Discussions Around Platform Businesses and Earnings Trends
We released two separate Behind the Markets podcasts last week, touching on two important issues for the market:
- Developments in content platforms like Twitter, given the recent political discourse.
- 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.
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.