The Prof G Pod with Scott Galloway - Prof G Markets: What Killed the Apple Car? Shein Eyes a London IPO, and The Granolas

Episode Date: March 4, 2024

Scott shares his thoughts on what might have been the final nail in the coffin for the decade-long effort to build an Apple car. He also discusses what it means for Shein to explore an IPO in the UK instead of the U.S., and explains why he’d still like to invest in the company. Finally, he and Ed take a look at a group of stocks in Europe garnering attention for a genius branding play. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, 62. That's the percentage of Americans who do not talk about money. True story, Ed. My man, Horat Patrick, came over and I gave him four crisp $100 bills, but had some of my semen on it. He said, well, now I have to report this income. And I said, why? And he said, well, now it's gross income. Welcome to Prop G Markets. Today, we're discussing the end of the Apple car. Stop laughing.

That's your best one. That's number one right there. Good. Let me get through the headlines so we can just sort of segue out of this. Today, we're discussing the end of the Apple car. She ends potential IPO in London and Europe's hottest stocks. to sort of segue out of this. Today, we're discussing the end of the Apple car, Sheehan's potential IPO in London, and Europe's hottest stocks. Here with the news is PropG Media analyst and very low bar for humor, Ed Elson. Ed, we're going to be live. We're going to be together. I know. I can't wait. It's going to be incredible. You know,

Vox is telling us that we're the most popular event that they have right now. Well, we beat out VergeCast or Today Explained or some psychotherapist sticking their thumb up someone's ass and telling them they don't have prostate cancer. I mean, wow. All right. I'd say tallest midget, but I've been told that that is, I'm not allowed to say that. So we are the fastest tortoise. Yeah, not allowed to say that. We are the fastest tortoise. Yeah, exactly. I'm convinced you have all these very young, desperate fans.

I'm pretty sure that's all your fan base, yeah. No, I think it's all you. Here's the thing. Let me just give you a little insight because you're new to this whole game. People hear my voice and they think I'm handsome. I'm the fucking Sean Connery of vocals. People assume I'm going to be really good looking. I have the voice of a good looking man. And I'm not exaggerating. Occasionally, someone brings me up to someone who's a huge fan of the podcast and they say, hey, this is Scott Galloway. And they go right away, they go, oh,

prop G. And then they kind of look at me and they tilt their head as if to say, I thought you'd be so much better looking. And you have a very handsome voice as well. You sound like kind of a young, kind of debonair James Bond-y type. Like, who's the wimpy one? Who's that guy that they thought was going to be? Pierce Brosnan, he was sort of a wimpy one. And the guy who plays Loki, they thought he was going to be the next James Bond, but I don't, I feel like he doesn't look like he could kick anybody's ass. No, yeah. People think that I'm like a 40-year-old English guy wearing a bow tie from like the 60s. But what were you going to say about my looks? Because I thought there was going to be a but or an and there. No, no. I think you're very handsome. I think it's important to build up the looks of young people who are struggling to find mating opportunities. You go right in there. You're special. Struggling young men. You know my mom?

Another story as we're talking about us. I used to come home. I'm not exaggerating. At the age of 13, my nose literally exploded into a 40-year-old man's nose, and the rest of my body did not catch up. It was like, how about a little Scott with that nose? I mean, it was like, it was, I was basically a life support unit for my nose. And I came home. I remember complaining to my mom. I used to say, mom, what the fuck is going on here? And she would say, no, no, no, you don't have a big nose. You have a strong nose.

And I'd be like, oh, God, don't tell me that. Anyway, so you have a strong masculine features, Edward Elson. Oh, thank you. Enough of this shit. Get to the news. Okay. Let's start with our monthly review of Market Vitals. The S&P 500 climbs towards its best February in nearly a decade. The dollar was stable.

Bitcoin breached $60,000 for the first time since 2021. And the yield on 10-year treasuries rose back above 4%. Shifting to the headlines. The FTC sued to block the proposed $25 billion merger between supermarket giants Kroger and Albertsons. That deal represents the largest merger in supermarket history, and the FTC says it will result in higher prices

and less competition. Warner Brothers Discovery has reportedly walked away from talks to acquire Paramount. As we discussed a month ago, Skydance Media and Allen Media Group have also made offers for the company. After a standoff with TikTok, Universal Music Group has begun pulling all of its music from the social media platform. Tensions between the companies have escalated this month,

after UMG and TikTok failed to renew their licensing agreement. Buy Now Pay Later company Klarna announced that its AI assistant is, quote, doing the equivalent work of 700 full-time agents. That is about the same number of employees that Klarna laid off in 2022. And finally, Google's market cap dropped $90 billion in a single day after its AI chatbot Gemini stirred racial controversy. Critics said the bot showed bias against white people and called for CEO Sunder Pichai to resign. Google has since paused its chatbot. Scott, where should we start? So the FTC is suing to block the proposed merger between Kroger and Albertsons. I like this. I haven't looked into the merger itself, but people tend to overlook some of the more mundane companies

where there's kind of, like, for example, big chicken. There's a small number of chicken producers. And as a result, chicken prices have vastly outpaced inflation. And so I am on the side of we've had way too little antitrust over the last 30 or 40 years. In this instance, I feel as if, I mean, I can understand a Warner Brothers hooking up with a Paramount. We're going to talk about that or what they were hoping to do because they're trying to fight off Netflix and Amazon and Apple and very deep pocketed players in the streaming space and a consolidating market. The grocery business, I'm not sure they were going to be able to make

an argument that their scale would do nothing but potentially add shareholder value. But also in certain markets, I would imagine where there was overlap, that they were going to have pricing power over certain regional markets. So I do think that we need kind of 20 or 30 years of erring on the side of too much antitrust because the last 20 or 30 years, we've erred on the side of too little. Warner Brothers Discovery, I got this wrong. I thought that Paramount was going to come to them because essentially, Sherry's sitting on top of a melting ice cube. Every day she doesn't sell, Paramount becomes worth less. And by the way, with these deals, when they announce they're no longer pursuing it, that doesn't mean a whole hell of a lot. So just a quick lesson here, having bought and sold companies. I don't think I have ever closed on a transaction where at one point, one or both of the parties didn't walk away. Because what you have is a certain level of, it's a shark trying to sum up its prey. And before it goes right after it, because sharks are actually cowards and are worried something's going to

bite it back, it will bump it to see the reaction, to see if this is predator prey. It'll circle it, really try and examine it and make sure that this thing isn't going to fight back or it's really vulnerable. In most M&A deals, if at some point you don't have a line, and I say this as someone who's running small companies who are on a regular basis getting inbound offers for acquisition, if at some point you don't say, no, that doesn't work for me, we're walking, they will just keep hammering you. Not only in terms of price, but in terms of conditions. Oh, we want you to vest your shares over three years. Actually, we talked to the board and we'd be more comfortable if it was four years. And if you say no, they're going to come back and ask you for five years. So the fact that, quote unquote, Warner Brothers discovery has walked away is not a good looking forward indicator, but it's not. The fat lady hasn't sung yet. And also, I got to think that their stock decline and their poor earnings where the stock got hammered is now's now, I think, at an all-time low. That didn't help. I've been thinking through the potential reasons why they called it off, but it's interesting you say that this doesn't mean it's over. But I think there are two reasons that come to mind for me. One is, as you mentioned, the stock, it's down 65%

since it became Warner Brothers Discovery, which was back in 2022, continues to miss on earnings, continues to miss on its EBITDA guidance. Generally speaking, they're not doing well. So I would assume that that basically means this is just an inappropriate time to go out and be acquisitive. The other side of this is the one thing that they have been doing very well, perhaps the only thing, is paying down their debt. Because when Zaslav took over, he was taking on $55 billion in debt. He's already cut that down to $40 billion. So the strategic imperative appears to be, we're going to pay down the debt and we're going to do it as quickly as possible, which is sort of why I never really understood this deal. Because now they're saying, oh,

we're going to go out and we're going to acquire a company that's already loaded with $8 billion of its own debt that is paramount. And that feels like a deviation from the plan. At a certain price, it made a lot of sense because the company's market capitalization is around $8 billion. You're saying they have $8 billion in debt. So that's enterprise value of $16 billion. So a quick lesson, because a lot of times people say things they assume I understand and I don't. So let's define what enterprise value is. Enterprise is the market capitalization. So the number of shares times the share price plus the debt minus the cash.

So let's use a house as an example. You buy a house for $100,000 and you assume the mortgage of $50,000. So what you're saying is that home is worth $150,000 because you're not only paying $100,000, but you're assuming the mortgage of $50,000. So you're saying the enterprise value of that home is $150,000. But wait, there's $20,000 in the basement that you knew about. You subtract that out. So $100,000 I'm paying, plus I'm assuming 50,000 in debt, plus there's 20,000 in cash, enterprise value of $130,000. So in this instance, Paramount looks to have about $16 billion in enterprise value. And if they took on, say they took on that debt and did the rest

in cash, or I guess they would have to give it stock. They could probably get additional debt, do the rest in stock. The markets would be fine with it if he could immediately show it's accretive. What do I mean by that? An accretive acquisition is if Paramount or if Warner Brothers is trading at a price earnings multiple of 10, meaning that it'll do $2.5 billion in earnings, and it has a market cap of 25 billion. If it can buy Paramount, say Paramount is doing 100 million in earnings, if it can buy Paramount for a billion or less, or less than a multiple of 10 on its PE, then it's an accretive acquisition. In other words, it's earnings accretive right away. And the debtors or the markets would like that and say, OK, it's accretive. We'll give you more debt. What this probably signals is a couple of things. One, the board is probably saying, look, boss, stay focused. And two, the number of bidders here probably meant that the price indicated it wasn't going to be an accretive acquisition. So he probably called Sherry and said,

Sherry, if things change and the price gets to a point where it's a no-brainer for me, I'd love to talk again. But until then, as you can imagine, my board has told me to stay focused. Yeah, that makes sense. And Universal Music Group? I love this. I just think it's crazy that these platforms are getting everything and the creators and the other folks and the content makers are getting the crumbs. They're getting the scraps. They're getting the leftovers. So I think it's great that these content companies that spend a lot of money on content are saying no to the platforms that have used technology to amass huge audiences. And to date, there's been such an asymmetry of power.

Yeah, I think it's super interesting that one, they're taking down all the music of their own artists, and they have the biggest artists in the world, Taylor Swift, Ed Sheeran, Drake, Elton John, Rolling Stones, etc. All that music is coming down. But they're also taking down any music that was written by someone who is in any way affiliated with Universal. Now, most songs credit several writers. Sometimes it's like 10 or more, which makes things kind of complicated. And Universal has said that if even one of those writers was affiliated with the company, that music's coming down. So put all that together, factor

all that in. Estimates are saying that 80% of the music on TikTok is going to be affected. 80%. And then you consider the fact that 86% of all videos on TikTok contain some form of music. That means that of all of the videos in the TikTok ecosystem, 70% are about to be either silenced, the music's going to come down, or maybe even they're going to get taken down. So I'm surprised this isn't a bigger deal to people. I feel like this is a very big moment for TikTok, but I also think it's a big moment for the music industry because we're about to find out what users actually like about TikTok as a platform. It could be that they really like the music. They love being able to, you know, play Drake songs and Taylor Swift songs and dance to it. Or it could be that the real value proposition is in the algorithm. It's in the community. It's in the product TikTok itself. I would argue it's probably the latter. But if that's not the case, then we're going to start seeing a huge number of users moving over to other platforms, namely Instagram Reels, maybe even YouTube Shorts, where unlike

TikTok, you can post a video dancing to your favorite Taylor Swift song. So I think this is a really big deal. And let me ask you, has YouTube and Instagram or Meta's Reels, have they figured out a licensing agreement that Universal is down with? Yes. Well, okay. So this probably gets solved then. I don't know. So the bottom line is there is a there there. And that is if they figured out a way to come to a deal, they have benchmarks and reference points for what the economics of this deal should look like because they've done two deals with other adjacent slash similar platforms. So I think there's a chance this video isn't as cool. TikTok would still be fine. It just wouldn't. It's like losing, if you no longer have the best, I don't know, leather seats, or you no longer carry Harman Kardon speakers. I mean, it's probably more than that. It's sort of, you lose a really wonderful feature. The unintended winners here would be independent music

artists who would probably get more play and would bubble up. In some ways, this might be great for the long tail because the music industry, unfortunately, like every other market, has been supercharged and the top 10 artists continue to make more and more or take more and more of the total pie. But I would bet within the next, I don't know, I think TikTok is gonna pony up. Again, it goes back to the shark

bumping i i think that universal has said no we're nowhere close we're out i said shut off google at the new york time i i said it but you know what arthur solsberger wanted to have cocktails with fucking steve jobs they were so that guy lives rent. They were so impressed with these people. They thought they were, they so desperately wanted to go to Allen and Company and hang out with them and announce that they were doing a deal with Google. It's not Google or the New York Times, it's Google and the New York Times. And I sat there and I'm like, Jesus Christ, how can you be this fucking stupid? Anyways, I'm going to move on here. Let's talk about buy now, pay later company Klarna, who announced that its AI assistant is doing the work of 700 employees.

What was our post last week, which by the way, you guys did an amazing job on? Well, I think you got to thank Jason for that. I barely had a hand in it, but it said in the next several quarters, I believe CEOs will come out in earnings calls and put it bluntly. They'll say, we're going to be a smaller company that does more business thanks to AI. And the idea was that you think that, you know, companies are laying off people because of AI, but they're not admitting it. And your prediction is that they're going to start admitting it because there's going to be more honor in doing so. I feel like that's probably the right summation of the post.

Well, in some, this was the first, this was like the late 80s or early 90s. And this is the first of your friends to say, I'm here. I'm queer. Get over it. Like this guy is the first one who's come out of the closet as a CEO and said, I'm using this technology such that I can fire people. And by the way, it's great for earnings and it's great for shareholders. The problem is, immediately when he said that, his HR person said, you realize that 12 people have quit. You realize that of the 30 outstanding job offers we've had, almost all of them have called and said they're not coming here because you're talking about how you're going to fire

people with AI. It is not an aspirational all-hands meeting to say, team, we've got great news. Our earnings are going up because of our deft use of technology, and I've got better news. I'm going to need 20% fewer of you over the next 12 months. Look to your left, look to your right, decent chance one of you is not going to be here. I mean, you can't say that. These guys just aren't being straight because they can't be. I mean, it's really strange. As a CEO, you have to be a bit of a sociopath. You have to be willing to stand up in front of 800 people in all hands and say, we're doing great. We value the team. And then at midnight, send out an email from HR to 80 or 100 of those employees

saying, your phone, your security card have all been shut off. Please contact HR. Up until that moment, you got to pretend that everything is great. You have to. Otherwise, I mean, the problem is when you announce that you're about to do a layoff, this is what happens. The people you don't want to layoff leave because they're the ones with the most opportunity. The additional advice I give to CEOs when they're doing a layoff, go deeper than you want because you don't want to do it again. It's like surgery. If you're in there, get all the cancer out because every time you put the patient under anesthesia, anytime you cut somebody open, it takes a toll on the corpus.

Something that kills a company is if every six to nine months, they start expecting layoffs. The most interesting one I think so far this week that you referenced was Google's market cap dropping by 90 billion in a single day. I thought this was fucking hilarious. You type in Nazi and you get a guy that looks like Chris Rock. I mean, it was just hilarious. And all the bullshit around DEI, you know, the woke mind virus, that's all a sideshow. If a bunch of right-wing podcasters want to make a big deal about it, fine. They'll accuse Sunder of being way too woke and that the corporate tech executives there have the woke mind virus. And here's the truth. I know these guys. I know their cultures. They do not lean red. They do not lean blue. They lean green. They are not interested in politics. Or if they are, they want to do it on evenings and weekends. They do not, for the most part, bring their political agenda unless it's cost-free. My favorite was when Google did walkouts. Oh, that'll show them. You're walking out and taking a two-hour lunch instead

of a one-hour. Oh, that'll scare them. So everybody there can virtue signal and posture about saving the whales or whatever it is their issue of the day is, and they can create controversy if they want it. It makes them feel good. But the senior management there is totally focused on the bottom line. And my guess is somebody, you know, they fucked up here. Somebody said, okay, we need to be careful. We don't want to get scrutiny. We don't want to type in, you know, type in heroes of the 20th century and get Adolf Hitler. So they said, dial up the filters around anything politically incorrect. And they got this back. The problem is this shows this thing wasn't QA'd and it's yet another fumble from Alphabet that keeps fumbling the goddamn ball. And this is a company that literally invented AI or was at least at the epicenter.

They are to AI what Xerox was to object-oriented computing. And that is, they invented it, they left their garage door open, and someone else is taking their AI. So they can't seem to shoot straight. It's our big tech stock pick for 2024 because I think they will recover. This is more spectacle than it is significant because they will figure it out. They will throw a couple hundred, if not a couple thousand engineers at this. The stock going down, in my view, is a buying opportunity because this company has so many incredible assets. What are your thoughts? I thought the email that he wrote, that Sundar Pichai wrote to the company was interesting. Specifically, I thought it was terrible. So first he says, I want to address the recent issues, blah, blah, blah. And then here was

the second sentence. Some of Gemini's responses have offended our users and shown bias. To be clear, that's completely unacceptable and we got it wrong. Now to me, that is a complete misdiagnosis of the problem. The problem isn't that they're offending users. In fact, it's because of Google's fear of offending users that this even happened in the first place. The problem is that you have a Gen AI that is delivering factually inaccurate information in the form of black and brown founding fathers. And that's the problem that they have to fix, not fixing people's feelings and how people feel about the product.

So they haven't really learned their lesson or they haven't really proven that they've learned it. What they should be learning here is actually it isn't our job to offend the least amount of people. We are a tech company. It's our job to make great tech products and provide exceptional value to customers. But somehow they've taken this and they've figured out a way to learn the opposite. So you always say a crisis is a terrible thing to waste. This feels like a crisis that Google has decided to waste entirely here. So crisis management. This is one of my classes at Stern in my brand strategy course. And I basically figured out a way to take 30 seconds of content and try and stretch it into three hours, which is kind of the trick of every professor, Ed.

Which is what we do every week here too, yeah. But no, there's more content here. But there are only three things you have to remember, right? Acknowledge the issue, have the top guy or gal take responsibility, and third, overcorrect. And it sounds easy. It's not. And everyone comes up with rationalizations for not doing all three or doing them half-assed. The issue here, the top guys taking responsibility, Senator immediately kind of addressed the issue, if you will. I'm sure they'll fix it. They don't need to overcorrect. They'll fix it. What you're saying is they didn't really acknowledge the correct issue. And I hadn't thought about it because when I read it, I thought it was pretty straightforward. But what you're saying is, and I think you're right, our Gemini rollout was a

failure and it returned inaccurate results. He didn't need to use the word bias or offended, right? Because what he's doing is kind of playing into the hands of the people who say, you're a technology company and you're way too worried about offending people. The problem is there's about $1,400, $800 an hour comms consultants gangbanging every sentence. And you end up oftentimes with this amorphous shit. And I always say to CEOs, go through it, put it in your own voice. If something sounds mealy-mouthy, just get rid of it. Just, just less is less is more. My other observation, Ed, and I've been meaning to ask you this. I think you're a closeted Republican.

I'm pretty sure you're going to vote for Trump. Are you a citizen? Are you a, are you a citizen? Yeah, I am a citizen. I'm not a closeted, closeted Republican. But I, I, I like that you think that. I mean, it means you don't know where I stand, which is good. I think when you're naked, you have like a Nixon tattoo on your ball sack or something.

Because you're freaky. You're both freaky. I think you're a freaky. I think you're one of those young Republicans. And those are the scariest ones. I'm a radicalized young man. Those are the scary ones. Why do you thinkized young man. Those are the scary ones. Why do you think I'm a Republican?

Because you agree with me. You always take kind of the conservative side, not the conservative side of this. I shouldn't say that. Well, I'm trying to make this a balanced podcast. I appreciate it. I think I'm center left. I think you're center right,

which is maybe why this works or doesn't work. Anyways, and you have a very handsome voice. All right, let's move on. We'll be right back after the break with a look at the Apple car. We're back with ProfitGMarkets. Apple is pulling the plug on its effort to build an electric car. The car's development has been the subject of rumors and anticipation for about a decade, but now the company has told its team of 2,000 employees working on the project that it's time to wind down.

Many of those employees will be moved over to a different division, which has become a higher priority for Apple, artificial intelligence. Scott, you've been bullish on the Apple car for a long time now. You also said that you would buy it in a heartbeat as soon as it got released. How do you feel about this news? This is a really interesting story. And I think it's an important lesson in corporate strategy and how to be a good CEO. And that is, let me be clear, two years ago, I said,

I can't wait for the Apple car. It's coming. The auto industry is one of the few industries that's big enough that could move the needle for what was then a $2 trillion market cap company, Apple. Like Apple can't own niches. They have to go big game hunting, right? To move the needle. And I said, they wrap steel around four tires. It's going to be the most valuable waiting list in the world, including it'll have my name on it. I thought this just made a ton of sense. And I made a lot of predictions that the moment Apple launched or pulled some dolphin-friendly mesh tuna thing, environmentally hand-woven by Native Americans cloth off the car, that you were going to have 50,000 douchebags like myself get on that wait list and can't

wait for the Apple car. So I thought it was a great idea. And the reputation for design, the self-expressive benefit of the brand, and just the size of the auto market. And I said, they're going to announce this thing. And overnight, a quarter of a trillion dollars is going to go from Tesla to Apple. Now, here's the thing. That was the right strategy. It was the right vision. But strategy and vision are meant to be unifying. They're meant to be guideposts, right? They're meant to illuminate a path. They're not a suicide pact. And when the data changes, you can't be afraid to change your strategy. And the data and the atmospherics have changed dramatically this year. One, the market vastly overestimated the demand and how quickly the transition to EVs

would be. Prices on used EVs have plummeted. Tesla, kind of the leader in the space, is coming under huge margin pressure. Toyota is now being seen as the visionary because they invested in hybrids. They didn't go all in, like GM making these big statements that they were going to be all electric. And those companies have scaled back. They've said, just kidding. In addition, there's another enormous competitor, which is the biggest company that no one's ever heard of called BYD that has figured out a way to make a really outstanding electric car at a much lower price point. So Apple is sitting here looking at, okay, the market is slowing down. This, generally speaking, is a capital-intensive, low-margin, shitty business called Otto.

We have Tesla that still has a $600 billion market cap but is facing headwinds for the first time. And we have this other leviathan coming into the market. They thought, you know what? This market has gotten, or the prospects for this market have gotten a lot worse, and there's this new market that we may be as well or better suited to attack, specifically generative AI. So the term I would use is that a step back from the wrong direction is a step in the right direction. So was exploring and working on an Apple car the right move? Yeah, it was. And was canceling it the right move? Yeah, it was. And was canceling it the right move? Yeah, it was.

You bring up BYD, which came up in the news last week because it announced its first luxury supercar, which is going to cost $233,000, 0-60 in 2.3 seconds, top speed of 190 miles per hour. Awesome car, but it's all window dressing on the main point, which is that BYD is now, as of Q4, the number one EV company in the world, as measured by vehicles sold. It sold 530,000 cars in Q4. Tesla sold 480,000. So it's number one now.

In addition, it's probably worth talking about the valuation. This is a $76 billion market cap company trading at around 18 times earnings. Compare that to Tesla, $650 billion market cap, 47 times earnings. BYD did $80 billion in sales in the past 12 months. Tesla did 97. But that basically means that its revenue is trailing by around 15%, but its multiple is trailing by 60%. So we should be clear, this is a Chinese company. And as we've discussed,

there's risk there. But as Aswath Damodaran told us, you know, his advice is pick a couple companies where, you know, the company is established, it has a clear business model, you understand, the company is established, it has a clear business model, you understand the business, you understand how it makes money. Surely BYD

is the China buy right now. Like one of two things is going on here based on the metrics you just outlined. Either Tesla is dramatically overvalued or BYD is dramatically undervalued. I mean, this company, you know, let me get this, it's growing faster, has similar margins and trades at about, what, a sixth of the market cap? Tesla trades at seven times sales, BYD trades at 0.9. So this is a tough one. I mean, it's so hard to bet against Tesla, but this company, I mean, think about it. This company is producing more EVs than Tesla, and no one's ever heard of it. It's dangerous to talk about what's going to happen to either of those stocks. What's fairly certain is you're going to

hear BYD a lot more moving forward. And again, the automobile industry is just a manufacturing intensive business, and China is really good at that. They are really good at that. They have the most sophisticated supply chain in the world. I wonder if this was kind of the last nail in the I think they were calling it Project Titan. coffin where they said, wait, we not only have to compete with Tesla, we have to compete with BYD. And then the other thing that was probably the second to last nail was Rivian. I mean, the stats you guys presented last week were striking. So I'm getting my Rivian, right? I'm trying to convince everyone I live with to move back to America. So I bought a home in Aspen. If this sounds like the story of entitlement and prestige and a total douchebag, trust your instincts. Wait, when did you buy a home? Sorry.

When did you buy a home in Aspen? About six months ago. Oh. You sort of kept that kind of quiet now. Are you embarrassed by that? Ed, no. Ed, I'm very transparent. My strategy is to take all my money and put them in beautiful homes where I can sit in the backyard and just wait for the ass cancer.

That is my entire focus right now. Not lose all my money again, which I have done two times now in my life. Hold on to what I have. Buy really nice homes. And then I'm going to speak every year at the Aspen Ideas Festival, although they've never invited me to speak. I envision myself speaking at that. I'm going to roll down in my Rivian with my Great Dane to Cache Cache and Casa Tua, and I'm just going to live a life of privilege and just be literally, all caps, douchebag in Aspen. I love that. Stop by. I'd love to. Yeah. And when you invite me,

I'd love to come. The Rivian, I'm supposed to configure this thing. And I got said, okay, I want ocean foam green or whatever it is. I'm going to get, uh, I don't think, I think I'm going to get the pickup because occasionally or once a year, I'll ski when my kids are in town. I don't understand. You've already ordered this thing. And I've ordered it. I just haven't configured it. I got on the waiting list and they keep calling me saying, configure it. But I haven't convinced the problem is my family has opinions if if it were up to me i'd be in aspen right now i love it there anyways but back to the rivian i think they have executed almost perfectly and then you guys found this data for every rivian that sold i think i paid you know i bought the fancy one or whatever i think i paid 70 or 80 grand for it it's costing them 122 grand to produce the thing. They lose $42,000 on every car they sell.

So I got to think Apple looks at that and says, wow, they've done pretty well. It's a beautiful car. It works well. It gets great reviews. And they're losing $42,000 a car. Now, Gene Munster, the analyst who's kind of the Apple Yoda, he had a really interesting idea. He said that Apple should buy Rivian because Rivian, I think, only now has like an $8 or $12 billion market cap or something. But does Apple really want to buy a company that's hemorrhaging that kind of money? But it kind of makes sense, right? I can see Apple buying Rivian. The only thing is culturally Apple doesn't like to make acquisitions. By the way, quick story about the dog. So, you know, I used to get invited to go on CNBC every Wednesday. I'd haul my ass down to the NYSE and I'd be on there with all the really smart guys. I really liked the people there.

And then I did that for two years. And then one Wednesday they stopped inviting me, never called me, never said, hey, thanks thanks but we don't like you or whatever but i was on with gene munster probably six or seven times whenever we they talk about apple they'd invite me on and they'd invite gene on and i was literally like let me let me talk more about me when i was on bill maher the last time i was on with this woman jess tarloff trying to track what story we're talking about i was so bummed. I was so bummed out. I was so bummed out because she was so much better than me. I was like, God damn it. Every time she said something, I'm like, oh, that was a better take. I got used to that with Gene Munster. Every time they'd ask a question, I'd give some song and dance about Apple and self-expressive benefit. And it's the

ultimate tool for mating. And then Gene would actually show up with data. And I literally think, oh, my God. Can anyone see what a fucking idiot I feel like right now? Anyway, that guy understands Apple. And I think it's a really— But you don't feel that way on this podcast, it sounds like. Oh, no. No, I'm still sensei here. I'm still sensei.

One day. One day I'll be the Gene Munster to your Scott Galloway. Now, occasionally you leave awful village and you kind of threaten to come into mediocre land. But no, I'm not that threatened yet. Yeah, okay, good. Fast fashion company Shein is exploring an IPO in London to avoid potential SEC scrutiny with a U.S. listing. As we discussed back in December, the Chinese company has faced criticism for its lack of sustainability and alleged forced labor practices. While Shein is still working on its application to list on the New York Stock Exchange, it appears the company is losing confidence that it will be approved. Scott, we'll get to what this would mean for the UK stock market in a moment, but first, what do you think this news says about Shein?

First off, I just need to disclose, I'm doing everything I can to try and find a way to invest in this company. You described it as a Chinese company. It's actually based in Singapore. I would argue, I would argue that Apple is more a Chinese company right now than Xi'an. So what percentage of business does Xi'an do in China? Tell me. Zero. They do no business in China. 90% of their supply chain is in China, similar to Apple. Apple does 20% of its revenues in China. Xi'an does zero. In addition, the fact that they are contemplating, and I read this like you did doing a London stock exchange, what I've seen is a bunch of fairly right-wing congressmen come on and say,

Xi'an, we can't have the Chinese come here. And they haven't done their homework. They're about to lose the biggest IPO of 2024. And let me talk a little bit about Shein. First off, they've had some legitimate complaints about labor practices and sustainability. And I want to be clear, the entire apparel industry needs to be thoughtful about sustainability and ESG. The bottom line is, it's just there's too much waste. There's a lot of opportunity for exploitive labor. Xi'an is working with a bunch of people around fair labor practices and went through their supply chain and went and closed down or stopped working with 300 suppliers and factories in China. In addition, let's just talk about the company and the reason why I'm trying

to find a way to invest. I think they did about 30, the data I found about 30 or 35 billion last year. They're going to do 45 billion this year. They're growing 30 to 40%. And if they continue to grow this way, they're going to be the biggest apparel company in the world. And a couple other things about them, their business model. It's this asset-light business model we love. They don't own any stores. They don't own any planes. They use software and AI machine learning to do something called on-demand fashion. There was regular fashion, then there was fast fashion. Now they've embraced this notion of on-demand fashion. And that is if Ed Elson goes onto the Shein site, it tracks you very closely and it starts to merchandise around you and try to build a brand of one and anticipate your needs. And they have literally no waste or no leakage. In other words, everything they produce has either been ordered or they have near 99.9% certainty it's going to be ordered right away. So their turns are huge. In other

words, they don't have any inventory. I think it's going to be a monster. Not only is it growing 30 or 40% a year, it's profitable. It's actually got decent EBITDA margins. So I can't imagine how every exchange in the world has rolled out the red carpet for these guys. It's like, what's the biggest IPO of 2024? It's going to be Shein. You got to bet the London Stock Exchange, where seven of the 10 IPOs, seven of 10 IPOs that have gone public in the last 10 years are below their offering price, where Apple is bigger than the entire exchange, is like, oh, we would love to have you. We would love to have you. So it's interesting. I think the big losers here, if in fact it ends up going public on a non-American exchange, are the NYSE and NASDAQ.

I'm just going to play devil's advocate for a second. So you mentioned the Republicans who are pushing against this thing listing, which is true. And I read Marco Rubio's opinion, who's kind of spearheading this movement. He believes that this is a Chinese company in disguise. He says, quote, Xi'an presents itself as a global company to hide its considerable ties to the PRC. Why does he think that? As you mentioned, basically the entire supply chain is based in China. It was founded by a Chinese national who's the current CEO. It employs thousands of people in China, sources, manufactures, ships, all of its apparel, or at least almost all of its apparel from Chinese factories. And the other thing that he's worried about that happened recently is that Xi'an approached the CCP, I think it was last month or a couple months ago, they approached Beijing to get clearance to list their stock

overseas. And if they were truly a global company, as they say they are, then you'd think that they wouldn't actually need to. So they kind of just did this out of courtesy. So I think that would be the Rubio argument for no, actually, this is a Chinese company. The other side of this is the line on human rights, because there is pretty decent evidence to suggest that Xi'an is relying on forced labor for its supply chain. Specifically, they did these lab tests on

the clothes, and it showed that the cotton that Xi'an was using came from Xinjiang. And according to most experts, anything that comes from Xinjiang, you can pretty much assume forced labor was involved. Now, to be fair, that's a low amount. And as you've said, they are eliminating products, those products from their inventory. But I think the main thing here is that what Rubio and the SEC have asked is greater disclosures. That's what Rubio is asking for. He's saying, you must demand greater additional disclosures from Xi'an about how they make their products. And if they fail to do that, then we're not going to let them list. We have yet to see hard, forceful evidence from Xi'an to show that they do not and will not

engage with any Xinjiang-based supply chains. And in addition, I think the fact that they do not and will not engage with any Xinjiang-based supply chains. And in addition, I think the fact that they've been so quick and so willing to go to London, as soon as they started asking these questions, to me that says that they're scared of a full cavity search from the SEC because they're afraid of what they might uncover when they start digging. And I think what they probably would uncover, but again, this is speculation and I'm being paranoid, but I think that you'd uncover some,

what we call unfair labor practices, which is a very nice way of saying slave labor, which is what's going on in Xinjiang. And when I look at the price of these clothes, it's honestly kind of hard to believe that they don't rely on that. I think those are all really valid points and points that should raise concerns and should be investigated. The reason why they went and

asked for that approval is that if they don't get that approval overnight, and this is, in my opinion, why China's economy is under so much stress right now because the rule of law and the rule of fair play is so important. If the CCP decides to shut down Xi'an and this is an investment risk, they can. They can basically shut down. They can just call. They can call the factories and say, hi, this is your local Communist Party leader. Stop producing. Why? We don't need to tell you why. Stop producing. So I think they're trying to play nice. I think they're trying to thread the needle. My impression based on the research I've done around the sustainability practices is I think those are important questions.

But what I would push back on is apply the same standards to Nike or the Gap or any one of a number of people or Apple who produce products in China. My impression is that they have decided, or at least what they've said, and it might be jazz hands, but I don't think it is, is that they've said, it's good business and we will get a higher multiple if we are seen as a good actor. And what I would argue is that Senator Rubio, in his never-ending quest to be president, says, China bad, and this can get me on TikTok, which makes some irony there, and so decides to go after any Chinese company trying to list. But I think if the NYSE and the SEC said, we're going to apply the same standards to you and same disclosure requirements as a Nike

or Zara or Inditex, I think they're ready for it because they're, I mean, let me put it this way, they're either posturing a lot or they are in fact doing as well or better as any other company. Them becoming a public company on a Western exchange will create more visibility. And also, it'll be easier to put pressure on them to, in fact, make sure they have fair labor practices. Just a very quick question on London, then we should move on. But London's super happy about this. They've said, well, here's exactly what they said. We aren't pushing them, but of course, we would welcome an IPO. And it reminds me of the Arm IPO last year, where Arm is a UK company, but they decided that they're going to list in New York instead of London. And so now London is

initiating all of this deregulation to try to attract companies to come and list on the London Stock Exchange versus in New York on the NYSE or on the NASDAQ. Potentially a dumb question. What is so great about having a company list on your country's exchange? What does London actually stand to gain if she chooses London over New York? Well, they get fees. These exchanges get a small fee for every stock that changes hands. And as more liquid, bigger market cap companies that attract capital from around the world, more people pay attention. And if Sheehan goes public and it goes well and they raise a couple billion dollars in the stock, I mean, this thing should be huge, right? Timu is a publicly traded company or PDD Holdings, Timu's parent company, has a market cap of $166 billion and trades at seven times sales.

If Sheehan does $45 billion this year, $40 billion, that would connote, you know, a $200 to $300 billion market cap. That would make it overnight one of the biggest companies listed in the U.K. in history. That creates more liquidity, more fees. I mean, there's all sorts of stuff, right? All of a sudden, all these people from Sheehan are in London more often, and they need banking services. Most likely, I got to believe they'd open an office here, an investor relations office. And finally, the prime minister here put out a press release and made a big deal over Andreessen Horowitz, like hiring nine people to be in London? I mean, this is going to generate a lot of attention. It'll be an enormous feather in the cap of the exchange that takes the same public. And there'll be a lot of downstream fees.

I think this is going to be really interesting to watch. We'll be right back after the break with a look at Europe's hottest stocks. We're back with Prof G Markets. If you're a regular listener, it's safe to say you're well acquainted with the term the Magnificent Seven. Those are the seven US companies that have carried the stock market in the past year. Well, we've got a new term for you to learn. The Granolas. The Granolas represent the 11 largest

European stocks, which as of last week, have pushed the European stock market to a record high. Companies on that list include Novo Nordisk, L'Oreal, and LVMH. And in the past year, they have accounted for 60% of the gains in the overall European stock market. Scott, it feels like there's a new acronym every year. We've had FANG, FANGAM, GAFAM, MAMA, now this. What do you make of this new term, the granolas? I just think it's genius branding. I mean, I got to think that the amount of attention, remember the BRICS?

What was it, Brazil, Russia, India, China. That's great branding because it immediately connoted these are the growth markets. And if you want to invest in, I got to imagine ETFs and hedge funds started around the BRICS. And then the Seven Samurai or the Magnificent Seven, you got to bet that a lot of kids or a lot of investors, it's like, okay, I'm giving little Rachel a gift for her bat mitzvah. I'll give her one share in each of these seven companies. Or I'm just going to, I'm an investor and I like tech. I'm just going to buy these seven companies. So this type of branding, I think, is really powerful. In addition, Europe is the largest economy in the world. And while they

haven't had the same sort of explosive growth as some of these tech platforms, they're really good companies. And some, I think this is sort of what I'd call mild genius. And that is, they said, hey, what about us? I know, let's brand it. My guess is there's a company in there that didn't, you know, like Danone should have been in there, but they did want to call it Grandola or something. Or, you know, they said they tried to find a name. But this is powerful, right? In the press and in a lot of analyst notes, there has just been a lot of comparison to the Magnificent Seven between the Granolas. And what they were saying is, oh, these baskets are very similar. Specifically, they're similar in the way that they're carrying the rest of the market. So as I mentioned, they accounted for 60% of European stock market gains in the past year, kind of for half of all European M&A activity for the past five years. And those companies in the granolas are trading at an average of 31 times earnings, 31 times forward earnings. And that's about double the European average average the same dynamic

is happening between the magnificent seven and the rest of the u.s stock market now where they differ the granola's had a good year they gained around 18 percent in the past 12 months stocks europe 600 is up around seven percent magnificent seven-month returns, 91%. Other place they differ, scale. If you combine the market cap of these companies, they're worth $3 trillion. The combined market cap of the Mag7, $13 trillion. So I look at this, and to me, these are two very different beasts. Do you think it makes sense for analysts and the media to be comparing them? Are they even remotely comparable? Well, it's a basket of amazing companies in the U.S. and a basket of amazing companies in Europe. One is more tech-focused, one is more consumer and pharma-focused. The piece of data you left out is that the granolas are two times less volatile

than the Magnificent 7. In other words, if in 2025, if you had a crystal ball and it said either the granolas or the Magnificent 7 are down 70%, you would know that it was a Magnificent 7. It's just unlikely that these companies, these consumer companies that trade more on EBITDA and more on performance than promise are going to decline 70%. They don't have probably the same upside potential because they don't have the scale and the network effects of technology and the hype of AI. But it's great branding. I think it's, you watch, these companies are probably going to go up in market cap just because there's attention now to the granolas. Well, who's the R, right? Everybody wants to know. It's Roche, right?

Who are these folks and why are they performing so well? There's actually, I mean, people don't spend, if you want to be a great investor, I think you have to understand the markets, but I think you also understand biology and you understand psychology. And then I would actually say branding's pretty important, but the notion of fluency is a psychological concept

and it dictates that people tend to prefer easily processed information. Here are these 11 companies that make up the granolas, and now I'm going to do research on the 11. And it's sort of a halo of credibility. Researchers at Princeton actually found that companies with easier-to-pronounce names or ticker symbols perform better immediately after the IPO than companies with harder to pronounce names, even after controlling for other variables. So simplicity, nomenclature, the design language, whatever you want to call this, is really important. For example, if you started with $1,000 and invested in companies with the 10 most fluent

names, you would have earned $333 more than you would have had you invested in the 10 with the least fluent. When I ran Profit, a brand strategy firm, and people would task us with naming and finding a website, I'm like, the most important thing is that it's easy to spell and easy to remember. I mean, I remember, do you remember that newspaper company that rebranded itself Tronk? I love that, Tronk. This stuff's important and it sounds really simple and sort of superfluous. It's really powerful. You also mentioned volatility, which I feel like we rarely talk about on this podcast. Is that something that you like to look at when you're evaluating a stock? Is that something you take seriously? Yeah, it is, especially at my stage, because, well, one, I don't want to, I mean, as I've told

you, I've been wealthy before, and then not wealthy, and then got wealthy again, and then got not wealthy again, and now I'm wealthy again, and I don't want to round trip again. I want to stay in this part of town now. And part of that is ensuring or looking at sharp ratios and volatility across your portfolio. My mistake was that, and sometimes I didn't have any choice, but I was always so concentrated in tech and specifically private tech or a couple of public tech companies that when the market for tech got hit, I just got killed. And also, tech is just very volatile. So, I'm in a lot of... One of the reasons I like investing in private companies is I love that they don't get marked every day. I find that very stressful. I hate having a scorecard every day. I like investing

in private companies that are good companies and knowing that or believing that over two or three years, they'll be worth more. That doesn't always what's happened. I'm going to have a couple of zeros this year, which is really disappointing. But on the whole, it pans out. I find public stocks stressful because every day they go up and they go down. In addition, tech stocks, I mean, NVIDIA literally could go down 50% in the next three months. And the majority of smart analysts would go, well, of course it did. Of course it did. Look at the thing, right? And if you're one of those people now that has FOMO and you want to get in and you just hold your nose and you go in and you lose half your capital, that's just rough, right? That's just rough. So yeah, I do look at volatility. If I were going to go into these companies, and again, this lends itself to index investing,

I'd want to buy a basket. Because you get to a point where one, as you get older, you don't want to take those sorts of risks. And two, you don't need to take those sorts of risks, because on the whole, the market's trajectory is naturally up over the medium and the long term. And a way to play in these stocks, or dip your toe in, is to buy an index fund, because you automatically have to play, because they have dip your toe in is to buy an index fund because you automatically have to play because they have such a big weighting now in the index. But the way I reduce volatility is through diversification. And that is my individual investments can be quite volatile. But if I invest in enough of them and never have more than, say,

3% or 4% of my net worth in any one thing, and I put it in different sectors and different companies and different asset classes, that smooths out the volatility of the portfolio as a whole. All right, let's take a look at the week ahead. We'll see earnings from Target, Costco, and Kroger. We'll also see the unemployment rate for February and Fed Chair Jerome Powell will be testifying before Congress on the state of U.S. monetary policy. Scott, any predictions before our event on Friday? I just think we're going to have a great time. I don't have a prediction, so I'm going all pretending to be a good boss. But my advice to other entrepreneurs that have a small firm is take the money you would spend on an office, and we do this, and do fun stuff. And I don't do it because I like you, I want you guys

to be happy. That's, you know, that's nice, but that's not why I do it. The number one source of retention, the number one source of retention, do you know what it is, Ed? What is the one thing I could do to make it less likely that you leave and go do something else? I would say pay me a lot, but I have a feeling you're going to say something else. What would you say? Well, I do that. If paying you more than you're worth is paying you a lot, I do that. So check.

But that's not even, that's like number two or three, compensation. Number one is if you have a friend at work. People are much less likely to leave their job if they have a friend. And the way you facilitate relationships and friendships is you try to hire nice people that seem like they're enjoyable to be around. But also, if you don't have an office, and I do this with you guys, you take them on fun trips and let them do fun things. By the way, everybody, we're all going to South by Southwest. The whole team will be there. And it's nice.

My sense is, at least you're fooling me, you guys all genuinely look forward to seeing each other, and you have a lot of fun, and you like each other. Yeah, for sure. And I think that makes it a lot less likely that I'm going to have to hire some other graduate of Princeton to do this podcast with. So anyways, my prediction— So what are we going to do? What are we going to do for fun? Well, who is we, white man? I don't know what you guys—I know what you guys are doing for fun. You're going anyways, my prediction. So what are we going to do? What are we going to do for fun? Well,

who is we white man? I don't know what you guys, I know what you guys are doing for fun. You're going to spend my money. I'm going to go to the Soho house and sit at the bar and drink bourbon. Okay. Yeah. But alone,

I like to drink alone. Alone. Yeah. Alone. No, we're going to go out. Aren't we going out Thursday night? We're going out Thursday night,

right? We're actually going to Soho house. Oh, there you go. There you go. That's going to be great. Yeah. I'm really looking forward to seeing everybody. It's going to be nice. So sorry, I interrupted your prediction. It's that we're going to have a good time. My prediction, because I don't have one, is just advice to entrepreneurs. Take the money you spend on office space and use it for events and helping people create social connections. The retention is the key to growing a firm because the most expensive form of friction

and complexity you can have is a lot of turnover. Unless, of course, you're using AI to fire everybody. But I don't know. Which is next. I'm trying to save this prediction here. Anyways, I'm looking forward to seeing everybody in Austin, Ed. This episode was produced by Claire Miller and

engineered by Benjamin Spencer. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof 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 Reunion As the world turns And the dark flies In love, love, love, love