Inside Musk’s Merger, Palantir’s Impressive Revenue Growth, New Disney CEO

0:12Welcome everyone to the information's TITV. My name is Akash Basricha. It is Tuesday, February 3rd. We have got a lot of news to cover. Elon Musk's empire is consolidating. SpaceX is acquiring XAI. The information exclusively reported Monday that the deal valued XAI at$250 billion. We will break down the mega merger with our reporters and with a top analyst. Palantir reported 56 % revenue growth in its quarterly results for the year, and it expects to accelerate growth in the current year. We will break down those numbers for you. And finally, we have a second go at the Disney succession saga.

0:54Disney is naming Josh DeMauro as its next CEO, set to replace Bob Iger on March 18th. We will unpack the news with Martin Piers, our co-executive editor. It is a big show, so let's get right on into things. SpaceX and XAI's mega merger is very much sending ripples through the space and AI sectors, and we are all trying to still piece together how the new entity will operate as a unit. My colleagues late last night published an inside look with a ton of exclusive reporting on how the deal ultimately came together and how investors in both companies are feeling about the transaction. I want to bring on Corey Weinberg and Theo Waite to help us break it all down.

1:34Corey and Theo, welcome back to the show. It's great to have you here. good to be here okay cory let's start with you how did this deal ultimately come together well akash when you have the largest deal of all time being executed by uh two companies with the same controlling shareholder uh let me tell you it's not the kind of deal where you're gonna have you know uh private equity style analysts and bankers hunched over their laptops in a room trying to make the deal math work. This deal came together pretty quickly. As I said, there's the same controlling shareholder in both companies, not a huge negotiation to go down.

2:14And it went down pretty quickly. This deal was only sort of written about and whispered about five days ago. And here we are. Theo, walk us through the financial profiles of both of these companies. They're kind of in different scenarios. Yeah, I mean, you know, SpaceX has a real business at this point in the form of Starlink, which throws off a bunch of money already and is growing quite fast. XAI doesn't really have a business yet, so they're in totally different situations here. And, you know, I think it's pretty clear that this was the best way to get a bunch of money to fund XAI. try and Cory I mean let's talk about the investors in these two companies other than Musk is it kind of a similar group of people that are backing both SpaceX and XAI are these two different groups you know I'm sort of trying to figure out who the winners and and maybe less winners are in a deal like this yeah I think um I mean SpaceX has a humongous cap table it's been around for nearly a quarter of a century.

3:23And, you know, the folks that have, the firms that have made a ton of money off of SpaceX already certainly have double dipped into their musk pot and are also invested in XAI. Names that, you know, we know and love like Fidelity, Valor, Andreessen Horowitz, Sequoia, have invested in both. Notably, two of SpaceX's largest backers, Founders Fund and Alphabet, we don't believe have invested in XAI, which is somewhat interesting. But look, the reaction we heard from investors yesterday and in recent days was a bit of skepticism if they are only investing in SpaceX. You had this very clean, neat story of this dominant rocket company headed toward IPO, throwing off cash, really hitting its stride.

4:19And now you dilute not only the stakes of the SpaceX investors, you dilute the story a little bit. So, you know, Musk is a master salesman. I'm sure he, yeah, we already know he's talking about data centers in space and all that stuff. Theo, do we know anything about how these companies are actually going to work together? I mean, synergies in a deal like that, that's the word that everyone likes to talk about. Are there synergies? Are they going to use the Colossus data center? How's it going to work? I mean, like Corey said, the long-term narrative is that data centers in space are going to power XAI and power a bunch of other things and revolutionize the world in the long term.

5:04But in the immediate term, it is kind of weird, right? Because you have XAI, which runs a few data centers that are powered by gas turbines and the power grid on Earth, like very conventional kind of data centers. And then you have X, and that's getting mashed together into a space company. It's quite strange. One piece that we had in the story that is new is that they are looking at ways to have XAI's data centers in Memphis interface with the initial versions of the data centers in space that they're hoping to launch, which would entail constructing, like, a SpaceX ground station near Colossus, which is their first data center in Memphis.

5:53But, I mean, look, there's really no, there are really no, like, super obvious synergies, to use that word here, that are going to immediately go into effect. Like, I don't think we're going to see, you know, the XAI office lease and everyone moves into SpaceX and has the same HR person or something. Like, it's not a traditional corporate merger in that sense. Corey, from the IPO's perspective, you know, I'm trying to think of companies that have given such a long-term vision, you know, high in the sky sort of goal around what they're going to build. I mean, are there any parallels that you can think of here?

6:36I mean, this is very much an Elon Musk IPO in some ways. I mean, I just wonder if it reminds you of any of the previous companies that have gone public. It's in a league of its own, really. I mean, there's plenty of speculative IPOs. You know, we have the whole SPAC wave. You know, an IPO is often a time where, you know, companies can talk about their biggest dreams. And in this case, like what SpaceX has is it has Mr. Musk, who has really the entire capital markets sort of with his grip. Because, look, he's done it before. He has built the largest electric car maker in the U.S. from scratch. He's built SpaceX, which dominates space from scratch.

7:24And he's made a lot of people a lot of money. So right now, no one's really, you know, the heavy Musk skeptics are a little bit quiet. And Theo, yeah, go on. I was going to say, I think the precedent here is not another space company, is not like a telecom company or an aerospace company. It's Tesla, which is the other Elon Musk company that's public. And when you think about the type of people that own Tesla shares or think about the company, like there's one subset that's like this is an electric vehicle company that's in decline and should not be worth very much money. And, you know, you should go and invest in BYD or whatever instead because they're going to eat Tesla's lunch.

8:10But then there's the other group of people that think about Optimus and Robotaxi and these futuristic plans that Elon talks about that, you know, don't exist yet inherently. and there's plenty of people that buy into that vision and put a huge premium on the stock because of that and SpaceX, you know, clearly the narrative that they put out in this press release about XAI you know, they didn't even talk about Starlink hardly at all in that story I mean, they did a little bit in the blog post but it was really all about data centers in space and so they clearly want the same kind of people that buy Tesla stock because of Optimus to be buying SpaceX shares they don't want the people that are going to compare it to Comcast or whatever, or Boeing.

8:52They want the futuristic true believers. Right. They know their audience. One more question for you, Theo, and maybe Corey, I don't know if you have thoughts here, but was this Elon's plan all along, do we think, Theo, to merge these entities from the people you talked to? I mean, did he have this vision from the outset? I mean, if that was the case, he did an extremely good job of hiding it. I think very few people were talking about this being a possibility, even people that are close to him and should know. I think it was more of a near-term realization that's the best way to fund XAI and to have an AI sheen on the SpaceX IPO, potentially.

9:38I don't know. I'm curious what Corey would think. right uh i guess yeah i mean i think just looking at it logically this was him cashing in on what is spacex's kind of peak vibes moments to you know sort of really help stabilize the company that is in the tightest race with well-funded competitors in in xai with anthropic and open ai um you know spacex is is sort of at its at its peak right now starlink business is maturing it's growing fast. It's pre-IPO. It dominates the rocket launch business. And so, you know, you can pull this off without too many people pushing back. Right. Well, Theo and Corey, I want to thank you both for coming on.

10:23That is Theo Waite, our Elon Musk reporter, and Corey Weinberg, our Deputy Bureau Chief of Finance here at The Information. Okay. For more coverage of the SpaceX XAI merger, I want to bring on an analyst that knows the cable satellite and telecom industries very well. Craig Moffitt is co-founder, partner, and senior analyst at Moffitt Nathanson. Craig, welcome to the show. It's great to have you here. Hi, good to be here. Thank you. So, Craig, I want to understand, look, if Elon Musk wasn't in charge of both these companies, this merger doesn't happen, right? I mean, let's be clear about this.

10:57Oh, that's absolutely the case. There's the industrial logic for the merger, which they're suggesting now has to do with with data centers in space and that sort of thing is pretty thin, to be honest. This is really good news, I suppose, for XAI, but you're dragging SpaceX into this. And it's simply not a terribly compelling idea from the SpaceX side. So then I guess the question is, then why? I mean, is this Elon? I mean, this is capital, really. I mean, XAI needs capital. We know that SpaceX has a handle on that capital. I mean, that seems to be the only reason to do this. That's the only reason.

11:44Look, I mean, SpaceX has turned free cash flow positive from what they say. I want to caveat that by saying we haven't seen financials for the company yet. So we're just going based on relatively thin reportage. but the company is supposedly doing one to two billion dollars of positive free cash flow a year and now they're merging it with an xai that's burning through a billion dollars a month so it's a rather sort of obvious capital play to benefit xai but again it's not exactly clear what the benefit is to to spacex right now in terms of valuation and i i say valuation because when we think of multiples, I mean, what is a multiple in an IPO like this for a company like this?

12:35It's sort of, you know, it's not necessarily rooted in fundamentals. But when it comes to valuation, what impact do you think this merger has on valuation? It doesn't help. You know, I think at the end of the day, there's probably still a lot of appetite for anything that is SpaceX related and the Musk name still carries real value. But for the investors that we speak to that were involved in SpaceX already, there's a lot of grumbling about this is not really what they wanted. The bulk of the asset is still SpaceX, to be clear. And so this is not a showstopper type of decision. It's just, it's a frustrating one, I think, for a lot of the investors that we've spoken with.

13:29And so if we focus on the SpaceX side of this business, we had the news earlier this week that they have submitted their application. They want to put a million satellites in outer space. They've submitted the application with the FCC. see, we've talked on the show about how I think there's only something like 25 ,000 satellites in space right now. And so this would obviously be multiples more than that. When you see that, what's your reaction? You know, so first I would say, look, remember the core businesses of SpaceX up to now have been the Starlink business for broadband access. That's how I originally started to get involved in analyzing the company was because of my coverage of the broadband business in the U.S.

14:18and then ultimately globally. And then the rocket launch business. You know, first, and I would say the coverage of the data centers in space is provided by my colleague Nick Del Deo, who published a report this morning with Chris Che and Julie Shoup, where they just kind of, I wouldn't say poured cold water on the idea because I want to be clear, they're not dismissing the idea of data centers in space, but I think there's a lot of very superficial analysis of data centers in space. They published a rather in-depth report about it two weeks ago or something like that. And then a report this morning in response to yesterday's FCC news.

15:09And, you know, just a little bit of reality checking here. If you're talking about based on the expected weight of these satellites, maybe being able to do 60 of them per payload of a starship rocket. So if you were to get up to a million satellites in orbit, and remember these things have a five-year useful life, which means you're deorbiting 200 ,000 satellites a year. They're coming back into the atmosphere and burning up essentially or being deorbited and taken out of useful life. So you have to replace them with 200 ,000 satellites a year. 60 satellites per per payload uh and 200 000 a year means you're you you have to be launching nine rockets per day in order to sustain the the constellation even after it's built that's a that's just a staggering number right um if you think about the reuse statistics for a um for the Starship rocket, and we've only gotten one booster stage so far that's ever been reused successfully, you'd have to get to both being reused.

16:28But if you assume that they last for 100 launches each, which is the hoped for reusability rate, you're still talking about 30 new Starship rockets as launch vehicles every year, and again, nine launches a day. So it sort of puts in perspective, this is really, really difficult and I would argue improbable. The idea that space-based data centers are fundamentally cheaper is probably not actually correct. My colleague Nick Del Deo's work suggests that while the cost structure is quite different, there's obviously a lot more cost in the rocket launching process and getting them into space. less on cooling.

17:19Although, by the way, just the fact that it's cold in space does not mean that you don't have to cool the chips. That's a common misnomer. But the cost structure is different, but not actually all that much cheaper. The costs actually turn out to be, based on the work that he's done on CoreWeave, to be pretty similar. So, Craig, last question for you. You cover the space sector at large. I mean, do you see this ushering in a broader wave of space IPOs that follow SpaceX? Yes, I think that much is clear, not necessarily because of the data centers in space opportunity, but the opportunity for space in general is real, right?

18:07Right. There's no mistaking that Starlink as a business has a real place in the broadband ecosystem, especially in in parts of the developing world where there simply isn't the wired infrastructure to provide satellite communication. There are going to be competitors to Starlink. Right. I mean, Amazon Leo is is the one coming from here. But for geopolitical reasons, you're going to have them around the world, especially coming out of China. The rocket launch business is a real business. You've got all kinds of security businesses and military businesses and drone management systems and all those kinds of things that are being launched.

18:50And absolutely, there will be real businesses in this sector that are going to be launched over the coming years. And you're going to hopefully see some IPOs of those businesses. And who are the names that you're watching? I mean, just give us a couple names that you're watching closely. Well, right now, I think that space is utterly dominated by SpaceX. And if you're a satellite company, they're sucking all the air out of the room. And clearly, if you do see an IPO from SpaceX this year, the amount of capital that you're talking about, people are saying a$50 billion IPO is an extraordinary number.

19:30That's just the amount of the IPO, not the valuation, obviously. So that's an extraordinary number. So I don't think you're going to be seeing IPOs right around the corner yet. I think you'll probably see them be a little bit further down the road. Great. Well, Craig, I want to thank you for coming on. That is Craig Moffitt from Moffitt Nathanson here on TITV. Okay. Palantir reported its quarterly results. Revenue grew 56 % for this past year. The company is forecasting at least 60 % growth for the current fiscal year. I want to bring on Brent Phil, Managing Director of the Tech Sector Research Team at Jefferies to help us break it all down.

20:12Brent, welcome to the show. It's great to have you back. Thanks for having me. So what stood out to you from this quarter? I'd say acceleration, an incredible commercial business. I think the margins are obviously off the charts when you think about what's going on across the industry. So usually you can get high growth, but it comes at a cost of margins. And you see this in companies like Snowflake and others that don't have big margins. But what really stands out is just incredibly high growth, incredibly high margins. And as Dr. Alex Karp comments, the CEO, that it's rare to have both spinning at the same time.

20:53So I think they've caught a little bit of lightning in the bottle as it relates to their platform. They're obviously resonating really well with the commercial businesses. The acceleration and the cash flow growth is exceptional. And I think clearly every software CEO we talk to is talking about them being kind of more of the envy of what they want to become. Mark Benioff at Salesforce talks about FDs and having forward-deployed engineers. That's kind of the new talk of the town. So Palantir's really set the pathway they've led. They've done a phenomenal job on the fundamentals. And I'd say the other thing is they were incredibly calm.

21:33Usually they're throwing spitballs and snowballs at everyone's head on Wall Street. He was more reserved, I think, focused on the quality of what they're producing rather than it being a pep rally with cheerleaders and them with Zingers shooting everyone on Wall Street. So that really stood out. Why do you think he opted for that approach this time? Well, I think probably for the last 17 ,000 calls in a row, he's had some choice words for Wall Street and said that no one believes and we proved everyone wrong. And he sounds like he's the victim. You know, and I'm just like, look, you know, stop being defensive and just get on offense and play your game and say, look, we had a great game.

22:21Here's our numbers. Like, the numbers are the numbers. Wall Street's smart enough to figure this out. He doesn't need them to chase them away. So I think that was a good change of behavior. He certainly can't help himself on certain comments, but I'd say he was a lot more reserved. And as we said in our title of our note, it was a humble confidence, which I think everyone felt like that was a good change in town. When we had you on our show six months ago, this was two quarters ago, we were talking about where the growth was coming from. And one of the things that you mentioned at that point is you said a lot of the growth is coming from inbound customers right now.

23:04They don't even really have a traditional sales and marketing team the way that maybe other software companies had built it out. And if I remember your comments correctly, you said, imagine if what the company could do if they had a more traditional sales force. Is that still the case today? It is. I think they talk about the traditional software world was a steak dinner and golf and all those great things. And they don't need that. what they need is a great product and it's basically inbound where you know joe or cindy who are at xyz company are having a result that's that's a better viral sales model than than someone on an outbound sales call so i think you know this concept that they've had which is don't focus on the traditional sales model focus on the quality of the product you know it's unique right it's paid off i mean there are other companies like elassine who tried this for a while uh and then you have to hire salespeople to kind of shepherd things along.

24:04But yeah, I think you go back to, I think, you know, my dream list for them was always, can they take a very complicated technology and dumb it down and make it for the mass market? I think they're proving that they can do this. The Tesla model, right? When the first Tesla came out was kind of the analogy I had, which is how do you bring it to nurses and creative professionals and, you know, plumbers, right and now you're seeing that the entire world can drive a tesla because the costs are lower i think the second was creating more humble senior management team i think they're starting to do that and the the third is um the go-to-market piece i don't think they've fully sold but i think that ultimately they the product quality is speaking for itself but again like i said if you had that individual with a with a supported ecosystem of system integrators you think about uh what they could do um would be magical and again i don't think they have that because he constantly bashes how bad their sales team is he's done it for almost every single call that i've i've listened to and he did it again uh and made some comments about you know last night so yeah i mean i think they're there's still room for improvement and which is pretty incredible given the numbers they're putting up.

25:21But if I was them, the number one advice I would have is stop saying that you have a crappy sales team and start focusing on who's your right go-to-market leader, who are these people, who are the system operators, who's the supporting channel that's going to really help you because it's going to catch up to them at some point, right? You can only play that playbook for so long and you're going to need that. So we believe that's going to happen. What do you think is holding them back then from building out that team? I mean, talking about the challenges here, obviously the backdrop for software stocks at large too is that we see that even numbers that are great in some cases, I'm thinking about ServiceNow, right?

26:04Investors think that the stock has gone too far and they bring you down really quickly. What do you think are the challenges here for the company? Well, the challenges for Palantir are really, I mean, the stock is the multiple. I mean, the multiple trades at twice the multiple of any other software name. The most amazing companies like CrowdStrike, Cloudflare, you know, multiple, we've said this is the problem. The reason why a stock is only up 5 % right now and is off the 52-week high, which is over$207 a share, and we're at$155 is the multiple. And so that's nothing— The narrative. If they can't keep the narrative intact, then that's when multiple starts to come down.

26:45Yeah, I mean, I think, look, the entire software industry is melting right now because of the advent of Cloud and OpenAI and that it rewrites the entire software framework. I'm not saying that that's right, but that's what Wall Street's creating. So the entire multiples cross off software falling out of the sky. So what we're saying is like their multiple is going to stay at the highest level ever because they don't face any risk for AI, that they've embraced everything in AI and it's amazing. So I think, you know, the reality is the industry is under duress. Like how can your multiple stay where it's at?

27:19So our issue has never been fundamental with Palantir. We love the fundamentals. Our issue is, you know, we've seen this movie before at Snowflake, Day Dog, you go through the list. Investors that chase these dreams at the top got ran over. And so from a financial perspective on the multiple, the biggest issue is really the multiple. The second is, is the same concern about OpenAI Salesforce and Adobe going to seep into this story, which is, if Anthropic can do all these things, why can't they do certain things that Palantir's doing? And I think ultimately there's a bigger barrier for software than we're talking about and we have time to talk about.

27:55But I think that right now it's multiple driven. then it's ultimately, can they keep the results going? And Wall Street hates the deceleration story. You know, the back half of this year is gonna be really difficult because the comps get really hard. They get really hard. And so at some point, without a good sales team and a good go-to-market leader and all the things that he likes to hammer on, can they keep that growth rate going? And maybe they can. The other challenge is, he said he's gonna take a headcount lower at the company. He's gonna take the headcount from a peak down 1 ,000 heads and increase the sales by 10x, I will bet there's no chance that happens.

28:33I will bet any one amount of money that doesn't happen. So, you know, like he's put some pretty big mile markers out there where they want to hit. I don't think he'll hit that. He won't be 10x larger on a thousand heads lower. No chance, zero chance in my book. Well, like you said, I mean, the blessing and the curse of putting up big numbers is that it makes it a lot harder to live up to them. There are not a lot of challenges right now other than the multiple and can they keep the mo going. uh there's really not a lot going because right now the software industry doesn't have a lot going for itself i've never seen i've covered this for 25 years i've never seen sentiment this bad in the software industry i lived through the dot-com era through the cloud era through the client server i mean you saw i mean just just today the you know the emerging cloud index is down five percent and you have palantir putting up the numbers that it does i mean it's it's it has day by day it's it's slipping yeah i mean it again it's it's like what i think the worry everyone has now, are there going to be three or four defining software companies on the planet?

29:32And right now there are a hundred and maybe the 95 of those go away. That's the worry. And that's the way Wall Street's treating this right now, which is we're going to literally have Google, Amazon, Palantir, and a couple others left. And I hope that world doesn't happen. But I think the world and the view that Anthropic CEO is paying that we're going to have this just a few elite companies and then a bunch of really bad companies. I hope that doesn't happen. And I think everyone is starting to subscribe to maybe this world happens. That's not good for any of us. Let me ask you one more quick question before I let you go.

30:11So in a world where OpenAI and Anthropic go public then, and we don't know what's going to happen with their share prices, but the narrative is there certainly with those companies. I mean, do investors having exposure to those companies like that, does that mean a further drawdown in software stocks then? Could hypothetically, again, if the Wall Street Journal, which I think maybe you guys have reported like later this year, if OpenAI goes, Anthropic goes, I certainly think, look, those companies are eating my industry away in terms of stock valuations. And as they go public, the chance is that is there further erosion in the rest of market cap across the industry.

30:59Now, the reverse can happen, which is I think there's a lot of perceptions about what AI is going to do to enterprise software. And there's realities. And I think the perception, it's almost like a deep seek moment where everyone's like, everyone out of the pool. It's going to stink. The winds are coming, leaves are falling in the pool, and it's going to get ugly. And I don't know if it's that bad. And so we have to have the rest of the industry also put up good numbers and embrace this. I mean, my feeling is there's an embracement of what OpenAI and Anthropoc are going to do rather than trying to kill everyone.