David Rosenthal: evaluation

Transcript context

…Well, David, this is fascinating. So I just had this conversation with a coworker and I was doing some of the research for the show. The annual sales last year for Whole Foods was 15.6 billion. And I was like, “Wait a minute.” So the market of this grocery store is actually less than a single year of revenue which to us in the tech business, like you get a 2x, 3x, 4x, 10x multiple on revenue and if you look at the grocery store business, like apparently not the case. And I think actually retail all up, I heard another stat when I was talking to someone who’s kind of in-the-know about this that boutique retail actually, the general valuation for that is around a quarter of your annual sales. So really, it’s a totally different ballgame than we’re used to covering. And that just comes down to margins, right? I mean, the margins in retail generally are tiny. I mean, Amazon I believe trades at a much lower revenue multiple than other tech companies because it is a retail business and has lower margins, and grocery is like razor, razor thin margins. Makes Amazon look like a software business. Yeah. The other interesting thing, so you mentioned that 27% premium. Listeners, David and I were chatting with our friend who’s kind of in-the-know before the show today and mentioned that Whole Foods had been aggressively pursuing a sale six months ago after Jana Partners came in and their main intention was to slim operations or streamline operations, which I don’t really know how much you can do in the timeframe from when they took that position until now, so I can’t really speak to if that actually happened. But they were aggressively looking for a seller for the last six months and it’s fascinating to see like 27% premium over where they’re trading the public markets, it's in the range of what you would expect from these things but it’s certainly on the high end and it’s really interesting and certainly implies that there was a tremendous amount of competitive pressure that even when they’re looking to sell so hard, they still had enough leverage to set that sort of a premium.…

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