Quibi – Reality prevails.

$1.4bn goes up in smoke.

• Quibi has bowed to the inevitable and decided to close its doors which should serve as a warning to investors who seem willing to pour endless amounts of money into a market that has little hope of offering them a good return.
• Quibi will be ceasing operations and selling off the assets that it has and returning the cash that it has left ($350m) to shareholders who will be nursing an 80% loss.
• I think they should feel fortunate because if Quibi had continued to limp along, the loss would have been 100%.
• Quibi gives two potential reasons for its failure one of which is obviously the case and the other reads like a weak excuse.
• These are:
  • First, bad idea: Quibi states “the idea itself wasn’t strong enough to justify a standalone streaming service” which is what I have thought all along. (see here and here).
  • This is a frank admission, and it is commendable that the founders and shareholders admit to this and are moving to minimise the loss for their owners.
  • Anyone who has looked at mobile for a long time will know that video content designed exclusively for mobile has never worked outside of user-generated content that is monetised by advertising.
  • This is a $1.4bn proof point of this and I do not expect the experiment to be repeated for another 10 years by which time everyone will have forgotten this sorry episode.
  • Second, timing: Quibi has long made the case that it launched at the wrong time and that the pandemic is responsible for its failure.
  • I find this contention to be absurd.
  • The rationale is basically that the video service was designed for busy people who don’t have time to watch longer shows and that when everyone had lots of time locked up at home, the format did not work.
  • However, other services like TikTok and Snap saw big uplifts in their engagement with everyone stuck at home indicating that the services with which Quibi was competing were flourishing.
  • Furthermore, YouTube, where most of its videos are within the 10-minute range, also saw a big increase in traffic further indicating that the lockdown has been great for streaming services.
  • At the end of the day, the evidence from its competitors strongly suggests that if Quibi could make it in the pandemic, then it was not going to make it at all.
• I think that the reason why Quibi failed is almost entirely down to it being a bad idea.
• Irrespective of questionable management execution and infighting, this idea had enough money and content to at least survive if the format had been a good idea.
• Turns out that it was not and the rest will now become a cautionary tale.
• This gives me a tiny glimmer of hope that some rationality may return to the technology sector but I still have no idea when.
• The economic outlook is already poor and rising COVID-19 cases is making it deteriorate further due to government-mandated lockdowns.
• 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 has been driven by ever greater fiscal stimulus and rampant money printing (QE insanity (see here)).
• At some point increasingly soon, reality will reassert itself (as it has at Quibi) at which point I expect to see a large correction in the valuation of the technology sector.
• I do not want to be anywhere near when the bomb goes off.