Chit Chat Stocks - 10 Fantastic Q3 Earnings Reports; Scottie Pippen Had a Dream; Nelnet Update (NNI, SPOT, RKLB, AXON, RELY)

Episode Date: November 17, 2024

The Investing Power Hour is live-streamed every Wednesday on the Chit Chat Stocks YouTube channel at 1:30 PM EST. This week we discussed: (03:29) Market Sentiment and Valuation Concerns (06:20) Impressive Earnings Reports: Google and Rocket Lab (09:21) Philip Morris and Spotify: Strong Performers (12:33) AppLovin and Sprouts Farmers Market (18:19) Axon and CAVA: Growth and Valuation Insights (25:40) Remitly and Amazon: Strong Business Models (30:30) 23andMe Saga: Leadership and Layoffs (40:25) The Challenges of Drug Discovery (41:20) The IPO Market Revival (42:41) Exploring Audio Boom Group (50:02) The Podcasting Business Model (52:56) Athletes and Investment Trends (57:35) Market Insights and Stock Picks ***************************************************** Subscribe to our YouTube channel: https://www.youtube.com/@ChitChatStocks  Follow us on Twitter/X: ⁠https://twitter.com/chitchatstocks  Follow us on Substack: ⁠https://chitchatstocks.substack.com/  ********************************************************************* Sign-up for a bond account at Public.com/chitchatstocks  A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. The 6.9% yield is the average annualized yield to maturity (YTM) across all ten bonds in the Bond Account, before fees, as of 8/28/2024. A bond’s yield is a function of its market price, which can fluctuate; therefore a bond’s YTM is “locked in” when the bond is purchased. Your yield at time of purchase may be different from the yield shown here. The “locked in” YTM is not guaranteed; you may receive less than the YTM of the bonds in the Bond Account if you sell any of the bonds before maturity, or if the issuer calls or defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule.  Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account.  The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions. Fractional Bonds also carry additional risks including that they are only available on Public and cannot be transferred to other brokerages. Read more about the risks associated with fixed income and fractional bonds. See Bond Account Disclosures to learn more. ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠https://finchat.io/chitchat  ********************************************************************* Sign up for YellowBrick Investing to track the best investing pitches across the internet: Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. welcome to chit chat stocks this is our weekly power hour episode where we discuss all things financial markets all things investing we're wrapping up earnings season here so we've got some fun segments around some of the best earnings reports we saw in q3 it doesn't necessarily mean we like the stock but we're going to go through some of those because there were some stocks that

really jumped this earnings season. I'm talking about doubles after reports. So big swings. So we'll go through some of those. And then we've got a lot of other fun topics for this week. There is a saga with a DNA testing company that'll be fun to discuss. And then Spotify, one of our former holdings, is doing quite well without me as a shareholder these days. So we're going to talk about that as well. Before we get to that, I guess I am joined as always by my co-host, the one and only Brett Schaefer. Brett, how are you this morning? Doing well, Ryan. And I have to say, is the bubble back? Yeah, I think it is. I was thinking about making that like the whole discussion today

is we're bubbling again um but honestly i don't really want to go through all the data it's more so just feels anecdotal that all these valuations are soaring and on a lot of companies that i think are a little bit suspect so yeah it feels bubbly reminds me of 2020 2021 period um didn't really have any data on it so we can talk about it bitcoin is soaring which is usually kind of a leading indicator, in my opinion, for investor sentiment, for getting into potentially speculative assets. But that might be a hot take. And I know we don't want to be, we'll get plenty of flack for being anti-Bitcoin from listeners. So probably won't want to make that the entire discussion today. But before we get to this episode, and before we talk about some of the best reports

from this earning season. We do want to mention our sponsor, our partner, Public. Heads up folks, interest rates are falling, but you can still lock in a 6% or higher yield with a bond account at public.com. That is a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6% or higher yield with the diversified portfolio of high yield and investment grade corporate bonds. So while other people are watching their returns shrink, you can sit back with regular interest payments, but you might want to act fast because your yield is not locked in until you invest. The good news, it only takes a couple of minutes to sign up at public.com. Lock in a 6% or higher yield with a bond account

only at public.com forward slash chit chat stocks. Side note, I did this. I signed up using our own link. So a little bit of helping ourselves there, but yeah, it was a very seamless process. Very easy. I actually went with the high yield savings account, which they offer a great rate there as well. But yeah, they offer really good products, especially if you're looking to find something that's high yield, a little safer. It's a very interesting platform, honestly. I did not know that much about it until I really signed up and went in there. So really recommend checking it out. But back to the show here, Brett, where do you want to start? Why don't we go through your main topic. I know we weren't really going to talk about the bubble because we got some fun

stuff along with that that I think will lead into some potential bubble discussion, but we're going to look at five each impressive earnings reports. Maybe you could list off all five. I don't know how you want to go through this because we can't do all 10 in detail, but what were some earnings reports that caught your eye this quarter? Yeah. And so I guess the impetus or the inspiration for doing this segment is I obviously work at FinChat for anyone that doesn't know. It's a stock research platform. They're one of our sponsors. I work there. And one of the big things or one of the things customers love about FinChat is the segments and KPI data. So tracking company specific metrics. And I basically went through as much as I could, all the company

specific segments of KPIs and tried to figure out what were the most impressive KPIs from this quarter, like what random metric really jumped from any company. And there were a couple that really stood out. So Google, for one, was very impressive. I mean, they're pretty much impressive across the board in terms of their earnings report. And if you listen to that call, you will quickly realized that this has to be the best digital moat in the world but it's what was it seven products now that have more than two billion monthly active users so i mean if there is not a digital moat there i'm not sure there's anything i don't know if the word digital moat is justified at all like i don't know if anyone has a digital moat if google does not so anyways good quarter

but the KPI that stood out to me was the Google Cloud. Google Cloud's operating margins went from 11.5% to 17.5% in a quarter and revenue growth actually accelerated as well. So the last quarter, I believe it was 29% growth rate jumped to 34. So really strong quarter from Google that stood out to me. I'll go through, maybe we can ping these off each other. I go one, you go one. so I don't have to ramble through five and we can have a little dialogue here. What's one that stood out for you? Well, I think this one was yesterday or earlier this week, and it was Rocket Lab, a company that we covered in an interview with Simon Erickson, I think not too long ago.

And the stock has, let me just check the performance real quick, because they have turned into a bit of a momentum stock over the last year. It's up, yeah, 360%. And a lot of that has come in the last few months. So a lot has changed. And why has it? Well, I have one chart here that I think can help, and I'll share it with everyone.

And it's the backlog for the company. For anyone that doesn't know, it's a SpaceX-type competitor. They're trying to build out rocket launch capabilities and they have built out some rocket launch capabilities as well as, you know, the space systems and services that go along with it. So we can see here their backlog has jumped to about a billion dollars, which is significantly higher than their trailing 12 month revenue. So they should have quite a bit of predictability and quite a bit of customer commitments to help them build out this really tough business that takes a lot of capital expenditures. They got some major updates on their bigger rocket, which is going to be called the Neutron, which is about the size of the Falcon 9, I believe. And that one has already gotten some customer commitment. So we're seeing an increased further progress on the timeline there.

And then they also disclosed that they're going to be building out their own satellite constellation, which I didn't really read anything into that. but they disclosed that for, you know, people had hinted at that before and predicted that that's what they were going to do. But now they confirmed it. They're going to be investing in that and hopefully they can keep up the momentum. But I will say, looking at the stock today, price of $20 a share, market cap is $7.3 billion. There's going to be further dilution and more debt because of the, you know, the build out. It's an aggressive build out. They're losing money right now.

$7.3 billion market cap. I'd maybe even put that at, if you want to estimate some full dilution, like $10 billion that's going to happen over the next five to 10 years, something like that. The revenue over the last 12 months is only, I think, let me just confirm it here. Yeah, $364 million, something like that.

It's a steep valuation. Yeah. Now, they have a clear runway to get to a billion dollars in revenue when they add on all these things that they're planning. And they already have those customer commitments. But I kind of feel like today a lot of that's priced in. Would I be selling if I bought Rocket Lab 400% ago? I think that's a different question. But am I buying today?

Probably not. Yeah. This is definitely a company that I'm rooting for from the sidelines. sidelines. It worries me because people fall into this trap all the time, myself included. You get a stock, especially if it's kind of a flyer. You're taking a chance on a company where it's more of a concept company, but the revenue could be there down the road. Rocket Lab, they already have some revenue, obviously, but certainly you're probably buying because of the potential for their services in five to 10 years.

When you start talking about diluting shareholders as a good thing and how it's actually advantageous because it's going to give them the capital they need. Yes, that is true. But man, is that bubble talk because it just reminds me of 2020 when they're like, yeah, I know we're diluting shareholders,

but we're going to generate great returns on this capital that we raise. And it's actually better for you that we do it now, but it's also simultaneously admitting we trade at a premium and it's the right thing to do. So, and I'm not sure if this is- It's good if you bought at $5 a share. I would say it's not good when thinking about whether to add to your position. And I think Rocket Lab is a perfect example of when you have a high risk, high reward stock that you find, it doesn't mean you necessarily shouldn't buy now. It's not your style. It's not your style. But if you like the company, you think it's exciting, you think there's a chance it could be a 10, 20 bagger, make it a small position,

maybe even less than 1%, half a percent, something like that. And as it either works or doesn't, it will become a larger percentage of your portfolio as it de-ricks, as Rocket Lab is potentially doing. And if it doesn't work well, it's not going to blow up your entire retirement savings. Yeah, I think that's a good way to go. All right. I'm going to go with my second company here that I thought had an impressive third quarter report. Screen share here. Philip Morris International. Obviously we are, I think we're both shareholders here. I am a shareholder. Yeah, Ryan, I think this is your favorite company now. I would put this on, you know, there's the size of a position versus like how much someone talks about it. And I think I would,

if i had to say what were your favorite companies you own this is definitely number one yeah i mean it's it's kind of a fun story to tell that this kind of storied brand has become the innovator i guess well they acquired the innovator but whatever they were the innovators in some way um but just they've really built out a pretty impressive reduced risk product portfolio and i'm not just i know we talked about google we talked about philip morris or i have and it maybe sounds like I'm talking my book. All these companies objectively had good Q3 reports because market thought so. That's what I'll say. It's not just me thinking, oh, this is a good report and the market got it wrong. Pretty much, I think every stock we have on our list here

jumped quite a bit after earnings. Philip Morris was no exception. So good quarter all around. And I think it's a very durable business, assuming there isn't any sort of huge regulatory headwind. But even then, I think they'll be able to circumvent it a bit. So yeah, margins have improved a lot. And the cigarette portfolio is basically flat, which is kind of the best situation you could ask for. If you're a shareholder here, you're not expecting volumes to really increase or grow that much

in the cigarettes. But as long as they're flat, they're going to be able to raise prices and hopefully improve and i wouldn't expect it's gonna reverse to downturn again the volumes are going to decline yeah and it's just a nice period yeah and it is still it's not as pronounced of a decline as the u.s market we're not seeing the volumes even the three years prior to this little blip where they've had flat volumes cigarettes were declining i believe kind of one to low single digit percentage whereas we've almost seen an accelerated period for Altria who has the same brand, but in the U S anyway, I'll leave it there.

I thought it was a good report. Philip Morris. Yes, it is one of my largest holdings. But yeah, I should probably not talk about them every single episode. Yeah. We, if there's a drinking game, I know some people want to talk about one that is perhaps my drinking stock, not next, but the one after that. But yeah, if, if Ryan mentions it, maybe people are required to drink. Let's go to mine, Spotify, second one. I thought it was an impressive earnings report. And I really just want to hit one KPI. And the rest of the report

seemed quite in line, although I guess the premium gross margin beat a little bit. And this is their quarterly gap operating margin. Well, I guess they might be IFRS. Either way, If we look at this chart, which I'm sharing here, back in 2022, early 2023, operating margins were negative. And then Spotify cut 30% of its workforce. The business didn't really change. And now we're at 11.4% last quarter when people thought that this company would never be profitable. And lo and behold, since every stock seems to be mooning, it's at 5X since the lows. not a bad it's been a roller coaster ride but i think this is the quarter where the thesis finally got a hundred percent proved for the long-term shareholders we've been shareholders

for it spotify before it's a company i like i think ryan likes it as well i don't know if this is the price we would be buying at for sure but it's it's a psychological long for me similar to google and i kind of people might not know that term it's it's a it's a play on something that bill ackman did you know kind of drama queen stuff but i think of my psychological longs as the one that i might not even be buying but there's so much hate against the company a lot of doubters in the investment community and i think they're completely wrong and then when that gets proven wrong it's almost like a just nice to be proven right even if you don't make any money now would i rather just make money and people think i'm wrong all the time yeah i would rather have that

but this one is also you know it's fun too yeah unfortunately we don't have that luxury it's uh no it's a good quarter from spotify i'm not a shareholder wish i was i got all the losses and seemingly none of the gains so it's had the had the rough ride as a shareholder but um it's expensive here it's really kind of a commanding valuation what it does show in my opinion is that you don't need that high of a gross margin to be able to generate strong profits i mean now spotify's gross margins did improve i think they went from like 28 to 29 percent to 31 percent this quarter. But you've really seen good cost controls as within the operating expenses. And that's really what's driven this huge operating margin inflection. I think it just

goes to show that actually if you have a low gross margin, sometimes it's the whole your margin is my opportunity and you can go out there and really drive a big business even at a low gross margin and generate strong cashflow just purely by operating efficiencies. Part of this is also the full-time employees have come down considerably at Spotify, which is, I assume, one of the leading drivers of this margin expansion. But yeah, 12% free cashflow margins, 11% operating margins. Actually, 12% was, I think, trailing 12 months, so it's probably even higher this quarter. No, it was 11.4% this quarter. or are you sorry free cash flow free cash flow oh yeah not trying that they do have the working

capital stuff so i really look at try to look at gap operating margin the one thing is there is finally a breakout in premium gross margin but the advertising business is doing quite poorly so it's despite some sluggishness that could maybe even improve over the next five years if they finally figure that out yeah it's funny it was actually when when we were owning spotify in 2021. Advertising, at least for me, I thought it was going to be a bigger piece of the pie here, especially three to four years out. We were very optimistic that they were going to become the YouTube for podcast ads. That has not played out. It's still a very fragmented market. We're going to talk about that here in a second with my small cap of the week. But it's been execution on

the premium side actually premium arpu is up as well i think it might have hit at least a five year high so they've been able to those price increases are kind of coming through and flowing through also so yeah good execution across the board um let me hop to my third company here because i know we're running slightly long with this segment the company is app loving i will admit i don't know this business very well but i've never known what this business does so i guess they help you know those scammy ads you get if you're playing like a mobile game yeah i think that's basically their business um not really but that's part of it so they help uh mobile game developers monetize essentially so part of it is in-app purchases as well as

advertisements and the funny thing here is so i think app loving's up like maybe you can check this for me, Brett, but like it was up like 50% after the earnings report, the in-app purchases and the in-app advertising revenue were both flat to down year over year. Yeah. I'm looking at, yeah. So in-app purchase revenue down year over year in-app advertising revenue, barely up, but apparently they have this platform. It's a software advertising. It's a software platform for, I think, advertisers or developers. Maybe it's a combination of the two. Apparently, it's been a huge AI success.

It's called Axon. What's the chart you're showing here? What are the numbers? What's the metric? Yeah, it's just hard for people to see. It's the software platform revenue. So the three revenue drivers for them are in-app purchases, in-app advertising, and then the software platform. Two years ago, in-app purchases were a big driver of it.

This software platform, which is really that Axon AI advertising interface, has absolutely ballooned. It's doubled in a little over a year, and you can see the big jump that they took this quarter. So apparently they're having some success with this. They've been probably one of the biggest, I guess, AI successes. it seems, as far as actual pure monetization. So once again, don't know the business intimately well, but this quarter really stood out, especially this KPI, which seems to have just taken off. And curious to see how this goes, because it seems like a lot of people have kind of flooded into the stock after the earnings report. Were you able to see how much it's up

following the report uh yeah it was about 50 percent it went from 160 i'd say to 284 and it is up 632 percent in year to date market cap is now approaching 100 billion dollars that's interesting okay a lot of stuff here right is up is up 200 300 percent and And you have to know, you have to, all of the listeners, I think, were here in 2021, just remember that things can turn south. Yeah. Yeah. People that are saying, well, it's coming from the fundamental improvement. The fundamentals can change.

You know, this could be driven by, like, primarily a strong advertising market. Eric in the comments says, your friends at ChipStock Investor have a good podcast on Applovin. Noted. they are our friends they do great work and i will have to listen to it unfortunately that valuation does kind of deter me from doing a whole lot of research here but uh i'm sure they cover what the business actually does instead of us going what's an apple oven but yeah definitely all right let's hit my third one and it is the one that i was teasing that i talk about all the time uh maybe my number one psychological long because there's still people that doubt

the thesis, even though it's been a 10 bagger from the COVID lows, and that is Sprouts Farmers Market. Had a great report. And I'm just going to highlight one KPI that is from our friends at FinChat, which you can go check out with our link in the show notes, finchat.io slash chitchat, get a discount. We've talked to people plenty of times that use this service, use our link. It's going to provide you so much time saved and efficiency and just improvement during earnings season. All right. I was doing that out of pitch because I wanted to load up the comp sales chart. And as we can see here, Ryan, you know, they recovered after kind of the COVID bullwhip. Comp sales went to about 2, 3, 4%. And the last few quarters, it's just

absolutely exploded higher to 6.7%. And now 8.4% for the quarter ending in September 2024. And if we compare that to 2023, that's 8.4% comp store sales growth on top of 3.9% in the same quarter in 2023. I think that's just highly impressive. And it shows that, hey, the business model is working more people are coming to the stores and stock uh you know unsurprisingly is up uh you know that's a theme i think for these ones let's see what is up year to date or in the last year it is up 250 in the last year so there we go yeah this one Well, I was a little on the fence with the performance just because there is the chance that maybe consumer spending has – there's been this resurgence and it's really kind of helped power the business and that's part of what the comp sales strength was from. but now nine percent comp sale comp store sales growth on top of strong sales last year

you can no longer say because people used to look at this and they'd be like wow inflation's out of control it's like no that's you know they're that's partly their execution um but yeah when you've got them outperforming comp store sales of the big grocers like the walmart's the kroger's The Target's not really a grocer, but Costco as well. It just goes to show the execution. Not to mention they're doing it while generating record gross margins. I think it's at high 30s, 38%, 39% gross margins, which is twice that of the typical grocer. So, yeah, I think the execution there has been solid.

This is really all your psychological longs list. Do you own any of them? i don't own the ones i put down but i do own some of yours one of them i think your last one as a tease is one that has benefited from this but i typically look there's a lot of stocks on my watch list this year that i didn't buy because i was worried about valuation and profitability and these stocks have put up impressive revenue growth I think the business model fundamentals are still in question, you know, Rocket Lab, hims and hers, stuff like that. But we're in a period right now where revenue growth is all that matters.

I think that is one of the big indicators for me that 2020 and 2021 is back. Yeah, that's fair. And it's nothing like there's no overarching data that I'm looking at. I'm sure you could find some just in terms of the average multiple across NASDAQ or whatever. But every company I look at lately, it just feels like you get to the valuation work and you're having to improve some of your assumptions to make the math work. But my number four here, and maybe we can go a little quicker because I know we've taken up about half the show doing this.

Number four is going to be Axon. This is a company they sort of, not really, but they sort of invented or commercialized the Taser. and they've actually just done a phenomenal job executing not necessarily on building just crazy good products that got good adoption a lot of the time it was purely like customers would come to them and ask like can you build this they've they've sort of the whole like build solutions not products they seem to have done a really good job with that software revenue has continuously grown it's the lion's share of their business today but really the strength here

was actually from the taser division their tasers have like 60 gross margins um and that was that grew faster than software this quarter it's a little more cyclical just because they release a new like taser 10 or whatever the new model and then it gets a lot of demand a lot of like purchases at the moment so um it probably won't grow faster than software over a five-year span But yeah, good quarter from Axon. Stock is once again up like 300%, if I'm not mistaken, over the last year or so. So not really looking to buy, but good quarter. Yeah, I agree. And without getting into any sort of specific political or government stuff, there's perhaps a sector tailwind that should continue. All right. My fourth one is another stock up 400% in the last year, and that is Kava, the Mediterranean Chipotle. Chipotle. I can't say it. Definitely not Chipotle, but Chipotle.

All right. Kava comp store sales. I'm going to use that one again. We accelerated back to 18% this quarter, Ryan. And that's on top of, again, in October of 2023, 14% comp store sales growth. It's just really, really good. Really, really, really good. And maybe we'll go into details on the earnings. I actually had several notes on them for the earnings. I can read out some of them.

Just some quick bullet points. 39% total revenue growth, 13% traffic growth, 26% restaurant level margin, positive net income, and free cash flow. They have 352 total stores and they're valued at about $50 million per store right now. And based on their AV and restaurant level cash flow margins, that's about $700,000 in store level cash flow per year. So they're valued at about 71 times their store level cash flow but a question here are you buying and i would say the answer is clearly no uh it seems overvalued yeah this is really impressive results especially considering that pretty much the entire quick service restaurant industry had declining comp sales this quarter um and they actually

accelerated it is probably one of the most egregious valuations out there today now i i'm not a fan of valuing it based on like the per store like like you said 50 million dollars per store because the whole idea here is that they're going to have a lot of new stores but yeah i saw something today that basically said like the valuation assumes that this is a company that will be doing it'll have 3 000 stores i think they're at like 300 today so 352 you're you're paying for a lot of the growth today and there's no guarantees it's going to be there all that with that said great concept yeah but it's just the optionality is limited on a restaurant whatever you go to your last one we're going on okay last one was remitly they had a really strong quarter

total payment volume accelerated they have added more monthly active users in the last two quarters than any two quarter period in their history the marketing seems to just be working really well um they kind of take a different approach than wise which is they spend a ton on marketing whereas wise spends very little of its revenue on marketing and it kind of just hopes for the network effect but it's paying off for them because they've been able to grow users much quicker so um kudos to them it's pretty simple model they help power remittances and uh it's really just kind of a clean story like good product helps people send money at a cheaper cost than Western Union and a lot of the other remittance services.

And it's got a great mobile app and tons of people are using it. There's a lot of discussion out there, I would say, from some smart investors about how Wise has a better digital platform and backend infrastructure, which is definitely true. Or I'd say, like, he's no expert on this stuff, but I'd say fairly confident that is true. the the claim is that wise with that infrastructure advantage will will defeat remittly over the long term but i would just ask anyone and i know wise is still a good business but with remittly do you think there's going to be the full elimination of cash payouts in all these other countries that are not nearly as wealthy as the western world over the next

five, 10 years? No. So they have plenty of time to do it. And it's not going to their value proposition of basically going where the end customer is and really helping out with that product is that value proposition. It's not going to change. No, I agree. All right. Last one for you. Okay. Little known company, uh, Amazon, I'd say this was another, and I do like, I like looking at companies or seeing margin expansion. I think that's been a theme for my list here is either margin expansion or comp store growth acceleration. And I'll share the screen again. We can look at Amazon's North American operating income. It's gone from negative in 2022 to $22 billion over the last 12 months. If you look at operating margins,

They have one of the consolidated ones hit about 10 percent, Ryan, and there's probably room to get to 15 percent or more, just given that AWS is still actually like a huge tailwind there with about 30 percent to 35 percent or higher operating margins. So you can see this inflection. It's finally happening. And what's interesting is that unlike a Meta or a Spotify, it doesn't seem like the company is running that efficiently yet. where they have all these side projects still going on. So I'd be curious to know if they ever get to that. But I guess AWS and third-party sellers and advertising are so profitable that investors aren't going to be able to force their hand to do that.

All right. Of the 10, who do you think had the most impressive report relative to expectations? Ooh, relative to expectations? i think rocket lab honestly but that's it's not even the numbers it's it's it's their contractual contractual commitments and that's not showing up in the revenue yet so maybe if i have to go with the actual numbers i i honestly think the most impressive was spraps farmer's market I had no, I did not think whatsoever they would ever hit 8% plus comp store sales growth. No, I agree with that.

Kavas were also pretty standout. Yeah. Yeah. Good. All those are pretty good reports. All right, we had a question on Nelnet. Someone said, thoughts on Nelnet numbers? I have to admit, I didn't fully understand it.

Well, we can't go through it fully, but maybe I'll hit some questions on why the stock is down a little bit. because I did write a little update for the Chit Chat stocks sub stack. So if you want to see the written numbers there, maybe I'll just link it in the chat here. And for anyone, the link is in the show notes. It's all free. You can find it there. What happened were a few headwinds in some segments. So they had the loan servicing division. They were under a new contract and that division is now unprofitable. So people, I think, are a little concerned about that. But if we look at another one, which is the asset generation and management, which is the residual student loan book, plus a few other things, we can kind of look at how they had some write downs on loans, securitizations and various debt projects. Nelnet Bank, also flipped to a net loss of $5 million due to a recognition of loan losses.

And they had some write downs and asset impairments within the renewable energy construction business, which they are going through a transition because they eliminated or decided to get out of the residential solar business and focus solely on commercial stuff. And that's been a sacrifice to profits in the near term because the residential solar business that they'd bought ended up being a dud. So there were some positives in the quarter, but a lot of negatives. And hopefully this was a one-off, but we can't have this continue indefinitely. We can't have this happen every quarter or they're not going to be generating value for

shareholders. Yeah. Something that's also become a little frustrating is when we first bought this, I thought, man, And this is – it's a little complex, but it seems undervalued. I would say, if anything, it's more complex today to understand all the divisions. You probably don't need to, but yeah, kind of a bummer. A little bit of a bummer of a report just to see the solar investments in hindsight were probably not the right thing to do. Well, no, the solar construction business.

The solar investments are almost a guaranteed return. That's a – Sorry, the investment into the construction side of things. Because it was not only acquiring a business, right? They're running it now, and it's a construction business. Well, yeah. Yes. When you acquire a business, you start running it.

They acquired that business. It was a total loss, and perhaps they got sold a bag of goods that weren't so hot right when the solar industry went through a giant downturn. Yeah, that's true. They're not the only solar company that's struggling. Pretty much every single solar business is having their issues. Yeah. Bit of a bummer on the Nelmot quarter. Okay, we've got some other topics to discuss.

I do want to talk about the 23andMe saga. Have you heard about this? Yeah, I'm pretty sure I had this as a segment a while ago. Wait, really? I mean, not recently, but maybe there's something new. Okay. It's the Ann Wojcicki. Oh, yeah.

Yeah. Well, yeah, the big news this week was that she announced that they're going to have to lay off 40% of their staff. But I'll go through the story here in a second. Before we do, I do want to mention our sponsors one more time. Public, heads up, folks, interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high yield and investment-grade corporate bonds on public.com. You might want to act fast because your yield is not locked in until the time of purchase. Lock in a 6% or higher yield with a bond account only at public.com forward slash chitchat stocks. Okay, just to kind of give a summary on the 23andMe story.

Essentially, Ann Wojcicki, the – I hope I'm saying that right – CEO, co-founder. The business was kind of struggling. Business was definitely struggling. They had a massive data breach, which for a DNA testing company seems like one of the biggest issues you've got to avoid. Massive data breach, sales of their testing kits kind of went down the drain. And then they were also trying to build this drug discovery business, which was just hemorrhaging money. So anyway, business was really struggling. And Wojcicki tried to take the company private.

the board thought it was not i believe the her plan was to take the private take the company private at a discount to the market price which is hard hard sell for the board um board was not a fan of it board said well you know let's at least look at some third parties see if anyone else is going to offer it and which is key who owns basically 50 of the voting power said i will not entertain any offers from third parties so uh kind of sounds a bit like a power trip the board in september all seven out of eight the eighth being ann wajidzki resigned at the same time there was actually kind of a funny period where if you go to the board of directors page on 23andme.com it was just ann wajidzki um just her picture which was a little hilarious they have

since hired i think a few other people to the board um but yeah this week they announced uh that they're probably going to need to lay off 40 percent of the staff any interest in the stock bro no but you know maybe it'll turn into a meme stock if someone starts some fake news around sergey brin buying in or google buying it because there's a jump change for him i'm market cap 105 million dollars and sergey brin's net worth i believe is probably over 100 billion dollars let's check it out real quick according to the google machine which helping them out there yeah 145 billion dollars but i don't think they're married anymore so they're not former wife maybe that won't help yeah no no interest in this thing it's it was it's clearly it's not well run it's a

downside of the class B share structures. Yeah. And I mean, what are you going to do? Like, there was never what was the end game here? Like, you sell them testing kits, they're not going to test twice. You sell one testing kit to each customer, you have to come up with a new business in terms of what you're going to do with it. So well, they tried, they just wanted to do drug discovery. And sort of just try to do one drug or something like that. They

try to do a ton at once which is wildly expensive and probably didn't have the funds for it six billion dollar market cap in 2021 yeah remember those days hey well those are fun we're back i think the ipo market might be opening too i saw a note that clarna is going public and that is I got to say, one of my favorite bubble stocks. Buy now, pay later. Can we get Visa down 50% again? Okay, let's say the IPO markets are back. Number one IPO you want to see, who is it?

That's a good question. I'm going Hutto just to save my internet investment. Maybe they'll do that. I doubt it though. Yeah, me too. Turo? Turo, but I'm out of IAC. So you don't care anymore?

So I don't care. I would like to see what the valuation, I guess, gets the fetches. But now we need, if we look at, thinking about the episode we released today, I want IPOs in Mexico. Come on, let's get that market cooking. I guess that's true. Yeah, that's a good one. All right, what do you want to talk next? You want to do my small cap of the week?

Let's do your small cap of the week. one in within our industry yes a competitor potentially not really yeah we are a minnow in in there in the ocean that they are a large player on okay ryan's small cap of the week presented by drumroll please yellow brick investing the company we're talking about today is audio boom group this is actually a lot of fun to read up on because it is a business model that brett and i both know extremely well um and i actually found this one on yellow brick so typically i'll get either recommendations from listeners on stocks they want us to look at and i'll look up the ticker on yellow brick which for anyone that doesn't know is just

a aggregator of some of the best stock pitches across the internet and so you're going to find a high quality right up there sometimes i'll look up the ticker or this time i just filtered companies below a billion dollar market cap and looked at the most recent write-ups this one showed up and here's a quote from a substack called spruce hill capital which i found on yellow brick it says audio boom is a global leader in podcasting achieving over 135 million downloads each month in 2023 attracting 38 million unique listeners this reach positions audio boom as the fourth largest podcast publisher in the united states so a little larger than us uh 38 million unique listeners we're uh we're we're on our way but uh yeah it's it's one of

the biggest podcast publishers they are really a podcast network so i'll explain kind of the nuance there but some of the podcasts that they have they've got like the tim dylan podcast a lot of serial um a lot of crime podcasts matt and shane secret podcast i don't know shane gillis is very popular right now he's kind of one of the most yeah that one's always in like the top five so i'm sure that one is their number one that's a recent one too um yeah it's a huge catalog apparently they have uh they say they own 14 of the top 100 podcasts in the u.s it's really it's really not ownership um so the way that these work is they go to a podcast host let's take Shane Gillis, for example, they say, we'll take all the backend work off of you. And so that

includes stuff like editing the podcast in most situations, the contracts can vary, but editing the podcast, finding advertisers, negotiating prices, distributing the show to the different platforms, invoicing for listens, you name it. Basically anything that's on the backend of the podcast, the network is trying to take that off of, um, off their hands. And in exchange, they get a percentage typically of the advertising revenue. Um, however, the one nuance or difference here between, um, audio booms network and our network is that it's, uh, they have minimum guarantees for a lot of the largest shows, which really kind of hurts them in a period where there's down listens because then you're paying a guaranteed percentage of the revenue and it's,

or sorry, you're paying out a guaranteed minimum each year. And if listens come down, which in 2022, or I should say following 2022, when the iOS changes happened, which I'll talk about in a second, listens came down. And so we saw profitability shrink. So they report at their peak, they reported $78 million in revenue over a 12-month period. Only $17 million of that drops into gross profits. So it's really kind of a gross revenue versus net revenue situation because you're paying out a lot of that revenue belongs to the creators. But like I said, don't really know exactly their contract terms, but that's kind of typically how it works. In terms of how they deliver revenue, the biggest driver by far is what they call premium advertising. This is where

podcasts and audio booms network endorse products natively within their shows for example this is the chit chat stocks small cap of the week presented by yellow brick investing the number one aggregator of high quality stock pitches across the internet that right there if i were to have said that is a native ad read that gets counted for 55 of audio booms revenue the rest is like back catalog advertising tech which is actually pretty cool but it's really the bulk of this business is native ad reads um it's just how it's been for a long time and it's still the way it is even with the innovations that spotify has with streaming ad insertions most of the time people want to go direct to shows they really like shows where they think the audience is

what they want and they'll pay a pretty cpm um in order to get in front of that audience so that's the bulk of their revenue. Like I said, there is the advertising tech side, which accounts for a little under 50%, but really less in a normal environment because the iOS changes have hurt them recently. So anyways, when I keep mentioning these iOS changes, what was it, a year and a half ago now? iOS, Apple Podcasts said, we're no longer going to count downloads, which if you listen to us on Apple Podcasts, what used to happen is if you subscribe to our podcast, any new episode we uploaded, it would be automatically downloaded. For a long time, that was being counted as a listen, and it was being paid for by advertisers. Today,

Apple has changed that. And now it's, I think, you have to listen to the episode for, I believe, 60 seconds for it to be recorded as a listen. So the reporting changes led basically every podcast publisher to have a huge drop in listens. Audio boom was no exception. And so it really hurt them. Gross profits actually went negative for a while because of the minimum guarantees that they had to some of their largest creators. But I think they're at a point now where listens should continue to grow. They've lapped the iOS changes, listens are revenues starting to grow again and hopefully margins gross profit margins should be sustainably above zero for a while and they also renegotiated a lot of those minimum guarantees they have a market cap of 53 million

dollars they're they say they're adjusted ebita uh flat which we run a podcast you should be profitable like you can be profitable at a hundred thousand dollars in advertising revenue honestly like it requires calories yeah it is what are our costs okay a mic a riverside subscription if you edit your video maybe an adobe subscription it's very little costs um so i'm not sure how They're not profitable, but they are. It depends on how show notes, social media stuff, any sort of transcripts. It depends on what they're taking on versus what the show's taking on. Now, if they're only an advertising marketplace is what you'd maybe call this, then yes, that's very low.

But if they're providing these other services, the union economy should still be strong. I'd be interested in what the balance sheet looks like, but I have no interest in this stock. I don't know why they target the largest podcast because the largest podcast, as you mentioned with that minimum guarantee stuff, don't necessarily need them. The advertising is going to come to them. Smaller is more important and potentially, I mean, similar with all the media stuff with YouTube, that's more profitable. I'm going to show you one though, Ryan. It's nice if you're the creator, if you're the Joe Rogan, which, by the way, owning, like buying podcasts outright, it doesn't really make sense. That's why Audioboom does this network stuff.

It also does not – the incentives aren't really aligned if you buy them. So like a Joe Rogan, for example, it's nice if you have someone that can take that work off of you where you don't have to go out and get the advertising and stuff like that. But you don't need to pay a network to do it. You can pay like one, two people to go out and get advertisers who already want to advertise on your show to edit, to publish, to distribute. Yeah, I think the strongest economics are not in the largest shows. Yeah, because even if you had a large show, you probably need, you know, excluding the host, you would want one producer and maybe one person managing advertising slash promotions. And that's not too expensive of a salary. You know, if you're doing 10, 20 million in advertising revenue a year.

But I want to show you this one, Ryan, that has, it's a stock that is a similar business model, Acast, another power, someone that produces, owns, buys, does advertising for podcasts, I think more focused on Europe. It's a Swedish listed company, gross profits grown at 52% annual rate since 2018. And it's much larger here. I think this would be, yeah, let's look at USD. 60 million in revenue over the last 12 months but operating loss of 14 million dollars i just think it's a tough business it's a hard business there's a reason spotify's not failing but kind

of struggling even though they have the most users outside of maybe youtube depends how you define that yeah it's tough stuff no interest in this yeah i agree even though we are trying the business ourselves i mean it makes more sense to have a lot of individual small networks than to have one that works with all the big ones like if you can be a successful independent podcast it's it's a big money maker and there isn't as much incentive to work with a big network like that Yeah. And with ours, we do help advertising with other people, but they're all podcasts and any sort of independent media operations within the investing space, which makes sense because there's a niche where advertisers are specifically looking to find people that are interested in investing. All right, let's get another topic, Ryan. I want to talk about, did you see Scottie Pippen? No.

All right. Do you know who Scotty Pippen is? Because I know you don't follow basketball very closely. Yes. All right. For any of our European, I know we've got some international people that might not be interested, but number two guy at the Chicago Bulls during the championship runs with Michael Jordan. and here's a tweet he had in november 12th 2024 so one day ago while we're recording this scotty says bitcoin in 2024 is giving me flashback to the bulls in 1991 dot dot dot a dynasty just starting get ready for what's next time to hire i think we hire him as our quant this is our guy they're to me one of the biggest red flags that sends me running to the hills on any asset any investment and i'm saying this as uh someone who played college sports because

you kind of experience it is when athletes that do not focus at all on that realm get into it and become sort of the, like, spokespeople for it, the brand ambassadors of it. Like, when athletes get really, really into something, it feels like you've got to run away. I'm sorry. Ryan, I'm going to show you this tweet. From September 3rd of this year, Scotty Pippen says again,

Satoshi Nakamoto visited me in my dream last night and predicted that hashtag Bitcoin would be at $84,600.50 on November 5th, 2024. And then he finishes with the obvious, not financial advice. And then he responds with a BULL, all caps, ish, like the bulls, on hashtag Bitcoin rocket ship. Bitcoin hashtag, hashtag bull ish on game five ball, hashtag ball. Let's see what the game ball is. you want to investigate this here's what it says on their twitter profile 30 years later

the game five ball from the bulls first nba title is now trading on hashtag ethereum is he trying to sell it i think it's an nft i know is it like he created the nfts yeah he's probably he's probably doing something think about that dream one though it was right yeah wow okay um you know what maybe this shows you that like if they're a little crazy they might be incredible athletes maybe you need a little crazy to be a great athlete maybe that's if you're just a value investor you're not gonna you're gonna be a benchwarmer yeah oh yeah someone said in the comments here says beam me up scotty yeah all right sounds like we need to get up there he's uh he's operating scotty pippen's operating on a different level than us i hate i

just i hate it when athlete involvement and investment like absolutely love athletes investing and and uh building themselves a retirement because your career you have a shelf life but no when they get on scams i mean tom brady like they convince people to lose a bunch of money yeah we had russell coombe famous seahawk uh from our team unfortunately he's a huge bitcoin guy and he started dunking on people because he took quote unquote took his salary in bitcoin back in 2020 which he got paid in dollars and then bought bitcoin so it's all yeah what an irrelevant what an unnecessary thing to do like your your salary won't change because it's in bitcoin you can always just like take the same salary and buy bitcoin that's what they're

gonna even if you want them to be the ones that pay it um yeah it's still gonna be the same nominal value um or the u.s dollar value so yeah it seems weird to me at least in his case i assume he was not paid to promote that um that's true i don't think yeah i don't think he was he's just a scotty scotty is uh same with tb12 yeah a stain on otherwise perfect career yeah yeah yeah some would say all right well thoughts on prologis is the next question do you know what prologis is is prologis growing revenue 50 a year over a year with negative gross profits if not no i think it's just like one of the largest reits globally it's like an industrial reit i don't care about reits i'm 28 years 27 years old

hey impressive returns here actually if i'm not mistaken um it could be actually just a Max returns since 2001. No, 1997, it's up 404%. Now, let me look at total return because they're obviously paying on a lot of dividends. It is a REIT, isn't it? Yes, it looks like a property manager. Let me look. Let me look.

Total return. 10-year total return, 277%. It's fine. That's fine. It's solid. I'm going to do max. Going back to, I guess it only has 2011. Total return, 407%.

2011, that's the absolute bottom in properties. Yeah, look. It's good. But it's just not a business that I know particularly well, feel like I have any sort of edge in. So probably not something I'll end up investing in. But I've heard good things. If it's a well-run property REIT, it is probably going to be hard to lose money. But it just depends.

Are you in a stage of your life where that matters the most? Yeah, that's a good point. Okay, we just got done talking about extreme valuations pretty much across the board. Question for you, general question. any stocks that we haven't discussed on the show recently that are piquing your interest piquing my interest well i'd say the one we came out with on wednesday piques my interest a lot that nothing we've discussed on the show recently oh nothing that we've discussed on the show i said the opposite sorry um what are you hoping to do more research on here soon what do you feel

intrigued by mexican stocks u.s there's i mean i'm finding very few u.s stocks that are attractive that's fair yeah and you know so here's the thing that's interesting president trump or soon to be president trump president-elect i guess uh this is kind of one of the worst things you could have before you've been for that put in office if you because he is someone who has benchmarked himself by stock market returns in the past this is not what you want prior to you starting your uh term because it's going to make it harder to generate really strong returns by the time you are coming out of office whatever doesn't really matter but yeah but i love it the the politicians can you know like they take it

they have no very little effect i think on the underlying economy especially a president in a short amount of time so it's almost luck of what you can take advantage of yeah we don't need to go through a whole discussion on that we have a comment that says i had a dream that sundar came to me and promised goog to 500 all right that's gold what's the old succession uh quote so it'd be so it said so it shall is or something like that the card hearing cousin greg yeah we got a mr seymour duck uh saying mexican and swedish stocks for me, European stocks have been dipping. Yeah, you know what's one that

interests us that we did talk about on the show a while back? HAPE Group in a big drawdown because of some regulatory stuff. Yeah, Swedish company, nicotine pouch space, new age nicotine products. Seems quite interesting to me.

I also thought Evolution Gaming was pretty interesting. And we had a conversation which will come out next week with a friend of ours named Fabio from Capital Mindset. And after we were chatting, after our conversation, we were chatting and he gave some additional context, which I kind of forgot about, which is I kind of look at evolution.

I think of it mostly as a tech stock, like it's building out tech platforms that casinos use. A lot of companies, a lot of people can't invest in it because of certain policies around it being a sin stock. Helping gambling, enabling online gambling. There's a lot of funds with mandates that say we can't buy it, which kind of gets that sin stock discount, which is nice if you're a share cannibal.

Where's the sin stock discount in 2020? What do you mean? I'm curious. Where was it? Yeah, where was it? yeah that's a good that's a good point was it that expensive yeah yes it was i thought i remembered it at like 25 times earnings or did it get more expensive sales well um sales and earnings aren't that far off it's got like 70 margins well

Well, let's look, because I believe it was at 70 times earnings. Trying to load her up right now, then we can head out of here. Okay, loading, loading. Price to sales, you want to use price to sales? Yeah, but, I mean, you could just use earnings. Price to sales peaked at 50. What was the earnings? It must have been like 70.

Yeah, oh. No Sinstock discount there. No. Peaked at 90. Yeah. Multiple compression is not fun. Not fun. All right.

I think that's everything. If anything else before we get out of here, Ryan? I think that's it. All right. Great episode. Thank you, everyone, for joining, talking about stuff. I think it's a great time. We're going to try to cover some hopefully undiscovered stuff on the show while also

talking about all the things people love about in future episodes. There'll be small caps that we do deep dives in, interviews around that, as well as popular stocks as well. So keep following us on Spotify, Apple, YouTube, wherever you get your podcasts, and we'll have something for you even if you don't listen every week. As a reminder, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guest

may hold securities discussed in this podcast. They have held them in the past and may buy, sell, or hold them in the future. If you liked this episode, give us a review on Spotify or Apple Podcasts. It takes you 10 seconds and is the best way to help us grow. Thank you, everyone, for tuning in live,

listening to these replays on YouTube, Spotify, or Apple Podcasts, and we'll see you next time. We'll see you next time.