Wednesday, February 16, 2022

Report from the Pivot conference; Miami Mayor Francis Suarez; WeWork; Professor Aswath Damodaran on company life cycles and Meta Platforms; Scott Galloway's presentation

By Whitney Tilson

1) I enjoyed the first day of the Pivot conference in Miami yesterday (it wraps up at lunchtime today and I'm flying home this afternoon)...

It's hosted by two of my favorite commentators, NYU marketing professor Scott Galloway and New York Times tech columnist Kara Swisher. Here they are welcoming the attendees:

I haven't met Kara yet, but had a chance to catch up with Scott, whom I first met four years ago in London after a mutual friend introduced us. Here's a picture of us:

2) The first speaker was the mayor of Miami since 2017, 44-year-old Republican Francis Suarez:

He was very impressive – I can see why he won his two elections with 86% and 78% of the vote. He outlined everything he's doing to make Miami the next Silicon Valley: wooing tech leaders, hosting conferences, cutting taxes, and fighting crime (Miami was one of the few major U.S. cities that saw its murder rate drop last year). Swisher interviewed him on her Sway podcast last April – you can listen to it or read the transcript here. Excerpt:

Big names in tech including Peter Thiel and Keith Rabois have moved to Miami in the past year. Mayor Francis Suarez is welcoming them with open arms in his zeal to transform Miami into the next tech hub. The sell? Sunshine, low taxes and a mayor who is always willing to take their calls (or, as Kara Swisher puts it, "pet them.")

In this conversation, Swisher presses Suarez on whether Miami – a city with rising sea levels and without an institution like Stanford in its back yard – can really become the next Silicon Valley. She also asks what he's angling for in the long term. Suarez, a Republican, attracted national attention during the pandemic for his tensions with Florida's governor, Ron DeSantis, and President Donald Trump.

He's now rumored to be a contender to be Nikki Haley's running mate in the 2024 presidential race – speculation that he also welcomes with open arms. "I certainly was not shy about wanting to build a bond and a relationship with her," he says. So, does Suarez want to be on a Republican ticket? His answer: "I wouldn't say no."

3) Scott and Kara interviewed more than a dozen people yesterday, including David Solomon, the chairman and CEO of Goldman Sachs (GS), Meredith Kopit Levien, the president and CEO of the New York Times Co. (NYT), and Sandeep Mathrani, the CEO of WeWork (WE).

WeWork finally went public last October after merging with a SPAC, after its spectacular IPO failure in 2019 under its narcissistic, farcical founder, Adam Neumann (which I covered extensively – see the archive here).

After all the scorn I heaped on this company back then, I have to admit I was predisposed to hate the stock, which closed yesterday at $7.18, just above its all-time low, giving it a market cap of around $5.5 billion.

After hearing Mathrani, however, while I'm still not persuaded the stock is a good buy, I'd never short it. He's that impressive. He has done a remarkable job saving a company I was certain was headed for bankruptcy.

Also, until I Googled him, I hadn't realized that he played a role in my most successful investment ever. I bought more than 1 million shares of mall operator General Growth Properties ("GGP") shortly before it filed for bankruptcy in April 2009.

My average purchase price was just $0.67 a share. By the end of the year, the stock had soared to $11.56 – and I had made more than 17 times my money.

Mathrani became CEO of GGP a year later in December 2010, successfully ran it for nearly eight years, and then sold it to Brookfield Property Partners.

You don't want to bet against this guy...

4) NYU Professor Aswath Damodaran was my favorite speaker in the morning (I highlighted his recent blog post, Back to Earth or Temporary Setback? Revisiting the FANGAM Stocks, in Monday's e-mail). Among many topics he covered was how companies go through life cycles, each stage of which has important implications for what type of CEO is best, how they should allocate capital, and how they should be valued. Here's one of his slides:

Here are some key lines I wrote down:

  • "More money is wasted by companies not acting their age than anything else."
  • Name changes [clearly referring to Google/Alphabet (GOOGL) and Facebook/Meta Platforms (FB)] "are a good marker of a change in the life cycle."
  • Walmart's (WMT) 2018 acquisition of Indian online retailer Flipkart "was the most expensive facelift in history."
  • "There's a whole ecosystem of consultants and bankers whispering 'you can be young again...' If you make this big acquisition, you can live forever."

Damodaran also commented on Meta Platforms (see his recent blog post, link above for more on this). He thinks it's at a "fascinating cusp in its life cycle... Anyone who thinks it's going to keep growing at 20% is going to be disappointed."

He models 8%, but acknowledged that he could be wrong, saying "we could be at the beginning of the end." If so, "the meltdown will happen very fast." He added, "I hope not, because I recently bought the stock."

5) My favorite presentation in the afternoon was by Galloway himself. He flew through a long presentation making quick comments on a lot of stocks. Here are some of the highlights:

  • "AMC Entertainment (AMC) is a shi**y company that is going to go out of business."
  • The whole meme stock bubble is absurd. "When guys who rowed on the Harvard crew team are telling you to 'stick it to the man,' ignore them – they are the man!"
  • "GameStop (GME) is a struggling retailer with an uncertain future. Best Buy (BBY) is a fabulous retailer. So it makes no sense that GameStop trades at 1.4 times sales and Best Buy trades at 0.5 times sales."
  • Similarly, it makes no sense that Honda Motor (HMC) and Lucid (LCID) have roughly the same market cap, nor that Mercedes-Benz is valued at $93,000 per car sold versus Tesla (TSLA) at over $3 million. One is either massively undervalued or the other is massively overvalued. There will be regression to the mean.
  • Virgin Galactic (SPCE) is a scheme by a billionaire to get investors to pay for his space dream failure. Space exploration is really dangerous. Space doesn't want you to live. Of the 550 people who've been to space, 11 have died, a higher death rate than base jumping or climbing Mt. Everest. The first time a space tourist dies will kill the entire industry forever. 
  • There's a market for "luxe coins," whereby luxury brands could sell coins that give buyers the right new products, etc. Scarcity signals wealth, prestige, attractiveness. Chanel would raise $1 billion to $10 billion this way. A Coachella coin giving lifetime VIP access to its concerts sold for $270,000.
  • The best brands in the world are top universities like Harvard and Stanford. Imagine Stanford sold a "Cardinal coin" that gave the holder the right to send one family member (qualified for admission) to the school – it would sell for at least $1 million. Stanford could raise $30 billion and not have to raise money from alumni. 
  • NFTs are a way to signal your wealth online. NFTs have led to a 30% to 50% increase in the value of sports teams.
  • Meta Platforms' Oculus virtual reality headset is a nonstarter, as 40% to 70% of users feel motion sickness after only 15 minutes. The "Zuckerverse" is a joke.
  • Peloton (PTON) is already in the metaverse with the most powerful and influential people in the world on it all the time. The company will be sold for a big premium.
  • Fintech firms with great business models but little mindshare will acquire media companies with lousy business models but lots of mindshare. Binance invested $200 million in Forbes. Salesforce (CRM) might buy Twitter (TWTR), and PayPal (PYPL) might buy Pinterest (PINS).
  • Apple (AAPL) is already big in the metaverse. Rather than Meta's Oculus, it has Airpods, which as a stand-alone would be a Fortune 200 business.
  • The big tech companies are all scrambling to develop a "super app" like China's WeChat.

I'll report on the second day of the conference in tomorrow's daily e-mail... Stay tuned!

Best regards,

Whitney

P.S. I welcome your feedback at [email protected].

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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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