quickly followed to a trillion. And, you know, as to go into this weekend, Microsoft's now after 16 years, I think the most interesting is the biggest company in the world. So 16 years between being the number one company in the world, it's back on top. So I don't think, I think it's a pretty exciting time for tech. Obviously, if you own the leading tech stocks, it's been a bad few months.

Right. You've got to keep it in perspective. I mean, you have to keep it in perspective. Well, actually, so I'm trying to get a sense of, like, how, what the perspective of traders and what people on Wall Street are. So, I mean, tech has basically been one of the big leaders in the last several years. What historically does it usually mean if the, leaders in a given bull market suddenly all turns south in lockstep. Is that a signal that

people on Wall Street look at? They may. I mean, the thing is that what's happened is because of indexing and market cap is everybody owns the same stock. So we're in this phase where because of technology and because technology has kind of become ubiquitous for the Fortune 500 or Fortune 1,000 companies, and then they all have to become tech companies at some level. And, and money pouring into passive investing, which really isn't passive investing, and the market cap issue, everybody owned the same stock. So when everybody decides to sell, of course, the largest cap stocks take the biggest hit. So, you know, I think people thought that, I think the biggest misnomer is that,

you know, you can just invest in the S&P 500 and it just goes up every year. And we had nine, nine straight years of gains in the S&P 500. So, you know, for those, those people that don't pay attention to history, I mean, we were due, sadly, for something like the end of 2018. You know, I think 2017, there's a lot of bad behavior that started to creep into the market, 2016 and 2017, and we saw 2018 play out with like, you know, people hate Facebook, people don't trust large tech companies. But, you know, so it's hard to say, it's always hard to predict when the market

market will care. And, you know, starting September, the market started to care. So what you're, you're almost saying, I don't want to put words in your mouth, you're almost saying that like because they had been so successful, because the tech companies were, you know, the biggest market cap stocks, everyone's owning them, that they're, on some level, they're being, they're the victims of whatever's happening to the overall market. But are there any, is there anything happening in the businesses of the large tech stocks in common that, like, is causing investors to like reassess their growth prospects? For sure.

You know, law of large numbers for one thing. And as we're seeing with Apple, you know, the product's so good that the upgrade cycles just not happening, right? People are keeping their phones for three to five years, which, you know, is hurting the stock. But I think that's the opportunity, right? Apple's being laughed at right now for the decline, but really, you know, the world's changing, right? We're going more to audio, we're going to AR and VR and VR slowly, maybe more slowly than people expect. But Apple's pretty well positioned because they have distribution and they have, you know, high customer satisfaction and maybe they pushed way too hard on pricing and maybe

they relied too much on China. But this is what happens, you know, the company, so big, they're going to make massive mistakes just like Facebook, Amazon, Netflix. So I think we're just seeing, you know, a pullback. And I don't think it's the beginning of something crazy. But if it is, you know, buying Apple at $140 or Facebook at $120, this is what you're supposed to do. If you really believe in tech for the next 20 years, you buy 25, 30, percent sell-offs in great companies. You don't have to buy them all, but you've got to really have a thesis and understand the catalyst.

For me, Apple, nothing changes because they have the stores, they have the customer satisfaction in the U.S. I think one of the, like I said, the two most interesting stories are our first at Microsoft the number is now the biggest company in the world again and how it's done that over 16 years. So if people think the end of Apple, because they're down 30 percent are crazy, you know, 20 years from now, I really suspect Apple will be in the top 10 companies still in the world. I think we're going to have multi-trillion dollar companies.

It may take three or four years there of digestion to get people back to a trillion. You know, that was just like when Cisco first hit half a trillion dollars, I don't know, 13 years ago. Yeah, yeah, yeah, yeah. Yeah. So I remember when Cisco had half a trillion dollars, if we looked back at that, we go, wow. And then they were relying on customers that really couldn't afford to pay that weren't, you know, their customers disappeared.

Apple's customers aren't disappearing. The second most interesting story is, is, you know, for all said and done, Google, which, you know, kind of sold by due at the IPO and never really went into China. All of a sudden, you know, Apple gone into China has this whole headache of China and all their systems and supply chains, and Google has never really done anything, and China's now equal in market cap to Apple. So for all set of purposes, Apple can still be a massive company, even if they retreated from China. which they won't. So there's just a lot of exciting times ahead. And you think about Google and people say Google's done. And, you know, they haven't even dealt with China or a lot of these Eastern Asian countries.

So I don't know. I'd like when everybody's bearish, I think you have to look at these companies and go, you know, where are we going to be in 10 to 15 years? I want to come back to Microsoft. But first, one more thing on Apple real quick. How surprised were you by that announcement last week? Because it seems like they've been laying the groundwork for this, you know, not reporting unit sales, touting services growth as like going forward the growth engine. Like, do you think that this was a convenient time for them to announce that sort of thing, like pointing to China as a weakness? Or like, did you think that this was due and coming?

The telegraphed that it's coming. I mean, I don't really ever care about it. I've owned the stock for, I don't know, 15 years. I've never really cared about unit sales. Did I get surprised by the speed of this decline? Yes. But like I said, 2017 was silly. Not 2018 that was silly.

It was 2017. You know, there's surge from 700 billion to a trillion one. It's kind of silly. And so we're right back to where we were a year ago. And, you know, when Trump took office, stock was, you know, 500 billion. So nothing would surprise me. here. I think, you know, the tone of the letter was probably, I think if he could take it back. I think people saw through that. But at the same time, live and learn. I mean, they're only

going to be smarter from these mistakes. So it's painful short term. It's like, you know, Apple's my, I don't really own a lot of stocks in general because I focus on early state investing anymore, but I talk about stocks all day because it's so interesting. But I don't know. I think this panic in Apple is really overdone. And I kind of, you know, look forward to seeing how they behave going forward. I think I'm talking to you using AirPods and my iPhone. I live on my MacBook Air. You know, maybe I'm in the 5%, so I can afford to upgrade every product cycle.

I live a little bit in the future, and maybe the products just aren't necessary to upgrade anymore. But between the stores and the amount of money they invest in R&D and the customer satisfaction, and I think the lock-in with people over 40 years old once they get into Apple products, having the stores within five miles of their home, I think it's going to be pretty hard, at least in America, to unseat them. So, okay, maybe talking about both Apple and Microsoft, I was talking on the A16Z podcast recently. Chris Dixon and I were talking a little bit about this,

about how it's almost like everybody has had this one trick in tech for the last 10 or 15 years of scale, especially when mobile came around. it's almost like maybe what we're seeing is that the low-hanging fruit has been plucked already. Like you put a smartphone in every human being's pocket. Greatest business ever, right? Gin up a different kind of chat app and you have a billion users in six months if you're lucky, right? So is some of, I'm wondering if some of what we're seeing is that people are going to have to learn new tricks. And like that Microsoft maybe specifically, like they've done that.

Like you said, they had their decade and a half in the wilderness kind of. And they've learned how to reinvent. and maybe that's what people like Apple and Facebook also have to have to start thinking about. Yeah, and yes. And a lot of time, Wall Street wants new tricks, right? For years, Apple got away with box product and upgrade cycles. And then Intuit Adobe, then it became all about recurring revenue. So at Microsoft, you know, maybe in 10 years, Wall Street will demand something else from these companies.

So a lot of it is, you know, chasing, you know, each other's tails, right? Sometimes Wall Street wants a recurring revenue over just plain vanilla growth. Maybe Facebook will be penalized for the next 20 years because even though they have all this data, they don't have a subscription business. So we don't really know how Wall Street will behave. So I try not to think about that. You just want to find businesses with Catalyst. And for Microsoft, the catalyst is Wall Street loves subscription recurring revenue. Microsoft continues to build lock-in with corporations.

and Apple's a little bit farther behind there, right? Because they don't have, even if they switch completely to the subscription business or revenues withdraw it because they relied on the upgrade cycle. So it's a little bit more than just one trick because a lot of it depends as public companies on what Wall Street wants. And it's fickle.

Wall Street's a pretty fickle place. Well, speaking of subscriptions and SaaS and things like that, you probably have seen that CNBC article going around this morning suggesting acquisitions Apple could do to juice growth. And like, obviously, they suggested, I think, Disney and Tesla, but also Salesforce. Like, do you think that there's any acquisitions that you could foresee Apple making this year? Yeah, it's a good question. I wrote about this planetary positioning.

I kind of think that Benioff, Disney, Netflix, or in this position where they, too, could be planets, you know, up there with Apple. Microsoft and Facebook and Kempsen and Alibaba. So I don't think sales sources look into sell. He has a co-CEO. He seems to be loving what he's doing as co-CEO Benio Benio and thinking about the future. So I don't think, but who's, yeah,

so I don't see anything huge. I think everybody's just playing that beginning of the year speculation game. I do think, like, I think there'll be smaller, I mean, not small, but big acquisitions, but none of the, I think the planets will be buying, you know, companies, whether it's Nike buying like a Peloton and, and, or Lulu. I think there'll be like huge acquisitions. I just don't think there'll be something like that size. Well, I did, I did read your blog post about that. And you also recently wrote on your blog that you didn't feel

like people are appreciating the risk in the markets right now. And that could be a ton of things, obviously, you know, even, you know, trade war concerns and all that sort of stuff. There's a bunch of big tech IPOs coming this year. Do you have any thoughts on possible perils for those guys coming out of the gate in the next six to eight months or so? Well, the question is how badly did they need the money and how bad the market? A lot of it's based on sentiment, right? All those companies left Uber could have been public four years ago. So the question is timing.

They've maybe waited too long? No, but, you know, yes, but it is what it is. Yes, from a selfish standpoint, because it would have been fun for investors like us, regular investors to have access to those companies and trade them. And, you know, armchair quarterback them as a public shareholder, not just watching them being reported on as private companies. So, yes, I think shame on us for all our past sins that these companies stayed, private longer for whatever reasons, as we all know.

But I think the supply is coming. I think what's more concerning is if the markets, if people aren't appreciating the risks and markets continue to struggle this year and these companies need to get public, well, that's just more supply for the market. So, you know, they need a strong market because they obviously, the market has to absorb all the supply from, you know, hundreds of billions of dollars of new issues. So it always comes down to supply demand.

And if they need to get public this year and the market, markets are bad, it's going to be terrible. If the markets are firm and they get public, that's, you know, much better for those companies. I'm not going to ask you to handicap whether or not we've got a recession coming in the next 18 months. It's completely unfair. But I would ask you this, again, because I'm thinking about this idea that tech has been the leader, especially in the last five years in the current bull market. What does the history of the markets tell us happens to an industry that is the leader in a bull market when a recession does happen.

Do they get hit worse than others comparatively? It's a good question. I'm not that much of a student of economics anymore. I'm more of focused on catalyst and sentiment. I think these companies still have massive catalysts for growth, so many levers that they can push for, whether it's data or subscription or ad revenue or just attention, You know, I don't think in terms of recession.

The world's so big and connected, I don't think in terms of recession anymore. I just think in terms of, you know, the overall picture. And tech isn't so easy anymore, right? There's enterprise software. There's consumer software. There is media because tech and media finally, you know, like a Netflix is really a first tech and media company to be done well. Maybe Disney, if they can get their act together this year with their launch.

I think there's so many different aspects of tech that it's not so much about just new leaders versus old leader. I think Fang may see a few, you know, the Fang stocks may see a few years of underperformance, but they were outperforming for a while. But right now it looks like enterprise software. Wall Street continues to love subscription business. VCs continue to want to back subscription startups, enterprise startups, and that's where it seems to be all the acquisitions are happening. Adobe, the intuits, the sales forces are buying companies. I think the hub spots will start buying companies. I think, yeah, companies like Octa, Mongo, Elastic, so open source.

I mean, it's just an incredible time. And I think dips, even though 2019 is shaping up to be a tough year, I think there's so, you know, as we saw with IBM and Red had, I think you're going to see tens to hundreds more of these type of deals, especially if the market's weak. Thank you, Howard. anything you want to plug? No, you know, I blog at Howardlinson.com every day.

People can subscribe there and get my daily missive on trends. Obviously, I have chairman of stock twits, which is a great social network for traders and investors. Amazing resource. And our fund is social leverage.

We invest in early stage enterprise and financial services companies. So if you're a founder, in the enterprise and financial services face, track us down.