How eBay Turned The Internet Into a Marketplace

The story of the modern web is often told through the stories of Google, Facebook, Amazon. But eBay was the first conqueror. One weekend in September 1995, a software engineer made a website. It wasn’t his first. At 28, Pierre Omidyar had followed the standard accelerated trajectory of Silicon Valley: he had learned to code in seventh grade, and was on track to becoming a millionaire before the age of 30, after having his startup bought by Microsoft. Now he worked for a company that made software for handheld computers, which were widely expected to be the next big thing.

But in his spare time, he liked to tinker with side projects on the internet. The idea for this particular project would be simple: a website where people could buy and sell. Buying and selling was still a relatively new idea online. In May 1995, Bill Gates had circulated a memo at Microsoft announcing that the internet was the company’s top priority. In July, a former investment banker named Jeff Bezos launched an online storefront called Amazon.com, which claimed to be “Earth’s biggest bookstore”. The following month, Netscape, creator of the most popular web browser, held its initial public offering (IPO).

By the end of the first day of trading, the company was worth almost $3bn – despite being unprofitable. Wall Street was paying attention. The dot-com bubble was starting to inflate. If the internet of 1995 inspired dreams of a lucrative future, the reality ran far behind. The internet may have been attracting millions of newcomers – there were nearly 45 million users in 1995, up 76% from the year before – but it wasn’t particularly user-friendly. Finding content was tricky: you could wander from one site to another by following the tissue of hyperlinks that connected them, or page through the handmade directory produced by Yahoo!, the preferred web portal before the rise of the modern search engine.

And there wasn’t much content to find: only 23,500 websites existed in 1995, compared to more than 17m five years later. Most of the sites that did exist were hideous and barely usable. But the smallness and slowness of the early web also lent it a certain charm. People were excited to be there, despite there being relatively little for them to do. They made homepages simply to say hello, to post pictures of their pets, to share their enthusiasm for Star Trek. They wanted to connect. Omidyar was fond of this form of online life. He had been a devoted user of the internet since his undergraduate days, and a participant in its various communities. He now observed the rising flood of dot-com money with some concern.

The corporations clambering on to the internet saw people as nothing more than “wallets and eyeballs”, he later told a journalist. Their efforts at commercialisation weren’t just crude and uncool, they also promoted a zombie-like passivity – look here, click here, enter your credit card number here – that threatened the participatory nature of the internet he knew. “I wanted to do something different,” Omidyar later recalled, “to give the individual the power to be a producer as well as a consumer.” This was the motivation for the website he built in September 1995. He called it AuctionWeb. Anyone could put up something for sale, anyone could place a bid, and the item went to the highest bidder. It would be a perfect market, just like you might find in an economics textbook.

Through the miracle of competition, supply and demand would meet to discover the true price of a commodity. One precondition of perfect markets is that everyone has access to the same information, and this is exactly what AuctionWeb promised. Everything was there for all to see. The site grew quickly. By its second week, the items listed for sale included a Yamaha motorcycle, a Superman lunchbox and an autographed Michael Jackson poster. By February 1996, traffic had grown brisk enough that Omidyar’s web hosting company increased his monthly fee, which led him to start taking a cut of the transactions to cover his expenses. Almost immediately, he was turning a profit. The side project had become a business.

But the perfect market turned out to be less than perfect. Disputes broke out between buyers and sellers, and Omidyar was frequently called upon to adjudicate. He didn’t want to have to play referee, so he came up with a way to help users work it out themselves: a forum. People would leave feedback on one another, creating a kind of scoring system. “Give praise where it is due,” he said in a letter posted to the site, “make complaints where appropriate.” The dishonest would be driven out, and the honest would be rewarded – but only if users did their part. “This grand hope depends on your active participation,” he wrote.

The value of AuctionWeb would rely on the contributions of its users. The more they contributed, the more useful the site would be. The market would be a community, a place made by its members. They would become both consumers and producers, as Omidyar hoped, and among the things they produced would be the content that filled the site. By the summer of 1996, AuctionWeb was generating $10,000 a month. Omidyar decided to quit his day job and devote himself to it full-time. He had started out as a critic of the e-commerce craze and had ended up with a successful e-commerce company. In 1997, he renamed it eBay. Ebay was one of the first big internet companies. It became profitable early, grew into a giant of the dot-com era, survived the implosion of the dot-com bubble, and still ranks among the largest e-commerce firms in the world.

But what makes eBay particularly interesting is how, in its earliest incarnation, it anticipated many of the key features that would later define the phenomenon commonly known as the “platform”. Ebay wasn’t just a place where collectors waged late-night bidding wars over rare Beanie Babies. In retrospect, it also turned out to be a critical hinge in the history of the internet. Omidyar’s site pioneered the basic elements that would later enable Google, Facebook and the other tech giants to unlock the profit potential of the internet by “platformising” it.

None of the metaphors we use to think about the internet are perfect, but “platform” is among the worst. The term originally had a specific technical meaning: it meant something that developers build applications on top of, such as an operating system. But the word has since come to refer to various kinds of software that run online, particularly those deployed by the largest tech firms. The scholar Tarleton Gillespie has argued that this shift in the use of the word “platform” is strategic. By calling their services “platforms”, companies such as Google can project an aura of openness and neutrality. They can present themselves as playing a supporting role, merely facilitating the interactions of others.

Their control over the spaces of our digital life, and their active role in ordering such spaces, is obscured. “Platform” isn’t just imprecise. It’s designed to mystify rather than clarify. A more useful metaphor for understanding the internet, one that has guided its architects from the beginning, is the stack. A stack is a set of layers piled on top of one another. Think of a house: you have the basement, the first floor, the second floor and so on, all the way up to the roof. The things that you do further up in a house often depend on systems located further down. If you take a shower, a water heater in the basement warms up the cold water being piped into your house and then pipes it up to your bathroom.

The internet also has a basement, and its basement also consists largely of pipes. These pipes carry data, and everything you do further up the stack depends on these pipes working properly. Towards the top of the stack is where the sites and apps live. This is where we experience the internet, through the pixels of our screens, in emails or tweets or streams. The best way to understand what happens on these sites and apps – on what tech companies call “platforms” – is to understand them as part of the broader story of the internet’s privatisation.

The internet started out in the 1970s as an experimental technology created by US military researchers. In the 80s, it grew into a government-owned computer network used primarily by academics. Then, in the 90s, privatisation began. The privatisation of the internet was a process, not an event. It did not involve a simple transfer of ownership from the public sector to the private, but rather a more complex movement whereby corporations programmed the profit motive into every level of the network. A system built by scientists for research was renovated for the purpose of profit maximisation. This took hardware, software, legislation, entrepreneurship. It took decades. And it touched all of the internet’s many pieces.

The process of privatization started with the pipes, and then worked its way up the stack. In April 1995, only five months before Omidyar made the website that would become eBay, the government allowed the private sector to take over control of the network’s plumbing. Households and businesses were eager to get online, and telecoms companies made money by helping them access the internet. But getting people online was a small fraction of the system’s total profit potential. What really got investors’ capital flowing was the possibility of making money from what people did online. In other words, the next step was figuring out how to maximize profit in the upper floors, where people actually use the internet. The real money lay not in monetizing access, but in monetizing activity.

This is what Omidyar did so effectively when he created a place where people wanted to buy and sell goods online, and took a cut of their transactions. The dot-com boom began with Netscape’s explosive IPO in August 1995. Over the following years, tens of thousands of startups were founded and hundreds of billions of dollars were invested in them. Venture capital entered a manic state: the total amount of US venture-capital investment increased more than 1,200% from 1995 to 2000. Hundreds of dot-com companies went public and promptly soared in value: at their peak, technology stocks were worth more than $5tn.

When eBay went public in 1998, it was valued at more than $2bn on the first day of trading; the continued ascent of its stock price over the next year made Omidyar a billionaire. Yet most of the startups that attracted huge investment during these years didn’t actually make money. For all the hype, profits largely failed to materialize, and in 2000 the bubble burst. From March to September, the 280 stocks in the Bloomberg US Internet Index lost almost $1.7tn. “It’s rare to see an industry evaporate as quickly and completely,” a CNN journalist remarked. The following year brought more bad news. The dot-com era was dead.

Today, the era is typically remembered as an episode of collective insanity – as an exercise in what Alan Greenspan, during his contemporaneous tenure as chair of the Federal Reserve, famously called “irrational exuberance”. Pets.com, a startup that sold pet supplies online, became the best-known symbol of the period’s stupidity, and a touchstone for retrospectives ever since. Never profitable, the company spent heavily on advertising, including a Super Bowl spot; it raised $82.5m in its IPO in February 2000 and imploded nine months later.

Arrogance, greed, magical thinking and bad business decisions all contributed to the failure of the dot-com experiment. Yet none of these were decisive. The real problem was structural. While their investors and executives probably wouldn’t have understood it in these terms, dot-com companies were trying to advance the next stage of the internet’s privatisation – namely, by pushing the privatization of the internet up the stack. But the computational systems that could make such a push feasible were not yet in place. Companies still struggled to turn a profit from user activity.

In his analysis of capitalist development, Karl Marx drew a distinction between the “formal” and “real” subsumption of labour by capital. In formal subsumption, an existing labour process remains intact, but is now performed on a capitalist basis. A peasant who used to grow his own food becomes a wage labourer on somebody else’s farm. The way he works the land stays the same. In real subsumption, by contrast, the labour process is revolutionised to meet the requirements of capital. Formerly, capital inherited a process; now, it remakes the process. Our agricultural worker becomes integrated into the industrialised apparatus of the modern factory farm.

The way he works completely changes: his daily rhythms bear little resemblance to those of his peasant predecessors. And the new arrangement is more profitable for the farm’s owner, having been explicitly organised with that end in mind. This is a useful lens for thinking about the evolution of the internet, and for understanding why the dot-coms didn’t succeed. The internet of the mid-to-late 1990s was under private ownership, but it had not yet been optimised for profit. It retained too much of its old shape as a system designed for researchers, and this shape wasn’t conducive to the new demands being placed on it. Formal subsumption had been achieved, in other words, but real subsumption remained elusive.

Accomplishing the latter would involve technical, social and economic developments that made it possible to construct new kinds of systems. These systems are the digital equivalents of the modern factory farm. They represent the long-sought solution to the problem that consumed and ultimately defeated the dot-com entrepreneurs: how to push privatisation up the stack. And eBay offered the first glimpse of what that solution looked like.Ebay enlisted its users in its own creation. They were the ones posting items for sale and placing bids and writing feedback on one another in the forum. Without their contributions, the site would cease to exist.

Omidyar was tapping into a tradition by setting up eBay in this way. In 1971, a programmer named Ray Tomlinson invented email. This was before the internet existed: Tomlinson was using its precursor, Arpanet, a cutting-edge network that the Pentagon created to link computers across the country. Email became wildly popular on Arpanet: just two years after its invention, a study found that it made up three-quarters of all network traffic. As the internet grew through the 1980s, email found an even wider reach. The ability to exchange messages instantaneously with someone far away was immensely appealing; it made new kinds of collaboration and conversation possible, particularly through the mailing lists that formed the first online communities.

Email was more than just a useful tool. It helped humanize the internet, making a cold assemblage of cables and computers feel inhabited. The internet was somewhere you could catch up with friends and get into acrimonious arguments with strangers. It was somewhere to talk about politics or science fiction or the best way to implement a protocol. Other people were the main attraction. Even the world wide web was made with community in mind. “I designed it for a social effect – to help people work together,” its creator, Tim Berners-Lee, would later write.

Community is what Omidyar liked best about the internet, and what he feared the dot-com gold rush would kill. He wasn’t alone in this: one could find dissidents railing against the forces of commercialisation on radical mailing lists. But Omidyar was no anti-capitalist. He was a libertarian: he believed in the liberating power of the market. He didn’t oppose commercialisation as such, just the particular form it was taking. The companies opening cheesy digital storefronts and plastering the web with banner ads were doing commercialisation poorly. They were treating their users as customers. They didn’t understand that the internet was a social medium.

Ebay, by contrast, would be firmly rooted in this fact. From its first days as AuctionWeb, the site described itself as a community, and this self-definition became integral to its identity and to its operation. For Omidyar, the point wasn’t to defend the community from the market but rather to recast the community as a market – to fuse the two. No less a figure than Bill Gates saw the future of the internet in precisely these terms. In 1995, the same year that Omidyar launched AuctionWeb, Gates co-authored a book called The Road Ahead. In it, the Microsoft CEO laid out his vision for the internet as “the ultimate market”: “It will be where we social animals will sell, trade, invest, haggle, pick stuff up, argue, meet new people, and hang out.

Think of the hustle and bustle of the New York Stock Exchange or a farmers’ market or of a bookstore full of people looking for fascinating stories and information. All manner of human activity takes place, from billion-dollar deals to flirtations.” Here, social relationships have merged so completely with market relationships as to become indistinguishable. The internet is the instrument of this union; it brings people together, but under the sign of capital. Gates believed his dream was at least a decade from being realised. Yet by the time his book came out, AuctionWeb was already making progress toward achieving it.

Combining the community with the market was a lucrative innovation. The interactions that occurred in the guise of the former greatly enhanced the financial value of the latter. Under the banner of community, AuctionWeb’s buyers and sellers were encouraged to perform unpaid activities that made the site more useful, such as rating one another in the feedback forum or sharing advice on shipping. And the more people participated, the more attractive a destination it became. More people using AuctionWeb meant more items listed for sale, more buyers bidding in auctions, more feedback posted to the forum – in short, a more valuable site.

This phenomenon – the more users something has, the more valuable it becomes – is what economists call network effects. On the web, accommodating growth was fairly easy: increasing one’s hosting capacity was a simpler and cheaper proposition than the brick-and-mortar equivalent. And doing so was well worth it because, at a certain size, network effects locked in advantages that were hard for a competitor to overcome. A second, related strength was the site’s role as a middleman. In an era when many dot-coms were selling goods directly – Pets.com paid a fortune on postage to ship pet food to people’s doors – Omidyar’s company connected buyers and sellers instead, and pushed the cost of postage on to them.

This enabled it to profit from users’ transactions while remaining extremely lean. It had no inventory, no warehouses – just a website. But AuctionWeb was not only a middleman. It was also a legislator and an architect, writing the rules for how people could interact and designing the spaces where they did so. This wasn’t in Omidyar’s plan. He initially wanted a market run by its members, an ideal formed by his libertarian beliefs. His creation of the feedback forum likely reflected an ideological investment in the idea that markets were essentially self-organising, as much as his personal interest in no longer having to mediate various disputes.

Contrary to libertarian assumptions, however, the market couldn’t function without the site’s ability to exercise a certain kind of sovereignty. The feedback forum is a good example: users started manipulating it, leaving praise for their friends and sending mobs of malicious reviewers after their enemies. The company would be compelled to intervene again and again. It did so not only to manage the market but also to expand it by attracting more buyers and sellers through new categories of goods and by expanding into new countries – an imperative that shareholders imposed after eBay went public in 1998.

“Despite its initial reluctance, the company stepped increasingly into a governance role,” writes the sociologist Keyvan Kashkooli, in his study of eBay’s evolution. Increasing profitability required managing people’s behaviour, whether through the code that steered them through the site or the user agreements that governed their activities on it. Thanks to network effects, and its status as both middleman and sovereign, eBay easily turned a profit. When the crash of 2000–01 hit, it survived with few bruises. And in the aftermath of the crash, as an embattled industry, under pressure from investors, tried to reinvent itself, the ideas that it came up with had much in common with those that had formed the basis for eBay’s early success.

For the most part, eBay’s influence was neither conscious nor direct. But the affinities were unmistakable. Omidyar’s community market of the mid-1990s was a window into the future. By later standards it was fairly primitive, existing as it did within the confines of an internet not yet remodelled for the purpose of profit maximisation. But the systems that would accomplish that remodelling, that more total privatisation of the internet, would do so by elaborating the basic patterns that Omidyar had applied. These systems would be called platforms, but what they resembled most were shopping malls.

The first modern shopping mall was built in Edina, Minnesota, in 1956. Its architect, Victor Gruen, was a Jewish socialist from Vienna who had fled the Nazis and disliked American car culture. He wanted to lure midcentury suburbanites out of their Fords and into a place that recalled the “rich public social life” of a great European city. He hoped to offer them not only shops but libraries and cinemas and community centres. Above all, his mall would be a space for interaction: an “outlet for that primary human instinct to mingle with other humans”. Unlike in a city, however, this mingling would take place within a controlled setting. The chaos of urban life would be displaced by the discipline of rational design.

As Gruen’s invention caught on, the grander parts of his vision fell away. But the idea of an engineered environment that paired commerce with a public square remained. Gruen’s legacy would be a kind of capitalist terrarium, nicely captured by what urban planners call a “privately owned public space”. The systems that dominate life at the upper end of the stack are best understood, to borrow an insight from the scholar Jathan Sadowski, as shopping malls. The shopping malls of the internet – Google, Facebook, Amazon – are nothing if not privately owned public spaces. Calling themselves platforms, they are in fact corporate enclosures, with a wide range of interactions transpiring inside of them.

Just like in a real mall, some of these interactions are commercial, such as buying clothes from a merchant, while others are social, such as hanging out with friends. But what distinguishes the online mall from the real mall is that within the former, everything one does makes data. Your clicks, chats, posts, searches – every move, however small, leaves a digital trace. And these traces present an opportunity to create a completely new set of arrangements. Real malls are in the rental business: the owner charges tenants rent, essentially taking a slice of their revenues. Online malls can make money more or less the same way, as eBay demonstrated early on, by taking a cut of the transactions they facilitate.

But, as Sadowski points out, online malls are also able to capture another kind of rent: data rent. They can collect and make money from those digital traces generated by the activities that occur within them. And since they control every square inch of the enclosure, and because modifying the enclosure is simply a matter of deploying new code, they can introduce architectural changes in order to cause those activities to generate more traces, or traces of different kinds. These traces turn out to be very valuable. So valuable, in fact, that amassing and analysing them have become the primary functions of the online mall. Like Omidyar’s community market, the online mall facilitates interactions, writes the rules for those interactions, and benefits from having more people interacting with one another.

But in the online mall, these interactions are recorded, interpreted and converted into money in a range of ways. Data can help sell targeted advertising. It can help build algorithmic management systems that siphon more profit out of each worker. It can help train machine learning models in order to develop and refine automated services like chatbots, which can in turn reduce labour costs and open new revenue streams. Data can also sustain faith among investors that a tech company is worth a ton of money, simply because it has a ton of data. This is what distinguishes online malls from their precursors: they are above all designed for making, and making use of, data. Data is their organizing principle and essential ingredient.

Data is sometimes compared to oil, but a better analogy might be coal. Coal was the fuel that powered the steam engine. It propelled the capitalist reorganization of manufacturing from an artisanal to an industrial basis, from the workshop to the factory, in the 19th century. Data has played a comparable role. It has propelled the capitalist reorganization of the internet, banishing the remnants of the research network and perfecting the profit engine. Very little of this vastly complex machinery could be foreseen from the vantage point of 1995.

But the arrival of AuctionWeb represented a large step toward making it possible. The story of the modern internet is often told through the stories of Google, Facebook, Amazon and the other giants that have come to conquer our online life.  But their conquests were preceded and prefigured by another, one that started as a side project and stumbled into success by coming up with the basic blueprint for making a lot of money on the internet.

By

Source: ‘Wallets and eyeballs’: how eBay turned the internet into a marketplace | eBay | The Guardian

More contents:

eBay, Inc. 2021 Annual Report (Form 10-K)”. U.S. Securities and Exchange Commission.

Global Trade: 1. Finding International Items On eBay”

Skype and PayPal – A Different Set of Rules”.

PayPal Spinoff Day Has Arrived — What Does It Mean for Investors?”.

The Perfect Store.

How did eBay start?”

The perfect store

The eBay Business Model”

The Myths of Innovation

Ebay Enters The NFT Space, Launches First NFT Collection

“EBay Founder Pierre Omidyar Steps Down From Board”.

“Brand New: eBay Settles for Lowest Bid”

eBay selling fees”.

Ebay’s history – know your roots!”.

eBay Guides – Tickets Buying Guide”.

Taxes and import charges”.

eBay Inc. – eBay Inc. Outlines Global Business Strategy”

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SoftBank’s Startups Insist The Bruised Investor Still Expects Growth Despite The Economic Downturn

The economic storm is upon us, but it hasn’t changed SoftBank’s expectation that its portfolio companies will continue to prosper if only they focus on product and growth. That’s the message Masayoshi Son’s Japanese conglomerate is sending to its startups even as SoftBank posted a bruising $27 billion loss over the last fiscal year as inflation spirals, war siphons resources and interest rates head skyward.

Forbes contacted around half of SoftBank’s Vision Fund portfolio companies to learn how tech’s largest investor was advising founders to weather a slowdown that has already erased billions of dollars from the valuations of public and private technology companies.

“No matter we are in a bear market, they still think that the most relevant thing is growth, and product, and that from the founder’s perspective is great,” says Juan Urdiales, CEO of Spanish hiring platform Jobandtalent, which raised $120 million in a SoftBank-led round in March 2021. Urdiales is not alone.

Forbes spoke with 20 other founders out of a pool of 300 startups worldwide backed by SoftBank’s $140 billion Vision Fund 1 and 2. Founders such as Kevin Gosschalk of Captcha maker Arkose Labs, say they were told that “focus” and “lean” growth were the priorities in an economy sagging under rising interest rates and untamed inflation

As signs of a bear market appeared on the horizon this year, SoftBank sharply dialed back the pace of its financings after making a record 183 investments last year. It has made just 32 investments since the start of the war in Ukraine at the end of February, as SoftBank founder Masayoshi Son told investors that he intends to pull back on such deals by 50% to 75%.

That shift was preceded by an earlier change of strategy at the Vision Fund, the world’s largest tech investor. The London-based team shifted from the $1 billion wagers in capital-hungry companies such as Uber and WeWork it made with its Vision Fund 1, to make more traditional venture-style investments with cheques as low as $10 million spreading its chips across industries and countries.

“The reality is that if you want to continue investing multi-billion a year it’s very hard to concentrate on a few positions and find these very large companies that can digest that,” says Yanni Pipilis, EMEA Managing Partner for the SoftBank Vision Fund.

As a minority investor in many of the Vision Fund 2 companies, SoftBank had a smaller role to play in talks about a startup’s future, says Pipilis. “So the discussions we have are more often at a board level are advisory rather than telling founders what they should do,” he says. “There’s no one-size-fits-all approach but of course in an environment like this one we will look at your cash burn, hiring, marketing plans and see how we can adjust that to potentially increase your runway.”

SoftBank has, like many of its rivals in Silicon Valley, refocused on European startups over the past 18 months after valuations and founders’ demands in the U.S. surged. SoftBank nearly doubled the capital allocated to European startups to 25% in its second fund after Vision Fund 1 was dominated by large American and Asian companies.

Even so, the speed and scale of SoftBank’s spending across its sprawling operations can lead to overlaps and confusion. Just days apart in April 2021, two separate Vision Fund teams invested over $3 billion in two Norwegian startups with rival warehouse robotics technology. The stablemates could soon be pitted against each other as online grocer Oda expands into Germany while Autostore seeks to power Germany’s retail giants.

Some of SoftBank’s rivals have struck a more cautious tone. In a memo to founders in its portfolio last month, Sequoia Capital issued a gloomy warning that “Cheap capital is not coming to the rescue” to bail out struggling startups. Tiger Global, SoftBank’s rival in what critics brand “spray and pray” investing in late-stage startups, has also faced major headwinds and has written off $17 billion across its portfolio.

In May, Tiger invested in 33 companies, down from 50 in January, according to Pitchbook. But despite the looming signs of a downturn, Tiger’s backers appear undaunted, raising $12.7 billion in March for a new growth fund, and is reportedly in talks to raise yet another fund focused on private markets.

SoftBank has come down to earth since this time last year, when it smashed Japan’s record for corporate profits on the listing of South Korean ecommerce player Coupang and the then-booming valuations of companies in its Vision Fund portfolio. Those milestones were before rising interest rates, sharp stock-market declines and fears of a recession hammered public and private tech valuations.

Meanwhile, banner Softbank investments such as Alibaba and ride-hailing app Didi have been swept up in China’s tech crackdown. SoftBank’s own share price has plunged 36% over the last year. It is also managing a $140 billion corporate debt pile, among the largest in the world, and a raft of high-profile executive departures.

Most recently, some of SoftBank’s biggest bets in Vision Fund 2 have started to wobble. Last month, Klarna, Europe’s most valuable startup, laid off a tenth of its employees and cut back expectations after posting a nearly $500 million loss last year. GoPuff, the $15 billion instant delivery app, is shuttering more than a dozen warehouses and laid off 400 employees in May. And View, a “smart glass” window maker, which raised $1 billion from SoftBank before going public via SPAC, is at risk of being delisted by the Nasdaq while trading at a 81% discount from its peak a year ago.

SoftBank’s star investment Alibaba, now trades at a 50% discount to its price last year, says Amir Anvarzadeh, a Singapore-based analyst with Asymmetric Advisors, who recommends shorting SoftBank. “Over the last few years, SoftBank’s transformation to become a venture capital firm has been a disaster,” says Anvarzadeh.

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SoftBank has been here before. Son was one of the biggest winners of tech investing in the 1990s, just before the dot-com bubble burst, thanks to massive bets on Yahoo and E-Trade. But the subsequent selloff saw SoftBank lose 99% of its market cap, and Son’s personal wealth took a major hit. Son revived SoftBank as a major telecom operator but has more recent brushes with disaster from multi-billion bets on failed startups like WireCard, Greensill Capital, and Katerra – each raising questions about SoftBank’s due diligence process. The WeWork saga in particular took a financial and reputational toll on both SoftBank and Son.

Founders interviewed by Forbes say they have also got the message from SoftBank that it can’t be expected to bail out a floundering startup. SoftBank has led scores of rounds for loss-making startups but now pushes for another investor to lead any subsequent rounds. “We deliberately embarked on a strategy several years ago of having rounds led by others, and being willing to participate and support rounds,” says Anthony Doeh, a partner at SoftBank Investment Advisers.

“As a founder you should never count on continued support from your investors financially,” says Rob van den Heuvel, CEO of Netherlands-based shipping startup Sendcloud, which raised $175 million in September in a round led by SoftBank. “Our business is doing well and they reiterated their support a couple of weeks ago. … I would understand if they don’t support businesses that are not doing well.”

Though for now, such factors have not shaken the confidence of its portfolio companies, outwardly at least. Urdiales says he was warned by other founders that SoftBank’s exposure to public markets could determine whether it was a long-term investor. “We have seen many investors who are tremendously affected by market trends,” Uriadales says. “You don’t want an investor that changes their mind every quarter.”

I joined Forbes as the Europe News Editor and will be working with the London newsroom to define our coverage of emerging businesses and leaders across the UK and Europe. Prior to

I’m a staff reporter at Forbes covering tech companies. Follow me on Twitter at @davidjeans2 and email me at djeans@forbes.com

Source: SoftBank’s Startups Insist The Bruised Investor Still Expects Growth Despite The Economic Downturn

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Tech Stock Rally on Alibaba Results May Be Short Lived, as Pandemic Impact on Industry, Consumer Spending Come Into Focus

Alibaba Group Holding’s better-than-expected results may offer only a temporary boost to Chinese technology stocks, as fallout from pandemic lockdowns depresses consumer spending and causes analysts to cut earnings forecasts by as much as 11 per cent.

Alibaba’s shares surged 12 per cent in Hong Kong on Friday after the release of its quarterly report, as the Hang Seng Tech Index rose nearly 4 per cent.

However, major brokerages China International Capital Corp (CICC) and Citic Securities cut earnings projections for the e-commerce giant. They cited the Covid-19 outbreaks that have ravaged about 40 cities in China this year, disrupting supply chains and prompting consumers to tighten their purse strings.

A weak result from Baidu has bolstered the argument. The nation’s biggest search-engine saw its advertising revenue drop 4 per cent from a year earlier in the first quarter, reflecting a tough macroeconomic environment.

The latest brokerage calls reinforce the view that the worst for China’s tech juggernauts is yet to come, as the pandemic takes over from the regulatory crackdown as the factor holding sway over the sector. Alibaba, Tencent soar in Hong Kong as report cards ease earnings concerns

A flurry of high-level government meetings over the last month signal an end to the year-long regulatory storm that wiped out more than US$1 trillion in market cap. Top policymakers have made it clear they want tech platforms to play a bigger role in reviving growth, as the outlines of a consumer-spending slowdown and a “big shock” to industrial profits become clear following lockdowns that started in April.

“Consumer spending and the development of the pandemic are the key to the tech stocks now,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “People won’t spend even online now, with the courier service devastated by the pandemic. The regulatory factor is less of a major concern now.”

CICC reduced Alibaba’s earnings forecast for the financial year by 7 per cent to 131.8 billion yuan (US$19.6 billion) and that for the following year by 1 per cent to 169.1 billion yuan. The investment firm also slashed the price target of Alibaba’s Hong Kong-traded shares by 4 per cent to HK$137, representing 13 times estimated earnings, amid a compressing valuation within the tech sector.

Citic Securities, China’s biggest publicly traded brokerage, also slashed Alibaba’s profit forecast, by 11 per cent to 124.9 billion yuan for this year and by 12 per cent to 147.7 billion yuan for next year. The share-price estimate is set at HK$160.

Alibaba’s customer management revenue (CMR), its biggest source of revenue, will probably decrease by more than 10 per cent for the quarter ended in June as a result of dwindling demand for online shopping and supply-chain disruptions, the brokerage said in a report on Friday.

“Looking to the whole year, investors still need to wait until the recovery in the macroeconomy for the improvement in Alibaba’s earnings,” Citic analysts led by Xu Yingbo wrote in the report. “We estimate that earnings will begin to pick up after the third or the fourth quarter.”

Beijing has reaffirmed its adherence to the zero-Covid policy, which JPMorgan has said the government sees as necessary because of a low vaccination rate among China’s elderly and a fragile healthcare system. The US bank, as well as Swiss private bank Union Bancaire Privee, predict a contraction in China’s growth in the second quarter. Premiere Li Keqiang highlighted the gravity of the situation for the nation’s economy at a meeting this week, saying that it was even worse in some aspects than the aftermath of the Wuhan Covid-19 outbreak in 2020.

Alibaba, the owner of the Post, jumped 12 per cent to HK$90.85 on Friday in Hong Kong. The rally has pared the stock’s loss to 23 per cent this year after a 49 per cent slump in 2021. Revenue for the March quarter rose 9 per cent from a year ago, beating estimates, but the company swung to a net loss in the span on increased investments in new businesses, according to results released on Thursday.

Alibaba’s future earnings may risk trailing the estimate, “given the uncertainty of putting the pandemic under control,” said Tang Jiarui, an analyst at Everbright Securities in Shanghai. “The logistics snarls have reduced consumers’ willingness to spend.”

By: Zhang Shidong

Source: Tech-stock rally on Alibaba results may be short-lived

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Down More Than 30%: Insiders Call a Bottom in These 3 Stocks

Despite brief periods of respite, the markets have mostly trended south in 2022, with the NASDAQ’s 28% year-to-date loss the most acute of all the main indexes.

So, where to look for the next investing opportunity in such a difficult environment? One way is to follow in the footsteps of the corporate insiders. If those in the know are picking up shares of the companies they manage, it indicates they believe they might be undervalued and poised to push higher.

To keep the field level, the Federal regulators require that the insiders regularly publish their trades; the TipRanks Insiders’ Hot Stocks tool makes it possible to quickly find and track those trades.

Using the tool we’ve homed in on 3 stocks C-suite members have just been loading up on – ones that have retreated over 40% this year. Let’s see why they think these names are worth a punt right now.

Carvana (CVNA)

First out of the gates, we have Carvana, an online used car retailer known for its multi-story car vending machines. The company’s ecommerce platform provides users with a simple way to search for vehicles to purchase or get a price quote for a vehicle they might want to sell. Carvana also offers add-on services such as vehicle financing and insurance to customers.

The company operates by a vertically integrated model – that is, it includes everything from customer service, owned and operated inspection and reconditioning centers (IRCs), and vehicle transportation via its logistics platform.

Carvana has been growing at a fast pace over the past few years, but it’s no secret the auto industry has been severely impacted by supply chain snags and a rising interest rate environment.

These macro developments – along with a rise in high used-vehicle prices and some more company-specific logistics issues – resulted in the company dialing in a disappointing Q1 earnings report.

Although revenue increased year-over-year by 56% to $3.5 billion, the net loss deepened significantly. The figure came in at -$506 million compared to 1Q21’s $82 million loss, resulting in EPS of -$2.89, which badly missed the analysts’ expectation of -$1.42.

Such an alarming lack of profitability is a big no-no in the current risk-free climate, and investors haven’t been shy in showing their disapproval – further piling up the share losses post-earnings and adding to what has been a precipitous slide; Overall, CVNA shares have lost 88% of their value since the turn of the year.

With the stock at such a huge discount, the insiders have been making their moves. Over the past week, director Dan Quayle – yes, the former vice president of the United States – has picked up 18,750 shares worth $733,875, while General Counsel Paul Breaux has loaded up on 15,000 shares for a total of $488,550.

Turning now to Wall Street, Truist analyst Naved Khan thinks Carvana stock currently offers an attractive entry point with compelling risk-reward.

“We see a favorable risk/reward following reset expectations, a 50+% decline in stock post earnings/capital raise and analysis of the company’s updated operating plan. Our analysis suggests at current levels the stock likely reflects a bear-case outcome for 2023 profitability along with lingering concerns around liquidity (addressed in the operating plan). We see room for meaningful upside to 2023 EBITDA under conservative base-case assumptions, with Stock’s intrinsic value >2x current levels. At ~1x fwd sales, we find valuation attractive,” Khan opined.

To this end, Khan rates CVNA a Buy, backed by an $80 price target. The implication for investors? Upside of a hefty 200%. (To watch Khan’s track record, click here)

What does the rest of the Street make of CVNA right now? Based on 7 Buys, 13 Holds and 1 Sell, the analyst consensus rates the stock a Moderate Buy. On where the share price is heading, the outlook is far more conclusive; at $83.74, the average target makes room for one-year gains of 214%. (See CVNA stock forecast on TipRanks)

Wolfspeed (WOLF)

We’ll now switch gears and move over to the semiconductor industry, where Wolfspeed is at the forefront of a transformation taking place – the transition from silicon to silicon carbide (SiC) andgallium nitride (GaN). These wide bandgap semiconductor substrates are responsible for boosting performance in power semiconductors/devices and 5G base stations, while the company’s components are also used in consumer electronics and EVs (electric vehicles), amongst others.

Like many growth names, Wolfspeed is still unprofitable, but both the top-and bottom-line have been steadily moving in the right direction over the past 6 quarters. In the last report – for F3Q22 – WOLF’s revenue grew by 37% year-over-year to $188 million, albeit just coming in short of the $190.66 million the Street expected. EPS of -$0.12, however, beat the analysts’ -$0.14 forecast. For F4Q22, the company expects revenue in the range of $200 million to $215 million, compared to consensus estimates of $205.91 million.

Nevertheless, companies unable to turn a profit in the current risk-free environment are bound to struggle and so has WOLF stock. The shares have declined 41% on a year-to-date basis, and one insider has been taking note. Earlier this week, director John Replogle scooped up 7,463 shares for a total of $504,797.

For Wells Fargo analyst Gary Mobley, it is the combination of the company’s positioning in the semiconductor industry and the beaten-down share price which is appealing.

“We view WOLF as one of the purest ways in the chip sector to play the accelerating market transition to pure battery electric automotive power trains,” the analyst wrote. “Not only have WOLF shares pulled back in the midst of the tech-driven market sell-off, but we are also incrementally more constructive on WOLF shares given we are on the cusp of the company’s New York fab ramping production, a game changer for WOLF as well as the SiC industry, in our view.”

Standing squarely in the bull camp, Mobley rates WOLF an Overweight (i.e. Buy), and his $130 price target implies a robust upside of ~99% for the next 12 months. (To watch Mobley’s track record, click here)

The Wall Street analysts are taking a range of views on this stock, as shown by the 10 recent reviews – which include 4 Buys and 6 Holds. Added up, it comes out to a Moderate Buy analyst consensus rating. The average price target, at $109.59, implies ~68% one-year upside from the current trading price of $65.40. (See WOLF stock forecast on TipRanks)

The Home Depot (HD)

Lastly, let’s have a look at a household name. The Home Depot is the U.S.’ biggest home improvement specialty retailer, supplying everything from building materials, appliances and construction products to tools, lawn and garden accessories, and services.

Founded in 1978, the company set out to build home-improvement superstores which would dwarf the competitors’ offerings. It has accomplished that goal, with 2,300 stores spread across North America and a workforce of 500,000. Meanwhile, the retailer has also built a strong online presence with a leading e-Commerce site and mobile app.

Recently, even the largest retail heavyweights have been struggling to meet expectations, a development which has further rocked the markets. However, HD’s latest quarterly update was a positive one.

In FQ1, the company generated record sales of $38.9 billion, beating Wall Street‘s $36.6 billion forecast. The Street was also expecting a 2.7% decline in comps but these increased by 2.2%, sidestepping the macroeconomic headwinds. There was a beat on the bottom-line too, as EPS of $4.09 came in above the $3.68 consensus estimate.

Nevertheless, hardly any names have been spared in 2022’s inhospitable stock market and neither has HD stock; the shares show a year-to-date performance of -31%. One insider, however, is willing to buy the shares on the cheap.

Last Thursday, director Caryn Seidman Becker put down $431,595 to buy a bloc of 1,500 shares in the company.

She must be bullish, then, and so is Jefferies analyst Jonathan Matuszewski, who highlights the positive noises made by management following the Q1 results.

“We came away from the earnings call with the view that management’s tone was more bullish on the US consumer than it has been in recent history. With backlogs strong across project price points, consumers trading up, and big-ticket transactions sequentially accelerating on a multi-year basis, we believe investor reservations regarding slowing industry sales growth are premature,” Matuszewski opined.

Matuszewski’s Buy rating is backed by a $400 price target, suggesting shares will climb 39% higher over the one-year timeframe. (To watch Matuszewski’s track record, click here)

Most on the Street also remain in HD’s corner; the stock has a Strong Buy consensus rating built on a solid 18 Buys vs. 4 Holds. The forecast calls for 12-month gains of 24%, given the average target clocks in at $357.35. (See HD stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Source: Down More Than 30%: Insiders Call a Bottom in These 3 Stocks

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E-commerce Profits May Become Harder To Make

THE E-COMMERCE company that retailers talk about most these days is neither Amazon, the American juggernaut, nor Alibaba, China’s biggest. It is Pinduoduo (PDD), a Chinese firm that started in 2015 as an online food supplier, but whose success has driven its market value above $200bn. Last year it was China’s fastest-growing internet stock, rising by 330%.

PDD attracts attention for two reasons. One is its business model. David Liu, vice-president of strategy, explains that it has ridden the rise of smartphone penetration in China to create an e-commerce experience in which people club together to buy products from robot vacuum-cleaners to bananas.

During the pandemic this has expanded into a fast-growing business across thousands of towns and villages, in which PDD’s users gather to bid for shipments of local farm produce at bargain prices. Some term this “community group-buy”. Mr Liu calls it “interactive commerce”. It is one of the hottest parts of the Chinese internet.

The second is the way PDD has shattered the myth of an impregnable fortress surrounding the titans of online shopping. Until a few years ago, China’s e-commerce market seemed a two-way contest between Alibaba and JD.com, a rival platform.

No longer. Elinor Leung of CLSA, a brokerage, expects PDD’s share of online retail in China to overtake that of JD in 2021. She expects the number of users to surpass Alibaba. And although PDD shells out huge subsidies to entice customers from poorer parts of China to its app, she thinks it may turn profitable this year.

Remarkably, it has done this less by displacing its bigger rivals than by tapping parts of the market they have been unable to reach. Although online sales of groceries have rocketed during the pandemic, less than a tenth of the 8.1trn yuan ($1.25trn) farm-produce market is bought and sold digitally.

“We are continuing to grow the pie,” says Mr Liu. That lesson applies elsewhere too. However sewn up a market looks, there is opportunity for upstarts because e-commerce is at an early stage of development.

The issue of competition in China has convulsed share prices because of the actions of antitrust authorities. In November 2020 the State Administration for Market Regulation published draft guidelines for platform companies aimed at maintaining orderly competition. In December enforcement of the 2008 antitrust law was strengthened, leading to new investigations and fines.

These have included scrutiny of mergers and acquisitions, community group-buy schemes, price-discounting and discrimination against competitors. Ms Leung wrote in January that the chance of a forced break-up of Chinese internet platforms is remote, because of its impact on industry, the economy and consumers. But she expects more regulation, especially over customer data.

Robin Zhu of Bernstein says the crackdown means tech platforms may have to restrain aggressive sales practices such as selling goods at huge discounts. That may reduce growth, but jobs and innovation plus their support for consumer spending argue in their favour. Alibaba seems the biggest target, but PDD has also drawn fire.

Alibaba is flying “closest to the sun”, Mr Zhu suggests, partly because of heat on its sister company, Ant Group. But he says up to a fifth of China’s retail sales flow through its doors. Chinese regulators stress their support for the platform economy, he notes, so a crackdown is unlikely to be devastating.

The rampant competition in China’s retail market suggests no platform, however large, can expect fully to dominate it. Alongside PDD, Alibaba, JD and Meituan, a food-delivery firm, all target China’s lower-tier cities with community group-buy and other schemes. Alibaba’s Taobao Live platform has led the growth of live-streaming and video, in which influencers sell branded goods at huge discounts.

But the explosive live-streaming market has attracted vigorous competitors, such as Douyin, sister to TikTok, a global social-media app. WeChat, part of a super-app owned by Alibaba’s rival Tencent, allows brands to sell on its site, and gives customers instant access to digital payments.

Everyone is jostling for a share of online advertising. This is especially true in live-streaming, where it is easy to measure the bang for an advertiser’s buck through real-time data, says Michael Jais of Launchmetrics, a fashion-and-beauty analytics company.

In Europe and America, by contrast, the view is that the game has been won by Amazon. The gap between Amazon’s e-commerce market share in America and that of Walmart, the next in line, is far bigger than Alibaba’s lead over the number two in China.

Though Bernstein’s Mark Shmulik reckons Amazon earns little profit on its core retail business, its fast-growing cloud and online-advertising arms generate huge margins that it can plough back into retail expansion.

It had $42bn of cash on its balance-sheet at the end of 2020. Marc-André Kamel of Bain, a consultancy, says Amazon may spend $100bn more on information technology over the next five years than each of the world’s top ten traditional retailers. It will also continue to invest heavily in logistics, putting more pressure on the likes of UPS and FedEx.

Like Alibaba in China, Amazon has drawn regulatory heat. In October 2020 a congressional committee in America said it was looking at overhauling antitrust laws to counter the power of the big tech platforms. It drew attention to the dominance that Amazon has over third-party sellers on its marketplace, and its practice of selling its own goods in competition with them.

In November the European Commission accused Amazon of violating competition laws by using non-public data from third-party sellers to benefit its own retail business.

Amazon says none of this is true. Although it stands tall online in America, by total sales Walmart is larger. Amazon dominates categories like books, but in groceries it is one of many. Trustbusters may have their eye on how it sells products on its website to compete with those sold by third parties, but this is little different from big retailers selling own-label products.

Amazon also has political capital. Brian Nowak of Morgan Stanley says the jobs it provides, its support for small and medium-sized firms, and its technological prowess may all work in its favour.

The recent decision by Jeff Bezos, Amazon’s founder, to hand the chief executive job to Andy Jassy will not end the regulatory fire. But if the pressure rises, it could spin out Amazon Web Services, the world’s biggest cloud-computing company. As in China, as long as the pie is growing, new challengers may emerge.

Some will come from big tech. Many online retailers pay Facebook and Google for their products to be found via search. Online advertising remains the strongest part of their businesses, but Facebook and Google are adding sales channels. Facebook has 160m small firms on its site. In 2020 it let them set up a single online store on its app and on Instagram, its sister platform. Last year Google scrapped commissions for retailers selling directly from its site.

Another source of competition will come from changes in online shopping. Smartphones may overtake personal computers in America and Europe for e-commerce. That will boost the popularity of “social commerce”, or commerce via social media and video. TikTok, a medium for promoting brand awareness, may let its most popular celebrities market products on its site, according to the Financial Times.

The battle will extend to logistics and payment services. In America Amazon delivers more of its own parcels than the US Postal Service. But rivals like Walmart are developing subscription services like Amazon Prime that offer free delivery and other perks.

Tax is another threat. In both East and West, tax authorities have their eye on the digital giants. In 2020 Amazon saw a big increase in its tax liability, yet the administration of Joe Biden is considering imposing higher taxes on America’s most profitable companies.

European governments are levying digital-services taxes on tech firms in an effort to force them to pay more where their consumers are located. Some have drawn attention to the low business rates that e-commerce platforms pay on out-of-town warehouses, compared with those of retailers on the high street. Even China plans to raise taxes on its biggest tech firms.

Ultimately, higher taxes, greater regulatory scrutiny and rising competition may make profits in e-commerce harder to come by. But even if they end up regulated like utilities, few will shed a tear. The e-commerce giants have had a fabulous run so far.

Source: E-commerce profits may become harder to make | The Economist

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