Prof G Markets: Is Target a Leveraged Buyout Candidate? + Comcast Cuts the Cord
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And chill. This week on the gray area, will our institutions keep working in twenty, twenty four and beyond? I don't think this election itself is the end of american democracy like IT spells the formal evolution of IT. I do think IT is the beginning of the greatest test american democracy, a scene since the civil war. Listen to the grey area with me shinney new episode every monday, available everywhere. Today's number two hundred and forty three thousand, that's about how many of use jackers commercial for its rebranded logo got in twenty four hours on youtube battle was trying to find a joke that would bring together necrophilia, bestiality and masturbation. But at this point, IT just feels like i'd be beating a dead horse.

That's why people come here. Red, what's going on today? We're discussing an earnest crisis, a target, why comcast is shutting its cable business.

good.

You are just dying to say .

that wasn't how I say from a different country.

If you ask another ways will find you dead in the boot. I just made that up was pretty good. Have I seen? I'm sorry, have I seen?

What have you seen? jogues? That's how to put out. yeah. Have you seen the new logo?

Nobody paced in. Our producers pasted IT in. Okay.

so please check IT out, because everyone's talking about this and you are the marketing professor.

We need your reaction. No, this is a new logo. No, no, no, no, no, no.

Come on. Hold on. I actually use this logo in my class.

Look at this thing. He's out. He's hunting. He's bringing home to pray for his wife and his kids. His elegant, he sleek, he's a jungle cat. And then they go to this fuck and thing that looks like he was created by A I right? We can process images fifty to sixty times faster words.

So this is going against our instincts, are relates to marketing, if you are blessed with the logo like they used to have, that visionary metaphor of that incredibly strong, yet elegant, yet powerful jack, jack was are the only animal that went hunted is a true story. The only animal that went hunted will perceive their being hunted and then sprint, circling around and then hunt the hunter. You want to talk about snatching defeat from the jaws of Victory.

That is one of the greatest visual metaphors and automobile history. And instead they went to this fucking westworld. This topic weird is awful, terrible decision.

So what do you think happened in the in the jack a border room? Why did why do you think they signed off on this? What do you think is the strategy here? Like everyone agrees this is the worst rebrand of all time. Why do you think they went ahead of them?

Because they spent a lot of money to design and see that's populated with very good looking Young people who wear black, who seemed understand more about design. And they came in and used as much of fancy terms, like elegant and progressive. And this is more for a modern age.

We need to update that. You need to pay us thirty million dollars to redesign all the logos outside the conference stream and all the shit and all the dealerships. By the way, add just a quick tip. When you're shopping for a car, don't eat the climb shouter at the lexis september to remember event I would love.

But I like this joke. alright.

I had never gets old. You got a recycle, the good stuff. You ve got a recycle.

the good stuff. I guess I did love anyway.

So I can tell you what I know what happened here without knowing what happened. It's a new cma who's decided but his or her footprint or in print on the company and is convince them they needed a new fuck and logo because actual work around things like customer acquisition and figuring out digital platforms, now that's real work.

Instead, I hire interbrand or mild from profit to come in and have very compelling, very particular, very attractive people. Tell you why this logo connote something that foot to a modern age. This is a stupid fucking decision. This is the equivalent of putting shareholder money in the middle of the road and running .

over IT in X J S, X J R. Their new tag line is copy nothing like this is sort of their boldness brand and that gives them, you know, copy nothing. This is anything but I look at that logo and it's like you copied every single tech starts up that we've seen over the past like five to ten years like this literally is just like classic this topic meet diverse type two d fund where it's all sped down clean looking like it's just IT looks like a tech company.

This is the final nail in the cough in of british culture point when americans obsession, fetish, mater, battle, fantasy of A I baster. I'm shocked they don't have. I'm shocked it's not java dot A I and they're trying to pretend to be a tech company.

But this is, this is a sense. Look at how beautiful they're all logo is. I want to be that guy out in a jungle to sleep and strong up with me.

Got that. That should is money. The next like, could I see a super attractive gara gallet f one?

I'm going to come up after a few cocktails. A lot of cartels really like. Do that how you lose your virginity .

in nineteen. That's how we open the show. Let's start with our weekly review of market vitals.

The S M, P five hundred was volatile. The dollar client bit going hit fresh record above ninety eight thousand dollars. I wouldn't be surprised if IT hits one hundred by the time this air.

And the yield on ten year treasury's slumped. Shifting to the headlines, the justice department proposed a force sale of crime as a potential remedy in the google anti trans case. The browser, which is approximately twenty three billion monthly active users, could be valued at up to twenty billion dollars.

Microstrip gy sold two point six billion dollars worth of convertible bonds to fund its bit going buying spray. The business intelligence firm already owns nearly thirty one billion dollars worth of the cypher currency and plans to buy more over the next three years. The stock rose to a record high after the sale, and it's up more than six fold year to date.

And finally, in video's third quarter of earnings beat analyst expectations with the revenue topping thirty five billion dollars that is up ninety four percent from a year earlier. The company also projected revenue for the current quotable jump to thirty seven and a half billion dollars. While that forecasts was slightly above animals expectations, the stocks still fell more than two percent after hours. Scott, your thoughts starts ing with the D, O, J, S proposed force sale of google chrome.

Look, I love this. If if you go back and economic history, IT would be very difficult to find an instance where the break up was not good for the economy, was not good for the tax space, was not good for shareholders, was not good for the employees who now have more companies bidding to rent their labor.

The only stakeholder that loses in a breakup throughout economic history is the individual who wants to sit on the iron throne of all problems, not just westerhouse. I mean, search is essentially I think it's the biggest gross margin dollar business in the world, and there's one company to dominate that. And if you gave if you took away the data set in the interface of two thirds are three in a have million people who use chrome.

And IT was now a competitor that could offer data and opportunities for other potential search engines. I think that would be good for everybody. I mean, who knows someone might come up with a search engine that is not trying to target Young people or that screens out this information, or doesn't bring sunlight to conspiracy theory greater than its organic reach?

I had a religions conversation with erh mad, or we did. I don't know if it's on this part of one of my other forty five due back. Get on this podcast.

I was not there .

for there ago. Well, you actually you know it's funny, didn't not standing jobs. Anyways, but eric, the former CEO, not of alphabet bit of google, he said something really that really struck me. He said that individuals should have almost limitless free speech, but computers should not have free speech.

And that really struck me an elegant way to approach the problem because when I look at the majority of really vile shit that's trying to polar ize people or spread conspiracy theory, whenever i've kind of a click on IT and try to figure out who this person is, I find out it's not a person. It's clearly a bot that's using being used to amplify either conspiracy theory or a certain ideology or simply put, IT. It's a bad actor trying to get a ship, posting each other and arguing with each other.

So more competition you might find people say why I want a family safe search company. I want a search company that doesn't have doesn't ad supported such that to take you the best answer, not to, not to the answer they can further monetize. Well.

i'm going to disagree with you on your take here. I think you've brought up a lot of important issues, but there are all kind of desperate issues that you're talking about here. Like there's the monopoly issue and then there's you know the the free speech issue and there's the conspiracy issue.

Like there are just all these things that we dislike about big tech and about google. But I mean, let's just focus on what did google actually do wrong here. And if you read through the judges case, the big thing that the judge identified was the fact that google was paying billions of dollars to other companies, particularly apple, to be the default search engine on those devices.

There's a very easy way to address that, and that just break up their relationship with apple, to tell you not allowed to keep paying apple to be your deflect browser. Now that is something the D O J is supposedly going to recommend as a remedy. But to I, on top of that, the first sale of this asset that is in many ways integral to google business IT just doesn't feel like a remedy to me that feels more like a punishment.

And in my view, if you're onna focus on puni shing google. I personally think punishments should come in the form of fines. But the idea of forcing them to sell crime, which which is dramatically transform one of the most important businesses in america, the online search market, that to me just feels like a step too far from government.

I just had this horrific image that I finally get the call from the White house asking me to be secretary of education or commerce secretary and the calls actually for you and they're just trying to get your name. I think that's a really solid. I would argue though, that the data around traffic patterns and behavior captured on the front end of the the true access point to the digital world is is the browser. And so the amount of data they get around where people are going, their trends that they can then feed into their search algorithms to Better provide Better targeting for clients who advertise on google, I would think that, that gives them almost an unexpected advantage. The results in a ninety plus percent share of .

search is huge, but it's also why the product is so good, right? I mean, the data is all part of the business.

What you don't realize with monotony is you don't know what you're missing. So for example, do you know google search is really innovated in the last day? No, all of the innovation has been how to how to turn advertisers up by their heels and check more money from them. That hasn't been around consumer innovation. So I I would push back and say the monopoly power here, we don't know the innovation we're missing.

I just don't buy IT as a means to breaking them up. My question would be that this this won't hold off and cold, but I agree with you that you perhaps the world would be a Better place if google will broken up. So we move on to microstrip gy, which is absolutely tearing right now. And you're actually friends with the founder, CEO Michael sailor, who's been on this podcast before. What are your initial reactions to micros strategy, which is performing even Better than bitcoin right now somehow?

So i've known Michael for the Better part of twenty years. The guys like crazy, fuck and smart. And every time, I mean, I think I really should buy microstrip gy stock or big line, and I have bought none of either.

And so I want to find a time machine, go back, find me, kill me and then kill myself. I mean, I I knew this guy was so bright, but I think that got away from me was, you know, an old dog. I believe in corporate governance, in the idea of A C. O.

Taking a publicly great company that does business intelligence and borrowing levering up like crazy to buy another IT would be like tim cooks saying, I just believe in gold, and i'm going to put one hundred billion dollars and that on this company and go back, become the largest single owner of gold in the world. And IT just felt so strange to me. But there is no getting around that.

The guy is a fuck and visionary. When I had on the pod two three years ago, bill clam was a eighteen thousand and IT is spite from five thousand and i'm gonna way to goes down the five. And it's like, trust me this just by a little bit, this thing is, this thing is bullet proof. The long term, it's up about five fold since and what is microstrip gy since .

i'm not it's it's up six fold in the past year and set by hundred .

and twenty three percent of last thirty days. And because he takes a dead, it's basically microstrip gy has become a levered bet on bitcoin. It's like buying a etf on china. Its three ex, it's levered up.

So look, there's just no getting around IT even clipped of skeptics like myself have to acknowledge that I believe that bitcoin has become a credible tangible store value, the spec of asset no doub about IT. But Michael is, you know, from an nik standpoint, he's flying at a different altitude. He saw this in my gosh, you anna, talk about balls the size of really big balls. I mean, this guy, this guy basically said, business intelligence, missioners intelligence are levering up and we're buying big coin.

I I why is microstrip gy up so much more than bitcoin? I think part of IT is what you said, which is this is like a levered. I love IT up bitcoin play because they're borrowing money and then using that money to buy more bitcoin.

So it's just going to be a more volatile version of bitch coin right now. But I think there is A A second story here, a second reason why people are so obsessed with microstrip right now. And that is the bitcoin holdings are worth a quarter of the company's entire market cap and they don't have cash, which is why the borrowing managers go by more bitcoin.

And if you look at their earnings reports, they now identify not as a business intelligence firm, which is what this company has always been. They call themselves a, quote, bitcoin treasury company and that is the throw line of the entire learnings report. It's like here's our plan to buy more bitcoin.

Here's our plan to build out a bitcoin ID network. Here are the list of conferences, these bitcoin conferences that we will be hosting and attending. Meanwhile, the actual business, the way they make money, is practically treated like a footnote, like IT doesn't seem to matter that much of them.

So when I look at what's happening here, I think there are two people buying the stock. It's one, the people making the level play, but then it's two, the people who believe that, you know, if bitcoin is the future microstrip gy is the leader of that future. This is gonna be the official bitcoin company.

They believe that microstrip is somehow gonna pie near this new space. My only question would be, in what way will they put in here the bitcoin space? What is that actually look like? It's not very clear to me. The strategy is very vae is very hand wave, which is why personally I don't really buy IT .

if I had been on his board five years ago and he said we're levering up to by big coin.

you would have been nights.

very simple. I would have been kicked off the board. I would resign because everything I know, corporate, I would said, Michael, you a billionaire, if you want to sell your stock and go start a big coin company, have added, but don't don't take ear feed share for our shareholders.

They think they're investing in a business intelligence. The company and I would have been wrong. His shareholders have done extraordinary well.

Will see, we'll see. I am still wait you on that. On that take, I think I think this couldn't very badly personally. And by the way, our producers is message me, citron research just shorted the stock and the shares are off around nine percent as we are speaking right now. So clearly, I am not the only one who's skeptical about this company.

I'm with you and you know the things I don't like about bitcoin are I actually believe in transparency and and I understand that people feel like they should have privacy related to their money but in this asset class has been used in some pretty frightening ways. And uh but I I would maybe you could argue that the government's job and people have the right to privacy and this is a longer conversation. But the reality is he's winning and he's there's just not going to go round of the guy is a visionary. I I keep waiting for you to come down so I can buy a little bit of bit coin, but IT does not CoOperating with me in every time I see to go up every day and my here we go.

it's going to be a big day and profile finally buys some big com going to have a celebration.

So everything exactly that's just .

quickly move on to the video here I posted. You don't have much to say about these earnings because it's kind of the same story we've seen quarter after quarter of in, revenue doubled, profits grew, estimates were beat and then the stock kind of is stumbled, but then hum along. And this is what we come to expect. I mean, every single quarter in video is absolutely destroys and the market says, okay, that's that sort of what we expected.

The only thing that I would say that struck me, and this is more of a media observation than in investing observation, is that last night, before the earnings, I was just thinking, you know, IT actually doesn't matter what happens in this earnings report, because you and I gonna cover this either way, because this company is just so important at this point. IT makes up seven percent of the entire S. M.

P. It's in practically every americans retirement account. It's just gotten to this point where it's like. It's systemic to everything you you can't ignore. IT has to be covered whether or not is interesting.

And then I think the thing Johnson, one that really summed ed IT up on the earnings call, he said, quote, every company in the world seems to be involved in our supply chain. And I think he's right. This is just the world relies on NVIDIA in so many ways at this point. I think IT, you'll probably go down as one of the great companies of all time.

I mean, if you talk about it's really hard for people to get their head around the value creation here. And that is if you took the entire german stock market, every company, from dame's bans to Simons, the entire german stock market, the entire french stock market, all of the best companies in these respective economies, all of them in videos s market cap, is greater than the entire stock market of these countries.

And if you really think about that, if you think about the amount of human capital investment, government support, people who spend their lives, that these companies IP the customer basis, the global customer base is take every one of them, every one of them, and at them altogether, did not worth as much as in video. So this is a phenomenon we don't know how long I can last yet another fucking amazing asset class that I am not in. I am not in this said I keep waiting for you to get cheaper. They'll be right .

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We're back with property markets. Target and walmart both reported third quarter earnings. And once again, IT was a tale of two retailers.

Walmart sales rose over five percent to liffy, a position as the top of former retail in the S. M. P.

Five hundred, while targets only rose point three percent. Walmart also raised its fiscal year guidance for the third time and target lowered its outlook. So the markets response highlighted that contrast.

After the earnings call, walmart stock rose three percent. Meanwhile, target stock fell more than twenty one percent, its worst day since twenty twenty two. The first thing I will note, Scott, is that we have basically told this exact same story before on this podcast.

Pretty sure we we call IT the Taylor of two retailers. Um we've seen this before, target slumping and walmart doing really, really well. So what are your reactions to the fact that we have in a dasha zoo position in third call to twenty twenty four?

So let me start. And I love target. I got to the super target and broke ron.

And I think to do a great job, I have not worked with senior management target. I had some interaction to c mo. there.

But I at one point, I had a discount t of interaction with everyone, including the board in the C O. walmart. And it's an exceptional run company. And what was interesting about this is that they are going after targets, White meat.

And that as target was always a cooler, hiper, Better merchandise, more aspirational version of walmart that you can have value, but you going to have a little bit of, a little bit of a little bit scissor, little bit, a little bit of something, a little bit salsa on that ship, if you will. And they had their own brands, kind of a Better branding campaign. IT was opposition to work really well.

But wm marts, common for their, common for their core, I mean, really coming for their heart in their lungs. And that is the pointed differentiation that a lot of wealthy people who wanted value shop to target. Now they are just concentrate to walmart.

automation. Play a big girl here. Walmart is now automating two times their fulfillment center of volume here on nearby targets is only twenty five percent more automated.

So walmart has the walmart has a capital in the vision to make huge investments in digital. Some of them didn't pay off. They paid. And I think they overpaid for jet and they bought bonos, which was a stupid acquisition. Nice guys, but was just like a key little concept that they anyway.

So those guys got incredibly like, in my view, bt, about seventy five percent of walmart's increase in market chair this quarter came from households earning over one hundred thousand dollars, which is the demographic typically associated with people shopping at target. So people want convenience and affordability warmer. You know, the unlimited deliveries for twelve, twenty five months and people are more focused on spending smart groceries were sixty percent of omar to the sales, while the category accounts were lesson twenty five percent of target cells.

And I would imagine that gross uses a while a low margin business. It's a more consistent business. And if you look at the two companies, uh, walmart trading at thirty six times learnings target is trading at twelve.

And the analogy here that you brought up, which is a really interesting one, is the analogy between a dominant number one in a very distant two, and that is uber and lift. And they're early similar. Uber up one hundred and fifty seven percent of the last five years, while lift is down sixty two percent.

Actually, I think to see I think both have outstanding C A directions to shy in the CEO that lifted both impressive people by comparison. Similarly, if you were one marts up, one hundred and twenty percent over the last five years will target is down about four percent. So this is what I think is gna happen.

And i'll come back to this. Uh, I think targets beginning to look like a juicy lbo target or at a minimum, they're going to have an activist in there. This thing is now cheap enough. It's still as a strong brand in a great, great real state.

I think if I were to try speculate with the promise, it's the following when you're dealing with A C, P, G company or retailer in a duopoly, coke, pepsi, everyone's compensation mojo DNA is focused on one thing and that is share. You do not give if you're you know if you're pepsi, you do not in your god, seventeen point eight percent share. If IT goes to seventeen point six as the brand manager, you might get fired.

So you become so obsessed share that in in the market also is very focused on your share that you can make the hard decisions that I think you need to make. And I would argue the target just needs to be a dramatically smaller company that's more profitable. They have one thousand nine hundred hundred stores.

IT should probably be a thousand and twelve hundred and cut costs and make this a more profitable smaller business. And I think that would best be done outside of the screening of a publicly traded company. And when you look at the fact the P.

E. Firms have a quarter a trillion dollars on their baLance, she'd ready to deploy. When you look at the fact this thing is getting pretty cheap, one of two things is onna happen. We're even going to see an activist or we're going to see a potential club deal and take private here.

Harry. interesting. So targets mocket cap is fifty six billion. Enterprise value is around seventy two billion. If you are come for the debt, who's got that money?

Oh yes, I would have to be a club deal. But you got IT like I said, P S, two hundred and fifty billion dollars and dry capital and they could finance a lot of IT with debt. Still, if it's trading at A P E of twelve, that means it's got five billion and earnings.

So they could probably borrow you know ten to twenty billion of IT. And they get a club deal, get a bunch of biggest players to each come up with ten billion. Yeah, they could get the deal done.

But I think what you're going to have, I mean the three biggest deals, I think in L B O history or H C A A R G R, but none of them have happened in the last several years. But all the moons are lining up for what I think will be probably the biggest delbier in history. And twenty twenty five and going to this company target.

People say they know walmart bigger, but often times people will mention target in the same breath as walmart, above target as a fifty six billion dollar market cap. Walmart is seven hundred billion. It's crazy. I can tell you a lot of pie guys are sharpening their pencils and looking at the same, and they calling their buddies and say, saying, if they see us down with this, we think we can make this happen.

Are you in for one, five, ten billion in equity? Talking to banks, how much could we finance on this thing? This is there's a lot of people, I would imagine lot of very smart people looking at this company right now.

I would like to just focus on target and they are earning the earnings themselves and then will compare IT to walmer. But just a highlight, what happened to targets for revenue rose just one percent, way below expectations. Profits fell twelve percent, also way below expectations.

And they said target that there were two main issues they were dealing with. The first issue was the long short man strike, which we've discuss before. There were all these strikes at many of our largest ports in, in, in amErica back in october, and that was a problem.

And target said that is a result, their freak costs and their supply chain costs were a lot higher. The second issue that they highlighted was consumer demand. So the average ticket size for target customers was down two percent.

They also saw a decline, a pretty significant decline in the direction. Ary spending on the way told a position that problem is that there is this macro issue in amErica happening among consumers. Consumers in amErica are tight on cash, and so now there is more cautious about spending right now.

okay. Now let's compare that to walmart. Sales rose more than five percent, profits higher than expected, average ticket size grew more than two percent. And so the story over at walmart that they are telling shareholders, and mind you, these earnings schools happen in the same week.

So we're looking at what happened to target and then immediately following that with what happened to walk up, the story is that customers are going to warm a more frequently and when they do that, also spending more. So this mro bogyman that target seems to be talking about when IT comes to consumer demand, supposedly hurting target. For whatever reason.

IT isn't touching walmart. Walmart doing just fine. And then, you know, the long, short man strike.

Walmart is the second largest importer of the affected ports from that strike. The only one ahead of IT is L. G.

electronics. IT should have been hit way harder by the strike then target. But walmart said that, yes, IT was a slight issue, but they managed the inventory well.

They only saw a point six percent decline in their inventory level. So in other words, walmart just figured that out. The consumer as SHE wasn't a problem. Neither was the long showman struck. So this, again, is a story we've told before.

This is the force straight quarter in which target has blamed there under performance on something else, whether it's inflation or demand or strikes, in some cases, even shop lifting. And meanwhile, walmart is over performing. They're doing just fine.

So I think the question you have to ask target now is, at what point will you publicly recognize that maybe this is your fault, maybe this is an amErica and the consumers doing something wrong, maybe this is you doing something wrong, and maybe you need a drastic change because wall street just isn't buying this narrative anymore. There's a reason the stock dropped more than twenty percent. They are just done with IT.

So I guess my question to you would be, what does the bedroom do now I think the activist point was a good one. IT seems like i'm sure a lot of activists are coming in here and looking to shake things up. But what you think the conversations in the board room of target are .

looking like right now, what is probably going to happen and what the board to do is simple. They should fire the CEO, and that is year year analysis is correct at some point. It's about you, boss, you you know all the problems you are claiming that are these macro o systemic issues, walmart seems to have figured out.

So it's simple here. Duggin melling gets a race and brian cornell gets fired. He's been the C.

E. O the last ten years. This company has underperformed dramatically its peer group. And maybe it's not a fault, but add a minimum. They need a fresh change and. The way I look to see people say, fireroom see us make so much fuck and money, they should be held to .

a higher stand.

And this is what's going to have the chairman of the board. I would bet in the next couple weeks, really okay. Well, I I get the time around. This guy is on the Green mile.

He just is IT gets a walk in the chairman and says, brian, yeah, you know, love you but we're going to make a change and they're going to give a golden parachute or give him the ford vest options. But no, he should be. This is an easy one.

He is, in my opinion, after ten years of really mediocre performance, he absolutely deserves to be terminated in my view. Or or lego. And I would i'd be shocked if that didn't happen and if that doesn't happen, that'll be the first thing on an activist power point deck is the management has vastly under performed.

He has I want to be clear, he hasn't mean a disaster. But these jobs are fairly kind of what have you done for me lately? And the last five years have not have not been strong.

absolutely. Let's just take one moment for you rap IT up here to talk about what walmart has done, right? Because, I mean, the stock is up one hundred and twenty percent in the past five years, and I feel like no one saw that coming.

Like walmart has generally been viewed as kind of a dinosaur and more importantly, a should competitive to amazon. I mean, I think the story most people believe was that amazon gna kick the ship out of walmart, but they've done really, really well. I think the question is, you know, what have they gotten right specifically? And just two things really jump out to me that the worth highlighting.

The first is how they invested in e. com. So they made a set more than seven billion dollar investment in two thousand twenty two to just revalidated of their technological infrastructure.

And the business is the e commerce business is herring. It's up twenty seven percent year over year. And you compare that to target, which is up just ten percent.

And you mention the fact that they have doubled that automated fulfilment volume. I think that's really important. So one part of this is their embrace of technology, their embrace of the internet, which is really paid off.

The second one is pricing. And if you remember, but earlier this year, walmart came up with massive discounts when inflation was ripping, and our response was, one recommended walmart, and two, everyone's gone to follow suit now. And that is exactly what happened. Target eventually decided to follow up, and they often their own discounts. But IT looks like IT was too late.

And you always have to give credit to walmart for being so bold on pricing, recognizing that the most important thing is the foot traffic and the trust of their customers as they said, fuck IT, we're onna reduce Prices before anyone else does. And IT seems to have really paid off in this quarter at this. So those are my to stand out in terms of walmart performance helps you have some other observations on what they've done well.

So there's guy Bruce from canada economist at turn. He taught me a framework that is just kind of change away. I look at shareholder ue, and that is all shareholder value comes down to the relationship with the geometry between three lines.

The top line is percy value. The middle is the Price you charge in the bottom is the cost. And there's only two ways to great childer value. You either increase, pursue value, Better a merchandizing, Better branding, association of innovation, and then a perceive value goes up. You can have a lot of fun.

You can either raise the Price, your charging, which creates greater margins because the delta between your costs and the Price go up, or you can leave the Price the same, and you should expand market chairs because the delta between the Price you charging and the pursue value goes up. Increasing the value to the consumer in your market show is up. Now the majority of shareholder value, I would argue, is around pushing the top line, the perceive ue up, right, a great spokesperson, tiger Williams, or ad campaign, or we are the best you.

We are tightly the associated with this brave new future of A I. So we get a turn of traffic open eye, and we can raise our Prices. What walmart is done is they brought in this kastle that every day were trying to push down the cost line, and then immediately, as soon as able to pull IT down, we pulled down the Price line that we charge consumers.

We passed on those cost saving consumer immediately, thereby increasing the delta between our Prices in our perceived value, which should expand share, which is exactly what happened here. And the problem is, i've always told kids coming out of business school, you want to have a bias towards the company doing this, increasing percy value. Because when you're in the business of pushing down the line, it's purely a business of Operations and scale.

Dog named melon can make multibillion dollar investments in technology. The mayor may not pay off to trying get cost down ten bps. He can make stagger ing investment. You see the same dynamic at at uber and lift the number one player has the scale where they can just make more bats.

And in this instance, when you're in the business of pushing the line down with your dell, with your home deep, with your walmart, it's a business of scale and Operations. And right now, both of those things go to the more a leader in the number two, quite Frankly, is is just feeling, is just feeling the pain of how much IT hurts you. One fifteen to the market cap to be the number two.

We'll be right back after the break with the look at calm costs spin off. If you're enjoying this show so far, kit, follow and leave us a review .

on profit markets.

This is careless whispers and this week on my podcast on with careless wish er I talk to Sharon in the god he's one of the hosts of the incredibly popular radio show, the breakfast club big podcast and unofficial surrogate previous present Harris during the election and he became an unwilling spokesperson for the trump campaign after is used in a very effective and deceptive anti trans add. Here's a clip from our conversation.

I don't feel like your brain is wired to receive all of those opinions at once. Like I I don't care that much about the opinions of other people to want to take them in daily. And I think we're all in verbally abusive relationships with our song, phones and twitter.

And EXO, whatever you call IT, play a big, big role in IT. He's a great entrepreneur, a really interesting person. And in twenty twenty five, i'm going to lean into interviews like this about solutions and not necessarily just the problems.

Our full conversation is out. Now find that wherever you listen to podcast and follow on with cris wisher to hear lots of smart conversations like this one, welcome a small ball with me kini beating the N. B. A season is here and all be with you. Break me down the games, the players and the drama.

Every japp a euro step on the way the league is Better than it's everything in this season is up for the OK see live up to the hike with the nuggets proved that last year was a fluke with the novo nix and car Anthony towns break another trophy to new york, like times approves to be the most peace for the rest or with the self be the first team to repeat champs since the warriors back into twenty eighteen speak the warriors don't worry. This show isn't your typical warriors lagers and nick sot box. That's why i'll be talking about your team. The rockets impressive yg core seminoles change is to surprise at the top of the best in the east and and bring some experts, players and cultures along the way. Small bowl can be some ears every friday on youtube and whatever you get your podcast.

We're back with profit markets. Its official can cost is finally cutting the corn. The company is spinning off several of its cable TV networks into a new public entity temporarily named spin co.

This new company will include M S N B C, cnbc, USA, oxygen, e size I and the gulf channel. However, key assets like N B C bravo and streaming platform p will remain under the calm cost umbrella. So Scott, you predict this. This is a clip from september of twenty twenty three. Let's play IT.

There needs to be recognition that cable TV assets are no longer teenagers that are going to keep growing, that they're in fact, nana pop pop and need to be made comfortable. These things are dying and they need to be managed for cash flow, not starved of investment, but stopped the flus nation that these things are ever gone to reignite growth again.

So my prediction is you're going to see one or more players shed their assets into a different hold cow to clean up their story. And also for consolidation and scale, there needs to be a bunch of these things wrap together. So there's one sales rap and chocks les of ockley ads on the cartoon networker would have you and on muck you on fuck the story that his media company is now that have growth but also have declining assets in .

the same portfolio. I say that I can feel you smiling side of the screen.

Lets be honest, i'm touching my nipples. This is the most turned on. I have been, I mean, granted, I don't know a single fuck in coin, and i've keep waiting for a video to go back to ten bugs to share.

But let's be honest, the dog is howling on this one. The dog is howling. Yeah, this was like, this was obvious.

And effectively, what you have is when you miss match families of different generations under one stock ticker, you have good assets that are growing in the market values as growth or as consumers, not in cash flow. And then you have city businesses that are declining and that but still produce cash flow. Investors in the market don't know what to do.

So what they do as they find the shade us. Assets trading at the lost multiple and they is sign that multiple of the whole thing. So the devastator of asset in different sort of stages of the lifecycle here creates more clarity and ultimately creates a hole that's greater than the sum of its parts.

So the disposition or clarity around a brand architecture that spins these low performing or declining but high cash full assets into a separate company is a very good idea. And then they will have their own currency to go buy A B C or you know gravel five or CNN because everyone, whether it's eiger or zz law, is in the same position. And that is they have some amazing assets that would be valued at acts, and they have other assets that are valued at point three eggs.

So the market signs that point three to the entire portfolio. This is a good move. IT will be used potentially as a shell company to go and acquire other declining but high casual assets.

And I remind people that the second best investment I ever made was in a yellow pages company. And I was very simple. We knew these things were going away. They were declining at seven to twelve percent a year.

But there are still a lot of people that want a big fat fuck and book delivered to their home and rural wherever in case they need a plummer, and they still have a dial phone. And these businesses still won a lot of cash form. What we would do is go by the biggest yellow pages company in the southeast and say, okay, you're fuck, we're fuck, let's be fuck together in the way will do this is will take your ten percent.

Your best sales people are going to lay off your entire administrative staff. We're going to close your headquarters now. And as long as we can cut cost faster, then the revenue declines based on consolidation in the fact we can pick these assets up on the cheap every year.

This company um increased as cash flow and this specific company then took a lot of that cash flow and started trying to transition to A C C R M software company. Actually did IT quite well. But consolidation of mature or declining assets can be a great business because typically, these businesses don't go away as quickly as you think they're going to. And as long as you take sort of a private equity cost cutting approach and stop trying to inject boat talks and filling into the standing such IT under the illusion it's going to look Young again.

it's not going to. So just on your point about depressed valuation. So if we look at how much revenue these assets actually generate of a calm cost, IT comes out to around seven billion dollars.

Now we don't know what the profitability is exactly. I think we can assume it's IT is quite profitable, but there are public companies out there that are quite similar to this business. And the example we could use as fox corporation, which has a Price to sales multiple of one and a half.

So if we would apply the same multiple, this segment is probably worth ten and a half billion dollars. And you compared that to the overall market cap of calm costs, which is more than one hundred and sixty billion. So wall street hates cable in the same way that they hated yellow pages.

My question to you though, from an investing perspective, you said that yellow pages was one of your best investments. What made you so good big? Did you did you sell your stake at some point at a higher Price? Or was that the fact that cash flows were high and you are receiving direct income? What made is such a good investment.

So I invested in the company probably the Better part of ten years ago. And you could for a dollar and cash for you, have you had to spend two and half dollars on the company. And so we knew these comes were going out of business, but they weren't going out of business in thirty months.

So within three years, the company, just in cash low, could return all of the interior investment to the investors. And this is what IT comes right down to. It's very similar.

Everything replicates nature or human interaction. And that is if you have the chance, i'm going to have one because I want to hang out with hot Young people or hot successful people. I am not going to I don't know the golden girls reunion.

I don't want to hang out with old people. And we are attracted the youth and vigor and gross. And so these Young, vigorous, ous growing companies get an enormous multiple because we all want to hang out with them, right? So they trade a much higher multiples.

And if you look at the most successful ful businesses, uh, in terms of likelihood of success from started, the average is fourteen percent. Only one out of seven companies services, but ninety plus percent is senior care homes if you're willing to go into the business of taking care of seniors. Nine, I attended these businesses work, but there's an absence of capital because they are not as fun or sexy.

They're not growing. People don't like to be around old people. It's the same with distressed asset.

Everybody wants to hang out with a OpenAI. Everybody wants to hang out with a video. They don't want to be distressed asset. So if you go up down the stack from Angel to venture to IP s, to growth, to mature, to declining, to distress, hands down, the most successful, greatest likely od of successful found in the stack in terms of a capital and asset around the lives. Now it's distressed because you can pick up shed at ot pennies on the dollar.

I guess it's interesting to me. I mean, I consider I think that I think like a value investor. I think i'm a value investor. And I guess the thing that i've always felt with distress assets is IT feels as though what you have to do is you're getting a really good Price and you're buying a really good Price.

But then what do you do if you're sitting with this pile of shit that you could make look a little bit less like a pile of shit? And my assumption has always been okay. Well, you just got a flip IT at some point.

But what's interesting about what you described with the other pages is actually IT was a good long term investment because of how profitable IT was and because you could use those profits to then revise the company and turn IT into a crm, which is far more sustainable over the long term than what IT was before. And so I want to continue with this yellow pages analogy. Thing is a good one.

What do you think the makeover looks like for M S N B C and C N B C and sigh phi and all of these channels? What does the crm fiction of this spinky? How will that play out?

Do you think I don't have a vision for a new business that they could pour their cash loan to, to turn this to pip with this company? And also, you don't need to do that because these companies, there's just going to be a lot of people watching C M B, C. In an Andrew ross orkan who is an extraordinary journalist in jokin, who is not they are going to be watching these things for a long time.

And there's still going to advertisers that want to reach people who are seven right average age of a emb severe. The conversations and I know this first hand happening with all of these anchors is the following. Um Chris wallace, we love you, your iconic, you're fantastic.

Last year we we know when we we're trying to convince ourselves we get inject botox and filter into our face, and we have this idea for seen and plus. And we wanted to take you from fox. We offered you a four or five year deal at eight million a year.

That's whatever read. I would bet they said we love you. You're great. We're willing to pay you a million box here. The salary cuts, the cost cutting. We did an analysis of of how many people we need at this podcast. We're getting like triple or quadruple the number of you as per person.

Then these big from these firms, roughly the same place the anchors here are pilots for, you know for pan am in the seventies, the bang and storage ces. They're hybridise, but they know the writings on the wall. They're going to be making sixty eight thousand dollars working for spirit airlines going from Louisiana hilal pretty soon, even if they don't find another thing. These comes as long as they keep acquiring and consolidating and cut in costs, which they will do, they will figure out a way to return all of that capital to shareholders really quickly because the share Price will be low to buy in and I ll make really good money. I would actually rather I think i'd rather invest in this spin co, then in the core, comcast because it'll be at a lower valuation. There's a lot of properties hey, bob, are you ready to finally sell your shit to us? We'll take IT will will take IT off your hands, will pay you a awful Price, but your stock Price will go up because the market will be focused on your parks and on disney plus, which are great businesses, instead of constantly asking you about E, S, P, N and abc and you having to apologize for IT every three months.

I let's put a consorting together, take a majority stake. And that's call a dog in A D dog. It's like you like the week ahead, we'll see earnings from dell crowd strike and H P. We'll also see the possible consumption expenditure index for october.

And fascinating, biggest in history to there's a tonic capital on the sidelines. Some stuff is getting cheap. Great, iconic companies is getting cheap. In my beats, two of my favorite candidates are now intel and target. And just before we go.

we'll be recording and ask me anything episode at the end of the year. So please send in your questions for me and Scott to office hours at profit media dot com. Or you can tag us on social media at proof g pod, or you can leave us a comment on our youtube channel.

Anything is fair game. Send to cy questions. This epistle is reduced by cammilla and engineered by Benjamin spare are associated producers authorise missile arias are research line as our research associate crew bars is our technical director and Katherine delon is our executive producer. Thank you for listening. Profit markets from the vox media podcast network, if you like what you heard, give us a follow and join us for a fresh take on markets on monday.

And I think what's happened with target alone? yeah. hello. Vo, okay.

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