In this podcast, the hosts discuss topics such as Grayscale's legal victory, Goldman selling its advisory business, earnings revisions, value stocks, Nvidia's dominance and revenue growth, the Instacart IPO, and skepticism towards 5G technology.
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Quick takeaways
The upcoming Instacart IPO will be closely watched to see how investors respond to a tech company with profits but limited growth.
Instacart's unique business model presents an opportunity for additional profitability through its advertising platform.
The stock market currently shows a significant disparity between the valuation of growth stocks and value stocks, with value stocks being highly undervalued.
Deep dives
Instacart IPO: A Referendum on Profits vs Growth
The upcoming Instacart IPO will serve as a referendum on what investors value more: profits or growth. While Instacart has been profitable for five straight quarters, orders are barely growing, which raises questions about its growth potential. The company relies heavily on advertising revenue, with consumer packaged goods companies buying ad space on the app. This unique business model has positioned Instacart as a four-sided network, connecting supermarkets, users, advertisers, and delivery drivers. The IPO will be closely watched to see how investors respond to a tech company with profits but limited growth.
Instacart: The Best and Worst Grocery Business Imaginable
Instacart operates at the intersection of being the best and worst grocery business imaginable. On one hand, the convenience it provides users by delivering groceries is unparalleled. On the other hand, the high costs associated with physically picking items off shelves and delivering them make it challenging to operate with thin margins in an industry where mid-single-digit margins are considered successful. However, Instacart's advertising platform, which allows consumer packaged goods companies to customize offers and reach customers, presents an opportunity for additional profitability.
Instacart's Profitability and Challenges
Instacart has reported profitability for five consecutive quarters, indicating its ability to generate positive cash flow. However, the company's orders are not experiencing significant growth, raising concerns about its long-term potential. Instacart's business model relies on a significant markup on item prices, which helps offset the high costs associated with delivery. Additionally, the company's advertising platform has become a significant revenue stream, with a $825 million annual run rate. The IPO will provide insight into how the market values a tech company with profitability but limited growth.
The Market's Obsession with Growth Stocks and Undervaluation of Value Stocks
The podcast highlights the current extreme value-growth relationship in the stock market. Investors are enthusiastic about growth stocks, particularly in the tech sector, while showing limited interest in value stocks. The historical ratio between growth and value stocks is at an all-time low, indicating that value stocks are highly undervalued relative to growth stocks. The podcast discusses past instances where value stocks outperformed growth stocks after reaching similar levels of undervaluation. However, it also notes that value stocks have struggled to sustain long-term outperformance, leading some to question if the current underperformance of value stocks will continue.
The Unprecedented Rise of Nvidia and the Concerns Surrounding SPACs
The podcast explores the astounding rise of Nvidia in the stock market. Nvidia's data center revenue experienced a remarkable increase from half a billion dollars to 10 billion dollars per quarter, surpassing gaming revenue. The company's market capitalization has skyrocketed, with analysts revising their revenue forecasts to astonishing levels. However, the podcast also raises concerns about the SPAC structure and the potential risks associated with it. It highlights the recent case of VINfast, a Vietnamese EV stock that experienced a massive rally and subsequent sharp decline. Due to such examples, the podcast advocates for shutting down all SPAC issuance to evaluate the necessity and potential risks of each company in a systematic manner.
On this TCAF Tuesday, join Michael Batnick and Downtown Josh Brown for an all-new episode of What Are Your Thoughts and see what they have to say about: Grayscale's legal victory, Goldman selling its advisory business, earnings revisions, value stocks, Nvidia, the Instacart IPO, and much more!!
Thanks to Tropical Bros for sponsoring this episode! Use code COMPOUND20 at checkout for 20% off on everything they have, Polo's, Hawaiians, Swimsuits & quarter zips: https://tropicalbros.com/collections/animal-spirits
Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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