Prof G Markets: Spotify’s First Year of Profitability + Is Google Losing its Edge?

Episode Release Date: February 10, 2025
Host: Vox Media Podcast Network – Scott Galloway and Ed Elson

Introduction

In this episode of Prof G Markets, hosts Scott Galloway and Ed Elson delve into the latest developments impacting the capital markets. The focus centers on Spotify's inaugural profitable year, Google's potential decline in market dominance, and detailed analyses of earnings reports from industry giants like Disney, Novo Nordisk, and Uber. Through engaging discussions, Scott and Ed provide insights into high-flying stocks, booming sectors, and the strategies of leading CEOs, all while fostering financial literacy and security for their listeners.

Market Highlights

Ed begins the discussion with a concise weekly market review:

• S&P 500: Incremental rise throughout the week.
• Dollar: Declined against major currencies.
• Bitcoin: Exhibited volatility.
• 10-Year Treasuries: Yields dropped.

Disney Earnings: A Mixed Bag

Disney's recent earnings report showcased a blend of successes and setbacks. While overall earnings surpassed expectations, the streaming arm, Disney+, experienced a loss of 700,000 subscribers, leading to a 4% decline in the company's stock.

Scott's Analysis: Scott explores Disney's position in the streaming wars, highlighting the company's struggle to secure the number two spot against competitors like HBO and Hulu.

“They raised prices by 4%, lost 700,000 subscribers, but argue that it's flat, showing some pricing power.” – [06:04] Scott

He further elaborates on Disney's higher churn rate compared to Netflix, emphasizing the sustainability concerns in Disney's streaming model.

Ed's Perspective: Ed concurs with Scott's concerns, pointing out the fragility of Disney’s reliance on blockbuster sequels and the stagnation in original content creation.

“Streaming is in a lot of ways uninvestable over the long term.” – [08:05] Ed

Novo Nordisk: Navigating the GLP-1 Landscape

Novo Nordisk's earnings presented a turnaround amidst a challenging year. The company's GLP-1 category, encompassing drugs like Wegovy and Ozempic, saw significant sales growth. However, doubts remain about the long-term viability of this segment.

Ed's Summary: Ed outlines the company's performance, noting the unexpected success in their obesity drug business despite prior setbacks.

“Wegovy sales more than doubled and Ozempic sales rose 12% year over year.” – [17:50] Ed

Scott's Analysis: Scott raises concerns about Novo Nordisk's dependency on these drugs, questioning whether the company's success is sustainable without innovative breakthroughs.

“Until they come up with another product that is a market changer blockbuster drug, I think the hypothesis has to be that they got lucky.” – [15:48] Scott

Uber Earnings and Autonomous Vehicles

Uber reported a 20% year-over-year revenue increase, surpassing expectations. However, the company's operating income fell short, and weak booking guidance led to a 7% drop in its stock. A significant highlight was Uber's partnership with Waymo to launch autonomous taxis, marking a pivotal move in the self-driving sector.

Ed's Insights: Ed emphasizes the strategic importance of Uber's collaboration with Waymo, positioning it as a leader in autonomous taxi services.

“Waymo is the only one that has figured it out and now they're going to market with Uber.” – [17:50] Ed

Scott's Experience: Scott shares a personal anecdote about his experience with a Waymo autonomous taxi, illustrating the current limitations and safety concerns of self-driving technology.

“It drove like what I would imagine a scared 16-year-old girl would approach the situation.” – [18:04] Scott

Spotify's First Year of Profitability

Spotify announced its first full year of profitability, with gross profits increasing by 40% year-over-year and a record of 35 million monthly active users in the fourth quarter. The platform's innovative features, such as Spotify Wrapped, significantly boosted user engagement and contributed to its substantial stock surge of 13%.

Ed's Overview: Ed highlights Spotify's robust performance metrics, including subscriber growth and revenue per user, while also addressing public criticism regarding artist compensation.

“Spotify's monthly active users hit 675 million, beating estimates by 10 million.” – [26:56] Ed

Scott's Take: Scott praises Spotify's ability to innovate and maintain user engagement but raises concerns about the sustainability of their business model amidst high churn rates.

“Their transition to profitability is a very big deal.” – [26:56] Scott

Discussion on Artist Compensation: The hosts delve into the controversy surrounding Spotify's payment model to artists. They debate whether the platform bears significant responsibility or if the underlying issues are systemic within the music industry.

“Artists have been getting screwed since the dawn of time. ... This is a business and the business has to make money.” – [35:36] Ed

Google's Earnings: Growth Amidst Challenges

Google's fourth-quarter earnings fell short of expectations, with revenue growing by 12%, the slowest rate since 2023. The cloud division's growth also decelerated, leading to a 7% decline in stock value. CEO Sundar Pichai emphasized increased investments in AI and data centers, aiming to ramp up capital expenditures to $75 billion this year.

Ed's Analysis: Ed offers a nuanced perspective, arguing that the cloud revenue miss was due to supply constraints rather than lack of demand. He views the increased capital expenditure as a strategic move to meet rising demand.

“They couldn't keep up with supply. They are investing $75 billion into data centers this year, which solves exactly that problem.” – [46:05] Ed

Scott's Reaction: Initially skeptical, Scott acknowledges Ed's points and revises his stance, recognizing Google's diversified revenue streams and undervaluation in the tech sector.

“I like your take better than mine. I withdraw the comment.” – [47:55] Scott

Predictions and Future Outlook

As the episode wraps up, Scott shares his prediction about the future landscape of podcasting, positing that Stephen Bartlett of "Diary of a CEO" could soon surpass Joe Rogan as the leading podcaster globally. He attributes this potential shift to Bartlett's innovative use of YouTube as a distribution platform, optimizing for visual engagement and audience retention.

“I think he's going to be number one because he understands the medium of YouTube.” – [51:19] Scott

Ed and Scott conclude with lighthearted banter, reflecting on their aspirations and the evolving dynamics of media and technology.

Conclusion

This episode of Prof G Markets offers a comprehensive analysis of pivotal companies in the tech and entertainment sectors. From Spotify's groundbreaking profitability to Google's strategic investments in AI and autonomous technologies, Scott Galloway and Ed Elson provide valuable insights into the forces shaping today's capital markets. Their candid discussions on business models, market sustainability, and industry challenges equip listeners with a deeper understanding of the financial landscape, ensuring they are well-informed to navigate the complexities of a capitalist society.

Notable Quotes:

• “Their transition to profitability is a very big deal.” – Scott Galloway [26:56]
• “Spotify's monthly active users hit 675 million, beating estimates by 10 million.” – Ed Elson [26:56]
• “Until they come up with another product that is a market changer blockbuster drug, I think the hypothesis has to be that they got lucky.” – Scott Galloway [15:48]
• “They couldn't keep up with supply. They are investing $75 billion into data centers this year, which solves exactly that problem.” – Ed Elson [46:05]

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