Prof G Markets – Episode Summary: "Is Reddit Undervalued? + Netflix Goes After Podcasts"

Release Date: February 17, 2025

In this insightful episode of Prof G Markets, hosted by Scott Galloway and Ed Elson from the Vox Media Podcast Network, the duo delves deep into the current dynamics shaping the capital markets. The episode, titled "Is Reddit Undervalued? + Netflix Goes After Podcasts," offers a comprehensive analysis of recent market trends, corporate earnings, and strategic movements within the tech industry.

1. Market Overview: Inflation, Education Costs, and EU's AI Investments

Inflation Surge and Its Implications The episode kicks off with an examination of the latest inflation data. The Consumer Price Index (CPI) rose by 3% year-over-year in January, marking the most significant monthly increase in over a decade. Core CPI, which excludes volatile food and energy prices, climbed by 3.3%, indicating sustained inflationary pressures primarily driven by rising costs in shelter, transportation, and medical care.

Notably, the price of eggs surged by 15% in the past month and 53% over the past year, attributed to a severe bird flu outbreak that devastated poultry populations. Scott Galloway highlights the broader economic impact, stating:

"[...] the market is going to have to absorb the fact that the expected interest rates probably aren't coming as quickly as I thought or in the foreseeable future."
[08:48]

Rising Costs of Private Education The discussion transitions to the escalating costs of private education in the United States. Average tuition at private schools has soared to nearly $50,000 this year, the largest increase in at least a decade. Scott shares his personal experiences and critiques the current private education system, advocating for increased taxation on private schools to reinvest in public education.

"People are still down to pay for this, but it's only a very specific cohort in America who can actually do that."
[04:24]

European Union's Commitment to AI Ed introduces the European Union's ambitious plan to mobilize €200 billion for AI investments. This initiative aims to bridge the substantial gap in AI-specific venture capital funding between the US and Europe. Scott emphasizes the cultural and risk-taking differences that have historically given the US an edge in technological advancements.

"It's like, the people who went to America were risk takers and that DNA just carries through."
[20:28]

2. In-Depth Analysis: Reddit's Q4 Earnings and Valuation

Reddit's Financial Performance Reddit reported fourth-quarter earnings that surpassed analyst expectations, with sales up 71% year-over-year and posting its second quarterly profit since going public. Despite these strong numbers, the stock experienced a 13% decline following missed expectations in user growth, attributed to changes in Google's search algorithm.

Valuation Concerns Scott, a significant Reddit shareholder, expresses frustration over the stock's performance:

"Look, I'm just pissed off now after this drawdown today I'm only up 500%, not 600."
[27:20]

Delving deeper, Scott argues that Reddit remains severely undervalued compared to its peers. He introduces the concept of a "Mindshare Score", a non-GAAP metric developed by their research team to quantify Reddit's cultural significance. According to their analysis, Reddit's market cap is over 60 times lower than what its mindshare would warrant, suggesting substantial upside potential.

"Reddit is still an undervalued asset. It's got a lot of growth potential if they continue to increase revenues."
[27:38]

Growth vs. Profitability The hosts debate Reddit's strategy to maintain profitability instead of aggressively reinvesting for growth. Ed advocates for continued investment to accelerate user growth and monetization, while Scott concurs, emphasizing that returning to loss-making for growth could better align Reddit's valuation with its market presence.

"My advice to Steve Huffman would be growth at this point, just growth."
[37:48]

3. Future Projections: Reddit's Role in the Attention Economy

Reddit as a Podcasting Powerhouse Scott proposes that Reddit is poised to become a dominant force in the podcasting space, potentially outpacing platforms like YouTube and Spotify. He envisions Reddit leveraging its extensive user base and community-driven content to innovate in podcast distribution and monetization.

"I think if you could figure out a way to distribute clips, full podcasts, live podcasts, it. To me, it's just out of central casting to become the Spotify or the YouTube of podcasting."
[30:34]

Attention Economy and Monetization Ed supports this assertion, noting Reddit's vast daily active users and minimal market capitalization compared to giants like Netflix. The hosts agree that Reddit's ability to harness user attention effectively could unlock significant value, asserting that the platform currently "punches below its weight."

"If you were to look at Reddit as a multiple of mindshare, and let's be clear, this is very non-GAAP, Reddit is severely undervalued."
[34:39]

4. Netflix's Strategic Move into Podcasting

Netflix's Podcast Ambitions The discussion shifts to Netflix's exploration of the podcasting realm. The streaming giant has reportedly reached out to high-profile podcasters to develop talk-based video shows, indicating a strategic pivot to diversify content offerings and capitalize on the growing podcast market.

Potential Impacts and Strategies Scott anticipates that Netflix will leverage its production prowess to elevate podcast quality, potentially partnering with influential podcasters to create exclusive, highly-produced content. He predicts that this move could transform podcasting into a more visual and dynamic medium, akin to traditional television.

"Netflix will own a bunch of podcasts. They might start early by just being a distribution platform, learning about it, making some ad revenue, and then they will go vertical and either launch their own or buy some."
[42:57]

Ed counters by suggesting that Netflix may focus more on acquiring podcasting talent rather than the medium itself, drawing parallels to Amazon's investment in creators like MrBeast.

"I think Netflix isn't necessarily going after podcasting, the medium. I think they're going after podcasters, the talent."
[47:51]

Future of Podcasting on Streaming Platforms The hosts debate the balance between production quality and authenticity in podcasting. While Scott envisions a highly-produced podcast format on Netflix, Ed emphasizes the importance of maintaining the genuine connection that traditional podcasts offer to listeners.

"The more highly produced you get, the less real things start to feel."
[54:16]

5. Looking Ahead: Predictions for the Coming Week

Upcoming Earnings and Data Releases As the episode concludes, Scott and Ed touch upon key events on the horizon, including earnings reports from Walmart and Alibaba, as well as the release of February's consumer sentiment data.

Predictions and Market Sentiments Scott expresses skepticism about Tesla's future performance, citing declining sales and increased competition from companies like BYD. He predicts that Tesla's stock will face significant downward pressure in the coming months.

"I think the stock is below 200 in the next six months."
[57:02]

Ed remains cautiously optimistic, acknowledging market resilience but agrees with Scott's concerns about Tesla's trajectory.

"They always find a way to justify it... We'll see."
[58:21]

Conclusion

This episode of Prof G Markets offers listeners a thorough exploration of pressing market issues, from the challenges of inflation and rising education costs to the strategic maneuvers of major tech companies like Reddit and Netflix. Scott Galloway and Ed Elson provide nuanced perspectives, backed by data and personal insights, making it an invaluable resource for anyone looking to navigate the complexities of today's financial landscape.

Notable Quotes:

• Scott Galloway on Inflation Impact:
  "The market is going to have to absorb the fact that the expected interest rates probably aren't coming as quickly as I thought or in the foreseeable future."
  [08:48]

• Scott Galloway on Private School Taxation:
  "I would like to see private schools go up more in costs in the form of taxation and then reinvest it in public schools."
  [19:17]

• Scott Galloway on Reddit's Undervaluation:
  "Reddit is severely undervalued."
  [34:39]

• Scott Galloway on Netflix's Podcast Strategy:
  "They might start early by just being a distribution platform, learning about it, making some ad revenue, and then they will go vertical and either launch their own or buy some."
  [42:57]

• Scott Galloway on Tesla's Future:
  "I think the stock is below 200 in the next six months."
  [57:02]

This summary provides a detailed overview of the key discussions and insights shared during the episode, ensuring that even those who haven't listened can grasp the critical points and analyses presented by Scott Galloway and Ed Elson.