Good Morning!

I hope everyone is having a great holiday season. Mine got a whole lot merrier on Sunday when LA Rams RB Cam Akers exploded for 100 yards and 3 TDs taking me to the Fantasy Football Championship for the second consecutive year. I know you all will be losing sleep over how I do in the championship, so I will be sure to update you next week! 

I am excited to share some of my predictions for 2023 below as well as The Crossover's best 5 memes of the year. I spent way too much time going through past newsletters to find the best ones, but I had a blast in the process and am very happy with how the rankings played out. 

Showtime!

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PREDICTIONS

Introduction

“Nobody knows anything.”

-William Goldman

This is one of my favorite quotes, and I think about it all the time. Whenever I hear someone speak with 100% conviction on something without seeing any possible downsides, I am skeptical. The future is uncertain in every way, no one knows anything, and that is part of what makes life fun and exciting. 

I personally like my roomates version of the quote from above too: 

“Nobody knows anything except those that know THAT.” 

-Alan’s Roomate

And yes. You have to emphasize THAT!

The lesson from my roommate’s angle on the quote is that there is an advantage to knowing that no one knows the future and this can provide unique  opportunities. 

I like it. 

And now after hedging my bets and sharing that I am in fact human and have no idea of what the future holds, here are some of my predictions for 2023.

Predictions

1. ChatGPT will not be a massive disrupter and change the world

ChatGPT is cool, fun, and will likely be an incredible resource to high school students not looking to write papers and husbands that need help with writing anniversary cards. However, I do not think that ChatGPT will be the next Google or anything close to it.

In a few years from now the capabilities and power of ChatGPT could be at a whole other level and the conversation might be different, but for 2023, I do not think it is ChatGPT's year. 

In general, there is a ton of excitement around the AI space as a whole currently. The technology and potential applications are off the charts.

What I do not like about it?

How it is being viewed as the greatest thing since sliced bread. The world of tech/venture is so fun as something becomes the biggest thing for a few months and then fades away. There will be incredible companies that come from AI and it definitely deserves hype, but the current energy around it reminds me of the way crypto was talked about not too long ago.  In the words of Marc Andreesen, artificial intelligence feels like “the current thing.” 

2. A TikTok ban in the US picks up steam, but doesn’t ultimately happen

A year is a long time, and I could defiantly see TikTok being banned, but I will not go that far to say that it will. The national security fears around TikTok will continue to heat up and the stories around the potential of YouTube Shorts and Instagram Reels becoming the new leader will be everywhere. 

However, I do not think that it is ultimately banned, but rather TikTok will be forced to create a separate US entity that is removed from China. 

Why won't it fully be banned? Just imagine the heat that some of these politicians would not only get from their constituents, but their own children! 

3.  2023 will be a rough year in the S&P 500, but we will end the year with strength setting up for serious optimism going into 2024

Remember the quote that we kicked off the newsletter with about no one knowing anything? Well, everyone is convinced that there will be a serious recession in 2023 - which makes me skeptical because no one knows anything.

At the same time, I personally do agree that there will be a pretty serious recession in 2023. However, I do need to drop a little Alan's Angle in there and have a semi-unique take. Therefore, I say 2023 will end with a bang as the Fed's aggressiveness comes to an end and a return to a predictable, healthier macro environment is in sight.

Buckle up because 2023 in the markets can get crazy. 

4. "Non-Sexy" VC will crush it

A lot of the mainstream unicorn venture backed companies will likely have a very difficult year with valuations coming down and other earlier stage companies needing to close up shop. I think consensus opinion on this one is spot on. 

At the same time, I do think that there will be areas of venture that will crush it in 2023. I am specifically looking at B2B SaaS companies that operate in massive legacy business areas that are just not as sexy.

Specifically, I am really excited about some B2B SaaS companies in the restaurant industry as well as some areas in Proptech too. 

5. Penn Entertainment will outperform the S&P 500 in 2023

I really like Penn Entertainment. The mixture of their land based casinos, their tech stack, and power of having Barstool 100% fully owned is big time. Interestingly, I am not predicting big time beats from a financial perspective or a particularly good year for Barstool - both of which I view as unlikely due to the difficult macro environment.

Why am I anticipating a big year for Penn? 

Share buybacks. 

CEO Jay Snowden could not be more serious about supporting the stock price, represented by yet another $750M share buy back. With a market cap of less than $4.5B, $750M around 16% of shares outstanding. Beast. 

After completing another $750M share buy back earlier this year, Penn's shares are disappearing at an incredibly fast rate. I love it. 

6.  Just like Netflix, HBO Max, and Disney+, Paramount+ will be a must own streaming service 

What would a 2023 predictions section be for The Crossover if there was not a Paramount prediction involved. Well, not a Crossover prediction section!

Paramount+ has been on a tear and was by far the fastest growing streaming service in 2022 (helped by being a late addition to the streaming party!) sitting at 46 million global subs at the end of Q3. 

Paramount+ approach is differentiated and working. Phenomenal Paramount Pictures titles like Top Gun Maverick, Smile, and The Lost City, live sports like NFL, NCAA, and UEFA, top Paramount family shows Star Trek, Ru Paul’s Drag Show, and all the CBS hits, and of course the Sheridan universe with 1883, 1923 (which I am obsessed with), and Tulsa King, there is a lot to love. 

There is a whole lot more coming in ‘23 including new seasons of the shows mentioned above, the continuation of the Criminal Minds reboot, Teen Wolf, TV show inspired by Grease, Fatal Attraction reboot, Transformers, Sonic, and other franchise level big time hits. 

Content is king and Paramount is on fire. While many will still question the profitability capabilities around streaming, what will become clear in 2023 is that Paramount+ is a serious streaming contender.

7. The pain for Queen Cathie and ARK continues

I think Cathie Wood is incredible. What she has built with ARK is so impressive and her focus on disruptive innovation is top notch. However, I humbly think that there are a couple things that she is missing that I have learned through my investment in Invitae (also an ARK pick). 

Cathie could not be more right that many of the companies that she is invested in today are creating the cutting edge technology of tomorrow, but I am nervous about their cash burn. If companies cannot fuel their growth, they will not be able to build the great technology and reap the profits that investors had envisioned. 

I am still confident that Invitae would have been the Amazon of genomics if they were able to control their cash burn or keep raising equity in a low interest rate environment, however, we live in a new world where profitability is king and capital is more expensive. Invitae is now a shell of the company that all investors had imagined and will not see either the profit or scientific advancement and development that had been promised. 

I am concerned that several of other Cathie companies can suffer similar fates to Invitae, hence my prediction above. 

8.  There will be a significant amount of M&A in 2023 – including Roku, Invitae, Talkspace, C3 AI, and Nutanix just to name a few

The prediction regarding significant M&A is almost a gimme, but rather calling out specific names is the risky part here! Here are some names I am keeping an eye on for some 2023 M&A

• Roku – ad market will continue to be tough and at the prices the stock will be trading at, an attempted acquisition by a bigger media player is a slam dunk
• Invitae – cash burn comes down significantly and a bigger genomics/biotech company takes them out 
• Talkspace – stock shows minimal upside and investors get impatient with trajectory of business and management finally gives in to sell company 
• C3 AI & Nutanix – B2B Saas companies scooped up by Private Equity 

9. The Crossover Portfolio will stick closer to its principles

I am still relatively young when it comes to people in the investing profession and learning a lot every day. I also have lived/living through my first true bear market - which I am incredibly grateful for. I feel that these times will make me a significantly better investor in the long run.

Even though looking at the performance of the portfolio to date hurts, I am not going to start a new one or anything like that. The bad decisions and mistakes are part of the journey and what is building a strong foundation for hopefully a successful long term career in the space. 

The portfolio is down 20%+ since inception, and I take that right on the chin (special shoutout to FIGS for making this serious dip a reality.) In all seriousness, I am grateful to have taken some big L’s this year as it has forced me to become more disciplined, critical, and double down on my investment principles. 

Share buybacks, free cash flow, and long time horizons are my best friends and in 2023 I look forward to continuing to ensure that The Crossover Portfolio buys and holds only the best companies at the best valuations. 

Also, I don’t want any short term moves/trading like I got into at different points throughout the year. It is not within my principles and not what I know. Whether it is a Manchester United investment that I crushed or an Express Clothing one that I didn’t, being a short term guy trying to make a quick buck isn’t my MO. 

10. The Crossover will reach 10,000 newsletter subscribers

I have some big things in store for 2023, and I have set the goal of hitting 10,000 subscribers by the end of the year. How will we do it? You will see in a couple months, but what I can tell you is that I think you will be very very happy!

Thank you all so much for the support this year, and I can’t wait to continue to grow with you. Happy New Year!

-Alan

BEST EDITIONS

Across The Crossover and Just Raised, I wrote over 100 newsletters to an audience of now just around 15,000. I myself can't even believe I wrote that many, but that is the power of taking things one step at a time. 

Public x Private:

• Beyond Meat (Public) vs. Meati (Private)
  • I really loved doing these "true" Crossover pieces comparing public to private companies. I didn't include this in the prediction section, but I think that the fake meat market will continue to see a lot of pain. As times get tough, people like to go back to what they know and fake meat just isn't that
• Affirm (Public) vs. Klarna (Private)
  • This was a fun piece to write as I was able to spend some time with the great Alex Johnson and picking his brain. BNPL is wild and is another space to keep your eye on going into 2023
• WeWork (Public) vs. Landing (Private)
  • I am really bullish on remote/co-working spaces but in this piece I break down some of my concerns with WeWork from an investment perspective and an intriguing venture in Landing. 

Public: 

• Why Are the Knicks so Cheap?

  • Anytime I can spend time in the sports arena while also doing investment analysis I am a happy camper.

• Is Sportradar Under the Radar? 
  • Sportradar is an Alan special. Under the radar name with incredible management, and I feel that if you do the right DD, the trajectory of the business is clear.
•   Toast: A Compounder in the Making?
  • The more time goes on, the more bullish I am about the restaurant SaaS space. Toast is the clear leader here, however, the valuation does make me a drop nervous at times. What I do know for sure? I greatly enjoyed breaking down the company.

Private: 

• A Meeting with Mark: 
  • This newsletter was flames breaking down why older founders are often more successful than younger founders and what you can do to make up for your age if you are younger. Also, some of the quotes I dug up are really really good. 
• RocketVR:
  • I just get a feeling that Sid and Nik are onto something here and think RocketVR is set up for a big 2023. Right place. Right time. Right people. 
• Hypervolt:
  • Same logic with the Knicks piece :) 

What were some of your favorite pieces of 2022? What would you like to see more of going into 2023?

MEMES

GOLDEN NUGGETS

• Jayson Tatum missed a Celtics game to go to his son's birthday party. What a legend. 
• Looks like Babylon is totally flopping at the box offices 
• Europeans when they tell you their day is packed!
• A behind the scenes look into a day in the life of Scott Hanson of NFL Red Zone 
• This out of context soccer video is so funny

Thanks for the read! Let me know what you thought by replying back to this email.

— Alan 

Disclaimer: The Crossover is not a professional financial service. All materials released from The Crossover are for educational and entertainment purposes. The Crossover is not a replacement for a professional's opinion. Contributors to the Crossover might have positions in the equities in the The Crossover Portfolio or mentioned in the newsletter.

Written by me, Alan Soclof.

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