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Top stories today:
1. First Republic is bought by JPMorgan, with the assistance of the FDIC
2. OpenAI raises $300M at $27-29B valuation
3. Twitter Blue subscribers at 633K / $53M ARR, still ~2% of total revenue
0. Data and calendar
All values as of 3 AM PT / 6 AM ET, other than S&P500 close (1 PM PT / 4 PM ET).
All times are ET.
1. First Republic is bought by JPMorgan, with the assistance of the FDIC
JPMorgan is taking over:
$173B in loans
$30B in securities
$92B in deposits (including $30B from the big banks)
Other important facts from the deal:
The FDIC expects to lose $13B.
The FDIC is lending JPMorgan $50B.
JPMorgan is recognizing a one-time gain of $2.6B and is estimating $2B in restructuring charges over the next 18 months.
As predicted, the FDIC intervened Friday afternoon, and they successfully managed to solve the situation before Monday morning, so First Republic branches will open normally as part of JPMorgan.
FRB stock is -97% for the year and -34% in the pre-market
It is still worth around $0.4B, even though it is not clear whether shareholders will get anything:
In contrast, JPM stock is +3% in the pre-market, adding $12B in value
Our view: to avoid future runs, the FDIC should simply guarantee all deposits
The estimated cost is minimal at $117B.
The math is: 1.27% reserve ratio x $9,200B in estimated uninsured deposits = $117B.
The Fed or federal government would likely foot the bill initially. Gradually, banks could be mandated to pay higher fees to the FDIC (currently, between 2.5 and 42 basis points of deposits, depending on bank size and risk).
It would halt all these internet-fueled hyper-speed bank runs, so the benefits far outweigh the costs.
Are any bank failures on the horizon? We are not seeing any at this time, but we will be the first to report if one crosses our filters.
2. OpenAI raises $300M at $27-29B valuation
Investors include: Tiger Global, Sequoia Capital, Andreessen Horowitz (a16z), Thrive Capital, and K2 Global. - Techcrunch
Part of the tender offer to give some employees liquidity.
āOutside investors now own more than 30% of OpenAI, the source said.ā
Does this mean that the non-profit parent only owns <20% of OpenAI the for-profit, assuming Microsoft owns 49%? That doesn't count employee stocks; on the other hand, investors are said to have their returns capped at 10-100x, meaning they could lose their shares if a company is a tremendous success (for Microsoft's case, $92B in valuation; for these new investors, likely ~290B).
3. Twitter Blue subscribers now estimated at 633K / $53M ARR, still ~2% of total revenue
The math is: 633K subscribers x $84 ARR = $53M. - Travis Brown
Twitter is said to be intensifying efforts to attract creators
3-4 new features a week: āTwitterās director of product management overseeing subscriptions, Patrick Traughber, told employees on Thursday that Twitter would further promote subscription content on the platform, including by sending push notifications promoting the content and showing previews of tweets behind the paywall in the For You timeline. [His] team is working to add three to four features a week to its creator subscription offering.ā - The Information
Elon said publishers will be able to charge on a per-article basis
Our view: social media is still an ads play, and subscriptions take a long time to increase
Facebook, Instagram, TikTok, Snap: they all get 95%+ of their revenue from ads, not subscriptions.
Most of the value users can give is many hours per day, not direct cash.
Social networks must be free or freemium: if they want to connect the whole world, they cannot be paid-only ā that greatly limits their capability to charge for subscriptions.
Having a paywall would be highly risky, but Twitter could try it. Say, 5 minutes of free Twitter per day, after that it's paid. But that strategy would likely be -EV, as Twitter would lose valuable time on screen to sell ads into.
Elon's Twitter has also been giving in to government demands more often
Turkey, Germany, and India were the top 3 requesters. - Rest of World
And Jack Dorsey lashed out at Elon
Of course, Jack is now helping to build the decentralized alternative to Twitter, Bluesky Social:
4. 54% of investors think Buffett will beat the S&P over 5 years
Investors say now is the right time for defensive stocks
Our view: this becomes a self-fulfilling prophecy
If investors think that investing in defensive stocks is a good thing, they will allocate money there, which will boost prices and make investing in them a good thing ā as predicted in the first place.
That is true of almost of areas of investing.
5. Must watch: Roy Wood's roast at the White House Correspondentsā Association Dinner
Great criticisms of the amusing hypocrisies of all sides of the political establishment:
6. Other headlines
Tech
Softbank files confidentially to IPO in the NASDAQ, to raise $8-10B.
GPT4free founder says OpenAI threatened lawsuit if app is not taken down.
watchOS 10 to go back to focusing on widgets.
Google Cloud CEO interview: āwe were not in a very good situation.ā
AI content farms are being propped up and plastered with Google Ads.
Skype co-founder interview on investing $100M in AI startups.
Biotech
Business
Charlie Munger interview: U.S. banks āfull ofā bad commercial RE loans.
Strong construction markets seem immune to higher rates.
Super Mario Bros. Movie surpasses $1B, 1st in 2023.
Online chess is booming among teens; easy to find a similar opponent.
Crypto
Binance Labs reaches $9B AUM, only has āa dozen or soā staff.
2 months for U.S. House to have crypto bill: Rep. McHenry.
Ripple sells $336M worth of XRP tokens in Q1.
Proof's Kevin Rose on building through a bear market.
U.S. politics
Dems are divided over whether to negotiate with GOP on debt ceiling.
Ramaswamy says he wonāt let Trump dodge debates.
Epsteinās calendar reveals new names, including CIA director Burns.
Rupert Murdoch had call with Zelensky, maybe explains Tucker's firing?
World
India bans 14 messaging apps due to āterrorism.ā
Pope says he's working on a secret āmissionā of peace for Ukraine.
Russia aims to increase online voting registration, while potential draftees are deleting their government online accounts.
Hundreds sign letter demanding Navalny release.
China cutting overseas access to economic databases.
7. Interesting tweets, memes, and images
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