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Published Nov 6, 2023

Third Quarter Review — with Aswath Damodaran | Prof G Markets

Scott Galloway and Aswath Damodaran delve into the third quarter's market dynamics, dissecting Disney's strategic acquisition of Hulu, Tesla's complex valuation influenced by narratives and leadership, and WeWork's drastic decline, while offering insights into potential recovery strategies and the shifting financial landscape.
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  • Market Dynamics

    discusses the evolving market dynamics, highlighting a shift towards winner-take-all economics. He explains that larger companies benefit from networking effects, making it easier for them to grow and achieve higher market caps 1. This shift challenges traditional antitrust views, as these companies often offer low prices, complicating regulatory actions. notes:

    The problem with traditional antitrust is it's built on the presumption that if you build monopoly power, it shows up as higher prices and that consumers immediately suffer.

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    In terms of valuations, he finds Netflix overvalued and Disney undervalued, attributing this to market expectations and internal company challenges 2.

       

    Market Adjustments

    The discussion on market adjustments reveals a complex economic landscape. points out that despite steady interest rates from the Fed, market-set rates are rising, indicating a belief in persistent inflation without recession 3. He emphasizes the need for psychological and economic adjustments to these higher rates, particularly in the housing market. states:

    There's an adjustment we haven't made to the higher rates, and this is separate from a recession or what I think about the economy.

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    This adjustment is crucial as companies and consumers adapt to a potentially long-term high-rate environment.

       

    IPO Market

    The IPO market is undergoing significant transformation, with a decline in deal activity and a shift in company profiles. highlights that modern IPOs often involve larger companies with less developed business models, a departure from the past when profitability was more common 4. This shift reflects changes in venture capital incentives, prioritizing scale over business model development. explains:

    Bigger companies with less form business models are more likely to hit the market because of the way VC's are rewarded.

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    Instacart's journey exemplifies this trend, as it navigates the challenges of online grocery shopping and market valuation 5.

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