So we're here with Aswath Damodaran, Professor of Finance at the Stern School On almost every list globally for the top
ten professors or teachers in graduate education and at the Stern School where there are 190 faculty, has been named "Best Professor" by the students nine years in a row and is
the leading scholar on the topic of valuation. Aswath, let's kick right into it. You've been doing a lot of research around the value
of a subscriber or how you build up as opposed to bottoms down the value of a
company based on subscribers, users, etc Say more. While I'd love to say I've done a
lot of research I've just started exploring it and there's so much more
left to do because I think if you look at the traditional ways we value
companies, we value them from the top down, we project our total revenues, we
subtract our total expenses, we come up with income and cash flows, and we value
the company. The reality is we've shifted to a world where companies are focused on users, subscribers, members, because it seems like that's the way they think
about value and perhaps it's time for us to start thinking about valuation from
the bottom up from thinking about users, the value of a user, and building up to the
value of a company, because I don't think we're asking the right questions when we
look at these companies that are user or subscriber based. What are those questions? Well one of those questions is, you know, you've got lots of users and how intense
are these users? Are they on your, you know, are they with you an hour a day, 20
minutes a day Engagement measures how loyal are these users, right? To the extent that they stay on with you, they're worth more. How
likely is it that you can sell these users more things? So in a sense I need
to know more about your users to decide whether users are worth nothing or
whether they're worth $100 or $1,000 a user. So give me an example of a very
valuable user or member versus not so valuable and attach it to their company.
Okay, let's start with Netflix, right, a Netflix subscriber is valuable for two
reasons: one is they're locked in, they have a subscription agreement. We know from
studies of psychology that when somebody opts into something, they are more likely to stay on if they don't, if to get out of it they have to opt out. So Netflix has
subscribers who provide them with revenues that are, in a sense, you can
count on. It's valuable to the extent that those revenues are, you
know exactly what you know already They must have 95 plus renewal rates. And so from that perspective, a Netflix subscriber is worth a lot and Amazon Prime subscribers
what a lot for a different reason. It's not the 99 dollars a year that makes
them valuable. I mean, even though it's 70 million members, $99 still works out a
lot of money. It's a fact that they buy four hundred, five hundred, six hundred
dollars worth of merchandise, and that keeps going up, because the more they buy,
there's a networking benefit that Amazon gets, which is the more people buy on Amazon Prime, the more likely it is that they'll buy more stuff in Amazon Prime. That
ecosystem gets richer over time, so an Amazon Prime subscriber's worth a lot
simply because you can count on growth for a longer time. We measure our
business looking at those two things: renewal, so what percentage of those consumers renew? And then there's dollar renewal and that is of the people
who are your members the year before the next year of that hundred dollars is it
eighty is one hundred is a hundred and forty and I look Netflix must have a
near-perfect renewal rate but I imagine the dollar renewal isn't that much
greater or it's Amazon every year figures out a way to increase it give me
some members that don't look like they're valuable and the companies take
a company that I've lost money on Twitter put there's lots of users but
the reality is those users don't seem to be either intense or locked int they
don't they might not opt out a bleep Twitter but even when they're on Twitter
they're not on enough of the time that Twitter can do much with them so that's
a classic example of a company with lots of users that can't figure out a way to
get a high value per user because the users don't see it and it might not be
Twitter's for I mean they've had management issues there's their platform
might not lend itself that well to users staying on so when people are building
platforms for users they have to think about platforms that are rich enough
that users want to stay on the platform it's something that Facebook has done
incredibly well is make their ecosystem richer and richer so that it's not that
the Facebook posts you're going for it Instagram its whatsapp it's part of an
ecosystem we're trying to keep people locked in to you so I think that that is
something we have increasingly paid attention to is how locked in our users
into your ecosystem because that's the only way you can sell them more stuff
Amazon it appeared would appear to me based on
intensity renewal rates ability for dollar renewal to increase that they
basically saying pay us ninety-nine bucks a year so we can sell you more and
more stuff and it just and by the way these relationships are with the most
the wealthiest households in the world it what feels like they could go from
whatever three hundred dollar Amazon users to seven hundred which is a prime
user it's conceivable they could take the seven thousand I mean it's just I
don't see anything that has a more valuable user base in the Amazon and and
I think that that's absolutely true though the biggest cause that Amazon is
faced with its Prime members is a shipping cost it core I mean if you look
at the day I think I lasted seven and a half million dollars on shipping cost
just for Prime members yeah and in a sense it gives you an opening as to why
Whole Foods might have been a good buy for them it's got nothing to do with
being in the grocery business which is a horrible business to be and given its
margins it's a fact that you now have distribution centers and some of the
wealthiest zip codes in the country where you can deliver stuff without
having to send things three thousand five thousand eight thousand months just
the distribution system for Amazon with its Prime membership is worth a lot
there's a site issue to it Amazon which is it's not just that people are buying
more in Amazon it's the destruction you're creating the rest of the space
the one way I describe Amazon is I don't know whether Amazon will succeed in the
business is there an but one thing we know the businesses they go through they
would destroy everybody else in the space the benefit they get from that is
as you destroy your competition where else a your Prime members going to go
but to come back to you well to your point there they didn't buy it they
didn't spend $13 thirty million dollars for a happen for a five hundred million
operating income company they spent thirteen billion dollars for greater
intensity across their fifty eight percent of households that have this
ongoing relationship with so let's talk about Amazon and I had chills go down my
spine yesterday when you said you thought you had a difficult time seeing
how Amazon would run from here that it was sort of price to perfection I've
been saying that for seven years so in a sense let me start off by admitting
over the last seven years I've looked at em and I don't see how Amazon can pull
this off and each time the market keeps pushing the price higher there are times
when you got to a stop and ask am I missing something in the company the
question I keep asking myself is there something the market sees here that I'm
not seeing and there is this this small opening where you can get to the value
and that small opening requires almost a conspiratorial view of the world where
Amazon essentially becomes the only game in town
the Hopi anti tries it everal so across several sectors and if that happens you
could argue them worth what they are but the question is what's the rest of the
world doing while this is happening are the antitrust people letting this go
through so I think that that pathway to get to the value seems to be so low
probability that I'm not willing to bet on it but I'm not going to bet against
it either the nature of this game and I tell any time I talk about companies
like Amazon I want people don't get too caught up in your conviction about the
company because your conviction is going to be stomped by what the market
sentiment is the market sentiment of the Amazon is so powerful yeah if you try to
bet against it you're going to be bankrupt before you're right because
ultimately and this is dangerous talk because ultimately it seems like with
almost every stock or company in history there is a reckoning with the
traditional metrics that you understand are applied that doesn't seem to have
happened with Amazon it seems that the core competence and I think this is
increasingly true of much a lot of equities of storytelling and their
ability to exert strategic power across not just online retail but now offline
retail media digital marketing streaming video grocery now my sense is it beats
us to Ma said we see overnight delivery is a huge opportunity the 150 billion
dollars in market cap with DHL FedEx and UPS would begin leaking to Amazon just
on a Jedi mind trick of I'm focused on this right now is there a chance that it
could go to a trillion dollars just based on the sentiment the general
sentiment that Amazon is about to become the most dominant player and the largest
highest EBIT to consumer businesses in the world and continue this anti-gravity
bucket we're just totally decouples from the metrics
talking about it I think Amazon is the perfect illustration of the power of
telling the same story consistently over time and acting consistently with that
story because every company tries to tell a story but most companies don't
stay true to a story their story keeps changing depending on whatever's hard
Jeff Bezos has said the same story since now i-i've stood that letter from 1997
that everybody I'm sure is read about what he said I'm is that letter still
captures how the company's very convenience price will interact across
ways we care about revenues we'll let the profits come I call it a Field of
Dreams company long time ago because their view is if we build it they will
come and they be consistent with that notion I think the problem though is the
success of amazon has created a lot of amazon wannabes when you say wannabe you
mean people who are smelling losing a ton of money in this field of dream
strategy exactly because I think in a sense what Amazon is pulled off is he is
unique I don't think other companies so when you see Wilbur in a sense try to be
an act to pull out the Amazon I'm not sure that car service lends itself as
easily to what Amazon did so I think a lot of companies look at Amazon said
only we could do what Amazon does we're going to be as successful I think
they're going down a very dangerous path with Amazon the question is what that
reckoning what form that reckoning will take you saw a little bit of it last
year when you started to see the stories shift a little bit where Amazon started
to focus on profits finally they did a couple of things like lay off people
with them they're not done before but you saw growth taper off a little bit I
mean it's still pretty high but the company seems to be saying look you know
we're going to look at margins a lot more than we used to I think you're
going to see a lot more of that in the coming decade where you're going to see
Amazon take actions where they put margins ahead of revenue growth in some
sectors but the thing about Amazon is while they do it in some sectors and
other sectors they're reclaiming that old strategy so you're going to see a
mix of strategies and different business in an Amazon I would be surprised to be
started to see the profit margin start to improve at least in some of the
sectors they've been around for fifteen or twenty years so you think
this is an overt strategy I've always thought that perhaps at Amazon we got
into businesses specifically the cloud where they couldn't help but be
profitable and that they actually every quarter they announced of profit Jesus
calls management into a room and says you screwed up green light every
expensive thing you believe that it is an overt strategy start getting more
profit I think so and I think that in a sense it when you get to be a half of
trillion dollar company Sigma you at some point in time you have to start
thinking about profits simply because you have so many ambitions you had fun
with those guys flows you can't keep running at this in a low profit margin
strategy so I think you're going to start to see margin start to improve it
at so companies everybody follows the leader I see this in the private market
echo system where VCS encourage all of us including us we were a VC back
company to grow and be special and ignore profits or losses so let's talk
about some companies snap four hundred million in revenues five hundred million
in losses how do you value a company like that yesterday you said at some
point you thought it would be undervalued what right now what is it
fifteen sixteen billion dollar market cap talk to us about now I think what
the snaps pathway to profitability is a fairly straightforward they can pull it
off which is they've got 160 to 200 million in fairly intense users they're
not quite alike that close they're halfway between Twitter and Facebook in
terms of intensity that's the strongest point the weaker link is these are 20 to
30 year olds historically they do you think that's weak because the
advertisers love it it's weak simply because we know I I have a 27 year old
or 23 best cycle where I today it's nap god only knows what will be tomorrow
yeah if Instagram is cooler than snap for
some reason there going to be an Instagram so that's a weaker leg is we
don't know whether they be as loyal as 40 to 50 or controlled customers there's
a pathway I think for snap to become a successful company but they've got to
stay focused so we're in terms of where it is now wildly overvalued about the
same waiting see it's not widely over value because I've added 11 it's at 14
something I think it's getting pretty close to being interesting it's one bad
earnings report away from being implied for me yeah because all these points
back yeah but if you have one bad earnings report
where the user numbers start to taper off because that's all people seem to
focus on those two seven or eight I'll buy snap I'm in snap at seven or
eight to me is a is a pretty good investment because I'm getting a hundred
and sixty million users who are checking the snap 25 30 times a day and it's snap
can then figure out a way to start to deliver and that's that's EF I think
that's worth at least an $11 per share so the right price I would buy snap I
think they have a tough path ahead of them simply because they're in a space
where two giant suck up all the oxygen Google and face Facebook but I think
they have a pathway if they can find a niche in that market that they can case
and one of those giants facebook seems literally obsessed with putting them out
of those yeah exactly so uber six billion in revenues three billion and
losses I think those in the know great yeah give me your sense of value on uber
I think ubers basic business model has a problem what allowed them to grow so
fast is getting in the way of them making money what allowed them to grow
so fast is they created a no or low capital intensity model you don't own
the cars you don't hire the drivers all it over needs to do to grow in a city
it's hard I put them in a motel room sig sign up and up drivers let's get started
that's what allowed them to grow from nothing to a seventy billion dollar at
least pricing for the company in a five to six year period but that's turning
out to be the weakness because in a business with no capital intensity there
are no barriers to entry there's a lot of liquidity you and I could start up
drive sharing market and essentially what overs original strategy was we
spend the competition into the ground would drive them out of business in 2013
and 14 it look like there's a shock because it was so much bigger than
everybody else but then you started to see the other players over so
everybody's throwing cash into business nobody's making money it's essentially
almost like everybody is you know it's going to price themselves down I mean I
look at what I pay for an uber uber ride and say there's no way yeah anybody in
this game is making money no but not the driver yeah it's great for customers
yeah but this is not a business that's sustainable in the long yeah 50 bucks to
get to the airport you know accost uber 75 economically
irresponsible not to take uber everywhere show wouldn't add that so
that Barry Hoover has liquidity in every market and you can with 30 50 million
bucks start an uber competitor does not lend itself well than to a company like
Airbnb where you need global liquidity where even if you have rental listings
in Houston you have to have global awareness from everybody coming into
Houston doesn't that make doesn't the same thing like Airbnb more valuable
whereas it makes super or less valuable potentially you know Airbnb has a
potential for global networking benefit lubbers local networking benefits which
means they dominate a city they want to get to a tipping point where they become
so I think Peru but the key is to change the business model they've got to find a
way to make this more capital intense more how would they do that by owning
the cars that's why they tried wait and try to get into electric cars and in a
sense but the progress now they're competing not against lyft and didi
they're competing against Google and the reality is Google and Apple have enough
cash in their checking accounts yeah to spend you onto the ground so they're
entering a space with a competitive advantage in a much more minimal but I
think Airbnb does have that advantage of having a potential for global networking
right so Airbnb I think at a most recent round of about 25 billionaire boots err
beatboxing uber at seventy billion you would argue Airbnb probably overvalued
I'm sorry uber overvalued Airbnb where would you put it
I think Airbnb I mean I think at twenty five billion is closer to its fair value
I think Airbnb has more of an issue now with regulators because that's coming
now uber has already gone through the brunt of that process so they're working
out some probable pleas to compromise where they can live with ride-sharing
companies because the reality is many cities without ride-sharing you can't
get from point A to point B taxi cabs can't do it anymore
Airbnb is I think getting to the point where the regulators are going to wake
up and start being more assertive about what they need to do and that is it with
a lot of these these young disruptive companies live off regulatory arbitrage
initially at least which is you see it in fin tech you saw it with Hoover
initially the regulations that govern the status quo often meaningless
you know the legacy regulations and what these startups do is they essentially
become are able to succeed because they don't have to deal with those
regulations Airbnb increasingly will have to deal with the regulation that
hotel company's about to deal with historic yeah the innovation class plays
by different sorry and what's like once you get to a certain size the
regulator's wake up but then we're going to pay attention to you I want you to
pay taxes and have minimum wage and all those restrictions on where you can put
your I mean you're going to see the zoning restrictions come in and where
you can do this I think that position better than uber because they don't have
to deal with in with the equivalent of a DD focusing or a lift in this business
while they're building up so I think I've been B as a potential to actually
and we talked about uber at 70 billion seventy billion in the private markets
isn't seventy million in the public markets right because the company that
looks dumb or the guys that invest at seventy billion they get a liquidity
preference right so it's not really they're investing at seven eight all
right that's part of the promit extrapolating from VC transactions to
embracing the entire company because unless you know the exact specifics how
the VC transaction is set up with all the option ality built in I mean I
actually played a game where I took a four hundred million dollar company and
I sold a stake and I wanted to make it look like I was a billion dollar company
and essentially what I did in the game as I said what kind of options would I
need to get reacts for credit in forever and I could could make a board so with
especially with the zeal for unicorns out there
I sure how companies have started playing this game with VCS where both
sides kind of do the dance of let's make it look like you're a billion dollar
company because that attracts more VC investors so you're right it's a very
dangerous extrapolation we're doing so but the test will be when they do go
public what that number will look like you know whether you can keep that
illusion going and it seems like many of these companies can do it at least
through that initial offering day and it seems like people don't wake up to six
months one year one and a half years later to what the actual values are
color Forest ok Facebook Facebook to me is a company
that is constantly surprised me on the upside
because when they first came out I wasn't sure to think I described them as
a Google wannabe which is not a bad place to be because you're trying to be
like one of the most successful companies of the last decade Facebook
has surprised me to the point where I'm willing to argue that going forward if
you look at this big fight between between Google and Facebook I think
Facebook is going to win that fight in to put the advertising dollars because I
think that they constantly keep when you think about stories they find ways to
make this story richer and bigger each time I look at them by bringing in
things in the ecosystem so when they bought whatsapp I was actually the few
people in investing who defended them saying you know because most people is
why would you paid 19 billion or query for a company that doesn't make money
and I said you're missing the point what they're buying is richness the ecosystem
the messenger service that takes them into the parts of the world where
they're weakest Asia in Latin America Asia especially well what's up is you
was ubiquitous when they bought it they essentially bought the messaging service
that the third of the people in India use so I think they to fit when I look
at every action that Facebook takes it seems to be an action that is designed
to make you stay in their equals the intensity exactly 20 billion on a four
hundred fifty billion dollar market cap for again increased intensity fields and
it's like a whole thing I I don't use the word real auction casually because
people use it almost as an excuse for paying a premium but this is a case
where the optionality you get because your users are so attached in your
ecosystem so long but in Facebook I don't even know what they can do with
these users going forward but you're 1.9 billion users on your system all the
time you find ways to make money on Google Google the thing about that's
always surprised me what Google is how they remain an advertising company right
they try all this other stuff on the side you get a lot of they get a lot of
public relations out of ever know the way Marwin but at the end of every
quarter I actually check what percent of revenues comes from old-time advertising
and it's 95 percent now I call it the sugar daddy company because the company
where the search engine provides so much revenue so much earning so much cash
flow and its predictable earnings and cash flow
the day can experiment doing all kinds of panda and I'm exactly and I'm not
sure that's good for a start-up to have cash you can count on no matter what and
part of the reason Google might not have been as successful in the other Devers
is I'm not sure you can behave like a start-up if you know you can go back to
the parent company for another billion dollars and things don't go right so I
am amazed by the cash cow in the advertising business but I'm also made
that they haven't found a way to make the rest of their ecosystem at least
start on the I don't even see the starting of a pathway to profitability
and most of their other businesses so undervalued overvalued relative to the
other guy it's actually that it's close to fair I mean I Google to me has always
been within 10-15 percent of valuable Colorado the earning on cash flows are
so immense that you know I the way I describe it is I know when I when I
looked at Google and Apple about eight months ago is Google is the better
business because applets recreate itself every two years because it's smart phone
company you're only as good as your next iPhone and Google has this business that
in the long term will keep generating earnings and cash flows
but I thought Apple is a better investment than Google at that point in
time but Google wasn't significantly over that it was been eight to ten
percent of its value so Apple huge run up lately do you think
Apple I think it is it is about where I would and with Apple whenever I get to
that point I sell the shares because you're now playing the next iPhone game
if the iPhone eight comes out it does so I don't want to play the smartphone game
as to what the iPhone I'll wait for the iPhone eight to come out and here's what
I'm looking for if it doesn't do well it's almost predictable given the last
ten years of Apple what's going to happen people are going to sell the
shares drive it down to 80 or 90 and I'm going to do way you think using Apple is
going to come half well the way investors in Apple behave yeah that's
how it always wine iPhone surprise away this is a company where the story goes
from this is the end they're dead to this is a company that's reformed its
growth neither which is true this is the greatest cash machine in history
it's been the greatest cash machine in history for the last seven years but
it's a mature company you're not going to get 20% growth enough you're going to
get three to four percent growth and that's in a sense you you're more likely
scenario but the market keeps going from believing it's found a 15% growth
trajectory to one that says it's going to be dropping about 15% a year so it's
I've actually bought and sold Apple three three times in the last ten years
simply because of this up-and-down movement in the shares we talked about
netbooks earlier up huge I think 70 or 80 percent just in the last six months
Netflix I think Netflix the modulus shakes right at do you I mean I think
well one thing that always used to scare me about Netflix is how much they were
dependent on other entertainment companies for the basic content and my
fear was that they would be held up for because once they got big there were the
entertainment companies would come to my said we want three times more five times
more and given that you promised you uses the movie axis you're going to pay
that what Netflix has done pretty well is changed its focus towards original
content in different businesses they're entering a dangerous business because we
know how the entertainment business works in goes drive budgets and then
budgets get out of control but they've actually managed to create enough of a
content business that there are some users who watch Netflix just for their
original content I thought that I never thought that would happen now and I
think it's going to be interesting to see how they build up original content
outside the US because it's very clear that their ambitions now are to build up
their user base outside and if you think about outside US and you think about
numbers you think about India and China and Marco Polo was a badly focused
exercise and trying to get Chinese users to sign up but I think that that's where
I'll see I seen that's occurring more global more original content and it's a
company that that at its current price is I think a little overvalued I
wouldn't buy it but it's a company which stays on my radar because I like it as a
company it's one of the few companies where amazon has tried to enter the
space and not being able to try to move Netflix away from its subscription model
and that's that's kind of tough to do but so original content they're saying
six and a half billion here amazon spending for half so just to
circle back to amazon on original content Amazon is now spending
two-thirds or 70% of what Netflix is so at some point they're going to you you
think they might be kind of a viable competitor Apple and hardware the most
innovative hardware products the last couple years wasn't wasn't the Apple
watch wasn't pods it was Alexa yeah Facebook and Google
digital marketing Amazon media group no one ever talks about it it's a billion
half dollar company probably growing fast in the Facebook or Google it feels
like the for might be melding to the one and all the Venn diagram overlaps of
Amazon versus everybody else Amazon is winning it Amazon is now taking on the
other the other three and winning it's your sense I mean as your sense that
Amazon really is a viable threat to the other three it could be that's part of
what might explain that high valuation we were talking about for Amazon is its
its wit and that's why the Amazon Prime membership is such a rich base to build
off because you've got 85 million people who keep coming back to you and you want
to sell them entertainment there right there you don't have to reach out to
where do I go find these people so right now I get Amazon Prime faloona with
Amazon Prime I get no access to most of Amazon media for free it's an incredible
bonus that I'm getting I know I'm this can't last there's going to be a point
in time where this media is going to cost me money and I actually find Amazon
media to be richer than Netflix in terms of the offerings I can find so you're
right I think Amazon is going to be a competitor to almost every one of the
players in this market it doesn't want the advertising stuff but everything
else it's going to be it's going to be up there so it's less of a threat I
think to Google and Facebook than it is to Apple and Netflix so Tesla Tesla is
Elon Musk I mean let's face it no it's impossible to invest in Tesla we don't
believe in Elon Musk so if you're a believer in Elon Musk if you think he is
the visionary to end all visionaries I think you by Tesla simply because you're
buying a person and it's true but the problem is buying a person
rather than a company is people come with weaknesses and I think Elan must
strengthen his vision his weaknesses is inattention to detail
and you see this showing up in Tesla quarter after quarter they're great on
the vision but they can't deliver cars the way they promised they're always
under delivering they're always behind schedule so to me the moment of
reckoning is going to be in 2000 as you look at the Tesla 3 rollout is whether
they can actually deliver if they can deliver I think they deserve to have a
higher market gap in Ford and GM and Volkswagen I mean maybe not Volkswagen
but essentially companies that have legacy cars that still do business the
old way we just saw old worn out saying that they were going to face out there
gas cars alone so I think the world is shifting and Tesla might be in a better
position to to operate in backwards and many of the legacy companies so everyone
we've mentioned so far is either fairly fairly valued or what feels like kind of
overvaluing do you look at anything out there right now I think it's undervalued
it's tough in this market and undervalued I mean we're in a market
it's not that comfortable people blame tech companies within the overall market
is richly priced a richly priced you know given history it's perhaps
reasonably priced if you factor in low interest rates I mean that's your only
way you get it you know I'm ok with this market is my opportunity cost is if I
don't invest in stock market where am I going to go and the key bonds are still
delivering towards you so in a sense you're stuck with this be good but
that's a dangerous way to rationalize the market thing I've no other place to
go therefore this is your sign cash is a viable I think cash is a viable option I
think you know and I advise people I say look you know don't stay out of the
market entirely because the history of people staying out of the market is that
they tend to lose over the long term but phase in your investments the market you
have cash to invest don't put it all at one go and do it over or staggered over
period especially be young and you can take you know three minus six months
before you do the investments because I think cash is a viable choice well so
just as the the innovation class gets us what feels like have unreasonable rich
valuation is there an investment thesis or
opportunity around look look at Amazon Amazon announces they're buying Whole
Foods and basically or anytime Amazon announces anything good which is a lot
the rest of retail gets hammered so you know an Abercrombie & Fitch a Macy's and
Nordstrom Abercrombie and Fitch is global brand billions and revenues six
or eight hundred million a market cap with 200 million in cash it feels like
it could be sold for scrapping that there might be or a Macy's trading of
what five times cash flow right now are these guys is there an opportunity with
the with the dogs or the that are basically the victims or the perceived
victims of Amazon what have you a pill retailer I wouldn't touch you know so
Macy's I will walk to the Macy's yesterday walked out right away it's a
depressing place to shop it's the president that's their tagline but I
think that's true for a lot of all-time Sears Macy's JCPenney
go in and you don't feel like it Felix then uh merchandise is thrown all over
there's no rhyme or reason to what they do and I have a comment which is
interesting because you're not just buying you're buying a brand name as
well j.crew alright I think you have to separate the retail space into those who
are pure retailers so basically you know just and those who might have a brand
name that could be valued with vertically integrated camera yeah so I
think that's going to be the dividing line because old-time retail is in this
watching lights like watching the Bataan Death March
yeah there's no real optimistic end to this game you know everything you see is
more and more negative over time because I think they I think in a sense you know
dug their own graves because the way they reacted to Amazon over the last
twenty years is they try to cut cause through promotions you can't blame them
for doing that but the way they cut costs is they essentially took away the
only reason you'd go into a physical store which is to get help to get no
service and big car merchandising so Day in a sense I made it so unpleasant to
actually shop in a in a physical retail store that I'm going to go on my Amazon
Prime account and will order the same stuff for 20% less and probably get
better service by asking an email question than I would in an actual store
what about the victims of Facebook and Google of
I comms the Disney is the WPP is the IP jeez is there opportunity there because
they've been beaten up see arrogant it's the same thing right in Disney for
instance it's you could take away that there the distribution mechanisms and
entertainment and they're still what the lot because somebody still has to
deliver the content so the companies that have rich content that cannot be
taken away from them will still have value intact so they'll have to find
Rick recreate themselves I mean Disney is an amazing company but they have to
think about how entertainment is changing and how they have changed with
the space to survive and I think every entertainment company right now has to
be looking inward saying what do we need to do to adapt to the world we're in
which is a word where Amazon and Netflix might be the gatekeepers through which
we end up delivering our content and I think that that's so the company
entertainment companies that truly can own take on him that's why Marvel and
Disney Animation are such critical parts of Disney as the companies because those
are the things that deliver the content at everybody means so the broader market
Jamie Dimon when asked what a financial crisis is he said something that happens
every seven years and I love that quote and for those of us were old enough to
have seen actual cycles we always said we'll be smarter the next time this to
me feels very frothy a lot of the soft soft signals
you know marginal talent demanding a lot of money craze and rents for office
space difficult to get reservations and marginal restaurants it does feel like
we could have a 20-30 percent correction and then wake up a double course we have
your sense on the general state of market it's a great a long long really
good run and every time you have a long really good run there is a correction
coming so we can say that sexy there will be a correction we don't know
whether it'll be three months or six months a question is what do we do are
you think it's bugs not years it could I mean it could be weeks it could be
tomorrow I mean Corrections happen for we could find a trigger that causes
Corrections we could make a lot of money the reality is look at the history of
Corrections small things it's almost like you know you don't know what's
going on you don't we don't know where it's coming from so I know that a
correction coming the question have to ask myself is what do I do about it
so a few years ago I asked a question which is assumed that we're in
you know that do you think the markets in a bubble what's the best strategy we
have obvious answers just sell your shares so as what is the probability
that the correction has to happen and how soon does it have to happen for it
to be a better strategy to sell your shares and wait then it is just stayed
through the arket and my tipping points were 70% and a year which means I have
to have a 70% probability of a correction happening within a year for
it to make more sense for me to sell my shares and sit on cash then it's just
right through take the 15% hit when it comes and keep going are we at about 70%
not for me not yet and that's because interest rates are still at 2% if
interest rates went to 4% and markets continued to rise or be a viable
competitor to equity exactly you know at 2% I'm not quite at the 70 percent
property yet so to me the where are we 50 60 kind of I would say lower that
that simply because at a 2% rate there is really no other place left me to go
that was great so online certificate for the first time available to anybody who
wants or online course and valuation where do people go to check that out
well if they want it for free they can go to my website if they want it want to
pay NYU prices they should go to the stone website and I'm sure certain loads
you saying that and what's your website Adamo join calm demote earn calm and you
have a do you have a book coming out on user growth or our subscribers I'm
starting grad to look up sabbatical that's that's one of my big projects of
my sabbatical Astoria is to think about user growth a valuable user and then
apply it to Amazon and Netflix and Facebook and Google essentially to look
at what the value of user is in different companies and why they vary
across companies as well thanks very much professor a SWOT the motor and more
information at de motoring comm is that correct
okay we'll see you next week you
I love Scott Galloway!
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