Valuations Don't Matter (EP.148)

Episode Summary

Executive Summary: The episode covers the market absurdities of the pandemic era: Zoom’s soaring valuation versus airlines, the rise of subscription/platform businesses, Spotify’s Joe Rogan deal, podcast monetization, bankruptcy and commercial real estate stress, and the accelerating shift to work-from-home. The hosts also debate investor behavior, Robinhood speculation, valuation’s limits in a zero-rate world, and how the crisis is reshaping consumer, media, and labor markets.

Main Topics: Zoom, airlines, and pandemic-era valuation extremes (Priority: 5/5): The hosts compare Zoom’s market cap to the five major airlines and use it as a springboard to discuss whether the market is correctly pricing 'companies of the future' versus cyclically damaged incumbents. Podcasting, Spotify, and platform economics (Priority: 5/5): A major segment explores Joe Rogan moving exclusively to Spotify, why audio platforms want exclusive content, and how podcast creators are discovering their audiences have real pricing power. Work-from-home and labor market changes (Priority: 5/5): They debate remote work’s permanence, salary adjustments by geography, the advantages of in-office networking for younger workers, and whether remote work will reshape corporate culture and hiring. Bankruptcies, malls, restaurants, and commercial real estate (Priority: 4/5): The discussion turns to Pier 1, JCPenney, J.Crew, Hertz, and speculation that retail closures and weaker real estate markets could eventually pressure banks and lending standards. Retail speculation, Robinhood, and behavioral finance (Priority: 5/5): They examine why people are trading like gamblers during a recession—free commissions, stimulus checks, boredom, and Dave Portnoy influence—while noting Robinhood users have often been right on stay-at-home names. Valuation, rates, and relative asset class attractiveness (Priority: 4/5): The hosts argue that in a zero-rate environment traditional valuation tools become less useful, while stocks appear unusually attractive relative to bonds and beaten-down sectors like energy and metals. Consumer behavior, streaming, and entertainment shifts (Priority: 3/5): They mention Netflix, dormant accounts, YouTube rabbit holes, indie films, conference-biz disruption, and how homebound consumers are changing media consumption and travel demand.

Key Arguments: Zoom’s valuation looks extreme, but the comparison may be incomplete because airlines face existential business risk while Zoom benefits from structural demand shifts. Some pandemic winners may be temporary pull-forward beneficiaries, but subscription models like Peloton and recurring platforms like Spotify have more durable economics. Spotify’s exclusive deals make strategic sense because the company can aggregate audio, improve advertiser data, and become the dominant podcast platform. Podcast hosts are realizing audience loyalty has monetary value, but brands like Barstool may be more valuable than the individual show if creators leave. Work-from-home is likely to become permanent for some workers, but it may be less favorable for younger employees who need in-person relationships to advance. Remote hiring could increase wage pressure from global competition, especially as companies compare U.S. salaries with lower-cost labor markets abroad. The recent wave of bankruptcies shows capitalism is still functioning, but commercial real estate and bank lending could still face delayed fallout. Robinhood-style trading reflects a unique mix of boredom, free trading, stimulus, and limited alternatives during lockdown; it is not just random irrationality. Valuation matters less when rates are near zero because discounted cash flow assumptions and equity risk premiums shift materially. Stocks may be unusually attractive relative to bonds in a low-rate world, but that does not mean every expensive stock is a bad investment or every cheap asset is a good one.

Data Points: Zoom market cap: $48 billion - Used to compare Zoom against the five major airlines combined. Five major airlines combined market cap: $45 billion - Southwest, Delta, United, American, and JetBlue collectively. Zoom trailing 12-month revenue: $622 million - Illustrates how fast revenue growth and valuation have diverged. Zoom price-to-sales multiple: 78x sales - Highlighted as exceptionally high relative to most Russell 1000 companies. Moderna price-to-sales multiple: 442x sales - Cited as an outlier due to vaccine expectations and extraordinary circumstances. Delta/United/American revenue: Over $40 billion each - Compared with Zoom to emphasize scale differences and industry stress. Rogan podcast downloads: 190 million downloads per month - Figure cited in discussing Spotify’s rationale for exclusivity. Spotify market cap: $35 billion - Mentioned as a comparatively cheaper platform versus its revenue base. Spotify revenue: Nearly $8 billion - Used to discuss valuation and platform economics. Call Her Daddy downloads: 12,000 to 2 million in two months - Shows how quickly podcast audiences can scale and create bargaining leverage. New York City and state tax revenue on property sales: $78.5 million in April vs. $217 million in March - Illustrates the collapse in real estate transaction activity. Facebook remote work prediction: 50% of employees could work remotely within 5 to 10 years - Zuckerberg’s comment on the future of office work. Robinhood new accounts: 3 million in one year - Used to underscore the retail trading boom during the crisis. NYSE/ETF flows: Second straight month of outflows - Cited by Eric Balchunas for core advisor-favored ETFs, an unusual pattern. Public trust in government: Near historic lows - Referenced as a long-term secular decline. U.S. COVID death count expectation: 100,000 to 250,000 - The hosts refer to this earlier estimate and discuss public reaction as deaths approach that range. Yield on long-term Treasury bonds in 1981 anecdote: 15% - Peter Bernstein story used to show that even obvious opportunities feel risky in their time. Energy and metals valuation vs. S&P 500: 0.2% relative valuation / 80% discount - GMO chart used to show extreme cheapness relative to the market. Dividend yield vs. 10-year Treasury comparison: Highest relative attractiveness since the 1940s - Supports the argument that stocks look compelling versus bonds.

Pivotal Quotes: "Zoom is worth more than the combined five market caps of them." — Michael Batnick: On Zoom’s valuation versus the major airlines. "We all know that followers are literally little capital at this point." — Transcript quotation from article discussed by the hosts: Used in the podcasting discussion about audience monetization and renegotiation power. "If interest rates stay at zero for the next 20 years, flip a coin. Valuations mean nothing." — Ben Carlson: On why traditional valuation frameworks become less useful in a prolonged zero-rate environment.

Implications: Expect more disruption in media, labor, and retail as platform winners and remote-work models gain leverage. Valuation gaps may persist if rates stay low, but investors should focus on business model durability, not just headline multiples.