Tim’s Tech Tidbits #3

Hi all,

Earnings season is always fun. Have you heard of the saying, “Earnings season is like a red packet, you never know what you are going to get”? Me neither, I literally just made that up. Although we are more than halfway through this earnings season, it’s just been a gift that keeps on giving. We have seen some heroic and inspiring numbers, and massive disappointments. Among them, Meta takes the cake.

Today’s topics

1. The art of self-awareness — is Meta meta enough?
2. “Shein”-ing the spotlight on D2C companies: the 3Ds
3. Getting lost in the Wormhole, and the role of Cefi in bridging trust and security

The art of self-awareness — is Meta meta enough?

• Last week, Meta had the single biggest drop that any US company has experienced in stock market history. In a matter of minutes, the stock plummeted 26% and some $230 billion of market value was erased. The company’s share price has since been trading sideways. Meta has already taken quite a bit of flak for their name change a few months prior — and now their numbers from last week’s earning report was even worse than the infamous rebranding. Meta recorded its first-ever drop in number of daily users and lower revenue forecast
• Mark Zuckerberg highlighted that supply chain issues caused disruptions and their $10 billion investment into metaverse will take time to bear fruit. Well… for most of us, we know the main reasons for the flagging performance are unlikely to be resolved anytime soon. For years, both Facebook and Instagram have been so saturated with ads that users are starting to feel the strain, not to mention Meta’s advertising model having been hit hard by privacy changes at Apple. Both platforms have also been facing tough competition for attention from TikTok
• It will be interesting to see whether Meta’s huge bet into the metaverse will pay off. As Meta continues to alienate users with a flurry of ads, data scandals, and misuse of personal information — all at the expense of their users and the user experience — it is critical to re-build trust and convince users that Meta can be responsible stewards of the new, futuristic digital world. We talked about this briefly in the first newsletter, but the metaverse is going to be far more pervasive and powerful than anything else. A successful Meta metaverse has the potential to transition the business to the next level

“Shein”-ing the spotlight on D2C companies: the 3Ds

• According to Reuters, Shein, the fast fashion e-tailer based in China, is rekindling plans for an IPO in New York this year. In the same report, CEO Chris Xu is said to be considering obtaining Singaporean citizenship in a bid to help smoothen the IPO process. Setting rumors aside, in the event Shein goes public it would be nice to catch a glimpse of this D2C behemoth’s financial and operating data. Shein is one of the largest fashion retailers in the world, driven by superior logistics and social media marketing strategy targeted squarely at Gen Z customers
• There has been a resurgence in the D2C space. In this new age, the 3Ds in D2C stands for direct, digital and data. Most D2C businesses now harness the power of the digital internet to reach potential customers directly and rely on a tidal wave of customer acquisition costs which are ROI / ROAS-optimized through the use of data as they track their users across platforms and websites. As customers are increasingly willing to dish out their dollar bills to newer, less established brands, having a direct relationship with the customer is proving to be highly lucrative. Take it from Secretlab co-founder, Ian Ang — last year, the 28 year-old spent S$51 million on a bungalow and penthouse in Singapore and reaping the rewards of his successful D2C business
• As the space continues to heat up, I expect to see more exits to either D2C e-commerce aggregators (e.g. Una brands’ acquisition of Ergotune) and larger consumer brands (e.g. Coca Cola’s acquisition of Bodyarmor). For investors looking to acquire such businesses, the focus will be on pathway to scale further and the right product-channel fit to achieve high growth and justify current valuations on a forward looking basis. Achieving growth will be driven by a tried and tested playbook: omnichannel approach, geographic expansion, new product roll outs and/or new customers segments

Getting lost in the Wormhole, and the role of CeFi in bridging trust and security

• The second largest DeFi hack in crypto land to date took place last week. Hackers exploited a vulnerability in Wormhole, one of the largest protocol bridges facilitating transactions between Solana and Ethereum, to steal $325 million worth of Ethereum. Wormhole initially wanted to cut a deal with the hackers by offering a $10 million bug bounty in exchange for details on the hack and the stolen $325 million — no prizes for guessing what the hackers chose here. Fortunately, Wormhole subsequently announced that they have replenished their reserves made possible by Jump Crypto, a trading firm and an investor in Wormhole, that put forth the cash
• The rise of popularity in DeFi protocols has invariably attracted hackers, stealing over $610 million in 2021 (to help quantify risks for crypto enthusiasts, this represents ~0.6% of TVL in DeFi ), a 7x increase from 2020 ($77 million). Unless hackers agree to a bug bounty or their identities are revealed, it is unlikely that stolen funds will be returned with little guarantee that a white knight in shining amor (such as Jump Crypto in this recent hack) would swoop in to make whole the amount lost. Users participating in DeFi-related activities must implicitly accept the tail-end risk and act accordingly to prevent and mitigate such losses
• These hacks are not confined to the DeFi space. In CeFi (i.e. crypto exchanges, brokers), Crypto.com confirmed a $30 million hack last month. In contrast to DeFi, CeFi players are more “user-friendly” with a greater appeal to those foraying into crypto for the first time, and are subject to greater regulations and accountability to regulatory bodies. CeFi players prioritize trust and security, especially in the event of any hacks — Crypto.com fully reimbursed users for the attack and Binance also earmarked 10% of trading fees for a $1 billion insurance fund to cover potential hacks. The role of CeFi players cannot be understated as they will continue to play a critical role in driving adoption of crypto in an orderly manner

If you like to discuss any of the themes, trends or topics further, please feel free to reach out. I would also love to get any thoughts and suggestions on the above.