Andy Kessler

WSJ: Elon Musk’s Uncontested 3-Pointers

https://www.wsj.com/articles/elon-musks-uncontested-3-pointers-1519595032

I have a suspicion that Stephen Curry and Elon Musk are the same person. First, as was said of Michael Jackson and Diana Ross, you never see them in the same room together. More important, they both dislike crowded spaces.

Mr. Curry, a two-time NBA most valuable player with the Golden State Warriors, has mastered the art and science of shooting 3-pointers. But a closer look at his stats reveals that he really likes to shoot uncontested 3s. Who wouldn’t? Making uncontested baskets is a lot easier.

Mr. Curry often takes shots from several feet behind the 3-point line. Defenders, figuring no one would be stupid enough to shoot from that far away, leave him open. And he makes baskets with surprising accuracy. At one point in 2016, he made 35 out of 52 shots from between 28 and 50 feet. Uncontested indeed.

Elon Musk’s business strategy isn’t so different: Go far enough into the future that there are no other competitors. Mr. Musk’s first success was X.com, an email payment company. It merged with Peter Thiel’s Confinity to form PayPal —and avoid competition. They had the market to themselves for a long time because fraud, especially from Eastern Europe, was so rampant on early internet payment platforms. They solved the fraud problem and enjoyed an uncontested market, eventually selling for $1.5 billion to eBay.

Then Mr. Musk headed further into the future. He took the nine-figure payout from PayPal and pushed ahead with SpaceX, Tesla and Solar City. Literally his last $20 million went to Tesla in 2008. “I was tapped out. I had to borrow money for rent after that,” he later recalled. Private space launches, electric cars and rooftop-solar financing were all huge Muskian pushes into the future, where no one else dared play. Today, Tesla is worth around $60 billion. SpaceX raised money last summer at a $21 billion valuation. Mr. Musk is no longer borrowing to pay his rent.

Quite impressive, even though I find all the handouts offensive. When I see someone driving a Tesla I greet him with, “You’re welcome.” When he inevitably asks for what, I roll out the long list of subsidies: a $465 million Energy Department loan in 2009, a $7,500-a-car income-tax credit from the feds, $1.3 billion in incentives from Nevada for a factory, and more. Removing competition by racing to the future is one thing. Seeking special treatment to boost your advantage is cheating.

Mr. Musk still pushes the boundaries.

WSJ: What Does Facebook Do Now?

https://www.wsj.com/articles/what-does-facebook-do-now-1517776963

I have a confession: The day I started on Wall Street, my boss handed me a yellowing copy of Benjamin Graham and David Dodd’s 1934 book, “Security Analysis.” He told me Warren Buffett swears by it! I read maybe three pages before the section on valuing railroad bonds put me to sleep. I still have the book, which is now a doorstop. What I quickly realized was that only three things matter when investing in technology: growth, growth and growth.

Last week Facebook announced that its quarterly earnings grew 61% year over year, amazing for a company with $40 billion in revenue. The stock is up a similar amount since the start of 2017, but some cracks are showing in user engagement and growth. Is Facebook really worth $553 billion? Has it peaked?

The company certainly is under fire. Too many people falsely believe that fake news on Facebook got Donald Trump elected. Like cockroaches, critics calling for regulation are scurrying out of the woodwork. Salesforce CEO Marc Benioff thinks Facebook is so addictive that it should be controlled like cigarettes. George Soros told the Davos crowd that Facebook and Google are a “menace, and it falls to the regulatory authorities to protect society against them.”

Some critics even think Facebook is too successful and should be broken up, though the Federal Trade Commission would have to search far and wide to find consumer harm. Now there is a call, led by News Corp ’s Rupert Murdoch, for Facebook to pay publishers like this newspaper for their content. (News Corp is the parent company of Dow Jones, which publishes The Wall Street Journal.)

Under pressure last month, founder Mark Zuckerberg announced changes to Facebook’s “news feed” that would emphasize posts from family and friends rather than outside publishers. Considered as a business proposition, this is a loser. Will more of grandma’s fruitcake recipes keep Facebook users clicking? It almost answers itself. “In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day,” Mr. Zuckerberg said last week. Yet investors yawned, and the stock rose 4%.

The company’s biggest threat is simple: Facebook is running out of people. In March 2007, when I sat down with Mr. Zuckerberg for a Journal interview, he bragged about having 16 million users. In its early years, Facebook was limited to college students, and critics suggested he would soon run out of them. They were right! Which is why the requirement to have an email address ending in .edu was soon dropped. Today 2.14 billion people use Facebook at least once a month.

Chew on these numbers: There are about 3.5 billion internet users today—less than half of the world’s population. It might seem like that leaves plenty of room for growth, except that about 750 million internet users are in China, where Facebook is blocked. Another 110 million or so are in Russia, where most use the homegrown social network VKontakte. That leaves Facebook with only a few hundred million potential recruits, mostly in India, Japan and Africa. Its reach is amazing, but this doesn’t leave much room to grow. In the lucrative U.S. and Europe, user growth is basically flat.