🦄 vol. 23
sash and matt chat about wordle and pandemic stocks
wordle on the street 🟩
Your mom is posting her score on her WhatsApp story, your uncle is sharing his score on the family group, and your Twitter timeline is filled with friends’ and celebrities’ results. Is everyone playing Wordle?! 🤯
What’s Wordle? 👀
Simply put, it’s a word puzzle game that’s gone viral and taken the internet by storm. You get 6 tries at guessing a 5-letter word of the day, and each guess gives you colour-coded feedback:
⬜️ Grey: the letter you’ve selected is not included in the word at all
🟨 Yellow: you’ve selected a correct letter, but it’s in the incorrect place
🟩 Green: you’ve selected a correct letter, and it’s in the correct place
Who’s behind it? 🤓
The game was created by software engineer Josh Wardle, who originally built it to play with his partner (no pressure, Claude 😉). The game was launched in October 2021, and it only took a few weeks before it began to go viral. At the beginning of Jan, Wordle had ~300K daily active players, and today that number is estimated to be well into the millions.
So what is it about this thing? 🧐
This could very well be a thesis topic, but I’ll attempt to do it justice by summarising:
⏩ Low-friction: It’s web-based (there’s no app), there’s no ads, there’s no subscription fee and no data-capturing required. You just visit the site and play.
🔄 Frequency: The biggest tech companies in the world hire teams of highly skilled individuals to solve one recurring problem: How do we get users to return? Well, there’s only one Wordle puzzle per day, meaning players are left wanting more.
🔀 Shareability: Once you complete your daily Wordle, you have the ability to flex and share your result seamlessly to social media platforms. The output is so basic, yet almost impossible to miss while scrolling through. And of course, humans are competitive by nature, so seeing someone else’s score only encourages you to beat it (or improve on your score tomorrow).
I’d say it all boils down to one common thread: It’s so damn simple!
But how does Wordle make money? 🤪
The short answer is it doesn’t… yet. Word(le) on the street is that Josh Wardle was approached by multiple VC firms, who no doubt were salivating at the idea of turning Wordle into a revenue generating machine. But in the end, the New York Times (NYT) won the race and acquired Wordle for “an undisclosed low 7-digit figure”. And to the relief of Wordle’s die-hard fans, its beloved founder announced that the game will (initially) remain free.
What’s in store? 🔮
It’s said that there are only ~2300 possible answers in the game (~6.3 years of total lifespan). However, the sale to NYT (a publicly listed entity) could also ensure its longevity: Depending on resource allocation towards improving and evolving the game, it has a chance of surviving its initial hype.
But NYT also has an explicit ambition to grow its digital subscriptions (as seen in last week’s piece) to 10M (currently sitting at ~8M) by the year 2025. So if they do indeed intend on keeping it free, I guess we have to wait and see how they convert Wordle players into NYT subscribers.
from darlings to disappointments 🥶
Recent weeks have seen major market pullbacks, largely precipitated by fears of rising interest rates and the reality of (not so transient) inflation, with high growth stocks and cryptocurrency fielding the brunt. While not the focus of the piece, Meta’s (Facebook) spectacular fall from grace (which saw it lose $250 billion in market cap) is worth mentioning; an earnings report that highlighted negative user growth, a $10 billion hit from Apple’s privacy changes and greater-than-expected losses from their AR/VR project. Ouch, but we digress…
For those who’ve been closely watching the market over the last few years, it feels like we’ve just been kicking the can down the road; this has been coming, it was only a question of when and just how bad it’ll be. Morgan Housel, who wrote The Psychology of Money (highly recommended!), offers a nice quip:
Accelerated by fiscal policy (think quantitative easing and stimmy checks) and the pandemic, stock prices had grown increasingly abstracted from their fundamentals. And there were a handful of stocks, creatively named “pandemic stocks”, that saw their value sky-rocket in a stay-at-home market. But as the pandemic becomes endemic, they’ve gone from...
... darlings to deadbeats 🤕
As you’re probably aware, the pandemic saw us spending far more time in front of screens, for both work and pleasure. Netflix 🍿 ($NFLX) saw a ~60% increase in daily viewing hours, when compared to the same period in pre-pandemic times. No wonder investors were bullish on its long term outlook, with stock prices soaring. The market correction (or impending crash) has seen its stock price come back down to earth, but it may just offer an entry point for some.
Recent grabs by Bill Ackman (an incredibly successful hedge fund manager, who famously shorted Herbalife) and Reed Hastings (founder of Netflix and part of the PayPal mafia) may provide some signal in and amongst the noise of the market at present (and they’ve already prompted a bounce-back).
Despite an increasing churn, tougher competition and a disappointing earnings report, Netflix’s growing archive, stickiness factor and a possible foray into gaming may provide hope. If Microsoft’s $69 billion acquisition of Activision is anything to go by (and Sony PlayStation scooping up game developer Bungie for $3.6 billion), addressing the world’s 3 billion gamers is an enticing market.
In a similar story, but maybe lacking the happy ending... 😓
Peloton 🚴♀️ ($PTON) went from a pandemic darling to one in crisis. Catapulted into relevance by health policies and lockdown restrictions that kept us out of the gym, many flocked to purchase the high-end treadmill (see: treadmill with glorified iPad and online classes), and an exercise bike that followed, in order to keep in shape. At its peak in January 2021, it was valued at almost $50 billion, and Peloton seemed poised to dominate the market for years to come with sales that had increased in excess of 125% for four straight quarters.
But for those with an eye for fundamentals, the writing may have been on the wall. At its peak, Peloton was trading at 100 times its price-to-earnings (P/E) ratio (😳). For perspective, high growth stocks typically trade at anywhere between 20 to 30 times P/E.
Shoulda-coulda-woulda, because Peloton now sits almost 86% below its pandemic peak, and it doesn't seem as if a second wind is coming anytime soon. Product recalls, decreasing demand (with halting of new factory openings) and proposed layoffs (on the advice of consulting firm McKinsey) may spell the end for Peloton. Some say Peloton at this market capitalisation may entice Apple to acquire it, but Tim Cook is yet to show any intent.
And from here? 🔮
Well that’s anyone’s guess… but Chamath predicted some of this in his spread trade, so maybe you should be listening to him instead. 😉
karl loves the increased access to the market through these robinhood models in africa, with bamboo from nigeria just receiving $15m in funding
matt loved huberman lab’s pod on biohacking your dopamine system
sash thinks you should register to attend google for south africa (happening this wednesday)
claude enjoyed this article on the growing importance of cyber security in 2022