The 'King Kong' of Weight-Loss Drugs Is Coming; Inside the eBay Stalking Scandal; Jim Chanos: A Short Thesis on Data Centers; My back and forth with Netflix CEO Reed Hastings; How to get a better seat on a plane

1) In my September 22 e-mail, I wrote:

I've recently become aware of three new weight-loss drugs, which appear to be nothing short of miraculous, especially Mounjaro (tirzepatide), which seems to have fewer side effects (mostly gassiness) and results in the greatest weight loss (see the first chart in the Barron's article excerpt below).

I know many people on these drugs and they're all thrilled with them, having lost large amounts of weight with few side effects (though one friend wrote that a family member was hospitalized "due to a series of strokes that were a direct result of taking one dose of Mounjaro," so, as always, consult a doctor and make sure you're monitored).

My friends also say it's covered by their health insurance, though apparently not Medicare or Medicaid yet. The main issue is getting access to the drugs, as demand is skyrocketing and the drug companies can't make them fast enough.

The drugs work by simply suppressing appetite. If you go out to a restaurant and are served a big plate of something, instead of eating all of it, you'll only eat half. You don't have to change your diet – you just eat everything you normally do, but less of it.

Here's the Barron's article about them: At Last, Weight-Loss Drugs That Actually Work. They Could Be the Blockbusters of the Decade.

I continue to think Mounjaro is a miracle drug – and I'm not the only one. On Monday, the Wall Street Journal wrote glowingly about it: The 'King Kong' of Weight-Loss Drugs Is Coming. Excerpt:

People who are overweight are flocking to the drug Ozempic to slim down. Looming is an even more powerful weight-loss treatment.

The drug Mounjaro helped a typical person with obesity who weighed 230 pounds lose up to 50 pounds during a test period of nearly 17 months.

No anti-obesity drug has ever safely made such a difference. In the coming months, it is widely expected to get the go-ahead from U.S. health regulators to be prescribed for losing weight and keeping it off, and some patients are already using it unapproved for that purpose.

The advance of Mounjaro, which is already on the market to treat Type 2 diabetes, has excited doctors and patients who have been waiting decades for effective treatments, while helping turn its maker, Eli Lilly, into the most valuable standalone pharmaceutical company in the U.S. with a market value of more than $300 billion.

So is Eli Lilly's (LLY) stock a buy?

It was at $310.87 when I first wrote about it and since then has risen 14% to close yesterday at $354.62, giving the company at $330 billion enterprise value. The stock trades at nosebleed valuations – 12 times revenue, 32 times EV/EBITDA, and 51 times trailing earnings – so my view on the stock remains the same as back in September:

This is a great company with a bright future – especially with Mounjaro – but those are some very rich multiples... so I'm not a buyer today. That said, I wouldn't argue with anyone who wanted to establish a starter position on the thesis that trailing 12-month revenue is $29 billion, and Mounjaro alone could equal that.

But I'm going to stay on the sidelines for now and hope for a pullback...

2) I recall reading about this story years ago (Inside eBay's Cockroach Cult: The Ghastly Story of a Stalking Scandal, on September 26, 2020), but didn't realize how outrageous eBay's (EBAY) behavior was until I watched this 60 Minutes story, which aired last Sunday night: "Inside the eBay Stalking Scandal: How a couple became the target of harassment" (transcript here and video here). Excerpt:

A couple subjected to threats and bizarre deliveries, including live spiders, cockroaches, a funeral wreath, and a bloody pig mask, have continued to fight back, even after several eBay employees were sentenced in the case.

Ina and David Steiner filed a civil suit against eBay and former executives after the 2019 cyberstalking campaign. A U.S. Attorney's Office for the District of Massachusetts investigation into the auction site is ongoing.

"It felt like corporate terrorism because we were terrorized. And it was very calculated. It was very vicious," Ina Steiner told 60 Minutes correspondent Sharyn Alfonsi.

3) I had never heard of the Business Breakdowns podcast until someone sent me a link to this recent episode, which I really enjoyed, with my old friend and legendary short seller Jim Chanos: "A Short Thesis on Data Centers" (listen on Apple Podcasts here and Spotify here). Excerpt:

Compound248 is back to host another episode of Business Breakdowns. His most recent podcasts have focused on digital infrastructure and today we continue with that theme, but with a twist. Our guest is Wall Street Legend Jim Chanos, famed for bringing a skeptical eye to a credulous world. Together, we walked through his short thesis on the US Data Center REITs, his bear case for commercial real estate, and some broader wisdom on how management can thoughtfully respond to short sellers.

Show Notes

(00:03:30) – (First question) – His counter-narrative thesis of shorting traditional data centers

(00:09:34) – How data center hyperscalers have been shifting the industry since 2016

(00:12:14) – The size, margins, and depreciation profile of the data center industry

(00:16:14) – The cash burn problem with digital REITs

(00:18:30) – How he thinks about interest rates, liquidity, and leverage in the space

(00:20:25) – More on why the value of these data centers is so elusive

(00:21:57) – The extent to which macro tech slowdowns intersect with his thesis

(00:23:13) – What investors see in these businesses that he discounts

(00:26:59) – Risks for the short and the bull case for data centers

(00:29:04) – Big concerns about the broader commercial real estate market

(00:36:34) – The best way for operators to handle a short thesis about their company

(00:39:49) – Critical mistakes he recommends managers avoid

4) Near the end, Chanos mentions me, though not by name, when he was asked how a company should respond to a short seller's attack. He replied that companies should do what Netflix's (NFLX) Reed Hastings did when I published a bearish report on his company in December 2010, Why We're Short Netflix.

Rather than impugn my motives and threaten legal action, as most companies do, Hastings instead, only four days later, published a friendly, factual reply: Netflix CEO Reed Hastings Responds To Whitney Tilson: Cover Your Short Position. Now. Excerpt:

A great investor and a wonderful human being, Whitney Tilson recently posted an article about why he is short Netflix. Whitney, who is a major co-donor with me to charter public schools like KIPP, writes that he has lost money betting against Netflix, and that he is still short Netflix in a big way.

At Netflix we mostly focus on building our business and letting the numbers do the talking. But Whitney is such a big-hearted donor to causes that I care about that I am writing this open letter for him to try to get him to cover his short now. My desire is to increase his odds of making money next year so he can donate even more to the charter public schools that we both think are important to our country's future. For the record, I think short sellers are a positive force in capitalism, and I acknowledge that CEOs are generally biased in their bullishness on their respective firms.

He concluded:

To wrap up, I have to agree with my friend Whitney that there are many risks ahead for Netflix, that our valuation is substantial, and that it is possible that one could make money shorting Netflix today. But shorting a market leading firm as it is driving a huge new market is a very gutsy call. On balance, I would rather have my co-philanthropists on the long side of this particular bet.

Whitney: Short or long, I look forward to dinner and drinks together in the New Year.

Respectfully, your ally and admirer,

– Reed

Chanos is exactly right: Hastings' response was perfect and every company under attack (at least, those with nothing to hide) should emulate it.

Of course, none do. When was the last time you heard a CEO call his company's biggest critic "a great investor and a wonderful human being" and "my friend," and sign off, "Respectfully, your ally and admirer"? The answer is: never!

Fortunately, I listened to Hastings, took him up on his offer to meet, and after doing so covered my short – and eventually went long NFLX, making 7 times my money in two years.

5) On my 10-hour flight home from Poland on Monday, I could have upgraded to flat-bed business class for $750, which is a decent price, but I decided not to for two reasons...

First, it was a daytime flight (a 3 p.m. departure with a 7 p.m. arrival), so I didn't plan to sleep (in contrast, I had paid $710 to upgrade on the outbound flight Sunday night so I could do so).

In addition, I applied one of my favorite tricks: I asked the agent how full the flight was, and she said only half, so I waited until I was the last person to board the plane and just took an empty row!

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.