E96: Adobe acquires Figma for $20B, TPB SPAC, FedEx CEO's recession warning, macro picture & more
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Little, I don't want to talk about getting guys that only because it's getting crazy and I had to like mod myself.

So start the recording. Please start the recording. I'm good strike IT by brigades. You mean like maga brigades.

right? listen.

IT, no, i'm serious, you think.

because I can call .

him all the 好好， 好吧。 Hey donny. Hey donny.

J has been the by maga. Yeah, yeah. He can handle IT.

He's tape out of dogs.

Okay, right? It's all good. It's all good. It's over. There is where the side up is over.

Thank you. Thank you. Was getting pretty.

getting pretty good. Don't worry about IT.

We open sort to the .

fans and got.

Right, everybody, welcome to episode ninety six of the all in podcast. We had a bomb drop just yesterday with adobe agreed to acquire fig ma. The design to will look into minute what IT actually does for twenty billion dollars.

This is just astounding for this to happen, period, full stop. The largest private company purchase, uh, I believe in history, this company, if you don't know that helps you have design web apps or user interface. So if you're designer, you need to make mark ups.

We'd send them around in the industry as images or PDF. And then like golden dogs, where you can put comments on somebody else's words and you can collaborate in real time. We call a multiplayer mode.

F, I, G, ma is multiplying mode. The company is just a jug t, if you work and startups, you get G A all day. Um and adobe stock got crushed because of this was down as much as eighteen percent on thursday.

Fig most most recent valuation was ten billion dollars in june or of twenty twenty one, their series s so peak market, they had raised two hundred erman at that time. There's a lot of details get into here, but you know, listen, let's as the sult of sass here what you think of this because it's double what was an incredible market last year that was overheated. So what does to say about the market fig ma fig MMA itself or maybe adobe know jumping, the fans are being skipped. How do we reconcile this sex if you judge .

adobe stock Price the other day the market headed the deal, I mean, the adobe stock Price went down like fifteen percent, and there's a one hundred and fifty billion dollar or company roughly. So they lost almost the entire purchase Price in the market capitalization of F I G ma. I think that that's spacing and overreaction.

I know all the news is basically on how dobie paying fifty times, and that's no longer the multiply. The multiply is more you know eight, nine, ten times for high gross as companies. There is truth to that.

But but I think that this is so important details about how fast fig is growing. We actually throw up on the the screen the AR history, this company. So and for people .

who know the multiple is the multiple times top line revenue.

a revenue split revenue, sometimes people will look at next twelve months revenue, which is a summer r concept, not quite the same, but books serve in the ball park. So you know, was interesting about this company. I think he was found in two thousand and eleven, two thousand and twelve.

IT had a very long wilderness period. That's what I call the period where the founders trying to figure out what the parks gonna be. Uh, really for almost five years, they finally launched a private bate in two thousand and fifteen.

They then opening up to public launching two thousand and and they didn't turn on motivation until two thousand and seventeen. So five years into the company that hadn't made a dime. So it's roughly a tender al company and for the first five years didn't make any money.

And then they start to make money five years ago. And then in two thousand eighteen, I think they turned on the enterprise here. And then it's been kind of off to the races increased.

But I can tell you looking these numbers, by the way, so I don't know these numbers are perfectly correct. This is sort of I will call the scuttle. But numbers these are numbers that um I believe to be true, but is not like these are numbers that the companies confirmed anything like that. This is just me gathering, you know, intelligence from talking people in silk valley. So this is.

I believed to be the case. Can you read the numbers for people that want to youtube marginals?

yes. So in two thousand seventeen, again, the first year they monitise said seven hundred thousand. They ended.

There were seven hundred thousand of A R. Remember that A R S kind of a point in time metric. It's amount of description revenue, your annual run rate subscription revenue at that time. So they ended thousand seventy thousand, two thousand eighty.

They ended with four million, two thousand and nineteen and they end with twenty three million, two thousand twenty, the end of a seventy seven million, two thousand and twenty one, two thousand and ten million. And then the estimated number for this year is four fifty. So you've seen the press, I think IT has been publicly reported a four in a million dollar numbers currently where they're at.

I've heard that they're going to end with something more like four fifty this year than the their forecasts next year is or was at some point time when somebody heard this eighty million and forecasts for twenty, twenty three. So my point is i've seen a lot of sam metrics, and I can tell you this A R ramp is phenomenal. You know, i'm sure people have kind of heard about the triple, triple, double, double.

That's kind of what VC want you to do. They want you to triple two years in a row, and they want to eat a double two years and row. And so fourth, this completed way Better than that.

I mean, seven hundred, kate of four million is a really fast ramp. And then four million to twenty three million is incredible. That's like over a five weeks.

And then they did over a three x going from twenty three to seven, seven million. I can tell you that is super hard. I think most companies, even the ones that hit low twenty, tripling your over year, they tended decelerate to two and a half times or something like that.

This company was still growing over three acts. Then they roughly tripled IT again to get to two ten. And then since they yeah it's another double that do you think .

the triple in twenty twenty was a covet pull forward? Or do you think that, that was a natural like a zoom or not?

That's I mean, it's possible, but people were collaborating. And I don't see I mean, so far in the numbers, I don't see a huge slowdown here. I me look, once the numbers get into the hundreds of millions, it's really hard to maintain the same growth through you're compounding of such a large base that is disciplinable.

You can keep growing three x over year once you're at twenty million of A R R. But the fact they got first from twenty three to seventy seven and then seventy seven to two ten and now to at last there are four in or now there are going be at four fifty by the end of the year plus it's it's pretty amazing. And so okay, so yeah so a day is paying fifty times current A R.

But if you believe this, they're only paying divide by two there, paying twenty five times end of next year. So like eighteen months now and then you figure you know within three, two years after that, they're going to be somewhere between one and half and two billion yeah of A R and yes is you guys know they're just that many as comes even get to a billion of the air r so so I don't think job is making a bad deal. Here, I think is a question about is there any point at which this product hits some sort of market saturation. But I don't be in a good position to know that because they understand this market, they are in this market.

IT feels to me like, I don't know. I've been using a dob photoshop right around when I first came out, like nineteen and ninety two. And this product i've used that I was built web first.

IT was built for collaboration years. Photoshop over the years. Theyve really tried to take what is a deaf top installed software application and then try and create cloud based features.

And it's a terrible, terrible user experience, at least from my perspective, having grown up on using a dob photoshop. But what's most important, I think, is a lot of people think about this on is IT the right Price to pay for the company. But at the end of the day, the right Price to pay for the company is what adobe used to be the risk and reward for their business. And they effectively um paid roughly twelve percent solution of their company to do this deal. So they're saying let's take twelve percent of our company and effectively d risk the biggest risk to our business, take out the biggest threat to our business for twelve percent .

of our company are twelve percent.

Was there twelve percent?

You have to factor in the actual draw down of the stock as well. So it's about thirty three percent. They effectively.

well, i'm talking about like you seem, take the Price of the stock aside, the number of shares is issuing because, by the way, the deal value down with the stock. So I read the the merger turns last night and there is a couple billion of cash and then a good chunk of IT is in stock and it's ten billion of .

cash and it's ten billion of shares at the Price when the deal was announced in.

to your point. So it's a fix number shares.

It's a fixed number of shares. It's not A X, it's not a fixed monetary value. So it's down twenty percent from the deal announcement so that ten billion of stock is now actually about eight billion of stocks. So now the whole deal is now eighteen billion.

not the ten million and .

eight billion of r stop this competition.

But I mean, if you think about IT at the time of the merger or I you I think they have they're some term one that they have to get the cash, but they're effectively issuing you attend divided by the total share account, which is roughly six percent of their total shares outstanding. So you know they're kind of taking six percent or the aggregate two together and say they are taking roughly twelve percent sure the value of the stock was down.

So look, I think I think like this deal is really interesting. So first, let's just give huge custos to the CEO. And the team and the investor is what an enormous win for all those folks. That's awesome.

IT keeps silicon valley kind of going, right? And that's just awesome to see these kind of big wins. I read this incredible profile about the founder, and he sounded like such a fascinating person.

He basically, the profile basically said that he was spending months and months going from office to office all around the world, meeting customers, sitting with customers, reading trouble tickets. That's what he would do, you know, reading, help these tickets about the product on whenever you see A A C, O that is so customer obsessed, typically there's good outcomes. And so this is just another validating point on that theme.

Now let's just put thick my side, and I just talk about a dobe for second. What is so incredible is you have a company, yes, they spend twenty billion dollars, whatever, eighteen billion now. But the way that they did IT is really interesting. If you go back to end desk and survey monkey. When those guys announced that merger IT was a bug, the threshold of stock where you had to go to each your holder vote.

And because there was so much turbulence in the market, whether the industrial logic of that deal made sense or not didn't matter as much to shareholders when they came time to vote, and they voted IT down, right? So interestingly, adobe was very clever. They said, i'm going to do have cash half stocks so that below the threshold, we are below the threshold where IT goes to a shareholder vote.

Okay, interesting. But then you have to factor in the delusion, uh, not just the delusion of the stock, but then the rerating of the stock. And this is where you know you lose twenty percent of your market cap. And then you talk on this, you're talking about you know a forty, thirty, forty billion dollar Price tag to get the deal though.

And I think that's where the head scratcher was in the public markets where folks basically rebuilt their model and said, hold on a second, you know, you've been telling me that this problem is a solved problem, but when you pay such a premium, not only does that mean that this product is clearly materially growing and disrupting, but the existing revenue base that I was counting on in my model must be wrong as well. And that's the actual fly wheel that now adobe is in, where people are trying to really figure out how under pressure are those existing cash flows. And then if you compound that with something else, which is nothing specific to adobe but to the whole market, which is now interest which are going up behind the scenes, you have this sort of parade of terribles for adobe that they're going to have to navigate, right? They have a very large portion of cash.

They have a large portion of stock. They have decaying earnings in their core business that they now have to explain. And then they don't really have a lot of earnings.

I think sometimes you said that it's going to be a year three before. It's a creative, which is is typically a way of saying we're going to lose money and then in your three will make at least a penny. That's what a creative means.

Doesn't mean you're going to make billions necessary. And so these guys have to find a way for fig made a drop about a billion and a half dollars of free casual into the business for this to kind of make sense in the short term. So I think those are all the mechanics that sort of putting a lot of pressure on the adobe stock. But IT just goes to show you the amount of disruption that happens. This movement to the cloud or the movement to collaboration, moneths products are just sort of very much, you know.

that is the key. I think you guys did a great job of summing summarizing IT. This is an absolutely great deal for adobe, uh, a transformative deal in the same way the WhatsApp deal was for facebook.

IT removes one of the two existent al threats to adobe and IT turns adobe, I guess, into a great story. Now as pointed out, adobe's product with single player mode and doby grows IT about twelve thirteen percent quarter right now. And then you have a company of that doubles.

And they really have been facing three paradigm shifts in the last five or so years. Obviously, you pointed out, one freedoms. G desktop software downloading IT versus cloud based software. Well, here they go now theyve got experts in cloud. And then the second one.

they have a thing called creative clouds.

And they are slowly trying to figure out it's a paradigm of the company. They have really struggle to now they have somebody who's .

cloud first true guys have.

but hold the we finish my free pardon shift are feature .

for feature. They look very similar. no. So these .

three paradox, ft. The one is the deaths p verses. The the other one is description.

So I do be was charging a thousand dollars year for the crazy light. Now they charged twenty five bucks a month for IT. They successful, did that now they're successful, I think, have figured out collaboration software.

M but daily has one thing that they have not done, which I think is the real reason they had to buy fig ma adobe. See, this is the problem with these big public companies. Adobe and all of their investors got very addicted to the free casual generation of that stock.

And it's been an incredible performer and less just beyond a chto. You is one of the best CEO of the last few decades in the public markets period. End of story.

okay. Since two thousand and seven, he has just run a mass for playbook at the tail end of that though, you know, twenty twenty two. This is the company that has, I think six or seven, maybe I think maybe eight billion dollars of free casual IT is a government and money making business. And so they refused in creative cloud to go to that free tear that fig ma has. And if you look at all of the stories around fig ma, one of the most powerful things they did was basically allow people to use this for free, effectively forever.

The bottom up set. And and the .

problem with adobie is like that's a business model disruption that they could not afford in the public markets because if you conditioned a set of institutional investors to be expecting seventy eight billion dollars of annual free cash flows and all of a sudden you're willing to torch IT to take a quarter of that and take IT free, that is probably the biggest reason why they had to buy this thing, which was that they needed to tuck IT in. And they're like, how can I do IT? Well, I just have to do .

IT by deluding the stock. Twelve percent who still it's it's one and dark .

one more the .

point the point you guys are making is more um abroad, which is it's not just about a dobe. This is the classic innovators dilema, right? Like any big company that reaches maturity in the market and has scale and has cash flows, you have a different shareholder base.

You you move over from growth to value. And once you've got value, shareholders I mean, i've been to these institutional when I was on the execute mat, monsanto. And you know they wanted dividends and they wanted stock by bags. And they they are like, it's nice to see growth.

But at the end of the day, I want to know what's my dividing onna be and what's my stock by back target going to be and then to say, hey, I ve got to go invest in innovating my way out of my corner because, you know, this case, d is reinventing my marketplace. IT is a very hard place for a manager of a business of that scale to be with every industry. By the way.

I think there's another takeaway that's really interesting here, which is that if you look at big tech companies, I think you almost have to sort them into two buckets, at least in the enterprise and sax, you can tell if you disagree, but there's one type of enterprise company which makes basically a single linear monolithic product or a handful of those monolithic products, right? Think work. They think adobe atta.

But then there is this other type of company, which are more platform level businesses that have this you know mixture of things that they do relatively well integrated. Maybe each product is not so great, but together, they're pretty decent. And you have distribution leverage and you have pricing power, think microsoft in the totality of those products.

So what's interesting to me is you cannot effectively compete, as IT turns out, against microsoft at any point product. And slack, I think, is the best example where microsoft teams was fundamentally canti zing this business, which is what drove slack into the arms of salesforce. And you know, you could say that teams was not as great of a product.

I would I would make that claim. But what microsoft had was distribution scale and pricing power, where you could discount and effectively give IT away for free. Adobe isn't in that situation, right? They can do that kind of stuff. And so when you compete against those kinds of businesses, you have a Better chance of winning. The take away, I think, for the entrepreneur, is when you are thinking about the next enterprise business to start, I would try to bucket these companies that you want to compete with and say if i'm going to build a newer version of x, make sure that version of acts is going after a company like adobe versus a company like microsoft because it's much, much, much easier to build value when you're competing against a monolithic product company versus an entangled platform company.

Sex, would you bundle if you were the CEO of fig ma? Would you now abr c of adobe? Would you bundle, figure in into the creative cloud and then just make IT one subscription? Would you microsoft .

teams that yeah maybe I don't know. I'm not sure about that. I do think that microsoft is a little bit unique in its ability to bundle.

So math is right about the power of the bundling ah what they do is I think called the e five bundle. They have all these products that virtually all enterprises use from office to you know act or directory to like a whole long list of them. And so what they've done is we've created one Price for all of those products, these ols a bundle under a water wall enterprise license.

And what they do is when they see a new competitive come along, whether it's slack or zoom or uh or ocd, a is the old basically this clinic create a worse version of that product and thrown into the border. And so now every single enterprise is getting the slack one or the zoo clone or whatever for free. And that has a huge material impact on you.

IT pulls the rug out from under those startups. So now that's not to say that my shop product is only we're nearest good as those those competence. But you know now the sudden the the Marks of product is on a margin basis free.

But then what microsoft does is, you know every year to they go raise the Price of the bundle. So basically you they get you hooked on the bundle. They then use IT to systematically kill or undermined competitor and then they know you're stuck and then they raised the Price.

They based have inflation of the Price of the whole bundle, I think is very anti competitive actually. I think it's is a kin to dumping. I'm not sure what the logical stopping point of IT is like.

I don't know if we can have a healthy SaaS market if microsoft is allowed to keep doing this forever. Because think about that, I mean, they will dist every year. They will take the hot set campaign destine clent.

It'll be a shady version theyll thrown into their bundle. And now they're dumping they're dumping the product in the market. It's basically free.

It's free until they basically drive they drive out the competition or destroy IT or basically undermines market cap to the. Can no longer make the kinds of investments that needs to pose a real threat to the microsoft larger entity, right? So think about how any competitive this is. And you don't hear a word about this from lacon or washington. There are only focused on social network.

It's so funny like she's more focused on, you know making sure amazon doesn't buy roomba, that this is the .

time or facebook doesn't buy one vir n. It's not very sophisticated process.

This is the kind of stuff that actually really matters. I really think you nailed on the heads it's it's an impossible strategy to defend against the the other thing that is interesting, by the way, about all of this is, you know if you think that the valuation to take out premium was basically two x poster post, what that means is that a fig ma was last value at ten is now worth twenty.

Does that me? That canvas, which was last Price at forty, is worth eighty. Well potentially, well, potentially too.

Adobe, right? And if you add those two together now, you know what you really have is basically the the entire totality of the creative of cloud for dob is basically embedded now in these two businesses are in an extreme premium. And so IT makes IT very difficult. Now, I think as well for adobe to execute a strategy here without IT being forced to do some more expensive, deluded and the name, what on the other .

problem triumph is this is going to ring bells. So when I said before, there were two existent al threats canvas, the other one, and that is the other paradise shift that occurred in computing. Is that making things rationally simple? You talked about a freeburg.

Photoshop is complex and its single player canvas is how people create, know, any kind of marketing materials today, and they don't hire a designer anymore. The job of graphic designer is now everybody's job. Everybody can make something on canvas.

But then I think sax or freezing, maybe you have thoughts on this. If you're in a con and they do make a run a can for adobe. Now are you saying like a wait a second, you now run the table on all design tools. You can buy IT.

It's a weird classification is only called design tools because IT was sold to someone that was called the designer before, and that's not the case anymore. Now IT is cool that anyone can use in the enterprise setting or in a small, small business setting or in an individual setting to create stuff. And that wasn't the case with photoshop.

And I think that's what makes this um arguably a very different business, a bigger business and more transformative business and a further reaching business. And I don't think that there is necessarily a speaking of the fig medial right um a case to be made here that they're preventing the uh extinction of their monopoly. They're buying what looks like a very different business and and it's really additive. It's it's a business that can turn anyone into a creator.

It's really be of both sides, your mouth now because on the one end, you're saying it's a different business. On the other hand, you said that this is basically protecting them. IT gets an existent al disruption to their core business. So if is an existence al disruption to their core business, how can IT not be in the same market? Of course, in the same market.

well, there are new entrance competition.

there are new entrance and there are different underlying technology trends. This is all about cloud, but I don't see how these things aren't competence with each other to some degree. So I don't know how this doesn't get serious .

ly reviewed yeah ani authorities IT feels so similar to facebook, instagram in google, youtube and by the way is similar and both those examples in a number of ways both um facebook instagram was not competing in the same product as facebook at the time with the news feed or whatever IT was a photo sharing service that a clearly created a broader dresser market that got more people to use a social network.

And um youtube and people thought they were overpaying right then youtube everyone thought I was crazy. They paid a billion six for that business and it's probably the greatest acquisition of all time. It's been the greatest managed acquisition of all time, I should say. Um and that business similarly, I think google recognize that people were going to move to video content as an alternative to text based web content and that IT was a bigger picture opportunity than what they were pursuing and in the lane that they Operated in at that time and they were right.

And in both cases, IT was more about paying whatever I talked to get the deal done then you know hey, how many users do you have? How much revenue? How much cheeta? What's your A R R? All that stuff goes out the window when you're sitting in that strategic driver seat at the big company.

And you're saying this is a bigger market. These guys are transforming the market. And ultimately, over time, that will a clips us. And you can say, hey, you're protecting your business, but really, you're protecting your market. I mean, the market is gonna away. What the vision is like, the market that you exist in today isn't going to exist in the same way in five, ten years. And that's what you're trying to buy your way too.

I have a question and uh, in a statement, the statement is I think canvas should absolutely go public verses sell because IT seems like they'll have a much easier time competing against whoever that they compete with. I do think that, David, you're right that there is a lot here for a regulatory review because if you go back and think about VISA pad, you know it's not this similar meaning.

You have a Young startup that has this really incredible and viable technology potentially being acquired by in that case, I was in one of a do open. But here you could make a very credible claim that it's it's in a market words, roughly a monopoly because there aren't really that that many meaningful alternative. So I think sex is right that there's that there's some you know, there's a case. Yeah there's a case here. I was literally .

my question.

Yeah not not just room. How about how about that V, R, game, that .

facebook, a tiny acquisition .

that may be well, IT seems like what the anti trust authority ties are doing right now in washington is they've got a list of companies that they think are putatively suspect. And our job is to stop these companies from accumulating more power. And it's really about seeing everything through uses, lands of power.

But that's not what the competition authorities supposed to do. This was to ensure competition is about anto be a rebuck right in the with just approaching things in this way of of the punter. A way we just have to stop these companies is IT creates a chilling effect on on reasonable existence.

Silicate ley, there aren't that many great exits, and we want them to go through. Now I think if monopoly need to be rained in, there are other tools to use besides just saying that those companies can acquire other companies no matter how unobjectionable are. I mean, let's do things like a outside loading.

Well.

basically a way to say that I think google the android ready does does not where you'd be able to basically installed in an APP or download an APP without going through the apple APP store. You could enable competitive APP stores, basic. You know, I think I think it's a real issue that you have Operating system in O I mean google, android and IOS with apple and then amazon with sort of you know White level products.

Those are all Operating systems that are competing with apps on their own place form, and there have to be some constraints and rules around that. Otherwise, the Operating system eventually dominate and replace any f they want to on the platform. We thought that's what the whole microsoft thing was about.

Microsoft, netscape was a hundred percent about that. So I think if you can show that somebody has an Operating system and Operating their absence should be rules of constraints around that. Does that mean the company should never go to buy anything? no. I mean, I think all that is a time for innovation without really getting to the crux of what the issue is.

I think you know that a good first step would be allow other APP stores. So google's APP store could be on IOS IOS as APP store could be on another platform, eta. And I mean, the other issue here is lacon s been pretty clear.

Her entire thesis in taking the job was what I want to prevent, a downstream competitive issues. So future competition, there's no Better example of a future competitive issue and future consumer harm. And this is how SHE phrases IT that this acquisition, if you're going to do IT to the lens of future consumer harm, this creates future consumer harm because big ma is not going .

to be with a doby.

You're saying .

that IT does IT does massively, massively. I mean, this is the the IT is great for consumers because they will bundle IT theyll bundle the two things together and you will it'll make IT more valuable and reduce turn and will make IT simple to buy. So that's good for consumers, right, to get more free stuff. But future harm and and a future competitive harm here is the marketplace will be less competitive if there is one less independent strong company in IT. That's if you if they buy canvas, that's the definition of downtown stream competitive harm IT will be a less competitive marketplace with these two companies together.

False up. So check i'll do if you're in a on you actually pay attention to this adobe figment thing in like a serious way. Or are you still more focus amazon and you know, a facebook?

I would hope that they .

would do.

If I was her, I would create A A rule book and apply the rule book evenly and fairly. And this is the problem. This feels very political.

IT feels like the going after facebook because of the dawn stream political issues facebook causes. And they're ignoring the microsoft issue, and they are ignoring issues like this. IT just feels like they have.

They're done on the scale. If you look at what happened to the these a plat thing, he was an enormous blessing in disguise because we know the the thing went away. And that was, I think, like a five billion dollar acquisition, then plan turned around to raise money and is like a multiple teens.

Billion is going to be a wonderful independent company at to your point. And that will now, you know uh, create more competition in a space that desperately needed. Now in that case, that was sort of like financial payments and rails and VISA mastercard. That could also be if there is a lot of attention paid to the deal and IT doesn't end up being consumated, that could be the positive outcome.

But if you want .

a free competition, if you ask me if I was a betting man.

I think this .

thing is going to close. Yes, I think IT IT closes because. IT doesn't intrude on the hot buttons of washington, not because the merits of the anti trust or superior to the room by deal or to the VR deal that facebook wants to have. This is all about political and cultural happens.

So it's really yeah .

but I think we all understand what what's really going on soap political. But just can go back to your question, I think was a really good question to think about about should adobe change the pricing of fig ma, should they basically bundle IT? I talking about the merits of what microsoft does.

I don't think that figlia should do that here. Now had a chance to think about IT. The reason is this that you have to think of pricing is not an elephant by itself, but as sort of the most important element of a good market.

There's no way that you can basically rePrice fig ma completely as part of his mother bundle and expect not to create message disruption to your go to market organizations. So for example, you've got now a whole cute sales team at fig ma, including enterprise sales. They are commissioned based on the the quarter as that they close, and that's based on the E C V of the deals and so on.

If all the sun new Prices is being free because as part of some bundle that enterprises get because are buying older doby now the on those sales people can earn commission on that sale, they can be incentivised to take that part to market the same way the marking team is tasked with feeding the sales team. So now of the sun there are like a way to second, can we spend money to basically promote this product when it's going to lead to a deal that's Priced zero because the enter Price already has in E, L, A with adobe. So you can't just look at a pricing change in isolation.

You have to look at as the tip of the spear of the whole go to market. And I can tell you what going to happen because I kind of experiences with with hammer, with micro t about my company ten years ago. And by the way, i'm not critical of microsoft.

All they were extremely high quality require that lived up all the promises and did everything they say they're going to do. I think if you're ever going to offer for microsoft, you should take IT really seriously. I think like I said, I think they are great company, great acquire. But I can tell you what happened is that once gamer was folded in to the office sweet and didn't have its own independent pricing and didn't have its own independent sales team, IT just disappeared. I mean, the promotion of IT to stop, because nobody had incentive to basic go solid, and nobody needs and have to go market and promote IT and IT is kind of disappeared. And that is why, remember, a couple of years after we sold at slack kind of came out of nowhere and there is no one to really oppose them because, you know, all the promotional activity we had done around the amar just end IT because again, we weren't we didn't have the incentive that was created .

by the sales arizon. Just explain um the pricing thing, David. I think that the way this decision will get made, and i'm not saying it's right, wrong, but IT will get made not by the sales teams and not by the product teams, but IT will get made by the C E O and the c fo.

In talking to their largest shareholders. And the reason is because there is an implied cost of capital that adobe has. In fact, right now, if you look at like all of the models that all of the analysts use is roughly around nine percent. And so you know they are going to have to achieve a return on top of that cost of capital. What that means is that they're going to be forced to find a way, in short order to make this a creative and to start generating incremental cash flow.

And I think that they will be hard pressed not to bundle and not to do these created packaging strategies because otherwise, I think that there is a risk that this free cash flow machine that folks have become very addicted to easterby starts to shrink, and that will have huge ramifications. I into the stock, into the executives, into the moral. And so I think that they're going to do whatever IT takes.

And by the way, you see that, you've seen that in other companies who've gone into this phase of their growth, oracle being the best example. You know, they have consistently found ways to package, to bundle, to cross cell to up cell, and they have incrementally walked free casual generation up. If they do that.

they're taking a huge risk because here's just going to have so I I agree with you about what may happen. This may be decided by the C. E.

O. In the board. But I think if they do this, they could blow IT. I mean, the dulan field, the founder in his blog post on the said that a dob is committed to letting the run independently. Well, you can run independently if you don't have your independent pricing.

You just can for how long is the question .

how long is if officer, a doby sales people can sell this product and included in their bundle in the marginal Price is basically free because as part of some bundle, that means the sales been taken away from whoever the dedicated sales people are on the figment side of the house. I can tell you that will create irrationality in the sales organization.

And very soon that we pressure to consolidate the fig ma sales organization with a larger doby sales organization, they will be moved in, they may become product special experts, but the go to market efforts will be consolidated, and then dilling going to end up running A A quote, standalone version of fig ma that doesn't have a so good to market organization. And then you don't get the feedback into product from yourselves and marketing team. So always, sun, you're running a product and engineering team, but you don't have eyes and ears in the market.

I hear all of that. I think that the facebook whats up merger, probably pretty instructive, which is yan had two years roughly where he was left alone to kind of like run independently. And then slowly and slowly, IT was absorb back into the mothership. And you know, that was a product with zero motivation, but there is a lot of strategic touch points within what's happened and you know core facebook, APP and everything else they were doing.

And I think that you have to do that because when you're spending tens of billions of dollars on something, there needs to be an industrial logic that is beyond just let me just buy the thing and stick on the shelf and let IT be on its own. So I think that you know that die is sort of cast. I think we're just debating the timely in which IT happens to .

talk about yeah no, you're probably right. And that's what usually happens is is when they promise the founder that you'll be left alone that usually last two years that coincided. That's coincidently usually the length of the earn out or the golden and cuts as along my golden handcuff s wear.

yeah. And they left us, sloan n for one year, by the way, air r triple that year. But then once they got serious about integration, the organization started emerging. And really, I was is running a product to organza, which is fine, but that's not running an independent company because, like I said, you lose your eyes and ears. You lose the pulsing market when you're not selling into the market.

Fitbit, how did youtube do IT so well?

A very different situation. They were, yes, google basically took a team of, you know, two dozen people, and their infrastructure was terrible. And they basically rebuilt the entire company.

So is the complete opposite. They think about them taking the front and shell of youtube, and then they rebuilt everything underneath IT ran IT. And then they actually put their own people into optimize the front end.

They put their own at sales team. On top of that, I mean, major bought a skeleton of a growth engine and they built everything. Um and so IT was a very different story.

And the one thing that youtube the wanting that google did so well with that acquisition was the conviction bet that they made on the business. And they made billions and billions of dollars of investment into that business for years before I started to make money. Um and that is a very hard thing to do is the two moths point.

You often have this question of where your free cash flow is, your dividends, where is your buybacks as a business gets to a certain point, maturity. But what google had that many businesses of that scale have never had before is the extraordinary growth rate that continued even as they were of that scale. So the um the a way that google's executives and board were given by shareholder who was extraordinary, not to mention the deal voting where arian sergey could decide to do whatever the heck they wanted.

But they really were able to take advantage of their high growth rate to take all of this casually regenerating and reinvested into this a youtube platform as well as many other things, many of which haven't worked out. But when they do work out, you have a business that I think youtube probably worth with three hundred, four hundred, five hundred or billion dollars at this point. And h and it's really paid back multiple. So youtube really a one off because it's a one off acquire. And IT was a one off kind of acquisition.

And great scene A T seen before, google and youtube, A Y IT was a brand and IT was a network effect, and the newark effect was massive. IT was off the racist. And I remember google had google videos, but they just can come close to catching youtube, because the fly will of craters want to be where all the viewers were, and viewers want to be where the most content was.

IT was just impossible to catch. But that organization was relatively tiny at the time I was acquired, and I did have any motivation. And IT was being dit, was being deleuze by legal problems that that google legal could solve.

Very unique situation that was one of the bold acquisitions over time.

But what was incredible is right after the acquisition and google started to scale this thing, most of the content being watched on youtube with copyright content.

And I was at a conference and I remember the leap on on the C E, O of viacom stood up and and Larry page and, uh, eric learn, or someone was on stage and he yelled at them and he was like, you guys are making all this money and growing this youtube business of the back of our content and you know the D M C A uh the digital milenio copyright act says that um someone can file a take down notice and then the platform has a period of time to respond and to deal with IT. And the amount of time I was taking them to deal with IT new content was being upload. Then they have to find another take down notice.

So we created this insurance table, you know, copy, copy right thing. And and then what do google do that youtube would have never been able to do to sexy point. They built an engine that could automatically recognize copyright content and pull IT down before IT was made publicly available. LED, without ruining the user experience of instant upload and availability of content from other fingerprint system.

was even more nuance than that. The fingerprint system not only told him, hey, this is an S N L skit or this is a music video from prince IT, said, what would you like to do and I put the power in their hands and said, turn IT off, claim IT, and we get the money from IT and then I was like, well, we're telling you before you even know about IT and what all these people did was they say, okay, yeah, you can make remix of my prince song or this episode of A T V. Show will collect the money and that yeah the revenue share was the brilliant part about because you put the hour in the complete holders s names.

This just speaks to how singular how singular and unique that deal was because I don't think any other company at that time, maybe microsoft would have been able to develop technology to do this and do IT at the scale and do IT with this low latency and high speed for users and so on. IT really was a singular transaction, which fever I think speaks to their .

accumulation of talent, especially in there's early years where they were just like higher smart people will figure out what to do with them later. They actually had those people sit around who could just go jump .

on the youtube OMG solar common gar went, ran youtube and I crush IT, probably one of the best round that never talked about in the history of tech. He stepped in and and youtube. And now Susan runs that, you know, another incredible run and monitored ing that thing since. But I mean, and these are people, by the way, both solar and Susan, sub thirty employee people at google. So yeah.

good point, nick. We thought the sides contrasting valuation to A R. This is actually more interesting than just who made all the money.

So I actually created a plot. Err is the red chart and it's the right access. So as we talked about there, around four hundred, four and fifty million of A R right now.

And then the left access is expecting value. Basically, this was their valuation and it's in purple and IT. Obviously, IT goes up to the twenty billion or two thousand, two billion that adobe just paid.

You can see e was the last round they did in twenty twenty one, where they are valued ten billion. Before that, they're valued at two billion in twenty twenty. And then you know the series C I think they are valued at like foreign and forty million or something like that. And then I think the b they evaluated like hundred and twenty five million, and then the a they are valued like fifty years a million, you know. And then they were seen so forth. I think what you see here is that is how efficient, in a way, venture capital is where it's just slightly out of A A R IT is predicting where the hockey stick is good at the first for look at A R IT is as close to up your hockey stick as i've ever seen in sas cus to them. I mean, the crazy thing is how long IT took for the awk state get going Normally.

Why you invest in this company? Did you see IT?

Well, no, we didn't see IT. Also, look at what a late bloomer er this thing is, you know like you have to kind of see IT like, look, the hockey stick didn't really start inflecting until two thousand and eighteen, two thousand nineteen.

right? It's your table is more striking where these guys for years were toiling away and then all of a sudden this thing just took off, right?

This was such a blur. And anyone is doing a company at five years and you stop of zero revenue. And like that doesn't mean you're dead. I mean, they basically were as zero for five years, absolutely nothing. And as a twenty thousand dollar exit five years later.

Actually, I think the only hard ground to invest in this company would have been, if you were going to invest in, I think, the two thousand fourteen time period and fifteen because you are investing in the company that had ever launched yet that had been grinding for three or four years with, by the way, the founder was like ninety when he started this, uses a till fellow, one of the first two hundred twenty till fellow, yeah. And he dropped our school to do this. And you know, in this spent several years in the wilderness, I think that's when IT would have been hard to invest this, maybe not the first seat round, because you could tell this guy was brilliant.

He had a really specific idea. Moving design tools to the cloud was, I think, like a very clear and sensible vision. clear. Now why now underlying trend? I always .

say my my three biggest traits for entrepreneurs case one of them great. I mean, you know if you have a high index on great, you you're able to to to ground your way there is really that's a really incredible.

This chart is brilliant because you know what we see in the seed stage right before that series day is where most people give up sex. You get three or four years in. People are not paying for the products you're under resource and they don't get the a and they got you know, that two thousand fourteen, fourteen, fifty period, they were probably trying to get in by to take up two years to get the a.

And then somebody finally decide， easy for a Young person to give up and go get a friend job at google or go back to school and to to grind IT out to have the grip and the persistence and commit to your vision. He didn't p IT away. He persisted.

And he actually, I clarified, he clarified, right? Yes, but he didn't. He didn't go five steps away into him and to be a new start up. And there was no his business right?

Is no private here doing field, by the way, the fundi had him on the pod back in the day and really the you ultimate customer focus. So I was you need to .

just have your pulse on what your customers are saying constantly because the answer is there. You just have to develop IT and give IT to them.

By the way, also in the that's, I think, very interesting facts and repeating in your position on this. If you look at the chart one more time, they could have turned on modification, I think a year too, before they did so. They purposely didn't charge IT to get the network effects going. I would love to see in here the number of users as a third vector, you know, as a third mine on here because I think they started getting a lot of users in twenty fourteen and twenty fifteen thousand and sixteen. That's why they got to see, but they purposely did not charge to let the network of her yeah.

fifteen was a private bate. I don't think they were even had a product in twenty fourteen that was usable yet. Twenty fifteen private beta, twenty sixteen is public launch.

And then they turn on motivation two thousand and seventeen and then they turn on an enterprise pricing in two thousand and eighteen. So I think that's a pretty sound progression. I'm not I mean, to be honest, i'm not a big fan of taking three or four years in the wilderness to build your product.

I think need to get to market sooner. But I do think IT is a little different in an existing industry where the table stakes are high. So you know, adobie is not a cloud based product, but those were very client products.

And so to get to the point where you could even compete with them with a classic click Christian innovation sylum, a light wave version of the product, that they were significant table stakes there. And IT was a significant technical chAllenge to move design tools into the browser. They had to do a lot of cutting each browser tech.

The browser wasn't ready for IT. Yeah.

this chart is gonna be calling in a few years .

now that i'm doing after all in uh forty eight hours after I think that's correct. Come join me with that your questions. Sparks are back. I don't never saw on the news, but freeburg launched a spack.

He announced the target and a merger agreement right now. He goes into the d back process.

Now we have two at four best ties, have spaced free bird. What's tell us about that? Well, I mean.

we announced that we're emerging the production boards back, which is T P B acquisition lavoro, which is the largest agricultural inputs retailer in brazil and Operate across that america. Know we've got a good flight in the presentation that I think echoes some of the points i've talked about on our podcast here about the importance of having resilience, ency and redundancy and global food supply change and increasing um famine risk.

So we've got a slide that shows for about thirty years, you we've reduced the number of people globally that have been undernourished ed down to about six hundred million as of about three or four years ago. And in the last three years, we have seen that number to Spike back up to eight hundred million, which we thought we were done with global famine. And now here we are facing these issues again, climate change, the lockdown, supply change disruption, the ukraine war and all the other geopolitical tension issues.

So that's going a big pieces of mine, individual. You guys know we've talked off line about some investments. I've made my strong interest in the area, brazil, in that amErica is the largest egg export market in the world, so they produce calories for the rest of the world.

And farmers, they are largely lag in terms of technology adoption. I've got a nice brazilian form as my background today, but technology adoption doesn't look like IT does in the U. S.

Is a huge opportunity to influence and drive productivity up in that region. And so we partner with the largest retailer, agrees Taylors, the local locations that work with farmers. They have these teams called the granny st.

They meet with the farmers, typically weekly help them make decisions about what products to use, what to do, how to do IT. And so with the footprint and the reach that they have, I think we can really drive up productivity per accor um across the region, increase total global calorie production. And that's why i'm so excited about a fundamentally is also a great business IT.

H all all the financials are presented in the um. In the investor presentation and will be published with the S C C here in the next couple days. But um it's it's a scale business.

It's a profitable business and it's growing pretty significantly. So it's got great tail winds into great base business. But for me, there is a huge opportunity to continue to drive with there a drive technology through the platform that y've built.

Uh and that's why you know also making one hundred million dollar investment of our baLanced ed into the company so that again you again and put two thirds of our these founder promote chairs there, know the only best. If we can hit the stock Price of twelve, fifty and fifty over the next three years, oh wise, we will lose them. So we ve really try to align ourselves with shareholders and really put our money where mouth on this and show people that you know that, that this is a real strategic partnership for us.

It's not just, you know, uh, an investment that we intend to kind of you know hold for, for a short period of time. And this is a key platform for me, for our, for our T P B business and for many of the companies that we Operate, A T P B. So i'm super excited.

It's been a long time coming, been a very hard process as a math. Can I test them? As we all talk about capital markets are very difficult right now.

Uh, getting a transaction announced is the first step. Now there's a bigger step of of getting a close. But um yeah a lot of work, but i'm i'm i'm super excited about this and thanks. Let me talk about well.

the other thing I just want to double click on a trip. This idea that two theirs of the sponsor promote have to hit certain hurdles. I think that's probably a pretty good thing for folks who may be want to in fast to just say, hey, yeah, this is great where the there's some alignment in how these shares get distributed. yes.

I mean, I think it's a good feature. Um I think that the thing with backs in general in a moment like this is that it's IT actually performs Better in periods of high volatility. And the reason is because you know you have this uh, redemption feature, which essentially allows you to get back your your basis.

And so meanwhile, well know feedback g was unting for a deal or whatever that cash know that we've contributed to this back sits in a savings account that then actually is generating some no reasonable interest as rates up. So the whole combination of all of this stuff actually makes back a pretty good risk adjusted vehicle when the markets are highly water. Because if at any point you don't like how you feel, even if you love the deal, you just vote to redeem, get your ten dollars back and effectively win the market, right? Let's say the market goes down thirty percent from here to march of next year when freebooters deal closes.

Well, an investor could theoretically just say, you know what, I just want my ten dollars back now in the we've gotten they felt zero percentage of that drawed out. And that's what's so interesting about the structure in a moment like this. So I think there's a lot of really interesting features that, that backs in the future, I think will have to incorporate in order to in order to be a successful tool on the two box.

One thing I learned from, I guess, the pattern ag company that I think you incubated as well or was that yeah a cup? Yeah you included.

Well, yeah and you you guys invested through the through .

your launch platform. Yeah so we is that the way this retail works is you have farmers, but then there are these retailers, are these cells wabbles? I guess they call them in the industry that service the farmers and so that they don't have this technology.

That's right. They don't know. How else is the farmers supposed to know what to buy and what to do? So agg, the local retail store, the people that work, they are called a ronny st. And so the agony ist are like technical sales people. They understand the science and the technology of farming.

They understand what the farmers have done in the past, and then they partner with them to help them decide what to do going forward, what products to buy, how to use them, how to get the most out of their land. Um and so when new technology when new egg technology comes to market, is the retailer that can influence the farmer to make a decision on making a switch or using a new tool or using some software, uh you know to drive that decision. And so that's why agg retail is so important and why it's critical for any new technology to get adopted in farming.

IT has to go through retail is the big g input companies. There are the c companies, chemistry companies and the protection companies. And the software are companies they all don't sell direct. The farmers, typically, they're going through these retailers .

and ah is your a version of lava that's been uh that's an american company that's public .

or not yeah it's called neutral and so neutral or own C P S, which is the largest retail h chain in the U S. Uh retail chain the U S um uh about I think a seventy eighty percent of nutrient business is actually fertilizer production and then the rest is the retail business. You know that that's the key comp that we actually show in our financial presentation ah that we publish yesterday.

How is nutrient done just as a public market to people understand sort of the value that IT creates in the marketplace?

Yeah um so in the last year, as we've talked about on the show, companies that are in the fertilizer business are making money over fist because of the um the issues with the supply chain for natural gas, pooh and fast fit. And so if you have access to supply like nutrient does and and very other fertilizer companies do, you are absolutely maintain money this year. And so they're having record earnings right now.

And uh you know people are kind of estimating that the fertilizer market will kind of reset. And as a result, these companies are over earning right now, which means that they are getting low forward multiples. But generally speaking, uh, are these businesses have done very well.

And one of the I would say the U S. Is about fifteen years ahead of light amErica and remember that amErica produces an export more calories than the U S. Um and the and corn farmers in brazil, for example, are only getting half the yield of corn farmers in amErica a little more than half a paradkar yell Parker.

And the reason is the retailers in the U. S. Are so open istis ted that they're introducing services and they make a bunch of money selling services.

Now that wasn't the case twenty years ago, so now they're offering farmers advice using software and another kind of custom of soil testing services and what not. And that's really changed agriculture. It's given farmers data they didn't have before and help them make Better decisions using that data that did exist before.

And that's really, you know, I would say, concentrated in the U. S. That kind of sophisticated behavior. I think it's really important. We see that happened around the world now um because we need to grow more food and we need to do IT without expanding land and create and so on. And when you can do a more sustainably, you do.

This is another kind of key part of this. Did you worry a lot about like the F, X risk of, you know, all these inputs coming into brazil having to deal in local currency than having to kind of get the revenues out in into you as dollars and all of that stuff? How did you think about that?

Yeah, a good question. So when i'm all egg commodities around the world, most commodities is right by trade and dollars. And so um you know if the dollar strengthens against the local currency, the rai, the farmers actually make more money and the input companies charge more money in local currency.

So basically the entire eg market and around the world commodity markets generally speaking, um inputs and outputs present dollars. And so if you're all uh a local business, you actually make more money when your local currency goes down and you're willing to spend more money. And so businesses in a commodity um cynical business generally are are currency hedged ed because of that because there they're selling stuff and dollars.

And then as a result, the places that they are buying stuff from charge them more in their local currency uh and they can still make a good spread. So you know there may be fluctuations in effect risk um but generally speaking, I think we see um and i'm just speaking generally here not about this particular transaction. We generally see and we saw this at month to so that's a good example. All lag input companies, uh, when the local currencies devalue in the market that they are selling into, they charge more and farmers can afford to pay more because they're making more selling the product.

uh, into the market. I am I think this company is very interesting. So i'm i'm run for you IT looks IT look and IT seems like a very good and evaluation good margin of safety to ah yeah come one point .

two billion dollar, one point two billion 到 evaluation if i'm reading correctly here so yeah congratulates tes hard to get a deal done at this time。 We will don't know F, X foreign change, just trading one dollar or one currency for another.

Did you guys see that there was A A title six lawsuit filed against visor for some um you know in the in the civil rights act there is something called title six which means that if you take federal funds of any kind, you can't discriminate. And visitor has a program to recruit african american and latino people into the company and they're not being sued because you know fier takes and I H grants. They you know work with the U.

S. government. They work with medicare. They work with medicated. And so as a result of that, um it's it's really happening one month before something else that we talked about, which is there's the affirmative action case, uh that's one of the supreme court where I think it's harvard actually, you know push people pushing back on harvard, the ability to have some form of race based technicians.

So I just done if you guys were were moderate this for me. I just took a step back and I thought, look at what has happened legislatively. In twenty twenty two, we basically repealed robi, weighed the supreme court, also went after concealed career in new york and said that new york cannot legislate against concealed career, which had pretty big ratifications the respective gun laws.

The consensus opinion is that we're going to repeal affirmative action in the next month of the the supreme court is going to do that. These are three pieces of enormous change in the united states civil society that. That has happened in a really small condense period of time. So I have these thoughts on affirmative action, but my other thought is like it's incredible how conservatives have been able to organize and how disorganize, you know progressive have been in order to create uh, a counter manual against them because this has been a systematic effort since crawl roof literally wrote about IT and the mid two thousand and said, here's what we're going to do. We're going to raise a bunch of money, were going to redistricting everything we're going to get the state legislators on our side, we're going to basically you fund the federal society we're going to and they did IT uh and in twenty years, they've created an enormous amount of change that i'm not sure all americans agree with. Meanwhile, the progressives are just kind of like naval .

gazing at each other I mean and then you left off this past week to math that IT seems like the gay marriage bells is going to be put to a vote um and that they are not to be able to find .

I didn't see that yeah yeah .

and take crews said he's not going to vote for IT because of attacking religious freedom. We had talked on a previous episode and I think that you said, you think think gay marriage .

will come up and well, no if I guess what the pole game manship is here because they think it's not onna pass. They wanted bring up for a vote because I preserve the issue tensioned the wedge issue. When I look like they had enough votes, they weren't going to put up for a vote.

So I don't know. I think it's a lot of games ship here. Look, I think enough republican should vote for this is to asset.

I don't yes.

Well, I think I think there's some issues with the way the bill is written in terms of maybe requiring religious ization perform gay marriages. I think that somebody should just make IT a moment to clarify that's not the case to solve this religious freedom issue. I think if that happened, then you get more republicans on border, at least I would have an excuse.

But yet, look, I would like to see enough republicans for this to take IT off the issue. I don't think gay marriage is in at any risk of being overturned by the stream court. Remember, I was gorgeous who wrote that opinion? So I think this is scare tactic that progresses able to use the fund rays off.

You know, there they're based nonetheless. IT be nice if enough republicans would vote to canalized marriage equality so that they won't able to do that. That's the smart play here for republicans.

yeah. IT looks like, by the way, breaking is in the washington post, democrats have postpone the same sex marriage vote until after the mid terms. So but I mean, you can understand why people are going to be nervous about this. After that.

they want to run on IT. There's an issue. They they have doesn't issue yeah I mean, force IT.

the seventy percent of people are a favorite.

Eighty rican republicans want to be smart. Find ten republicans in the senate who can support this. And now it's now that you're gna support IT.

Come on, republicans have a brain. Don't let them change the issue from this economy that spiraling out of control. I mean, the republicans are less.

What do you guys think is going on .

is dropped as much as twenty five percent as we're taping. This is friday after the CEO um after a little. I don't if you saw the video I sent to the group chat, but kramer jim cramer was kind of pushing him doing this recession, doing this reception, he finally said, yes, I think is a global recession.

They missed on revenue, and they have cut there predictions for next year severely and the stocks way down. I think based on what I heard on cnb safe from and reading some stories right before this breaking the news is happening. Some people think this is sixty forty market versus management. But either way, I think the fed interest rates are doing their job and glass packages are being shift because people are, tramadol would think, spending less money. And that was the whole point of this exercise was to solve .

the economy down freezer. I think this is a little bit of high scratch. This is a new C. E. O. So I think the game theory on this is that IT made a lot of sense for him to reset expectations.

I get that and I think that that's a that's a reasonably smart thing to do when you're in coming mean a leader of a very complicated organization that really is at the end of the bull web sort of speak on on consumer demand and the problem, there's just so much conflicting data. Um no retail cells was pretty reasonable. You know china actually look a little bit stronger than people expected just this past week and some data that came out there.

IT looks like europe is going to really draw hard line and make sure that they spent whatever IT takes to have enough energies so that they are productivity doesn't fall off a Cliff. All of those signals would say that you know were not at the precise of this kind of like cratering of demand. And then you have power basically saying that we're gona go another seventy five and you know we're gna take rates to probably summer between four and five percent. So the the feat data point was pretty starkly in contrast with at least some of the data that we've seen over the last few weeks. So I don't know is a bit of a had scratch.

They got three things working against them. Number one, amazon just continues to build out local delivery infrastructure at an incredibl Epace. At the end of twenty twenty, amazon was already up to twenty five percent market chair, uh, which put them ahead of both fedex and U.

P. S. And fedex has seen the market share decline for the past eight or nine years now. So that kind of A A key point. Number two is people just shipping less stuff, doing more stuff digitally.

And number three is this recession impact where they obviously have key economic indicators that allow them to do a Better job forecasting deliveries, then most companies, I would imagine and so they can see order volume and trading volume and use that as a predict for um you know for what volume for shipping is going to be in the future. And I would guess that all three continue to work against them. It's not like they have a lot of the diversification in the business and other ways to expand out into.

So you've got a key vertically integrated player, namely amazon, that is investing heavily uh, to replace whatever they use you for. I think as of a few years ago, amazon is only like two percent to three percent of fedex revenue anyway. But still I I would imagine amazon is playing a .

key role here. Your first your first comment to me is, is now that sounds like emos credible explanation and you to blame a recession is sort of a little bit of hiding the cheese. It's probably fair to say that their lunch is getting by amazon.

So I can understand why fedex is under a lot of pressure because of that. But if you just compare IT to just all the other data, IT doesn't seem like this whole thing makes any sense. What you just said about competition makes .

to me a law percent. And competition with digital and animals. I mean, digital like how much you guys sign letters today versus e sign?

I mean, just a and you know i'm giving an example. Maybe that's a one percent impact. And there is probably a few more things. And these things are .

there what they could be losing market share while still growing because e commerce is growing so violent in the world. But sex, what do you think?

I think what's going on here is that whatever the issues of fat acts and no matter how overstated these warnings may have been, I think they're directly corrected. He's saying that the world's had IT for a global recession. And directly, he appears to be right.

I mean, things look really grim. We just had this inflation report that was much worse than what people were expecting. Um IT was inflation was proposed to go down to uh eight point zero percent and actually IT was eight point three percent.

That's why the stock market created a few days ago like the worst day in the stock market. I think maybe all year certainly is june. We're almost towards the june lows are now this fedex's executive of saying we're had IT for global recession.

So IT seems to me that, that the economic news is just pretty grim here and we're in a reinstates lation the fed us to keep raising interest strates at the same time that we have persistent I chronic inflation. And you have to wonder, know I twitter a few months ago that the White house economic bites are brian dis. He said that in this interview with CNN that the badminton strategy willing to endure a global session in order to keep russia from controlling the dam, bass region, ukraine, well, mission accomplished. Looks like it's skinning its wish. The administration made some progress in the dawn past, but we are also having a global recession.

So what percent of the recession and inflation has to do with the russian invasion of ukraine?

I think it's meaningful. It's meaningful. We know it's a huge exasperating or of all these four percent.

if put a on.

listen, I don't think the economy can get Better with the risk of war or three hanging over our heads. How does that work?

Yeah but what percent of the economic?

I don't think we're a recession. Um no, retail sales are still quite strong. There's just a lot of signals that tell us that people are still consuming a lot of things and G, P, and that GDP is pretty reasonable. And the jobs and wages, you know, are pretty much, you know, quite full. So I think sex, you are right that we will be there because you can only bring rates up so high until .

you break things. Do you see there's a tweet by, I think, a trop endless today about that issue of wages and he was tweet off to find IT that for the second year. And we now have um because of inflation, we now have uh real wage decreases.

So you maybe right about like where things stand today, but this is about the trajectory right now of the economy. The trajectory is not good. Inflation is not coming down as fast.

People were anticipating is worse than expected. Um you have the situation, ukraine wirelessly. We can all cheer on ukrainians for this conner offensive that appeared to be successful, but we are playing with fire over there.

I mean, I I don't recall a time during the cold war where we did anything remotely this risky. You have a listen, you have american generals. American generals, we're taking credit for this counter offensive.

You see this new york times story where they talk about the inside moment of this ukraine counter offensive. So you now have america. AmErica is now giving ukraine more and more advanced weapons.

okay? This sort of the the long range artillery y they're telling them where to point the weapons they are giving them the intelligence for IT. They're trained them on how to use IT.

They're got commanders on the ground there and um and they actually are hand correcting the battles plans. The ukrainian has had a counter defensive plan, the america, and said, that's not good enough. And they wrote IT.

So the americans are now doing everything in this war, excepting the triggers and taking the bullets. And I don't want to minimize the sacrifice the ukraine are making because they are dying in huge numbers. And you know, we can all respect and admire the sacrifice they're making for their own country.

But this is a very risky strategy for the united states of amErica pursuing. I mean, we are we are basically playing with fire in. We are, you know, this close to being at war with a nuclear and russia.

And we never came close to this type of behavior during the cold war. And I don't understand, was changed so much that we have to take this kind of risk. Now, at the beginning, this conflict, I said that I was open to arming the ukrainians under cold war rules, cold war rules, meaning covertly, like we did in afghanistan. We now have multiple examples, administration, boasting and taking credit, taking credit for the counteroffensive, for the thinking of the moo soph, for killing russian generals. This seems very risky to me.

So sex um A A court premise of the discussions we've had here is that the united screwed up the negotiation uh, with putin by not taking nato off the table. Reuters reported that putin rejected a ukrainian pcl at the start of the war, uh at the start of the war, russian chief envoy on ukraine. I told putin that a provisional deal with, uh, K, F had been struck.

Deal would have satisfied russians demand that ukraine stay out of nato. Uh, two of three sources said the push to get a deal finalized to occurred immediately after russia's february twenty fourth invasion. Does that change any of your thinking on um what's happened here? Um and putts capability.

I think it's a data point, you know but really explain why I don't think it's disposive. And by the way, I saw the article every new count on twitter was between trying to prove that. Let me tell you why IT doesn't.

okay. First all, if you read the article closely, this offer did not come until after the invasion started. okay? And we already knew lysis I was publicly.

And there are early weeks of the war that they were willing to take ukraine off the nat, off the table. So this isn't that much news that happened after. The other key point here is that knowing to happen too late, but also the offer did not come from the americans.

This is a really important point to understand about the russian position on this, and i'm just seeing this based on all their public pronouncements. The russians made an automated in december, and the love of negotiate with blinking in january, they were absolutely insistent that they would accept nothing less but a written guarantee from washington. Why is that? Well, the written guarantee was necessary because they've always claimed that James Baker ucd gorby chop over you, german reeducation, not one in eawt save, always demanded a written assurance from the americans.

And the reason they wanted from amErica and not europe is because they know that europe are america's poodles, and ukraine is a coin of amErica to listen. They wanted a written guarantee from amErica before the war started. They never got that.

Now, if your point is to putin do everything he could to avoid this work, absolutely not. I will absolutely grant you that, but we really knew that. The question is, did the U. S.

State department do everything they could to avoid this war? In my point is absolutely not. They should have taken this ukraine issue off the table in writing before the invasion got okay.

And friend .

working .

about ukraine. No, I just IT was major news.

And we have an obligation .

and .

people are taking this one article, one.

I think.

to talk about that because .

this time i've been olive over twitter that people take this one article and they're like, see, there's nothing to .

this giving you the opportunity to me. Question for freeburg freeburg. The other follow up people would like us to have made here is we predicted famine and massive disruption in food.

We debated that here. We were pretty clear that this is gonna could be disastrous. IT hasn't turned out to be disastrous yet.

What's the update on you? fertilizer? A shipping, not shipping. Or we could have global famine or we not have global famine.

What's the update there based on this starvation problem? The U N told um told everyone, I mean, no one writes about this stuff because it's seemingly not interesting in mainstream mea which I don't want we can understand but the U N thinks that three hundred and forty five million people now uh .

are incrementally .

marching toward starvation and so I think they did this at the meeting yesterday, uh because of the world in the ukraine. Um so David Billy whom who I know well, he's the executive director of the U. N.

World food program. He told the U N. Security council yesterday that three hundred and forty five million people are now facing acute food insecurity in eighty two countries where the U.

N. Operates, which is too half times the number of acute food insecure people that existed before the pandemic hit. And so this is creating, like we talked about, these rippling effect in terms of initially IT was fertilizer cost, which means like food being produced locally. Then there was the acute crisis of getting food out of the ukraine, uh, and now it's less planned to acres and less yield getting out of those acres, which, you know, we said I was onna, start to happen in the back cafe this year. And if you look at the Price, you know a good proxy for this is the Price for corn.

Uh, we're at near record highs um you know for the last couple of years in terms of corn pricing, the twenty twenty three futures pricing for next december for corn is at six twenty a bushel, you know and I kind of picked out right around the middle part of the the ukraine critic in April at six seventy three. So we're getting right back to that high point. Um and so this is uh a major problem that's brewing.

And as I highlighted at the beginning of our talk today, which I show the presentation for the the the liver transaction I talked him about earlier, we have done an incredible job building a resilient a food supply and excEllent global supply chains to feed people around the world going back thirty years. And we've been able to steadily decrease the number of people that are food insecure or or uh facing famine. And famine in the U N.

Definition is less than twelve hundred calories per day on average for a year. And so we went from like a billion people around the world facing famine, uh, about thirty years ago, and got that number all the way down to six hundred million. And then in the last two and a half, three years is shot up up to eight hundred million.

And now the U. N. Thinks it's going to shoot up even more. So we may even be reacting our way all the way back thirty years because of the crisis that .

have enveloped the the the the .

region around ukraine and the resulting impact on fertilizer availability, fertilizer pricing and so on. And as I mentioned a few weeks ago, um many moni of fertilizer plants, which is night region fertilizer, the main kind of um component of fertilizer in europe being shut down because they run on natural gas. And so um government agencies and the local producers are turning those plants off to make more natural gas available for heating.

Would you describe this freeburg as because we are seeing uh the E U. You know they remember .

they made that is why south amErica .

is important. But would you describe this though? Because the E U.

Was also, at the same time the U. N. Was highlight this concerns. The E U. Was also praising the mass of progress we made from the the russia and the ukraine, russia and ukraine, uh, allowing fertilizer, allowing exports .

and this little moving. And we got some fertilizer exports moving.

So two steps forward. One back would be how you describe this.

Maybe yeah, that gas Prices are still elivated, right? And that gas availability in europe is obviously significantly. Will we get through IT?

We get through IT. Do you think we we can manage this?

Yeah, I look I don't know how many I look at. There's some number of people, some number of tens of millions, maybe hundreds of million of people who are going to start between here and there that otherwise weren't going to be starving. By the way.

There's always know some hundreds of, as I mentioned, of people around the world that are starving under twelve under galleries a day and that number climbing some incremental amount. That's an incremental three hundred, four hundred million people that didn't need to start, and that's a condition we're now going to be facing. And so people like, yeah, people are still leading.

They're still food around the world. We don't pay much attention to these third world countries. We don't pay much attention to these under develop nations because we don't have press coverage there and and when people are on the streets are unable to eat, IT doesn't seem to make everyday mainstream media coverage. But IT is happening and statistically, IT is a massive problem.

Doing a great job of cover in kyi and km, but maybe get some reporters to to cover the people starving we've covered.

And I appreciate you guys giving me a chance talk about IT because import yeah I mean, I think that when this show is at its best, I think we're highlighting things that other people .

are ignoring the situation and this applies to this episode is all, all the previous ones. I don't want to be right about this issue, just like i'm sure freeze er does want to be right about famine coming true. We don't want these things to happen. okay?

If I could choose not come right now, I would say, be great if the russian army collapse because of its moral problem, tucked its tail between its legs, went back to moscow and then the ukraine, and had a good sense to respect the Wrights to the russian speakers living in the domain, crimea. And this whole thing basically tamped down and basically was over. Okay, but look, I think there's an equal and opposite chance that that doesn't happen.

That certainly could happen. Okay, but I think there's an equal and opposite chance that instead, what happens is that we climb the s militory latter, that putin, I think we are backing into a corner. Everybody says that he cannot survive loss this war, and yet we're not willing to give an off rams.

So what choice does he have but to escalate? So what does that mean? That could mean a full mobilization in that country.

That could mean they resort, if they can achieve their aims by conventional weapons, maybe they resort to unconventional weapons. We don't know. This seems like a highly volta risky situation. And I just think that, you know, we, the united states of america, needs to be thinking very clearly about what is in our interest, because all I see is a identification. We're so interested in helping and identifying with ukrainians that we've lost sight of an american interest that separate and independent of ukraine's aside for self termination, I can understand and respect their nationalism and their patriotic m but we are a different nation. We really think really carefully about our interest here.

Yeah, I think, David, sometimes you're misinterpreted as this is a part of initial for you. You're a dove. You're David the dove.

I W, day with A W, R, my dub, not a hoc. You want peace list. I believe that .

if amErica is going to risk war with a nuclear ARM power, there are Better be a vital interest at stake. Othe wise, we should find every diplomatic offend we can.

So do you feel optimistic about our ability to navigate him off the ukraine situation? Ah the warn ukraine, famine, supply disruption, energy. Do you think we get through all this? Are you optimistic?

I think that rates are gonna summer between four and a half to five percent. I think sandrock Miller is right. Um and i've said this, I don't know I know at no sim soul just keep saying IT, but I think everybody has consistently been wrong and they have wanted inflation to be a transat phenomenon that goes away and they consistently wrong.

Even in our group chat, we see these forecasts theyve been utterly, consistently wrong. So rate you're gonna higher than people expect. It'll stay around longer than people want this.

I'll have an impact to the economy. Uh, that that impact in twenty twenty four, twenty twenty five will not be that great. So that's one thing. If you want to focus on ukraine for a second, there's something that I think we should focus on, which I read this interesting article about russian mothers. And you know, in the nineteen eighties, when russia was a war with afghanistan, there are these are bodies that were sent home to russia.

And these mothers got very, very uncertainly protest IT and then um in um you know two thousand early two thousands I think there was um there is a nuclear submarine that basically sank, got shot and sank and then russian others protest IT in the chat chen war they are a group of individuals in russia that have enormous organizing power IT turns out and they um you know they they really can tell um what the real temperatures is on the ground what putin is done so far is that he's largely recruit people from you know these partner communities inside of central russia and use third party contractor so he minimized the risk of the real cohorts of the russian population who will really stand you know firmly against what's going on. So until you see that happening, those guys have a long way to go. And I think that this thing is gona drag on for a really long time.

So it's a paid army. Therefore, it's obscurity. The impact on actual citizens in russia.

it's half paid, but the other half are from places where they're organizing powers limited. And I think that that was crimes in calculation seeing what has happened before, again, sort of like the tip of the sphere of these russian mothers um and we're not seeing that. So um that means that the ability for him to manage perception inside of russia is pretty, pretty good um the expected rather than people expected. So this is going to go on for as long for much longer than people think so um I went just prepare for this inevitable outcome and just kind of managed another .

year of slogging IT through choppy waters might be one way to look at this.

And I think that's a very good. I think we're in a very volle choppy market for the foreseeable future.

Yeah and there unless some opportunities um and also maybe some discipline in various markets. One thing to just keep in mind where most people feel these right takes is in the thirty year fixed mortgage, right? This is where most americans are going to feel. And if you look at the chart, you know, like this is a big jump up from our absolutely free money environment that most americans were feeling doing. Do you know where do they call when you take out equity on your mortgage, like a second mortgage or a credit line create line?

And most people and people were, you know.

experiencing a lot of free money and upgrading their kitchen and taking money at their homes yuta. But when you look at a historically, you know even at six percent or even if they go to seven percent for mortgage, um it's a lot less than we our parents experiences that we experienced for the first half of our adult lives.

So I think it's surmountable in this number you don't think is going to get up to above ten percent, right? The thirty year fixed, you don't see that happening. So I think it's manageable, which just gonna choppy.

Or listen, sax, I didn't get to promote IT, but he has a wonderful film at the toronto toronto film festival about deli. And he is doing an awesome dali experience with the A I that paints pictures. And so we just go in certain to the end of the program, the beautiful work is doing there.

And his dolly film, supposed to be excEllent as a second film David is producing after. Thank you for smoking so congratulations to our own little score sez I uh for the sult of science, the dictator and uh the David the dove. I'm the world's greatest moderator jesson hello can and will see .

next time byebye love guys right .

after the dolly land exhibit here at the same region, the same region hotel was a very important and all his life actually lived in the pen house of the same regions in new york. And the same region hotel has very graciously great to host this exhibition for us and this exhibition is is basically rendering of uh dolly studio or what dolley studio about to look like.

And those works of art are actually generated by GPT three, the circled die engine. Um so thanks to the OpenAI team and same open for giving us access the doll E D A L L dash e. And so fans could just come here and they can use these tablets to enter, you know, what art they want to create.

They could is enter terms, and the, you know, the engine will spit out art that is made not obviously by something or dolly, but is in the file of salvor di. So I thought it's a very cool way to commerce. The film we are wearing at the toronto international film festive this weekend.

This is independent movie. I had development for something like over a decade. He had a the great actor, caving ward winning act of banking to plays di and a phenomenal formal.

So we're excited to premiere this may be sure to the world for first time this weekend. Thanks for watching and bike. great.

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