Big Technology Podcast - Tech Stock Armageddon — With Rich Greenfield

Episode Date: May 4, 2022

Rich Greenfield is a founding partner at LightShed Partners, and a preeminent analyst in the tech and media world. He joins Big Technology Podcast this week to discuss why companies like Netflix, Snap, Meta, and Spotify are getting crushed in the public markets. Join us for a discussion about tech stocks that digs into the broader story of what's happening to the global economy.

LinkedIn Presents Hello and welcome to the big technology podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. I am so, so excited to bring you this episode today because The economy is absolutely nuts. I don't know how to make sense of it. But today we have somebody who does. And Rich Greenfield is here with us.

He is the founder and a partner, founding partner at Lightshed, which is a great group that does analysis and all the most important companies in tech. Rich, welcome to the show. Thanks for having me. How do you deal with a moment like this? Is it always this crazy or do you, how do you wrap your head around the fact that, you know, there's so many different countervailing facts. factor, so many things impacting. I couldn't imagine being an analyst right now. It must be so tough to look at what's going on and make predictions and figure out how to assess companies. Well, I think from a really high level, you've got to take a step back. Like literally

you kind of step out of your body and sort of think from a really high level. Like, no one's ever seen this before, right? And what I mean, you know, we've seen inflation. We've seen recessions. None of that is new, Alex. That's all old news. There's models and ways of looking at those things that we understand. What we don't understand is the world has gone through a multi-year pandemic, global pandemic, and things that we never expected to happen, right? Like we were stuck in our homes for an extended period of time. People are frustrated with not having gone on vacation and gone to see live music. And so part of the challenge with the current environment is how much has behavior actually changed versus how far have we shot

inadvertently up the curve, meaning are we just two years ahead of, you know, if you think about, let's just say streaming video, has the overall trajectory of streaming video really changed, so the conversion from linear TV to streaming TV? Has it really changed? Or we're just two years into the future and it's going to take time for sort of things to normalize before we begin again, sort of a traditional trajectory or traditional adoption curve. And, you know, right now, everybody wants to go on vacation. Like, try to get to Disney World. I mean, Disney World has no international visitation, effectively no international visitors. And Universal Orlando and Disney World have record attendance. Better, higher than pre-pandemic

levels without international travel, just giving you a sense of like how insane this desire to get out of your house is after two years. And Live Nation can't sell tickets fast enough. And so part of the problem is we're doing things differently because of the situation we've lived through for two years. Now, how much of this never changes and just becomes part of consumer behavior and how much of it normalizes, e-com companies or, you know, e-commerce companies, retailers, they're seeing the same types of effects where you blew up far bigger and now you're settling down. I don't think there's a, you know, my guess is you're never going back to where you were before, but the pace, everything looks so screwed up. And then you layer in, you know,

a weakening economy, some geopolitical effects that you obviously know well with the Ukraine overseas and the spillover effects into Eastern Europe. And then a slowing overall economy, potentially recession in Europe, maybe a recession in the U.S. coming. Like, all of that together is insanity in terms of trying to actually make sense of it. which was sort of your point, all of those things, we've seen each individually, we've never seen this pandemic overlay. And so it makes it really, really hard to understand fundamentals. And I think the companies are having a lot of trouble forecasting and understanding where their business is. Right. And over the course of this conversation, we're going to go into some of these

companies and start talking about the factors impacting them. I love how you referenced travel. People are calling it revenge travel now. Yeah. I think that's sort of fair. I've done it. I've done it. Yeah. No, but it's not even revenge travel. It's just like, you know, like go to a restaurant in New York City, like even midday. Like, I mean, people want to be out of their houses. Even with COVID rates rising a little bit again, like people just want to be out. Like the, the unlock to your point, you hit, the revenge, the revenge eating, the revenge travel, whatever you want to call it, like all of these things. Now, you know, a year from now, will we still feel that way? I don't know. You know, it's hard to know how long this lasts and what the impact is. I mean, You can also, you know, what's interesting is you can look at businesses like movie theaters that haven't benefited, right? Like movie theater business is still 40% below where it was pre-pandemic. You know, like, so not everything is benefiting. Now, some of that may be just behavior changed over the course of the pandemic and is never

fully going back. And so, again, every business has its unique circumstances and it's very, very difficult right now to really understand what the consumers think. Right. So let's try because I think I want to start with, you know, one of your home territories, I feel like one of the places you're most comfortable with, and that's Netflix. And you mentioned in your opening remarks that there's, there was this feeling in the market that we didn't really know whether people were going to keep these behaviors forever or go

back. But the market certainly seemed to believe that Netflix was going to be value, going to, you know, be this behavior that people were going to. keep forever. The hardest thing to do in a consumer business is to change a behavior. We are all inside. We all sign up for Netflix. Stock goes up to $630 a share. All of a sudden, you know, the pandemic starts to ebb and people stop subscribing to Netflix. It's, you know, and it shocked the market. And now they're under $200. So from six something to under $200, right? They have a third of their value less. Why did the market think that this was going to be a phenomenon? And is it actually

that's surprising that the subscriber number is contracted. Well, I mean, I just want to throw out another one for you. I mean, Disney, which is trading right now in the, you know, I think around $112 a share, Disney peaked at $190.19. Not that long ago, right? I mean, the excitement over streaming, this wasn't just about Netflix. I mean, Netflix subscriber growth has certainly slowed pretty dramatically in the last couple of quarters. Disney's has slowed pretty dramatically. You see both companies now talking about getting into advertising to sort of restills. stimulate growth. You know, you grew multiple years of growth during the pandemic. The question

now is, has the total addressable market change? So what I mean by that is, what is the global number of households that are going to sign up for a streaming service? Netflix has 220 odd million. Disney has over 100 million. Is the ultimate number for a diversified, you know, broad streaming service. I think before the pandemic, the view was, you know, there would be six, seven, eight hundred million. Jason Kailar, former head of WarnerMedia, I think he came out, you know,

a month or two ago and said, I think there'll be one of these companies going to get to a billion global subscribers. So obviously when you're, correct. When you think about, you know, 100 to 200 million subscribers, Netflix or Disney,

those are obviously small numbers relative to even 600 to a billion. That shows much more growth. So the fundamental question is, has the total addressable market change? Like, where are we just wrong? Is the price people are willing to pay to get there much lower? Or is it just, it's going to take a little bit longer because we sped too far up the curve and we sort of need to catch up to where we otherwise would have been and that, you know, sort of work through the pandemic effects?

Is there more competition? There is. But, you know, again, the competition is far more domestic. You know, if you think about sort of where we are in the world, you know, Peacock doesn't exist in many places, most places in the world other than the U.S. You know, Paramount Plus is, you know, only starting to expand overseas. Like a lot of these services are not truly global other than Disney and Amazon. So I don't really buy that this is competition outside the U.S.

I do think, though, the single biggest reason, if you had to look to one that matters, I think Netflix has done a really good job of providing a broad array of content. I think what they haven't done a good job in the last 12 months is must see like zeitgeist content. And I think that's, you know, obviously Squid Game broke through and they actually had a really good quarter when Squid Game came out. But if you were to say sort of what shows have sort of really broken out on Netflix and really entered the zeitgeist, I think they've struggled with that. You know, Stranger Things is coming back now, but that's a four-year or four-year season old show. Like, if you were to say new series with all the money, you know, Netflix is spending $17 billion a year on content, their hit ratio, especially their English language content. I just don't think the hit ratio has been high enough.

And I think that's a large part of the problem that they're suffering from. Right. I will say Squid Game. Man, that was a great show. I think that's my favorite new show that I've watched in a long time. But is it a franchise or is it a one-time watch? I mean, that's what we don't know yet. Yeah, felt like a one-time watch.

And it's definitely not enough to carry a company in the way that investors were expecting. Can you build up? Yeah. What I'm saying is like, can you create things that have ongoing lives? And I'm not saying it's easy. Yeah. And look, part of the problem is maybe we won't see as many of them going forward because in a world of so much, maybe everything becomes a little bit more disposable than it was in the past.

You know, are there fine dining experiences you want on a recurring basis or is everything sort of become fast food. I think we're still figuring that out, obviously. But the number one takeaway for the near term for investors, right, is the growth trajectory of streaming looks slower. Maybe the ceiling is lower, maybe not. But certainly the trajectory or the pace of growth looks slower. The ability to raise price looks a little diminished.

And with more competition overall for content creation, cost structures are going up. So usually when revenues come down or revenue growth slows and costs go up, that's not a great recipe for stocks outperforming. Right. And add on top of that weakening consumer sort of global economic pressure. And I think that's sort of, you know, if you think about why Netflix has pulled back where it is. And again, if it was just Netflix, I think people would might even be less worried. They'd go, oh, it's a content issue or it's, you know, but I think the reality is when you see Disney going, you know, shifting to advertising, you know, both companies are sort of. sort of signaling that there's a larger issue. And, you know, is it the consumer weakening? It's hard to tell. But I think that's one of the fundamental questions that everyone's struggling with right now. Right. And there's consumer weakening things. So I had a number, I mean, we've just blown it right into the episode, which I love. But I had a number of macroeconomic

issues I wanted to talk to you about. Sure. And one was inflation. I mean, you'd have to imagine that if your money is worth 92 or whatever it is, 8% less than it was, you know, the you know, a year ago, then, um, you're going to cut corners in some places. I mean, wages aren't going up commensurate with that. And so now, like, now maybe Netflix is a luxury good that people don't want. How impactful is that? You say that. I mean, look, I think there's probably, look, there's probably some truth to that, especially at the fringes. I mean, you know, I think, remember, Netflix is priced above the competitors and they still expect to grow subscribers for the year. And so, you know, in terms of like, it's not like people are flooding out of Netflix and

there's some massive spike in churn. I think they said there was like a quarter of a basis increase in churn. So it's like, you know, we're not talking about a major shift in the churn dynamics. But, you know, I do think from the standpoint of the consumer, you know, when the cost of eggs goes up, when the cost of gas goes up, all of it is playing into what you spend on media entertainment. I mean, look at the cable bundle. If you looked at Comcast results last week, Comcast lost for 500,000 subscribers. Remember, they're paying $85 to $100 a month, not, you know, $15, which is the Netflix average Arpoo. But, you know, there are some very big bills. And when you think about the challenge linear TV has is watch time is going down. So you're spending more

every year for linear TV and you're watching less and less. That's a problem. That's a big problem for that business. Absolutely. Next thing I want to talk about is, is Snapchat. Their product is growing tremendously. I think they're up 20% in terms of their users. They've over 300 million a day. A lot of these people watch media, which is interesting. The stock's kind of been a yo-yo, right? They were at 70, they were at, oh, 74, 80 in September, 2021. Now they're at 2952. They've lost 50% in the past year, more than that, September. One of the interesting things they said in their most recent earnings call is that they were on track to beat their numbers. I think they ended up missing on profitability. They were on

track to beat their numbers until the war in Ukraine happened. I'm just curious from your perspective that we can use Snapchat as a lens to look through to see this. But how impactful is this war between Russia and Ukraine on the economy right now? And do you buy these excuses? Yeah. Remember, it's not just the U.S. economy. It's a global. These are global companies and they have European operations and, you know, they have users in Russia. They have users in, you know, the Ukraine and across, you know, Eastern Europe. And as, as advertisers pull back as sort of the overall, you know, economic impact sort of spirals out of those countries, I mean, heck, you know, it's not, it doesn't help that, you know, supply chain in China has certainly gotten worse with all the COVID lockdowns.

It's like there's multiple impacts playing out here. But, you know, I think it's fair to say that, you know, Snap was pretty brutally honest that, you know, growth while still, you compare it to like Facebook or meta's growth, obviously growing far faster. Its valuation is substantially higher, but it's growing far faster. And I think, you know, what people sort of miss about Snapchat is it's effectively a utility for an entire generation. You know, it's not a media company. I mean, is there media businesses within it? As you pointed out, people are watching content and there are and there always will be. But the reason Snapchat exists, the reason users keep growing, the reason people visit, you know, high teens 20 times a day is that it's a messaging utility, right?

It's how you connect with your friend group. It's how you see them where they are on the map. Like that whole piece of what Snapchat is, that that's what makes Snapchat so powerful is that it really is this day. use utility. And I think that's why the business, you know, forgetting about how the market is trading them, because you can't fix that in the short term. You look operational. I think it's why Snapchat, despite all of the mistakes they made a few years ago when, you know, you and I were like, I think wondering, like, is this company going to survive and make it? Right. You know, the reality is, like, user growth really never, it went down a hair,

but, like, they actually had very sticky, you know, monthly active users, daily active users because it's a utility. I mean, it really is something that you can't take away from an entire generation of consumers. The penetration among younger kids, I think 13 to 24 or something is unbelievable. Countries like the U.S., New Zealand, the U.K., more than 90%. Well, I think that's what makes it so interesting to me is that while I think a lot of tech writers and tech industry folks, they spend a lot of time talking about that funny word called Metaverse, right? Like, you've probably heard that a few times, Alex. And when they, as soon as you bring it up, like people look at Mark Zuckerberg. He's like, you know, if you look at the Encyclopedia,

I feel like Metaverse would have Zuck's picture next to it. But if you really look at sort of, who has presence that lives on a map where everyone's friends and family members congregate every single day, like, you know, if you look at sort of sort of the AR experiences that Evan and teams showed off at their partner summit recently for the SNAP partner summit, like the true leader of sort of where the world is going in terms of AR, and I think in many ways sort of like a tangible metaverse that most people can understand, just pull up the SNAP map and look at how 3D bit mojis are living and breathing and interacting with the world around them.

I actually think that Snapchat is so much further ahead in a very practical application of this, and the stock gets no credit. Evan doesn't get a lot of credit, but I do think that what they're doing in AR, at least in the next five to seven years, is far more interesting than anything META's doing. 225 million people, I think, use their AR every day, which is larger than the amount of people that use Twitter every day, period. Yeah. It's pretty impressive.

Yeah, and you combine that with the map, you know, and I mean, I look at the way kids use the map. You just sort of observe them. And it's like they're constantly looking at it, you know, not to see the stores around them, but they want to see where their friends are, what their friends are doing? Are they flying? Are they driving? You know, are they at a theme part? Like, what are they doing? And sort of that, the utility of that, I think, just reinforces the power of Snapchat. And then you start to layer on these media businesses with all of these unique advertising experiences. And the way you can sort of interact with a brand on

Snapchat is pretty unique versus what you can do on other platforms. You know, advertising is just a different experience because you can become part of the actual content creation process on Snapchat. There really isn't that opportunity for brands in the same way elsewhere. Yeah. And look, we're singing the praises of Snapchat, which like it feels kind of weird after, you know, at least I'll say from my standpoint, I was extremely skeptical after Facebook copied stories. They are crushing right now.

I mean, their product is soaring. However, and I think this is like another macro trend that we should really touch on is Let's go back to the stock, down 50% in the past year, down from 80 in September to under 30 now. I mean, it's a huge valuation compression. And I think you had a tweet about this. This is going on all over the tech world. This is not unique to Snapchat. I mean, I think what's unique to Snapchat, you know, probably a couple of stocks I could name where, you know, like, did Snapchat make a mistake?

Did IDFA hurt them more? Did Evan make some bad decisions and how they dealt with IDFA? and sort of the Apple privacy changes, no doubt about it. There's no doubt mistakes were made. But that's not why the stock is sitting at $30. The stock is sitting at $30 is because there's been a pretty meaningful rotation towards companies that are generating lots of cash that are higher margin, more profitable businesses.

And I think in many ways, sort of Facebook's troubles over the last several months has certainly weighed on Snapchat. at, they're sort of the less powerful, you know, not that Twitter is, but like, you know, the juggernaut is Facebook and meta. And I think as they get crushed or they've gotten crushed, I think it's had spillover damage to other names in the sector. And I think that that's very much a mistake because I think the user experience and the advertising experience on Snap is very uniquely different. They don't get a lot of credit for that. Yeah. And I pointed out because I'm curious what your take is on the overall, uh, valuation compression going on in tech.

It seems like it's a rational thing. Like, all right, let me read you a tweet from Dan Hives. I'm curious what you think. He says, this was on May 1st, been a brutal sell-off in tech stocks that is hard to digest for tech bulls like us. Tech earnings bullish for enterprise slash product-driven names outside supply chain issues show demand intact, fighting the Fed thesis we get. And this is the key sentence.

But the sell-off magnitude is irrational in our. opinion. And to that I ask, wasn't the buying irrational? I mean, the way that the money was placed in these companies, that Apple could take 40 years to go to a trillion, two years to go to two trillion. And then another like, what, 13 months to go to three trillion? That also seems irrational to me. So isn't this the market just starting to become normal? You know, the market usually overcorrects in both directions, right? I mean, let's just be clear. I think there's There's some valuations like you mentioned with Snapchat or I can point to Spotify. I can certainly point to ones that just look like we've overcorrected in too short a period of time.

And sort of doom and gloom is sort of at a very high level. You know, I think Ed in, you know, I know we talked about it already, but like ed in a pandemic that maybe made some businesses look better than they are. I mean, you saw Amazon sort of roll over as, you know, e-commerce is certainly slowing and having an impact. I mean, again, I don't want to blame everything on the pandemic, but I do think it has made forecasting and visibility. Has it changed? You know, is there a fundamental change in the shift from physical stores to e-com? Is there a fundamental shift from linear TV to streaming TV? The answer is no.

There's no permanent change. Is the pacing, the cadence different because of what's happened? Yeah, and I think that's what we're all trying to struggle with. And I think in many ways, that's sort of screwed up valuations and people over extrapolated sort of the current state versus the reality of what, you know, a COVID normalization would look like. And part of the reason for that is no one's ever been through a COVID, you know, pandemic normalization period. Yeah. We have no historical context for this. Right.

And also some of the money is drying up from the stimulus. So even Roku in their earnings call said, listen, one of the issues here is that people aren't getting money from the government anymore. So we're not selling as much. I found that to be refreshingly honest. It was interesting. I mean, you know, look on, think about what's happened in the smart, you know, part of the streaming problem may just be a smart TV problem. Think what happened.

Everybody ran out during the pandemic and got a smart TV. Sales were bonkers of smart TVs, connected TVs, all brands. I'm not even pinning it to low end or high. And just because everyone was home more, everyone replaced TVs, like smart TVs flourished. Now you've got the other side of that, right? like inflation's picking up component costs supply chain issues costs for TVs are higher people are getting out more so they're probably less thinking about it they maybe they maybe the coming two or three years bought their TV early because of the pandemic and now they don't need to

replace a TV but you know what what's what has a high correlation to new streaming television sales streaming services right like because you get a new streaming television connected TV what do you do you sign up for streaming services and so that does that Right? So it's certainly just like when you get a new iPhone, what do you do? You download, download, like that's, you know, you Chris, you go the day after Christmas, right? Like everyone's downloading all of the basic apps for an iPhone. Same thing with a streaming or connected TV. So does it fundamentally change the fact that streaming or connected TVs are taking over? No. But right now, between the other end of the pandemic, then add in the supply chain and what's going on in China right now with COVID and how that's hurting the supply chain. It's certainly isn't absurd to go, oh, my God, that's part of the reason why all of these companies are struggling is that smart TV business or the connected TV business is struggling more than it has. And you certainly saw that in Roku, where growth has slowed dramatically. They're talking about a pickup in the back half of the year. But I think until it happens, investors are

nervous and rightly so. Rich Greenfield is with us. He is the preeminent tech analyst that you should be following. Rich Lightshed is his Twitter handle. He works at, Ched Partners, which he founded. And we've talked about Twitter. We've talked about Snap. I've been talking about Twitter like crazy. We talked about Snap. We've talked about Netflix. We've talked about inflation. I've talked a little bit about supply chain and valuations. On the other side of this break, we're going to talk about meta. We're going to talk about Netflix. We'll talk a little bit about Twitter. And maybe I can get them to talk some Apple. We'll be back right after this. Hey, everyone. Let me tell you about the Hustle Daily show, a podcast filled with business,

tech news and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now they have a daily podcast called The Hustle Daily Show where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So search for The Hustle Daily Show and your favorite podcast app like the one you're using right now.

And we're back here on Big Technology Podcast with Rich Greenfield. field. He's the founding partner of Lightshed partners, a great analyst, and always insightful about what's going on in the world of tech and media. Why don't we talk about meta right now? I mean, we should, you know, it is interesting. And I think meta is always a good lens to look at how these Apple anti-tracking changes are impacting everyone. Because, and you mentioned it in the first half rich, Facebook is expecting Facebook meta, you know, et cetera, et cetera, is expecting to, you know, be down $10 billion. It grew again this past quarter, but it still hasn't made up.

And I think what? It had a 17% stock increase in one day, but it still hasn't made up for the losses it took, you know, last quarter. And so I guess the main question here with Apple, which basically stopped apps like Facebook and Snap from being able to track people once they leave their apps, is this going to be a persistent change that's just going to last? Or do you have confidence that these companies will figure out? a way to tell advertisers whether their ads are working at some point? Well, remember, the more

first-party data you have, the stronger you are. And so, you know, part of this is building the own internal systems that, you know, give you your own data. But look, these companies certainly relied on data from elsewhere, and that was, you know, meaningfully helpful to them, especially with, you know, any form of sort of conversion campaigns that they were running, which have been disrupted now. And so it takes time. Look, I'm going to be honest, you know, we don't know what Apple is or isn't going to do in the future. So could Apple make it more difficult? I mean, there are certainly third parties that these companies work with that, you know, are, you know, utilizing data to help target advertising. Does some of those third party companies start to

come under pressure in the coming months? We don't know from iOS changes or, you know, Apple or even and, you know, for that matter, Google and Android making changes and, you know, doing away with certain of the tracking things that they do today would all make my life more difficult. So I think it's pushing all of these companies to think about ways that they can capture more and more first-party data. I think that's just going to be a fact of life going forward. Right. So are you confident that they, I mean, with Facebook, for instance, like, are you confident

that it can mitigate some of these changes that Apple is making? I mean, I know that we know the process. Look, there's no doubt that a. effectiveness is going to go down. Right. That's just reality. Now, should price come down, you know, on a, you know, tie to that and should you have lower pricing? You should.

Remember also, if you ask an advertiser, the reason they advertise on Facebook and Instagram is because it works, right? Like, end of the day, the single greatest, the way to answer your question of sort of like what ultimately happens is, is, you know, are these systems set up to actually move product? Because the beauty of the internet, right, is that you actually can understand attribution. You can understand if an ad actually led to more product being sold in Boston or in New York versus the period last year. Like, you actually can understand user behavior. Unless Apple cuts that off, though. Sure. But, I mean, look, Apple certainly made it more difficult.

Right. But, you know, that's why when you're on Instagram and you go to actually buy on Instagram shopping and you have all of these storefronts creating it, you actually understand exactly. It's no longer being shared from a third-party app. You're getting that directly. So I guess the simple answer to your question is we're going to see a big emphasis on first-party data as the third-party data dries up. Yeah. You know, it's interesting because so that basically means that these companies, companies like Meta,

companies like, who knows, maybe Snap or Twitter are going to try to build, well, Twitter, that's a wildcard right now. They're going to try to build the shops inside their platforms. They've been trying to do that for a while, but now there's really like a compelling need for them to do it because without it, they're not going to be able to deliver performance data. Yeah, or you've got, well, or you've got interesting ways of sort of coming at it too, like, you know, Facebook's doing a lot. You heard Cheryl talk a little bit on the call, click to, you know, click to Messenger to interact with businesses or click to WhatsApp. Like, as you start to use some of your communication tools to interact directly with these stores, it's another way you can build sort of a relationship with the consumer that you understand. can be helpful. Yeah. Well, one thing I did, so I took a long trip through South America

last month. Sounds better than staring at the stock market. Well, I was doing it. I was actually doing like the digital nomad thing. So working in co-working spaces and, and then just kind of like exploring nights and weekends. And one thing that all the businesses down there do is if you want to talk to a business, there's a link on the website or even like within Google Maps. You just message them on WhatsApp and they respond. And it is amazing. The key is they actually respond. They respond. When you, you know, when you see a tweet and you say direct message Delta, you get a response back like seven hours later and it's not terribly helpful. Totally crazy. Like I'm like booking restaurants trying to see if like there's openings and stuff. Well, but that's what I'm getting at, Alex. That's that that's the type

of first party relationship. For sure. Obviously without personally identifiable information, but actually understanding, you know, that relationship, it may be someone's, you know, you know, tracking their shipment or having trouble with a purchase, but like there are ways of sort of better understanding consumer behavior, even if anonymized, that is going to be very helpful to these companies as they move forward. And I think sort of the reason why, I mean, think about advertising. The end of the day, why does any company advertise? Like, I know it's stupid to sort of put it out there like this, but it's pretty simple, right? You advertise because you want to build your brand, either to sell something or to, you know, change the perception so people

buy you in the future like you're trying to drive cars off lots or products off shelves in stores like that is the goal of advertising and so you know to the to the extent that you can actually demonstrate those impacts directly that's the holy grail that has driven mobile advertising over the last 15 years and hey look maybe it works a little less well than it did but what are we comparing it against tv where you're extrapolating 40,000 homes via nilsen build boards that you may or may not look at while you're on the highway stuck in traffic. Like, you know, digital may be getting a little bit worse than it was. Right.

Still dramatically better than a lot of the mediums it's replaced. Can't beat podcast ads. You're here for folks. Get in touch with LinkedIn. Get an ad on the show. I'm kidding. But they do work. You look at every company that advertised on podcasts.

That in newsletters is my shout out. No, I look, I don't disagree that, you know, I mean, first of all, I would sort of say that you're hitting the nail on the head from the standpoint of people don't hate ads. They like ads that are contextually relevant to what they care about, right? I mean, that's why Instagram, remember when Instagram started? Everyone hated, not even, remember Facebook, the original set of Facebook ads? It was like, your mom clicks on a company and all of a sudden you saw the, you know, your mom clicks on Walmart and all of a sudden you're getting bombarded with Walmart ads

because you're friends with your mom. And it's like, I don't like Walmart. Why am I seeing this ad? Because it was this social targeting of ads, and it was horrible. It was bad. Right. Then they realized that, you know, hey, this is probably not the best way to serve ads. We know a lot about you.

Why don't we serve you things that you'll actually be interested in? And lo and behold, the advertising on, you know, Instagram, no matter how many ads they put, I think most people look at the ads almost the way you would look at ads in a fashion magazine, right? Like the ads are content. They feel like they're actually additive, not, they don't distract from the experience. And so, you know, advertising can be a great business. It's just a matter of making it a good experience. So I'm going to segue into one of my own things that I just mentioned, which is, you know,

podcast brings us to Spotify. What the heck's going on with Spotify? It's not like, I don't think the fundamentals of their business have changed. They're down 56%. I mean, Rich, it's amazing. Every stock that we talk about is down this amount. 56% in the past year. And it was 30, it was 300.

It's carnage. It's carnage. It's literally carnage. It's one-third of where it was, November 2021. So it's funny, you know, in, I think it was roughly May of 2020 was when Joe Rogan signed it with Spotify. And the stock just started ripping. Like, it just took off. And that was the beginning of the race where investors fell in love with podcasting. Daniel seemed to be a genius, right? He was going from being the leading, you know, music company to, hey, we're not just going to be music. We're going to be everything audio. we're literally going to dominate time spent, much like a tech company or think about Netflix, which went from sort of comedies and dramas, and all of a sudden they went into documentaries and, you know, movies and, you know, category by category expanding what the definition of

Netflix content was. I think if you look at Spotify, they were looking to own more and more categories of audio, capture more of, you know, Alex and Rich's time spent. And that was a great strategy and people got behind it and believe we're not in an investment environment where people want to look out and believe and so they're seeing you know Spotify which has had margins profitability that is meaningfully negatively impacted by investing in podcasting a CEO or founder in Daniel Eck who literally could care less about investors near-term concerns or the near-term need to show profitability like Daniel has a very clear vision of why he's going to in and how are we's going to get there? Is the stock down? Is it disappointing to people? I'm sure it

is. But Spotify is not altering their strategy because the stock is down. I think a lot of companies would, but they are not responding to the stock market. I think if anything, the competitive dynamics have lessened. I think people are generally less worried about Apple music, less worried about YouTube music. It just doesn't have the same Amazon music. It doesn't have the same competitive threat it did several years ago. Yeah, I'm not touching. any of those services. Spotify is way, way better. So that's what I'm saying. Like, you know, and, you know, you mentioned inflation earlier. What's the other thing about Spotify? They have really never raised price, right? If you've been on the annual regular plan, it's $999, and I think it was

$9.99 when it started, right? Like, it literally hasn't changed. You know, your Netflix bill has gone from $7.99 a month originally to, you know, $15.99 over the course of, you know, whatever, a decade. Like, This is a very low-cost service that offers an ad-supported option as well. I mean, I just think you have a very good kind of model. And if you look at sort of what's happening in advertising where it's getting harder and harder for people to reach consumers, who has incredible first-party data? Your listening history is an incredible, says a lot about you. I'm sure if I looked at what Alex listens to, I would know a lot about you.

Do you have kids? But, you know, like, what type of person are you? Like, your musical tastes are very, very indicative of your overall behavior. So, you know, I look at Spotify. And I guess part of me just scratches my head of like, how has nobody stepped in at this valuation? Why is someone not trying to buy Spotify? Like, it seems like such a structurally important asset. Right.

And if you think about, you know, I always think about the world, there was content Alex and there was distribution. We used to sort of fight which was more important. Content is king. distribution issue. You had Sumner Redstone saying content is king at Viacom back in the day and you had like a Brian Roberts saying no, distribution is king over here at Comcast. And then we sort of went in and said like, you know what? Neither of them are. The real king is the HBO Max or the Netflix or the Amazon Prime like, you know, even Facebook, things that ride on top of these Snapchat to your point just before. Like these things that sort of live

on any broadband pipe and who basically can deliver content from anyone. the platform is really king. And here you have a platform in Spotify that is not that large of a company anymore that has global reach, reaches and touches hundreds of millions of people, you know, every single day. And yet the stock is just hated.

And I think it's just the market is unwilling to look out into the future right now. And they're frustrated by their profitability. And the stock is just not worth. I mean, it's just sort of absurd. I mean, the day Netflix blew up on earning, Spotify was down sharply, businesses have nothing to do with each other. Right. It's interesting that the margins have been compressed due to this investment in original content.

And what's crazy is they're doing it to win. Like, Amazon's not doing that. Right. Apple's not doing that. Like here's a CEO who is not harvesting cash, not paying himself some absurd amount of stock compensation that, you know, who I'm talking about at many of these big lumbering legacy media companies, but not simply buying back his stock to satisfy Wall Street, but looking at it going, I'm playing to win. You all be damned. I know what it takes to win. You know,

you didn't think I could get all these music labels to agree. You didn't think I could change the future from downloads. I mean, you could sit in a meeting with Apple and they were like, no, people want to own music. You're wrong. They would look at Spotify and go, you're wrong. You know that. I'm sure you had those conversations like Apple believed you needed to own music. This goes back to the Steve Jobs days. There was a belief you needed to own the music. Nope, they were wrong. People don't.

It's access over ownership. Spotify is the clear global leader. Apple hasn't even disclosed their user numbers in years. I think it's been three years now since Apple revealed a user number. Spotify has become much stronger as sort of the global leader in this space. I just think you have to be patient. I mean, I always say that this job of sort of picking stocks just requires a lot of patience and a very strong stomach. Yeah.

Well, Elon Musk, Spotify could be yours for the low price of $20.9 billion. Half a Twitter. So speaking of Elon, do you think that Twitter deal is going to go through? Well, look, it legally is going to go through. I don't think the government has much of a, you know, I know there's been some shatter of the government. Elon might bail. That's what people are saying. look, that's the fear here, right? I mean, you know, it's obviously a huge number when you get under the hood and you actually see how difficult, I mean, content, you know, moderation is a mess. And I think unless you work inside of these, one of these companies, you don't realize how much of a mess and how hard it really is to actually do and do it well. And it is a little bit like whackamol. You know, the reality is we don't actually know what Elon's going to do. He's made a lot of sort of

comments, especially before buying it. I mean, you know, like there's articles out today talking about, right, that he wants to find outside investors. But it also sounds like a lot of why he's buying Twitter sounds a lot like sort of owning a sports team and sort of like loving, owning the platform rather than actually, you know, the idea of like what it's going to mean, is it a good business? And how do you raise money? I mean, there's debt on Twitter. I mean, part of the bid is debt on Twitter. It means they have to generate revenue. So you can't just take advertising and strut it off. I don't think Twitter is a business that people will pay to subscribe to. I mean, I pay a little bit for Twitter Blue because I like some of the incremental functionality,

but I don't know very many people that pay for Twitter Blue. I try to not out. Yeah. So that's my point is like it's just building, if you forced everyone into a subscription for Twitter, if Twitter became subscription on, conversation drive. of, yes, I'm sure a lot of the hate speech or a lot of the things that make it unseemly go away, the trolling and all of that, that behavior goes away. So that's good. But you sort of take away the open nature of the platform and prevent people from just jumping in and making a comment, even if anonymous. So one of the things that I've been thinking of as we were having this conversation,

like, you know, I've looked at a bunch of these stock charts. And we've given, you have a little indigestion, Alex? I mean, I'm fine because like I don't, I don't invest in tech. stocks like i'll do like broad market uh funds um but like one of the things that that i think about is is you know we gave some reasons you know inflation apple um you know the covid thing is is it possible that some of this um pullback is just because we might be heading into a recession led led by the fed or you know created by the fed by the fact that they're going to raise interest rates like by a significant amount and maybe people are just like i'm out of here.

well look you see a little bit of the bleeding edge on advertising right i mean advertising is pretty economically sensitive right businesses if their top line starts to slow they pull back on advertising you know should they really do that no they many of them probably should take advantage of the weakness of others pulling back to double down and take market share but i think human behavior is top line starts to slow you start to slow your costs and you're spending and that's certainly what you're seeing in advertising where there is a slowdown in linear television, connected TV, mobile, like all of these categories are starting to see a slowdown. You know, if a full-on global recession takes hold, it's going to get a lot worse.

I mean, there's no doubt about it. If it's really not that bad, in many ways, I think some of it we've already corrected for. And so that could actually create a lot of opportunity. I mean, pessimism is pretty high right now. If you look at sort of where ad-dependent stocks are trading, you're notwithstanding sort of Facebook's or meta's bounce off the bottom last week. But I'd say sentiment's pretty downright, terrible right now, broadly market-wise. People are concerned.

Isn't an amazing? I think it's the price of gas. I think part of it's the price of like milk and eggs, part of it. Like it's just it feels less healthy than it has in quite a while. For sure. I mean, I was, so I'm in San Francisco for the week. It's nice to be back. and um i came out of the i came out of the airport ubers were at one point a hundred and twenty

dollars to get into the city used to be 12 so 10x i mean that's if you did the pool and i'm like to the guy so i eventually like walked downstairs you know get it get a cab cab is 45 um which is double what it used to be and the guys like take a look around like go into the grocery store take a look at you know what the food costs here and and as we're driving he points out the gas in, you know, not even like in a high traffic area is $6 plus in New York right now. Maybe that, you know, New York, I imagine it's higher than, you know, the average and it's still under five. I mean, so San Francisco is kind of like a crazy place. But, um, but this is unbelievable. Look, but you're preaching to the choir is, is all of this has spillover effects

on all of these businesses. And look, I think part of it's probably, you know, despite the robust attendance at Disney World. I think part of the reason Disney's suffering is people are worried that it is an economically sensitive stock. And if things get really bad over the next 12 months, they're going to get hurt by that too, right? I mean, yes, people want to get out of their houses, but if inflation really kicks in and people really, you know, and supply chain keeps, you know, costs high for the consumer on basic goods and services, it's going to be a tough 2023. Right. Forget about how we end 22, but it'll be a tough 23 in that environment. Yeah. That's what's, I think, spooking people right now.

So for the people sitting at home, you know, maybe they're, maybe they have a portfolio that has some of the tech stocks. Maybe they're working, you know, for one of these companies and trying to figure out what to do. Or maybe they're just in general interested because the tech sector is interesting. What do you think they should look at? What do you think they should pay attention to? You know, if they're in in your seat, rich, you know, what would be the things that they should start to take a look at to try to help them get their heads around where this all might. be heading. Well, I think you have to have a fundamental view of has anything change, right? Like to your point on talking about Spotify or Netflix, for instance, has the shift to streaming music change? Has the interest in podcast? I'd say interest in podcast keeps exploding. It's amazing. Is there less listening to podcast though today than there was a year ago? There has to be, right? Like just you're not at home as much. You're not stuck like, you know, video game time spent like all of these things benefited from the pandemic. Streaming television, there was a whole bunch of sort of categories or subcategories of media that had huge benefits from the pandemic.

There's an unwind of that behavior that is certainly problematic. And it's just going to take some time to incorporate that or to understand the impacts on these businesses. Yeah. Yeah, well, the one thing I'll say about the podcast. Sorry, I shouldn't zoom in on podcasts so much. No, it's okay. Look, I love podcasting. Has the advertising side of podcasting worked as well?

as I would have hoped. I mean, in terms of, has it scaled as fast? No, I think it's been a little bit slower. Right. I'm not, you know, not totally sure why. I mean, I think the data and the analytics haven't been there the way they have been in other sort of digital advertising, like whether it's connected TV or mobile.

I think podcasting hasn't had all the metrics it really needed to take off. So I think that's been part of the problem. I think now that you have a lot of ad tech built into Spotify and you're really focusing on the advertising side of Spotify, It's actually, I think, the reason to own the stock, like Spotify, I think can build a very robust business, not just in podcasting for audio advertising, but also carrying that over into their traditional music business for audio advertising. So I remember when people got really excited about Roku several years ago, it was because they thought the ad story could really scale. And I think as you look at Spotify over the next 12 to 18 months, I think people are going to get a lot more confidence in conviction in that advertising. business. And I do think the stock will re-rate. How soon, I don't know. So, you know, like Netflix

also doing advertising. Like, wow. Well, whoever thought that, that was a day. Yeah. You know, that was something I never thought we would see. And I'm still, I don't know about you. I'm still really struggling. And part of the reason I'm struggling is, you know, if you were to ask me, Rich, are there incremental subscribers who if you lowered the price by, you know, think their low end plan is $10 a month? So I think if you lowered that price by a few bucks, would you? Did you get more subscribers into Netflix? Sure, you would. What worries me, though, is that, you know, yes, people will have the choice,

ads or no ads. But I find very often that even though people think the advertising experience on most of these platforms is pretty terrible, they subscribe anyway to save a little bit of money. Like an insignificant amount of money, but they'll save the money because they can. That sounds good until you realize that people who subscribe to streaming with advertising to watch less of that streaming company's content. And if your goal is maximizing time spent, and I think every company, you know,

if you think about anyone who's listening to this podcast and thinking about who wins and who loses, it's a war for time and attention. I don't care whether you're Google or Amazon or Disney. This is a war for time and attention. So it's TikTok's world and we're all just living in it. Well, look, you certainly have new threats that are impacting all of these companies.

It's interesting Zuckerberg seemed less concerned about TikTok than he did last quarter, but I still think he's losing share. Like, the growth rate of TikTok is enormous. I mean, if you use TikTok, it is fun, right? Like, the number one thing that comes to mind with TikTok is it's fun. Oh, yeah. So it's not surprising that they're gaining time spent. And look, if you look at the big news out of Facebook, right, out of meta, is there pivoting away from the social graph of your friends and more towards, quote, unquote an entertainment experience like TikTok. They are absolutely trying to copy TikTok. They are. The difference is unlike Snapchat, where they really cut Snapchat stories is

sort of kneecap their growth on older people. The problem here is TikTok has, they're too late to kneecap its growth because TikTok is expanding and you just look at the demographics of the people you see when you through the feeds. Like it is expanded dramatically. I think it's too late to cut it off. The question is, is can Facebook simply grow faster on their own, but I don't think there's anything they can do to sort of stop the trajectory of TikTok now. Right. Yeah, that'd be tough. Okay, we have a minute left. Last word from you, are we at the bottom or is there further to drop? I mean, look, the economy is certainly getting worse. It is definitely concerning. I think sentiment in the sector feels pretty atrocious.

I do think that this is probably starting to get to be a point where, you know, I'm talking to a lot more investors, clients of ours at Lightshed, who are definitely more interested in buying stocks in the sector than they have been in a while. But remember, I'll leave you with this. A lot of these companies are in the sort of traditional legacy media businesses that are struggling. They've all pivoted to the future, right? Whether they're via Comcast like these companies, have all tried to pivot to streaming because they got all excited about streaming. And now all of a sudden, streaming doesn't look so hot. And so like we've sort of gone from like this souring business to this new business, the problem is the new business doesn't look as exciting

now. I'd say for your, for your listeners, the big unknown question is if door A isn't so attractive and door B is less attractive than it was, is there a door C? Like, what happens? NFTs. No, I'm kidding. Maybe. I don't, I'm just saying we don't actually have a plan C or, you know, like door C. Like, we don't really have that plan hashed out yet. And that's, that's, probably the scariest thing about looking at this whole group is that, you know, streaming's probably going to be fine. And we're probably going to get back on track. It's just going to take a little bit of time. If it doesn't, though, like if streaming really is just a smaller, less profitable business, I would argue a lot of these companies have very big problems that they haven't dealt with

yet. Yeah, just look at CNN, CNN Plus. I can't believe we didn't even get to that. You want my pens? You got my CNN plus. You got to keep those. Those. Those are collectives item. I could put this on for you if you really wanted my CNN Plus. Oh, CNN Plus mask. Yeah. It's going to be a real collector's item. I think you could probably get some money on eBay from those at a certain point in time.

It was great talking with you. Yeah, you too. Rich Greenfield, thanks for being here. Thanks, Nate Gwattany for doing the edits. Thank you, LinkedIn, for having me as part of your podcast network. And thanks to all you, the listeners, if you made it here, please give us a rating. And if it's your first time, please subscribe. Thanks again to Rich.

We will see you all next Wednesday. Thank you.