• Equity Mates
  • Posts
  • 📈 The publisher doom loop | Thought Starters

📈 The publisher doom loop | Thought Starters

A collection of our favourite articles from the past week

Today’s email is thanks to

JP Morgan Asset Management

Lessons from History: The Rise and Fall of the Telecom Bubble

One of the most useful mental models we’ve come across as investors comes from Carlota Perez’s book Technological Revolutions and Financial Capital. In her book, Perez explains that most new revolutionary technologies enter the world in two phases. The first, an installation phase is when the new technology is introduced to the world and the hype builds. Capital flows to this technology, excitement about possible use cases grow, eventually forming a financial bubble. Inevitably, that bubble bursts.

After the bubble bursts, a deployment phase follows. And in the deployment phase we see less hype and more real world applications. The classic example is the internet, marked by an installation phase started with Netscape’s IPO in 1995 to the bursting of the bubble in late-2000 and early-2001. After a few tough years for internet-companies, the deployment phase really kicked off with Google’s 2004 stock market listing and from there the truly great technology companies became the megacap stocks that we know today: Amazon, Alphabet, Netflix etc.

This article takes a closer look at the internet bubble and draws parallels to the Artificial Intelligence hype of today. From this article and Perez’s work, a few of our takeaways for when we think about investing in disruptive technology:

  • There is no rush. It is easy to get caught up in the hype and feel like you’re missing out in the frenzied installation phase. But remind yourself that the real money is made waiting for the long-term winners to emerge, and that often comes after a crash.

  • If you are investing in the early days of a new disruptive technology, it can be hard to separate the real use cases from the hype. Manage your position size and your investment time horizons accordingly.

  • Not every new technology is a revolutionary new technology. We’ve seen the internet analogy rolled out for Crypto, NFTs, Web3, Virtual Reality, the Metaverse, and now Artificial Intelligence. When you’re living through it, it is hard to separate a new technology from a revolutionary technological.

The publisher doom loop

Publishers face the prospect of a doom loop in which increased competition for scarce ad dollars leads to more adversarial approaches

This article dives into the media business and makes the case that in an era of increased competition for attention and reduced CPM’s (advertiser speak for revenue per 1,000 impressions), many publishers are falling into a doom loop. In an attempt to maintain their revenue, they add more and more ads to their content, which annoys their audience, in turn reducing attention and ad revenue, which only forces them to add even more ads to maintain their revenue.

The irony of us featuring this article isn’t lost on us. From the early, side-hustle days of Equity Mates to today, our ad load has certainly increased. We hope not to the extent that we’re reading about in this article.

Many digital publishers have entered a world where advertising almost overwhelms content. Take this screenshot from Variety’s website that may go down as one of the worst pages on the internet, at least from a recognised publisher.

Building sustainable revenue streams is a challenge for media businesses of all sizes. Very few have been able to build meaningful subscription revenue streams, meaning that the world’s publishing industry relies on ad revenue. And the industry is struggling to find a balance between having large enough teams to create high quality content and finding the ad revenue to pay for it.

The Profound Effect of Americans Living Longer Lives

Today, more than one third of all Americans are over 50. Every day 10,000 Americans are turning 65 and by 2030, one in five of us will be 65 or over

While this article focuses on numbers from America, the insights are broadly applicable. As our population pyramids invert and greater percentages of our populations blow past traditional retirement age, it is having a fundamental effect across societies and economies.

Firstly, many older people don’t have the inclination or the financial security to retire. Many older people are staying in their jobs longer or starting second careers. According to the Kauffman Foundation, in 1996 just 15% of entrepreneurs were people aged 55 to 64 years old. By 2016 that was 25%.

While many older people don’t have the means to retire, those that do have amassed huge amounts of wealth. According to the Global Coalition on Ageing, older Americans have $15 trillion in spending power which is up almost 10% from 2010. And as this older generation pass on, their legacy will be the largest transfer of wealth in history - estimated to be $60 to $70 trillion in assets.

A generation of Baby Boomers working longer, holding onto positions of power, amassing more wealth, and living longer lives is fundamentally changing societies around the world.

No more is the challenge of Americans ageing clearer than their political leadership. Whatever side of the political divide you fall, one thing most people below retirement age can agree on is the need for term limits or a retirement age. Both American political parties are led by octogenarians that appear to be showing their age (President Joe Biden is 80 years old, Senate Majority Leader Mitch McConnell is 81 years old. Trump, for that matter, is 77 years old). Just take the year of birth of the last 5 American presidents: 1946, 1946, 1961, 1946, 1942. A generation of American leaders have been stuck behind successive Baby Boomer Presidents. And as more and more of us live lives into our 90’s and even 100’s, that may not be changing anytime soon. We might need to recalibrate our thinking on when people retire and when one generation hands the reigns over to the next.

Enjoying this email?

Help us by sharing it

A big focus this month for us here at Equity Mates is growing our mailing list. Rather than spending everything on Facebook and Google ads, we’ve created a referral competition with three $500 Bills & Grocery prize packs.

To be in the running to win, all you need to do is refer two people to this mailing list. Simply share your unique link below, and ensure whoever you refers verifies.

Good Intentions, Perverse Outcomes: The Impact of Impact Investing

I have made no secret of my disdain for ESG, an over-hyped and over-sold acronym, that has been a gravy train for a whole host of players, including fund managers, consultants and academics.

That quote is how Aswath Damodaran, Professor of Finance at NYU, starts this article on the state of ESG (environmental, social and governance) investing. ESG, also known as impact investing or sustainable investing, aims to use investment to not only make a financial return but to also create positive change in society.

The theory goes that by only investing in companies that make a positive impact, you create an incentive for corporate leaders to improve the performance of their companies. A classic example that we can point to in Australia is Woolworths. Australia’s largest supermarket demerged its liquor and pubs business, with all of its poker machines, in a large part to attract the investment of large, ESG-focused funds.

In this article, Damodaran looks at climate investing and asks whether the trillions of dollars allocated over the past decade has moved the needle. He also looks at whether impact investing changes the incentives or the behaviours for the people operating companies.

One thing we find in many anti-ESG investors’ views is a level of absolutism. As Damodaran finishes his article, “After 15 years, and trillions invested in its name, impact investing, as practiced now, has made little progress on the social and environmental problems that it purports to solve.” We understand the sentiment, but it strikes us as a bit reductive. We would suggest that no-one in the impact investing space is arguing that their efforts alone will change the world.

Instead, fundamentally changing the world’s energy system in less than a generation is going to take a whole-of-society effort. And an industry that cumulatively invests trillions of dollars every year certainly has an important part to play in those efforts. But without the support of government policy, and the cooperation of governments around the world, the efforts of fund managers and investors will only account for so much.

Ultimately, we find ourselves somewhere in the middle on this debate around ESG and impact investing. It is important to recognise it’s shortcomings and to approach the topic with your eyes wide open. But at the same time, there are more and more case studies where shareholder pressure is arguably driving change within companies - Woolworths demerging Endeavour, BHP getting out of fossil fuels, AGL’s attempt to split its business into Accel and AGL - and those case studies cannot be ignored.

If you’re interested in going deeper on this debate around ESG, listen to our interview with Kelly Shue, Professor (Adjunct) of Law at Yale Law School and a Professor of Finance at the Yale School of Management, titled Is ESG investing counterproductive? 

This post contains sponsored content

Uncovered: Impact Minerals (ASX: IPT)

Uncovered is our exploration of smaller companies that receive less media attention and analyst coverage.

In our latest Uncovered article, we dive into the world of battery metals and in particular High Purity Alumina (HPA). Because, it turns out, there’s more to batteries than lithium. Cobalt, nickel, graphite, manganese are some of the other battery metals that have got increased attention in recent years. Yet, one we hadn’t learnt much about was HPA.

Impact Minerals believe they have found a world class source of the pre-cursor metals to HPA at Lake Hope, situated about 500km east of Perth, Western Australia.

This Uncovered article takes a look at the use cases for HPA, the Lake Hope project and where Impact Minerals is in the feasibility and scoping process.

If you’re interested in learning more about Impact Minerals, you can listen to our interview with Impact Minerals’ founder and Managing Director, Dr Mike Jones.