The Great Sloppification of OpenAI

25:38And if that's, I mean, that's the way they're going to have to make money here. I don't see any other way they're going to do it unless they're going to go crazy with the subscriptions. But it seems to me that that's where they should be putting all of their creative energy, Go do what Google did, where Google bought DoubleClick, which was their most expensive acquisition ever, and it was just a giant ad network. And that's what really took Google into Lightspeed. So I feel like that's where OpenAI should be taking this business if they want to start getting profitable. But what do you think is the right strategy ahead for OpenAI?

26:14I agree with you. They're likely to go shopping and make some tuck-in acquisitions and maybe a couple major your acquisitions now that they have this currency worth half a trillion dollars. And any, when you're trading at whatever it is, 40 times revenues, any acquisition you make is accretive. It increases your earnings per share. Where I disagree is they need to get profitable. If I were on the board of OpenAI, I would be saying we need to show growth, massive growth, massive customer acquisition, and disruption of certain industries, if you will. But no, no, no, no, no. We don't want to be profitable.

26:49We just want to show massive top line growth. I don't think this company, quite frankly, I don't think this company needs to be profitable for five or 10 years because it took, I forget how long it took Amazon, 15 or 20 years. The playbook is disruption and growth, not profitability. And this does, there is an argument that the best AI, that there can only be one, that there's going to be one AI kind of running everything. And so leadership and growth and raising massive amounts of capital are kind of the whole game here. I would put profitability way down on the totem pole. Because all of the margins, if you look at the gross margins on the things they do, they're usually 99%.

27:35There are no costs here. Once you've set up, there's tons of capex, massive capex. But the processing power is what the energy costs to power these data centers. but the gross margins are just near 100%. Essentially, AI has become the mother of all capital wars. They don't want to spend stupidly, but as long as they can grow, show that type of top-line growth, I mean, just the numbers here are just staggering because they realize, I think they realize whoever's number one is going to trade at 10 to 30x what the number two player is. Do you want to hear my moral dilemma that fits into all of this?

28:17Please, yeah. Have you used my Google Labs profile yet? No, I haven't. Well, thank you, Ed. It's nice to see you're investing in this relationship. So just some headline news here. I get a lot of emails from young men looking for advice, usually professional advice, sometimes advice about investing, and I can't answer them all. And so about 18 months ago, the team here at Prop G built a thin layer of innovation on top of an LLM and built Prof. AI. And we were getting two, 300 queries a day. Google Labs approached us. Specifically, I had a graduate student instructor, or fancy word for TA, who's just a super impressive woman who now works at Google, approached me and said, we can do much better.

28:58We're working with a bunch of thought leaders. And do you want to be one of them? I said, great, I would love to do that. They spent a lot of time on this thing, and it launched last night. And in the last three months, I have become increasingly uncomfortable with character AIs and synthetic relationships. Now, the upside is a lot of young people who don't have access to my content and have a specific question can get access with this thing. And I've tested it, and it's actually pretty good. I'd say it gets 70 to 90 percent of what I would say in the tone I would say it. In the last several months, there's been some really ugly instances of suicide and people having psychotic breaks because they thought they were in relationships with these synthetic character AIs.

29:41In addition, I hate the idea of a young man slowly but surely spending less time or taking less risk to try and establish his own mentorships and friendships in real life. And so this thing launched yesterday and I said, well, anyways, I'll stop there. What would you suggest if you were me? Would you leave it up or would you take it down? Or what would you do? I don't think that it's actually that valuable to have an AI giving you the answers to things. And I think a lot of the idea, the thing that is inspiring to people when they ask you questions isn't just the answer that you give, it's the fact that they actually connected with you.

30:19I mean, that to me is a big piece of reaching out to people and getting advice. I mean, the content of the answer itself is only one part of the equation here. A lot of this is about the actual connection with the individual and realizing that this person thought about it, thought about my situation, recognized me as a person, and gave me a response as a human. so i don't know about taking it down but my view on these ai avatars is i just don't think they're that valuable i mean i think google is a if you want the answer to something and you don't even care about connecting with the person just go on google and like see what google has to say about it i don't think that means you need to take it down i don't think it means that you need to delete the thing, but I just, I struggled with the value of these things from the get-go.

31:15I think that's a really thoughtful answer. And yeah, you summarized a lot of the way I'm feeling. I feel like the ground has shifted beneath us the last six months, and I'm really freaked out about the idea of young men establishing synthetic relationships and using them as a replacement for organic relationships. Anyways, long story short, I pulled it down. Oh, you did? Yeah, I just, something Naval said, the Twitter philosopher, I don't know what he does, but I think I'm a philosopher. VC. They're all VCs. He's a VC? Yeah. Oh, God. An angel investor. He's started companies as well. All right.

31:55Anyways, he said something that really struck with me, and that is if you're spending a lot of time trying to decide something, the answer is almost always no. And I thought, yeah, there might be some missed opportunity to get good advice, but I'm like, they can read a book, they can dial into office hours, they can read one of my newsletters. But I just hate anything that reduces a young man's fire to go up to a teacher, a boss, a potential boss, or whoever, or email me and try and make some sort of personal connection. We'll be right back after the break. If you're enjoying the show so far, please vote for us at the Signal Awards.

32:36We'll leave a link in the description to make it easy for you. Thank you. And stay with us.

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36:03We're back with Prof G Markets. Dealmaking surged in the third quarter with global M &A topping$1 trillion for the second time ever. The main standout was EA's$55 billion buyout, which we covered on The Daily Show. But beyond that, there were also 13 mega deals that surpassed$10 billion each. What is also surprising is how the landscape has shifted. The scale of the deals is getting bigger, but the total number of deals hasn't budged. Total deal value jumped 27 % year over year, even as deal volume stayed flat. So, Scott, you actually predicted that M &A would be the business trend of 2025. You also predicted that we'd see the largest take private ever.

36:46Let's play the clip of your prediction. Corporations have record profits. They're running out of growth. and if they're in challenged industries, they want to bulk up, you're just going to see tons of M &A here. There's been, M &A has been largely moribund because the Biden administration was enacting more FTC and DOJ reviews, which, by the way, I think was the right thing to do. But you're going to have a much more M &A-friendly head of the FTC and the DOJ now. And these companies have so much money on their balance sheets, they're just going to go shopping. So we have got trillion dollars in M &A in the third quarter and three trillion so far this year.

37:26That total number is up 35 percent year over year. Crashed it on that prediction. What was the incentive or what was the impetus for that prediction? So the way I would describe it is for a small set of companies, everything's 50 or 80 percent off. And that is, if you're Palantir Technologies and you're worth$440 billion and just five years ago, right, you were worth$20 billion, everything is on sale for 95 % off. Because when you buy a company, you issue shares to buy it. So let me put it another way. When I raise your salary from$10 an hour to$20 an hour, technically your rent gets cut in half as a percent of what would be required for you to sacrifice.

38:24So when OpenAI goes from being worth$20 billion to$440 billion in five years, the universe of potential acquisitions goes up a thousandfold. In addition, when they're trading at 50 times revenues or whatever it is, any acquisition they make is technically accretive that increases their earnings per share. So when a banker, you know, bankers meet with CARP every few weeks and they're really smart people. They look at different channels, distribution strategy, understand your strategy. Wouldn't this be a great tuck-in strategy because they're trying to figure out a way to generate fees? the book of potential strategic options now in terms of acquisitions has gone from two pages to 200 and so what are we going to see here i think so the prediction was we'd see the biggest take private that's happened what we're going to probably see in the next six months is the biggest merger or acquisition in history because if you're nvidia and you're trading at a$4.5 trillion market cap, you can go buy a$100 billion company for a 2.5 % bet.

39:37You can bet the bankers are working overtime and the selection set and the opportunity to go buy a company worth$50,$100 or$200 billion, that wasn't even thinkable before. It all spells one thing. We have not seen anything yet. We are going to see some just titanic deals. In addition, you layer on top of the fact that essentially the DOJ and the FTC have somewhat been anesthetized. You know, they're just under. They're just not awake right now. So all of these moons are lining up to where this is banker Lollapalooza. You're going to see the largest banking fee ever registered on a deal in the next six months.

40:21It'll be because the wonderful thing about M &A, when I was working at Morgan Stanley, it's all perspective. The deal doesn't close, you get zero. But if the deal closes, the fees are outrageous because if someone is pitching OpenAI and says, all right, Gardner's stock is down. They have some good IP around technology. You should just acquire them. And they're worth$12 billion. You can acquire, I don't know, you can acquire them for$15 billion. They're not going to argue over whether the fee is$140 million or$170 million. They brought us the deal. They have to rally 40 people to work day and night for 90 days to close this thing.

40:57So your margins are just extraordinary. There's no, there's very little pricing pressure in M &A. The lawyers rack up their bills, you know, inflate their bills. Everyone just makes a shit ton of money because there's, you know, it's like, it's almost like the real estate business. That is an incredibly inefficient business where, you know, your friend Marge, who's very friendly and went to junior college and knows everybody can get 5 % or split with another person 5 % of the value of your home by figuring out a transaction. And it's all based on relationships. Anyways, we're going to see more of this.

41:34In my opinion, it's only getting started. Yeah. And the bank earnings when earnings season comes up will be so interesting. But if you're wondering why is JP Morgan up 30 % year-to-date? Why is Goldman up 37 % year-to-date? Why is Citigroup up 41 % year-to-date? Why are all the bank stocks absolutely ripping in 2025? This is the answer. It is M &A. Banks have generated$95 billion in investment banking fees this year, and that is the second highest in this timeframe ever. So these banks are absolutely printing money on these gigantic deals. And we've seen a ton of these mega deals. We saw, I mentioned the EA take private$55 billion.

42:18We saw Palo Alto Networks buying CyberArk for$25 billion, Anglo-American buying tech for$50 billion. We're seeing these gigantic deals. Now, the one thing that I find very interesting, I'd like to get your reaction to, record m &a market in terms of dollar value deal size but not a record m &a market in terms of deal count the actual actual number of deals that are happening so what is actually happening here when you dig into the numbers basically what's happening is you're seeing a ton of deal making among really big companies large caps and then the opposite is happening among small cap companies so just the numbers here.

43:01Deals worth less than half a billion dollars are down 18 % this year. Deals worth less than$2 billion are down 25 % this year. Deals worth more than$10 billion are up 26 % this year. So what you have is the gigantic companies are getting acquired, and no one's really touching the small companies. And this reminds me very much of the discussion that we've been having when we look at the GDP data and we look at the underlying economic data among consumers in America, the numbers are going up. But then you dig into it and you realize, okay, actually, let's look at it by bracket, by income. Hold on.

43:46The very top are the ones that are creating all of this activity. And when we look at the bottom, actually, the activity is in decline. So we saw that in the consumer market and we're seeing it as well in M &A. The small companies are not really being touched when it comes to these big acquisitions. Your reactions? So first off, two-thirds of acquisitions fail. People get excited about them. They have to pay a premium. Integration is always more costly and time-win than you thought. Two-thirds of them end up not working. And also, integrating a billion-dollar acquisition isn't much easier than integrating a$20 billion acquisition.

44:31And then the companies making smaller acquisitions are the S &P 490, right? Meanwhile, the big guys have made so much frickin' money, and it goes back to what we were talking about before, the opportunity set or target market has expanded exponentially because now they can afford to buy almost anyone. So it would just make sense that the S &P 490 who have not registered the same returns don't feel as flush or as rich and are, by the way, usually dodging incoming projectiles in the form of tariffs and all this other nonsense, are not out shopping because they don't feel like their stocks are inflated.

45:05They don't feel like they have their preloaded credit card. Whereas the big guys are like, yeah, fuck, I could go buy Ford Motor right now. I'd pitch it to me. I mean, or whatever the company is. So it would make sense that it's the big game. If you saw a run-up in the Russell that tracks small business or small caps, you would see, and oftentimes small caps, traditionally small caps have outperformed the big guys because they're supposed to be more nimble. That dynamic has entirely changed the last couple of decades. Of the 500 companies that were unacquirable because they were so big, Like, you know, no one would have thought of buying Chevron.

45:44They would kind of merge with them, but they couldn't buy them. Now it's it's acquirable. There's companies out there. There are pools of capital and there are companies with market caps that now make these companies acquirable. So I just think it's just a function of the haves and the have nots. The haves have preloaded credit cards, the likes of which they've never had before. The have nots, the mediums and the smaller cap guys. are kind of licking their wounds, waiting to see if their tariffs on Brazil is going to go to 100 % based on the blood sugar level of the president. I just find it remarkable how every story we dig into on this show, the more you keep digging, ultimately there is one trend that just runs through all of it, and it's inequality.

46:31Like, we see it in the consumer economy, we see it in the stock market i mean the fact that the mag 7 now makes up 35 percent of the entire market cap of the s &p right now and you look just a few years ago 2019 it was it was 19 so you've gone from a fifth to a third in just about five years and the downstream effects of that inequality are spreading out everywhere including m &a of all markets i mean the fact that if you want to get bought as a company, you need to hope that you are worth at least $10 billion. Otherwise, the chances of you getting acquired are actually lower than they were a year or two years ago.

47:18And then what is even more interesting is the fact that because the dollar amounts are so big on those big deals, it distorts all of the data and it makes you think, oh, this is this giant M &A market. Everyone's making deals. And then if you're a small company, you're like, well, why isn't it happening to me? and the reality is you're not an exception actually you and the rest of the other small cap companies are not getting acquired it's just the big dogs at the top and we see this everywhere i think the the other interesting question that we have to go to then is what does that mean i mean what are the implications of that what does that mean for uh smaller companies what does it mean for a company like us like prof g media we're not a large cap we're not a mid cap we are a small startup, what does it also mean for entrepreneurs and founders who are probably going to realize that there is just simply not a lot of exit opportunity unless you are a 10, 20, 25, 30 billion dollar company?

48:18What you have is a situation where a small number of companies are going to garner the majority of the spoils and the 99 % of the rest of us in companies companies are going to have the oxygen sucked out of the room. What do you do or what does it mean? It means it's a winner-take-all economy, which plays into an unfortunate or a double-edged sword of American society. And that is our superpowers, our optimism. We all believe that our kid is at 1 % or that our company is going to be the big winner. And the downside is we don't recognize that it is getting harder and harder to break through. The spoils are greater if you break through, but it's getting harder and harder.

48:55So I think where we're headed is the following, civil unrest or just unrest of the ballot box. And I do think the opportunity is really ripe for massive antitrust that comes in and says, okay, Apple, you're not Apple, you're five companies. Why does the app store have to live with you? Oh, Google, why on earth do you own the largest streaming video service and the largest autonomous automobile company. And you share, you coordinate and cooperate with each other, making it hard for smaller companies to break through. So I think you're going to see, I'm hopeful that at some point, then it's not going to happen in this administration, but in the next administration, I think you're going to see a lot of mojo and justification to go in and oxygenate the economy with a massive breakup of the big guys, the winners, because some of these companies, you just, how do you compete with them?

49:51And I think there's the question of when people are going to wake up to the fact that this administration lied to them about all of this. I think the funniest lie that we saw was at the beginning when Scott Besson said, it's Main Street's turn. It's not about Wall Street anymore. It's about Main Street. I'll just point you right back to what we said at the beginning. JP Morgan up 30%, Garbant up 37%, Citigroup up 41%. $95 billion in investment banking fees this year, the second highest in the history of Wall Street. The fact that the MAG-7 is ripping right now. I mean, this is the same thing again.

50:28It's just the only difference with this administration is that we were promised something completely different. To your point, the big guys, right, up 30 % to 40 % off of huge market caps. I just typed in regional bank index and there's something called the KSW NASDAQ regional banking index. It's up one and a half percent this year. It's flat. So it's pretty simple. How are you doing? Are you small or are you big? And anyways, there's there needs to be, I believe, what Vice President Mike Pence said. You know, he and I run at the same Atlantic festival together. Oh, wow. Yeah, me and Mike, me and Vice President Pence.

51:10He said the best economies are referee capitalism. And right now, we've never had bigger, meaner players in the field. The referee is nowhere to be found. We'll be right back after the break. And for more markets content, hit follow and sign up for our newsletter at profgmarkets.com slash subscribe.

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53:28Thank you.

53:58Thank you.

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54:58We're back with Prof G Markets. Last week, Charlie Javis was sentenced to seven years in prison for defrauding JP Morgan. Back in 2021, she convinced the bank to pay$175 million for her startup, claiming it had 4 million users. In reality, the platform never had more than 300 ,000 users. This case raises a bigger question, a question we've asked on the podcast before, and that is, where is the line between visionary storytelling and outright fraud? And we've seen this question before when it came to Elizabeth Holmes, when it came to Sam Bagman-Fried. And we might even be seeing it today in AI, where many investors are worried about these creative accounting issues, where, I mean, one of the biggest things we're seeing is this ARR accounting magic, where companies are signing these one-off contracts, and then they're annualizing those numbers as ARR to make it seem like they're making more money than they actually are.

55:55That's probably another talk track. But the point being, we have here yet another example of a founder who flew too close to the sun, crossed that line, it was storytelling, and then it was fraud, and now she's in prison. So Scott, you've spoken about this before, you've built many companies. Your reaction to this news and your thoughts on where do you draw that line as a salesman, as a storyteller, and as a founder? Well, I empathize with her because in college, when I'd go on a date, I would borrow my mom's Acura Legend and I would say it was mine. Because no woman can resist the Acura Legend, the smooth, clean lines and the mellow acceleration of the premium brand from Honda.

56:39Look, there's... She committed outright fraud. If you're in due diligence and you're asked to put into the data room a list of your clients and you work... I guess she was working with some academic who figured out a way to manufacture or like sort of accounts that look sort of real, that's fraud. You should probably go to prison. There is a fine line, though, and this was not a fine line, but really being out there and embellishing the prospects of your company and their performance and recategorizing what's ARR and what is in regular revenues, what is services revenue, what is technology revenue, to try and increase.

57:20Remember that company we called out and eventually went bankrupt? I think we were one of the first ones. A bunch of my buddies invested in LA and called me and got angry. Remember that credit card that was claiming to solve the climate crisis and it was just a fucking credit card? Aspiration. You can say that you're raising the consciousness of the planet and it's buyer beware. But if you start lying about specifically financial results, that's when you get into trouble. what there is some political and brand issues though and that is i think the difference between elizabeth holmes and adam newman is that adam newman's board wanted to save face and gave him no one has ever gotten a 10 billion dollar commission on losing or a billion dollar commission on losing 11 billion dollars of other people's money and i think the board if his board had been angrier i think he would have been a world of hurt elizabeth holmes theranos's board was angry and I always thought it was just sort of uncomfortable that the first person that got sentenced to a decade-long prison membership happened to have ovaries.

58:23Two percent of unicorn founders are female and the most famous one got stuck in prison and there was some misinformation around that. No one ever got a false diagnosis. What she did was she lied about the capabilities of the machine and she did lie about some of the order volume, I believe, but it wasn't people saying, well, it's different, it's health. No one was getting like HIV negative results when they were HIV positive from these machines. She was exaggerating the capability of the machines. Anyway, I think that there is a fine line between, well, let me go. I think when you say, I'm taking the company private for$420 a share and funding is secured, funding secured.

59:09And you're like, wow, the stock goes to 400, but it's going to be at 420. So you buy in at 400, And then you find out that the guy was either on ketamine or lying and the stock plummets. This is Elon a few years ago. Yeah. You're lying about finance. You're lying about numbers. There's an objective truth around what he said. And that was not it. That was a lie. So, yeah, look, the whole thing is a cautionary tale that if you're the CEO of a startup, you have to be able to spin a narrative that gets people's greed glands going. and sometimes there's a thin line between exaggeration and downright lying but what you should never ever lie about is the numbers or cut number of customer accounts the revenues they all play with like categorizing or recategorizing revenues as a certain type of revenues or pulling revenues forward all that bullshit public companies do it all the time i think ai is going to serve a really valuable role in terms of issuing sort of a diligence or a good housekeeping seal of approval.

1:00:14Now, projecting the future is not lying. You can just be wrong. But this is, I think it's a real cautionary tale. And she's going to spend the majority of her younger years in prison now. It's a real tragedy for her, for the firm. But she picked the wrong company to fuck with because if it had been a smaller company that just wanted to ignore it and not be embarrassed, they might've just let the whole thing go. Yeah, I think the thing that's a shame is that it's, I mean, your point about Elizabeth Holmes and perhaps the justice system and the world was too harsh on her. It's almost like on the way up, when the stock's up, you're a visionary.

1:00:55When the stock's down, you're a fraudster. and that's the part that is i think a little bit unfair is why is it that we're down to accept the lying when things look like they're going well it's because we're all down to buy into the lie because there's the prospect of making money on it and the perfect example of that is elon i mean elon is committing as you say fraud when he says you know funding secured 420 or 410 dollars a share He's kind of committing fraud, again, sort of blurring the line, but when he says that, uh, we're gonna have a million robotaxis on the road by next year, and then 10 years later, they have two, I mean, that's another form of lying that, you know, is something we should look down upon.

1:01:44But the reason that we don't, or the reason that we turn a blind eye, is because we look at the stock price, and the stock price is up. And so people decide, oh, whatever, doesn't matter, He's a visionary. But as soon as that stock comes crashing back down, suddenly people get very sensitive about the difference between fraud and lying and exaggeration. Same thing happened with Sandbagman Freed. Everyone was down for it while that FTT token was going up. As soon as it came crashing down, suddenly everyone got their investigative hats on and they decided that they were investigating fraud. But it's like, OK, well, where was that energy when he was out raising money from Sequoia and all these other big VCs and, you know, making billions of dollars on this FTT token.

1:02:26And by the way, I think the perfect example of this, which we talked about in one of the episodes, you know, what is the next aspiration? What is the next WeWork, in my view? It's this company, Fermi America, which just went public last week. And, you know, one of the things I predicted on the episode is that we would see a big pop in the stock because it would have this AI feel to it. It's sort of got this meme stocky potential. That is indeed what happened. Shares closed up 54 % on their first day of trading. It's at a$15 billion valuation right now. But I mean, this is a company that has zero revenue.

1:03:02And they say that they're going to revolutionize AI because they are building a power grid and they're going to have nuclear power plants and they're going to bring 11 gigawatts of energy to AI companies, which is five times greater than the output of the Hoover Dam. It's two and a half times greater than the amount of energy consumed by all of Manhattan. I mean, they're pumping this story, and yet they have zero revenue. They also don't even own any infrastructure. All they have is a contract to have some gas turbines that are currently sitting disassembled all around the world. And so again, perfect example, in my view, this company comes crashing down the same way as Aspiration.

1:03:43That's my prediction on Fermi America. But the stock's up, so people don't care. I love this. By the way, it's on 7 % today. When I, I remember right in 99, after I'd sold profit, I came to New York and I said, I'm gonna be the Idealabs in New York. One tech team, one engineering team, one office space, one legal team, one corp dev team, and I'm gonna punch out e-commerce concepts. And I raised 15 million at a pre-money of 35 million. So me and a PowerPoint presentation were worth$35 million. And I remember thinking, this feels wrong. I'm going to call my lawyer. Can I get in trouble? No, these are credit investors.

1:04:20They're smart people. Goldman invested. JP Morgan invested. Anyway, this is essentially, this company right now has a$14 billion market cap. This is a company with a management team and a business plan that is worth$14 billion. And, I mean, unfortunately, they're not trading options yet. I think something has to be out for 30 or 60 days. This company, it's at$30. This thing's going to be single digits in 30 days. I mean, this company at$18 billion? You're right. This is look out below. Look out below. Let's take a look at the week ahead. We'll see earnings from Constellation Brands. That's the distributor of beers like Modelo and Corona.

1:05:08We'll also see earnings from Pepsi and Delta. We likely won't get any of the scheduled economic data because of the shutdown. However, we should still see the minutes from the Federal Reserve September meeting, and we'll be watching that release for signals of the Fed's path forward. Scott, any predictions? Well, it goes along the lines of the biggest M &A and mergers in history, all the moons are lining up. And this is one that is a little bit out there, but I see the industrial logic behind it. And that is, I think Netflix, with a$440 billion market cap, is likely to make a tectonic acquisition.

1:05:48And my thinking is that there are a lot of existential threats right now around Netflix. Specifically, I think we're raising a generation of consumers who can't sit still for 90 minutes or 60 minutes. I think the TV screen is getting turned on so little that it's going to start impacting their business. I don't know about you. I haven't. It's really strange. In the last six months, I've stopped turning on the TV. I don't watch TV anymore. It's really weird. I used to watch. It used to be appointment viewing. It used to be just always on. Then I went to appointment viewing. Now, my TV is never on unless occasionally I have a Premier League game on.

1:06:27And my kids never have the TV on. In addition, when you look at what AI is doing around content creation, it could work for Netflix. It might not. And it's trading at a market cap of$490 billion. $490 billion and a PE of 50. So my favorite is, and they wouldn't call it an acquisition. They'd call it a merger. But I think if Netflix were to merge with and or acquire Disney, it would make all sorts of industrial logic. Why? Disney has a management and succession problem. Right now, the person running Disney could best be described as Neville Chamberlain in a cashmere sweater minus the dignity. He's a 73-year-old man who has fucked up and shown incredibly poor judgment around some key decisions.

1:07:18The person who was supposed to be a successor or one of his successors has gotten caught up in this Jimmy Kimmel nonsense. Netflix has an enormously talented management team. The co-CEO, who you never hear about, you hear about Ted Sarandos, who probably demonstrates more aplomb than any media executive in history. It's just hard not to like a guy who's built a half a trillion dollar company. Actually, you'd say, well, the vision of Reed Hastings, who started working in video stores, right? His co-CEO is extraordinary talented. They have two great CEOs and an unbelievable bench there. So that solves the management problem.

1:07:57In addition, if Netflix faces these existential threats of being totally focused on this one business called streaming, Disney has this singular business, parks and cruises, place-based entertainment, Nothing like it. They're Broadway shows of The Lion King. They're parks, just singular. OpenAI and whoever it is, Snap or a name of NVIDIA, these companies can't replicate Disneyland and Disney cruises and Disney Broadway theaters. where they're getting a little bit long in the tooth is the IP in those parks. Darth Vader, Cinderella, you know, the Muppets. This shit's getting a little tired. What does Netflix have?

1:08:45Oh, my gosh. The Stranger Things ride at Disneyland. Can you imagine the wait for that shit? The Squid Games competition, the Wednesday Broadway show. So the two of these together, the IP and the parks accreted from a management standpoint, and then you have one streaming platform that is Netflix, Disney and Hulu. It's game over and streaming. Now, this merger should not be allowed to happen because it would be so fucking dominant. It would create the first$1 trillion true kind of old Hollywood media company. but it could get through now because again, see above the DOJ and the FTC are asleep at the switch.

1:09:29So Netflix has a stock that is so fully valued. I think their bankers are probably getting some reception from the management team thinking, how are we going to grow Netflix to justify this position given some of the threats on the horizon? We have this amazing company where the C-suite, you know, there is five years past their expiration date and we have a huge management team We have all this IP we could monetize downstream, which we aren't monetizing right now in the form of place-based entertainment, which is much more enduring than the streaming war. I think that Netflix is going to make a tectonic acquisition.

1:10:08And my favorite candidate is Disney. I really like that prediction. I just want to add on to it. You know, I agree with you. They need to do something to justify this valuation, half a trillion dollars, 50 times earnings. If they don't, the stock's coming down. And this is all to say, I'm very bearish on Netflix. I really don't think it has any business trading in half a trillion dollars. So we'll see what happens in terms of M &A, but I'll just add my prediction on bearish Netflix. Perhaps we should dig into that next week. Let's do it.

1:10:43This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Meir Silverio is our research lead. Our research associates are Isabella Kinsel, Dan Chalon, and Kristen O'Donoghue. Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. Tune in tomorrow for a fresh take on the markets.

1:11:18Kind reunion As the world turns And the dark lights In love

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