TikTok’s Money Pit

Plus: VCs are hunting for safer investments. They must not exist. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

January 31, 2024

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Good morning.

They're seen as irregular shipping costs.

UPS says it will cut roughly 2.5% of its global workforce. That doesn't sound like a lot, until you realize that's 12,000 employees, 75% of which are expected to be let go in the first half of this year. So we're talking billions in payroll here. The company cited higher labor costs linked to union contracts and a reduction in package volumes as reasons for the cuts. UPS also said the layoffs would affect managerial staff. Who says the postman doesn't ring twice?

SOCIAL MEDIA

TikTok's US Data Safeguards Are a $1.5 Billion Money Pit

To keep Congress from blowing a lid, TikTok parent company ByteDance promised to keep US user data inside the country so that the Chinese government couldn't access it. Despite spending billions, the short-form video giant hasn't exactly created Fort Knox, The Wall Street Journal reported on Tuesday.

Texas Hold 'Em

TikTok struck a deal way back in the mists of 2020 to store US user data with Texas-based Oracle. But US lawmakers never entirely shed their fear that TikTok could be leaking data to China, and last year their suspicions seemed justified: a former ByteDance employee testified that the Chinese Communist Party was accessing TikTok data, though he provided no evidence.

TikTok has poured $1.5 billion into its US data storage operation, codenamed Project Texas, but employees there seem to simultaneously lack clarity about ByteDance's workings, while also living in fear that ByteDance has more access than it should:

Sources told the WSJ that Project Texas struggles to keep up with the algorithm changes that ByteDance makes to the TikTok app to help avoid user problems.
Meanwhile, the sources said they are sometimes asked by managers to share information with employees at ByteDance outside official channels. There are even concerns about office hardware, as sources said they were promised laptops with in-house Project Texas software, but those were slow to arrive.

Project Texas management seems to be aware of some of the confusion, as it sent out a memo last month reassuring staff that new communication tools with the broader ByteDance team were on the way.

Retail Therapy: While Project Texas might be a drag on TikTok's balance sheet, the app is still figuring out how to break into the e-commerce market to monetize its large and addicted user base. Bloomberg reported on Monday that the app is testing a feature that automatically recognizes when a saleable item appears in a video, then throws up a link for a user to find "similar items" on TikTok's shop. Because who doesn't want their tween getting prompted to buy the next random thing they see on TikTok?

Written by Isobel Asher Hamilton

Sanctions Fall Short

Much of the Western world slapped Russia with a series of steep sanctions after the invasion, with restrictions in particular placed on Russian oil exports. But Putin's aggressive war-time spending has stimulated the economy nonetheless, propping up commodities prices and making up for shortfalls in energy-related export revenues.

That was enough for most economists to gauge Russia's GDP growth last year at around 3% — as well as for the IMF to increase its expectations for Russia's economy in the remaining 11 months of 2024:

The IMF's projection of 2.6% GDP growth this year comes just after the organization had predicted a slightly more anemic growth rate of just 1.1% in October.
It's also a projection more bullish than many Russian insiders have made. In November, Russia's central bank predicted growth of up to just 1.5% this year, while the economy ministry has pegged the figure at 2.3%.

"It is definitely the case that the Russian economy has been doing better than we were expecting and many others were expecting," IMF chief economist Pierre-Olivier Gourinchas told the Financial Times.

New World Order: In fact, the IMF's rosy outlook extends beyond Russia. In its report Tuesday, the organization also upgraded its outlook for both the US and China, pointing to inflation's faster-than-expected cooling. Gourinchas told reporters it is evidence that "the chance of a 'soft landing' has increased." He also added that "the biggest global election year in history" — with roughly half the world's population voting in major elections across roughly 64 countries — could boost economic activity. Political wars are good for economies, too, we take it.

Written by Brian Boyle

PRIVATE EQUITY

VCs Are Sitting Tight On Top of a Big Cash Pile

Venture capitalists have a new motto: nothing ventured, nothing lost. They're sitting on more than $300 billion of cash.

Know When to Walk Away

Between 2020 and 2022, VCs managed to raise a record $435 billion, but so far, they've deployed only about half of that, The Financial Times reported on Tuesday. So what happened? It's not like there's a dearth of plucky young companies touting their expertise in blockchain or AI or some other disruptive technology. But as Wired noted earlier this month, the days of ultra-low interest rates and outsized investment returns on startups are a thing of the past.

VCs have now pivoted to safer bets on more established companies or those already in their portfolios as opposed to frivolously handing out seed money:

Last year, Thrive Capital invested $1.8 billion into fintech group Stripe, which was founded in 2010. It's also leading a purchase of employee stock at ChatGPT-creator OpenAI, the FT reported.
Doing, well, not much, can be tricky for VCs, too. One Silicon Valley venture capitalist told the FT, "Investors don't usually like to put pressure on VCs to spend money, but if you're entering your third year of not doing anything, they're starting to ask 'what are my fees for?'"

Fallen Angels: As a result of VCs playing it safe, startups are folding at a scary pace. Last year, about 3,200 startups that collectively raised more than $27 billion in VC funding had gone out of business, The New York Times reported. Some of those include home construction group Veev, health automation service Olive AI, and who could forget WeWork's bankruptcy filing? But Silicon Valley doesn't stay dead for long. The next "Uber for cats" is likely right around the corner.

Written by Griffin Kelly

Finance Executive Online

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