🎈 Google's internet balloons

Thursday, May 14, 2020 by Robinhood Snacks | Disclosures

So this is Work From Work

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Hey Snackers,

Bummed we didn't get the invite to this really cool marathon (it was the GOAT). On Tuesday, 200 escaped goats went for a long evening run down the streets of San Jose, CA. Real baa-dies.

Stocks fell as Fed Chairman Jerome Powell warned that economic recovery may happen slower than hoped. Also, the US posted a record $738B budget deficit for April (it had a $160B surplus in April of last year).

Float
1. Google's Loon expands internet-connecting balloons in Africa

To the Loon and back... Loon is the LTE balloon company spun out of Google's secretive X Lab of moonshot projects. Loon balloons (Loons?) fly twice as high as planes (12 miles up), casting internet down to areas with underdeveloped infrastructure. Now the Alphabet-owned floating phenom just sealed a key deal in Mozambique.

  • Loon inked that with mobile carrier Vodacom, expanding Voda's commercial internet service in Africa — from its super-high Loons.
  • Only 40% of people in Africa have internet access, and just 21% of people in Mozambique do (FB stat: in December, Mozambique had 2.4M Facebook users out of a population of 31M) — so this is a huge untapped market for online companies.

The problem is lack of infrastructure... Many rural/remote or underdeveloped areas around the world lack the strong ground infrastructure needed for internet connectivity. Loons solve that problem by basically acting as floating broadband cell towers.

  • Cell towers aren't economical in rural areas, but Loons are 12 miles up into the stratosphere (rad), and are able to economically cover more rural regions.
  • By expanding its service in nearby African markets (Loon is in Kenya, too), Loon can strategically position its balloons to consistently cover multiple areas even when air currents change.
THE TAKEAWAY

Google can get paid twice with Loon... First, by signing deals with cell carriers like Vodacom and getting paid to expand coverage with its floating balloons. Second, by connecting more of the world to the internet, getting more people Googling, and therefore selling more ads. Around 42% of the world doesn't have internet access — that's over 3B people Loon/Google could potentially make money from (twice).

Work

Can hear a pen drop in the office lobby... Yesterday, we talked about Twitter's decision to let its employees work from home forever (AKA, permanent optional WFH). Today, we're looking at the companies that could lose out most if enough employees don't return to offices. Let's start with a bankable example:

  • Before corona-crisis: JP Morgan, Morgan Stanley and Barclays were some of NYC's largest commercial tenants, shelling out major moolah on rent for employees in glassy 50-story skyscrapers.
  • Now: Everyone's WFH, and all 3 banks say that it's very unlikely all employees will return to offices, even post corona-crisis. Research firm Nielsen expressed a similar view, per NYT reporting.

Some companies/employees are getting comfortable with WFH... (noticing more pajamas on Zoom calls?). And if too many start permanently allowing WFH, we'll see some corporate offices empty out. That directly hurts "Work from Work" companies relying on you going into the office:

  • Real Estate: Commercial real estate investment companies that rent office space will lose. Vornado Realty Trust and CBRE stock are both down around 12% for the week.
  • Supplies/Food: Office Depot stock is down 7% for the week because offices aren't restocking Post-its. Meanwhile, corporate catering companies aren't catering, and local restaurants lose out on big lunch orders.
  • Cities/States: They'll miss real estate taxes and public transit work commutes. Real estate taxes make up over 30% of NYC's revenue.
THE TAKEAWAY

Work from Work companies may have to WFH... If widespread WFH actually takes hold (still questionable, despite hype) then Work from Work companies will have to shift business models, or risk going under. Catering and office supplies companies could start offering company-sponsored at-home subscription packages — but shifting will be much harder for commercial real estate businesses and cities, which rely on office revenue.

Eat

Sounds cheesy... Pizza ordering app Slice just raised $43M in fresh dough to help small pizzerias go online. For the Big Four players in the mafia-style delivery warsDoorDash, Grubhub, Uber Eats, and Postmates — more is more (1,578 different pad thai options within delivery-range). But for Slice, less is more, and pizza is everything (we don't blame it):

  • Slice helps small pizzerias compete with big chains — it provides all the tech, payment systems, customer service, and marketing that these mom-and-pop shops need to make it in the heated $46B US pizza market. Call it PaaS (pizza as a service).
  • Unlike the Big Four food platforms — which can take more than a 20% cut on orders through various fees — Slice charges a set $2.25 commission + 4% processing fee per order (though it doesn't actually deliver the pizza). Still, steep fees can be killer especially for smaller businesses.

Slices on Slice are well positioned in the corona-conomy... 90% of its 13K pizza partners have stayed open during lockdowns — That's because of pizza-nomics (the economics of pizza). Pizza joints were doing takeout/delivery on their own well before apps were a thing, unlike your neighborhood tapas spot and most other food options.

THE TAKEAWAY

Platforms need sellers and buyers... And up-and-coming Slice will need to conquer the (pizza) sellers before it can corner the (pizza) buyers. Right now, 10-year-old Slice is still focused on attracting great pizza joints to its platform — once it has your go-to local pie shop on board, it has a way better chance of attracting you (aka, the buyer). We expect new consumer-focused features, like loyalty points, to hit the app next.

What else we’re Snackin’
  • Musky: After a long spat, Tesla gets the "go ahead" from Alameda county to restart production at its Fremont, CA factory (fun fact: Tesla already reopened days ago).
  • Bottom: Boeing had zero orders for commercial jets in April, and received 108 cancellations for orders of 737 MAX jets.
  • Play: Sony had a 57% drop in profit for the quarter (but don't worry, PlayStation 5 is still on track for 2020 launch).
  • Proteini: Beyond Meat, Impossible Foods, and Tofurkey ramp up production of their plant-based products to capitalize on the national meat shortage.
  • Study: Online study tools startup Quizlet hits a $1B valuation after a fresh round of funding (how many flashcards in the Unicorn Deck?).

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Snacks Daily Podcast

It’s a bird, it’s a plane, it’s a... floating stratospheric LTE balloon.

Alphabet's Loon is helping connect people and underdeveloped countries to the internet — but this high-flying goal could also be its double-dipping two-headed profit puppy.

More on our 15-minute Snacks Daily pod.

Thursday

Disclosure: Authors of this Snacks own shares of Alphabet

ID: 1186320

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