Amazon's $1B Profit Algo Exposed!

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Happy Thursday, folks.

Long story, but I finally moved into my new apartment out here in SF. This is my 6th (and hopefully final? please?) place to stay since moving out here a couple of months ago, so to say that I am welcoming the ability to actually unpack my bags is an understatement.

Just getting into character for the startup lifestyle. If that’s not committing to the bit, I don’t know what is.

Your feedback fuels me, so spitballing another idea for the newsletter going forward:

Elon Try Not to Make Headlines Challenge (Impossible)

Quick, what numbers come after 2, 3, 4?

If you said 5 and 6, you’d definitely get a gold star from your 1st grade teacher, but you’d also have the answer to the question, “how much has Twitter’s valuation dropped since being taken over by the “smoke weed on Rogan” guy?”

~X~’s most recent employee stock option documents reveal that the company is valuing itself at $19 billion, a 56% drop from the $44 billion that Elon paid for the former blue bird just last year.

To be fair, the company is not the first unicorn to slash its value by billions over the last couple of years (Instacart, Stripe, others), but it’s certainly a much bigger drop than we’ve seen elsewhere, and given the quick turnaround since its acquisition, the company’s “Drop it like it’s hot” Snoop impression is a bit on the concerning side.

Much of this decline can be attributed to the fall in ad dollars as companies are a bit concerned with the change in leadership and ensuring direction that the platform has since taken, but to avoid dunking solely on SF’s favorite narcissist, the pullback in ad dollars is an economy-wide phenomenon given the current rough market conditions.

To avoid giving the man ANOTHER section, I’m just going to lump in the latest news on another of Elon’s side hustles, this one being the $150 billion Etsy business that is SpaceX.

The eccentric founder announced that Starlink has achieved breakeven cash flow (time frame not provided) and is on pace to account for more than 50% of satellites launched from Earth by next year.

Though notable on its own right given the company’s rapid ascension to solar prowess, even more noteworthy is the fact that the exec has discussed spinning Starlink off and taking the company public once it has reached a sound financial position. Most would typically consider no longer flushing cash to be fairly sound 👀

However, to avoid jumping the gun, it’s worth pointing out that contradicting statements from the team have also indicated that the company would likely not even consider this until 2025 at the earliest.

Ngl, I’m a space nerd. It’s pretty cool to see the space economy surpassing mere Star Wars cosplay to emerge as a legitimate source of financial upside. Anyone want to pitch in to scoop up a nice little Cantina on Tatooine?

a3.4Bz

Getting the stamp (check) of approval from Andreessen Horowitz is like getting a Twitter shoutout from LeBron - doesn’t necessarily mean that you’re gonna make it, but it’s still pretty cool.

While the VC downturn hasn’t impeded upon The King’s ability to stretch those emoji-lovin’ fingers, it has negatively impacted the ability of investors to raise new funds, so it’s exciting to see that a16z doesn’t expect the market to impact its ability to raise its new $3.4 billion fund to be spent on early stage and seed deals.

This new fund is 17% larger than its last, and its massive size reflects the firm’s prominent position within the ecosystem, but the fact that its last fund was a 92% jump from the size of its prior does demonstrate that things are kinda not cool rn.

Though the name might allow the firm to achieve its fundraising goals, it’s also worth noting that previous mega funds (Insight, Tiger) had announced lofty goals that were forced to be lowered when the reality of what it takes to GoFundMe tens of billions of dollars in this economy set in.

Amazon + FTC = Beef

If you thought the higher price of eggs at your local grocery store was annoying, just wait until you hear about what Bezos was doing to the final number on your rice cooker and Fire Stick.

The Monopoly Buster that is the FTC made available a series of accusations against the company, including referencing a secret internal algorithm called “Project Nessie” which was used to predict whether other online stores would follow in Amazon’s footsteps if the company were to raise prices.

This allegedly allowed the company to profit more than $1 billion than it would have without the assistance of said inflating algo. This is not including the additional money that consumers would have had to spend on other stores which had raised their prices in response to Amazon’s hikes.

The algorithm reportedly ran continuously from 2016-2018 but would be shut off during holiday season to prevent the increased coverage from noticing before ramping it back up once key shopping seasons passed.

The company officially stopped using Nessie in 2019, though it did continue to experiment and improve the algorithm over the next few years and considered dusting her off just last year to boost margins.

Amazon refutes these claims, instead arguing that the tool was used to ensure that no products were being listed as unsustainably low prices, though its low effectiveness led to its cancellation in 2018.

Idk man. Jeff had to pay for the wooden statue of his girlfriend adorning the front of his $500 million superyacht somehow 🤷 

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Cheers to another day,

Trey