Quibi – Peak preposterousness.

Quibi signals that peak mania is close.

• The fact that Quibi can credibly entertain the prospect of raising more money, selling itself or going public is a sign that there is way too much money sloshing around in the system and that a big correction is imminent just as it was 20 years ago.
• Quibi was a bad idea demonstrated by the fact that was given the perfect environment within which to succeed and still it bombed badly.
• Quibi is a short-form mobile video platform that is backed by a series of media companies with two main features.
• First, the video works just as well in portrait or landscape format making it ideal for smartphones and tablets and second, each episode only last 10 minutes.
• These characteristics have been chosen to work best on mobile devices and Quibi planned to spend $1.1bn commissioning 8,500 10-minute episodes during its first 12 months of operation.
• It is doing a little better now than it was back in June when it was ranked 922^nd for downloads and 500^th for revenue generation in the app store charts, but it is still far from where it needs to be.
• Looking at its revenue performance in the charts, there is a jump after every marketing blitz followed by a slump back to baseline.
• This baseline is gradually increasing, and I would guess that Quibi’s natural settling point is going to be around 300^th in terms of revenue generation.
• While this is better than June, it is very far from being even close to anything that is close to sustainable and light-years from repaying the $1.75bn that has been invested.
• The revenue performance chart clearly indicates that this idea will not fly under any circumstances as even a pandemic-induced 30% increase in smartphone usage could not save the idea.
• Consequently, other sources of funding need to be found and it beggars belief that management thinks that someone might be dumb enough to pay good money for a company that clearly has no value.
• That being said, Uber was able to find investors for its self-driving unit that is demonstrably the worst offering on the market today (see here) and so I guess anything is possible.
• What is more troubling is that this is a sign of the kind of preposterousness (like Marconi’s disastrous acquisition spree in 1999) that signals the peak of the mania.
• When one looks at the valuation of the big tech names and of the hot new IPOs which no one seems to able to get enough of, there is no basis in reality to any of it.
• The economic outlook is already poor and rising COVID-19 cases is making it deteriorate further.
• In a recession, the valuations of shares typically come down driven by lower growth and greater uncertainty and I think that few would argue that 2020 has not been a year of the greatest uncertainty seen for a generation.
• However, valuations have gone in the opposite direction which have been driven by ever greater fiscal stimulus and rampant money printing (QE insanity (see here)).
• At some point increasingly soon, reality will assert itself at which point I expect to see a large correction in the valuation of the technology sector.
• I have been out of the technology sector for some time and would only consider some of the old dogs like Nokia and Intel which both have a lot of ground to make up and where almost all the bad news has been priced in.
• I do not own either of these yet as a sinking boat is likely to take these with it albeit to a much lesser degree.