Business 101 tells us that companies need to make money, so how has a business with virtually zero revenues achieved a valuation of about $80 billion? Listen in as the MyWallSt team chat about the soon-to-IPO EV maker Rivian -- will it really become a "Tesla-killer"?
In this episode, we also discuss:
The global impact of Squid Game and what it means for Netflix.
The things to look out for this earnings season.
And two stocks on our watchlist -- C3.ai and Warby Parker.
Hi there and welcome to Stock Club, a podcast brought to you by MyWallSt. I'm Mike, and joining me in today's episode is MyWallSt's Chief Investor Emmet Savage and Head Analyst Rory Carron. Today we're talking about the global impact of Squid Game and what it means for Netflix, electric truck maker Rivian's potential $80 billion IPO, what to look out for this earning season, and two stocks on our watchlist.
Rights Lads. We're talking about Squid Game today, a show in which contestants compete in deadly children's games for money. I want to know, if you were in charge, what games would be on the list. Rory, I'll would start with you; and there can be no rollerblade advantage either.
I haven't seen Squid Game yet, I'm saving it for my leave, so maybe this game is already in there, but I don't know, like dodge ball, but like the ball is covered in anthrax or something, I dunno.
Emmet did you play games back in your day or you just walking to school on your bare feet?
Well, bare feet all the way. If I was to run, I suppose a MyWallSt Squid Game, we'd probably do a game which our listeners should know about, called Fortress, which was invented by Rory.
Fortress is a good game because you just want to kill yourself after because it's so long and arduous.
So basically, look, for our listener's sake; it's a bit of a game that Rory invented that is played in MyWallSt HQ in non-pandemic times after a long night out where you toss a ping pong ball into cups of beer. It looks something beer pong, but is far more hazardous if you have any awareness of germs, this is not the game for you.
Yes, I don't think we'll ever get to play fortress again after this pandemic.
No, I don't think so. It was good while it lasted, I suppose. Moving on to actually talking about Squid Game so, if you haven't watched the show, I think you've at least seen the memes. The South Korean drama is on track to become Netflix's most popular show ever. That's the number one watched show in over 90 countries. The speed at which it's grown as a testing the scale of Netflix platform and its unique ability to deliver content to over 200 million viewers across the globe at the same time. The temptation might be to brush this off as another Tiger King-esque flash in the pan but it's much more than that. Netflix has been investing in foreign language programming since 2015 and has spent more than $1 billion on Korean programs alone. The popularity of Squid Game is justification for this faith, and a big step forward in the globalization of entertainment. Emmet, as a long-term Netflix shareholder, you must be delighted with all this attention on the company.
Of course I am. Lads, did you know that Netflix is now bigger than Nike and Coca-Cola? It has arrived, as they say, and they're scheduled to report earnings in a few days on October 19, I think. But it's worth just kind of pausing to look at Netflix as an entity before we drill into Squid Game. And I really would like to elaborate on the phenomenon that has been Squid Game. But last quarter Netflix's paid membership base came in at about 209 million accounts, which was up by 8% on the same quarter a year earlier.
And the average monthly revenue per paying member was also up by 8% to $11.67, which was good. So in the twelve weeks that was Q2 for Netflix, they took in $7.3 billion in revenue, which was up 19% from the year-ago quarter, and earnings per share was up nearly $3, or $297, which was up 87%, which is pretty good. So as you said, Netflix has a new nine-part thriller called Squid Game, in which cash-strapped contestants play deadly childhood games to win something like 33 million Euros.
Anyway, my wife and I are watching Squid Game at the moment, and I have to say and this is, incidental, the English dubbing is the best I've seen. We're fans of skipping dubs in my house and just reading subtitles, but this is a classy piece of work worthy of an Oscar if they gave out Oscars for TV shows. But anyway, look, that's not important right now. One of the most interesting side effects of Squid Game is that over the two weeks following the show's premiere, DuoLingo, our language learning app, reported a 76% rise in new users signing up to learn Korean in Britain and a 40% rise in the US.
I mean, can you imagine the undertaking that is learning a whole new language? You watch TV show and you go, yeah, I'm going to learn that. I like this. I like the sound of that language.
Isn't it unbelievable?
Didn't they do something similar with that with The Queen's Gambit? Didn't they see, like, a 5X increase in people playing chess online?
Yes, that's right. I remember. But at least the game of chess is a game of chess; learning Korean, please. But I was saying to my wife, like, 76% rise in new users signing up to learn Korean in Britain and she goes, yeah, but maybe that's just from 10 to 17 people. I was like, it's probably a few more. But anyway, you have to suspect that Squid Game has also brought in a few new subscribers as family members and classmates and colleagues recommend a show to each other and local. And I don't know, local churchgoers tell each other that Squid Game is the bomb. But the fact is that it has become a global breakout phenomenon with quote, a very good chance of it becoming Netflix's most popular show yet, said Netflix's co-CEO Ted Serandos a few weeks ago. Now, since Netflix typically reports viewership figures in the context of a title's first 28 days, Squid Game will pass that mark on October 14, which is tomorrow in our world, Mike and Rory and yesterday in the day that this podcast goes live's world.
So what I'd like to do is just read to you a list of Netflix's all time most popular self produced shows. Top of the list. The most popular show produced by Netflix was season one of Bridgerton, which is, I believe, a period romance, and I've no interest, but in that stuff at all but 82 million people, or accounts, watched Bridgerton, and I suspect those were to do with the Coronavirus. In second place in their most watched TV shows is Lupin, which is a French heist series, and I watched it along with 76 million other Netflix accounts. Then in third place is The Witcher, which actually I'd never even heard of until I looked up the stats here, which apparently is a fantasy series based on franchise of books and again, 76 million accounts. So it's neck and neck with Lupin. Then in fourth place, Sex Life, fifth place, Stranger Things season three, which I loved, 67 million people. And so it continues in 6th place like Casa de Papel, or Money Heist, followed by Tiger King, The Queens Gambit in eighth place, Sweet Tooth, and then Emily in Paris.
So as I said, Netflix is scheduled to release its quarterly earnings report and disclose a new batch of viewership figures the week after. And I think that Squid Game, although it's just another TV show, is going to have a material or at least a direct impact in the shape of the quarter that was Q3 for Netflix.
Yeah, you mentioned Lupin and Casa De Papel there as well. Squid Game will probably be on top, that's three foreign language series in the top ten. I think this kind of, like international expansion strategy is the way forward for Netflix, especially when the US market is becoming a lot more kind of saturated.
I suppose I absolutely do. I can only give you my opinion, and an anecdote does not make data. But there's something very refreshing about watching a TV show that's based in a country in a culture and a language that you to this point, have had no experience of, and it's all new, I think certainly for me. There was a fatigue in seeing the same Hollywood a-listers in TV shows, although I enjoy them, there's something really refreshing. I particularly enjoyed Borgon, for example, which is on Netflix, which was a Danish political kind of drama. And I do think that it's an important part of their expansion strategy, because not only do they appeal to the native country in which the dramas are based, but they, I suppose, open the doors of what a drama looks like from foreign shores to other countries. I think it's really smart. And I think, as you said, there Lupin is French and La Casa de Papel or whatever it's called, Money Heist was in Spanish, and I just think it's a great thing altogether.
I wonder what sort of like copycats are going to pop out now, do you remember it was The Killings, the Danish kind of noir drama that launched all these Detective copycats.
I have it here. Netflix offers subtitles in 37 languages and doubled it in 34, I guess, streets ahead of any other streamer.
So are you guys subtitle likers or dubbed, which do you prefer?
Subtitles for me I think. Well, I watched the Squid Game with subtitles.
Yeah, I do see the subtitles as well, though. Some of the Japanese Miyazaki films, which is the Japanese kind of version of Disney, they used to get in some fantastic actors to do the dubbing. The one from X Files did the one time Gillian Anderson? Yes, Patrick Stewart did one. So they were always really good fun to those.
Yeah, I prefer subtitles as well, but for whatever reason, in Squid Game, it's dubbed. And as I said, they're doing a fine job. So I'm totally brought along.
Rory, Squid Game is kind of a reflection of wealth inequality that's rife in South Korea. The impact of the show is that public perception has spilled over into the real world and a stock you've been following. Could you elaborate on this one?
I can yeah. The company I have been keeping a very close eye recently is Coupang, which I'm going to be completely reductive about, it is the Amazon of South Korea. A company that got off to quite a good start as a publicly traded business, but it hasn't been doing very well in the last few months. In fact, in the last six months, it's shed almost half its value. And a lot of that seems to be related to almost instant change in public perception in Korea relating to the business almost comparable to what Uber faced back in 2017 with the boycott movement.
And this seems to be very much tied to their founder, a guy called Bom Kim, who was at one point sort of a poster child for a new generation of entrepreneurs in the country, seen as kind of quite a positive thing, kind of the opposite of what was seen as the kind of the old family wealth that had dominated the countries over the last couple of decades. But just in a matter of months, that's all changed. There's been a couple of controversies surrounding the business, really kind of kicking off with what was a deadly fire at a fulfillment center back in June, which on that very day, the Founder announced that he was stepping down as head of the Korean business in order to explore international expansion.
This was seen as kind of shirking responsibly for the fire, even though it had been planned far in advance. But the app saw a drop of 700,000 users in one day at the height of this boycott. So, yeah, we're kind of waiting to see how this plays out in the company's earnings. And funnily enough, the popularity of Coupang is largely driven, from my perspective anyway, in this kind of workaholic culture that exists in South Korea. This nine-nine-six system where workers are kind of expected to work from 09:00 a.m to 09:00 p.m six days a week.
And so Coupang kind of really carved out a great business for itself and serving those workers by providing things like next day delivery if you order before midnight. But now it has almost been seen as this kind of beacon of inequality. Like I said, I haven't seen the show yet, but all reports suggest that's kind of being mirrored in this show.
Very interesting. Right moving from Squid Game to another depressing capitalist nightmare, the electric truck maker Rivian has filed for an IPO, which could lead to an $80 billion valuation, making it one of the largest private companies in the world. The catch: Rivian doesn't make any money yet. Basically, Rivian is a pre-revenue $80 billion company, fingers crossed for them, however, the company does have almost 50,000 preorders for its R1T and R1S trucks from customers who put down a refundable deposit of $1,000 each. But perhaps the most exciting aspect of the company is that it's producing an electric delivery van for Amazon, who has put in an order of 100,000 vans by the end of 2025.
As you would expect, we saw some ambitious projections in the company's S1, with the company claiming it's building the future of mobility and that it has a whopping $9 trillion total addressable markets. It also expects to spend $8 billion by the end of 2023. Rory, with a $9 trillion TAM, $80 billion is a bargain, surely?
Did they actually say that? $9 trillion TAM. That's upsetting because I was going to say some nice things about them. I'm not so sure.
For the future of mobility, Rory, come on.
Yeah, that's like saying Spotify's TAM is everyone with ears or Nike's TAM is everyone with feet. Just multiply everyone in the world by two and you've got how many Nike's you could potentially sell. I mean, I suppose in general, those two statements are actually true. Then you have to get into the realm of a reasonable, look at things like SAM, which is your serviceable addressable market, which then feeds into your SOM, which is your serviceable obtainable market, which is get into it. The TAM might be $9 trillion, but that's definitely not what their SOM is going to be. In terms of valuation, I suppose it's kind of pushed that back for a little bit. Just talk about the business first and foremost. It's a company that was founded in 2009. So this is not a new company by any stretch of the imagination. They've been at this for a very long time, and they actually began working on sports cars, but pivoted to trucks and recreational vehicles a couple of years ago. As you pointed out, they have yet to sell a single vehicle, so there's literally no revenue. However, there are plenty of losses.
So in 2019, they lost $426 million dollars that doubled in 2020 to over a billion. And so far this year, by which, I mean, the first six months of the year and the company has lost almost a billion dollars. So this is a company that over the last two and a half years has lost $2.5 billion and that is rapidly increasing. Please keep in mind they still have yet to sell anything now in saying that the company has plenty of cash in the bank at $3.7 billion. And they do have some very big backers in the likes of Amazon and Ford.
So I don't think there is any chance of a kind of Lordstown Motors fiasco here. They're well, capitalized. They've got some very big backers. So they will get cars off the line. They have a plant, I know at the moment that they bought from one of the Japanese companies named Mitsubishi. And they claim that it was produced about 150,000 vehicles a year, expanding to 200,000 vehicles a year. And they claim the initial launch vehicles will all be in production by the end of the year. In fact, I think some of them have already been made but possibly haven't been sold just yet.
I think it started in September. Production of one of the trucks. Yeah, great.
Well, yeah. They have two consumer products, a five seat and seven seat truck, the R1S and the R1t, and they have about 48,000 pre orders for those models. They keep in mind, those preorders are just deposits that are easily countable. So you have to take that number with a massive pinch of salt. They also have a seven day, 1000 miles return policy. So even trucks that they do end up shipping, they may have to refund those customers on. Importantly, these trucks are not work trucks. So to think about them in terms of something like the Ford F 150, which is an immensely popular vehicle in the US, would be totally wrong. They're kind of more trucks you would have if you wanted to go camping. They're more kind of SUVs than they are the work trucks that are so popular along the American highways, which terrified me when I drove across there a couple of years ago because you look out your window and there's a wheel the size of your entire car right beside your head, things that we just don't have in Europe.
The most interesting side of this business is probably their commercial wing, this kind of EDV or electric delivery vans. This is what attracts the investment from Amazon. Amazon has ordered up to 100,000 of these 10,000 due to be delivered by the end of next year. Production supposed to start in December. And they've also kind of talked about ancillary businesses, service centers, mobile service fans, fast charging ports, etc. I mean To talk about this business as an $80 billion business, they're looking at $8 billion off an $80 billion valuation. Its ambitious and part of me kind of is looking at them and going, well, they might actually get away with this and all fair play to them if they do, because that is the kind of market that we're operating in, especially in this kind of industry. But you know go back to the fundamentals here. They have never sold the vehicle, even if you were to take that 48,000 preorders for their trucks. The cyber truck from Tesla has over a million preorders. So if we were to kind of do the maths in our head here and say, right, well, Rivian's 48,000 preorders equal 80 billion. Is the cyber truck itself worth, like, trillion dollars in back the envelope maps here? Of course, in fairness, that is not counting the commercial vehicles, but $80 billion for a company that hasn't made any money is not even made profits, but hasn't even made revenue yet is really pushing it and they're entering into a much more crowded space than a company like Tesla was ten years ago.
Yeah how much do you think Tesla's influence has on that $80 billion figure? Do you think it's uplifted the entire valuation structure of the industry?
Yeah, years ago, and as I said earlier, that phrase, the Amazon of South Korea. It used to be, what's the next Amazon? You've had lots of people asking, what's the next Netflix? In the EV space everyone is looking for the next Tesla. And I think was it last week on the podcast, I was asked what Tesla's advantage is, and I said it was like the sexy side of electric vehicles. I think I'm going to kind of rethink that or reassess that and say that what I think Tesla actually sells is smugness.
You say that with a big grin in front of you?
Yeah. I'm currently staying in an area that has an awful lot of Tesla's. And the smug look that you see on Tesla driver's faces is what they are really paying for. Elon Musk is an ivory tower merchant. That is what he sells. And there's only so much of that to go around. I really don't know if all these new entrants are going to be able to get in there and have that same impact in terms of the consumer love that seems to go straight towards Tesla. Obviously, you're going to have some small winners but will there ever be another Tesla in this space? I don't know. Maybe they also have the problem of the old Tesla still being there, which is still competing with all these businesses. And as we know, as I mentioned already, Tesla is releasing its own truck, which has far more pre orders. So yeah, we look at Tesla. We see the valuations that it managed to get. It was obviously competing with no one but itself. Now there's all these other people coming in and they have to compete with Tesla.
So, yeah, I'd be very cautious on taking these valuations and saying, well, that's even anywhere near reasonable if you're going to compare them to Tesla's valuations.
Although it's only one single story, I was at home recently visiting an old friend of mine, Enrique. We grew up together and he's just bought the new Porsche Taycan, which is their electric offering, and we went out for a spin and it was absolutely beautiful of his face-meltingly fast. And it was really desirable machine if you're into that kind of thing. And as I probably mentioned before, there's a Tesla here in our driveway. We're not smug at all about it. It's just a car that we use.
And I didn't want to say to my lifelong friend, but I thought Tesla was a faster machine, but I can tell you something when it comes to desire and design and aesthetic. The interior of the porch and it's dash for me, was a far more beautiful thing. And it was the first time, I guess that I had sat into a premium electric vehicle that isn't Tesla. And kind of got realized by seeing that all the other car manufacturers are quickly running to market with an alternative to their prior models, which were diesel and gasoline and petrol, as we say, over here.
Very good. Moving on to what's going on in MyWallSt at the minute, we've just published our Stock of the Month podcast, in the app this week in which Rory and James break down October's pick. This is one of the businesses that either you or someone you know is a customer of. You might even be using it right now. We also have some great pieces exclusive to the MyWallSt app, including Anne Maries's full write-up on one of the most exciting names in Medtech. And this Monday we will be adding a new stock to the shortlist, so make sure you're there to see that.
As always, you can follow the link in the notes of this podcast to start your free access with MyWallSt. Mailbag time lads. For this week, we're going to chat about the upcoming earning season, which feels like it just ended. But here we go, Rory. Are there any themes that you expect to see unfold over the coming weeks as companies start to report?
Yeah, I think this is going to be quite a volatile earning season. I think there are a number of catalysts for volatility all sort of converging on top of us at the same time. Firstly, we've got a difficult set of comps for some of those stay at home stocks that did so well in the lockdown last year. Now we've already seen quite a big pullback in a lot of those names already. So it may be the case where even the smallest amount of positive news could cause some swings to the upside.
On top of that, of course, we've got this global supply chain issue that may not necessarily show up in these earnings that we're seeing, but it could very well have an impact on guidance for this quarter, which is only coming around the corner. As you say, they seem to get sooner and sooner every time we do one of these. Tied to that, we might see a lot of commentary on inventory. I think this is going to be one of those earning season where analysts are going to be digging into that inventory section of the report to get a sense of where the company is in terms of shifting their product but also being able to secure raw materials in consumer hardware.
We're obviously going to be hearing about chip shortages. We know Apple is having big issues, which could lead into selling about 10 million fewer iphones than they had previously predicted. It's nice when selling 10 million fewer products only drops your stock 2% when you're operating at that scale, but added to that, I'm sure we're going to hear about rising costs across the board. We're going to hear about labor shortages. It's like one of those earnings that comes after like a major storm in the US, where literally every single CEO has the storm excuse card in their pocket, even if the storm already had no impact on their actual business.
The flip side of that is that there seems to be incredibly strong consumer demand out there. People are just itching to spend money and that the world is open again. So businesses that have been able to meet that demand could see some really great blow out figures. Another thing that's probably not mentioned is that the United Kingdom, our noisy neighbors to the east, are having a bit of a hard time. The government doesn't seem to realize this, but there seems to be serious problems there in terms of supply in terms of energy prices. And even though we don't follow many businesses that are kind of based there, Diageo, I think, is maybe the only one that's actually based in the UK, but it is a major market and that could have a serious impact on some revenue figures for American based companies.
Very good. Emmet, as an experienced investor, do you have any tips of advice for new investors on how to tackle earning season?
Oh, it's very easy. Treat it as you would treat entertainment, don't over-intellectualize what you see or hear. Very rarely will a single quarter bring something that's strategic or structural change to a company. We here at MyWallSt, Rory, you Mike, and I are well used to just watching the quarters roll by, and they add a little bit of information, and they slightly augment the view of the business that you may or may not have bought into. But the best thing you can do as an early stage investor is to just let a few quarters roll by and get into the cadence of the reporting that is Wall Street, because, as Rory said, it runs by really quickly. Every twelve weeks, you're getting a new fresh delivery of information about three months of sales or three months of partnerships or whatever it is. And in the big picture, as they say in the movie industry, to come back to the Netflix analogy when you cut to wide shot, a single quarter very rarely has any meaningful impact on what in fact, it is you're assessing and the business you're investing in.
Okay. I'd definitely echo that and I think you need to recognize this earning season is a time of really heightened emotion. It is inevitably going to be businesses over the next month that have days where the stock drops 20, maybe even 30%. But what makes great investors is the ability to recognize that emotion and recognize that that's not what drives long term returns. Great businesses don't just throw in the towel because sentiment has changed or because of some short term issue, like the supply chain is busted. And like I say, every time, if you're investing for ten years, the quarterly earnings report is just 1/40 of the time you're going to be an owner of the business. It's 2.5%, if you wake up one day and the first 2.5% of your day doesn't go well, you don't curl up on the floor, you shake it off, maybe do a little meditation and get on with it.
You clearly haven't been around when I'm waking up in the morning Rory. Alright, moving swiftly on after that, an elevator pitch to finish up today's show lads. In 30 seconds, I want you to pitch me a company you're looking at. Emmet, start with you.
Okay, well, I'm looking at it doesn't mean I'm actually interested in further to our chat on Stock Club.
Well he instantly got himself out of it.
Don't do this. Okay, so look further to our chat on Stock Club a few weeks ago, where our friend Jason Moser from The Motley Fool said he's invested in C3.ai, which has been on my radar for a few months. I took a closer look, and I put a lot of credence in Jason's opinions. He's a first class investor with an outstanding track history. So C3.ai Provides AI algorithms that help companies bolt on AI-shizzle to their business. You need some AI. You go to C3.ai And this AI system that will do maintenance routines, and it will detect fraud and optimize inventories and strengthen existing CRM. And ultimately a good one would make the three of us redundant. But anyway, C3.ai stock tumbled around 10% about a month ago after their first-quarter earnings. And now let me just tell you about it. And here's why I'm not going to pursue my research on it. Its revenue rose 29% year over year to around $52 million, beating estimates by a million bucks. But it posted a net loss of $37 million, compared to a profit a year prior. But what really kind of bothers me is that C3.ai increased its customer count last year by 82% to just 89 customers. Right and its average contract value fell from around 12 million to about 7 million. In the most recent quarter. It grew customer count by 85% to 98 customers. And the average contract value again dropped this time to about four and a half million dollars. So I'm keeping it on a short list of companies with traction in a very complex field. But I'm not pitching it in Horizon or here in Stock Club just yet.
Okay, the pitch that wasn't a pitch. Rory?
You said just pitch stock.
Rory will you talk to me about a stock you actually like.
I actually sorry I actually was with Emmet on this. I thought this was just stocks that we were looking at. As it happens, I am looking at stuff that I do like.
Mike, when you Whatsapp us a pitch of stock you're looking at, we're very literal creatures. We're not deep rivers. It's like, oh, I just looked at C3.ai. That's what I'll talk about.
I literally opened the Yahoo Finance page that's as far as I'm looking.
You're not supposed to tell people how little research you do for this show.
The stock I am looking at, and I do, like, funnily enough is a company called Warby Parker that just IPOd. Anyone in North America to be well aware of this kind of DTC superhero super success story of bringing a real service innovation to the eyewear industry. I suppose doing the old Jeff Bezos trick of your margin is my opportunity where they are now selling millions of pairs of eyewear to people in North America, a kind of standard rate of $100 for a pair with your prescription. It's a business that's just IPOd. I really like the founding story. Four friends from Stanford got together, built this thing from the ground up. They currently have 2 million active members, people who buy from them on a regular enough basis. Steep valuation at $6 billion. Like all kind of recently IPO companies, I suppose. But I think so often. Definitely in my lifetime, I've overlooked great brands because of valuation, and so often I've been proven wrong. Great brands have the ability, if you think 10-20 years out to really drive valuations much higher than you could ever imagine. And there's plenty of opportunity for this business. They've got international expansion to look forward to. They've got this kind of new blue screen blocking lens thing that a lot of people are getting into to protect their eyes from when they're using phones and computers and things like that. And if they got into reading glasses, they'll be a whole new kind of market open up to them. So, yeah, like, the business. Happy to keep it on my watch list for six months and see how it's doing as a public company.
Nice one. You'll be watching it closely.
We'll be keeping a close eye on it.
There were so many jokes that I couldn't decide on one, not happy with that.
You picked the worst one.
So many opportunities.
It's not hard on the eyes. How about that?
You have been nearsighted, right? We're rambling again. That's it for this week's Stock Club. Remember, if you have any questions you'd like answered or elevator pitches you'd like to tackle, make sure to get in touch. You can find us on Twitterthat's @mywallstreetHQ on TikTok. That's @mywallstreet or simply just email us at pod@MyWallStreet.Com.
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