Spotify’s First Year of Profitability + Is Google Losing its Edge?
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Start caring for your home with confidence. Download Thumbtack today. Today's number, $8 million. That's how much a 30-second ad spot on the Super Bowl cost this year. An all-time record. Ed, nothing says American exceptionalism like four hours of beer, boner pill ads, and men giving each other CTE for our entertainment. It's essentially Rome, but instead of Lions, we have Taylor Swift, Ed. We have Taylor Swift.

Welcome to Prop G Markets. That was sort of a thoughtful Super Bowl themed intro. Banter, Super Bowl, do you care? No, I don't care at all, actually. And this is the first year I've decided I'm just not watching. I feel like I'm always watching

Because I feel like I have to, but I've just decided, you know what? I'm not interested in the NFL. I'm not going to watch this year. Are you watching? I don't even know who's in the... Claire, do you know who's in the Super Bowl? By the way, Claire, I have a... Oh my God, I just realized. You're in my house, Claire. I literally thought she has the same climbing wall I have. Yeah, this is your house. Claire, how are you? I'm really good. It's good to see you. Welcome. Welcome. Don't touch anything. Thanks so much for having me. Anyways...

Yeah, you have a climbing wall in your house. Here in the kids' room. I do have a climbing wall, and my kids have climbed. My kids climbed for a good 30 minutes, and now it's just a decorative piece that cost me about 40 ZipRecruiter ads. By the way, I think it's Chiefs and Eagles. That's right, Chiefs and Eagles. Chiefs and Eagles. I thought you used to be a big NFL fan, Scott, no? I've never actually been a sports fan until my kids. I decided to give up golf and watching all sports and poured into fitness and trying to

spend more time with clients such that we could develop a father-son parasocial relationship and they'd pay me millions of dollars to consult. And then I could, at some point, buy one quarter of a Gulfstream. You know what I'm doing tonight? I think I'm going to do ketamine tonight. Really? I went out with some friends last night and they were having such a good time. And I'm like, what are you drinking? They're like, oh no, we don't drink. We're on ketamine. I'm like, really? And I'm having trouble, Ed,

I'm having trouble disassociating. I think we're in the middle of a second insurrection and no one's talking about it, and it's freaked me out and got me really upset. So I think I need to disassociate, and I'm hearing good things about ketamine. Do your friends do ketamine, Ed? Yeah, a good amount of my friends do ketamine. I can't tell if you're serious. You know it's illegal to just do it. There's a few things I do that are illegal, and I continue to engage in them, Ed. Okay.

Just making sure you're clear. I know you did it the legal way. Pot's legal now, so yeah. Edibles are legal, so that's not a problem. Right. Yeah, exactly. Actually, I don't do that much that's illegal. And, you know, the way people do it is they snort it. You're really going to go out and... Oh, really? I was hoping to stick something up with my... I was hoping to find an attractive woman with some gloves handy. Ah!

I have to pay for that. Now cough, Nurse Ratched. Anyways. Well, I'm excited to see you in a couple of hours. I'm going to come over and hang out at your house. Oh, that's right. We have a team meeting. You're all presenting your business plan. You excited to see me? Get to the headlines, Ed. Let's start with our weekly review of market vitals. The S&P 500 inched up throughout the week. The dollar declined. Bitcoin was volatile. And the yield on 10-year treasuries dropped.

Shifting to the headlines. Disney earnings beat expectations on the top and bottom lines. However, Disney Plus lost 700,000 subscribers with another modest drop expected in the current quarter.

The stock fell 4% following that earnings report. Novo Nordisk saw strong fourth quarter demand for its weight loss drugs with Wegovy sales more than doubling and Ozempic sales rising 12% year over year. Profits also exceeded analyst expectations up 29% from a year earlier. The stock rose on that news. And finally, Uber's fourth quarter revenue beat expectations, rising 20% year over year. However,

Operating income was lower than expected, and the company issued weak booking guidance for the current quarter, and Uber's stock fell 7%. Scott, your reactions, starting with Disney's earnings. A beat, but the stock did fall. It's clear who the number one is in streaming, but they're all fighting to be number two. They're like, okay, the number two will survive, and it's not entirely clear who's number two.

And the race for number two is between, in my opinion, the artisanal sort of HBO that's created an incredible culture that produces kind of the water cooler zeitgeist moment of content. And then Disney, which has just such singular clear positioning around family and then bundling Hulu and ESPN. I think it's ESPN Plus. It's a pretty good offering. Now, they were able to raise prices of 4%, which isn't a huge price increase, but it is a price increase. And basically,

They lost $700,000, but they would argue that's flat. That does kind of communicate that they have some pricing power. I would argue that's a good thing. Netflix's churn is 2% while Disney's is 5%. That may not sound like a lot, but it's huge. It means that every three years, Disney has to reinvent their entire customer base that Netflix does not. In addition, you have this incredible transfer or means of production. What do I mean?

What Japan did to Detroit...

Netflix is doing to Hollywood. And that is Netflix announced that the majority of their content, more than 50% of their 15 to $18 billion is spent on content is being spent and or if you will produce overseas. They're not doing that because they like Spanish people or they want more multiculturalism in their content. They're doing it because they figured out they can get a gaffer, a writer, an actor, a producer, sound engineer, studio,

studio construction folks for 40 to 60% of the cost of what it is in the US. Whereas Disney, the percentage of content spent overseas is 4%. But what Netflix has said is that if I have every week, not a 10, but I have just a shit ton of sevens and eights,

People don't cancel. Yeah, I think these earnings, I mean, Wall Street did not react well to these earnings, and I think rightly so, because I think this was just unimpressive on so many levels. I mean, Disney Plus subscribers declining, not by much, it was around 1%, but still a decline. And Disney Plus' response, or Disney's response, was, well, you know, we rose prices, so this is expected. Right.

And by the way, that's kind of what you said too. But you look at Netflix. Netflix also raised prices last year and they still added 19 million subscribers. So I don't fully buy the, you know, we're raising prices and therefore subscriptions are going to fall off. We've seen it with Spotify too. Spotify raised prices and their subscriptions are still continuing to climb. You also mentioned the churn rates. I just see this as...

such a big issue in all of streaming that it makes me believe that streaming is in a lot of ways uninvestable over the long term. Apple TV's churn rate is 8%. Peacock's churn rate is 9%. Disney's churn rate is on the low end, but still it's really high. It's 5%. So if you just want to stay flat in any given quarter, you basically have to grow your subscribers by 5% every single quarter, which is just...

I mean, I just don't see how that is a sustainable business model. And then the second thing that makes me concerned about Disney was their box office results, which were exceptional, but it was all because of this one movie, Moana 2. And that was kind of what

saved these earnings. Without that movie, this earnings report would have been pretty terrible, which again begs this question, like, how sustainable is this business where you're basically riding on your growth vehicle, which is Disney+, is pretty stagnant,

And then you're also relying on these sequels every single year. I mean, Moana 2, Inside Out 2, Deadpool and Wolverine. At what point are people just going to get bored of these sequels? Who's going to watch Moana 3 and Moana 4 and Moana 5? How much longer can this go on for? You do start to see fatigue. I would even argue...

Like Deadpool and Wolverine, I love both those actors. I think they're fantastic. And I'm like, I'm not sure I'm going to see the next one. I'm like, okay, I think I'm sort of done with this franchise. Anyways, what's really interesting here though is that

The parks did well. And that is, and if you think about it, AI can't replace the parks, or at least I don't think it can. There's still something especially wonderful or especially horrible, if you're the parent, about Walt Disney World, right? That still is a, that is an enormous, Netflix is going to have a tough time replacing.

And to Universal's credit, they spent the money and the decades to build those franchise businesses. But Atoms are, this is your notion that Atoms are more important than bits. But the Disney business right now, the strongest part of the business as far as I can tell, is the parks, the cruises, and the resorts. Because it's hard for Netflix to spin up a cruise ship.

These things take a long time, and they're good at the in-person stuff. Absolutely. But if you want to keep that business going, you've got to also be creating original and persuasive and compelling intellectual property, which they're not doing. No one's going to ride the Moana 3 ride. Yeah, but they can license content. They can. I mean, for example, Harry Potter—

Lego. I think Lego licensed its IP to someone who knows how to run those parks. I don't know if it's a division of Lego. Maybe it is. Legoland. By the way, you'll see when you have sons. Legoland, in my opinion, is the least awful of all of them. Legoland's amazing. That was my favorite growing up. Oh, really? Oh, yeah, that's right. I forgot how young you are. But I used to, I took my sons to the Lego hotel and it was pretty cool. It's epic. I love the image of little Ed at Legoland. Right? Building scary like, you're like, I can build something bigger than that. Yeah.

Anyways. By the way, just before we move on here, when is your Netflix show coming out? Oh, not for a while. If you had to guess. I would guess fall of 26. Yeah, it's going to take a while. We need to get you on camera here. Is that part of the plan? I hope so. No, I am. You will see soon. I do have a cameo in what is the hottest show on HBO in several seasons. I do have a voice cameo.

So I'm excited about that. We'll have a party. You'll all come over. We'll all celebrate and we'll watch it together. None of that is true. None of that is true. But it's a nice thought, isn't it? If I was kind of a more loving and engaged boss. Get out of my climbing room, Claire. Don't touch anything. Anyway, sorry. Go ahead. Let's talk about Novo Nordisk. This was a pretty important earnings report for this company because they...

simply put, have not had a good year. The stock's down 30% in the past 12 months. They tried making this new GLP-1, this drug called Cagrosema, and the trials failed. They've been outclassed by Eli Lilly, who have been showing from their studies that their drugs are just more effective. So

Novo Nordisk is not in a great place. They needed a really strong showing, not from the insulin business or the glucagon business or any of their other medicines, but from the GLP-1 business, because that, as we know, is the only thing Wall Street cares about with this company. And rightly so. That's where all the growth is coming from.

The results were pretty good. We're going to be sales more than doubled. If you look at that in combination with Ozempic, the obesity drug business is up more than 50%. So the GLP-1 business is doing quite well. I think the question here is a larger question, which is, will this whole GLP-1 thing live up to the hype that we had about 16 months ago? And

That's sort of up for debate. I mean, I've seen market size predictions saying this is a $100 billion market. Some say it's a $500 billion market. No one really knows. So I kind of look at this company, I look at these earnings, and I don't really have an answer. The only thing I can conclude with Novonordisk is, you know, wait and see. I would argue that the space is just getting started. The GLP-1 drugs, the category, everything I've read, I just think this technology is incredible.

The next sort of question, though, is how many competitors are in the space? And also, Aswath Damodaran, who we had on last week, made an interesting point, and that is for him, Nova Nordisk, his view was they kind of slipped and fell on Bagovin and Zempik. Let's face it, they got valuable because they got lucky. I mean, it's not like amazing R&D where they said, we're going to come up with a weight loss drug. Their diabetes drug happened to have a side benefit.

And I think that until they come up with another product that is a market changer, blockbuster drug,

I think the hypothesis has to be that they got lucky with these two drugs and they're going to go back to being a sleepy Danish diabetes drug company. I mean, Meta showed an ability to create another or acquire another product in Instagram, right? Google launched YouTube. These companies, Microsoft has an incredible cloud. These companies have shown an ability to innovate more than ever.

you know, repeatedly. And his view was Novo Nordisk hasn't really demonstrated that. To his point, the only one, the only company that actually innovated this drug that didn't stumble its way into it was Eli Lilly, who created their own versions, of course, after Novo Nordisk figured this whole thing out accidentally.

So I think if you're thinking about, okay, how do I get exposure to GLP-1s? Yes, Novo Nordisk is the market leader. It has the greatest market share in the US and in the world. But I think in terms of culture and innovation, all that stuff that Aswath talks about, I do think Eli Lilly is probably a better bet from that perspective.

Let's move on to Uber. Uber reported earnings revenue grew 20%. They had this kind of soft guidance, $42 billion in gross bookings expected in the quarter coming up, and the stock did not react very well. I thought the most interesting part with these earnings was that Uber is officially launching a wait list for its Waymo partnership. So,

This is going to happen in Austin first and later in Atlanta. Uber and Waymo are teaming up and self-driving taxis are coming in 2025. And I think the most important thing here is the autonomous taxi fleet, it's not coming from Tesla. It's coming from Uber.

And I think that's notable because it just highlights this market bias that we keep on seeing towards Tesla, where Tesla will go out and talk very vaguely about full self-driving and autonomous taxis and the stock rips. Meanwhile, Uber does it and the stock declines.

People just don't take it seriously for some reason. And I can't really wrap my head around it. I mean, some people say, you know, Waymos are more expensive to build. They're more expensive to operate, which is probably a fair point. But I think the larger point still stands. Waymo is the only one that has figured it out. And now they're going to market with the biggest ride-sharing company in the world, Uber. Meanwhile, Tesla has shipped nothing.

So I think this is a pretty big deal. I think full-scale commercialization is still a long way away. But to me, this signals Uber's actually kind of leading the pack in autonomous. And I get the sense it's probably very undervalued at this point. Waymo's been here for a while. And the notion that we're all waiting for Tesla autonomous, I took a Waymo taxi six months ago in LA. By the way, extraordinary. My first ride in this thing.

And we get to this intersection where there's been an accident. I'm like, oh, great. I'm going to be the first autonomous guy taken out. I'm like, this is so fitting for what I do. Pravji takes his first autonomous Uber and gets T-boned by a bus because the fucking Waymo couldn't process a billion points. There's a cop with cones who

waving with illuminated batons saying, okay, you need to go around the crash car into the wrong side of the road and to get around this accident. And I thought, there's no way this thing's going to be able to process this. And it was very hesitant. It drove like what I would imagine a scared 16-year-old girl would approach the situation. And

That's sexist. Or a boy. Or a scad 16-year-old boy. No, my boy's decided you can make a left on a red light if you just stop first. That's what he's decided. It's like, wait, you just need to stop. And then you go, no, no, no, no. Anyway. So this thing went out very hesitant and it figured it out. So the notion that we're waiting, it's just so ridiculous. Tesla, in my view, has already lost. Waymo's doing a great job. Uber has massive...

I mean, the number of Teslas is dwarfed by the number of Uber rides out there every day. And you got to give, I think Dara Khosrowshahi has done a fantastic job because in their DNA, if you think about a lot of the companies that have outperformed the market, they're asset light, right? They don't have big cap backs. Airbnb, Uber said, no, we don't want to be in the business of owning real estate.

We don't want to be in the business of owning cars. We're going to leverage other people's CapEx investment. So Dara said, rather than go into AI and announce big partnerships and that we're putting $10 billion into AI and autonomous, he just said, no, I'll draft off of other people's CapEx, in this case, Google and Waymo, which has spent kind of 15 years and tens of billions of dollars, and I'll give them – I'll co-brand. I'll have an offering.

This is kind of how you do it. And by the way, Uber had their own autonomous vehicle unit, which they scrapped in favor of this. And I think the market said, oh, they don't know what they're doing. Actually, it's a smart move for exactly the reason you said. And no one's complaining that Apple didn't go deep into AI spending. They said, OK, similar to how Uber evaluated autonomous and said there are other people spending more money

then we need to. We'd be playing catch up. Why don't we just become a remora fish off of that giant spending? And despite the deep seek meltdown, Apple has not registered a loss in their stock because they never decided to get into this arms race.

So I really, I'm shocked. I think Uber arguably, I don't want to say it's been the biggest turnaround, but I think that you needed someone sort of crazy and irreverent and provocative and build fast and break things in Travis Kalanick. I don't think he gets enough credit for what he envisioned and what he built. I think it's extraordinary. But Dara came in and has just made a series of very, what I'd call smart, thoughtful moves. I was about to sneeze. Sorry. Yeah.

That's my pre-ketamine face. By the way, if you run into me tonight and I like me, it means I've tried the ketamine. I'm excited. I'm going to track you down. I'm going to make sure I see Scott on ketamine. Instead of my screensaver, I have a picture of Preet Bharara in his phone number because he's my one call if I get into trouble. So I used to be my boys on my screensaver. Now it's going to be Preet because if I get really fucked up, I'm calling him. He just seems like very responsible and he can get me out of any bad situation.

We'll be right back after the break for a look at Spotify's earnings. If you're enjoying the show so far, be sure to give Profiteer Market a follow wherever you get your podcasts.

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We're back with Prof G Markets.

Spotify posted its first full year of profitability ever, with gross profits rising 40% year over year. The streaming platform also added a fourth quarter record of 35 million monthly active users. That's a 5% increase from the previous quarter. Spotify Wrapped was one of the top drivers of user engagement, fueling double-digit growth. Shares surged 13%.

after that earnings report. I'm just going to point out, I made one prediction on our 2025 predictions episode, and that was that Spotify would be the media platform of the year, in addition to YouTube, which I'm also really bullish on. But I am just...

consistently impressed with this company, the innovation, their integration of video, the integration of comments and polls, their transition to profitability now. I think if there's one platform that can rival YouTube in this new digital age, I think it's Spotify. And we're starting to see it in the numbers here. Scott, your reactions to Spotify's earnings? I love Spotify. I think I picked it as one of my stock picks five years ago. I went flat for three years, so I got it wrong. Yeah.

But there are very few companies that are able to take an entire medium and distill it down to an app, a searchable app. I can find anything on Spotify. And people say, well, Apple and Amazon have done the same thing. But to your point, they've really innovated. The rap thing, I thought, I'm not entirely sure how you connect rap to more revenues. I thought it was cool. And I like Spotify saying, by the way, you listen to Tom Petty and some DJs and that's about it.

But how does that... I'm curious. I don't understand the mechanics of how that translates to more revenue. Tell me, young person, what is happening on Spotify? Well...

Well, they didn't connect it to revenues, but they connected it to user engagement, which that's what it's all about. It just creates heat and excitement. And I think possibly, I mean, full disclosure, I don't use Spotify because I've always used Apple Music and I've never wanted to go through the cumbersome process of transporting everything over. But when Spotify Wrapped came out,

It was the first time I was like, maybe I should switch because this just sounds fun to have this little presentation about me and all of my music habits. So I think that would be the answer. Let me just give you a little insight into the role that streaming music plays in mating.

If you're ever at home with your girlfriend and you're thinking, I don't want to have kids and I don't want to have sex. I know it's coming. I know it's wrong. Just play ad-supported Pandora. Oh, yeah. Okay. Agree with that. Agree with that. Nothing says do not mate with me. You are taking the evolutionary pool down a couple notches if you have sex with someone who has ad-supported Pandora. Okay.

I play, I love, I still have ad-supported streaming radio, and I think it's hilarious. I play it, and I'm like, oh my God, the commercials are so bad. Listen to this commercial. Anyways, but back to, I'm shocked. I thought you would have had Spotify. I absolutely love Spotify. And also, they have the best party. Just so you know, they have the best party at Cannes, Ed. Oh, really? I'll take you. You can be my date. I would love that invite. Well, let's just go over some of the numbers here, because I think they're pretty incredible. So, Spotify.

Spotify's monthly active users hit 675 million, beat estimates by 10 million, which means that one in 12 people on Earth is on Spotify. Premium subscribers grew 11% year over year. That was despite the price hikes. Average revenue per user up 5%. First profitable year in the company's history, which I think is a very big deal. And stock is now at an all-time high, $620 per share.

We should probably think about what could go wrong for Spotify. I think one potential issue is this growing public resentment towards Spotify and specifically towards Spotify and how they pay their artists.

So a lot of people say that Spotify squeezes their artists. They don't pay them enough. They reward the top 1% and the other 99% get screwed. And that's timely because Chapel Roan, who just won the Best New Artist Award at the Grammys, she actually called this out. She didn't call out Spotify specifically, but she called out the whole music industry of which, of course,

Spotify plays a huge role. So let's just listen to what she said. I told myself if I ever won a Grammy and I got to stand up here in front of the most powerful people in music, I would demand that labels and the industry profiting millions of dollars off of artists would offer a livable wage and health care, especially to developing artists. Well, isn't that fucking precious?

Well, here, if you, you know, and if you get in front of a group of kids in high school, tell them not to be music artists because it's a shitty industry with too many people fighting over too few revenues and a series of platforms that are developed in a monopoly. So, okay. The notion that's great virtue signaling, you know, good for you. And it's not going to mean dick. It's not. These guys are doing their job. If you wanted...

All right. Are you are you sincere? Pull your shit off of Spotify. Are you really sincere about helping an event? Call your friends. You know, do you hang out with Beyonce? Do you know Taylor Swift? And pull your shit off of Spotify. Because as long as you have oligopolies, they're going to extract more and more. And they find that the best way to get retention is to just consistently recommend Taylor Swift over and over.

And the notion that she's going to bully the record labels, Spotify is not worth more than all the record labels. So if she really wanted to have an impact, let me do some virtue signaling.

When Spotify decided to not fact check Joe Rogan, who would have one legitimate doctor on one day and then an illegitimate doctor the next day and create all sorts of vaccine hesitancy and false equivalences, I called them and said, we're pulling Prof G off of Spotify. I pulled my shit down and it cost us somewhere between a quarter of half a million. So yeah, put your money where your fucking mouth is. Pull off of Spotify. But this notion that you're going to shame people in the audience to...

paying artists who aren't making them any money more money, yeah, good luck with that. Have at it. No, I completely agree with you. And I think this just, it reminds me of all the dynamics that we've seen in Hollywood. And the reality is, altists have been getting screwed since the dawn of time. And, you know, historically, it's been...

the record labels that have screwed their artists. And I think back to the 1950s, this is probably the most famous examples, where you had all of these incredible Black musicians who were suddenly dominating the charts, and then none of them got rich because they signed these shitty deals that ultimately rewarded the owners of the record labels. So, you know, this is... This dynamic of artists getting screwed to an extent is nothing new. But I don't think...

I mean, a lot of people are blaming Spotify for this, saying that they just don't pay them enough and blaming the business model. I really don't think you can blame Spotify for this because all you have to do is look at the financials. You have to remember, this is Spotify's first ever year of profitability. So for the 16 years before this, Spotify was losing money. They were losing money to pay employees and to pay for technology and yeah, to pay their artists.

And so I'm not trying to like make a sob story for Spotify, but I think all I would say is this is a business and the business has to make money. And this year was the first time they ever did that. The other side to this, you know, one other way that they could have paid their artists more or they could pay their artists more would be to massively raise prices for the consumer. But actually they haven't done that. And in the past 16 years, they've

the price has gone from $9.99 to $11.99. So actually on an inflation-adjusted basis, Spotify actually got cheaper. And then you compare that to things like Netflix. Netflix has more than doubled its prices in that same amount of time. So, you know, I'm sure someone's being greedy here. I'm sure, you know, for the record label has...

screwed some artist here or there. But the fact that Spotify is getting wrapped into this, like as the big bad company that's just sort of ruining the music industry, I just don't think that is true. And I think ultimately what this is, is that, as you say, being a struggling artist is a bad business. It just doesn't really work. And in almost all industries,

It only starts to make you real money when you hit the 1%. And finally, Chapel Roan has done that. And I don't think she's going to be giving her money away to the other 99%. I think she's going to be, you know,

claiming her check from whichever record label she's signed to. So I have a very boomery outlook on this. Sounds like you do too, and it sounds like we're just in fervent agreement. We need a different term than boomery. Look, the digitization of markets results in a consolidation of winner-take-most environment. You digitize retail, you end up with one company with 50% of all e-commerce. You digitize connections and socialization online, you end up

with one company, Meta, that owns two-thirds of all social interactions online. You digitize information, one company ends up with 93% share of search. You digitize mating and online dating, and 80% to 90% of all swipe rights happens amongst the 10% of most attractive males, right? Men are less choosy, women are more choosy, they all want the same guy. And the same thing's happening on these channels. When you digitize a platform,

Taylor Swift gets more listen, more listen time than all of classical music now.

Taylor Swift is bigger than classical music or jazz, the entire genre. And it's because the algorithms, they consolidate and they say, okay, when everyone has access to everything, the very best, and Taylor Swift is the very best, according to hopped up 14-year-olds on sugar, they consolidate the market. Now, I don't know if there's anything you can do. The only things you can really do about this on a systemic level is to make sure you have a really robust FTC and DOJ system

That makes sure there's a lot of competition such that you transfer money back from the monopolies to the artists, to the means of production, to the labor force. The other thing you can do is have minimum wage of 25 bucks an hour such that if these people have side hustles, they're at least making a good living. But let me just clue young people in. The world does not owe you your passion.

And you don't have the right, the birthright to make music. You have the birthright, in my opinion, to have healthcare. I mean, let's start there. Healthcare, universal childcare. You don't have a birthright to be an independent music producer or independent musician and make money. The vanity industries will always have an overinvestment in human capital and there'll be a small number and increasingly, unfortunately, small number of people. What I think you have to do is say, okay,

If you're the backup drummer on a Kellogg's ad, they have to pay you at least $25 an hour. Anyways, I think this is a social issue and we need to break up monopolies of which I'm not sure you could say Spotify is a monopoly. Everything's going Hunger Games. The winners leave it a remarkable life and everyone else dies a slow death.

And if you want to change that, you have to make systemic change at education levels, antitrust levels. But believing that somehow shaming the record labels or Spotify into paying people nothing. You know why they pay these people nothing?

Because they can. And they'll keep making music. And by the way, the only way it gets better is if it becomes such a shitty business that just people don't go into music and over time they have to pay them more. Right. Anyway, I think the market, I don't want to say the market's doing its job here, but the solutions are societal. They come out of D.C. They don't come out of like virtue signaling at the Grammys.

We'll be right back with a look at Google's earnings. If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.

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We're back with Profiteer Markets. Google's fourth quarter earnings largely disappointed. Revenue grew 12%, which was the slowest pace since 2023. Growth in the cloud division also slowed from the previous quarter. Still, CEO Sundar Pichai highlighted the company's accelerated investments in AI data centers with plans to increase capital expenditures to $75 billion this year. That's up from $52.5 billion last year. The stock fell significantly

7% following that earnings report. I just want to quickly touch on why the stock fell so much. By the way, that was Google's fifth worst trading day in 10 years. It erased $200 billion in value. So,

You would think based on that, that Google had a dreadful quarter. Actually, on the whole, it was fine-ish. Revenue up 12%, roughly in line with expectations. Net income up 28%. It beat expectations. The problem, as we keep on seeing with big tech, was this one number, which was the cloud revenue, or you might call it the AI revenue. And that was...

$12 billion, up 30%, but most importantly, lower than what Wall Street predicted. And I think in 2025, if you are a big tech company and you're not smashing expectations in AI specifically, your stock is immediately going to drop. It's just a non-starter. This is, by the way, exactly what happened to Microsoft the week before. They had decent earnings, AI revenue missed, $200 billion in market cap erased overnight.

Let's get your reactions to Google's earnings, I guess, particularly this obsession with the cloud revenue and missing on those estimates. Yeah, look, it's impossible to ever count them out. They have five separate businesses that do more than $30 billion in annual. This is a really robust business, meaning that while they're kind of core business of search, they have five companies that could be $100 billion plus market cap companies.

They're very diversified and they coordinate, cooperate with each other, which is probably not a good thing. But between Google search, the display ad network, YouTube and subscriptions, that's YouTube premium, Google play, um, and then cloud, they just have some amazing businesses. The analysts here made the analogy. It's like having the revenue power of five Starbucks or five visas, uh,

The thing that I think was the scariest thing in here was, one, analysts pointed to the fact that their cloud business was not growing as fast, which they saw as an indicator they haven't figured out a way to monetize AI from the company that had most of the IP around AI. I think the scarier number here is that for the first time, their market share, the scariest number for Google shareholders, I should say, or for Alphabet shareholders, is that for the first time, their market share of search dropped below 90%. And so...

What I'm hearing from some young people is they have totally abandoned Google search and are now just using AI, that they just get more. And I've found myself getting impatient with Google search and just going to check GPT or Anthropic and typing in a question. And I find it just, it doesn't give me 500 links to make me sort through them. It just says, it tries to give me, it tries to answer the question.

Right. Because Google right now, it's it's a query, but it's also an invitation to throw a bunch of shit at me that's not accurate that you think you can further monetize and take me to another place. Whereas chat GPT, although it hallucinates and as does anthropic, it attempts to actually answer the question in one shot.

And so you could see the stock, if Google's search share drops below 85% in the next 12 months, I think you get the stock really get hammered because what that means is that their ultimate tollbooth, it's losing its power. And at the same time, they announced an increase in CapEx from 58 billion to 75%.

which the market didn't like. But I still think this stock and this company have so many amazing, at the same time YouTube is growing. We've said this before that Netflix isn't the premier streamer. It really is YouTube if you're talking about video.

But I think fears around AI, they haven't figured out an AI strategy to monetize. And to search dipping below 90%, I think analysts are going to keep watching what's happening to search share. Because I could see an environment where if there's enough applications and these AI guys continue to raise this kind of capital –

I think you could see in a year their search volume go from 90% to 70%. I think I disagree on these points. And I think the market share, the search market share is an important point that has to be tracked. And we'll see what happens. But I can just say from my experience, I do use ChatGPT, but I would say it's 95% Google and 5% ChatGPT. And, you know, maybe 1% other platforms.

other tools. So search is still an incredibly valuable product to me, and I think it's still an incredibly valuable product to many others. And I think that's why you're seeing their search revenue is continuing to grow quite steadily. On the cloud revenue point,

I think it's important to note the reason Google missed on cloud this quarter was not because there wasn't enough demand. It was because they couldn't keep up with supply. They literally don't have enough compute, which, you know, you might say, okay, well, that's another problem. But then you realize, well, actually, they're about to invest $75 billion into data centers this year, which solves exactly that problem. So...

I see the stock dipping because everyone's getting all wigged out about this cloud revenue thing. But to me, I see it as kind of a good problem. There's too much demand, and now they're investing in meeting that demand. So I see this. I think they're being overpunished for those cloud numbers. I also think they're being overpunished for DeepSeek, which...

we can get into. But, you know, 25 times earnings, lowest P multiple in all of tech. Meanwhile, you've got Apple at 37 with, what, 2% revenue growth. And you've got Google over here growing at 12, 13, 14%.

I think that it's perhaps being overpunished here. I like your take better than mine. I would rather comment. I think your take is better than mine. The thing you said there that stuck out was 25. Cheapest company in tech, the diversification of the revenue streams. I like how you couch it against valuation and that it's arguably the cheapest of the big tech players. And the reason I love Alphabet is because

It's impossible not to find a business that's not only meeting expectations when you have five different businesses. But the reality is they have five different businesses. They're hugely diversified. And their ability to coordinate and cooperate and share data to the users and the advertisers' detriment is extraordinary there. The only other company that can gather this much, hoover up this much data, and then use it to increase prices or rents on people is Meta.

And these guys have it. They also have the second largest operating system, or actually the largest operating system, but the second most profitable in mobile with Android. So this is one of those stocks, I think, especially at this price, you just own it. You better own it. You just own it. By the way, just on YouTube, $10.5 billion in ad revenue, up 14%. It is still the fastest growing unit in the Google ad business. It's still bigger than Netflix.

And I pointed out it's the most popular TV streaming platform in the US. It is now also the most popular podcasting platform, too. More popular than Spotify, twice as popular as Apple Podcasts. So this thing is just growing so rapidly. And it's already a behemoth. It's already way bigger than Netflix. I'm so...

I mean, we've been bullish on YouTube for a while. I remain extremely bullish on YouTube. YouTube is now the largest podcast distribution platform. The more people are listening to podcasts now in terms of listenership on YouTube than they are on Apple or Spotify. Yeah. And then just one final point here we should touch on is this CapEx. I think there were a lot of questions following DeepSeek as to whether big tech would be pulling back from all of this AI CapEx spending. Yeah.

The answer we've gotten from this round of earnings is a resounding no. It's kind of crazy. You've got Google spending $75 billion, way up from last year. You've got Meta spending $65 billion, Microsoft $85 billion, Amazon more than $90 billion. This is more than $300 billion in CapEx, all coming down the pipeline for 2025. It's all going to go to AI, which presumably means it's all going to go to NVIDIA pretty much.

So I'm just looking at what's happened with DeepSeek here. I'm struck by the extent to which DeepSeek did not affect the AI CapEx story, at least in this round of earnings. Maybe that's going to change next quarter and they're going to switch things up. But so far, at least, the plan is basically completely unchanged.

Let's take a look at the week ahead. We'll see the consumer and producer price indices for January. We'll also see earnings from McDonald's, Shopify, Reddit, and Airbnb. Scott, do you have any predictions? You're a big shareholder in two of those companies. Yeah, they've opened good, especially Reddit. Jesus. God, why didn't I buy more? That was so obvious. Come on, you did well. Yeah, but not well. Dude, I'm glass half empty. Haven't you figured that out? Anyway, so my prediction is the following, and I didn't have one, but you inspired one.

I think Joe Rogan is about to be displaced. I think that the new number one podcasters will either be Mel Robbins because she's so just so talented at connecting emotion with psychology. I think she's outstanding. But my outside shot here is I think that the new Joe Rogan is Steve Bartlett, Diary of a CEO. And it's for the reason you stated, and that is

The first thing I did literally, when I landed in London, a friend of mine said, there's this Brazilian party at Five Hertford. And I went and it was like an amazing party with hot people everywhere. And I'm like, I love London.

It's been downhill since then. And then the next day, the first thing I did, this is all true, is I went on this podcast with this young, handsome guy who was supposed to be, he was like the number 10 podcaster in the UK. But I thought, oh, I want to get to know people in the UK. And it was Diary of a CEO. And I think I've been on his show four times now. And the thing that just blew me away, and this is two and a half years ago, was he had

probably six people in the room and five of them were focused on camera work. He had lighting, obviously amazing sound, but swivel cameras and cameras on sleds, getting different shots. And he forces everyone to come into the studio, as does Rich Roll actually.

And the result is just these podcasts that are just kind of visually arresting and do really well. And he also was testing, A-B testing like crazy buttons. And I don't know if you've seen his promos, but he'll do something where I'll say, you know, the secret to happiness is, and then I'll like cut away and say, tune in, you know.

He just spends a ton of time optimizing for YouTube before it was cool. And the result is he's now the number one podcaster in Europe. And I think he's number nine now.

I think he's going to be number one because he understands the medium of YouTube. He's weaponizing and leveraging what is now the biggest distribution platform in podcasting. That's YouTube. So my prediction is the new Joe Rogan or the person who's going to displace Joe Rogan is the biggest podcaster in the world.

is Stephen Bartlett from Diary of a CEO. But you're missing someone. Ed Elson? The two of us. We're investing in video. We don't have swivel cameras yet, but we're working on it. Yeah, I think we can get there. I don't want to be that big. I want to have enough money just to have a second jet and unlimited supply of ketamine, but I don't see us as the number one podcast. I think we want to be—we could be number one in business. We're talking about—by the way, in our meeting today, folks, we're talking about Ed going daily—

We're talking about doing a daily Prop G Markets to talk about the markets because the news keeps coming.

But I think we could be number one in business. We're in the top 10 in business and occasionally pop into the top five. But that guy, David Ramsey, who keeps selling expensive mutual funds and saying that you can pick a mutual fund. We could beat the Ramsey Network, surely. Yeah. We got to do that. I love shitposting our competition. That's so classy, isn't it? That's so big of me. But anyways, let's go back to my prediction where I can actually lift up young people. Diary of a CEO, Stephen Barlett. He's the new Joe Rogan.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to ProfgMarkets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Alice Hahn, only on ProfgMarkets.

The key to good leadership is to motivate people and give them the best interest in the success of the company. I'm announcing today that we're doing really well. And if the company and individuals such as yourself continue to perform like this, because I want to create motivation that there's a really good chance if you guys continue to show the same type of talent and commitment that I'll be able to get a second plane. So that's...

But I want you guys to just— I always know when it's coming. I don't want to promise anything. Your face gets, like, sullen. You start looking down at the floor, and I just know it's coming. It's not sullen. It's my age. You're getting him happy. But if you continue to perform like this, Daddy might be able to get a Gulfstream. I want to motivate you. I want to keep you in the game. Super exciting. I promise to send you photos. Okay. That's—seriously, Ed, something to look forward to. Now get out there, little soldier.