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0:01:49 Today’s number, 243,000.
0:01:51 That’s about how many views Jaguar’s commercial
0:01:55 for its rebranded logo got in 24 hours on YouTube.
0:01:59 I was trying to find a joke that would bring together
0:02:01 necrophilia, bestiality, and masturbation,
0:02:02 but at this point,
0:02:05 it just feels like I’d be beating a dead horse.
0:02:19 That’s why the people come here, Ed.
0:02:21 What’s going on today?
0:02:23 We’re discussing an earnings crisis at Target.
0:02:26 Why Comcast is shedding its cable business.
0:02:27 Good bank, bad bank.
0:02:29 – First off, did you see the new Jaguar logo?
0:02:30 – Jaguar, listen to you.
0:02:32 Listen to you little saucy bitch.
0:02:34 You were just dying to say Jaguar.
0:02:35 – No, I wasn’t.
0:02:36 That’s how I say it,
0:02:37 because I’m from a different country.
0:02:38 – If you ask for another raise,
0:02:40 we’ll find you dead in the boot.
0:02:44 I just made that up, it was pretty good.
0:02:46 Have I seen, I’m sorry, have I seen what?
0:02:48 – Have you seen Jaguar’s?
0:02:50 That’s how it’s pronounced.
0:02:51 Have you seen their new logo?
0:02:53 – No, but they pasted it on our producers,
0:02:54 pasted it in.
0:02:55 – Okay, so please check it out,
0:02:57 because everyone’s talking about this
0:02:59 and you are the marketing professor.
0:03:00 We need your reaction.
0:03:03 – Oh no, this is the new logo?
0:03:06 No, no, no, no, no, no, no, no, no, no, no, no, no, no.
0:03:08 Come on, hold on.
0:03:11 I actually use this logo in my class.
0:03:13 Look at this thing, he’s out, he’s hunting,
0:03:17 he’s bringing home the prey for his wife and his kids.
0:03:22 He’s elegant, he’s sleek, he’s a jungle cat, Jaguar.
0:03:24 And then they go to this fucking thing
0:03:26 that looks like it was created by AI.
0:03:30 We can process images 50 to 60 times faster than words.
0:03:32 So this is going against our instincts
0:03:33 as it relates to marketing.
0:03:36 If you are blessed with a logo,
0:03:37 like they used to have,
0:03:40 that visual metaphor of that incredibly strong,
0:03:42 yet elegant, yet powerful,
0:03:46 Jaguar’s are the only animal that when hunted,
0:03:48 this is a true story,
0:03:50 the only animal that when hunted,
0:03:51 will perceive they’re being hunted
0:03:56 and then sprint, circle around, and then hunt the hunter.
0:03:58 You wanna talk about snatching defeat
0:03:59 from the jaws of victory?
0:04:01 That is one of the greatest visual metaphors
0:04:02 in automobile history.
0:04:05 And instead they went to this fucking
0:04:07 Westworld dystopic, weird.
0:04:08 – It’s awful.
0:04:09 – Terrible decision.
0:04:13 – So what do you think happened in the Jaguar boardroom?
0:04:15 Why do you think they signed off on this?
0:04:17 What do you think is the strategy here?
0:04:21 Like, everyone agrees this is the worst rebrand of all time.
0:04:23 Why do you think they went ahead with it?
0:04:24 – Because they spent a lot of money
0:04:26 in a design agency that’s populated
0:04:28 with very good looking young people who wear black,
0:04:30 who seem to understand more about design
0:04:32 and they came in and used a bunch of fancy terms
0:04:35 like elegant and progressive.
0:04:36 And this is more for a modern age.
0:04:39 We need to update it and you need to pay us $30 million
0:04:42 to redesign all the logos outside the conference rooms
0:04:44 and all the shit and all the dealerships.
0:04:46 By the way, I had just a quick tip
0:04:48 when you’re shopping for a car,
0:04:51 don’t eat the clam chowder at the Lexus September
0:04:52 to Remember event.
0:04:56 – I would love, but I’ve heard this joke already.
0:04:57 – It never gets old.
0:04:59 You gotta recycle the good stuff.
0:05:01 You gotta recycle the good stuff.
0:05:02 – Well, I guess I did laugh anyway, so.
0:05:04 – I can tell you, I know what happened here
0:05:05 without knowing what happened.
0:05:08 It’s a new CMO who’s decided to put his or her
0:05:10 footprint or imprint on the company
0:05:12 and it’s convinced them they needed a new fucking logo
0:05:16 because actual work around things like customer acquisition
0:05:18 and figuring out digital platforms, you know,
0:05:21 that’s real work instead I hire interbrand
0:05:24 or my old firm profit to come in
0:05:26 and have very compelling, very articulate,
0:05:29 very attractive people tell you why this logo
0:05:31 connotes something that fits to a modern age.
0:05:33 This is a stupid fucking decision.
0:05:36 This is the equivalent of putting shareholder money
0:05:40 in the middle of the road and running over it
0:05:43 in an XJS, was it the XJS or the XJR?
0:05:46 – Just my one little comment on the Jaguar thing.
0:05:49 Their new tagline is copy nothing.
0:05:51 Like this is sort of their bold rebrand
0:05:53 and they keep on saying, you know, copy nothing.
0:05:54 This is the only thing.
0:05:56 But I look at that logo and it’s like,
0:06:00 you copied every single tech startup
0:06:02 that we’ve seen over the past like five to 10 years.
0:06:05 Like this literally is just like classic,
0:06:08 dystopian, metaverse type 2D font
0:06:10 where it’s all spaced out and clean looking.
0:06:12 Like it’s just, it looks like a tech company.
0:06:15 – This is the final nail in the coffin of British culture.
0:06:17 – Yeah, good point.
0:06:19 – When Americans obsession, fetish,
0:06:23 masturbatory, fantasies of AI, bastard.
0:06:24 I’m shocked they don’t have,
0:06:26 I’m shocked it’s not jaguar.ai
0:06:29 and they’re trying to pretend to be a tech company.
0:06:32 But this is a scent.
0:06:35 Look at how beautiful their old logo is.
0:06:38 I wanna be that guy out in the jungle.
0:06:39 Just sleek and strong.
0:06:41 Don’t fuck with me.
0:06:42 Don’t fuck with me.
0:06:46 Oh God, that shit is, that shit is money.
0:06:49 The next like, if I see a super attractive Gara Gallat F1,
0:06:52 I’m gonna come up after a few cocktails,
0:06:53 a lot of cocktails and I’m gonna be like,
0:07:01 dude that’s how you lose your virginity at 19, boom.
0:07:03 – And that’s how we open the show.
0:07:06 Let’s start with our weekly review of market vitals.
0:07:08 (upbeat music)
0:07:11 (upbeat music)
0:07:15 The S&P 500 was volatile, the dollar climbed.
0:07:18 Bitcoin hit a fresh record above $98,000.
0:07:22 I wouldn’t be surprised if it hits 100 by the time this airs
0:07:25 and the yield on 10 year treasuries slumped.
0:07:26 Shifting to the headlines.
0:07:29 The Justice Department proposed a forced sale of Chrome
0:07:31 as a potential remedy in the Google antitrust case.
0:07:33 The browser, which has approximately
0:07:35 three billion monthly active users
0:07:38 could be valued at up to $20 billion.
0:07:42 MicroStrategy sold $2.6 billion worth of convertible bonds
0:07:45 to fund its Bitcoin buying spree.
0:07:47 The business intelligence firm already owns
0:07:49 nearly $31 billion worth of the cryptocurrency
0:07:52 and plans to buy more over the next three years.
0:07:54 The stock rose to a record high after the sale
0:07:57 and it’s up more than six fold year to date.
0:07:59 And finally, Nvidia’s third quarter earnings
0:08:01 beat analyst expectations with revenue
0:08:06 topping $35 billion, that is up 94% from a year earlier.
0:08:09 The company also projected revenue for the current quarter
0:08:12 will jump to $37.5 billion.
0:08:14 While that forecast was slightly above
0:08:17 analysts expectations, the stock still fell
0:08:18 more than 2% after hours.
0:08:21 Scott, your thoughts, starting with the DOJ’s
0:08:24 proposed forced sale of Google Chrome.
0:08:25 – Look, I love this.
0:08:27 If you go back in economic history,
0:08:30 it would be very difficult to find an instance
0:08:33 where the breakup was not good for the economy,
0:08:37 was not good for the tax base, was not good for shareholders,
0:08:39 was not good for the employees who now have more companies
0:08:41 bidding to rent their labor.
0:08:45 The only stakeholder that loses in a breakup
0:08:47 throughout economic history is the individual
0:08:49 who wants to sit on the iron throne of all realms,
0:08:51 not just Westeros.
0:08:53 I mean, search is essentially,
0:08:55 I think it’s the biggest gross margin dollar business
0:08:58 in the world and there’s one company that dominates it.
0:09:02 And if you gave, if you took away the data set
0:09:05 in the interface of two thirds or three and a half
0:09:10 million people who use Chrome and it was now a competitor
0:09:12 that could offer data and opportunities
0:09:14 for other potential search engines,
0:09:16 I think that would be good for everybody.
0:09:17 I mean, who knows?
0:09:20 Someone might come up with a search engine
0:09:22 that is not trying to target young people
0:09:24 or that screens out misinformation
0:09:28 or doesn’t bring sunlight to conspiracy theory
0:09:30 greater than its organic reach.
0:09:33 I had a really interesting conversation with Eric Schmidt
0:09:35 or we did, I don’t know if it’s on this pot
0:09:38 or one of my other 45 Joey Bagadona’s podcasts.
0:09:39 I was not there for it.
0:09:40 There you go.
0:09:42 Well, actually, you know, it’s funny,
0:09:43 you did an outstanding job.
0:09:45 (laughing)
0:09:47 Anyways, but Eric, the former CEO,
0:09:49 not of Alphabet, but of Google,
0:09:51 he said something really that really struck me.
0:09:53 He said that individuals should have
0:09:55 almost limitless free speech,
0:09:59 but computers should not have free speech.
0:10:01 And that really struck me as an elegant way
0:10:02 to approach the problem.
0:10:05 Because when I look at the majority of really vile shit
0:10:07 that’s trying to polarize people
0:10:09 or spread conspiracy theory,
0:10:10 whenever I’ve kind of clicked on it
0:10:13 and tried to figure out who this person is,
0:10:14 I find out it’s not a person.
0:10:18 It’s clearly a bot that’s used and being used
0:10:20 to amplify either conspiracy theory
0:10:23 or a certain ideology or simply put,
0:10:25 it’s a bad actor trying to get a shitposting
0:10:28 each other and arguing with each other.
0:10:30 So more competition,
0:10:31 you might find people say,
0:10:34 “Well, I want a family safe search company.
0:10:36 “I want a search company that doesn’t have,
0:10:39 “doesn’t add supported such that it takes you
0:10:41 “to the best answer, not to the answer
0:10:43 “they can further monetize.”
0:10:45 – Well, I’m gonna disagree with you on your take here.
0:10:48 I think you’ve brought up a lot of important issues,
0:10:51 but they’re all kind of disparate issues
0:10:52 that you’re talking about here.
0:10:53 Like there’s the monopoly issue,
0:10:56 and then there’s, you know, the free speech issue,
0:10:57 and there’s the conspiracies issue.
0:11:00 Like there are just all these things that we dislike
0:11:03 about big tech and about Google.
0:11:05 But I mean, let’s just focus on
0:11:08 what did Google actually do wrong here?
0:11:10 And if you read through the judge’s case,
0:11:13 the big thing that the judge identified
0:11:15 was the fact that Google was paying billions of dollars
0:11:18 to other companies, particularly Apple,
0:11:21 to be the default search engine on those devices.
0:11:23 There’s a very easy way to address that.
0:11:25 And that’s just break up their relationship with Apple.
0:11:28 Just tell them you’re not allowed to keep paying Apple
0:11:30 to be your default browser.
0:11:32 And now that is something that DOJ
0:11:35 is supposedly going to recommend as a remedy.
0:11:39 But to add on top of that, the forced sale of this asset
0:11:44 that is in many ways integral to Google’s business,
0:11:45 it just doesn’t feel like a remedy.
0:11:47 To me, it feels more like a punishment.
0:11:51 And in my view, if you’re gonna focus on punishing Google,
0:11:52 I personally think punishments
0:11:54 should come in the form of fines.
0:11:57 But the idea of forcing them to sell Chrome,
0:11:59 which would just dramatically transform
0:12:01 one of the most important businesses in America,
0:12:03 the online search market,
0:12:06 that to me just feels like a step too far from government.
0:12:07 – I just had this horrific image
0:12:10 that I finally get the call from the White House
0:12:12 asking me to be Secretary of Education
0:12:14 or Commerce Secretary.
0:12:15 And the call’s actually for you
0:12:17 and they’re just trying to get your name.
0:12:19 I think that’s a really solid take.
0:12:24 I would argue though that the data around traffic patterns
0:12:27 and behavior captured on the front end
0:12:31 of the true access point to the digital world
0:12:33 is the browser.
0:12:35 And so the amount of data they get
0:12:37 around where people are going, their trends,
0:12:40 that they can then feed into their search algorithms
0:12:42 to better provide better targeting
0:12:45 for clients who advertise on Google.
0:12:47 I would think that gives them almost an unassailable
0:12:52 advantage that results in a 90 plus percent share of search.
0:12:53 – It’s huge.
0:12:56 But it’s also why the product is so good, right?
0:12:58 I mean, the data is all part of the business.
0:13:01 – What you don’t realize with a monopoly
0:13:02 is you don’t know what you’re missing.
0:13:04 So for example, do you think Google search
0:13:06 has really innovated in the last decade?
0:13:07 – No.
0:13:10 – All of the innovation has been how to turn advertisers
0:13:12 up by their heels and shake more money from them.
0:13:14 It hasn’t been around consumer innovation.
0:13:18 So I would push back and say the monopoly power here,
0:13:21 we don’t know the innovation we’re missing.
0:13:24 I just don’t buy it as a means to breaking them up.
0:13:27 And my reaction would be that this won’t hold off in court.
0:13:29 But I agree with you that, you know,
0:13:31 perhaps the world would be a better place
0:13:32 if Google were broken up.
0:13:34 So we move on to MicroStrategy,
0:13:37 which is absolutely tearing right now.
0:13:41 And you’re actually friends with the founder and CEO,
0:13:44 Michael Saylor, who’s been on this podcast before.
0:13:46 What are your initial reactions to MicroStrategy,
0:13:50 which is performing even better than Bitcoin right now somehow?
0:13:53 – So I’ve known Michael for the better part of 20 years.
0:13:55 The guy’s like crazy fucking smart.
0:13:56 And every time I meet with him,
0:13:59 I think I really should buy MicroStrategy stock or Bitcoin.
0:14:02 And I have bought none of either.
0:14:05 And so I want to find a time machine, go back,
0:14:07 find me, kill me and then kill myself.
0:14:10 I mean, I knew this guy was so bright,
0:14:13 but the thing that got in the way for me was,
0:14:15 you know, I’m an old dog, I believe in corporate governance.
0:14:18 And the idea of a CEO taking a publicly traded company
0:14:20 that does business intelligence
0:14:24 and borrowing, levering up like crazy to buy another.
0:14:26 It would be like Tim Cook saying,
0:14:28 I just believe in gold.
0:14:31 And I’m going to put $100 billion in debt on this company
0:14:33 and go buy, become the largest single owner
0:14:34 of gold in the world.
0:14:39 And it just felt so strange to me,
0:14:40 but there’s just no getting around it.
0:14:43 The guy is a fucking visionary.
0:14:46 When I had him on the pod two, three years ago,
0:14:50 Bitcoin was at 18,000 and it had spiked from 5,000.
0:14:51 I’m like, gonna go wait till it goes down to five again.
0:14:53 He’s like, trust me on this, just buy a little bit.
0:14:57 This thing is bulletproof over the long term.
0:14:59 You know, that’s up, what, five-fold since then?
0:15:00 And what is MicroStrategy?
0:15:01 Since then, I’m not sure.
0:15:04 It’s up six-fold in the past year.
0:15:07 It’s up by 123% in the last 30 days.
0:15:09 And because he takes debt,
0:15:12 it’s basically MicroStrategy has become
0:15:14 a levered bet on Bitcoin.
0:15:18 It’s like buying an ETF on China that’s 3x, it’s levered up.
0:15:20 So look, there’s just no getting around it.
0:15:23 Even crypto skeptics like myself have to acknowledge
0:15:25 that I believe that Bitcoin
0:15:29 has become a credible, tangible store value.
0:15:31 You know, it’s a speculative asset, no doubt about it,
0:15:35 but Michael is, you know, from an IQ standpoint,
0:15:39 he’s flying at a different altitude and he saw this.
0:15:42 And my gosh, you wanna talk about balls
0:15:45 the size of really big balls?
0:15:50 I mean, this guy basically said,
0:15:52 business intelligence, missionless intelligence,
0:15:55 we’re levering up and we’re buying Bitcoin.
0:15:57 – I think the question a lot of people are asking is like,
0:16:01 why is MicroStrategy up so much more than Bitcoin?
0:16:03 I think part of it is what you said,
0:16:07 which is this is like a levered up Bitcoin play
0:16:08 because they’re borrowing money
0:16:10 and then using that money to buy more Bitcoin.
0:16:12 So it’s just gonna be a more volatile version
0:16:14 of Bitcoin right now.
0:16:17 But I think there is a second story here,
0:16:19 a second reason why people are so obsessed
0:16:21 with MicroStrategy right now.
0:16:25 And that is the Bitcoin holdings are worth a quarter
0:16:27 of the company’s entire market cap.
0:16:28 And they don’t have cash,
0:16:30 which is why they’re borrowing money
0:16:32 to just go buy more Bitcoin.
0:16:34 And if you look at their earnings reports,
0:16:38 they now identify not as a business intelligence firm,
0:16:40 which is what this company has always been,
0:16:44 they call themselves a quote Bitcoin treasury company.
0:16:47 And that is the through line of the entire earnings report.
0:16:50 It’s like, here’s our plan to buy more Bitcoin.
0:16:54 Here’s our plan to build out a Bitcoin ID network.
0:16:56 Here are the list of conferences,
0:16:58 these Bitcoin conferences that we will be hosting
0:16:59 and attending.
0:17:03 Meanwhile, the actual business, the way they make money
0:17:04 is practically treated like a footnote.
0:17:07 Like it doesn’t seem to matter that much to them.
0:17:10 So when I look at what’s happening here,
0:17:11 I think there are two people buying this stock.
0:17:14 It’s one, the people making the lever play,
0:17:17 but then it’s two, the people who believe that,
0:17:20 you know, if Bitcoin is the future,
0:17:23 MicroStrategy is the leader of that future.
0:17:26 This is gonna be the official Bitcoin company.
0:17:29 They believe that MicroStrategy is somehow
0:17:31 gonna pioneer this new space.
0:17:34 My only question would be in what way
0:17:35 will they pioneer the Bitcoin space?
0:17:38 What does that actually look like?
0:17:39 It’s not very clear to me.
0:17:42 The strategy is very vague, it’s very hand-wavy,
0:17:44 which is why personally, I don’t really buy it.
0:17:48 – If I had been on his board five years ago
0:17:50 and he said, “We’re levering up to buy Bitcoin.”
0:17:52 – You would have been a nightmare.
0:17:54 – I know, very simple.
0:17:55 I would have either been kicked off the board
0:17:56 or I would have resigned
0:17:59 because everything I know about corporate governance,
0:18:01 I would have said, “Michael, you’re a billionaire.
0:18:03 “If you wanna sell your stock
0:18:06 “and go start a Bitcoin company, have at it.
0:18:10 “But don’t take your fiduciary for our shareholders.
0:18:11 “They think they’re investing
0:18:14 “in a business intelligence company.”
0:18:15 And I would have been wrong.
0:18:18 His shareholders have done extraordinarily well.
0:18:19 – We’ll see, we’ll see.
0:18:22 I’m still with you on that take.
0:18:26 I think this could end very badly personally.
0:18:29 And by the way, our producer is messaging me,
0:18:31 “Sitron research just shorted the stock
0:18:33 “and the shares are off around 9%
0:18:34 “as we are speaking right now.
0:18:36 “So clearly I am not the only one
0:18:38 “who’s skeptical about this company.”
0:18:39 – I’m with you.
0:18:44 And the things I don’t like about Bitcoin are,
0:18:45 I actually believe in transparency.
0:18:48 And I understand that people feel like they should have
0:18:50 privacy as it relates to their money.
0:18:55 But this asset class has been used
0:18:57 in some pretty frightening ways.
0:19:01 And maybe you could argue that’s the government’s job
0:19:02 and people have a right to privacy.
0:19:05 And this is a longer conversation,
0:19:08 but the reality is he’s winning.
0:19:10 And they’re just not getting around it.
0:19:12 The guy is a visionary.
0:19:14 I keep waiting for it to come down
0:19:15 so I can buy a little bit of Bitcoin,
0:19:17 but it’s not cooperating with me.
0:19:19 And then every time I see it go up every day,
0:19:21 I’m like, “Oh, Jesus, here we go.”
0:19:23 – It’s gonna be a big day when ProfG finally buys
0:19:24 some Bitcoin.
0:19:25 We’re gonna have to have a celebration.
0:19:27 – Yeah, that means sell everything.
0:19:29 – Yeah, exactly.
0:19:31 Let’s just quickly move on to Nvidia here.
0:19:33 I personally don’t have much to say about these earnings
0:19:36 ’cause it’s kind of the same story we’ve seen,
0:19:39 quarter after quarter, I mean, revenue doubled,
0:19:42 profits grew, estimates were beat,
0:19:47 and then the stock kind of stumbled but then hummed along.
0:19:49 And this is what we’ve come to expect.
0:19:51 I mean, every single quarter,
0:19:55 Nvidia just absolutely destroys and the market says,
0:19:57 “Okay, that’s sort of what we expected.”
0:20:00 The only thing that I would say that struck me,
0:20:02 and this is more of a media observation
0:20:05 than an investing observation,
0:20:08 is that last night before the earnings,
0:20:10 I was just thinking,
0:20:12 it actually doesn’t matter what happens
0:20:13 in this earnings report
0:20:16 because you and I are gonna cover this either way
0:20:20 because this company is just so important at this point.
0:20:23 It makes up 7% of the entire S&P.
0:20:27 It’s in practically every American’s retirement account.
0:20:30 It’s just gotten to this point where it’s like,
0:20:31 it’s systemic to everything.
0:20:32 You can’t ignore it.
0:20:35 It has to be covered whether or not it’s interesting.
0:20:36 And then I think the thing,
0:20:39 Jensen Huang that really summed it up on the earnings call,
0:20:41 he said, quote, “Every company in the world
0:20:44 “seems to be involved in our supply chain.”
0:20:45 And I think he’s right.
0:20:49 This is just, the world relies on Nvidia
0:20:50 in so many ways at this point.
0:20:52 I think it’ll probably go down
0:20:54 as one of the great companies of our time.
0:20:55 – I mean, if you talk about,
0:20:57 it’s really hard for people to get their head around
0:20:59 the value creation here.
0:21:02 And that is if you took the entire German stock market,
0:21:05 every company from Daimler-Benz to Siemens,
0:21:07 the entire German stock market,
0:21:09 the entire French stock market,
0:21:13 all of the best companies in these respective economies,
0:21:16 all of them, Nvidia’s market cap is greater
0:21:20 than the entire stock market of these countries.
0:21:22 And if you really think about that,
0:21:24 if you think about the amount of human capital,
0:21:25 investment, government support,
0:21:27 people who spend their lives at these companies,
0:21:31 the IP, the customer bases, the global customer bases,
0:21:32 take every one of them,
0:21:34 every one of them and add them all together,
0:21:36 they’re not worth as much as Nvidia.
0:21:40 So this is a phenomena.
0:21:42 We don’t know how long it can last.
0:21:46 Yet another fucking amazing asset class that,
0:21:47 I am not in.
0:21:49 I am not in this, Ed.
0:21:51 I keep waiting for it to get cheaper.
0:21:54 – We’ll be right back after the break
0:21:56 with a look at target settings.
0:21:57 If you’re enjoying the show so far
0:21:59 and you haven’t subscribed,
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0:25:18 – We’re back with Profg Markets.
0:25:21 Target and Walmart both reported third-quarter earnings
0:25:24 and once again, it was a tale of two retailers.
0:25:26 Walmart sales rose over 5%,
0:25:28 solidifying a position as the top-performing retailer
0:25:33 in the S&P 500, while targets only rose 0.3%.
0:25:35 Walmart also raised its fiscal year guidance
0:25:38 for the third time and target lowered its outlook.
0:25:40 So the market’s response highlighted that contrast
0:25:44 after the earnings call Walmart stock rose 3%.
0:25:48 Meanwhile, target stock fell more than 21%.
0:25:52 It’s worst day since 2022.
0:25:53 The first thing I will note, Scott,
0:25:57 is that we have basically told this exact same story
0:25:58 before on this podcast.
0:26:02 I’m pretty sure we called it the tale of two retailers.
0:26:04 We’ve seen this before.
0:26:08 Target slumping and Walmart doing really, really well.
0:26:10 So what are your reactions to the fact
0:26:13 that we’re sort of in a deja vu position
0:26:15 in third quarter 2024?
0:26:16 So let me start off by saying I love Target.
0:26:19 I go to the Super Target in Boca Raton
0:26:20 and I think they do a great job.
0:26:22 I have not worked with senior management at Target.
0:26:24 Actually, I had some interaction with the CMO there,
0:26:27 but at one point I had a decent amount of interaction
0:26:30 with everyone, including the board and the CEO at Walmart,
0:26:33 and it’s an exceptionally well-run company.
0:26:35 And what was interesting about this
0:26:38 is that they are going after Target’s white meat
0:26:40 and that is Target was always a cooler,
0:26:42 hipper, better merchandise,
0:26:44 more aspirational version of Walmart.
0:26:45 That you can have value,
0:26:49 but you can have a little bit of sizzle,
0:26:54 a little bit of salsa on that chip, if you will.
0:26:56 And they had their own brands,
0:26:58 kind of a better branding campaign.
0:27:01 It was a positioning that worked really well.
0:27:05 But Walmart’s coming for their core.
0:27:07 I mean, really coming for their heart and their lungs.
0:27:09 And that is the point of differentiation.
0:27:11 They did a lot of wealthy people
0:27:13 who wanted value shop to Target.
0:27:15 Now they’re just going straight to Walmart.
0:27:17 Automation played a big role here.
0:27:19 Walmart is now automating two times
0:27:20 their fulfillment center volume year on year.
0:27:23 Well, Target’s is only 25% more automated.
0:27:26 So Walmart has the capital and the vision
0:27:28 to make huge investments in digital.
0:27:29 Some of them didn’t pay off.
0:27:31 They paid, I think they overpaid for JET
0:27:33 and they bought Bonobos,
0:27:34 which was a stupid acquisition.
0:27:37 Nice guys, but it was just like a cute little concept
0:27:41 that they, anyway, those guys got incredibly lucky
0:27:44 in my view, but about 75% of Walmart’s increase
0:27:47 in market share this quarter came from households
0:27:50 earning over $100,000, which is the demographic
0:27:52 typically associated with people shopping at Target.
0:27:57 So people want convenience and affordability.
0:28:01 Walmart, the unlimited deliveries for $12.95 a month.
0:28:05 And people are focused on spending smart.
0:28:08 Groceries were 60% of Walmart’s US sales.
0:28:10 While the category accounts for less than 25%
0:28:11 of Target sales.
0:28:13 And I would imagine that groceries is a,
0:28:16 while a low margin business, it’s a more consistent business.
0:28:18 And if you look at the two companies,
0:28:21 Walmart’s trading at 36 times earnings.
0:28:24 Target is trading at 12.
0:28:27 And the analogy here that you brought up,
0:28:29 which is a really interesting one,
0:28:32 is the analogy between a dominant number one
0:28:34 and a very distant two, and that is Uber and Lyft.
0:28:35 And they’re eerily similar.
0:28:38 Uber’s up 157% over the last five years
0:28:40 while Lyft is down 62%.
0:28:41 Actually, I think to see,
0:28:43 I think both have outstanding CEOs.
0:28:45 Dara Costa-Schei and the CEO at Lyft
0:28:47 are both impressive people.
0:28:49 By comparison, similarly, if you will,
0:28:52 Walmart’s up 120% over the last five years
0:28:55 while Target is down about 4%.
0:28:57 So this is what I think is gonna happen.
0:28:58 And I’ll come back to this.
0:29:02 I think Target’s beginning to look like a juicy LBO Target
0:29:05 or at a minimum, they’re gonna have an activist in there.
0:29:07 This thing is now cheap enough.
0:29:10 It still has a charm brand and a great real estate.
0:29:13 I think if I were to try and speculate with the problem
0:29:14 is it’s the following.
0:29:17 When you’re dealing with a CPG company
0:29:20 or a retailer in a duopoly, Coke Pepsi,
0:29:24 everyone’s compensation mojo DNA is focused on one thing.
0:29:26 And that is share.
0:29:28 You do not give, if you’re Pepsi,
0:29:32 you do not and you’ve got 17.8% share.
0:29:35 If it goes to 17.6 as the brand manager,
0:29:36 you might get fired.
0:29:39 So you become so obsessed with share
0:29:44 that in the market also is very focused on your share
0:29:46 that you can’t make the hard decisions
0:29:47 that I think you need to make.
0:29:49 And I would argue that Target just needs to be
0:29:52 a dramatically smaller company that’s more profitable.
0:29:54 They have 1,900 stores.
0:29:58 It should probably be 1,000 or 1,200 and cut costs
0:30:01 and make this a more profitable, smaller business.
0:30:05 And I think that would best be done outside
0:30:06 of the scrutiny of a publicly traded company.
0:30:08 And when you look at the fact that PE firms
0:30:09 have a quarter of a trillion dollars
0:30:11 on their balance sheet ready to deploy,
0:30:15 when you look at the fact this thing is getting pretty cheap,
0:30:17 one or two things is gonna happen.
0:30:19 We’re either gonna see an activist
0:30:21 or we’re gonna see a potential club deal
0:30:22 and take private here.
0:30:23 – Very interesting.
0:30:26 So, Target’s market cap is 56 billion.
0:30:29 Its enterprise value is around 72 billion
0:30:31 if you account for the debt.
0:30:33 Who’s got that money?
0:30:35 – Oh, it would have to be a club deal,
0:30:37 but you got it, like I said,
0:30:40 PE has 250 billion dollars in dry capital
0:30:41 and they could finance a lot of it with debt.
0:30:45 It’s still, you know, if it’s trading at a PE of 12,
0:30:47 that means it’s got five billion in earnings.
0:30:50 So they could probably borrow, you know,
0:30:52 10 to 20 billion of it and they get a club deal,
0:30:54 get a bunch of the biggest players
0:30:55 to each come up with 10 billion.
0:30:57 Yeah, they could get this deal done.
0:31:00 But I think what you’re gonna have in,
0:31:04 I mean, the three biggest deals I think in LBO history
0:31:08 were HCA, RGR, but none of them have happened
0:31:10 in the last several years.
0:31:12 But all the moons are lining up
0:31:14 for what I think will be probably the biggest LBO
0:31:15 in history in 2025.
0:31:17 I think it’s either gonna be Intel
0:31:18 or this company, Target.
0:31:20 People say they know Walmart’s bigger,
0:31:24 but oftentimes people will mention Target
0:31:26 in the same breath as Walmart.
0:31:26 – Absolutely.
0:31:29 Target has a $56 billion market cap.
0:31:31 Walmart’s is 700 billion.
0:31:32 – It’s crazy.
0:31:35 – I can tell you, a lot of PE guys are sharpening
0:31:36 their pencils and looking at this thing
0:31:39 and they’re calling their buddies and saying,
0:31:40 if the CEO’s down with this
0:31:41 and we think we can make this happen,
0:31:44 are you in for one, five, 10 billion in equity,
0:31:48 talking to banks, how much could we finance on this thing?
0:31:51 This is, there’s a lot of people,
0:31:52 I would imagine a lot of very smart people
0:31:53 looking at this company right now.
0:31:56 – I would like to just focus on Target
0:31:58 and the earnings themselves.
0:32:01 And then we’ll compare it to Walmart,
0:32:04 but just to highlight what happened to Target.
0:32:08 So revenue rose just 1%, which is way below expectations.
0:32:12 Profits fell 12%, also way below expectations.
0:32:14 And they said, Target,
0:32:17 that there were two main issues they were dealing with.
0:32:19 The first issue was the Longshoreman Strike,
0:32:20 which we’ve discussed before.
0:32:21 There were all these strikes
0:32:25 at many of our largest ports in America back in October.
0:32:29 And that was a problem and Target said that as a result,
0:32:31 their freight costs and their supply chain costs
0:32:33 were a lot higher.
0:32:36 The second issue that they highlighted was consumer demand.
0:32:40 So the average ticket size for Target customers
0:32:42 was down 2%.
0:32:45 They also saw a pretty significant decline
0:32:47 in their discretionary spending.
0:32:49 And the way Target positioned that problem
0:32:52 is that there is this macro issue in America
0:32:53 happening among consumers.
0:32:56 Consumers in America are tight on cash.
0:33:00 And so they’re just more cautious about spending right now.
0:33:03 Okay, now let’s compare that to Walmart.
0:33:06 Sales rose more than 5%.
0:33:09 Profits higher than expected.
0:33:13 Average ticket size grew more than 2%.
0:33:15 And so the story over at Walmart
0:33:17 that they are telling shareholders,
0:33:20 and mind you, these earnings calls happen in the same week.
0:33:22 So we’re looking at what happened to Target
0:33:24 and then immediately following that
0:33:26 with what happened to Walmart.
0:33:28 The story is that customers are going to Walmart
0:33:32 more frequently and when they do, they’re also spending more.
0:33:37 So this macro boogie man that Target seems to be talking about
0:33:39 when it comes to consumer demand
0:33:41 that is supposedly hurting Target,
0:33:43 for whatever reason, it isn’t touching Walmart.
0:33:45 Walmart’s doing just fine.
0:33:47 And then the Longshoreman strike,
0:33:49 Walmart is the second largest importer
0:33:51 of the affected ports from that strike.
0:33:54 The only one ahead of it is LG Electronics.
0:33:58 It should have been hit way harder by this strike than Target.
0:34:01 But Walmart said that, yes, it was a slight issue,
0:34:02 but they managed the inventory well.
0:34:06 They only saw a 0.6% decline in their inventory level.
0:34:09 So in other words, Walmart just figured it out.
0:34:11 The consumer issue wasn’t a problem,
0:34:13 and neither was the Longshoreman strike.
0:34:18 So this, again, is a story we’ve told before.
0:34:20 This is the fourth straight quarter
0:34:23 in which Target has blamed their underperformance
0:34:27 on something else, whether it’s inflation or demand or strikes,
0:34:30 or in some cases, even shoplifting.
0:34:32 And meanwhile, Walmart is overperforming.
0:34:33 They’re doing just fine.
0:34:38 So I think the question you have to ask Target now
0:34:42 is at what point will you publicly recognize
0:34:44 that maybe this is your fault?
0:34:46 Maybe this isn’t America
0:34:47 and the consumer’s doing something wrong.
0:34:50 Maybe this is you doing something wrong
0:34:53 and maybe you need a drastic change
0:34:57 because Wall Street just isn’t buying this narrative anymore.
0:35:00 There’s a reason the stock dropped more than 20%.
0:35:02 They’re just done with it.
0:35:05 So I guess my question to you would be,
0:35:07 what does the boardroom do now?
0:35:10 I think the activist point was a good one.
0:35:12 It seems like I’m sure a lot of activists
0:35:14 are coming in here and looking to shake things up.
0:35:16 But what do you think the conversations
0:35:19 in the boardroom of Target are looking like right now?
0:35:21 What is probably going to happen
0:35:23 and what the board should do is simple.
0:35:25 They should fire the CEO.
0:35:28 And that is your analysis is correct.
0:35:31 At some point, it’s about you, boss.
0:35:34 You know, all the problems you’re claiming
0:35:36 that are these macro systemic issues,
0:35:39 Walmart seems to have figured out.
0:35:40 So it’s simple here.
0:35:44 Doug McMillan gets a raise and Brian Cornell gets fired.
0:35:46 He’s been the CEO for the last 10 years.
0:35:49 This company has underperformed dramatically.
0:35:50 It’s peer group.
0:35:52 And maybe it’s not his fault,
0:35:54 but at a minimum they need a fresh change.
0:35:58 And the way I look with CEOs, people say, fire ’em.
0:36:00 CEOs make so much fucking money,
0:36:03 they should be held to a higher standard.
0:36:04 Yeah, he’s fine.
0:36:05 And this is what’s going to happen.
0:36:06 The chairman of the board,
0:36:08 I would bet in the next couple of weeks.
0:36:08 Really?
0:36:09 Okay.
0:36:10 Well, I get the timing wrong.
0:36:12 This guy’s on the green mile.
0:36:15 He just is, he gets a call from the chairman
0:36:17 and says, Brian, yeah, you know, love you,
0:36:19 but we’re going to make a change.
0:36:21 And they’re going to give them a golden parachute
0:36:23 or they’ll give them the Ford Vesta’s options.
0:36:26 But no, he should be, this is an easy one.
0:36:28 He is, in my opinion,
0:36:32 after 10 years of really mediocre performance,
0:36:36 he absolutely deserves to be terminated in my view
0:36:37 or let go.
0:36:39 And I would, I’d be shocked if that didn’t happen.
0:36:40 And if it doesn’t happen,
0:36:43 that’ll be the first thing on an activist PowerPoint deck
0:36:46 is that management has vastly underperformed.
0:36:49 He hasn’t, I want to be clear, he hasn’t been a disaster,
0:36:51 but these jobs are fairly kind of,
0:36:53 what have you done for me lately?
0:36:55 And the last five years have not been strong.
0:36:56 Absolutely.
0:36:58 Let’s just take one moment before we wrap it up here
0:37:02 to talk about what Walmart has done, right?
0:37:07 Because, I mean, the stock is up 120%
0:37:08 in the past five years.
0:37:10 And I feel like no one saw that coming.
0:37:15 Like, Walmart has generally been viewed as kind of a dinosaur
0:37:20 and more importantly, a shitty competitor to Amazon.
0:37:21 I mean, I think the story that most people believe
0:37:24 was that Amazon was gonna kick the shit out of Walmart,
0:37:27 but they’ve done really, really well.
0:37:28 I think the question is,
0:37:30 what have they gotten right specifically?
0:37:33 And just two things really jump out to me
0:37:34 that are worth highlighting.
0:37:38 The first is how they invested in Ecom.
0:37:42 So they made a set more than $7 billion investment in 2022
0:37:45 to just revitalize all of their technological infrastructure.
0:37:49 And the business is, the E-commerce business is tearing.
0:37:52 It’s up 27% year over year.
0:37:54 And you compare that to Target, which is up just 10%.
0:37:56 And you mentioned the fact
0:37:58 that they have doubled their automated fulfillment volume.
0:37:59 I think that’s really important.
0:38:03 So one part of this is their embrace of technology,
0:38:06 their embrace of the internet, which has really paid off.
0:38:10 The second one is pricing.
0:38:11 I don’t know if you remember,
0:38:13 but earlier this year,
0:38:16 Walmart came out with massive discounts
0:38:18 when inflation was ripping.
0:38:21 And our response was,
0:38:22 one, we commended Walmart
0:38:25 and two, everyone’s gonna follow suit now.
0:38:26 And that is exactly what happened.
0:38:29 Target eventually decided to follow up
0:38:31 and they offered their own discounts,
0:38:33 but it looks like it was too late.
0:38:35 And you almost have to give credit to Walmart
0:38:37 for being so bold on pricing
0:38:39 and recognizing that the most important thing
0:38:42 is the foot traffic and the trust of their customers.
0:38:43 As they said, fuck it,
0:38:46 we’re gonna reduce prices before anyone else does.
0:38:50 And it seems to have really paid off in this quarter at least.
0:38:52 So those are my two standouts
0:38:54 in terms of Walmart’s performance.
0:38:55 Perhaps you have some other observations
0:38:57 on what they’ve done well.
0:39:00 – So this guy, Bruce Buchanan, an economist at Stern,
0:39:01 taught me a framework
0:39:02 that has just kind of changed the way
0:39:04 I look at shareholder value.
0:39:05 And that is all shareholder value
0:39:08 comes down to the relationship
0:39:11 or the geometry between three lines.
0:39:13 The top line is perceived value.
0:39:15 The middle line is the price you charge
0:39:18 and the bottom line is the cost.
0:39:20 And there’s only two ways to create shareholder value.
0:39:22 You either increase perceived value,
0:39:25 better merchandising, better branding,
0:39:26 association of innovation.
0:39:28 And then if perceived value goes up,
0:39:29 you can have a lot of fun.
0:39:31 You can either raise the price you’re charging,
0:39:32 which creates greater margins
0:39:35 because the delta between your costs and the price go up.
0:39:37 Or you can leave the price the same
0:39:39 and you should expand market share
0:39:41 ’cause the delta between the price you’re charging
0:39:43 and the perceived value goes up,
0:39:46 increasing the value to the consumer
0:39:48 and your market share goes up.
0:39:51 Now, the majority of shareholder value, I would argue,
0:39:55 is around pushing the top line, the perceived value up, right?
0:39:58 Great spokesperson, Tiger Williams or a great ad campaign,
0:40:00 or we are the best, you know,
0:40:03 we are tightly associated with this brave new future of AI,
0:40:06 so we get a ton of traffic, open AI,
0:40:08 and we can raise our prices.
0:40:11 What Walmart has done is they brought in this gestalt
0:40:15 that every day we’re trying to push down the cost line
0:40:19 and then immediately, as soon as we’re able to pull it down,
0:40:23 we pull down the price line that we charge consumers.
0:40:26 We pass on those cost savings to the consumer immediately,
0:40:29 thereby increasing the delta between our prices
0:40:31 and our perceived value, which should expand share,
0:40:33 which is exactly what happened here.
0:40:35 And the problem is, I’ve always told kids
0:40:36 coming out of business school,
0:40:39 you wanna have a bias towards a company doing this,
0:40:41 increasing perceived value,
0:40:44 because when you’re in the business of pushing down the line,
0:40:48 it’s purely a business of operations and scale.
0:40:52 Doug McMillan can make multi-billion dollar investments
0:40:54 in technology that may or may not pay off
0:40:56 to try and get cost down 10 bibs.
0:40:58 He can make staggering investments.
0:41:01 You see the same dynamic at Uber and Lyft.
0:41:03 The number one player has the scale
0:41:06 where they can just make more bets.
0:41:08 And in this instance, when you’re in the business
0:41:10 of pushing the line down with your Dell,
0:41:12 with your Home Depot, with your Walmart,
0:41:15 it’s a business of scale and operations.
0:41:18 And right now, both of those things go to the market leader.
0:41:20 And the number two, quite frankly,
0:41:25 is just feeling the pain of how much it hurts,
0:41:29 one 15th of the market cap to be the number two.
0:41:31 We’ll be right back after the break
0:41:33 with a look at Comcast’s spin-off.
0:41:36 If you’re enjoying the show so far, hit follow
0:41:38 and leave us a review on Proficy Markets.
0:41:52 Support for this episode comes from AWS.
0:41:55 AWS Generative AI gives you the tools
0:41:56 to power your business forward
0:41:58 with the security and speed
0:42:00 of the world’s most experienced cloud.
0:42:04 Support for the show comes from Alex Partners.
0:42:07 In business, disruption brings not only challenges,
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0:42:11 As artificial intelligence powers pivotal moments of change,
0:42:13 Alex Partners is the consulting firm
0:42:15 chief executives can rely on.
0:42:17 Alex Partners is dedicated to making sure
0:42:21 your company knows what really matters when it comes to AI.
0:42:23 As part of their 2024 tech sector report,
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0:42:30 to dig deeper into how tech companies
0:42:32 are responding to these changing headwinds.
0:42:35 And in their 2024 digital disruption report,
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0:42:40 report seeing potential for growth
0:42:41 from digital disruption,
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0:42:49 You can read both reports
0:42:51 and learn how to convert digital disruption
0:42:56 into revenue growth at www.alexpartners.com/box.
0:43:01 That’s www.alixpartners.com/vox.
0:43:05 In the face of disruption,
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0:44:34 We’re back with Prof2Markets.
0:44:35 It’s official.
0:44:37 Comcast is finally cutting the cord.
0:44:40 The company is spinning off several of its cable TV networks
0:44:42 to make it official.
0:44:44 The company is spinning off several of its cable TV networks
0:44:48 into a new public entity, temporarily named Spinco.
0:44:54 This new company will include MSNBC, CNBC, USA, Oxygen,
0:44:56 eSci-Fi and the Gulf Channel.
0:45:00 However, key assets like NBC, Bravo and Streaming Platform,
0:45:04 Peacock will remain under the Comcast umbrella.
0:45:07 So Scott, you predicted this.
0:45:11 This is a clip from September of 2023.
0:45:14 Let’s play it.
0:45:16 There needs to be recognition that cable TV assets
0:45:18 are no longer teenagers that are going to keep growing,
0:45:21 that they’re in fact, you know, Nana and Pop-Up
0:45:23 and need to be made comfortable.
0:45:24 These things are dying.
0:45:27 And they need to be managed for cash flow,
0:45:30 not starved of investment, but stop the hallucination
0:45:33 that these things are ever going to reignite growth again.
0:45:37 So my prediction is you’re going to see one or more players
0:45:39 shed their assets into a different hold code
0:45:44 to clean up their story, and also for consolidation and scale.
0:45:47 There needs to be a bunch of these things wrapped together.
0:45:50 So there’s one sales rep in Chakrasavaki selling ads
0:45:52 on the Cartoon Network or what have you.
0:45:56 And Unmuck, or, you know, Unfuck the story that
0:45:59 is media companies now that have growth,
0:46:04 but also have declining assets in the same portfolio.
0:46:07 I just want to say I can feel you smiling
0:46:10 on the other side of the screen.
0:46:13 I add, let’s be honest, I’m touching my nipples.
0:46:20 This is the most turned on I have been.
0:46:22 I mean, granted, I don’t own a single fucking coin,
0:46:24 and I keep waiting for Nvidia to go back
0:46:27 to 10 bucks a share, but let’s be honest,
0:46:29 the dog is howling on this one.
0:46:32 The dog is howling.
0:46:36 Yeah, this was, look, this was obvious.
0:46:40 And effectively what you have is when you mismatch families
0:46:42 of different generations under one stock ticker,
0:46:45 you have good assets that are growing in the market values
0:46:49 as growth or as consumers not on cash flow.
0:46:50 And then you have shitty businesses
0:46:55 that are declining, but still produce cash flow.
0:46:56 Investors in the market don’t know what to do.
0:46:58 So what they do is they find the shittiest assets
0:47:00 trading at the lowest multiple, and they assign
0:47:02 that entire multiple to the whole thing.
0:47:07 So the divestiture of assets in different sort of stages
0:47:09 of the life cycle here creates more clarity
0:47:11 and ultimately creates a whole that’s greater
0:47:12 than the sum of its parts.
0:47:16 So the disposition or clarity around a brand architecture
0:47:18 that spins these low performing or declining,
0:47:21 but high cash flow assets into a separate company
0:47:22 is a very good idea.
0:47:26 And then they will have their own currency to go buy ABC
0:47:30 or Bravo Five or CNN because everyone,
0:47:34 whether it’s Iger or Zaslaw is in the same position.
0:47:36 And that is they have some amazing assets
0:47:38 that would be valued at X and they have other assets
0:47:40 that are valued at 0.3 X.
0:47:44 So the market assigns that 0.3 to their entire portfolio.
0:47:46 This is a good move.
0:47:49 It will be used potentially as a shell company to go
0:47:52 and acquire other declining but high cash flow assets.
0:47:55 And I remind people that the second best investment
0:47:58 I ever made was in a yellow pages company.
0:48:00 And it was very simple.
0:48:02 We knew these things were going away.
0:48:06 They were declining at seven to 12% a year.
0:48:08 But there’s still a lot of people
0:48:10 that want that big fat fucking book
0:48:13 delivered to their home and rural wherever
0:48:14 in case they need a plumber
0:48:16 and they still have a dial up phone.
0:48:19 And these businesses still spend a lot of cash flow.
0:48:22 And what we would do is go buy the biggest yellow pages
0:48:25 company in the Southeast and say, okay, you’re fucked.
0:48:25 We’re fucked.
0:48:27 Let’s be fucked together.
0:48:29 And the way we’ll do this is we’ll take
0:48:32 your 10% of your best salespeople.
0:48:35 We’re going to lay off your entire administrative staff.
0:48:37 We’re going to close your headquarters now.
0:48:40 And as long as we can cut costs faster
0:48:42 than the revenue declines based on consolidation
0:48:45 and the fact we can pick these assets up on the cheap
0:48:49 every year this company increased its cash flow.
0:48:51 And this specific company then took a lot of that cash flow
0:48:55 and started trying to transition to a CRM software company
0:48:57 and actually did it quite well.
0:49:02 But consolidation of mature or declining assets
0:49:03 can be a great business
0:49:06 because typically these businesses don’t go away
0:49:09 as quickly as you think they’re going to.
0:49:11 And as long as you take sort of a private equity
0:49:14 cost cutting approach and stop trying to inject Botox
0:49:17 and filler into this thing such that under the illusion
0:49:20 it’s going to look young again, it’s not going to.
0:49:22 – So just on your point about depressed valuation.
0:49:25 So if we look at how much revenue these assets
0:49:27 actually generated for Comcast,
0:49:30 it comes out to around $7 billion.
0:49:33 Now we don’t know what the profitability is exactly.
0:49:35 I think we can assume it’s, it is quite profitable
0:49:38 but there are public companies out there
0:49:40 that are quite similar to this business.
0:49:43 And the example we could use is Fox Corporation
0:49:46 which has a price to sales multiple of one and a half.
0:49:48 So if we were to apply the same multiple
0:49:51 this segment is probably worth $10 and a half billion.
0:49:54 And you compare that to the overall market cap of Comcast
0:49:57 which is more than 160 billion.
0:50:01 So Wall Street hates cable in the same way
0:50:03 that they hated Yellow Pages.
0:50:08 My question to you though from an investing perspective,
0:50:14 you said that Yellow Pages was one of your best investments.
0:50:17 What made it so good?
0:50:22 Did you sell your stake at some point at a higher price?
0:50:25 Or was it the fact that cash flows were high
0:50:27 and you were receiving direct income?
0:50:29 What made it such a good investment?
0:50:30 – So I invested in the company
0:50:32 probably the better part of 10 years ago
0:50:35 and you could for a dollar in cash flow,
0:50:39 you had to spend two and a half dollars on a company.
0:50:41 And so we knew these companies were going out of business
0:50:43 but they weren’t going out of business in 30 months.
0:50:47 So within three years, the company just in cash flow
0:50:50 could return all of the initial investment to the investors.
0:50:51 – Wow.
0:50:52 – And this is what it comes right down to.
0:50:54 It’s very similar, everything replicates nature
0:50:56 or human interaction.
0:50:59 And that is if you have the chance,
0:51:01 I’m going to F1 because I want to hang out
0:51:05 with hot young people or hot successful people.
0:51:08 I am not going to, I don’t know,
0:51:09 the Golden Girls reunion.
0:51:11 I don’t want to hang out with old people.
0:51:16 And we are attracted to youth and vigor and growth.
0:51:19 And so these young vigorous growing companies
0:51:20 get an enormous multiple
0:51:23 ’cause we all want to hang out with them, right?
0:51:25 So they trade a much higher multiples.
0:51:28 And if you look at the most successful businesses
0:51:31 in terms of likelihood of success from startup,
0:51:35 the average is 14%, only one out of seven companies survives
0:51:38 but 90 plus percent is senior care homes.
0:51:40 If you’re willing to go into the business
0:51:43 of taking care of seniors,
0:51:45 nine out of 10 of these businesses work
0:51:46 but there’s an absence of capital
0:51:49 because they’re not as fun or sexy, they’re not growing.
0:51:52 People don’t like to be around old people.
0:51:54 It’s the same with distressed assets.
0:51:56 Everybody wants to hang out with open AI.
0:51:58 Everybody wants to hang out with NVIDIA.
0:52:00 They don’t want to be in distressed assets.
0:52:02 So if you go up and down the stack
0:52:07 from angel, to venture, to IPO’s, to growth, to mature,
0:52:11 to declining, to distressed, hands down,
0:52:13 the most successful, greatest likelihood of success
0:52:16 I found in the stack in terms of a capital
0:52:20 or an asset around the lifestyle, it’s distressed
0:52:24 because you can pick up shit at pennies on the dollar.
0:52:26 – I guess it’s interesting to me.
0:52:29 I mean, I consider, I think that I think
0:52:32 like a value investor, I think I’m a value investor.
0:52:34 And I guess the thing that I’ve always felt
0:52:37 with distressed assets is it feels as though
0:52:40 what you have to do is you’re getting a really good price
0:52:42 and you’re buying at a really good price
0:52:43 but then what do you do with it?
0:52:45 You’re sitting with this pile of shit
0:52:48 that you could make look a little bit less
0:52:50 like a pile of shit and my assumption has always been,
0:52:52 okay, well, you just got to flip it at some point.
0:52:54 But what’s interesting about what you described
0:52:56 with the yellow pages is actually
0:52:59 it was a good long-term investment
0:53:01 because of how profitable it was
0:53:03 and because you could use those profits
0:53:07 to then revitalize the company and turn it into a CRM
0:53:10 which is far more sustainable over the long term
0:53:12 than what it was before.
0:53:15 And so I want to continue with this yellow pages analogy
0:53:16 because I think it’s a good one.
0:53:20 What do you think the makeover looks like
0:53:25 for MSNBC and CNBC and SyFY and all of these channels?
0:53:31 What does the CRMification of this spinco,
0:53:33 how will that play out, do you think?
0:53:35 – I don’t have a vision for a new business
0:53:37 that they could pour their cash flow into
0:53:39 to turn this to pivot this company.
0:53:42 And also you don’t need to do that
0:53:44 because these companies,
0:53:47 there’s just going to be a lot of people watching CNBC
0:53:50 and Andrew Ross Orkin who is an extraordinary journalist
0:53:53 and Joe Kiernan who is not.
0:53:56 They are going to be watching these things for a long time
0:53:58 and there’s still going to be advertisers
0:54:01 that want to reach people who are 70, right?
0:54:05 Average age of an MSNBC viewer.
0:54:08 The conversations, and I know this firsthand happening
0:54:10 with all of these anchors is the following.
0:54:14 Chris Wallace, we love you, you’re iconic.
0:54:15 You’re fantastic.
0:54:19 Last year, when we were trying to convince ourselves
0:54:22 we could inject Botox and filler into our face
0:54:25 and we had this idea for CNN Plus
0:54:26 and we wanted to take you from Fox,
0:54:28 we offered you a four or five year deal at eight million
0:54:29 a year, that’s what I’ve read.
0:54:32 I would bet they said, we love you, you’re great.
0:54:34 We’re willing to pay you a million bucks a year.
0:54:38 The salary cuts, the cost cutting,
0:54:42 we did an analysis of how many people we need
0:54:44 at this podcast.
0:54:46 We’re getting like triple or quadruple
0:54:48 the number of viewers per person than these big firms.
0:54:51 These firms all roads lead to the same place.
0:54:56 The anchors here are pilots for Pan Am in the 70s.
0:55:00 They’re banging stewardesses, they’re high prestige,
0:55:01 but they know the writing’s on the wall.
0:55:03 They’re going to be making $68,000
0:55:06 working for Spirit Airlines going from Louisiana
0:55:08 to Asheville pretty soon.
0:55:12 Even if they don’t find another thing,
0:55:13 these companies, as long as they keep acquiring
0:55:16 and consolidating and cutting costs, which they will do,
0:55:20 they will figure out a way to return all of that capital
0:55:21 to shareholders really quickly
0:55:24 ’cause the share price will be low to buy in
0:55:25 and they’ll make really good money.
0:55:28 I would actually rather, I think I’d rather invest
0:55:31 in this spinco than in the core Comcast
0:55:33 because it’ll be at a lower valuation.
0:55:35 There’s a lot of properties.
0:55:38 Hey, Bob, are you ready to finally sell your shit to us?
0:55:41 We’ll take it, we’ll take it off your hands.
0:55:43 We’ll pay you an awful price,
0:55:45 but your stock price will go up
0:55:48 because the market will be focused on your parks
0:55:50 and on Disney Plus, which are great businesses,
0:55:54 instead of constantly asking you about ESPN and ABC
0:55:57 and you having to apologize for it every three months.
0:55:58 – I love it.
0:56:00 Let’s put a consortium together, take a majority stake,
0:56:01 and let’s call it–
0:56:02 – Doggo.
0:56:03 – Let’s call it Doggo.
0:56:04 – Doggo.
0:56:05 (laughing)
0:56:06 Let’s take a look at the week ahead.
0:56:10 We’ll see earnings from Dell, CrowdStrike, and HP.
0:56:12 And we’ll also see the Personal Consumption
0:56:14 Expenditures Index for October.
0:56:16 Sounds like a fascinating week.
0:56:17 Scott, any predictions?
0:56:20 – The biggest LBO in history is gonna happen in 2025.
0:56:24 And there’s a ton of capital on the sidelines.
0:56:25 Some stuff is getting cheap.
0:56:27 Great iconic companies is getting cheap.
0:56:31 And my bets, two of my favorite candidates
0:56:34 are now Intel and Tarjay.
0:56:35 – And just before we go, we’ll be recording
0:56:38 and ask me anything episode at the end of the year.
0:56:40 So please send in your questions for me and Scott
0:56:43 to officeours@profgmedia.com
0:56:46 or you can tag us on social media @profgpod
0:56:49 or you can leave us a comment on our YouTube channel.
0:56:50 Anything is fair game.
0:56:51 Send us your questions.
0:56:55 This episode was produced by Claire Miller
0:56:57 and engineered by Benjamin Spencer,
0:56:59 our associate producer is Alison Weiss.
0:57:00 Mia Silverio is our research lead,
0:57:02 Jessica Lange is our research associate,
0:57:04 Drew Burroughs is our technical director
0:57:06 and Catherine Dillon is our executive producer.
0:57:08 Thank you for listening to Prodigy Markets
0:57:10 from the Vox Media Podcast Network.
0:57:12 If you like what you heard, give us a follow
0:57:15 and join us for a fresh take on markets on Monday.
0:57:21 ♪ Lifetimes ♪
0:57:29 ♪ You held me ♪
0:57:34 ♪ In kind reunion ♪
0:57:41 ♪ As the world turns ♪
0:57:46 ♪ And the dark lies ♪
0:57:48 ♪ In love ♪
0:57:51 (upbeat music)
0:57:57 And I think what’s happened with Target,
0:58:00 hold on.
0:58:01 Yeah.
0:58:06 Hello, hola, hola, por favor,
0:58:09 vende tras en una hora, por favor.
0:58:11 Okay, gracias.
0:58:16 Oh, a little cosmopolitan skill from El Pato.
0:58:17 That’s right, that’s right.
0:58:18 Anyways, okay.
0:58:19 Where were we?
0:58:21 Otage.
0:58:24 Support for this episode comes from AWS.
0:58:26 AWS Generative AI gives you the tools
0:58:28 to power your business forward
0:58:29 with the security and speed
0:58:32 of the world’s most experienced cloud.
0:58:36 Food and security still affects millions of individuals
0:58:37 around the globe.
0:58:40 And Nestle, a global leader in nutrition, health,
0:58:42 and wellness, understands the importance
0:58:45 of working together to create lasting change.
0:58:48 Nestle’s partnerships extend beyond just financial support
0:58:49 from building urban hoop houses
0:58:52 to producing custom seasoning for food banks.
0:58:54 Nestle and their partners actively engage
0:58:56 with local communities, listening to their needs,
0:58:59 and working together to find innovative solutions.
0:59:01 Nestle is committed to helping support thriving,
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0:59:07 Together, we can help to build stronger,
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0:59:10 Learn more at Nestle.com.
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0:01:02 In business, disruption brings not only challenges,
0:01:03 but opportunities.
0:01:05 At pivotal moments of change,
0:01:07 Alex Partners is the consulting firm
0:01:09 chief executives can rely on.
0:01:13 With clarity, direction, and above all, implementation,
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0:01:49 Today’s number, 243,000.
0:01:51 That’s about how many views Jaguar’s commercial
0:01:55 for its rebranded logo got in 24 hours on YouTube.
0:01:59 I was trying to find a joke that would bring together
0:02:01 necrophilia, bestiality, and masturbation,
0:02:02 but at this point,
0:02:05 it just feels like I’d be beating a dead horse.
0:02:19 That’s why the people come here, Ed.
0:02:21 What’s going on today?
0:02:23 We’re discussing an earnings crisis at Target.
0:02:26 Why Comcast is shedding its cable business.
0:02:27 Good bank, bad bank.
0:02:29 – First off, did you see the new Jaguar logo?
0:02:30 – Jaguar, listen to you.
0:02:32 Listen to you little saucy bitch.
0:02:34 You were just dying to say Jaguar.
0:02:35 – No, I wasn’t.
0:02:36 That’s how I say it,
0:02:37 because I’m from a different country.
0:02:38 – If you ask for another raise,
0:02:40 we’ll find you dead in the boot.
0:02:44 I just made that up, it was pretty good.
0:02:46 Have I seen, I’m sorry, have I seen what?
0:02:48 – Have you seen Jaguar’s?
0:02:50 That’s how it’s pronounced.
0:02:51 Have you seen their new logo?
0:02:53 – No, but they pasted it on our producers,
0:02:54 pasted it in.
0:02:55 – Okay, so please check it out,
0:02:57 because everyone’s talking about this
0:02:59 and you are the marketing professor.
0:03:00 We need your reaction.
0:03:03 – Oh no, this is the new logo?
0:03:06 No, no, no, no, no, no, no, no, no, no, no, no, no, no.
0:03:08 Come on, hold on.
0:03:11 I actually use this logo in my class.
0:03:13 Look at this thing, he’s out, he’s hunting,
0:03:17 he’s bringing home the prey for his wife and his kids.
0:03:22 He’s elegant, he’s sleek, he’s a jungle cat, Jaguar.
0:03:24 And then they go to this fucking thing
0:03:26 that looks like it was created by AI.
0:03:30 We can process images 50 to 60 times faster than words.
0:03:32 So this is going against our instincts
0:03:33 as it relates to marketing.
0:03:36 If you are blessed with a logo,
0:03:37 like they used to have,
0:03:40 that visual metaphor of that incredibly strong,
0:03:42 yet elegant, yet powerful,
0:03:46 Jaguar’s are the only animal that when hunted,
0:03:48 this is a true story,
0:03:50 the only animal that when hunted,
0:03:51 will perceive they’re being hunted
0:03:56 and then sprint, circle around, and then hunt the hunter.
0:03:58 You wanna talk about snatching defeat
0:03:59 from the jaws of victory?
0:04:01 That is one of the greatest visual metaphors
0:04:02 in automobile history.
0:04:05 And instead they went to this fucking
0:04:07 Westworld dystopic, weird.
0:04:08 – It’s awful.
0:04:09 – Terrible decision.
0:04:13 – So what do you think happened in the Jaguar boardroom?
0:04:15 Why do you think they signed off on this?
0:04:17 What do you think is the strategy here?
0:04:21 Like, everyone agrees this is the worst rebrand of all time.
0:04:23 Why do you think they went ahead with it?
0:04:24 – Because they spent a lot of money
0:04:26 in a design agency that’s populated
0:04:28 with very good looking young people who wear black,
0:04:30 who seem to understand more about design
0:04:32 and they came in and used a bunch of fancy terms
0:04:35 like elegant and progressive.
0:04:36 And this is more for a modern age.
0:04:39 We need to update it and you need to pay us $30 million
0:04:42 to redesign all the logos outside the conference rooms
0:04:44 and all the shit and all the dealerships.
0:04:46 By the way, I had just a quick tip
0:04:48 when you’re shopping for a car,
0:04:51 don’t eat the clam chowder at the Lexus September
0:04:52 to Remember event.
0:04:56 – I would love, but I’ve heard this joke already.
0:04:57 – It never gets old.
0:04:59 You gotta recycle the good stuff.
0:05:01 You gotta recycle the good stuff.
0:05:02 – Well, I guess I did laugh anyway, so.
0:05:04 – I can tell you, I know what happened here
0:05:05 without knowing what happened.
0:05:08 It’s a new CMO who’s decided to put his or her
0:05:10 footprint or imprint on the company
0:05:12 and it’s convinced them they needed a new fucking logo
0:05:16 because actual work around things like customer acquisition
0:05:18 and figuring out digital platforms, you know,
0:05:21 that’s real work instead I hire interbrand
0:05:24 or my old firm profit to come in
0:05:26 and have very compelling, very articulate,
0:05:29 very attractive people tell you why this logo
0:05:31 connotes something that fits to a modern age.
0:05:33 This is a stupid fucking decision.
0:05:36 This is the equivalent of putting shareholder money
0:05:40 in the middle of the road and running over it
0:05:43 in an XJS, was it the XJS or the XJR?
0:05:46 – Just my one little comment on the Jaguar thing.
0:05:49 Their new tagline is copy nothing.
0:05:51 Like this is sort of their bold rebrand
0:05:53 and they keep on saying, you know, copy nothing.
0:05:54 This is the only thing.
0:05:56 But I look at that logo and it’s like,
0:06:00 you copied every single tech startup
0:06:02 that we’ve seen over the past like five to 10 years.
0:06:05 Like this literally is just like classic,
0:06:08 dystopian, metaverse type 2D font
0:06:10 where it’s all spaced out and clean looking.
0:06:12 Like it’s just, it looks like a tech company.
0:06:15 – This is the final nail in the coffin of British culture.
0:06:17 – Yeah, good point.
0:06:19 – When Americans obsession, fetish,
0:06:23 masturbatory, fantasies of AI, bastard.
0:06:24 I’m shocked they don’t have,
0:06:26 I’m shocked it’s not jaguar.ai
0:06:29 and they’re trying to pretend to be a tech company.
0:06:32 But this is a scent.
0:06:35 Look at how beautiful their old logo is.
0:06:38 I wanna be that guy out in the jungle.
0:06:39 Just sleek and strong.
0:06:41 Don’t fuck with me.
0:06:42 Don’t fuck with me.
0:06:46 Oh God, that shit is, that shit is money.
0:06:49 The next like, if I see a super attractive Gara Gallat F1,
0:06:52 I’m gonna come up after a few cocktails,
0:06:53 a lot of cocktails and I’m gonna be like,
0:07:01 dude that’s how you lose your virginity at 19, boom.
0:07:03 – And that’s how we open the show.
0:07:06 Let’s start with our weekly review of market vitals.
0:07:08 (upbeat music)
0:07:11 (upbeat music)
0:07:15 The S&P 500 was volatile, the dollar climbed.
0:07:18 Bitcoin hit a fresh record above $98,000.
0:07:22 I wouldn’t be surprised if it hits 100 by the time this airs
0:07:25 and the yield on 10 year treasuries slumped.
0:07:26 Shifting to the headlines.
0:07:29 The Justice Department proposed a forced sale of Chrome
0:07:31 as a potential remedy in the Google antitrust case.
0:07:33 The browser, which has approximately
0:07:35 three billion monthly active users
0:07:38 could be valued at up to $20 billion.
0:07:42 MicroStrategy sold $2.6 billion worth of convertible bonds
0:07:45 to fund its Bitcoin buying spree.
0:07:47 The business intelligence firm already owns
0:07:49 nearly $31 billion worth of the cryptocurrency
0:07:52 and plans to buy more over the next three years.
0:07:54 The stock rose to a record high after the sale
0:07:57 and it’s up more than six fold year to date.
0:07:59 And finally, Nvidia’s third quarter earnings
0:08:01 beat analyst expectations with revenue
0:08:06 topping $35 billion, that is up 94% from a year earlier.
0:08:09 The company also projected revenue for the current quarter
0:08:12 will jump to $37.5 billion.
0:08:14 While that forecast was slightly above
0:08:17 analysts expectations, the stock still fell
0:08:18 more than 2% after hours.
0:08:21 Scott, your thoughts, starting with the DOJ’s
0:08:24 proposed forced sale of Google Chrome.
0:08:25 – Look, I love this.
0:08:27 If you go back in economic history,
0:08:30 it would be very difficult to find an instance
0:08:33 where the breakup was not good for the economy,
0:08:37 was not good for the tax base, was not good for shareholders,
0:08:39 was not good for the employees who now have more companies
0:08:41 bidding to rent their labor.
0:08:45 The only stakeholder that loses in a breakup
0:08:47 throughout economic history is the individual
0:08:49 who wants to sit on the iron throne of all realms,
0:08:51 not just Westeros.
0:08:53 I mean, search is essentially,
0:08:55 I think it’s the biggest gross margin dollar business
0:08:58 in the world and there’s one company that dominates it.
0:09:02 And if you gave, if you took away the data set
0:09:05 in the interface of two thirds or three and a half
0:09:10 million people who use Chrome and it was now a competitor
0:09:12 that could offer data and opportunities
0:09:14 for other potential search engines,
0:09:16 I think that would be good for everybody.
0:09:17 I mean, who knows?
0:09:20 Someone might come up with a search engine
0:09:22 that is not trying to target young people
0:09:24 or that screens out misinformation
0:09:28 or doesn’t bring sunlight to conspiracy theory
0:09:30 greater than its organic reach.
0:09:33 I had a really interesting conversation with Eric Schmidt
0:09:35 or we did, I don’t know if it’s on this pot
0:09:38 or one of my other 45 Joey Bagadona’s podcasts.
0:09:39 I was not there for it.
0:09:40 There you go.
0:09:42 Well, actually, you know, it’s funny,
0:09:43 you did an outstanding job.
0:09:45 (laughing)
0:09:47 Anyways, but Eric, the former CEO,
0:09:49 not of Alphabet, but of Google,
0:09:51 he said something really that really struck me.
0:09:53 He said that individuals should have
0:09:55 almost limitless free speech,
0:09:59 but computers should not have free speech.
0:10:01 And that really struck me as an elegant way
0:10:02 to approach the problem.
0:10:05 Because when I look at the majority of really vile shit
0:10:07 that’s trying to polarize people
0:10:09 or spread conspiracy theory,
0:10:10 whenever I’ve kind of clicked on it
0:10:13 and tried to figure out who this person is,
0:10:14 I find out it’s not a person.
0:10:18 It’s clearly a bot that’s used and being used
0:10:20 to amplify either conspiracy theory
0:10:23 or a certain ideology or simply put,
0:10:25 it’s a bad actor trying to get a shitposting
0:10:28 each other and arguing with each other.
0:10:30 So more competition,
0:10:31 you might find people say,
0:10:34 “Well, I want a family safe search company.
0:10:36 “I want a search company that doesn’t have,
0:10:39 “doesn’t add supported such that it takes you
0:10:41 “to the best answer, not to the answer
0:10:43 “they can further monetize.”
0:10:45 – Well, I’m gonna disagree with you on your take here.
0:10:48 I think you’ve brought up a lot of important issues,
0:10:51 but they’re all kind of disparate issues
0:10:52 that you’re talking about here.
0:10:53 Like there’s the monopoly issue,
0:10:56 and then there’s, you know, the free speech issue,
0:10:57 and there’s the conspiracies issue.
0:11:00 Like there are just all these things that we dislike
0:11:03 about big tech and about Google.
0:11:05 But I mean, let’s just focus on
0:11:08 what did Google actually do wrong here?
0:11:10 And if you read through the judge’s case,
0:11:13 the big thing that the judge identified
0:11:15 was the fact that Google was paying billions of dollars
0:11:18 to other companies, particularly Apple,
0:11:21 to be the default search engine on those devices.
0:11:23 There’s a very easy way to address that.
0:11:25 And that’s just break up their relationship with Apple.
0:11:28 Just tell them you’re not allowed to keep paying Apple
0:11:30 to be your default browser.
0:11:32 And now that is something that DOJ
0:11:35 is supposedly going to recommend as a remedy.
0:11:39 But to add on top of that, the forced sale of this asset
0:11:44 that is in many ways integral to Google’s business,
0:11:45 it just doesn’t feel like a remedy.
0:11:47 To me, it feels more like a punishment.
0:11:51 And in my view, if you’re gonna focus on punishing Google,
0:11:52 I personally think punishments
0:11:54 should come in the form of fines.
0:11:57 But the idea of forcing them to sell Chrome,
0:11:59 which would just dramatically transform
0:12:01 one of the most important businesses in America,
0:12:03 the online search market,
0:12:06 that to me just feels like a step too far from government.
0:12:07 – I just had this horrific image
0:12:10 that I finally get the call from the White House
0:12:12 asking me to be Secretary of Education
0:12:14 or Commerce Secretary.
0:12:15 And the call’s actually for you
0:12:17 and they’re just trying to get your name.
0:12:19 I think that’s a really solid take.
0:12:24 I would argue though that the data around traffic patterns
0:12:27 and behavior captured on the front end
0:12:31 of the true access point to the digital world
0:12:33 is the browser.
0:12:35 And so the amount of data they get
0:12:37 around where people are going, their trends,
0:12:40 that they can then feed into their search algorithms
0:12:42 to better provide better targeting
0:12:45 for clients who advertise on Google.
0:12:47 I would think that gives them almost an unassailable
0:12:52 advantage that results in a 90 plus percent share of search.
0:12:53 – It’s huge.
0:12:56 But it’s also why the product is so good, right?
0:12:58 I mean, the data is all part of the business.
0:13:01 – What you don’t realize with a monopoly
0:13:02 is you don’t know what you’re missing.
0:13:04 So for example, do you think Google search
0:13:06 has really innovated in the last decade?
0:13:07 – No.
0:13:10 – All of the innovation has been how to turn advertisers
0:13:12 up by their heels and shake more money from them.
0:13:14 It hasn’t been around consumer innovation.
0:13:18 So I would push back and say the monopoly power here,
0:13:21 we don’t know the innovation we’re missing.
0:13:24 I just don’t buy it as a means to breaking them up.
0:13:27 And my reaction would be that this won’t hold off in court.
0:13:29 But I agree with you that, you know,
0:13:31 perhaps the world would be a better place
0:13:32 if Google were broken up.
0:13:34 So we move on to MicroStrategy,
0:13:37 which is absolutely tearing right now.
0:13:41 And you’re actually friends with the founder and CEO,
0:13:44 Michael Saylor, who’s been on this podcast before.
0:13:46 What are your initial reactions to MicroStrategy,
0:13:50 which is performing even better than Bitcoin right now somehow?
0:13:53 – So I’ve known Michael for the better part of 20 years.
0:13:55 The guy’s like crazy fucking smart.
0:13:56 And every time I meet with him,
0:13:59 I think I really should buy MicroStrategy stock or Bitcoin.
0:14:02 And I have bought none of either.
0:14:05 And so I want to find a time machine, go back,
0:14:07 find me, kill me and then kill myself.
0:14:10 I mean, I knew this guy was so bright,
0:14:13 but the thing that got in the way for me was,
0:14:15 you know, I’m an old dog, I believe in corporate governance.
0:14:18 And the idea of a CEO taking a publicly traded company
0:14:20 that does business intelligence
0:14:24 and borrowing, levering up like crazy to buy another.
0:14:26 It would be like Tim Cook saying,
0:14:28 I just believe in gold.
0:14:31 And I’m going to put $100 billion in debt on this company
0:14:33 and go buy, become the largest single owner
0:14:34 of gold in the world.
0:14:39 And it just felt so strange to me,
0:14:40 but there’s just no getting around it.
0:14:43 The guy is a fucking visionary.
0:14:46 When I had him on the pod two, three years ago,
0:14:50 Bitcoin was at 18,000 and it had spiked from 5,000.
0:14:51 I’m like, gonna go wait till it goes down to five again.
0:14:53 He’s like, trust me on this, just buy a little bit.
0:14:57 This thing is bulletproof over the long term.
0:14:59 You know, that’s up, what, five-fold since then?
0:15:00 And what is MicroStrategy?
0:15:01 Since then, I’m not sure.
0:15:04 It’s up six-fold in the past year.
0:15:07 It’s up by 123% in the last 30 days.
0:15:09 And because he takes debt,
0:15:12 it’s basically MicroStrategy has become
0:15:14 a levered bet on Bitcoin.
0:15:18 It’s like buying an ETF on China that’s 3x, it’s levered up.
0:15:20 So look, there’s just no getting around it.
0:15:23 Even crypto skeptics like myself have to acknowledge
0:15:25 that I believe that Bitcoin
0:15:29 has become a credible, tangible store value.
0:15:31 You know, it’s a speculative asset, no doubt about it,
0:15:35 but Michael is, you know, from an IQ standpoint,
0:15:39 he’s flying at a different altitude and he saw this.
0:15:42 And my gosh, you wanna talk about balls
0:15:45 the size of really big balls?
0:15:50 I mean, this guy basically said,
0:15:52 business intelligence, missionless intelligence,
0:15:55 we’re levering up and we’re buying Bitcoin.
0:15:57 – I think the question a lot of people are asking is like,
0:16:01 why is MicroStrategy up so much more than Bitcoin?
0:16:03 I think part of it is what you said,
0:16:07 which is this is like a levered up Bitcoin play
0:16:08 because they’re borrowing money
0:16:10 and then using that money to buy more Bitcoin.
0:16:12 So it’s just gonna be a more volatile version
0:16:14 of Bitcoin right now.
0:16:17 But I think there is a second story here,
0:16:19 a second reason why people are so obsessed
0:16:21 with MicroStrategy right now.
0:16:25 And that is the Bitcoin holdings are worth a quarter
0:16:27 of the company’s entire market cap.
0:16:28 And they don’t have cash,
0:16:30 which is why they’re borrowing money
0:16:32 to just go buy more Bitcoin.
0:16:34 And if you look at their earnings reports,
0:16:38 they now identify not as a business intelligence firm,
0:16:40 which is what this company has always been,
0:16:44 they call themselves a quote Bitcoin treasury company.
0:16:47 And that is the through line of the entire earnings report.
0:16:50 It’s like, here’s our plan to buy more Bitcoin.
0:16:54 Here’s our plan to build out a Bitcoin ID network.
0:16:56 Here are the list of conferences,
0:16:58 these Bitcoin conferences that we will be hosting
0:16:59 and attending.
0:17:03 Meanwhile, the actual business, the way they make money
0:17:04 is practically treated like a footnote.
0:17:07 Like it doesn’t seem to matter that much to them.
0:17:10 So when I look at what’s happening here,
0:17:11 I think there are two people buying this stock.
0:17:14 It’s one, the people making the lever play,
0:17:17 but then it’s two, the people who believe that,
0:17:20 you know, if Bitcoin is the future,
0:17:23 MicroStrategy is the leader of that future.
0:17:26 This is gonna be the official Bitcoin company.
0:17:29 They believe that MicroStrategy is somehow
0:17:31 gonna pioneer this new space.
0:17:34 My only question would be in what way
0:17:35 will they pioneer the Bitcoin space?
0:17:38 What does that actually look like?
0:17:39 It’s not very clear to me.
0:17:42 The strategy is very vague, it’s very hand-wavy,
0:17:44 which is why personally, I don’t really buy it.
0:17:48 – If I had been on his board five years ago
0:17:50 and he said, “We’re levering up to buy Bitcoin.”
0:17:52 – You would have been a nightmare.
0:17:54 – I know, very simple.
0:17:55 I would have either been kicked off the board
0:17:56 or I would have resigned
0:17:59 because everything I know about corporate governance,
0:18:01 I would have said, “Michael, you’re a billionaire.
0:18:03 “If you wanna sell your stock
0:18:06 “and go start a Bitcoin company, have at it.
0:18:10 “But don’t take your fiduciary for our shareholders.
0:18:11 “They think they’re investing
0:18:14 “in a business intelligence company.”
0:18:15 And I would have been wrong.
0:18:18 His shareholders have done extraordinarily well.
0:18:19 – We’ll see, we’ll see.
0:18:22 I’m still with you on that take.
0:18:26 I think this could end very badly personally.
0:18:29 And by the way, our producer is messaging me,
0:18:31 “Sitron research just shorted the stock
0:18:33 “and the shares are off around 9%
0:18:34 “as we are speaking right now.
0:18:36 “So clearly I am not the only one
0:18:38 “who’s skeptical about this company.”
0:18:39 – I’m with you.
0:18:44 And the things I don’t like about Bitcoin are,
0:18:45 I actually believe in transparency.
0:18:48 And I understand that people feel like they should have
0:18:50 privacy as it relates to their money.
0:18:55 But this asset class has been used
0:18:57 in some pretty frightening ways.
0:19:01 And maybe you could argue that’s the government’s job
0:19:02 and people have a right to privacy.
0:19:05 And this is a longer conversation,
0:19:08 but the reality is he’s winning.
0:19:10 And they’re just not getting around it.
0:19:12 The guy is a visionary.
0:19:14 I keep waiting for it to come down
0:19:15 so I can buy a little bit of Bitcoin,
0:19:17 but it’s not cooperating with me.
0:19:19 And then every time I see it go up every day,
0:19:21 I’m like, “Oh, Jesus, here we go.”
0:19:23 – It’s gonna be a big day when ProfG finally buys
0:19:24 some Bitcoin.
0:19:25 We’re gonna have to have a celebration.
0:19:27 – Yeah, that means sell everything.
0:19:29 – Yeah, exactly.
0:19:31 Let’s just quickly move on to Nvidia here.
0:19:33 I personally don’t have much to say about these earnings
0:19:36 ’cause it’s kind of the same story we’ve seen,
0:19:39 quarter after quarter, I mean, revenue doubled,
0:19:42 profits grew, estimates were beat,
0:19:47 and then the stock kind of stumbled but then hummed along.
0:19:49 And this is what we’ve come to expect.
0:19:51 I mean, every single quarter,
0:19:55 Nvidia just absolutely destroys and the market says,
0:19:57 “Okay, that’s sort of what we expected.”
0:20:00 The only thing that I would say that struck me,
0:20:02 and this is more of a media observation
0:20:05 than an investing observation,
0:20:08 is that last night before the earnings,
0:20:10 I was just thinking,
0:20:12 it actually doesn’t matter what happens
0:20:13 in this earnings report
0:20:16 because you and I are gonna cover this either way
0:20:20 because this company is just so important at this point.
0:20:23 It makes up 7% of the entire S&P.
0:20:27 It’s in practically every American’s retirement account.
0:20:30 It’s just gotten to this point where it’s like,
0:20:31 it’s systemic to everything.
0:20:32 You can’t ignore it.
0:20:35 It has to be covered whether or not it’s interesting.
0:20:36 And then I think the thing,
0:20:39 Jensen Huang that really summed it up on the earnings call,
0:20:41 he said, quote, “Every company in the world
0:20:44 “seems to be involved in our supply chain.”
0:20:45 And I think he’s right.
0:20:49 This is just, the world relies on Nvidia
0:20:50 in so many ways at this point.
0:20:52 I think it’ll probably go down
0:20:54 as one of the great companies of our time.
0:20:55 – I mean, if you talk about,
0:20:57 it’s really hard for people to get their head around
0:20:59 the value creation here.
0:21:02 And that is if you took the entire German stock market,
0:21:05 every company from Daimler-Benz to Siemens,
0:21:07 the entire German stock market,
0:21:09 the entire French stock market,
0:21:13 all of the best companies in these respective economies,
0:21:16 all of them, Nvidia’s market cap is greater
0:21:20 than the entire stock market of these countries.
0:21:22 And if you really think about that,
0:21:24 if you think about the amount of human capital,
0:21:25 investment, government support,
0:21:27 people who spend their lives at these companies,
0:21:31 the IP, the customer bases, the global customer bases,
0:21:32 take every one of them,
0:21:34 every one of them and add them all together,
0:21:36 they’re not worth as much as Nvidia.
0:21:40 So this is a phenomena.
0:21:42 We don’t know how long it can last.
0:21:46 Yet another fucking amazing asset class that,
0:21:47 I am not in.
0:21:49 I am not in this, Ed.
0:21:51 I keep waiting for it to get cheaper.
0:21:54 – We’ll be right back after the break
0:21:56 with a look at target settings.
0:21:57 If you’re enjoying the show so far
0:21:59 and you haven’t subscribed,
0:22:00 be sure to give PropG Markets a follow
0:22:02 wherever you get your podcasts.
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0:25:18 – We’re back with Profg Markets.
0:25:21 Target and Walmart both reported third-quarter earnings
0:25:24 and once again, it was a tale of two retailers.
0:25:26 Walmart sales rose over 5%,
0:25:28 solidifying a position as the top-performing retailer
0:25:33 in the S&P 500, while targets only rose 0.3%.
0:25:35 Walmart also raised its fiscal year guidance
0:25:38 for the third time and target lowered its outlook.
0:25:40 So the market’s response highlighted that contrast
0:25:44 after the earnings call Walmart stock rose 3%.
0:25:48 Meanwhile, target stock fell more than 21%.
0:25:52 It’s worst day since 2022.
0:25:53 The first thing I will note, Scott,
0:25:57 is that we have basically told this exact same story
0:25:58 before on this podcast.
0:26:02 I’m pretty sure we called it the tale of two retailers.
0:26:04 We’ve seen this before.
0:26:08 Target slumping and Walmart doing really, really well.
0:26:10 So what are your reactions to the fact
0:26:13 that we’re sort of in a deja vu position
0:26:15 in third quarter 2024?
0:26:16 So let me start off by saying I love Target.
0:26:19 I go to the Super Target in Boca Raton
0:26:20 and I think they do a great job.
0:26:22 I have not worked with senior management at Target.
0:26:24 Actually, I had some interaction with the CMO there,
0:26:27 but at one point I had a decent amount of interaction
0:26:30 with everyone, including the board and the CEO at Walmart,
0:26:33 and it’s an exceptionally well-run company.
0:26:35 And what was interesting about this
0:26:38 is that they are going after Target’s white meat
0:26:40 and that is Target was always a cooler,
0:26:42 hipper, better merchandise,
0:26:44 more aspirational version of Walmart.
0:26:45 That you can have value,
0:26:49 but you can have a little bit of sizzle,
0:26:54 a little bit of salsa on that chip, if you will.
0:26:56 And they had their own brands,
0:26:58 kind of a better branding campaign.
0:27:01 It was a positioning that worked really well.
0:27:05 But Walmart’s coming for their core.
0:27:07 I mean, really coming for their heart and their lungs.
0:27:09 And that is the point of differentiation.
0:27:11 They did a lot of wealthy people
0:27:13 who wanted value shop to Target.
0:27:15 Now they’re just going straight to Walmart.
0:27:17 Automation played a big role here.
0:27:19 Walmart is now automating two times
0:27:20 their fulfillment center volume year on year.
0:27:23 Well, Target’s is only 25% more automated.
0:27:26 So Walmart has the capital and the vision
0:27:28 to make huge investments in digital.
0:27:29 Some of them didn’t pay off.
0:27:31 They paid, I think they overpaid for JET
0:27:33 and they bought Bonobos,
0:27:34 which was a stupid acquisition.
0:27:37 Nice guys, but it was just like a cute little concept
0:27:41 that they, anyway, those guys got incredibly lucky
0:27:44 in my view, but about 75% of Walmart’s increase
0:27:47 in market share this quarter came from households
0:27:50 earning over $100,000, which is the demographic
0:27:52 typically associated with people shopping at Target.
0:27:57 So people want convenience and affordability.
0:28:01 Walmart, the unlimited deliveries for $12.95 a month.
0:28:05 And people are focused on spending smart.
0:28:08 Groceries were 60% of Walmart’s US sales.
0:28:10 While the category accounts for less than 25%
0:28:11 of Target sales.
0:28:13 And I would imagine that groceries is a,
0:28:16 while a low margin business, it’s a more consistent business.
0:28:18 And if you look at the two companies,
0:28:21 Walmart’s trading at 36 times earnings.
0:28:24 Target is trading at 12.
0:28:27 And the analogy here that you brought up,
0:28:29 which is a really interesting one,
0:28:32 is the analogy between a dominant number one
0:28:34 and a very distant two, and that is Uber and Lyft.
0:28:35 And they’re eerily similar.
0:28:38 Uber’s up 157% over the last five years
0:28:40 while Lyft is down 62%.
0:28:41 Actually, I think to see,
0:28:43 I think both have outstanding CEOs.
0:28:45 Dara Costa-Schei and the CEO at Lyft
0:28:47 are both impressive people.
0:28:49 By comparison, similarly, if you will,
0:28:52 Walmart’s up 120% over the last five years
0:28:55 while Target is down about 4%.
0:28:57 So this is what I think is gonna happen.
0:28:58 And I’ll come back to this.
0:29:02 I think Target’s beginning to look like a juicy LBO Target
0:29:05 or at a minimum, they’re gonna have an activist in there.
0:29:07 This thing is now cheap enough.
0:29:10 It still has a charm brand and a great real estate.
0:29:13 I think if I were to try and speculate with the problem
0:29:14 is it’s the following.
0:29:17 When you’re dealing with a CPG company
0:29:20 or a retailer in a duopoly, Coke Pepsi,
0:29:24 everyone’s compensation mojo DNA is focused on one thing.
0:29:26 And that is share.
0:29:28 You do not give, if you’re Pepsi,
0:29:32 you do not and you’ve got 17.8% share.
0:29:35 If it goes to 17.6 as the brand manager,
0:29:36 you might get fired.
0:29:39 So you become so obsessed with share
0:29:44 that in the market also is very focused on your share
0:29:46 that you can’t make the hard decisions
0:29:47 that I think you need to make.
0:29:49 And I would argue that Target just needs to be
0:29:52 a dramatically smaller company that’s more profitable.
0:29:54 They have 1,900 stores.
0:29:58 It should probably be 1,000 or 1,200 and cut costs
0:30:01 and make this a more profitable, smaller business.
0:30:05 And I think that would best be done outside
0:30:06 of the scrutiny of a publicly traded company.
0:30:08 And when you look at the fact that PE firms
0:30:09 have a quarter of a trillion dollars
0:30:11 on their balance sheet ready to deploy,
0:30:15 when you look at the fact this thing is getting pretty cheap,
0:30:17 one or two things is gonna happen.
0:30:19 We’re either gonna see an activist
0:30:21 or we’re gonna see a potential club deal
0:30:22 and take private here.
0:30:23 – Very interesting.
0:30:26 So, Target’s market cap is 56 billion.
0:30:29 Its enterprise value is around 72 billion
0:30:31 if you account for the debt.
0:30:33 Who’s got that money?
0:30:35 – Oh, it would have to be a club deal,
0:30:37 but you got it, like I said,
0:30:40 PE has 250 billion dollars in dry capital
0:30:41 and they could finance a lot of it with debt.
0:30:45 It’s still, you know, if it’s trading at a PE of 12,
0:30:47 that means it’s got five billion in earnings.
0:30:50 So they could probably borrow, you know,
0:30:52 10 to 20 billion of it and they get a club deal,
0:30:54 get a bunch of the biggest players
0:30:55 to each come up with 10 billion.
0:30:57 Yeah, they could get this deal done.
0:31:00 But I think what you’re gonna have in,
0:31:04 I mean, the three biggest deals I think in LBO history
0:31:08 were HCA, RGR, but none of them have happened
0:31:10 in the last several years.
0:31:12 But all the moons are lining up
0:31:14 for what I think will be probably the biggest LBO
0:31:15 in history in 2025.
0:31:17 I think it’s either gonna be Intel
0:31:18 or this company, Target.
0:31:20 People say they know Walmart’s bigger,
0:31:24 but oftentimes people will mention Target
0:31:26 in the same breath as Walmart.
0:31:26 – Absolutely.
0:31:29 Target has a $56 billion market cap.
0:31:31 Walmart’s is 700 billion.
0:31:32 – It’s crazy.
0:31:35 – I can tell you, a lot of PE guys are sharpening
0:31:36 their pencils and looking at this thing
0:31:39 and they’re calling their buddies and saying,
0:31:40 if the CEO’s down with this
0:31:41 and we think we can make this happen,
0:31:44 are you in for one, five, 10 billion in equity,
0:31:48 talking to banks, how much could we finance on this thing?
0:31:51 This is, there’s a lot of people,
0:31:52 I would imagine a lot of very smart people
0:31:53 looking at this company right now.
0:31:56 – I would like to just focus on Target
0:31:58 and the earnings themselves.
0:32:01 And then we’ll compare it to Walmart,
0:32:04 but just to highlight what happened to Target.
0:32:08 So revenue rose just 1%, which is way below expectations.
0:32:12 Profits fell 12%, also way below expectations.
0:32:14 And they said, Target,
0:32:17 that there were two main issues they were dealing with.
0:32:19 The first issue was the Longshoreman Strike,
0:32:20 which we’ve discussed before.
0:32:21 There were all these strikes
0:32:25 at many of our largest ports in America back in October.
0:32:29 And that was a problem and Target said that as a result,
0:32:31 their freight costs and their supply chain costs
0:32:33 were a lot higher.
0:32:36 The second issue that they highlighted was consumer demand.
0:32:40 So the average ticket size for Target customers
0:32:42 was down 2%.
0:32:45 They also saw a pretty significant decline
0:32:47 in their discretionary spending.
0:32:49 And the way Target positioned that problem
0:32:52 is that there is this macro issue in America
0:32:53 happening among consumers.
0:32:56 Consumers in America are tight on cash.
0:33:00 And so they’re just more cautious about spending right now.
0:33:03 Okay, now let’s compare that to Walmart.
0:33:06 Sales rose more than 5%.
0:33:09 Profits higher than expected.
0:33:13 Average ticket size grew more than 2%.
0:33:15 And so the story over at Walmart
0:33:17 that they are telling shareholders,
0:33:20 and mind you, these earnings calls happen in the same week.
0:33:22 So we’re looking at what happened to Target
0:33:24 and then immediately following that
0:33:26 with what happened to Walmart.
0:33:28 The story is that customers are going to Walmart
0:33:32 more frequently and when they do, they’re also spending more.
0:33:37 So this macro boogie man that Target seems to be talking about
0:33:39 when it comes to consumer demand
0:33:41 that is supposedly hurting Target,
0:33:43 for whatever reason, it isn’t touching Walmart.
0:33:45 Walmart’s doing just fine.
0:33:47 And then the Longshoreman strike,
0:33:49 Walmart is the second largest importer
0:33:51 of the affected ports from that strike.
0:33:54 The only one ahead of it is LG Electronics.
0:33:58 It should have been hit way harder by this strike than Target.
0:34:01 But Walmart said that, yes, it was a slight issue,
0:34:02 but they managed the inventory well.
0:34:06 They only saw a 0.6% decline in their inventory level.
0:34:09 So in other words, Walmart just figured it out.
0:34:11 The consumer issue wasn’t a problem,
0:34:13 and neither was the Longshoreman strike.
0:34:18 So this, again, is a story we’ve told before.
0:34:20 This is the fourth straight quarter
0:34:23 in which Target has blamed their underperformance
0:34:27 on something else, whether it’s inflation or demand or strikes,
0:34:30 or in some cases, even shoplifting.
0:34:32 And meanwhile, Walmart is overperforming.
0:34:33 They’re doing just fine.
0:34:38 So I think the question you have to ask Target now
0:34:42 is at what point will you publicly recognize
0:34:44 that maybe this is your fault?
0:34:46 Maybe this isn’t America
0:34:47 and the consumer’s doing something wrong.
0:34:50 Maybe this is you doing something wrong
0:34:53 and maybe you need a drastic change
0:34:57 because Wall Street just isn’t buying this narrative anymore.
0:35:00 There’s a reason the stock dropped more than 20%.
0:35:02 They’re just done with it.
0:35:05 So I guess my question to you would be,
0:35:07 what does the boardroom do now?
0:35:10 I think the activist point was a good one.
0:35:12 It seems like I’m sure a lot of activists
0:35:14 are coming in here and looking to shake things up.
0:35:16 But what do you think the conversations
0:35:19 in the boardroom of Target are looking like right now?
0:35:21 What is probably going to happen
0:35:23 and what the board should do is simple.
0:35:25 They should fire the CEO.
0:35:28 And that is your analysis is correct.
0:35:31 At some point, it’s about you, boss.
0:35:34 You know, all the problems you’re claiming
0:35:36 that are these macro systemic issues,
0:35:39 Walmart seems to have figured out.
0:35:40 So it’s simple here.
0:35:44 Doug McMillan gets a raise and Brian Cornell gets fired.
0:35:46 He’s been the CEO for the last 10 years.
0:35:49 This company has underperformed dramatically.
0:35:50 It’s peer group.
0:35:52 And maybe it’s not his fault,
0:35:54 but at a minimum they need a fresh change.
0:35:58 And the way I look with CEOs, people say, fire ’em.
0:36:00 CEOs make so much fucking money,
0:36:03 they should be held to a higher standard.
0:36:04 Yeah, he’s fine.
0:36:05 And this is what’s going to happen.
0:36:06 The chairman of the board,
0:36:08 I would bet in the next couple of weeks.
0:36:08 Really?
0:36:09 Okay.
0:36:10 Well, I get the timing wrong.
0:36:12 This guy’s on the green mile.
0:36:15 He just is, he gets a call from the chairman
0:36:17 and says, Brian, yeah, you know, love you,
0:36:19 but we’re going to make a change.
0:36:21 And they’re going to give them a golden parachute
0:36:23 or they’ll give them the Ford Vesta’s options.
0:36:26 But no, he should be, this is an easy one.
0:36:28 He is, in my opinion,
0:36:32 after 10 years of really mediocre performance,
0:36:36 he absolutely deserves to be terminated in my view
0:36:37 or let go.
0:36:39 And I would, I’d be shocked if that didn’t happen.
0:36:40 And if it doesn’t happen,
0:36:43 that’ll be the first thing on an activist PowerPoint deck
0:36:46 is that management has vastly underperformed.
0:36:49 He hasn’t, I want to be clear, he hasn’t been a disaster,
0:36:51 but these jobs are fairly kind of,
0:36:53 what have you done for me lately?
0:36:55 And the last five years have not been strong.
0:36:56 Absolutely.
0:36:58 Let’s just take one moment before we wrap it up here
0:37:02 to talk about what Walmart has done, right?
0:37:07 Because, I mean, the stock is up 120%
0:37:08 in the past five years.
0:37:10 And I feel like no one saw that coming.
0:37:15 Like, Walmart has generally been viewed as kind of a dinosaur
0:37:20 and more importantly, a shitty competitor to Amazon.
0:37:21 I mean, I think the story that most people believe
0:37:24 was that Amazon was gonna kick the shit out of Walmart,
0:37:27 but they’ve done really, really well.
0:37:28 I think the question is,
0:37:30 what have they gotten right specifically?
0:37:33 And just two things really jump out to me
0:37:34 that are worth highlighting.
0:37:38 The first is how they invested in Ecom.
0:37:42 So they made a set more than $7 billion investment in 2022
0:37:45 to just revitalize all of their technological infrastructure.
0:37:49 And the business is, the E-commerce business is tearing.
0:37:52 It’s up 27% year over year.
0:37:54 And you compare that to Target, which is up just 10%.
0:37:56 And you mentioned the fact
0:37:58 that they have doubled their automated fulfillment volume.
0:37:59 I think that’s really important.
0:38:03 So one part of this is their embrace of technology,
0:38:06 their embrace of the internet, which has really paid off.
0:38:10 The second one is pricing.
0:38:11 I don’t know if you remember,
0:38:13 but earlier this year,
0:38:16 Walmart came out with massive discounts
0:38:18 when inflation was ripping.
0:38:21 And our response was,
0:38:22 one, we commended Walmart
0:38:25 and two, everyone’s gonna follow suit now.
0:38:26 And that is exactly what happened.
0:38:29 Target eventually decided to follow up
0:38:31 and they offered their own discounts,
0:38:33 but it looks like it was too late.
0:38:35 And you almost have to give credit to Walmart
0:38:37 for being so bold on pricing
0:38:39 and recognizing that the most important thing
0:38:42 is the foot traffic and the trust of their customers.
0:38:43 As they said, fuck it,
0:38:46 we’re gonna reduce prices before anyone else does.
0:38:50 And it seems to have really paid off in this quarter at least.
0:38:52 So those are my two standouts
0:38:54 in terms of Walmart’s performance.
0:38:55 Perhaps you have some other observations
0:38:57 on what they’ve done well.
0:39:00 – So this guy, Bruce Buchanan, an economist at Stern,
0:39:01 taught me a framework
0:39:02 that has just kind of changed the way
0:39:04 I look at shareholder value.
0:39:05 And that is all shareholder value
0:39:08 comes down to the relationship
0:39:11 or the geometry between three lines.
0:39:13 The top line is perceived value.
0:39:15 The middle line is the price you charge
0:39:18 and the bottom line is the cost.
0:39:20 And there’s only two ways to create shareholder value.
0:39:22 You either increase perceived value,
0:39:25 better merchandising, better branding,
0:39:26 association of innovation.
0:39:28 And then if perceived value goes up,
0:39:29 you can have a lot of fun.
0:39:31 You can either raise the price you’re charging,
0:39:32 which creates greater margins
0:39:35 because the delta between your costs and the price go up.
0:39:37 Or you can leave the price the same
0:39:39 and you should expand market share
0:39:41 ’cause the delta between the price you’re charging
0:39:43 and the perceived value goes up,
0:39:46 increasing the value to the consumer
0:39:48 and your market share goes up.
0:39:51 Now, the majority of shareholder value, I would argue,
0:39:55 is around pushing the top line, the perceived value up, right?
0:39:58 Great spokesperson, Tiger Williams or a great ad campaign,
0:40:00 or we are the best, you know,
0:40:03 we are tightly associated with this brave new future of AI,
0:40:06 so we get a ton of traffic, open AI,
0:40:08 and we can raise our prices.
0:40:11 What Walmart has done is they brought in this gestalt
0:40:15 that every day we’re trying to push down the cost line
0:40:19 and then immediately, as soon as we’re able to pull it down,
0:40:23 we pull down the price line that we charge consumers.
0:40:26 We pass on those cost savings to the consumer immediately,
0:40:29 thereby increasing the delta between our prices
0:40:31 and our perceived value, which should expand share,
0:40:33 which is exactly what happened here.
0:40:35 And the problem is, I’ve always told kids
0:40:36 coming out of business school,
0:40:39 you wanna have a bias towards a company doing this,
0:40:41 increasing perceived value,
0:40:44 because when you’re in the business of pushing down the line,
0:40:48 it’s purely a business of operations and scale.
0:40:52 Doug McMillan can make multi-billion dollar investments
0:40:54 in technology that may or may not pay off
0:40:56 to try and get cost down 10 bibs.
0:40:58 He can make staggering investments.
0:41:01 You see the same dynamic at Uber and Lyft.
0:41:03 The number one player has the scale
0:41:06 where they can just make more bets.
0:41:08 And in this instance, when you’re in the business
0:41:10 of pushing the line down with your Dell,
0:41:12 with your Home Depot, with your Walmart,
0:41:15 it’s a business of scale and operations.
0:41:18 And right now, both of those things go to the market leader.
0:41:20 And the number two, quite frankly,
0:41:25 is just feeling the pain of how much it hurts,
0:41:29 one 15th of the market cap to be the number two.
0:41:31 We’ll be right back after the break
0:41:33 with a look at Comcast’s spin-off.
0:41:36 If you’re enjoying the show so far, hit follow
0:41:38 and leave us a review on Proficy Markets.
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0:44:34 We’re back with Prof2Markets.
0:44:35 It’s official.
0:44:37 Comcast is finally cutting the cord.
0:44:40 The company is spinning off several of its cable TV networks
0:44:42 to make it official.
0:44:44 The company is spinning off several of its cable TV networks
0:44:48 into a new public entity, temporarily named Spinco.
0:44:54 This new company will include MSNBC, CNBC, USA, Oxygen,
0:44:56 eSci-Fi and the Gulf Channel.
0:45:00 However, key assets like NBC, Bravo and Streaming Platform,
0:45:04 Peacock will remain under the Comcast umbrella.
0:45:07 So Scott, you predicted this.
0:45:11 This is a clip from September of 2023.
0:45:14 Let’s play it.
0:45:16 There needs to be recognition that cable TV assets
0:45:18 are no longer teenagers that are going to keep growing,
0:45:21 that they’re in fact, you know, Nana and Pop-Up
0:45:23 and need to be made comfortable.
0:45:24 These things are dying.
0:45:27 And they need to be managed for cash flow,
0:45:30 not starved of investment, but stop the hallucination
0:45:33 that these things are ever going to reignite growth again.
0:45:37 So my prediction is you’re going to see one or more players
0:45:39 shed their assets into a different hold code
0:45:44 to clean up their story, and also for consolidation and scale.
0:45:47 There needs to be a bunch of these things wrapped together.
0:45:50 So there’s one sales rep in Chakrasavaki selling ads
0:45:52 on the Cartoon Network or what have you.
0:45:56 And Unmuck, or, you know, Unfuck the story that
0:45:59 is media companies now that have growth,
0:46:04 but also have declining assets in the same portfolio.
0:46:07 I just want to say I can feel you smiling
0:46:10 on the other side of the screen.
0:46:13 I add, let’s be honest, I’m touching my nipples.
0:46:20 This is the most turned on I have been.
0:46:22 I mean, granted, I don’t own a single fucking coin,
0:46:24 and I keep waiting for Nvidia to go back
0:46:27 to 10 bucks a share, but let’s be honest,
0:46:29 the dog is howling on this one.
0:46:32 The dog is howling.
0:46:36 Yeah, this was, look, this was obvious.
0:46:40 And effectively what you have is when you mismatch families
0:46:42 of different generations under one stock ticker,
0:46:45 you have good assets that are growing in the market values
0:46:49 as growth or as consumers not on cash flow.
0:46:50 And then you have shitty businesses
0:46:55 that are declining, but still produce cash flow.
0:46:56 Investors in the market don’t know what to do.
0:46:58 So what they do is they find the shittiest assets
0:47:00 trading at the lowest multiple, and they assign
0:47:02 that entire multiple to the whole thing.
0:47:07 So the divestiture of assets in different sort of stages
0:47:09 of the life cycle here creates more clarity
0:47:11 and ultimately creates a whole that’s greater
0:47:12 than the sum of its parts.
0:47:16 So the disposition or clarity around a brand architecture
0:47:18 that spins these low performing or declining,
0:47:21 but high cash flow assets into a separate company
0:47:22 is a very good idea.
0:47:26 And then they will have their own currency to go buy ABC
0:47:30 or Bravo Five or CNN because everyone,
0:47:34 whether it’s Iger or Zaslaw is in the same position.
0:47:36 And that is they have some amazing assets
0:47:38 that would be valued at X and they have other assets
0:47:40 that are valued at 0.3 X.
0:47:44 So the market assigns that 0.3 to their entire portfolio.
0:47:46 This is a good move.
0:47:49 It will be used potentially as a shell company to go
0:47:52 and acquire other declining but high cash flow assets.
0:47:55 And I remind people that the second best investment
0:47:58 I ever made was in a yellow pages company.
0:48:00 And it was very simple.
0:48:02 We knew these things were going away.
0:48:06 They were declining at seven to 12% a year.
0:48:08 But there’s still a lot of people
0:48:10 that want that big fat fucking book
0:48:13 delivered to their home and rural wherever
0:48:14 in case they need a plumber
0:48:16 and they still have a dial up phone.
0:48:19 And these businesses still spend a lot of cash flow.
0:48:22 And what we would do is go buy the biggest yellow pages
0:48:25 company in the Southeast and say, okay, you’re fucked.
0:48:25 We’re fucked.
0:48:27 Let’s be fucked together.
0:48:29 And the way we’ll do this is we’ll take
0:48:32 your 10% of your best salespeople.
0:48:35 We’re going to lay off your entire administrative staff.
0:48:37 We’re going to close your headquarters now.
0:48:40 And as long as we can cut costs faster
0:48:42 than the revenue declines based on consolidation
0:48:45 and the fact we can pick these assets up on the cheap
0:48:49 every year this company increased its cash flow.
0:48:51 And this specific company then took a lot of that cash flow
0:48:55 and started trying to transition to a CRM software company
0:48:57 and actually did it quite well.
0:49:02 But consolidation of mature or declining assets
0:49:03 can be a great business
0:49:06 because typically these businesses don’t go away
0:49:09 as quickly as you think they’re going to.
0:49:11 And as long as you take sort of a private equity
0:49:14 cost cutting approach and stop trying to inject Botox
0:49:17 and filler into this thing such that under the illusion
0:49:20 it’s going to look young again, it’s not going to.
0:49:22 – So just on your point about depressed valuation.
0:49:25 So if we look at how much revenue these assets
0:49:27 actually generated for Comcast,
0:49:30 it comes out to around $7 billion.
0:49:33 Now we don’t know what the profitability is exactly.
0:49:35 I think we can assume it’s, it is quite profitable
0:49:38 but there are public companies out there
0:49:40 that are quite similar to this business.
0:49:43 And the example we could use is Fox Corporation
0:49:46 which has a price to sales multiple of one and a half.
0:49:48 So if we were to apply the same multiple
0:49:51 this segment is probably worth $10 and a half billion.
0:49:54 And you compare that to the overall market cap of Comcast
0:49:57 which is more than 160 billion.
0:50:01 So Wall Street hates cable in the same way
0:50:03 that they hated Yellow Pages.
0:50:08 My question to you though from an investing perspective,
0:50:14 you said that Yellow Pages was one of your best investments.
0:50:17 What made it so good?
0:50:22 Did you sell your stake at some point at a higher price?
0:50:25 Or was it the fact that cash flows were high
0:50:27 and you were receiving direct income?
0:50:29 What made it such a good investment?
0:50:30 – So I invested in the company
0:50:32 probably the better part of 10 years ago
0:50:35 and you could for a dollar in cash flow,
0:50:39 you had to spend two and a half dollars on a company.
0:50:41 And so we knew these companies were going out of business
0:50:43 but they weren’t going out of business in 30 months.
0:50:47 So within three years, the company just in cash flow
0:50:50 could return all of the initial investment to the investors.
0:50:51 – Wow.
0:50:52 – And this is what it comes right down to.
0:50:54 It’s very similar, everything replicates nature
0:50:56 or human interaction.
0:50:59 And that is if you have the chance,
0:51:01 I’m going to F1 because I want to hang out
0:51:05 with hot young people or hot successful people.
0:51:08 I am not going to, I don’t know,
0:51:09 the Golden Girls reunion.
0:51:11 I don’t want to hang out with old people.
0:51:16 And we are attracted to youth and vigor and growth.
0:51:19 And so these young vigorous growing companies
0:51:20 get an enormous multiple
0:51:23 ’cause we all want to hang out with them, right?
0:51:25 So they trade a much higher multiples.
0:51:28 And if you look at the most successful businesses
0:51:31 in terms of likelihood of success from startup,
0:51:35 the average is 14%, only one out of seven companies survives
0:51:38 but 90 plus percent is senior care homes.
0:51:40 If you’re willing to go into the business
0:51:43 of taking care of seniors,
0:51:45 nine out of 10 of these businesses work
0:51:46 but there’s an absence of capital
0:51:49 because they’re not as fun or sexy, they’re not growing.
0:51:52 People don’t like to be around old people.
0:51:54 It’s the same with distressed assets.
0:51:56 Everybody wants to hang out with open AI.
0:51:58 Everybody wants to hang out with NVIDIA.
0:52:00 They don’t want to be in distressed assets.
0:52:02 So if you go up and down the stack
0:52:07 from angel, to venture, to IPO’s, to growth, to mature,
0:52:11 to declining, to distressed, hands down,
0:52:13 the most successful, greatest likelihood of success
0:52:16 I found in the stack in terms of a capital
0:52:20 or an asset around the lifestyle, it’s distressed
0:52:24 because you can pick up shit at pennies on the dollar.
0:52:26 – I guess it’s interesting to me.
0:52:29 I mean, I consider, I think that I think
0:52:32 like a value investor, I think I’m a value investor.
0:52:34 And I guess the thing that I’ve always felt
0:52:37 with distressed assets is it feels as though
0:52:40 what you have to do is you’re getting a really good price
0:52:42 and you’re buying at a really good price
0:52:43 but then what do you do with it?
0:52:45 You’re sitting with this pile of shit
0:52:48 that you could make look a little bit less
0:52:50 like a pile of shit and my assumption has always been,
0:52:52 okay, well, you just got to flip it at some point.
0:52:54 But what’s interesting about what you described
0:52:56 with the yellow pages is actually
0:52:59 it was a good long-term investment
0:53:01 because of how profitable it was
0:53:03 and because you could use those profits
0:53:07 to then revitalize the company and turn it into a CRM
0:53:10 which is far more sustainable over the long term
0:53:12 than what it was before.
0:53:15 And so I want to continue with this yellow pages analogy
0:53:16 because I think it’s a good one.
0:53:20 What do you think the makeover looks like
0:53:25 for MSNBC and CNBC and SyFY and all of these channels?
0:53:31 What does the CRMification of this spinco,
0:53:33 how will that play out, do you think?
0:53:35 – I don’t have a vision for a new business
0:53:37 that they could pour their cash flow into
0:53:39 to turn this to pivot this company.
0:53:42 And also you don’t need to do that
0:53:44 because these companies,
0:53:47 there’s just going to be a lot of people watching CNBC
0:53:50 and Andrew Ross Orkin who is an extraordinary journalist
0:53:53 and Joe Kiernan who is not.
0:53:56 They are going to be watching these things for a long time
0:53:58 and there’s still going to be advertisers
0:54:01 that want to reach people who are 70, right?
0:54:05 Average age of an MSNBC viewer.
0:54:08 The conversations, and I know this firsthand happening
0:54:10 with all of these anchors is the following.
0:54:14 Chris Wallace, we love you, you’re iconic.
0:54:15 You’re fantastic.
0:54:19 Last year, when we were trying to convince ourselves
0:54:22 we could inject Botox and filler into our face
0:54:25 and we had this idea for CNN Plus
0:54:26 and we wanted to take you from Fox,
0:54:28 we offered you a four or five year deal at eight million
0:54:29 a year, that’s what I’ve read.
0:54:32 I would bet they said, we love you, you’re great.
0:54:34 We’re willing to pay you a million bucks a year.
0:54:38 The salary cuts, the cost cutting,
0:54:42 we did an analysis of how many people we need
0:54:44 at this podcast.
0:54:46 We’re getting like triple or quadruple
0:54:48 the number of viewers per person than these big firms.
0:54:51 These firms all roads lead to the same place.
0:54:56 The anchors here are pilots for Pan Am in the 70s.
0:55:00 They’re banging stewardesses, they’re high prestige,
0:55:01 but they know the writing’s on the wall.
0:55:03 They’re going to be making $68,000
0:55:06 working for Spirit Airlines going from Louisiana
0:55:08 to Asheville pretty soon.
0:55:12 Even if they don’t find another thing,
0:55:13 these companies, as long as they keep acquiring
0:55:16 and consolidating and cutting costs, which they will do,
0:55:20 they will figure out a way to return all of that capital
0:55:21 to shareholders really quickly
0:55:24 ’cause the share price will be low to buy in
0:55:25 and they’ll make really good money.
0:55:28 I would actually rather, I think I’d rather invest
0:55:31 in this spinco than in the core Comcast
0:55:33 because it’ll be at a lower valuation.
0:55:35 There’s a lot of properties.
0:55:38 Hey, Bob, are you ready to finally sell your shit to us?
0:55:41 We’ll take it, we’ll take it off your hands.
0:55:43 We’ll pay you an awful price,
0:55:45 but your stock price will go up
0:55:48 because the market will be focused on your parks
0:55:50 and on Disney Plus, which are great businesses,
0:55:54 instead of constantly asking you about ESPN and ABC
0:55:57 and you having to apologize for it every three months.
0:55:58 – I love it.
0:56:00 Let’s put a consortium together, take a majority stake,
0:56:01 and let’s call it–
0:56:02 – Doggo.
0:56:03 – Let’s call it Doggo.
0:56:04 – Doggo.
0:56:05 (laughing)
0:56:06 Let’s take a look at the week ahead.
0:56:10 We’ll see earnings from Dell, CrowdStrike, and HP.
0:56:12 And we’ll also see the Personal Consumption
0:56:14 Expenditures Index for October.
0:56:16 Sounds like a fascinating week.
0:56:17 Scott, any predictions?
0:56:20 – The biggest LBO in history is gonna happen in 2025.
0:56:24 And there’s a ton of capital on the sidelines.
0:56:25 Some stuff is getting cheap.
0:56:27 Great iconic companies is getting cheap.
0:56:31 And my bets, two of my favorite candidates
0:56:34 are now Intel and Tarjay.
0:56:35 – And just before we go, we’ll be recording
0:56:38 and ask me anything episode at the end of the year.
0:56:40 So please send in your questions for me and Scott
0:56:43 to officeours@profgmedia.com
0:56:46 or you can tag us on social media @profgpod
0:56:49 or you can leave us a comment on our YouTube channel.
0:56:50 Anything is fair game.
0:56:51 Send us your questions.
0:56:55 This episode was produced by Claire Miller
0:56:57 and engineered by Benjamin Spencer,
0:56:59 our associate producer is Alison Weiss.
0:57:00 Mia Silverio is our research lead,
0:57:02 Jessica Lange is our research associate,
0:57:04 Drew Burroughs is our technical director
0:57:06 and Catherine Dillon is our executive producer.
0:57:08 Thank you for listening to Prodigy Markets
0:57:10 from the Vox Media Podcast Network.
0:57:12 If you like what you heard, give us a follow
0:57:15 and join us for a fresh take on markets on Monday.
0:57:21 ♪ Lifetimes ♪
0:57:29 ♪ You held me ♪
0:57:34 ♪ In kind reunion ♪
0:57:41 ♪ As the world turns ♪
0:57:46 ♪ And the dark lies ♪
0:57:48 ♪ In love ♪
0:57:51 (upbeat music)
0:57:57 And I think what’s happened with Target,
0:58:00 hold on.
0:58:01 Yeah.
0:58:06 Hello, hola, hola, por favor,
0:58:09 vende tras en una hora, por favor.
0:58:11 Okay, gracias.
0:58:16 Oh, a little cosmopolitan skill from El Pato.
0:58:17 That’s right, that’s right.
0:58:18 Anyways, okay.
0:58:19 Where were we?
0:58:21 Otage.
0:58:24 Support for this episode comes from AWS.
0:58:26 AWS Generative AI gives you the tools
0:58:28 to power your business forward
0:58:29 with the security and speed
0:58:32 of the world’s most experienced cloud.
0:58:36 Food and security still affects millions of individuals
0:58:37 around the globe.
0:58:40 And Nestle, a global leader in nutrition, health,
0:58:42 and wellness, understands the importance
0:58:45 of working together to create lasting change.
0:58:48 Nestle’s partnerships extend beyond just financial support
0:58:49 from building urban hoop houses
0:58:52 to producing custom seasoning for food banks.
0:58:54 Nestle and their partners actively engage
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0:59:13 (upbeat music)
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Scott and Ed open the show by discussing the Justice Department’s proposed forced sale of Google Chrome, how Microstrategy is funding its Bitcoin buying spree, and Nvidia’s earnings. Then Scott breaks down why Target is still struggling to compete with Walmart and explains why it’s a prime candidate for a leveraged buyout. He and Ed also analyze Walmart’s formula for long-term success. Finally, they discuss Comcast’s decision to spin off some of its cable tv networks and consider why distressed assets are a good investment.
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