MorningWord 9/6/16: Circling Vultures

by Dan September 6, 2016 10:10 am • FREE ACCESS

Smart money is constantly hunting for the next big technological service, standard or platform.  To get a sense what that smart money is looking at (to eventually bet on), I follow a bunch of VC peeps (and those who write about VC peeps) on Twitter and Medium. Ultimately, some of those themes end up in my own writing, usually how they affect the publicly traded cap tech companies we routinely discuss in these pages.

In the public markets in 2016 we have witnessed a re-emergence of old tech (Cisco, Intel & Microsoft all at 52 week and multi-year highs) and web 2.0 stocks (Amazon & Google very near all time highs). Much of this positive sentiment is around emerging technologies like the Internet of Things, Autonomous and Electric vehicles, Drones, Virtual & Augmented Reality, Artificial Intelligence and obviously the backbone of a lot of these advances, Cloud Computing.  These emerging technologies have old tech scrambling, with the big boys acquiring technology and talent as if their lives depended on it. And in most cases, they do.

And following more than $125 billion in semiconductor M&A deals in the last year or so, and MSFT’s recent $26 billion acquisition offer for LinkedIn (LNKD) the trend is likely to continue. And that means the amount of publicly traded companies will continue to decline. Per Business Insider:

The number of firms with shares publicly listed in the University of Chicago’s Center for Research in Security Prices aggregate index has fallen to 3,267 from a peak of 6,364 in 1997.

And all of the acquisitions occur against the backdrop of a dismal IPO market in 2016. Per VentureBeat:

As evidence of this shifting IPO climate, the total number of new stock debuts this year remains the lowest since 2009, according to data from the Wall Street Journal and Dealogic. Just 63 companies had gone public as of late August, raising a cumulative $12.9 billion. That’s a 50% drop from the year-to-date volume in 2015 and a 73% drop over the first eight months of 2014. In fact, there have only been two slower years for IPOs since 1995 – in 2003 following the dot-com crash, and in 2009 right after the Great Recession.

Yahoo Finance Contributor Joe Fahmy made a good case this weekend for Why the world needs more IPOs. Of course, “the unicorns” in tech are finding new and creative funding in the private market. But Joe hits on one really important point:

It also hurts competition because a big company doesn’t have to worry as much about a startup going public and competing with them. For example, imagine if Instagram and WhatsApp went public and competed with Facebook (FB) as social and messaging platforms. Instead, big companies can sit back and use their stock to make acquisitions rather than investing in R&D. This ends up hurting the economy and overall entrepreneurship.

The M&A flurry is resulting in net loss of publicly traded companies, but as most suspect, a bunch of the unicorns eventually fuel the next IPO boom. Because of the opaqueness and ill-liquidity risks of the private market, late comer investors will ultimately demand IPOs. And the next cycle will be centered around the the buzzword list from above (Internet of Things, Autonomous and Electric vehicles, Drones, Virtual & Augmented Reality, Artificial Intelligence and Cloud Computing).

And that finally brings me back to one of those articles I read over the weekend. The story first caught my eye because it seemed sort of simple, like one that read a few years back with the emergence of 4g mobile networks, or 10 years ago with 3G . But it seems different and more sci-fi this time around:

To drive the point why 5G networks will be a lot more than just mobile telephony and video streaming feeds, this piece from Wired, To Make Drone Deliveries Work, AT&T Is Tapping Into the Cell Network details machine uses for new high speed networks:

The solution may lurk in your own line-of-sight—on top of water towers and rooftops, or shrouded by poorly faked roadside “trees.” Qualcomm Technologies and AT&T announced today they’re collaborating to make wide-ranging drone operations reliable and safe, using current 4G LTE and future 5G networks.


The drones will connect to the towers via modems similar to those found in smartphones and automobiles equipped with their own cellular broadband capability, and they’ll be controllable from any distance, as long as the drone is within cell range. (Though that’s not always necessary, since then can fly autonomously though dead zones.)

And just this morning, Intel bought private company Movidius, which makes chips for computer vision. What’s that for? Yes you guessed it, drones.

Again, I track these themes because large cap public tech companies should be skating to where the puck is going, which means M&A of companies that are creating services, platforms or standards that will be build off of existing, yet augmented technologies.