Another Big IPO Headed Our Way!

0:05Another big IPO on the horizon. You're listening to Motley Fool Money.

0:20Welcome to Motley Fool Money. I'm Jason Moser. Joining me today, it's Motley Fool analyst Lou Whiteman. Lou, thanks for being here. Happy to be here. Good to see you, Jason. Good to see you. On today's show, we're going to dig into Amazon's robotic future and Apple's AI foibles. But we begin today with the latest in IPOs. Digital content creator Figma has filed for its initial public offering. The company plans to sell shares of its Class A stock under the ticker FIG, F-I-G. And I think it's worth noting too, Lou, this is a three-class share structure with this company, A, B, and C. Lou, if listeners feel like Figma is a familiar name, well, it should be, right?

1:00Adobe tried to acquire it for$20 billion back in 2023. That acquisition didn't work out. And recently, Figma garnered a$12.5 billion valuation in a tender offer just last year. So, that's big delta there. How do you think the market's going to receive this?

1:17Lou Whiteman:So, I'm going to take the over. I don't know what the over is, but I'm thinking much closer to Adobe, if not beyond. Look, we've all been talking about all of these huge private companies that investors want to get their hands on, but are remaining private. It's a pretty impressive business just on its own right. If you take just pent-up demand for these big trophy assets and, hey, a pretty good business doesn't hurt, I think there's going to be a lot of interest here. When a company files to go public, obviously, they file the S-1 document with the SEC. And that's where we can go as investors and really get all of the information that we want to know about, for the most part, regarding the company.

1:56And Figma, to be sure, has filed that S-1. When a company goes public, when they file that S-1, what are some of the high-priority things, just a couple of high-priority items that you look for in that document?

2:07Lou Whiteman:Well, you know, obviously, the financials, right? We start with revenue growth, cash position. But, But for especially these growth companies, these young growth companies, I want to dive deep on customers. You don't want to buy a one-trick pony or an idea in search of a market or something like that. Figma's case, look, it looks pretty impressive. Nearly half a million customers, a global reach, 85 % of its users outside of the U.S. I'm curious, what do you look for there? But I think customers are so important for these young companies. Yeah, I love that, getting a beat on the customers and understanding the growth and the opportunity that's there as well.

2:46I like to look additionally, just really quickly, for the use of proceeds. I think if you just search that term, use of proceeds, then you get an idea of what the company intends to do with the money it raises from that offering. And you would think, in most cases, they're all just, well, we're going to use it to grow the company. That's not always the case, right? They do use that money to pay off debt, pay off shareholders that are looking for an exit strategy. And to be sure, that is something that is in this particular S1. It does say that they're going to facilitate an orderly distribution of shares for the selling stockholders.

3:23So, I'm not saying that this is a bad reason to go public, but I just think understanding the use of proceeds is always helpful. And then, ultimately, just how does the company make money? At its very core, the very simplest level, how does the business make money? It looks like Figma, very much like Adobe. It's a subscription business. They have monthly and annual subscription offerings. So, you know, those are a couple of things that I certainly like to look at. Now, Figma was founded in 2012 by CEO Dylan Field and Evan Wallace. Field said in this letter, and I know you have some opinions on this founder's letter in there, But as a public company, investors should, quote, expect us to take big swings, end quote, including through things like acquisitions.

4:09Now, growth via acquisition is, of course, a risky strategy. It can work, but it is definitely risky. Do you think this type of language implies potential growth challenges? And then further, what were some of your takeaways from that letter? Yeah.

4:26Lou Whiteman:I will say, the founder letter, I don't know if it was the first thing I used to look for, but I feel like last few years, we're upping the game here. It has become something to see. If you look at Field, yeah, he does not lack for confidence. It reminds me of Alex Karp's S1 when Palantir went public. Of course, both Field and Karp, they were both backed by Peter Thiel, so maybe that makes sense. Yeah, look, this is a management team. They are already showing. They are willing to try different things. Back in 2024, Figma apparently began investing in digital currencies. They own Bitcoin now. If nothing else, the takeaway, I think as investors, we need to take field at his word and expect experimentation.

5:09Lou Whiteman:If you buy in, you're accepting the added risk that comes with all this M &A and it comes with experimenting. You're taking on that risk in hopes that they get it right and there's really big upside if these big swings, if they actually connect, right? Yeah. Yeah. Well, and I mean, you're right. When you, if you buy in, you're buying into ultimately Fields' vision here. He's the biggest individual owner of the company. He owns 51.1 % of the voting power going into this IPO. So yeah, if you buy in, you're buying in on his vision. Is this a company ultimately that you're interested in? Like, is this something that investors, do you feel like should take more of a wait and see approach.

5:47Lou Whiteman:So, I don't know how you feel. I almost never buy into an IPO. I like to give things time to simmer. But, you know, look, this is an intriguing company. For now, you know, at this point in its life, it seems to be on to something and you have a CEO with a real big vision. There's a lot to like, but I think I'll watch it play out for a couple quarters and then see what I think. Yep. I'm with you. I think there's a lot of promise with this business. Clearly, digital content creation is a massive market opportunity, but I'm going to give them a few quarters to see how they behave as a publicly traded company.

6:18Well, next up, Amazon's autonomous future. Trading at Schwab is now powered by Ameritrade, bringing you an expanding library

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7:06So, I mean, we're getting close to parity there, Lou. The rise of the machines is really something. Does this ultimately meaningfully reduce Amazon's payroll over the course of the next 10 years? Or is this more about Amazon growing into this workforce and ultimately humans migrating to other jobs within the organization and using technology to ultimately make them better?

7:31Lou Whiteman:I think I'm going to cheat and answer both questions. Yes. All right. You know, Amazon CEO Andy Jaffe, he has been pretty blunt about this, right? He's been saying they want to use tech to cut the size of the company's workforce in the years to come. And look, a majority of those 1.5 million employees, they work in fulfillment. That is the warehouses, a lot of them. So, I do think we need to take him at his word. And the plan is to use this tech to meaningfully get at employee costs in fulfillment. That said, robots need babysitters. There's a lot that need. They need programmers. I am a believer that innovation, I guess when innovation opens windows, when it closes doors, so to speak.

8:15Lou Whiteman:So I don't want to be too doom and gloom. But yeah, I think the goal is to kind of replace some of at least these human tasks with robots as they can. Yeah. And it makes sense to a degree. I mean, those are dangerous jobs oftentimes. I mean, like take it to the nth degree there where we talk about like a military, right? I mean, rather be able to send a bunch of robots to war as opposed to actually having human lives in danger. So, there are absolutely use cases for all of this stuff across the world. Now, I was talking about this a couple of weeks back, but this is both fascinating and a little scary, I think.

8:55But Amazon is reportedly close to beginning testing human-like autonomous delivery methods, or in simpler terms, robots that deliver packages to your door. Now, I don't know about you, but I've got this vision of a robot walking down my street or wheeling down my street, however, coming up and dropping them. I'm not sure. And now you multiply that to the scale where virtually every house in our neighborhood is being serviced by Amazon at some point or another. I'm not sure I necessarily feel so good about that. Now, some 75 % of Amazon's global deliveries are already assisted in some way by robotics, but this isn't just an Amazon story, right?

9:35I mean, who are some of the big names we should be watching in warehouse automation? Yeah.

9:41Lou Whiteman:With those robot delivery people, all I can think about is what a pain it would be to walk your dog, right? I mean, my dog would flip, but anyway, more to the point, you know, Amazon was really forward looking here, which shouldn't surprise us. They bought Kiva back in 2012, I think it was. And that's a lot of what they're doing now. But there is the rest of the world outside of Amazon. I don't know if anybody has the scale to do that themselves, you know, the way Amazon has done in-house. But if you look at a company like Honeywell, they are spinning off their automation. I'm really, really intrigued when that business gets spun out because I think that's a real play on this for the rest of the world.

10:18Lou Whiteman:And one of my favorites, I got to point to GXO, the logistics company sort of that runs warehouses for Nike, for Whirlpool, for Apple. And kind of just, we will be the experts on this and we'll take care of it. I think there's a ton of opportunities here, not just for Amazon, but for everyone as we get smarter about this. Well, speaking of opportunities, let's play Armchair CEO for just a second here. Now, Amazon already does a lot, right? And they do a lot of things really well. But if you're Andy Jassy, what are you looking at as Amazon's next great growth frontier? What should he be pursuing next?

10:55Lou Whiteman:I look at the two that they seem to be pursuing and advertising and healthcare. Healthcare scares me because it's going to take someone smarter, but advertising, I'm really, really interested. We saw just a few weeks ago, Amazon and Roku announcing a partnership to integrate Amazon ads on Roku's network. As a Trade Desk shareholder, I'm watching that intrigue. But man, don't mess with Amazon. And I do think there's probably multiple winners, but that's a huge market. And Amazon, it seems to fit into their playbook already. And they've done so well when they've just expanded from their strengths.

11:32Lou Whiteman:What about you? What do you say? Yeah, the healthcare one is a little bit that scares me. That's a difficult one to navigate to. But I always wondered if they were just going to get into banking. You know, the bank of Amazon at some point, something that just scales out and they can just tie it to those prime relationships. But I guess I guess we shall see the advertising opportunity. I think you're spot on there. It's a massive one. And they're already working on about an 80 billion dollar annual revenue run rate there. And it's right. I cheated. I gave him something he already knew. Well, yeah, nothing wrong with that.

12:08Well, next up, Apple's having a little trouble figuring out its AI strategy.

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13:24in regard to its AI strategy. And I guess the question is, should they continue to try to build their own AI capabilities or should they partner up instead? Reports out there state that the state of the company's AI division is in chaos right now. Just lost one of its most senior large language model researchers. Continues to have a tough time retaining talent to work on AI projects. We've seen the money that Zuckerberg is throwing around there at Meta to recruit AI talent. Not to mention what they're doing at OpenAI, Alphabet, and on. Apple now considering partnering up with OpenAI or Amazon-backed Anthropic in order to help power its new version of Siri.

14:05Now, whatever leadership decides to do here, I don't think time is their buddy, Lou. What's the level of urgency here?

14:11Lou Whiteman:So, I don't want to hit Chicken Little level of urgency because that implies some dire risk to Apple. And look, Apple's going to be fine. I don't think it's run for the exit. But look, the story for the last few years has been that AI would spark this next great iPhone refresh super cycle. And well, we're waiting, right? We're still waiting. So, it's certainly, I don't know how urgent, but it would certainly just check an important box and give Tim Cook a chance to relax a little more if they can find a way to get this right. So, definitely some urgency, right? I would think. And yeah, like you said, I mean, it's Apple.

14:48They're going to be fine. We got to give them a lot of credit where credit's due, and particularly with Tim Cook, I think. So it starts making me wonder, you know, they've always been, they've always taken this sort of position. We don't necessarily need to be first. We just want to be best. So they've done that kind of all throughout their history and just kind of following, sort of looking where the puck is headed and sort of following along until they can come up with that vision to execute. So, I wonder, on the surface, it really does feel like they've lost the AI narrative, but do you think this was even maybe a little deliberate on their part?

15:20Do you think they've been taking a bit more of a wait-and-see attitude in regard to AI and exactly how they should incorporate that into their hardware?

15:30Lou Whiteman:So, I personally don't think it was deliberate. I think that all of the evidence suggests that, yes, they really did try, and it hasn't gone as they hoped. Look, even Babe Ruth struck out sometimes. And hey, the thing is, though, that's okay. All of the headlines were piling on, like, look, Apple needs to rethink it. Apple screwed this up. But there are dozens of companies out there working on these large language models. They all dream of having what Apple already has locked in, the consumer. And so, look, okay, say AI hasn't gone as planned. Say it wasn't deliberate, but Apple now has the opportunity to partner up, bring a wow product to Siri, spark that refresh cycle, and when it happens, and if it all goes to plan, I don't think anyone is going to be harping, well, oh, yeah, this wasn't plan A.

16:22Lou Whiteman:They screwed up plan A. I think shareholders will be pretty okay with plan B. So, maybe not deliberate, but it's okay. Yeah. Well, you mentioned it. I mean, they partnered up well before, right? I mean, Google and search. And I mean, in that case, Google was paying Apple. And so I kind of wonder in regard to a partnership here with whichever provider it is, if it'll be one where Apple is paying the partner or the partner is paying Apple for the presence on that massive hardware base, that installed hardware base. Given all of that and given sort of where Apple is today, I mean, what do you make of the stock over the next five years?

17:04Lou Whiteman:So, I look at this, about 29 times projected earnings. That doesn't strike me as scary. It doesn't strike me as really an opportunity. I do think that at some point, this next big thing question, they have to answer it. And I mean, it's not going to be the car. It's not going to be the TV. I think that even if not for the business, just for the narrative. So, I'm not really excited to buy in right now, but I certainly, I mean, those are the holdage. You got to hold on here, I think, just because it's Apple. Worst case is, it's just going to be a money printing machine for a long time. And that's a pretty good downside in my mind.

17:45We'll leave it there. Lou White, thanks again for being here. It was a pleasure. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So, buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. Advertisements or sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Jason Moser. Thanks for listening. We'll see you