Pod Insights The Prof G Pod with Scott Galloway Office Hours: Rivian’s Colossal IPO, Fashion Industry Winners, and Pivoting Out of an Ad Agency About this episode Scott answers a question on how Rivian priced its shares for the biggest IPO of the year. He then offers his thoughts on the future of the apparel industry and gives advice to someone who no longer sees the point in working for an ad agency.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:09 Scott Galloway? Welcome to the Prof G Pods Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.profgmedia.com. Again, that's officehours.profgmedia.com. First question.
1:28 Speaker 03 Hey, Prof G, this is Rob from Amherst Mass, home of Emily Dickinson, Robert Frost, and briefly John Calpari. I'm a big fan of the pod and more generally the way that you attempt to require big tech to at least make sense, if not be accountable. I pre-ordered Rivian electric pickup truck a year ago, and I'm excited to take delivery eventually. Rivian offered those of us who pre-ordered the chance to participate in the IPO. I got an email a few weeks ago giving a range of share price of $57 to $62 apiece, which would value the company at up to $65 billion, more valuable than Fiat and nearly the same as Ford and GM, even before it sold a single car. After reviewing the S1 and consuming some of Amherst's finest edibles, my wife and I decided to participate.
2:10 Speaker 03 The date of the IPO price lock-in, I got an email saying that the price per share was not $72 to $74. Two questions for you. One, did Rivian just wake up today and decide it was 20% more valuable than it was yesterday? Me too. This is the sort of last minute switcheroo that spooks me when investing typically. I just don't want to put my money in the hands of people who act shady. This seems shady to me. Am I being naive? Do I have to accept some degree of shadiness if I want to participate in modern finance? Thanks again. Love the show.
2:37 Scott Galloway? So thanks for the thoughtful question. So, and I don't know the specifics, but I believe what you're talking about is when underwriters take a company public, they do a roadshow, they try and gauge institutional demand and they try and assess. Ideally, they want to kind of price it just slightly below market, have a pop, a modest pop, which is good for their clients, institutional investors, and also creates sort of this nice feel around the brand. When a company closes its first day of trading after the initial pricing, if you will, it's considered a broken IPO and kind of casts a pall. So they sort of want to price it, I would say anywhere from kind of 5% or 20% below where they think it'll end the first day.
3:19 Scott Galloway? And what they do is they gauge investor demand up until the night before when they actually price it. And oftentimes, as was the case with Rivian, they just sensed that there was a lot more demand than supply and that they could get more money, that they could price it at 74 bucks, not 72 bucks. That's not unusual. I was an investor in the IPO for Airbnb and I think they initially priced it at like 38 or 48 bucks and they just saw there's such an appetite for this thing that the company doesn't need to give up this many shares to raise this much money. And so they technically have an obligation to their existing shareholders to raise the price of the offering such that they don't kind of needlessly get diluted when they didn't need to because the company arguably is worth the same it was yesterday
4:04 Scott Galloway? or close to the same. So them raising that number is not, I wouldn't call it shady. You still have the choice to participate or not. And they're just saying, okay, we think that in fact that we underpriced it and they adjust the price up. In the case of Rivian, if it went out, and I think it did go out, or at least it was priced at 74 bucks, I think on the first trade it was well north of that. It went as high as 180 bucks and it's been coming down or it's come down substantially, but it still sits around 120 bucks. So. You would have done well. You would have been up about, I don't know, 55, 60%. So in sum, nothing shady here. That's part of the process.
4:45 Scott Galloway? Now, whether or not the fact that the institutional clients have access to this initial pop and retail investors have to buy it on the first trade. So for example, there's this bullshit thing called reference price on a direct listing where they say the reference price was 280. Well, not really because the first trade for retail investors was much greater than that, as in the case of Coinbase, and then it ended up down for the day, I think 20 or 30% from the first trade. But what's sort of corrupt, if you will, is that these underwriters, basically the only people that have access to that kind of priced IPO are the institutional clients. So the retail investor has to buy it on the first trade. And if it's a company that's oversubscribed, they don't get access. No retail investor got access to Airbnb at 68 bucks a share.
5:29 Scott Galloway? It's never been back there. It priced there, but on its first trade, I think it came out at 130 or 140 bucks a share. So that's, if you will, kind of the corrupt part of it. I think it's a good thing when companies offer their members shares in the IPO. I think Robinhood did it. I think Soho House, I forget the name of what they call that company, did it for their members. So I think it's good to sort of democratize or give people more access to these IPOs. Personally, on Rivian, it's really interesting. Kind of Rivian, Lucid, and Tesla have all said, okay, the total addressable market here isn't the automobile industry. There's some analysis showing that if Tesla, Rivian, and Lucid produced every car in the
6:13 Scott Galloway? world, it still would be difficult to justify the combined valuation of these three companies right now. As you referenced, I think Rivian has a greater market capitalization than GM or Ford right now. And I think it's, this is crazy town. They've managed to do this incredible gymnastic move where their TAM is not the automobile industry, their TAM is more climate change. They're solving climate change. You know, they'll say Tesla is a software company. No, it's a battery company. No, they're bending steel and making cars and the thing makes no fucking sense. This, of course, from someone who said the stock was going to cut in half when it was at 100 bucks a share. So I don't get the electric space to me, the EV space to me. Look out below. I find it just sort of verging on comical, the valuations these firms are getting.
6:58 Scott Galloway? I think it's a great trade because there's a lot of excitement around it. So Rivian obviously was a great trade if you were able to get into the IPO. But again, just to summarize the pricing mechanism, you know, you can hate the game, the fact that institutional players get access and they typically price it below what they think the market will be, but it's absolutely their right to raise, raise the price when they try to gauge demand the night before. Thanks for the question and good luck with Rivian. Next question.
7:26 Speaker 04 Hey, Scott. This is John from Oakland, California. Before I ask my question, let me say that Red Envelope helped me become a great gift giver and it used to be my go-to site for buying awesome gifts for parents of newborn babies. A few episodes ago, you mentioned that Rent the Runway lost a dollar for every dollar they made. This jumped out at me because I've been watching their stock price since the IPO and because I find their business model to be very innovative. Your comment led me to think not only about Rent the Runway, but also about the fashion business in general. I'm curious about your thoughts on the economics of the fashion industry in the context of the great dispersion and the fact that in some cases, showing up at work is a key driver
8:10 Speaker 04 of clothing purchases, not to mention the role of clothing when showing up to restaurants in contrast to eating through DoorDash or showing up to campus in contrast to online learning. So what do you predict? Will fashion be all about how we virtually present ourselves in the metaverse? Or will there be a situational need for fashion in the real world that would benefit from a rental service?
8:33 Scott Galloway? Thanks for the question. So I think there's a lot of nuance here. You got to think that clothes that focus on The kind of accessible professional, you know, I doubt Dockers is doing really well right now if that was for Casual Friday, or I don't know, the suit business I think is kind of taking it in the gut, if you will. The global apparel market, however, is worth about 530 billion, or about half a trillion dollars, and it's supposed to grow at a rate of almost 10% a year to reach 840 billion by, I think, 2025. I wonder how much of that is an emerging middle class, or emerging nations who find wealth and then start expressing themselves with their clothes. The fashion business, I think, is a lot about signaling. And the place I'd want to play in fashion, I'd want to invest in retailers that are
9:18 Scott Galloway? totally vertical, or fashion brands that are totally vertical, like a Lululemon, which has probably been one of the better managed retailers, or Restoration Hardware, they're both inspiring on the front end, proprietary merchandise, loyalty programs. Lululemon is even integrated, forward integrated into the home with the mirror, their connected device. So, and also, I think that at the high end, you're going to do really well. Why? Because the sad reality is, the top 1% have garnered 80 or 90% of the income gains over the last 10 years. I don't see anything getting in the way of that, which is a different talk show and not a good thing. But that means the LVMHs, the Kieran groups, the Richemonts of the world are just going to continue to print money. So, you
10:01 Scott Galloway? know, it's a mixed bag. Fast fashion, if you look at how incredibly powerful that was, created the second wealthiest family in Europe, the Inditex family, and that was Zara. It feels like fast fashion is being fast fashioned, if you will, by used clothing or secondhand clothing. That's supposed to be bigger than fast fashion by 2025 or 2026. The reason I don't like Rent the Runway is I think they're a pioneer, but in this instance, they're going to have arrows in their back and mud on their face. So just look at the numbers, and it's just a shitty business that can't seem to break out of these terrible economics. Per our guest Kat Cole's comments, it has pioneered an area, so I hope things work out well for them, but they just haven't trained the consumer.
10:44 Scott Galloway? To pay anything reasonably or anything that's proximate to what it costs them to maintain that business. I don't like the apparel business. I was in retail, as you mentioned with the red envelope, which was sort of my Vietnam. There's just so many ways to fuck up in retail. There's fulfillment, there's operations, there's labor issues, there's capital issues, there's supply chain issue. There's real estate issues. It just feels as if there's a million ways to die, so to speak. Having said that, I've been on the board of two retailers, Urban Outfitters and Panera, and they're both great companies and they figured out this magic and this mystery around how to create a feel, an in-store experience, and products that garner big margins. I would say there's some key factors you want to look out for.
11:27 Scott Galloway? So I'd want to find vertical, I'd want to find technology, I'd want to find scale, and I'd want to find ideally brands that cater to the burgeoning top 1%. We're going to see a sugar high across all surviving retail. There was this incredible culling over the last 18 months, and anyone who comes out the other end is going to have 24 months of champagne and cocaine because rents have gone down, consumers have a ton of money in their pocket, and they want to get out of the house and go buy a dress. Or my kids went to Boomers yesterday, which I guess is a gaming... It sounds like the worst thing in the world, it sounds like Chuck E. Cheese, but even worse. Probably going to hear from the Boomers people. I never hear from people I compliment.
12:09 Scott Galloway? I always hear from companies that I criticize, like, "We want to update you on our latest thinking," which is their way of saying, "Shut the fuck up." Anyway, I think apparel is a difficult, really difficult business, and I would, again, I would look for those attributes. But thanks for the question, and good luck. We have one quick break before our final question. Stay with us. Support for the show comes from Bilt. Most of us work hard to earn our keep, but usually there's no one around to hand you a cookie when you successfully pay your monthly housing bill. No one except Bilt, that is. Bilt has expanded from their original rental rewards program, and they have a lot more going on for members now. For example, members can earn points on mortgage payments, too.
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14:43 Scott Galloway? Welcome back. Question number three.
14:45 Speaker 05 Hey, Prof G. This is Clay from Toronto, Canada. I'm a copywriter who works for an agency under a holding company that you've definitely heard of. Lately, I find myself asking what the point of my job really is and why am I even here?
15:00 Speaker 05 Every single piece of work we submit is picked apart by the different marketing people of the brands I work with, to the point where they end up writing the ads themselves. My two-part question for you is why aren't brands doing everything in-house? Why are they still paying these ad agencies? And if you were me, would you explore options to work in-house at a tech company and move away from the ad world? Thanks for everything you do. I love going for a walk and listening to your podcast. Keep up the great work. P.S. Dune on an edible really was amazing.
15:28 Scott Galloway? Clay from Toronto, a few of my favorite things. Clay is an awesome name. Toronto's an awesome city. And an edible in Dune. One of those things is awesome. I think Dune so should have been my agent. I have an agent at WME. God knows why I have an agent. But anyways, I do. And he sets me up with these really smart people who wanna, for some reason, think I'm gonna give them some sort of like blinding insight into the world of media. And the one piece of advice I have for all these kind of iconic directors I get to speak to is, dude, don't make a two-hour, don't make a two-hour movie on the Minions. Make it four hours and slice it into eight 30-minute episodes and run it on Disney+. I just think that's a better way to monetize value and create more engagement. And I think you slice it and dice it and format and extend it and move it to streaming.
16:12 Scott Galloway? But anyways, that's not what you ask. So, look, I have a lot of friends who work in the big holding companies. And a lot of them call me and say, should I get out? And is this the time to get out? And it's situational. And the way I would roughly, roughly kind of bifurcate is if you're under the age of 40 and you're not happy and you have an opportunity to go in-house somewhere, first off, there's in-house and out-house. Out-house is agency work. I have been in the services business most of my life. I started a strategy firm called Profit Brand Strategy when I was 26 in business school. L2 is essentially a services firm. And quite frankly, I think the services business is a young person's game because, simply put, you're always someone's bitch. You're, "The CEO of Audi would love to meet you next week.
16:57 Scott Galloway? Can you make it?" The answer is gonna be yes. If you're the agency, the client always has the upper hand. Whoever's signing the check gets to boss you around. So I'd get on a fucking plane to go to Ingelstadt, specifically via Munich. San Francisco to Munich. Oh, that's an easy flight. And then get in, and this was my own business. So I was cheap, as you should be. Entrepreneurs should throw nickels around like they're manhole covers. So occasionally I would like use those stupid certs on United to try and get upgraded. It would never work out. And I'd end up on a 12-hour flight to Munich in coach and then have to get in a car and drive to Ingelstadt, which is not a pretty town. I love Germany. Hamburg, Munich, all amazing, like beautiful cities.
17:39 Scott Galloway? Berlin, in my opinion, a little bit overrated, but a cool city. Just that mix of East and West Germany and startup culture. Germany's just an amazing country. I would probably live in Germany if I spoke German. But nine, I don't. Anyways, Bayern Munich, my favorite football club in the world. Anyway, anyway, you end up commuting a lot. You end up spending your life on the road. The services business is tough. The good part of it is it's a great way to go to school on someone else's dime. It's a fantastic training. You kind of become the Navy SEALs of the business world because whether you work for McKinsey or Goldman or an agency, it really tests all your skills. You have to be a great presenter. You have to have high EQ. You have to kiss a lot of ass, which takes EQ.
18:24 Scott Galloway? You have to take people out to dinner and show how fucking charming you are and establish relationships so they pick your firm instead of the other one because you're all selling the same shit. But I would say by the time you kind of have kids in your 30s, I would think about, okay, if I don't love it and I'm not doing really well, get out of Dodge and get to the client's side, which has a better lifestyle. You become the one writing the checks. You become, you become, you know, the master instead of the teacher here or the master instead of the servant. Go to tech. If tech inspires you, go there. On a risk-adjusted basis, tech is garnering an unfair share of the spoils around stakeholder value. So if you have an offer, fantastic. A lot of this is situational. I have friends at agencies that are doing really well.
19:08 Scott Galloway? They've been there a long time and they're sort of rounding third and making really good money. So I'm like, no, stay. Clock, clock more money. You're doing well there. These are usually well-run firms. It's easy to kind of bag on the holding companies, but they usually have very good management. So it's situational, but my sense is, my sense is, Clay, it sounds like you're on the younger side. It sounds like you might have some opportunities to pivot to the client side, pivot to tech. And so, my friend, I would say, if you get the right offer here, you know, punch that ticket. Get out, get out, get out of Dodge! Escape now! Escape now! Thanks for the question, Clay. That's all for this episode. Again, if you'd like to submit a question, please visit officehours.profgmedia.com.
20:00 Scott Galloway? That's it. Our producers are Caroline Chagrin and Jewe Burrows. Claire Miller is our assistant producer. As a reminder, we answer your questions about various business trends, big tech entrepreneurship, career pivots, and whatever else is on your mind on the pod every Monday. If you'd like to submit a question, please visit officehours.profgmedia.com to submit your question. Again, that's officehours.profgmedia.com to submit a question. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you on Thursday.
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