Mark Cuban on Sports and TV. Plus, 5G iPhone Stuff

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Number 1 is live like a student. Number 2 is save for a rainy day. Number 3 is don't take anything for granted, do your homework. And number 4 is you do want to get appreciable assets. And so really dig in to understand whether that first step should be buying a home or buying stocks, you know, but most likely I would tell people to make it a low-cost mutual fund. And if you're young, just put it away and don't ever look at it.

Welcome to the Barron's StreetWise Podcast. I'm Jack Howe, and the voice you just heard is Mark Cuban. He's a dot-com billionaire, a venture capitalist, the owner of the Dallas Mavericks basketball team. He's also a star on the television show Shark Tank and a guy with more acting credits than you might realize. Did you know he was in multiple episodes of Walker, Texas Ranger? How about Sharknado 3? In a moment, we'll hear more from Mark about sports and show business, including the future of television and movie theaters. I'll also talk with Barron's deputy editor and host of the Readback podcast, Alex Yule, about whether the new iPhone is a worthwhile upgrade. Is Apple headed for an iPhone supercycle or a so-so cycle? Maybe even a slumper cycle, which could be a real Sharknado for the stock. Listening in is our audio producer Meta. Hi Meta. Hi. And joining us as a special guest, Barron's deputy editor, Alex Yule. Welcome, Deputy Yule.

Hey, Jack. You can call me Alex.

Oh, thank you. Alex oversees a lot of technology coverage for Barron's magazine. Now, this past week, Apple introduced its new lineup of iPhones, including the iPhone 12 with 5G.

Now let's talk about iPhone. IPhone is an incredibly powerful and personal device.

That's Tim Cook, the chief at Apple. Good idea, Tim, let's talk about iPhone and let's not put the "the" in front of iPhone even though the rest of the world says it like that. Let's talk about iPhone like iPhone is Larry from down the street. You were saying? Today we're bringing 5G to iPhone. This is a huge moment for all of us and we're really excited. 5G will bring a new level of performance for downloads and uploads, higher quality video streaming, more responsive gaming, real-time interactivity, and so much more. I asked Alex if I should upgrade my 2-year-old iPhone, which I thought was called the XS Max until I said that aloud one day and someone laughed and said the X was a Roman numeral. As in 10. There's no Roman numeral for 0, which is ironic because 0 is precisely the number of Roman numerals I'd like to have in my life. Anyhow, Alex says the 12 has a faster chip and a better camera, as the new phones usually do, and that it has an improved screen that doesn't shatter as easily. But the highlight is 5G, or at least it's supposed to be.

And I think that's the real question because, you know, I don't know about you, but I don't find myself using my cellular connection very much these days. I mean, I look at the little meter on my phone, I have unlimited service and I don't use anything because I never leave my house. So I do think this is coming at a bit of a weird time. 5G could be very cool at some point if we go back to our regular lives. So that's one issue. And then secondly, overall 5G just hasn't quite arrived yet. So it's kind of a chicken or the egg. Do you want a 5G phone before all of the benefits of 5G are really there? I think that's, That's going to be what consumers have to figure out.

This is important. Apple is the biggest U.S. company, which means it has the highest weighting for the many stock investors who own S&P 500 index funds. And that makes the iPhone the biggest company's biggest product by far. On Wall Street, analysts like Dan Ives at Wedbush Securities have been predicting an iPhone supercycle. That's when an unusually large number of users decide to upgrade to that year's phone. For example, back in March 2014, I wrote a story for Barron's titled "For Apple, Bigger Is Surely Better." Back then, iPhone screens were dinky, just 4 inches, but Samsung had 5-inch screens. Surveys at the time suggested that a lot of loyal iPhone users had screen envy. And Apple was working on a phone with a bigger screen to meet that demand. The iPhone that came out later that year, called the 6 Plus, turned out to be a massive seller. Now, what bigger screens were in 2014, 5G was supposed to be this year, but it's unclear whether consumers care. In a poll last December, Piper Sandler found that 23% of respondents said they would upgrade to a 5G iPhone. But in a recent survey ahead of launch day, that number had shrunk to 10%. I asked Alex what he makes of that.

Well, I just want to say I have a bit of poll fatigue these days, but I can tell you that going from 23% to 10% is not good. 5G has a lot of promise, but the reality just isn't here yet. So that means the networks aren't quite ready. And those killer applications, which will come, and we don't even know what they're gonna be, right? Some developers are gonna figure out how to make 5G do things that we could never do before, and then we'll all want 5G phones. I'm pretty sure of that, but I think it's gonna take some time. And so the question is, has Apple and this notion of a supercycle gotten ahead of itself? Apple is not a cheap stock these days.

So this is an epic market-rattling poo-pooing of Apple's 5G announcement. By Alex Yule here on the Streetwise Podcast. I can scarce believe my ears.

I am gonna regret this, I'm sure.

The focus is on phones, but Alex says he was intrigued by Apple's announcement of new home speakers.

That's how Apple actually kicked off its event on Tuesday, by talking about its new smart speaker. And I don't think smart speaker sales for Apple are going to be huge. Probably they're not gonna knock the Amazon Alexa speaker or the Google Home speaker off their pedestals. But then they also said, Oh, and by the way, you'll be able to use that smart speaker to intercom with people on their iPhones when they're in the car or when they're at work or school. That starts to get a little more interesting, right? And the person doing the presentation kind of pointed out, you can only do that with Apple. So that was a reminder that this ecosystem still matters.

So what does this mean for Apple stock? Back when I wrote that 2014 story, the stock was in deep value territory. It traded at 12 times earnings, a big discount to the broad market. And if you subtracted the company's cash at the time, it traded at just 8 times earnings. That's hard to believe now because the stock is up more than 500% since then. It traded recently at more than 30 times earnings, a sizable premium to the market. If investors expect a supercycle and don't get one, would it hurt the stock? Maybe, but Alex says investors today are just as focused on the money Apple makes by selling services like storage and music and video streaming and the cut it gets selling software in its App Store.

I think the most logical answer is that it really is no longer about the iPhone. The supercycle matters and the iPhone can't disappoint if Apple stock is gonna hold up. But I think it's really about a reimagining of what Apple is and that's certainly a story that the company's been pushing, but this move towards services and software and away to some degree from a reliance on hardware, I think is what's pushed that multiple up so high in the last couple years. So as long as people keep buying additional Apple services, it might not matter how many iPhones they sell in the next couple years.

Alex is a fellow practitioner of the podcasting arts. His podcast called The Readback and available where you listen to this podcast. Just launched a new season with an episode this week on how Fitbit lost the wearables revolution. I think that's a quality plug, Meta. What do you think? I feel like I'm really moving the company merchandise here. What would you give that plug on a scale from 1 to 10? I'll give that a 7 out of 10. Okay, tough but fair. LeBron James and the Los Angeles Lakers just finished a remarkable championship run, not least because the basketball season usually ends in spring and the Finals aren't usually played in a Disney World quarantine. I had a chance this past week to speak with a basketball team owner about the future of sports on television and more. Hey, Mark, nice to hear from you. Good, thanks for making a few minutes to speak with us.

My pleasure. Are we doing audio or just, or video or both?

Just audio is fine.

Just audio is fine, good, then you don't need to see my ugly face.

Well, no, it's a good face. I've seen it before.

Yeah, well, one my mother can love, so I'll take it.

You might have seen Mark's face on an ABC show called Shark Tank, where entrepreneurs pitch rich investors and the investors decide whether to put up money in exchange for a stake.

$100,000, but I want 33%.

33%?

Right.

Because it's going to take some time, it's going to take some effort. You got an offer. What do you want to do?

You can counter. Do it.

Just tell Mark Cuban to take a walk.

I'll take it.

I want to work with you.

That little piece of deal-making was for a vegan spread made from dates called Wanna Date. You can use Wanna Date for sandwiches. The company recommends replacing the peanut butter in a PB&J to make a DB&J, date butter and jelly. I guess. I mean, I'd be more tempted to replace marshmallow fluff with Wanna Date in a Fluffer Nutter to make what I can only assume would have to be called a Wanna Date a Nutter. I feel like that was a pretty long walk for that joke. Yeah, I'd give it a 7.5 out of 10. All right, things are looking up. Anyhow, Mark Cuban is what you call a serial entrepreneur. As a boy, he sold garbage bags door-to-door to make money for sneakers. In college, he owned a bar and gave disco lessons on the side. Shortly after college, in the early 1980s, he moved to Dallas, Texas, and worked as a bartender and then a software salesman while learning a bit of programming. He got fired, so he started his own software business which he later sold for $6 million, pocketing $2 million for himself. He and a friend then joined an internet radio company called AudioNet, which became Broadcast.com. Mark focused on webcasting basketball games and other entertainment, and he made a deal for control of the company. Then he sold Broadcast.com twice near the absolute peak of the dot-com stock bubble. The first sale was in 1998 when he sold shares to the public in an initial stock offering. The second was 9 months later when Yahoo bought Broadcast.com for nearly $6 billion. Now that deal is frequently mentioned among the worst internet acquisitions ever, which you might say makes Mark one of the best internet company salespeople ever. Yahoo paid more than $10,000 per user for a business it would eventually discontinue. Put differently, the $6 billion that Yahoo spent on Broadcast.com, that might have been enough to buy a young Google or Facebook or both in the years that followed. Anyhow, The Broadcast.com sale made Marc $1.4 billion in Yahoo stock, and if that was good timing, so was his next move: turning to Goldman Sachs to put together an options strategy to protect his money in the event of, let's say, a dot-com stock crash. Then came the dot-com stock crash, and his options strategy paid off.

After we sold to Yahoo, I put a collar on that saved my ass. You know, so while everything else was crashing in the internet stock market, I actually made a little bit more money.

I find the stories of extraordinary financial success like Mark's often involve many years of hard work along with key moments of luck. So I asked Mark if he sees it that way. He does.

I got lucky that I got hired for a job selling software right when the software industry was just starting. I got lucky that I got fired and that forced me to start my own company. It took effort and skill to build MicroSolutions into something that was legit so that I can then take the earnings from that and invest in the stock market, which gave me a lot more money, which allowed me to invest in Broadcast to AudioNet, which turned into Broadcast.com. And it was luck that gave me the scale to make me a billionaire because I couldn't have predicted that the internet stock market was going to do what it did. You know, if it would have been 2004 when all this happened, it might have been a completely different story.

The rest of Mark's story is standard billionaire stuff, like shortly after the Yahoo deal, buying a Gulfstream jet and a basketball team, the Dallas Mavericks, and in the years since, investing in startups and a film company. Some of it is not so standard stuff. In between running companies, Mark moved to Los Angeles and pursued a career in acting. He's appeared dozens of times as an actor, including in a 2015 film that asked the question, what if you combined a natural disaster with sea predators and then you did the same thing 2 more times? It's called, and I apologize in advance here for the salty language, Sharknado 3: Oh Hell No! Exclamation point.

I thought your policy was to save the sharks.

Nobody attacks my house.

This time is personal.

Mark says that was one of his favorite acting jobs. He's now promoting the new season of Shark Tank, and I notice he's also listed this year on episodes of Grace and Frankie and Brooklyn Nine-Nine and Trailer Park Boys: The Animated Series. If you know what Trailer Park Boys is, congratulations, you have impeccable taste in lovably lowbrow Canadian stoner comedy. Okay, so I asked Mark an investing question. Forget about spreadable dates. Does he own any stocks? He does, and it might not surprise you to hear that two of his holdings are, like Broadcast.com, in the webcasting business, which today we call streaming. One is all in on streaming and the other does it as a side hustle.

I've invested in public equities And I've been a buy and hold for Netflix that I bought in the 50 range, and for Amazon that I bought in the 500 range. So I just let them do their thing. And I'll trade on the margins every now and then, but I'm not trading actively like I used to 20 years ago.

I asked Mark about something at the intersection of two themes from his life, sports and entertainment. Pro basketball, as I said earlier, just finished its season, which was delayed by the pandemic and confined to a sports complex in Disney World down in Florida. It's remarkable to me that the league and Disney were able to find a way to play out the season without a COVID outbreak. But television ratings for the games were poor. Time and again, we've seen that the pandemic has accelerated business shifts that were already in place, like the shift of shopping online. Television viewers were already gradually migrating to streaming services. But live sports are hugely profitable and have remained a TV stronghold. Will that change? Is TV in trouble? Mark says a key unanswered question is whether young people who aren't watching TV now will age into watching more TV in the future and that it's looking less likely.

You know, well, today's 30-year-old who's grown up on streaming, you know, when they hit 50, will they become more comfortable with a TV guide and flipping through the channels as you see on traditional television? And if you would ask me 10 years ago, I would have said yes, but streaming has evolved so considerably to where we are now and will continue to grow as we get 5G with lower latency and 6G and, you know, Wi-Fi 6 within the home.

Mark says pro basketball is going to have to stay flexible in thinking long-term about how and where games will be shown.

I can tell you, you know, from our conversations at the NBA that we're going to be agile and we're going to be flexible and we're going to work with our partners and recognize what our consumers want, however they want it.

Mark isn't worried about the effect on the value of sports teams, however. He says there's plenty of pent-up demand for live sports.

I think you're going to see a huge, huge, huge snapback once we're confident that we can go outside and not be fearful at all, just because there's so much pent-up demand Just, you know, whether it's going to concerts, going to games, going to bars and restaurants, going to movie theaters, people are going to want to feel free and act accordingly.

What about movies? We've been watching for signs that movie theaters can adjust to the pandemic, but the outlook does not seem to be improving. High-profile movies like the new Wonder Woman and James Bond installments have recently been pushed back. This past week, theater operator AMC said it might run out of cash by year's end, and Disney announced that it's restructuring its business units to focus more on streaming. The more Hollywood learns to live without theaters, the greater the risk that even after the pandemic, studios might not rush back to theaters with big-budget movies. So do theaters have a future?

Here's Mark. So it would not shock me if Disney or Sony, the big production companies, went back to buying theaters again so they could be purely vertically integrated so that they can create content and then release it digitally, also stream it, make it available for download in any way, shape, or form, make it available on demand while it's in theaters, and also make it available in their own theaters. I think that's going to be the direction of the future.

Let's end with some advice for young people just starting their careers. One place Mark recommends looking for work is in the field of voice recognition.

If I was 21, 22 coming out of college, I would just get the job that I could get, getting paid to learn. But if I was trying to build a skill set for my future, I'd become the biggest expert around on Amazon Alexa or Microsoft Cortana. Google Home, because ambient voice is gonna have an ever-increasing place. But more importantly, because it's being integrated into everything and so few people know how easy it is to really customize, you could go and create your own little business charging $25, $30, $50 an hour to people who have Alexa in their home and connecting their homes and doing all these things that make it better.

Mark might be onto something. I have some smart home doodads that I bought that are still sitting in boxes. I feel like I'd happily pay someone $50 an hour to give my house an Alexa makeover. I also asked Mark for advice for young investors.

Number 1 is live like a student. Number 2 is save for a rainy day. Number 3 is don't take anything for granted, do your homework. And number 4 is you do want to get appreciable assets. And so really dig in to understand whether that first step should be buying a home, depending on your circumstances, that may be the case. Or buying stocks, you know, but most likely I would tell people to make it a low-cost mutual fund. And if you're young, just put it away and don't ever look at it.

We'll skip the listener question today, but everyone, please keep the questions coming. Tape on your phone using the voice memo app and send it to jack.hough@barons.com. Quick announcement. Meta and I are doing a live episode of this podcast November 9th at 1 PM Eastern time. We'll be speaking with Visa CEO Al Kelly, and you can sign up at events.barrons.com/streetwise. Thank you for listening. Meta Lutzoff is our producer. Subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts.. And if you listen on Apple, please write us a review. If you want to find out about new stories and new podcast episodes, you can follow me on Twitter. That's @JackHowgh. See you next week.

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