Prof G Markets: Paramount’s Suitors, Nepo Babies on the LVMH Board, and Elon’s Voided Pay Plan

0:26Race the rudders! Tonight on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I 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 eight. There are eight parrots at a zoo in the UK who have learned to swear.

1:05Their favorite words? Fuck off. True story. True story. I went into a pet store to buy a little bunny rabbit and the owner said, what kind of bunny rabbit do you want? A white rabbit or a brown rabbit? And I said, I don't think my python cares.

1:29Welcome to PropG Markets. Today, we're discussing Paramount suitors, LVMH's record year, and Elon's shareholder lawsuit. Here with the news is PropG media analyst Ed Elson. Ed, what are the headlines? We've got a lot of headlines, Scott. But I just want to say first, though, I love that you're in your old Warby Parker glasses. I feel like you haven't worn those in years. So I have, I live all over the world, Ed, because I'm kind of cosmopolitan. And I'm a terrible packer. I don't know if this comes as a huge surprise to you, but I'm a bit absent-minded. And I don't like to travel. I literally just take, you know, a gag ball, saran wrap, starch, some Haribo gummies, and some Cialis.

2:10And that's it. That's all I travel with. and I just trust whatever is in the place that I left. And these glasses, I found these glasses in my sewing apartment. I have the other rimmed ones. I kind of miss them. In London. Yeah, they're okay. They're very, they're iconic. Yeah, sort of 2019 Prof G. Do you have contacts, by the way? I feel like you're never wearing glasses on this pod. No, I'm scared to put contacts in my eyes. I think I'm going to get Lasix, actually. Although, without glasses, someone told me I look very patient, kind of post-chemo. and so you know the shaved head and everything so i like i like wearing wearing glasses plus it feels professorial and i think it accents my cheekbones along with the massive amounts of filler i hadn't checked it in yesterday by the way i'm crying i don't know if you can tell but i'm crying right now anyways get to the fucking headlines enough about me let's start with our weekly review of Market Vitals.

3:07The S &P 500 climbed, the dollar was volatile, Bitcoin rose, and the yield on 10-year treasuries declined. Shifting to the headlines. The Federal Reserve held interest rates steady for the fourth time in a row. It also signaled that while it's done raising rates, it is not ready to start cutting them. Microsoft reported that its fourth quarter So net income increased 33 % as the highest quarterly growth in more than two years. But shares fell 3%. Google's revenue rose 13 % year over year, marking its fourth straight quarter of accelerating sales growth. However, ad revenue fell short of expectations and the stock fell more than 7%.

3:45Walmart is executing a three-for-one stock split to allow more of its employees to participate in its stock purchase plan. The stock currently sits near a record high. Year over year, it's up 15%. Sirius XM acquired the exclusive rights to the podcast Smartless for more than$100 million. That show is hosted by Will Arnett, Jason Bateman, and Sean Hayes, and its previous home was Amazon, which paid between$60 and$80 million for its three-year contract. CEOs from TikTok, Snap, X, Discord, and Meta testified at a Senate hearing on the Kids Online Safety Act. It was a rare instance of bipartisan agreement on Capitol Hill, as senators pressured tech executives to take accountability for harming children.

4:29Scott, reactions? I think Jerome Powell or Chairman Powell takes pleasure in not succumbing to any sort of expectations. I don't think he cares. It's like, honey badger, don't give a shit. I think he almost kind of takes revels in not doing what people are expecting or pressuring him to do. It feels like things are headed in the right direction, but he just wants more time. What he doesn't want to do is say we're cutting rates, signal it, confirm it, and then not do it. So I think he'd rather stick to his guns and say fighting inflation is our number one priority and continues to be our number one priority.

5:05And I still believe that he deserves a Nobel Prize or that he's the most consequential person of the last year. Microsoft is unbelievable. Net income up 33 percent and its shares fell 3 percent. Ben, keep in mind that the stock market is a prediction machine or attempts to be a prediction machine. And it's been pretty clear looking at all their moves that things are going really well, specifically sort of this AI-inspired boom in their stock price from what is likely to go down as the greatest corporate venture capital investment in history in OpenAI. And you think, well, OpenAI is worth$90 billion.

5:41They own X percent. So they, you know,$11 billion, whatever they own of it, they maybe made$20 or$30 billion. So it's not the most successful investment ever. What they miss is that I think part of that 60 % run-up in their stock they've had, which has added about$1.2 trillion in market capitalization, is largely on the heels of their pivot to AI. It's not even a pivot. It's an enhancement or AI enhancement. So if you look at it that way, an$11 or$12 million investment kind of got them a trillion dollars in value back, even discount some of that out because it's performing well. This is an investment that increased the market capitalization 50 to 80x.

6:20So this is just, it's just incredible. But getting back to the stock price, the stock's up 60%. So a lot of the expectations were already built into this earnings call. So what do you think the market was looking for then? More, bitch, more. I mean, it's just what's happened in the last 12 months is that a lot on a regular basis, a pretty big company absolutely blows their earnings out of the water. I think two thirds have exceeded their earnings estimates. It's just been sort of people expect or analysts of the street are no longer impressed by you beating your earnings. They want you to blow it, kind of blow it out of the water.

6:57Walmart is, I would argue, kind of over the last 20 years, maybe one of the best managed companies in America, Doug McMillan. I know Doug. And when I was down there speaking to the management team, they had this kind of associates day. And I guess they do this every month. And there must have been a couple hundred sales associates or what they call associates people in the stores, average kind of age 50 to 120. and he must have taken an hour just to go down the line and talk to them and not just shake their hand like hi post with the camera move on he really did talk to me get the sense he is definitely really generally interested in people so I like the company I like him and Walmart I remember my dad used to talk about stocks when I was in college so that was about what was that about 25 years ago 35 anyways he loved Walmart and he kept investing in it and I think that I think I'm not sure.

7:52I think he still has Walmart in his portfolio. I don't know. I should know because last week I had him under, you know, he has serious dementia, so I have him signing over his wheel to me and my seventh wife. But I don't remember seeing it in the wheel. That's not funny, Ed. Do you have any thoughts on the stock split itself? I mean, they're just taking the price down by splitting the stock so that employees can participate in earning stock in the company, which is kind of like a startup-like move of them. Yeah, why not? It doesn't really cost them anything. The stock's at 167, so they'll issue three from one or go to 56 bucks a share.

8:28Maybe that makes it more manageable. But what's interesting is if you look at the chart, Walmart is not a growth stock. Walmart is a mature company, but it's so well managed. Over the last year, it's up 16%, which is great. Over the last five years, it's up 78 % or probably. What is that about? 12 % a year. But if you look at the chart, the chart doesn't make you seasick or nauseous or give you motion sickness like some of the other volatile stocks. It's just a company that continues to deliver. And I think a lot of people who don't want to go on the wild ride that is tech like investing in a company that will kind of continue to deliver and slowly creep up.

9:08And that's the stock splits. I'll give you an example. One of my board members, a guy named Paul Sagan, who's really smart said, when we were incorporating, I said, okay, we're incorporating, we have a million shares. She's like, no, no, no, no, do 100 million. And I said, well, why is that? And he said, well, if you give someone 1 % of the company, that's options on 10 ,000 shares. When you have 100 million shares, it's options on a million shares. It just sounds better. It sounds more impressive. So some of it, some of it is psychic, but why not? They actually care? Like, I feel like if you're negotiating with an employee, they just look at the percentage.

9:40Yeah, but that's because you host a markets podcast. I think a lot of people like the idea of getting options on a million shares. And I was just blown away by... It's like a lot of people who graduate from college can do calculus, understand organic chemistry, and don't understand basic financial literacy. And I think I was just shocked as someone who was running a startup that when we got sold, I was just super excited. And I brought in, and this is the funnest day, you bring everybody in and go, you know, we've been sold and this is what it means for you. And you take them through. And there were people I brought into my office, some knew kind of exactly what it meant for them.

10:28They had done the math and they're like, oh, I'm going to get X. And I'm Yeah, actually, that's exactly what you're going to get. I had other people who, no joke, were getting$300 ,000,$500 ,000,$800 ,000 and broke down and started sobbing because they just had no idea. That's one of the reasons I really like when private companies do fundraisers. I always say, take some off the table. You want to diversify. You never know what's going to happen. And two, give employees the opportunity to sell shares because there's something very visceral and confirming. when your employees go, oh, wait, this shit you keep talking about, options and that paperwork I signed, it can actually convert to money.

11:07Because if you have a young workforce, it's never happened to them before, and they sort of don't believe it. Let's talk about serious, acquiring the exclusive rights to the podcast smart list for more than$100 million. Okay. Now, here's some critical thinking. Ed, this means the likelihood you actually get a girlfriend has skyrocketed. Why? Because we're going to make a lot of money, I hope. That's exactly right. This is, first off, market dynamics will always trump individual performance. You'd rather be a good company in a frothy market than a great company in a mediocre market. So when Joe Rogan did his$200 million deal and then Spotify went big game hunting and paid Megan and Harry tens of millions of dollars to do nothing, it just didn't work.

11:54And the head of the division that was spending all this money, or I should say immolating it, got fired. And the market has dipped, if you will, in terms of valuation placed on podcasts. However, this signals that the market is getting hot again. And there's good reason why. Podcast ad revenue was only in the kind of the low $2 billion range. It's still a small business, but it's growing like 25 % or 28 % a year. It's growing faster right now than search off a small base, but it's growing. In addition, the CPMs are really high, and that's cost per thousand. That's what an advertiser is willing to pay for every thousand impressions or listens or downloads you get.

12:35For our show, they're around 45 bucks, which is pretty good for any medium. And the reason why they're strong for us is, one, podcasts are very intimate. You really have an impact on the listeners. They're listening. You're usually with them when they're doing something, walking their dog with their family, something sort of intimate. Whereas when you're watching CNBC, it's kind of like background noise. Maybe you're on a trading floor and you kind of just turn off when James Garner comes on and tells you to buy a reverse mortgage or some old man tells you to trade like Chuck that you can spend more time with your grandkids if you're stupid enough to do his options trading strategy or buy this CPAP and it'll change your life.

13:19Anyways, the reason we get high CPMs is we kind of have what I'll call one of the silverback gorillas from Rwanda. What's rare? Why do advertisers like our listeners, Ed? Let me ask you more critical thinking. I'm going to say wealthy or at least financially conscious. Right. But more than that, our listenership is young men who are doing well professionally, who are really difficult to reach. You can reach them in sports, but for the most part, they have gravitated their media consumption to subscription-based media platforms, Netflix, and they're hard to reach. Now, even higher CPMs at Pivot, because while we get the silverback gorillas, which are rare, Pivot listeners are kind of the great white rhino.

14:04They are really rare. Who are they, Ed? Who are they? Executives, maybe? Senior level tech executives that make big purchase decisions, that decide if they're going to do SAP or Oracle, or if they're going to use ZipRecruiter to buy their benefits, right? So podcasts are growing. They reach an interesting cohort of intelligent, successful people. And it's a very intimate medium. The reason they want us to do host readovers is strange as it is, supposedly 80 or 85 % of listeners don't hit the skip button because they don't mind listening to an ad when Kara Swisher or Ed Elson is reading it. They just feel like it's a kind of part of the relationship.

14:45I think they would skip me, but yeah. You see what I'm saying? So SmartList getting 100 million bucks, the thing I've noticed about the term was that it's only three years. So that's real cabbage,$33 million a year. They deserve it. it is a lovely podcast. Those guys do a great job. They have a great dynamic. It's a big deal. And it's probably increased what I'll call the value or the price of locking up top 100 podcasts. It's probably increased every deal by 30 or 50 percent because now it feels like it feels like the champagne and cocaine are back. So the ultimate question is, how much are we worth?

15:22I try to add that up every day, but I think it'll be enough for you to, you know, get some girl to come to Club Med with you or whatever it is you do. It was a nice way of avoiding the question. Club Med. It'll be a lot. I hope so. I hope so. I'm running out of time. I mean, I need the jet before the ass cancer shows up, Ed. So yeah, I think this is a... You sold the jet. Yeah, but I want one back. I'm much more interesting with a jet. So Jess, we move on unless you want to talk about the Senate hearing. What did you think? Did you see it? I just, I'm so sick of these Senate hearings, honestly.

15:53I mean, I've, maybe I'm too young, but I've never seen a Senate hearing that actually resulted in anything policy-wise. And every single one of them, it's just a, it's just a clippable moment where a politician will get on the stage, bang their fist, act tough. I mean, the interaction that everyone's talking about is that interaction between Zuckerberg and Josh Hawley, where Josh Hawley basically just forces him to stand, and we should play the clip actually, but he just forces him to stand up and apologize to the parents of the victims behind him. They're here. You're on national television. Would you like now to apologize to the victims who have been harmed by your product?

16:34Show them the pictures. Would you like to apologize for what you've done to these good people? He does it, obviously, because he doesn't really have a choice. And then we're sitting here. It's like, great. He apologized. It's like, it's the, what I would compare it to is going to the principal's office. It's like it's not even a conversation. They just ask these stupid one-sided questions. They barely allow for a response. I mean, they're constantly interrupting them. And then the worst part is that it's always televised. Yeah, I think that's a pretty cogent analysis of it. At least a principal can suspend or expel the person in front of them.

17:07I imagined or I fantasized that one of the parents would yell out, Mr. Zuckerberg, now turn around and ask the people in front of you why the fuck they haven't done anything. because I believe Mark Zuckerberg and Sheryl Sandberg are absolutely culpable, but the culprits are the senators pretending to give a good goddamn. And I do believe some of them care. I think Senator Klobuchar, Senators Blumenthal, Senators Durbin really do care. And I would also say Senator Blackburn. I think she's sincere. But when Senator Cruz wants a TikTok moment, I mean, this is how outrageous it is. They're all looking for a moment that'll go viral on the platforms whose CEOs they're berating.

17:49And they get in the way of any legislation because they've been paid off. And it's super easy. Ted Cruz raises money from lobbies that are backed by big tech, and he has concerns about free speech or the chill this would put on small business. So wants to keep working on it. And there is absolutely no legislation or no laws. It is outrageous because any father or mother knows, we talk about GDP, we talk about innovation, we talk about stupid headsets. It is all meaningless, meaningless. And you'll discover this once you have kids. If something is wrong with your kids, much less the unimaginable horror these people have gone through, your whole world shrinks to that kid.

18:35Nothing else, nothing else matters. And the fact that we could fix or reduce dramatically this problem, they will throw up their arms and claim complexity. We age-gate pornography, the military, we age-gate alcohol, we age-gate driving, and we do really good jobs, but we can age-gate social media. There is no reason anyone under the age of 16, in my view, should be on social media. The benefits do not outweigh the immense costs here. We'll be right back after the break with a look at Paramount's potential acquirers.

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20:45We're back with ProfG Markets. The slow-moving auction for Paramount took another turn last week when Allen Media Group put in a bid for$14.3 billion. That's the second offer the group has made to the company. Back in April, its bid for$18.5 billion was rejected. Since then, as Alan pointed out, Paramount's stock is down about 37%. Some detail on Paramount. Paramount is publicly traded but controlled by the Redstone family. Its assets include the Paramount Film Studio, CBS, BET, Comedy Central, and Paramount+. And as we discussed recently, it has attracted several buyers. Warner Brothers Discovery has had conversations about making a deal.

21:25So has Apollo Global Management, a large private equity firm. And so has Skydance Media. That's David Ellison's production company. He is the son of the founder of Oracle, Larry Ellison. So, Scott, that's quite a list of buyers there. What is making Paramount such an attractive acquisition target right now? Well, one, it's in play. Sherry Redstone has basically said for the first time, the controlling shareholder, and it's a dual-class shareholder company she controls, which she's basically said, I'm willing to sell. And every year for the last five or six years, it's made sense for her to sell.

21:57But I think she keeps hoping that the stock price will go up and she'll be able to get more money. And every year the stock goes down. And in addition, there's nothing on the horizon that would say this thing's going to recover. In addition, you have a market that's consolidating. And they're a consolidatee, not a consolidator. And it makes sense. It will add value. It has some real assets. It's national amusements at controlling shareholder of Paramount depended on substantial dividend payments for the company to finance its debt load. With Paramount struggling, it needs capital to finance its$25 million annual interest payments.

22:29So things are getting scary there. It's direct-to-consumer revenues increased 39 % in the first nine months of last year, which is good news. And revenue from the TV media segment, which includes CBS, decreased 6 % and filmed entertainment declined 17%. And the company suffers from lower margins than pure play streamers. Paramount's trailing 12 months gross margins is 25 % while Netflix is 42%. And the stock is underperformed, declining 15 % last year in the face of an incredible market surge, while Netflix was up 63%. And it's attractive right now because it's valuation, it trades at 0.3 times sales versus Netflix, which trades at eight times.

23:08So think about this. I mean, Netflix is trading at about 26 times the multiple on revenues as Paramount. So this thing needs to be rolled up. What's interesting about this deal, my favorite part was that the acquisition company controlled by Byron Allen put in a, in my understanding, via text message and said, this offer should be taken seriously. Now, if you ever want your offer to not be taken seriously, point out that the offer should be taken seriously. So, for example, if Apollo submitted a term sheet, you can be clear it's serious. They have the capital. They could stroke a check for Paramount very easily, but I still don't think they're the best buyer.

23:53The best buyer here is likely a company that when they announce the acquisition, it just makes a lot of sense. and Sherry needs a certain level of certainty of close because what she doesn't want is to announce a deal, her stock will go up, and then for the deal to fall out of bed because I think her stock would probably go below pre-announcement level. She's got to know that this deal is going to close. And what was telling is the market when it heard about this text message or this quote-unquote offer they're supposed to take seriously from Byron Allen, the stock didn't budge up. It budged up a little.

24:28I mean, it went up, it ended the day up around 7%. But that's, yeah, that's nowhere near the premium that he was offering. He was offering a 50 % premium. So I feel like the market was kind of like, eh, maybe, but probably not. Unfortunately, Mr. Allen is kind of developing a reputation for someone who shouldn't be taken seriously. So here are some of his media bids that have not closed. A$10 billion bid for ABC, an$8.5 billion bid for, I think it's called Tegna Station Group. A$3.5 billion bid for BET,$5.6 billion bid for the Washington Commanders, and an undisclosed bid for the Denver Broncos.

25:04People just don't take him seriously. Now, to be fair, he owns the Weather Channel, and his media firm, people believe, is worth$4.5 billion. His offer includes assuming Paramount's$15 billion in debt, so the total value of the offer is just under$30 billion. I personally think that this ends up with Zaslav. Specifically, I think this ends up with Warner Brothers Discovery. Why? Because despite the massive debt they already have, they could raise the money here and do the deal. And in addition, there's so much synergy here. I mean, when I say synergy, I mean, they're going to get to lay off a lot of people.

25:43Two-thirds of the layoffs will come from the one that's on bottom, specifically Paramount. But the loss to lay off some people at Time Warner because they're just not going to need two CFOs of the TV division. They'll need one. They're not going to need as many people in the newsroom. I would not want to be in CBS newsroom. I would not want to be in ad sales for CBS if Warner Brothers Discovery buys the company. They will get a lot of synergies and efficiencies. In addition, Sherry will know the deal will close with them and the deal just sort of makes sense. And even if he says to her, look, Sherry, I can't pay you all in cash.

26:15You got to take some stock. it's a liquid stock and she'll probably see that at these levels there's a decent upside that the market will like the deal see the synergies see the see the cost savings and will take the stock up so he might be able to he being Zaslav might be able to offer cash and stock whereas Sherry's not going to take stock in Allen's company she's not going to take stock in Skydance or whatever the hell it is, because this thing makes sense to go to Warner Brothers Discovery. That's who I would think is the logical buyer here. But Paramount, and I think we predicted this last year in our predictions deck, we said Paramount is not going to be an independent company by the end of 2024.