Raspberry Pi’s London IPO & Mistral’s $640M Funding Round

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0:54Today's number, 1493. That's the year Christopher Columbus landed on the island of St. Barts and named it after his brother, Bartolomeo. True story. My wife said to me, you know, sex is so much better on vacation. I thought, that's not the postcard I wanted.

1:23Welcome to Prop G Markets. Today, we're discussing London's IPO market and Mistral's latest funding around. But first, where are you, Ed? I'm in St. Barts. It's pretty good. It's pretty nice out here. I got here yesterday. You know, it's all right. We got the private villa, and it's got a private pool, and it's got, you know, there's a private chef, so we had breakfast in the morning. Things are okay, is what I'd say. So first off, I'm the only one that's allowed to be cynical here. How many of you are there in St. Barts right now? How many from the property media team went to St. Barts? Six. And you're staying at my favorite place, Le Cerneau.

2:02I even picked out the villa for you. Where are you guys going to dinner tonight? I'm not quite sure. I think we're going to... Typical man. You've left it up to the women to handle everything, right? Sorry. I'm not sure. Oh. Oh, there we go. Love that sound. You're really leaning into this. Good for you. All right. You're having a glass of champagne. Good for you. That's right. Yeah. This is... You're easing into the St. Bart lifestyle. How are you doing? You're back at home? Yeah, I'm in London. my life is not nearly as romantic as yours. Although I'm going to the south of France tomorrow, which I'm excited about.

2:37That's right, you're going to Cannes. That's right, going to Cannes. Excited about that. Although I think I've lost some brand equity. I can't get invited to the iHeart party at the Dukat with Lenny Kravitz. I called, I know, I sat next to the CEO of iHeart Media last year and I emailed him and he kind of sent me a polite response, but still I haven't had that invite yet. So I think I've lost some brand equity. I don't know what's going on here. I don't. Anyways, I can't get into the hot parties anymore. I did get invited to Spotify, but I'm not. Is the iHop party really that hot? Lenny Kravitz is going to be there?

3:10Yeah, well, it's at the Hotu Ducap, and I'm staying there. And Lenny Kravitz is playing. And so it'll be like being a prisoner at Alcatraz if I don't get invited. Because supposedly the prisoners of Alcatraz, when the wind was a certain way, they could hear people parting in the wharf, which was supposedly torturous for them because they got to hear what life was like for people who were free. So if I'm in my hotel room at the Hotel Ducap and I start hearing Lenny Kravitz play his three songs, then I'm going to be very upset. I'm going to stop listening to iHeartRadio. Is that how you feel right now with us?

3:43I mean, we're having a pretty good time here. No, I like you guys. I want you to have fun. And not only that, I like that everyone knows that you're down there. I think it makes us seem well. By the way, in case you're still wondering, we're still recruiting for a writer, a senior writer for No Mercy, No Malice. So if you want to go to St. Bart's next year, come join. Come join Prop G. Anyways, enough of that, Ed. Get to the news. Okay, let's start with our weekly review of Market Vitals.

4:14The S &P 500 closed above 5 ,400 for the first time ever. The dollar was flat. Bitcoin declined. And the yield on 10-year treasuries dropped. Shifting to the headlines. The Consumer Price Index showed inflation cooled again in May, with prices up just 3.3 % from a year earlier. That's flat month over month and down slightly from April. Meanwhile, the Federal Reserve held interest rates steady, though many Fed officials are expecting at least one cut by the end of 2024. OpenAI hired the former CEO of Nextdoor as its new chief financial officer. As the company's first CFO in two years, Sarah Fryer will help the company grow its global business and invest in further AI research.

4:51The company also hired the former SVP of product at Twitter Kevin Weil as its new chief product officer. Oracle's stock rose 13 % to reach an all-time high, despite reporting fourth quarter earnings that were below analyst expectations. While the company missed slightly on revenue, the stock surged on account of new deals with Google Cloud, Microsoft Azure, and OpenAI. And finally, Tesla shareholders voted again on Elon Musk's$56 billion pay package and the move to reincorporate in Texas. They're actually voting right now as we record this podcast, so we don't know the results yet. But the stock rose 6 % this morning after Musk said he expects to win the vote.

5:28Scott, your thoughts? I think it's great that inflation cooled. I've always, as somebody who likes to think they know a little bit about economic history, inflation is more dangerous than an invading army. I mean, unless you're, you know, part of the village that gets invaded. But revolutions oftentimes can be reverse engineered to inflation. I look at what's happened here in the UK, and basically they have inflation and lower productivity. So let's figure out a way to make less money and have all of our goods go up in price, which translates to a worse standard of living. And that's when every household gets angry and wants chaos and change.

6:01It's the first time in almost two years that the CPI didn't climb. The annual core rate of inflation came down to 3.4%, the lowest since April of 2021. And the report keeps hopes of a potential September rate cut alive. I am sick of talking about rate cuts. I just don't care. The open AI, you know, open AI seems to be kind of professionalizing, if you will. The former CEO, before her position at Nextdoor, Sarah Fryer, served as CFO of Square and previously worked at Goldman Sachs and McKinsey. So she's obviously very qualified. And hiring Fryer potentially signals that open AI could be thinking about an IPO.

6:38She's sort of the, she's someone who comes in who has credibility on the street and says, okay, this is how you go public. And Sam, do not talk about X, Y, and Z. Talk about this. Those skills are very important. And the difference between a well-managed IPO for this company would be tens of billions of dollars in market capitalization. And so she is going to make a shit ton of money. She'll be there just in time to get a shit ton of options before they go public. So they literally had their pick of anybody to be the CFO of this company. By the way, do you see how much money they're generating now?

7:10the information just reported on this sam altman revealed the revenue the ar for the company you see this i did and what did it say three and a half billion dollars a year that is their run right now which is more than double than what they were at six months ago and just to put that into perspective anthropic which is arguably their number one competitor they're at 100 million and then cohere is at 22 million so it's like 100 million 22 million versus three and a half billion, the open AI business is 35 times larger than their next biggest rival. Like they're just completely running away with it at this point.

7:45Probably the more impressive thing is you said they've grown, their revenues doubled in the last six months. Right. Yeah, that's pretty, that's pretty impressive. Now the question is, what was the last round of funding? I'd be curious to see what the multiple on revenues in terms of valuation. Yeah. I mean, I think it was the 86 billion dollars, but that's still, that would still put them on the low end compared to all of these other ridiculous AI startups. So, I mean, they'll probably have another round soon. I would agree. I would bet that if it's$3.5 billion and it was at$80, what is that? About 25 times revenues, that's actually cheap for the AI sector.

8:18And you're right, they seem to be running away with it. It's interesting because all of the noise around how dysfunctional it is and board members leaving and Sam using ScarJo's voice, it's all noise. It's not news. The real news is the things you're focusing on, and that is their revenues and what's going on there. But good for them. It does sound, that's an observation I hadn't even thought of. They're clearly putting on their best dress for an IPO. Oracle, it's really interesting. Larry Ellison deserves a lot of credit here because there's a bunch of companies that are kind of getting hit hard for not making the transition to AI.

8:54I think Salesforce is seen as someone who hasn't made that transition, although their stock has done fairly well. It's a great company. I don't know if IBM is like that, but Oracle has positioned themselves as, hey, don't forget about us. And they have made real big investments here. By the way, Oracle's in my 401k, so I'm rich. Now you're rich. Finally. Their shares up 13%. That's the biggest single-day increase since December of 2021. People are excited about their partnership with Google, which will make its database available on Google Cloud. It's their second big deal in terms of AI. The company signed a similar agreement with Microsoft in 2023, and the company also reported strong revenue guidance, and they've signed more than 30 AI sales contracts worth more than$12.5 billion.

9:43So Oracle and Dell have both positioned themselves in the front of the AI wave. They've done a great job showing that elephants can dance, if you will, and other legacy tech companies such as IBM and Cisco have not made that transition. If you look at total stock returns from 2020 to 2022, Oracle has a 59 % return, Dell's 55, IBM 26. Cisco's only 7%, so it's underperformed the market. It's just pretty impressive what they've been able to pull off. I think Larry Ellison is going to go down as one of the more measured success stories in tech. Don't you think what they're doing right, though, is kind of just their storytelling?

10:18I mean, I feel like this is just more evidence evidence that Wall Street is basically refusing to listen to anything that doesn't have the word AI in it. Because you look at these earnings, these were pretty bad earnings. They missed on the top line. They missed on the bottom line. They had a 7 % revenue growth. It's not a good quarter, but it's this story about AI that they've told and about the potential pipeline of future AI contracts that got everyone so excited. And it basically made all of the other numbers irrelevant. And then you compare that to Salesforce, which you brought up and which we discussed a few weeks ago, they had higher than expected earnings on the bottom line.

10:57They had 11 % revenue growth, so it's significantly higher than Oracle. But at the same time, they had a pretty weak AI story and they just didn't convince Wall Street that they're going to be on the front lines with Microsoft, with NVIDIA, with Google. And what do you know, the stock fell nearly 20%. So it feels like, you know, Wall Street is kind of sending us a message here, which is we only care about AI. I think that's really insightful, Ed, because just as you said it, it struck me that what I would want to know is that, so supposedly Oracle has signed 30 AI sales contracts worth more than$12.5 billion.

11:29I'd want to know the complexion of those contracts. And that is, have they just signed up 30 new database contracts similar to what they always sign up, but they're calling it AI? I mean, you would hope that analysts would have something called, I'd love to produce this, an AI washing index. And that is everyone's claiming that all the revenue now is coming from AI just because, all right, whatever it is, it has an AI component to it. And so there is trying to separate the wheat from the chaff here or the bullshit from the just kind of bull, if you will. But it all distills down to the same thing.

12:08And that is the core competence in terms of a CEO is the same core competence you would hope for your kids and that you want to inculcate into your children. And that is not an understanding of accounting. It's not leadership skills or ethics or sustainability or whatever bullshit we can come up with to try and give people high paying positions at university so they have no accountability. It's storytelling. And that is when I read that investor letter from 1997 by Jeff Bezos, I thought, I want to buy stock. When I hear Ted Sarandos or Reed Hastings speak, I think, I want to buy stock. These guys just have an ability to get on an earnings call and be very straightforward and yet visionary at the same time and just instill so much confidence where you think, you know, I'm not sure I even understood what he's saying, but I just want to buy stock.

12:56The way it used to work was, okay, you're in tech hardware. You're in mainframe computing. Those companies trade between 12 and 14 times EBITDA. And if we like Bob more than Lisa, Bob gets 14, Lisa gets 12. And then things just went fucking haywire. And it seemed like a lot of companies that were sort of, when you really peel back the curtain, were pretty similar. But one told a much better story. So storytelling has become really the core competence for growth firms because their ability to get the markets excited about what they're doing, such that they could pull forward cheap capital, reinvest more capital than their peers such that they could pull the future forward and run away with it, see above Amazon and Netflix, has become the core competence.

13:36So there's gotta be at some point someone's ability to go, what's real and what isn't? And then the retort to that would be, well, storytelling is real. And if you can raise cheap capital, if you can raise capital cheaper than your competitor, you can pull the future forward and make the promise, turn the promise into performance. But to your point, it sounds like people who teach communications or investor relations should probably look pretty closely at the Salesforce and the Oracle earnings calls and say what went right and what went wrong. Should we discuss this Tesla shareholder vote? Yeah, I guess we're recording on a Thursday.

14:12It's Thursday at 6.30 here, only because I'm planning to go to Maison Estelle tonight and get fucked up. So I'm watching the clock. Look, my understanding is that both of these things are going to pass, that the shareholders are going to approve them. Is that correct? Is that what you've heard so far today? That's what Elon's been saying. Okay. But does anyone know if it's true? Yeah, I believe him on this one. I think it would be a weird thing to lie about. He'd look very stupid. And we'll know by the end of the day. By the time this podcast comes out, the vote will be in. So look, the shareholders get to decide.

14:44It's been a bit of a soap opera. I'm only slightly less sick about talking about this unless we want to talk about Paramount. Jesus Christ, make it go away. I just want them to get on with it. Yeah, I think, I mean, I can't say anything with certainty how the vote will go. I think what I can say with certainty is that whether or not it's yes or no, this vote is basically meaningless. Because here's what will happen if the vote is approved. It'll go back to the Delaware Court of Chancery. It'll go back to Chancellor McCormick, who will open up that briefing, and she's going to be like, hold on, I adjudicated this case before.

15:25Actually, I looked at this case basically two months ago, and I made my decision very clear. The answer is no. And I feel like what Tesla is forgetting is that if you read her opinion, she actually didn't care whether the shareholders were fully informed or not. Granted, she said they probably weren't, but it had actually no bearing on her actual decision. You know, she believed that the package was inequitable and that as a court of equity, she also believed that she had the power to rescind it. And that was it. And now here we are again, and we've got the same case on her desk. So nothing's gonna change here.

16:05And, you know, we discussed this with my uncle, Charles Elson, a few weeks ago, and he said the same thing. You know, he's like, This isn't about informed versus uninformed. This is just about, was it equitable or was it inequitable? And she's already decided it's the latter. So, you know, they can appeal the decision. That might go somewhere. But this vote, this being their argument, oh no, we looked at it again and we still think it's equitable. It's just a non-starter. For her, for Chancellor McCormack, I just don't think this is going to go anywhere. We'll be right back after the break with a look at a new IPO in London.

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18:01We're back with Prof G Markets. The London Stock Exchange got a boost last week from a surprising new entrant, Raspberry Pile. Raspberry Pi makes low-cost computers that are about the size of a credit card. They run an open-source operating system, and for more than a decade, hobbyists have customized them for things like streaming media, hosting servers, and learning to code. They're also used in manufacturing for things like inventory management or production line automation. Today, the industrial market makes up more than 70 % of the company's sales. At its pricing, Raspberry Pi was valued at about£542 million, or nearly$700 million, and shares soared 38 % on the first day of trading.

18:42So Scott, we recently discussed how the London Stock Exchange has been struggling to attract IPOs, specifically tech IPOs, but it's attracted this company and Shein, which we've also been discussing, is set to list in London too. So how do you think this IPO of this Raspberry Pi computer company will affect the broader IPO market in London? It's a big deal because it could change the world's outlook on the London Stock Exchange from the exchange of last resort to a player here. The total capitalization of London listed equities fell from 4.3 trillion in 2007 to about 3 trillion. So it's actually gone down about 40%.

19:21And over the same period, the value of US stocks has almost tripled to 53 trillion in the US. Raspberry Pi, it's great for the exchange because it's sort of a cool little company that had options to list on other exchanges. And they've started trading with a three-day conditional dealing period during which trading was restricted to institutional investors. Maybe you can speak more about what this sort of conditional period means. Yeah, I didn't realize this. I had never heard of it. But basically, if you IPO in the UK, there's this three-day period where your shares are trading, but they're only available for trading among institutions.

20:00And what's particularly interesting is that those shares are reserved, but you don't officially own them until the three-day conditional dealing period ends, which means that if you're a company and you decide to IPO and you're in the conditional dealing period, you can just cancel the IPO if you're not getting the demand that you're liking. In other words, the London Stock Exchange basically lets you do a test run before the real thing. The thing I would ask to you is, why do you think that they do this? And what does this say about the UK market versus the US that they'd say, oh, yeah, we're going to give you three days to sort of test it out among institutions.

20:39But once it's up, you know, then you're doing the real deal. Well, I mean, I don't know if this is the reason for it. But so the IPM market is rigged. Essentially, at prices, the bankers say this is a branding opportunity. You want to create positive momentum. So price at 10, 20, 30 percent below where we think it's going to open. And then the investment banks get to give basically free money to their institutional clients as sort of a quid pro quo for doing all their business through J.P. Morgan and Morgan Stanley or Goldman Sachs. But the retail investors who don't have access to the IPO buy in at the first trade, which is sometimes much higher.

21:15Now, technically, it could go down, a broken IPO, but it usually doesn't. And sometimes, as in the case of Airbnb, it opens, it priced at 68. That's what institutions got to buy the shares for. And it opened it, I think, at 150, which is where retail investors got to buy it for the first time. So a guy named Bill Hambrick came up with this auction model back, I think it was like 10, 20 years ago, probably 20 years ago, where the IPO would be, they would basically pair the trade. And that is people would bid, buyers and sellers would bid in a Dutch auction until the market demand was sated at the number of shares.

21:53So it was sort of priced exactly at where the first trade would be, right? And that was a means of ensuring that the company got the maximum amount of capital for the same dilution. And that did not survive because it ends up the ecosystem, the biggest players and institutions and investment banks really liked a rigged market that retail investors kind of got screwed. So I wonder if this is, I don't know the answer to this, but is this an attempt to say, look, retail investors are going to get to pay about the same number as institutional and also give the company an out if they don't like where that number ended up being?

22:28I don't understand if this is nothing but more lax rulings for the company or an attempt to have retail investors pay the same number as institutional. Yes, it's not totally clear to me either. Tune in next week for more shit we don't know. That's why you tune into Prop G. But what about this? No fucking idea, Ed. How's St. Bart's? I don't know. There you go. I'm sure you'll have a response to this. So the CEO, this guy, Eben Upton, was talking about his decision to list in London. He said, quote, this was not a patriotic decision. We did take a look at New York, but we realized that for a company of our scale, the London market is probably a better home.

23:13He went on to say, quote, many of the stories people tell about the differences between the US and the UK, particularly this sort of magical multiple arbitrage, don't seem to be real. Which I find interesting because it's almost, it's almost like it's a jab at us who have been basically saying exactly that, that, you know, if you're listing in the US, you're getting a little bit of a valuation jump and that isn't true in the UK. And the reason that we say that is because we just look at the numbers. But apparently the CEO isn't worried about that. He isn't worried about this multiple arbitrage issue.

23:50So I'm just wondering what you think of his comments. Do you agree with his point? And do you think maybe he's finding some other value in listing in London versus New York? No, no, because it might be. So we've pointed out that stocks that trade on the NYC and the NASDAQ traded whatever it was, an average multiple of 26, and all the other exchanges is around 13. Now, that might be a self-fulfilling prophecy, and that is the best companies list on those exchanges. It also might be much more heavily weighted towards tech, which trade at a much higher multiple, whereas the companies that list on these other exchanges, probably more manufacturing or services heavy, which don't trade at as high multiples.