Prof G Markets Podcast Summary
Episode: Meta’s AI Promise, Microsoft’s Disappointing Beat & Why Google Should Spin Youtube
Release Date: November 4, 2024
Hosted by Scott Galloway and Ed Mylett
Vox Media Podcast Network

Introduction

In this episode of Prof G Markets, hosts Scott Galloway and Ed Mylett delve into the latest developments in the capital markets, focusing on the earnings reports from major tech giants—Google, Microsoft, and Meta—and explore strategic moves such as Google's potential spin-off of YouTube. The discussion also touches on Reddit's impressive financial performance, Eli Lilly's challenges with its GLP1 drugs, and Elon Musk's ambitious AI venture, Xai. The hosts provide insightful analysis, backed by data and their expert perspectives, making complex financial news accessible and engaging.

Global Economic Landscape

[02:37] Ed Mylett:
Ed begins by contextualizing Russia's hefty fine of $20 decillion dollars imposed on Google for blocking its News channels. He starkly compares this figure to the global GDP of $100 trillion, highlighting the absurdity and emphasizing that such penalties are not grounded in economic reality.

[07:31] Scott Galloway:
Scott elaborates on the U.S. GDP growth of 2.8% in Q3, noting that while it may seem modest, it outpaces growth rates in other developed nations like Japan (0.3%), France (1.1%), and Canada (1.3%). He underscores that this growth rate suggests the U.S. economy could double in size approximately every 25 to 27 years, showcasing robust economic resilience.

[07:31] Ed Mylett:
Ed adds that with inflation down to 2.1%, the U.S. has managed to control inflation more effectively than many other developed countries, reinforcing the strength of the American economy. He advocates for Vice President Kamala Harris, suggesting that the positive economic indicators make a strong case for her candidacy.

Reddit’s Stellar Performance

[05:07] Ed Mylett:
Ed highlights Reddit's breakthrough into profitability for the first time, boasting $350 million in revenue for Q3—a 68% increase year-over-year. The platform also reached nearly 100 million daily users, propelling its stock to soar over 40%.

[09:55] Ed Mylett:
He praises Reddit's strategic use of AI for multilingual content translation, effectively expanding its total addressable market by making content accessible in multiple languages. This move not only enhances user engagement but also significantly boosts revenue potential.

[10:23] Scott Galloway:
Scott concurs, emphasizing the importance of scaling globally through AI. He notes that Reddit's algorithm changes, particularly the "Hidden Gems" update by Google, have favored authentic user-generated content, further elevating Reddit's visibility and search rankings. As a result, Reddit has become the sixth most Googled term in the U.S., driving substantial organic growth.

Eli Lilly’s GLP1 Drug Challenges

[14:41] Ed Mylett:
Ed discusses Eli Lilly's struggles with its GLP1 drugs, Mounjaro and Zepbound, which have not met revenue expectations. While the CEO attributes the shortfall to supply chain issues, analysts, including those from Barclays, argue that such constraints account for only about 20% of the revenue drop, indicating deeper issues.

[15:22] Scott Galloway:
Scott speculates that the emergence of compounded GLP1 alternatives, which are more affordable and accessible, may be eroding demand for Eli Lilly's branded drugs. He suggests that aggressive marketing by these upstarts and their effective use of new media channels could be siphoning customers away.

[16:49] Scott Galloway:
Scott emphasizes the critical need for Eli Lilly to ramp up its marketing efforts. He points out that despite strong product offerings, insufficient brand awareness—compared to competitors like Ozempic and Wegovy—is hindering sales. He advocates for increased advertising budgets to enhance public recognition and drive demand.

Elon Musk’s AI Venture: Xai

[19:00] Ed Mylett:
Ed shifts the discussion to Elon Musk's AI startup, Xai, which is seeking a $40 billion valuation. Originally intended as a competitor to ChatGPT with a focus on "truth-seeking," Xai's AI product, Grok, has faced challenges in gaining traction and user engagement.

[20:17] Scott Galloway:
Scott critiques Xai’s lofty valuation, comparing it unfavorably to established players like OpenAI and Anthropic. He questions whether Xai's strategy of building its own data centers offers a sustainable competitive advantage, suggesting that Musk's brand may be inflating the company's perceived value beyond its actual market position.

[22:53] Ed Mylett:
Ed highlights the competitive landscape, noting that Xai's ambition to own the entire AI supply chain—from data centers to model development—sets it apart. However, he remains skeptical about whether Xai can sustain its high valuation amidst intense competition and operational challenges.

Big Tech Earnings: Google, Microsoft, and Meta

[26:53] Ed Mylett:
Ed provides a comprehensive overview of the recent earnings reports from the Magnificent Seven tech companies. Google and Microsoft both reported cloud revenue growth above 30%, surpassing expectations. Google's stock responded positively, whereas Microsoft's stock declined due to a cautious revenue growth forecast for the next quarter.

[28:53] Scott Galloway:
Scott adds that Meta's earnings, while strong in revenue and profits, disappointed investors with slightly weaker user growth and increased AI expenditures. This caused Meta's stock to dip by 3% despite a 19% revenue increase.

[31:38] Ed Mylett:
Ed underscores YouTube's dominance in the streaming market, with combined ad and subscription revenue surpassing $50 billion in the past four quarters—outpacing Netflix's $37 billion. He suggests that YouTube, if spun off as a separate entity, could potentially achieve a market cap exceeding $500 billion, making it a formidable standalone company.

[34:53] Scott Galloway:
Scott critiques the capital expenditure (CapEx) strategies of major tech firms, likening their investment races in AI to a "capital as a weapon" scenario. He argues that excessive spending on AI may not always translate to sustainable growth, drawing parallels to the overextended stimulus during the COVID pandemic.

[35:19] Ed Mylett:
Ed emphasizes that companies like Microsoft, Meta, Alphabet, and Amazon account for a significant portion of Nvidia's sales, positioning Nvidia as a crucial player in propping up the stock market through these tech giants' CapEx investments.

Shifts in the Advertising Landscape

[42:39] Scott Galloway:
Scott discusses the monumental shift from traditional media to digital platforms, emphasizing that podcasting is emerging as a powerhouse in the attention-based economy. He predicts that podcast advertising revenues will surge by over 25% in 2025, driven by their increasing consumption and effective monetization strategies.

[45:53] Ed Mylett:
Ed expands on the decline of legacy media, such as newspapers and traditional broadcast television, highlighting how advertising dollars are increasingly flowing to digital content creators on platforms like Instagram, TikTok, and YouTube. This shift not only benefits individual content creators but also solidifies the dominance of major digital platforms in the advertising space.

[48:27] Scott Galloway:
Scott underscores the critical importance of commanding attention in today's economy. He points out that podcasts, despite their growing popularity, still present a significant opportunity for advertisers due to the underutilization of their attention and revenue potential.

Predictions and Final Thoughts

[51:22] Scott Galloway:
Scott ventures a bold prediction regarding the upcoming election, forecasting that Vice President Kamala Harris will secure a decisive victory in January 2025 despite current market odds favoring Trump at 2 to 1. He attributes this optimism to economic growth and a collective desire to stabilize political tensions.

[54:59] Ed Mylett:
Ed reflects on the shift in advertising focus, emphasizing the benefits that smaller, digital-savvy content creators derive from the increasing ad revenues. He criticizes mainstream media's reluctance to adapt, arguing that the true winners are the digital platforms and their content creators who effectively harness the power of social media.

Notable Quotes

• Scott Galloway [02:56]:
  "A GDP number doesn't mean a lot unless it has a benchmark. So just some benchmarks here..."

• Ed Mylett [07:31]:
  "In addition, we have this new inflation data that just came out it's down to 2.1%. In other words, inflation has officially been dealt with."

• Scott Galloway [16:49]:
  "It's interesting. I agree with you. I usually don't like the idea of typically when I walk into a brand and they say they want to show me a brand campaign... I think they need to fire up the ad budgets."

• Ed Mylett [22:34]:
  "And more importantly, Microsoft, Meta, Alphabet, and Amazon account for roughly 40% of Nvidia's sales."

• Scott Galloway [34:53]:
  "The ultimate business strategy has become capital as a weapon. Mark Zuckerberg goes, we have access to cheap capital. So I'm going to outspend you."

• Ed Mylett [51:22]:
  "I'm predicting that Vice President Harris is going to win the election. The gambling markets say that it's 2 to 1 in favor of Trump."

Conclusion

This episode of Prof G Markets offers a thorough examination of the current state of major tech companies, the shifting dynamics in advertising, and the broader economic indicators shaping the market. Scott Galloway and Ed Mylett provide nuanced insights into how companies like Reddit are capitalizing on technological advancements and market trends, while also critiquing the excessive capital expenditures of giants like Meta and Microsoft. Their analysis underscores the importance of strategic marketing, brand awareness, and the ability to adapt in an ever-evolving economic landscape. Additionally, their bold election predictions and observations on the media shift highlight the interconnectedness of politics, technology, and market performance.

For those seeking to navigate the complexities of the capital markets with actionable insights, this episode serves as a valuable resource, distilled from expert commentary and real-time financial analysis.

Notable Resources Mentioned:

• WatsonX by IBM: AI deployment platform
• Polestar 3: Electric SUV by Polestar
• GLP1 Drugs: Eli Lilly’s Mounjaro and Zepbound
• Xai (Elon Musk’s AI Startup): AI competitor to ChatGPT
• YouTube vs Netflix: Comparative revenue analysis

Timestamps Reference:

• Economic Overview: [02:37] - [07:31]
• Reddit’s Performance: [05:07] - [10:23]
• Eli Lilly’s Challenges: [14:41] - [16:49]
• Xai Discussion: [19:00] - [22:53]
• Big Tech Earnings: [26:53] - [38:29]
• Advertising Shifts: [42:39] - [51:05]
• Predictions: [51:22] - [54:59]

Note: All timestamps correspond to the transcript provided and may vary slightly in the actual podcast episode.