Prof G Markets: Nvidia’s Superpower, Reddit’s Democratized IPO, & the Capital One-Discover Deal

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show.

0:37I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere tonight on NBC. This week's number, 100 ,000. That's how many people are on the waiting list for Soho House membership. True story. Right before I got a divorce, my wife bought me Viagra. So I bought her a gym membership.

1:12Hold on. I have another one. True story. This weekend I went on a hike and I found a dead prostitute. And then I realized I'd been walking in circles. That has nothing to do with anything added. I'm not even sure I understand it. It just made me laugh. So at True Story, this week I decided to give my son a lesson in sex education. So I brought in a banana and a condom. And he said, what's the banana for? And I said, I can't get hard on an empty stomach. That's my favorite joke of 2023, Ed. You're welcome. You're welcome.

1:51Hi, Ed. How are you? That was both not that funny and misogynistic. That's not easy to do in such a short amount of time, Ed. That was good. I was excited about that. Are you a member of So House, Ed? I am indeed, yeah. Oh, wait, their stock is crashing. That's funny. Real time. Look at that. Yeah, yeah. No, I was surprised when it went public because I think the whole thing is that you want it to remain exclusive. So are you a member? Yeah, I applied like three years ago to the Miami house. And for a year and a half, I didn't get in. And then they called me and said, you're in, or they just charge your credit card.

2:26That's how you find out you're getting in. And I'm a member of a few Tony membership clubs in London. I really like them. I'm very down with the whole exclusive snobby thing. I'm quite aware of that. I like it. I like it. And I'm a member of Zero Bond in New York, and I really like that. It's old men and hot women. Two of my favorite things. Two of my favorite things. By the way, the Prof G community has been putting together a Prof G bingo card. I was just looking at that this morning. Here are some of the highlights. We got champagne and cocaine, mendacious fucks, on a risk-adjusted basis. When I was on the board of the New York Times.

3:10That's good. Peanut butter and chocolate. I don't know if you know this, Ed. This is pretty good. Plus, but it needs to sound like you've just been punched in the back. Okay. And then finally, any dick joke. Any dick joke. What are we missing? I don't know. That's pretty good. I say literally a lot. Yeah, that was one of them as well, yeah. Yeah. There's a lot. There's a lot there. At the end of the day, you know, something ass play. I'm a big fan of that word right now. We have some work to do here. Yeah, no, we're going to work on it. Well, if anyone else has any other suggestions, send it to me on Twitter at Ed Elson or send us a note to officehours at propertymedia.com.

3:53And we're going to build this card out. Is this how you finally get a date to take to the Soho House is you basically whore out your Twitter handle? Yeah, exactly. Yeah, that's how I do it. Okay. Get to the news, Ed. Let's start with our weekly review of Market Vitals.

4:12The S &P 500 hit a new record high. The dollar slipped. Bitcoin dropped slightly. And the yield on 10-year treasuries rose. Shifting to the headlines. Rivian's stock fell 17 % after the company announced it will make fewer electric vehicles than expected this year. Rivian also announced plans to lay off 10 % of its workforce. Streaming platform FuboTV has filed an antitrust lawsuit against Fox, Warner Brothers Discovery, and Disney. As we discussed a few weeks ago, those companies plan to launch a joint streaming platform dedicated to sports. Fubo claims that that joint venture is anti-competitive.

4:48Walmart is acquiring smart TV maker Vizio for$2.3 billion. That move should give Walmart more opportunities to sell ads through Vizio's TV operating system. JPMorgan Chase has signed a naming rights deal for Inter-Miami Football Club's home stadium in Florida. That's JP Morgan's first naming rights deal in professional soccer. And finally, Reddit and Google have agreed to a content licensing deal worth$60 million per year. Reddit will grant Google access to its posts and data to train its AI models, and this comes ahead of Reddit's expected IPO in March. Scott, thoughts? I was shocked that Rivian stock fell.

5:27I didn't invest or do anything about it, but I would have guessed that Rivian would have had a good quarter. It appears what's interesting is the data around EVs is actually pretty ugly right now. You're seeing kind of a, I don't know, a normalization or a lot of these companies who, the big American companies who said they were totally pivoting to electric have said not so fast and they've pushed back their targets for being all EV. The Rivian lost more than$43 ,000 for every unit it delivered to customers in the fourth quarter, worse than the$31 ,000 per vehicle lost last quarter. So I guess essentially it's economically irresponsible not to buy a Rivian.

6:04It sounds like you're being subsidized to the tune of$43 ,000 per vehicle. It took Tesla 17 years to be profitable, and Rivian is 14 years old. And this is the stat that's scary. USCV sales have slowed to 47 % year-on-year growth down from 70 % growth last year. so growth is is slowing down i really like the rivian i i've ordered one and i haven't i like not owning a car so i haven't put in i have this nice lady calling me saying it's time to outfit your rivian and i don't do it because i don't want to own a car i really enjoy not having i enjoy being carless wait what you've ordered a rivian but you don't want the rivian i ordered one a couple years ago because these waiting lists do it's like why i want to be in a you know in Zero Bond or So House or actually my favorite in London where I didn't take you, but I took Caroline and Mia because they take up my brand.

6:58You sort of take down my brand. You're sort of like the, I don't know, you're sort of the, whatever the term is. You're like the gremlin, the AMC gremlin, like the gremlin did not help the AMC brand. Anyways, but Maison Estelle is my favorite. Anyways, I don't know why I brought that up. Back to Rivian. I ordered a Rivian. I I like the idea of these waiting lists. They do the, oh, this is where I was headed. Okay, thank you, Scott. The illusion of scarcity. A waiting list connotes that there's going to be some scarcity and you have to wait. And I think that's a fantastic marketing tool. And I thought these auto companies are just geniuses.

7:32And I don't know if it was Tesla that really broke new ground here, but basically Tesla would get their customers to finance their car. Sorry, I just want to point out. I think the best part of this is that now that the Rivian is available and they're asking for you to buy the car you don't want it anymore you only wanted it when you couldn't have it that's exactly right that's exactly right i don't want to sleep with anyone who'll sleep with me i mean come on that's that means there's something wrong with them where were we no fubo uh antitrust okay uh i i don't think that's going to go anywhere i i these guys are fighting for their lives between YouTube and Netflix and the other tech companies who will just throw$5 billion at original content just for shits and giggles so Tim Cook or Jeff Bezos can roll into the Academy Awards.

8:21These companies are struggling. Disney and Warner Brothers, their stocks are at lows. So the fact that they're going to consolidate strikes me as it's more out of necessity than trying to find a way to raise prices. But maybe they will be successful. do you have any thoughts here? Yeah, I mean, we can go through the complaints that Fubo laid out, which are pretty compelling. I mean, the first one is this idea of bundling. And that's the complaint is that these companies have unfairly forced Fubo to carry all these expensive channels that Fubo actually doesn't want to carry. The second is unfair rates.

8:57Supposedly, Fubo gets a licensing rate that's between 30 % to 50 % higher than what they charge to other distributors. third was this strange thing called non-market penetration requirements i've never heard of this but these are apparently restrictions on the percentage of fubo's customers that they can actually sell certain licensed content to and then the fourth is just the joint venture in general which fubo says is like the final step to eliminate competition in the in the sports streaming market the one thing i find not so compelling here's a quote from the complaint each of these companies has consistently engaged in anti-competitive practices that aim to monopolize the market, stifle any form of competition, and create higher pricing for subscribers.

9:41Now, the trouble here is the last part of that sentence, higher pricing. Because according to analysts, the joint venture is going to cost around$40 to$50 a month. And you compare that to other offerings. YouTube TV, their cheapest plan is$70 a month. And you compare that to Fubo's cheapest plan, which is$80 a month. So if the analysts' predictions are true, it would appear that this joint venture is actually going to benefit consumers with lower prices, in which case the complaint doesn't really hold. The analogy we use is that Russians, British, and Americans figured out a way to get along when the Nazis started rolling into Poland with a superior military infrastructure.

10:22And the analogy holds here, and that is this is going to make for strange bedfellows because everyone is getting the shit kicked out of them by Netflix and to a lesser extent, I would argue, or maybe a greater extent, I think we're talking about this, YouTube television. So these guys need to do something and they need to cut costs. And one way you do that is through consolidation. And with an offering like this one that is sort of so compelling, they still have very strong relationships with the leagues. They're still known for as kind of the place you go to watch the Super Bowl or the final March Madness, whatever it might be.

10:54But I don't, you know, FUBA, what also, there is a way to kind of thread the needle here. And that is the FTC and the DOJ, if I had to guess what will happen is that upon antitrust review, they will come back and say, we'll allow it, but you have to X, Y, and Z. And one of those things might be similar to the way they've approved, I think, Microsoft's acquisition of whatever it was, Activision or Blizzard, whatever they call it. They said, okay, but you have to continue to sell these games for the following platforms. You can't just limit it to Xbox. I wouldn't be surprised if they do that here.

11:27They said, okay, Fubo's complaint is legitimate. And part of the remedy here is we're going to allow you to merge, but you have to sign an agreement saying that you will continue to offer this product to these people at a price as determined by whatever. I like this a lot. If you think about what is sort of the unsung hero of Amazon, people talk about the cloud. It's got a big cloud business, great business growing fast. It's obviously known as a retailer. The unsung hero is Amazon Media Group. And that is the one that sells ads. If you go put, you know, Pampers in your basket and Amazon loves an ad for loves might pop up.

12:06The pinpoint accuracy, the behavioral targeting they can do, Amazon gets 9 % of its total sales from ad revenue. And I would bet that they get a much greater percentage of their profits from this because that 9 % is much higher margin than their retail business, probably not as high as the cloud business, whereas Walmart only gets 50 basis points or about half a percent of their total sales from ad. And Vizio is the third largest TV retailer in the U.S. by market share, and its own operating system has over 18 million active accounts. So they're basically, they're not only buying, they're not interested in the hardware.

12:42They're not to consumer platform that has 18 million active accounts that they can start pulling data from and then sending them targeted ads, right? And then charging all of these brands who they have a relationship with to get in front of people. One question I'd have is how meaningful it really is because you look at Vizio's ad revenue. It made around$600 million in ad revenue last year. Walmart's already selling around$3 billion in ads. And then, you know, as we've been mentioning, this is all a catch-up play for Amazon. Amazon's selling$47 billion in ads. So the question I'd have is, how does acquisition have any real effect on the top line when it comes to ad sales?

13:27Because it feels like Walmart has to get a lot more creative in some way, and I wonder what that strategy will be. Maybe it's algorithmic recommendations. I was thinking maybe it could even be product recommendations where you can actually buy items from Walmart on the TV, depending on your viewing habits. Perhaps you have some thoughts there on what Walmart might do with this. Well, a couple of things. One, as a CEO, you're thinking about marketing mix, or you're thinking about revenue mix. So right now, Walmart trades at a much lower multiple. And Doug's thinking, okay, how come I can't get an Amazon-like multiple?

14:00And they say, well, your primary source of revenue is a difficult low margin business called retail, whereas Amazon has tens of billions of dollars in this high margin business called advertising. So while it's going to take them a while to catch up, if ever, as long as they're growing that business faster than their core business, slowly but surely that multiple that the market provides them on earnings should begin to expand. Because the analysts will look at their underlying business and go, okay, retail, okay business, they're huge, huge top line, 4 % of a giant number is still a giant number.

14:34but they would like to see those high margin businesses growing faster than the core business because what that implies is margin expansion so i i think this is a good move and these guys play for the long term walmart's been around for whatever 60 years so if they can grow this business 20 a year and get it to be a five seven billion dollar 70 point margin business and maintain those margins you know and they get a really good multiple on this they get a 10 to 20 times see if it's a multiple on this part of the business or it takes the multiple on their entire stock up one or two turns, it's a great investment.

15:11JP Morgan, naming rights. It seems like naming rights have been a bit of a kiss of death recently. And I don't know what they paid for it, but you're going to see just more and more attention come to the MLS and specifically to Inter-Miami because of messy and because Miami is a gross city. So it ends up these naming rights tend to be really good deals. Most brand experts will say that just the impressions of having, you know, Troy Aikman on the AFC finals or whoever's going to be announcing the MLS games says, and here we are at JPMorgan Stadium. That constant reminder of the name and the brand is really powerful.

15:50So it all comes down to what the deal was. Do you know how much they paid for it? It's not been disclosed. One thing I found pretty funny, though, is the length of the contract. It expires in two years, which is the same year that Messi's contract expires. So this is all about Messi. Yeah, that's funny. Reddit? Reddit, I think it's going to be really interesting. And what I think is most interesting about Reddit is not their deal they're doing for$60 million, but they're planning on giving a lot of their consumers an opportunity to buy into the IPO. So this is how an IPO works. Reddit is going to go out at a valuation, call it a$5 billion.

16:27So they'll issue 10 % of the company in stock. They'll go out with$500 million in shares, say they price it at 20 bucks a share. So they'll issue 25 million shares. And then Goldman markets the shit out of this thing and goes around with the CEO and says, this is why Reddit is an amazing company. And then all the institutions, specifically Goldman's clients, put in their order book. And oftentimes a company like Airbnb that's oversubscribed will get 8, 10, 15 times oversubscription and people will put in their orders. And even if you're a client of Goldman, unless you're Blackstone or Fidelity or these guys, you just hardly get any.

17:04They save it for their big institutional clients that generate a lot of fees. And what Reddit is saying is, is we're gonna hive off a large portion of the book here or if shares available, the IPO for our most loyal users of Reddit. It's kind of trying to democratize the IPO process. It has some risk because these individuals, retail investors are known as flippers. They're not known as institutional long-term holders. Typically, when you're selling stock, what you want is someone who's not going to sell, someone who's not going to just do a quick trade because you want long-term holders, which reduces the available float and keeps the stock higher, if you will.

17:41So everyone wants a long-term investor. At least that's the excuse the investment banks use for giving most of the allocation to their biggest clients, which are supposedly long-term holders. So there's some risk here that these Redditors, if you will, might just go in for a quick flip. I like this. I think it'll bring a lot of attention to the brand. And that's the big challenge here because at$5 billion in market cap, companies that are$5 billion usually get very little analyst coverage and the media is usually not that concerned with them. But Reddit is an interesting company. I also like the fact, I don't know about you, but I find that I'm using Reddit more and the company grew.

18:19I think it's going to do about$800 million this year. One thing that's sort of interesting is pre-pandemic, through the pandemic, they grew from 400 to 2 ,000 employees. They've stayed flat this year. I wonder if they're going to trim some of that. If they do it, they would do it before the IPO. But this is a company that I'd like to invest in. So I think this is an interesting one. And I also, I like that it kind of plays a little bit in the AI space that if you think about it, my thesis is that the underlying technology of AI is going to be commoditized. that you have the chips, you have the LLMs, and then you have the coal that goes into the furnace, the content.

18:53And I wonder if the LLMs, the open AIs of the world, the Llamas, the Gemini's, the Anthropics, if that stuff gets commoditized, it's very hard to differentiate on a technical level. And the real differentiation is on the chip level, see above NVIDIA's earnings, or on the content side, whoever has access to the most interesting firehoses of content. So I think Reddit, if they position themselves well, might get a couple billion dollars in market capitalization just based on the expectation that they'll be able to garner a lot, either build their own LLMs or extract really, really big fees, much greater than$60 million.

19:32That fee,$60 million, it reminds me of the Axel Springer deal. It's just not that much money for one of the most valuable data gold mines in the world. I mean, just to put this in context, Reddit has 800 million monthly active users, 70 million of those use the app daily, and it's the seventh most visited website in the world. It gets more traffic than Amazon and Netflix. And they've decided that unfettered access to that is worth$60 million, which, by the way, would only increase their revenue by around 7%. I mean, you mentioned it's high margin and there's value to that, but they're already making$800 million a year.

20:11So to me, this was just another example of a media company kind of underselling itself when it comes to this pivotal moment of data access for AI companies. So I had the same concern, and I did a little bit of research here, and it's not a long-term contract. I think the Reddit realizes they're sitting on something really valuable. But probably what this did was it probably shores up their profitability for the year going into an IPO. it's 60 million of revenue, probably 59 of it hits the bottom line. So it might be the difference between them breaking even or not breaking even and being profitable.

20:47It establishes them as, you know, this is the first fee that people are paying for this content, and then they'll put it up for bid again. And I'm pretty sure, I'm not certain, but I'm pretty sure it's a fairly short term contract, similar to that JP Morgan contract for the naming rights at InterMiami. You also brought us something that's a really key point, and that is it's the seventh most traffic site globally. And if you look at the average market capitalization of the top 10, it's something like 1.1 trillion. It's Amazon, it's Meta, it's Alphabet. There's a strange one in there, but they're all companies that have several hundred billion dollar market caps or even multi-trillion dollar market caps.

21:27Because at the end of the day, oil doesn't run the economy anymore. It's attention. We're in an attention-based economy. And if you can capture, if you can be one of the platforms that captures more attention than anyone but six companies in the world, your prospect for turning that into money is really, really strong. So the reason I like this, the reason why I'm going to try and get in on this IPO or even even buy some in the aftermarket is it's unlikely that the seventh most traffic site in the world won't be able to figure out a way to be worth more than $5 billion. But now is that moment.

22:01It's got to take advantage of that moment right now, I would argue. Well, as long as it keeps growing. In addition, a quarter of their user base is between the ages of 20 and 29, i.e. you. And people love people like you because you do stupid things. You go to the show house and you spend money on weird shit. Actually, I do all the shit you do. You do all of it. You're so much worse. It's crazy. Arrested. Okay, but it's too late to Fix me. I am deeply, deeply broken. Yeah, and I have a terrible, terrible teacher. Yeah, no doubt about it. No doubt. Yeah, do as I say, not as I do here. Exactly. We'll be right back after the break with a look at Capital One's acquisition of Discover.

22:50Running a business comes with a lot of what-ifs. But luckily, there's a simple answer to them. Shopify. It's the commerce platform behind millions of businesses, including Thrive Cosmetics and Momofuku. And it'll help you with everything you need. From website design and marketing to boosting sales and expanding operations, Shopify can get the job done and make your dream a reality. Turn those what-ifs into... Sign up for your$1 per month trial at shopify.com slash special offer. This episode is brought to you by White Claw Search. Great podcast pick, friend. No surprises there. After all, you're all about finding the tastiest flavors out there, just like White Claw Surge.

23:29And with big, bold flavors to enjoy, like blood orange, blackberry, cranberry, and more, it's time to go all in on taste. Unleash the flavor. Unleash White Claw Surge. Please drink responsibly. Hard seltzer with flavors. 8 % alcohol by volume. White Claw Seltzer Works. Chicago, Illinois. Hey, business owners. We know you know the importance of maximizing every dollar. With the Delta SkyMiles Reserve Business American Express card, you can make your expenses work just as hard as you. From afternoon coffee runs to stocking office supplies and even team dinners, you can earn miles on all your business expenses.

24:03Plus, you can earn 125 ,000 bonus miles for a limited time through October 29th. The Delta SkyMiles Reserve Business card. If you travel, you know. Minimum spending requirements and terms apply. Offer ends October 29th, 2025.

24:21We're back with Prof G Markets. In one of the biggest deals for the banking sector since the financial crisis, Capital One is acquiring Discover for$35 billion. That is if the deal gets approved. It could be a tough sell to bank regulators, the FTC, and the Justice Department. Last year, Capital One was the fourth largest credit card issuer in the US based on the value of its outstanding receivable loans. Discover was the sixth largest. Combined, they'd overtake JPMorgan Chase as America's biggest credit card company. To break down what this deal means for the credit card industry, let's speak with ProfG Media's editor-in-chief, Jason Stavis.