I will cover Nvidia CEO Jensen Huang’s Consumer Electronics Show (CES) keynote on Saturday. It was not all that eventful, but there were some things to mention.

Uber and Nvidia announced a new “collaboration” this week. The two will work together to expedite development of autonomous vehicle (AV) technology for the industry. That doesn’t really sound like a company in fear of this inevitable transition. Uber will provide its world-class mobility data to bolster the training depth and timelines for Nvidia’s new Cosmos platform. Cosmos offers a managed environment for developers to access and customize models and tokens. It’s purpose-built for “physical AI” use cases such as AVs or Tesla’s Optimus bot; it helps companies access world-class assets with greater efficiency and lower cost than doing so alone. Cosmos is a somewhat similar idea to hyperscalers renting out managed computing capacity to customers… but this time for physical AI. The partnership also involves NVDA’s DGX Cloud platform, which includes the company's latest and greatest chips, networking equipment and software. Per the release, there are “more details coming later in the year.”

With the Waymo partnership already secured for Uber, this is the most encouraging new relationship Uber could announce, aside from Tesla or maybe Amazon’s Zoox. Nvidia is providing the foundation of essentially every major AV program. So? If this highly capable company sees value in partnering with the current mobility leader to expedite development, that bodes well for Uber’s perceived value proposition.

This is not an “all clear” for me to resume adding shares like a formal Tesla partnership would be. Still, it is a positive step in rebuilding my stronger conviction in this name to eventually justify making it a larger piece of my portfolio.

Uber signed an accelerated share repurchase agreement with Bank of America to expedite $1.5 billion in buybacks. This is part of its current $7 billion buyback plan, rather than in addition to. The move is a byproduct of confidence in the underlying business. Here’s what CFO Prashanth Mahendra-Rajah had to say about it:

“We are entering 2025 with considerable momentum and expect to continue scaling our free cash flows significantly, enabling us to return meaningful capital to shareholders while still investing in growth. Our stock is undervalued relative to the strength of our business.”

CFO Prashanth Mahendra-Rajah

My increased level of caution had (and has) nothing to do with 2024 or 2025 results and had nothing to do with Uber’s current financial execution at a highly compelling price. What was it based on? Uber is moving from a guaranteed market share king of ride-hailing and food delivery, to a future where that dominance is less certain. I’ll keep saying it.

I am adamant that Uber will be a large piece of the AV transition, as its drivers can supplement fleets so providers like Tesla and Waymo don’t need to overbuild from the start. Overbuilding is quite expensive for hardware like this and Uber can perfectly complement these fleets as they grow and mature. Uber CEO Dara Khosrowshahi sees it taking 10 years before 50% of Uber’s rides are autonomous; regulatory obstacles and technological hurdles such as making these cars work in extreme weather will take more time.

But what happens once that process is complete? What happens when the majority of rides in the USA and across the globe are unmanned? That’s where the uncertainty and added risk comes from here. And that’s why sentiment has turned sour for a fundamental darling. Uber is the most powerful demand aggregator on the planet in this business by two country miles. It is perfectly positioned to help professional fleets and individual cars plug into massive, stable, visible demand to raise occupancy rates and operational profitability. It’s also extremely well-equipped to take the headache out of tedious fleet management. The firm boasts routing algorithms trained on more data and time than anyone else has, and professional support (internally and through partners) for other tasks like fleet cleaning and maintenance. That’s why Waymo is exclusively partnering with Uber in Austin and Atlanta to only offer rides through that app. And while Waymo is experimenting with other business models in Miami, they’re doing so with Moove… a company that Uber owns a sizable stake in with multiple board seats.

And while all of this is encouraging, there is one risk to Uber claiming a large piece of this pie that has forced me to lighten up. That risk is one vendor, such as Waymo, Zoox or Tesla, owning the entire market. Controlling most of a ride-sharing duopoly today and the coinciding network effect is somewhat meaningless when you’re partnering with other monopolies. They can easily build their own network, based on having a product offering nobody else can match. Uber’s long term niche and value is somewhat reliant on more perfect competition unfolding in the AV race. That’s how it can become the Expedia-like demand aggregator for all AV fleets. If multiple vendors succeed here, then those vendors choosing to operate on their own will be at an inherent disadvantage vs. the others that use this reliable traffic. 

I find the monopoly or duopoly outcome to be unlikely, as many others like May Mobility and Avride are also making rapid progress in this field. They will probably also debut in U.S. cities this year. And there are more. Still, I’m not certain, as the world has never seen a transition like this one. Anyone telling you that they are 100% confident is being overzealous. I will continue to hold what I own, respect this risk, and use hints like partnerships and technological advancements (outside of Google and Tesla) as reasons to grow more confident on this name once more.

Today, 3% of holdings makes sense to me.

The Wall Street Journal published an article this week on the work Uber and Lyft (LYFT) are doing to cater to AV operators.

Per the article, Uber is developing a few new capabilities. All tools, some infrastructure-based and some feature-based, are meant to make Uber a better partner for future AV fleets. On the infrastructure side, the firm is expanding its car storage footprint for large fleets. It’s also equipping these facilities with needed data processing capacity (10x typical scale) and chargers. Furthermore, Uber is also now teaching employees how to maintain the stored hardware. Per Uber SVP of mobility Andrew Macdonald, “this level of nitty-gritty takes years to build.” For app features, it will debut tools to make autonomous cars honk on command, as well as open trunks on command. 

While I think maximizing utilization rates will always be the largest value driver for Uber with AV fleets, that doesn’t mean it cannot complement that utility with smaller add-on offerings to entice vendors. That’s what I see this news as.

This piece contains some politics. As always, I will dispassionately comment on these ideas purely from a stock market point of view. I will never pick sides. I am apolitical and that will not change, but I think this news does have financial impacts for Meta as a company. That’s what I’m here to cover.

Zuck took to Instagram this past week with some very interesting announcements. He thinks the company has gone too far with content moderation, which he partially blamed on the last few years of USA politics. He’s ready to change course. Going forward, Meta is altering the policy enforcement items that are causing the vast majority of content removal false positives. It’s shifting content filtering focus to illegal and “high severity offenses” and forgoing reviews of minor offenses unless the content has been reported by another user. It will also require “a higher degree of confidence” before cutting content going forward. Next, it will resume recommending political content on its site and will look to partner with the U.S. government on “fighting back against censorship” around the globe. In an attempt to enhance trust and transparency, Meta will cut its fact checker team in favor of an X-style community notes feature. It will also move its content moderation group from California to Texas to, in his mind, minimize the concern of internal bias. Furthermore, Meta will “simplify content policies” and greatly lighten up on censorship of highly polarizing issues like gender.

I do think it’s usually a good idea to get along with those in power, rather than making enemies out of them. That’s likely why it just added UFC President Dana White to its Board of Directors. These changes will probably be well received by the incoming administration. From a financial point of view, I see a few positives here. First, political content goes viral across X and other platforms more frequently than perhaps anything else. It’s annoying but it’s also reality. Not recommending this type of content is leaving consumer time spent on the table. This should be materially positive for engagement levels, ad impressions and average revenue per user (ARPU). 

Next, if the fact checker team is being laid off, that would also be a positive for the bottom line. It’s not clear if that’s happening, as Meta could simply be shifting these employees to other roles. Finally, moving any piece of operations to California and its 8%+ corporate state tax rate to a 0% rate in Texas should also be a small positive for profits.

Meta is adding Dana White, John Elkann & Charlie Songhurst to its board. White is a close friend of the incoming administration and the CEO of UFC. Elkann has been the CEO of Exor (holding company that owns stakes in Ferrari, The Economist, Juventus FC and more) since 2011 and the Board Chairman of Ferrari and Stellantis. Songhurst led Microsoft’s Corporate Strategy for 4 years and has been an angel investor since then in companies like Rigetti Computing.

"I've never been interested in joining a Board of Directors until I got the offer to join Meta's. I am a huge believer that social media and AI are the future. I am very excited to join this incredible team and to learn more about this business from the inside. There is nothing I love more than building brands, and I look forward to helping take Meta to the next level."

Dana White

Disney’s Hulu + Live TV arm and Fubo are combining to create a multichannel video programming distributor (MVPD) with more than 6 million total streamers/subscribers. Notably, this does not include Hulu’s scripted library and those 47 million+ subscribers. Disney will own 70% of the newly-formed entity and will control most of the board. At the same time, Fubo Co-Founder and CEO David Gandler will keep his role.

“We have confidence in the Fubo management team and their ability to grow the business, delivering high-quality offerings that serve subscribers with the content they want and offering great value.”

Press Release

Why is this happening? Fubo will gain more content beyond regional sports and some international soccer rights to attract subscribers. This rights infusion will also entail Fubo forming a new sports and broadcasting branch that will serve as another distribution arm for ESPN’s channels, SEC Network, ACC Network and more. Fubo will obtain instant scale and enjoy redundant operating cost synergies that will enable it to be immediately cash flow positive (something it was struggling with). 

It will gain significant marketing efficiency by tying its product to a brand with far higher awareness and established reach. Disney also boasts one of the best programmatic advertising tech stacks in the industry (thank you Trade Desk) and can seamlessly share software and best practices. That could raise the proportion of impressions that are biddable in real-time for Fubo. If so, the new company will enjoy materially higher cost per impression and will more meaningfully monetize its existing traffic. Furthermore, the merged entity will surely enjoy a scale-inspired leg up in bargaining for future content rights, which is highly important in this business's ability to compete with other vendors like YouTube TV.

But what does Disney get besides 70% of what should be a much healthier company? They enjoy the ability to prioritize Disney+, ESPN’s direct-to-consumer launch and Hulu’s scripted content library. Those are the best pieces of this business. Live TV (both linear and Hulu Live TV) is the lowest quality item. That’s my view and the view of several analysts who I respect in the field. Disney will maintain significant authority over Hulu’s live TV division, while gaining a dedicated team solely focused on nurturing it so that it doesn’t need to.

The products will continue to be offered separately on both Hulu’s and Fubo’s apps, while Hulu + Live TV will now be available on Fubo too. This should create significantly more bundling opportunities to drive down churn rate. Additionally, the Disney+ Bundle, which includes Hulu, Hulu + Live TV, Disney+ and ESPN+ will remain in place. As part of this, Fubo will drop legal actions against the (potential) Venu Sports entity (ESPN + Fox + Warner Brothers sports rights combined) in exchange for $220 million from the three firms. Fubo was trying to block Venu from being created, so it’s possible that this also paves the way for that happening and Disney securing even more bundling optionality. We shall see on that one. Disney will also underwrite a $145 million 2026 loan for Fubo.

I don’t hate this or love this. In a perfect world, Disney could do everything on their own, outcompete Fubo and own 100% of the economic value from pulling that off. But the world is not perfect. Content is dauntingly competitive and tight focus is needed.

I see how the news will make Fubo a real player in this field, and considering Disney owns 70% of its success, that’s encouraging. I also am a large believer in the power of the bundle. That’s how you cater to a larger portion of household interests and inspire more frequent renewals. Consider a family of 4, with two parents who don’t watch television, a daughter who loves scripted drama like The Bear and a son who loves himself some college football. If that family buys access only to the Hulu content library instead of a Hulu + ESPN bundle (coming soon), they’re far more likely to churn when the new season of The Bear ends. With the bundle, the son will advocate for renewals, even if the household has no plans to use the scripted library for several months. The more content interests a single subscription caters to, the higher the retention becomes, the higher the LTV goes and the more successful Disney is. I was worried that this news would limit Disney’s bundling flexibility. Based on the way the deal is structured, the opposite is happening.

Flutter pre-announced results for Q4 the past week. Things are going very well across the pond, but its FanDuel product in the USA had a rough quarter. This prompted a $370 million or 6% reduction to 2024 U.S. revenue forecasts. It also led to a sharp $205 million or 29% reduction to its EBITDA forecasts for the year. This weakness is coming from the exact same headwinds we’ve been discussing for DraftKings over the last several weeks: Historically unlucky NFL outcomes. For review, parlay customers flock to game favorites when forming their bets for the weekend. If these favorites are winning more frequently than they usually do, hold rates (take rates) are materially affected, which directly impacts revenue and profits.

This season has been one for the record books, in a not so good way for sportsbooks. Favorites have set a 20 year record, with 190 wins and a roughly 72% win rate. The win rate is also the second highest since 1978. In the month of December, things got even worse, with a 77% win rate for favorites… a full 5 points higher than the previous multi-decade record.

“Maybe an underdog can win a football game? That would be cool.”

Westgate SuperBook VP John Murray

FanDuel’s challenges are strongly correlated with DraftKings, as both are U.S.- based and offer very similar products. At the same time, I’m not the only one who tracks state-level data and outcomes. The institutions owning most of the shares here do the same thing, and they see the same things that I see: Low hold rates for most of Q4. That’s probably why we’ve seen DKNG go from $45 to $36 a share in a rapid, straight line. That, to me, was pricing in the weakness that Flutter just called out, and should be largely baked into assumptions at this point.

With these known, short-term headwinds in mind, if anything, this pre-release actually bodes somewhat well for Draftkings from a “better than feared” point of view. Last quarter, both companies called out bad outcomes in their data, but FanDuel took down revenue and EBITDA estimates by 1% and 4%, respectively. DraftKings proactively took revenue and EBITDA estimates down by 5% and 40%. If we assume these headwinds are hurting both companies roughly evenly (I think a safe assumption), then DraftKings already got ahead of this weakness and baked more of it into their previous guidance than Flutter did. Additionally, DraftKings hasn’t had quite as much hold rate weakness in the period that FanDuel called out (November 10th - New Year’s). Specifically, hold rates from November 10th to December 1st were 9.9% for FanDuel and 9.7% for DraftKings. For December 8th to New Year’s, FanDuel’s hold rate was 10.1% vs 8.0% for DraftKings. In a normal period, while DraftKings catches up on parlay menu options and mix, FanDuel’s hold rate is consistently about 2% higher than DKNG. So? In the 8 weeks called out in the release, DraftKings significantly outperformed on a relative basis for the first half, and performed in line for the second. All of this makes me somewhat optimistic that it appropriately guided Q4 expectations, with a layer of prudence in case bad outcomes persisted (like they did).

While this somewhat counterintuitively leaves me a bit more optimistic about Q4 being “better than feared,” I still rooting for this terrible stretch of outcomes to be punished by Mr. Market so that I can keep buying more shares of this company. DraftKings is one of two market leaders in a large secular growth industry rapidly ramping to $1 billion in free cash flow (FCF) at a triple-digit CAGR. And? At a $19 billion market cap I struggle to find more compelling deals for what I view as a quality company.

I care about rapid customer growth, discipline marketing, market share preservation, and multi-year, margin accretive compounding. If the company is going to be punished because this formula has been temporarily interrupted by bad luck… to that I say thank you. Not only because normalization will happen and luck will turn, but because customers winning more frequently for a period of time is great for long term engagement and lifetime value. In the 8K release, Flutter explicitly said customer acquisition trends remain very positive. This is an ideal temporary storm that has absolutely nothing to do with long term expectations. That’s why Flutter made it a point to reiterate their long term targets… that’s why this changes nothing about my bullishness on DraftKings.

I’ve been very close to adding shares this week, but haven’t done anything yet. As always, Max readers will know in real-time if anything changes.

Most importantly, my thoughts and prayers go out to those impacted by the horrific wildfires in California. I’m keeping my fingers crossed for Mother Nature to cooperate a bit more and for those ferocious winds to die down. Stay safe. From a less important stock market implication point of view, this is actually not super material for Lemonade. The company accepted a significant hit to its revenue growth throughout 2022 and 2023 to shed high CAT-risk parts of its insurance book. The most aggressive shedding came from home policies in California, and it does not underwrite any policies there currently.

And while I don’t think this will lead to loss ratio spikes for Q1 2025 guidance, I’m still not adding into this weakness. Lemonade went from $16/share to $52/share in a straight line. I used that as an opportunity to sell 41% of my shares (as time stamped portfolio updates indicate), as most of the share price appreciation was driven by multiple expansion, rather than rising profit estimates.

And while that expansion has reverted somewhat, the gross profit multiple is still 150% higher than it was in October. Furthermore, this doesn’t make any money on an EBITDA basis and would be burning cash if not for the synthetic agent financing agreement. The financing deal is a big positive to me, but that still must be said. Considering all of this, Lemonade is the most speculative position that I own by a wide margin. I don’t think it’s responsible to see a forward multiple that is now only 150% higher than 90 days ago instead of 300% higher as a compelling reason to accumulate more shares. I candidly don’t want this to be one of my largest holdings until it proves out profitability. I am confident that will happen and I am more confident in this leadership team every single quarter. But? I can’t let myself get too excited. I need to see these milestones actually play out or I need a lot more multiple contraction to justify adding. For now, I sit and do nothing.