Chit Chat Stocks - 14 Growth Stocks In a 30% Drawdown; Delta's Dire Warning; Did Buffett Call The Top? (RELY, DAL, BRK)

Starting point is 00:00:00 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 i'm one of your hosts ryan henderson and i'm joined as always by the one and only brett shafer on this show we talk all things financial markets and markets are in turmoil as we speak not really i kind of say that in jest but brett's got his red light on in the background there to describe the i guess

Starting point is 00:00:57 maybe the small correction we've seen in markets over the last month or so some stocks are seeing pretty major corrections but for the most part i believe the nasdaq is down i think around 10 from high so still relatively small in the big uh big picture but we've got plenty of topics to talk about there was a short report on one of brett and i's favorite holdings uh there was a very interesting small cap of the week. We've got sort of dumpster diving, if you will. There's a bunch of stocks down 30% this month that I want to pick your brain on. And then we've got a whole bunch of other news, but I guess Brett, earning season is over, kind of maybe boring period. How are things for your portfolio? Yeah, it was fun to read the short report yesterday. I always

Starting point is 00:01:48 appreciate those because they can help bring to light anything that you may have missed when doing your research. We try not to be someone who attacks the shorts. It's not a battle. They're trying to provide some information out there. And then, hey, if they are actually right about the company, well, we probably should end up selling. I was very interested to read Delta Airlines warning about their guidance. And then that kind of trickled down to some of the other airlines as well. And we have some bubble watch updating on the AI boom with CoreWeave, an interesting deal maybe a circular deal with open ai as well as something that i know was fun to talk about but i honestly forgot about it but i linked to it in our notes so i'll i'll bring it

Starting point is 00:02:33 up later as another fun one okay before we get to any of the topics for this week we want to talk about our friends at public if you're serious about investing you need to know about public.com that is where you can invest in everything stocks options bonds crypto they even offer some of the highest yields in the industry like the bond account six percent or higher yield that remains locked in even if the fed cuts rates what sets public apart is how they give you the tools that you need to make informed investment decisions they're built an ai tool called alpha doesn't just tell you if an asset is moving it tells you why the asset is moving so you can actually understand what's driving your portfolio's performance public is a finra registered sipc

Starting point is 00:03:13 insured us-based company with a customer support team that actually cares bottom line your investments deserve a platform that takes them as seriously as you do fund your account in five minutes or less at public.com slash chit chat stocks and get up to $10,000 when you transfer your old portfolio that's public.com slash chit chat stocks paid for by public investing full disclosures in the podcast description where do we want to kick things off brett we have a comment here that we're sleeping on british american tobacco i will say that ryan does own the stock but he does have a larger position in Philip Morris. As a little tease, we did have that episode out this morning going through our personal portfolios. And he says,

Starting point is 00:03:54 below plus taking share from Zinn in the United States. I think that's expected due to the supply shortage, but would maybe confirm that they are actually durable share takers is when the supply shortage ends in 2025 with Zinn that they maintain that market share. But let's start, Ryan, with the short report i read the report last night but it looks like you did as well it's on remitly and you have some nice notes on here from spruce point right spruce point capital that's correct and what did they find what concerned you what was interesting about this short report well the timing was kind of interesting because we released an episode i think that day that i talked about remitly being one of my top stocks, my top ranked stock in my portfolio. Spoiler alert for anyone

Starting point is 00:04:48 who hasn't listened to that episode. I talked about all the things I liked about it. And then later that night, a short report was released. I know a lot of people tend to be dismissive of short reports pretty quickly. And honestly, this is probably the first time I've ever had a big public short report unveiled on a top holding for me. Um, maybe there's been some others, but I've never really been on the side of things. Um, and I do want to look through because there is some good investigative work that goes on in these reports. Typically now they're very long. This presentation, I believe was 74 pages long. So, um, you kind of got to try to parse through and find what really matters but i'm gonna go through and look at uh basically

Starting point is 00:05:43 two things uh what i find concerning and what i really don't things i basically think they got wrong or don't care about at all so if you were elon musk and you would screenshot it and you would put it on twitter concerning one word these are these are the ones those are ones that you'd actually care about yeah uh overall the theme of the short report was basically that the company is not as trustworthy as they seem which it's i mean the funny thing is the stock actually jumped like six percent in after hours when the short report was released it was just coincidental timing because i think they were at a big conference as well but the stock really hasn't reacted at all so it's not like there's some big impact and i have to choose whether or not to buy

Starting point is 00:06:30 the dip um but let's go through some of the things that don't concern me there was a lot so i kind of condensed them into a few but number one was dubious customer reviews so spruce point did a reverse image search on some of the customer testimonials that are on remitley's website and said that the customer images are just stock images i don't know why remitley would do this i don't know if it was meant like they just didn't want to ask customers for images but i think this is one of like who cares they have seven million customers that i'm sure they could have found someone of those seven million active customers to give them a testimonial i mean it's very easy to do that so yeah yeah exactly and yeah it was weird that they use stock images but that might

Starting point is 00:07:19 be again because they were getting the quote but they didn't want to put publicly these random person's you know image and likeness that's not really the point the point is that they have a 4.9 uh percent sorry 4.9 and a five star rating on the app stores so you could find with any of those public reviews probably a million different positive testimonials for the product yeah uh so i thought that one was kind of pointless it's it's frustrating because sometimes you read these short reports and they include stuff like this which seems so pointless and like way off the mark like this has no bearings on the outcome of this investment and it makes you think like is is this worth reading because it just seems like they're pointed out all the stuff that

Starting point is 00:08:12 doesn't matter but let's go through number two uh displacement risk from stable coins people talk about this risk all the time i think it's been kind of people have been talking about it for the last five years that like all global transfers are going to be displaced by crypto in some way it's a known risk yeah yeah a i don't really i don't believe that risk maybe i i believe that that could be a risk but i don't think that's going to affect remitly and i I think it's actually kind of off the mark of what Remitly's customers use the platform for. So for reference, Remitly allows users to send money back home or across borders, and it can be received in a lot of different ways. So it could be a cash pickup.

Starting point is 00:09:00 It can be digital distribution. There's a lot of different ways that they can do it. And so if you're sending money back home to your 70-year-old mother in a foreign country, I just feel like she's a lot more likely to say, yeah, I'll go pick up some cash at the station instead of like, yeah, let me figure out how to get on this platform to get the stablecoin transfer. It just doesn't seem like that's really what's being used here or the common use case. number three for me is they were massaging their app ratings basically they call out that like has these subtle definition changes around where they're collecting their customer ratings from but you can just go to the app store and the ratings look fine and it's like you have two million ratings i think they're around two million ratings on the apple ios app store

Starting point is 00:09:58 and they have a 4.9 stars that's like something you put in a like a thesis like a bi-thesis not yeah exactly and they could be faking all those ratings if they paid some bot farm in india or right but i mean you can't fake two million ratings yeah that would be quite the I don't know. There has to be a lot of those going on if you're going to have that happen. I think the rating kind of speaks for itself. They did have some interesting things about bad reviews on Trustpilot. But when using a remittance product, there are similar to other things where there are going to be restrictions on what you can do. There are always going to be bad reviews because people are going to be restricted given the know your

Starting point is 00:10:50 customer policies and they're going to get frustrated over that and give you bad reviews it's almost like when we talk about a stock that someone likes and we don't like it it doesn't necessarily mean our podcast was bad it just means that someone disagrees with us and got mad and they don't and you know you kind of get what i'm saying there ryan yeah i mean you get reviews you don't get reviews from like the customer that was just satisfied you get reviews from the people that were either really disgruntled or people that really liked the app so if you have a really good rating that that goes to show that you've got good reviews i i just look who cares about the ratings they have billions in transfer volume obviously people use it like

Starting point is 00:11:37 there's no way they've got two million bots from a click farm giving ratings if they have billions and billions in transfer volume so yeah it doesn't matter um so anyway that's one of those things that i don't really concern myself with number four they mentioned that they didn't have success with their affiliate program i mean this is to know the numbers the numbers speak for themselves exactly on the volumes i run i manage an affiliate program for finchat um look it's kind of a choice whether how much you want to provide to affiliates like it's almost like a sales force in in some way where you're giving them certain commissions and all that it if remotely can attract seven million customers without needing the concessions of or or like sacrificing lifetime

Starting point is 00:12:29 value um or some of the revenue by giving commissions to affiliates there's no harm in doing it if they really wanted to juice the affiliate program i'm sure they could have so i don't know i thought that was kind of pointless they have seven million customers the proof is in the pudding yeah they did there's one they did talk about changing the definition of active customers slightly but again if they were really doing that um then send volume would be growing right if they were doing that to manipulate their number higher than send volume probably wouldn't be growing so again it all comes back to well is the send volume growing yes okay then i don't think these things are really that big of a deal and if you look at well maybe pull them up

Starting point is 00:13:14 with our friends at finchat i think send volume growth has been accelerating maybe maybe not but you hit the next stop and i'll find that number for you no i think that's correct i think customers have been growing faster than send volume but still i mean both are growing at a pretty impressive clip uh the other one that i really don't care about is they said they only added 100 new corridors in 2024 i mean yeah that's part of what happens once you already have 5 000 corridors you've you know you're hitting the big ones it's all right if you don't have kenya to uganda that one's not going to be as important as the united states to india uh that one united states india or united states to mexico or united states to brazil is going to drive the boat

Starting point is 00:13:57 way way more than 99 of other corridors out there yeah and the last one that i'll talk about there was a lot that i thought wasn't great from this report but they said wise is a formidable competitor a that's very known um but i think they serve different use cases it seems like they didn't use the app of either of these like if you go through i mean i've been a user of wise for two years yeah there's some great things about the platform and the low cost is definitely a potential long-term risk to remitly but there are some serious detriments to wise's platform we talked about this in the last episode of you know the user experience is not great and remitly's user experience is seamless it's very easy to transfer money um and i think the like

Starting point is 00:14:55 Like I said, they serve kind of different use cases. Some people aren't as concerned about shaving off half a percentage point of cost, and they're more concerned about how is it being received by the family back home where Remitly really, really serves that use case well. So I mean they've both been growing. I don't think it's a winner-take-all. It's obviously not a winner-take-all because both of them are winning. And then the other part, they talked a lot about the competitive positioning. they even talked about like western union being a formidable competitor and this just yeah that's where they lost me yeah like look at any download data go use any of the apps remitly is way better

Starting point is 00:15:36 than western union and it you can see that in the app download data it just felt like there was a lot of stuff here where they were really grasping at straws like they had it felt like they maybe got some sort of skepticism around the management team or the board members or something like that. And then they tried to find a whole bunch of other facts to support their case. But pretty much all of these, you could kind of turn around and say, A, the proof is in the numbers and B, these aren't really bad things at all. These are known concerns if they are concerns that are things that the bulls or anyone that owns the stock are well aware of. Now, let's talk about what was actually concerning from the report, Ryan, micro-lending and turnover in their risk compliance and legal departments.

Starting point is 00:16:28 Yeah. One of the things that concerned me was this micro-lending aspect of the business. So they have not been very transparent about this. I mean, I've looked through some of the recent conference calls. I haven't seen that the Flex Plus program is what they call it or the term lending really mentioned at all. And so basically this is them giving micro loans or cash advances to people on transfers, some of their users. I'm not sure what the qualifications are to be a part of this program. A, it's a subscription. So you have to subscribe to be in the program to have access

Starting point is 00:17:02 to the cash advances. But the fact that management hasn't talked about it at all is kind of concerning because there is a revenue element there. And that's the only part where it It was like if this is a big piece – like ultimately this entire short report doesn't matter if revenue is growing essentially because they were like – they were saying, oh, take rate is coming down. They don't have as many customers as you think they do. They're misdescribing certain things. They're changing the definitions. But if revenue is growing, which in my mind is transfers, then it's okay. But if some of that revenue is growing from micro-lending or like interest earned or subscription fees from that, then –

Starting point is 00:17:47 What's the size of that division? Then there's some risk that maybe there's something to the short report. So I would like to see them provide a little transparency on this program. They might not have talked about it because it might be so small it just doesn't matter, which I kind of hope is the case. Yeah. The second one that concerned me is there has been a lot of turnover in the legal risk and compliance departments, I think even in the CFO and CAO, Chief Accounting Officer suite as well, or at least there's been new ones that have come in recently. You just don't love to see this. Now, everyone kind of has their own reasons for changing careers.

Starting point is 00:18:29 But the thing that I kind of found funny was right above their report, right above them talking about all the turnover, they say that Remitly doesn't pay as well. And then they're like, there's been a whole bunch of turnover. Yeah, that was an interesting thing. And they were talking about how the customer support – they were trying to make a whole thesis on how they're not paying customer support well enough. And I was thinking like, look, it just means the product is much better than Western Union digitally. They're utilizing all these new AI chatbot tools so they don't have to talk with a real person and try to solve these problems much quicker.

Starting point is 00:19:02 Yeah, I mean, look, maybe we're going a little long on this topic, so I'll maybe wrap it up. There were some things that are potentially concerning, some yellow flags here within this report. And I would hope that if remotely was asked about them in a public setting at an investment conference or on the next earnings call that they would talk about it honestly and be forthright with investors about it. But it doesn't change my thesis on the company for anyone interested in the send volume growth. Because again, it all comes down to this and it all comes down to one

Starting point is 00:19:34 building the long-term kind of cross-border digital personal finance app for these core customers, the ones that are sending remittances, the immigrants sending stuff home. December 2022, send volume growth was 35% year over year. December 2022, two years later, last quarter, December 2024, it was 39%. And I would expect the take rate to come down over time because at scale, they can provide a better product and charge, you know, their costs are coming down. So again, some of this in the report yes it was good that they pointed this out but it doesn't it's not scaring me away from the thesis yes the thesis isn't guaranteed to be correct like any stock you own it's not guaranteed to go up but i still like it i still like owning the company yeah there

Starting point is 00:20:24 was nothing in here that was a deal breaker for me and then they also tried to talk about the valuation being extreme and it's like they aren't and they used profitability metrics on a company that isn't really profitable yet so yeah i don't think it's expensive it felt like they were kind of trying to add on to like this need this could have been a 15 page report and just talked about some of the qualitative stuff with management but anyways the timing was interesting because the stock did go and had quite the run over the last six months it was up i think about 100 and that broke in the last few weeks along with kind of the momo bubble and i think the timing on this makes sense.

Starting point is 00:21:04 They were trying to hit something that's a high flyer, still not that profitable, you know? Yeah. The timing, it makes complete sense. All right. There is a question from Tyler in the chat here, which I do want to touch on. But before we do that,

Starting point is 00:21:19 I want to have a markets in turmoil segment with you, Brett. Okay. Markets are not really in turmoil, but there are a good chunk of stocks down quite a ways from their highs. And I just ran a quick screener, And there was a list of stocks. Here's a quick list of stocks down at least 30% in the last month. Before you say that, did you know, Ryan, that every time CNBC has posted a markets in turmoil, if you bought the next morning, 100% of the time you're green for the year?

Starting point is 00:21:53 That's pretty incredible stuff. Yeah. So maybe we can jinx it. If we keep saying markets in turmoil, the stocks will be green for the year. But go through your list, some interesting ones here that are, what, down at least 30%, maybe more? Yeah, so without any other context, you tell me if any of these stocks interest you. All of these stocks are down at least 30% in the last month, and the ones lower on the list are down by a greater percentage. So number one, Cloudflare, Duolingo, Tesla, Confluent, Applovin, MongoDB, Block, Palantir, Robinhood, Rocket Lab, Carvana, Marvell, Kava, The Trade Desk.

Starting point is 00:22:37 Do any of those interest you? Ooh, maybe not at these prices, but gut instinct, I'm going to say Duolingo, because despite my instincts on the non-modiness of the business, they just perform so well. And it seems like that founder and that just team in general is just top notch. Then I will say Rocket Lab and Kava. Both of those interest me. Cloudflare, out of my circle of competence. Tesla, now I don't think it's cheap. but I don't like the company at all.

Starting point is 00:23:09 The next two, well, Apple love and no, don't. We've talked about that. There's some major concerns there with that business. Block, no. Palantir, no. Crazy CEO. Robinhood, no. Carvana, no.

Starting point is 00:23:21 Marvell, don't know anything about. Trade desk. Well, maybe the trade desk. 52%, Ryan. What's it trading at now? What's the, ironically, what's the trade desk trading at? Probably a B of 80. Yeah, it's still pretty richly valued, if I remember correctly.

Starting point is 00:23:39 But it's nearing its largest drawdown ever, actually, which I find kind of interesting. Yeah, and the stock wasn't going to work. It was so expensive. Let's see the EV to gross profit. Just put that as a basic one. We are at 14. All right. That's not terrible, but I mean, what is the remit?

Starting point is 00:24:00 We're at like three. For being down 50%, that is not super cheap. no i was at 40 just a little while ago yeah anyway yeah it feels like right now some of the more speculative names are the ones that are really getting hit maybe this is just how it works in every sort of recession correction bear market whatever uh but you're also sitting getting some reasonable drawdowns in stocks like amazon and google i think both of those are around 20 drawdowns right now which whatever american express this is no way to value a company but yeah yeah there's yeah drawdowns

Starting point is 00:24:42 don't necessarily mean it's cheap let's hit a question here from tyler that relates to this kind of the recessionary fears people worry that we're you know eating our we gotta what is it we gotta go through a tough period to come out the other side that's the whole narrative right now who knows whether a recession is going to happen because everyone thought a recession was going to happen in 2022 and it did not but tyler says if we get a recession which of your holdings do you think performs the best and the worst ryan anything come to mind for you uh well i mean people buy more cigarettes in a recession i think right those are pretty i think i think that was actually i looked of the data on that once it's kind of a misnomer it doesn't hurt or help yeah i imagine that would

Starting point is 00:25:31 be pretty unaffected so philip morris and british american tobacco i think would both hold up pretty fine maybe philip morris just because it's a little more richly valued would be at a bit of risk there um i kind of think nail net because it's a bit idiosyncratic and a lot of their stuff is not discretionary stuff. I'm sorry, I said stuff there twice, but a lot of their business segments are discretionary. Okay, look at it, solar roof stuff. You have student loans, you have banking.

Starting point is 00:26:04 Maybe the bank would get hit a little bit. That's a tiny part of the business. You have that education and payment software. Yeah, I think that would do fine during a recession, especially because once they get down, once the price gets down to a certain level, they just hammer the buyback and don't let it fall any further,

Starting point is 00:26:22 which is not a bad thing to have if you're a shareholder. Yeah, the other one company that I own, not a ton of shares, but I own Amazon. And this is a business that, well, now it's a little different because I think a recession would impact AWS revenue growth. But that is a business that every single time there has been a recession in its existence,

Starting point is 00:26:45 they have come out better for it. uh people turn to them to be sort of the low cost provider of goods it accelerates i think it accelerates cost savings both at businesses and on the consumer level when you're in a recession and typically amazon benefits when people are looking to save costs so and they save costs usually in those instances too like we saw it in 2022 profitability expanded relative to prior prior to COVID. So it's probably one that would get hurt in a recession, but it's also one that I would be most inclined to buy in a recession. Yep. And we had another question in the sub stack chat, which is getting pretty active. So

Starting point is 00:27:31 hop on over there. The link's in the show notes, the free newsletter and chat community. Someone said, what stocks come to mind that will do well with a weak dollar? I'm not someone that's going to predict or not whether the dollar is going to depreciate, you know, if the dollar index in general across all these currencies is going to depreciate. But what's strange is looking at my portfolio, I have a lot of companies that will benefit from a weak dollar. So I'm a little kind of rooting for it. Nintendo should do better. Philip Morris International should do better. Coupang should do better. The two Mexican airports plus the Mexican stock exchange should do better with a weak dollar. Essentially how you would think about it

Starting point is 00:28:09 It's just any company that earns outside the U.S. Would Nintendo really be that affected? Well, more than half of their revenue comes from outside the United States. So if the yen depreciates a ton, that hurts U.S. dollar earnings. That's why their operating income in U.S. dollars has gotten hit so much. So and then they also have a big European presence. I think for them, it's specifically that yen depreciation, which just totally collapsed, But it's on the road to recovery, and that's why – that's one of the key reasons why the stock was up so much in the last few months.

Starting point is 00:28:45 Yeah, I was going to say that it's not necessarily in terms of FX headwinds. It's more on the – it's just the earnings in dollar terms aren't as good because they're not really transferring them across borders. Well, let's just say if you are in – I'm speaking as someone that is in the United States. I don't care what they earn in yen. I care what they earn in dollars and pay me in dividends in dollars. So if the yen depreciates a bunch and their quote-unquote earnings go up in yen, it doesn't mean that much to me. Yeah, I mean some of the ones that are like take-rate businesses are pretty protected here in terms of a weak dollar because they – it's all kind of inflation protection, right? True, yes.

Starting point is 00:29:30 I'm trying to think through that one. I'm trying to think through that one live, but – Remitly would be fine. Either way, I don't think about it too much, and I don't know whether anyone can predict whether the U.S. dollar will go up in value or down, and let's let the macroeconomists waste their time on that one. But it is a good question. What would perform the worst for you? The dollar has fallen. What?

Starting point is 00:29:53 What stock would perform the worst for you in a recession? Ooh, good question. I think Portillo's. People aren't going to eat their chili hot dogs anymore? well if they get comp if comp sales just go like they're in a i wouldn't say a precarious spot but they're in a they're not in a comfortable position with comp sales so if comp sales turn two three negative two three or four percent for a while yeah the stock's going to go down quite a bit yeah for me

Starting point is 00:30:25 tempted to say anything that's like reap like ally financial could potentially be impacted but people tend to pay their car loans back kind of regardless of the economic environment yeah that's true yeah that's a good one but i think the stock would react pretty negatively yeah i think the software i mean paycom's levered to like employment so if unemployment spikes they could be impacted but yeah that i don't care a little bit like i don't really care as long as i can make it through to the other side like is the business and honestly you mentioned that amazon one are they set up which i think of someone like an american express or an airbnb in this in this regard on my watch list would and these stocks have gotten hit you know if a consumer recession if the travel

Starting point is 00:31:20 recession, which we're about to hit here, happens, these stocks could go down 50%, but I think they would be stronger brands on the other side because they can weather the storm with their rock solid balance sheets. And that could be one where you think, okay, I got to look forward 18 to 24 months here, which ones could be good buys? Yeah, it's the anti-fragile discussion that we just had with Brian Stoffel, which that'll be a great podcast. I think it's coming out uh three days after this one's released so um but yeah like okay i'm looking through some of my companies right now dr horton for example if there was a huge recession dr horton's pretty asset light and there's probably a whole lot of home builders that are in a very

Starting point is 00:32:06 would be in a very difficult position they don't have quite as low of costs as dr horton or quite as low of unit economics. So those people having to forfeit their land, DR Horton being able to pick that up on the low, I mean, it feels like they would be advantaged by a whole bunch of other companies struggling in their industry. That is a perfect example. Yeah, I agree with you right there. All right. I'm going to load up my notes on Delta Airlines and their guidance and how that spooked the travel market. But Ryan, why don't you talk about some of our sponsors as we head halfway through the episode here. Yeah, first one I'll mention is Blue Chippers Club.

Starting point is 00:32:45 I know a number of our listeners have joined Blue Chippers Club and I couldn't recommend it enough. It is a tight-knit community of stock-focused investors. It was recently started by two friends of ours. They have weekly calls. You can share your portfolios. You can pitch stocks.

Starting point is 00:33:01 You can receive feedback. I actually heard about a recent one from someone who's in the comments right now. I don't know if you'll want me to call him out, but John, thank you for recommending a company in last week's call. It was very interesting. I've been looking at it since, but you get a lot of value out of just exchanging ideas with people in more of a true focus community as opposed to just over broad social media.

Starting point is 00:33:28 So I really do recommend it. You get a lot of collaboration through this community. It is totally free. So there's no risk in doing this. It's bluechippersclub.com. you can hit apply the link will be in the description and then i also want to call out another one of our sponsors as well public again if you're interested or you're serious about investing you need to know about public.com that is where you can invest in everything stocks

Starting point is 00:33:52 options bonds crypto you can even earn some of the highest yields in the industry like the six percent or higher yield you can lock in with a bond account public is a finra registered sipc insured platform that takes your investments as seriously as you do fund your account in five minutes or less at public.com slash chitchatstocks and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchatstocks. Paid for by Public Investing. Full disclosures in the podcast description. Brett, what did Delta Airlines say this quarter? Well, they didn't report, but they had to pre-cut their guidance for Q1, which is never a good sign where you know before the quarter ends that it's going to be way worse than you were expecting just

Starting point is 00:34:39 a month ago. So something has changed dramatically in the last month. The theory is it's all the disruption from the new administration on these firings and all that stuff. But they put out a press release and it's hilarious. Well, they put out an 8K, but I think it's quite hilarious when the company chooses not to make it an actual press release when every other 8K they make is put onto their press release page. So you have to go into the SEC filings. They do this like they act like we're not going to see it all eventually, but they did put it there. I'm going to read out what they said. Okay. Delta expects to deliver total revenue growth for the March quarter of three to 4% year over year. This outlook has been impacted by the recent reduction in consumer and

Starting point is 00:35:24 corporate competence caused by increased macro uncertainty, driving softness in demand, domestic demand. However, premium international and loyalty revenue growth trends are consistent with expectations and reflect the resilience of Delta's diversified revenue base. Now the guidance has been changed from initially it was 7% to 9% year over year growth, regardless of that corporate speak, which just makes my mouth feel yucky, repeating. This isn't huge, but it is a pretty sharp slowdown. And it'll be interesting to determine whether it's a start of a trend or just a short term blip along with this corporate confidence and the uncertainty around what the tariffs and all the firings within the US government because United Airlines CEO said,

Starting point is 00:36:14 we have also seen weakness in the demand of market. It started with government. Government is 2% of our business government adjacent. All the other consultants and contracts that go along with it are probably another two to 3%. And that's running down about 50% right now. We've seen some bleed over to that into the domestic leisure market. What do you think, Ryan? I think this is the first time I'm really seeing the recent changes from, or I guess some of the actions taken by the current presidential administration. This is the first time I've seen it actually impact financial results and technically it hasn't impacted them yet it's more just like forecasted impact but it has felt lately like a lot of speculation around what could happen

Starting point is 00:37:08 under this trump administration uh is is what's kind of been the impact on stocks but as far as results go this is the first time and it was helpful color from the united airlines ceo around how much of their business is government um because you can see that obviously if they're cutting budgets across the board travel budgets is probably one of the things that's more discretionary you could say uh and some things could probably be done over google meets or wherever else so i mean if they get laid off they're not flying on the time anymore so yeah it's kind of interesting to see it actually impacting businesses i i don't know sometimes i feel like this is more just

Starting point is 00:37:55 unrelated to the trump administration like macro uncertainty feels like a broad catch-all term when it could just be like people are spending less across the board it's got nothing to do with the presidential administration um i don't know i don't know what the cause is and it feels like it's hard to really ever know the true cause of a slowdown but we're seeing this in some of the discretionary uh retailers volumes at target have been rough for a while like you're seeing i think penny pinching kind of across the board i don't know if just it's nice to have someone to point a finger at and say like this is what's causing it but it feels like okay two percent of governments two percent of their business is government two percent of it is not going away

Starting point is 00:38:46 so it's not like they're cutting that to zero would be my suspicion and doesn't this feel like a bit like a cop-out is target kind of had the same cop-out too they're like people are worried about tariffs like no they're not this is less of a cop-out than target target was absurd this one makes somewhat some sense but i'd be yeah we don't know exactly how much is directly getting affected here or if it's just the mindset of people that do not like the uncertainty out there at the moment or you know government or non-government related in relation to delta's stuff american express one of their largest partners perhaps their largest partner fell on the news and has been falling in recent weeks, Ryan. But I thought maybe this was

Starting point is 00:39:35 misguided from the report because when you look at their caveats, they said premium international and loyalty revenue growth trends are consistent with expectations. Okay, loyalty revenue is that's the American Express revenue and premium international are what the American Express customers are spending on so i thought that was interesting today american express is i'm looking at loading up right now in finchat use our link finchat.io slash chit chat get 15 off any paid plan pe is 18.7 what do you think you like it here yeah i do and everyone everyone like runs to the hills from american express because the interest rate risk but it's really not like everyone says oh they're like visa and mastercard but they take all the risk and it's like

Starting point is 00:40:28 not the biggest part of the credit the lending risk yeah yeah i mean yeah the lending risk but a if i remember correctly it's not that big of a part of their business and b this is a very resilient category that they are lending to in their credit portfolio Yeah, I agree. It seems I like it here. I don't love it. I think I tweeted out 15 PE. I'm back in. I guess I've never owned it in my personal portfolio. But what I think kind of a normalized PE, they've had some adjustments you've had to make with those numbers because of some acquisitions and some sell-offs. or sorry, because they spun out something and they sold some assets and had a one-time gain on it. But 15 PE, I think, makes a ton of sense for a buy and hold and just to never sell investment. They have that buyback. They have that growing dividend. They're inflation protected. I think they're going to have slow market share gains over the long term, and that can lead to,

Starting point is 00:41:28 especially if the buyback can reduce share count at a 5% annual clip with the PE down to 15, that can lead to 10% to 15% annual earnings per share growth. forever right so not bad yeah and i i find myself this one in particular there was a point when you could buy it i think of like low teens earnings multiple when we were first starting to look at it and i just in my head always anchor to that valuation or that price and think oh it's not as cheap as it used to be the forward returns don't look as good but this is a very resilient business and they are in a much a different but better position than they were in 2019 like international acceptance is significantly higher the cardholders are skewing younger and younger i mean it feels

Starting point is 00:42:19 like they have a decade ahead of them of solid growth um so yeah i think i'd be interested around 15 times earnings i do want to talk small cap of the week because we got a shout out from a follower of the show do you want to move to that now yes we can and oh yeah i was about to ask the same thing the company is parion network i think the ticker if i'm getting it right here because i'm trying to load up something on finch head p e r i right ryan is there any chart you'd like me to share for this company um maybe you could do the total shares outstanding quarterly but it's a little hard to tell this is very like timely it's kind of a time sensitive pitch so we first talked about perion on our investing power hour number 124 and just to revisit what

Starting point is 00:43:15 they do perion network is an ad tech company offering brands agencies and publishers a way to reach customers across multiple platforms and channels it is focused on three areas within digital advertising, search ads, social media ads, and display video slash CTV ads. The reason this is kind of event-driven, if you want to call it that, is four years ago, Bing accounted for 45% of revenue. However, on June 10th of 2024, Perion put out a release stating the company said the relationship with Bing was essentially dead after it was notified by Bing that it was one of several publishers being excluded from its search distribution marketplace. So here's kind of the summary of the story. There's this ad tech player

Starting point is 00:43:57 that has actually been around for quite a while. There was a 2006 IPO. I was assuming that it was like a SPAC or something, but it's not. The valuation got bid up in 2021. So they did a bunch of equity raises. I think they raised a total of like 400 million in cash. Maybe that was just their ending cash balance. Then they got rug pulled by Bing. Now they're expecting to do around $20 to $30 million in free cash flow minus stock-based comp per year. So a reasonable amount. And they've got a market cap of $380 million. If you just look at the forward expectations for earnings in the market cap, it doesn't look that great. But remember, they have a huge cash pile. Technically, the market cap is $374 million to be exact. They have $373 million in net cash

Starting point is 00:44:49 on the balance sheet. So they have an enterprise value of roughly zero. And they're expecting... Here's the thing is I'm taking it on whoever's word it was that I read this report on that they're going to earn 20 to 30 million. I'm not totally sure on that. But let's say they are even somewhat profitable. They can just continue to gobble up shares with their current cash pile. And that's what they're doing. So I'm revisiting this because someone messaged me on Twitter this week and said, new buyback authorization of $50 million, bringing its total authorization to 125 million. It has already bought back 46 million. The company has a $400 million market cap. It's a lot of numbers. He said, any interest now.

Starting point is 00:45:31 Just to recap here, over the last two, I guess three quarters, they've reduced shares outstanding by 7%. This looks honestly like a phenomenal setup. And I think I'm going to start doing a little more digging here because if people are just leaving this for dead, because it used to be like a growing ad tech player, and now it's been rug pulled by Bing and you're getting a potential enterprise value of zero with something that could earn $20 million a year. I mean, this is a truly truly wonderful setup and they're buying back a lot of stock yeah interesting interesting for sure let's see what the market cap is right now i think it's 374 yeah i'm getting 378 latest update yeah it's interesting i think a lot today but this is one of those situations

Starting point is 00:46:27 that i also like it because the company is buying back so much stock it's probably moving the stock up on its own would be my guess yeah i wish i liked these type of businesses because i have no idea what sort of long-term competitive advantages they have it doesn't seem like a good business but definitely a special situation that's your thing could be one to take a further look at yeah the only thing i'm looking at here is for i guess further reading i want to get a grasp on whether or not they can really do 20 to 30 million dollars in earnings how much of that is at risk in an advertising slowdown let's say if they can be profitable then the the numbers look great so uh if i get any confidence around them being able to be profitable who knows maybe this

Starting point is 00:47:20 could be a small position yep yeah i like it i like it did the stock go down or up since we last talked about it i think it's up a little bit i think it's up like nine percent in the last six months so pretty flat yeah not too yeah i'm seeing not too much moving after that rug pull as you called it yeah what do you want to talk about bubble watch let's hit the bubble watch ryan the first question i have and this is well who knows when you listen to this maybe the market's going to rip higher what are what's the nasdaq 100 doing today i actually didn't check it's only a 0.9 so i guess the the pump isn't working too well but there's been some conversations berkshire has a cash pile approaching 350 billion dollars did buffett call the top

Starting point is 00:48:16 what do you think yeah and as a percentage of total assets it's like up significantly But I think it's cash and short-term investments, which it's not like they're earning nothing on it. But yes, I guess that is him in a way saying that he's not finding any better ideas than treasuries right now. Yeah, I guess. I mean it's so funny the way these things work because every time he starts to accumulate cash, they're like he's missing out. he doesn't he's lost his touch and how many times do people have to say that berkshire has outperformed the s&p 500 over the last 15 years 10 years five years while owning a ton of cash and it's i just yeah i think people he has phenomenal timing even though he

Starting point is 00:49:17 owns things for forever it seems like he's probably you know he's 90 something now so He's not doing as much proactively anymore, but they set up this high-quality set of assets in the conglomerate that all works very fluently together a while ago, and it can not run automatically, but it does quite well regardless of if you try to help it as a capital allocator. I agree. I think Buffett, when he speaks, he says, well, you know, this is normal. This is just something we do where he tries to be the folksy guy. But I think in reality, he was very scared about market valuations. Yeah, and maybe that was the rationale for selling off Apple as well. Oh, yeah.

Starting point is 00:50:10 i imagine if he could he's probably putting as much work as he can as much as much money to work as he can in japan right now it sounds like so i imagine if he could put more to work he would it's not big enough no and he's not gonna be able to buy out the whole companies do you want to play this game of what should what should buffett buy yeah that's always a fun one i'm trying to think hershey will never sell to him but that one makes sense to me maybe some of the alcohol companies although he's a bit anti-alcohol but they did own guinness a long time ago and budweiser or anheuser-busch some of those may have made sense but again not big enough i'm trying to think of something they could put 100 billion dollars in and buy out

Starting point is 00:51:00 all together by all of chubb all of chubb limited yeah maybe is that another insurer yeah yeah okay i can't remember exactly uh it's a commercial property and casualty insurance 116 billion dollar market cap wow it would be a nice little addition to their insurance portfolio I don't know if he has any limitations on being able to buy the whole thing, though. Yeah, true. And maybe they buy out Progressive, the company that's beating, you know, whipping up on Geico right now. Some people would say Costco, but he did decide to sell it on valuation concerns. And that brings us to my second bubble watch, Ryan.

Starting point is 00:51:47 It's going to serve as a nice little FinChat ad. Your boss, Braden, said he was having fun using the new custom metrics tool on FinChat, and he was illustrating in a different way and kind of a unique way how you could put Costco's valuation or multiple expansion in a different light. So if you have a chart, which I'll share here in a second, market cap per square foot. So each square foot of warehouse has risen by 5.5 times since 2017. Let me share the chart here. It's gone from under $1,000 to $3,600 per square foot. That's quite the multiple expansion, Ryan. And I don't think Buffett's going to be buying this one, even though he likes the business.

Starting point is 00:52:39 I don't think he's going to be buying this one anytime soon. Yeah, and sales per square foot has not grown nearly at that rate. Eventually it's impossible to just turn over that much inventory, right? Yeah, I mean, they're pretty much working at capacity, I'd say, right now. And they're not really someone – they're not really a company that's known for hiking prices. um beyond their standard 15 up up charge so yeah not really sure it's got to be weird to kind of be an amazon shoes or not amazon uh costco shoes here because i can't imagine that they love being this overvalued like it kind of presents it's not like i assume you don't have a whole

Starting point is 00:53:29 bunch of employees that are getting stock options so it's not like they're gonna their networks is going to be that affected and they might just be sort of unsevered or i guess completely severed from the stock price altogether the operations did you see our hourly workers now thirty dollars an hour they pay well it's a well-run business probably one of the best businesses in the world yeah they pay well because like when they pay the workers well they create a really great store environment and the customers spend a lot more yeah so it's a nice self-reinforcing system in the comments here someone says buffett should buy american express outright that would be fascinating but they're just anti uh holding a bank because of

Starting point is 00:54:14 the bank holding act or whatever some rule it is that complicates things for the company besides that would be a perfect acquisition but don't think it's going to happen i saw someone i said the i showed the enterprise value per costco warehouse at like 500 million dollars and someone said they should split every one of these into a separate company so we could look so we can analyze them on a warehouse per warehouse basis oh god oh god we people i guess we're doing right now we spend too much time on costco the stock is overvalued it's not maybe it's fairly valued but it's trading at such a premium price like there's more interesting things out there and we don't need a debate of whether it's still a buy at 50 times earnings yeah i will say markets are getting

Starting point is 00:54:58 more fun again with with the kind of recent drawdowns i find my and maybe i need to zoom out a bit because relatively speaking these valuations back to october yeah but it's nice to be looking at stuff and say all right that price is reasonable i could see how it works from here and this is it feels mostly narrative driven at the moment just the market i think market's always narrative driven but the concerns around complete consumer slowdown seems very narrative driven by basically whatever the president tweets true and there's also some stuff that you know ryan mentioned it's like a 10 percent drought on a broad market we talked about the stuff that's in a 30% drawdown. There's plenty of stuff that's on my watch list in a 20%

Starting point is 00:55:52 drawdown. So there are individual stocks out there that could look a little cheap if you have a long-term time horizon. To wrap up here, Ryan, I want to talk this Corweave potential narrative pump before the IPO. Did you see this? No. Okay. So there was a report out. Well, not a report, just, you know, they told the news outlets that, and here's a quote from Reuters, quote, CoreWeave, an artificial intelligence startup backed by NVIDIA, has signed a five-year contract worth $11.9 billion with OpenAI ahead of its hotly anticipated stock market launch. And OpenAI is taking a stake in CoreWeave. So they're getting, they're actually not giving

Starting point is 00:56:41 any money to core weave so there's not any fundraising going on here but there's very when you have the nvidia relationships with all these companies core weave and all these ai startups along with open ai it seems to me like it's very circular where they're all just circulating this revenue amongst each other and that end market demand better show up 11.9 billion dollars ryan did you know that core we spent nine billion almost nine billion dollars in capital expenditures in 2024 i saw that that is insane that is aws and all these cloud providers must have been burning a ton of cash while they were starting up i mean not this much maybe not this quickly yeah not this quickly what do you think of this we're losing money like you go back to

Starting point is 00:57:35 But the 2009 days, that reporter asked Bezos how much money he's willing to lose on AWS. What did he say? Everything? He said – I can't remember the quote. Basically – He is cheeky. That was when he said, we think it has an unlimited runway. We're willing to continue investing. We have a comment here.

Starting point is 00:57:58 Microsoft, which makes up 60% of CoreWeave's revenue, will likely sack off CoreWeave, and that's a lot of their business. hopefully that's not some like british derogatory term either way they're gonna get rid of them um the yeah this business is risking i do think the timing on this they just want to pump up their demand before the ipo right like this is not coincidental timing yeah this it's kind of a bummer because i'm starting to feel like the ipo market's never going to open again i think corey's they filed that s1 what if they never get out what if they don't yes one at a great time but markets have just absolutely soured since that s1 so i got a feeling there's a possibility that they pull their ipo that it would be so funny we've

Starting point is 00:58:51 been waiting years for the ipo market to open up and just one company files an s1 and the market crashes that would be hilarious i hope that doesn't happen because it makes it way more interesting as a podcast to be able to talk about the core weaves of the world the new businesses entering out there and i think listeners enjoy that one as well anything yeah the guy says that is a british uh slang term and the fact that core weave was founded by either private equity analysts or hedge fund analysts or portfolio managers to be a crypto mining company and then rent and then decides to pivot to becoming an ai startup you got to be skeptical starting out with that with that information yeah it's easy to be mesmerized by the revenue growth but

Starting point is 00:59:37 just take a look at the capex line yeah six billion dollars in free negative free cash flow last year and it'll probably be higher in 2025 but let's say you got 15 billion dollars in remaining performance obligations that's probably going to be 30 billion dollars at some point in 2025 so there's some positives and negatives and six billion dollars well whatever nine billion dollars in capital expenditures on potentially the fastest depreciating assets in human history yeah what scares me about the ai capex spending at least from especially someone like core weave who is not part of a larger conglomerate that's gushing cash is people make the comparison to the telecom build out and the fiber build out in 2000, 2001. But those assets did not depreciate

Starting point is 01:00:33 nearly as quickly as in this hyper competitive, the semiconductors, whatever. We're not experts on that. But what I do know is that those ones didn't go out of style nearly as quickly as these ones will. That doesn't mean these are bad businesses. It's just different. And if the bubble pops it can get ugly quick yeah if you're cheering for nvidia's innovation on the gpu front you should be concerned about capex spending true yeah all right well on that positive note ryan let's close things out here uh thank you for everyone that tuned in live we do these typically wednesdays at 1 30 p.m eastern time we went 15 minutes early today but we try to give updates in the Substack chat and on Twitter

Starting point is 01:01:21 to give any updates on the show. Next week, we will be going live on Thursday because Wednesday, Ryan is at an investor conference. Do you want to say where? You're allowed to say you're going, right? So if anyone's at Future Proof. Yeah, if anyone's going to Future Proof in Miami, feel free to shoot me a message.

Starting point is 01:01:39 All right, beautiful. Yeah, so we'll be doing this one Thursday next week. Shout out to our sponsors, Public, Blue Chippers Club, FinChat. Matt, thank you for sponsoring the show and go check out those products. We really enjoy using all three of those. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I are any podcast guests, may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold

Starting point is 01:02:08 them in the future. Thank you, everyone, once again, and we'll see you next time. We'll see you next time.

Chit Chat Stocks - 14 Growth Stocks In a 30% Drawdown; Delta's Dire Warning; Did Buffett Call The Top? (RELY, DAL, BRK)

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