1. Meta Platforms (META) -- TikTok & Year of Efficiency:

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a) TikTok

The U.S. Government is reportedly (again) asking TikTok to divest its business to avoid security and privacy concerns. This stems from unlawful surveillance and data sharing that ByteDance had promised the Western World was not taking place. It was. The Chinese Government rejected this request. We’ll see what happens. Obviously, a ban would be great news for Meta’s apps, but its engagement trends over the last several months already show that it’s taking back share from this competitive threat. It does not seem to need a ban to win in social media.

b) Year of Efficiency

• Just one year after closing the billion dollar deal, Meta will divest Kustomer -- a multi-channel messaging company for businesses. It will focus instead on growth areas like click to message ads as part of its year of efficiency to focus solely on higher conviction bets.
• The Family of Apps is ending its NFT investments. This is amazing news in my view and a clear sign that it truly is rationalizing its cost structure, focus and investment philosophy for the better.
• Meta fired another 10,000 workers and eliminated 5,000 more open roles. The move allowed it to slash its operating expense (OpEx) guidance for 2023 from $92 billion to $89 billion. This could add nearly a dollar in earnings per share if my math is correct (it is). This is the painful, yet necessary continuation of right sizing its workforce after over hiring for 2 years. Easy for me to say. I wish these laid off employees the absolute best.

2. Airbnb (ABNB) -- Regulatory Headache

New York City continues to restrict short term rentals more stringently. Its newest law requires hosts to be present during all short-term rentals within designated city zones. NYC added 2300+ buildings to these zones this past week.

To sidestep this regulation, Airbnb is leaning more heavily into multi-family buildings. Its setting up property managers as residents to make being present alongside short term renters seamless rather than prohibitive. This is a top 15 market for it by volume. It’s important to figure this out and I think it’s doing so.

3. SoFi Technologies (SOFI) -- Annual Percent Yield (APY) & Insider Buying

a) APY

SoFi raised its savings APY from 3.75% to 4% for direct depositors to juice its top of funnel further. As of last quarter, with its bank charter in hand rather than using warehouse facilities to fund loans, the company was pocketing an extra 1.9% in pure margin. It continues to pass some of this on to customers to motivate winning their business.

The timing of this news made me a bit nervous considering regional bank withdrawal issues from SVB and others this month. Is SoFI doing this to retain depositors who are leaving the platform like we’re seeing at other regional banks? Or is this merely a luxury of having its charter to support its overall business?

We got a second piece of APY news this week that, in my mind, answered the question. It CUT its checking APY from 2.5% to 1.25%. To me, this explicitly means that it’s not struggling to retain its depositors amid all of the sector’s recent issues. It thinks it can retain these customers with half of the yield payout. The combination of gradually boosting the savings APY yet slashing the checking APY in half is the company threading the needle of rapid user growth and signaling confidence in stability to shareholders -- in my opinion.

b) Insider Buying

CEO Anthony Noto made another small purchase of company stock this past week. Over the last 12 months, he has spent nearly $20 million to more than double his stake. This incremental investment represents 20% of his total net worth -- a chunk of which is already in SoFi equity and options.

4. Uber (UBER) -- Regulatory Win

Courts in California upheld key pieces of Proposition (Prop) 22 this past week in a ruling that contradicted the opinion of a lower court. Prop 22 allows gig economy firms like Uber and DoorDash to continue treating drivers as independent contractors rather than employees. That will allow Uber and other gig players to sidestep costly benefits paid out to its driver fleet which should be a margin tailwind in the state.

I’m not expecting much pushback from its massive driver roster considering the vast majority prefer the flexibility associated with this classification over being an official employee. Because this is a side gig for a large cohort of them, choosing hours and routes is more appealing than getting benefits for working full time.

• For context, just 3% of drivers in Sacramento choose to drive for Uber full time.

This is especially true considering how strongly Uber has focused on building driver incentives over the last few years. This ruling will be appealed.

For more positive momentum, CFRA research published new data this past week concluding the net positive economic impact of allowing this type of gig economy to exist.

While Uber dealt with a lot of regulatory headwinds in previous years, this news (as well as falling future minimum wage estimates for delivery drivers in NYC) are signs that the tide is turning in its favor.

5. Progyny (PGNY) -- Male Infertility

Progyny officially launched its male infertility product. With this new tool, it’s adding a large group of U.S.-renowned reproductive urologists (RU) to its specialist network. Its existing network and industry experts helped it select the cream of the crop from a roster of potential RUs -- just like it did with its female fertility specialists. One out of three cases of infertility (so 1 out of every 24 couples) are due to male issues. This product should mean enhanced male utilization and a rising utilization rate overall -- which is already wonderfully stable.

6. PayPal (PYPL) -- Chief Product Officer John Kim & CFO Gabrielle Rabinovitch Interview with Wolfe Research

Braintree & Upgrading Checkout:

2022 was a banner year for Braintree. It won countless massive merchants and crushed internal growth expectations. Going forward Braintree “continues to win deals” and growth here should be slower, but still brisk. This year, comps become more difficult and the segment will continue to mature.

So? PayPal was not focused on infusing Braintree’s checkout flow (the best, most in-line, most click minimizing flow PayPal has) into branded PayPal and Venmo in 2022. It was focused on ensuring Braintree was scaling with all the new business. This year, the focus will turn to borrowing this flow for Venmo and PayPal. For the merchants that already have access to it, PayPal’s branded share is steadily rising. For those that don’t, share is stable or slightly falling. That’s how important expedience and convenience is within checkout.

Other tools like passkeys continue to lower checkout friction and abandonment as planned. It sees one-click checkout being fully rolled out in 2024 via Braintree's flow and PayPal’s massive vault of saved customer info to avoid manual data entry.

Venmo areas of product focus:

• Splitting payments among groups (like SplitWise).

7. Match Group (MTCH) -- CEO Bernard Kim & CFO Gary Swidler Interview with New Street Research

My First Impressions:

This was one of my first times listening to Bernard Kim as Match’s CEO. To be candid, I understand why he rubs some people the wrong way. He uses words like “awesome” and “amazing” and incorporates the word “like” about twice per sentence. His personality doesn’t exude conservative professionalism like most public market peers… and I don’t really care. His track record at Zynga speaks for itself and so does the complete lack of employee attrition from Match when he took over. He reminds me of one of Revolve’s co-founders in Michael Mente. Both speak very casually and both have established excellent reputations within their sector and employee bases. They just don’t sound the same as most public market CEOs to outsiders. But so what?

On the Risk of Saturation & Execution:

CEO Bernard Kim (BK) sees zero issues with dating app market saturation. Yes, Match Group already has a commanding chunk of the space. But still, there are many more small competitors to displace and a large greenfield opportunity in regions like Asia. Furthermore, the industry is poised for 7%-8% compounded annual growth through 2023. This means there will be growth to be enjoyed even with no share gains. BK sees this bear case coming from the poor execution of Tinder’s team throughout 2021 and 2022. He thinks the opportunity to right the ship is clearly there and signs of that happening are already surfacing.

Kim made the Tinder Product roadmap publicly available to investors for the first time in Match’s history. This is why:

“Accountability is super important, and we know we need to execute this year. So, we look at our investors as partners in this space as we go and increase that pie, so it's really important that we execute as a team.” — CEO Bernard Kim

Maybe this is why Barclays upgraded the company to overweight this past week due to perceived risks baked into the valuation being to the upside. I agree, Barclays.

On the Asia Business:

• Out of Hyperconnect’s two main apps, Azar continues to perform well with “reasonable growth and 10% profit margins.”
• Hakuna -- the other app -- needs “more work.” The new leadership team for that app is entirely overhauling the service to re-release later this year. That really does not inspire confidence.
• The Hyperconnect team supposedly has a “chip on their shoulders” to prove to the new Match leadership team that the acquisition was a good decision. I would hope so.

“We and our investors aren’t happy with the way Hyperconnect has turned out so far. But there's still a long way to go, and we just have to keep working and grinding it out.” -- CFO Gary Swidler

While this has certainly been a poor purchase thus far (and selfishly opened the door for me to start a position), there have been some notable positives from integrating the firm. The engineering team is now a core piece of Match Group’s investments in AI/ML.

App Store Relief:

Neither Apple nor Google are remotely close to being in compliance with Europe’s Digital Markets Act (DMA). Match thinks they’ll have to comply by the end of the year with Apple already showing signs of concession by embracing app side-loading (adding an app without going through the app store). Fairer policy would be a 2024 margin tailwind. Considering it spends $600 million per year on these app store fees (about 17% of total revenue) this could be a large source of operating leverage.

On BK Staying as Tinder’s CEO for Now:

“If we hired another CEO or if we promoted from within, it would lead to 6 months of retraining this person, doing a Tinder for Dummies course. Like, (see what I mean?) we just don't have the time for that. We want to see how this team performs, and I'm confident around our team.” -- CEO Bernard Kim

Capital Allocation:

• Getting more interested in M&A as competitors become much cheaper.
• Will continue to buy back stock if it thinks the stock is cheap like it thinks now.

8. Revolve Group (RVLV) -- Investor Conference

New Partnership:

Revolve is partnering with Jennifer Lopez on an “exclusive new footwear line.” This adds to key partnerships with global icons like Elsa Hosk and Kendall Jenner.

On Inflation & Pricing Power:

• Revolve continues to be able to pass inflationary price increases on to its end customer for 3rd party brands.
• In terms of owned-brands, it has also been able to pass on price increases and continue to price its items similarly to 3rd party offerings.

On International:

International phase 1 for Revolve is localizing the user shopping experience and infusing the same layers of convenience that North American shoppers enjoy. This means free returns, expedient shipping and localized pricing with automated duty/tariff calculation & compliance. The company is “close to being finished” with this phase. Once complete, it will focus more on product assortment per region before finally ramping up marketing spend.

On Fulfillment:

• The new East Coast facility is now fulfilling returns and about to begin shipping new inventory orders. This will cut down on fulfillment miles and should offer some cost savings starting in 2024.
• It continues to explore smaller international fulfillment centers to localize this process even more. Interestingly (& I think thankfully), we were told it will go about this through 3rd party logistics partners vs. doing it all internally in the U.S. This takes a sizable chunk of the execution and margin risk out of international proliferation.
• As of now, most returns go all the way back to its California facility. As new centers open up, it will find fuel and delivery cost leverage.
• It will NOT focus on making returns harder for customers to cut costs. Free returns and “turning your house into a dressing room” are big pieces of its value proposition and why its return rate is so high. It’s by design. Still, it WILL focus on things like augmented reality-infused shopping to better match customers with styles and sizes to reduce returns via that avenue.

Revolve modeled 0 improvement to fulfillment costs for 2023 vs. 2022. Already we’ve seen fuel prices tank. If tailwinds like this persist, there will be upside to its profit guidance.

On New Categories:

• Management sees beauty growing well beyond the 3% of revenue that it makes up today over time.
• Athleisure and men’s apparel are key areas of growth focus for 2023.