2PM - No. 733: Anatomy of a DTC Acquisition

Square acquires Afterpay / New York Times: The deal introduces Afterpay’s service, which allows users to stagger the cost of their purchases over interest-free installments, to U.S. consumers and the millions of small businesses that process their credit card transactions on the Square app. It will also help the San Francisco-based Square further expand in Australia, its second-biggest market after the United States.

Short Analysis: The world of buy-now-pay-later fintech is one that grows more transformative by the quarter. Just look at all the activity circling the space. The latest: Square’s $29 billion all-stock deal to acquire Australian competitor Afterpay, which rivals Affirm and Klarna among others. In July 14's member newsletter, I wrote: 

Expect both consolidation and expansion in the buy now pay later space, which is heating up as a service and competitive landscape for retail. PayPal and, soon, Apple could be the “legacy” players in position to buy up other services as they center attention on this area. Already, PayPal has signalled an active acquisition strategy in the online shopping arena, with past purchases of online auto-couponer Honey in 2019 and returns solution Happy Returns earlier this year. 

With Afterpay, Square is linking up with another company that offers a different option to financing than traditional credit. That’s the reasoning explained by executives in a New York Times news piece, at least. There are more implications: Square needs to fortify its turf and differentiate as other payment options proliferate. With Afterpay, Square can expand in more markets as well as among new demographics who are drawn to the buy-now-pay-later option.

The staggering valuation (the deal has yet to be approved, but execs said they weren’t concerned about antitrust action coming into play) also underscores how frothy the BNPL landscape is. It’s also telling, and worth reminding, that there is still a world in e-commerce ecosystems outside of Shopify. Shopify partnered with BNPL leader Affirm last year to make it the sole payment option provider for Shop Pay installments. Affirm has seen its market leadership decline as more competitors came into the space. According to eMarketer:

The US buy now, pay later (BNPL) market, which Affirm overwhelmingly dominated as recently as 2018, has now given way to several other providers as the technology has diffused. In Q1 2021, Afterpay and Klarna made up a combined 60% of all US downloads for top BNPL apps, a major increase from their collective 19% share in Q4 2018.

This market will shape up to be a major tech arms race. Each company has signalled interest in expanding beyond its core offering of pay installments, and smaller players have proven to be ripe for acquisition. Most recently, outside of Afterpay: Klarna acquired Apprl, a service that connects creators and retailers. Keep an eye out.

Hilary Milnes and Web Smith, 2PM

How Shein became the Chinese apparel maker American teens love

eCommerce / WSJ: The fast-fashion brand leverages China’s well-developed garment-manufacturing industry and efficient logistics system, enabling it to sell online and ship to customers around the world at low cost. Shein relies on thousands of third-party garment makers mostly in the southern province of Guangdong, the heart of China’s manufacturing and export hub, according to Shein suppliers and the company’s recruitment ads to factories.

The metaverse has always been a dystopian idea

Metaverse / Vice: If it is coming, and if it is a big deal, then surprisingly few have paused to carefully consider the actual source of the metaverse, an undertaking which seems like a good idea, especially because that source is a deeply dystopian novel about a collapsed America that is overrun by violence and poverty. The metaverse was born in Neal Stephenson’s 1992 Snow Crash, where it serves as entertainment and an economic underbelly to a poor, desperate nation that is literally governed by corporate franchises.

It’s going to be another autumn season of heightened eCommerce activity. If you follow technology press, the punditry would suggest otherwise. In a recent Op-Ed for Bloomberg, Tae Kim writes: “Amazon may be facing headwinds from a slowdown in the entire e-commerce category, which faces tough comparisons from the peak pandemic months last year.” The well-written piece highlights the “post-pandemic blues” by including rapidly declining eCommerce numbers. According to Kim, Bank of America’s aggregated card spend data shows a March to May crash in year-over-year online retail growth from 60% to 1%. But this doesn’t nearly tell the whole story. This slowing growth in eCommerce is temporary.

A New Practical

Why elite female athletes are turning away from major sponsors

Brands / New York Times: A growing number of top women athletes, including Simone Biles and former Olympians, have been choosing to strike new types of deals with smaller activewear brands instead of traditional sponsors like Nike. Several young female runners say that smaller brands are willing to work with them in different ways, like bringing them on as employees, giving them equity or involving them in new products, and that they are paying more attention to their personal stories and Instagram accounts than their race performance.

How to beat Amazon with your eCommerce Company

Practical / Late Checkout: The best new eCommerce platforms will be the most entertaining ones. I believe that they will have 3 main things in common. eCommerce platforms will be spatial and live and fun. They will also sell as many digital goods as they will physical ones. While these experiences won’t replace Amazon, they will play a huge role in shaping how we buy online.

Updated August 2: Shein remains No. 1 for the third week in a row. Chewy, Hims, Bandier, Untuckit, Health-Ade, Saxx Underwear, Holden, Alala, and Fenty Beauty each climbed the chart.

'Jungle Cruise' adds $30 million from Disney+

The Streaming Economy / CNBC: The film, starring Emily Blunt and Dwayne Johnson, also debuted on Disney’s streaming service Disney+ for a $30 fee, tallying $30 million in global sales over the course of the weekend. “Jungle Cruise” is expected to be the last of Disney’s slate to be released using this method.

Editor's Note: An important point from Friday's member brief on the MCU and the Johansson lawsuit: As WSJ points out, Disney’s executive’s bonuses are tied to streaming performance. With the future looking increasingly like streaming, the entire film industry will need to rethink how it works in response. While Dwayne "The Rock" Johnson seems to be okay with the agreement, it's still very likely to change. 

Hello Sunshine to be sold to media company backed by Blackstone

New Media / Wall Street Journal: Reese Witherspoon’s media business, Hello Sunshine, is selling itself to a firm backed by private-equity giant Blackstone Group Inc., the companies said, part of a plan to build an independent entertainment company for Hollywood’s streaming era.

Why Bored Ape avatars are taking over Twitter

NFTs / New Yorker: The center of most clubs is Discord, the real-time chat app. Bored Ape Yacht Club’s Discord server has more than thirteen thousand members — fans as well as N.F.T. owners — and hosts constant discussion in channels such as #crypto-talk and #sports-bar. The mutual investment, both social and financial, forms a kind of bond among club members within the wider Internet bedlam.

We strive to have a rhythmic and healthy heart. Athletes push for lung capacity. The consumer packaged goods industrial complex champions the importance of one’s gut health. And here we are, ashamed of the way our own brains work.

There is a pang that I feel when I allude to my own mental health struggles in public. There is a stigma associated, an acknowledgment that none of us are as strong or as tough or as sound as we believe ourselves to be. Ten years ago, I would have thought it was a failure to express any thoughts on the matter, publicly or privately. Five years ago, I would have burdened my best friend for help at the risk of an intensity in responsibility that isn’t healthy to distribute or accept. But today, I try to communicate to those who listen that it’s just a part of being a human being, a creator, a parent, an entrepreneur, and a soul.

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