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Bulletins

Tech stocks are soaring amid election uncertainty

Stock charts

While many investors went into the election expecting a Blue Wave, overnight their expectation seems to have shifted toward a Biden presidency, a Republican Senate and a Democratic House.

Image: Greg Ory, Ataur Rahman and Protocol

A pandemic, a collapsing economy, and even an uncertain election result: It doesn't matter what you throw at Big Tech, it just keeps soaring.


Amid the chaos of Wednesday morning, investors poured into tech stocks. As of 10:15 a.m. EST, Apple, Amazon and Microsoft were all up more than 4%; Alphabet was up more than 5%, and Facebook more than 7%. The tech-focused Nasdaq index was up almost 4%, significantly more than the S&P 500's 2.7% gain.

While many investors went into the election expecting a Blue Wave, overnight their expectation seems to have shifted toward a Biden presidency, a Republican Senate and a Democratic House. That gridlock would mean less chance of tax hikes and difficulty in passing aggressive tech regulation, an outcome that could benefit the tech industry.

A divided Congress would also be bad news for the prospect of fiscal stimulus, and could result in a slower economic recovery. While that's terrible news for Main Street and the many businesses that rely on the physical world, it could be good news for Big Tech — as tech's performance in the past nine months has demonstrated. As Invesco's Kristina Hooper put it, a lack of stimulus means a favoring of secular growth — and "tech has been the poster child of secular growth." With Big Tech increasingly seen as a safe haven, investors may be turning to it in the hopes that it will offer protection when times are bad.

Then there's interest rates. Less fiscal stimulus and a slower recovery means the Fed will likely maintain its low interest rate policy for a very long time. As Bloomberg's Lisa Abramowicz notes, tech stocks have proven themselves to be very sensitive to rates, so the expectation of lower rates in the future is good for their stocks today.

For two stocks, though, Wednesday's boost was much simpler to explain. After Prop 22 passed, Uber and Lyft stocks skyrocketed, with investors relieved that the companies can continue operating in California without providing costly benefits to their drivers. Based on their gains Wednesday, the $200+ million they spent campaigning for the measure was well worth it.

Protocol | China

Everything you need to know about the Zhihu IPO

The Beijing-based question-and-answer site just filed for an IPO.

The Zhihu homepage.

David Wertime/Protocol

Investors eager to buy a slice of China's urban elite internet will soon have the chance. Zhihu, a Beijing-based question-and-answer site similar to the U.S.-based Quora, has just filed for an IPO to sell American Depositary Shares on the New York Stock Exchange.

What does Zhihu do?

Zhihu is China's largest online Q&A platform — the name comes from the expression "Do you know?" in classical Chinese. It was founded 10 years ago by Yuan Zhou (周源), a former journalist, and spent two years as an invite-only online platform. It quickly built a reputation as a source for quality answers and has drawn a community of elite professionals, including ZhenFund managing partner Bob Xu and venture capitalist Kai-Fu Lee, also an early investor.

Over time, the Chinese-language Zhihu has become more mainstream, and now says it hosts 315.3 million questions and answers contributed by 43.1 million "creators." (Quora, about one year older than Zhihu, had almost 61 million questions and 108 million answers by the end of 2019). The website has grown into a content platform where people also keep diaries, write fiction and blog as social media influencers.

Zhihu users do not look like China as a whole. Most than half are men, most live in "Tier 1" cities and more than three-quarters are under 30 years old.

Zhihu continues to emphasize the quality of its content. "Zhihu is also recognized as the most trustworthy online content community and widely regarded as offering the highest-quality content in China," its prospectus says.

Zhihu's financials

Zhihu registered for its IPO via the Jumpstart Our Business Startups Act, a.k.a. the JOBS Act, which has reduced disclosure requirements for companies with less than $1.07 billion in annual revenue. Zhihu's revenue doubled from 2019 to 2020, but still only reached $207.2 million, and the company is short of profitability with a 2020 net loss of $79.3 million. The company says it's "still in an early stage of monetization" with "significant runway for growth across multiple new monetization channels."

Trend lines are good. Zhihu has managed to double revenue while keeping expenses largely constant, with selling and marketing aimed at growing Zhihu's user base as the biggest single expense.

The company is trying to diversify its revenue streams. In 2019, 86.1% came from advertising. 2020 saw advertising account for 62.4% while "content-commerce" — meaning native advertising — took in 10%. The rest was mostly paid memberships.

What's next for Zhihu

After years of evincing a relaxed attitude toward monetization, Zhihu is putting itself in the hot seat to do just that. Zhihu is betting that monetizing Chinese web users will get easier over time. The prospectus describes "significant growth potential" in China's "online content community market" and says average revenue per user in China is expected to more than triple from about $55 in 2019 to about $199 in 2025, with revenue in the overall market reaching a projected $200 billion in 2025.

The company looks like it will basically try everything to monetize, and see what sticks. It plans to "ramp up our online education service" and to "continue to explore other innovative monetization channels, such as content e-commerce and IP-based monetization."

The prospectus also mentions AI frequently, touting Zhihu's AI content moderation tool wali as well as a "question routing system" and "feed recommendation and search systems." However, the depth and quality of content remains far more important to Zhihu's success. Users have joked on Zhihu about the poor quality of its wali filter.

What could go wrong?

Zhihu could fail to turn a profit. Like most content platforms, Zhihu has found it hard to monetize its traffic and the vast amount of free content at its core. The platform was built on the premise that anyone can acquire professional knowledge easily, which means users are not inclined to pay.

Since 2016, Zhihu has tried many monetization models: paid physical/virtual events, online courses taught by its top creators, premium memberships and paid consulting services. None have been a hit. Zhihu Live, the paid virtual event product, attracted a lot of public attention in 2016 and 2017, but since then its popularity has waned. According to the prospectus, Zhihu currently has 2.4 million paying members, or only 3.4% of its monthly active users.

Zhihu also faces intense competition. Defined narrowly, it has no rivals, with would-be contenders like Baidu Zhidao and Wukong, owned by ByteDance, falling by the wayside. But Zhihu has positioned itself as something more: a community for diverse content. In this regard, it's competing with big public-facing social media platforms such as the Twitter-like Weibo and Bilibili. While Zhihu's 68.5 million monthly active user base is growing fast, Weibo has over 500 million and Bilibili over 200 million. Zhihu differentiates itself with the quality and depth of its content, but maintaining that creates inevitable tension with the business imperative to expand.

Like every content platform in China, Zhihu is subject to rigid state censorship and faces harsh penalties for failing to police speech itself. Politically-sensitive questions are nowhere to be found on the platform, while other topics including transgender rights have been censored in the past. Even so, in March 2018, Zhihu was taken off every mobile app store for seven days at the request of Beijing's municipal Cyberspace Administration. Authorities did not specify why, but the suspension probably related to subtle criticisms of Xi Jinping on the platform; Zhihu promised to "make adjustments."

Zhihu's prospectus is largely mum on the censorship question, perhaps because the company feels it's gotten good enough at doing it. Zhihu says it has a "comprehensive community governance system" that combines "AI-powered content assessment algorithms" with the ability of users to report each other as well as "proprietary know-how." These resemble the same tools most big Chinese social media platforms use to censor content and keep in Beijing's good graces.

Who gets rich?

Here's what we know:

  • Founder, CEO and Chairman Yuan Zhou currently owns 8.2% of Zhihu, with another 8% worth of options, which he can exercise within 60 days of the IPO, held in a separate holding company controlled by a trust of which he is the beneficiary. Following exercise, Zhou will have the vast majority of aggregate voting power.
  • Innovation Works, beneficially owned by Peter Liu and Kai-Fu Lee, owns 13.1% of Zhihu. According to corporate database Qichacha, Innovation Works invested about $153,000 in an angel round in January 2011, then made follow-on investments in the C and D rounds.
  • Tencent owns 12.3%.
  • Qiming Entities owns 11.3%. According to corporate database Qichacha, Qiming invested $1 million in Zhihu's series A, then made follow-on investments in the B, C and D rounds.

Kuaishou, Baidu and Sogou also own stakes, as does SAIF IV Mobile Apps Limited.

Innovation Works' Kai-Fu Lee and Peter Liu, and Qiming Ventures, both of which invested early and often, look like the biggest winners besides founder Zhou.

What people are saying

"Zhihu, if it ever wants to be a truly massive platform, will need to go out of the hardcore knowledge-sharing space, and become more mainstream, more entertaining, and yes, even less intellectual. But to capture that market, who better to partner with than Kuaishou, who built its business on exactly those characteristics?" —Ying-Ying Lu, co-host of Tech Buzz China.

"After separating video content into its own feed, Zhihu is now in competition with Bilibili and [ByteDance-owned] Xigua Video. Education-themed videos used to be one of the important growth drivers for the latter two apps. Now [Zhihu], the app that specialized in educational content, has joined the game." —Lan Xi (pen name), independent tech writer.

David Wertime

David Wertime is Protocol's executive director. David is a widely cited China expert with twenty years' experience who has served as a Peace Corps Volunteer in China, founded and sold a media company, and worked in senior positions within multiple newsrooms. He also hosts POLITICO's China Watcher newsletter. After four years working on international deals for top law firms in New York and Hong Kong, David co-founded Tea Leaf Nation, a website that tracked Chinese social media, later selling it to the Washington Post Company. David then served as Senior Editor for China at Foreign Policy magazine, where he launched the first Chinese-language articles in the publication's history. Thereafter, he was Entrepreneur in Residence at the Lenfest Institute for Journalism, which owns the Philadelphia Inquirer. In 2019, David joined Protocol's parent company and in 2020, launched POLITICO's widely-read China Watcher. David is a Senior Fellow at the Foreign Policy Research Institute, a Research Associate at the University of Pennsylvania's Center for the Study of Contemporary China, a Member of the National Committee on U.S.-China Relations, and a Truman National Security fellow. He lives in San Francisco with his wife Diane and his puppy, Luna.

Sponsored Content

The future of computing at the edge: an interview with Intel’s Tom Lantzsch

An interview with Tom Lantzsch, SVP and GM, Internet of Things Group at Intel

An interview with Tom Lantzsch

Senior Vice President and General Manager of the Internet of Things Group (IoT) at Intel Corporation

Edge computing had been on the rise in the last 18 months – and accelerated amid the need for new applications to solve challenges created by the Covid-19 pandemic. Tom Lantzsch, Senior Vice President and General Manager of the Internet of Things Group (IoT) at Intel Corp., thinks there are more innovations to come – and wants technology leaders to think equally about data and the algorithms as critical differentiators.

In his role at Intel, Lantzsch leads the worldwide group of solutions architects across IoT market segments, including retail, banking, hospitality, education, industrial, transportation, smart cities and healthcare. And he's seen first-hand how artificial intelligence run at the edge can have a big impact on customers' success.

Protocol sat down with Lantzsch to talk about the challenges faced by companies seeking to move from the cloud to the edge; some of the surprising ways that Intel has found to help customers and the next big breakthrough in this space.

What are the biggest trends you are seeing with edge computing and IoT?

A few years ago, there was a notion that the edge was going to be a simplistic model, where we were going to have everything connected up into the cloud and all the compute was going to happen in the cloud. At Intel, we had a bit of a contrarian view. We thought much of the interesting compute was going to happen closer to where data was created. And we believed, at that time, that camera technology was going to be the driving force – that just the sheer amount of content that was created would be overwhelming to ship to the cloud – so we'd have to do compute at the edge. A few years later – that hypothesis is in action and we're seeing edge compute happen in a big way.

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Saul Hudson
Saul Hudson has a deep knowledge of creating brand voice identity, especially in understanding and targeting messages in cutting-edge technologies. He enjoys commissioning, editing, writing, and business development, in helping companies to build passionate audiences and accelerate their growth. Hudson has reported from more than 30 countries, from war zones to boardrooms to presidential palaces. He has led multinational, multi-lingual teams and managed operations for hundreds of journalists. Hudson is a Managing Partner at Angle42, a strategic communications consultancy.
Protocol | Policy

Google says it’s fighting election lies, but its ads fund them

A new report finds that more than 1,600 brands, from Disney to Procter & Gamble, have advertisements running on sites that push pro-Trump conspiracy theories. The majority of those ads are served by Google.

Google is the most dominant player in programmatic advertising, but it has a spotty record enforcing rules for publishers.

Photo: Alex Tai/Getty Images

Shortly after November's presidential election, a story appeared on the website of far-right personality Charlie Kirk, claiming that 10,000 dead people had returned mail-in ballots in Michigan. But after publishing, a correction appeared at the top of the story, completely debunking the misleading headline, which remains, months later, unchanged.

"We are not aware of a single confirmed case showing that a ballot was actually cast on behalf of a deceased individual," the correction, which quoted Michigan election officials, read.

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Issie Lapowsky
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
Transforming 2021

Blockchain, QR codes and your phone: the race to build vaccine passports

Digital verification systems could give people the freedom to work and travel. Here's how they could actually happen.

One day, you might not need to carry that physical passport around, either.

Photo: CommonPass

There will come a time, hopefully in the near future, when you'll feel comfortable getting on a plane again. You might even stop at the lounge at the airport, head to the regional office when you land and maybe even see a concert that evening. This seemingly distant reality will depend upon vaccine rollouts continuing on schedule, an open-sourced digital verification system and, amazingly, the blockchain.

Several countries around the world have begun to prepare for what comes after vaccinations. Swaths of the population will be vaccinated before others, but that hasn't stopped industries decimated by the pandemic from pioneering ways to get some people back to work and play. One of the most promising efforts is the idea of a "vaccine passport," which would allow individuals to show proof that they've been vaccinated against COVID-19 in a way that could be verified by businesses to allow them to travel, work or relax in public without a great fear of spreading the virus.

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Mike Murphy

Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.

Politics

Trump got all he needed from Twitter. Now, he still has all the power.

President Trump used Twitter to become the most powerful man in the world. Now, that power is his to keep.

Trump became the most powerful man in the world thanks to Twitter. Now that he's banned, he'll take that power with him.

Photo: Joshua Hoehne/Unsplash

On Friday night, Twitter announced that it was forever banning President Trump from the digital podium where he conducted his presidency and where, for more than a decade, he built an alternate reality where what he said was always the truth.

There are moral arguments for not doing business with the guy who provoked a violent mob to invade the U.S. Capitol, leaving several people dead. There have been moral arguments for years for not doing business with the guy who spent most of his early mornings and late nights filling the site with a relentless stream of pithy, all-caps conspiracy theories about everything from Barack Obama's birthplace to the 2020 election. There are also moral arguments against tech companies muzzling the president of the United States at all.

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Issie Lapowsky
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
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