Why Reddit IPO Favors Loyal Users & The Massive AT&T Outage

0:00Tonight on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Google's AI program Gemini is getting bashed for being woke, but it might reflect even bigger problems for the tech giant.

0:42Then we have our first social media IPO coming up since Pinterest debuted in 2019. Let's see if the market has an appetite for Reddit shares. It's Friday, February 23rd. Let's ride!

0:59One small step for robots, one giant leap for NASA's commercial lunar payload services program. At 6.43 p.m. Eastern yesterday, the Odysseus robotic lunar lander touched down successfully on the moon, becoming the first U.S. spacecraft to land on the lunar surface since 1972. It is a huge win for the company that executed the mission, Intuitive Machines, and a stamp of approval for NASA's big push into commercial partnerships as it increasingly relies on private companies for space exploration. Many of these private sector trips to the moon have ended in failure, including one earlier this year.

1:36So you can assume they're just going to bed now in mission control in Houston. It was a fun afternoon yesterday. Our Slack channel is kind of popping off. Lots of jokes, lots of uncertainty when we weren't sure if it was going to touch down or not. I think this is so interesting, though, because Intuitive Machines is a publicly traded company. And some of the analysts covering this company were like, listen, we don't really know how to price in a moon landing if it goes well or not. So it is interesting seeing the public market react to the first successful moon landing. Yeah, it's super hype.

2:07This thing is going to be on the south pole of the moon doing science experiments for the next week before it kind of shuts off. But we'll see what happens. that, you know, moon landings just might become a part of our lives now. And it's just not even worth remarking upon. Let's hope we get there. Let's bring it back. OK, but enough of this moon talk, Neil. Let's return to Earth so we can tell you about our sponsor, Veeam. Toby, you just missed the perfect opportunity to use Veeam Me Up, Scotty. You just had the space lead in and everything. You know what? You are right. But OK, I'm going to take a page out of Veeam's playbook here in Recovering Style and just say it now.

2:39Veeam Me Up, Scotty. Doesn't quite hit as hard when it is forced like that. But hey, I like the radical resilience and I can tell that Veeam is rubbing off on you. I mean, we have spent nearly two months together at this point. I would hope so. If you want to spend some time with Veeam, head to Veeam.com to learn more. That's V-E-E-A-M dot com. I'm Christian McCaffrey, pro running back. And Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year. And I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies.

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3:25If you missed out on the crazy NVIDIA rally, but have an overactive presence online, you still might be in for a little financial windfall. That's because Reddit officially filed for an IPO with the SEC yesterday after years of speculation. Its public debut is expected sometime in mid-March. And when it comes, it will be anything but ordinary. Reddit is planning to reward a chunk of its IPO shares to its users before the stock starts trading, which is a privilege usually only offered to bigger investors. So if you're one of the 75 ,000 or so most active users on the platform, Reddit is granting you an undisclosed amount of shares to reward that loyalty.

4:04This is risky, though. The reason that IPO underwriters generally favor selling IPO shares to bigger money managers is that they tend to hold stocks for a relatively long time. Individual investors, on the other hand, a lot more fickle and a little bit more prone to selling. Neil, good idea to reward the community on a community-based platform like Reddit? Or is this something that sounds better in paper than in practice? Yeah. Well, Robinhood sort of pioneered this concept when it went public in 2021. But I think it's reflective that Reddit's just going to live or die with its community because that's what powers this website to be so influential in the first place.

4:43But it's also faced a lot of backlash from its Redditors over changes in API and anything else that it's done over the past bunch of years that it's been a company. So it's going to really just ride or die with its fervent community. Yeah, it definitely is live by the community, die by the community. It is a weird system of hierarchy as well because if you literally have accumulated some of the most karma on the platform, which is kind of like Reddit currency, if you will, you get shares of the company, which is very interesting because it's literally rewarding the chronically online. It's also rewarding moderators, the people who help kind of run these communities successfully.

5:20Some people are pushing back and saying, just pay the moderators. They're basically doing a job, a service for your company. And yes, it's nice to give them a financial windfall from the IPO, but also just put them on the payroll at some point. Let's talk about Reddit's financials, because when it files for an IPO, it kind of has to disclose how much money it's made. So its revenue for 2023 was$804 million. That's up 20 % from the previous year. It's still loss-making. It hasn't turned a profit since it started to become a company in 2005. It is just small. There's no other way to say it. They started at the same time as many other social media platforms like Meta and Twitter.

6:02and they are just much smaller. They make a lot less money than those other platforms. They do have way more influence in the culture, I think, than they do as a business. And so I think that's what, you know, when you're looking at an actual IPO and whether I'm gonna buy shares in that, you actually have to look at the dollars and cents that they're making. Yeah, it's one of the most visited websites in the US, but it just hasn't been able to build an advertising business that rivals the size of a Meta or a Google. It's not even a fraction of the size of those businesses, But I do think they've maybe stumbled upon a nice revenue stream.

6:35They are now listing data licensing and model training as one of their potential revenue streams. So earlier this week, they announced this AI training deal with Google that will give Google access to more efficient ways to train its models, essentially. So they can use Reddit's huge, huge database of text posts and communities to train your models. And that's coming in at around$60 million per year. So I do think if you are at the quote unquote front page of the internet, there will be some streams of revenue when it comes to training these AI models. Whenever I go on Reddit, I'm like, I should use this more.

7:09Yeah, I've never been a big Redditor. I have been getting into it, though, because I'm a big runner. And they have good, like if you want to know what people think about a running watch or shoes, it is a great place for that. So, yeah, you are right. Every time I go. You're like, this is a huge trove of information. You know, if you want to if you go some if you're planning a trip or something, you know, there's there's just great information out there that people provide. So we'll see whether that sort of information leads to an actual actual better business performance. But right now they're just they're just small fish in the social media pond when it comes to actual financials.

7:44Moving on. Remember when everyone freaked out about the Chinese spy balloon last year? Well, yesterday we learned about Chinese espionage efforts that are like 100 times a bigger deal than that. And it confirms that U.S. officials have been saying for a long time, which is that Chinese hacking represents one of the top national security threats to the country. A trove of documents from a Chinese hacking group was leaked, giving the public an unprecedented look into the vast network of private companies that compete for contracts with Beijing to conduct cyber espionage. The company whose documents were leaked is called iSoon, and the files show that they worked with Chinese government officials to target more than 24 nations, international companies and infrastructure, including the software of Microsoft, Apple and Google.

8:30One example showed how the firm obtained road network maps in Taiwan, which would be very helpful to China in a hypothetical invasion. The U.S. has been extremely concerned about Chinese hackers. last October FBI chief Christopher Wray told 60 Minutes that China had stolen more personal and corporate data than every other nation combined yeah this was I think we throw around though the word treasure trove too much but this absolutely was a treasure trove of documents the coolest or not the coolest but the most interesting part of this to me is how it's such a normalized service in a way like there is literally I soon has a website that you can go on to and basically go through a menu of services that you pay for.

9:11So if you're a local government who wants access to the private website traffic of police in Vietnam, that'll set you back 15 ,000. Maybe you want to buy some software that runs disinformation campaigns. That's 100K. You can pay 278K to get a treasure trove of personal info on social media accounts like Telegram and Facebook. So it literally is something where you go, hmm, what am I looking for today? And it is like a real business. It's a real cottage industry. Yeah, I think one of the biggest revelations of this leak was how the Chinese hacking network operates, which is that you have the government as the big customer.

9:46And this network of private companies has spawned around them. And they are cutthroat rivals. Like they are just going after these contracts left and right. And there's just a huge network that all that all are pledging their services to the Chinese government for contracts that can extend up to eight hundred thousand dollars. You know, if you want to compromise a Twitter account or something. Yeah, you literally have to compete for new hires in the marketplace. And you have to advertise your services to these provincial governments to kind of attract those contracts. It's kind of like consulting in the U.S.

10:16That's how all of this to say, that's how established this industry is, in that all the fears of Chinese cyber attacks are completely granted. They're very valid. And they confirm a lot of the fears that U.S. lawmakers have had for a long time. Already, we've seen Chinese hackers kind of compromise certain infrastructure here in the U.S. And to lawmakers, they're sending a message to us about how easily they can do this. We're seeing Chinese code pop up in local infrastructure near military bases and whatnot. So, again, it just goes to show that these fears are not overblown. Let's move on. Remember those old can-you-hear-me-now ads from Verizon back in the day?

10:55Well, AT &T customers just lived that campaign out in real life yesterday after outages disrupted service across the country. First reports of outages started rolling in at 4 a.m. early yesterday and peaked at 71 ,000 before 8 a.m. Eastern time, according to the site Down Detector. Other phone networks also received reports of outages, but T-Mobile and Verizon said their networks were fine. Those reports were mostly coming from people trying to call someone on AT &T's network. Rumors were swirling yesterday that it could have been a potential cyber attack, which caught the attention of the Federal Communications Commission, Department of Homeland Security, and FBI, who were all investigating.

11:36But last night, AT &T set the record straight, saying that the outage resulted from an error made while it was trying to expand its network, not by a cyber attack. Still, a stressful day yesterday for AT &T. And people. I mean, people who had AT &T, you know, couldn't use their phones. I think that was kind of a startling wake-up call for everyone on their commutes. I mean, you had first-person accounts of people being on the Chicago train commuting into the city. Everyone's just kind of like twiddling their thumbs because typically people work on their phones during the commutes. It's just kind of like a moment to reflect on the fact that how much we use our phones and how critical they are to our lives.

12:13Yeah, absolutely. Network outages are a big deal because they are dangerous. I mean, it's very concerning when you're not able to reach emergency services like 911. And there was a lot of people who ended up calling 911 to test to see if their phones are working. And a lot of different departments are saying, please don't do this. Call your friend or something. Don't test it out with us. I will say, though, that this was a big moment for Apple's SOS feature to sign because Apple has this feature baked into most of their modern iPhones where you can still connect to other people's networks or satellite networks.

12:46in order to access emergency services. We talked about this when it came to the Maui wildfires last year, and that this is kind of a moment for Apple to that feature to show off and say, like, hey, you're still connected, even though your network may be down. Right. It was a moment for everyone to say, OK, I don't have cellular data, but there are other ways to make calls. You can use the SOS feature, though. That is specifically for emergency services. it automatically makes a call to 911 and shares your location. But there are other ways to make calls, too. If you're in a place with Wi-Fi, you can just link up to Wi-Fi and make a call as you would normally.

13:23You can also do it through various apps like FaceTime and WhatsApp. You can make calls through them. So this is just maybe a learning opportunity for people to say, OK, I don't have cellular data. But there are other ways to contact people. There was a lot of jokes on social media yesterday. Remember Obama produced this Netflix kind of dystopian thriller that also has this sell outage scene? It kind of leads to an apocalyptic scenario. So a lot of people are saying like, all right, Netflix, we get it. You want to market this new movie. You didn't have to go this hard and really knock down the network.

13:56So there were some jokes also flying yesterday. Okay, let's hear a quick word from our sponsors, but stick around because you're going to want to hear about Google's latest AI mess up right after this.

14:28coverage that best fits your needs. Like a good neighbor, State Farm is there.

14:36Race the rudders! Raise the sails! Raise the sails! Captain, an unidentified ship is approaching. Over. Roger. Wait, is that an enterprise sails solution? Reach sails professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. If NVIDIA was the toast of the tech world this week, Google was the fire hydrant everyone was taking a leak on.

15:14The company paused the ability for its AI program, Gemini, to generate images after coming under heavy criticism for producing images that were historically inaccurate. it. Specifically, it created images that showed racially diverse people in situations where there just would not have been. For example, when users asked Gemini to generate images of a German soldier in 1943, it showed black and Asian people. A search for U.S. Senator from the 1800s returned black and Native American women, even though the first woman didn't become a senator until 1922, and she was white. Google said it took these concerns seriously and was going to fix Gemini, so it wouldn't make these errors, but stood by its commitment to train its AI to produce images of diverse populations.

15:58Overall, this episode shows how generative AI programs are going to be at the center of the culture wars, with people on both sides scrutining their decisions for any political bias. I think it also is showing how badly open AI is kind of overshadowing Google here, because first of all, Google's big Gemini update that they rolled out was totally kind of co-opted by OpenAI announcing Sora, which is their text-to-image generator. So first of all, people were just saying, good gosh, Google is like four steps behind OpenAI. They can't even get their text-to-image generator working correctly. And I also do think that this shows that, remember, AI models still kind of hallucinate, produce results that are unsatisfactory or are just untrue in a lot of ways.

16:42And so to help alleviate these errors, companies use this process called fine-tuning, which Usually humans get involved and start trying to deem those responses if they're accurate or not. So Gemini seems to have gone a little overboard in trying to include diversity in some of the images it generated in this fine-tuning process. So it just shows that still this is not a perfect process getting these models to spit out exactly what you want them to do. You can see where Google is coming from. I mean, when these models were released and for many years, researchers have said these things can be biased toward white people.

17:18They can show racial discrimination towards people of color. And when these models were released, researchers went in and found that was happening. Washington Post did a study of stable diffusion and asked it to produce people who were on food stamps. And it showed primarily non-white or darker skinned people, despite 63 percent of recipients of food stamps being white. That was kind of replicated across various models. So there has been some correction to this because this has been one of the main concerns about AI is that it would continue racial discrimination baked into the models. And Google was trying to correct that.

17:52They said that they overcorrected. Yeah, they tried to make sure that the open ended prompts, like if you said, give me a person walking a dog, which is something that anyone of any race or color can do. And that's a universal experience. But then when it comes to historical experiences, they have a lot more nuance. And that's where it started to go awry. It's Friday. So we're bringing you a steaming hot helping of Stock of the Week, Dog of the Week, where we look at one stock that has perfect posture and another that is dealing with lower back pain at a young age. As always, Neil and I are just humble podcasters.

18:24So please do not take any of this as financial advice. Neil, I won the pre-show amphibious creature naming contest. Skinks are not amphibious, Neil. Come on. And my stock of the week is Japan. Now, for those loyal listeners of the pod who can think back to last week's Friday show, you might recall that Japan was my dog of the week. And that was because the Japanese economy had slipped into a recession. This week, however, its Nikkei stock index hit an all-time high. Get this, you guys. The last time the Japanese stock market was flying this high, the year was 1989. 1989. It took 35 years for the market to recover from a lengthy period of economic stagnation following the market's collapse beginning in the 1990s.

19:06What sparked the recent rally? Well, in the near term, it was actually none other than NVIDIA's strong earnings call, which lifted stocks worldwide. But if we zoom out, foreign investors have been pumping money into the market with$14 billion of net inflows in January alone, while a weak yen has caused stocks in Japan to look more attractive to bargain hunters. Japan is back. Japan's stock market is back. Japan's stock market is back. And it is kind of the usual suspects with AI. There have been certain companies that make that are part of this chip semiconductor ecosystem that have just been 10 baggers.

19:40They've they've, you know, exploded over the past few years. But there has been certain reforms coming in 2012 that made Japanese corporations work a little more like American corporations work with, you know, activist shareholders and a focus on returning money to stockholders. And that shift that Shinzo Abe, the former prime minister, kind of enacted has changed the corporate culture, or at least the stock market in Japan, to look a little bit more like the United States. There's more foreign influence in these companies. They export more. They're way more entwined with the international markets.

20:19And Japan is sitting in this sweet spot because it is allied with the U.S. As the U.S. and China decouple a little bit, then U.S. is turning more towards Japan and our trade flows are becoming way more intertwined. And so it's just sitting in the sweet spot right now where it's going to be really beneficial for AI and also geopolitical tensions. It's just it's just looking good with the U.S. Yeah. According to a survey of fund managers conducted by Bank of America, buying Japanese stocks was the third most popular trade this year. The only two that are more popular is betting against Chinese stocks.

20:52So it's kind of benefiting from that like reverse halo effect and then also putting money into the Magnificent Seven as well. And Warren Buffett's been big into he loves he loves the Japanese trading houses. Yeah. Yeah. That is a cool business. All right. Let's go to the dog of the week. Apparently Everyone missed reading good housekeeping magazines in the waiting room over COVID because virtual health care giant Teladoc is not doing well. Shares of the company plunged 27 percent after it said that growth would slow to a trickle this year. Teladoc CEO said that the virtual health care space is overcrowded with competitors and it's just not a growing industry anymore.

21:31He called it a replacement market because with most people having access to virtual care already, it's zero sum. The pie is just not getting any bigger. And in Teladoc's fall, you can see shades of Zoom or Peloton or any other pandemic darling that in 2021 seemed like they would be the future, but it didn't turn out to be the case as behavior shifted back to normal. In Q4 2022, virtual doctor visits plummeted 46 % from the second quarter of 2020, and that trend continued downward in 2023. Yeah, there's just warning signs flashing wherever you look in this business. it definitely feels like a COVID-era trend that did not pan out to be a larger shift in consumer kind of psychology that a lot of people predicted.

22:12If you look at BetterHelp, which is their virtual mental health business, that saw growth that was completely flat in the quarter. And they actually attributed the weakness to lower direct-to-consumer marketing yield, which basically is advertising speak for, we were putting this out for consumers to see we were marketing this. And we saw no revenue growth from it, which I think is the clearest sign that people are saying, we do not have the demand for this service that you think we do. We don't really want to use telehealth or tele-mental health services. It's another black mark for Kathy Wood as well, who was the famed stock picker of the COVID era.

22:49She piled into all of those COVID stocks, Zoom, Roku, Peloton, all of those, Tesla. And she at one point had Teladoc as the third largest holding. And so this is just another sign that maybe Cathie Wood's magic touch during COVID is not panning out in the long term. She's going down the Teladoc shit. I was looking at her stock buys a bit. She has been buying consistently even as recently as December. So let's see if this latest kind of black mark on Teladoc's earnings represents another buying opportunity for her. All right, let's round out the week with a startling report about college graduates.