The Prof G Pod with Scott Galloway - Prof G Markets: Virgin Galactic is Going to Zero, Stock as Collateral + Instacart & the IPO Market

Episode Date: March 6, 2023

This week on Prof G Markets, Scott explains how Virgin Galactic’s unique supply and demand constraints make it a terrible business. He also breaks down why Amazon and Better.com are partnering to allow Amazon employees to pledge their stock as collateral for home loans — with a catch. Finally, Scott takes a look at the enduring grocery delivery market and shares his thoughts on why Instacart might hold the key to unlocking the IPO market. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, dollars and 23 cents that's the average tooth fairy payout per lost tooth in 2023 up 16 from 2022 in other news i paid 80 000 for my veneers that's a lot of fucking zip recruiter ads Welcome to Prop G Markets. Today, we're discussing Virgin Galactic's earnings, Amazon Stock's collateral plan, and the grocery delivery market. Here with the news is Prop G media analyst and natural inspiring smile, Ed Elson. How's it going?

How's London treating you? I've had it. No one warned me about this British weather. I just don't. It's really, I can see why they're so like curt and kind of irritable all the time here. It snowed in New York. So I think things are better in London, to be honest. But you said you got 12 hours of sleep last night.

What happened? Daddy hit the ed you said you got 12 hours of sleep last night. What happened? Daddy hit the edibles, slept for 12 hours. I don't remember getting up, which is crazy because I must have gotten up three or four times given that my prostate is the size of a Hindenburg. Oh my God. But yeah, slept for a good 12 hours, feel much better. Was going to work out, didn't do that. Took the dogs for a walk.

That was my big exercise. Anyways, what's going on in the news? Let's start with our weekly? Didn't do that. Took the dogs for a walk. That was my big exercise. Anyways, what's going on in the news? Let's start with our weekly review of market vitals. The S&P 500 continued its slide into March. The dollar climbed, Bitcoin fell, and the yield on 10-year treasuries hit 4% for the first time since November. Shifting to the headlines. Inflation in Germany unexpectedly accelerated to 9.3% year over year in February. That's up from 9.2% the previous month. France and Spain also registered consumer price gains. Tesla is building a new car factory in Monterrey, Mexico. That's its third outside of the US, as well as a lithium refining plant in Texas.

Those were a couple of the biggest updates from Tesla's Investor Day, which sent shares down 8% for its lack of news around a next-gen car model. Meanwhile, Rivian posted negative free cash flow of $6.4 billion for 2022. For context, Tesla had 13 consecutive years of negative free cash flow before its investment started to pay off. It reached a low of $4.1 billion in 2017. Scott, what are your thoughts on this? Look, the Tesla thing, I listened to his big product day. And what struck me is this is a guy that's distracted. It felt as if the IR and comms people gave him a bunch of

talking points the day before because he was more focused on firing people at Twitter than on Tesla for the last six months. And it felt like a lot of jazz hands. I didn't feel like there was a lot of there or there. And I think the market is, granted I'm biased, taking a lot of his statements with a grain of salt because he has a habit of not delivering against a lot of the promises he's made. Now, having said that, I read somewhere that their kind of zero to a million took 12 years, then four years, and now it's like down to seven months. And so they continue to operationalize and recognize efficiencies. I just wonder, it just strikes me again in this sense of, I think the market is

looking for any reason to take the stock back down again. It was at this level about five months ago, it crashed 45%, then it skyrocketed again, making him the wealthiest man in the world again. Now I think it's dramatically overvalued again, and I think we're going to see it come down, but I've been very wrong on this. The other interesting bit here is they're building a factory in Monterrey, Mexico. I believe if you were going to buy, and I might do this actually, if you were going to buy an ETF that's based on a market or a specific geography, I'm very bullish on Mexico. And the reason is that I had lunch with this guy named Jamil Andralini, I think his name is, and he's the editor-in-chief of Politico in Europe.

Just a super impressive guy. And he kind of took me through. He ran the FT in Asia for a long time. And he just sort of ran me through a brief history of China and Xi Jinping's rise to power. And just to be blunt, it's just fucking scary. This guy is literally an autocrat. And I think a lot of companies are totally freaked out and are leaving. And I think the two biggest beneficiaries are going to be one, Vietnam, which has some kind of low cost and is actually more politically stable, strangely enough. But I think the

biggest beneficiary is going to be Mexico because the largest customer is the U.S. And one of my colleagues at NYU, Pankaj Jemawa, did great research around 10 or 20 years ago. And what he found is that trade is much more regional than you think. The nine out of 10 times a country's largest trading partner is a country that borders it. So our biggest trading partners are Canada and Mexico. And for me, Mexico offers this peanut butter and chocolate of less regulation, lower wages, but political stability and great proximity, geographic proximity. So I think you're going to see a lot of investment in Mexico over the next several years. Rivian, it is expensive to build a car. It takes massive investment to build platforms.

You got to think that most of these are going to go the way of Tucker. They're just going to be absorbed and there'll be consolidation. Rivian really did kind of shit the bed. They posted revenue of $663 million versus $742 million. That's about a 10% miss. That's pretty significant. By the way, I'm on the waiting list for Rivian and I get emails updating me on when I'm supposed to get my rent. I'm going to look ridiculous in a Rivian. I can't even imagine how stupid I'll look in a Rivian. Anyways, gross margins and production efficiency are lagging. See above a ridiculously difficult business building cars. And Rivian produced about 25,000 cars in 2022 and expects to double that to 50,000 in 2023 and expects to achieve a positive gross profit in 2024. That will not happen. So Tesla is going to produce 1.3 million cars in 2022.

Rivian produced 25,000. So basically Tesla is still producing about 50 cars for every one that Rivian is. I think, isn't Rivian mostly like Bezos' midlife crisis, date the hot chick, go to space and start a car company because, you know, my dick is bigger than Elon Musk's dick. Is that unfair? Is that unfair? Well, put another way, they're going to supply Amazon's electric van fleet. I think that's why it became such a hot company and probably what propelled it to, you know, being so initially well-received in the public markets. And then obviously it came crashing down. So let's talk about stock performance. In the last

12 months, Rivian's down 70%. Year-to-date, it's off 11%. Ford is up 5%. GM up 15%. And Tesla is up 73% year-to-date. That's after a pretty serious decline. The bottom line is the automobile industry, there's just a million ways to get screwed. We'll be looking at another very unprofitable company in a second, Virgin Galactic. We'll be right back after the break. Stay with us. Thank you. trajectories? And how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both?

And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. We're back with Prof G Markets. Space travel company Virgin Galactic reported fourth quarter earnings and investors were not happy. Net losses almost doubled to $150 million for the quarter. On an adjusted EBITDA basis, that number was $133 million, which missed analysts' expectations. And meanwhile, revenue beat expectations, but the number was basically negligible. It was $869,000 for the quarter. And just for some context, that's five times less than what Cristiano Ronaldo makes in one week. Virgin Galactic shares fell 16% in after hours

trading. So Scott, before we look at these earnings, could you just give us the context on what Virgin Galactic actually is? Well, just to go very meta, it's literally the shittiest business in the world. But what it does is they're trying to be, their mission says they're trying to be the world's first commercial space line. And our purpose is to connect people across the globe to the love, wonder, and awe created by space travel. Yeah, fuck you.

Anyways, essentially their product is for $450,000, you can have a 90-minute suborbital journey. And at that price, it's only expected to generate revenue of $2.7 million per flight, meaning it would have to fly 185 times per year to offset its losses. It hasn't done any commercial flights yet, but plans to in 2023, not going to happen. And the company received more than 8,000 applications of interest, as they say, as of February 22. So Virgin pulled off, to their credit, what I think is probably the most successful PR stunt of the last decade. When Richard went up there and they had cameras showing their trip into space, the whole world was watching. And it was a really dramatic moment.

And when they say 8,000 applications of interest, that's not how many people have actually plunked down $400,000. Generously, generously, it might be 500 or 1,000 people out of the billions of people that saw this. And companies that are usually one of two things. They're either supply-constrained or demand-constrained. Most companies are demand-constrained, meaning that McDonald's would like to have more people who want burgers. Away luggage could handle a million more orders pretty quickly. They're not really hard objects to produce. And then we saw a lot of companies that were supply constrained. A Gulfstream G600, it's very hard to make a commercial airliner or a private jet. So Boeing and Embraer and

Strong Economies or Airbus are more supply constrained than demand constrained. Virgin Galactic is this unique combination of wildly demand constrained. There just isn't that big a market for people who are going to pay a half a million bucks to go into kind of sub-orbit. That's just a pretty limited market. And then supply constraint. Space is a dangerous and expensive business. They have not been able to put these things into the air at any regular basis. They've missed every milestone. They're limited in terms of their supply. So this is literally the mother of all shitty businesses. It's just both. I can't think of a business that's more supply and demand constrained at the same time. Would you ever pay for the flight?

I mean, put all your biases aside. I'm not exaggerating. If someone said every human has to go on Virgin Galactic, unless you pay four and a half million not to go, I would pay four and a half million not to go. I get motion sickness. And I look at data, 550 people have gone into space and 11 have not returned, which means space travel is more dangerous than base jumping. I believe this company goes to zero and it goes to zero one of two ways. One, over the medium term, it's just a shitty business and people realize it can't,

the revenues are never going to catch up to the expenses. Or two, Bob from accounting gets blown up on the launchpad. I really am into this whole life thing. I'm just really kind of enjoying it. I'm going to ride this whole life thing out. So I would never, would you do this? If someone said to you, let's not even say 450 grand, because I know how much I pay you. If someone said, we'll give you 90% off, would you do it for 45 grand? No, no, I wouldn't. But I'm in a completely different position from you. I mean, you have less to live for. Yeah. I don't, I would not pay 45. I wouldn't blow 45 K on basically anything at this point in my life. But the thing that's interesting is, I don't know, it sounds like it's not the price point that's making you hesitant.

I mean, I remember a year ago, you were big on supersonic flights. Yeah, I still am. Yeah. So can you explain how, like, why is that reasonable to you? And then this isn't. It's just, it's a safety and danger thing. I invested $3 million. Was it $3 million?

I think it was $3 million in a company called Boom Technologies, which is trying to produce the first supersonic commercial aircraft in 40 or 50 years. There hasn't been supersonic commercial travel since the Concorde's crash. And I think the market is enormous. I think there's a huge market of people, including myself, that would pay $10,000, $20,000, $50,000. I came home from Miami yesterday. A nine-hour flight just absolutely wrecks me in my age. And Boom Supersonic believes that we're going to be able to get people from at least from New York to London in three to three and a half hours. I think that's a game changer. I just think there are so many people out there

that are running out of time and because of income inequality, just have so much more money than time that they would absolutely pay. I mean, there's people who pay 150 grand to take a Gulfstream across the pond because they get to decide when it leaves. That's actually a fairly big market. There's quite a few people doing that. So if you said to them, get to Heathrow and we can get you to New York in three and a half hours. If you leave here at 8 a.m., we can get you there at 6 a.m. and you have a full day or we can get you home in time to go to sleep. I think that market is huge. And then the progress in terms of propulsion and materials and avionics has been pretty dramatic.

So I think it's commercially viable. There's no doubt about it. It's a long shot investment. There's a lot that can go wrong. This is complicated technology, but it is dramatically less difficult, less dangerous and less expensive to fly along at 50,000 feet as opposed to, you know, going into space. It's just an entirely different game. And finally, Virgin Galactic said that they expect the first consumer space flights to happen in the second quarter of 2023. In other words, now, you know, sometime in

the next couple of months. Sounds like you don't buy that. Yeah. And Rivian will be profitable. I mean, it's just, that's just not going to happen. Yeah. That's just, yeah. Isn't that now? Do they have a planned launch coming up? I don't think this company wants to do a lot of planned launches. I think this doesn't end well.

Yeah. I'd rather this business end because of shitty cash flows than ends because of a flash. And I want to be clear. I was the original hater here. I've hated this thing for a long time. I think anything with the term Virgin on it, whether it's Virgin Galactic or Virgin Orbital, which is actually a better business, is primarily a vessel for transferring money from retail investors to a struggling airline or cruise ship line owned by a very charming and fascinating entrepreneur out of the UK. The whole space thing, there's space tourism,

which is a stupid business and will go away. There's space exploration, which isn't space exploration, it's space execution. Anyone who's stupid enough to go to Mars is mentally unfit to do anything. And then you have space hauling. And that is actually a good business because there's a lot of technology and utility in putting satellites up into the air. And the ability to haul material and equipment into orbit is going to grow 15-fold in demand. But that all plays to SpaceX. SpaceX has attracted the best engineers and the most capital. I think my view of SpaceX is going to be worth more than Tesla, mostly because Tesla's value will rationalize.

But if you look at Starlink, if you look at the Falcon Heavy Rocket's ability to get material into space, what does it cost per kilogram to get stuff safely into orbit? SpaceX, their Falcon Heavy Rocket just beats everything. But space in general is really fun. It's interesting to talk about. It's interesting. It's captured a lot of imagination and CNBC puts, you know, very charming, charismatic people on with Richard Branson to talk about Virgin Galactic as a software company. But yeah, the space is, you know, in space, no one can hear you screaming in space. You lose all your fucking money. Let's go to Mia on the street to see if New Yorkers would pay to go to space. So would you go to space? I would go to space. And why? I'd just check it out.

I think so, yes, actually. I would not. I feel like it'd be a once-in-a-lifetime experience, so I would do it. No. I would also never do that. I feel like space right now is for science, not for tourism, so I wouldn't want to spend my money like that that and also I'm scared. I think I would.

I think the world as it is right now is going through the most and especially in my country. I wouldn't mind a little forever trip to space. I wouldn't mind that at all. I think it was Jeff Bezos who took William Shatner up in space and William Shatner's reaction, I'm a big Star Trek guy, William Shatner's reaction when he came back to Earth, just absolutely, I mean, that guy was, it was crazy looking at that. It almost brought me to tears. And I think a lot of us have this dream, so most definitely.

I think it would be a tour of the lifetime. It's a different perspective, right? So you're in a different area, looking down at where you normally tread, and I'm sure that there's something really beautiful about that. Would you go to space? Hell yeah. And why?

I ain't never been out there before. How much would you pay to go to space? I don't know, uh, 15 grand. Around 10,000 and... Like 20 grand maybe? 50,000 I think is my max right now. I mean whatever the ticket costs, I'm there. I'm one of them types. If you tell me how much it is, I'll go get it.

400k. I'll go get it after I do a few other things. Oh, you didn't mention I had to pay. I found out the exchange rate is actually 1 is to 18 with the dollars, so... The exchange rate is really good in space. Yeah, yeah, but... How much are tickets right now? I think $400,000.

Yeah, that's, like, absurd. Like, go up there. Maybe just stay up there. And are you afraid of blowing up? It wasn't until you mentioned it. You know, I had never thought about the idea of blowing up on the moon until you just mentioned it right now. I was thinking more in terms of takeoff.

Oh, didn't even think about that. So now I definitely am not going to space. I will stay home where I'm probably not going to blow up. That's a good call. All right, that concludes our interview. Thank you very much. Let's move on to our second story. Amazon and mortgage provider Better.com have come up with a new way for Amazon employees to buy a home with stock. Better.com's new product, Equity Unlocker, will allow Amazon employees to pledge their Amazon stock towards a down payment

for home loans instead of using cash. Banks already offer this to high net worth clients, but this program will be a little different in that it will be protected against margin calls. In other words, if Amazon stock price slides, buyers won't be required to pledge more stock as collateral. However, there is a pretty big catch. Employees have to pledge stock totaling twice the value of the down payment loan. And Better.com will also charge a higher rate on these stock-based loans, between 0.25 and 2.5% higher than standard mortgage rates. There is a nice benefit, and that is that the program is available to laid-off Amazon employees who still have restricted stock units. So, Scott, why are they doing this?

More specifically, what do Better.com and Amazon have to gain here with this program? So, Amazon has a million and a half employees, and it incentivizes employees to hold onto their stock. So, it's seen as a benefit, right? I work with a company where I can use my stock as collateral for a down payment on a house. That's a tangible benefit. And by the way, I should disclose, I'm an investor in Better.com. I've invested right before the pandemic. So I invested, I think, in 2019.

But it's a benefit to employees. And say you have stock options that are 200 grand in the money, if you hold onto the stock and the stock doubles, you not only double your equity holdings, but you doubled it on pre-tax income. One of the greatest tax advantage investments in history is the fact that stock grows in value tax deferred. And so that's powerful. So if people believe an Amazon stock is down, whether you think it's cheap or not people believe in amazon stock is is down you know whether you think it's cheap or not a subjective but it is down maybe people think well i finally built up some stock i think it's going to do really well i don't want to sell it but i want to buy a house and i'm willing to take a bit of a hit and pay additional mortgage interest but this is just

simply put a bet on the stock price so they're saying saying that there's this 0.25% to 2.5% premium that you have to pay on the regular rate. And regular mortgage rates in Seattle, as the example, are around 8%. So let's assume that you're paying 9% on that down payment loan and you've pledged the Amazon stock as your collateral. I guess for the first few years, the 9% makes sense. But ultimately, aren't you going to sell your Amazon stock at some point anyway? When would this make sense, in your opinion? So you got to think like a rich person. And this is how rich people think. Never sell, just borrow against your stock. Let the stock continue to grow if you think that the stock's going to continue to go up and the natural trajectory of the market is up.

And you should always look at your portfolio and make sure you're not too concentrated because when you work somewhere, you're investing your human capital. So to invest your human capital and the majority of financial capital in one entity, that's not something you want to do, especially as you get older and you want to look at whether or not you're diversified enough. But this is what employees are saying is, I don't want to de-risk my Amazon stock. I'm comfortable with what I hold and I'm going to borrow against it. You mentioned you're an investor in better.com. Could you just explain why this business was attractive to you, how you got involved. So I co-invest with venture capitalists where I think that the principal or the partner is someone that I know and trust and I think is very smart.

In this case, it's a venture capital firm called Activant that's sort of got the hot hand right now. They've had good years even when other VCs are struggling. They just, I think their big exit was Deliver, a company that just got bought for $2 billion. Anyways, pre-pandemic, they gave me an opportunity to invest in this online mortgage company called Better. And the CEO there has this vision where he said, look, mortgages are still a very complex, labor-intensive product. And how can we use technology to automate and routinize a lot of that process such that we can get people answers faster and then pass that savings back to them. And once interest rates start coming back

down in the mortgage market, I mean, the mortgage market has been a terrible business last 12 months because people don't want to borrow or people don't want to refi in an accelerating interest rate environment. But I like the idea of using technology to try and reduce the costs of something that can be then passed along to the consumer. In this case, the person taking out the mortgage. I did a call with my quote unquote financial advisor. I have a financial advisor for the first time in my life. of these crazy private investments, you may want to think about paying down your mortgages. And I thought, what are you crazy? It's the best interest rate ever. And he said, not any longer. You're going to have to refi. I have a couple of five-year mortgages and they're all coming due next year. And he said, they're going to be more like 6% now. So you may want to consider paying them down because it's no longer just cheap free money. It used to be borrow as much as you could

with something like a mortgage or a margin interest rate because the interest rates are so low. That's no longer the case. What was the rate that you were paying? I mean, that you are paying. I have five-year mortgages on my places in New York and Florida, and I got them at two and three eight. So 2.375, I mean, which is effectively free money. Unfortunately, now I'm kicking myself that I didn't go out 10 or 30 years, only went out five. So I've got to refi them in 2023 and 2024.

Anyways, Ed, you should have told me. You should have, this is your fault, Ed. We'll be right back after a quick break with a look at Instacart and the grocery delivery market. Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should We Begin, which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners, and managers.

Listen in as I talk to co-workers facing their own challenges with one another and get the real work done. Tune into Housework, a special series from Where Should We Begin, sponsored by Klaviyo. Hey, it's Scott Galloway, and on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge,

to give you a primer on how to integrate AI into your life. So, tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. We're back with Prof G Markets. According to an internal investor memo, grocery delivery startup Instacart had a hot fourth quarter. Revenue increased 50% from a year ago, and gross profit rose more than 80%.

For the full year, revenue came in at $2.5 billion. Instacart is also preparing to go public in the next few months. The company filed for an IPO last summer, but ultimately pushed back those plans due to poor market conditions. So Scott, there was a lot of speculation last year that the COVID grocery delivery boom wouldn't last. And that was especially reflected in the markets. You had all these rapid delivery companies that were shutting down their operations. DoorDash stock came down 70% last year. Even Instacart's valuation was cut by around 70%.

But these numbers feel like it's delivery's redemption. So do you think this grocery delivery boom is actually going to be here to stay? It does feel as if delivery, grocery delivery, is one of those enduring features of a post-pandemic world. Total U.S. online grocery sales are forecast to go to CAGR of 11.7% over the next five years, increasing online share of overall grocery spending from 11% in 2022 to 14% in 2027.

I remember thinking that grocery was the last holdout in e-commerce. It was like 2% of grocery was done via e-commerce. Now I think it's accelerated to where the rest of most of retail's categories are. Also, you've seen a culling of the herd. A lot of these last mile delivery companies that fell for a Cosmo or a WebVanish have gone away, that they were just eating so much capital. And these guys feel like, I don't know, you want to call them the Airbnb or the Uber, that space. So this feels like, quite frankly,

these guys just feel like, from what I can see, a juggernaut and the ones that have the scale to get to profitability and to get the best talent and the most capital. Yeah, some of the data, I mean, we don't have that much data on the entire food delivery market. But if you look at individual company performance, things are going really well.

So Uber Eats grew its revenue 30% in 2022. It went from 8.4 billion to 11 billion. DoorDash grew its delivery revenue 35% in 2022. And that's compared to insane growth from 2020 to 2021. I mean, both Uber Eats and DoorDash had those revenues either doubled or more than doubled. But it still feels pretty remarkable that you're still seeing some growth in this market when it felt like i felt at least that i didn't think that i would ever deliver food again once i was able to get outside and and go to restaurants to go to the grocery store but that that actually hasn't been the case like i still get delivery all the time i haven't been into a

grocery store unless it's to buy like alcohol late at night or Advil the morning after the alcohol I purchased. I mean, I just don't go into grocery stores. And let's look at this. Let's look at the EV market and let's look at home delivery of grocery. It's essentially being driven by how bad the channel is. What do I mean by that? The only reason I'm going to buy an EV, I don't like the feel of an EV. I love the throaty, macho feel of an internal combustion engine. It just makes me feel strong like bull when I put the hammer down in an internal combustion engine. I just like it. But the reason I will get an EV is one I like to think that I'm somewhat socially conscious, although that's not really leading it. But the number one reason is the worst retail experience in America

is gas stations. I've always thought this is where I get shot. I don't know where I am, but I pull into a gas station. It's got the shittiest food, the worst retail, the thing doesn't work. It smells like carcinogen seeping into your body from everywhere. And it's just a terrible experience. Really the liberating moment when you have an EV, like the aha discovery moment, is when you realize you haven't been to a gas station in six months and you never need to go back. I mean, it's literally freeing. If you think, it takes you 15 minutes to go in, get your gas pay, and you go into a gas station once a week, I mean, you're talking about 12 hours of an awful experience a year. And then what's the

second worst retail in America? Grocery stores. The majority of America does not shop at Whole Foods. Go into the majority of grocery stores, go to the center of the store, put a blindfold on, spin someone around, take the blindfold off and ask them how long would it take for them to know they're not in 1980. Same stupid cereal brand, same depressed workforce wearing stupid vests with a bunch of pins on them, same bad lighting, same cart that has a wheel that takes you off to the left. It's just grocery stores have literally, in my view, for the most part, not innovated and they are difficult, hard to park at. I never need to walk into a grocery store again. Home delivery of grocery just makes, it just makes a ton of sense. I think it's here

to stay. And then you were mentioning the IPO market. So yeah, it's, we've had so far in 2023, there have been 23 IPOs. That's not many at all. And none of them have been very large or at least large consumer-facing companies. And Instacart seems like it is that sort of consumer well-known brand. Do you think that the fact that it's such a consumer-facing company will have an effect on its ability to sort of revive the IPO market? Does that matter at all? Yeah, because we relate to these companies that we touch and feel. Consumer brands do get outsized press and media attention. But yeah, the IPO market, I mean, we've just had to digest so much shit. Anything that had a pulse got public and anything that even didn't have a pulse got

public. And the market is trying to churn through those losses. And then finally, when it gets off its heels and onto its toes again, and the IPO market opens up, which I think is going to happen in Q3 or Q4 of this year, the companies that this time survived the culling are going to be really strong companies. And the interesting thing about the markets is what you have to realize and should give you humility as an investor is that market dynamics will always trump individual performance. You can be a shitty company and get public in a great market. You can be a great company that can't get public in a bad market. Market dynamics always trump individual performance. So there are some really good companies lining up here. There's this one, Panera, a company I was on the board of is a great company that's growing really strong margins. They're kind of at the starting gate thinking about an IPO, but now it's up to the market. The ball's out of everyone's hands. It's really when

the market says, okay, there's institutional investor appetite for a new name. So what does that look like? I mean, you're on the board of Panera. What does it look like from a board member's perspective when you're preparing to go public? Are you just sort of twiddling your thumbs and waiting for there to be interest? Or are you actively seeking capital from institutional investors? Well, it depends what kind of company it is. In the case of Panera, there's not a lot to be done

and it's fine. The company is cashflow positive, EBITDA positive. The market will come. Don't worry about it. Just continue to grow, continue to innovate. So it really doesn't impact the company much other than the CEO and maybe the board hear from their bankers. The CEO probably hears from them every couple of months and the

board hears from them every six months just to get kind of a market update. In the case of a company that's growing fast, but it's eating cash, it's cashflow negative, it changes. You have to go raise more money in the private markets. At the end of the day, an IPO should be a fundraising event or a liquidity event for existing shareholders, but also as a means of raising capital. And when you're a company that was planning to go public and the market closes, all of a sudden you're caught, okay, we have to go raise more money. And a lot of these companies, including Instacart, that eat cash, had to go raise money at lower valuations. That's fine. And then when the market opens up, the bankers will come and say, this is

the type of company that we think the markets would love. And everyone will hold their breath on the first few that go out to see how the market responds. I don't know if you can speak on this, but why does Panera want to go public? If you're already cash flow positive, EBITDA positive, the business is fine. And as you said, an IPO is ultimately, it's a fundraising event to go and do something else. Why does Panera care? Well, capital is a great thing. You can grow the number of doors.

You could go acquire other brands, but also investors want liquidity. Typically, the public markets will pay a greater multiple than you can get in the private markets. There's a private to public bump. So the existing shareholders, including the employees, can sell their shares right now on the private market, and the owner makes a market in those shares. But if it's trading at, call it 8 to 10 times EBITDA, typically the public markets will give it a 10 to 12 times EBITDA because of the liquidity of those shares, because of the regulatory scrutiny that's been applied, so you have more certainty of what you're buying. So

there's a premium to be paid and to be registered with public stock. So over time, most companies decide that the most efficient way to continue financing their capital needs and also to reward current investors is to create liquidity and a certain level of trust and certainty around a publicly traded stock that has certain regulatory requirements with an IPO. Okay, thanks, Scott. Let's take a look at the week ahead. We'll see January's trade balance and job openings data, as well as the unemployment rate for February. Fed Chair Jerome Powell is also heading to Congress to testify on the current state of federal monetary policy. Powell makes that trip twice a year. Do you have any predictions for us?

Well, the obvious one for me is I think Virgin Galactic is going to zero. I think this company will go through a restructuring. It'll be sold to somebody for its IP. It probably has some IP in there. Maybe they sell it. I don't know who they sell it to, but I just think this thing is just, you know, anyways, enough said. But a more interesting prediction is just I was learned talking to you and going through this data. I think in Q3 or Q4, you will see Instacart go public. And I think the market will be very receptive. There's a lot of secular wins at the back of this company.

It seems to be a well-run company. And I think the market by Q3 or Q4 will have a lot of appetite for a recognized name and kind of the new world order, if you will. And this kind of fits all of those things. So my prediction, I'm very, very bearish, even though Virgin Galactic has gone down 90%. I think it can go down another 90%. And I think Instacart is going to potentially be the epipen to the IPO market in Q3 or Q4. And no Virgin Galactic space flights in 2023? Yeah, that's just not...

Let's bring in Claire. Claire seems more adventurous than either of us. Claire, would you go on Virgin Galactic? No. Why not? I would, no, I would go to space if I had that opportunity, but I don't think I would pay any huge sum of money for it, especially not to this company. $5,000? No. What's your number? I don't, but here's the thing,

I don't really trust Virgin Galactic or want to go with them. You don't want to go with Chamath. I don't want to do space tourism. I want to go with NASA, you know? So you're like every girl I met in New York in the 30s. I'd love to go to St. Barts, but I'm not going to pay. Exactly. As long as someone else is paying. I heard that a lot. Yeah.

I heard that a lot. That's all for this episode. Our producers are Claire Miller and Jason Stavers. Benjamin Spencer is our engineer and Drew Burrows is our technical director. Special thanks to Catherine Dillon and Emil Severio. If you like what you heard, please follow, download, and subscribe. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours, and we'll be back with a fresh take on markets every Monday. Lifetimes

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