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    Prof G Markets: The Broken IPO Market, Disney’s Parks Investment, and Buying FTX Bankruptcy Claims

    enSeptember 25, 2023

    Podcast Summary

    • Collaboration and Teamwork with Atlassian SoftwareAtlassian software helps teams stay connected and productive, as evidenced by its widespread use in various industries, including finance, where the Fed and BoE paused interest rate hikes and Cisco made an acquisition.

      Collaboration and teamwork are essential for achieving great things, as highlighted by the use of Atlassian software by millions of teams worldwide. Atlassian, a trusted software provider for businesses of all sizes, helps keep teams connected and productive. Meanwhile, in the financial world, the market saw a pause in interest rate hikes from the Federal Reserve and the Bank of England, while Cisco made a significant acquisition and Rupert Murdoch stepped down as chairman of Fox and News Corp. These events reflect the dynamic nature of the business landscape. Additionally, the PropG team shared their excitement about being nominated for a Signal Award for best money in finance podcast.

    • Fed Chair's Assertiveness Boosts ConfidenceThe Fed Chair's assertiveness in raising interest rates bolsters his confidence, potentially leading to continued rate hikes despite pressure. Inflation rates in the UK are coming down, but remain high compared to the US. Companies, like Cisco, can face significant stock value drops but strategic acquisitions can help fill gaps in core competencies.

      The speaker believes the US Federal Reserve Chair's assertiveness in raising interest rates boosts his confidence and sense of power, potentially leading him to continue raising rates in the face of pressure. The speaker also notes that the UK's current inflation rate is still high compared to the US, but is glad to see it coming down. Additionally, the speaker discusses Cisco Systems, highlighting its past as the most valuable company in the world and its successful acquisition strategy during the dot-com era. The lesson here is that companies, even those at the top, can experience significant stock value drops, and strategic acquisitions can help fill gaps in core competencies.

    • Murdoch's Departure Signals End of an Era for Fox NewsRupert Murdoch's stepping down from News Corp and Fox may lead to asset sales, forming part of a larger conglomeration, and marks the end of traditional Fox News as we know it, with a focus on younger, tech-focused, and right-wing perspectives.

      The stepping down of Rupert Murdoch from News Corp and Fox signifies the end of an era, with the sun setting on the traditional Fox News as we know it. Murdoch's departure may be indicative of his declining health or inability to maintain control, and his children's involvement in the corporate governance may lead to the sale or disposal of assets, potentially forming part of a larger conglomeration of ad-supported cable assets. Murdoch's legacy is significant, as he challenged the liberal media bias and provided a voice for those often overlooked in the political landscape. However, his impact extends beyond media, with controversies surrounding the spread of conspiracy theories, targeting women, and anti-American activities. The future of Fox News lies in the younger, more tech-focused, and right-wing world, and the legacy of Murdoch's media empire will be a topic of much discussion.

    • Costs of illegal activities or inaccuracies less on social media than traditional mediaSocial media networks, protected by Section 230, face fewer legal consequences for inaccuracies and defamation compared to traditional media, leading to a lower cost for engaging in such activities.

      The costs of engaging in illegal activities or creating inaccuracies and defamation on traditional media outlets are often greater than the potential profits, due to the legal consequences and potential fines. However, this is not the case with social media networks, which are protected by Section 230 and are not held accountable for the content on their platforms. This was highlighted in a recent discussion regarding inaccuracies on Fox News versus Meta. Meanwhile, in the business world, three tech companies - Klaviyo, Instacart, and ARM - had strong IPO debuts, but all have since slumped. This trend of strong initial pops followed by declines raises questions about the sustainability of these market performances.

    • IPO market facing challenges as private markets become more appealingThe IPO market is experiencing a decline due to the allure of private markets, fewer IPOs, longer wait times, and heightened stock price volatility. Companies and investors prefer the benefits of private markets, leading to concerns about the future relevance of public markets.

      The IPO market is experiencing a shift as private markets become more appealing for companies due to higher valuations and lower reporting costs. This trend, along with a decrease in the number of IPOs and longer wait times, has led to concerns about the relevance and potential structural decline of public markets. Additionally, the smaller floats in recent IPOs contribute to heightened sensitivity in trading activity and exaggerated swings in stock prices. Despite this, it is argued that these companies were not priced correctly at their IPOs. Overall, the IPO market is facing challenges as companies and investors increasingly prefer the benefits of private markets.

    • IPO market facing challengesDespite high valuations in private markets, IPOs underperform due to oversubscription, market maturity, and investor selling. Instacart and Disney are recent examples.

      The IPO market is experiencing a downturn, with many companies underperforming after going public. This trend is due to a combination of factors, including oversubscription in private markets, high valuations that don't hold up in the public market, and the maturity of late-stage investors looking to sell. Instacart, which was once valued at $40 billion in private markets, is an example of this trend. Additionally, the market is not holding up for IPOs as well as anticipated, with Disney's stock falling after the company announced a large investment in its parks and cruises business. The Hollywood execs on a recent call expressed concern over the perceived decline of Disney, which they believe may have contributed to the resolution of the writer's strike. The IPO market is currently experiencing a thaw, but the momentum isn't as strong as it was a few weeks ago. Overall, the market isn't holding up for IPOs as investors had hoped, and companies may need to price their offerings more conservatively to account for this trend.

    • Disney's Challenges and OpportunitiesDespite facing significant challenges in its cable business, Disney's opportunities lie in its parks, movie production, and streaming businesses. With unmatched assets, a massive customer base, and high margins, Disney remains a compelling investment.

      Disney, once an icon of success, is currently facing significant challenges, particularly in its cable business. Operating profits have dropped dramatically, and the company is trying to sell its cable assets. However, Disney's opportunities lie in its parks, movie production, and streaming businesses. While streaming is competitive and expensive, Disney has unmatched assets and a massive customer base. The movie business is difficult but synergistic with streaming. And the parks business, with Disney's dominance, offers high margins and a captive audience. Peter Drucker's advice to invest in opportunities, not problems, rings true for Disney. Despite the challenges, Disney's unique offerings and customer loyalty make it a compelling investment. For instance, Disney's VIP tours generate impressive revenues, with 60 tours a day, each costing $800 an hour, translating to $135 million in annual revenue and 90% margins.

    • Disney's ability to create original content questionedInvestors have concerns about Disney's capacity to produce fresh, independent films and the industry's trend towards relying on existing IP and tentpole productions may impact Disney's long-term sustainability.

      Despite Disney's massive enterprise value offering and expansion plans, there are concerns about the company's ability to create original iconic content and its reliance on existing IP. The stock decline on the news may be a reflection of investors' doubts about Disney's ability to produce fresh, independent films and the increasing pressure on studios to focus on tentpole productions. The challenge for Disney, as with all CEOs, is to balance short-term profits with forward-looking investments. However, the movie and media market's difficulties, which are not unique to Disney, add to the pressure. The industry's reliance on sequels, prequels, and reboots, rather than original content, is a trend that raises questions about the long-term sustainability of these business models. The success of a few original films, like "Frozen," does not make up for the lack of innovation in the industry as a whole. The future of media and entertainment may depend on companies' ability to invest in new, original content and adapt to changing consumer preferences.

    • Improve productivity and quality with tools like GrammarlyTools like Grammarly enhance productivity and quality by integrating across apps and providing personalized writing assistance. Ethical business practices are crucial to avoid complex legal disputes and maintain trust with clients.

      Productivity and quality can be significantly improved through the use of tools like Grammarly, which seamlessly integrates across various apps and websites, providing personalized writing assistance. However, the business world isn't always black and white. For instance, the ongoing legal dispute between FTX and the parents of its founder, Sam Bankman Fried, highlights the complexities of family dynamics and the potential blurring of lines between personal and business finances. The case serves as a reminder of the importance of ethical business practices and the potential consequences of ignoring them. Meanwhile, State Farm continues to be a trusted neighbor for small business owners, offering personalized insurance plans tailored to their unique needs and budgets.

    • Investing in bankruptcy claims as derivativesDuring bankruptcy proceedings, investors can buy claims against companies for a discount, potentially earning higher returns when assets are distributed, but requires long-term time horizon and willingness to go illiquid.

      During the bankruptcy proceedings of FTX, investors have the opportunity to buy claims against the company for a fraction of their original value. These claims represent the debt owed to the investors by FTX, and they can be bought and sold as derivatives. The speaker, who is not giving investment advice, has purchased such a claim for $270,000 that originally represented a $1,000,000 debt. He plans to wait and potentially make a higher return when the assets of the company are distributed. This strategy requires a long-term time horizon and a willingness to go illiquid. The speaker believes that the potential returns justify the risk, as FTX had significant assets, including cryptocurrencies, cash, and investments in other companies. The claims can be found through various sources, including hedge funds and advisors specializing in such opportunities.

    • Buying and Selling Bankrupt Crypto AssetsAn Italian negotiator buys and sells claims against bankrupt crypto companies' assets, including FTX's $3.5B in crypto. Gradual sales needed to avoid price crashes.

      There's an active secondary market for investors to buy and sell claims against bankrupt companies, even those with large crypto assets. A talent from Italy specializes in reaching out to claimants and negotiating prices. In the case of FTX, the bankruptcy estate holds $10.6 billion in assets, including $2.6 billion in cash, $200 million in real estate, and $3.5 billion in crypto. However, only 20% of the crypto assets are in well-known coins like Bitcoin and Ethereum, while the rest are in less liquid tokens. The estate will likely need to sell these tokens gradually to avoid crashing their prices and losing investment value. Looking ahead, Nike's earnings and the personal consumption expenditures index for August are upcoming events. Predictions include Disney stock potentially overperforming due to its low valuation compared to competitors, and the end of the rideshare strike within the next few days.

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