Why I Don’t Like Bill Ackman’s UMG Deal

Bill Ackman SPAC is UMG. We discuss why I don't like this deal. We also discuss why i'm buying Twilio Stock right now and added it to the portfolio. And we discuss the ongoing issue of cyber security and Crowdstrike stock.

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00:00 intro
06:15 Story Fund update
12:42 Bill Ackman picks UMG for the space
23:55 Why I'm Buying Twilio Stock
38:18 Crowdstrike Stock and Cyber Security

[JosephCarlsonAfterHours]

What do you think of the deal? Do you think UMG is a good business?

[heinaye]

Comparing Spotify and UMG is like comparing radio and a music label. Sure, Spotify does have influence in what people listen to but it has less influence than radio did back in its heyday. UMG OWNS the rights to a lot of famous artists, both classic ones and the newer ones. Would you rather own the platform or content? UMG is basically Disney without the parks and the streaming channel. Spotify doesn't have leverage over UMG. It's the other way around.

[piccolojones]

Great content as always, just one point. At 26:23, she mentioned Uber because they were one of Twilio's most well known customers until 2017. It wasn't intended to be a comparison between their economic models.

[johnthethirdful]

"What do you think UMG does that's relevant today, aside from just owning a lot of music." - Joseph, this is called royalty. It's very similar to owning real estate. You can ask the same question: What does a real estate company does that's relevant today, aside from just owning a lot of real estates? Either I write a song, and I'm the owner (songwriter) and I own the rights until I die (and my children own it for 70 years after I die), OR I sell the song (and the rights) to someone. The same way, traditionally a record label financed the producing of a record, they own the recording, and get royalty. It's the same like owning real estate. So your argument is not really valid.

[nicolasminazzi]

Saying UMG doesn’t add any value is a bit extreme in my opinion. They own content which the likes of Spotify, Apple Music, etc… are nothing without. Most popular artists are still attached to a label. Granted, UMG is probably more of a value play with no crazy growth prospects but it is undervalued vs. Warner Music for example. They have recurring revenue and can keep bringing in cash with not much effort.
Spotify is actually the one investment that doesn’t get me excited. All those streaming platforms are easily interchangeable. The moat is limited in that they do not have exclusive content except for maybe a few podcasts (Video streaming is a different story because each platform has its own content attracting a specific audience and most people will end up with probably 3 video streaming services anyway). Pricing power is also very limited with giants in the game like Apple or even Amazon offering ad-free music on 2 million songs with a prime membership…
Overall neither UMG nor Spotify get me excited but UMG’s got my preference.

[vidhitnaik]

A much needed voice of reason during these trying AMC fueled times hahaha just the type of video I needed to bring me down to earth excellent content as usual! Thanks Joseph! Would it be possible for you to perhaps to a video on how you generated the cash flow required to fund your portfolios? sometime in the future perhaps? That would be really helpful!

[aaronh]

PSTH is a complex SPAC, always was. I was initially disappointed to own just a 10% stake of UMG pricing it at $40B while the last player got 20% stake while valuing it at $30B. I'm not sure PSH's shareholders or board members will provide any value to the company in urging innovation either.

I'd love to see what record label is first to enter the crypto space to award smart contracts that pay the original artist and the label for each play ever, no matter what platform, etc. But there's no indication that Ackman's team is filled with brilliant tech innovators looking to bring about such a new innovation to the company.


I do like the catalog of artists, both classics like the Beatles and Bob Dylan to newer popular artists like Garth Brooks and Taylor Swift. I can't imagine a radio or streaming platform not carrying any of these artists, even in 10 years. So royalties will continue, in any economic environment, around the world. So it's at least a safe play for cash flow. And it gets PSTH off the ticking clock for the PSTH acquisition target deadline.

If I understand the complicated SPAC filings correctly, shareholders who hold PSTH through the merger obtain 2 shares for every 9 shares of PSTH? Not entirely sure how that plays out with this "portion" of the SPAC acquisition not being the final termination of PSTH. With this in mind, I've always held that I want to own 90 shares of PSTH to eventually gain an easy 22% return, and then have 100 shares to be able to sell covered calls on in the future for even more passive cash flow.

Where it gets even more complicated is that this deal doesn't use up all of PSTH's cash. It leaves new investment opportunities still open to PSTH shareholders. Bill Ackman has other SPAC acquisition companies on the radar as he filed for a 2nd spac earlier this spring and then guaranteed to PSTH shareholders that they would get the ability to get in on any subsequent deals as if they're venture capitalists before the rest of the public. I think being a PSTH shareholder gives me access to new M&A offers in the future, a team doing all that work for me and just offering compelling deals to me before the rest of the public. That's just a feather in the cap for the next 10 years that I've got a pool of Billions of dollars and a global, educated, well-known, talented financial team giving me their best deals for as long as these SPARs come up? Why not!

If interest rates remain historically low, the next SPAC/SPAR/SPARC, whatever he wants to call it may have similar value to "buy in at NAV, accrue interest, at least able to redeem for that if you don't like the deal, and potentially have capital gains if a deal really goes wild" instead of just having that cash in a savings account, or MM account. If you could've bought PSTH at $20.00 and watched it run to $30.00 you had the option to take 50% return. And worst case scenario was you redeemed your position for $20.00 plus interest ahead of the merger. Essentially it's a savings account with potential to pop off.

The way he structures his deals so as to benefit long-term shareholders instead of quick-deals to pay the venture capitalists is unique. I've got to give him credit for that.

There are more fundamentals analysis folks breaking down profitability and cash flows of the new spin off company. I haven't had time to review it this week. But the intrinsic value of having early access to the next deals and the team and pool of capital to land another large player every so often has some extra value above some steady cash flow.

[starwreck]

At the Senate hearing on the Colonial Pipeline hack, the CEO of Colonial pipeline said that almost all of the employees who know how to manually operate the company's pipelines are either retired or dead, and newer employees don't know how. Perhaps we rely too much on computers.

[tejomukesh]

Hey Joseph, rookie investor here. I was looking at Spotify fundamentals and they’ve had very impressive sales and revenue growth over the years. However, I found that their ROIC was less than what I’d like (in fact, Spotify’s ROIC has always been negative since its IPO). I was looking to buy Spotify shares but this scares me.
Now I know there’s still excellent potential with Spotify- I use Spotify and I think it’s better than Apple Music, all my friends have been moving to Spotify, but as long as their capital allocation is not up to the mark, does revenue growth matter? Or, is ROIC not a great indicator of long term growth?
Would love to hear.

[amir]

Spotify has no leverage when UMG owns all the big name artists. Spotify doesn't own any music. They're just another marketing channel for UMG. If spotify gets big enough, they might be able to compete with UMG but it is very difficult to do so and it may never happen. UMG along with sony music and warner music group own the majority of music rights. Any famous artists that you know is owned by these three and combined, they have limitless pricing power. That said, this is not a growth company but very quality company that will continue grow single digits as far as the eye can see.

[cianchalcroft]

UMG will do well with the ability to use nft's for music in terms of concerts as well as the direct selling of music

[johnlecraw]

The problem with music streaming services like Spotify is that they need to have more or less ALL of the music esp. the popular ones. Compare that to Netflix or Disney+ who just need to have some of the movies. Many people have multiple movie streaming apps but they only have one music streaming app.

[RafitoMembroza]

Artists who really want to go big, still need labels to reach a wide distribution. Just a really few that go on their own end up having worldwide success. Royalties is an excellent business nowadays (~8% ROIC) with streaming music companies, and even better seeing that they will continue to grow for this decade. If you are long with Spotify, Apple Music or Tidal, you should also be long UMG, because they get income everytime someone is playing a song of any of those platforms. I bought more PSH shares after understanding the deal, so I think that Bill is giving good value to the shareholders, unlike others that just sell dreams and smoke.

[ana-piut]

I have learned that SPACs are not a good idea. They drop fast after the announcement. I bought Richard Branson’s 23andme and I can’t wait to sell it when it goes up.

[charlesmaher]

Not trying to be rude and I enjoy your channel but I have a question.

Why do you think you can beat the market? You trade a lot and every time you do you incur capital gains tax and trading costs. It’s also been proven that over long periods of time value will beat growth, especially for small caps. A very tiny percentage of active investors actually beat the market. What in your trading strategy are you doing to beat the increased costs and and value factors?

[MrPierrekhoury]

Hey Joseph,
I've been watching your videos for seven months now and really appreciate both of your channels and the work you put into it.
I would like to ask for your opinion on Sentinelone IPO as you are invested in Crowdstrike.
Keep up the good work.
Pierre K

[GrindThisGame]

Do you HAVE to pay up for great companies? Doesn't this reduce your overall return or leave you open to large downturns as valuations correct? I agree with many of the holdings in your portfolio but 25x sales for Twilio seems rich. Maybe in 10 years it will look super cheap. If losses were shrinking as top line grows, I could see the this making sense over time but losses are growing with top line.

[jakeartis]

Just continuing to buy Microsoft shares regardless of inflation. They keep growing at a decent rate and something that forms a good percentage of my portfolio

[johnlecraw]

What about other cyber security stocks like Fortinet or Cloudflare? Also what do you think about Snowflake? I think Buffett has invested some money into them until now. Would love to know your thoughts

[SB-yqze]

I’m curious to know why crowdstrike might be considered better than could flare for example. Would love to see a peer comparison review