Delaying the release of The Interview wasn't the only thing to come out of the recent hack of Sony Pictures. The company's CEO, Michael Lynton also had his email hacked and one email, in particular, surfaced that could be an entire investment thesis for the next couple of years. Lynton also sits on Snapchat's board and an interesting exchange leaked out between Lynton and Evan Spiegel, the CEO of the multibillion dollar startup that turned down an acquisition offer from Facebook for $3 billion.
Spiegel comments on the startup economy that's fed Facebook's market cap via advertising. Startups are laser-focused on acquiring new customers and the social network has been one of the main winners. Here's Spiegel:
VC dollars are being spent on user acquisition despite unknown LTV [Lifetime Value] of users - a recipe for disaster. This props up Facebook share price and continues to justify VC investment in technology products based on abnormally large mkt cap companies
If this is true, Facebook wouldn't be the only stock to get hit when the market for tech stocks cools. I don't know if this will play out (I'm a long term bull on the startup economy) but if it does, it will be felt in the public markets. Here's a model to show Facebook's sensitivity to the online advertising market.
Here's 11 other stocks who would be impacted when startups spending slows down
Venture capital funded startups need to show growth and they spend lots of money to acquire new customers - sometimes unprofitably. Facebook, given its ability to target user behavior and interests, has been the most recent recipient of the bulk of these ad dollars but Google and now, Twitter also see flow from the startup economy.
Tech-enabled startups need servers to host their websites and applications. This contributed to a massive land grab in the hosting space, with new companies IPOing with multi-billion dollar marketcaps. Rackspace and Endurance International Group Holdings, formerly BizLand, would certainly be impacted in the race to build the next Googles, Apples and Facebooks slows down.
Office real estate owners with exposure to Silicon Valley
The startup economy has pushed the price of office space in Silicon Valley to 2x the national average at nearly $97 per square foot. This inflation hasn't been lost on the equity markets where two of the largest owners of corporate real estate, Hudson Pacific Properties and Boston Properties, have seen their stock prices rise almost 40% in 2014. If a startup bubble pops, real estate investment trusts with a lot of exposure to startup geographies would be impacted.
If you're building a leading website or application, you're going to need to measure things: like performance, customer experience, and business success. That's where analytics firms like recently-minted IPO, New Relic come in. NEWR is already trading up over 40% since its IPO at the beginning of December 2014. Top breakout startups like Airbnb, zendesk and ticketfly all use New Relic.
New Relic (NYSE:NEWR)
When Salesforce.com launched, it provided companies with enterprise-grade CRM that it could rent, instead of deploying a company-wide software platform. Now, this leading Software as a Service is so much more than just a CRM. Through internal product development and some key acquisitions, Salesforce.com has a full cloud offering that can power every part of an online enterprise.
When a startup deploys a new app or software into the market, it requires a whole suite of accompanying services. Instead of building out help desk software or automating and scaling its marketing processes, there are leading companies on the market that supply these tools. Marketo is one of the leaders in marketing automation, using tools to support companies' online customer acquisition. Similarly, Zendesk is a popular tool startups spend money on to power their service offerings - it's a full helpdesk platform.
Again, I'm a long-term bull on the startup economy and I think there will be lots of money to be made within the entire startup ecosystem. But there is excess money being recycled among VCs, their portfolio companies, and the companies that service them.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.