This week, I explored how CBS is trading cultural curation for passive rent collection, why OpenAI’s $100 billion ad revenue target looks like a financial modeling mirage, and how Meta’s new proprietary AI model validates my bullish thesis. Let’s cue the record drop and get into this week’s cypher for the week ending April 10, 2026.

Before I dive in, a quick reminder: much of Accrued Interest’s investment content will soon be moving behind a paywall. Please subscribe today to ensure you don’t miss out on my ongoing TMT stock analysis, media industry commentary, and deep-dive financial breakdowns.

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CBS Abandons Late-Night Ambition for Rent Collection

CBS deciding to lease Stephen Colbert’s old 11:35 p.m. slot to Byron Allen’s Allen Media Group shows some incredibly small thinking. Instead of investing in original programming to grow their audience, CBS has opted to play the role of a passive landlord. They are handing over premium late-night real estate to an operator who is simultaneously selling off his own local broadcast stations just to manage distressed debt. To me, this signals a total lack of creative ambition.

• Starting May 22nd, Byron Allen will fill the 11:35 p.m. slot on CBS with syndicated episodes of Comics Unleashed.

• CBS is exchanging the role of cultural curator for passive rent collection through a time buy.

• Leasing to a smaller, independent entity like Allen Media Group indicates the perceived low value of this premium asset by larger tech or media companies.

• Allen Media Group is actively selling off its own local TV stations to pay down distressed debt, highlighting the broader struggles of the broadcast model.

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The Netflix Algorithm: Media’s Ultimate Kingmaker

Netflix is pulling off a brilliant move by bringing the YouTube sensation Danny Go! onto its platform non-exclusively. The streaming giant is leveraging its massive distribution power—specifically, that highly coveted home page—to expose proven, de-risked content to a huge, passive audience of parents. Furthermore, launching the curated, ad-free Playground app for kids shows exactly how Netflix is actively building an interactive moat. They are securing an ecosystem that parents simply won’t be able to afford to cancel.

• Netflix added the popular live-action children’s series Danny Go! to its lineup, though it remains available for free on YouTube.

• This non-exclusive licensing play leverages Netflix’s algorithmic distribution engine to expose the property to parents who might not actively search for it on other platforms.

• Netflix is also launching a curated, ad-free app called Netflix Playground featuring interactive games for children aged 8 and under.

• Unlike CBS, Netflix is using its robust revenue to build permanent, multi-modal ecosystems and interactive moats.

Navigating the Fog of War: Fundamental Focus Over Geopolitical Panic

The market finally let out a collective sigh of relief following the two-week US-Iran ceasefire, which lifted a massive geopolitical overhang. While the extreme tail risk of nuclear war seems to be off the table, I want to remind investors that pointless conflicts still exact a heavy toll on global energy prices. I’m using this recent drop in volatility as an opportunity to remind you to stay honest about what you don’t know. Let’s focus on what consumers actually do with their money, rather than getting distracted by fleeting relief rallies.

• The S&P 500 experienced a total year-to-date intraday drawdown of -7.72% amidst peak uncertainty on March 30, 2026.

• De-escalation hopes and the provisional truce helped the market recover, effectively cutting its YTD loss to roughly -3.3% by April 7. As of April 10th, the S&P has rebounded further and is basically FLAT YTD.

• Despite higher prices stinging, the American consumer remains wealthy and continues to spend.

• This macro pause is the ideal window to identify fundamentally mispriced assets instead of trading the news cycle.

• I will be more bullish going forward.

Deep Dive with Rigatoni Capital: Structural Shifts in Media & Ad-Tech

I had a fantastic time joining the Rigatoni Capital podcast recently to get into the weeds on the structural shifts reshaping the media and ad-tech landscapes. During the interview, I decoded the market’s current misunderstandings surrounding Meta’s CapEx panic, Netflix’s hidden catalysts, and the compounding earnings engine underlying AppLovin. It was a great opportunity to lay out my variant perceptions on these major players. You can see the interview above on YouTube.

The MCU Fallacy: Why Movie Hits Don’t Guarantee Nintendo’s Valuation

The Super Mario Galaxy Movie currently in theaters is an absolute smash hit, but I fear investors are getting a bit lazy by assuming a cool movie automatically equals a higher stock price for Nintendo. Some are also incorrectly assuming an unrealistic marketing bump from the films will magically correlate to massive game software sales. I think Nintendo is a fantastic company, but I need to be realistic about the business model. The stock currently trades at an earnings multiple that I candidly consider “fair”—neither particularly cheap nor overly expensive. In my recent article, I did some back-of-the-envelope math to show that even a top-tier cinematic success is pretty much immaterial to the company’s broader enterprise valuation.

• Based on a standard studio ultimate profit model, a highly favorable 50/50 split of a $1.36 billion global gross yields Nintendo roughly $250 million in take-home profit.

• This is a respectable, but not materially large boost to operating income, which is irregular and subject to a theatrical market that is clearly in secular decline.

• Nintendo currently trades at roughly 21x 2027 GAAP EPS and 18x 2028, which I think are fair multiples for a gaming business. This is classic GARP (growth at a reasonable price).

• Factors like the AI boom’s impact on component costs, tariff expenses, the post-COVID normalization of gaming trends, and the bootlegging of classic Nintendo games complicate earnings forecasting, in my opinion.

• More to come on Nintendo…

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Meta Protects its Margin-Driver with Muse Spark and CoreWeave

Meta’s stock saw a nice surge after the company unveiled its first natively multimodal AI model, “Muse Spark,” alongside a massive $21 billion cloud capacity deal with CoreWeave extending through 2032. By keeping Muse Spark strictly proprietary—a sharp departure from their open-source Llama heritage—Meta is sending a clear signal: AI is now a core margin-driver that must be fiercely protected. They have the sheer scale required to spread these massive infrastructure costs across billions of users, ultimately optimizing their core advertising machine.

• Meta announced a $21 billion agreement with CoreWeave to secure AI cloud capacity through December 2032.

• The highly compensated Meta Superintelligence Labs (MSL) team released the “Muse Spark” model.

• Unlike previous models, Muse Spark is kept strictly proprietary to protect it as a core margin-driver.

• Meta’s significant AI investments are actively boosting the profitability and efficiency of its core advertising business.

The Financial Mirage of OpenAI’s $100 Billion Ad Dreams

OpenAI is aggressively revising its internal forecasts higher, projecting that advertising revenue will hit over $102 billion by 2030 based on a global ARPU target of $60. Anyone with a corporate FP&A background recognizes this classic hockey-stick modeling maneuver immediately—it’s designed to justify an astronomical private valuation. To actually achieve this, OpenAI would have to match Meta’s highly-optimized, two-decade-old global monetization efficiency across lower-monetizing international regions, which is a massive stretch in my book.

• OpenAI leadership projects ad revenue will leap from roughly $11 billion in the near term to over $102 billion by 2030.

• This projection relies on generating a global average revenue per user (ARPU) of approximately $60 by 2030.

• To reach this volume, OpenAI must scale heavily into the Asia-Pacific and “Rest of World” regions, where digital ad rates are much lower.

• For comparison, Meta’s blended global ARPU in 2025 was just $57.03 across its massive, two-decade-old ecosystem.

Uber’s Asset-Light Approach to the Autonomous Future

While other tech giants are busy sinking billions into CapEx, Uber is quietly securing its future intrinsic value through strategic, asset-light partnerships. Their recent deal with MOIA (a Volkswagen Group company) to deploy autonomous “ID.Buzz” vehicles in LA by late 2026 illustrates this perfectly. Uber is positioning itself as the go-to “brain” handling the routing for the autonomous future, allowing them to pocket high-margin fees without taking on the depreciation nightmare of actually owning the physical fleet.

• Uber partnered with Volkswagen Group’s MOIA to deploy autonomous “ID.Buzz” vehicles in Los Angeles by late 2026.

• This capital-light strategy allows Uber to plug third-party robotaxis into its existing network without manufacturing or maintaining the fleet.

• Uber is also expanding its AWS deal to run its complex ride-matching algorithms on Amazon’s custom Graviton4 and Trainium3 chips to lower backend infrastructure costs.

• At $70 per share, Uber trades at an inexpensive 16x consensus 2027 GAAP EPS.

CONCLUSION

I want to send a huge THANK YOU to all the new readers and subscribers out there.

If you found any of my research helpful, please like and share so we can help grow the Accrued Interest community! I will continue to provide more tactical Daily Updates next week, alongside new stock deep dives to strip away the noise and provide the real-time signal that sophisticated readers demand.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Please subscribe to read the rest of the Accrued Interest Daily Update - for April 9, 2026.

Before I dive in, a quick reminder: Accrued Interest’s daily updates will soon be moving behind a paywall. Please subscribe today to ensure you don’t miss out on my ongoing TMT stock analysis, media industry commentary and deep-dive financial breakdowns.

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A) Meta’s latest cloud deal and “Muse Spark” model release validate my core bullish thesis.

Meta stock is popping today, up +3% to $633, following the dual announcement of their new “Muse Spark” model and a massive $21 billion cloud capacity deal with CoreWeave. If you have been reading Accrued Interest, you know my ongoing thesis: Meta is a market-leading growth stock that the market has occasionally mispriced due to short-term panic over capital expenditures.

Meta has officially announced a $21 billion agreement with CoreWeave to secure AI cloud capacity all the way through 2032. Simultaneously, they have taken the wraps off “Muse Spark,” which is the first natively multimodal AI model to emerge from their highly compensated, elite Meta Superintelligence Labs (MSL) team. This represents a significant strategic pivot for the company. In a departure from their open-source Llama heritage, Meta is keeping Muse Spark strictly proprietary. This signals a fundamental shift from treating AI as an open ecosystem play to recognizing it as a core, proprietary margin-driver that must be fiercely protected.

I look at this CoreWeave deal as a defensive play. Meta is basically locking up the compute power they need for the next decade. Sure, it means CapEx is going to stay high for a while, but here is the difference: Meta has the scale to pull it off. Meta can spread those massive costs across billions of users in its core media business without breaking a sweat—something smaller tech startups just can’t do.

Artificial intelligence is fundamentally upgrading the invisible plumbing of Meta’s massive advertising machine.

Meta’s massive capital expenditures are a calculated bet by Mark Zuckerberg. Management clearly sees these AI investments directly boosting the profitability of their core advertising machine.

By optimizing infrastructure and scaling ad efficiency, Meta is turning high CapEx into a closed-loop engine for revenue growth, proving that market concerns over their spending were misplaced.

Relevant Accrued Interest Articles to Read on :

2026.03.27: Back to the EBITDA: Decoding Meta’s $1,116 Executive Playbook

2026.03.25: Zuckerberg’s Middle-Age Metabolism: Trimming Fat to Fund Superintelligence

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B) OpenAI’s projection of $100 billion in ad revenue relies on an audaciously aggressive global ARPU target.

While Meta is proving its model today, the Information reported this morning that OpenAI is aggressively revising its long-term financial forecasts higher. Internal projections show OpenAI leadership expects advertising to eventually become their largest revenue driver. They are modeling a massive leap from roughly $11 billion in the near term to over $102 billion by 2030. To justify this figure, OpenAI is banking on generating a global ARPU (average revenue per user) of approximately $60 by 2030.

Anyone who has ever worked in a corporate FP&A (financial planning and analysis) role recognizes EXACTLY what is happening here. Pushing a massive, hockey-stick growth curve out to the end of the decade is a classic financial modeling maneuver. It is designed to justify an astronomical private valuation today, buying leadership breathing room while distracting from the slow and bumpy rollout of their early advertising products.

I did some back-of-the-envelope math, and to hit $100 billion in ad revenue, OpenAI cannot mathematically rely on skimming the cream off a premium, highly lucrative North American user base. To get the sheer volume of impressions required, OpenAI must scale heavily into the Asia-Pacific and “Rest of World” regions.

Matching Meta’s two-decade-old global monetization efficiency in under five years is a financial modeling mirage.

This is where the reality of digital advertising mechanics throws a wrench into OpenAI’s overly-promotional pitch deck. Once a platform expands globally, its geographic mix inevitably begins to mirror the broader internet population, meaning lower-monetizing international regions will drastically drag down the blended global ARPU.

(Sidebar - This is exactly like the “empty calorie” growth problem I wrote about in my February Pinterest deep dive. You can read that here: Pinterest ($PINS) Q4 Earnings: The “Value Trap” Trap Door Opens)

Let’s look at Meta’s actual, reported geographic ARPU data from 2025 to understand why OpenAI’s forecast is such a massive stretch. In the US and Canada, Meta generated roughly $78 billion in revenue in 2025. When you divide that by their active user base in the region, it translates to an annualized ARPU of over $298 per user. If OpenAI’s user base were strictly limited to Western, high-income professionals, a $60 ARPU would actually be highly conservative. However, that total market is mathematically capped. The easy monetization region is already fully saturated, meaning there simply is not $100 billion of unallocated, high-margin ad spend sitting in North America waiting for OpenAI to claim it.

Now, when you evaluate Meta GLOBALLY, the picture changes entirely. In total, Meta generated roughly $135 billion in 2025 with a blended global ARPU of just $57.03. Reaching this global benchmark requires balancing those highly lucrative, premium US users with hundreds of millions of active users in international growth markets where digital advertising rates are literally pennies on the dollar.

By targeting a $60 global ARPU for the year 2030, OpenAI is implicitly telling the market that their completely unproven search-and-chat advertising network will somehow achieve parity with Meta’s highly-optimized, two-decade-old global monetization engine in less than five years. Scaling an ad-exchange requires building a global sales infrastructure, developing robust attribution tech, and convincing sticky advertisers to move their budgets. Assuming OpenAI can reach instant maturity is a huge stretch, and long-term investors should view that $100 billion ad revenue target with intense skepticism. I will leave it up to the readers whether or not they are willing to give Sam Altman the benefit of the doubt.

Relevant Accrued Interest Articles to Read:

2026.03.12: The Pokémon Theory of Media Investing

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C) Uber is widening its autonomous moat in Los Angeles without sinking billions into CapEx.

While Meta is spending its way to dominance and OpenAI is forecasting its way there, Uber is executing a capital-light strategy to protect its intrinsic value. Uber just announced a partnership with MOIA (a Volkswagen Group company) to deploy a fleet of autonomous “ID.Buzz” vehicles on the Uber platform in Los Angeles by late 2026.

This is a big reason why I think people are still getting Uber wrong. For years, the bears argued that Waymo or Tesla would just build their own apps and make Uber obsolete. But that’s not what’s happening. Instead, Uber is setting itself up as the go-to, asset-light brain that handles the routing for the entire autonomous future.

By letting Volkswagen handle the actual hardware, Uber doesn’t have to sink billions into manufacturing or maintaining a physical fleet. They’re basically just plugging third-party robotaxis into their massive, ready-made network of riders.

As self-driving cars take off, this strategy lets them pocket high-margin routing fees without getting stuck with the “depreciation nightmare” of owning the cars themselves.

Pivoting to Amazon’s custom AWS silicon is a heavy margin-protection play for Uber’s compute-intensive future.

Alongside the VW news, it was announced that Uber is expanding its Amazon Web Services (AWS) deal to run its complex ride-matching algorithms on Amazon’s custom Graviton4 and Trainium3 chips. As Uber scales its autonomous network, the compute power required to match riders, optimize routes, and predict pricing in real-time will skyrocket. By migrating away from standard, expensive commercial GPUs and utilizing Amazon’s custom-built silicon, Uber can lower its backend infrastructure costs.

As value investors, we must be patient. These moves are not going to show up in next quarter’s EPS, and they won’t make for flashy consumer headlines. However, they fundamentally improve the long-term intrinsic value of the business. Uber is widening its moat exactly the way long-term value investors should want them to. Currently $70 per share, Uber is still an inexpensive stock, trading at 16x consensus 2027 GAAP EPS. I remain bullish despite the stock being down -13% YTD.

Relevant Accrued Interest Articles to Read on :

2025.12.21: Why Uber Will Outperform in 2026 ($UBER)

Conclusion

I want to send a huge THANK YOU to all the new readers and subscribers out there. If you found any of my research helpful - please like and share so we can help grow the Accrued Interest community!

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Please subscribe to read the rest of the Accrued Interest Daily Update - for April 8, 2026.

Note to Readers: I am aggressively expanding my publishing cadence to match the velocity of this market. My objective is to grow Accrued Interest into a premier TMT research platform for value investors, delivering a high-alpha mix of both FREE and PAID intelligence. These updates will eventually transition behind a paywall; I urge you to subscribe now to lock in uninterrupted access and secure preferential pricing before the window closes.

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A) Trading the US-Iran Ceasefire Requires Honesty About What You Do Not Know

One of the most powerful lessons I have learned trading the markets for over 20 years is that you have to be honest with yourself about what you don’t know. I am more bullish about the market today than I was yesterday because it is clear that the President does not have the intestinal fortitude to see the S&P 500 stay down. While the tail risk of nuclear war appears to be off the table, I want to remind everyone that this pointless war caused energy prices to spike all over the world and there is still a cost to be paid for all that - even if it does not show up in your portfolio.

Most of us assumed the most likely ending to this situation was TACO, (President Always Chickens Out). To give these numbers some context, the S&P 500 entered 2026 following a close of 6,845.50 on December 31, 2025. Amidst the peak uncertainty of the conflict with Iran, the real intraday low for the year occurred on March 30, 2026, when the index touched 6,316.91. This represents a total year-to-date intraday drawdown of -7.72% from the 2025 year-end close.

While the market fell more than -7% at its worst point, things began to turn around immediately afterward. The “fog of war” began to clear in early April as de-escalation hopes grew, culminating in the two-week ceasefire.

By the market close on April 7, 2026, the S&P 500 had recovered to 6,616.85, effectively cutting its YTD loss to roughly -3.3%.

So while the market is ripping higher today, realize that the market is basically back to where we were at the beginning of the year in aggregate.

To be clear, I do not think the U.S. will have a recession. The American consumer has shown that they are wealthier than they care to admit, and while higher prices sting, consumers are still spending. As a fundamental analyst, I am going to focus on what people DO with their money and not what they say. Do not get distracted by the relief rally. This is the exact window to identify fundamentally mispriced assets and evaluate true business drivers while the rest of the Street is busy trading the news cycle.

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B) My Rigatoni Capital Interview Reveals What the Market is Missing on META, Netflix & AppLovin

I am excited to announce that my new interview on the Rigatoni Capital podcast is officially live! I got into the weeds on the structural shifts happening across the media and ad-tech landscape. You can watch the full interview on YouTube here: “META, Netflix & AppLovin: What the Market Is Missing | Simeon McMillan”.

• Netflix, : Uncertainty is your friend because the market is mispricing the Warner Bros. Studio integration, and the recent Sony pay-one deal is a massive hidden catalyst.

• Meta : Decoding the CapEx panic reveals that Mark Zuckerberg has earned the market’s trust to spend, and massive, under-the-radar monetization buckets are forming in WhatsApp and AI agents.

• AppLovin : The constant barrage of short reports is just noise, and the underlying earnings engine continues to compound as SMBs ramp up retail spend in Q2.

It is always a pleasure speaking with Colin. Please check him out and follow Rigatoni Capital.

Relevant Accrued Interest Articles to Read:

2026.03.27: Back to the EBITDA: Decoding Meta’s $1,116 Executive Playbook

2026.03.25: Zuckerberg’s Middle-Age Metabolism: Trimming Fat to Fund Superintelligence

2026.03.23: The Victor of the Streaming Wars: Why Netflix is a $120 Stock

2026.02.13: AppLovin ($APP) Q4-25 Earnings Review: The “Cash Machine” vs. The Market Fear

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C) Nintendo’s ($NTDOY) Box Office Success is a Work-in-Progress (WIP) “Halo Effect” Reality Check

I went to see The Super Mario Galaxy Movie last week. It is a massive, undeniable hit. However, I am using this Daily Update to share my WIP thoughts because I am seeing a lot of lazy analysis from value investors and Substack writers who assume that cool movies automatically equal a higher stock price.

Let’s look at the actual numbers. Nintendo (Japanese Ticker: 7974) is currently trading at roughly 25x 2026 GAAP EPS and 23x 2027 estimates. While the console cycle isn’t as lumpy as it historically was, 25x is absolutely not cheap.

As I described in my article last month on The Pokémon Theory of Media Investing - when I look at a new stock, I want to get a sense of whether there is a mispricing in the earnings estimates, the earnings multiple, or both. This situation looks like if there is upside, it would need to come on the earnings side. As a rule of thumb, I typically use a hard ceiling of around 30x tops for the multiple on a “high-quality” company. For me to believe a stock is worth more than 30x, I need to have conviction that consensus earnings expectations are materially too low. In Nintendo’s case, I’m not quite there yet.

A common error in evaluating media companies that put out theatrical releases - is conflating the correlation between gross box office receipts with corporate net income. Nintendo co-financed the original 2023 Mario film with Universal Pictures and utilized Illumination for physical production. To model the actual cash impact to Nintendo, I must run the original film’s $1.36 billion global gross through a standard studio ultimate profit model.

Assuming a blended 55% domestic and 40% international rental yield, that leaves about $600 million in net theatrical rentals returning to the studios. Adding $150 million from home entertainment and $100 million from pay TV licensing brings total net studio revenues to $850 million. From there, I subtract a $100 million production budget, $150 million for global Prints & Advertising, $60 million for backend participation, and $40 million for overhead and interest.

This leaves a total net profit pool of $500 million. Assuming a highly favorable 50/50 split with Universal, Nintendo’s ultimate take-home profit from a top-3 all-time animated film is approximately $250 million. For a company generating $10 billion to $12 billion in net sales and holding over $15 billion in cash, a $250 million cash injection spread over 18 months of film accounting statements represents less than 3% of total revenue. It is highly profitable on a unit basis, but immaterial to the broader enterprise valuation.

According to TIKR, consensus expects revenue to grow about 9% YoY in both 2027 and 2028. I do not have a strong view on whether or not that is too low or too high, but I acknowledge there are other issues at play here.

Backwards compatibility complicates the software attach rate: It is difficult to model the video game cycle when the console life cycles get longer and longer. The Switch 2 is different from past cycles because it is the first Nintendo game console that is backwards compatible to the prior system. In past cycles when a new Nintendo system came out, none of the old games worked. Now you can still play Switch 1 games, creating uncharted territory for forecasting new software sales.

Post-COVID normalization limits the permanent gaming baseline: Nintendo now has more online sales than it did before, acting as a laggard to the industry in this way, but also we are now more than 5 years after COVID. The boom in gaming subsided and did not lead to a permanently higher pace of gaming.

The AI boom creates a component cost elephant in the room: How much can Nintendo pass on the cost of more expensive components for the Switch 2, most notably higher memory prices due to the AI boom?

The MCU fallacy proves movie success is rarely replicable: A true value investor must take into account all of these things about Nintendo. It is not simply a matter of cool movies resulting in a higher stock price. It is far from certain that a third Mario movie would perform as well, and how long it would take to come out. And this movie tells me really nothing about how a Zelda (announced in development), a Donkey Kong, Star Fox, or any other movie would do. The success of the Marvel/Disney MCU was truly 1 of 1. Many companies, such as DC (Warner Bros) and Hasbro with Transformers, thought they had scalable cinematic universes and it did not pan out.

Conclusion: Fundamentals Dictate Outcomes Over Fantasy Narratives

Whether it is looking past geopolitical headlines, ignoring short-seller noise on ad-tech, or doing the actual gross-to-net math on a Nintendo movie, the core philosophy remains the same: follow the growth in intrinsic value, not the headlines.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Please subscribe to read the rest of the Accrued Interest Daily Update - for April 7, 2026.

Note to Readers: Spring Break is over, and I am aggressively expanding my publishing cadence to match the velocity of this market. My objective is to grow Accrued Interest into a premier TMT research platform for value investors, delivering a high-alpha mix of both FREE and PAID intelligence. While deep-dive equity analysis remains my North Star, I am introducing these tactical daily updates to strip away the noise and provide the real-time signal that sophisticated readers demand. These updates will eventually transition behind a paywall; I urge you to subscribe now to lock in uninterrupted access and secure preferential pricing before the window closes.

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A) Byron Allen’s Late-Night Lease - The Small Thinking of a Landlord

Starting May 22nd, the day after The Late Show wraps its finale, Byron Allen will fill the 11:35 p.m. slot with back-to-back episodes of his syndicated series Comics Unleashed. He will also maintain the 12:37 a.m. hour for his comedy game show Funny You Should Ask. While CBS framed the cancellation of Stephen Colbert as a purely financial decision, the move is surrounded by controversy, with critics suggesting the cancellation of a prominent Trump critic was a strategic maneuver to curry favor with the administration during the Paramount-Skydance merger review.

CBS Trades Cultural Curation for Passive Rent Collection

Regardless of the political backdrop, CBS has completely abandoned the role of cultural curator to become a passive landlord. Instead of spending an estimated $35 million to $40 million to produce a late-night show, CBS is now being paid for the airtime through a time buy. By choosing to lease the time slot instead of investing in original programming, they are telegraphing to the market that they do not value this real estate and have zero strategy for audience growth.

This lack of vision aligns exactly with what I noted last month in my March article - Dead on Arrival: 8 Reasons the Paramount-WBD Merger Will Fail”

“David Ellison is a CEO who is 10 years too young, with a strategy that is 10 years too late to save Paramount shareholders from subpar returns,”

The Buyer’s Scale Reveals the Asset’s True Value

If CBS was determined to execute a time buy, why lease to a smaller, independent entity like Allen Media Group? If the slot still held premium value, shouldn’t a much larger media or tech company have been willing to pay a significantly higher premium for national network clearance? The fact that AMG is the buyer speaks volumes about the PSKY’s perceived value of the asset.

Handing the Keys to a Liquidating Broadcaster

The irony here is that CBS is handing the keys to its flagship late-night property to an operator who is actively liquidating his own broadcast footprint to survive. As I wrote in my June 2025 piece, “Byron Allen Selling TV Stations: Ominous Sign for Broadcast,” it is never promising when one of the biggest cheerleaders of local TV over the last 20 years decides to exit. After years of aggressive roll-up attempts, Allen was forced to hire Moelis & Company to shop his 28 local TV stations to pay down his distressed debt. Last August, he officially offloaded 10 of those stations to Gray Media for $171 million. The takeaway is clear. CBS is combining its melting ice cube of an audience with an independent operator’s melting ice cube of a business model.

Accrued Interest Take: I still expect $PSKY to underperform the S&P 500, even after “winning” $WBD.

Relevant Accrued Interest Articles to Read on and :

2026.03: Dead on Arrival: 8 Reasons the Paramount-WBD Merger Will Fail

2025.06: Byron Allen’s AMG Selling TV Stations: An Ominous Sign for Broadcast Media

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B) Netflix, Danny Go!, and the “Playground” Moat

Yesterday, the popular children’s show Danny Go! arrived on Netflix. However, this is not a traditional poaching maneuver where Netflix buys exclusivity to lock out competitors. Danny Go! will still be available free on YouTube. This non-exclusive licensing highlights Netflix’s true distribution superpower: its home page. Netflix can take a property with 4.5 million subscribers and 5 billion views and expose it to a massive, passive audience of parents who may have never actively searched for it on YouTube. It is a win-win. Netflix gets proven, de-risked content to keep its subscribers happy, and the creators get incremental reach.

The Netflix Home Page is Still Media’s Ultimate Kingmaker

I have seen another version of this playbook before, albeit for adult content. Netflix took Cobra Kai, a show that originated as a YouTube Original, and turned it into a massive global hit simply by running it through the Netflix algorithmic distribution engine. While the demographic is completely different, the mechanism is the exact same. Netflix’s homepage is the most powerful kingmaker in media.

Building an Interactive Moat Through the Playground App

Netflix is also launching a curated, ad-free Netflix Playground app for kids aged 8 and under, featuring interactive games with characters from Peppa Pig to Sesame Street. This highlights the exact opposite of CBS’s strategy. Kids’ content is currently the number two genre on Netflix, with six out of the top ten most-watched titles falling into this category. Instead of renting space to cut costs, Netflix is using its robust revenue streams to build an interactive moat.

Accrued Interest Take: I expect $NFLX to outperform the S&P 500, at $100 per share it trades at 26x 2027 GAAP EPS and 22x 2028.

Relevant Accrued Interest Articles to Read on :

2026.03: The Victor of the Streaming Wars: Why Netflix is a $120 Stock

2026.01: Netflix Q4 2025 Earnings Recap

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Conclusion: Ecosystems vs. Puddles

I am watching The Pokémon Theory of Media Investing play out in real-time. Netflix leverages its powerful cash flow to build permanent, multi-modal ecosystems. CBS, meanwhile, is extracting value from a declining medium, trading prestige for a guaranteed bottom line. You cannot shrink your way to dominance. Renting out your best assets might balance the books today, but it ensures irrelevance tomorrow.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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I. Introduction: Ignoring the Noise at $523

Today, we are going back to the fundamentals. We are going to look at the massive new executive compensation agreements Meta just filed. Nobody can predict the future, but I am going to show you how to read these legally binding SEC filings so we can understand the precise financial targets Meta’s own leadership is betting their wealth on hitting in the next couple of years.

It has been a brutal week to be a shareholder.

The stock is down 13% over the last week, down over 20% year-to-date, and down 13% over the last year, currently trading around $523. Just a few days ago, when the stock was hovering near $590, I published my deep dive, Zuckerberg’s Middle-Age Metabolism: Trimming Fat to Fund Superintelligence. Since then, the market has decided to panic.

The selloff is being driven by a cocktail of headline fears. Meta recently lost a court case regarding social media harm to kids, and now some are wondering if this is the company’s ‘Big Tobacco moment’. The Wall Street Journal just published a piece noting that Meta agrees to fund local energy infrastructure for a Louisiana data center. To some investors that screams one thing: runaway CapEx.

It is incredibly frustrating to see a sea of red in your portfolio. But when you have spent enough time in corporate finance looking at how these massive transitions are actually modeled, you learn to spot these headline mirages.

These are surface-level, emotionally driven reactions vastly overstated by the market, and ultimately temporary. Nobody can time the absolute bottom of a stock chart, which is why we must ignore the noise and focus purely on the fundamentals—specifically, what the board of directors is actually doing with their money.

A quick housekeeping note: Accrued Interest is currently 100% free. However, I will soon be moving highly technical, valuation-based deep dives like this one behind a paywall. Subscribe today to ensure you don’t miss the real alpha.

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II. The Masterclass: How to Read a Form 4 (The Susan Li Example)

Finding the Right Document

Whenever a corporate insider receives a stock grant, the SEC requires them to file a Form 4: Statement of Changes in Beneficial Ownership. Most retail investors read a blog headline that says a CFO received a bonus and scroll past. But the actual alpha is buried in the tables of that document. If the CFO is accepting a compensation package that requires a massive stock price surge to get paid, you know the internal financial projections support that reality. Let’s pull up CFO Susan Li’s recent Form 4 mega-grant and walk through it.

Filtering Out the Noise

First, you need to skip the noise and go straight to Table II.

When you open a Form 4, you will see two main boxes. Table I is for “Non-Derivative Securities,” which are usually standard Restricted Stock Units that vest simply for showing up to work. We don’t care about those. You want Table II: Derivative Securities. This is where stock options live. When a board wants to incentivize a moonshot, it happens here.

Locating the Price Target

Next, you need to find the Exercise Price in Column 2. This column tells you the board’s precise definition of success. It is the specific price the stock must reach for the executive to cash in. On Susan Li’s filing, you don’t just see one number; you see a ladder. The absolute floor target sits at $1,116.08. The ceiling tranche maxes out at $3,727.12. The board is explicitly telling the CFO that she must get the stock to at least $1,116, or she gets absolutely nothing from this tranche.

The “Do or Die” Clock

Then, you check the Expiration Date in Column 6. This is the timeline. For this grant, the expiration is listed as March 19, 2031. If Meta’s stock hasn’t hit those price targets by that date, these options expire completely worthless. It reveals the absolute maximum timeline for their AI supercycle to mature.

The Secret in the Footnotes

The tables give you the what, but the footnotes at the very bottom of the document give you the how. The footnotes reveal a hidden Price Vesting Period that runs strictly through February 14, 2028. The board didn’t just give management until 2031; they put a massive early-action accelerator in place for early 2028. They also included a secondary buffer period extending to August 15, 2030, for any options that missed the early 2028 accelerator, but the primary incentive is built around that two-year sprint. This proves management is operating on an incredibly urgent timeline to drive multiple expansion.

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III. Reverse Engineering the $1,116 Floor Target

The 50% Annualized Hurdle

For the sake of this exercise, let’s be conservative. We are going to ignore the $3,700 moonshot—we will revisit that $9 Trillion market cap scenario in a future article—and focus strictly on what it takes to hit that primary $1,116 floor target by February 2028.

What we are doing here is working backward from the board’s required share price to see what the actual income statement needs to generate to support that valuation.

Let’s look at the Compound Annual Growth Rate reality. To get from today’s panic-induced $523 share price to $1,116.08 in roughly 1.88 years, by mid-February 2028, requires a ~50% annualized return.

How does a company already valued at over $1.3 trillion actually compound at ~50% for two years? We have to reverse-engineer the math. I am going to start with what I believe is a standard 25x P/E multiple for Meta.

Working Backward from the P/E Ratio

1) Assuming a 25x multiple, hitting a $1,116 share price requires roughly $44.64 in Earnings Per Share (EPS). For context, Meta’s 2025 Diluted EPS was $23.49. Management is modeling to nearly double their per-share profits in two years.

2) Factoring in Meta’s historical habit of retiring shares via buybacks, which would reduce the share count from 2.57 billion down to roughly 2.48 billion by 2028, Meta needs to generate roughly $111 Billion to $115 Billion in Net Income. Again, for context, Meta’s 2025 Net Income was $60.5 Billion. They need to find an additional $50 Billion or more in annual profit.

To figure out what the top-line needs to look like, we have to gross that net income up by Meta’s forecasted tax burden.

3) Management has guided for a forward tax rate of about 15%. To clear $112 Billion in net income after Uncle Sam takes his cut, Meta needs to generate roughly $132 Billion in Earnings Before Taxes (EBT), which essentially mirrors our Operating Income target. That is a massive jump from the $83.2 Billion in operating income they generated in 2025.

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IV. The Revenue Bridge to $315 Billion (And Beating the Street)

The Margin Disconnect with Wall Street

4) To generate $132 Billion in operating profit at their current 42% operating margins, Meta requires a revenue base of roughly $315 Billion by early 2028 (late 2027). This is a huge leap from the $201 Billion they did in 2025 - but not that far ahead of current Street estimates. Let’s discuss further.

5) If you look at consensus estimates, the Street expects Meta to grow well this year (2026), but then decelerate down to 17.89% in 2027 and 16.36% in 2028. The Street expects roughly $296 Billion in top-line revenue in 2027.

6) To hit the $315 Billion target required for their payout, management’s internal models imply sustaining roughly 25% annualized revenue growth. They are structurally incentivized to beat Wall Street consensus by nearly $20 Billion. I think this is very reasonable!

Next - let’s model how revenue can grow to hit these targets. This is just a thought exercise to see what is possible, but when you break down the segments, you should realize this is a very achievable outcome the market is overly discounting in the P/E multiple.

Squeezing Value from the Core Ad Engine

7) First, we look at the Core Ad Engine. This baseline grows through a mix of volume (ad impressions) and pricing power. I am modeling 12% to 15% YoY impression growth, driven by AI recommendation feeds keeping users scrolling longer on Reels, which matches their recent year-over-year ad impression growth.

Combine that with 10% to 12% YoY pricing growth. Historically, higher volume meant cheaper ads. But as tools like Advantage+ and Agentic AI drive significantly higher Return on Ad Spend (ROAS), Meta should be able to charge advertisers a premium.

The $20 Billion “Other Revenue” Bridge

8) Then, we have the “Other Revenue” kicker. This part is the most speculative part of my analysis, but we need this Other Revenue bridge to fill the gap to our total $315 Billion target.

Meta’s “Family of Apps - Other Revenue” segment is currently a $3 Billion baseline. Management’s 2028 trajectory likely relies on scaling this to $15 Billion to $20 Billion. Here are the buckets where Meta can potentially generate this revenue.

The first bucket is what I am calling Meta’s communication toll-bridge, which could reach $8 Billion. This involves scaling the WhatsApp Business API by penetrating the US and European enterprise markets, transitioning companies away from legacy SMS and standard email marketing.

The second bucket is AI Agent SaaS, potentially a $6 Billion to $7 Billion business. This means charging a monthly subscription or a premium per-resolution fee to provide autonomous AI agents that handle customer service and sales directly on their platforms, replacing human reps.

Finally, the third bucket is In-Thread Commerce, adding another $2.5 Billion to $3 Billion. Meta can take a small toll on Gross Merchandise Value for transactions fully executed by their AI agents within a WhatsApp or Instagram DM thread.

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V. The Balance Sheet Evolution & The Metabolic Swap

The Data Center Depreciation Hit

9) I know the market is worried about expenses right now, especially with massive CapEx numbers hitting the headlines. But I see a clear, highly achievable path for Meta to keep their margins intact. That is the most important takeaway of this entire exercise: Meta does not need to sacrifice its profitability to fund its future.

Yes, the CapEx bill is huge. Spending $115 Billion to $135 Billion on infrastructure means depreciation expenses will spike higher in the future. If we assume they spend $120 Billion and depreciate it straight-line over an extended 4.5-year useful life, they are adding an incremental $15 Billion to $20 Billion in annual depreciation to the income statement by 2028.

How the “Metabolic Swap” Saves Margins

To protect the bottom line, management has structured the income statement to absorb this CapEx shock through what I call the “Metabolic Swap“ I alluded to in my last Meta article. While depreciation balloons by $20 Billion, Meta is offsetting it almost immediately in other areas.

First, there is Reality Labs’ surrender. By trimming the fat in Reality Labs—scrapping the lowest-performing hardware projects and shrinking that annual bonfire from $16 Billion down to a baseline of $5 Billion to $6 Billion—they add roughly $10 Billion to $11 Billion directly back to Operating Income.

Second is workforce reduction. Meta is reportedly looking at a 20% reduction in workforce. Cutting roughly 13,400 heads at a fully loaded cost of $275,000 per employee yields roughly $3.7 Billion in immediate, hard cash operating expense savings.

What we are seeing is Meta swapping human payroll and speculative VR hardware for hard AI infrastructure. The net margin impact is largely neutralized.

By doing this, operating margins can stay intact at around ~42%, allowing that massive $315 Billion in new revenue to flow straight to the bottom line without being entirely eaten by data center costs.

Embracing Middle-Age Leverage

Furthermore, as Meta transitions to a mature cash-flow machine, they are evolving their balance sheet. Historically, Meta carried zero debt. To fund these massive infrastructure projects, they are going to start carrying leverage. This is not a red flag. It is standard, efficient corporate finance. As long as top-line revenue is growing at a 25% clip, that debt is easily serviced and represents an optimal capital structure for a business of this size.

CONCLUSION: Conviction in the Chaos

The Board’s Legally Binding Bet

Stock prices will always be volatile. They will plummet because of courtroom drama, macro-economic jitters, and out-of-context headlines about power grids. We cannot control the noise. But we can read the tape. The fundamental reality is that the CFO and the Board of Directors have locked themselves into an incredibly aggressive, legally binding contract that pays out only if they deliver massive earnings expansion by 2028. The stock price will eventually, inevitably, follow the earnings.

The Share Repurchase Weapon

There is also one crucial corporate finance distinction to remember during this selloff: the more the stock price falls today, the easier it is for them to hit their targets tomorrow. If the stock continues to drop below $500, Meta’s massive cash pile becomes an exponentially more powerful weapon for share repurchases.

Buying back cheap stock juices the EPS, making those per-share targets much easier to achieve without needing a single extra dollar of revenue. I didn’t heavily rely on massive share buybacks for the math in this article, but if the stock stays down, that lever is absolutely on the table.

Looking Ahead to Q1

Q1-26 earnings are about four weeks away. We will get a fresh, hard look at the actual business very soon. Until then, the market can keep falling, but I will keep following the fundamentals. This reverse-engineering exercise gives me supreme conviction that my $850 price target from my previous article was actually highly conservative. Focus on the machine, not the headlines.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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I. Introduction: A Contrarian Bet in a Jittery Market

We are about a month away from Q1 earnings in late April, and right now, the market is offering us a massive disconnect. is currently down about 10% year-to-date, trailing the S&P 500, which is down 4%.

The Macro Mirage

I imagine a fair amount of this sell-off is being driven by broader macroeconomic anxiety. Oil prices are up and expected to stay elevated as the market braces for further conflict with Iran. With news breaking of the Pentagon deploying elite army units to the Middle East, the fear of consumer weakness and broader escalation is palpable across the tape.

The Superintelligence Sticker Shock

But that macro noise is only half the story. The real reason Mr. Market is aggressively selling off Meta is the prevailing narrative that Mark Zuckerberg is overspending on his quest for superintelligence. The headlines are dominated by massive AI infrastructure bills and the billions being thrown around in the form of lavish $100M pay packages for poached engineers. Wall Street is terrified that this spending is purely ego-driven and will ultimately not be profitable.

That fear hit a fever pitch over the last couple of weeks with reports that Meta is delaying the rollout of its newest flagship AI model, code-named “Avocado,” from March until at least May. Internal tests reportedly showed it lagging behind competitors, sparking rumors that Meta’s leadership is actually considering temporarily licensing Google’s Gemini to power its own AI products as a stopgap. For a company that guided for up to $135 billion in CapEx this year to build its own AI infrastructure, the mere suggestion that they might have to rent a competitor’s model is exactly the kind of headline that sends weak hands running for the exits.

A Midlife Clarification

However, if you look closely at the filings that hit the tape late Tuesday night (3/24), the board just sent a massive, bullish signal to the contrary through an unprecedented new executive compensation package. Meta is a company where both the organization and its leadership are approaching middle age.

But contrary to the market’s knee-jerk reaction, they are not in the middle of a crisis. Meta is consistently misunderstood by both investors and its users.

Because I want Accrued Interest to be a mix of value investing theory and tactical execution, I figured now was the perfect time to talk through why you have to be contrarian on this setup.

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II. Evolve or Die: Meta’s “Middle Age” Transition

The $80 Billion Proof of Concept

Before we can accurately price Meta’s AI future, we have to look at the immediate past. For the last five years, Wall Street has obsessed over the cash bonfire happening inside Reality Labs. Between 2021 and early 2026, Meta burned roughly $80 billion on its Metaverse and VR ambitions.

But as I have pointed out to readers before, the most important takeaway from the Reality Labs saga isn’t the wasted capital—it is the proof of concept. The fact that Meta’s core Family of Apps could swallow an $80 billion speculative tangent without breaking the company’s underlying earnings power is staggering. It proves that the core digital advertising enterprise is so dominant, and the network effects are so deeply entrenched, that the business thrives in spite of Mark Zuckerberg’s most expensive hobbies, not just because of them.

Now, Zuckerberg is pivoting the machine toward artificial intelligence, but he is doing so with a completely different operational playbook.

Not Another “Year of Efficiency”

Recently, reports have surfaced that Meta is planning a headcount reduction of up to 20%. The instinct for many investors is to read layoffs as a distress signal, but it is vital to distinguish this current round of cuts from the highly publicized “Year of Efficiency.” The 2023 “Year of Efficiency” layoffs were, in reality, just a crude correction for the massive, undisciplined over-hiring that occurred during the COVID-19 boom. It was right-sizing a bloated tech giant back to its pre-pandemic trajectory.

This time, the situation is entirely different. This is a fundamental shift in operating philosophy.

Managing the Organizational Metabolism

Meta is officially embracing its middle age. When you are a young tech startup in your twenties, your hyper-growth metabolism can hide a lot of bad habits. You can carry excess organizational fat, hire aggressively, and still see the stock climb.

But being a middle-aged adult means you can no longer rely on that youthful metabolism to just magically carry you through. You have to take active, deliberate steps to trim the fat, watch your diet, and optimize your routine to stay healthy.

Meta isn’t slashing 20% of its workforce because they are facing a crisis or missing revenue targets. They are proactively shedding weight. By aggressively deploying automation and leveraging the very AI tools they are building to increase engineering output, they are actively managing their operational metabolism. They are taking the painful but necessary steps to fund their massive AI infrastructure build-out internally, ensuring they don’t have to sacrifice their margins to fund their next chapter.

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III. Expanding the Moat: Politics & The AI Arsenal

Meta’s management of its operational metabolism is only half the equation; the other half is a ruthless expansion of its competitive moat. While the media fixates on Mark Zuckerberg’s long-term vision for superintelligence, they are entirely missing the tactical, ground-level warfare Meta is currently winning.

Political Content Push

Take the political landscape. For years, Meta has actively tried to distance itself from politics, going so far as to algorithmically deprioritize political content in the News Feed to avoid controversy. But the threat of TikTok has changed the calculus. Meta recently executed a quiet but massive about-face, rolling out financial incentives that pay top political creators up to $268,000 a month to post on their platforms.

This is a profound shift. Meta is explicitly prioritizing market share and audience capture over its previous desire for platform neutrality. As I have noted before, the audience will ultimately dictate who wins the media wars, and Meta is aggressively following that demand, weaponizing its balance sheet to poach creators from TikTok ahead of the midterms.

The Enterprise AI Stealth Play

But they aren’t just buying creators; they are building an entirely new infrastructure to lock them—and the advertisers who fund them—into the ecosystem.

This brings us to the recent acquisitions of Manus and Moltbook.

If you only read the mainstream tech press, you would think Meta’s AI ambitions are strictly about building consumer-facing chatbots to rival ChatGPT. That completely misses the enterprise play. Moltbook brings a dedicated social network for AI agents and top-tier talent into Meta’s Superintelligence Labs.

More critically for the stock’s valuation, the integration of the Manus tool is a game-changer for the actual revenue engine.

Manus isn’t a toy; it is an agentic AI built specifically for media planners and buyers to automate campaign analysis, audience research, and competitor tracking using Meta’s massive Ad Library. By integrating autonomous AI agents directly into the workflow of creators and media buyers, Meta is creating an incredibly sticky, high-utility toolset. They are transforming from a platform where you simply buy ads into the autonomous operating system you use to run your entire digital marketing business. That kind of utility typically commands a massive premium. It makes leaving the Meta ecosystem virtually impossible, which makes it all the more ridiculous that Meta is currently trading at a steep discount to the broader market multiple.

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IV. The Fundamentals Engine is Still Roaring

The ATT Myth and the Revenue Floor

To fully appreciate the absurdity of that discount, you have to look at the resilience of the core business. There is a widely misunderstood narrative on Wall Street regarding Meta’s sensitivity to the broader economy. The truth is, Meta has never actually faced a revenue decline driven by macroeconomic events.

The only period of sustained pressure on their top line occurred when Apple introduced its App Tracking Transparency (ATT) framework. That wasn’t a macro issue; it was a structural signal loss. Meta was forced to rebuild its advertising signal from the ground up for advertisers without relying on Apple’s ecosystem. As their recent performance proves, they succeeded spectacularly.

The Metric That Matters

As a reminder from my Q4 2025 earnings recap, the single most important metric for evaluating the health of this machine is ad impression growth. In Q4, ad impressions grew an incredible +18% year-over-year. That wasn’t an anomaly; it was the continuation of a trend where ad impression growth has accelerated sequentially over the last three quarters. The AI is working. It is keeping users engaged longer and creating more inventory.

Furthermore, the very nature of Meta’s auction-based model provides a massive structural hedge against the consumer weakness the market is currently fearing. If rising oil prices or geopolitical anxieties cause one major advertiser to pull back their spend, the auction doesn’t break—the next bidder in line simply steps up to clear the inventory.

The financial guidance tells the same story. For Q1 2026, management guided for revenue between $53.5 billion and $56.5 billion. If Meta continues to grow its top line at around +20% year-over-year, they can easily fund their AI ambitions out of free cash flow. All they have to do is execute, and Wall Street will inevitably forgive the CapEx.

(A quick note to all of my free subscribers—which, as of right now, is 100% of you! In the future, this is exactly the type of section where I might apply a selective paywall as we get into the harder valuation mechanics, EPS breakdowns, and technical modeling. But in the meantime, please enjoy the free analysis below, and if you haven’t already, make sure to hit that subscribe button!)

Now, let’s get into the numbers and see why the multiple is completely disconnected from reality.

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V. Valuation: A Growth Giant Priced Like a Value Stock

Multiple Contraction Meets the AI Supercycle

The most critical thing to understand about Meta’s current stock price is that the recent sell-off has not been driven by a deterioration in fundamental earnings power. The earnings are still there. The sell-off is entirely a function of multiple contraction. Mr. Market has decided to punish the stock because of the headline sticker shock of the CapEx guidance.

But when you zoom out, this panic has created an absolute gift for investors willing to look past the next quarter. It is genuinely insane for a company as dominant as Meta—a company that is actively shaping up to be one of the definitive winners of the AI arms race—to trade at a discount to the broader market multiple.

The Path to $850 per Share

Let’s look at the actual math, referencing the latest estimates from the TIKR Terminal:

• Current Price: ~$595

• 2026 Valuation: The stock is currently trading at just 19.8x consensus 2026 GAAP EPS of roughly $30 per share.

• 2027 Valuation: Looking one year further out, it is trading at a staggering 17.5x consensus 2027 GAAP EPS of roughly $34 per share.

I see a clear, structurally sound path to $850 per share. If the market wakes up and simply applies a fair, market-level 25x multiple to those 2027 earnings of $34 per share, we get to $850. That represents an upside of over 42% from today’s levels.

The $9 Trillion Declaration of Intent

If you need further proof of management’s conviction in this trajectory, look at the SEC filings that hit the tape this week detailing a new executive incentive program. The program is designed to vest in tranches, culminating in a full payout only if Meta reaches a $9 trillion market capitalization by 2031. For context, that requires the stock to surge over 500% to $3,727.12 per share. The floor is equally telling: the very first tranche doesn’t even begin to pay out until the stock hits $1,116.08—an 88% premium to today’s trading levels, representing a ~$2.82 trillion market cap.

The options cover the core operational brain trust: CFO Susan Li, CPO Chris Cox, COO Javier Olivan, CTO Andrew Bosworth, CLO C.J. Mahoney, and Vice Chairman Dina Powell McCormick. Alongside these options, Meta is boosting RSU grants for these execs by $170 million. This highlights the sheer cost of the ongoing AI talent war; in 2025, cash costs tied to employee stock awards consumed 96% of Meta’s free cash flow ($42 billion), necessitating massive buybacks just to offset the dilution.

The Tesla Playbook on a Compressed Timeline

This options package acts as a massive neon sign confirming management’s internal modeling for the AI supercycle. First, it forms a direct bridge past my $850 price target. This new incentive plan essentially confirms that management views the $800-$900 range not as a terminal plateau, but as a stepping stone. By setting the absolute minimum payout threshold at $1,116.08, the board is signaling that the fundamental engine is expected to push earnings power significantly higher as the 2026/2027 CapEx investments come online.

Second, it is the Tesla “moonshot” playbook, but on a compressed timeline. Meta’s board is demanding growth from $1.5 trillion to $9 trillion in just five years.

This aggressive 2031 deadline tells us that management believes the transition from a traditional social media ad platform to an autonomous, agentic AI ecosystem will trigger a violent, structural multiple expansion much faster than the market currently anticipates.

Finally, it serves as a brilliant hedge against the “CapEx shock” narrative. This compensation structure is the board’s way of locking in the executive team and aligning their wealth entirely with shareholder value. If the CapEx buildout turns out to be a cash incinerator, these options expire worthless. The executives are now financially handcuffed to the success of the infrastructure moat they are currently spending billions to build.

This isn’t a standard retention package; it is a declaration of intent.

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Conclusion: The Tactical Play

You have to be contrarian here. The market is incorrectly handicapping this AI winner, pricing it like a value-trap utility rather than a compounding growth engine. I strongly recommend considering adding to common stock at these levels. Alternatively, for those looking to maximize leverage on this mispricing, consider looking at LEAPS (long-term options) expiring in late 2027.

Starting in late 2026, as the midterms approach and political ad spending shifts into overdrive, many investors are going to wake up and realize just how massive a share of those political ad dollars are flowing directly into Meta. Between that influx of cash and the fully realized efficiencies of their AI infrastructure, everyone is going to remember just how necessary this machine is, and the multiple will violently re-rate.

Don’t bet against the machine when the engines are just getting warmed up.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

A few days ago, I published a piece breaking down exactly why the Paramount-WBD merger is a slow-moving trainwreck. The reaction to that post across the internet was massive, but the core takeaway of that thesis was incredibly simple: when you bolt together two melting ice cubes with a $79 billion debt anchor, you don’t get a dominant digital platform—you get a liquidity crisis. ,

The logical follow-up question: what does this mean for ?

Here at Accrued Interest, we ignore the noisy media narratives. We focus purely on market structure. And the fundamental structure of the global entertainment market proves that the “streaming wars” are officially over. It is now absolutely a two-horse race between Netflix and YouTube. Everyone else is just fighting for third place, and they are burning billions of dollars of shareholder equity to do it.

The contrast in forward-looking runways couldn’t be starker. While legacy media spends the next three years paralyzed by integration issues, boardroom infighting, and regulatory hurdles, Netflix operates with absolute, unencumbered clarity. We are witnessing the execution of a pure tech monopoly leaving its legacy peers in the dust.

The Competitor’s Curse and the Organizational Paralysis

When you look at the landscape today, the competitor’s curse is very real. As Netflix Co-CEO Ted Sarandos recently pointed out regarding the fallout of the WBD bidding war, whoever won that debt-laden prize will be forced into making operational cuts “in the excess of $16 billion.”

Think about what that actually means inside a corporate structure.

For the next 36 months, the newly merged entity will be stuck in endless committee meetings figuring out which middle-management layers to fire, which tech stacks to sunset, and how to satisfy their bondholders. This creates a state of perpetual organizational paralysis.

When future premium content comes up for licensing—whether that is a hit television show from a third-party studio or a highly coveted piece of intellectual property—Netflix can move swiftly and aggressively. They have the balance sheet and the operational clarity to write the check and move on, while their biggest competitors are still trying to figure out who has the authority to approve the budget.

The “Harry Potter” Infrastructure Gap

But the biggest structural advantage Netflix possesses isn’t just a clean balance sheet; it’s their underlying technology footprint.

Wall Street often misjudges media companies on the volume of their content library. But in the digital age, a content library is useless if you do not have the delivery infrastructure to monetize it seamlessly across borders.

Even if David Ellison had Harry Potter’s magic wand and could instantly integrate Paramount and WBD’s tech stacks today with zero friction, they still do not have the infrastructure to stream globally at the scale of Netflix.

Let’s see the actual footprint. HBO Max is currently available in roughly 100 countries—but crucially, it is still locked out of massive, high-ARPU English-speaking markets like the UK and Australia due to legacy licensing deals. Paramount+ is even worse; it operates as a standalone app in fewer than 35 countries. To get into Europe, they were so sub-scale they had to form a joint venture just to distribute their content.

Netflix, on the other hand, operates natively in over 190 countries. They own the entire tech stack, the billing architecture in local currencies, and the content delivery networks (CDNs) almost everywhere on earth.

We just saw the ultimate proof of this impeccable execution. Last weekend, Netflix exclusively livestreamed the BTS Comeback concert. While legacy streamers regularly struggle with app crashes, latency issues, and buffering during live events, Netflix seamlessly broadcasted the world’s biggest pop group live from Seoul to 190 countries, instantly hitting #1 in 77 of them. Legacy media is playing a localized game with borrowed money. Netflix is playing a global game with massive operating leverage.

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The Macro Safe Haven: Hedging Geopolitical Risk

If you noticed that I took a two-week break from publishing recently, it was because the sheer level of geopolitical uncertainty had effectively frozen the broader markets. We all understand that traditional hardware, semiconductor, and manufacturing stocks are heavily exposed to supply chain shocks and tariffs. But what is dangerously underappreciated by the Street is that legacy media has its own set of geopolitical landmines.

Take James Gunn’s recent Superman as a warning sign.

While the domestic box office for the film was a strong $356 million, it severely underperformed internationally, dragging its global haul to just $617 million. The fanboys might not care, but WBD shareholders can reasonably point the finger at a very real problem: geopolitics. Anti-US sentiment definitely hurt the commercial reception of such a patriotic-coded American character. Gunn himself explicitly admitted this, noting to Rolling Stone, “we have a certain amount of anti-American sentiment around the world right now. It isn’t really helping us.”

Even Ted Sarandos, while recently testifying under oath before the Senate Judiciary Committee regarding theatrical exclusivity windows, openly cited the film’s underperformance as evidence of shifting global consumer behavior.

The structural flaw here is that legacy media relies almost entirely on exporting American cultural icons to generate a return on invested capital. That makes them highly vulnerable to geopolitical whims. We’ve seen the precedent over the last decade, where unilateral government decisions in regions like China can instantly block certain Western films, wiping out hundreds of millions in regional monetization overnight. When your balance sheet requires a traditional American superhero to overperform globally just to service your debt, you are taking on massive sovereign risk.

This is why Netflix is the ultimate defensive play in the media space. They don’t just rely on exporting American blockbusters; they invest heavily in sourcing local content in every respective market they operate in. Regardless of shifting political winds or sudden anti-US backlash, Netflix’s content pipeline is already localized by design.

We already saw the proof of concept for this decentralized production pipeline during the COVID-19 shutdowns. When US domestic production ground to an absolute halt, legacy studios starved for new releases. Netflix effortlessly pivoted, utilizing its massive international backlog to push high-quality foreign content to US and global audiences who had never seen it before. Combine this decentralized, globalized content engine with a “zero supply chain” digital subscription model—where you are shipping pixels, not physical goods—and you have a company uniquely insulated from physical borders and political blowback.

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Cost Control as Alpha: The Live Sports Hedge

If you want to understand the trap that legacy media is currently stuck in, look no further than live sports rights.

Right now, the NFL is reportedly pressuring Paramount’s CBS to eliminate their 2029-30 opt-out clause. In exchange for extending the deal, the league is demanding a 50% fee increase. That means CBS is looking at an additional $1 billion per year—pushing their annual payment to over $3 billion—just to keep the exact same Sunday afternoon package they already have. Legacy networks are effectively being held hostage. They have to pay margin-crushing premiums just to maintain their existing viewership baselines.

So, how do you hedge against the risk of rising NFL fees? The best way to hedge the risk of rising NFL fees is to not have a full slate of NFL regular season games to begin with!

This is where Netflix’s surgical approach to live sports becomes a massive driver of alpha. They have wisely added sports without taking on full-season commitments. By securing only high-impact, select holiday events—like their Christmas Day NFL games—they pick and choose the exact spectacles that maximize viewership ROI. They get the cultural event status and the advertising surge without inheriting the massive fixed costs of a 17-week broadcasting schedule.

We just saw another brilliant execution of this strategy with the 2026 World Baseball Classic. Netflix secured the exclusive rights to stream all 47 WBC games in Japan. Because sports broadcasting rights are heavily regionalized, Netflix was able to bypass the local Japanese terrestrial networks entirely and secure exclusivity in one of the most hyper-valuable baseball markets on earth. Furthermore, by targeting just the Japanese region, they didn’t have to engage in a ruinous, ego-driven bidding war against Fox for the U.S. broadcast rights.

While legacy media companies are bleeding cash to rent sports rights in saturated markets, Netflix is deploying capital surgically to drive localized dominance.

(A quick note to all of my free subscribers—which, as of right now, is 100% of you! In the future, this is exactly the type of section where I might apply a selective paywall as we get into the harder valuation mechanics, EPS breakdowns, and technical modeling. But in the meantime, please enjoy the free analysis below, and if you haven’t already, make sure to hit that subscribe button!)

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The Valuation Engine: The “Pokémon Theory” of Margin Expansion

If you want to understand how to generate outsized equity returns, you have to subscribe to the “Pokémon Theory” of investing: a company must evolve. Margin expansion—the holy grail of earnings growth—only happens when a company can make a sub-segment’s revenue grow significantly faster than its underlying fixed costs.

For Netflix, that evolutionary engine is advertising.

Management’s 2026 guidance projects top-line revenue growth in the low double-digits to mid-teens (roughly 12-14%).

But the real story is that their operating margin is forecast to expand to 31.5%. Because Netflix already spent the last decade building and paying for its massive subscription infrastructure, the fast-growing ad business—expected to hit roughly $3 billion—is incredibly high margin. That ad money drops almost straight to the bottom line.

Looking at the latest Street consensus estimates via TIKR, the analyst modeling is highly reasonable and, if anything, slightly pessimistic. The Street is forecasting median Sales of roughly $51.2 billion for 2026, representing YoY growth of 13.2%. They then project a steady, gentle deceleration down to 11.6% growth in 2027 and 10% in 2028.

The 2026 EBIT forecast sits right around 31.6%, matching management’s guidance. I believe there is upside here. If that high-margin ad revenue scales faster than expected, that margin expansion will pull forward much sooner than the Street anticipates.

This margin expansion is compounded by their ruthless capital discipline. When the Warner Bros. bidding war reached peak irrationality, Netflix simply walked away—taking a massive $2.8 billion breakup fee just for showing up. As Ted Sarandos pointed out, “We’re builders, not buyers.” Instead of burning cash on ego-driven M&A, that $2.8 billion goes straight to accelerating their share buyback program, artificially shrinking the float and mathematically boosting EPS.

Conclusion: The Time Arbitrage Play

The stock is currently trading around $94.00, which prices it at roughly 30x the 2026 GAAP EPS consensus of $3.14. I believe 30x is a full, but entirely fair, multiple for a dominant, defensive, digital-first global entertainment platform. I would NOT base my price target on a multiple higher than 30x unless I had immense conviction that top-line revenue was going to violently obliterate Street estimates.

Because the current multiple is fundamentally correct, this is a classic Time Arbitrage play.

“Time arbitrage refers to an opportunity created when a stock misses its mark and is sold based on a short-term outlook with little change in the long-term prospects of the company.”

I have high conviction that Netflix will easily meet or beat their future earnings estimates, so I am willing to take on the risk of the stock today to buy it at a discount to its 2027 and 2028 earnings power.

By applying that full 30x multiple to roughly $4.00 in earnings—which sits just slightly ahead of the Street’s $3.88 median estimate for 2027—we arrive at a $120 Price Target. That represents an absolute return of over 27% from today’s $94.00 price.

Legacy media is playing a desperate game of defense just to survive another quarter. Netflix is playing offense while returning capital to shareholders. It is time to allocate accordingly.

What do you think is the biggest threat to this $120 price target? Let me know in the comments below!

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

The merger of Paramount Skydance and Warner Bros. Discovery represents what is truly a Pyrrhic victory. Paramount Skydance is going to struggle to create value with their newfound prize.

Towards the end of my interview with Andrew Walker last week on the Yet Another Value Podcast, in the closing moments, he asked me what I thought were the odds that a combined Paramount and Warner Bros. Discovery, , would be a success. I said emphatically, without hesitation, a negative 10. By that, I mean it is a question of “when”, not “if”, the company is going to have to be restructured and the assets likely separated yet again.

As I warned in my 12 Days of Pitch-Mas series (specifically Day 2, when I pitched as an Underperform), financial engineering is not a strategy. Ultimately, viewers dictate who wins. To put it bluntly: big picture, Paramount and Warner Brothers are starting off with a lot working against them. Last November, I wrote in my Paramount Skydance Q3-25 Review “David Ellison is a CEO who is 10 years too young, with a strategy that is 10 years too late to save Paramount shareholders from subpar returns, unless they can win WBD.” Now that the dust has settled on the merger, I can say confidently that winning WBD absolutely STILL lead to returns less than the S&P 500 over time.

Here are the 8 reasons the PSKY + WBD combination is destined to fail.

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1. The $79 Billion Debt Anchor

Ellison is inheriting a crushing debt load he is completely unprepared for.

• The $79 Billion Reality: Between WBD’s roughly $29 billion in debt, Paramount’s $12 billion, and $38 billion in new transaction debt, this new Frankenstein media conglomerate is staring down a $79 billion balance sheet nightmare.

• The Innovation Penalty: In an era where Big Tech is investing tens of billions in AI and streaming platform infrastructure, this debt load entirely prevents PSKY + WBD from aggressively investing in the future.

• Managing Liabilities Over Growth: Their free cash flow will be overwhelmingly diverted toward servicing interest payments rather than product development. Instead of funding the next major streaming innovation or user interface overhaul, cash will be funneled directly to bondholders.

• Strategic Paralysis: When your balance sheet is this constrained, every creative swing becomes a “bet the company” moment. They simply do not have the financial elasticity to weather a string of box office or streaming failures.

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2. Combining Two Melting Ice Cubes

Smashing two dying cable portfolios together does not reverse secular decline.

• The False Security of Cable: I spent extensive time analyzing this dynamic in my recent deep dives on Versant, , pointing out the dangers of relying on the false security of legacy cable cash flows. Paramount and WBD are both heavily weighted toward linear cable networks. Combining MTV, Comedy Central, TNT, and Discovery just increases their collective exposure to a decaying ecosystem.

• The Cable DNA Constraint: As I detailed in The Pokémon Theory of Media Investing, companies and their business models are inherently constrained by their original “type.” You cannot easily evolve an aquatic creature to survive in the desert.

• Digital Incompatibility: Because their underlying DNA is built for a distribution model that is actively dying, a combined entity is still functionally a legacy television company. They are fundamentally unprepared to take on digital-native competitors.

3. Outgunned in the Sports Rights Bloodbath

PSKY + WBD cannot afford the blank checks Silicon Valley is writing for live sports.

• The Tech Giant Premium: Tier 1 sports rights (like the NFL and NBA) have become a playground for tech giants like Amazon and Google. Tech companies view sports rights as loss leaders for larger ecosystem lock-in. They can afford to overpay and treat sports as an acquisition cost.

• The Debt Ceiling: With a $79 billion debt load, PSKY + WBD simply cannot compete. A glaring example of this desperation is Paramount’s recent 7-year, $7.7 billion agreement for exclusive UFC media rights. At $1.1 billion annually, they are paying double what ESPN previously paid, while simultaneously abandoning the lucrative Pay-Per-View model entirely. They are grossly overpaying for sports rights just to maintain engagement on Paramount+.

• The Domino Effect: Without premium live sports, their linear networks lose their “must-carry” status with major distributors. This accelerates carriage fee declines, which in turn accelerates cash flow deterioration.

4. The Content “Scale” Fallacy

Hoarding legacy content is meaningless without the technological scale to distribute it.

• Tech Scale vs. Content Scale: True scale today is distribution and technological scale. Netflix and YouTube have global tech scale. PSKY + WBD merely has a bloated content vault.

• The Interface Bottleneck: As I noted in The Pokémon Theory of Media Investing, the “gotta catch ‘em all” approach to hoarding content doesn’t work if your delivery mechanism and user interface are sub-par. If users cannot easily discover the content due to clunky algorithms, the sheer volume of the library is irrelevant.

• Diminishing Returns on IP: Stacking more average shows onto a single platform does not exponentially increase pricing power. It just increases server and royalty costs without driving proportional subscriber growth.

5. The DTC Sub-Scale Trap

Combining two sub-scale streamers just creates a slightly larger service with massive subscriber overlap.

• The High Churn Reality: Combining Max and Paramount+ does not magically create a dominant platform to rival Netflix or YouTube. It just creates a service with incredibly high churn rates as consumers rotate in and out for specific shows.

• The Overlap Illusion: WBD finished Q4 2025 with 131.6 million Max subscribers, while Paramount+ reported 78.9 million paid subs. Management aggressively touts a combined footprint of over 210 million subscriptions.

• Preaching to the Same Choir: However, third-party analytics from Forrester reveal a massive 30% overlap between the two platforms. Both skew toward a very similar demographic profile, meaning this merger does not unlock entirely new audience segments. They are simply double-counting the same households.

6. The Loss of Distribution Leverage

Tech-driven distributors like YouTube TV now hold the power, and they don’t need bloatware cable networks.

• The Shifting Media Landscape: As I discussed extensively in my Interview: Yet Another Value Podcast and the Shifting Media Landscape, the balance of power has fundamentally shifted away from programmers to digital distributors.

• MVPDs Don’t Care About Video: Paramount is bulking up on channels at exactly the time that traditional MVPDs and cable companies are giving up on the video product entirely. Cable providers are pivoting to become pure broadband pipes. They no longer care about video consumers; their priority is selling high-margin internet subscriptions.

• The Rise of vMVPDs: Distributors like YouTube TV now hold the leverage over traditional networks. When a distribution platform generates massive ad revenue and structurally doesn’t need your tier-2 cable channels, the negotiation math flips entirely.

• The Unbundling Threat: PSKY + WBD will quickly find that Virtual MVPDs will simply refuse to pay for their bloated portfolio of secondary, low-rated cable networks. The threat of a blackout is no longer the weapon it once was.

7. A Spectacular Culture Clash

You cannot merge a culture of ruthless austerity with one of Hollywood expansion without explosive friction.

• The Inevitable Friction: The integration process will be bogged down by warring executive factions and fundamentally misaligned operational philosophies.

• The Morale Cost of Synergy: Draconian layoffs are HORRIBLE for morale. When management promises Wall Street massive cost synergies, that inherently means dramatic headcount reductions.

• A Year of Paranoia: Over the next year, employees from all parts of both organizations are going to be fearing for their jobs. You cannot foster creative risk-taking or build a cohesive streaming strategy when your workforce is paralyzed by the threat of impending layoffs.

• The Ellison Vision: As I highlighted in my Paramount Skydance Q3-25 Review, David Ellison’s rhetoric is heavily reliant on tech-forward ambitions and Hollywood-legacy Skydance dreams. He envisions a company that spends to innovate, which stands in stark contrast to the financial realities of their bloated balance sheet.

8. The Regulatory and Political Time Bomb

Foreign funding and news ownership create a massive vulnerability to future political shifts.

• Foreign Funding Scrutiny: A significant amount of the funding for this transaction is coming from foreign sources, including sovereign wealth from Gulf countries.

• News Ownership Concerns: Regulators and politicians across the spectrum are not going to be comfortable with foreign entities holding massive ownership stakes in vital American cultural and news institutions like CBS News and CNN.

• The Unpredictable 2028 Window: Politics isn’t final, and no party wins forever. Companies that play fast and loose with the regulatory approval process today might find their deals scrutinized—or partially undone—by a future administration in 2028 or 2029 if the political winds shift.

CONCLUSION

You will notice that I have not used many numbers in this piece; I just wanted to focus on the strategic aspects of this colossal merger. I will still be covering the upcoming Paramount earnings and will do more rigorous financial analysis to flesh out the math behind this thesis.

But strategically, looking at the big picture: Paramount and Warner Brothers are starting off with a massive amount of secular, structural, and financial headwinds working against them. Based on the fundamental history of media M&A, I am not optimistic about their future.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

First, let’s do a rundown of all the companies we’ve talked about on Accrued Interest for the week of March 18th. Subscribe and come back weekly for updates on all the companies I follow; not all of these will have deep dives, but I will keep you current on my thoughts.

Let’s cue the record drop and get into this week’s cypher.

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META -

Meta has reached middle age, but by no means is the company in crisis.

Headcount & Efficiency

Meta is reportedly planning layoffs of at least 20% of its staff. While some argue the savings will not offset AI investments, it signals management’s willingness to cut costs aggressively. With increased automation in engineering and analytics, further reductions are likely.

Political Content Push

Meta has quietly increased payouts to political creators to compete with TikTok. Payouts now reach up to $268,000 monthly for top creators, marking a sharp reversal from previous efforts to “tone down” political discourse.

This about-face shows Meta is prioritizing market share over platform neutrality. As I have noted before, “the audience will ultimately dictate who wins,” and Meta is now ruthlessly following that demand.

Valuation: At the time I’m writing this, Meta stock is $620 per share. It is trading around 21x 2026 GAAP EPS and approximately 18x 2027 GAAP EPS. This valuation is simply too cheap for dominant platforms such as Meta, which is currently in the midst of re-accelerating its revenue growth thanks to AI improvements in its ad-based business. I maintain my Outperform.

Interesting Recent News:

Netflix’s Chief Opens Up About Trump, YouTube and Europe - POLITICO

• Reports indicate cuts could target about 20% of its workforce, or roughly 15,000–16,000 jobs.

• This move aims to offset surging AI infrastructure costs while transitioning to a leaner, AI-assisted operational model.

On Facebook, it now pays to post about politics

• According to Chaoticera, Meta is offering massive payouts to political creators to pull them away from TikTok.

• Creators are reporting payouts ranging from $5,000 to $50,000 a month.

• One prominent liberal news creator shared a screenshot of a massive $268,000 payout in January 2026.

Meta Paid Creators $3B in 2025, Launches New Program

• Meta paid creators nearly $3 billion recently and launched a program guaranteeing up to $3,000 monthly to lure top talent.

• This marks a sharp pivot in trying to pull political and established creators away from rivals like TikTok.

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Netflix -

Netflix showed the market true discipline by walking away from the WB deal.

The Power of Restraint

Netflix showed discipline by walking away from the Warner Bros. deal, a move that the market has rewarded. The stock has risen from the high $70s to $94, with some analysts setting price targets around $120, suggesting the bull thesis is firmly back on track.

Organic Value Creation

While I believe Netflix would have been the best owner of the WB assets, they can still create significant value organically. Investors remain in a “show me” stance, requiring double-digit revenue growth for the stock to climb higher. Key content events, such as the upcoming BTS documentary and reunion concert, speak to a promising content strategy.

Sarandos Sets the Record Straight

CEO Ted Sarandos has affirmed the company is on the right track, covering in recent interviews topics like the Trump administration, competition with YouTube, and the regulatory/operational hurdles of the linear broadcast business that led them to avoid the WB deal.

Valuation: At about $94 a share, Netflix is trading at approximately 30x 2026 GAAP EPS, and about 24x 2027 earnings. I think both of these are very fair — growth at a reasonable price (GARP) for one of the top two dominant global multimedia players.

Interesting Recent News

Bonus: Netflix co-CEO Ted Sarandos Says Warner Deal to Put More Films in Cinemas

• Sarandos discusses the company’s discipline in walking away from the Warner Bros. deal, noting the heavy regulatory and operational hurdles, especially with complex broadcasting regulations in Europe.

• The interview also touches on Netflix’s stance regarding the Trump administration and its strategy for competing with YouTube.

BTS Returns with Their First Performance in 3 Years — Streaming Live on Netflix

• Netflix continues to lean into massive global fanbases, securing exclusive rights to the BTS reunion concert and documentary.

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Paramount Skydance + Warner Bros. Discovery - ,

Paramount won the battle, but the war of “swallowing the whale” has just begun.

The Cost of Victory

Analysts are focused on the integration challenges Paramount faces as they “swallow the whale.” I expect Paramount and Warner Bros. Discovery to underperform due to massive debt loads, which leave little room for error if consumer spending dips.

The market has already signaled skepticism; PSKY stock has plunged over 20% this year, recently hitting 52-week lows.

Integration Paralysis

Integrations of this scale often lead to “institutional paralysis,” where strategy is frozen while the companies combine. My rating remains Underperform.

Valuation: I am not even going to get into valuation here because I do not want to have exposure to Paramount-Warner Bros. at pretty much any price. It is inevitable that this asset is going to be broken up at some point in the future. (More on that another day.)

Interesting Recent News

Warner Bros CEO David Zaslav in line for $700m payout from Paramount deal

• Zaslav is set to walk away with an eye-watering “golden parachute” payment of over $700 million in stock, cash, and severance following the merger.

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Google - ,

Google’s AI momentum is quietly solidifying its place as the gold standard.

OpenAI’s Pivot Validates Google’s Lead

Google is a consensus AI winner, with its stock holding gains as Gemini products gain traction. The most bullish news is OpenAI’s pivot to focus on enterprise and coding-type tasks. I view this as a tacit retreat from the consumer space, strengthening my already high enthusiasm for Google. A scalable ad-based revenue stream, as I argued in “The Pokemon Theory of Investing,” buys time and fortifies the business model—something OpenAI lacks. On a related note, I am holding back on pitching Adobe as a bull case because Google’s Gemini AI is now handling increasingly sophisticated workloads, including graphics, reducing my dependency on that subscription.

YouTube’s Steady Sports Expansion

FIFA is using YouTube to air free World Cup game segments to reach a younger audience. This speaks to the inevitability of more sports content coming to YouTube. While I don’t expect big-package bids (like the NFL), YouTube has been excellent at targeted acquisition. All sports rights holders want more money, and FIFA will inevitably get a share of the YouTube dollars, leading to more soccer and World Cup content on the platform.

Valuation: After a massive run in 2025, Google is trading at a reasonable 27x 2026 GAAP EPS. It is trading at about 23x 2027 earnings. Since Google, I believe, is both a top-two advertising company and a top-two media company, Google warrants a higher multiple. However, I do not expect the stock to probably go much higher until earnings because a lot of the AI catalysts have already occurred.

The most telling sign of Google’s lead is the news that Meta, after pausing its own AI launch, considered licensing Gemini as a stopgap. This speaks to Google’s tangible moat and gold-standard status, where even competitors—even haters—are some of their biggest fans. I maintain my Outperform.

Interesting Recent News

‘ChatGPT must be a productivity tool,’ OpenAI CEO tells staff ahead of IPO: What’s behind the pivot?

• OpenAI is targeting an IPO as early as Q4 2026 and reorienting its efforts aggressively toward high-productivity enterprise use cases.

• This marks a clear shift away from consumer novelty toward monetizable coding and business applications.

Meta delays ‘Avocado’ AI model launch to May: Report

• Meta’s “Avocado” model fell short in internal tests against competitors, causing a launch delay.

• Meta’s AI division is reportedly considering temporarily licensing Google’s Gemini to power their products in the interim.

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Nexstar Media + Tegna - ,

Combining two melting ice cubes is not going to make a stronger entity.

Political Lifelines vs. Fundamental Decline

While I have not written much about broadcast lately, given the ongoing drama with Netflix and Paramount-Warner Bros., my bearish outlook remains unchanged. Broadcast has seen fewer declines than cable, but the entire sector is in secular decline. I remain skeptical of Nexstar, even with the stock trading around $230. The share price has climbed in 2026, spurred by statements from both the President and the FCC chair indicating they would use governmental power to favor broadcasters—explicitly framed to “punish” certain networks. It bears repeating: political interference is rarely a win for investors. In this instance, it is providing a veneer of false hope for Nexstar’s valuation. It simply isn’t worth the current price.

I am maintaining my Underperform rating, though I recognize the stock may continue to rise on the speculation of a successful Tegna merger and subsequent cost-cutting. However, recent reporting reinforces my concerns regarding the fundamental broadcast model. Even if the deal closes, the post-2027 broadcast landscape will likely be an inferior product that both viewers and advertisers continue to abandon. Combining two melting ice cubes doesn’t create a stronger entity; it just leaves you with a bigger puddle.

The Death of Daytime Talk

I am currently developing a thesis arguing that the death of the daytime talk show—both political and entertainment—has been accelerating right before our eyes.

A couple of examples: just last week, NBCUniversal announced that they were leaving the business of doing first-run syndicated talk shows. They announced they were canceling a number of acclaimed shows such as The Steve Wilkos Show and Access Hollywood. Looking at the big picture, I also noticed that other prominent talk shows were canceled, including The Kelly Clarkson Show and the Sherri Shepherd show.

If you want to be bullish on Nexstar, I think you cannot ignore that their advantages of broadcast television are only getting smaller as they lose more things unique to the medium. As broadcast television loses more talk shows, I predict that station owners and the networks are going to fill the time slots with more local news. This is going to have diminishing returns, and as more of these talk shows effectively go to digital platforms and podcasts such as YouTube, this is only going to make it harder for Nexstar to grow shareholder value.

Combining two melting ice cubes is not going to make a stronger entity. I stick with Underperform.

Interesting Recent News

NBCUniversal Cancels Several Long-Running Syndicated Shows

• NBCUniversal is exiting the first-run syndication market, citing shifting viewer habits and rising costs.

• They are winding down production on long-running hits like Access Hollywood, Karamo, and The Steve Wilkos Show.

Sherri Shepherd’s daytime talk show axed hours after Kelly Clarkson announces TV exit

• The Kelly Clarkson Show is ending its run after seven seasons.

• Sherri Shepherd’s syndicated show Sherri has also been canceled after four seasons due to the challenging advertising environment.

F.C.C. Chair Threatens to Revoke Broadcasters’ Licenses Over War Coverage

• FCC Chair Brendan Carr threatened to revoke broadcasters’ licenses over their coverage of the war with Iran, accusing them of running “hoaxes and news distortions.”

• He warned broadcasters to “correct course” before license renewals come up, echoing criticism from President Trump over legacy media coverage.

• The move is part of a broader campaign to stomp out what the Chair perceives as liberal bias in broadcasts.

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Disney -

The audience decides who wins, and Disney’s IP continues to prove the magic is still there.

Leadership and Strategy

Disney’s leadership transition to CEO Josh D’Amaro marks the end of Bob Iger’s tenure—a period defined more by personal branding than actual shareholder returns. I remain skeptical of D’Amaro’s appointment; promoting the head of the Parks division to head the entire company is a fundamental strategic error.

Ultimately, Disney’s future depends on its creative engine. Recent hits like Zootopia 2 prove the formula still works, ensuring the magic remains regardless of leadership changes.

The Path Forward for the Mouse

I expect Disney to underperform until it separates its declining television assets, including ESPN. My opinion on that has not changed. However, its content strategy remains strong, with upcoming favorites like Spider-Man poised to sustain the company’s global appeal.

Valuation: At $100 per share, Disney trades at 17x 2026 GAAP EPS. It remains a “quiet underperformer” likely to lag the S&P 500 until it divests its declining TV and cable assets. Do not be lulled into complacency; a deep dive is coming soon.

Interesting Recent News

‘Zootopia 2’ Becomes the Highest-Grossing Animated MPA Film of All Time Globally

• The film has shattered box office records, racking up over $1.8 billion globally.

• It surpassed Inside Out 2 to become the highest-grossing animated MPA film in history.

‘Spider-Man: Brand New Day’ trailer released: Tom Holland faces The Punisher and Scorpion in darker MCU chapter

• The trailer for the upcoming summer tentpole showcases Peter Parker grappling with his isolated new reality.

• It previews a grittier tone, bringing in street-level characters like the Punisher.

Bob Iger Era Ends; Josh D’Amaro Officially Becomes Disney CEO

• Josh D’Amaro, previously the boss of Disney Experiences, has formally taken the reins as Disney’s new CEO this March.

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Uber -

Uber is the backbone of the autonomous vehicle revolution.

NVIDIA Partnership Sets the Stage

I remain bullish on Uber, with the stock rallying slightly to the low $80s following the NVIDIA presentation. At the recent GTC conference, CEO Jensen Huang revealed expanded partnership details: Uber will launch a massive fleet of robotaxis powered by NVIDIA DRIVE AV software across multiple cities by 2028. This commitment establishes Uber as a critical, multi-player ecosystem hub for global autonomous expansion, leading investors to conclude that Uber will be a necessary partner for many autonomous vehicle (AV) companies. This great sign is further supported by the steady stream of AV partnerships, including the recent strategic agreement with Zoox.

Valuation: With the stock trading at about $77 a share, it sits at a reasonably cheap valuation of approximately 18x 2027 GAAP EPS. I have said many times that I maintain Uber will be a long-term winner as autonomous vehicles take more market share. I think it will take time for the market to fully catch up, but as long as revenue and organic ridership growth remain in the double digits, I want to be long on this mobility winner.

Interesting Recent News

Zoox and Uber Announce Strategic Partnership for Autonomous Ride-Hailing

• Uber continues to fortify its position as the go-to network for robotaxis by partnering with Amazon’s Zoox.

Nvidia CEO highlights Uber partnership at major AI summit

• Nvidia’s recent presentation reinforced Uber’s critical role in deploying autonomous vehicle technology at scale.

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Fubo -

Fundamentals matter, and Fubo is officially a penny stock.

Fubo is now officially a penny stock, trading at $1.15. I am discontinuing coverage. Our bearish call was correct: the stock has cratered 54% YTD and 62% over the past year. Despite bull arguments that the Hulu + Live TV business would save it, fundamentals have won out. Further compounding its struggle, Fubo recently lost several NBC Sports and Warner channels, stripping subscribers of marquee events like the Olympics and March Madness. I expect the exodus to continue.

Interesting Recent News

The 12 Days of Pitchmas: Why Fubo is fundamentally flawed

• Revisit my comprehensive bearish thesis on why the underlying economics of Fubo’s sports-heavy streaming model were never going to work long-term.

Duolingo -

The bearish thesis is playing out exactly as expected.

I have no recent updates on Duolingo right now, and I am maintaining my bearish stance. If you missed it, please check out my article from a few weeks ago on February 27th, titled Deflating the Duolingo ($DUOL) Owl. In that piece, I reviewed the Q4 results for the company and provided a post-mortem on the bearish case I laid out during my ‘12 Days of Pitchmas’ series, where I detailed all the reasons why the stock wouldn’t work. Trading at $100 per share, Duolingo stock is down over 42% year-to-date since my bearish recommendation at the end of 2025. I believe a lot of the bearish case has already been priced into the stock, so I am not necessarily expecting the stock to drop sharply from here. However, until I see acceleration in the right KPIs, I think the stock will continue to underperform the S&P 500.

Interesting Recent News

Deflating the Duolingo ($DUOL) Owl

• My post-mortem dive into their Q4 results and why the growth metrics are failing to justify the valuation.

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Pinterest -

The ‘Trap Door’ has opened, and Elliott Management is trying to build an exit ramp.

I have no change in my bearish position on Pinterest. Please see my last article, Pinterest ($PINS) Q4 Earnings: The “Value Trap” Trap Door Opens. In that article, I argued that one of the few things that could help save Pinterest was if they explored M&A. On March 3rd, I wrote a note on the Substack app, which I will summarize here, explaining that Elliott Management, the hedge fund, had made a strategic investment. The “Value Trap” I detailed in my Q4 update just got a lot more complicated. Today, Pinterest announced a massive partnership with Elliott Management, confirming my thesis that an acquisition is now the primary path forward for this asset.

The Elliott Playbook: Buybacks & Board Seats

Pinterest is executing a major capital pivot backed by a $1 billion strategic investment from Elliott. Here is how the capital is moving:

• Massive Share Repurchases: The company is initiating $2 billion in near-term share repurchases.

• Accelerated Buyback (ASR): Of that total, $1 billion will be deployed immediately through an Accelerated Share Repurchase agreement.

• Elliott’s Stake: In addition to the $1 billion investment, Elliott will receive an initial delivery of approximately 80% of the total shares expected to be repurchased under the ASR agreement.

• Timeline: The ASR transactions are expected to be completed no later than the second quarter of 2026.

The Bottom Line: Activism = Exit Prep

In my Q4 analysis, I argued that PINS’ best hope was an acquisition. Elliott does not step in with $1 billion and a $2 billion buyback mandate just to be a “long-term partner”—they are here to put a floor under the stock price, consolidate control, and likely prep the company for a sale. By shrinking the share count so aggressively, they are making the “per-share” math much more attractive for a potential suitor like Microsoft or Amazon. I remain bearish on the company and think it will underperform for the year until we see more M&A news. However, the stock could go higher if there are talks of a sale or something more drastic. This skepticism persists despite recent results showing global users at a record high of 550 million MAUs and a revenue growth rate jump to 19% in 2024. Otherwise, I still have a bearish stance on the company because I do not think that Elliott Management’s money will help the operations run any better.

Valuation: The stock is currently down approximately 27% year-to-date at about $19 per share. On a GAAP basis, the stock is still not cheap, trading around 21x 2027 GAAP EPS. I would not short this, as I could see it go a lot higher in a takeout, but the business model has its flaws.

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• A look back at how strong revenue streams buy companies the time needed to fortify their broader business models.

CONCLUSION

Writing these weekly rundowns gives me a great chance to step back and survey the entire board. When we look across the landscape—from Meta’s ruthless cost-cutting to Netflix’s disciplined M&A avoidance, from Paramount’s daunting integration to Google’s quiet AI dominance—the theme is clear: execution and audience demand dictate the winners.

I want to thank you for joining me for this inaugural edition of the Accrued Interest Weekly Cypher! We covered a lot of ground today, and my goal is to keep connecting these dots for you every single week.

- Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

Check out this interview! I joined the Yet Another Value Podcast to discuss the evolving media landscape and do a deep dive into the recent Versant ($VSNT) spin-off from Comcast. We break down why the newly formed company might be a value trap, the hidden gem trapped inside its golf assets, and the upcoming bloodbath in linear television carriage negotiations. We also cover the future of NFL broadcasting rights and why financial engineering can’t save dying linear networks. Check out the article below for the full transcript, and be sure to watch the YouTube video or listen on all major podcast players such as Apple Podcasts and Spotify.

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Introduction

I had an absolute blast joining Andrew Walker on the Yet Another Value Podcast to talk all things $VSNT and the wild evolution of the media landscape!

I’ve been a longtime subscriber and a huge fan of Andrew’s work, so getting the chance to sit down and jam on media strategy, the Versant spin-off, and the broader streaming wars with him was a real thrill. We went deep into the weeds—including why financial engineering isn’t a strategy and how the audience will ultimately dictate who wins the living room.

A huge thank you to Andrew for having me on. If you enjoyed the conversation, make sure to subscribe to the Yet Another Value Blog for more great interviews and posts.

Below is a detailed roadmap of the topics we covered so you can jump to the sections that interest you most. Keep scrolling all the way to the end for a full transcript of the talk!

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Interview Roadmap

• [00:00 - 02:13] Introduction & Disclaimers: Welcoming me to the podcast, establishing that the discussion is not investing advice, and outlining the focus on Versant and the broader media landscape.

• [02:14 - 05:26] The Versant ($VSNT) Spin-Off Mechanics: An overview of Comcast’s decision to spin off its cable assets into Versant, drawing on my decade of experience supporting senior leadership inside major media companies like Univision and Hot 97.

• [05:27 - 10:15] The 2028 Protective Halo Cliff: Why Versant is currently over-earning and the severe implications of NBC separating from the cable channels’ ad sales department in 2028.

• [10:16 - 12:45] Valuation and Dividend Yields: Analyzing Versant’s recent stock bounce driven by its newly announced dividend, and why the stock might be overvalued at $35.

• [12:46 - 16:45] The AMC Networks Comparison: Comparing Versant’s declining free cash flow and enterprise value multiples to the historical trajectory of AMC Networks.

• [16:46 - 21:00] The Hidden Gem in Golf: Deep diving into GolfNow and GolfPass, the software and barter models powering this $600M+ revenue business.

• [21:01 - 26:17] Synergies and The Golf Channel: Discussing the lack of real synergy between the Golf Channel and the booking software, and the broader recurring revenue strength of the golf industry.

• [26:18 - 32:45] The Future of CNBC: Exploring CNBC as a potential trophy asset for tech companies or retail brokerages like Robinhood.

• [32:46 - 38:24] Podcasting and Self-Disruption: How finance podcasts and YouTube are disrupting traditional financial news, and the challenge of on-air talent competing with their own networks.

• [38:25 - 44:55] Carriage Negotiation Bloodbaths: Analyzing the precedent set by YouTube TV’s aggressive blackout tactics against Disney, and why Versant will get railroaded in future carriage negotiations without the leverage of NBC.

• [44:56 - 54:50] NFL Rights and the Streaming Ecosystem: Breaking down why Netflix won’t bid on a full NFL season, the domestic limits of NFL leverage, and why legacy broadcast partners will pay up to keep their packages.

• [54:51 - 60:02] The Nielsen Gauge and Wrap-Up: Wrapping up the hour-long discussion by highlighting the monthly Nielsen Gauge report series on Accrued Interest, which tracks the torrential ascendance of YouTube’s market share on big screens.

Full Interview Transcript

Andrew: Hello. Welcome to the Yet Another Value Podcast. I’m your host, Andrew Walker, and with me today, I’m excited to have from Accrued Interest, Simeon McMillan. Simeon, how’s it going?

Simeon: I’m doing great, Andrew. Thanks. Thanks for having me. I’m a first-time guest, longtime listener, and longtime subscriber as well.

Andrew: So I really appreciate it. I’m excited. I can already tell you and I are going to have a lot of fun—our energy is right on the same path. So I think we’re going to have a lot of fun here. Look, we’ll hop into it in one second. Remind everyone, nothing on this podcast is investing advice. Please see a full disclaimer at the end of this episode or there’s always a disclaimer link in the show notes. Simeon and I are going to be talking Versant in particular and media in general. So we’ll be popping around today. Simeon, the reason I reached out to you is I followed Accrued Interest for a while, but I mean, you have just been smashing the name on the Versant story, which is the spin-off from Comcast. I’ll let you give the full overview. So I want to talk about that in particular and then we can talk media in general. But I’ll just pause there and kind of turn over to you and, you know, what is Versant and why has your coverage of them attracted me to you so much?

Simeon: Sure. So again, thanks for having me on and I want to say hi to all the listeners on the podcast. We’ll follow up at the end with all of my handles and whatnot.

Andrew: I’ll include a link to Accrued Interest in the show notes if you want to see the articles I’m talking about, too. I’ll just throw that out there so people can follow you. I always want the guests to get all the likes, all the subscribes, and everything.

Simeon: Absolutely. No, this is a perfect intro. So as you opened up, I cover a lot of media, just for context for the audience, because I think it’s very relevant to how I describe the company. I have experience in investment banking, the buy side, hedge funds, and middle market private equity, but I spent about a decade working at basically an executive level or supporting senior leadership inside media companies. So I have a lot of experience in senior FP&A roles, ad sales, and investor relations. I worked inside the office of the CEO for Univision Communications where I got to see them work with a very similar set of assets as Versant. And that’s what brought me to this here. I wanted to have a different view on the company. There’s a lot of newsletters out there that cover spin-offs. And I think a lot of the alpha has come out of spin-offs recently. You can’t just mindlessly buy them. And I think for the most part, a lot of investors had a good read on Versant. This is one of the last spin-offs. We’ve been spinning off cable networks and TV networks for almost a decade. So they’re very late to the game. And so I wanted to see what was actually there. And then I wanted to see if there’s any strategic value, let’s say if something happened with Paramount, Skydance, and Warner Bros. I started looking at this before that whole merger saga. I came to his conclusion and it might still not be over.

Just to dive into the name Versant to clarify for the listeners. It’s a spin-off of the cable assets from Comcast Universal. So when Comcast Universal separated their TV assets, they put everything in Versant except for two, call it three, assets. They kept the NBC network, the broadcast network, and Peacock. They obviously kept Peacock, the streaming conduit for NBC, as well. And they also kept Bravo, which is a general entertainment network.

Andrew: I was just laughing because you said they put everything in except for it. It’s like they put everything except for the things that actually matter, like the real good stuff. Bravo is kind of funny that they didn’t put it inside here.

Simeon: Yeah, I did think that that was kind of funny because Bravo is what I would call general entertainment. But they decided that that was the one that they wanted to keep. So anyway, so the spin-off happens. Okay, just to skip ahead a little bit. So this is a little bit the opposite of what happens with Warner Bros. Discovery and their linear spin-off. This spin-off was not done under duress. First of all, so this has been a long time coming. Why now? It just so happened to be now. There’s a key date that I want your listeners to keep in mind for 2028 because in 2028, that is not only the time when the spin-off is no longer held back from doing M&A and other strategic deals that could threaten the tax-free nature. In 2028, NBC is separating themselves completely from the ad sales department of these cable channels.

It is very quickly for your listeners: I think a lot of investors, and this is where I try to add my edge, pay far too little attention to the mechanics of what it takes to actually sell advertisements. It’s actually a very difficult thing to do. And you can’t just pop up and sell ads to a hit show overnight. So this law puts in takes. What your listeners need to know is that right now, all of the financials inside Versant, I would argue, are over-earning. They’re over-earning because up until today, they’ve had the protective halo of the NBC family. And this gets especially relevant because Versant wants to really market itself going forward as having strength in news and sports for live events. Well, we can get to news in a second. The news is MSNBC, but I actually think that you can sort of ignore the news and the politics of it. Let’s just look at the sports. The sports rights that they have are really just a compilation of sports rights from the NBC portfolio that they didn’t have room to put on the NBC network. Like that is in a nutshell, what the assets are.

And then I also want to point out to people, and we talked about this more, when entertainment companies sell ads, the ads are sold through sales teams and they’re sold in a packaged way. Usually, you cannot just buy one show or one event. It’s always done as a portfolio, as a formula. They use the stronger content to help sell the weaker content. Well, the biggest thing your listeners need to know is that the Olympics with football slash the Super Bowl—the Super Bowl rotates networks every three to four years. As your viewers know, those two marquee sporting events were the ones that I think were forcing advertisers to buy all these other networks. So a big issue I have is that whatever forecast you want to make, it changes completely when the ad sales relationship separates. And the baby is no longer under the protective parent of NBC. So I’ll jump to the conclusion: I rate this underperform, not just because the fundamentals are deteriorating, but because they can’t do the strategic moves and need to get out of this. And I don’t know how you can put a multiple, I don’t know how you can put a dividend yield on the company until we get past the 2028 separation.

Andrew: There’s one other piece, and again, this is why when I was reading your piece, I was like, I could imagine a younger me seeing this spin-off. When I was following all the Paramount/Warner Bros. stuff, you know, they come on and you would hear the CNBC host be like, we’ve never seen a stock with this much selling pressure, right?. And these are generally well-reasoned guys who like, not that they’re investors, but they’ve seen a lot and they’ll be like, it’s just the selling pressure is relentless. I remember, I think it was David Faber, who’s like, this is a coiled spring, and David Faber is generally very measured when he’s talking about something. So you look at this and you say, Oh my God, they spun off and yes, I get it. These assets are terrible, but they’re kind of trading at four and a half times, five times, and you’re not the only one. They’re shitty, but they’re not AMCX shitty, you know, so you kind of see that. But then your piece is the one where I really started thinking like, Oh my God, the one thing you didn’t even mention, which you’ve pointed out. So it’s not that you didn’t see it, you just didn’t say it in the rent. I mean, we didn’t even talk about, Hey, the carriage was done under this umbrella of the NBC umbrella. Right. So there are carriers too. But then you start thinking exactly what you’re saying, like, Oh my God, when they go to do these advertising to like, Hey, does anybody want USA Network? Does anybody want USA Network in the sports portfolio? And I’m going to talk about all this, but I was looking at the sports portfolio and they love to come out and they say, Hey, 60% of our viewing is live news or sports. This is what you want. You’re like the sports portfolio. They are going to get, as soon as they’re out of NBC, they are going to get the worst of all worlds, right? Because right now NASCAR, they love to say we’ve got four NASCAR races. I think, as you said, they’ve got the four NASCAR races that they couldn’t put on NBC. Well, in 2028, when they’re out from NBC, either NBC is going to say, Oh, we’ll take those NASCAR races back, right? Or NBC is going to say these things suck. All right, Versant, go bid for them, but they’re there. They’re so small. Like all their sports rights are going to be gone. It is just they’re in a tough spot. So I rambled a lot. I just want to throw that all out. Perfect.

Simeon: No, no, it’s, and along the lines, what you’re saying, what I think is interesting is that as I mature as an investor and making content, well, making content for a living, excuse me, will make you a little more contemplative. I want to try to go behind. I’m going to steal that from yourself.

Andrew: I love that line making content for a living. I’m going to steal that from you. So that is fine now.

Simeon: Oh, please do with the crisis we got on right now. There’s a lot of content to be made, but we’ll get to there in time. But yeah, no, and I think it was also interesting too, is because you have this sort of holding pattern until the time runs out in one to two years, I think I want to put on people’s radar. I actually think under the right circumstances, there’s lots of bits and pieces that different middle market private equity players could probably want a part of. But let me tell you this, Andrew, I know this from experience working inside Univision and working with and looking at other similar companies. Everyone internally, I guarantee, knows exactly what the stakes are. And I think, and we can talk about this more, you begin to see little, I want to say tricks, but little cues and tells what they talk about, what they choose not to focus on, what they do want to focus on because they themselves, if you put themselves and see the management here, okay, we like to talk about incentives; management knows that their hands are tied. They literally couldn’t even sell the company if they wanted to. So something that made me laugh a little bit. I don’t give action alerts and I don’t pitch a portfolio with precise buy and sells. I think this is underperform, but the stock has rallied recently. And why was that? Well, it’s because on the quarterly earnings last week, which we can talk about, it wasn’t because of anything they said with the actual performance. It’s because they announced a relatively large dividend, a dividend, which comes out to about $1.35, $1.50 a share, I believe, which around $35, $36 a share comes out to about four, four and a half percent dividend yield. And so with the dividend announcement, it forced the stock to rerate. And I’m not sure when this is going to air, but the stock is currently trading around $35, $36. So it’s bounced off of the lows a little bit. In my analysis, I want to be conservative. I think that this is probably worth $27 a share. And I look forward to 2028 and I put a multiple on that. And to your point, you bring it full circle. I actually think this is very much like AMC. And in the article, I actually showed that if you adjusted their multiples, the stock price is the same where it was about three months ago. But I can say, so AMC networks at the time was trading at about seven and a half to eight times EV to free cash flow. Enterprise value to free cash flow is sort of my version of owner earnings that I tend to use a lot on Accrued Interest. So AMC was at about seven and a half times that in 2028. And then on my adjusted math, I said, Oh, yeah, Versant is trading about seven times the 2026. But that free cash flow is rapidly falling. Free cash flow is falling between 15 and 20% a year. It’s scary out there.

Andrew: You know, I think one other thing, and this is just technicals, but I do think people were shorting Versant against the Warner Bros. just on the, because Netflix won and there was the Warner Bros. spin. I think this was the, nobody wanted to sort of that Warner Bros. spin. So you had this and it’s not lost on me that the day Paramount won the bid, this was quite a bit. Let me go. So we’ve been pretty negative and I want to come back to all the reasons to be negative. But the other thing I found really interesting in your article is, you know, I read a lot of these spin-off presentations. If I read most of the Versant material—particularly about the tee time service that they have—just as a general observer, my first instinct was these guys are smoking something right there. There’s no value there. Like they’re just desperate. They’re trying to get something to hang their hat on so that people can get excited. And it’s not lost to me like golf, you know, who buy stocks? It’s generally old white men who like to golf or your key buyers and they run a lot of portfolios. Right. So it’s not lost to me. That’s something you talk up and like it excites your customers. But your article was the first time I saw like, Oh my God. And they, I knew they’ve mentioned like, Hey, it’s about 10% of the subs. But your article was the first time the math got laid out and I was like, Oh my God, they might like actually have a growth category killer like the type of thing that a private equity firm might really pay and get behind. So one of the things I liked about your article was it hammered the stock, but then you pointed out this and a few other ones we’ll talk about. But some hidden gems in here. And I’d love for you to just talk about a little bit the golf play in particular the tee time business if we can. So the listeners have a little bit of upside or, you know, if the stock crashes, something to hang their hat on.

Simeon: Sure. So, speaking of the golf assets. So everyone can know what we’re talking about. The way I’m going to tell you how they present the business and how I think about it. So they put the golf assets together. All right. And it’s about a 50/50 split in terms of revenue. So it’s about 600 million, let’s say, on each side. So you have the Golf Channel, which I’m going to say right now, I think has no synergies with this golf business. I don’t think it, no, no, it’s, if they want to advertise, they can advertise on it. They only don’t.

Andrew: It’s the type of thing. It sounds good. It’s one of those one plus one equals 1.5 mergers and people come out like, hey, we’re merging. I’m trying to think of a good recent one. But, you know, we’re merging. You’re like, you could solve that with a contract. You could solve that with a license. Like, you absolutely do not need to have these two businesses together. I’m trying to think of another good one, but I completely agree with you.

Simeon: Oh, I can give an example right here. And we’re seeing this with the NFL and the NBA. There really was not that much value in the NFL network. There really wasn’t, and same with NBA TV, you know, with Warner Bros..

Andrew: NFL network was a tax, right? You know, you’ve been doing this long enough, you know, 10 years ago, RSNs, and I fell for it. RSNs were the crown jewel in a portfolio, right? They were the best things you could buy. And the NFL network basically formed their own RSN and was like, hey, four NFL games a year. You’re going to have to carry this out in channel because everybody loves the NFL. And then, you know, there’s no need for them to have it now. So, I think that’s a pretty good one, though. I’m sure we can think of some better ones if we came up with it.

Simeon: So with RSNs and all the numbers I’m giving are highly estimated, I triangulated. Please do your own research at home. I just want to point out the company has never provided specific numbers, probably for a reason on the most recent call. If you read between their guidance, the GolfNow business is probably growing at mid-single digits. Maybe high-single digits if that. So I just want to say that. So we got the Golf Channel about 600 million in revenue and falling because it’s losing carriage or will be losing carriage because it’s not a must-see channel, because, as your viewers also know, the must-watch golf events aren’t even on the channel. But so back to the actual software business. So the business is GolfNow and GolfPass. I think it’s about 600 million in revenue. And what it basically is, is they have somewhat of an oligopoly. And I’m sorry, I don’t play myself, but for any listeners who do, there’s a recurring aspect to it. There’s software. In the article, I was saying how what’s interesting about it is that they’ve been able to get more traction, they’ll be able to cover more golf courses by selling the software through a barter model. So in television, where I’m used to barter, a lot of times companies will exchange advertising for airtime in another show. Okay. So barter, you trade my ad time for your time. In this situation, what the golf courses do is Versant or GolfNow says, Hey, look, instead of paying us for this booking software, you give us a percentage of your inventory of your booking fees effectively. And what’s interesting is that this aspect adds a little bit of an inflation hedge to the business because you have a natural revenue uplift.

Andrew: Can I drill in on that? I’m sorry. So are they saying, Hey, you know, golf course X, we want 10% of your inventory. If you’ve got an 8 a.m., a 9 a.m., a 10 a.m. slot, we’ll take the 8 a.m. slot? Or do they say, Hey, every time someone books through us, you know, we’re just percentage of sales. If somebody pays $50 for the tee time, we’re taking $5. Which one are they, which model are they following?

Simeon: I’m not sure exactly the mechanics of the sales agreements, but I think it’s probably much more percentage based. I would guess so.

Andrew: The former is interesting, but it would make sense. I mean, this is, if I remember correctly, this is largely what Mindbody does. This is what Doordash does. This is completely, completely standard. But I think it’s a very interesting model. Please continue and I’ll add stuff at the end.

Simeon: Sure. So they have this model. There’s a whole separate research vertical. If I was younger doing this, or this was a standalone business, I would say, Hey, I think golf is actually still growing. It had a big burst during the pandemic. I thought it was a fad. I did a little research. It turns out it’s not. It’s still growing. It’s a healthy sport. I think it’s a good business. But the key thing to know, and this is what I always have to remind myself, is what is material to the stock. This 600-ish, 700 million dollar revenue business is not growing fast enough with margins high enough to really make noise in the equity story. And that’s why if you go inside the filings, they break out almost nothing. You really have to work hard. I would argue that if you actually look at how little they tell you about the golf business, Versant basically talks about the golf business as, look, they say we have these other growth businesses that are creating enough revenue to offset the declines of our media businesses. Okay, so I gave a little overview of the mechanics. I think it’s an attractive business, but it’s clearly being trapped inside of the structure. And I can see this being one of the assets that at a later date, probably is going to find a new home.

Andrew: Look, it’s interesting because everything about this business reminds me of Mindbody, right now Mindbody. The nice thing is you tend to book gyms. I mean, Mindbody for those who don’t know is the software that if you do boutique fitness, they power most boutique fitness gyms and stuff and some other stuff. But, you know, that business, it was years ago, but it got acquired for like, I think it was seven or eight times revenue, right back in early 2019. Now, this is before the SaaS sell off, interest rates are zero, all that sort of stuff. But I could imagine having golf course inventory, you know, boutique fitness, there’s a hundred, two hundred, five hundred clubs and they’re churning a lot like golf. I could imagine once you get golf, if you get exclusive rights, like pretty damn sticky. It’s not like there’s 15 golf courses changing every month. You get one, you lock them in, people get used to it. I could imagine it’s a pretty damn good sticky business. As you said, inflation protected. I could imagine it being a pretty, pretty high multiple business. So that’s what I think so interesting because again, when you’re paying five times EV/EBITDA for the whole thing, and we’ve talked about how EBITDA is falling off a cliff. But if you’ve got a little, you know, let’s say it’s a four times revenue business that’s growing five percent per year. You said it’s 600m right. I mean, it starts adding up really quickly and you start to get to really interesting sum of the parts. So I don’t know anything else on the golf business you want to talk about?

Simeon: Well, no, that was the crux of it. I think that in the news, there have been some reports, again, more on the Golf Channel side, and there have been some reports speculating what moves Versant could do to get studio space for the Golf Channel, because one of the many questions of what they’ll do without NBC is, okay, where do we get studio space where we get equipment. I’m less worried about that. They’ll probably work it out. But yeah, the golf part is the most interesting aspect. All the other sports are really just trash.

Andrew: It’s so funny. It’s like, where are they going to get studio space? It’s like the Golf Channel is declining, like crazy. And by the way, have you seen the stock prices of some of these offices like the AI revolution is here? I’m sure they’re going to be able to find a warehouse to stuff a bunch of people in it if they really need to or something. I don’t know.

Simeon: I would say so. Let’s ask what you want to talk about next.

Andrew: I want to talk about one other interesting asset that I think has a lot of upside and this is probably their trophy asset. I would say you could correct me if I’m wrong, but CNBC. And I mean this in a few ways, you know, CNBC. I think it’s so interesting because look, it’s a bedrock of the financial community. Yes, people like to go on Bloomberg television, but as the CEO said, I was just at Davos and you should see all the business people want to talk on CNBC, right? If the administration wants to send somebody out to get an economic point, they send them to CNBC, right? So it’s got that brand name. It’s got a little bit of a dump. I think there’s a lot of interesting and you explored them in your article. There’s a lot of interesting possibilities and levers you could pull. But at the same time, I kind of look at them like, Hey, man, okay, yes, it’s nice, but it’s CNBC. You know, they’ve stubbed their toe a lot on launching financial networks. It was like, is it that great that in two years, you know, Bloomberg’s out there. There’s a lot of other competitions. It’s a legacy news network. I could imagine it’s getting undercut in a lot of ways. So I could see upside and downside and it’s probably the crown jewel. So let’s just spend a minute talking about CNBC and kind of what you see for that.

Simeon: Sure. So I think that you’re very astute in your recognizing the disruption risk in CNBC. That’s actually something that I had to write the article again. I’m going to explain to you why I think that CNBC actually has similar disruption risk to MS Now, a very liberal network. I just want to say, I actually have extensive experience in radio. My last corporate role. I spent about three years in what actually was a carve out of radio stations, Hot 97, WBLS with some billboards, a random combination.

Andrew: And so all the radio stations have billboards. I mean, the old CBS outdoor billboard, they always got mashed together. And I guess it was because it’s a local sales business, I guess is why, but they are, or maybe it’s because 50 years ago, they were the best business, you know, but for some reason, radio and billboards matched made in heaven.

Simeon: All the above. Yeah, radio, billboards and television. And I got to talking with a head of programming over the years and learned a lot. And he explained to me that liberal talk radio and conservative talk radio are really different products. And I think that as that’s true in radio, that’s also true in television. Okay. But what I think is similar between CNBC and MS Now is I think both financial news reporting and political talk, I think it’s clearly being disrupted by podcasts. You know, you have cross-pollination. You have CEOs, finance people who will go on lifestyle podcasts, like Rogan or Theo Von or other stuff and break news like that. You have financial people who will go on podcasts like the All-In podcast. It feels like a lot of investors have their own podcasts to break news. You have companies with it.

Andrew: They come on this one, whatever they want to, my friend.

Simeon: Exactly. Did you see the one? I don’t butcher her name, but it was the CFO of Meta. And she had a hat that said Free Cash Flow. And she was on someone’s podcast wearing a hat that said Free Cash Flow right before they hiked their CapEx forecast and killed their free cash flow. But I digress. The whole point is that I actually agree with you. I actually think, in time, I could see CNBC getting slowly disrupted by just the proliferation of podcasts. Yes, I think that another tricky part about CNBC is that CNBC is very much a channel that’s tied to the linear bundle. I think it’s one of the last channels that will be left standing as the bundle keeps shrinking. And it keeps whittling everything away. I tell people Fox News will be the last channel in the cable bundle. If it was a battle royale, I think close to the top five, you have CNBC that would make the cut. But yeah, I think they have some obsolescence risk. I also know that CNBC is looking to try to sell D2C to try to sell some more high value subscription financial news products, join the club. I think that everyone’s got a Substack as we both know. So that’s a little, that makes sense on paper. But I’m not sure how much incremental revenue there is. I’m going to get to the point. I think CNBC would be a great trophy asset. But you need a trophy buyer who is willing to pay a trophy price. And I think it’d be a great trophy asset for a large tech company that sells stuff. Because they have one of the highest average income audiences out there anywhere. So an Amazon, just anyone. In my piece I threw out there, and this is really a pie in the sky, a Robinhood.

Andrew: If they want to have a news, you must have seen in my mind because I could see it, right? Like Robinhood. You know, you think about all the E-Trade use, integrate with Yahoo TV, I think, but you could see how a Robinhood integration could make sense. You could see how integrating this to a data provider, right? Like S&P or something. Because it does have a brand name. And as you said, you could see a lot of different ways. And I am really interested in the D2C side. CNBC still does break a lot of news. You could imagine like, Hey, a professional tier where the news is getting hit on the professionals tier 10 minutes before it’s hitting. I’m not 100% sure, but it does seem like there are a lot of options. I will tell you that I think CNBC is mismanaged. CNBC’s YouTube presence sucks. How can CNBC’s YouTube presence suck because it feels like that’s a place where a lot of these stories are pretty topical. It feels like they should be doing more. They’ve got several different channels. But the one I looked at, it just had like months old stories, very little views. They do have one that kind of runs little clips, but it just feels like an untapped asset that has a lot of different levers. And it feels like, maybe my imagination is too wild for like a legacy brand, but it feels like they weren’t really pulling the right levers or really looking to maximize its value here.

Simeon: So here’s my thoughts on that. I think that, and this is where I’m not predisposed to defending management. I’m not rooting for any side in this. I think investors are right to push management and to be skeptical and make sure that the thing is forthcoming as they are. However, I would say what I like to talk about on Accrued Interest is what it’s like to be inside the boardrooms of a lot of these media companies. And I can tell you if there is an overarching theme of year one of Accrued Interest, I’m coming up on my one-year anniversary of launching a Substack in a couple of weeks, about 1100 subscribers in the first year, which is more than I ever would have imagined. A piece of the overarching theme that comes up is that YouTube competes with everything and YouTube is the force. It’s the force in the ether that we don’t talk about, but it matters. I can tell you from having built revenue models, YouTube—putting your content on YouTube, if you’re a legacy television video provider, it’s a devil’s bargain. You have to do it, but the economics are horrible. So you try to do as little as possible.

Andrew: Yeah.

Simeon: So if you ever see someone whose YouTube presence isn’t as big as you might think it should be, or it needs to be, it probably is for a reason. But to your question of, well, is it mismanaged or what they could do? I think that another tricky part about media is the unbundling of all aspects of media. Let’s focus on video. Okay. A big reason why Versant is in the position they are is because the whole streaming ecosystem, I think, made the whole concept of a network irrelevant, because as you search for something, a show is a tile on the screen. And I can tell you most people really don’t know what show comes from what network or what studio has made it. Now another problem where I actually have some sympathy for CNBC, MSNBC, ESPN, really anyone who wants to try to do news, is that all these companies were forward-thinking. They let their talent do podcasts; they let their talent go out there. But what ends up happening is that your talent ends up competing with you. So I don’t have it in front of me. I’m not sure of a list of all the talent on CNBC. I’m more of a Bloomberg watcher. It’s a little calmer. It’s like easy viewing. It’s like lazy viewing for me in the background. But I know from the Bloomberg anchors, almost half of them have a podcast. Okay. You know, and they go on other people’s shows. And so what happens is that just by nature of existing in the digital ecosystem, you have no choice but to disrupt yourself. And that is an observation you made in that piece that you wrote. I want to say this last week, where you’re prepping for your webinar that you’re going to be hosting on Netflix. When you point out, Andrew says, Hey, Netflix outperformed every other media stock over the last 10 years. And sometimes it literally is just that simple. Like, I really do think that sometimes a lot of these media companies are structurally handcuffed and they can’t make the changes. But yeah, to your points. I think CNBC probably could have done more, but short of bringing in some of the podcast guys. You know, if you look at ESPN, ESPN, I think is a good example here of what CNBC is probably going to have to do, but it’s not ideal. So are you familiar with the Pat McAfee show? So Pat McAfee, for any listeners not familiar, he was a sports podcaster. He was a former kicker.

Andrew: Right. Yeah.

Simeon: He wasn’t like a superstar. He wasn’t dating a pop star, but he built a great show, a big following. And now ESPN licenses his show and they paid him to take his show off of YouTube. And now he’s on air on ESPN. He’s tussling with them. I could see a business model where maybe CNBC goes to the All-In guys or another finance podcast and says, Hey, you know, maybe we don’t need Jim Cramer on for two hours yelling at people.

Andrew: It’s funny to say that. Cause I think Jim Cramer is there. Stephen A. Smith, and it hits me now Cramer is older, but when you look at their desks, every CNBC has him, but I think you’re onto something. Right. Like you think about, I have not watched CNBC in so long, but you think it was like, they’ve got Cramer. They’ve got the Fast Money traders, like you could imagine where it kind of, as you’re saying, it kind of hybrids like ESPN has SportsCenter, which is the news, and then they’ve got, you know, Pat McAfee fills a big block. They’ve got a lot more personality-driven shows. You could imagine a CNBC where they break it into, Hey, we’re going to have the news for part of the day. And then we’re going to start licensing. And you know, maybe if people love Andrew and Simeon, maybe it’s we license the Andrew and Simeon show to talk about media or, you know, but you could imagine that’s where it’s going.

Let me go back to Versant 2028. We talked about, they’re boned in a lot of ways. Right. First, they’re going to lose a lot of these sports rights that they share with NBC, whether it’s the Premier League, NASCAR, a lot of others are going to kind of come out of that. And I think they’re going to get the negative end of every single one of those situations. And that’s just a scale thing. Right. USA is going to reach 70 million people and be getting 10 cents a head. And NBC is going to be reaching 100 million people and be getting a dollar a head. They can just pay a lot more and distribute it to more people. So I think they’re screwed in ads. The other interesting thing I think is, look, they gave 2026 guidance and I can’t remember if they gave 2027 guidance. I can’t remember, but no, they didn’t. Yeah, they haven’t, but 2028 is where the big cliff of where the majority of their subs are going to end. And they even said, look, we’ve negotiated this under the NBC umbrella. How bad, when they go to Cox, or I guess it’s going to be Charter, when they go to Charter, when they go to the old mothership, when they go to Comcast, when they go to Verizon, and they say, Hey, we’re here to renegotiate. And we’re negotiating, you know, just for USA, CNBC, MS Now and whatever rump of other channels they have. We don’t have NBC. How bad are these renegotiations going to go?

Simeon: I think they’re going to be completely railroaded. I think that a lot of these channels are going to absolutely drop carriage, that they’re going to lose their spot on a lot of different providers. So here’s something I want to contextualize for your listeners. A lot of my pieces on Accrued Interest are trying to point out the media stories that aren’t necessarily financial, but I think are really important. I think the most important television strategy negotiation was last fall, when YouTube TV gave Disney a black eye. YouTube TV, I think it was for maybe several weeks, had what was the most contentious cable carriage dispute with Disney channels.

Andrew: And they did something even more contentious than the Charter one prior. Yes.

Simeon: For this reason, Andrew, because for the first time, I call it shooting the hostage. YouTube said, we’re not going to fold and they let their subscribers miss, I think, two weeks of NFL games. They missed NFL games and they missed some college football games. And for your listeners who aren’t familiar. So I’m an elder millennial. Okay, I’m an 86 baby. So I remember TV in the old regime. And for those who aren’t familiar, when there used to be a negotiation between a local cable company and your local channel, if they had an NFL game, it was a wrap. The cable company was going to have to fold because they could not deal with everyone being mad.

Andrew: The executives were worried that their subscribers were going to come with pitchforks. If they missed an NFL game, the subscribers come with pitchforks and just force them to take the settlement.

Simeon: 100%. So to get to the point and answer the question, I think that, while people weren’t realizing it, we entered a new, more contentious set of carriage negotiations and we’re in a period now where channels are just getting dropped and staying dropped. So Disney on their latest call had a huge charge—like hundreds of millions of dollars—for being kept off. And this is where it gets really fun. YouTube not only bloodied them, but YouTube set a precedent where they basically said to Disney. And this is really where Versant is going to get killed. YouTube set the precedent: okay, you know, we’ll carry your channels, but you’re going to have to give YouTube TV subscribers for free all the goodies that you were giving to your subscribers, ESPN+, you’re going to have to give them away so they can ingest that content, all those WWE pay-per-view events, all those UFC pay-per-view events. Yeah, we’re getting that for free.

Andrew: Let me pause you there, because one of the most interesting things, and I still don’t quite understand it, is Charter’s Q4, right? This is much talked about, and I still, probably because I’m not as deep in the weeds. Charter’s Q4, for those who don’t know Charter, they own Spectrum, a big cable company, about to merge with Cox. They’ll, I think they’ll be the largest cable company, even bigger than Comcast after. They reported a surprise increase in video customers. And now there’s a lot of things going over. One quarter does not make this a trend. But I think one of the things they’re saying is, look, we’ve succeeded in our negotiations because they had a contentious negotiation with Disney, and they’re doing a lot of things that you’re saying. They’re saying, hey, if our subscribers are going to pay you $10 a month for ESPN, then Gosh darn right, they’re going to get access to your DTC service. You’re going to have to let them connect. And I think that’s what’s driving it, but I’d love, what did you think of the Charter Q4 video number?

Simeon: Sure. So full disclosure, I don’t cover Charter extensively, so I was not familiar with that. I can tell you, it did not register to me, partly because in my tracking notes, for the last one to two years, almost 100% of the net customer adds in the pay TV bundle have come from YouTube TV. I forgot what analyst it was. I’m not sure if it was MoffettNathanson, but I track the numbers myself. If you just add up all the pay TV losses from all the distributors, and then the industry gains, it pretty much all came from YouTube. I’m not sure as much what that short term was for Charter, but cord-cutting is still happening at an egregious pace.

Andrew: Here’s an interesting question. So I think the next big shoe to drop, and you can correct me if I’m wrong, right? But I think the next big shoe to drop is the NFL wants to get all their, you know, despite the fact they just signed a new agreement. I think the current agreement runs till 29. I can’t remember for sure. They’re signing a new agreement this summer, right? They basically go to the show and say, they’re signing a new agreement. And I think there’s two interesting things about that. I don’t think people realize like the Fox network, and I’m just going to be a broken record. I’ll say this on 15 different podcasts at this point. But Fox, there’s no point for them to exist without NFL. And that is one of the big four broadcasters. If they lost the NFL, I think that network goes away, basically. So getting the NFL is existential for them. ESPN. Now ESPN is probably in a good negotiation position because NFL owns 10% of ESPN at this point. But ESPN, I don’t think it’s quite existential because they do still have NBA and other stuff, but come on. If they lost the NFL, I mean, that whole network, especially because not just NFL itself, but all the tail programming stuff, like they got to have the NFL, I think. So borderline existential for them. Paramount, kind of existential for them. They do have other stuff, but I don’t think people realize when you’ve got three bidders that are existential there, how crazy the bidding is going to get here. I mean, I think NBC wants it. You’ve got all these players. I think Netflix keeps saying we’re not going to do a whole season, but Netflix seemed very happy with how the Christmas games performed. Amazon’s been very happy with how they perform. So the two things I’m driving to here is A, how crazy do you think the NFL bidding is going to get? But then B, YouTube, which you mentioned is the biggest growth. And I think YouTube can be so interesting because it’s the biggest growth. And as you’re saying, the channels are breaking. YouTube TV has, I believe they have the new Sunday ticket, right?

Simeon: Yes.

Andrew: Why wouldn’t YouTube TV just take a package, right? Say, hey, we want that Paramount Sunday NFL games. We want that package, right? And now maybe the NFL doesn’t want it. Maybe they still want distribution parity and maybe they want a broadcast. But if you’re a YouTube TV and you take that package and you cut out the middleman there, I mean, your numbers go through the roof. You are the TV channel at that point. So I threw a lot there, but the two questions: How crazy does the bidding get and why wouldn’t YouTube, or I think YouTube TV is the best positioned for this? Why wouldn’t YouTube TV or Netflix just take one of these packages?

Simeon: Sure. Here’s how I would frame it for your listeners. And here’s how I sort of think about it. I think that things change in television faster than you realize, but maybe not as fast as sometimes the headlines might seem. A key thing to keep in mind with the NFL is the NFL is overwhelmingly a domestic sport. Okay, so they don’t have, they’re trying to get more international reach. Your somebody listening is probably tired from getting up early when they find out one of their teams is playing in Paris and then they didn’t check the schedule. The NFL is still very much tied to the US, which means for better or worse, no one would disagree that the NFL is worth more money. And I think that a little belatedly the press figured that out. Yes, the NFL has leverage to get more money. I think the press and I think some investors might be a little bit ahead of themselves. Let me talk about some of the limits to how much the NFL could actually squeeze. And this is where you think about the pull and take of both sides. So the NFL is domestic. And the most important thing for them is that their games are seen by the most viewers possible. That is different from an F1 or an MLS who we’ve seen, they’ve sometimes taken a bigger package to go with Apple TV. The NFL cannot do that. So the NFL actually can’t play but so much hardball with the broadcast stations because at the end of the day, the NFL can only move as fast as the audience. And if there’s anything that your listeners take away from this: I think you can make yourself a better media investor if you think more from the audience and the ad buyer. The audience is moving away from linear. They are. But they’re not going to go all streaming in two years or three years.

Andrew: So the NFL... Can I push back on you a little bit there? Go ahead. I do agree. And especially the last time that they had their media up, which was only like two or three years, but it’s crazy how fast time flies and how we’re already in another one. There was the argument. You know, a lot of people were saying what I’m saying. YouTube TV should take up the slate with Amazon. People said, no, they went on the broadcast. And I think another thing to remember is the NFL, a lot of the owners are much older. And I do think that influences where they want, you know, if you go to the owners and you say, Hey, Apple TV is going to give us six billion. That’s more than the Paramount five billion. A lot of the owners would be like, how do I get Apple TV on my TV? I’m being a little facetious, but six versus five is a lot. But I hear you, but let me push back. They did the Netflix two games on Christmas. They did an all-streaming wildcard game. So I certainly hear you. That’s not the whole playoff slate, but they did an all-streaming wildcard game. I think people are getting comfortable with this. And I think the road has been paved, right? They’ve got the, you’ve seen NBA on Amazon, right? That’s all streaming. And I think that’s doing quite well. How much do you trust the numbers? I don’t know. But you know, that seems to be doing well. So the road’s been paved a little bit. And I do wonder, you know, whether the NFL is probably going to split the difference and go to CBS and say, Hey, the CBS package is all these AFC games, except for three that we’re tossing onto YouTube and take it or leave it. But I do wonder how much that... I think the audience is there, I guess is what I’m driving to.

Simeon: Okay. So here’s another. I think that I want your listeners to think about. The reason why I don’t think the more extreme scenarios you laid out—or rather the reason why I don’t think you’re going to see Netflix bid for a whole season or a larger package or even YouTube bid for a larger package—is because at the end of the day, the video product is the lowest margin. I’m sorry. The sports video product is the lowest margin part of the business. It just is. It’s far more profitable for Netflix on a per-hour viewing, you know, for like a cheap drama. You do the big expensive content because you have to because it expands the tent. There’s lots of reasons. But on a per hour basis, if you did like the optimization math, you know, and what Netflix is doing. And I actually, so I will push back a little bit. I actually think it’s funny that people have this skepticism for Netflix. I actually think Netflix has been the most consistent. And I actually think that they’re telling the God’s honest truth. Netflix realizes that in the whole season, there’s a lot of games you don’t want. Okay. And I think I also push back on you on the NBA a little bit. I think the NBA gets a bit of a bad rap. I think the NBA is funny. The NBA people poo-poo it because it’s not the NFL, but they completely overlook the fact that it’s light years ahead financially of NHL and MLB. I think the last package for the NBA was aggressive, but yeah. But no, back to why you’re not going to see Netflix do this. Netflix has shown you, and there’s a lot of games that you don’t want. And everyone likes to talk about how the NBA season is too long. There’s a lot of NFL games that Netflix doesn’t want. Is there, is there NFL games that you don’t want?

Andrew: I’m sorry. Are there NFL games you don’t want? Because I mean, the Pro Bowl, which I don’t watch. Everybody always says is a joke. The Pro Bowl gets more viewers than the NBA Finals does. I don’t know if there’s actually... The game, the, you know, the Germany game where you sent the two and nine Jets to play the four and seven Dolphins that starts at 9 am. That gets huge numbers. I don’t know if there’s any NFL games that you actually don’t want.

Simeon: I’m gonna push back. They actually redid the Pro Bowl for the NFL. Yeah. And it’s actually a shadow of itself.

Andrew: It still gets huge ratings though.

Simeon: No, it actually doesn’t. No. They changed the NFL Pro Bowl to a flag football game and it has worse ratings in the last 30 years, but here’s the thing.

Andrew: Down 60% year over year this year. So I would have been right until this year. Okay.

Simeon: Let me tell you something. It’s what I love about media, is that a lot of times the narratives don’t always match the ratings. And the NFL is such a religious brand that I actually think that people are far too hesitant to criticize them. But I digress. What Netflix is good at is... you’re absolutely right, an NFL game is the most valuable unit of television. Let me rephrase it. Netflix is the king at finding the piece of content that has the most juice. All right. And taking that out. So Netflix is one of the areas, the Home Run Derby. That’s a perfect example. You know, they’re not even wasting time with the games. But Netflix got the World Baseball Classic rights for Japan. With the NFL, if the owners would let them surgically carve out the package, they would. The problem is they can’t. The other reason why I do think the NFL is going to keep all the same broadcast partners: you keep all the same broadcast partners because they need that coverage in the United States. And there are still some places that only broadcast TV can reach. And they’re not going to get Netflix and YouTube and the other guys to bid for a whole season. Not in the future. Yeah, they could. But I think the NFL negotiations might not be as big of a game-changer as some people think. So we’ll see.

Andrew: I agree with you. I think they’re going to keep all the same partners. I just think like all the same partners are basically going to bid their enterprise value to get it. It is existential. And I do think it’s existential. I think they’re going to bid huge numbers and they’re going to get worse packages in the same way that ESPN for the NBA rights, they bid a big number and they got a worse package. And that was the NBA, which I love. And I think it’s got a lot of content and people forget like if you can get somebody tuning in every Tuesday night, every Thursday, like that’s got a lot of value.

Simeon: But 82 nights, that calendar, people, everyone forgets that. You know, not to cut you off, but let me just lob a hot take here. HBO as a network. It’s so overrated, so overrated. And a big reason why it’s overrated is because HBO only has maybe two or three hit shows at any given time with eight episodes and you can’t build a network or a service around that. But no, I’m back to you. Having lots of units is a big advantage.

Andrew: No, you’re right. I mean, it is though at the same time, it is one of those things where when you’ve got shows that good and that break, it does have a little bit of random break-through and it forces people to sign up. So the issue is, you know, the whole vision for Warner merging with Discovery was you’ve got HBO, which is this great, like they get the draws, right? They are the thing that signs up and then you merge them with Discovery, the Dr. Pimple Poppers, right? The things that you watch in the background, that’s the thing that stops the customer churn, that’s the innings eater. And then you have the HBO, like the big Game of Thrones to lure people in and it’s a perfect marriage and the execution probably left a lot to be desired there. I mean, this has been awesome. We’re kind of coming right up to the hour mark. We hit a lot. I actually wanted to hit some more, but I’ve had a ton of fun. Again, I’ll include a link to Accrued Interest in the show notes and everything if you want to see it. But any last thoughts we should have hit that you want to wrap up with before we call break?

Simeon: Sure. Well, one thing, thank you again, Andrew, for having me on.

Andrew: It was a ton of fun.

Simeon: I’d love to be back and we can, you know, talk more about Versant or other stocks. I just wanted to tell all the listeners that when you go to my site, accruedint.com, I think the piece of content that I’m most proud of that I want people to look at is I do a monthly series where I break down a TV viewing report called the Nielsen Gauge report where it measures the market share of big screen, non-mobile TV viewing. And it’s in this monthly series I’ve been tracking just the torrential ascendance of YouTube and you see the little market share stuck at 1.5% for Warner Bros. every single month. And you see the market share for Paramount stuck at less than 2% every single month. And I just want everyone to know that media is great and we can read the financials. But if you don’t have the audience, you’re not going to have the value. And financial engineering is not a strategy. Eventually, the audience is going to dictate who wins.

Andrew: I’m not going to spoil the witness here, but obviously the big news over the past 10 days is Warner Bros. abandoned the Netflix deal and agreed to merge with Paramount. What are the odds you would give Paramount/Warner Bros. of being a success?

Simeon: Negative 10. I think the question is when is the breakup coming?

Andrew: Completely agree. History suggests it’s going to be a disaster. I couldn’t be more negative. I mean, I generally like to ask and think they could be masking it, but I just couldn’t be more negative on how it’s playing on the evidence. So, I mean, this has been great. Look, there’s always stuff going on in the media. We’ll just have to make this like a quarterly occurrence or something. But I really appreciate you coming on. This has been fun to get through everything for about an hour and we will do it quarterly. It will be a lot of fun. Thank you, Simeon. Have a good one.

A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.

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Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

The other night - Twitter was mad at me for questioning one of Fintwit’s most popular stocks – Reddit. I posted an offhand thought saying, “I’m genuinely surprised so many investors are bullish on $RDDT. 🤔 I get the enthusiasm from those high-margin AI licensing deals, but overall it’s still not a good business. Why is everyone so bullish? I don’t get it! 🤷‍♂️” (The stock was down -47% YTD).

I got a ton of replies quoting me the revenue CAGRs and telling me to go “build a DCF”. But without opening Microsoft Excel, I could already see what aspects of the Reddit business model could put a ceiling on its growth ambitions.

Having spent over 15+ years doing strategic finance roles inside a variety of media companies - my investment edge stems from being an operator, not just an investor.

I figured now was a good time to share with you all some of my “mental models” on what makes an advertising business profitable, scalable and resilient. Judging business quality is a mix of art x science.

The Art of the Multiple: Quality vs. Performance

The concept of business quality is frequently misinterpreted. While quality often correlates with recent financial performance, it is fundamentally distinct.

While all businesses face inevitable periods of volatility, their underlying profit-generating potential is not equal.

Every stock price is driven by EARNINGS X MULTIPLE:

• The Science (Expected Earnings - The “E”): How much earnings a company is expected to make over the next quarter or next year.

• The Art (The Premium - The “P/E” Multiple): How much the market is willing to pay TODAY for those future earnings is driven by qualitative factors often not revealed in a company’s financials. (This is where human judgement is needed.)

As a general rule of thumb, the market awards higher multiples to businesses it perceives as high-quality OR it expects to eventually become high-quality.

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The Mental Model: What Kind of Pokémon Are You?

I want to share an exercise that I believe illustrates a less mystifying way to approach thinking about stocks, which will help you learn the process. Allow me to share some millennial lore.

2026 marks the 30th anniversary of the Pokémon franchise. And every Pokémon Master knows that part of the game strategy is assembling a roster where you pick amongst 18 different Pokémon types so that their strengths and weaknesses balance out. (Pokémon is really a game of rock-paper-scissors with extra steps - see the table below)

You would not pick six Fire-type Pokémon and take them to fight a lineup of six Water-type opponents and expect an easy victory.

Over the course of the game your characters level-up and evolve, becoming progressively stronger versions of themselves. However - their future powerset will always be derivative of their base form. (E.g., a ground-type Pokémon is not going to develop the power of flight.)

The same logic applies to evaluating companies (and their stocks) as their respective business models grow and evolve over the course of time.

Any business can experience a growth spurt where sales are growing +50% YoY and anything seems possible. But no matter how successful a business appears - it can only change its model but so much in the future.

Understanding an advertising business’s core building blocks will give you a brutally realistic picture of what sort of outcomes WILL or WILL NOT be achievable.

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Act Like a Trader, Think Like an Advertiser

The problem with a lot of stock pitches is that they are only being viewed through the lens of the product USER. They think just because people think something is cool and fun, that means advertising dollars are about to start pouring in.

But you must think about the needs of the AD BUYERS; the ones who are giving the company a share of their BUDGET.

At a high level, there are basically two broad types of ads: 1) Brand Advertising and 2) Performance Marketing / Direct Response.

1. Brand Advertising: These aim to capture attention and build awareness, making a product memorable for future purchases. (Think Tide detergent prioritizes long-term brand recall over immediate sales.)

   1. Bigger Ad Buyers: Brand advertising is generally limited to the “Fortune 500” level of companies. Because only large companies have the surplus cash to spend on “awareness” or “sentiment” without requiring an immediate sale.

   2. Discretionary: When a recession hits, the “awareness” budget is the first to be cut because it is hard to prove its utility in the short term.

2. Performance Marketing / Direct Response: These ads focus on measurable conversions, like units sold, calls received, or website clicks, rather than abstract sentiment. (1-800 commercials were a pioneering form of direct response performance marketing. Now promo codes are popular with digital services.)

   1. Smaller Ad Buyers: Accessible to millions of SMBs (Small and Medium Businesses). A local plumber or a niche Shopify store does not care about “brand equity”—they care about leads.

   2. Performance = Working Capital: Performance ads are seen as a cost of goods sold (COGS). If an advertiser spends $1 to make $3, they will continue to spend that dollar even in a downturn.

Advertisers decide where to spend their money based on what consumers are doing. This creates a clear ranking of the ad formats and features that matter most to them.

1. Video is King

   1. People prefer video as a media format in almost every imaginable use case.

   2. Businesses offering video ads often capture a larger share of a company’s total advertising budget.

   3. Video ads almost always sell at a higher price, regardless of performance.

2. The Static Middle: I would put static pictures (digital display ads, billboards) next in the hierarchy of advertising formats.

   1. These are images seen on phones, websites, or physical billboards.

   2. They can reach a huge audience because they can appear everywhere digitally.

3. The Audio Bottom: Audio ads represent the lowest tier in ad quality.

   1. Exceptionally difficult to determine:

      1. Who is listening.

      2. If they are paying attention.

      3. Whether the ad directly led to a consumer purchase.

   2. The podcasting industry exemplifies this struggle for significant profitability despite widespread presence.

Remember, most ad buyers use a portfolio strategy - spreading their budget across different advertising formats. While marketers are always readjusting their “media mix” favoring one format while reducing another, shifts are done over the course of years, not months.

For example - the linear television industry has been able to survive as long as it has, despite the emergence of streaming, because streaming services still do not have the capacity to take all the old-school linear ad dollars.

Advertisers also care deeply about the mechanics of the platforms they work with. Here are the key metrics that matter:

● Reach and Concurrency:

○ Effective advertising hinges on simultaneously reaching a large audience.

○ The Super Bowl exemplifies this: advertisers pay a premium to reach a massive, live audience at the exact same moment.

○ Advertisers will pay a premium if they are more certain someone saw their ad.

● Ad Load & Surface Area:

○ Every format has its limits on how many discrete ads can be served within a given period. For example, linear TV has a higher ad load (about 22 minutes/hour) compared to digital video (4-8 minutes/hour).

○ Lower ad loads in certain formats go a long way to explain why some digital companies often have lower margins than their competitors.

○ All companies face the challenge of balancing an increase in the volume of advertisements with the risk of negatively impacting the viewer or customer experience.

● Sales Force vs. Auction/Self-Serve Platform:

○ In-person sales channels have traditionally been used for older, higher-margin products. This approach typically results in slower price adjustments and a longer lead time for onboarding new advertisers.

○ Auction-based platforms are more resilient. They can adjust pricing in real-time during sales slowdowns. This adjustment attracts new ad buyers previously discouraged by higher costs.

● Brand Safety (Or Lack Thereof):

○ Advertisers pay a premium for brand safety, seeking to avoid controversial, salacious, or “not safe for work” content.

○ Many avoid news entirely, especially content involving polarizing topics such as the President and war, to prevent association with questionable material.

Twitter (X) has always struggled to convince ad buyers that their placements are truly insulated from controversy.

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Grading the TMT Roster

Now let’s talk about some actual stocks so we can apply some of these concepts to the real world. Let me be clear - I am not making buy / sell recommendations today. I am merely using the above framework to discuss the quality of some business models.

The Gold Standard: Meta & Google

Meta and Google are considered the “crown jewels” or “gold standard” in the advertising world for several reasons, making them the clear top two global ad companies:

Meta (Facebook):

• Largest User Base: Reaches billions of people, offering unparalleled audience reach.

• Diverse App Ecosystem: Operates multiple high-traffic platforms including Instagram, Facebook, WhatsApp, and Threads.

• Versatile Ad Formats: Can deliver various formats, such as video and display ads.

Google:

• Superior Search Engine: Maintains the best search engine, providing deep insight into customer intent and thought processes.

• Intent-Based Advertising: Highly effective at understanding what customers are thinking and looking for on the web.

• Strong Tracking Capabilities: Excels at tracking clicks through to sales conversions.

The High-Quality Contender: AppLovin ($APP)

AppLovin is redefining the ad tech landscape by proving it is a structurally high-quality compounder. Rather than resting on simple display ads, their business is built on several key architectural advantages:

• The AXON 2.0 AI Engine: AppLovin utilizes a proprietary predictive machine learning model that processes massive amounts of real-time market data to optimize ad placements. This creates highly efficient targeting that matches or beats incumbent platforms on cost-per-acquisition.

• Full Attention Ad Formats: Their platform leverages non-skippable, full-screen video ads. In a mobile environment, a user is engaged in a single task, meaning these long-form ads command uninterrupted attention—a luxury few other digital formats can offer.

• E-Commerce Expansion: While historically dominant in mobile gaming, AppLovin is aggressively bringing direct-to-consumer (DTC) and e-commerce advertisers onto its platform. These advertisers operate with superior unit economics and are highly responsive to AppLovin’s performance-driven videos.

• MAX Mediation Auction: Their supply-side platform operates highly competitive real-time auctions that not only maximize publisher yield but constantly feed fresh conversion data back into their AI algorithms, creating a continuous loop of model optimization.

Good Businesses…With Limitations: Reddit & Pinterest

Sometimes a stock can fall hard (-30%) when a rich valuation multiple is temporarily attached to a mediocre business that is destined to revert to the mean. Again, this is an oversimplification, but this is why both Reddit and Pinterest have fallen so much YTD despite posting healthy revenue growth.

Reddit: At its core, this platform hosts digital message boards where people go to talk, look for facts and share opinions.

Strengths for Advertisers:

• High Intent Data: Like Google Search, text-based message boards provide insight into user intent and buying interest.

Weaknesses & Limitations:

• Video Platform Ceiling: Primarily text- and static-image based, limiting growth potential as the industry pivots to video.

• Anonymity: High number of anonymous users.

• Google Traffic Correlation: Traffic is heavily reliant on Google. This external dependence suggests a lower valuation multiple is warranted.

Pinterest: This is a site where users create, share, and discover digital vision boards that serve as “inspiration”.

Strengths for Advertisers:

• High “Commercial Mindset”: Unlike “scrolling” platforms (Instagram/TikTok) where ads are often perceived as interruptions, Pinterest users are typically in a planning phase, explicitly signaling future purchase intent.

Weaknesses & Limitations:

• Static Content Ceiling: Primarily static images limit growth; lack of video caps engagement potential.

• Conversion Ambiguity: Difficult to measure inspiration-to-conversion rate accurately.

• AI Flooding Risk: Vulnerable to system gaming by AI-generated image proliferation.

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CONCLUSION

In every write-up I do, I talk more about the quality aspects of the business than its financials. You want to overwhelmingly invest in the strongest business models.

Life is short, and predicting the future is challenging.

While a lower-quality business can still be a viable investment, I would require a significantly lower earnings multiple before considering a purchase.

Stocks such as Reddit and Pinterest fall hard when the multiple is high and investors think they have a good business. Time goes on, earnings come out, and the business is not scaling in size or profitability like they thought it would, and then they must lower the earnings multiple. If you are wrong, then you are going to be punished more harshly with a weaker business, and the stock may never recover. Look at Snapchat.

But stronger companies like Meta and Google can make it through rough times and come out stronger in the end.

Share your thoughts in the comments below: Which companies do you believe possess the most resilient advertising models, and which ones are most vulnerable to competitive pressures?

-Accrued Interest

Relevant Tickers: , , , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Back in December, during Day 9 of our “12 Days of Pitch-Mas” series, I laid out a bearish thesis on Duolingo ($DUOL), rating the stock an Underperform. My argument was straightforward but highly contrarian at the time: Duolingo was priced for absolute perfection. Beneath the massive earnings multiple, I argued that the company’s business model resembled an addictive mobile game much more than a truly scalable educational service.

Because of that structural reality, I warned that the company would never be able to improve its monetization or expand its profit margins enough to satisfy growth investors. I predicted the stock’s multiple would contract as the market realized the low-hanging fruit had already been picked.

Now, I’ll be perfectly honest—I did not expect to take a victory lap this quickly.

But fast forward to this week’s Q4 2025 earnings release, and the stock plummeted 25% on the heels of the report. Overall, it is down -43% YTD, underperforming the S&P 500 (which is basically flat YTD at +0.26%) by over 43 percentage points.

So, what exactly spooked the Street so badly? Let’s pull apart the Q4 numbers and management’s startling 2026 guidance to see exactly why this was a classic value trap—and why the bleeding might not be over yet. Let us dive into the wreckage.

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1. The Pivot: Shattering the Bull Case

The Q4 report was not just standard earnings miss; it was a fundamental shift in the company’s narrative that completely shattered the prevailing bull case. For years, bullish investors justified the stock’s premium valuation by pointing to high free cash flow conversion and the assumption of an ever-improving rate of converting free users to paid subscribers.

But the latest figures, combined with management’s startling 2026 guidance, prove that the monetization engine is stalling. During the release, management dropped a series of strategic bombs:

• The Monetization Chokehold: Management openly admitted that the deceleration in user growth throughout 2025 was partly a function of their “increased focus on monetization” in recent years.

• The Growth Pivot: In response, they are initiating a deliberate strategic pivot to prioritize user growth and the free learner experience over aggressive monetization.

• The Profitability Penalty: Management explicitly warned investors that this strategy will “lower our financial results in the short term,” directly sacrificing bookings growth and crushing near-term profitability.

The honeymoon phase of effortless growth and margin expansion is officially over. Let us dig into the exact Key Performance Indicators (KPIs) from the Q4 report that validates every structural flaw we highlighted back in December, and why this strategic pivot is a massive red flag for the company’s long-term unit economics.

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2. The Illusion of Conversion: A Paid User Plateau

As we often discuss here on Accrued Interest, when evaluating a freemium model, user growth is only half the equation. The true test of a business’s durability is its ability to effectively convert free users into paying subscribers. In my December preview, I noted that Duolingo’s paid penetration rate was barely inching up—sitting around 9.0% in Q3 2025.

The Q4 2025 results proved that this metric has effectively hit a wall. Here is exactly what the top-of-funnel decay looks like in the data:

• DAU vs. Paid Growth Disconnect: While Daily Active Users (DAUs) grew an impressive 30% year-over-year to 52.7 million, Paid Subscribers lagged, growing only 28% year-over-year to 12.2 million.

• The 9% Ceiling: The paid penetration rate remains stubbornly stuck at approximately 9.1% (12.2 million paid subscribers on 133.1 million Monthly Active Users).

• The Valuation Reality Check: The company simply cannot convert its massive user base fast enough to justify the astronomical growth multiple the market had assigned it.

Even more damning, management effectively threw in the towel on pushing for higher conversion. By admitting that pushing users to pay was actively choking off top-of-funnel growth, they acknowledged a structural ceiling. In other words, you cannot aggressively squeeze a mobile game disguised as an education app without eventually driving the casual free players away.

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3. The Strategic Pivot (Or, The Growth Penalty)

Faced with a stalling conversion engine and decelerating user growth, management announced a massive strategic pivot for 2026: they are deprioritizing monetization to focus on the free learner experience. The goal is to reach 100 million DAUs by 2028. However, the financial penalty for this pivot is brutal.

Several KPIs and financials in the Q4 results and 2026 guidance provided the hard data that triggered the -25% stock drop. The reality perfectly captures the whiplash between Duolingo’s peak monetization performance in 2025 and the massive financial penalty they are taking to chase their new 2026 user growth strategy:

• Decelerating User Growth: Despite abandoning monetization to focus entirely on user growth, top-of-funnel growth is still expected to decelerate by a third. DAU growth fell from 51% in Q4 2024 to 30% in Q4 2025. Management expects 2026 DAU growth to slow further to approximately 20%. CEO Luis von Ahn admitted that the 2025 deceleration was partly due to an “increased focus on monetization in recent years”.

• The Bookings and Revenue “Reset”: Growth is collapsing. Management explicitly admitted they are sacrificing potential growth to fund this pivot. Revenue growth is being more than cut in half as the conversion engine is deliberately cooled down. Total bookings growth was 24% in Q4 2025. Management guided for only 10%–12% bookings growth for FY 2026. They noted that bookings could have grown by 20% if they had continued to operate as they had in previous years by focusing on monetization.

• Profitability and Margin Compression: Margin expansion has hit a hard ceiling and reversed. The lack of operating leverage means subsidizing free users compresses overall profitability. Gross margins are expected to drop to roughly 69% for the remainder of 2026 due to the costs of offering AI features to a wider, free user base. Expanding expensive, AI-powered features to a larger base of non-paying users is structurally destroying gross margins.

The “Double Whammy” is that Duolingo is paying a massive price in profitability and bookings, yet they still expect DAU growth to slow down to 20%. They are sacrificing their margins but not actually accelerating their user base. Adjusted EBITDA margin is expected to decrease to 25% in 2026, down from 29.5% in Q4 2025.

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4. Key Commentary on Monetization & Strategy

Management’s comments during the earnings cycle emphasized that they are essentially “buying” future users at the expense of current margins.

“The short-term implication is that this year will see slower bookings growth and lower profitability... I believe this is the right course to take.”

“We’ll focus on improving the free learner experience to grow word of mouth and feed our next user growth engines like chess, math and music, even though that moderates near-term financial growth.” — Luis von Ahn, CEO

That follow-up answer directly validated my “Profit Margin Plateau” and “Lack of Operating Leverage” bear arguments from December. The company is choosing to subsidize free users with expensive AI compute (Video Call, etc.) and marketing spend, leading to the exact multiple contraction I predicted.

In December, a core part of my thesis was that I could tell DUOL was a mobile game because the high R&D spend was just sales and marketing by another name. A game is an inherently shaky business model because eventually players run out of gas and stop playing. Therefore, as a mobile game, it should trade at a discounted multiple compared to the S&P 500. Still today, Duolingo trades at a slight premium to the market, which is not deserved.

I see the same issues with the updated Q4 and FY 2025 numbers: R&D spend is unsustainably high for a company hoping to expand its margins. In Q4 2025, R&D expense as a percentage of revenue dipped slightly vs. last year, from 32% to 28%. However, for the full year, the FY 2025 ratio of 30% of sales was almost the same as last year’s 31%.

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5. Valuation — DUOL is Still Not Cheap

The reason DUOL stock has underperformed the market YTD is because of severe multiple compression. In my December Article, DUOL traded at 43x 2026 GAAP EPS and 24x 2026 adjusted EPS. The math checks out: the multiple dropping from 43x to 24x is a 45% decrease, which roughly matches the stock’s return.

Analysts are still updating their estimates post-earnings (these may go lower), but based on median estimates as of 2/27 in the AM:

● GAAP EPS: $4.19 in 2026, and $5.23 in 2027.

● Non-GAAP EPS: $7.20 in 2026, and $9.52 in 2027.

With the stock rounded to $100 per share the day after earnings, it is trading at:

● GAAP EPS Multiple: 24x for 2026, and 19x for 2027.

● Non-GAAP EPS Multiple: 14x for 2026, and 11x for 2027.

While there are legitimate times to use Non-GAAP EPS or make other adjustments, this situation with DUOL is not one of them. The reason for the massive delta is Stock-Based Compensation (SBC). When the stock price is going up, this is easily ignored. But when the KPIs and other metrics go sideways or down, you absolutely must focus on GAAP EPS.

6. Reflections from a Value Trap Hunter

Shorting is notoriously brutal—stocks naturally drift upward, and publicly calling out a beloved consumer darling like Duolingo as a value trap is a quick way to invite ridicule. Seeing respected writers fiercely defend the stock made me double-check my math, but the numbers didn’t lie.

Here is the truth about hunting value traps: you rarely need a smoking gun. The best shorts aren’t born from explosive catalysts; they come from the slow, agonizing bleed of multiple compression. Bulls get caught in the trap because they fixate on consensus estimates holding steady, completely ignoring the structural rot underneath.

My thesis was never about predicting a single bad quarter. It was about an investment model hitting a brick wall. When I look for shorts, I hunt for companies operating near their absolute ceiling, yet carrying a valuation that demands an impossible level of future profitability. The bet was simple: as the broader market slowly woke up to the reality that Duolingo is an unscalable mobile game, the multiple would collapse under its own weight.

And that is exactly what we are watching play out.

CONCLUSION

Even at $100 a share, the bleeding isn’t over. DUOL is still clinging to a premium 2026 P/E multiple for a business model that has fundamentally stalled. Nothing in this earnings report suggests a turnaround is imminent—in fact, management just explicitly promised the opposite.

I don’t deal in hyper-precise price targets, but I fully expect DUOL to contract to a discounted multiple of 17x to 19x this year’s GAAP EPS to accurately reflect its structural limitations. That puts the stock in the $71 to $80 range, implying another 20% to 29% downside from current levels.

I’ll be tracking the wreckage closely in the coming months, but for now, the bull case is broken.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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1. Cable is Hemorrhaging: Linear TV is down -9% YoY, dragged down by a -13% drop in cable viewing.

2. The Kings Stay Kings: YouTube (+16% YoY) and Netflix (+2% YoY) remain the undisputed, untouchable giants of the living room.

3. Sports Force Migration: Amazon Prime (+11% YoY) proves that if you buy premium sports rights, viewers will follow you off the bundle.

4. FAST is Sticking: Free, ad-supported platforms like Roku (+43%) and Tubi (+14%) are permanently stealing ad share from legacy players.

Check out past monthly updates here: Dec, Nov, Oct, Sep, Aug, July, June, May, April, March, Feb and Jan. Here is my breakdown of the January numbers and what they mean for your media portfolio.

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TV Market: Linear TV Share Down -9% YoY

• Ignore Month-over-month optics vs. YoY reality: The media coverage surrounding Nielsen’s reports tends to be somewhat friendly to linear networks, largely because many of them are long-tenured Nielsen clients. Because of this, the picture in January looks “OK” if you only look at the sequential month-over-month data compared to December. As investors, however, we must focus on the YoY trends to see the true trajectory.

• The structural decline remains intact: Overall, linear TV is down -9% YoY when combining broadcast and cable. The small, sports-driven monthly increases simply are not enough to change the overarching narrative: streaming is permanently gaining share.

• Cable continues to bleed out: When you look under the hood of that combined -9% decline, it becomes clear that cable is falling at a much faster and steeper rate than broadcast, further confirming the structural unraveling of the legacy bundle. Specifically, cable was down -13% YoY vs. -4% for broadcast. Blended, it does not look as bad, but the breakout shows where the real hemorrhaging is happening.

• Live sports are the ultimate lifeline: While it is indisputable that linear TV has lost massive share to streaming over the long term, live sports remain the one asset capable of reliably bringing viewers back to the traditional bundle. We can clearly see this in the month-over-month viewership bumps on broadcast and cable when marquee sporting events take place.

  • Live sports drivers include College Football Playoffs, which included the quarterfinals, semifinals and championship games.

  • NFL games accounted for the top 15 broadcast telecasts, and the sports genre represented the largest share of the category’s viewership (30%).

• YouTube TV’s New Cheaper TV Packages Now Available: YouTube TV has broadened the availability of its newly introduced genre-specific, cheaper packages to additional customers as of February 24, 2026.

  • This expansion comes two weeks after the initial launch announcement on February 9, marking a step forward in the company’s phased rollout strategy. While the service has indicated that full access for all users may take several more weeks to complete, multiple reports emerging today highlight that a wider group of subscribers can now opt into these cost-effective alternatives to the standard plan. With platforms aggressively pricing alternative packages, I expect cord cutting to accelerate and linear losses are going to continue into 2027.

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1) YouTube ($GOOGL) #1 with 12.5% share, +16% YoY

• Unstoppable YoY Growth: YouTube remains the undisputed king of the big screen, up +16% YoY. While their share dipped slightly month-over-month, it is crucial to remember that January is structurally a lower month for overall TV viewership compared to the holiday-heavy December.

• The Ultimate Content Engine: If you have been reading my past updates, you know how bullish I am on Google’s living room strategy. YouTube’s advertising growth is a direct reflection of the fact that the platform consistently takes share of entertainment watch time globally, without the multi-billion-dollar content budgets required by legacy studios.

• Consistent Growth at Scale: It bears repeating that YouTube is in a class of its own in its ability to continue growing at scale. All other services, including Netflix, have shown to have some ceilings. YouTube is the only one that can consistently grow without having to buy expensive content or engage in M&A.

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2) Netflix ($NFLX) #2 with 8.8% share, +2% YoY

• Holding the Line YoY: Netflix’s share is up +2% YoY. Viewership was naturally down sequentially from December, but let us not forget that last month was a historic anomaly fueled by their massive Christmas Day NFL games and the Stranger Things finale. The fact that they remain so strong YoY proves their baseline engagement is stickier than ever.

• The “Barbell” Strategy is Working: Even without the massive holiday sports bump, Netflix has fundamentally elevated its floor. They are successfully executing a barbell strategy of premium scripted content on one end and must-watch live events on the other. NFLX had the top streaming program for a second consecutive month, as Stranger Things tallied 15.4 billion viewing minutes in January.

• The Warner Bros. Pursuit: Netflix winning WB Studios is not 100% necessary. But I see it as analogous to when the Golden State Warriors went out and got Kevin Durant as free agent. Steph Curry and the team were already breaking records and had won championships, but Durant not only gave them another weapon, but it kept it away from their competitors. I will be writing more about the Netflix/Paramount drama to come now that earnings season is wrapping up.

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3) Prime Video ($AMZN) #4 with 4.1% share, +11% YoY

• Sports Drive Migration: Amazon Prime Video continues to show limited momentum, up a steady +11% YoY. This completely validates the thesis that if you acquire the right premium sports rights, the audience will follow you off the legacy cable bundle.

• Expanding the Playbook: Given the undeniable success they have had utilizing Thursday Night Football as an acquisition and engagement driver, Amazon is incredibly well-positioned to aggressively pursue more NFL games and other top-tier sports rights in the future. They have the balance sheet to do it, and the viewership data now proves the strategy works.

• More NFL Rights on the Horizon: The NFL is looking at bringing more games to streaming players. Recent industry reports suggest the league is highly likely to carve out separate packages of games for Amazon, Netflix, and YouTube in its upcoming media deals, meaning legacy networks will have to give up more of their most valuable inventory.

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4) Roku Channel ($ROKU) #5 with 3.0% share, +43% YoY

• The Stickiness of FAST: Streaming-first platforms, particularly Free Ad-Supported Streaming TV (FAST) services like The Roku Channel, have successfully held onto their massive viewership gains. Roku is up an impressive +43% from last January.

• A Methodical Climb: While that YoY percentage jump is eye-popping, it is important to note that Roku’s share increase has not been a sudden, volatile spike. It has been a steady, consistent climb throughout the past year as consumers increasingly seek out frictionless, free content alternatives.

• Ad Share Monetization: Roku’s Q4 earnings reported on February 13 confirmed they are successfully scaling their platform revenue (up +18.2%). By leveraging their base of over 90 million logged-in streaming households and expanding programmatic activity with major demand platforms, Roku turned a surprise Q4 profit, proving they are actively taking ad share as viewership migrates from linear to digital.

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5) Tubi ($FOXA) #7 with 2.1% share, +14% YOY

• Strong Gains off a Smaller Base: Tubi continues to perform exceptionally well, up +14% YoY, further proving the viability of the FAST business model.

• Outperforming the Giants: While 2.1% might sound modest, it is incredibly revealing that Tubi consistently commands higher TV usage than the multi-billion-dollar legacy streaming platforms of its peers, easily outpacing services like Comcast’s Peacock and Warner Bros. Discovery’s Max.

• A High, Stable Plateau: Tubi has done an excellent job holding onto its gains, establishing a solid plateau around the 2.1% share mark. For context, the last time Tubi saw a massive, abnormal spike was during its simulcast of the Super Bowl last year when Fox held the rights.

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CONCLUSION

The January Nielsen Gauge data reinforces the core Accrued Interest thesis: the melting ice cube of linear television is not refreezing. While stocks may be noisy around the Netflix/Paramount fight for Warner Bros. and other M&A news such as Nexstar’s proposed acquisition of Tegna - the viewing trends are all negative for the legacy players. While live sports will continue to create monthly noise and provide a temporary lifeline to legacy networks, the structural shift of eyeballs to YouTube, Netflix, and FAST platforms like Roku and Tubi is permanent.

As we move deeper into 2026, the divide between the tech platforms that own the living room interface and the legacy media players clinging to the dying bundle will only widen. I want to make clear that YouTube (owned by Google) and Netflix are still the only publicly traded TV stocks that I feel comfortable holding for more than 2 years.

-Accrued Interest

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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In December, I published a piece titled “Why Pinterest Will Underperform in 2026,” arguing that the stock was a classic value trap—optically cheap but structurally broken.

On February 12, 2026, Pinterest reported Q4 2025 earnings, and the stock dropped -15% to -19% in the aftermarket, validating that skepticism in brutal fashion.

Investors are currently sifting through the wreckage, trying to determine if this dip is a buying opportunity. My answer is no.

This report did not just miss numbers; it confirmed that the “turnaround” story is a stagnation story. We are seeing record user growth that the company simply cannot figure out how to monetize.

Here is why the bear case has gone from “theory” to “reality.”

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1. The “Empty Calorie” Growth Problem

The most alarming metric in the entire print was the divergence between volume and price. Bulls will point to the fact that Pinterest grew ad impressions by +41%. On the surface, that sounds like a platform on fire. But in the ad world, if you increase supply by +41% and your revenue only grows +14%, you have a massive deflation problem.

Ad pricing collapsed by 19% year-over-year.

Management explicitly admitted this was driven by a mix shift toward “under-monetized international markets” and “lower-monetizing surfaces.” In plain English: They are flooding the zone with cheap inventory to chase top-line growth metrics.

Look at the trend:

Pinterest (PINS) 2025 Quarterly Ad Metrics (Year-Over-Year Change)

This is a pricing deflation loop. They are running faster (growing impressions) just to stay at the same revenue growth rate.

But where is this impression growth coming from? It is not from the high-value US consumer. It is coming from regions where Pinterest has almost no pricing power. Look at the revenue growth by region over the last year. The deceleration in the US & Canada (the only region that matters for profits right now) is stark.

Pinterest (PINS) 2025 Revenue Growth by Region (Year-Over-Year)

While “Rest of World” is growing at +60%, it is growing off a tiny base. Meanwhile, the core US business has slowed to single digits.

This becomes even more concerning when you look at where the new users are located. Pinterest boasted about reaching 619 million Monthly Active Users (MAUs). But look at the absolute numbers:

• Rest of World MAUs: Added +49 million users YoY (Total: 356M)

• Europe MAUs: Added +13 million users YoY (Total: 158M)

• US & Canada MAUs: Added +4 million users YoY (Total: 105M)

Almost 80% of their new user growth is coming from the “Rest of World” bucket. Why is this a problem? Because of the ARPU (Average Revenue Per User) gap.

Pinterest Q4 2025 ARPU by Region

Pinterest is adding millions of users who are worth $0.27 each, while failing to grow the user base that is worth $9.41 each. This is the definition of “Empty Calorie” growth.

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2. The “Exogenous Shock” Excuse (vs. The Meta Reality)

Management spent a significant portion of the call blaming the revenue miss on “tariff-related ad budget pressure” from large retailers. They claimed that because Pinterest is over-indexed on Retail and CPG (Consumer Packaged Goods), they were hit harder than peers.

This confirms my long-standing view that Pinterest is a “nice-to-have” rather than a “must-have” platform. When budgets get tight—whether due to tariffs, inflation, or recession—advertisers cut the experimental spend (Pinterest) and retreat to the fortress balance sheets (Google and Meta).

As value investors, we often get seduced by a “cheap” stock price, but true value investing requires focusing on business quality first. A cheap business that loses pricing power every quarter is not a bargain; it is a melting ice cube.

If you want proof that this is a Pinterest problem and not a “market” problem, just look at Meta ($META). I am long Meta, and I use it as a benchmark for what a healthy ad ecosystem looks like.

Meta (META) 2025 Quarterly Ad Metrics (Year-Over-Year Change)

Do you see the difference?

• Pinterest: Floods inventory (+41%) > Destroys pricing (-19%) > Misses Revenue.

• Meta: Controls inventory (+18%) > Maintains pricing power (+6%) > Beats Revenue.

Now, let us look at another struggling peer: Snap (SNAP). Snap is often compared to Pinterest as a “second-tier” social platform. When we look at Snap’s 2025 metrics, we see the exact same pattern of deflationary growth.

Snap (SNAP) 2025 Quarterly Ad Metrics (Year-Over-Year Change)

Snap and Pinterest are in the same boat: fighting a losing battle against pricing deflation. Meta is on a different planet. Value investors need to take note: Low P/E multiples do not protect you from bad business models. Meta’s pricing power proves their moat; Pinterest’s pricing collapse proves their commoditization.

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3. Sales Reorgs: The Oldest Trick in the Book

Whenever a company consistently misses revenue targets, the “Sales Reorganization” press release is never far behind.

Pinterest announced a significant “sales and go-to-market transformation” under new Chief Business Officer Lee Brown. Management even preemptively warned that this “may cause short-term disruption” in Q1. Recent reporting from The Information regarding internal friction paints a picture of a company searching for a silver bullet.

I have spent years working in corporate finance, partnering with CFOs and senior sales leadership on revenue benchmarking. In my experience, “Sales Reorgs” are almost always euphemisms for structural product failure.

It is much easier for a CEO to fire a Sales VP or “restructure the regions” than it is to admit that advertisers simply prefer the competitor’s product. If Pinterest’s ad product (Performance+) was delivering undeniable ROI, they would not need to reorganize the sales team to sell it. The product would sell itself.

Do not let the “transitional friction” narrative fool you. This is not a personnel problem; it is a product-market fit problem.

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4. The “Optical” Free Cash Flow Growth

Bulls have been hanging their hats on one metric: Free Cash Flow (FCF). In Q4, reported FCF grew by a staggering +52% YoY, far outpacing revenue.

However, the “operating leverage” story is paused. Guidance for 2026 suggests Adjusted EBITDA margins will be flat at ~30%, weighed down by the tvScientific acquisition and GPU investments.

So why was FCF so high? I did a “Quality of Earnings” deep dive on the cash flow statement, and the growth is largely optical, driven by three non-fundamental factors. “Core” cash flow is much lower than the headline number.

Pinterest Q4 2025 Free Cash Flow Bridge (Estimated)

If you strip out these noise factors, “Core” FCF growth was roughly in line with EBITDA growth (~15%). There is no magical margin expansion happening here. The company is simply benefiting from easy comparisons and timing benefits that will reverse in Q1 2026.

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5. The “Agentic” Threat to Pinterest

In the earnings Q&A, CEO Bill Ready was asked specifically about the rise of “agentic commerce”—the idea that AI agents will soon be able to execute purchases on behalf of users, bypassing traditional browsing.

His response was telling:

“Users come to Pinterest to be inspired... they want to be in the loop. We view our role as ‘assisted’ shopping, not replacing the user.”

Takeaway: This sounded incredibly defensive.

As I wrote in December, the biggest existential threat to Pinterest is an AI that moves from “search” to “action.” If the world moves toward “done-for-you” commerce—where I tell an AI to “buy me a modern outfit for a wedding”—Pinterest’s entire value proposition of “browsing for inspiration” becomes a relic.

The risk is that Pinterest becomes the “window shopping” engine in a world where everyone else is using a “personal shopper.” If users start relying on Gemini or OpenAI to find and buy the product in one conversational turn, Pinterest loses its position at the top of the funnel. While competitors race toward autonomous agents, Pinterest is betting that human behavior won’t change. That is a dangerous bet.

6. The Only Upside: The M&A Wildcard

With the stock trading under $16 and the multiple is compressing, we must address the elephant in the room: Is Pinterest a takeover target?

I am sticking with my Underperform rating, and I want to be clear: I am not recommending you hold $PINS in hopes of a buyout. A buyer could strategically wait for the stock to fall further. However, we must recognize the “M&A Floor.”

At a current price of ~$15.50, the stock might look optically cheap but be careful.

● Non-GAAP: On consensus 2026 Non-GAAP EPS of $1.72, the multiple is 9x.

● GAAP (The Real Cost): Because Pinterest relies so heavily on Share-Based Compensation (SBC), the GAAP picture is much less forgiving.

○ 2026 Estimated GAAP P/E: ~24x, GAAP EPS of $0.61

○ 2027 Estimated GAAP P/E: ~18x GAAP EPS of $0.82

Source: Tikr

Trading at 24x GAAP earnings for a company growing revenue in the low teens is not deep value. It is fair value at best. A “cheap” stock can get much cheaper if that multiple compresses to 15x.

Why OpenAI (or a similar AI Major) might want it:

The “Blue Sky” bull case is that OpenAI acquires Pinterest to train its next-gen multimodal models. Pinterest possesses a unique “Intent Graph”— billions of images curated by humans into “boards” that link visual aesthetics with specific semantic concepts (e.g., “Boho Chic Living Room”). This data is incredibly valuable for training AI to understand style and nuance.

OpenAI plans to go public in 2026. When they do, they will suddenly have a liquid currency (stock) to use for acquisitions. Buying a “depressed” asset like Pinterest to bolt on a visual shopping engine to ChatGPT could be a strategic masterstroke.

Why Licensing (The Reddit Model) Won’t Work:

Reddit was able to license its data for $60M/year because Reddit owns the text. Pinterest is different. Pinterest users curate images, but they usually do not own the copyright to them. This makes a pure data licensing deal legally toxic.

● The Solution: An acquisition is cleaner. By buying the whole company, an AI giant gets the “engine” of curation and the ad network, rather than just buying a static (and copyrighted) database.

● The “Strategic Data Lock”: Pinterest updated its Terms of Service in 2025 to allow them to train their own AI on user data. This makes the company more attractive as an asset, but less attractive as a partner.

Why it might not happen:

OpenAI and Google have likely already scraped the open web. They may have 80% of Pinterest’s images already, just without the board structure. Is the “board structure” worth a $12B premium? Maybe not.

CONCLUSION

I am sticking with my Underperform rating. The Q4 earnings confirmed that the structural rot in the pricing model is accelerating, and the “tariff” excuses do not hold water when compared to Meta’s performance.

However, when a company stumbles this badly, it becomes “financial engineering” bait. With OpenAI rumored to be looking at a public listing, they could soon have the public company currency to go shopping for “data assets” that are perceived as AI laggards.

But at Accrued Interest, we invest based on fundamentals, not lottery tickets. Unless Pinterest gets rescued by a white knight, the fundamentals suggest the path of least resistance is lower. Their best bet at this point is to exit the race and become a feature within a larger organization.

Avoid.

-Accrued Interest

Relevant Tickers: , , , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

While the market obsesses over “AI disruption” narratives, the financials tell a different story: AppLovin is printing cash with ~80% Free Cash Flow margins and 0.3% CapEx intensity—a stark contrast to the massive capital burdens of its Big Tech peers. Management is capitalizing on this volatility, having repurchased stock as high as $602/share in Q4, signaling immense conviction in intrinsic value. With the stock now trading at a ~40% discount to recent highs and ~25x 2026 earnings, investors are getting a “growth at a reasonable price” (GARP) opportunity in an asset-light compounder. The e-commerce rollout is deliberate, the AI tools are scaling, and the buyback engine is likely firing aggressively right now.

I recommend pairing this article with my pre-earnings write-up from Feb 5^th – “AppLovin ($APP) Down -44% YTD: Fear vs. Fundamentals”.

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Introduction

AppLovin reported Q4 earnings on Feb 11, 2026. The headline numbers were a “beat and raise” across the board:

● Revenue: $1.66B (Beat $1.61B consensus)

● EPS: $3.24 (Beat $2.96 consensus)

● Guidance: Strong, forecasting sequential growth in a seasonally weak Q1.

So why is the stock getting hammered? As I wrote last week in “AppLovin ($APP) Down -44% YTD: Fear vs. Fundamentals,” this stock is a “hedge fund hotel.” It is prone to wild momentum swings in both directions. We saw it rip from $370 to $470 on short-covering news, and now we are seeing it flush on valuation fears.

But there is a specific mechanical issue weighing on the stock right now: The “Meta Ceiling.”

The market is currently collapsing multiples across the entire ad-tech/software landscape. As I noted in my Meta Q4 2025 Recap earlier this week, when investors cut Meta’s multiple, they take AppLovin down with it.

Let us look at the math:

● Meta: Trading at ~22x 2026 earnings.

● AppLovin (~$370): Trading at ~25x 2026 earnings.

Right now, the market is telling us it is only willing to pay a tiny premium (+3x) for AppLovin over $META.

My Take: This is an overreaction. Paying 25x current year’s earnings for this level of growth and execution is a fantastic price. The market is skittish because the “e-commerce payoff” is a 2026/2027 story. Investors trying to model earnings 2 years out are seeing variability and choosing to compress the multiple today.

What’s Next? Management gave a TON of strategic detail on the call regarding the e-commerce rollout, AXON 2.0, and the competitive landscape with Big Tech. We are going to get into that, but I just wanted to remind everyone we are focused on the financials first.

After going through the Q4 earnings release and the transcript—here are the biggest takeaways I have following the quarter.

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1. The “Capital Light” Miracle: Why AppLovin is Different from Big Tech

AppLovin’s financial metrics are fantastic. This company is such a unique combination of efficiency, high growth, profitability, and cash generation. Investors simply do not appreciate this when it trades at a market multiple.

On the call, CFO Matt Stumpf reminded everyone just how incredible their operating metrics are:

“AppLovin represents a combination that is exceedingly rare: sustained hyper-growth, exceptional margins, massive free cash flow generation, and disciplined capital returns. We believe this puts us in a category of our own and positions us to continue delivering outsized value for shareholders over the long term.”

$APP is getting thrown out with the Big Tech bathwater, but the market is missing a massive structural difference: Capital Intensity.

2025 Capital Intensity Comparison

While Big Tech is incinerating cash to build the AI infrastructure, AppLovin is simply riding the rails. I did the math on 2025 CapEx Intensity (CapEx / Revenue) to illustrate just how different these business models are:

● Meta: 36% (Building the tracks)

● Google: 15% (Playing catch up)

● AppLovin: 0.3% (Riding the train)

AppLovin is the asset-light way to play the AI supercycle. They get the growth without the bill.

Here is a double click on the detail for AppLovin—now that we have all four quarters. You can see the capital efficiency scaling in real-time. By Q4, CapEx was effectively a rounding error (<0.1%) against $1.66B in revenue.

AppLovin Quarterly CapEx Detail

To further highlight the comparison—let us compare it to Meta (which I am also long).

I have seen a lot of sticker shock over $META’s 2025 capital expenditures. And looking at the chart below, I get it. Spending 36-38% of revenue on CapEx (and higher) is a staggeringly high number for a software/internet business.

Meta Quarterly CapEx Detail

So why am I still bullish on $META?

Because the receipts are in the revenue line. As I wrote in my Q4 recap, this is not “vanity spend.” This massive infrastructure build-out is directly accelerating revenue growth. The AI improvements in ad targeting and content recommendation (Reels) are converting at a higher rate than ever before.

The market is punishing Meta for the cost of the AI arms race while ignoring the payoff. At ~22x 2026 EPS, you are buying a company that is successfully pivoting to the next computing platform while still growing double-digits.

Now let me explain why I am using P/E for my argument here about how the market is treating Meta and AppLovin. I agree Free Cash Flow (FCF) matters the most, but FCF penalizes $META because they are in a heavy investment period (which I support!). I would rather use P/E multiples that look at normalized earnings because it is fairer and smooths out the massive capex spike.

Bottom line: I am long both $APP and $META. AppLovin has the stronger free cash flow profile and higher growth over the next two years, but it is hard to argue that $META is not the stronger business overall as the 800 lb. gorilla. $APP is too cheap, but investors are not going to bid it up while Meta is selling off.

But I am not going to complain—cheaper AppLovin shares make the buyback work harder.

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2. The “Cash Machine”: Why AppLovin is a Free Cash Flow Monster

While the “Asset Light” argument is compelling, the real magic is in the conversion. It is not just that AppLovin spends less; it is that they keep more.

We can now paint a full picture of 2025 and drill into why AppLovin is converting nearly 80 cents of every dollar of revenue into free cash flow. This matters because when a stock is down and investors are skeptical of the strategy, very few do the real work to tear apart the financials and understand the money machine inside.

The “Money Machine” is Accelerating: Look at that FCF Margin expansion from 56% in Q1 to 79% in Q4. That is an absurd level of efficiency.

AppLovin (APP) 2025 Margin Analysis

Based on the financial reports, there are three primary drivers for this massive expansion:

1. Structural Shift: Divesting the Lower-Margin “Apps” Business

In Q2 2025, AppLovin completed the divestiture of its mobile gaming division. This segment historically had much lower margins compared to the Software Platform. By Q4, the company was operating as a “pure-play” ad-tech software platform. The revenue mix shifted entirely to high-margin software revenue (~90% gross margins). Without the heavy OPEX of game development studios, a significantly higher percentage of every revenue dollar flowed directly to the bottom line.

2. Timing of Interest Payments

There is a “hidden” driver here: bond payments. AppLovin’s debt structure requires semi-annual interest payments (Q2 and Q4).

● Q2: Dragged down to 61% by interest payments.

● Q3: Bounced to 75% with no interest payments.

● Q4: Despite having an interest payment, the sheer scale of revenue growth overpowered the cash outflow, keeping margins at an elite 79%.

3. Operating Leverage (The “Flow-Through” Effect)

Management highlighted that their AI models (AXON 2.0) are scaling revenue without requiring a linear increase in costs. They achieved a 95% flow-through rate in Q4. This means for every additional $100M in revenue they generated, ~$95M went straight to EBITDA.

The jump to 79% in Q4 proves the “pure-play” thesis is working.

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3. The Buyback Signal: Conviction at $602/Share

While the market obsesses over “AI disruption” fears and compresses the multiple, I have been updating my models to see what management is doing with their cash.

The chart below tells a story of both conviction and discipline.

Here is what we learned from the Q4 financials regarding the buyback machine:

1. The Conviction Signal ($602/share): In Q4, management repurchased ~800k shares at an average price of ~$602. Let that sink in. Just a few months ago, insiders were retiring shares at prices ~60% higher than where the stock trades today (mid-$300s). That is a massive vote of confidence in the intrinsic value of the business and the durability of the platform.

2. The Discipline (Smart Allocation): Notice the trend in volume vs. price.

   1. Q1: When the stock was “cheap” (~$354), they aggressively retired 3.35 million shares.

   2. Q4: When the stock ripped to all-time highs (~$602), they tapped the brakes, buying only 0.8 million shares.

This is exactly what you want to see. They are not blindly buying; they are price-sensitive capital allocators. They swing hard when the pitch is perfect and stay opportunistic when valuations stretch.

What This Means Now:

With the stock selling off post-earnings, we are trading at a massive discount to where management was just buying hand-over-fist. They have made it clear they intend to use their robust Free Cash Flow (which hit nearly 80% margin in Q4) to reduce share count.

With the earnings blackout over and the stock trading at a severe discount to their Q4 buyback price, I expect the buyback cannon to be firing aggressively right here. If they liked it at $602, they must love it here under $370 a share.

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4. Key Quotes from the Call: Addressing the “Fear” Head-On

The CEO, Adam Foroughi, started off with one of the best introductions I have heard for a company whose stock price has been moving around as if they were in distress. We know many new investors are nervous about the share price, so he jumped right into it.

Adam Foroughi:

“I want to start by addressing what’s clearly on many people’s minds. While I prefer to ignore short-term fluctuations in the stock price and focus on maximizing value over the long term, the recent volatility warrants addressing. For the past few weeks, there’s been a lot of discussion about how AI and competition will challenge our business. But when I look at our internal dashboards, we are delivering the strongest operating performance in our history... There is a real disconnect between market sentiment and the reality of our business.”

The “Expanding Pie” vs. Zero-Sum Game

One of the key bearish arguments is that if Meta or Google get better, AppLovin loses. Foroughi dismantled this zero-sum thinking:

“Now in a typical zero-sum auction-based market, if one improves another loses. In our case, as bid density goes up, the pie expands. And while our share of the auction may shrink, our economics actually grow... When competition wins an impression, it’s very likely to be the one that we value less. This leads to the publisher making more. And in many cases, we do as well because instead of winning a low-value impression, we get to charge the winning bidder 5%.”

AI and the Content Explosion

Next, APP addressed the fear around AI Disruption when it comes to game creation. I mentioned this in my Q4-25 preview article “AppLovin ($APP) Down -44% YTD: Fear vs. Fundamentals”.

“The bearish view assumes that if AI makes games easier to build, the value of our ecosystem declines. Well, we believe the exact opposite. AI will dramatically lower the cost of creation, which means content will explode. And when content becomes abundant, discovery becomes a scarce resource... The winners will be the platforms that can efficiently match the right user to the right content at the right moment. That is exactly what our models are designed to do.”

This is a critical insight. If AI creates 10 million new apps, finding the good ones becomes the hardest problem on the internet. AppLovin sells the solution to that problem.

Sequential Growth in Q1

I thought it was incredibly bullish when they explained that they are seeing quarterly, sequential growth from Q4 to Q1 2026. In the ad industry, Q1 is typically the seasonally weakest quarter (the “post-holiday hangover”).

“Despite typical seasonality where Q1 should be softer than Q4, we are guiding to meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers.”

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5. The E-Commerce Rollout: Deliberate, Not Delayed

Investors are impatient. I can imagine that bears and perhaps some new investors thought that on Jan 1, AppLovin was going to flip a switch, turn on e-commerce, and the rest would be history.

But APP is being deliberate to weed out fraudulent actors and to make sure everything is the best it can be. The e-commerce rollout is going carefully—it is still not a full “GA” (General Availability) type launch where just anyone can sign up.

Adam Foroughi:

“So the e-commerce business obviously has been live with us for 1.5 years. It’s doing really well. In Q4, we opened up the self-service platform, referral only. So we’re not at the point yet where we’re sort of a GA type launch. We’ll get there. We said first half of this year, that’s still on track... What gets us excited are a couple of things. One is the current customers that had lapped Q4 2024 into Q4 2025 saw material increases in spend as our models just keep getting better.”

They are being incredibly careful. As I mentioned in my last article, the true growth engines are still on track to kick in late 2026 and full year 2027.

6. Generative AI: The Hidden TAM Expander

Part of the bull case that I believe many are missing is that AppLovin is testing generative AI tools that basically help create ad creative for customers. This is a huge, underappreciated part of the bull case. Meta has talked about this as well.

This expands the Total Addressable Market (TAM) by lowering the friction for non-gaming advertisers (who might not have big creative teams) to spend on the platform.

Adam Foroughi:

“More importantly, though, generative AI tools to build creatives in a really low-cost way in an automated way is on the way. We already have in a pilot with over 100 customers, generative AI-based tools for one part of the ad unit... We’re now generating those automatically for over 100 customers. We’ll roll that out soon as it’s showing good performance to the broader set of customers.”

“But if we get to a place where the video model can help these customers create new video ads in bulk in cost of dollars versus cost of thousands of dollars, we expect the count of ads for these new customers on our platform is going to go up a lot.”

This is huge! This can get new advertisers spending even more on the platform because it cuts down on the friction and the cost of trial and error.

AppLovin Marketing Itself?

Another fascinating tidbit: AppLovin is finally spending money to market itself. They said before they never did marketing, and now that changes. I have seen their ads all over Instagram and Facebook, leading with the AXON branding (so they do not have to worry about scaring away customers with the “AppLovin” gaming name).

“But if we start actually being able to market our platform and get customers to convert through the funnel, that’s going to help us really catalyze faster growth to go get advertisers in the absence of a sales team.”

7. The “Frenemy” Dynamic: Meta and MAX

AppLovin did an excellent job explaining that they can still win and succeed even if Meta gets more involved in gaming.

Adam Foroughi:

“So the Meta thing, Meta was a launch partner of MAX. They’re a good partner. They’ve been in the MAX platform for a long time... They are a bidder on anything that has an ID today... They did not start bidding on no ID traffic, and they might very well bid on no ID traffic in the next couple of quarters.”

Essentially, if Meta bids more, bid density goes up, and yields go up for everyone (including AppLovin’s software tax).

However, we cannot ignore the 800lb gorilla in the room. While management’s comments are reassuring, Meta remains the most credible threat to AppLovin’s long-term success. Given Meta’s sheer size, scale, and almost unlimited resources, we have to remain vigilant. If Meta were to shift its strategy to become more adversarial, for example, aggressively bidding to commoditize the auctions or attempting to bypass mediators entirely—it could negatively impact AppLovin.

While the current relationship is symbiotic (a “frenemy” dynamic where both benefit from a larger pie), this is a risk factor that we cannot simply rule out. It requires constant monitoring in 2026. For now, they are co-existing profitably, but as AppLovin moves deeper into e-commerce, that collision course with Meta becomes more direct.

CONCLUSION

Sell-offs are difficult. Watching a stock drop 40% when the fundamentals are improving is a test of conviction. But I am going to stick to my value investing principles.

I will leave you with what might be one of my favorite quotes I have heard a CEO say after his stock has fallen.

Adam Foroughi:

“If the market chooses to price our stock based on fear, while we continue to compound revenue, cash flow and product capability, we’ll stay focused on execution and let our results speak over time.”

From where we sit, we are still in the early innings of what this platform can be.

-Accrued Interest

Relevant Tickers: , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

If you read my Day 5 of Pitch-Mas article back in December, you know I pounded the table on Meta. My argument was simple: ignore the noise about spending and focus on the ROI.

On January 28, Mark Zuckerberg delivered Q4 2025 earnings that did not just prove the thesis—it smashed it.

Meta reported $59.9 billion in revenue (+24% YoY) and $8.88 in EPS, beating estimates across the board. But the real story is not the beat; it’s the valuation disconnect.

A Growth Stock Trading Like Value

Meta is a growth stock trading like a value stock that the market has been underestimating. While other tech names have seen their stock prices rally in the past week, Meta’s stock has been left behind.

With the current price of $670, the stock is basically flat YTD and it is down mid-single digits over the past year.

Let’s look at the multiples:

• Meta is trading at 22x 2026 consensus EPS of $30.

• It is trading at 19x 2027 EPS of $35.

A company as dominant as Meta should not be trading at a discount to the market.

Meta’s valuation makes no sense right now because the discount screams “uncertainty,” yet we have mounting evidence that the company’s AI investments are clearly paying off in the form of improved ad impression growth.

Here is my deep-dive recap of why Meta’s Q4 indicates it will outperform in 2026.

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1. The Cleanest Signal in Tech: Ad Impressions +18% YoY

The most critical metric in this entire report was ad impression growth of +18% year-over-year.

For quarters, skeptics have asked, “Where is the return on all this AI spending?” Here it is. The trendline shows a clear acceleration as Meta successfully merges Large Language Models (LLMs) with its recommendation engines:

● Q1 2025: +5% YoY

● Q2 2025: +11% YoY

● Q3 2025: +14% YoY

● Q4 2025: +18% YoY

Why does this matter? Because this is the “AI ROI” in action. AI is turbocharging the core business by creating an algorithmic feed that is smarter, stickier, and serves you exactly what you want to see. This increases the surface area for ads, totally separate from Zuckerberg’s sci-fi “superintelligence” goals.

Even if you strip away the futuristic hype, the core ad machine is accelerating because AI is making the product better right now.

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2. Meta Continues to Grow Revenue at Scale

It is incredibly impressive that a company of this size is still growing revenue at 24% year-over-year.

Based on the Q4 2025 earnings release and conference call, management provided robust guidance for the first quarter of 2026. Meta expects Q1 2026 total revenue to be in the range of $53.5 billion to $56.5 billion, which includes an expected foreign exchange tailwind of 4%.

When you compare this to Q1 2025, the implied growth rate is staggering for a company of this scale:

● Low End: +26% YoY

● High End: +34% YoY

● Midpoint: +30% YoY

This guidance reinforces that the revenue acceleration we saw in late 2025 is not a fluke—it is the new baseline.

Interestingly, despite this clear guidance, the sell-side consensus seems to be playing catch-up. Current analyst estimates project revenue growth of +25% for 2026, but then a sharp deceleration to +17% in 2027.

Given the momentum we are seeing in ad impressions and the new monetization levers I will discuss below, the street is significantly underestimating the durability of this growth. If Meta is guiding to ~30% growth right now, assuming a drop to 17% next year feels overly conservative, especially as their AI tools mature.

See the table below for context on current analyst estimates as of Feb-10-2026:

Source: TIKR.com

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While the ad engine is the main driver (with average price per ad up 6%), we are finally seeing the “Family of Apps Other” line item wake up. This segment hit roughly $801 million in Q4, growing significantly as they monetize messaging and subscriptions.

The WhatsApp Unlock

WhatsApp has been a sleeping giant for a decade, but 2026 looks like the year it fully wakes up. Meta is aggressively rolling out “Business AIs” and “agentic shopping tools“ that allow users to find products and transact directly within the app. With over 1 billion active threads between users and businesses, enabling automated AI agents to manage sales and customer support transforms WhatsApp from a messaging app into a global commerce engine.

Automated Ad Creation

Meta is also removing friction for advertisers. The company is deploying AI-native tooling to fully automate ad creative—generating video and static assets from simple text prompts. This lowers the barrier to entry, allowing millions of small businesses (and creators) to advertise without needing a design team.

Meta Verified

As a content creator, I have seen this shift firsthand. White-collar workers transitioning careers are flocking to Instagram to build personal brands, and paying for the “blue check” via Meta Verified is now a standard business expense to signal legitimacy.

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3. Operating Profits are Still Growing

Despite the fear-mongering about spending, Meta made it clear that operating income is expected to grow in 2026. This tells us that management is prioritizing profitable growth, not just growth at all costs.

Look at the profitability of the core business (Family of Apps) versus the total company:

• Q4 2025 - Family of Apps Operating Income: $28.9 Billion (49% Margin)

• Q4 2025 - Total Company Operating Income: $24.7 Billion (41% Margin)

Historically, these margins have remained robust even as Capex ramps up. In Q3 2025, Total Operating Income was $20.5 billion (40% margin). The jump to $24.7 billion in Q4 shows the immense leverage in this model.

The takeaway? Meta can fund its record-breaking AI investment while still maintaining operating margins in the 40s. That is a luxury almost no other company in the world possesses.

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4. Address the Elephant: That $135 Billion Capex Guide

Let us address the number that freaked out the market: $115 billion to $135 billion in Capex for 2026.

Yes, it is a staggering amount of money—nearly double the ~$72 billion spent in 2025. The bearish argument is simple: if the economy slows, Meta is stuck with massive depreciation anchors.

But recall my argument from Dec: Meta is creating a moat that no one else can cross.

Zuckerberg was clear: this spend is to build out “Meta Superintelligence Labs” and to “front-load” capacity. More importantly, as we saw with the +18% impression growth, it is working. The revenue upside from these AI tools is already offsetting the costs.

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5. Reality Labs: The “Black Hole” is Shrinking

For years, Reality Labs has been the stick bears use to beat this stock. The division posted another operating loss of ~$6 billion in Q4.

However, on the call, Zuckerberg threw investors a critical bone: 2025/2026 will likely be the peak of losses.

“I expect Reality Labs losses this year to be similar to last year, and this will likely be the peak as we start to gradually reduce our losses going forward.” — Mark Zuckerberg

This is the fiscal discipline we wanted to see. The fully immersive “Ready Player One” metaverse has not materialized, and pivoting resources away from that toward AI wearables (like Ray-Ban Meta glasses) is the right move. I still do not think smart glasses are material to the financials yet, but strategically, they feed the data flywheel of the core app.

CONCLUSION

If you liked Meta in December, you should love it today. We have a company growing revenue at +25% with 41% operating margins, trading at just 22x next year’s earnings.

The “Capex shock” is already baked into the stock. What is not baked in is the acceleration in ad impressions and the monetization of WhatsApp. The revenue acceleration is real, the AI investments are hitting the bottom line, and the “wasteful” spending in Reality Labs is finally being reined in.

If Meta can achieve 2027 consensus EPS of $35, at a 25x multiple - it would trade at $875 a share, up +30% from today’s price of $670. For all the above reasons I am keeping my Outperform rating on Meta. Don’t bet against the machine when the AI engines are just getting warmed up.

-Accrued Interest

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Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

AppLovin reports Q4-25 earnings next Wednesday, Feb 11 (5:00 PM ET). While I normally wait for the print to publish, the noise has gotten loud enough that I want to share some thoughts with subscribers now.

I am putting this under “Stock Market Commentary” because I want to do more quick reactions for subscribers dealing with big market moves. I think the fall in AppLovin justifies a clarification post. The stock is no stranger to rumors—see my archives for my coverage of past short-seller attacks on AppLovin in 2025.

There are plenty of rumors, but the sell-off comes down to a handful of main narratives:

• AI Disruption Fears: Renewed anxiety about ad-tech and gaming displacement.

• E-Commerce “Whispers”: Private reports circulating that the Q1 e-commerce launch has been mixed.

(Note: These concerns are more legitimate than the salacious short reports from last year, but selling a stock before the company reports in 6 days seems crazy to me).

At Accrued Interest, my edge is time horizon. Let us block out the noise and look at the facts.

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1. The Bear Case: AI Disruption (CloudX & Genie)

The market hates uncertainty, and right now, “AI” is being used as a boogeyman to scare investors out of ad-tech positions.

In a note published yesterday, Morgan Stanley highlighted three key investor concerns driving the de-rating: the launch of CloudX, a renewed push by Meta into the space, and the emergence of “World Models” like Google’s Genie.

The fear regarding CloudX is that its new AI-agent-based mediation platform could commoditize the stack. CloudX recently hit General Availability with plans to “rewire the mobile ad stack,” effectively promising to cut out intermediaries.

Simultaneously, the release of Google’s Genie (a generative AI model for creating playable worlds) has investors worried that the barrier to entry for creating games will drop to zero, potentially flooding the market or disrupting the current user acquisition (UA) dynamics that AppLovin dominates.

My Take:

The market is pricing in “disruption” without analyzing the second-order effects. Just because a new tool exists (CloudX) does not mean it instantly displaces a massive, entrenched liquidity pool like AXON.

Morgan Stanley itself acknowledges that while these are “real concerns,” the launch of CloudX’s mediation is “misunderstood and only a minor competitive threat.” Furthermore, while they see Meta’s potential push as a genuine concern, they admit there is “limited evidence that a push is coming in the near term.”

In fact, Morgan Stanley argues that “none of these concerns are idiosyncratic to APP” and that the “magnitude of the derating may be creating an opportunity similar to APP’s selloff to $219 in April 25.”

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2. The Bear Case: E-Commerce “Whispers”

The second weight on the stock is the rumor mill regarding the e-commerce pilot. Morgan Stanley noted that while the opportunity to re-enter the ~$80bn in-app ad market is a “clear call option,” there is anxiety that the initial rollout has been slower than the hyper-bulls wanted.

Most worrying, there are reports being shared around by investors claiming some advertisers reported “mixed” results on their e-commerce experience. And yet again for AppLovin, there are rumors that some ad buyers have identified fraudulent ads.

First, let me remind everyone that a lot of the rumors that stem from AppLovin come from folks who are not familiar with how the digital ad space operates.

As a reminder, Meta has faced similar issues on a much larger scale. In November 2025, Reuters published a report titled “Meta is earning a fortune on a deluge of fraudulent ads, documents show,” revealing that internal documents estimated 10% of Meta’s revenue came from ads for scams and illicit goods.

That has not impacted their revenue growth at all—as we can see that Meta is still finding ways to grow +20% YoY despite their gargantuan size.

Now, it is important to stop fraud on the platform! And the good news is that this is exactly the strategy that CEO Adam Foroughi laid out clearly back in August.

During the Q2 2025 earnings call, when asked why they were limiting the onboarding of new customers, Foroughi was explicit:

“We want to make sure that we curate the marketplace. We want to make sure we weed out fraud. We want to make sure that the advertisers that come on are high quality... So we’re going to go slow to go fast.” — Adam Foroughi, Aug 6, 2025

If the “whisper” is that they are going slow, that is not a bug—it is a feature. They are deliberately weeding out the low-quality merchants to protect the ecosystem before opening the floodgates.

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3. The Rebuttal: Why “Genie” is Bullish for AppLovin

I am not the only one scratching my head at the panic. Dom Davies, a sharp voice on ad-tech Twitter, posted a rebuttal yesterday regarding the Google Genie fears that I think hits the nail on the head.

It is worth noting that Dom Davies is a former Senior Manager of Business Development at AppLovin, having spent over 5 years at the company.

I have noticed a consistent pattern: AppLovin alumni are often some of the company’s strongest cheerleaders. These are not people with paid Substacks or large “Fintwit” accounts trying to pump the stock. But if you look carefully whenever there is an AppLovin sell-off, you will see former employees on social media stepping in to dispel rumors based on their deep understanding of the tech.

Davies pointed out that viewing generative AI game creation as a threat to AppLovin reveals a fundamental misunderstanding of the business model.

“Assuming Genie streamlines production for mobile games/ mobile apps, that only helps AppLovin. AppLovin’s business model is literally monetizing content - not making it. AppLovin really should’ve popped on the news of the Genie release - the product (in relation to AppLovin) is basically fuel for their network/platform to monetize.”

Exactly. If AI lowers the cost of content creation, we get more content, more apps, and more competition for attention. Who wins in a fragmented world? The company that owns the best monetization engine.

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Valuation: The Floor is In

When there is a fierce debate around a stock, the best way to cut through the noise is to look at the valuation to see what is priced into the multiple. The key takeaway here is that AppLovin has sold off primarily due to multiple compression, not because analyst estimates have been slashed.

At Accrued Interest, my edge is having a longer time horizon than most investors. Let us block out the noise and look at the numbers.

The Setup at $374:

AppLovin has effectively round-tripped back to where it was six months ago. We know this stock is a “hedge fund hotel” prone to wild swings ($200 low / $745 high in the last 52 weeks).

But at $374, $APP is trading at ~25x 2026 GAAP P/E.

I would argue that at a market multiple, the bear case is already priced in. Even Morgan Stanley notes that with shares derated to ~15x ‘27 EBITDA, the stock is “priced for significant risks.”

The Valuation Floor (Buybacks):

If the stock stays here, expect the buyback machine to turn on.

• Total 2025 Buybacks (Jan–Sep): ~$2.1B

• Avg Price Paid: ~$376 (Basically today’s price)

• FCF Conversion: They deployed nearly 100% of their ~$2.6B FCF into buybacks.

The Receipts:

• Q1: $1.19B spent at $354 per share.

• Q2: $341M spent at ~$368 per share.

• Q3: $571M spent at ~$439 per share.

Management was aggressively buying shares at $439—15% higher than where we sit today. That signals to me that we are approaching a hard valuation floor.

And following the Q3-25 earnings in November, AppLovin’s board added an incremental $3.2 billion to their share repurchase authorization after they completed the previous $3 billion buyback that wrapped up in October.

The company has told Mr. Market many, many times they will use their free cash flow to reduce their share count before they go out and do value-destructive M&A.

CONCLUSION

Hold tight! I will do a full report on AppLovin after the Q4 earnings print next week, but this is a special company that is currently on sale due to overstated fears from many who still do not understand their business model.

Do not catch a falling knife if you are trading short-term options, but if you are an investor looking out 12–24 months, the risk/reward here is compelling.

-Accrued Interest

Relevant Tickers: , , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Introduction

Investing is often about pattern recognition, and right now, the pattern emerging from Fubo ($FUBO) is impossible to ignore. Back in December, during my “12 Days of Pitch-Mas” series, I pitched Fubo as an Underperform for 2026. My thesis was straightforward: the company is a sub-scale operator in a brutal industry dominated by tech giants, and its merger with Disney’s Hulu + Live TV was not a growth engine, but a desperate attempt to gain relevance.

Today, Fubo released its earnings for the first quarter of Fiscal Year 2026 (Calendar Q4 2025), and the market’s sharp sell-off tells you everything you need to know. Fubo stock fell over -20% in morning trading after the release. But if you look past the headlines, the situation is even more dire than the stock price suggests.

Perhaps the most damning signal wasn’t a number at all, but an omission. In the release, Fubo management stated they could not provide future guidance.

This is a massive red flag.

In my December pitch, I predicted they would be forced to lower guidance as the realities of the market set in. The fact that they have chosen to pull guidance entirely confirms that fear. It suggests that too much time has passed without improvement, and management is now too afraid to put a number on paper because they have zero visibility into where the floor is.

In this article, I want to break down exactly what happened in this quarter and explain why these results confirm the bearish predictions I made in Why Fubo Will Underperform in 2026 ($FUBO).

I used to refer to Fubo as a “melting ice cube,” but I realize now that analogy was flawed. Melting implies there was a solid block of value to begin with. Fubo is more like a startup that simply never achieved lift-off. It’s a “Failure to Launch” story—a company that burned through cash on the runway and is now looking for financial engineering to stay airborne.

Here are my 5 key takeaways from the disaster that was Fubo’s Q1 2026.

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1. The Ultimate Bear Signal: The Reverse Stock Split

Let’s start with the elephant in the room. You usually don’t announce a reverse stock split when things are going well.

Buried in today’s release was the announcement that Fubo’s Board has approved a reverse stock split in the range of 1-for-8 to 1-for-12. Management spins this as a move to “make the stock more accessible to a broader base of investors” and align the share count with the company’s size.

Translation: The stock price has fallen so low that it is becoming uninvestable for institutions and risks delisting requirements.

When I wrote about Fubo in December, I questioned whether the company had a reason to exist in a world dominated by YouTube TV. A reverse split is often the financial equivalent of a “Hail Mary.” It creates the optical illusion of a higher share price without changing the underlying value of the business. For a company that just completed a “transformational” merger with Hulu + Live TV, resorting to financial engineering this quickly is a massive vote of no confidence in organic price appreciation.

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2. Subscriber Growth Has Reversed: “Stuck” User Base

The core of the bull case for Fubo has always been its “Sports First” growth story. The argument was that sports fans are loyal and will pay up for the best bundle.

The data from this quarter undermines that narrative.

• Total North American Subscribers: 6.2 million.

• Comparison: This is down from 6.3 million in the comparable prior-year period

Let that sink in. On a pro forma basis—combining Fubo and Hulu + Live TV—the subscriber base shrank year-over-year.

In my December article, I highlighted the “Stuck Subscriber Base” at Hulu + Live TV, noting that it had fallen -4% YoY. Today’s earnings confirm that this trend has continued. Fubo isn’t growing; it is churning.

Why is this happening? As I predicted, the “Sports-First” skinny bundle from YouTube TV is eating their lunch.

“Because YouTube TV is part of the Alphabet empire, it does not need to make a standalone operating profit. Google can afford to run YouTube TV at breakeven—or even a loss—to capture market share. I do not need to see the exact pricing of the new bundles to know the outcome: Google will price it lower than Fubo can match without destroying their already thin margins.”

YouTube TV is growing past 10 million subscribers because they have the scale to offer better pricing and the “Google Subsidy” to run at breakeven. Fubo, meanwhile, is losing subscribers despite having the “combined strength” of Hulu. If you are shrinking in Q4, historically a strong quarter for TV adds—you are in structural decline.

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3. Advertising Revenue is Shrinking (Yes, Shrinking)

If the subscriber numbers were bad, the advertising numbers were worse.

Now, I want to be fair to the bull case here for a moment. As I discussed in my recent Netflix Q4 Recap, there is undeniable upside to having a fully integrated, world-class ad tech stack. Netflix, for example, projected meaningful increases in fill rates as they optimized their inventory. In theory, Fubo moving to the Disney Ad Server should offer similar benefits—better targeting, higher CPMs, and access to a broader demand pool.

But Fubo is not Netflix.

Netflix owns its ecosystem entirely. Disney owns its ecosystem entirely. Fubo, in this new arrangement, is a third party. While the cooperation with Disney might improve mechanics, at the end of the day, an advertiser still must actively decide to buy Fubo inventory.

Disney is not incentivized to prioritize Fubo over its own Owned & Operated (O&O) platforms like Disney+ or ESPN. If a premium ad dollar comes in, Disney will push it to their higher-margin, wholly-owned properties first. Fubo isn’t being aggressively packaged as a core component; it’s an add-on.

The numbers bear this out:

• Pro Forma Advertising Revenue: $123.5 million.

• Prior Year: $128.7 million.

• Growth: -4% decline.

Management is promising that the migration to the Disney Ad Server later this month will fix this. But as an analyst, I don’t pay for promises; I pay for performance. A -4% decline suggests advertisers simply do not view Fubo as a “must-buy” in a crowded market.

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4. The “Profitability” Mirage

Fubo proudly announced positive Pro Forma Adjusted EBITDA of $41.4 million. On the surface, this looks like progress compared to the $22 million in the prior year.

But as a value investor, the only metric that truly matters for long-term viability is Free Cash Flow, and on that front, the picture remains ugly.

“Adjusted EBITDA” is often a metric used to hide the true cost of doing business. When you look at the Net Loss, Fubo posted a Pro Forma Net Loss of -$46.4 million.

This lack of GAAP profitability is exactly why investors are losing patience. You can sell a growth story with losses (like early Netflix or Amazon), or you can sell a value story with profits (like legacy media). Fubo is offering neither—shrinking growth and continued losses. This is not a Free Cash Flow machine; it is a capital-intensive business with razor-thin margins.

Furthermore, management cited “working capital timing” and a build-up in accounts receivable to explain poor operating cash flow.

Let’s be clear: for a digital subscription business, if you are spending time explaining away working capital swings, you are wasting everyone’s time.

That is not the core problem. The problem is that the unit economics are structurally challenged, and no amount of working capital management can fix a business model that fails to generate real cash.

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5. The Content Cliff: Losing NBCU Was Just the Start

In the earnings release, management tried to spin the loss of NBCUniversal content as a win. They stated, “The subscriber impact following the removal of NBC content has been better than our expectations.”

This is corporate speak for “We lost fewer subs than we thought we would.” But they did lose subs. And more importantly, they are about to face a massive test.

The Winter Olympics start Friday 2/6.

Think about the timing. Fubo is pitching itself as a “Sports First” destination, yet they do not carry the channels (NBCU/Versant) that are broadcasting one of the largest sporting events in the world. When sports fans realize they can’t watch the Winter Games on Fubo, they aren’t going to wait around. They are going to sign up for YouTube TV or Peacock immediately.

This content gap virtually guarantees that Fubo will be a net loser of subscribers in Q1 2026. You cannot claim to be the home of sports and then sit on the sidelines for the Olympics.

Additionally, they announced a new “reseller arrangement” with ESPN to put Fubo Sports in ESPN’s commerce flow. This sounds nice but think about the strategic implication: Fubo is becoming a downstream reseller for Disney/ESPN. They are ceding the direct customer relationship. If ESPN is the storefront and Fubo is just a product on the shelf, who owns the customer? ESPN does. This aligns with my thesis that Fubo is slowly being converted into a utility for Disney rather than a standalone competitor.

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CONCLUSION

This earnings report was not a stumble; it was a confirmation of a broken thesis.

The announcement of a reverse stock split—and the refusal to provide future guidance—is the final nail in the coffin for the growth narrative. It is an admission that the market has lost faith in the equity story and that management has lost visibility into the business.

Looking ahead to the rest of 2026, the outlook is grim. We are moving toward a “Two-Horse Race” in the TV living room between Netflix ($NFLX) and YouTube ($GOOG/$GOOGL).

• Netflix has won the engagement war (see my Netflix Q4 Recap).

• YouTube has won the linear replacement war with its cheaper skinny bundles.

Fubo is squeezed in the middle—charging a premium price for a worse product with shrinking content (no NBCU during the Olympics). They are trying to compete with giants using a balance sheet that requires a reverse split to stay afloat.

I reiterate my Underperform rating. Do not catch the falling knife. This startup never found its wings, and it’s a long way down.

-Accrued Interest

Relevant Tickers: , , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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• Watch the Interview: I joined Rigatoni Capital to discuss these thesis points in detail. Link to substack and YouTube video below.

• Netflix is a Buy: The market is mispricing the Warner Bros. deal execution risk; the “uncertainty” is an opportunity to buy a compounder at ~22x 2027 earnings.

• Ad-Tech is the Key: Netflix’s ad tier is just getting started, with fill rates and ad loads set to expand significantly as they build out their sales organization.

• Versant is a Trap: $VSNT is a “melting ice cube” facing a massive revenue cliff in 2028 when it loses the NBCUniversal halo.

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If you have been reading Accrued Interest for a while, you know my golden rule: the market narrative is often messy, but the structural reality is usually clear if you know where to look.

This week, I had the pleasure of sitting down with Colin from for a wide-ranging discussion on the current state of the Technology, Media, and Telecom (TMT) sectors. (This podcast was recorded on January 29th, 2026)

If you aren’t already following , you should be. Colin is a sharp investor who asks the tough questions that actually matter to the buy-side, rather than just skimming the surface of earnings headlines. It was a great conversation that went beyond the consensus views and dug into the "why" behind my current ratings.

We spent a solid hour breaking down the mechanics of the Netflix/Warner Bros. deal, why the market is mispricing execution risk, and why I believe the structural decline of linear TV is creating traps for value investors in names like Versant.

I am grateful for the opportunity to share my thesis with the Rigatoni Capital audience. You can watch the full interview above or on YouTube.

Below is a detailed roadmap of the topics we covered so you can jump to the sections that interest you most.

Interview Roadmap

[00:00] Intro & The “Accrued Interest” Strategy We kick things off discussing my background in media and Wall Street (Goldman Sachs), and how a proprietary research process led to a ~3,400% time-weighted return from 2016-2024.

[01:45] Netflix ($NFLX): Buying the Dip Why the post-earnings sell-off is a gift. We discuss the Warner Bros. acquisition, why the “uncertainty” is your friend, and why the deal is actually a massive defensive moat against Big Tech.

[05:30] The “Financial Engineering” Trap I explain why I prefer companies that reinvest for growth over those that rely solely on buybacks to prop up EPS.

[10:30] The Sony Signpost Why the Netflix/Sony $7B licensing deal is the perfect “sanity check” that validates the $82B price tag for Warner Bros.

[18:00] The Ad-Tier Sleeping Giant A deep dive into Netflix’s ad-tech stack. We discuss why fill rates are currently low (estimates around 45%) and why the build-out of their internal sales organization is a bullish signal for 2026 revenue growth.

[22:00] Ad Load Economics Comparing the “painful” 22-minute ad load of linear TV to Netflix’s slim 4-6 minute load. There is massive pricing power here as Netflix slowly turns the dial.

[28:00] The Bundle vs. The Standalone We discuss a key distinction: most competitors (Disney+, Hulu, Max) are growing via aggressive “mini-bundles” to reduce churn. Netflix is the rare service people still sign up for individually. The Warner Bros. deal opens up immense bundling opportunities for Netflix that the market is ignoring.

[30:00] The “Binge” Model Debate We debate the merits of the binge drop vs. weekly releases. I argue that weekly releases are a retention tool for weaker services (like HBO) that suffer from high churn, whereas Netflix’s library depth allows it to serve viewers however they want.

[33:00] Versant ($VSNT): The Value Trap We pivot to my “Avoid/Underperform” rating on Versant. I explain why this spinoff is a collection of assets that should not be public, and why the 2028 expiration of the NBCUniversal partnership creates a massive revenue cliff.

[36:00] Breaking Up Versant If you are looking for value in $VSNT, it isn’t in the equity—it’s in the breakup. We discuss who should buy CNBC (Bloomberg? Reuters?) and the hidden value of GolfNow.

[38:00] AppLovin ($APP): The AI Ad-Tech Play Why I ignore the short reports. We discuss AppLovin’s “Axon” engine, its incredible margins, and why it provides the one thing advertisers want most: a scalable alternative to Meta and Google.

[43:00] Meta ($META): CapEx vs. Growth Why I am comfortable with Zuckerberg’s massive AI spending as long as ad impressions continue to accelerate sequentially.

[46:00] Duolingo ($DUOL): The Short Thesis Why I believe Duolingo will underperform in 2026. It’s not about whether the app teaches you French; it’s about a monetization curve that is flattening while the AI threat looms large.

A huge thank you to Colin for having me on. If you enjoyed the conversation, make sure to subscribe to for more great interviews and posts.

Rigatoni Capital

Grow wealth through long-term investing in stocks, index funds, and Bitcoin

And there is plenty more coming on Accrued Interest. Be sure to subscribe below and check back soon for my takes on Meta’s earnings from last week, my analysis of Disney’s earnings today, and more coverage as the rest of the season unfolds.

-Accrued Interest

Relevant Tickers: , , , , , , , , , ,

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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Accrued Interest TL/DR:

The Thesis: In Parts 1 and 2, I argued why Versant (VSNT) is a value trap at $33.50. The public markets are correctly discounting a “melting ice cube” facing a 2028 sports rights cliff. However, the sum of the parts creates a fascinating theoretical arbitrage that only a private owner can unlock.

The “Hidden” Tech Platform: My analysis of 2025 disclosures suggests the Golf Vertical is no longer just a cable channel—it is a 50/50 split between linear TV and a massive B2B SaaS oligopoly (GolfNow) that controls ~75% of online aggregator inventory.

The Strategic Breakup: I map out why assets like CNBC and GolfNow are structurally more valuable to strategic buyers (like LSEG, Thomson Reuters, or DraftKings) than they are trapped inside a cable conglomerate.

The “Project Turn the TV Off” Scenario: A take-private is unlikely at today’s premium. I believe the stock must languish or fall further to create the necessary margin of safety. I run the math on a “2028 Doomsday” scenario where a PE buyer could take it private, run the cable networks for yield, and execute a dividend recap based on $1.47B in pro-forma EBITDA.

The Bottom Line: This isn’t a buy recommendation; it’s a roadmap for what should happen. Until management stops empire-building and starts dismantling, the equity remains dead money.

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Introduction: The Art of the Dismantle

In Part 1 (“Decoding the Versant Investor Deck“), I looked under the hood at capital allocation. I found a management team that seems intent on spending its Free Cash Flow on “growth” initiatives and empire-building rather than returning capital to shareholders. The “E” in the P/E ratio is shrinking, and the “P” is likely to follow.

In Part 2 of this series (“Is Versant Cheap or Just Cheaply Valued? The Case for $27“), I laid out the bear case: Versant ($VSNT) is trading at a “value” multiple because it faces an existential cliff in 2028. The loss of the NBCUniversal “halo” and the expiration of key sports rights will likely re-rate the business permanently lower.

Today, in Part 3, I want to shift gears.

If I am so bearish, why spend this much time analyzing the company? Because Versant is a classic case of an asset-liability mismatch.

The public markets are designed to value growth and continuity. They are terrible at valuing a stock undergoing a liquidation and / or managed decline. Currently, the market looks at Versant and sees a messy, shrinking cable bundle. It assigns a blanket 5.0x EBITDA multiple to the whole entity.

But if I were advising the Board—or, more likely, a Private Equity firm circling the carcass a few years from now—I would not see a media company, but rather a breakup candidate.

For purposes of this thought exercise - let’s view Versant as three distinct businesses stapled together:

1. The Trophy Media Asset (CNBC): A global financial media asset with high margins that does not require much capital to run.

2. The Software as a Service Play (GolfNow): A vertical SaaS oligopoly on golf course booking times, currently shackled to a legacy sports cable channel.

3. The Bad Bundle (USA, E!, MS NOW): A declining portfolio of cable networks that generates massive cash flow today but has a terminal value of zero.

The strategy I am laying out today—“Project Turn the TV Off”—is a thought exercise. It is the blueprint for how to dismantle this company to unlock its latent value.

Note: I do not expect this to happen tomorrow. At the current price of $33.50, the equity is likely too expensive for a financial buyer to make the math work. For this scenario to become actionable, the stock needs to languish or drift lower toward my $27 target (or below) as the 2028 cliff approaches.

Here is how the dismantle should work.

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Part 1: The “Hidden Gem” – Carving Out the Tech Platform

The first step in my breakup analysis is to isolate the assets that are being mispriced by the “Cable TV” label. The most egregious example is the Golf Vertical.

Investors look at the “Golf” line in the 10-K and assume it is just the Golf Channel—a niche linear network fighting the same cord-cutting gravity as everyone else.

They are missing the story. Based on my forensic review of the 2024-2025 data, the Golf vertical has quietly crossed the rubicon. It is no longer a majority media business; it is a technology business.

The “Matt Hong” Signal

Management doesn’t break out the Golf financials explicitly. However, in November 2025, Matt Hong (President of USA Sports) offered a rare glimpse under the hood at the Sports Business Journal Media Innovators Summit.

Hong revealed that the Golf vertical’s revenue is now split roughly 50/50 between the Linear TV side (Golf Channel) and the Digital side (GolfNow/GolfPass).

This disclosure is our Rosetta Stone for understanding the asset.

• We know that the Linear side (Golf Channel) likely generates roughly $600 Million in revenue (based on ~70M households × standard carriage fees + advertising).

• If the split is 50/50, that implies GolfNow/GolfPass is also generating ~$600 Million in revenue.

This means Versant owns a digital marketplace with half a billion dollars in revenue—likely with SaaS-like margins—that is being valued at a distressed cable multiple.

Why the Golf Vertical is Worth More to a Buyer

We don’t need to put a specific dollar tag on this to know it is mispriced. We just need to look at the strategic moat.

The Oligopoly: Versant owns both GolfNow (#1) and TeeOff (#2). My research suggests they control 75-80% of the third-party aggregator market. There is no “Expedia vs. Booking.com” war in golf. There is just Versant.

The “Inflation Hedge” (Barter Model): GolfNow typically uses a barter model, trading software for tee time inventory. As golf courses raise prices (inflation), the value of VSNT’s inventory rises automatically. They hold a call option on the price of greens fees.

The Potential Strategic Buyer List: To a public market investor, this is just a segment of a cable company. But to the right buyer, it is a crown jewel. In no order - here are some potential suitors for the golf assets:

• DraftKings / Flutter (FanDuel): Golf is data-rich and perfect for live micro-betting. Owning the booking engine (GolfNow) gives a sportsbook direct access to the digital wallets of 4 million active, affluent golfers. This could be a customer acquisition tool.

• Software-Focused Private Equity: This is ultimately a software play. We are talking about a vertical market software business with high recurring revenue, embedded payments, and high switching costs. A tech-focused PE firm would look at the retention rates and see a classic SaaS rollup opportunity that is currently being mismanaged as a media asset.

• Sports Private Equity: Private investment firms that specialize in sports assets understand the intersection of media rights and technology. They would strip the booking engine away from the cable channel immediately, unshackling the tech multiple from the media drag.

The “Rounding Error” Digital Assets Astute readers will notice I have not focused on Versant’s other digital holdings: the movie-tech basket that includes Fandango and Rotten Tomatoes. This is not an oversight; it is a question of scale. While these are legitimate digital platforms that are currently mismanaged inside a cable conglomerate, their financial contribution is a rounding error compared to the leviathan that is the Golf Vertical.

In a full "Project Turn the TV Off" breakup scenario, these assets absolutely should be divested. They belong in the hands of another digital media conglomerate or a middle-market software PE firm that can give them the attention they deserve. But for investors looking at the current $33.50 share price, let’s be clear: selling Fandango amd RT is mere housecleaning; unlocking GolfNow is company-altering.

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Part 2: The Trophy Media Asset – Why CNBC Does Not Belong Here

The second asset that needs to be liberated is CNBC.

Inside Versant, CNBC is treated as just another cable network, bundled with USA and E!. This is a fundamental strategic error. CNBC is not an entertainment channel; it operates more like a B2B utility for the financial industry. It has high affiliate fees, and crucially, it has zero reliance on the expensive sports rights that threaten the rest of Versant’s portfolio.

Strategic Rationale for a Sale

In a breakup scenario, I believe CNBC could be monetized because it could spark a natural bidding war between three distinct types of buyers. Here are a few names (this list is by no means comprehensive).

1. The “Bloomberg Killer” Play: LSEG (London Stock Exchange Group)

• The Logic: LSEG owns LSEG Workspace, a competitor to the Bloomberg Terminal. However, they lack the media influence that Mike Bloomberg wields.

• The Value Unlock: Bloomberg LP is a money-printing machine because of the flywheel between the Terminal (Data) and Bloomberg TV (Marketing). By buying CNBC, LSEG could replicate some of that model, pairing the world’s most-watched business network with their data terminals.

2. The “News Oligopoly” Play: Thomson Reuters

• The Logic: Thomson Reuters sold their terminal business but kept the news wire. They are a dominant text news organization in finance.

• The Value Unlock: Buying CNBC gives them the broadcast distribution to complement their wire service. It would create a global leader in financial news—text and video—under one roof. With a $56B market cap, this is a digestible “bolt-on” for them.

3. The “Gamification” Play: Robinhood

• The Logic: This is my wildcard pick. Robinhood wants to shed its “meme stock” image and capture the serious, high-net-worth investor.

• The Value Unlock: Imagine integrating a live CNBC feed directly into the Robinhood app. You watch the CEO of Nvidia discuss earnings, and a “Buy NVDA” button pops up on the screen. It could turn news into order flow.

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Part 3: The “Bad Bundle” – Managing for Decline

Once you strip out Golf and CNBC, what is left?

USA Network, SyFy, E!, Oxygen, and MS NOW.

I’m calling this the “Bad Bundle.” These assets are the reason I am bearish on the stock at $33.50. They are tethered to the linear cable ecosystem, which is eroding revenue by ~7-10% per year, and profits / free cash flow at an even faster rate.

In a “Project Turn the TV Off” breakup, we do not try to sell these. There are no buyers. Instead, we place them into runoff.

The Runoff Strategy:

• Stop the Growth Spending: We cut all original scripted programming. No more expensive dramas. We fill the schedule with reruns of Law & Order and Real Housewives.

• Squeeze the Distributors: We use the remaining leverage of the bundle to squeeze Comcast and Charter for every penny of carriage fees until the 2028 renewal cliff. After 2028, we try to strike as many distribution deals as possible with as many digital video players and other streaming services.

• Cash Extraction: Since we aren’t spending on growth, Capex drops to close to zero - only maintenance. Every dollar of EBITDA becomes Free Cash Flow.

Even if these networks go to zero in 2030, they will generate billions in cash between now and then. We treat them as a “Zombie Yield Co”—an annuity stream that funds the debt service for the rest of the transaction.

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Part 4: “Project Turn the TV Off” – The Financial Engineering

Now we come to the mechanics of the deal.

As I stated in the introduction, I do not believe a Private Equity firm can pay a premium on top of the current $33.50 share price to do this deal today. The math doesn’t work. The risk of the 2028 sports rights cliff is too high to lever up the company at a $7B+ valuation.

However, if the stock performs as I expect—languishing or dropping as the market wakes up to the “melting ice cube” reality—a window could open.

Here is the math on how a savvy financial engineer could structure a potential VSNT take-private in the future.

Phase 1: The Take-Private & Delisting

The first source of value is simply removing the company from the public markets.

Based on Versant’s Investor Day materials, the company is carrying roughly $200 Million in “Public Company Costs” (Board fees, IR, SEC compliance, D&O insurance, etc.).

In a take-private scenario, we gut this immediately. We fire the Board, scrap the earnings calls, and run the back office on a skeleton crew.

• Conservative Savings: $100 Million in annual EBITDA.

• Impact: This “found money” covers nearly half the interest on a LBO.

Phase 2: The “Doomsday” Dividend Recap

This is the only place where I will get specific on valuation because it illustrates the margin of safety required.

If I were the buyer, I would refinance the company’s debt immediately upon closing. But I wouldn’t lever it based on current EBITDA ($2.0B). That is a trap. I would lever it based on a 2028 “Doomsday” Estimate to ensure I can survive the sports rights cliff.

The “Safety” Math:

• 2028 Estimated EBITDA: ~$1.37 Billion (Post-Rights Cliff).

• (+) Delisting Cost Savings: $0.10 Billion.

• (=) Pro-Forma EBITDA: $1.47 Billion.

Using this lower, safer base, we apply standard private equity leverage:

• Leverage Ratio: 4.5x.

• Total New Debt Capacity: ~$6.6 Billion.

The Cash Extraction: With $6.6 billion in new debt capacity, the private owner can execute a capital return event:

• New Debt: $6.60 Billion.

• (-) Pay off Old Debt: ($2.25 Billion).

• (-) Fees: ($0.10 Billion).

• (=) Cash Available for Dividend: ~$4.25 Billion.

The Result: The private owner writes a check to buy the equity (likely at a lower valuation than today). They immediately pay themselves a special dividend of $4.25 Billion.

In this scenario, they have recovered 100% (or at the very least a large chunk) of their initial equity check immediately. They now own the upside of the CNBC sale, the Golf sale, and the “Bad Bundle” cash flow.

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CONCLUSION

The “Project Turn the TV Off” blueprint proves that the assets inside Versant can be valuable to the right owners. A dominant news network, a SaaS golf platform, and a cash-gushing cable bundle are not worthless if managed the proper way.

But at $33.50, the public market is asking you to pay a full price for a structure that is fundamentally broken.

• Management is not breaking the company up; they are trying to “grow” it.

• The “Bad Bundle” is not being run for cash; it is being fed expensive sports rights.

• The “Hidden Gems” (Golf/CNBC) are being suffocated inside a conglomerate structure.

The arbitrage exists, but it is theoretical. For this value to be unlocked, the status quo must fail. The stock price must disconnect from the “value” narrative and reflect the “distress” reality.

My advice remains the same: Stay on the sidelines.

The good news for Versant bulls is that the lower the stock price goes, the more actionable a take-private plan becomes. The value unlock is coming, but only after the pain.

-Accrued Interest

Relevant Tickers: , , ,

Read the Rest of the Series:

• Part 1: Is Versant (VSNT) Cheap or Just Cheaply Valued? The Case for $27

• Part 2: Decoding the Versant (VSNT) Investor Deck: A Warning Sign

Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.

You can always reach me at simeon@accruedint.com.

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