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Etsy's partnership with ChatGPT is an e commerce game changer. Our thoughts on why it's at its highest level in 25 years. The Shiller PE ratio we bust through the jargon and the White House partners with Pfizer for reduced drug prices and the launch of Trump rx for Tuesday, September 30th. It's Brew Markets Daily and I'm Anne Berry. More market details to come. But first, Pfizer is in the spotlight today, striking a deal with the White House to sell some of its drugs to Medicaid at reduced prices and becoming the first major pharmaceutical company to take part in a new federal initiative dubbed Trump Rx, a direct to consumer website that aims to let Americans buy certain drugs at government negotiated rates, cutting out the middleman and offering many drugs at a 50% average daily discount. Pfizer in turn announced it would commit $70 billion toward research and development and domestic manufacturing, an investment the company says it wouldn't make without added pricing certainty. And right there, the Pfizer CEO also declared that the company had secured a three year grace period from President Trump's promised tariffs on pharmaceuticals made abroad. These are due to kick in tomorrow. So how do we get here? Well, back in May, the President issued an executive order pushing for most favored nation pricing, essential that US Drug prices should not exceed the lowest price paid in other wealthy countries. The White House followed up in July with letters to 17 major pharma firms demanding binding commitments by September 29th. Well, one day past that deadline, Pfizer is the first to reach a deal and IT shares popping up 7% on news. Well, Pfizer stock has certainly needed some help. It is down 24% over the past two years in the wake of criticisms that Pfizer has had lackluster innovation, questionable returns on big acquisitions and insufficient focus on cost control activists. Starboard value took a $1 billion stake in the drug giant last fall and disclosed an expanded holding in August. The hedge fund has been a loud voice pushing for change at Pfizer. Now details of the White House announcement still need to be fully fleshed out. A lot came out today, but there is more that still needs to come, including exactly how Trump Rx will function and overlap with insurance cover. Just one example, we'll keep watching, not least to see how other big pharma players will now inevitably have to fall into line. Keep watching that sector. Coming up, shopping on Chat GPT why the new move with Etsy is a game changer and the bubble indicator the market's watching we break it down. But first, a word from our sponsor, Capital Client Group. Our producer John and I were talking about some other podcasts that we listen to. That's right.
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Some of the best lessons don't come from a classroom. They come from experience.
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On the Power of Vice, a new series from Capital Ideas and Capital Group. You'll hear from CEOs, investors and founders about how they built careers, took risks, and reinvented themselves.
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And if you're starting your own journey, this is the kind of advice you won't want to miss. Published by Capital Client Group Inc.
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The online marketplace Etsy. Let's go there. It was founded to connect independent sellers with buyers, often who are looking for unique and handmade items. It is a virtual craft fair. Well, Etsy just announced a partnership called Instant Checkout that introduces a new way for those bespoke items to be purchased directly through OpenAI's chat GPT. Now, to say that this story caught our eye would be a complete understatement because when I saw this headline print, I thought, this is the game changer for e commerce I've been waiting for. It is another shot of across the bowels of Internet search. So producer John has been dealing with my enthusiasm for this one all day. But let's start with a little background on Etsy.
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Yeah, I'm into it, too. Well, Etsy is 20 years old. It's hard to believe that it is crazy. The the company went public 10 years ago. It's got a public market cap of $6.5 billion. And on the face of it, its numbers recently look good. The stock price is up 25% year to date. The platform has 8 million active sellers, but sales have been a little soft.
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Right. And that 25% share price uplift year to date, John, masks a little bit of more of a roller coaster that's been going on over at Etsy for the past five years. Now, if you looked at what happened during the pandemic, do you remember this? 2020-2021, Etsy's revenue literally doubled. Massive growth in folks at home crafting themselves, hobbies. Hobbies. We saw e commerce grow across the board. Lots of people said it's a poor pull forward, an acceleration of demand that was probably going to come anyway. Etsy was a beneficiary of that. But since that peak, the stock has been down 45%. It has seen increased competition. We've seen people spending less time shopping and certainly contributing to the arts and crafts movement that we saw this become the forefront of. So it's been a bit of a choppy ride for Etsy. Right?
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And Etsy, in its most recent investor relations, it said that they're looking to reignite GMS growth. And that's gross merchandise sales, which have been down 5% year over year. And so this is the jumpstart that Etsy might need to have this kind of commerce come in. Shares of etsy were up 16% on the announcement.
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Right. So I want to just paint a picture of what this announcement means by actually walking you through what my shopping experience was like. So again, partnership announced. This was in the last 24 hours that ChatGPT and Etsy are coming together. So I started the traditional search way. I went onto google www.google.com. i went into the search bar and typed in, I want to buy a photo frame from Etsy. And you know what comes up? I have it in front of me. The top return to that search is a sponsored link from Shutterfly. So nothing to do with Etsy whatsoever. Right. The next return is another sponsored link to another vendor who is also not Etsy. The third link is another sponsored link to a vendor who again is not Etsy. And then finally the link to Etsy comes up and I have to poke around to go find the photo frames. That's a lot of effort and a lot of steps, right?
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Once you even get to Etsy, you still then have to put in the information to get the photo frames.
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And then I need to go buy it if I want to buy it. Okay, so that was my Google experience. Now I'm going to talk about ChatGPT. I go on to ChatGPT, I type into ChatGPT, I want to buy a photo frame from Etsy. And folks, this is what happened. ChatGPT literally returned links, five specific links to five specific Etsy frames. I hadn't specified what kind I wanted, so it took a guess and I clicked on one of those presentations of a photo frame and it went straight through to pick the color, pick the size, click a button to buy. Right? Easy.
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Such an easier experience.
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Such an easier experience. And so here's why I'm super high conviction that this is a game changer. The fact that it is this easy compared to what's going on in search just demonstrates to me that search has got to get its act together when it comes to E commerce. The other reason this jumps out at me and this is sort of my personal commercial experience. Now, I've worked with a lot of brands and a lot of them are trying to figure out what to do in this new world. And John and I, we've discussed this on the show. The younger generation are using now ChatGPT, Claude perplexity, the way that you and I grew up using Yahoo and Google and aol.
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Sure.
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Right. So search is being disrupted by generative AI. And all of these brands I work with are trying to figure out not only how to make sure their websites and their shopper interfaces are search engine optimized, meaning when I go look for them in Google, it's the first thing that pops up as a link to their brand. They're trying to think figure out now geo how they are optimized for returns and questions to generative AI. And this to me was an absolutely killer example of why brands need to figure it out, how Etsy's figured it out and why ChatGPT is going to make this e commerce experience much easier for people who are going there for search right now.
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It's also important for ChatGPT because they have 700 million weekly users. But this is an important future revenue stream because the idea is if you had bought that frame, ChatGPT, OpenAI is going to collect a fee from that transaction. And so this opens up a whole new way for them to get money. And also they're going to license out this protocol so any other vendor that wants to use it can adopt it in the future. We heard as part of the announcement that OpenAI is going to allow Shopify merchants, including Skim, Spanx, Vori, they're going to, they're going to come soon onto the platform.
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Right. They're expanding. So just on Shopify coming on, that was very important to Shopify stock up more than 6% on the news that it was partnering with Chat GPT in this way. But also, John, just to build on what you were saying, which is this is a way in which OpenAI is finding a revenue stream. OpenAI is expected to burn about $115 billion of cash over the next four years. So the fact that they're trying to figure out a way to monetize right now is another important element here. The other thing I would just say as I was watching this unf fold, we've talked about two public companies that are benefiting from this announcement. We've seen Etsy and we've seen Shopify. OpenAI obviously is private, but there's another private company that's been talking about going public for a while that's lurking in this story, and that is Stripe. So the actual power behind that payment link in that experience I've just described is Stripe OpenAI partnered with Stripe. Actually, before this announcement, if you have a chat GPT subscription, your payment information is already in the system. But now if you go buy something from one of these Shopify merchants, a million of them, or from Etsy, Stripe is the power behind that purchase. So there's a lot going on here. We're going to keep watching. And there was just one other thing from Etsy that we thought was kind of ironic.
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Yeah, this was in the earnings report where they highlighted, quote, these marketplaces share a mission to quote, keep commerce human.
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Unless they're in generative AI. Well, like we're going to keep watching this one. Like I said, I think it's just the first of many brand and retail stories on this to come. Etsy stock, interestingly for those who now run off to go and look at the share price chart, was down 10% today on the news that it's moving from being listed on the NASDAQ to the New York Stock Exchange. That's a curious fact and we're going to explore that in another episode. Well, let's take a quick break and when we come back, the market's watching one indicator that's nudging up towards.com boom levels. We're going to break it down. Brew Markets Daily is sponsored by Public, the platform for those who take investing seriously. Public combines a wide range of asset classes with the tools you need to build and manage your wealth, whether it's with stocks, options, bonds or crypto.
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And if you have any questions about your investments, Public has Alpha, an AI powered research assistant that can help you find the answers you're looking for. In fact, AI is woven into the entire experience of Public, from portfolio insights to earnings call recaps. Public gives you smarter context at every touch point.
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Earn an uncapped 1% match when you transfer your old investment portfolio over to Public. So get started at public.com brewmarkets that's public.com brewmarkets full disclosures on public.com brewmarkets John, we have a question from the audience.
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That's right, Jared in New Hampshire wrote. Ann, I recently saw a post on the BrewMarkets X account with a chart showing the Shiller P E ratio hitting 40 for the first time since 2000. What does that mean?
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Well, thank you, Jared. Thank you for looking out for us on X. And yes, the Shiller PE ratio recently hit 39%. Now I'm going to ask you to stick with me as I go through this explanation because it's a little bit dense, but there are some stories about history in here, there's some stories about bubbles in here. So hang on. And we're going to go through this together. Well, the, that chart which showed the Shiller PE ratio hitting such a high level 39.5 earlier this month, September came out right around the time that Federal Reserve Chair Jay Powell said that, quote, equity prices are fairly highly valued. More on that in a moment. But to set the stage, it's worth touching on one metric that we often talk about here when we look at stocks. And that's the good old fashioned PE ratio. That's a stock's price divided by earnings per share. And it's a quick little incomplete way to see how the shares of a company are valued relative to its profitability. For a market wide P E ratio, the value of the S P500 is used instead of a single stock's price and the earnings of all the companies in the index are included in the calculation instead of just one. Okay, so you've made it this far. Now there's a twist on the PE ratio that gets a lot of attention from long term investors and that's the Shiller PE ratio, sometimes called the cape C, a P E short for cyclically adjusted price to earnings. The idea is this, regular PE ratios can be noisy because earnings can jump around year to year and sometimes for reasons outside a company's control. Think about 2020 when earnings collapsed during the pandemic in places like restaurants and hotels out of the gate. This made PE ratios look sky high because the E dropped, even though that was more about unusual circumstances than fundamental overvaluation. Now the Shiller P E ratio tries to smooth out that kind of disruption. Instead of just looking at the most recent 12 months of profits, it averages inflation adjusted earnings over the last 10 years. So that way it filters out booms and busts and gives a clearer picture of whether a stock looks cheap or expensive compared with its own history. Now this metric was created by Robert Schiller, a Nobel laureate in economics and professor at Yale University. He introduced the term in his book irrational exuberance in March 2000 after the S&P 500 Shiller PE ratio hit its highest level on record. That was 44.2 in December 1999. And the dot com bubble burst within three months. So here's why people care. Well, historically when the Shiller PE ratio has been very high, like during the dot com bubble, future returns have tended to be lower afterwards. And when it's been very low this ratio, like after the 2008 financial crisis, long term returns have skewed stronger afterwards. It's not a crystal ball. Markets don't follow it perfectly, but it's a useful compass and reference point. And right now, with a debate around whether AI driven valuations are appropriate, investors are looking at the ratio to get longer term perspective and take a bit of a history lesson. The long term historical average is in the 20s. Right now it's at around 40. The Shiller PE ratio is at its highest level since that 1999.com peak, which is why we are absolutely going to keep watching.
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And if you have a question for Ann, send an email or voice memo to brewmarketshoworningbrew.com oh, I got a little.
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Heated up talking about that. I was so excited. Well, it's 4pm on the east Coast. There's the closing bell. The markets have wrapped for the day. We don't have a ticker tape. We're going to throw it over to our human ticker John that's right, and.
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The market's all ticked up. By the end of today's session, The S&P 500 was up 0.4%, the Dow closed up 0.2%, and the Nasdaq finished up a third of a percent. Here are some market headlines. Shares in Firefly Aerospace ticker symbol Fly were down as much as 24% today after the company's Alpha Flight 7 rocket exploded during a test flight at its Texas facility on Monday. I should mention that all the personnel involved are safe. The eight year old space technology company has had some notable partnerships with NASA, Lockheed Martin and others, but its stock is down nearly 60% from its Nasdaq debut just last month. And shares of Coreweave were up over 12% today after the company inked a $14 billion contract with Meta to provide the social media company with more AI cloud infrastructure. The Meta partnership comes a week after CoreWeave expanded a previous agreement with OpenAI, bringing the total value of that contract to 22 billion. And that came on the heels of CoreWeave's cloud computing capacity deal with Nvidia, worth over $6 billion. It's been a very busy time for Core Weave.
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It's also going to be a very busy evening for us here at Brew Markets because there are a couple of things that we are watching now that the market has closed. The number one thing that is top of our mind, of course, is the looming government shutdown. Folks, we are on the clock until midnight tonight is how long the government has got to strike a deal to make sure that funding continues over through tomorrow. Now, we talked about this on the episode yesterday and talked about the fact that the markets with the threat of a shutdown were continuing on up. And we just heard John say we just closed out September the markets with another great run. Nevertheless, as of right now, it looks as though there is no funding deal in sight and one of the major sticking points is whether or not to have an extension of Obamacare tax credits for millions of Americans that otherwise expire at the end of the year. There's a lot of coverage on the politics around this. There was one particularly interesting article from Bloomberg Businessweek that I'm going to post that goes into the ins and outs of who's under pressure to vote in which direction. But it is entirely possible, I'm just going to throw this out there, that this time tomorrow when we're with you back here on the show, if the government is in fact shut down, that the market resilience that we have seen may change. And the reason is while the market tends to shrug off the anticipation of a shutdown, once in it, the markets historically have tended to drop until there's a resolution. That's one thing we're watching. One other thing that we're just watching, we're going to throw it out there. Some big earnings are beginning to ramp back up. Nike's earnings just crossed the wire, a beat on earnings with surprise sales growth. We're going to be breaking that down. So come back, come get some more tomorrow. That's all for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Ann Berry and produced by John Crateau, Tark Abdelatif and Emily Milian. Our technical director is Denise Rivera, and the president of Morning Brew Inc. Is Devin Emery.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.