Prof G Markets: Fox’s Stock After Tucker Carlson, J&J’s IPO Roadshow, and Google and Meta’s Earnings

0:28Support for this show comes from Aura Frames. This deal is exclusive to listeners and frames sell out fast, so orders you now to get it in time for the holidays and support the show by mentioning us at checkout. Terms and conditions apply.

0:44AI agents are getting pretty impressive. You might not even realize you're listening to one right now. We work 24-7 to resolve customer inquiries. No hold music. No canned answers. No frustration. Visit sierra.ai to learn more. This week's number,$9 million. That's the record sum of college scholarships a New Orleans high school student received from 125 institutions. The student, who applied to more than 200 schools, has a 4.98 GPA, is fluent in Spanish, holds leadership positions in the National Honor Society, and two years into high school, started earning college credits at a nearby university.

1:23True story, the hottest girl from my high school came into my work today, and I don't like to brag, but we made out. That's the good news. The bad news? I work at the morgue.

1:44Welcome to Prop G Markets. That's right, that's why you come here. Today, we're discussing cable television, Johnson & Johnson's IPO Roadshow, and earnings from Google and Meta. I am cracking myself up. Here with the news is PropG media analyst Ed Elson. Ed, we experimented with AI today, and I thought it did an excellent job of AI-ing you or, I don't know, sounding like you. Really? I thought it did a terrible job. I sounded Australian. How did you find your voice? I actually thought it was pretty good, although the AI rendering of me just looks so fucking old and ugly. Oh, wait, it wasn't a rendering.

2:23For the fans out there, we're trying to figure out how AI might leverage our IP, and we might do some translating to different languages with the pods, etc., and came to the conclusion that, well, it has a lot of potential for us right now. We haven't figured out how to deploy it. What was your general thoughts and reactions, Ed? I think the best thing that we saw was the video editing clip AI, which basically just feed in our content and then it finds short little clips that you can post to TikTok and Instagram Reels, which we'll be talking about in a moment. But I thought that was probably the best implementation.

2:59The rest of it feels a little bit gimmicky, I'd say, at the moment. Yeah, agreed. Does anyone really want to listen to Scott Galloway AI just reading the news? I feel like, I thought Patrick, our video editor, made a good point, which is that I think people come to us for analysis, not just to hear the news. I mean, you can go to any news site for that. And unfortunately, I don't think AI is at a point yet where it can provide substantive analysis. And if it does, it's unlikely you're really going to trust it because it just gets so much wrong. Yeah, it definitely feels like it's totally void of whenever I've been experimenting with it a lot.

3:37It comes back totally void of any creativity or insight. As a matter of fact, I don't know if you saw, but on Wednesdays, Ed and Jason, our editor in chief, sent me a draft of our newsletter, at least key components of it. And I started editing and writing other parts of it. And the biggest insult I could come up with, because I thought it was especially weak this week, was this feels like AI wrote it. Yeah, it said, yeah, vanilla slash boring slash nothing. This sounds like it was written by an AI. Yeah, and what's interesting is I think the name generative AI is a bit of a misnomer. I think if it were more honest, you'd call it productivity AI.

4:14Because if you try and generate something original with AI, I don't think it does a job, but if you give it good content, as you referenced with this video, it can chop it up and disperse it and really elegantly zero in on good stuff. Anyways, enough of that. Enough of sharing our industry secrets here. Break down the news. Let's start with our weekly review of Market Vitals.

4:41The S &P 500 fell through most of the week before rallying on Thursday. The dollar also fell. Bitcoin remained below 30 ,000. And the yield on 10-year treasuries fell the most since March. Shifting to the headlines, LVMH became the first European company to reach a$500 billion market capitalization, and that's thanks to strong sales in China, as well as a strengthening euro. Disney is suing Florida Governor Ron DeSantis for voiding a deal that gives the company control over the design and construction of its theme park properties. Disney is alleging that DeSantis is waging a, quote, targeted campaign of government retaliation for opposing his law that restricts discussions of sexual orientation and gender identity in schools.

5:29First Republic earnings showed the bank lost more than$100 billion in deposits last quarter. The company said it's exploring a sale of up to$100 billion in assets to support its balance sheet, and shares hit a record low after the report, down around 95 % year-to-date. And finally, Microsoft beat on earnings with cloud revenue up 16%. Shares popped 7 % after the report. A day later, though, the UK antitrust regulator blocked Microsoft's$69 billion acquisition of gaming company Activision Blizzard. That should make it easier for US regulators to do the same. Shares of Activision fell 11 % on the news, though Microsoft continued to gain on its strong earnings.

6:12Scott, a lot there. Where do you want to start? Well, let's go in reverse order. So it's interesting that the market doesn't mind that Microsoft's acquisition of Activision is slowly falling apart. And that is because Aswath Damodaran points this out, the professor of finance at NYU Stern, that two thirds of acquisitions don't work. Two thirds of acquisitions end up destroying shareholder value. The temptation to spend a bunch of money and overnight just add water, have a big new business and have it be accretive is so intoxicating that the majority of CEOs talk themselves into acquisitions that usually they overpay for or the synergies they describe never materialize.

6:53And they also have a bias towards doing bad acquisitions because, well, over the long haul, it might take the stock price down. CEOs are compensated based on a compensation consultant comes to the board and says, based on the size of the company and the type of the company, this is the range of compensation. So the bigger your top line revenue as a company, the bigger your company, the greater compensation or expectation or recommended compensation. But Microsoft, you could argue, I think has probably been, maybe with the exception of Apple, the best managed company over the last decade, Sachin Adela has just built this, the ultimate recurring revenue relationship.

7:29They continue to be one of the three most valuable companies in the world. First Republic, it does feel like this is ring-fenced a little bit, that this is sort of the last vestige of the bad news. At least it feels that way. Supposedly, the next wave of bad news is banks that have a lot of commercial real estate loans, but analysts are trying to parse through which commercial real estate is the toxic kind, the office space versus malls and things like that. There's all kinds of different commercial real estate, whether it's a car wash or what have you. The Disney versus Ron DeSantis, Governor DeSantis thing, this is a bridge too far.

8:05This is this will go down to history, in my opinion, is the beginning of the end of his presidential run, because effectively the GOP, as I said, we are business friendly, that if a business is allowed to thrive and succeed in the private sector is given, you know, feel to run, that it can generate top line revenues and taxes that pay for your, you know, you Democrats social programs and our Navy. and it's just the private sector is where true capitalism lies. So they err on the side of being pro-business. And this just feels anti-business. He's going after the largest private employer, kind of one of the premier companies in the world, much less Florida.

8:46It also feels vindictive. You're supposed to, when you're elected to office, let bygones be bygones and pass laws that are good for the commonwealth but not engage in retribution and take out your political animosity or use the power of the office to attack your political adversaries. And this is what this feels like. It just feels as if, okay, I don't like Disney. They didn't support one of my narratives, political narratives, so I'm going to go after them. And he fucked with the wrong cowboy, specifically the mouse. And that is Bob Iger is much more disciplined. I think Disney will be in Florida a lot longer than Governor DeSantis.

9:26And Nikki Haley, who's also a candidate for president or for the GOP nomination, kind of summarized it and said that we welcome Disney to South Carolina. And while we are not woke, we are not sanctimonious. And so I am thrilled to see this guy stick his head up his ass. I think it's just good for Florida, good for America and good for the planet. Let's move on to LVMH. First European company to reach$500 billion. in the master of self-expressive benefit and perceived value is lvmh they take 300 worth of leather and artisanship and turn it into a five thousand dollar bag and when you create artisanship and give people the impression that no you can't have that birkin bag you have to order there's just too few of those twelve thousand dollar bags for you to actually go into a store and buy one we become obsessed with them and so to create the illusion of scarcity it's such an incredible skill that you can create a monstrously profitable company.

10:20And there's a lesson here. There's a lesson here. And that is the sexiest word in the English language is no. And the way I would apply that to our business is, and we try to be transparent here at Prop G, one of the ways we monetize all the work we do is through speaking engagements, mostly where the national cotton growers or I was at Adobe last week. The reason why I get such a batch of crazy fees is because I say no to 90 % of them. And I position myself as a luxury brand. And I have two prices, either zero or out of control batshit crazy price. Zero is for the nonprofits or people I know.

10:58And the out of control crazy price is meant to effectively say no to 90, 95 % of the people who inquire about our speaking. And it creates this illusion of scarcity and drives up the margin and perceived value of an angry professor with ED spitting expectorates and platitudes in between a speaker talking about, you know, how they climbed Mount Everest and found God or some bullshit. Anyways, scarcity is really something you want to understand. Because if you can create scarcity in your personal life, your professional life, you always want to leave a party a little bit early. You don't ever want to be the person that sticks around too long.

11:36You want to create a certain level of scarcity for yourself around your professional and personal brand. And I know that sounds a little bit obnoxious, but you want to be the person that leaves a little bit early. So yeah, a lot of news. But most importantly, most importantly, when you're talking about Ron DeSantis and Bob Iger, one person would be a fantastic president. The other is Governor DeSantis. That was good. No generative AI Prop G is going to come up with insight like that. We'll be right back after the break with a look at what Tucker Carlson's departure from Fox News means for the cable TV market.

12:12Stay with us.

12:35simplicity it's a reminder that a life doesn't have to be big to be meaningful that quiet endurance grace and decency are their own kind of heroism in a world obsessed with progress train dreams asks us to take pause and reflect on our relationship with loss nature and the need to belong and maybe that's the modern journey not domination or conquest but learning how to live with change grief and tenderness without losing our sense of purpose train dreams captures the tension between progress and preservation between the machines that build our world and the nature that still defines it. In a time when we're all searching for purpose, Train Dreams feels timeless because the frontier isn't just a place, it's a state of being.

13:15Train Dreams, now playing only on Netflix.

13:24Support for the show comes from Shopify. If you run a small business, you know there's nothing small about it. As a business owner myself, I get it. Every day there's a new decision to make and even the smallest decisions can feel massive. What can help the most is a platform with all the tools you need to be successful. A platform like Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10 % of all e-commerce in the U.S. From household names, including Mattel and Gymshark, to those brands just getting started. That's why they've developed an array of tools to help make running your small business easier.

13:56Their point of sale system is a unified command center for your retail business. It gives your staff the tools they need to close the sale every time. And it lets your customers shop however they want, whether that's online, in-store, or a combination of the two. Shopify's first-party data tools give you insights that you can use to keep your marketing sharp and give your customers personalized experiences. And at the end of the day, that's the goal of any small business owner, keeping your customers happy. Get all the big stuff for your small business ride with Shopify. Sign up for your$1 per month trial and start selling today at shopify.com slash propg.

14:28Go to shopify.com slash propg. Shopify.com slash propg.

14:43We're back with Prof G Markets. Last week marked a historic moment for cable news. Don Lemon was fired from CNN. A few hours before that, Fox News announced Tucker Carlson was out. That came just a week after Fox News agreed to pay a$787 million defamation settlement to Dominion Voting Systems after it falsely accused the company of rigging the presidential election. Meanwhile, NBCUniversal fired their CEO, Jeff Schell, after a harassment complaint, and ABC News fired Nate Silver, the founder of FiveThirtyEight. Scott, that's just a lot of stuff going on in cable. What is your macro take here?

15:22Well, on the cable side, I think it's really interesting. And that is everyone zeroes in on why Don Lemon and Tucker Carlson were fired. And I think it I wonder if it's an accident that the most partisan of these partisan networks was fired the same day. And that is Don Lemon is very partisan and Tucker Carlson defines the term partisan. And it just so happens that the most extreme anchor on both networks was fired within 48 hours. Now, there wasn't any coordination here that the firms and their executives hate each other. But also, this is really about structural decline in the ad supported market.

15:56While Fox grew, it didn't grow a lot. And CNN is actually in decline. Bad behavior or something they don't agree with and good times, they overlook it. When things are not good, people are looking for reasons to fire you, especially when you're probably making a shit ton of money. And also the real lesson here is that people will always inflate the ratio of their importance to the platforms. Shelley Long decided she was too big for Cheers, as did McLean Stevens for MASH. They decided they were going to be big movie stars, right? Money Pit, true Beverly Hills, right? That's what Shelley Long went on to.

16:30And this happens every day in the corporate world. And that is someone is killing it, a Goldman or a McKinsey or KKR. And they think, wow, I'm going to bust out and I'm going to be huge. And what they realize is they underestimate how powerful the platform was. Now, query me this. What former anchor at Fox has gone on to do anything? Is it Glenn Beck? Is it Megyn Kelly? Is it Bill O 'Reilly? I mean, who is it? Who's got it? Lou Dobbs. Anyone here from Lou? So these platforms are incredibly powerful. And the Murdochs, Rupert and Laughlin know this. And they just decided we're sick of this guy's shit, I think.

17:09And we don't need to put up with it. Here's an interesting thing that happened to Fox Corporation stock. So when the Dominion lawsuit was announced, or when the settlement was announced, the stock barely moved. After Tucker left, Fox lost around$700 million in market value. It's since stabilized, but it's down around 4 % since that announcement. So in other words, the market believes that Tucker is worth around$700 million to this company. My question to you is, is he that valuable? Well, what's interesting is how the market perceives bad news. And that is, they see some bad news is different than other bad news.

17:49And that is, a settlement of$800 million, they don't mind as much because while it's a lot of money, it's the known. All right, we have the cash. We have three or four billion, so 20 % of our cash out the door, and then it's done. We're over. We've absorbed it. The market knows what happened there. We're back in action. Losing your premier host, the 8 p.m. hour, creates insecurity. The market doesn't know if they're going to be able to replicate this sort of I'm a racist, but 8 p.m. hour with Tucker Carlson. And that is, that was good. That was good. You're going to get that in a few minutes, Ed.

18:25I got it. That's good. Anyways, but the market has a more difficult time processing that. There's more unknown. The market hates unknowns. And so it would rather pay out$800 million and have it be done and we're back in business than not know whether or not Fox is going to be able to bring the same type of success at APM. Our editor-in-chief, Jason Stavvers, pointed out something really interesting, and that is he doesn't think it's going to be as big an economic drain as some people might think because Tucker was so controversial, i.e. disliked by so many corporations and people, that a lot of advertisers would not advertise on his show.

19:01So Jason's thesis is that it won't be as big a revenue hit. I'm saying that I think that APM time slot on that platform is more important than Tucker, and they're going to be able to build somebody's brand. Maybe they won't be as successful as Tucker, but it's about the APM slot, and it's about the platform Fox more than it is about the individuals. So I think they're going to be just fine. And I can bet that everybody is putting on their best dress and saying, hey, wouldn't I look good in that 8 p.m. hour slot? And just a final piece of data here. We're talking about Fox's advertisers. In 2021, the biggest advertisers that were not owned by Fox Corporation on Fox News were Balance of Nature, which is a supplement brand I've never heard of.

19:46Does it keep you regular? Because maybe I should look into that. Seriously, you get to my age. You know, you just, you really look forward to the sit down. I'm sorry. Continue with your data about Fox. Go ahead. Oh my God. Go ahead. A veteran mortgage lender. And finally, MyPillow, which is a pillow company. So that's your advertising quality. Yeah, there you go.

20:18Johnson & Johnson is preparing to spin off its consumer unit in what could be the biggest IPO this year. J &J is looking to raise more than$3.5 billion in the public markets at an almost $40 billion valuation. The new company will be called Kenview and will offer well-known brands such as Tylenol, Band-Aids, and Johnson's Baby Powder. Those products accounted for 16 % of J &J's sales last year. The Kenview Roadshow kicked off last week. So, Scott, we've talked about spin-offs before. As you've explained, the thinking behind a spin is that the assets being spun would get a higher multiple as a standalone company versus being bundled together and priced with the rest of the larger corporation.

20:59But I want to talk about what it means to go on a roadshow. There's no official listing date yet, but Kenview has set a target price. They found their underwriters in Goldman Sachs and JP Morgan. Take us through what things look like from here until the official IPO. I've only been involved in one roadshow, and that was when a company I founded called Red Envelope in Public. But I've sat in a lot of presentations. A roadshow is essentially the bankers and senior management put together a deck and a presentation and go meet with institutional investors, try and drum up interest such that the night before the IPA when it's pricing, they come out with a price and the institutional investors call and say, we want 10 million shares.

21:39And ideally, you want the offering to be oversubscribed such that there's a small bump and everybody makes money. Now, you don't want it to double, right? When Airbnb went public, it priced at 68, it came out, I think, at 150 bucks, which meant that the bankers, Goldman and Morgan Stanley, left a lot of money on the table. And that is Airbnb sold 10 or 20 % of its shares for 0.5X of what they could have captured had it been priced to where the market was. You want a little bit of a bump, but not too much of a bump. Even worse is if the stocks first trade where it's priced, it's priced at 20 bucks and it closes the first day at 15 or 18.

22:17I think Coinbase was a broken IPO. It's called a broken IPO. It creates a stench around the company that, oh, the market and the company or the company and its investors fooled some initial institutions into buying this thing and it went down and it creates sort of a stench around it. So it's not only a fundraising event, it's a branding event, but the roadshow is essentially their storytelling where they go around the nation. I've actually helped a lot of CEOs on this initial kind of pitch, if you will, on the roadshow. And they're basically trying to say, this is the background of the company.

22:51This is the basic concept. This is the total addressable market. These are barriers of entry. This is why we're so unique. Here are the numbers. Look at how this all adds up to an incredible business. It's high margin, high growth, and they want to get everyone's greed glands going, create the illusion of scarcity. We're not selling that many shares and hopefully get a really robust book such that they can strong arm the bankers into setting a high offering price. And there's always a kind of a bit of an arm wrestling over the company wants a higher offering price. The bankers want a lower offering price to ensure they sell out and they make some money.

23:23Why does that? Yeah. Could you take us through why the bankers would want a lower price? Why does it matter that the shares sell out when they go public? Well, there's a couple of things. One, for a brief moment, I believe the investment banks actually are underwriting or holding onto the stock so they can get caught in a bad place if the stock goes way down. They have something called a green shoe where they actually have the right to sell more shares and make fees on it. if the stock goes up, everyone's happy. They then get a lot of follow-on business in terms of wealth management or asset management.