Bitcoin Soars Beyond $80,000: What Investors Need to Know

In this podcast, Motley Fool analyst Tim Beyers and host Dylan Lewis discuss:

• Bitcoin surging above $80,000, hitting new all-time highs.
• How investors should align their expectations with the growth of crypto and companies like Robinhood and Coinbase.
• Axon experiencing optimism and the role of its recurring revenue and potential new ventures in justifying its high valuation.

Motley Fool analyst Sanmeet Deo joins host Ricky Mulvey to examine another rising star for 2024 — Reddit — and discuss why its data is a valuable asset for large language models.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our beginner’s guide to investing in stocks. A full transcript follows the video.

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Dylan Lewis: Crypto is showing no signs of slowing down. Motley Fool Money starts now. I’m Dylan Lewis, joined on the airwaves by Motley Fool Analyst Tim Beyers. Tim, has the train left the caffeination station?

Tim Beyers: It has not. I’m uncaffeinated today, Dylan, so we’ll see how this goes. Mondays and Fridays are now my uncaffeinated periods.

Dylan Lewis: You know what? I can still sense your energy, and that’s what matters. That’s all I need from you.

Tim Beyers: When it comes to crypto, I’m always prepared. I can get a bit passionate about these topics, which shouldn’t be a surprise.

Dylan Lewis: Crypto is controversial and sparks strong opinions. We’re diving into Bitcoin today, along with revisiting some earnings that didn’t get enough attention last week. I’m eager to start with the crypto rally.

The crypto excitement continues post-election. Recently, Bitcoin surpassed $80,000, currently sitting around $84,000, showing high interest in Ethereum, Solana, and major exchanges like Robinhood and Coinbase. Tim, it seems much of this is based on expectations that the Trump administration will adopt a more supportive stance toward cryptocurrency regulation.

Tim Beyers: Exactly. I saw a video of President-elect Trump addressing an audience of crypto supporters, discussing the repeal of regulations. He even mentioned firing the head of the SEC, which received quite the applause. Inside the crypto industry, there’s a sense that Bitcoin and other digital assets need to be released from restrictions. If we believe this sentiment, the rally makes sense. However, I think this calls for a moment of reflection rather than sheer excitement.

Dylan Lewis: I’m curious to hear that story, Tim. I suspect there’s an important mindset lesson here.

Tim Beyers: The story goes like this: I was working in a co-working space with Alicia Alfieri on a recent Rule Breakers pick, which turned out to be Warby Parker. As I was researching, I stumbled upon something exciting and told Alicia it was a pivotal moment. I then remarked that my excitement could indicate maximum risk; the moment you’re entirely convinced can often signal danger. I see parallels in the current crypto market, where many are sold on the idea that this is the future. This belief can lead to risky decisions, especially if the regulatory framework hasn’t shifted yet, Dylan.

Dylan Lewis: But it might shift.

Tim Beyers: It certainly could. When enthusiasm is at its peak, it’s wise to recognize that as potentially risky. One doesn’t have to react hastily, but it’s a moment for deliberate thought. For crypto, there’s a legitimate argument that the new administration could be more accommodating, which could change the landscape. However, investing should still be approached cautiously.

Dylan Lewis: If I were to suggest why this moment is unique, besides the expectation of a more blockchain-friendly administration, we also have to acknowledge the increasing availability of Bitcoin ETFs and funds. This is a new development for many investors, particularly older or institutional ones, allowing easier access to crypto investments.

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Investor Insights: Crypto ETFs and Exxon’s Recent Surge

Dylan Lewis: It seems like crypto is accessible for many investors these days.

Tim Beyers: I would definitely emphasize that point. Personally, I’m not planning to increase my crypto investments. However, for those who are convinced about crypto’s potential, Bitcoin ETFs offer exposure without taking excessive risks. This strategy is significant, as excitement in the market can sometimes lead to irrational decisions. If you’re considering investing, ETFs provide a good way to gain exposure while managing risk. They also allow for diversification, which is beneficial. For those who wish to delve deeper into crypto, it’s wise to build a varied portfolio and keep investments modest. I tend to buy small amounts over time, especially during market upswings. I’ve noticed that volatility can lead to significant price changes, meaning something bought recently could drop 30% the following month. Thus, I prefer a cautious, gradual strategy to reduce risk.

Dylan Lewis: Absolutely! It’s essential to have that reminder, especially during buoyant market phases.

Tim Beyers: Indeed, Dylan.

Dylan Lewis: Speaking of excitement, what advice would you offer investors monitoring companies like Coinbase or Robinhood? Given the fluctuations in the crypto market, these businesses have seen various cycles of enthusiasm. In past years, like 2021 and 2022, excitement led to high activity on their platforms, followed by a steep decline. How should investors approach these companies amidst such volatility?

Tim Beyers: When examining businesses like these, it’s crucial to understand what typical earnings and revenue growth look like. You should avoid extrapolating the numbers from hyperbolic periods into the future. It’s important to assess what the norm looks like so you can gauge where the company currently stands. There have been many unpredictable shifts in their performance over time. Therefore, understanding the baseline is critical for making informed decisions.

Dylan Lewis: Let’s shift focus to a company that recently reported and is experiencing a wave of optimism: Exxon.

Tim Beyers: Exxon’s earnings report last week certainly caught attention. After the announcement, the company’s stock rose around 40%. Although the earnings report was solid, it’s worth questioning if it truly justifies such a spike.

Tim Beyers: The revenue guidance was impressive, reflecting a 30% increase for Q4, with expected full-year earnings reaching $2.07 billion, a 32% rise overall. The market was particularly excited by the forecast indicating that bookings for the second half of the year could surpass all bookings from 2023. Such statements can drive enthusiasm among investors.

Dylan Lewis: This excitement has pushed Exxon’s valuation to 160 times earnings, with shares rising 140% year-to-date. It raises the question: what should ‘normal’ expectations for Exxon be?

Tim Beyers: That’s right. Current projections from management seem optimistic for the foreseeable future. I find this company interesting due to its tech focus coupled with consistent revenue streams, which provides some stability even with such a lofty valuation.

Tim Beyers: It’s noteworthy that Exxon currently has contracted revenue exceeding three years’ worth of earnings. Specifically, they project future contract revenue around $7.7 billion, up 33% year-over-year. This backlog suggests strong long-term commitments to Exxon, but it also raises questions about sustained growth and how long customer interest will last.

Dylan Lewis: Additionally, Exxon seems to benefit from advancements in AI, which adds value for their clients. They’ve mentioned various applications, such as auto transcription services and license plate recognition, which help law enforcement agencies work more efficiently, thereby reducing costs. There’s a clear narrative resonating with investors right now.

Tim Beyers: Absolutely. In the context of law enforcement, improved investigative processes can vastly enhance data analysis. For example, being able to identify and eliminate suspects based on camera footage streamlines investigations significantly. Their recent acquisition of D Drone—a company specializing in drone defense—highlights their commitment to integrating technology for enhanced data capabilities.

Exxon Expands Drone Fleet: New Data Set Raises Valuation Questions

Dylan Lewis: I’ll take your word for it, Tim.

Tim Beyers: Whatever. It’s one of those. They talked about this during the call. A local police department became the first to gain FAA approval for a drone to operate as a first responder, which sounds quite futuristic. It’s almost like something out of a sci-fi film. Dylan, it’s hard to process, but if Exxon is launching a fleet of drones and adding aerial data to what they already have with body camera and car camera data, they could soon have one of the largest and most significant datasets in the U.S.

What’s next? This brings up the big question of whether their valuation, currently at 160 times earnings, truly accounts for the potential value of this growing dataset.

Dylan Lewis: Considering Exxon’s expansion into various business lines, should we really be surprised? Just a few years ago, this wasn’t Exxon; it was Taser. However, their core business with body cameras and evidence.com was so compelling that they decided to rebrand. Now, they may be poised for major growth in the drone sector as well.

Tim Beyers: It doesn’t surprise me. Once you begin using fleets of drones equipped with cameras, there’s a strong possibility you’ll be collecting a vast amount of data for potential profit. I believe the data these drones gather will be extraordinary, making it tough to accurately value its significance. It’s skyrocketing, and there might well be valid reasons for caution right now. [laughs]

Dylan Lewis: So if someone decides to invest in Exxon, would you recommend doing it in small increments over time?

Tim Beyers: I would suggest that approach. Exercise caution.

Dylan Lewis: Thank you, Tim, for joining me today and reminding us of the importance of normalcy in these discussions.

Tim Beyers: Thanks, Dylan.

Dylan Lewis: Coming up on the show, Motley Fool analyst Sanmeet Deo chats with Ricky Mulvey about Reddit, the social networking platform that holds a wealth of data sought after by large language models.

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Ricky Mulvey: Sanmeet, Reddit has matured as a social networking platform. While it’s quite different from traditional social media since most users remain anonymous, it’s one of my favorite platforms for spending time. Recently, the company reported impressive growth, boasting a 50% increase in daily unique users over the past year, which translates to about 100 million users. Let’s start with a fundamental question: How does a message board like Reddit generate revenue?

Sanmeet Deo: Actually, it’s quite straightforward. Reddit earns over 90% of its revenue from advertising, which is based on cost per click, cost per thousand impressions, or contract agreements with advertisers. The remaining income comes from data licensing and subscriptions, with data licensing making up the larger portion of that segment.

Ricky Mulvey: Bill Mann discussed this a couple of weeks ago. One might view Reddit as the new Twitter—in reference to the old Twitter, not its current existence as X. What insight has Reddit gained with advertising that Twitter failed to achieve when it was public?

Sanmeet Deo: While preparing for today’s discussion, I realized that Reddit has been around for quite some time and just recently went public. Over the past few years, its user base has grown significantly. It functions as a community platform where real humans engage in meaningful, lengthy conversations on various topics. The ability to upvote popular discussions pushes engaging content to the forefront. This dynamic provides advertisers access to a highly targeted, intent-driven audience, and Reddit claims to be the leading platform for product-related discussions, accounting for 51% of those conversations on the internet.

Moreover, Reddit’s growth in recent years has been impressive, aided by factors like international expansion and user experience improvements from the pandemic. Significant events, such as the GameStop short-squeeze saga on WallStreetBets, have also increased awareness and new users to the platform. This combination of rapid growth, a cost-effective ad product, and innovative advertising strategies have made Reddit a more attractive option compared to Twitter.

Ricky Mulvey: It seems Reddit can present advertisers with a higher intent to purchase, unlike Twitter, which has faced challenges with user engagement. Also, I’ve noticed that when searching for a reasonably priced watch on Reddit, genuine recommendations often rise to the top, filtering out undesirable or misleading offers. You mentioned a business opportunity related to data licensing. During your conversation with CEO Steve Huffman, he highlighted how Reddit possesses a significant pool of human data that could potentially benefit AI training models. This large collection of information is akin to a stockpile of firewood for these language models.

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Reddit’s Evolution: A Peek into Its Business Potential and the AI Data Race

Understanding the Data Landscape

Sanmeet Deo: Reddit’s conversations fuel an intriguing business opportunity, particularly with AI.

Ricky Mulvey: It seems like these discussions could power an “AI steam engine” of sorts. But what impact does this have on Reddit’s business model? Are they licensing out their data? Is it meaningful now?

Sanmeet Deo: Reddit has already struck several deals. They cling to a licensing contract with Google valued at about $203 million over three years, plus a partnership with OpenAI that could reach $50 million annually. Besides AI, potential clients for their data include financial institutions and social listening services, making this an interesting growth opportunity.

The Challenge of AI for Content Providers

Ricky Mulvey: Publishers seem to be facing challenges, and while Reddit isn’t a traditional publisher because they don’t pay content creators, the landscape is still tough. The New York Times is suing OpenAI for information on the articles they used for AI training. Who are the real winners in the race to provide AI training data?

Sanmeet Deo: Academic publishers, like Newscorp and John Wiley & Sons, are profiting by licensing their content to AI models. Companies like the Associated Press and IAC are also gaining from this.

Big Tech’s Role in the AI Landscape

Ricky Mulvey: It looks like the biggest players, like Alphabet and Google, might actually be the real winners here. They require publishers to agree to share data if they want their articles to appear in Google Search. Is that a fair assessment?

Sanmeet Deo: Long-term, that’s true. However, leading companies are heavily investing in infrastructure to build AI models. While big returns are expected, they aren’t realized yet. In the short term, publishers are benefiting from contracts that provide immediate cash flow.

Reddit’s Financial Outlook

Ricky Mulvey: Reddit is still working to prove its value to investors. Despite starting to report positive GAAP profits, its stock price is relatively high compared to traditional metrics. Currently, it has a price-to-sales ratio of about 19, which is higher than what Meta had in its earlier days. What needs to happen for this valuation to make sense?

Sanmeet Deo: Reddit experienced a revenue compound growth rate of 52% from 2018 to 2023, which is projected to slow to 35% in the coming years. The forward enterprise value to revenue multiple is expected to be just under 10. Achieving the projected growth is crucial. If growth slows to 15-20%, the valuation may still be reasonable.

Monetization Challenges on Platforms

Ricky Mulvey: Reddit generates about $3 in revenue per active user, while Meta earns around $12. This disparity raises questions about monetization and whether Reddit’s ceiling is lower than larger social platforms.

Sanmeet Deo: While Reddit might not have the same monetization potential as Meta due to its unique user base, it still has plenty of growth opportunities and can carve out its niche with advertisers.

Should Investors Keep an Eye on Reddit?

Ricky Mulvey: Given this data, do you find Reddit to be a worthwhile investment?

Sanmeet Deo: Absolutely. It’s on my watchlist. The recent strong earnings report and promising data licensing opportunities suggest a bright future for Reddit. It’s a unique platform worth watching.

Ricky Mulvey: As we wrap up, do you have any favorite subreddits?

Sanmeet Deo: I just started using Reddit while researching it, so I’m exploring various communities.

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Exploring Local Subreddits and Grateful Reflections on Veterans Day

Ricky Mulvey: Since you’re in New York, I recommend checking out local food subreddits. The more localized your interests, the more valuable the information. For example, I live in Denver and the Denver food subreddit has significantly influenced my dining choices. You can discover some rare finds and great recommendations there.

Sanmeet Deo: That sounds great!

Dylan Lewis: Today is Veterans Day, a moment for us to recognize and appreciate all who have served in the military. While many businesses and schools are closed across the U.S., the stock market remains open, and so do we. We thank you for spending your day off with us. Keep in mind that individuals on this program may have personal interests in the stocks we discuss. Motley Fool also might have recommendations regarding these stocks. It’s crucial to base any buy or sell decisions on your own research. Our personal finance content meets strict editorial guidelines and isn’t influenced by advertisers. We only endorse products we’d recommend to friends like you. I’m Dylan Lewis, and we’ll catch you again tomorrow.

John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also holds a position on the board. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister to Meta Platforms’ CEO Mark Zuckerberg, is another board member. Dylan Lewis has investments in Axon Enterprise. Ricky Mulvey is invested in Meta Platforms. Sanmeet Deo holds positions in Alphabet, Amazon, Axon Enterprise, Ethereum, and Solana. Tim Beyers has stakes in Alphabet, Amazon, and Warby Parker. The Motley Fool has interests in and endorses Alphabet, Amazon, Axon Enterprise, Bitcoin, Coinbase Global, Ethereum, Meta Platforms, Microsoft, and Solana, and suggests Warby Parker as well as options like long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool adheres to a disclosure policy.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.