Tech IPOs Are Back, Google's In Court, Tom Brady's Working For Delta

0:00Tech IPOs are back. Google is in court with the DOJ. Flexport continues to float around amid a new leadership change and plenty more is going on. And we'll talk about all that as we come back after this. Welcome to Big Technology Podcast Friday edition, where we break down the news in our traditional cool-headed, nuanced format. Ranjan Roy is here with us. Welcome back, Ranjan. Summer's over and tech IPOs are back. I'm excited. That's right. So we had not only a huge tech IPO this week, where Arm is up 25 % after it has IPO'd, but but another one just filed. Instacart has filed and it's ready to go.

0:40It seems like after a two-year hiatus, tech companies are finally returning to the public markets. What do you make of this? Yeah, I think, so first of all, Arm, the AI chip design company that is controlled by SoftBank from my favorite Masayoshi son, their IPO jumped 25 % on the first day of trading. And this is incredible. The IPO market has been in a drought essentially since early 2022. I think it was actually around the time Ukraine, the Russia conflict started. That was really when the market closed, and it has not been open since. So it's been a year and a half that markets essentially been shut off.

1:25And if you think about every late stage startup that has been itching to get out, ARM is the best sign ever. The idea that a company can actually IPO, see its valuation jump to$60 billion, I think is a hugely positive sign. And also, it's a win for Masayoshi Son. It's a win for the overall vision. We haven't really heard about SoftBank in a long time. This is exciting for him. Okay. So let me put the counter argument here, which is that, you know, there's been this long standing belief that if your stock pops on IPO day, then you're doing great. But isn't it all in how the banks price it? Like you can kind of price it in a way that's going to make it pop.

2:10You're going to price it in a way you kind of want to be even, right? Because if it pops too much, you've left money on the table for the IPO, right? You get paid. You and the insiders get paid the share price. and then once it turns to the market that that 25 % gain doesn't even go to the company. So, okay, maybe it seems like, oh, it's so hot. Everybody wants it. But this is all in the pricing mechanism, right? So why do we care about the fact that it priced? In fact, isn't that a bad sign? Like, doesn't it show that the people have taken this company public have actually done a bad job? All right.

2:38So if we are to get into IPO pricing, I think this is something there's been plenty of debate. Bill Gurley was probably the most vocal around when your IPO pops, you're essentially leaving money on the table, that that's money that you and your private, the long-term shareholders who took your company from start to going public, that it could have been given to them versus the retail investors or institutional money that actually bought on that first day. To me, I've always had a little bit of problem with that because it's still showing that there's excitement around the stock. It's still showing that people want to get interested And it kind of sets the tone because obviously if something drops on the first day, that's a very bad sign.

3:22If something is flat on the first day, that also seems to show that there's not a ton of excitement around this. With ARM, though, again, probably the most praise I will give Masayoshi-san. You already heard it at the beginning of this episode. One thing that was a little interesting here is it was still around$500 million worth of shares were actually available on the float. for a$60 billion company. So it was still a very small percentage of the company was floated, which is it's in a bit of financial engineering in the sense that, you know, rather than the whole company goes out and now everyone realizes money, it's let's take a small slice.

4:01And then obviously, the lower the supply, the easier it is for that to actually cause a large shift in the, you know, top line price. And then suddenly the company's worth$60 billion, at least notionally. But SoftBank still does own 90 % of the company. I'm sticking to my guns here. I think this is all financial engineering, not even financial engineering, but just sort of engineering a bump and actually doesn't really bode so well for the company. But it might actually, okay, the psychological ramifications here may be that we end up seeing far more tech IPOs happen than we've seen in the past.

4:39People need IPOs. People need IPOs. So they're going to look for any sign, real or not, real or not. Exactly. So maybe that, and now we're going to have Instacart go out. I mean, what do you make of the fact? So Instacart is fascinating. It's like, we're going to have this spate of IPOs start up, but the actual valuations that you're going to see, I mean, obviously SoftBank did well with Arm. In fact, it's probably its marquee success and it needed one, right? But now we're going to see some of these companies have been waiting to go public forever actually go out to the market and we're going to see what they're actually valued compared to these insane private market valuations that VCs had been putting them on.

5:17So Instacart is one that we're about to see. It was valued at$39 billion in the private markets. And now it's going to price at a range of 26 to 28 per share. And that's going to value it at 8.9 billion at the midpoint, right? So you're going to go from, this is according to the New York Times, right? You're going from 39 billion to 8.9 billion. Even if these startups do go out and do go public and have their IPOs, you know, are we even in a moment to celebrate or is this more of a desperation needed an exit somehow? And this is just the only way left. Well, yeah, I do think that Instacart, Instacart was interesting for me because having written and had some level of notoriety around DoorDash and food delivery as a topic for our margins newsletter.

6:12I was very, very keen in looking at the numbers here. The most amazing part to me about Instacart is they are profitable. They had almost$428 million in profit last year. And the revenue, it's around$2.9 billion, I believe it was. It's in the billions, low billions of dollars. They're profitable, though. What was more interesting was 30 % of their revenue came from advertising. And advertising, again, everyone has been trying to switch to this. In fact, like DoorDash and their S1, the story was always, we'll start selling, delivering groceries, which will always be potentially low margin, potentially unprofitable.

6:51But then within our app, once you're there, then every vendor, every food creator, everyone will start to pay for advertising to move up in your recommendation feed. And essentially it becomes, you know, like an advertising driven product and advertising is the highest margin business imaginable. So they kind of are showing that it's possible. And I was pretty surprised. Again, it never was a$39 billion company. Now it's, you know, being valued at four or five X revenue, which is fine, which always could have been the right valuation. So to me, where it's going out actually and the fact that it's profitable might be the most perfect sign of just a normal healthy market.

7:36Uber does advertising. Lyft does advertising. Instacart does advertising. Amazon does advertising. Everybody does advertising in the end. Life is just a long journey toward an advertising business. Big technology started as an advertising business. If anybody at the above companies needs some counsel about how to run an advertising business. Hit me up. It's a great business. And we will never get into the food delivery business. We started in the high margin area. We're sticking with it. Advertising. I might have to go do some DoorDash deliveries right after this. Exactly. Now, let me ask you this, though.

8:15You said Instacart's profitable. I thought that profitability was the only thing the market cared about right now. And if you're able to turn a profit, you should be doing well. And yet, even still, the valuation that Instacart is going to go at is$30 billion less than one of its more recent private market valuations. So what does that tell you? Does it just tell you that the private market valuation was just completely illogical? I mean, what does it tell you? And what does it tell you about the broader market that even if you're meeting what the market wants, your valuation is still going to be as low as Instacart says.

8:49But it's not low. That's what I'm saying. It's reasonable. It's longitudinally correct. It's the idea that like, I just wanted to say longitudinally. It's like 20 to 22 times earnings. It's four to five times revenue. This is where even like a pure technology company should trade a little bit more richly, but like a company that is claims to be pure technology, but obviously has plenty of workers and real world presence, but still is kind of a technology platform. Yeah, it's a hashtag high margin areas. One of someone commented on our live LinkedIn live. It's actually, to me, it's almost the perfect end to Zerp and to show that we're no longer in a manic era when you see these numbers and valuations being ascribed to a business like Instacart, which appears to be healthy, growing, the growth is slowing a little bit, but everything, so is the economy.

9:56Like overall, if you show me any of these numbers, it would just be like, okay, this is a normal business. Everything looks okay versus where we were a couple of years ago. And again, that$39 billion was high to COVID, high to pandemic. Instacart is the extrapolated pandemic future. And it was just wrong. It was wrong. It's interesting because it just goes to show you, like, thinking about how all these companies have gone to advertising, right? The Ubers, the Lyfts, the Instacarts, this whole generation of startups that were sort of built on share economy, convenience economy. the businesses have not been strong enough, they have to go to an ancillary business like ads.

10:39What do you think about that? I mean, when is Airbnb going to get into the advertising business and you walk into your Airbnb, actually product placements in your Airbnb? Guys, if you're out there listening, just go with it. Just take the idea. They are. And this is a great moment. Yes, they are a great moment to plug brian chesky sitting down with me on tuesday podcast is going live on wednesday here on the feed yes it's happening just confirmed i'm sitting down with him in new york we are running it on wednesday morning 8 a.m eastern time and i will ask him about advertising i listeners cannot see that i am that shocked that i did i had not heard about this from out that's awesome here on the show yeah no no i'm saying i'm saying the timing of that.

11:28But exactly product placements in Airbnb because advertising that what I remember, Uber was always an interesting one for me, because especially anyone in New York who's ever taking an Uber to JFK in traffic knows, you essentially have, call it 70 to 80 minutes of captive time where you are sitting there, you have the Uber app open periodically anyways, because you're checking your time to distance and you're like sorry your dude you know time to arrival and so what better place to actually just stick some ads in and they're doing it so so yeah Airbnb you walk in this that brought to you keels lotion everywhere like in Equinox you I think that's a good idea smart business for them to get into and it by the way it brings it full circle talking about when you're in your ride hail app looking at it because what why I always asked why is a company like Google, for instance, getting into the self-driving business.

12:27And it actually is a strategic complement to what they're doing. Because if you're a search business and you're focused on bringing ads to people based off of the intent of what they want to do, there's no more high intent action than getting in a car and going somewhere, traveling somewhere. And if you control transportation, then for instance, your advertising business, now of course that could be a good business on its own but it's the advertising business that would always you know be the interesting part and i and i do think that that's sort of what google is you know long-term going to get into you're there you're sitting in the back there there's a screen you're looking at the screen you're communicating with the waymo that way that's going to have ads on it and there's another place where the ad business starts to triumph as well wait so you're so i get in my Waymo.

13:15It knows I'm going to a restaurant, serves me ads for some, like, discounts, potentially, or competitors can start feeding me ads in my Waymo's on the screen. I don't know if I like this future. Even better. You're going in a Waymo. Let's take you to Burger King. The Waymo says, after your dinner, we can be here waiting for you, bring you to Carvel. You'll get some ice cream, 10 % off that's gonna happen all right that actually that is gonna happen i agree with you on that you uh uh pointed out this interesting story that in the information by front of the program cory weinberg about how there is a clash between uh sequoia capital and the former co-founder and former ceo of instacart apurva meta do you want to take us a little bit into that story and why you found it interesting yeah i think so apurva meta had been pushed out and actually um i believe it's fiji simo from facebook by the way by the way just to i'm just pausing quickly because talking about the future of ads like it's no it's no wonder that a facebook ceo which is a company that builds itself off of advertising is coming in and running instacart you know it sort of shows you exactly where things are going sorry i digress floor is yours but but but that actually was the essentially the kind of signal to the market in the stated move that you know like we We built this as a pure logistics business.

14:45And Apoorva Meta, I think, was from Amazon. But we're going to move into advertising. So we're bringing in a Facebook executive to take over. And it worked. But to me, the most interesting part is you had this incredible play-by-play. And I strongly recommend if you're an information subscriber to read it or to subscribe to the information. The piece is from Corey Weinberg. it's this way of behind the scenes, lead investors and founders, where do you value a company? How do you keep these inflated valuations? Do you cut it in order to attract more talent, in order to actually get it to the public markets versus trying to raise more money at that inflated valuation?

15:31And it played out perfectly in this saga between Sequoia and Apoorva. And I think it's, again, And we'll probably touch on Flexport later in the episode. Flexport's another company where, you know, had an inflated pandemic valuation. Every single one of these companies that had an inflated pandemic valuation, this drama is definitely playing out behind the scenes. Advertising is a great business. We're going to take a break, play an ad, and come back right after this. Did you know your credit card points and miles can lose value to inflation? credit card companies often reduce the redemption value of your points and miles.

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18:26All right. They are in the midst of a very interesting antitrust case that really looks at the deals that they've made to put Google in the search bar as the default search. And in some places, some places icing out other competitors, you can go to some phones and you type a search query in the search bar and automatically turns to Google. That's not an accident. Google pays billions of dollars for that space. And it also, you know, there are places where you could just get Google and you can't get competitors. It's pretty interesting. So I'm curious if you've been following along this case, Ranjah, and what you think of it.

19:01And honestly, the big question for me is Google, it's kind of funny watching the government go after Google as this big bad tech company while it's at its most vulnerable that it's been in modern memory. I'm kind of curious how you square the two of those. Yeah. In terms of Google's current state, we can definitely talk about if you have you gotten any of their generative search results yet oh yeah I'm on search dinner search in labs yeah and it's pretty good we can definitely get into that and what that means for their overall business at least I've found but but to me the most interesting part of this trial and it feels like a pretty strong argument is so Google paid I believe it was four to seven billion dollars a year to Apple to be the default in Safari they paid Firefox They pay Mozilla, the maker of Firefox, to be the default in their search bar.

19:55And it's actually the predominant source of revenue for Mozilla. So they're paying tons and tons of money to be the default. Meanwhile, their argument is we are the best search engine. Consumers, you know, like we're the default, but that's OK because we're by far the best search engine. Now, if that's the case, that you're the best and consumers will choose you anyway, why pay billions of dollars to be the default? To me, as a starting point, it's totally counterintuitive, and it's a strong argument that, of course, you're doing that because the search business, if you are the default behavior, that means your search engine will get better because you're ingesting more and more data and more and more queries, and you can make it better and better.

20:38So to me, at its core, it's a pretty strong case. Yeah, that's true. I mean, I think that the counter-argument to that could be, yes, you are the best. People type you in more on a browser than they do any other search engine. But defaults are powerful. And how can you afford to not play that game if the phone makers are setting it up that way? No, of course you can. but to argue that still consumers default to you because you're the best search engine it just like if it's an open question of the highest bidder gets the default space and this is a completely you know like a monetary based system not a quality based system or one of consumer choice then make that argument to me to another part of this i think it's worth touching on is I still always find it weird when the whole conversation is the product is free, so it's hard to try to attribute antitrust in these cases with a free product.

21:42Because to me, the customer here is still the advertiser. That's where the revenue is. That's where – and advertisers, everyone – Google has no choice. They have to pay Google. That's why advertising prices for Facebook, for Google have risen over time. So the lens through which to look at this should always be not the product is free, so how do you really, you know, consumers are still getting a good deal. It's are the actual customers who are the advertisers, is it the best possible option and experience and output? But, you know, the phrase Google tax is regularly used because it's almost you just have to pay to be part of search.

22:20Like if you want to exist on the internet, you have to pay, which again, it's the greatest business model ever invented. If you got a phone and you just ordered the new iPhone, which we'll talk about at the end, if it came in and a default was DuckDuckGo, would you keep that or switch to Google? I think I would be fine keeping it. I think most people would keep it. I used DuckDuckGo in the past again. I know you're a big boy, at least for a little while there. Well, I was doing the Bing chat, but I've never really strayed from Google search. I never replaced it with Google search. So, you know, it's so convoluted because it's like this is the defense.

22:58Sorry, the prosecution is convoluted because it's like the argument is it's bad for advertisers who, you know, might have to pay a tax with Google. And they would much rather be able to like, you know, have competition between Google and a search engine like DuckDuckGo, which is all about not tracking. Meanwhile, who's that tracking done for? It's done on behalf of the advertisers. And Google happens to be like the king of tracking people online. So it's tough to prove this one. I think the DOJ is going to lose. I mean, definitely given the recent track record around antitrust, I'm not saying that it's a guaranteed win.

23:37But again, to me, the interesting part of this, and actually on the topic of generative search, So the thing that's moving search forward and making it better after 10 years, 12 years, where it consistently degraded as a product and was filled with more and more ads and became messier and just less useful is generative AI and the ability to. And I do use ChatGPT for a lot of search type queries. And that Google's for those. So Google has released in their labs program generative search. And it's pretty amazing. At least I've found you put in a search query. And then there's kind of like a little bit of a screen unfurls of a different color.

24:20And there's an essentially kind of like an LLM driven generated answer that says here is the answer to your search as though you're querying ChatGPT. with links out to the right. I mean, it's what search always was supposed to be. To me, though, the argument on the consumer side is, is if we actually had competition, where could search have gone or have been? Like, it's so clear anyone who has used Google, which is all of us, knows that search is degraded over time in terms of quality. And like the top half got filled with ads and it just, it didn't get better over the last decade. It's finally, because there's competition, getting better.

25:01I was going to argue with you, but as I've used generative search, I've started to like it. And I do think it's pretty cool. I think it's actually a good experience. It's getting better. Now, the question is, what does that do to their business model? Because when it's gone to the point that like 50 % of the screen is occupied by ads ahead of all the organic search results, And now generative search, it's back to that Google promise. It's clean. It's accurate. It's like informative. It's just – it's the answer that you're looking for. And then that's what, again, Google, the original promise was.

25:40Now it is that again. But then how does that factor into their business model? I think it will be interesting to watch. It hampers the business model, and that's why they're doing cars. That's why they're doing – To show ads. Like there's something true about it. Exactly. They'll need to find new venues to show you ads. You know, it used to be back in, I mean, Google is the natural predecessor of Yahoo, right? And we rarely talk about Yahoo on this show for good reasons. It's kind of an afterthought in the tech world and long obsolete. It's kind of known as a dinosaur. But they've had a pretty interesting revival of some sort.

26:19I don't even know if revival is the right word. But what have your thoughts been on where Yahoo has gone lately? Because, you know, obviously it's not a competitor with Google, but it has had a very interesting second act or maybe third act. I would call this at least the third, if not the fourth. Yahoo, for those who are unaware, was bought by Apollo, the private equity giant in 2021 for five for five billion dollars. Now, what they've been doing is essentially like it could present itself as the ultimate kind of private equity turnaround story. Apollo went in, brought in all new management. The information had this piece, talks with Jim Lanzone, the new CEO, about how cutting costs, stripping down the organization, trying to actually find where the value is.

27:12And again, this is a company that still in the last quarter made$1.8 billion in non-search revenue, but it's still declining. So all of these things, this is a company making billions in revenue. And it's interesting to me because certain assets, again, Yahoo Sports, Fantasy Sports, for years I have been in leagues on that platform. And it's been great. And everyone lives in Yahoo for the fantasy app, but then chats on WhatsApp or has to go out. They could have gotten into sports betting. Yahoo Finance, again, I think they were saying they get 100 million users a month. It's still one of the most trafficked properties on the internet.

27:54So then, and to me, the finance one is pretty interesting because they now have a premium subscription product. I think it probably caught on well during the whole retail trading boom. But again, imagine some massive, some, you convert 2 % of 100 million to pay you$10 a month,$20 a month. There's so many good business opportunities sitting there in this brand that clearly to folks like us or listening, listeners to the big technology podcast, probably not putting Yahoo at the forefront of innovation and cutting edge technology. But again, there's a lot there to work with. I do think that we're just going to gravitate to become like Yahoo fan podcast.

28:40There must be people wondering for content. Like the latest in Yahoo sports. Oh, damn. Tuning in. Do you think we could do an entire episode, just a Yahoo deep dive? Well, okay. Here's what we'll do. So Jim Lenzone, who's the CEO of Yahoo, has been on the podcast. I've known him for a lot of years. I can ask him to come on to do a Yahoo podcast, but I just need to be sure that there's audience, you know, there's audience interest in it. So, folks, if you want to have a full Yahoo podcast, go to the ratings on Apple podcasts, hit the five stars. Say you love the 915 show, the September 15 show.

29:23if we get more than three five-star ratings on that i'll take that as a signal that we got to have jim on and then we can do a full yahoo show what do you think i like this i mean reading this actually brought me back to do you remember the mid-2010s yahoo revival under marissa mayer i think maybe we call that this third act there probably but um what did they bought tumblr they