Tech Brew Ride Home - Thu. 02/03 – Meta.Bomb

Episode Date: February 3, 2022

Meta really steps in it with earnings that send the stock down fully 25%. The plague of hacks hitting crypto startups. The ransomware attack causing a snacks crisis in Britain. Bored Apes Yacht Club is an interesting raise. And why we might not see a HoloLens 3. Sponsors: TodayInDigital.com Priceline.com Smith.ai promocode techmeme for $100 off signup Links: Meta estimates Apple's iOS changes will cost it $10B in 2022 (ZDNet) Facebook and Google’s Ad Addiction Can’t Last Forever (Bloomberg Opinion) Cryptocurrency platform Wormhole hacked for an estimated $322 million (The Record) KP Snacks giant hit by Conti ransomware, deliveries disrupted (BleepingComputer) Bored Ape start-up in investment talks with Andreessen Horowitz (FT) Inside Microsoft's mixed reality mess, where confusion, rivalries, and canceled projects have roiled the company's metaverse strategy (Insider) 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 Tech meme right home for Thursday, February 3rd, 2022. I'm Brian McCullough today. Meta really steps in it with earnings that send the stock down fully 25%. The plague of hacks hitting crypto startups, the ransomware attack causing a snacks crisis in Britain. Board Apes Yacht Club is an interesting

raise and why we might not see a HoloLens 3. Here's what you miss today in the world of tech. Well, he said it on the show, one of the bonus episodes, I believe, but out. Alex Cantowitz told us that Meta was, in his opinion, the most vulnerable of the big tech players, and, well, Meta did beat earnings estimates yesterday with Q4 revenue that was up 20% year over year. Monthly active users of all of its properties was 2.91 billion folks up 4% year over year, but they did miss earnings a tad, and there was a bunch of other bad news. Meta also was forced to report its first ever sequential decline in global Facebook daily active users ever. Users of Facebook on a daily basis fell from $1.93 billion to $1.929 billion. So tiny sliver of a miss, all things considered, but that was quarter over quarter. So investors are worried that this is the very beginning of a trend.

And as promised, Meta also broke out its AR-VR-focused reality labs unit. 2021 revenue of $2.3 billion for the unit, which was up from $1.1 billion in 2020, but also losses of, get this, $10.2 billion in 2021, up from losses of $6.6 billion in 2020. The big news, though, was that META's CFO also said that Apple's ATT privacy changes are going to cost the company $10 billion in revenue during 2022, and they say, say that even though Google seemingly had blowout earnings recently, Google, quote, faces a different set of restrictions from Apple, end quote, quoting ZDNet. In Q4, the impact of Apple's iOS changes were, quote, in line with our expectations and similar to Q3 headwinds. CFO David Wenner said

on the call, we believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion. So it's a pretty significant headwind for our business, end quote. Apple's iOS 14.5 update released in April 2021 included an app tracking transparency or ATT feature that has had a notable impact on digital advertising. The ATT feature requires app developers to get permission from a user in order to track their activity across other apps and websites when using an iPhone or iPad. Like Meta, the social media company Snap has complained that the updated iOS platform is impacting its revenues. When are called out e-commerce as one area where Meta saw quote, a meaningful slowdown in growth in Q4. He added that it was, quote, quite noticeable that

Google called out seeing strength in that very same vertical in its own Q4 results, which were published earlier in the week. The CFO said that Google, quote, faces a different set of restrictions from Apple, end quote. He suggested Apple is motivated to favor Google because of the billions of dollars. Google has been estimated to pay Apple in order to remain the default search engine on iOS devices, end quote. So, on the one hand, those app tracking changes seem to really have had consequences at long last on the order of metacing $10 billion less in revenue than they expected. And then, on top of that, this whole metaverse pivot seems to be, at least at this stage, a money pit to the tune of, again, $10 billion burned up in smoke. Put those two numbers together,

and, you know, Facebook is. $20 billion in the whole. You add to that the fact that TikTok seems to be really the biggest competition meta has ever seen in its core capacity of social networking. And add to this, the fact that meta warned sales growth could be a meager 3 to 11% in Q1 due to all of these factors plus inflation, plus supply chain disruptions, etc. And so basically you have investors suddenly being like, wait, funny you made this pivoting. the Metaverse right when your core business seems to be hitting a wall. Your core business is hitting a wall, but instead of telling us how you're fixing that, you're pouring tons of good money into

this new Metaverse pivot that might not pay off for years. At the time of this writing, the stock market just opened. Facebook's stock is down 25% wiping out fully $200 billion in valuation off of the company's market cap. There is some debate about this online, but that could be the worst single-day drop in terms of dollar figure of any U.S. stock of all time. Snap, Twitter, others who might be hurt by the ATT changes are also down as well. Heck, the entire NASDAQ, as I write this, is down over 2%. So, the takes on this are endless. Let me give you a few. Here's Cecilia Kang, quote, Facebook stock is down with disappointment in these key metrics. User growth and revenue targets. Don't look at profits as a whole, or revenues as a whole. It's about

growth, end quote. Yes, remember meta's revenue growth estimate of between 3 and 11% next quarter, well, guess what? Even if they hit that high end number, it's bad, because anything below 11% growth would mark the slowest quarterly growth in the company's history. Here's Jeff Nolan on Twitter, quote, give Zuckerberg credit, a lot of the failed initiatives over the years, the Facebook phone, portal, beacon, places, parse, were all designed to avoid putting the company in the position they in today. Sure, they make an S load of money, but never before has their future looked less certain, end quote. And the metaverse is, of course, another stab in the direction of fixing all that, right? But again, how many years out is the fix? And how much more money will be required?

How many more billions will be required to build out this metaverse fix? Oh, and they can't buy their way out of it either? Here is former Facebook executive Nikita Bierre on Twitter, quote, high annual revenue per user. Coastal users have churned. TikTok is eating their lunch. Two, they can't acquire because of antitrust scrutiny. Three, they can't build because founders don't want to be there. Four, IDFA killed their ability to target ads. Five, the Metaverse is 10 years out. RIP, end quote. That's hyperbole for sure. But this is exactly why Facebook is down so much today. Those five points, all in one nasty little package for the company. And it all comes down to one simple thing. Facebook phone, Beacon Metaverse, Mark Zuckerberg has

long known that he needed to diversify beyond just being a company that sells ads against social activity. As Parmi Olson pointed out in Bloomberg opinion, meta and Google are the least diversified of the tech giants, relying on ads for 98 and 81% of revenue, respectively, hinting at future issues. But future issues, it seems like for meta, at least, those issues are here today. Because Google did seem to still be doing well, right? Quote. Though conventional wisdom says that conglomerates shouldn't put all their eggs in one basket, it is hard to knock a business model that has been so successful. After all, people were calling Google a one-trick pony back in the early 2000s because of its bet on ads, and that bet has paid off handsomely two decades later. Quote, through most of the

first decade, the concept that Google would make $10 billion was inconceivable to people inside the company, says Shridhar Rameswami, who ran Google's ad business for about five years until he left in 2018. It's telling that Google has been tinkering with the mechanics of its advertising business and what looks like an attempt to protect its golden goose from a pile on by regulators and privacy advocates. Chrome, its browser, used by almost two-thirds of internet users, will stop using third-party cookies from the end of 2023, even though the digital tools are critical for advertisers. In one way, the company may be laying the groundwork for a time when the display and search ads business won't be so straightforward or lucrative. Quote, the digital ad industry will grow,

but at slower rates, and it's logical, says Ramoswamy, who left Google to start another search engine, which, funnily enough, doesn't make money from ads. The market will settle down to get the kinds of 1 to 2 percent levels of growth normally associated with GDP, he says. The days of 20 percent growth will get harder and harder, end quote. That is not a terrible place to be for any business, but an end to strong growth means an end to dominance, especially when you don't have a backup, end quote. Once again, this is a category of stories that I could give you one from every single day. Every day, it seems like there's another story of a crypto or a Web3 project

getting hacked and millions of dollars in crypto getting lost. Remember, crypto is just software. Software is always vulnerable. Let me give you the latest story because it's a biggie, and it can stand for the dozens of others that I haven't told you about. quoting the record. A threat actor has abused a vulnerability in the Wormhole cryptocurrency platform to steal an estimated $322 million worth of ether currency. The attack took place earlier today and impacted Wormhole Portal, a web-based application, also known as a blockchain bridge,

that allows users to convert one form of cryptocurrency into another. Bridge portals use smart contracts on the Ethereum blockchain to convert an input cryptocurrency into a temporary internal token, which they later convert into the user's desired output cryptocurrency. The attacker is believed to have exploited this process to trick the Wormhole Project into releasing Ether and Solana coins far beyond the input they initially provided. According to reports, the attacker stole crypto assets worth $322.8 million at the time of the attack and which have depreciated to $294 million due to price fluctuations following the news of the hack. While a Wormhole spokesperson has not returned a request for comment on today's incident. The company has confirmed the attack earlier

today on Twitter and has put its site into maintenance mode while it investigates the incident, end quote. Of course, these days, any business can be hacked, even one that's not necessarily heavy on software. The hackers have now come for our snacks. KP Snacks, a major British snack producer has been hit by Conti ransomware impacting supplies of skips, hula hoops, McCoys, and other tasty items to supermarkets, quoting bleeping computer. KP Snacks has more than 2,000 employees and estimates put the company's annual revenue at over $600 million, making them an attractive target for threat actors. Because of the attack, deliveries from the company to leading superstores are reportedly being delayed or canceled altogether.

According to discussions between KP Snacks and its partner supermarkets, the supply shortage issues can last until the end of March. A source-informed bleeping computer that the company's internal network had been breached with threat actors gaining access to and encrypting sensitive files, including employee records and financial documents. Private leak pages seen by bleeping computer show Conti ransomware group claiming responsibility for the attack. On the private leak page, Conti shared samples of credit card statements, birth certificates, spreadsheets with employee addresses and phone numbers, confidential agreements, and other sensitive documents, Darknet Intel provider, DarkFeed, had also posted yesterday about Conti ransomware op giving the company five days before leaking even more proprietary data on their public blog. It isn't clear if KP Snacks is currently negotiating with Conti or if it will pay a ransom, end quote. British listeners, you'll have to let me know how serious this is if Britain is facing a crisps crisis. But also, as easy as it is to make jokes about this. I mean, this is a real $600 million company that could be in real

trouble. But on the brighter side of the road, sources are telling financial times that Yuga Labs, the startup behind Bored Ape Yacht Club NFTs, is in talks to raise funds from Andresen Horowitz, at a $4 to $5 billion valuation, its first ever outside funding, quoting FT. Any deal would mark the first institutional investment into Yuga, a secretive outfit led by sued anonymous founders Gordon Goner, Emperor Tomato Ketchup, NoSassas, and Gug. Gargamel. It would place the U.S.-based company at the forefront of the frothy but lucrative market for crypto art less than one year after it debuted the BordApe Yacht Club collection, with some items selling for millions of dollars each. Yuga did not respond to multiple requests for comment.

Andreason declined to comment as well, a video series hosted by The Nifty, a website for NFT data and analysis first reported that Yuga was seeking investment. The price of board apes has soared to upwards of $250,000 since Yuga created or minted 10,000 of the collectibles for about $300 apes in April last year. They are used to signal stature on social networks such as Twitter. Yuga collects a cut from resales of Bored Apes. According to some BordApe Yacht Club owners, BordApe characters are expected to feature in the Super Bowl halftime show next month, where collectors, Snoop Dog, and Eminem are due to perform. It is one of the most watched television events in the U.S. every year and would be an opportunity to

reach a more mainstream audience. Holders of BoredApe Yacht Club tokens retain full commercial usage rights, meaning that while Yuga created the collection, the company no longer controls the intellectual property for the individual works of art. Board Apes also grant owners access to exclusive events and sought after merchandise. Investors in the surging NFT industry said venture capital groups are interested in cashing in on Yuga's elite community of celebrities and wealthy enthusiasts, potentially through the creation of new collections and media projects. People familiar with the talk said Yuga could even issue crypto. tokens to investors and existing Board A Polders, which could then prove valuable on the resale market.

Yuga was incorporated in February 2021 and had just 11 full-time employees at the start of this year. It recently said on Twitter, quote, Our ambition is for this to be a community-owned brand with tentacles in world-class gaming events and streetwear, end quote. Finally today, some sad news. According to a report from Insider, Microsoft scrapped plans for a HoloLens 3 in 2021. shifting instead to a mixed reality device it is going to produce with Samsung, and leaving the HoloLens team, quote, inflamed.

So will we ever see another HoloLens, quote? While Microsoft insists it's committed to HoloLens and will release new versions in the future, three insiders say Microsoft in recent months scrapped plans for what would have been the HoloLens 3, and at least one person expects that this is the end of the road, at least for the product as we know it. Sources say Microsoft has also agreed to a partnership with Samsung to develop a new mixed reality device that has inflamed divisions within the team. A high-profile Pentagon contract that once burnished the HoloLens' image is behind schedule, plagued by quality and performance problems, and internal disagreements about the priorities of Microsoft's broader mixed-reality strategy have triggered a wave of departures and raised doubts about its commitment to the HoloLens device.

inside Microsoft's mixed reality unit run by HoloLens co-creator and Microsoft technical fellow Alex Kittman, more than 20 current and former employees who spoke to insider described confusion and strategic uncertainty as different factions argue about its future. The factions in recent months have been split on whether the mixed reality unit should double down on its own hardware or put more firepower behind trying to build the go-to software platform for the Metaverse and whether the unit should continue to focus on Microsoft's main customer base of enterprise customers or create products for consumers. Ruben Caballero, a former Apple executive Microsoft hired in 2020 to run device engineering in mixed reality and AI under Kippman, wants the team to focus on consumers and the Metaverse, at odds with those who believe Microsoft

should double down on the enterprise market and the military, some insiders say. It's unclear which, if any, of these different visions for the future of the unit are currently favored or even being pursued by management, even to some within the company. But the Microsoft Insider suggests that it's that very sense of uncertainty that's contributed to lower team morale and driven some towards rivals like Facebook parent company meta, end quote. You'd have to say, all things considered, this has been a pretty tough day for the Metaverse. No Twitter space tonight. Chris and I are taking the week off for various reasons, including my birthday.

going to head upstate this weekend to hopefully just read books, play in the snow, maybe ski a little bit, play some Nintendo with the kids, and not check the news for about 48 hours. So nothing big happened this weekend. I will be here tomorrow, though, before we leave, so talk to you then.