News of the Week (October 18-22)

Upstart; Olo; The Trade Desk; SoFi Technologies; Butterfly Network; Facebook; Ozon; Google App Store; My Activity

1. Upstart (UPST) — New Partner

Another week, another notable new Upstart partnership inked. Upstart announced Berkshire Hills Bancorp as a new banking partner in its loan aggregation and referral programs.

Berkshire boasts 130 branches across the East Coast and features $12.8 billion in total assets making it the 120th largest bank in the nation. This is the 3rd biggest bank win for Upstart to date with Customers Bank and Cross River being the 88th largest and 111th largest banks respectively.

As a reminder, Cross River originates a large chunk of Upstart’s loans in a somewhat clearinghouse-type manner. There’s a contract in place through 2024 but concentration risk must always be considered and an announcement like this will actively work to diminish that concern. These announcements have been abundant.

This is the 5th new partner that Upstart has signed since its last quarterly report which would bring the company’s total to 30 — representing 20% sequential growth. In recent quarters, it did not publicly announce all of its new partnerships so that number could be (and likely is) higher. It had just 10 partners in its ecosystem when it went public less than a year ago.

The larger partner network should not only bolster revenue growth, but it also gives Upstart’s algorithm access to more consumer data. More data means better risk quantification.

Click here for my broad overview of Upstart’s business.

2. Olo (OLO) — M&A

Olo announced its intention to purchase Wisely Inc. — a “customer intelligence and engagement platform” designed specifically for the restaurant industry. Wisely’s suite of data aggregation and analytics products will enable Olo’s restaurant clients to understand its guests on a deeper level.

Olo will use Wisely’s expertise to create a holistic, chain-wide customer profile for each guest pulling from several independent and disparate data sources that are not innately easy to connect. This birds-eye-view of each customer will inherently elevate the guest experience while fostering more targeted marketing and consumer retention initiatives to juice lifetime value (LTV) per customer without added sales and marketing (S&M). The longer term effect should be better run-rate margins for participating restaurant brands.

“With traditional loyalty programs, if you have 15% of your customers enrolled, you’re near world-class. With Wisely Customer Intelligence, we’re looking at 100% of customers to understand their behaviors and customer lifetime value.” — SVP Brand Strategy at First Watch Matt Eisenacher

This added functionality marks Olo’s formal entrance into the restaurant customer relationship and marketing worlds and bolsters its average revenue per user (ARPU) opportunity. By doing so, Olo is able to more completely support its clients’ operations and generate more loyal and more lucrative consumers.

When Olo fully rolls out its Pay module next year the debut will be its 5th product  — this purchase would give it up to 9 modules to give an idea of the added potential for up-selling. Guests win, chains win and yes, Olo wins.

The 2 companies had been partners for 5 years, and according to Olo CEO Noah Glass “clear synergies between the 2 platforms and a close cultural alignment of putting restaurants first” were two of the factors contributing to this decision.

Specifically, Wisely’s modules include:

1. Marketing Automation: End-to-end Customer Relationship Management (CRM) to aggregate and contextualize consumer data insights for raising order size and frequency.

2. Host: table management, waitlist and reservation solutions.

   • This marks a more aggressive dive into on-premise dining which fits with Olo’s new objective to touch 100% of restaurant transactions. It calls this “digital entirety.”

3. Sentiment: Monitors consumer satisfaction and sentiment with pooled and annotated guest reviews to grasp and improve the customer experience.

4. A Consumer Data Platform (CDP) designed for restaurants to connect and utilize fragmented data sets.

   • This is what enables the single, unified customer profile for chains to utilize.

   • Helps guide menu item decisions in real-time.

   • Helps direct new location expansion by offering chains an overarching picture of where their most passionate consumers are located.

These 4 products boost Olo’s existing total addressable market (TAM) by 14.3% — from $7 billion to $8 billion. This TAM solely considers large restaurant chains and does not include Olo’s long term objective to expand to smaller chains, internationally and to other on-demand commerce verticals.

Wisely’s most notable client is P.F. Chang’s which is already an Olo customer. It generally services smaller chains than Olo currently does business with meaning this could also be seen as a continuation of Olo’s move to smaller restaurant chains.

Wisely’s revenue is 95% subscription (with multi-year contracts) and features a gross margin similar to Olo’s (meaning roughly 82%). The purchase is also not expected to have a material impact on the consolidated company’s operating margin. Importantly, Wisely’s CEO and co-founder will stay on as a new Olo General Manager and Vice President of Customer Intelligence/Front of House.

The deal is for $187 million in total — $77 million in cash (from the balance sheet) and $110 million in class A stock representing 2.7% shareholder dilution. The transaction is expected to close later this year.

I’m personally pleased with the acquisition. In Olo’s S1, the company called out data analytics as a future avenue for expansion. This gives them a seat at that table without having to build these solutions internally and with quite modest shareholder dilution. Now, Olo not only emboldens digital ordering, channel management, and affordable delivery for chains (all while keeping restaurant brands in control of their data) — but it will play a key role in marketing as well.

The 2 companies being partnered since 2016 also gives me confidence that integration will be rather seamless.

Click here for my deep dive into Olo’s business.

3. The Trade Desk (TTD) — 2 Deepening Partnerships & Snap Inc. Earnings

a. Xiaomi

The Trade Desk extended its partnership with Xiaomi to enable advertisers to tap into Xiaomi’s app ecosystem (called MIUI) and to measure performance all within The Trade Desk’s platform. The consumer electronics giant is the 2nd largest smartphone maker in the world and the largest in Indonesia which represents the biggest internet economy in Southeast Asia.

Xiaomi boasts 454 million monthly active users (MAUs) outside of China who consume all of its content through mobile channels where The Trade Desk thrives. This user-base is growing at a rapid clip of 32% year over year while Asia — Xiaomi’s main geography — is enjoying faster app download growth than any portion of the world.

Interestingly, Xiaomi also has “established the world’s leading AI + internet of things (IoT) platform with 374.5 million connected smart devices.” Ad-impressions can be auctioned off and profited from here as well.

The Trade Desk has made it a point to expand into the Asian continent and this is a massive step in that direction.

“We are at the beginning of a very exciting partnership with The Trade Desk as we continue to work together to create opportunities for brands to connect with their consumers.” — Chan Liu, General Manager of Global Internet Service at Xiaomi.

b. AMC Networks

AMC Networks, Magnite, and The Trade Desk announced a new partnership. The Trade Desk will now bring its ad-impression valuation know-how to AMC’s linear television offerings. AMC spent the summer testing programmatic solutions for its networks and, unsurprisingly, chose The Trade Desk on the demand side.

The 2 companies had already been working together within streaming, and this merely deepens that relationship with AMC calling the partnership “an industry first.” Thanks to The Trade Desk, AMC will now be freed to practice the type of automated ad-impression trading more typically associated with digital media.

The partnership began this quarter with 3 notable brands: Best Western, Securian Financial and Smithfield Food. The three organizations were able to use The Trade Desk’s programmatic platform to put their customer data to work and to advertise on AMC’s various live linear networks including IFC and Sundance TV. All 3 of these brands have chosen to continue their campaigns through the end of the year.

So far, the partnership has proven to offer advertisers with better flexibility and audience targeting within a live linear environment while also boosting revenue potential for AMC. Happy publishers and happy advertisers.

c. The Take-away

These 2 partnerships continue strong momentum for The Trade Desk since its new platform — Solimar — was launched.

The company has signed deals with massive companies such as Gojek, Walmart, Home Depot and now Xiaomi. There’s a reason these massive entities are using The Trade Desk instead of building options internally and that reason is the incremental value it provides.

The new partnership with AMC is also encouraging. The Trade Desk, generally speaking, is benefitting from a gradual shift away from linear TV and to streaming. Still, linear does (and will continue to) make up a large piece of the advertising pie in the coming years. Partnerships like this one allow The Trade Desk to participate in that incremental demand while working more closely with publishers on their inevitable evolutionary journey to the world of streaming.

It can demonstrate its incremental value-added within linear so that as entities continue their streaming transition, they’ll more likely do so with The Trade Desk at their side.

d. What to Make of Snap Earnings

Snap’s earnings report this week was negatively affected by Apple’s privacy changes that made it more difficult for advertisers to target within the iOS environment. The Trade Desk is more insulated from this threat than is Snap. Why?

First, The Trade Desk generates revenue from its clients using its technology to access several different channels across the open internet — not just apps used on an iPhone. Since Apple’s app tracking transparency (ATT) framework only impacts iOS, the changes to IDFA only influence a small fraction of the media campaigns run through The Trade Desk’s platform. Furthermore, as Connected TV (CTV), becomes a larger piece of the total revenue pie, Apple’s moves will matter less and less to The Trade Desk.

Additionally, The Trade Desk’s unparalleled scale within the open internet, advanced algorithms, and recent updates to its platform (Solimar) provide its clients with a means to continue to thrive within the digital advertising ecosystem. When The Trade Desk’s clients thrive, so does The Trade Desk.

With the aforementioned, clients can minimize the impact to their programmatic campaigns by accessing the rest of the internet to drive campaign performance. In real-time, The Trade Desk’s AI simultaneously optimizes campaigns away from inventory that doesn’t meet its clients’ standards and performance benchmarks. This inherently makes The Trade Desk less reliant on 3rd parties, such as Apple, to aggregate data and to value impressions for its customers to bid on. The Trade Desk’s ecosystem paired with its granular impression valuation service puts it in charge of its own destiny.

“To our business as it relates to the IDFA changes, we have seen no material change in spend. That’s in part because of our ability to look at 12 million impressions per second.” — The Trade Desk Co-Founder and CEO Jeff Green

Less help from Apple certainly hurts everyone — but it hurts The Trade Desk less so than others on a relative basis thanks to its technology and vast partner ecosystem. In this scenario, The Trade Desk remains the best-positioned to effectively target and thus the go-to demand side platform for the open internet. That is not changing.

Thank you to Jordy Kreiz (@KreizJordy on Twitter) for the information he provided on these announcements.

Click here for my deep dive into The Trade Desk’s business.

4. SoFi Technologies (SOFI) — New Partner for Galileo

Plaid — a builder of application programming interfaces (APIs) for fin-tech companies — is expanding further into payments. The traditionally business to business (B2B) software company is unveiling a new product that makes digitally funding payments via bank accounts more accessible, convenient and economic for individuals and firms.

Plaid will not directly touch these fund flows but instead will use payment processors including Square, Silicon Valley Bank, Stripe and SoFi’s Galileo to give Plaid’s users a pay-from-bank account option.

Few companies understand enterprise software within the framework of fin-tech better than Plaid. Based on this, it’s encouraging to me to see it select Galileo to provide other payment functions outside of its core competency. Clearly Galileo’s products are high quality.

Click here for my broad overview of SoFi’s business.

5. Butterfly Network (BFLY) — Another Win in Academia

Butterfly IQ+ portable ultrasounds were added by Yale New Haven Hospital which is affiliated with the Yale School of Medicine. A few months back, Temple University’s Medical School gave all of its first year students and IQ+ and this depicts more momentum within University adoption.

Getting future doctors and healthcare professionals comfortable and familiar with the IQ+ is a great way to boost long term acceptance and usage for the device. There’s no better way to accomplish that than signing distribution deals with our nation’s medical schools and University Hospitals.

Click here for my broad overview of Butterfly’s business.

6. Facebook (FB) — Name Change?

Mark Zuckerberg and Facebook are planning on changing the company’s name to mirror its ambitious metaverse path. Based on the negative opinions many have towards the Facebook brand — I think this is a (very small) positive if anything.

The company has been aggressively hiring within its Oculus (AR/VR) segment as well as to build out its long term metaverse vision. This is a concrete sign of that being a main focus over the coming decades. Digital advertising will continue to be the wildly compelling cash cow feeding these projects.

6 years ago, Google became Alphabet to communicate its broadened plans beyond search. This could be seen as the same type of move.

7. Ozon (OZON) — Pandemic Update

Russia is heading back into lockdown for the time being and — as an e-commerce business based on Russia — Ozon will benefit. This has little impact on my long term thesis but still could help the company in the short term. This is good to keep in mind.

Click here for my broad overview of Ozon’s business.

8. Google App Store News

In response to rising regulatory pressure, Google announced that it will cut its take rate to 15% for all apps selling subscriptions. It had been charging 30% in year one before lowering that fee to 15% thereafter. E-books and music streaming specifically will enjoy fees as low as 10%.

Google and Apple essentially hold an app store duopoly meaning one player lowering fees could feasibly lead to the other following suit. Ideally, this becomes a race to 0% thanks to mega-caps like Microsoft entering the space with no commission. That’s the dream scenario and not at all likely.

The change will serve as a sizable margin tailwind for countless companies. For example, Duolingo (DUOL) collected 20% of its revenue from the Google Play store in 2020. Based on $161 million in 2020 sales and considering roughly half of Duolingo’s subscribers were new in 2020, this could have saved the company roughly $2.4 million in input costs. $2.4 million represents a possible 410 basis point expansion of its gross profit margin. There are dozens and dozens of examples like this one.

Any company selling subscriptions through this app store will benefit. Others such as GoodRx, Butterfly and Planet Fitness (with its new paid app) are more beneficiaries but the list is very, very long.

Click here for my deep dive into Duolingo’s business.

9. My activity

I added to all three of my cannabis names during the week — Cresco Labs, Ayr Wellness and Green Thumb.