2023 Predictions Part I

This week on Prof G Markets, we hear part one of Scott’s predictions for 2023. Tune in on Thursday for part two. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

  Support for the show comes from Northwest Registered Agent. Your business identity is everything that makes your business legitimate and professional. With Northwest Registered Agent, you don't just form a business, you start a complete foundation built for privacy, credibility, and growth. That includes registered agent service, a business address, operating agreement, domain, website, professional email, phone number, and built-in privacy. In other words, your home address, personal email, and phone number stay private. Don't pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/profgfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/profgfree.

• 0:48Speaker 01

  Your heart can tell you a lot about your health. Apple Watch Series 12 measures your heart rate every five seconds with the most accurate heart rate sensing in wearable. So your vitals app, now with heart rate variability, can tell you when something is off. And your readiness score can let you know when to rest and when to push. Hear the story in every heartbeat with Apple Watch Series 12. The features described are for wellness purposes only and not for medical use. iPhone 11 or later required. Based on Apple conducted study of heart rate accuracy, August 2026. Visit apple.com/aplewatchseries12.

• 1:29Speaker 02

  Welcome to the property markets. It's the first episode of 2023, and we are on vacation. So today, we're running part one of our 2023 predictions livestream. Tune in on Thursday for part two.

• 1:45Speaker 02

  Okay, some predictions for 2023. The Patagonia Vest recession is just getting started. We're going to see substantially more layoffs in the part of the economy that's kept on giving, and that is the growth economy. Recession's are usually one of two things. They're usually either called a blue collar recession executives or a white collar recession. The place in the economy that's really going to register the most damage is going to be the growth part of the economy, or loosely speaking, overfunded tech. The majority of CEOs in this space, or a lot of employees, are still in denial as if they've never really experienced a downturn. I'm on the board of several private company unicorns, and they go through sort of four stages. They'll go through denial. Oh, it's a V. We're going to snap back, and everything's going to be fine. And then they go to a hiring

• 2:30Speaker 02

  freeze, then they go to their first layoff, and then they go to their second layoff. And my advice to entrepreneurs, when they see the cloud or the storm cloud forming, is to skip right to the second layoff and go deeper than you naturally would otherwise, not to trust your instincts on this, because the faster you get in fighting shape, the faster you can get off your heels and onto your toes. And also, the more generous you can be with people you are laying off. I've gotten criticized for being so, matter of fact, about layoffs. I think a key component of capitalism is to move human capital to its best, best use, if you will. Also, we're talking about some of the most overeducated and talented people in the economy. They're going to be just fine. Okay, we've also seen

• 3:11Speaker 02

  this part of the economy has more to give back. It used to be 7% of the GDP. Now it's 12. There used to be 3 million jobs. Now there's 18 million. So this has become a very large part of the economy. And it just makes sense that at some point, it's going to give back some of these extraordinary, unparalleled, unprecedented historic gains. Okay, so the party stops, right? We're seeing a lot of CEOs who were sort of begging their workers to come back to the office. Power is somewhat or leverage is moving back to management versus the employee base. And it's going to be, I think, a pretty, pretty big shock for a lot of employees who grew up in sort of the age of unprecedented growth.

• 3:53Speaker 02

  We're seeing a lot of pushback. It won't last very long. And when people have difficult time paying their rent. And also, we're seeing categories that normally weren't considered very cool or very interesting are registering the strongest job growth because they've been over and under invested as all capital was going into the growth parts of the economy. We're starting to see tech layoffs, a lot of noise here, less, more noise than news. I think it becomes news in 2023. The big story in 2022 was inflation. I believe the big story in 2023 is going to be the economy. And we're going to see, we're just getting started with respect to layoffs as it relates to the growth economy. And it would be impossible that CEOs aren't taking notice of what Elon Musk has done at Twitter.

• 4:36Speaker 02

  In terms of the actual service, and I predicted I thought the site would crash, it has not. The Twitter has been able to maintain a minimal acceptable standard. The site is still up, it's still running. I don't see any difference in the site. People say you can see edge of edge cases of of bugs. I have not seen it, and he's doing it with 60% or less employees, and I think it's going to go down to 80% less employees. There's no way that everyone from Meta to Google to Salesforce to Adobe to you name your e-commerce company or a tech or SaaS company hasn't taken notice and hasn't thought, we've been shoving so much ice cream down the throat of this company that perhaps we built up pretty large fatty deposits.

• 5:18Speaker 02

  And I think you're going to see dramatic layoffs even across companies that are doing well and still growing. It's pretty easy to figure out who goes next, right? You look at revenue, you look at that cost of revenue, and then you look at headcount. So when a company's revenue is up 9%, and its cost of that revenue is up 26%, and its headcount is up 40%, and most tech companies, the majority of their SG&A comes from people. That just spells that layoffs are coming, and that is that they assumed that the market would catch up to their hiring, and it hasn't. They've gotten way out over their skis. Meta, flat revenue, cost of revenue, headcount up 19%.

• 5:56Speaker 02

  Even with the layoffs of 10,500 people, which was triple the layoffs at Twitter, that only takes them back to November of 2022. So if they were to go back to, say, pre-pandemic levels, that means they would lay off another 30,000 to 40,000 people. Pinterest, revenue up 11%, but cost up 27%, as was headcount. Roblox, up 22% revenue, cost of revenue up 17, headcount up 29. So there'll be layoffs here, they just won't be as severe. It's fairly straightforward math. Amazon, Alphabet, Meta. Will have their most profitable year despite a slowdown in revenue. Why?

• 6:38Speaker 02

  Because their growth will slow, but they'll still be growing and they're going to massively decrease costs, which will result in a slowdown in revenue growth across the big players and massive profitability. A lot of this hinges on what Meta wakes up from this, uh, from their kind of big gulp venti ayahuasca trip of the metaverse. But there is so much revenue that could fall to the bottom line with the layoffs that the economy and to a certain extent Twitter has provided cloud cover for. You're going to see chaos in traditional ad-supported media. When I say chaos, I mean layoffs, consolidation, mergers, and some restructurings. The two biggest elephants in the room are Apple, which is kind of filled the void of a lack of regulation.

• 7:23Speaker 02

  Tim Cook is now more powerful than Lena Kahn or the head of the DOJ and is stepping in and deciding when a company gets so out of line that they need to step in and kind of regulate them, if you will, as we saw with their, uh, uh, giving people the ability to opt out of tracking. Advertising is unusually stable as a percentage of GDP. It kind of toggles between 1.5 and 1.8% of GDP since the end of World War II. Because when there's a recession and ad spending goes down, brands that are doing well see as an opportunity to go in and try and acquire shares. So it actually stays relatively consistent. That's the good news. The bad news is that it's a zero-sum game and that if the people are spending more money on TikTok, which they are, they're taking it away from somewhere else.

• 8:08Speaker 02

  So we're going to see a fairly serious decline in, um, old media ad spending, which has gone from bad to worse because all of a sudden there are new competitors, there are new predators looking for those dollars. We had a lot of people opt out of ad tracking. Apple has now become big tech and that is, we talk about big tech, it's really big Apple in the seven dwarves, but Apple is now worth as much as the rest of big tech combined. We're going to see huge impact on traditional and new media companies that are ad-supported. Everyone from Twitter, Twitter has supposedly lost about 70 to 80% of its ad revenue overnight, mostly because of the reckless childish behavior of its new owner. But also everyone is just looking for an excuse to stop spending money here so they

• 8:53Speaker 02

  can spend a little bit of money on TikTok or maybe a little bit of money on Netflix, which is going to begun, begin running ads. ByteDance, or specifically TikTok, is the most ascendant technology company in history. Its growth is just unprecedented. It is dramatically, exponentially further along than Meta or Google were at this point. This just gives you a sense. They did a buyback of shares of employees in a private round that valued it more than Disney, Snap, Pinterest, IPG, WPP, Omnicom, and Twitter combined. We're also seeing huge displacement, and that is, this is, to me, just staggering data. When asked if they would rather have TikTok or

• 9:33Speaker 02

  TV and streaming, millennials and Gen Z, who are ground zero for advertisers, advertisers love young people because young people are stupid and spend money on high-margin products as they're in the mating period of their life and want to buy expensive shoes, expensive coffee, and spend money on high-margin products. Old people get smarter and stop spending money on dumb things to try and attract mates. So as a result, advertisers love, spend a disproportionate amount of money on Gen Z and millennials. CNN does not get the viewership of Fox, but makes substantially more money because they get a younger viewer. So look at this.

• 10:11Speaker 02

  Two-thirds of Gen Z would give up all TV, all streaming media before they gave up TikTok. They'd rather have TikTok and shut off all cable television and all streaming media. The majority, the majority of millennials would opt for the same thing. So you could rationally say that all media right now, across Gen Z and millennial, is worth less than what ByteDance is worth. So, next prediction. I think ByteDance will hit $1 trillion in valuation in 2023. I believe that TikTok is the ultimate propaganda tool. I believe it should either be banned or spun in the US. I think it's going to raise a generation

• 10:54Speaker 02

  of Americans that feel a little bit shittier about our government and about the United States. If I was the CCP, which is synonymous with any Chinese company, I would be putting my thumb on the scale of anti-American content. I believe they're doing that and will continue to do it. But there is so much money involved. That they will figure out a way, they meaning the backers of ByteDance and the management team there that would like to create a Chinese wall. I do believe they'll come to some sort of arrangement with CFIUS or the White House that enables them to continue to operate in the United States. And we are going to see ByteDance hit a trillion dollars in valuation by the end of 2023. This would put them just ahead of Amazon and just behind

• 11:36Speaker 02

  Microsoft. TikTok has basically entered a void or entered into an enormous white space. The majority of people feel worse about themselves and worse about the world and worse about their friends. You want to like your friends less? Start following them on Instagram. It's mostly wealth porn, fake wealth, and then you find out that politically they're really fucked up in the head. It makes you feel worse about our government, it makes you feel worse about yourself. TikTok has come in and said, this is not going to be social. We're going to use algorithms and AI to create the ultimate streaming network that also foots to a major myth or a major misunderstanding in business, and that is people think that choice is a good thing. It's not. Choice is a tax on consumers. We

• 12:20Speaker 02

  don't want more choice. We want to be more confident in the choices presented. And TikTok really presents you with just one choice, and that is you want to tap on the logo and then be entertained for two or three hours because it figures out exactly what you want. I like watching people get adjusted, stories about dogs, and really hot people talking about social justice issues.

• 12:42Scott Galloway?

  We'll be right back.

• 12:54Scott Galloway?

  Support for the show comes from Superhuman. The pace of modern work can be relentless. You're getting a constant influx of messages from a ton of different apps. You haven't closed all your browser tabs in a year. Everything seems urgent and staying on top of it all feels like an impossible task. Superhuman Go is an AI chat that's always there when you need it, already aware of what you're doing and doesn't ask you to start from zero. Superhuman Go, from the makers of Grammarly, help you be the best version of yourself at work. It handles the repetitive stuff so you can focus on the work that only you can do. Whether you need to summarize an endless email thread or prep for a meeting that's happening in five minutes, Superhuman Go works inside the tools and sites you already use, your browser, inbox, docs, and your project tools. And its AI chat is available on the side of your browser and it's always ready.

• 13:39Scott Galloway?

  No new tabs, no switching apps, no losing your place. This is AI that works with you, not on top of you, so that you have the time and brain space to solve the problems that matter. Check it out. Find out more at superhuman.com.

• 13:57Scott Galloway?

  Support for the show comes from Upwork. Trying to scale your business? At some point, you're probably going to hit a point where you need some help. Sometimes the best way to break through that is bringing in the right talent at the right time. Upwork can help. Upwork is a one-stop platform where you can find, hire, and pay expert freelancers across more than 125 categories. Whether you need specialized skills for a single project or extra support to keep up with demand, it's easy to connect with experienced professionals, review their work, and find the right fit. You can move faster without taking on the commitment of full-time hires. And for businesses that need the very best talent, Upwork Business Plus provides access to the top 1% of freelancers on the platform. AI-powered matching connects you with qualified candidates in under six hours, cutting down the time spent searching. Upwork also takes care of contracts, payments,

• 14:42Scott Galloway?

  and other administrative tasks, so you can spend less time managing logistics and more time focused on what's next. Visit upwork.com/profg right now and post your job for free. That's upwork.com/profg to connect with top talent ready to help your business grow. That's U.P.W.O.R.K. com/profg. Upwork.com/profg.

• 15:14Speaker 02

  So we're going to see a decline in value. This is a prediction across both old and new media companies. It used to be new media companies kicking the shit out of old media companies. Now you're going to see TikTok, Apple TV, Netflix, Hulu, who are all, Amazon Prime, who are now showing up to Unilever and P and G and say, why don't you run an Adidas ad against Euphoria? All showing up and competing with new media or traditional ad-supported digital media and old media. So you're going to see incredible pain across any ad-supported business in 2023. I believe every one of these brands will register a decline in value. The big three will mostly be fine because, see above, they have a lot of costs they can cut.

• 15:57Speaker 02

  If you have operating margins of 20%, for every dollar in expenses you cut, that's like getting another $5 in revenue. So they will make up for those revenue shortfalls by cutting costs and trimming some of the incredible fat they've built up over the last 13 years. Taking a cue from Twitter, they will, as we referenced before, they will decide that they just don't need as many employees. You'll see margins improve with headcount reduction, which will more than compensate for their revenue declines. It's terrible to talk about stocks. I'm not suggesting you trade on this. I'm just telling you what I'm doing. I think the best performing stocks for 2023 relative to its competitive base will be Airbnb,

• 16:39Speaker 02

  Chinese inter-stocks, and, and I hate to say this, Meta. I believe Meta has been overly punished in terms of its stock price. Airbnb is the most successful dominant brand in the history of travel and hospitality already. It gets a dramatic direct-to-site traffic, so it's been able to exit the stranglehold of Google and Meta and doesn't have to pay that tax. Essentially, Google and Meta place the tax on every digital media company, consumer brand in the world, and starch most of the margin out and capture it themselves. But Airbnb doesn't have to. People go straight to the Airbnb site, which has resulted in unparalleled margins in the hospitality industry, whereas Marriott has to pay these enormous tolls to Facebook or to Google.

• 17:23Speaker 02

  I like what Brian Chesky said, disclosure, I'm an investor in Airbnb, that they've gone from the Navy to Navy SEALs. He actually laid off a substantial percent of his workforce almost two years ago, which turns out looks prescient right now. And while the multiple is still fairly rich, if they have another year of the growth that they have, the stock will look fairly reasonable and will still be growing faster than its peers, which I believe will attract additional investor demand. Also, I don't know this, I have no inside information, I haven't spoken to Brian about this, but I think there's a decent chance that Airbnb might decide to go vertical and might experiment with acquisitions, because there are some people, a large community, especially in the business traveling market, that wants the amenities of a hotel.

• 18:07Speaker 02

  So I wouldn't be surprised if Airbnb ventures into adjacent categories, ranging from experiences to dating to actual, physical hotels. Okay, Meta, in my view, has been overly punished. If you took all of the, if you assume all of their Meta investments are a write-off, they won't result in one additional dollar in value, you could probably still make an argument that the stock has been over punished. In the last 12 months, they've lost all of the gains that they registered in the previous five years, and their core business, while slowing, is still a cash volcano. Now, what they have done with Meta, though, in terms of their investments, is a lot of companies, in order to pad their earnings,

• 18:51Speaker 02

  would consider Meta, and can make the argument, or the investments in Reality Labs, as a capex, and then amortize it over several years. Meta has not done that. Meta has expensed them real time, meaning the moment they start to reduce expenditures in Reality Labs, their earnings take a dramatic tick up. So they have taken the most conservative accounting route possible, and as a result, their numbers look artificially bad, or artificially negative, and if and when they decide to wake up again from this hallucination, or this psychedelic, whatever you want to call it, immediately, they're going to register enormous gains in profitability. I think Chinese internet stocks, I think a basket of Chinese internet stocks on a risk-adjusted

• 19:36Speaker 02

  basis is a great buy. What effectively has happened in China is that Chinese internet stocks had the wind at their back. Specifically, people thought that the CCP was in the room with them, helping them. And all of a sudden, the ally that was the CCP has turned into the enemy. And that is, they are no longer, they look at America, I believe, and they look at individuals becoming more powerful than the government, and they look at data being weaponized, and they say, you know, and they look at income inequality, and they say, you know, it works for you, it's not going to work for us, and they disappear, Jack Ma. Can you imagine if Jeff Bezos began shitposting the government and letting his views be known, as he does, and then he disappeared for four weeks, and then showed up in Tokyo later, saying, oh, I'm not interested in tech, I'm just going to paint?

• 20:19Speaker 02

  That's what's happened in China. So again, the government has gone from friend to foe, and it's taken an enormous toll on stocks. Again, similar to Meta, I think these stocks have been unfairly punished. On any reasonable metric, you're getting a company that has a similar competitive position in cash flows and growth as an American internet company, but, but it's trading at a fraction of the valuation. Long shot, I think Disney could acquire Roblox. Most of Disney's acquisitions have been sucking up characters into the parks. Let's take Star Wars characters, make rides in the parks, extend our franchise and our distribution and our creative capital across different IP, whether it's the Mandalorian. Bob Iger's there, he's 73, he's got a ton of

• 21:04Speaker 02

  credibility, he's got to make a big move, he's got to do something pretty big and bold here, and he has the license to do that from investors. What if he were to take the parks, if you will, and move it to Roblox? In other words, make Roblox kind of the Disneyverse? Because any other acquisition he would make around content, around media, around, I just, it'd just be a buy, you know, one business in decline, buying another business in decline. So I think this would be an interesting acquisition. Also, Roblox, about 50% of American kids under the age of 18 are on Roblox. Their engagement continues to skyrocket, and we've also seen the company make huge investments which seem to pay off. And we also have a company that's beginning not to look cheap by any stretch of the imagination,

• 21:49Speaker 02

  but is actually for the first time sort of acquirable for a company with the market cap of Disney. So assume they have to pay up for it 25 billion. You're talking about a 10 or a 14% dilution, which is doable. This isn't a Bet the Ranch acquisition. It's a big acquisition, but Roblox is now acquirable. And it strikes me that Disney needs to do something and you have a 73 year old returning as CEO who needs to make a big bold bet. Okay, consolidation of the subscale. There's just too many companies out there that were pretending to be standalones with the wind at their back that all of a sudden wake up and don't have a bathing suit on. Lyft should not be an independent company. It's subscale.

• 22:30Speaker 02

  It's a number two in a shitty, unprofitable business called ride hailing, but they do have IP. They do have an infrastructure. They do have a relationship with millions of drivers and a lot of companies want to get into autonomous or go vertical. I can see a lot of different companies deciding that they would be interested in Lyft's IP. And as, as we said, Lyft is entirely subscale and just makes no sense. I'd be shocked if they aren't already have bankers trying to think creatively. They also have a decent asset base in terms of their IP around autonomous driving, which I think would be almost worth the acquisition price on its own. So we're going to see dramatic consolidation across some of these companies that sort of make no sense.

• 23:13Speaker 02

  I think Robinhood will probably go down another 60 to 80% and then be bought for its customer list. AMC, I'm not sure there's anything to acquire there, but at some point that stock will beat off another 50 to 80%. Lyft makes no sense. Companies like Hulu, Peloton, Carvana, AMC Networks. These companies just don't make any sense as independent companies that they've been a 10 year experiment that they don't survive on their own.

• 23:39Speaker 02

  Our producers are Caroline Chagrin, Claire Miller and Drew Burrows. Special thanks to Emile Silverio for all her work on our 2023 predictions presentation. If you like what you heard, please follow, download and subscribe. Thank you for listening to Prop G Pod from the Vox Media Podcast Network. We will catch you next week.

• 24:07Speaker 03

  Running a business shouldn't feel like surviving a software group project. One app for accounting, another for inventory, another for sales, and somehow, none of them talk to each other. That's where Odoo comes in, an all-in-one business management software that brings every part of your business together. From sales and accounting to inventory and marketing, all in one powerful platform. No messy integrations, no bouncing between tabs, and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system. Try for free today at Odoo.com/vox. That's O-D-O-O dot com slash vox.

• 24:43Speaker 04

  We just moved into our new house and I didn't realize just how close we were to the neighbors. That's when my friend told me about Blinds.com.

• 24:51Speaker 05

  Blinds.com isn't a medication, but it can improve how you feel about your home. Customers who shop at Blinds.com experience excellent customer service, from consultation to installation. Side effects including increased privacy and better sleep. Talk to your partner today and see if Blinds.com is right for you. Visit Blinds.com to order your free samples.