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Another Big IPO Headed Our Way!
00:18:52
Figma files for its initial public offering, Amazon ushers in the rise of the machines and Apple noodles its AI strategy.
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- [00:00]
Jason Moser
Foreign. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Jason Moserin. Joining me today, it's Motley fool analyst Lou Whiteman. Lou, thanks for being here.
- [00:28]
Lou Whiteman
Happy to be here. Good to see you Jason.
- [00:30]
Jason Moser
Good to see you. On today's show, we're going to dig into Amazon's robotic Future and Apple's AI foibles. But we begin today with the latest in iPodOS. Digital content creator Figma has filed for its initial public offering. The company plans to sell shares of its class A stock under the ticker fig. And I think it's worth noting too, Lou, this is a three class share structure with this company, A, B and C. Lou, if listeners feel like Figma is a familiar name, well, it should be right? Adobe tried to acquire it for $20 billion back in 2023. That acquisition didn't work out. And recently Figma garnered a 12 and a half billion dollar valuation in a tender offer just last year. So that's a big delta there. How do you think the market's going to receive this?
- [01:17]
Lou Whiteman
So I'm going to take the over. I don't know what the over is, but I'm thinking much closer to Adobe, if not beyond. Look, I mean we've all been talk all of these huge private companies that investors want to get their hands on but are remaining private. It's a pretty impressive business just on its own, right? If you take just kind of pent up demand for these just big trophy assets and hey, a pretty good business doesn't hurt. I think there's going to be a lot of interest here.
- [01:43]
Jason Moser
So when a company files to go public, obviously they file the S1 document with the SEC and that's where we can go as investors and really get all of the information that we want to know about for the most part regarding the company. And Figma to be sure has filed that S1. When a company goes public, when they file that S1, what are some of the high priority things? Just a couple of high priority items that you look for in that document.
- [02:07]
Lou Whiteman
Well, you know, obviously the financials, right. We start with revenue growth, cash position, but you know, for especially these growth companies, these young growth companies, I want to dive deep on customers. You know, you don't want to buy a one trick pony or an idea in search of a market or something like that. You know Figma's case, look, it looks pretty impressive. Nearly half a million customers, a global reach, 85% of its users outside of the U.S. that's when I'm curious, what do you look for there? But I think customers are so important for these young companies.
- [02:39]
Jason Moser
Yeah, I love that. Getting a beat on the customers and understanding the growth and the opportunity that's there as well. I like to look additionally just really quickly for the use of proceeds. I think if you just search that term, use of proceeds, then you get an idea of what the company intends to do, do with the money it raises from that offering. And you would think in most cases they're all just, well, we're going to use it to grow the company. That's not always the case. Right. They do use that money to pay off debt, pay off shareholders that are looking for an exit strategy. And to be sure, that is something that is in this particular S1, it does say that they're going to facilitate an inorderly distribution of shares for the selling stockholders. So I'm not saying that this is a bad reason to go public, but I just think understanding the use of proceeds is always helpful. And then ultimately, just how does, how does the company make money at its very core? At the very simplest level, what, how does the business make money? And it, it looks like Figma, very much like Adobe. It's a subscription business. They have monthly and annual subscription offerings. So I, you know, that that's, those are a couple things that I certainly like to look at. Now, Figma was founded in 2012 by CEO Dylan Field and Evan Wallace. Field said in this letter, and I know you have some opinions on this founder's letter in there, but as a public company, investors should, quote, expect us to take big swings, end quote, including through things like acquisitions. Now, growth via acquisition is of course a risky strategy. It can work, but it is definitely risky. Do you think this type of language implies potential growth challenges? And then further, what were some of your takeaways from that letter?
- [04:26]
Lou Whiteman
Yeah, so I will say the founder letter, I don't know if it was the first thing I used to look for, but I feel like last few years we're upping the game here and it has become something to see. If you look at Field, yeah, he does not lack for confidence.
- [04:38]
Jason Moser
Right.
- [04:39]
Lou Whiteman
It reminds me of Alex Karp's S1 when Palantir went public. And of course both Field and Karp, they were both backed by Peter Thiel, so maybe that makes sense. And yeah, look, this is a management team. They are showing they are willing to try different things. Back in 2024, Figma apparently began investing in digital currencies and they own bitcoin now. So look, I think if nothing else to take away, I think as investors we need to take Field at his word and expect experimentation. If you buy in, you are kind of accepting the added risk that comes with all this M and A and comes with experimenting and you're taking on that risk in hopes that they get it right. And there's really big upside if these big swings, if they actually connect. Right?
- [05:24]
Jason Moser
Yeah, yeah. Well, and I mean, you're right, if you buy in, you're buying into ultimately Field's vision here. He's the biggest individual owner of the company. He owns 51.1% of the voting power going into this IPO. So yeah, if you buy in, you're buying in on his vision. Is this a company ultimately that you're interested in? Like, is this something that investors you feel like should take more of a wait and see approach?
- [05:48]
Lou Whiteman
So I don't know how you feel. I almost never buy into an ipo. I like to give things time to simmer. But look, this is an intriguing company for now at this point in its life. It seems to be onto something and you have a CEO with a real big vision. There's a lot to like, but I think I'll watch it play out for a couple quarters and then see what I think.
- [06:08]
Jason Moser
Yep, I'm with you. I think there's a lot of promise with this business. Clearly, digital content creation is a massive market opportunity, but I'm going to give them a few quarters to see how they behave as a publicly trading company. Well, next up, Amazon's autonomous future.
- [06:21]
Lou Whiteman
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- [06:44]
Jason Moser
Of $45 for three month plan equivalent to $15 per month required. New customer offer for first three months only. Speed slow after 35 gigabytes of networks busy. Taxes and fees extra. C mintmobile.com all right, Lou. It was a matter of when, not if. But Amazon has ushered in a new level of automation. It has deployed more than 1 million robots in its workplaces. Now Amazon has just a little bit over 1 1/2 million employees in total. So I mean, we're getting close to parity there, Lou. The rise of the machines is really something. Does this ultimately meaningfully reduce Amazon's payroll over the course of the next 10 years? Or is this more about Amazon growing into this workforce and ultimately humans migrating to other jobs within the organization and using technology to ultimately make them better?
- [07:31]
Lou Whiteman
I think I'm going to cheat and answer both questions. Yes. All right. Amazon CEO Andy Jaffe, he has been pretty blunt about this. He's been saying they want to use tech to cut the size of the company's workforce in the years to come. And look, a majority of those 1.5 million employees, they work in fulfillment, that is the warehouses, a lot of them. So I do think we need to take him at his word. And the plan is to use this tech to meaningfully get at employee costs in fulfillment. That said, robots need babysitters. There's a lot that need. They need programmers. I am a believer that innovation, I guess when innovation opens windows, when it closes doors, so to speak. So I don't want to be too doom and gloom, but yeah, I think the goal is to kind of replace some of at least these human tasks with robots as they can.
- [08:26]
Jason Moser
And it makes sense to a degree. I mean those are dangerous jobs oftentimes. I mean like take it to the nth degree there where we talk about like a military, right. I mean rather be able to send a bunch of robots to war as opposed to actually having to put human lives in danger. So they're absolutely use cases for all of this stuff across, across, across the world. Now I was talking about this a couple of, couple of weeks back, but this is both fascinating and a little scary, I think. But Amazon is reportedly close to beginning testing human like autonomous delivery methods or in simpler terms, robots that deliver packages to your door. Now I don't know about you, but I've got this vision of like a robot walking down my street or wheeling down my street, however, coming up and dropping, I'm not sure. And now you multiply that to the scale where virtually every house in our neighborhood is being serviced by Amazon at some point or another. I'm not sure I necessarily feel so good about that. Now some 75% of Amazon's global deliveries are already assisted in some way by robotics. But is this isn't just an Amazon story, right? I mean, who are some of the big names we should be watching in warehouse automation?
- [09:41]
Lou Whiteman
Yeah, with those robot delivery people. All I can think about is what a pain it would be to walk your dog, right? I mean my dog would flip. But anyway, more to the point, you know, Amazon was really forward looking here, which shouldn't surprise us. They bought Kiva back in 2012, I think it was. And that's a lot of what they're doing now. But there is the rest of the world outside of Amazon. I don't know if anybody has the scale to do that themselves, you know, the way Amazon has done in house. But if you look at a company like Honeywell, they are spinning off their automation. I really, really intrigued when that business gets spun out because I think that's a real play on this for the rest of the world. And one of my favorites, I got to point to gxo, the logistics company sort of that runs warehouses for Nike, for Whirlpool, for Apple, and kind of just we will be the experts on this and we'll take care of it. I think there's a ton of opportunities here, not just for Amazon, but for everyone as we get smarter about this, this.
- [10:37]
Jason Moser
Well, speaking of opportunities, let's play armchair CEO for just a second here. Now, Amazon already does a lot, right? And they do a lot of things really well. But if you're Andy Jassy, what are you looking at as Amazon's next great growth frontier? Like, what should he be pursuing next?
- [10:55]
Lou Whiteman
I look at the two that they seem to be pursuing and kind of advertising in healthcare. Healthcare scares me because it's going to take someone smarter. But advertising, I'm really, really interested. We saw just a few weeks ago Amazon and Rok announcing a partnership to integrate Amazon ads on our Roku's network. I mean, as a trade desk shareholder, I'm kind of watching that sort of intrigue. But I mean, man, don't mess with Amazon. And I do think there's probably multiple winners, but that's a huge market. And Amazon, it seems to fit into their playbook already. And they've done so well when they've kind of just expanded from their strengths. What about you? What do you see?
- [11:34]
Jason Moser
Yeah, the healthcare one is a little bit. That kind of scares me. That's a difficult one to navigate too. But I kind of always wondered if they were just going to get into banking. Bank of Amazon at some point, something that just scales out and they can just tie it to those prime relationships. But I guess we shall see the advertising opportunity. I think you're spot on there. It's a massive one and they're already working on about an $80 billion annual revenue run rate there and. Right.
- [12:02]
Lou Whiteman
I cheated. I gave him something he already knew.
- [12:06]
Jason Moser
Yeah, nothing wrong with that. Well, next up, Apple's having a little trouble figuring out its AI strategy.
- [12:13]
C
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- [12:43]
Jason Moser
AI continues to dominate the conversation here in the markets this year. However, one of the companies that traditionally has dominated a lot of our conversations, Apple, is kind of facing a dilemma right now in regard to its AI strategy. And I guess the question is, should they continue to try to build their own AI capabilities or should they partner up instead? Reports out there state that the state of the company's AI division is in chaos right now. Just lost one of its most senior large language model researchers. Continues to have a tough time retaining talent to work on AI projects. We've seen the money that Zuckerberg is throwing around there at Meta to recruit AI talent, not to mention what they're doing at OpenAI Alphabet. And on Apple now considering partnering up with OpenAI or Amazon backed Anthropic in order to help power its new version of Siri. Now, whatever leadership decides to do here, I don't think time is their buddy. Lou, what's the level of urgency here?
- [13:43]
Lou Whiteman
So I don't want to like hit Chicken little level of urgency because that implies some dire risk to Apple. And look, Apple's going to be fine and I don't think it's run for the exit. But look, the story for the last few years has been that AI would spark this next great iPhone refresh super cycle. And, well, we're waiting, right? We're still waiting. So it's certainly, I don't know how urgent, but it would certainly just check an important box and give Tim Cook a chance to relax a little more if they can find a way to get this right. So definitely some urgency, right?
- [14:17]
Jason Moser
I would think. And yeah, like you said, I mean, it's Apple. They're going to be fine. We got to give them a lot of credit where credit's due and particularly with Tim Cook, I think. So it starts making me wonder, you know, they've always been, they've always taken this, this sort of position. We don't necessarily need to be first, we just want to be best. So they've done that kind of all throughout their history and just kind of following, sort of looking where the puck is headed and sort of following along until they can come up with that vision to execute. So I wonder, on the surface it really does feel like they've lost the AI narrative, but do you think this was even maybe a little deliberate on their part? Like, do you think they've been taking a bit more of a wait and see attitude in regard to AI and exactly how they should incorporate that into or hardware?
- [15:02]
Lou Whiteman
So I personally don't think it was deliberate. I think that all of the evidence suggests that yes, they really did try and it hasn't gone as they hoped. Look, you know, even Babe Ruth struck out sometimes, right? And you know, hey, the thing is though, that's okay. All of the headlines were piling on like, look, Apple needs to rethink it. Apple screwed this up. But look, there are dozens of companies out there working on these long large language models. They all dream of having what Apple already has locked in the consumer. And so look, okay, say AI hasn't gone as planned, say it wasn't delivered, but Apple now has the opportunity to partner up, bring a wow product to Siri, Spark that refresh cycle and when it happens and if it all goes to plan, I don't think anyone is going to be harping, well, oh yeah, this wasn't plan A. They screwed up plan A. I think shareholders will be pretty okay with plan B. So maybe not deliberate, but it's, it's okay.
- [16:02]
Jason Moser
Yeah, well, and it's, it's. You, you mentioned it. I mean they've, they've partnered up well before, right? I mean Google and Search and I mean in that case Google was paying Apple. And so I kind of wonder in regard to partnership here with, with whichever provider it is, if it'll be one where Apple is paying the partner or the partner is paying Apple for the presence on that massive hardware base, that installed hardware base. Given all of that and given sort of where Apple is today, I mean, what do you make of the stock over the next five years?
- [16:36]
Lou Whiteman
So, you know, I look at this about 29 times projected earnings. That doesn't strike me as scary. It doesn't strike me as really an opportunity. I do think that at some point this next big thing question, they have to answer it and I don't. I mean it's not going to be the car, it's not going to be the tv. I think that if even if not for the business, just for the narrative. So I, I'm not really excited to buy in right now, but I certainly, I mean, if those are the hold it, you got to hold on here. I think, you know, just because it's Apple, worst case is it's just going to be a money printing machine for a long time. And that's, that's pretty good downside in my mind.
- [17:16]
Jason Moser
We'll leave it there. Lou White, thanks again for being here. It's a pleasure as always. People on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers. Advertisements or sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our Show Notes. I'm Jason Moser. Thanks for listening.
- [17:43]
Lou Whiteman
We'll see you.