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Twitter Held Discussions for $4 Billion Takeover of Clubhouse

Twitter’s Clubhouse aspirations, the dangers of market leverage and the ongoing chip shortage.
(Evgeniia Freeman)
(Evgeniia Freeman)
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Twitter reached out to Clubhouse in the last few months to gauge interest in a potential acquisition, Bloomberg reports.

The talks were kicking around a $4 billion valuation, but they’re no longer active. Clubhouse, the “the buzzy audio-based social network,” has exploded in popularity in roughly a year’s time. So much so, that Twitter, and other social networks, have launched their own versions.

Justin Oh:

If a company wants to have a feature, it usually goes through a “buy vs. build” analysis; buying usually costs more but is faster to market, while building is usually cheaper, but slower and risks falling further behind the competition.

Twitter was surprisingly quick in rolling out Spaces to compete with Clubhouse. It makes you wonder if Twitter was merely probing Clubhouse for its own development, under the pretense of acquisition. It is reminiscent of Facebook ($FB) trying to buy Snapchat ($SNAP) for $3 billion, but instead copying the Stories feature in Instagram after being spurned. If you want some comedic relief to your day, watch this funny clip from HBO’s Silicon Valley on the subject.

I personally believe that, unlike Snapchat back then, Clubhouse isn’t compelling enough to be a standalone success yet. 

  • Live media is hard to catch and is counter to the transition to on-demand media. 
  • Clubhouse is not particularly “social,” so it doesn’t call people back to the platform without the help of influencers. 
  • I believe Clubhouse needs to build out the ability to consume replays on-demand to improve the app.

We, on the ROIC Big Board, liked Twitter ($TWTR) and its newfound feature expansion and user growth. But the valuation is a little more complicated. We did a full premium research report on Twitter ($TWTR) for ROIC members, so check that out if you’re interested in the full analysis on the stock.

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Investors Big and Small Are Driving Stock Gains With Borrowed Money

From day traders on Robinhood Markets to big-time firms like Archegos Capital Management, investors “had borrowed a record $814 billion against their portfolios, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm,” WSJ reports.

Just for context, it’s up 49% from the year before and is the fastest annual increase since 2007 (before that, it’s the 1999 dot-com bubble). There are many factors that have contributed to the S&P 500’s rise and the seemingly “everything rally.” But it could be warning signs toward a bubble, and some analysts say “that today’s levels of borrowing will hurt investors if the market has a downturn.”

Justin Oh:

Leverage juices the upside, but when there are record-high levels of leverage, we should be extra cautious of bubbles and overvaluation. Because those same elevated levels of leverage will deepen a potential downturn if exposed to any economic or market shocks.

Over the past eight months, I have believed that we are seeing isolated overvaluation in certain industries and popular stocks. But the market as a whole, especially some of Big Tech, do not look particularly overvalued. Which emphasizes the importance of careful stock selection.

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Investors Sour on Emerging Markets as U.S. Prospects Brighten

“Pressure is building in some emerging markets as brightening U.S. growth prospects prompt investors to pull capital out of economies that look less robust,” WSJ writes.

Brazil’s 10-year yield bond rose to 9.65%, from 6.96% at the end of last year. Mexican and Russian bonds also hit yearly highs. As bond prices go down, yields go up. One possible explanation is the U.S. growth outlook, which “is strengthening the dollar and sending Treasury yields higher as money managers bet the Federal Reserve will raise interest rates in coming years to keep inflation tame.”

Justin Oh:

I have always remained focused on U.S. equities because it’s what I know natively, although I do like exploring stocks in other English-speaking countries, and to a lesser extent, China.

The issue I’ve always had with emerging markets (EM) is that success there relies not only on being right about a company in an unfamiliar country, culture, and economy, but just as much on macro factors such as EM funds flows, currency moves, and trade.

I find it increasingly important to find investments in which, if we predict 1-2 factors correctly, it will work out. Introducing more and more factors into the equation only increases our risk of not getting all of them right.

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Sixty-Week Delay on Router Orders Shows Scale of Chip Crisis

The worldwide chip shortage has a new victim — broadband providers — who “are seeing delays of more than a year when ordering internet routers,” Bloomberg reports.

Routers matter because running out would prevent carriers from adding new subscribers to their networks, “risking lost sales in the ever-competitive broadband market.” Covid-19 lockdowns last year have created a supply-chain whole that has yet to keep up with prolonged demand. For carriers, order wait times have reached as long as 60 weeks.

Justin Oh:

Taiwan Semiconductor Manufacturing Co ($TSM) is now trading at 14.9x 2021 EBITDA. What’s more telling is that they are trading at 43x 2021 EBITDA minus Capex, because they are investing so heavily in advancing their lead in production and technology. 

The stock looks like it’s fairly pricing in a few years of juiced growth, but also increased Capex spend. The only assumption that would make the stock particularly juicy would be if you assumed we’re in a permanent environment where TSMC can grow 20%+ per year while normalizing Capex.

The real question is if you believe that Intel ($INTC) can turn their business around and if the global demand for chips is so large that OEMs will buy up Intel chips even if they’re not as good as TSM’s. These assumptions are very important to $INTC especially since they are doubling down on manufacturing.

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U.S. Offer on Global Tax Deal Would Tie Levies to Revenue

The U.S. is suggesting “countries should be able to tax more corporate profits based on revenues within their borders in a bid to reach a global taxation deal,” Bloomberg reports.

The proposal, which the U.S. sent to roughly 140 member countries of the Organization for Economic Cooperation and Development involved in digital tax talks, could reignite stalled negotiations. “The plan calls for the taxing rights to be allocated based on a formula that accounts for revenues generated within a specific country.”

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MasterClass Raising New Funding at $2.5 Billion Valuation

MasterClass, the education tech platform with online courses taught by experts, has secured new funding at a $2.5 billion valuation, Axios reports.

Fidelity led the round, and the financial institution also invested in MasterClass in mid-2020 at an $800 million valuation. Online content has boomed through the pandemic, and MasterClass’ unique talent pool of instructors such as “Spike Lee, Christina Aguilera, Serena Williams, Neil deGrasse Tyson and Gordon Ramsey” power its unique value offering.


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