Podcast Summary
Sponsored by State Farm and Prop G Markets, this episode discusses Mercury's banking solutions for startups, market news, and Tesla's investor day: Mercury helps startups manage finances effectively, S&P 500 declined, European inflation rose, Tesla's investor day lacked new product announcements, and Scott was skeptical of Tesla's focus
Mercury provides modern banking solutions for startups, enabling them to manage their finances more effectively and securely. This episode's sponsors include State Farm, offering personalized insurance for small business owners, and Prop G Markets, discussing news on Virgin Galactic's earnings, Amazon stock, and the grocery delivery market. The S&P 500 continued its slide into March, while inflation in Europe rose, and Tesla's investor day failed to impress investors due to a lack of new product announcements. Scott expressed skepticism towards Tesla's recent event, feeling that Elon Musk was more focused on his personal endeavors than Tesla.
Rivian's Stock Value: Volatile Market Perception: Despite initial success from partnerships, Rivian's stock value is volatile due to production and financial concerns, while Mexico's political stability and lower wages make it an attractive investment destination for automakers.
The market's perception of Rivian's stock value has been volatile, with significant drops and rises in the past year. The company's production and financial performance have been a concern, with Rivian producing a fraction of Tesla's car output and facing challenges in achieving profitability. On the other hand, Mexico is seen as an attractive investment destination due to its proximity to the US, lower wages, and political stability. The ongoing geopolitical tensions in China and the shift in manufacturing towards more regional trade partners are expected to benefit Mexico further. Additionally, Rivian's partnership with Amazon and its role in supplying electric vans to the e-commerce giant has contributed to its initial success in the public markets. However, the company's financial performance and competition from established automakers have led to a significant drop in its stock value.
Investing in Unprofitable Companies: A Risky Proposition: Investing in unprofitable companies like Virgin Galactic, with significant losses and low revenue per flight, carries financial risks and requires careful consideration of their potential for long-term profitability.
Investing in unprofitable companies like Virgin Galactic, which reported a net loss of $150 million in the 4th quarter, comes with significant risks. The space travel company, which aims to be the world's first commercial space line, has a product offering of a suborbital journey for $450,000, but it's only expected to generate $2.7 million in revenue per flight. This means the company would need to fly 185 times a year just to break even. Despite revenue beating expectations, the negligible number was still far from covering losses. The stock fell 16% in after hours trading. It's important for investors to be aware of the financial risks involved in investing in such companies and consider their potential for long-term profitability.
Space tourism's unique challenges: demand and supply constraints: Virgin Galactic faces hurdles in achieving profitability due to limited market size and high risks/costs of space travel
Virgin Galactic's space tourism business is uniquely challenged due to its extreme combination of both demand and supply constraints. With only a limited market of people willing and able to pay hundreds of thousands of dollars for a sub-orbital flight, and the inherently dangerous and expensive nature of space travel, the company faces significant hurdles in achieving profitability. Despite the allure of space travel and the success of the PR stunt, the risks and costs may outweigh the potential rewards for many consumers. Additionally, the interviewee's personal bias towards space travel and his investment in a supersonic commercial aircraft company highlight the complexities and nuances of consumer preferences and market dynamics.
Supersonic flights and space tourism: Disrupting the travel industry: Supersonic flights could revolutionize long-distance travel, while space tourism faces challenges. Advancements in technology make both commercially viable, but sustainability and investor confidence remain concerns.
The aviation industry is on the brink of a major disruption with the development of supersonic aircraft, which could significantly reduce travel times between continents. This could open up a large market for travelers who value time over money, as demonstrated by the existence of private jet services. The advancements in propulsion, materials, and avionics have made supersonic flight commercially viable, despite the challenges and risks involved. On the other hand, the space industry, particularly space tourism, is a different story. While some companies like SpaceX are making strides in space exploration and space hauling, others like Virgin Galactic face challenges and skepticism from investors. The hype around space tourism may not be sustainable, and the focus should be on the long-term potential of space exploration and space hauling. SpaceX, with its advanced technology and engineering talent, is expected to lead the way in these areas. Overall, the future of travel, whether it be supersonic flights or space exploration, is an exciting and evolving field.
Discussing the Excitement and Fear of Space Travel and a New Home Buying Program: People weighed the potential benefits and risks of space travel and a new home buying program, considering both the excitement and uncertainty of each decision.
The discussion revolved around the desire to go to space and the potential financial implications of doing so. Some people expressed excitement about the prospect of a once-in-a-lifetime experience and the unique perspective it would offer, while others expressed fear and uncertainty about the cost and potential risks involved. The conversation also touched on a new program offered by Amazon and Better.com that allows employees to use their stock as collateral for down payments on homes, which could incentivize employees to hold onto their stock and provide a tangible benefit. However, the high cost and potential risks of space travel, as well as the requirement to pledge a large amount of stock and pay higher mortgage rates for the program, were also noted as significant considerations. Overall, the conversation highlighted the complex and multifaceted nature of making major financial decisions, whether it be about buying a home or traveling to space.
Employees borrow against stocks for major expenses, keeping equity holdings: Employees can defer taxes by borrowing against stocks instead of selling. Tech-driven mortgage company Better.com aims to make mortgages more efficient and affordable. Diversify investments and avoid over-investing in one entity, especially as one ages. Current low-interest rates may lead to refinancing in the future.
Employees, particularly those with significant stock holdings in companies like Amazon, are increasingly turning to borrowing against their stocks instead of selling to fund major expenses like home purchases. This strategy allows them to defer taxes on the stock's growth and keep their equity holdings intact, assuming they believe the stock will continue to rise. The speaker, an investor, shares his experience of investing in Better.com, an online mortgage company, which aims to use technology to automate and reduce the cost of the mortgage process. The investor was attracted to the company's vision of making mortgages more efficient and passing savings to consumers. He also emphasizes the importance of diversification and not over-investing in one entity, especially as one gets older. The investor also mentions the current low-interest rate environment and the potential need to refinance mortgages in the future.
Regret for not having longer mortgage terms: Low interest rates may not last, leading to potential financial implications for borrowers. Online grocery sales are projected to continue growing, impacting the grocery industry.
The speaker regrets not having longer mortgage terms due to rising interest rates. He currently has 5-year mortgages with low rates, but they are coming due next year and will likely increase to around 6%. He wishes he had taken out longer terms, such as 10 or 30 years, to lock in lower rates. This is a reminder that low interest rates may not last forever and could lead to significant financial implications for borrowers. Meanwhile, Instacart, a grocery delivery startup, had a successful Q4 with revenue increasing by 50% and gross profit rising more than 80% compared to the previous year. The company's revenue for the full year reached $2.5 billion, and it is preparing to go public in the coming months. Despite initial concerns that the COVID-19 pandemic-driven grocery delivery boom would not last, these numbers suggest that online grocery sales are here to stay. Total US online grocery sales are projected to grow at a compound annual growth rate (CAGR) of 11.7% over the next five years, increasing the online share of overall grocery spending from 11% in 2022 to 14% in 2027. This trend could have significant implications for both consumers and businesses in the grocery industry.
Grocery e-commerce on the rise due to poor retail experiences and convenience of EVs and food delivery services: Grocery e-commerce is growing due to dissatisfaction with traditional retail experiences and the convenience of EVs and food delivery services. Companies with the scale to become profitable are poised to dominate the market.
The grocery industry has seen a significant shift towards e-commerce, with companies like Uber Eats and DoorDash experiencing impressive growth in food delivery. This trend is driven in part by the poor retail experiences associated with traditional gas stations and grocery stores. The convenience and socially conscious aspects of EVs and food delivery services have made them increasingly popular alternatives. Despite initial skepticism, it appears that grocery e-commerce is here to stay, and companies with the scale to become profitable and attract top talent and capital are poised to dominate the market.
Instacart's IPO could revive the market: Instacart's strong brand and potential performance could lead to a successful IPO, reviving the market and providing liquidity and capital for existing shareholders.
Instacart's consumer-facing brand and potential for strong performance could help revive the IPO market, which has been slow to recover from the oversaturation of public offerings in the previous years. The market dynamics, rather than individual company performance, ultimately determine the success of an IPO. For companies like Panera, which are cash flow positive and EBITDA positive, the wait for the market to show institutional investor appetite is a relatively passive process. However, for cash-burning companies, the delay in an IPO can force them to raise capital in the private markets at lower valuations. Instacart, as a consumer-facing company, could be a game-changer when the market is ready for new names, providing a significant liquidity event for existing shareholders and an opportunity to raise additional capital.
Going public for growth and market transparency: Companies go public to access more capital, increase liquidity, and gain market transparency, potentially leading to a higher valuation.
Going public through an IPO is a strategic move for companies that want to access greater capital, increase liquidity for existing shareholders, and gain regulatory oversight and market transparency. This can lead to a higher valuation due to the public market's appetite for publicly traded stocks. For instance, Panera went public to fund growth and acquisitions, and Instacart is predicted to do the same in Q3 or Q4 of 2023. However, not all companies may be ready for the public markets, and some, like Virgin Galactic, may undergo restructuring before going public. Ultimately, the decision to go public is a significant one that requires careful consideration and planning.
