Equity Monday: Bitcoin is on the move as Spotify cuts staff, and more money floods AI

Our Monday show covers the latest in tech news from the weekend and what’s making headlines early in the week. And we had a lot to cover this morning! Crypto prices are rising, which is good news for the decentralized economy, as increasing prices track with heightened trading activity and consumer interest. We have another busy week of SaaS companies reporting quarterly results, which will hopefully provide a useful temperature check for tech valuations. CoreWeave's new $7 billion valuation had our tongues wagging, as did delays at Google's AI project. And then there was Spotify cutting staff in light of economic conditions. The company can't outgrow its core market forever, and with largely static gross margins, the only lever it can really pull is its cost base. That's it for today! More on Wednesday and Friday! For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:10Speaker 00

  Hello and welcome back to Equity, the TechCrunch podcast where we unpack the numbers and the nuance behind the headlines. This is Alex. Good morning and welcome back to our Monday show where we take a look back at the weekend and then a look at the week that is to come. Today is December 4th, 2023. The year is winding down and I am not emotionally ready for winter, not even a little bit. But while the outside is cold, the tech news is still actually pretty hot. So today on the show, we have SaaS data, major changes in crypto land, big AI rounds and product delays, and finally layoffs at Spotify. Let's go.

• 0:52Speaker 00

  Starting off with my favorite thing in the world, the stock market. Shares are mixed in Asia today with the Chinese CSI 300 index hitting its lowest levels since early 2019. Over in Europe, shares are mostly lower today. The background there is that gold hit a record high in the last 24 hours, in case you track that sort of thing. And stocks are set to rip higher here in the US at the open. Now, on the earnings front, no, we're not out of the woods yet, but the good news is we do have a lot of very interesting names in the SaaS space. So on Monday, we will hear from GitLab and Maria DB. Tuesday brings MongoDB, Neo, Sentinel One,

• 1:32Speaker 00

  Asana, Box, Yext, Stitch Fix, Arrival, and Yunji. Wednesday is Viva, Chewy, Braze, Sprinkler, C3.ai, Couchbase, and ChargePoint. And then finally, Thursday, we're not out of the woods then either, DocuSign, Smartsheet, Hashicorp, and SecureWorks. So it's another big week of SaaS with some AI and electric charging thrown in. Yes, my friends, we shall feast on new data all week long. And then crypto prices. The vibes in crypto land are accelerating as prices rise, and that's being driven by Bitcoin gaining about 13% in the last week to be worth just

• 2:12Speaker 00

  under $42,000 per coin today. And then there's Ethereum's token, up more than 11% in the last week and now worth 22.50 per token. But it's not just the big two that are doing so well. Smaller coins, including Solana's own, have recovered as well. That one is up nearly 13% in the last seven days. Congrats. If you own crypto, you now have more money.

• 2:37Speaker 00

  So in big news that matters this morning, we have to start by sticking to the crypto theme because prices are moving, people are talking. So what does that mean? And why do we care? Well, when we do see prices change in crypto, trading tends to perk up. And when prices go up, we tend to see quite a lot of trading activity. So chicken and the egg here, we don't really know which one is exactly causing which, but the two do go up in tandem. Rising crypto prices also helps crypto in other ways, including spiking search interest. And a search of Google Trends data this morning does show that recently, interest in terms like Bitcoin has gone up. So with that context, what does the data actually say? Well, according

• 3:20Speaker 00

  to information from the block, when it comes to crypto spot trading activity, November was the third best month of the year. Now, it wasn't as good as what we saw in February or March, but that figure was up massively from September era lows. For crypto in general, more activity is good, but it's super good for companies like Coinbase that make a lot of their money historically on trading fees. Now, a caveat, trading levels in crypto have come down since mid-November, but they're still greatly elevated compared to what we saw a couple of months ago. So things are still looking much better over in crypto land. I'll bet right now you're sitting there thinking, oh my gosh, Alex, crypto prices go up, they go down, interest goes up, it goes down. So what? Why do I care?

• 4:04Speaker 00

  Well, there's an interesting historical wrinkle to this particular moment in time that I'm very, very excited about because yes, crypto booms and busts have happened every couple of years since I can recall, but we've never really seen a boom, as far as I can tell, when rates have been this high. So for context, the Bitcoin white paper came out back in 2008 as interest rates were falling. Now, we only got back up to an effective rate of about 2.5% at the Fed level in 2019 before seeing that cut back to zero. However, today, the effective federal funds rate is more than 5%. So we're going to see how well crypto can do when just holding cash is so lucrative. The bar is kind of higher, if you will, for crypto to have yet another moment in the sun.

• 4:49Speaker 00

  But people on crypto Twitter are already trash talking about folks who aren't very exposed to decentralized assets. So at least the vibes are full of hype. What I care about more is will this crypto warm period thus far help startup activity in crypto? I'm not quite sure, but we could see corporate venture capital in crypto reaccelerate, which could help startups. Why would we expect that? Well, companies like Coinbase have historically had very active corporate venture arms. But when they suddenly had less money, unsurprisingly, they slowed down. So perhaps with more money, they will accelerate. For crypto founders, that is music to their ears. And we can't do a show without talking about AI these days because things are, well, always happening.

• 5:33Speaker 00

  So first up, CoreWeave, which sells access to its GPU cloud, has sold a minority stake in its business that values it at $7 billion. Fidelity led that particular investment, according to Bloomberg. Now, recall that CoreWeave was actually founded to mine Ethereum, which means that it has a long history of having both feet in GPU land. So it's not a huge surprise that today the company sells access to an array of GPUs for AI-related work, including hard-to-find Nvidia chips.

• 6:05Speaker 00

  You may actually recall hearing about CoreWeave recently because the company has been on a fundraising tear. In fact, it's actually a little bit complex because the company has raised equity funding and quite a lot of debt, including a $2.3 billion credit facility that TechCrunch covered earlier this year. However, at the same time, the company raised more than $400 million just this year alone in equity funding. So more about how much total capital CoreWeave has as a startup when we sort out how much this new share sale brought to the company. But there's a lot of money flowing towards it. Elsewhere in AI land, reports are out that Google's new Gemini AI product is going to be delayed until next year over its handling of non-English queries.

• 6:50Speaker 00

  Not really a great look from Google, but given the recent chaos at OpenAI and the fact that the Microsoft-aligned AI company has also delayed some product releases, I bet you that Google is going to get a pass here. At the same time, expect that AI progress is going to keep up and not really stop for the holidays. Tech companies are in a race here and they have the bit between their teeth. That means they're not going to slow down for anything because no one wants to be rendered obsolete by not working hard enough.

• 7:22Speaker 00

  The thing that I am most stuck on today is the news that Spotify is cutting 17% of its staff. Now, the context here, according to Spotify CEO Daniel Eek, and I'm going to paraphrase a little bit, is that economic growth has slowed, capital is more expensive, and Spotify is not an exception from market realities. All right, but didn't Spotify just report positive operating income in the third quarter and more than 200 million euro worth of free cash flow? Sure, but that's not really the issue the company is talking about. Eek went on to say that, quote, "Considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to right-size our costs was the best option to accomplish our objectives." Yes, he did say right-size. What can you do?

• 8:08Speaker 00

  Anyways, the company wants to cut staff on people that are supporting work or doing, quote, "work around the work" rather than contributing to opportunities. With real impact, which is kind of a diss to a lot of the staff they hired and gave tasks to. But hey, so Spotify is cutting more staff. This is not even the first cut at the company in recent memory. And I'll just say this, the stated reasons make financial sense, but also speak to tech companies inability to not hire too many people. And frankly, the fact that once growth slows, tech companies have to focus more on profitability than new revenue expansion. But perhaps I'm just repeating myself there. Anyways, Spotify has created a very large business. In Q3 2023, its revenue put the company on

• 8:53Speaker 00

  a roughly 13.4 billion euro annual run rate. That's a lot, but Spotify trades at about two and a half times its trailing revenues today, according to Yahoo Finance, and that sucks. So it probably needs to start arguing in price earnings terms, which means they focus on profitability instead of adding more revenue. And to do that, cutting costs is critical. Now, the company does not have an easy road ahead, but you can kind of see why it's trying to turn the ship. In effect, Spotify has built a roughly 25, 27% gross margin business that has captured a very large share of a very large market, but one that is only growing so quickly. So essentially, Spotify can't outgrow the music market forever.

• 9:35Speaker 00

  And so now, massive staff cuts and hopefully stronger earnings down the road are the flavor of the day. TechCrunch estimates the cuts at about 1,500 jobs for reference. That is all the time we have on the show today. But if you want even more equity, we are EquityPod on both X and Threads. If you want more of me, I am Alex over on X. And I am very proud to say that Equity has two sister shows, Chain Reaction and Found. Chain Reaction is all things crypto and Found is deep interviews with startup founders. We'll talk to you soon. We're back on Wednesday. We are back on Friday. Bye. Equity is hosted by myself, editor in chief of TechCrunch Plus, Alex Wilhelm, and TechCrunch

• 10:19Speaker 00

  senior reporter, Mary Ann Azvedo. We are produced by Teresa Locan Solo with editing by Kel. Bryce Durbin is our illustrator. And a big thank you to the audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.