TheChek News Flow

Wall Street traders need to exercise their brains a bit more. Peloton shares jumped 14% on Thursday after the struggling fitness firm struck a deal to put its workout videos on TikTok. Sure, associating with TikTok can help almost anything and anyone seem cool with the kids. But investors seem to be misreading this situation. The “exclusive partnership,” as Peloton called it, is essentially a giant ad on TikTok for the fitness firm. It’s designed to get people to download the Peloton app, where they’ll hopefully go on to sign up for a paying subscription.

But even if they do download the app, there’s no guarantee they’ll subscribe. And as there are already lots of workout videos on TikTok, not to mention other similar apps such as YouTube, it’s hard to see why this new fitness hub featuring Peloton content will move the needle for the fitness company. Sure, it makes sense for Peloton to advertise its app on TikTok, given its enormous reach. As Oli Snoddy, Peloton’s vice president of consumer marketing, told CNBC, TikTok “increasingly reaches everyone, including the younger audience.” But that is hardly worth the $270 million in additional market capitalization that resulted from the stock jump. You could make the opposite case: that the chances this ad doesn’t generate enough paying subscribers to cover its cost should mean investors sell their Peloton shares.

After all, Peloton's stock is not cheap, at least compared with media stocks—and it has to be compared with media stocks. CEO Barry McCarthy has made it clear he sees Peloton’s content as its most powerful asset, and subscriptions to that content account for 70% of its revenue. Most of the subscriptions are for people using Peloton equipment, a number that isn’t growing, so Peloton is pinning its growth hopes on its revamped app, which offers workout videos for anyone, regardless of whether they own Peloton equipment. It’s too early to say whether the app will prove to be a growth driver for Peloton. For the year to June, the company has forecast flat or slightly down revenue.

In other words, Peloton doesn’t deserve a Netflix-type multiple. Instead, it should be valued in line with Paramount Global and Warner Bros. Discovery, two TV companies that are also not really growing. They’re trading at an average of 1.25 times forward sales, according to Koyfin. Peloton is now trading at around 1.4 times forward sales. It’s not a huge difference, to be sure. But it does suggest investors are getting this one wrong.

Tracking Amazon’s Headcount

It’s no secret that investors have lacked an easy way to track the nuances of Amazon’s hiring. The e-commerce and cloud giant added roughly a million workers between the end of 2017 and the end of 2022, thanks to the pandemic. Amazon has said it finished 2022 with 1.54 million employees. But that number includes warehouse workers and other blue collar employees, making it difficult for outsiders to compare the number to the mostly white collar workforce of other tech firms where software engineers and marketing folks dominate.

Amazon has rarely given any insight into the composition of its white collar workforce, but today The Information provided a look into that part of the company’s headcount. The story reveals that Amazon’s corporate workforce more than tripled over five years to reach 415,000 by the end of 2022, which is a higher rate of growth than for the overall workforce. All of a sudden, the layoffs that trimmed the corporate staff somewhat in the past year make a lot more sense.

OpenAI’s board and its representatives have started talking to candidates to fill its board of directors in the wake of CEO Sam Altman’s ouster and subsequent return. The candidates include two familiar names: Scale AI CEO and co-founder Alexandr Wang, and former GitHub CEO and startup investor Nat Friedman, according to two people familiar with the discussions.

It’s not clear who else the board has approached about joining its ranks. But the talks, which are still in the early stages, indicate that the board is seeking to add representatives from companies that partner with the ChatGPT maker, such as Scale, or that work with other AI startups.

When OpenAI’s previous board in November abruptly fired Altman, triggering an employee revolt, some customers complained that the board’s directors were too disconnected from their needs. After firing Altman, OpenAI’s then-board approached both Wang and Friedman to be an interim CEO, The Information reported. The two entrepreneurs rejected the offers.

Friedman is unlikely to accept a board seat, according to a person familiar with the talks. It’s unclear if conversations with Wang, which took place over the past few weeks, will lead to his appointment, according to another person.

OpenAI’s board now consists of former Salesforce CEO Bret Taylor, former U.S. Treasury Secretary Larry Summers and Quora CEO Adam D’Angelo, the only member remaining from the board that fired Altman. The trio is also overseeing an independent review of the events leading to Altman’s ouster.

The board had nine seats as of last March, and it’s not clear how many new seats it will seek to fill.

Muddying the search process, OpenAI’s structure limits the type of candidates the board may consider. Altman and others set up OpenAI in 2015 as a research nonprofit with a mission to develop artificial general intelligence—AI that learns and thinks like humans—for the benefit of all humanity. A majority of its board members need to be independent and must not have equity in the business, OpenAI says. Plus, California law requires board members at nonprofits to recuse themselves from votes on any issue in which they have a business interest.

Last year, early OpenAI investor Reid Hoffman left the board, citing a potential conflict of interest between his duties to the nonprofit and his investments in AI startups, including OpenAI rival Inflection, as well as in companies that could financially benefit from OpenAI. Neuralink executive Shivon Zilis also stepped down last year due to conflicts of interest with AI efforts at her own company, The Information reported.

For similar reasons, the candidates may not include representatives from any of the major investors in OpenAI, such as Khosla Ventures, Thrive Capital or Sequoia Capital. It’s not clear if Wang or similar candidates could avoid such conflicts, but the inclusion of tech executives could help Taylor create what he said should be a “qualified, diverse board,” with individuals experienced in technology, safety and policy.

Such additions could resolve the concerns of customers and investors, including Microsoft—OpenAI’s largest financial stakeholder—that the nonprofit’s mandate could again interfere with the business. After Altman’s ouster, early OpenAI investor Vinod Khosla blamed the makeup of the prior board, composed of D’Angelo, then–Chief Scientist Ilya Sutskever, AI researcher Helen Toner and entrepreneur Tasha McCauley, for what he considered misplaced concern about existential risk from AI advances.

The departures of Toner and McCauley mean there are no women on OpenAI’s board, and people close to OpenAI leadership believe the board should include at least one woman.

Microsoft has the right to appoint a nonvoting board seat. The software giant is likely to appoint someone close to Chief Technology Officer Kevin Scott. He has largely led the company’s partnership with OpenAI, beginning with Microsoft’s first investment in the startup in 2019.

Two possible candidates for the Microsoft board observer role are deputy Chief Technology Officer Lila Tretikov and Vice President of Partnerships Deannah Templeton. Both report directly to Scott and have also worked closely with OpenAI in recent months, according to two Microsoft employees. A Microsoft spokesperson declined to comment.

Wang and OpenAI have a long and multifaceted relationship that dates back to 2016, when Wang participated in the Y Combinator startup accelerator, then led by Altman. OpenAI has also been a customer of Scale, which helps businesses fine-tune AI models. More recently, Scale has helped other companies customize how they use OpenAI’s GPT 3.5 model. D’Angelo, OpenAI President Greg Brockman and Friedman have all invested in Scale.

Friedman’s involvement with OpenAI stretches at least back to his time at Microsoft. Friedman served as CEO of GitHub after Microsoft acquired the code repository firm in 2018, and in 2021 he oversaw the launch of GitHub Copilot, which uses OpenAI’s models to automatically generate code based on customers’ written prompts. The tool predates OpenAI’s ChatGPT and was the first large-scale product deployed by Microsoft that relied on OpenAI’s technology.

Since leaving Microsoft in 2022, Friedman has become an active investor in AI startups, including consumer chatbot maker Character.AI, web search chatbot startup Perplexity and Scale, sometimes through his fund established with investor Daniel Gross.

A lawsuit blaming Snapchat for a series of drug overdoses among young people can proceed, a Los Angeles judge ruled this week.

A group of family members related to children and teens who overdosed on fentanyl sued Snapchat maker Snap last year, accusing the social media company of facilitating illicit drug deals involving fentanyl, a synthetic opioid many times deadlier than heroin. Fentanyl, which is cheap to produce and often sold disguised as other substances, can prove lethal in even extremely small doses.

The parents and family members involved in the lawsuit are being represented by the Social Media Victims Law Center, a firm that specializes in civil cases against social media companies in order to make them “legally accountable for the harm they inflict on vulnerable users.”

The lawsuit, originally filed in 2022 and amended last year, alleges that executives at Snap “knew that Snapchat’s design and unique features, including disappearing messages… were creating an online safe haven for the sale of illegal narcotics.”

“Long before the fatal injuries giving rise to this lawsuit, Snap knew that its product features were being used by drug dealers to sell controlled substances to minors,” Matthew P. Bergman, who founded the Social Media Victims Law Center, said at the time.

Snapchat rebutted the claims, noting that it is “working diligently” to address drug dealing on its platform in coordination with law enforcement. “While we are committed to advancing our efforts to stop drug dealers from engaging in illegal activity on Snapchat, we believe the plaintiffs’ allegations are both legally and factually flawed and will continue to defend that position in court,” a Snapchat representative told TechCrunch.

In the ruling on Tuesday, Los Angeles Superior Court Judge Lawrence Riff rejected Snap’s effort to get the case dismissed. Snap had argued that the case should be thrown out on the grounds that the social media app is protected by Section 230 of the Communications Decency Act, a law that protects online platforms for liability from user-generated content.

“Courts in California and the Ninth Circuit have explicitly held that Section 230 immunity applies to communications about illegal drug sales and their sometimes-tragic consequences—the exact circumstances here—because the harm flows from third-party content that was exchanged by third parties on the defendant’s social media platform,” Snap’s lawyers argued in their brief last year.

Riff did dismiss four counts against Snap but overruled the company’s efforts to throw out more than 10 others, including negligence and wrongful death. He also waded into Section 230’s relevance to the case, but did not conclude that the law’s legal shield should protect Snap outright:

That interpretation is likely to prove controversial and the latest in a flurry of recent cases in which a judge allowed a lawsuit that might be tossed out on Section 230 grounds to proceed.

Electric cars’ share of UK market fell for first time in 2023

Industry calls for cut in VAT to provide incentives for buyers after EV growth falters

The share of electric cars sold in the UK fell for the first time last year, casting doubt over whether manufacturers will meet binding new green targets and prompting industry calls for tax cuts.

Electric cars accounted for 16.5 per cent of new vehicles sold in the UK last year — marginally down from the 16.6 per cent seen during 2022, according to figures released by the Society of Motor Manufacturers and Traders on Friday.

Although the total number of EVs sold rose by 18 per cent to a record 315,000, overall UK car sales increased by the same amount, rising to 1.9mn.

“Just one in 11 private consumers last year chose an EV,” said Mike Hawes, SMMT head, as he called for a VAT cut to get sales back on track and meet new government targets. “We do need to look at incentives for the private consumer.”

Last year marked the first time battery cars failed to gain market share since sales began in earnest in 2018, raising concerns that private buyers remain sceptical of the new technology and concerned about higher prices.

EV demand is still rising globally, but carmakers across the US, Europe and the UK have warned there is slowing appetite as the market shifts from early adopters to more cautious mass-market consumers.

Although EVs have lower running costs than petrol cars, the upfront price is around 30-40 per cent higher, the SMMT said.

Rishi Sunak’s government has delayed a ban on the sale of new diesel and petrol cars from 2030 to 2035 — a move decried by some manufacturers and denounced by green campaigners. But the government has retained binding targets for manufacturers to increase EVs’ share of total vehicles sold.

Under rules introduced this month, 22 per cent of vehicles sold by each carmaker in the UK this year must be zero-emission, a percentage that will rise each year to 80 per cent in 2030.

The SMMT’s Hawes said the new sales mandate could “compel supply, but it can’t compel demand”. 

At present, anyone buying an EV in the UK through a business, or a company car or salary sacrifice scheme, receives generous tax incentives. But grants for individuals were phased out by the government two years ago.

“All the evidence will show over the course of the year that private demand isn’t increasing on its own to meet future trajectories,” Hawes said. “We might be all right this year, but in future years we are really going to struggle.”

He added that other major European markets, including Germany and France, still offered incentives to retail customers buying electric cars, leaving the UK in the “bottom half” of Europe for EV market share.

Norway leads Europe’s EV industry, with 83 per cent of sales during the first nine months of 2023 being electric. The UK also lags Germany, where the figure was 18 per cent; in Belgium it was 19.3 per cent; and in Portugal it reached 17 per cent.

Ian Plummer, commercial director at Auto Trader, warned that falling enthusiasm for EVs from mainstream buyers was “a sign of what’s to come if the government doesn’t support the industry in making the transition by incentivising consumers”. He pointed to interest in EVs among private buyers “faltering amid doubts over affordability and charging”. 

While more charging stations are being installed, the UK’s rollout is slower than promised and remains concentrated in London and the south-east.

The SMMT said that cutting VAT from 20 per cent to 10 per cent on new EVs over three years would take roughly £4,000 off the price of a new model if the savings were passed on. Campaigners have previously warned that VAT cuts are not always passed on. 

The industry body calculated this would increase EV sales by 250,000 over the three years, while probably costing the government around £7.7bn in lost income.

Radical plans for recovery at the entertainment group are thin on the ground

Disney chief executive Bob Iger likes to say that the company he runs is fuelled by storytelling. If that is the case then someone needs to punch up the script. Disney’s share price is down by more than 50 per cent from its 2021 peak. Despite input from two CEOs and multiple activist investors, radical ideas for recovery are thin on the ground. 

This week, investor ValueAct Capital used its stake in the company to strike a deal to consult on strategy. It will also support Disney’s board nominees. The move is a counter to activist investor Nelson Peltz, who has restarted his battle to join the media company’s board. 

Everyone agrees that the stock is underperforming as it transitions to streaming. No one has a new plan to address it. Peltz wants Disney to cut costs. Iger is cutting costs. His predecessor Bob Chapek left before he could begin to cut costs. 

On the surface, everyone also agrees that a leadership succession plan is needed. In reality, Peltz has backed down from a proxy fight on the issue once before. The arrival of ValueAct makes it more likely that Iger will stay put. 

The scale of Disney’s $7.5bn cost-cutting plan is impressive. Enjoy the Marvel blockbusters while you can because content spend is falling. Dividends are back. At less than 0.7 per cent, the yield is not head-turning, but if free cash flow increases to $8bn from less than $5bn in the past financial year there is scope to raise it. 

But those don’t address the longer-term problem of lacklustre franchises, quieter theme parks and the end of television. If Disney wants a radical change it needs to consider sales. Sports network ESPN, which once bankrolled splashy purchases elsewhere, is slowing. Competition from the likes of Amazon is raising rights fees. Disney’s sports division reported a fall in revenue and profits for the year.  

Iger is considering “partnerships”. His long history at Disney may leave him reluctant to unwind a business that he helped to grow. Time for one of the activist investors around him to step forward. 

Biotech boss tells Europe to invest if it wants a homegrown sector

Argenx is one of the bloc’s largest biotech companies but its shareholder base is dominated by US specialist investors

Europe needs to learn from US shareholders willing to make big bets on biotech if it wants to create a thriving homegrown industry, according to the chief executive of Argenx, one of the bloc’s largest biotech companies. 

Tim Van Hauwermeiren told the Financial Times that Europe has a “chicken and egg” problem: specialist healthcare funds are scarce because not enough biotechs are available to invest in — and biotechs are scarce because domestic investors do not support them.

Argenx’s shareholder base is dominated by specialist US investors, who Van Hauwermeiren said really take the “long-term view and are willing to take the risk”. “Because in a sector like biotech, the returns can also become disproportionate if you have a real benefit,” he said. 

Despite having a product on the market and being identified by analysts as a potential acquisition target for several large pharmaceutical companies, many European shareholders are still reluctant to invest in Belgium-based Argenx, with Scottish fund Baillie Gifford a rare exception. 

“I think we have been ticking a number of important boxes for European shareholders. I think the last box they’re still waiting for will be the point of break-even, where we turn the corner on profitability,” he said. 

Argenx had a rollercoaster year in 2023, with shares rising about 40 per cent after a positive trial result in July, and then dropping as much as 29 per cent after a negative finding from a different study published in December.

The company is trying to expand the use of its immunology drug Vyvgart to different diseases. It is used against a rare chronic immune disorder called myasthenia gravis, which causes muscle weakness. 

The immunology drug market is growing as researchers discover how to take a more targeted approach to treating autoimmune disease, similar to scientists’ efforts to tackle cancer over the past decade. 

In July, Argenx reported a positive trial result that showed Vyvgart could be used as a treatment for chronic inflammatory demyelinating polyneuropathy, a condition where the immune system attacks the protective coating around nerves. On the back of this success, the company raised $1.1bn in a follow-on offering, the largest of its kind in the biotech sector last year according to research firm Dealogic.

But a trial to use the drug to treat primary immune thrombocytopenia, a blood-clotting disorder, failed to achieve its goals, hitting the stock when the results were published in late November. Van Hauwermeiren said the company is still analysing what happened in the study. 

In December, Argenx said it would not pursue using the drug for the skin disease pemphigus, after a trial failed to show it worked significantly better than a placebo.

Many European biotechs are bought by large drugmakers long before they have an approved product. Van Hauwermeiren said he is bucking that trend by building a “global sustainable company” and a “company which can fly on its own wings”. 

But he said the management will always do what is in the best interests of shareholders if presented with a deal offer. 

“The only thing which we can do as a management team is make sure everyone understands what is the business plan . . . [in] a standalone scenario over the next five years. And then people can also make an objective comparison if and when there would be a bid on the table.”

Suzanne van Voorthuizen, head of life sciences equities at investment bank Kempen, said the company’s potential “wholly owned megablockbuster” drug makes it attractive to acquirers.

But she added that given Argenx has a market capitalisation of $20bn, a suitor would need to bid up to $40bn. “Deals of that size occur once a year, every two years. There are not that many potential buyers.”

European holidaymakers turn to cooler climes after scorching summers

Travellers are booking shorter, cheaper trips but winter bookings are still strong with UK airlines flying at capacity

Climate change is driving a change in travel bookings as more holidaymakers seek out cooler destinations and countries in northern Europe, according to the head of one of the region’s largest travel agents.

Dana Dunne, chief executive of eDreams Odigeo, said his business had seen some changing travel patterns following a scorching summer last year, when extreme heat forced the closure of some tourist attractions in Greece and led to wildfires ripping through some southern European holiday hotspots.

While the majority of travellers still book classic summer destinations in the Mediterranean, Dunne said climate change was “having an impact” on bookings, with some customers turning to typically overlooked destinations.

“We see a shift, with those [cooler] places seeing very material increases during the hottest part of the year,” he said.

Cooler parts of northern Spain had sharp rises in bookings during the hottest weeks of the year, said Dunne, with bookings to Bilbao rising 120 per cent year-on-year, La Coruña up 79 per cent, and a 65 per cent rise to Oviedo.

Cooler countries including Sweden, Norway and Denmark have also had more bookings.

The head of tour operator Tui last year forecast a rise in bookings to Northern European countries, and said the typical summer season had lengthened in the Mediterranean.

Travel companies do not yet see the changing travel patterns as a threat to businesses around the Mediterranean, and Dunne said that it was too early to call permanent the redrawing of travel patterns.

“2022 and 2023 were really hot, and yet still Spanish destinations showed up as being among the top destinations in Europe,” he said.

Dunne said holidaymakers in Europe were also booking shorter and cheaper trips as high inflation and a sluggish economy have started to eat into travel spending.

He said that people have continued to prioritise travel post-pandemic, but that the weak economy had led many to “trade down” rather than cancel trips.

Average spending per trip at eDreams was “significantly lower” than before the pandemic, said Dunne, while short-haul trips have proved more resilient than more expensive long-haul options, with many travellers opting to stay in Europe.

“All these types of things are ways in which a family or household just tries to manage their expenditure under these macroeconomic uncertainties,” said Dunne.

eDreams’ findings back up data from Advantage Travel Partnership, a network of independent travel agents, which said the average length of holidays sold last summer was 7.6 nights, down from 10 before the pandemic.

The rush to budget friendlier holidays has come as the price of travel rose last year, with airlines and hotel operators reporting booming profits.

The industry also had a busy year end. In the UK, airlines expect to have flown capacity for more than 2.9mn people in December, up from 1.4mn last year, according to travel data firm OAG. easyJet operated its busiest Christmas Day last year, with 542 flights across Europe.

Dunne said early bookings showed demand for travel in 2024 was “fine”, but added that the next three months, typically the busiest period for summer holiday bookings, would be a “key indicator” of demand. Paris leads for 2024 worldwide flight bookings, ahead of the Paris Olympics.

A 60% decline in 2023 from the year before sends a gloomy signal to funders and the start-ups that rely on them

Fundraising by US venture capital firms hit a six-year low in 2023, an ominous sign for start-ups with dwindling cash reserves and fledging businesses reliant on such backing for survival.

The $67bn raised by US VCs in 2023 is the lowest annual total since 2017 and represents a 60 per cent drop from the $173bn raised in 2022, the peak year for fundraising, according to analysis by private markets data provider PitchBook and the National Venture Capital Association.

Globally, in 2023 venture investors raised the lowest level of capital since 2015.

The sharp decline ratchets up pressure on start-ups, which have endured a funding drought over the past 18 months. VCs are reluctant to pour more cash into businesses they backed at the top of the market while private tech valuations are falling.

Kyle Stanford, lead VC analyst at PitchBook, said: “The bottom still feels a ways off. A lot of these companies that are still private will still struggle, we’ll see a lot more down rounds and a struggle to exit. There’ll be a lot of competition for the money that’s available.”

VCs have struggled to raise new funds as their own limited partners — institutional investors such as pension funds, insurers and university endowments and foundations — pull back because of rising interest rates, which have made risky tech bets a costlier proposition.

A number of prominent venture investors, including Insight Partners and Tiger Global, lowered fundraising targets to reflect the tougher environment last year.

That in turn has given US VCs less fresh capital to deploy. Last year, they invested a total of $171bn, according to PitchBook and the NVCA, less than half the amount they spent in 2021.

As well as a reduction in investment from limited partners, US VCs are contending with a sharp slowdown in start-up exits, such as initial public offerings or acquisitions, which is hampering their ability to return capital to their backers.

The value created by start-up exits in the US last year was just $61.5bn, compared to a 2021 peak of $797bn, according to PitchBook and the NVCA. In Europe, start-up exit value amounted to less than €12bn across the year, the lowest level for a decade.

The downturn is increasing the pressure on start-ups that spent last year burning through cash raised in 2021 and early 2022. As those companies run out of road, founders and existing investors are more likely to accept harsher terms for new funding, according to Peter Hébert, co-founder of US venture fund Lux Capital.

“The days of Band-Aids and hope are behind us, and people are accepting the new reality,” he said. “For new financings, you’re starting to see the presence of bids that are low. [In 2023] people were embarrassed to have that conversation, now everyone is becoming more constructive.”

This will also be the year in which VCs abandon poor performers, predicted Hébert: “It’s been two years of internal bridging. Now VCs are saying to companies: ‘I’m sorry we’ve gone as far as we can.’”

Late in 2023, a trickle of start-ups once valued at $1bn or more started to collapse. Among them were trucking start-up Convoy and healthcare company Olive, both valued at about $4bn at their peaks. Electric scooter company Bird, once valued at $2.5bn, also filed for bankruptcy in December.

Roughly one in six start-ups raising cash last year cut their valuations, according to PitchBook. That move is typically anathema for founders and investors who prioritise growth above all else, but Stanford expects that proportion to increase dramatically in 2024 as founders run out of other options.

As valuations fall towards a level that new investors can stomach, deal volume is likely to increase, said Hébert: “Those with capital are king in this market.”

Thanks to bumper fundraising years in 2021 and 2022, some venture firms have accumulated sizeable funds, which they have been reluctant to invest into a declining market.

Similarly, some cash-rich start-ups have chosen to wait for more certainty before making their next move. Nick Schneider, the chief executive of $4.3bn cyber security firm Arctic Wolf, said in an interview with the Financial Times that he would wait for as much clarity as possible on market conditions before launching a long-anticipated IPO.