Prof G Markets: Tesla’s Terrible Earnings, the FTC’s Noncompete Ban, and 24/7 Trading at the NYSE

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1:06Why did Buddha start pulling coins out of his butt head? Because change comes from within.

1:22Little dad joke. Thread the needle there pretty well. Today on Prop G Markets, we're discussing Tesla's earnings, the ban on non-compete agreements, and 24-hour trading at the New York Stock Exchange. Here with the news, pulling data out of his ass, is Prop G Media Analyst Ed Elson. Ed, what is the good word? I'm very well, Scott. I enjoyed our photo shoot yesterday. That was fun. I bet you did, you little attention whore. I liked how uncomfortable you were on camera. That was kind of cute. Yeah, I know. I was. I like when they started telling you to wear my clothes because yours looks so bad.

1:56That was my favorite part. I'm pretty sure you told me to wear your clothes. Which, as I am the boss. I think everyone else wanted me to wear my clothes. Which, as the boss, that qualifies as them. It's collective we. Right, yeah. Apparently, my clothes aren't form-fitting and yours are, right? No, yeah. Mine accent my human growth hormone at the age of 49. Get to the headlines, Ed. Let's start with our weekly review of Market Vitals.

2:26The S &P 500 was volatile, the dollar fell, Bitcoin dropped, and the yield on 10-year treasuries climbed. Shifting to the headlines. Spotify reported a first quarter revenue increase of 20 % from a year ago and a record high$180 million profit. These earnings come after a trying year for Spotify, where it laid off more than a quarter of its workforce and raised prices for the first time in a decade. Netflix memberships rose 16 % in the first quarter from a year earlier, substantially higher than predicted. However, the streaming company announced it will stop reporting quarterly subscriber numbers and revenue per user starting next year.

3:03The stock plunged to 9 % on that news. That's its worst performance in two years. Meta's revenue increased more than 27 % from last year, beating analyst expectations. but shares fell more than 15 % after the company issued lighter than expected revenue guidance and also announced that it would increase spending on AI investment. FIFA and Apple are nearing an agreement over the TV rights to a new World Cup-style tournament for club teams. The deal could be valued at about$1 billion and the month-long tournament will be hosted in the US in 2025. And finally, President Biden signed a bill into law that gives TikTok up to 12 months to arrange a sale to an American company before it gets banned in the U.S.

3:46TikTok's CEO said it would challenge the law on grounds that it violates the First Amendment. Scott, your thoughts? So in order, Spotify, first quarter, revenue increase of 20%. It feels like the year of efficiency is that people are doing more with less, which obviously impacts the bottom line in a very positive way. But also, I wonder if a lot of this can be reverse engineered to a couple industry dynamics. The first is that the market is consolidating and there's fewer options. So people are, you know, and they're cracking down on passwords. So it has given the streamers, not only across video, but across music pricing power.

4:28And it's no longer about as much about growth as it is about profitability. But the tail that wags the dog here is Netflix. And Netflix has given everyone cloud cover to raise their prices because they have pretty aggressively raised their prices. And I wonder if this is, I mean, Spotify is really the kind of the, it's almost, I would imagine, as dominant in their medium as Netflix is in video. So good for them, I guess, is they're, I don't know if they're also cracking down on password sharing or what's going on. But I would imagine this is, they're going to have some of the same champagne and cocaine of increased revenues and lower costs.

5:03Yeah, I think that's exactly right. I mean, it's the same thing we saw with Meta a year ago. They increased the revenue, which is a combination of price increases, as you mentioned, as well as a jump in usership. Plus, they reduced costs. They're spending less on content. And they've also brought headcount down around 20 % from a year ago. So the result is, and the thing that Wall Street is so excited about, is just this dramatic margin expansion. Gross margin for the quarter was 27.6%. That's up around 250 basis points from a year ago. I think the question for me would be, how have they been able to increase monthly active users by 20 % despite increasing prices?

5:46My best guess would just be that the average US consumer is doing better than we think. I mean, we saw bank earnings the other week, which show that consumer spending is actually accelerating, hence the increase in their credit businesses. We've been seeing similar stories coming out of the Fed data. So I think maybe the story behind the story here is that consumers are generally doing fine, maybe better than fine. And the advantage that streaming audio has over streaming video is the churn, because pretty much every streaming video player has, I think, between like four and eight percent churn, which means every year you have to almost replace a third of your customer base, except for Netflix.

6:28because of the absolute volume of content, there always seems to be something you're kind of looking forward to watch. Whereas a lot of people download the entire season at TED and then cancel Apple television. Whereas with music, it's different, right? There's something you want to listen to every day because it has everything. So it seems that after kind of five or seven years of underperformance, Spotify is finally getting their day in the sun. And I'm actually a big fan of Spotify. It's hard to imagine one app could distill an entire medium down to an icon. So Spotify has done, I think, a pretty impressive job.

7:03Netflix memberships up 16%. I thought that was amazing. I mean, that's a huge number. The thing that was most interesting though, was that their decision to stop reporting quarterly subscriber numbers and revenue. It's like buying clothes that accentuates the positive. Like me, if I were a woman, Ed, I would wear a lot of miniskirts because I have fantastic legs if I were a woman. So I would be like hiking up the skirts. I'd be in a lot. Daddy would show up. Daddy has more legs than a bucket of chicken if daddy was a mommy. I'm sure that's a hate crime. But anyways, my point is you want to accentuate.

7:39Brunello Cuccinelli, a size too small. That's it, right? Anyways, size too small, that hurts. That hurts. That's after you said that my clothes are too big. Well, yeah, you literally look like an old man that takes no pride in your appearance. Size too small. That hurts my feelings. Okay, anyways, they're all trying to come up with the right words that will make their company and numbers seem the strongest. So Alphabet doesn't break out by division. It's numbers because people would figure out that it's essentially search in the seven dwarves. Almost everything loses money. YouTube makes really good money by most standards, but they have this juggernaut, the world's largest toll booth ever constructed in the history of mankind called search.

8:23So they'd rather just report one kind of lump sum and not break it out. They also don't want to give too much information to their competitors. The only thing that's a little bit scary here is that if I tried to read into the tea leaves here, what they probably realize is that they're going to have pricing power in international growth, but that everyone in America has already signed up. And they may, in fact, have a few quarters where they have flat or negative subscriber growth in the U.S. And that'll be the lead in every headline. And Netflix could report great revenue growth, great profitability growth.

8:53But if their largest market begins to plateau or even decline in terms of subscriber growth, that'll be the lead and investors will take it down. So I imagine they've said our numbers are going to be fine. We'll have good growth. But that growth will be an international, which will likely have lower revenue because you can't you don't have the same pricing power in markets where they don't have the same disposable income. This is me guessing, but the choice of words is surprisingly deliberate and strategic in earnings calls and the way they report data. Doesn't that just annoy you? I mean, one, because, you know, one of the central issues of these Hollywood strikes was transparency around data and viewership.

9:35And what Netflix promised SAG-AFTRA and then delivered on for a second was, you know, we're going to be more transparent. We're going to start reporting these detailed statistics about subscriptions. And so the idea that they would now walk back that transparency, to me, is just a betrayal of what they agreed on. And then the other reason that I don't like this is just, as an analyst, I want more data. I want a better, more comprehensive, accurate understanding of the company. And this is a subscription business. I want to know how many subscribers they have. Netflix is saying, actually, we don't want you to see our business in full.

10:14We don't want you to have a comprehensive understanding, likely because they think, you know, we don't think you'll like what you see. But doesn't this just kind of annoy you as an analyst and as an investor? Well, there's a lot of things that annoy me. Look, the question is, should a company in a certain sector be required to have certain disclosure around certain top? If you're a subscription business, you're described as a media company with a subscription component. Should they say you have to report average revenue per user? Should there be recording requirements just as they have a definition of EBITDA?

10:54The bottom line is companies have kind of been just muscling around analysts and the investor public for a while. And my friend, Richard Kramer calls it, most analysts, sycophants and stenographers, that the only analysts that get access to the company and the CEO are people who are willing to basically smear Vaseline over the lens and make them look good no matter what. I agree there should be some sort of, I don't know, standard metrics. Meta's revenue increased more than 27 from last year. That's incredible. A company of this size up this much. The share is falling 15%, similar to Netflix. I think a lot of that, the market will always look for excuses around why the stock got taken down.

11:36I think a lot of times it's just, it's kind of Occam's razor. I think it's just that the stocks got out a little bit over their skis. I mean, these stocks have had such incredible growth. I think the market was just looking to let a little air out. And also the AI investment thing, it basically kind of connotes that we're entering a new arms race called AI, which is exceptionally expensive. and I wonder if investors thought, okay, the year of efficiencies that we really loved is coming to a close and we're going back into this investment phase in AI. And while AI holds great promise, the one thing that's guaranteed, the reality is it just costs a shit ton of money.

12:13And so they took the stock down. Any thoughts? I would bet that a lot of investors were having flashbacks to a few years ago when the company decided that they were going to spend 10 billion a year on the metaverse. And as we've discussed, and as you predicted many years ago, that was a terrible idea. That's been proven as measured by VR headset sales or lack thereof. The difference to me here is AI is not the metaverse. And unlike the metaverse, which had basically no relation to meta's underlying business, which is advertising, AI can do a lot for meta's ad business. It can optimize the algorithm.

12:55It can boost engagement. It'll improve targeting, which will increase usage by advertisers. It'll also allow meta to increase prices on their ad sales. I mean, the upside on AI for meta to me is huge, and it's right there for the taking. So when I look at this, my initial reaction is that investors have probably unfairly punished meta here, and I think it's because they're conflating spending on a terrible business, which is metaverse, with spending on a great business, which is AI. Yeah, no, AI, AIO. I really hope this AI thing pays off because the amount of money and hype around this shit is just, or that it destroys humanity.

13:33I mean, our expectations are just so big one way or the other. Yeah, yeah, we'll see. I think everyone's wondering, at some point, we're going to have to get to the show me part of the show where just the staggering amount of money that's going into this thing is going to, they're going to have to show signals or start reporting hard metrics around it. on how this starts to pay off. I think they'll get another sort of year of leeway, but at some point people might go, is this a lot of jazz hands? And because the investments they're making here are pretty extraordinary. FIFA and Apple are nearing an agreement.

14:08Basically FIFA and Apple want to recreate the World Cup. I'm super excited about this. I wonder how many games these young men can play, and they are young men, because between the FA Cup, the Euros, the thing I'm going to in Germany, the domestic leagues, La Liga, the Prem, etc. How many tournaments can they support? But when you have Apple and FIFA behind you, it's pretty valuable. And Apple has a reputation for doing things in a very high-quality way. FIFA has a reputation for being corrupt motherfuckers, hiding in between the nether-netherland of international law or the lack thereof. So, but Apple SD Pockets, they need something to really kind of ignite Apple TV Plus, so to speak.

14:56I think it's a great idea. I'll go. What do you think? I think it's a really good idea. I mean, I find it strange that the headlines are reporting it as a new tournament. It's a reframing of a tournament that already exists, which is the Club World Cup. And that's a competition that basically takes the best team from each continent and has them play. And then we find out who the best team in the world is. What's interesting is that it's not a very big deal among football fans compared to, say, Champions League. And I think the reason for that is because it includes all these teams from outside of Europe, and those teams just aren't any good.

15:34Like last year, the final was between Man City and this no-name Brazilian team, Fluminense. Now, what's different about this tournament is that it's now going to take multiple teams from each continent, which crucially means it's going to take multiple teams from Europe. So now you're going to see Man City versus Arsenal, Chelsea, Barcelona, Real Madrid. Those are the games that make all of the money. So I think this is a huge deal for Apple if it goes through, because it's possible that this new reframing of an existing tournament could become the most culturally relevant competition in all of football, besides the international World Cup.

16:10So I think if this works, it would be hugely profitable. I was also wondering, just as a brand guy, if it represented a seeding or a transfer of brand equity and passion from national brands to club brands. In other words, do you have more people more passionate about Liverpool, Man City, and Chelsea than you do about Team England? Yeah, I think that's a great point. And I'll bet there's a lot more money in it. Plus, they'll be doing it every year. I mean, the World Cup's only every four years, same with the Euros. Champions League generates more than$2 billion per year. If this is the ultimate tournament, I don't know, maybe it'll be generating double.

16:47This deal's worth a billion. Also, just as I think about it, the cost to put it on is probably less because it can't be inexpensive, both from a capital and a human capital standpoint, to pull Bukaya Saka from Arsenal and have him train with the Team England and get to know the players, new uniforms new coach like a new kind of operating dynamic as opposed to all right arsenal just head to atlanta for the game so this to me feels like a winner yeah tick tock hello ladies i i look you nailed it i said on bill maher two years ago i like to name drop uh did i tell you i'm going on bill maher tomorrow by the time this says you'll have already been on it that's right get this get this back to me i'm going on with don lemon and like hold on rfk jr what should i ask rfk or what we're going to be in the overtime panel discussion together what should what should what would you say to rfk jr on the overtime panel on bill maher what's your workout routine he's in good shape he's 70 years old and he's in really good shape yeah yeah no i'm gonna ask him that you and rfk yeah me and rfk jr do you have a plan for what you're gonna ask him i guess i would ask him like is your radical narcissism and reckless views on vaccines, A, going to accidentally elect a fascist and create tremendous unwarranted death, disease, and disability among children.

18:14There's that. That's probably where I would kick it off. Shit, I don't know. And then Don Lemon, me and DiLemon, the very handsome Don Lemon. Anyways, I'm excited about that. Oh, anyway, I'm sorry, TikTok. Like, I'm thrilled about this. I think people get it wrong. I think that they're not going to lose their TikTok. I think this is smart. I think we're going to look back and across a bunch of things we regret about big tech. One of them will be letting the ultimate propaganda tool in to create a frame through which our youth views America and the rest of the world. I think it's stupid. I think Americans are easier to fool than convinced they've been fooled.

18:49And I think that's what's going on here. We do need systemic wide privacy legislation, but there's no reason why we can't walk and shoot gum at the same time. And the thing that I think the media and people miss is that it's framed as a ban and, you know, it's all or nothing. And I just don't think that's accurate. I think we're probably going to see an actual divestment once they're forced to divest. They got 12 months to negotiate with the White House to figure out some sort of accommodation and figure out, is there a way we could make you comfortable and continue to operate here? Saturday was literally one of the best days.

19:24This is how old I'm getting. I couldn't break away from C-SPAN. And I started calling people saying, this bill might go through. What the fuck are you calling me for? But in one fell swoop, we passed a bill for aid to Ukraine, aid to Israel, and forced divestment within a year of TikTok. And I was just, I thought all three of those things are really important. I think Speaker Johnson deserves credit. So, but, yeah, I've wanted this for a couple years. And I thought it was going to happen. I'm glad it is. But, again, I don't think anyone's going to lose their TikTok. We'll be right back after the break with a look at Tesla's earnings.

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21:44We're back with ProfG Markets. Tesla reported worse than expected earnings for the first quarter, with revenue falling for the first time since 2020 and profits dropping more than 50 % year over year. The company also burned through$2.5 billion. That's its largest free cash outflow ever. However, Elon Musk also vowed to launch their more affordable vehicles as soon as 2025, and the stock rose 14%. Scott, this was, by almost every metric, a pretty awful quarter. Why do you think the stock rose? I don't know. Maybe it was the opposite. To date, it's been the worst performing stock in the S &P. So maybe there's some people who felt it was oversold and came in, Musk has, you know, obviously a reputation as someone who just has an incredible insight into how to leverage technology or new technologies.

22:38So right now, the company is playing a serious game of jazz hands. They're like, let's talk about our energy revenues and the margins there. Let's talk about AI. Let's talk about autonomous robo taxis. Let's do anything but talk about our core business, which is an automobile business, which is like any other automobile business, getting increasingly shitty and hard to maintain profits in, and you're seeing that at Tesla. And the markets seem to really like the conversation around going all in on AI. I think it's sort of a couple of things that people felt maybe the stock was oversold, although I don't think that's the truth at all.

23:08I think it's when you look at it relative to other big tech companies, it trades at a higher multiple than big tech. And if you look at it relative to auto companies, it trades at an insane multiple. So they want to pretend they're anything but an automobile company. And it seems like he emphasized in the call that he wants to really highlight or pimp out the fact that they're buying so many of these GPUs and says they're going to buy more. It's like, don't look at the automobile side of the company. We're AI, right? So he's also talking about a new, more affordable EV. I just think that's crazy.

23:43I don't think he's going to win a war in affordability against China with BYD. I mean, BYD's trading at an EV to EBITDA of, get this, of six, and Tesla trades at 35. I mean, Google, Meta, and Microsoft are 2021-26. So Tesla, whose business appears to be in structural decline, trades at a higher multiple than these amazing companies with IP and, you know. Yeah, the real AI companies. Meta's growing at 27 % and trades at 21. So I just think, I think, the market on this day, at least, seem to think that A, was either oversold or that Musk plus a massive investment in AI is chocolate and peanut butter.

24:25Yeah. Elon said, I mean, his quote was, if you value Tesla just as an auto company, you fundamentally have the wrong framework. And he also said, we should be thought of as an AI or robotics company. The auto business, as we've said, did terribly. Delivery's down 8%. also seen price cuts so revenues down 13 gross margins down from 19 to 16 the list goes on and it makes up 80 of the total business do you buy this tesla is more than a car company argument no and i want to identify as a giraffe i mean i just look it's an amazing automobile company it deserves to trade at the upper range of what automobile companies trade up but this is what they do.

25:13They wrap steel around a battery and four tires, and they do an amazing job of it. I think it's an amazing car, but he wants you to believe it's anything but what it is. He actually has track record in AI is pretty, I don't know, pretty disastrous. He was involved to his credit. He had, he's a visionary on AI, got involved very early in open AI, but he doesn't know how to manage it or turn it. I mean, arguably the stupidest decision in business over the last 10 years from a wealth standpoint, not that he needs it, was Elon Musk leaving in a huff from open AI. And I get the feeling he goes home every day and twists the legs off his Barbie doll or kicks the dog and thinks, fuck, I could have owned 20 or 30 % of open AI if I just wasn't such an asshole.

26:00He's playing catch up in AI. And there's just no doubt about it. So I don't, again, look over here. Don't look at my core business because I want to pretend I'm something I'm not. We've also been hearing a lot about robo-taxis. Earlier this month, Elon tweeted that the robo-taxi would be unveiled in August. August 8th was his date. And then he also said on the earnings call that this robo-taxi fleet could be, quote, the biggest asset value appreciation in history. But the report gave us no details on the rollout. It gave us no details on any regulatory approval. It didn't really give us details on anything.