Discussions Around Platform Businesses and Earnings Trends

schwartzfinal
Global Head of Research
Follow Jeremy Schwartz
01/20/2021

We released two separate Behind the Markets podcasts last week, touching on two important issues for the market:

  1. Developments in content platforms like Twitter, given the recent political discourse.
  2. The latest readings on earnings from New Constructs, our data provider on core earnings, who also has released some expanded features into the credit markets. Here, we also touched on how much success is priced into Tesla, banks and other major themes for valuations

Platform Business Model Performance in 2020 

Alex Moazed believes the latest censorship from Twitter was a big strategic misstep and could enable more startup competition that impales their leadership. Twitter has “only” 30 million active daily users, and Moazed will be watching their earnings closely, as he anticipates a big drop in engagement metrics. 

Many platform IPOs came out recently in the $20 to $50 billion range, and these mid-sized platforms have a lot of upside potential, in Moazed’s view. 

The conversation also touched on gaming platform growth. Roblox is doing a direct listing after seeing their prices quadruple their expected IPO price just four months ago—this is another area of platforms that will be interesting to watch in the future.

Moazed’s thesis is that platforms are the most robust business model and 2020 was another year that emphasized their dominance.

New Constructs’ Earnings Reading

One hot topic is Tesla. Tesla recently reported profits from non-recurring regulatory tax credits they purchased from companies unable to complete production goals, but these companies—like BMW, Daimler, Volkswagen and others—are ramping up production in big way. 

David Trainer’s reverse discounted cash flow model implies Tesla will have a car production rate of 45 million cars sold by 2030, when the total electrical vehicle (EV) market size is projected to only be about 30 million cars. Today, they only produce 500,000 cars per year, and he admits that his model’s lofty forecast is not realistic.

We discussed whether it makes sense to remove intangibles or R&D spend from the calculation of earnings, but Trainer thinks that presents additional challenges. 

Lastly, we discussed Trainer’s valuation work and the reason he founded New Constructs. It backs out what type of earnings growth is factored into current prices using reverse discounted cash flow models.

WisdomTree discussed valuations across large-cap and small-cap indexes in one of our recent blog posts. 

Please listen to these two great discussions below.

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About the Contributor
schwartzfinal
Global Head of Research
Follow Jeremy Schwartz
Jeremy Schwartz has served as our Global Head of Research since November 2018 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity indexes, quantitative active strategies and multi-asset model portfolios. Mr. Schwartz joined WisdomTree in May 2005 as a Senior Analyst, adding to his responsibilities in February 2007 as Deputy Director of Research and thereafter, from October 2008 to October 2018, as Director of Research. Prior to joining WisdomTree, he was head research assistant for Professor Jeremy Siegel and helped with the research and writing of Stocks for the Long Run and The Future for Investors. Mr. Schwartz also is co-author of the Financial Analysts Journal paper, What Happened to the Original Stocks in the S&P 500? He received his B.S. in Economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Mr. Schwartz is also a member of the CFA Society of Philadelphia.