Pod Insights The Prof G Pod with Scott Galloway Prof G Markets: The Nasdaq’s Rally, Threads vs. Twitter, and Yahoo’s Return to the Public Markets About this episode This week on Prof G Markets, Scott breaks down why the Nasdaq just recorded its best first half of the year in four decades. He then shares his thoughts on Meta’s new Twitter competitor, Threads, and explains why he invested in Yahoo a few years ago, before it staged a comeback.
Show notes — Apple production cut stories through the years:
2013.1.13 iPhone 5
2014.8.22 iPhone 6
2015.11.10 iPhone
2016.6.1 iPhone
2017.10.19 iPhone 8
2018.1.30 Phone X
2019.1.8 iPhone
2020.4.27 iPhone
2021.6.30 iPhone mini
2021.4.28 Airpods
2021.10.12 iPhone 13
2022.3.28 iPhone SE
2022.7.1 iPhone 14
2022.10.25 iPhone 14 Plus
2023.07.03 Vision Pro
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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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1:18 Scott Galloway? This week's number, $2.3 billion. That's the estimated record amount Americans spent on fireworks this year. Three times more than in 2012. Fireworks are like sex for me. I'm always pleasantly surprised when it goes longer than a few seconds.
1:47 Scott Galloway? Welcome to Prop G Markets. Today, we're discussing the Nasdaq rally, Meta's Twitter competitor.
1:54 Scott Galloway? And Yahoo's potential comeback. Here with the news is Prop G Media Analyst Ed Elson. Ed, what is going on?
2:02 Ed Elson? Not much here, but I want to hear the entire rundown on Mykonos. How's, how's Greece treating you?
2:07 Scott Galloway? It's great. Mykonos is a cross between Saint-Tropez and Ibiza, sort of somewhere between douche and bag, like that space in between those two words. Yeah, the Arrested Adolescents Tour continues. The water's beautiful. I'm here with my family. A lot of water sports. And then the adults head out and we saw some DJ the other night. I, I don't know the, just pronouncing the DJ's name, I could slip and break a hip. Anyways, wonderful. Where are you, Ed?
2:32 Ed Elson? I'm in New York. I'm, I'm going to be in Mykonos at the end of the month there.
2:36 Scott Galloway? Really?
2:36 Ed Elson? So you got to give me all the recommendations. Yeah, that's right.
2:38 Scott Galloway? Yeah, I get the sense you and I are probably not going to hang out at the same places. I get recognized by students. I have 5,600 alumni of my brand strategy course. And some statistician told me that anywhere in the world where I am in a room with more than 300 people, there's like a 40% chance I have a student in the room. And it inevitably happens when I'm in a place like this. And it's always the same thing. I hear this very surprised voice go, Professor Galloway? Which is everywhere saying, what the fuck are you doing here, old man? You're not supposed to be here. Anyways, break down the headlines. Let's get back to the markets.
3:17 Ed Elson? Let's start with our quarterly review of market vitals.
3:26 Ed Elson? The S and P 500 gained 8%. The dollar rose marginally. Bitcoin was up 7% and the yield on 10-year treasuries rose 9%.
3:37 Ed Elson? Shifting to the headlines. The Screen Actors Guild, which includes some of Hollywood's biggest stars, is poised to join the writers on strike if the union and studios don't reach a contract agreement by July 12th. Meanwhile, negotiations between UPS and the Teamsters Union, which we covered in our last episode, fell through. It's looking more and more likely that UPS's 340,000 workers will strike at the end of the month. Goldman Sachs is looking to end its partnership with Apple. Goldman has provided banking for the Apple credit card and the Apple High Yield Savings Account for the past four years. That move was part of Goldman's effort to get into consumer banking and lending, an effort that has largely failed. Separately, supply chain sources are
4:18 Ed Elson? claiming that Apple is slashing its production forecasts for the Vision Pro headset. It has also reportedly pushed back its plans for a more affordable version of the device. Apple unveiled that product just one month ago. And finally, furniture company Overstock is rebranding its US website to Bed Bath & Beyond. Overstock purchased the company's intellectual property assets in a bankruptcy auction in June, and after announcing the rebrand, Overstock shares popped 65%. Scott, any reactions?
4:50 Scott Galloway? So there's bias all over my comments here. The first bias is I have a bias for or toward Goldman. I like them. They manage my money, or they play a role in it. And I generally find that it's smart, good people doing great work. So I have a bias toward Goldman Sachs. I know David Solomon, and I like him. I think that this is, there's just no getting around it. You don't want to do anything that costs where you lose $3 billion. But I would argue a firm like Goldman should be, on a regular basis, trying new things that are, you know, feel mildly crazy at the time. I think Goldman Sachs is the best brand in B2B. I don't think there's any self-expressive benefit brand like Goldman. Every entrepreneur in the 90s that I hung out with, we all dreamt
5:30 Scott Galloway? of taking our companies public, but specifically have Goldman Sachs on, you know, front left on the Prospectus cover. So I think they do a great job in B2B. Therefore, as in the B2C, you could argue, you could argue, say, well, all right, this is an amazing brand. It's a global brand. There's a lot of people that would like to engage with the Goldman Sachs brand. And there's a lot of companies in the payment space, et cetera. It makes sense for Goldman to try and get in it. So in the military... They base or they assess an officer's performance based on his or her decisions at the moment, given the information available, not the outcome. But they try to say distinctly outcome based on the information this person was given or had to deal with at the time, did they make the right decision?
6:13 Scott Galloway? And I would argue that trying to innovate or experiment around consumer, whenever it was three or five years ago, was probably the right move. And what's also the right move, quite frankly, is saying this didn't work and pulling the plug because $3 billion is real money. But for Goldman, that is not, that doesn't even kind of ruin the year. That's not a ton of money for them. Look at Meta, which is burning $1.2 billion a month on their fever dreams of a headset. So again, some bias here, but I think innovating, trying new stuff, and then when it's not working, pulling the plug is the sign of a firm that's doing something right. If they keep doing that, if they keep swinging and missing, obviously they've got to change their approach to the business or change management.
6:55 Scott Galloway? But I don't, I don't see this as any reason why you'd want to target the firm or change management or anything like that.
7:01 Ed Elson? What do you think of David Solomon's reputation right now? Because he's been in a lot of hot water. I mean, he hasn't ruined anything by any means, but he's reduced partner bonuses. And then there was that story that came out that Lloyd Blankfein, who's the former CEO of Goldman, has been criticizing him specifically for not spending enough time at the company, jetting around on the private planes, and most of all, being a side hustle DJ, DJing at nightclubs and festivals and DJing at Coachella this year.
7:29 Scott Galloway? So first off, it says more about Lloyd than it says about David. And that is, it's just bad form for the former CEO to shippost the new CEO.
7:37 Ed Elson? Yeah. It wasn't a public statement, but he said it, I mean, it was leaked to a reporter.
7:41 Scott Galloway? Okay. So he went on background or whatever it was. It just, it makes, when you are at an organization in your successor, an organization that made you very wealthy and your successor's there, you just demonstrate some grace. There's no upside for him to shippost his successor. Would they rather he played golf 12 hours a week? I mean, what? What is the problem? It offends their WASPy old man sensibility that this guy likes to DJ. Yeah. And I would like to see Lloyd's jet use while he was CEO. The bottom line is when you have access to a jet, this is what you do. You use it. Yeah. And I would make an argument that every Fortune 500 company should have jets because if they can
8:23 Scott Galloway? get the CEO to somewhere and back and save one or two days of that person's time every month, it pays for itself. But the thing I just don't get is, okay, he should be playing croquet or drinking Pim's cups and Aperol spritzes. And I don't get the issue around DJing. It's fun. I've made fun of him for it. And the truth is in the numbers. Goldman has outperformed its biggest competitor, JP Morgan. The five-year performance for JP Morgan is 37%. For Goldman, it's 41%. So while Jamie Dimon is like, literally like poster child of the year for management and people saying he should run for president, everyone's talking about David Solomon DJing on weekends.
9:03 Scott Galloway? In terms of some of the other stuff, the reports or the rumors that the production units ordered for the mixed reality headset have been cut back dramatically. Jason Stavros, our editor in chief, pointed out that you can't draw anything from these rumors, that he immediately forwarded articles with all sorts of inaccuracies based on unit production volume demand forecasts from various sources. However, however, because I want to talk my own book here, I think that these are in fact true. And that this is what I'm more confident in. Whatever Apple does here, whatever they produce, they have to produce less than demand because Apple is a luxury brand and key to being a luxury brand is the illusion of scarcity. So their economists with their econometric models and their demand forecasting have
9:47 Scott Galloway? said, we think that the demand for this product on day one will be X. That means we need to produce 0.6X because we need to show lines. We need to see online chatter that not everyone can get one. That is the entire shooting match around a luxury brand. And the fact that they have reduced that number, if you believe they have, and then tried to blame it on Manufacturing or supply chain. First off, if Apple can produce one of anything, they can produce a million of them. Apple has the strongest supply chain in the world. That was Tim Cook's background. So, you know, I'm using this data more like a drunk uses a lamppost, more for support than illumination, but I'm assuming it's true. And the thing, this thing so far, this value proposition at this price point doesn't make, doesn't make a whole, a whole lot of sense. What are your thoughts?
10:32 Ed Elson? Well, I think what Jason was pointing out isn't necessarily that the data is false, but just that it's meaningless, which I basically agree with because he sent all these, all of these articles showing throughout history, this article always comes out. So in 2013, Wall Street Journal headline, "Apple has cut its orders for iPhone 5 components due to weaker-than-expected demand." In 2015, "Apple has cut as much as 10% of its component orders driven by weak demand." 2018, "Apple to cut iPhone X production in the face of weak demand." And, you know, there are like 10 of these articles going through every single year, and it seems like every time, there is a supply chain issuer who is saying, "Yeah, we, we got around 10 to 20, 30% less production orders, so we think that it's,
11:17 Ed Elson? it's, it's a signal of weaker demand." I think his point is basically like, like, we've seen this a thousand times. It almost never has a meaningful impact on, on Apple stock or on demand as a whole. So like, we can't draw any conclusions from it, which I've, I was, I liked the thesis, and now I pretty much completely agree with the thesis.
11:39 Scott Galloway? Well, I love how you use the word thesis over and over. So, and the final story, I thought that kind of the most innovative move was Overstock rebranding Bed Bath & Beyond. I think that's genius.
11:49 Ed Elson? Yeah.
11:49 Scott Galloway? They bought this thing for pennies on the dollar. And if you look at Overstock, Overstock has always been like the cockroach of the internet. Like, none of us got it. It was always the little engine that couldn't and then could, and somehow it's just survived through all this shit. They had this crazy founder who would always do this nutty, I think it was a crazy Mormon guy, which is redundant, which is a hate crime, which by the way, which by the way, demands disclosure that, Ed, I fucking love Mormons. I grew up, let me tell you a story about Mormons. I grew up, my closest friend in junior high and high school was Brett Jarvis from the Jarvis family, this lovely family, and I used to play on all the church's sports teams. One of my first dates was with a woman named Elizabeth Pettit, who was a Mormon, so not a lot of action there, not a lot of action
12:31 Scott Galloway? there. Ed, I'm, one of the reasons I think I lost my virginity at 19 is I hung out with Mormons for way too long. But in general... In general, I don't think it's a bad idea for the son of a single mother is kind of an underachiever to be hanging out with Mormons. They're super into sports. They don't drink. They're super into family. Nice people, very achievement oriented. Anyways, don't know how I got here. Overstock was always like, they've always survived. They literally are like nuclear winter couldn't take these guys out. They've been around for 20 years. And what a genius move. I think their stock is up since renaming it. I think it's, I think it's a really, really fun and innovative and out of the box way to think about it. So we are changing the name of this podcast to the Bed Bath and Beyond Pod.
13:16 Ed Elson? Gotta buy that intellectual property first.
13:18 Scott Galloway? Oh, we're the Lululemon Pod. Pick our favorite. Wait, no, no, no. We're the, we're the Kmart Podcast. There we go.
13:25 Ed Elson? We'll be right back after the break with a look at the Nasdaq.
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16:05 Ed Elson? We're back with Prof G Markets. The Nasdaq closed out the first six months of this year up 32%. That's the best first half for the tech-heavy index since 1983, when it rose 37%. Now, this rise was largely fueled by big tech stocks such as Meta, up 140%, Nvidia, up 190%, and Apple, which recently hit $3 trillion in market cap, the first company in history to do so. The Nasdaq is riding multiple tailwinds. For one, it's coming off the back of a massive drawdown in 2022, which saw the index lose a third of its value. It's also benefiting from widespread cost-cutting measures in the tech industry. We've seen mass layoffs, for example, at Google, Meta, and Amazon, among others.
16:48 Ed Elson? And of course, there's the AI wave, which has re-injected speculation and optimism back into the market. But Scott, in your view, what's been the biggest driver of this year's bull market?
17:00 Scott Galloway? Well, they say markets climb a wall of worry, and we've been a month away from this recession for 18 months, and the recession just never showed up. But at the same time, it provided... Big tech companies cloud cover to cut costs. And these were companies that had grown their expense line for 20 years. And then, given the chance and the opportunity to lay off 10, 20, or in the case of Twitter, 80% of their workforce. And the majority of their costs are people. It's not planned property and equipment. So, you know, almost all of this cost just flowed straight to the bottom line. So this year of efficiency, as Zuckerberg called it, has really been the theme across a lot of internet stocks. And we said at the beginning of the year that our prediction was Q4,
17:44 Scott Galloway? you would see these companies, their revenue growth would be good, not great, but they would have their most profitable quarters in history. So these companies are in fighting shape. And the economy is actually much stronger than anyone anticipated. And then the chaser, the chaser ad for all of this is the greed glands and the animal spirits inspired by AI. And the, you know, as a few stocks go, there goes the NASDAQ. Nvidia is up. Nvidia has tripled this year. Meta is up 145%, Tesla 129%. Apple, Amazon and Google are all up 40% year to date. So when you have companies, you know, I think Apple's 5% of the NASDAQ or something like that. So when these companies are performing this strongly, it means the NASDAQ is up. Yep.
18:29 Scott Galloway? But there's no getting around it. The best first half in, what is it, 40 years for the NASDAQ? That's striking. And now, what does that mean? What does that mean? The back half of the year is going to be the best back half in a long time for IPOs. So we're setting up, we're setting up a flurry of new issuances. We're setting up a flurry of investment banking activity. And by the way, investment banking activity has been just dormant for the last 12 or 18 months. So what's interesting is not only what happened. You know, when the, when the first half of the year is the best in 40, but what that means for the last half of the year.
19:06 Ed Elson? Yeah, I mentioned the, the phrase bull market, which, you know, around 60% of investors would say that we are in a bull market right now. And then we had this historic NASDAQ rally. But you also mentioned the weighting of those tech stocks. So if you look at Microsoft, Apple, Google, Amazon, Nvidia, Meta, Tesla, they make up 50% of the total weight of the NASDAQ. And Microsoft and Apple alone are a quarter of the NASDAQ's market cap. Then you compare it to the S and P 500, which is up 15% in the first half of this year, which is pretty good. But then you compare it to the Russell 2000, which is the, the 2000 next biggest
19:45 Ed Elson? US companies. And that's only up 7%. So it sort of feels like this is purely a big tech rally that's happening right now. Do you think that we have officially entered a bull market? Or is this just a bear market rally that's being buoyed by the big tech companies?
20:03 Scott Galloway? Well, a couple of things. Size matters. These companies just sort of dictate what, I mean, keep in mind, Apple is bigger now than the entire UK stock market, just one stock. So these companies are so big and these are, these are indices, meaning they're weighted. So when Apple goes up 20%, that probably means the entire NASDAQ is up 2%. Also, it's your entry point. So NASDAQ shed a third of its value in 2022, which means just to get back to where it was in its highs of 2021, it needs to go up 50%. So it going up 50% just means it's back to 2021. So it's bouncing off of lows, if you will. So will
20:45 Scott Galloway? we see a bit of a reversion to the mean? Or are we about to, are we off to the races again? Are we back to the go-go days? And I would argue that for the next six months, whether we are or we aren't, it's going to feel that way because the market has decided, the market feels like it's got permission again to head to the men's room and do some rails. It's like, okay, it's fucking party time. Let's, let's lever up. Let's buy some margin. We don't want to miss out. And the animal spirits are back.
21:12 Ed Elson? Yeah, I just want to bring it back to to small cap companies that I mentioned in the Russell 2000 index. So if you look at the NASDAQ, the average price to earnings ratio across the NASDAQ 100 is 31 times right now, and a year ago is 25 times. So it's it's a 25% increase. And if you look at the Russell 2000, the average PE ratio is 27, and a year ago it was 46. So that's a 40% decrease from a year ago. And basically, what it feels like is all of this momentum that was in small cap stocks has basically just been stolen and injected into the top 100 mostly tech companies. And I'm wondering, from your perspective,
21:53 Ed Elson? it feels like we are returning to this big, big, big tech era. Do you think that this is overall a good thing for the markets? I mean, it's probably a good thing for investors. Investors are feeling more optimistic now. But it also means that that the power and the wealth is getting concentrated into a smaller number of companies at the top.
22:12 Scott Galloway? Yeah, I think that's the correct question. It's good for the markets if you're just invested in index funds, because these index funds are dominated by these big players, and the big players are way up. You're probably feeling pretty good about your 401k now. The problem is, is the ecosystem healthy? And that is, in an ecosystem, you need a diversity of species. And it's just, I've been watching all of these nature shows. And, you know, there are more birds in captivity now than there are birds in the wild because of chickens, because we have so many chickens being raised and then slaughtered for, you know, our our chicken gyros. But in there's like, I think the human mass or the mass of humans and their pets now surpasses or is greater than the entire mass of every mammal
22:54 Scott Galloway? on the planet. I mean, there really is an extinction taking place. I look at basically the big tech companies, and they're the apex predators. And small companies, the ecosystem, they try to bubble up, they try to survive. But, you know, this is really a segue to our next story. There's nothing like the bundling power and the capital and the brand equity. Of an Apple or a Meta or, you know, the good money is always on the big tech incumbent right now. They are just, I think everyone's looking back and thinking, okay, when Meta was trading at six times earnings in November, six times earnings, it was probably a pretty good buy. And, you know, distinct of his hallucination around the headset. And now
23:35 Scott Galloway? it's trading at 19, the stock has practically tripled, or it has tripled in the last eight months. So the opportunity to ever buy into kind of big tech at what looks like a reasonable multiple is just that, it's an opportunity.
23:57 Ed Elson? Meta launched its own rival to Twitter, a text-based social media platform called Threads. Within the first seven hours, it had 10 million users. The app works just like Twitter. It lets you publish short-form written posts, like them and reply to them. And it's also links directly to Instagram, meaning Instagram's 2 billion monthly active users can easily transport their username and followers onto the new platform. Now, Threads is one of several new Twitter competitors to emerge in recent years. There's Mastodon, Jack Dorsey's Blue Sky, Trump-backed Truth Social, and Scott's own portfolio company, PostNews. However, none have yet been able to rival Twitter's user count. As of 2022,
24:39 Ed Elson? that user count was 240 million. Scott, basic question, do you think Threads will be a success?
24:47 Scott Galloway? I think Threads is going to be the best, arguably the best product launch of 2023. Round one of the cage match between Musk and Zuckerberg. Zuckerberg is kicking the shit out of Musk. I mean, here's the problem with Post, with Mastodon, with Blue Sky, that is, their feature functionality is really strong. They have great innovators. Jack Dorsey's a great product guy. Noam Bar Dean is arguably the best product guy in the world. He invented Waze. He's at Post. I love PostNews. It's got a better feel, better vibe, more news focus. But here's the problem, it's work. All of these things are work to get back to 10, 20, 30,000 followers. I've spent the last 15 years getting to 550 on Twitter. That's a huge mote. And I'm just like, do I really want to invest?
25:31 Scott Galloway? I think most people are like, do I really want to invest the time and energy to get back to this? Even distinct of how shitty Elon Musk is and his behavior. And what you have with Meta or what you have with Threads is a couple of things. One, you have a group of executives. This is what they do. This isn't a rocket guy. If, if, if Mark Zuckerberg decided he was going to build a launch vehicle that tried to get into space to launch satellites, I wouldn't be surprised if it didn't work that well. That is what Musk is trying to do. All of a sudden deciding he's a media guy. He doesn't, he clearly has no fucking idea what he's doing. These individuals are responsible for two thirds of the social media traffic in the world. They have all the advertiser relationships. They have the technology, the ad stack. They know how to whip up a social media pro. I mean, they're just, they know how to do this shit.
26:14 Scott Galloway? They also know how to depress the shit out of teens and make us feel worse about ourselves and spread misinformation, but I'm going to ignore that. As it relates to social media and building shareholder value and audiences, these guys come to play. They're very good. And with a flip the switch, I'm already at letter L within seven hours. And that is just, he's going to take a cannon of 3 billion monthly users and point it at his new thing, Threads, because there is ego involved here. He controls the company. He genuinely does not like Musk. And you have what is effectively a very interesting case in disruption. And that is disruption is more a function of the incumbents than it is of the disruptor. What do I mean by that? It wasn't that Amazon was that big a disruptor.
26:58 Scott Galloway? It was infinitely cheap capital, good execution. But what made Amazon, Amazon was that grocery stores and department stores and book and record stores sucked. And they hadn't changed in 40 years. Netflix was amazing, but more than how amazing Netflix was, was just how shitty and expensive ad-supported cable television had become, where you got 21 minutes of content for enduring nine minutes of ads telling you to buy a South Korean car, a light beer, or that your legs were restless. So boom, in came the disruptor. And what do we have here? We have a five or a $2 billion company that used to be a $5 billion company that acts and behaves like a reckless man child. I mean, it's literally like the management team is a raccoon on meth, the decisions they make.
27:42 Scott Galloway? It's like, what the fuck is this thing doing? Anyways, Ed, I think this thing, I think it's gonna be a huge, I think, I think he's gonna get, it's already the fastest zero to 10 million platform in history. It's faster than OpenAI, it's faster than TikTok. I think this thing is a monster and is gonna do really well for Meta. What are your thoughts?
28:01 Ed Elson? Well, I wanted to ask you, as you're sort of the target creator for a platform like Threads, you know, I set up my Threads account, I haven't really done anything with it, but I'm feeling the same issue as you, which is I've invested all of this time into Twitter and I don't really wanna see this big seismic shift over onto Threads because then I'm gonna start feeling, okay, well, I've wasted all my time and I don't wanna start from the ground up on Threads. And I guess my question to you is, what really is the value proposition for moving to Threads? Because when I look at the product, it's the same product, there's basically no difference. It looks a little nicer. The only benefit, in my view, is that you don't have the slight
28:46 Ed Elson? anxiety of, I forget how you put it, something like raccoon on meth management. So I guess my question is to you, is, is it because you, you think that the product is better? Is it because you're worried about what Elon will do to the company? Or is it simply, and this is a hunch that I feel about you, you don't like Elon, you don't wanna support his investment?
29:06 Scott Galloway? All of the above, but you summarized it. The primary value proposition of Threads is that it is not Twitter. And not only whether you're biased, there's a lot of people who like Elon Musk, a lot of people who don't, but let's put that aside. The move to a blue check business model, which was just pay for play, no verification of identity, no attempt to do what Open Web does, and that is rank comments by the veracity of the commenter, the data, and de-escalate heinous hate posts, that, like, all of that's gone away. So what you have is a group of mostly MAGA hat-wearing or Elon stans who paid for the blue check, and quite frankly, their content just isn't as good. It used to elevate great content.
29:52 Scott Galloway? And the blue check said this person has some credibility and is who they say they are. Now it's the blue check pays eight dollars to get more of their content heard, which doesn't mean it's good content. So what you have is this inextricable downward spiral. And the result is, one, the content just isn't nearly as good. Two, because he has essentially fired his entire safety team. It's gotten so vile. And then you look at the advertisers. It's literally ear cleaners and payday loan because no credible advertiser wants to have Dove, an ad for Dove, showing up next to a swastika. And that's what you're dealing with when you advertise on Twitter. In addition, the management team is the team that keeps on giving here.
30:35 Scott Galloway? This whole rate limit exceeded bullshit. No one can figure out what happened there. And then he comes out to explain it, which was basically him saying, the CEO Linda Iaccarino really isn't the CEO. Why is he announcing this? She should absolutely be announcing these kind of things. So what do you have? You have, one, it's not Twitter. And two, they're going to learn from the mistakes of Twitter, just as they learned from Snap. Snap really was the R and D department for Meta. Meta has no shame about ripping off. It feels very Twitter like, but it feels cleaner. And so far, no one's, you know, no one's calling me a libtard or, you know, there isn't a lot of name calling, at least in the seven hours I've been on it so far.
31:16 Ed Elson? Give it time.
31:17 Scott Galloway? Yeah, give it, give it time.
31:19 Ed Elson? You thought, so I mean, my follow up question, like, do you think Threads is going to be any better, the, the, the company that, that pushed nooses to teenage girls? I mean, why is there any indication in your mind that Threads is going to come up with a cleaner, more high quality content diet through its algorithm than, than Twitter would?
31:39 Scott Galloway? Meta cares about money. And money, for most of the time, leads you to a productive, good place. I believe in capitalism. So people want inspiring, good content. The problem is the algorithms also sense that. Uh, you know, sexualized photographs or provocative photographs of people, no matter how young, gets a lot of viewership. So they let that run free. Rage, they let that run free. Meta doesn't do nearly the job they should, but Neta does have a safety team. I would bet it's now five to 10 times, if not 20 times. Twitter is literally an empty shell. It's an empty, you know, it's a shadow of itself. And so I find that the service
32:22 Scott Galloway? itself and the content has just gotten so bad. Now, having said that, will Meta do anything to be less of a drag on the Commonwealth? Will they do anything to slow the acceleration in the rates of teen depression, self-cutting? No, they won't. There's problems across social media. I think we're about to see the mother of all misinformation in the first half of next year as we move into an election where we have a murderous autocrat who's, if he doesn't get some victory in Ukraine, is going to find he's put in an office on the 11th floor with a big window. And the fastest way for him to a blue line victory would be if Trump gets reelected. And then you have these amoral management teams. You
33:03 Scott Galloway? have Twitter, which is just totally off the rails. And you have Meta, which will always opt for thoughtful consternation and doing nothing as long as the check clears. But I do think Threads is going to be a better experience than Twitter. Twitter's just, Mark Zuckerberg isn't going to put out a thing saying, oh, your rate limit has been exceeded. We're limiting your viewership. I mean, we didn't know if it was him trying to cover up a technical glitch, or them trying to shove more people, motivate more people to sign up for a blue check. It just felt like a cover up or desperate, or probably what it was, just some guy's blood sugar and incompetence and him calling one of his 11 remaining engineers saying, tell them the rate limit succeeded. And see what happens.
33:46 Ed Elson? Yeah, this makes me think back to all those comments saying, you know, this guy builds rockets. You think he can't, you think he can't build a social media company.
33:54 Scott Galloway? It's like, no, yeah, he can build a rocket. It's an entirely different skill set.
33:58 Ed Elson? Exactly.
33:59 Scott Galloway? Yeah.
34:00 Ed Elson? But I do want to take this one moment just to give some praise to Mark Zuckerberg. So he's been called a copycat throughout his entire career and it's been a, it's been a way of ridiculing him. And there have been failures when he's copied products. So he tried to copy YouTube when he did Instagram TV. You know, he bought the Oculus, which, you know, copying, he just acquired the company and, and, and the Meta Quest has been a massive failure. But I also want to just go through like some of his wins. So in 2012, he bought Instagram, now has two billion users, basically the biggest social media company in the world. 2014, he acquired WhatsApp, also has two billion users. 2016, he started Instagram Stories, which he copied from Snapchat.
34:43 Ed Elson? And within a year, he had more people using Instagram Stories than Snapchat had across all of its users combined. And then in 2022, he started Instagram Reels, copied TikTok, and now he has two billion people using Reels. And I just think we should give credit to Mark Zuckerberg. I mean, there's that great Picasso quote, which is good artists copy, great artists steal. I feel like we're witnessing, you know, you can call him out for being weird and for being a lizard and also for all of the misinformation stuff. But I feel like we're witnessing the greatest corporate artist of all time. He's showing that, that M and A and, and copycat products is truly an art form.
35:25 Ed Elson? So I just want to give him the credit that I think he deserves on that front.
35:29 Scott Galloway? He's a brilliant business mind and next to Elon Musk, he looks rational and nice.
35:34 Ed Elson? Yeah.
35:35 Scott Galloway? But let's not protect. I mean, if you had a button to decide whether or not Meta should ever exist, you might push it. This organization has done real harm to the Commonwealth, to teens, our elections, and he has to take responsibility for that. He's been in charge. So yeah, I would rather spend the weekend with Mark Zuckerberg than Elon Musk. But in a future world, if I can go back in time, I'm going to try and start a taco stand with my buddy, the Zuck, and keep him out of technology.
36:07 Ed Elson? We'll be right back after the break with a look at Yahoo.
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38:04 Ed Elson? We're back with Profy Markets. One of the oldest and best-known internet companies is planning to IPO, Yahoo. That's what CEO Jim Lanzon told the Financial Times, adding that the company is "very profitable" and "ready financially." Yahoo has had an interesting and tumultuous history. The company went public in 1996 and quickly became one of the most popular websites in the world. At one point, it turned down a $47 billion acquisition bid from Microsoft. However, it has since regressed. In 2015, it was sold for just $5 billion to Verizon, which then resold it six years later at the same price to private equity giant Apollo.
38:45 Ed Elson? It's also had its fair share of management shakeups with eight different CEOs in its 28-year history. Now, we actually have some inside perspective on this story because Scott co-invested with Apollo back in 2021. So Scott, first off, why did you make that investment?
39:01 Scott Galloway? The best assets to buy in terms of price are corporate orphans. Because Verizon, which does, I don't know, $100 billion plus in revenue and is worth a couple hundred billion dollars, it's like, "I just want this shit off my plate. Sell it." If we don't get... We don't want to wait and get a better price. We just want to be done with it. Get it off, we'll take the hit. Corporate orphans are literally the best purchases ever. And here's the thing, Yahoo was a shitty investment at $125 billion, but I was banking on the fact that at $5 billion, it was an amazing investment. And my thesis was incredibly complex, and it was the following. It's one of the five most traffic sites in the world,
39:45 Scott Galloway? and it's the only one of those five sites that trades for less than a trillion dollars. I mean, whether it's YouTube, or Meta, I mean, or Google, all of these things are trillion-plus assets. And then there's Yahoo, which I think is the fifth or sixth most traffic nonporn site in the world. And it's trading it. We had a chance to buy it at five billion. So I said to Apollo, I said, I really want in on this. I love it. I can add value here. Yahoo Finance has been my homepage for, gosh, 25 years. With a public stock, they're going to be able to go roll up all of the remaining content guys. I wouldn't be surprised if they acquired the distributor
40:26 Scott Galloway? of this podcast, Vox, if they decide to get into the podcast game. And all of these things are trading at really, you know, bargain basement prices right now. And they also do a very good job of monetizing that content. And then query me this. What is the third largest company in $150 billion sector called search? Well, we know who one is. Two is Microsoft. Number three is Yahoo. And they make a shit ton of money in search. So for a lot of reasons, I'm very excited, Ed. I'm very excited. Distressed, growing, got in at a great price. I really like Jim Lanzon, the CEO. He strikes me as an adult. He's also quite handsome, which I think is important in a CEO. I think that's very important.
41:08 Ed Elson? Fundamentals.
41:09 Scott Galloway? So I got into this thing and it's already like I see the financials on this company. It's already a crazy winner.
41:15 Ed Elson? Did they share the financials with you when you invested? Or do you get to look at the financials as an owner?
41:21 Scott Galloway? I saw the financials when I was investing. I haven't kept up on the financials of the company, but.
41:26 Ed Elson? Do you remember roughly what the earnings multiple was?
41:28 Scott Galloway? I think the company was doing somewhere between five and 700 million in EBITDA. And we bought it for somewhere between four and a half and five billion dollars. But here's the thing, Ed.
41:35 Ed Elson? Yeah.
41:36 Scott Galloway? It had about a billion in cash and then it immediately sold Yahoo Japan for, I think, about one and a half billion. So you basically bought this company for about three or four times EBITDA and they've been growing EBITDA. So, I mean, the way private equity works is you make a capital commitment and then they call on that capital commitment. They never called the full amount of the capital.
41:54 Ed Elson? Right.
41:55 Scott Galloway? Because they didn't need it.
41:55 Ed Elson? Right.
41:56 Scott Galloway? So this is, this is going to be a home run. And the way, the way you measure the success. Of a private equity or of any investment is the internal rate of return, meaning how soon and how much money did you get back, right? So you'd rather get 20 bucks back on a hundred dollars in a year than 30 bucks back on that hundred in two years, right? It's how much, how much and how soon do you get your money back? This thing's going to have crazy IRRs and it's going to have a public security to go start buying cats and dogs and digital media that don't have the scale. So anyways, I just, I absolutely love this thing. And again, see above, animal spirits returning to the markets. You watch, this is going to be a big IPO.
42:37 Ed Elson? Yep.
42:37 Scott Galloway? It's going to be, and it's just, it's kind of internet history for me. It's sort of like when John Travolta shows up in Pulp Fiction and has a kind of a, you know, his career is reignited again. I love the fact that Yahoo is back. It's like, oh my gosh, you know? Who would have known that Michael Keaton would be in, you know, win the best Oscar or whatever? So I love this thing and it's, I think there's some real investment lessons here. Run, you know, find the shit no one else wants. The hot, young thing always trades at a crazy multiple. It's ridiculous how much unearned attention hot, young people get and how much we shun older people when they have a lot of value to add. And it's the same as true of companies. Older distressed companies are the best place to invest.
43:23 Ed Elson? And finally, just some sort of M and A, tech M and A history. We're talking about Facebook, which feels like probably the greatest acquirer of all time. Yahoo might be the worst. So they bought a web hosting service way back in the day called GeoCities for three and a half billion dollars, which later shut down. Then they bought an internet radio company, Broadcast.com for six billion, shut down. They bought Tumblr for 1.1 billion and then sold it at a 99.77% discount for $3 million. Facebook makes it look easy. Yahoo is sort of case in point that it isn't. But from your experience on corporate boards and just running companies in general, what does the acquisition process usually look like?
44:08 Ed Elson? And what does it take to make a successful one? Especially considering the fact that the CEO has stated that M and A is, is going to be a big part of his strategy moving forward.
44:17 Scott Galloway? People often say specifically the CMO or the person who feels like they should only be the one making decisions around brand and marketing. That brands are really fragile. I find that's not true. I find that strong brands are really enduring. You can, it takes a lot to kill them. Cartier, which is one of the best luxury brands in the world. They were putting their brand on the side of Lincoln Town Cars in the eighties. I mean, you can really try to fuck up a brand and it still might survive. This is what Yahoo, a global brand, has survived. It's survived arguably the worst CEO in tech in the last 20 years. Marissa Mayer, who everyone thought was, you know, keep hope alive, a great backstory, a terrible CEO.
44:59 Scott Galloway? Took revenue down 20%, took EBITDA down 50% and managed to walk away with a quarter of a billion dollars. Hired her buddy from Google. He was fired 15 months later. She structured, agreed to a severance package where I think he got something like $130 million or $200 million in severance. Almost managed to fuck up the tax structure of their Alibaba stake, which was worth more than the entire company. The company became a tracking stock for Alibaba. And you referenced probably the worst acquisition in history, and I'm not revising history here. This is true and it's on video somewhere. I was invited to speak at something called P and G Signal. P and G gets all of its top leaders together around the world and they bring in a bunch of people to speak to P and G.
45:42 Scott Galloway? And the most important, you know, a lot of people show up because they all want to sell ads or something into P and G. And I was on stage and Instagram and Tumblr had both been acquired in the previous 90 days. And I said, best acquisition of the year, Instagram, worst acquisition, Tumblr. And you know who spoke after me?
46:01 Ed Elson? I don't know. Marissa?
46:02 Scott Galloway? Marissa Mayer was behind me. But essentially Tumblr was a porn site. And the moment they stopped the porn, under pressure from advocates, its traffic dove and it was sold for $3 million. It is hard to find a company losing a billion dollar plus acquisition, going to 3 million. Basically saying it's worth nothing. We bought nothing here. So Yahoo has endured one of the worst CEOs of the last decade, one of the worst acquisitions. And yet, and yet it endures. It has a global brand. My guess is this thing comes out, I mean, I was looking everywhere to try and see where they think the market valuation is. But my guess is this thing comes out somewhere between 10 and 20 and Apollo just prints an enormous IRR number.
46:47 Scott Galloway? I love this. I absolutely love this.
46:52 Ed Elson? Okay, let's take a look at the week ahead. We'll see housing starts and existing home sales for June and the second quarter earnings season kicks off with JP Morgan Chase, Wells Fargo, Citigroup and BlackRock all reporting. Do you have any predictions about those earnings, Scott?
47:09 Scott Galloway? I don't have any predictions about earnings. My prediction, I think Threads is, it's going to be everything for all the press, for all the press that the mixed reality headset got from Apple, the actual launch here that's going to change things, the ecosystem, Threads. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavros and Catherine Dillon. Miel Severio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us Wednesday for office hours and we'll be back with a fresh take on markets every Monday.
48:31 Scott Galloway? I just want to summarize by saying distressed, don't be ageist, look at valuations and it's fun to be around hot, young people, but guess what? They're really expensive and hang out with seniors when you're investing. It's the best place to invest.
48:45 Ed Elson? That's why I hang out with you.
48:46 Scott Galloway? That's why you hang out with me. Did you just say that? That's why you hang out with me? Anyways, touche, well done.
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