Prof G Markets: ByteDance’s Black Box, Target’s Inventory Turnaround, and the Resale Watch Market

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1:22Welcome to Prop G Markets. That's the other podcast. And I just found out that you and the team want to pre-record two shows so you can take Thanksgiving. You don't have Thanksgiving. You're British. You have like Boxing Day or celebrating the Queen or whatever it is you do. Well, I do celebrate Thanksgiving, and I'm looking forward to it. Yeah, let me guess. You don't put on Thanksgiving. You Bogart off of some generous family that, oh, he's such a nice British kid, and he went to Princeton, which means he's safe. Bring him over. I'm doing it with my family. Going to see my sisters in California, yeah.

1:51Going to San Francisco, it'll be great. Now I feel bad. Does your sister have kids? Yeah, that's right. Does your sister have kids? No. And where do they live in California? My sister just moved to Palo Alto because her husband just started at business school. And my other sister is in San Francisco. Is her husband at Stanford? Oh, good. So when podcasting finally hits the rocks, you can go move in with them. He's going to be successful. He's going to be good. That's right. What are you doing, Scott? I'm going to be in Florida. We had rented our house out in Delray Beach to this guy who started a company that SPAC'd.

2:26And he basically skipped town and fled to Australia. So we have our house back. So we're going to go have Thanksgiving in our home in Florida. And it'll be nice. My sons will get to see all their friends and we'll get to see our friends. I love Thanksgiving. We were actually, we had a company dinner last night and the rumors floating around that you want to move back to Florida. I'm just struggling with London weather. I didn't realize what an impact it would have on my mood as in I can't wait to leave all the time. I love, I love the UK. I love British people. I love the Premier League, but I just can't handle the winner there.

3:00And I'm on planes a lot. I'm in Florida right now for this Live Nation speaking gig, and I've got MasterCard in a week back in Florida. I'm just on planes a lot again, which at my age is just not what you want to be doing. So I'm thinking about in two or three years when we move back to the U.S., when hopefully my oldest gets into college and my youngest is thinking about high school. But where would you live? Well, I think you should move to New York. The thing about New York, this is the problem, is my son. I don't, for some reason, him in high school in New York kind of intimidates me. I feel, and to be fair, the kids I know who were born and raised in New York are actually shockingly well balanced.

3:39I just, I don't know if I want to give them a high school experience in New York. I feel like the people who raise their kids in New York, or most of them do it because they need to be in New York because dad or mom has a big job there. but I think kind of high school should be, I don't know, somewhere else, I think. Anyways, enough of my moving. Ed, get on to the headlines. Let's start with our weekly review of Market Vitals.

4:09The S &P 500 climbed through the week and had its best day since April. The dollar fell, Bitcoin was volatile, and the yield on 10-year treasuries fell. Shifting to the headlines. The Consumer Price Index showed inflation fell to 3.2 % in October, down from 3.7 % the month before. Stocks rallied broadly on hopes that the Federal Reserve has won its fight against inflation and will not raise rates again this year. Meanwhile, UK inflation slowed to 4.6%, down from 6.7 % the month prior. That's the country's slowest rate since October of 2021. President Biden met with China's Xi Jinping, sowing more optimism in the markets that the country's economic ties might be improving.

4:49Stocks that rely heavily on China for production and revenue posted strong gains after the meeting. Catalant, which makes the syringes used to deliver Ozempic, forecasted its production capacity for syringes will be booked out until fiscal year 2026 due to demand for the weight loss drug. The stock rose 13%. The PGA Tour is offering equity ownership in the league to its professional golfers. Commissioner Jay Monaghan said the tour will be stronger if players are, quote, more closely aligned with the commercial success of the business. As we covered in a previous episode, the PGA is merging with Live Golf and the DP World Tour.

5:26SpaceX is reportedly exploring an initial public offering for Starlink as soon as next year. According to Bloomberg News, the company has been moving its satellite business into a subsidiary, but Elon Musk posted, quote, false on X and did not elaborate. And finally, we've got one more headline that broke after our regular recording. So I'm coming to you now from my home in Brooklyn. OpenAI's board of directors has ousted CEO Sam Altman from the company. In a blog post, the company said, quote, Mr. Altman's departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.

6:06The board no longer has confidence in his ability to continue leading open AI, end quote. The company's chief technology officer, Mira Marathi, will serve as interim CEO. For more on this developing news, check out our special episode from the weekend. So we predicted last year, and this is when we got right, that inflation would fall as fast as it had accelerated. And 3.2%, I mean, we're bumping up against the Fed's target of 2.5%. I thought the more exciting news was actually that inflation was coming down in the UK where it had been frighteningly high. I mean, people don't understand. Inflation starts revolutions because inflation, you get reminded every day.

6:48You go to Kroger's and you have your weekly list of groceries. And this year, it's 180 bucks, not 130 or 140. I mean, it just hits you every day and you get angry and you start blaming. You can't help it, but you blame the current leadership, whether it's their fault or not. So inflation is always an existential threat to the current people in power, mood around the country. So I'm thrilled to see it come down. Also, the markets are ripping because everyone thinks, well, maybe we're going to get the punch bowl back. And that is non-market, artificially suppressed interest rates that make borrowing money and buying stocks and bidding up stocks part of kind of standard operating procedure.

7:29So the markets just began to rip, especially the growthy stuff that's highly dependent on low interest rates because they need money to finance their companies because they're losing money to finance this incredible growth. So it's less expensive to finance this growth. And the cash flows that the market discounts back that they're expecting in the future get discounted back at a lower rate, all adding up to this enterprise value that increases dramatically in a low interest rate environment and decreases dramatically when interest rates accelerate. All right. So this is probably the biggest news of the week.

7:59By the way, do you want to hear my 10 Downing story, Ed? Do I have a choice? True story. I got contacted by a special advisor to the prime minister and said, we hear you're in the UK. We'd like to put you on some sort of advisory board around tech or media. And I got very excited, bragged to my kids, put on a suit and tie, drop everywhere that I've been invited to 10 Downing. I roll up in my Uber Lux, because This was a big day for me. I bomb out. There's a huge crowd outside of 10 Downing. I cut past the line. I'm like, I'm sorry, I have an appointment. And I go up to the security guard and all the machine guns.

8:32And they say, ID, please. And I get my ID. And he's like, I'm sorry, I don't have you down on the schedule. And I'm like, you know, of course, I turned into the real Scott, which is an arrogant prick. And I'm like, well, you need to check your list again as I have an appointment here. And again, he's like, I'm sorry, you're not on the list. So I called the individual who set this all up. And she picks up the phone. And she's like, oh, my God, I'm so sorry. We have big news today. I guess David Cameron's back in government. They sacked a bunch of people. It's like, I forgot to call you. We're not meeting with you.

8:56And I'm like, no problem. Got back in my car and took off and had to go back. And I walk in and everyone's like, what was it like? Did you meet the prime minister? And I'm like, no, they didn't have me down on the schedule. I'm back at home. Anyways, that was my brush with UK greatness. By the way, sorry, just on the inflation point, I think we should mention that, you know, UK inflation is coming down. But if you look at food prices, food prices are up 10 % year over year. Was energy that brought it down, right? Exactly. It's the energy prices that are down. So if you think about it from an actual UK consumer experience, the UK still has a ton of work to do on inflation.

9:36Yeah, no doubt. But it was crazy town. I mean, the UK had this, well, there's peanut butter and chocolate is a good thing. I don't know, nitro and glycerin or, I don't know, spinach. Spinach I don't know what's something else that's bad, beats or something, combination of high inflation and low productivity. The UK is the only nation in Europe that hasn't grown in five years. 90 % of their IPOs over the last 10 years are below their offering price. And when you look at the assets the UK brings to the table, a democracy, incredible universities, a massive amount of capital, really impressive education system.

10:15And the entrepreneurial culture here, I would argue it's here, but it's mostly around serving other rich people. It just makes no sense that this country wouldn't be, quite frankly, booming in an information-driven economy. But they said, I know, how can we elegantly fuck this up? And they managed to do it with Brexit. And also, this head-up-your-ass economic policy is where the last prime minister said, I know, let's cut taxes on the wealthy, but they can't print money the way we can. So the market said, sorry, that's a really bad idea. Yeah. So the UK has a story of snatching defeat from the jaws of victory, just like the English national team in World Cup.

10:49But anyways, don't cancel meetings on me, 10 Downey. How embarrassing is that? How embarrassing is that? I just, I'm trying to imagine that moment where you like got the call and then turned to the security guard and you're like, oh yeah, yeah, actually you're right. I'm not, I'm not on the list. Oh, never mind. I didn't even say anything. I just literally, literally slithered away. I just, you know that Homer Simpson's meme where he like goes back into the bushes? I just, I couldn't even look him in the eye. I just like kind of like stepped back and looked away. I was like a dog that's been caught in the trash.

11:19Like they won't look at you. If I don't look at him, my man, you know, if I don't look at him, he doesn't exist. Been trying to get into a nightclub. Anyways, awful. Oh, I've done a lot of that. A lot of that. I have friends inside. Xi Jinping. Xi and Biden meeting is really good news because effectively the largest tax cut in the world right now would be if the world's largest and second largest economy is kissed and made up and said, all right, our IP, our innovation, your manufacturing might. Let's, you know, let's boogie together and cool things down. And I think they see, I think they both have a mutually vested interest in kind of re-embracing, if you will.

12:00And so I think that's, I think the market in the world really likes to see that. Can I just, sorry, I just want to point out one other thing on China. Oh, fuck, you're getting opinions. That really bothers me. Go ahead. Go ahead. Yeah, that's right. The other thing that they mentioned out of the meeting was the fentanyl crisis. And it's sort of a serious note. but I just I do really appreciate the fact that Biden is finally pressing Xi Jinping on the fentanyl crisis specifically the fact that all the fentanyl that's coming through Mexico is basically all being produced in China and they came out of that meeting with you know they called it an outline of an agreement of how they're going to address this issue and it's possible that it was just kind of a message to please voters like myself but in my view this issue just deserves so much more attention 77 000 fentanyl deaths in the past year i'm just glad that biden is finally recognizing it and addressing it publicly and apparently taking steps to prevent it like you said i hope it's real because it is we have people close to us here at prop g that lost family members because of fentanyl so it is you just here tragedy after tragedy.

13:07And so many, I mean, 77 ,000 is just insane. And the way the media reports on it, it's like, oh, 77 ,000 overdoses. It's like, these are not overdoses. This is just, these are poisonings. It's like biochemical murder, basically. Biowarfare is one way to look at it. That's really interesting. Yeah. Just moving on, Catalent, we got to give props to our analyst Mia Silverio. She called this. She found, And I tasked the team with saying, what are the outer rings of the Ozempic economy? And she found these two companies that are suppliers and said, these are probably good buys right now. Their stocks have been hammered.

13:41And one of them was Catalan. And then literally a week later, the stock pops 13%. So let's give all our money to Mia. She should be a hedge fund manager. The PGA Tour, this is smart. It's good business practice to give the people driving value in your company. Make them, if you want people to act like owners, you got to make them owners. and them saying to their best athletes or basically to everyone, here's a small, here are options on equity in the league. That's just smart. Silicon Valley really did kind of pioneer this whole notion that you should give equity or ownership to everybody. It just didn't used to be like that.

14:14It used to be just the senior management. And I mean, even just here at Prop G, I don't think this is the kind of company that gets sold, if you will, but we make good money and media is a great business. So we have profit sharing. And the result is, you know the people feel like owners and they don't take massive amounts of time off around key holidays like thanks oh wait never mind never mind never mind scratch that scratch that anyways spacex look you know i don't like the man starlink is a juggernaut this thing would be a monster just a monster i don't i don't know if it's gonna go public next year but when it does it's already built one of the best brands in the world.

14:56So I think it's going to be just enormous. And, you know, we'll see, but it is genuinely a 10x better product. Everyone I talked to that buys Starlink says this is a better product, even, and there's all sorts of commercial uses for it. I think planes are going to have it or commercial aviation is going to have it. But even homes in more rural areas, I guess you buy Starlink, it's pretty easy to set up and boom, me up lightning fast internet and broadband i'm so their expected to generate 10 billion dollars in revenue next year which is just huge and according to elon the company's now reached break even and that's a massive turnaround from last year when he said the goal was to quote not go bankrupt i mean he always says stuff like that but yeah incredible business and very lucrative investment probably believe it's the most actively traded private stock Or SpaceX is.

15:51Yeah, SpaceX. Whenever I get emails from those secondary market platforms, they list the most actively traded stock in the secondary market, and SpaceX is always at the top. We'll be right back after the break with a look at ByteDots.

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17:16We're back with Proftree Markets. Reporters from The Information obtained new financial data on TikTok owner ByteDance, and the numbers showed the Chinese company is continuing to grow. Second quarter revenue surged more than 40 % to$29 billion. That growth rate was far higher than competitors. Meta's revenue, for example, rose 11 % in the same period. The new data was also broken out by region and showed sales from outside of China accounted for only 20 % of the company's total revenue. Since TikTok is not available in China, its Chinese equivalent is another ByteDance-owned app called Douyin.

17:53That means TikTok generated at most$6 billion in quarterly revenue. Scott, we've discussed ByteDance and its dominance before. Any reactions to this newer data? I mean, the shocking thing here is how little revenue, as a percentage of their total revenue, they're getting from, reportedly getting from TikTok abroad. And I wonder if that's their attempt to say TikTok is not the juggernaut that all of these pundits are saying and it's not that big a company and you don't need to worry. I just wonder, are these numbers bullshit or are they just numbers that they make up to try and thread the needle between ensuring this company is valuable if and when it goes public, but reallocating the revenues to places outside of the U.S.

18:39such that it doesn't raise, you know, raise the suspicion or inspection of U.S. regulators and media here? What are your thoughts? Yeah, I guess the thing that annoys me is this is one of the biggest social media apps in the U.S. and in the world. And it is a reminder of how little we know about ByteDance and how little we know about how it makes money. And it just feels so dangerous because, you know, one of the great benefits of having a publicly traded company is just the fact that you get general disclosures. Like, we know how Meta makes money, so that enables us to know what questions to ask.

19:18And more or less, it helps us figure out how to regulate it. But ByteDance is this total black box. So I guess my question to you would be, do you think the U.S., before we flat out ban the app, as people have been talking about, do you think we should be putting more pressure on China and on ByteDance to start releasing some semblance of regular financial disclosures? Or is that just a lost cause? Yeah, good luck with that. I think we ban the app. And I think under the threat of the credible threat where we actually are on the eve of banning it, I think they probably say, well, you know, OK, we'll spin it out to U.S.

19:56interests or, you know, put the servers all in the U.S. with absolutely no links back to engineers in mainland China. Until that happens, I don't know. I don't think you can trust anything that's coming out of a private company, any of the numbers that come out of a private company. I think Alibaba's numbers are real. When they want to monetize or want to access Western financial markets, they realize they have to play by the rules. And I think those disclosures have veracity to them. A private company, I think they just sat down and said, what would be best for the company and the CCP? Not in that order.

20:34But let's assume the top line growth of 40 % and the number, 29 billion, are real. What that means is based on recent private transactions where the company bought shares back from employees, that ByteDance is a great investment right now because the revenue multiple at Alphabet is 5.8. And by the way, that's down. Meta at 6.9. And ByteDance, it's 1.9. And ByteDance, according to this, is growing faster than Meta at 23 % and Alphabet at 11%. And again, ByteDance grew 40%. So the number in why this should be banned or spun is the following. The average minutes per day spent on TikTok versus YouTube versus Netflix for U.S.

21:16kids. Kids in the U.S. spent 52 minutes a day on Netflix. Right there, that's a problem. Jesus Christ, our kids are spending an hour a day on Netflix, whatever. I spent a lot of time on TV, probably more when I was a kid. YouTube, 77 minutes. I still think YouTube is probably the most under-recognized platform media company. People are so obsessed with Meta and Reels and TikTok. YouTube is taking share from TV like crazy. But then, wait for it, TikTok, 113 minutes a day. So if the CCP owned YouTube and Netflix, would we be down with that? The problem is that people of my generation who get to make the decisions and the people we elect and the people in the White House either are on TikTok very little or they're actually not on it.

21:59You're not allowed to be on it. And I think the problem is TikTok's hiding in plain sight. I don't think they understand just how good it is, how dominant it is. I think they're more of a juggernaut than people think. I think it's the only internet company in the world right now that is sandbagging its numbers such that it doesn't raise the alarm bells. And from an investment standpoint, if you had access to shares in the private market of this company, I would argue it's probably a pretty good value and that it being banned in the U.S. maybe has already been priced in. Yeah, do you think that's the reason that it's so undervalued?

22:32It's just there's like, it's all just regulatory risk? Yeah, I think that's right. Also, people don't know how to buy stock in the private market and there is some real geopolitical risk here. The big players, you know, the institutional investors, you know, they have such good jobs. They're kind of paid to just not get fired. They have such good jobs that do you really want to be the guy that came in at a quarter of a trillion dollars into ByteDance. And then a week later, Biden does ban it. That's how you get fired. But there's just no getting around it. It's trading at a substantial discount.

23:12The two big U.S. retailers Target and Walmart reported earnings last week. Target's revenue fell 4 percent, but due to tighter inventory management and lower costs, The company increased its net income by a whopping 36%. Shares rose more than 17 % after that report. Over at Walmart, it was a different story. Sales rose 5 % and earnings beat expectations. But the company also gave a cautious outlook on consumer spending for Q4, which slightly spooked the market. The stock fell 6 % after the report. Scott, this is all coming after a slightly weak retail sales report from the US Commerce Department.

23:49Retail spending is down in October. where it's the first decline we've had since March. What's your overall outlook on retail right now? So the most kind of seminal business influence of 2023 hasn't been AI or supply chain. It's been the year of efficiency. Begrudgingly, I have to acknowledge that when Elon Musk cuts the staff at Twitter 80 % and it still has, you know, it's still up, it's still running, most consumers wouldn't know. I mean, they might see more Islamophobic and drastically more anti-submitted content and more hate speech. I mean, it's definitely become the sewage system of a sewer.

24:24But in terms of the actual functionality, the fact it was able to cut 80 % of the employees kind of shows this company was pretty fat. And then Meta came in and said, we can get the great taste of lower costs without the calories of declining revenues, and we're going to triple our stock price. And the year of efficiencies is now extended to retail because if its sales aren't up, but its profits jumped dramatically, unless there was some sort of income gain that it recognized due to accounting, essentially that all leads to the same place and that is they have cut costs. So this was kind of the year of efficiency, it sounds like, for Target.