Chit Chat Stocks - 6 Future Share Cannibals; Ryan’s New Favorite Small-Cap; Mark Leonard Tribute (Constellation Software)

Episode Date: September 26, 2025

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks Podcast YouTube channel at 5:00 PM EST. This week we discussed: (00:00) Introduction (02:26) AI Boom and Market Implications (08:35) Electricity Consumption and AI (16:43) Drafting Future Share Cannibals (21:09) Criteria for Selecting Share Cannibals (41:39) Mark Leonard's Legacy and Constellation Software (47:10) Yelp's Business Model and Market Position (53:15) Compass's Disruption in Real Estate (59:14) Listener Questions ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Chit Chat Stocks podcast, the podcast that helps you find your next great investment. I'm your host, Ryan Henderson, and I am joined, as always, by the one and only Brett Schaefer. This is our weekly Power Hour episode where we rip on all things financial markets. That's news, headlines, new stocks we're interested in. And today, Brett and I are going to be going head-to-head drafting our favorite picks for future share cannibals. we'll describe what that is for anyone that's not familiar with the term, a little Charlie Bunger term there. But before we get to that, if this is your first time listening to Chit Chat Stocks, please give us a follow wherever you listen, Apple, Spotify, anywhere else. That way

you never miss an episode. And if you like us, maybe even if you don't like us, feel free to give us a review because it helps the show grow, getting those numbers up, preferably give us a good review, but obviously up to you. With that said, Brett, welcome in. Are you prepared for our share cannibal draft? I am. To outline the rules, we are going to be doing future share cannibals. So we're not just going to be looking at, hey, something already down 90%. That's kind of boring. We're going to be looking at stocks that we think can be 50%, 60% reduce their share accounts by a significant amount over the next decade. I'm curious how you did your own criteria because I had a few different criteria I was trying to look at when identifying these share

cannibals, but I'm sure we'll get into it. Yeah, it's actually a little, it's a tough exercise because it requires the stock to not have a re-rating in the multiple, but we can talk about that in a bit. Do we want to kick things off with the draft or where do you want to where do you want to start oh i mean either that it's a fairly slow news week luckily the ai boom slash potential bubble not sure if we're hitting that crossover territory yet uh but there is uh that sort of news maybe apple and intel open ai first and then we hit the share cannibal draft i feel like kicking off with news is always fun especially one right now where we are seeing from the Altmans, the Sam Altmans of the world

and the Jensen Huangs, some ambitious statements, ambitious funding rounds, and some ambitious goals with all their data centers. Yeah, let me read some headlines and then we can choose how long we want to talk about this because I frankly think it's a bit of a tired topic. But NVIDIA is investing in OpenAI and then it's all kind of circular.

We'll talk about that in a sec. But on Monday, OpenAI and NVIDIA announced a strategic partnership to deploy 10 gigawatts of NVIDIA systems. They said the investment would reach up to $100 billion, paid out as AI supercomputing facilities open in the coming years, with the first one coming online in the second half of 2026. NVIDIA agreed to invest over time as OpenAI's data centers get up and running. The initial $10 billion will be available to OpenAI soon and help the company work towards deploying its first gigawatt of capacity. While NVIDIA's equity investment could help OpenAI with hiring and other stuff, marketing operations, stuff like that, the biggest single item it will be used for is estimated to be compute, which will be leasing NVIDIA chips. so here's the news and there was a bunch of other news too it seems like sam altman is in the news every day just saying a number that just keeps getting higher and higher uh including even the

trillion dollar figure now and brett maybe you can talk about that in a second but nvidia is giving money or investing in open ai through like staged out uh tranches almost maybe tranches is the wrong word but uh over time as they build out uh computing facilities and open ai is taking that money and buying nvidia chips this draws some parallels to the dot com bubble uh if we remember back to are you ready are you ready are you ready to admit that it's we're hitting bubble territory yeah probably do you have what were some of the other things that sam altman was in the news for this week i think there was like stargate is hitting 400 billion dollars in committed

investments committed yeah that's part of the oracle deal is it's all kind of confusing but i think in general what we need to look at is huge amounts of funding commitments and then the potential electricity requirements around that so here is it really revolves around both open ai and nvidia a lot of the times because nvidia is also investing in things like core weave we just had another commitment well i actually don't know if they're actually invested in them but they're committing money to them here's for example with core weave um yeah so So CoreWeave said it is expanding its previous agreement with OpenAI to supply data center capacity by up to $6.5 billion, bringing the total value of the contract to $22.4 billion. That's also in relation to NVIDIA's investment into CoreWeave and will power some NVIDIA chips as well.

But if we look at NVIDIA's, let's see, plan here to invest $100 billion into OpenAI, I'll just read a quote here from the Wall Street Journal. the massive sum committed to OpenAI will help build as much as 10 gigawatts of computing capacity for the owner of Chet GPT. Popularity check, but blah, blah, blah, still loses money. And they plan to lose a lot of money until 2029, I think tens and tens of billions of dollars. And if we look at, let's see, I think this is a CNBC article that sums it up. Here's another quote. In less than 48 hours, OpenAI has announced commitments to equal 17 nuclear power plants or about nine hoover dams the scale is staggering even for a company that's raised a record amount of private cash and seen its valuations fall to 500 billion dollars at roughly 50 billion dollars

per site opening eyes projects add up to 850 billion dollars in spending nearly half of the two trillion dollar global ai infrastructure surge that hsbc now forecasts well those forecasts are always that's just a lot of work on stuff that doesn't really mean much but the one thing i want to talk about or just have the listeners understand is what is going to you know before you even think about roi you need to think about how much electricity is going to be needed here because if you look at the total amount of electricity annual consumption well not just excuse me annual consumption of, oh yeah, okay, in terms of total electricity, the United States as a whole, and I believe this is across both consumers, so at homes, lighting your home, powering stuff,

electronics, and industrial, so both commercial, industrial, and residential, the total amount of electricity use is just over 1,000 gigawatts. There's some different estimates, but let's just say 1,000 gigawatts. NVIDIA and OpenAI and some few others here want to add one, two, or 3% of that capacity over five years. That is going to take a staggering amount of money, a staggering amount of resources. I don't even think it's possible for them to pull it off. For example, if you wanted to build a nuclear power plant, you cannot do that in a year. it takes about 10 years if you even get it approved now can you build enough solar panels maybe it's maybe highly efficient you probably need way too many could you use natural gas

possibly i guess it's probably going to be a lot of fossil fuel lead it just does not make much sense to me and that's before we even talk about any sort of roi like i i can't wrap my head around these numbers and it feels like 1999 officially yeah there is there's the financial roi but then from a societal perspective is this really do we want them using consuming that much energy is that really that big of a net benefit to anime fake videos yeah great yeah right like is that where i'm i'm not against them obviously consuming energy and advancing you know i'm sure their models if they get the funding help they can do what they want yeah they have the money i just worry about if we start seeing uh energy deficiencies elsewhere in society whether or

not this is the best use of it the other part electricity prices go up a ton across the board in some of these states that have had huge ai buildouts and there's been a big backlash from customers you know if your energy bill goes up and they say well it's just to for this ai buildout it's important well it's not important to your life so if this keeps continuing and you see three four five x increase in electricity bills people are not going to be happy and i think that might happen it feels to me like that scene in succession where uh logan says tells kendall congrats on saying the biggest number every week there's a new there's a new headline number it's like we're spending 100 billion and then oracle topped it oh we've got 300 billion dollars

and a backlog commitment from OpenAI. Now we're getting a $100 billion investment from NVIDIA. Cumulatively, it's a trillion dollars. It's like, okay, you do $6 billion in revenue. Is it six? Do you have that number? I'm pretty sure it's around six. They're expecting like 13 for the full year.

For this year. It's growing pretty quickly. What do you think of the deal? What do you think from NVIDIA's standpoint and OpenAI's standpoint doing this deal? Because for one, we just talked about how the total numbers from electricity and maybe just total usage and ROI standpoint might not make sense. But for each other, I kind of understand doing the deal. yeah i guess isn't it sort of like vendor financing in a way where they're basically just giving money to open ai so that they can lease nvidia chips that feels a little circular but

i guess if if you're sort of helping open ai build out their business and they're already a huge customer for you maybe it's helpful i don't really know from nvidia's perspective yeah at the end of the day guess like money's coming to them money people are going to be buying their gpus or leasing them so it's such a tired topic and i i know people ask us to talk about this every week but i just kind of don't care sam altman can say whatever number i think you have to care at this point it's driving the entire market i mean it's driving the s&p costco just reported earnings is it affecting costco's earnings

yeah wealth effect definitely i mean the amount of wealth effect out there is crazy we're gonna have someone in the comments here saying this is just like uh two guys in the 17th century looking at all the horses at laughing at the guys nailing steel into the ground for these things called trains i don't know if you want to look into the history of the train boom because it almost bankrupted the entire country had the most corruption you've ever seen and was one of the biggest bubbles and boom and bust cycles in stock market history so i don't hope that's a gotcha for i believe in the actual society benefits let's not you know disclude those we obviously agree that these are cool things that hopefully you know we see benefits for the

entire globe and global civilization from a stock market perspective that's just agreeing with us to worry about this yeah and you think about the uh to take it one step further people were talking about the railroads you can also say the same thing happened with cars automobiles like yeah if you would have almost they all want the buffett analogy where he says you could if you could tell someone at the turn of 1900s and say in 50 years we're going to have roads spanning the entire country and there's going to be millions of cars driving across the country And which do you want to invest in the automotive companies? You'd think yes, but ultimately that's not what happened. All the automotive companies turned out to be horrendous investments. So yes, people in the comments are like, we're complaining about the ROI. From an investment perspective, that's what you should care about. the other side of it the societal side i mean i don't love the idea of my electricity bill going

up so that people can make animated videos but yeah i also don't like the idea of it going up to use uh to mine bitcoin i think that's even i mean both those things are fairly useless but am i but i would we're talking about the power needs for this i prefer this over the power needs for uh crypto mining because yeah definitely at least this is improving whatever individual daily workflows for people in tech i guess yeah sure that's that's awesome that's that's totally awesome uh yeah i think the the numbers are big and i would like maybe close out this segment i want to research some of the old deals from the dot-com bubble because i saw some from some seasoned veterans out there some people that are around at that time saying

that this reminds me of the deals getting put out for the telecom infrastructure boom i like to research how that worked out i think they're saying that because those deals didn't work out too hot uh but be fascinated to look at see if there's any sort of similar stuff out there how worked out, whether it worked, whether there was good ROI, stuff like that. Yeah. And to the person in the chat kind of fading our takes, you could be right. Honestly, you could be right. Maybe we are cynical of the value being created here and we're just ignoring it. I do think we should talk about companies that will actually be beneficiaries because I was thinking about this last week we talked about how everyone's trying to nationalize or sort of

turn intel into the business that we want it to be we want it to be taiwan semiconductor and how we're getting comments right now that's that are saying doesn't this all just end up being great for taiwan semiconductor and the answer is probably yes it probably benefits intel too because now people need intel to to be more competitive but i would take it a step further this all benefits asml in a huge way yeah that's that's the next step up what about uh carlos ice the mirror company no just kidding that that's a deep cut for the asml investors but i agree because who's gonna sell to both intel and tsmc asml correct good point okay let's move to the best future share cannibals draft let's talk criteria as we get this started

so i guess for reference anyone that doesn't understand the term share cannibal because kind of sounds a little odd if you haven't studied munger quotes before it's basically just companies that continuously use their capital to buy back stock thus the share cannibal they're kind of eating their own shares. And that playing out over a long time period can be super beneficial to earnings per share, assuming that they're making those repurchases at good prices. So it's easy to look back and see who have been the good share cannibals in the past. It's very simple. You just screen for it. However many, who has been able to reduce their shares outstanding the most? That's not tough. Finding out the ones for the future,

is actually going to be a little difficult because it requires some forecasting. So here are the four criteria that I look for. Brett, maybe you can add any thoughts here. A, or one, I want a company that obviously is committed to buying back stock. So some companies just don't commit to that. That's not a part of their strategy. They think they're earlier on in their growth curve, whatever. So they don't focus on it. So A, obviously buying back stock. B, a business that will grow. If it doesn't grow, earnings, revenue, it's not going to have more money to buy back stock in the future. So growth is a component there as well. The third one, and this is where it gets a little tricky, is a high buyback yield,

which unfortunately means the stock can't trade at a premium. So if a company just had one quarter where they bought back a ton of stock opportunistically. That's great and kudos to the management team. But if the stock re-rates and it turns into a premium valuation, it's probably not some, they're not going to be a share cannibal would be my guess over a decade.

Here's a good analogy. It's someone that continuously climbs the wall of worry. Every year they keep getting doubted. Earnings are okay. They buy a buck stock, cheap valuation, but they can reduce a lot more of their shares outstanding. The fourth component for me is a rational management team. So I think one of the easiest ways to stop a share cannibal is if you get a CEO in there who thinks, I'm going to start acquiring companies instead, or we've got a whole bunch of green grass to invest in for whatever project and they want to invest in new initiatives and they prioritize that over buyback. So if – honestly, you can't – it's hard to find a share cannibal that's in the early stages of its business lifecycle because most companies just don't think that way.

Fair. Yeah. They're still investing in either marketing or capital expenditures. They believe there's a better ROI outside of the buyback. You want something more mature. Okay. Snake draft. You want to do snake or you want to just alternate? it let me go through what how i research mine says we're for the listeners we are competing here we're going to do a snake draft maybe we can just alternate since it's 3v3 and then in the comments or in the sub stack chat the listeners can vote i guess with their opinions and see who won but let me get my criteria i did use uh the screener on our friends at fiscal ai use our link get a 15 discount was quite helpful uh so i did like you mentioned want to look at companies that had a history or a near-term history of buybacks. So I did this filter you can do where you can

basically set the three-year compound annual growth rate for shares outstanding. And you can set it at a negative number. And I did a range of greater than negative 7.5%. So that brought in a bunch of companies. Then the other thing I wanted to believe in, well, I didn't know what the company was, but the other thing I wanted to believe in is business durability, not necessarily growth but durability and then like you mentioned is the stock cheap today and do i think they're going to climb the wall of worry so it sounds like we're fairly similar here see if we have any overlap um who wants to go first should we go first uh i i imagine we actually don't have the same list so uh probably shouldn't be a concern there and i will say shout out to fiscal

i use the screener as well for this section so my number one company is adobe so this one's maybe a little controversial because they haven't been like a historical share cannibal they kind of have been ramping buybacks over the last couple years as the threat from ai has knocked the stock down and led to multiple compression. Today, I think they have like a 7% or 8% buyback yield, but with stock-based comp, they are reducing total shares outstanding by about 5.5% annually. For me, they're obviously committed to buying back the stock. I think the business will continue to grow that seems to be the controversial statement where people disagree with that but they literally just produce 10 revenue growth like clockwork seemingly every quarter and it currently trades

at a high buyback yield and my guess is that this could continue to be seen as an ai loser which would mean that management's able to continue buying back stock. The only concern I would have that would allow them to not fit this list would be if management suddenly turned around and said, we're tired of being AI losers. We're going to spend however much we're going to acquire, like they try to do with Figma. We're going to acquire companies to become the new AI darling. That's kind of the only risk I see. if you are a regular listener to chit chat stocks then you've probably heard us talk about

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to IBKR.com. Restrictions apply. Interactive Brokers is a member of SIPC. good choice not on my list so no overlap there and i will say none on my list are ones i own i guess i'm not in the share cannibal mode i was thinking of putting airbnb but i don't know if they are that large and the stock doesn't trade at that cheap of a multiple let me give you my first one i think someone this is one ryan may or may not have his on his list and it is mgm Resorts International, I guess is the true name. Take your MGM, owner of the MGM casinos and some other ones out there. They trade at market cap of $9.4 billion, price to free cash flow of 7.3. And if we pull up the shares outstanding on fiscal AI here quickly, we can see significant

shares outstanding reduction in the last 10 years. If we go from, let me just go kind of at the peak of when they started buying back in 2016. Okay. If we go there, from 2016 to the last 12 months, they've reduced their shares outstanding at an 8.4% annual rate for a cumulative reduction of 52.5%. That is significantly down, and the stock is still cheap today. Again, I said seven times price to free cash flow. People are worried about Las Vegas spending. They are worried about casino spending, especially with the rise of online sports betting, stuff like that. But I believe this brand and I haven't looked at the balance sheet, so I don't own this one. I know some smart people out there like Travis Hoyum has followed this one company closely. Check out his portfolio

on asymmetric investing. He's been on the show before. I think he might have talked about this one, if I'm not mistaken, or we did our own research report on them. Either way, I think the brand is strong. I think with their core casinos in Las Vegas, that is going to be durable over the long haul and i think they have some premier assets coming up in japan that'll do well as well what do you think ryan about this choice i think that's a good pick the yeah i mean they have reduced shares their share they have cut their share count in half in eight years nine years So very impressive buyback rate. The other thing I like about MGM, and this isn't really something I thought of until I went to Vegas, I like the hybrid model of having physical casinos, IRL casinos in real life, as well as supplementing it with a clean user interface mobile experience.

because people like kind of i think both and you see it in vegas like they are advertising galore the mobile app mgm is specifically and you can kind of pair that you can get rewards you can get better hotel stays if you're on the mobile app and you're a member and you're spending and there's kind of some in real life benefits to choosing them as the mobile app so i i think they would be in a good spot even as some gambling does transition to digital first okay what is your second pick okay my second pick i'm gonna go with dr horton the i think they're the technically the largest home builder in america by uh homes delivered every year or homes closed with i think it's around 90 000 homes a year

they are basically sort of a manufacturing business essentially you can kind of think of them that way they've gotten really good at sort of copycat uh when you think about those huge home complexes in texas or whatever where it's a thousand homes and they all feel kind of similar they're able to roll those out at i know it seems a little dystopian but they're able to roll those out at a much lower cost than other home builders and given the interest rate and housing environment broadly over the last three years it hasn't been any surprise that they've traded at a much cheaper multiple than historically and i think also just home builders in general don't tend to have, they rarely get sort of a huge premium multiple because there's some

cyclicality, but 8% buyback yield right now, they spend pretty much all their free cashflow on buybacks. It's a pretty land light strategy. So people think of home builders and they think, whereas the cashflow, it all just shows up back in the houses, but they, or the inventory and new lots, stuff like that. But with their leasing model, as opposed to the owning model, there's less inventory risk for them. And they've weathered the last three years really well. Like if I told you that interest rates are going to accelerate faster than they ever have, like mortgage rates are going to near triple in a few years, what would you think that would do to the biggest home builder? My guess would be

it's going to crush demand, but that hasn't really been the case. And sort of the inverse you could take here is, well, what if rates come down? And I would argue, and the idea there is rates come down, all of a sudden there's an inventory unlock and everyone is feeling like they can move again. I would argue that that's still going to stimulate buyer demand and they will probably close on more homes if mortgage rates come down than if mortgage rates stay where they are so i think they're in a good spot they're pretty committed to the buyback like i said eight percent buyback yield at the moment and i'd be surprised if there was a huge multiple re-rating although i do own the stock so i i'd be fine if it did happen but yeah i'll take dr horton at the two

okay my second one it's gonna be an old flame of ours i think ryan's thinking about it right now don't say the way you're gonna hate it is why it is a potential share cannibal as we should talk about maybe as an example autozone has been hated for 20 years people think the business is dying and that's why they've reduced shares outstanding by 90 it is dropbox shares outstanding from december 2020 to the last 12 months have dropped at a 8.7 annual rate revenue itself has not grown that much um although it hasn't really declined uh earnings are growing higher not earnings you know earnings per share are growing faster free cash flow is solid active users are okay but this is a business that keeps getting doubted it's apparently dead the they keep

bumming out revenue they keep bumming out money the market cap is just 8.5 billion dollars they traded a sub 10 price to free cash flow and they're going to keep reducing that shares outstanding if we look at the three-year revenue cagger it's just four percent five year seven percent but their diluted earnings per share cagger over the last three years 20 percent tyler says oh thank goodness i thought he was going to say match i thought you were going to say match group as well which i would have been much less of a fan of my only pushback a little bit the durability is a little bit there's still there's certainty on uncertainty on both but maybe match has uh maybe a larger wall of worry to cut to climb so who knows they could do well but that that's

one i wouldn't choose yeah my only pushback here would be i question their ability to continue to grow the top line and drew houston doesn't matter doesn't matter i know that's what he would say i think he'd probably tell you that's okay we can run this we can have ai run the company because he seems it seems like 2020 all of a sudden he realized like he's not a he's not a tech bro like his company is not the next big thing it's not big tech and he has been doing layoffs seemingly ever since yeah let me see if i can pull up operating expenses and see the changes uh there but i don't have it in front of me yeah you could be right but if you're drawing the analogy to auto zone and o'reilly those guys have had just basically a perpetual small tailwind at

their back for 50 years or however long they've been operating i question whether or not dropbox would have that i could be wrong i've been wrong so far pricing power pricing power do they they've raised prices they have i know but it's sticky software's sticky so switching is so there are so many alternatives all right anyways look at their okay so their sgna in 2018 723 million dollars last 12 months 658 million dollars uh and at the same time revenue in 2018 1.4 billion revenue last 12 months 2.5 billion there you go there are your profits okay my third pick here i'm actually kind of torn here i was thinking about going with just o'reilly and auto zone like keeping that going because they've been the best but they still get hated especially with the

the world seeming to transition to electric vehicles there seems to be this concern that ice vehicles will disappear and the business it'll happen anytime now will dissipate for o'reilly and auto zone but that doesn't seem to be the case but instead i'm gonna go with airbnb i don't know if that was on your list but it is in my portfolio but i didn't put it on the list let's see your pitch because i think they will drop shares outstanding but not as an aggressive rate as some of these other players yeah i think i might be reaching here a bit honestly but my thought is can they be can they replicate booking holdings like this is a company that has phenomenal cash flow dynamics booking holdings has been an awesome share cannibal over

the last decade both booking and expedia showed up on my screener yeah the core business model for airbnb is it's gonna grow naturally would be my guess like they don't have to pour a whole lot money into it for supply to grow at this point the network effect sort of takes care of itself especially in the developed market so if as long as brian chesky doesn't spend a bajillion dollars trying to build out these other initiatives like experiences and services and all that stuff i could see them continuing to buy back stock they have been buying back stock a bit lately but They also spend a lot on stock-based compensation relative to their online travel agency peers. So let me just pull up current buyback yield.

Current buyback yield is 5.5%. How much have they actually reduced the shares outstanding? Come on, Fiscal.ai, do me a solid here. Probably a little less given SPC, but I think that's a good number. yeah since december of 2023 share count has dropped by five percent so basically four percent annually a little under four percent annually i future those should be more more aggressive especially because the stock is in a drawdown yeah i think they should be able to plow a lot of money into it assuming that they don't get

a big multiple rewriting, which is possible. I imagine if they have success with any of these new initiatives or big international growth, they could see a multiple rewriting, but as long as they kind of continue to have this, I don't want to say discount because it's still, I think like 25 times EBIT, but I see no reason why they can't continue to eat up shares. i agree i think it should yeah it should get bigger over time and they have that good cash flow dynamics that should help them be able to reduce shares outstanding in a faster clip than actually their actual underlying earnings are growing um let me get my last one it's one you know ryan uh i was worried this one might get put on your list but it's not necessarily a

household name or one that you follow closely like dr horton although it's related to that space It is Builder's First Source. Shares outstanding have declined since December 2021 at a 13% annual rate. Now, a bunch of that was in 2021, or maybe it was 2022. But they are a supplier for the home building space, right? I honestly can't remember exactly what they do. But yeah, building materials, manufactured components and subscription construction services, excuse me, for professional home builders, some contractors, remodelers, remodelers, etc. They are trading at about 10 times earnings. Now, they're in a cyclical market. Their earnings aren't as smooth as an Adobe. But I think given the fact that they have been extremely smart buying back stock during downturns for their business and when they have that cash flow coming and when people are discounting the market, that has helped them produce a let's just pull it up here. their max total return. And even from the bottom of the GFC, it'd be even better.

In the last five years, they produced a 31% compound annual growth rate for their total return. Quite good. And I think this is the dominant player in their space. They use their capital allocation wisely, and it could be a solid share cannibal over the longterm. Now, who were your honorable mentions paypal was an honorable mention for me that's probably one that i would guess listeners might have expected us to say they are buying back a ton of stock i worry about the top line moving forward personally and that putting pressure on the amount of money they can actually deploy into buybacks it seems like they have been going nowhere the stock specifically it feels like it's been going nowhere for quite a while and not much has changed in the narrative like the

narrative seems to be that it's destroyed by apple pay google pay kind of getting hit from all sides the remittances digital remittance providers are disrupting their international transfer business branded checkout is kind of struggling which is their big cash cow but there are probably people that just use they just use paypal products um and maybe the brain tree can grow volume and become something much bigger yeah what's interesting is they keep reducing shares outstanding they keep growing their revenue they keep growing their earnings but the narrative stays the same that if you believe in the durability of this business that's the optimal recipe for a share cannibal and paypal seems like a good candidate there let me give well

did you give your honorable mentions i'll read mine zoom info expedia and general motors i think those are three general motors might go ah ah oh that's that's why that's what you need for sure exactly that's why share cannibals become share cannibals is because people make that face when you say them. They wince when you pitch that stock. That is what makes a great share cannibal as long as the CFO actually knows that. All right, folks, before we move on, we need to tell you where we get our financial data. Fiscal.ai. Fiscal.ai is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts on our podcast and you'll see it in our newsletter. This is our one-stop

shop for stock research. They've got up to 20 years of financial data on all companies globally, including company-specific segment and KPI data. That means Amazon AWS revenue, SoFi's total members, Google's paid clicks growth, and literally millions of more data points. They've also got earnings call transcripts, ownership data, company-specific research reports, and much more. If you want complete financial data at your fingertips, then you need to check out Fiscal AI. And if you use our link, fiscal.ai slash chitchat, you will get 15% off any paid plan. Again, that is fiscal.ai slash chitchat. The link will be in the show notes.

Let's shift gears a bit. Got a couple more topics to hit. We have a comment here that says thoughts and prayers to Mark Leonard of Constellation Software. Yeah. Do you want to talk about this? Yeah. Just for anyone that's like, did Mark Leonard pass away? No.

but I do have a tribute to the man that just retired. Here's a quote from I think it's the Wall Street Journal. Constellation Software founder and president Mark Leonard has resigned for what the Canadian tech company said were unspecified health reasons. Hope he's doing okay and hope his family's okay. Current COO Mark Miller appointed president and earlier this week, Mark Leonard had a call with investors talking about AI. Quote, news of Leonard's decision to step down came days after he, early in the week, held a call with investors to discuss the effect of artificial intelligence on Constellation's business, following a request from one of the company's shareholders. Leonard struck a cautious tone on the technology during the call, describing

AI as still in its infancy and just as likely to empower clients as it is to boost Constellation's business. I'd say to celebrate Mark Leonard, the founder of this Constellation software, let's look at some of their historical figures to see how they have become one of the best stocks of the 21st century. Since 2006, they had a total return, annual total return, they had a small dividend, so got to include that, of 33.6% versus the S&P 500 at 9.8%. Since 2005, revenue has compounded at a 23.9% annual rate. We have some charts here from Fiscal AI that you can pull up yourself. It's a good way to use that long charting tool for these really long historical periods.

You can really visualize what's going on. And since 2005 here, free cash flow per share, which any long-term constellation knowers understand that there's not really much difference between the free cash flow growth and the per share growth. but I wanted to include it just because that is the key metric for any company over the long term, but they've had really flat shares outstanding. Their free cash flow per share has compounded at an astounding 27% annual rate, meaning since 2005, it's gone from $1 to $112. I think that might be a projection for 2025, but 100 in 2024, meaning free cash flow per share has gone up 100x in 20 years an impressive run and one of the best capital allocators of the 21st century and we can say of modern history yeah this guy is one of the best i mean he is one of the few people that has

built generational wealth for a ton of canadians and and investors all over the place ten thousand dollars invested during in the 2006 ipo is worth 2.8 million dollars today so 200 that comes out to what 280 bagger for him and that's over less than 20 years one of that's probably one of the highest compound annual growth rates of any stock over the last 20 years it's the other part for me is he helped people build generational wealth and he did it in a manner that was sustainable where people wouldn't sell. I think a lot of the time you look at the hundred baggers,

you look at the best investments of all time and it's like, yeah, but who actually held them for 20 years through all the ups and downs? I believe Constellation Software's largest drawdown, they did not have more than a 25% drawdown since their IPO. Let's check, Ryan. we can check right now the way he communicated with shareholders his pragmatic approach to

everything made it so easy to own his shares for a long time and well everyone has reaped the benefits that seem to be uh consolation shareholders so in 2018 yeah in 2018 24 percent drawdown i think but right now um they are in one of i think maybe the second largest ever a 22 drawdown on this news um i have no idea whether it's a buy on that i don't really want to talk about whether it's a buy because someone has to retire for health reasons but you know that the fact that that's a 20 drawdown is one of the largest there it shows how he constructed the narrative, built a culture, did what he said he was going to do, and established a team to just build a consistent engine of growth in vertical market software. I think it also goes to show

that limited but well-thought-out communications with shareholders I think is better than constant communications, going to conferences every week, giving them something to worry about it just i think of all the companies that have actually done well and of all the other investors i know this is the only like hundred bagger that they've actually held because he made it so easy to hold shares so uh kudos to all the investors and kudos to mark leonard for a generational run let's shift gears a bit do we want to do our small cap of the week i'm actually excited about this one let's do it ryan okay the company is yelp this actually shocked me but yelp did you know this a did you know they were public but b did

you know that they have grown revenue at a 26 percent cagger since 2010 i knew that they were public uh but before looking at our notes that number did surprise me impressive growth yeah Yeah. So it's kind of, I don't know if I'd actually call this a small cap. I don't know what the typical classifications are for small cap companies, but $1.98 billion market cap, so just under $2 billion. Let it be my small cap of the week. And for those unfamiliar with the business model, Yelp is a business directory and review platform. They reportedly attract more than a hundred million people to their platform every month i will say i use yelp passively like just restaurant reviews looking for restaurants i always end up going to yelp for a little bit

i'm a google maps man can't say i'm helping the cause uh you gotta you gotta try you want to trust the google maps reviews why i don't know yelp yelp reviews i just trust more for some reason. Also, it's always like the businesses don't always upload their pictures. It's sometimes like customer pictures on Google. Anyway, I'll get away from this, but I think people might know what I mean when I say that. There is also a bit of a network effect as well. So the more businesses that are on there, the more consumers come to the platform, the more reviews they create, the more reviews attract more users and so on. And the primary way that Yelp makes money is through basically sponsored listings. So local businesses will bid to show up for users in

certain areas, pretty similar to Google keyword ads kind of, and following their results actually might, this might be something if you own Portillo's or you own restaurant stocks, this is maybe something you should look at because in the latest conference call, they said the operating environment for businesses in our restaurant retail and other categories remain challenging and rrno which is restaurants retail and other revenue declined by five percent year over year if restaurants are bidding bidding less on keywords on a platform like this i imagine that means there's some demand headwinds for them so and we're seeing that actually out of a lot of the restaurants that are reporting difficult comps other than seemingly chili's

and texas roadhouse i guess they've somehow i mean it matches up that what they're saying matches up with the current industry environment they uh although when i think yelp i think restaurants apparently they have actually strayed away from the restaurant and retail category a bit so services-based businesses think like plumbers electricians accountants lawyers that kind of stuff actually account for 64 of advertising revenue there has been let me let me give some stats to you brett maybe you can share this chart operating profit has gone from negative 40 million five years ago to positive 183 million they trade an ev to ebit of nine times and have a buyback yield of 12 maybe this should be on my future show cannibals list there

this is pretty impressive honestly like a complete turnaround clear operating leverage Obviously, 2020 is a tough comp because they were probably restaurant dependent at the time and so many restaurants were impacted. But they've increased margins and transitioned their business to something that I think is very sustainable in both the services side as well as the restaurant and retail category. Have any interest? Yeah, I do. I mean, look at those numbers. It seems more durable than people are giving it credit for. I think a lot of people go, people don't use Yelp anymore.

It seems like that's wrong. The numbers back that up. Operating earnings keep growing. They seem to be getting fit financially, and it trades at a cheap price, and they're returning cash to shareholders. That's a great combination. Could be one to do a stock research report on. And once again, I'll give a shout out to the fiscal screener. It took me a while of sorting through some absolute garbage, which if you do any sort of a small cap screener, my personal recommendation, if you want to find any sort of quality is to move from the zero to 500 million category to go 500 to 2 billion. because you find a lot of garbage businesses below that 500 million dollar threshold there's

probably some gems yeah that's where the that's where the mega mega gems are ryan you just got to keep digging like buffett i think there's such a high likelihood that i'm wrong about the quality of a business below 500 million dollars that i worry it might not be worth the fishing pond of yes there's going to be a hidden gem but i think i'm probably going to be uh misled on what i think are hidden gems more than i'll actually find them yeah maybe if you believe it though you're gonna it's not gonna you know you gotta believe in yourself first um let's talk real estate this flew under the radar this week but i think is being underrated as a huge potential change for the real estate market affecting companies like Zillow and Opendoor

and the real estate brokers, real estate agents. It is Compass, a cloud real estate broker focuses on wealthier markets. I think it's a bit more of a business model than that, but they are acquiring and merging with a bunch of legacy brokers. They are acquiring anywhere real estate in a definitive merger agreement that combines them in an all-stock transaction. The company combined is expected to have an enterprise value of approximately $10 billion, including the assumption of debt. They will now have 340,000 real estate professionals, aka agents, working for them, 200,000 in the United States, and some international. The company will be fairly leveraged out on this deal. But first, the rationale in here is to bring all these brokerages

under Compass's software umbrella. That makes sense. Merging on there, making cloud-based real estate, modern solutions. These are companies like Coldwell Banker, 21st Century, I think some other ones, just household names from the legacy broker space, fairly large ones. I think this anywhere real estate might've been a roll-up that was kind of struggling. And the second rationale though is much more important, I think, for the entire residential real estate market because it is using these assets to help promote private listings on the Compass real estate platform. So going to Compass first, as opposed to what they call the MLS system and disrupting this entire space. Quote, the firm encourages many sellers to make

their listings available to its agents and their clients first, rather than immediately sharing the listing with the broader market as many other brokerage firms do. Compass says that a listing privately gives sellers more options and enables them to test the market portfolio advertising more widely. Sellers worried about privacy have also opted to use this private listing. This could greatly impact if it gets more traction. Someone like Zillow, someone like Opendoor who might be trying the same strategy, someone like Redfin who just got acquired by I think Rocket Companies, Rocket Mortgage, they're making moves in this space. Zillow is the go-to place with hopefully all of the, they want as much inventory on there as possible.

and if inventory starts getting taken off, they might feel threatened. And I think it could inspire some of these companies to start wanting to vertically integrate. And it did make me think of the company I own, The Real Brokerage, or other brokerages out there where there might be acquisition targets for a Zillow or an Opendoor. It's a fascinating development here, bold move by Compass. And I think we're finally about to see real changes in this residential real estate market after uh that lawsuit took away kind of the cartel mentality i two different things there i think this makes sense from compass's perspective and this yeah i i would see this as a threat if i'm if i'm zillow the flip side of that

i don't know if we've seen much of an impact yet to the on the fallout of that deal that reduced the what was the title where agents you don't have to go through agents now you can self-represent oh you know it just set the so the old ways was it the fees were three percent and was fixed you couldn't negotiate or something like that now there's flexibility to set the commission fee however you want um it hasn't impacted it too much lately but you could see some of these companies making these moves to potentially try to gain scale and get costs lower okay i assumed it meant that you could kind of self-represent as opposed to having to go through an agent but i don't know if you're allowed to you might be able to but that could be dangerous

i i still don't know if anyone would recommend doing that yeah most people i know that have bought homes recently just kind of did it the old-fashioned way but if you've got compass agents that are like undercutting on cost potentially or agents anywhere that look like the old-fashioned way and i mean the compass it would look pretty similar it would look like the old-fashioned way i mean anecdotally it looks the same i look out the door i see tons of compass signs actually and it's just like any other agent sign this homes for sale contact this compass agent it's more the back end and how the businesses are going to play into this i think again i own this company go listen to the research report i did that so i am talking my book the real brokerage

has a market cap under a billion dollars who i could see some companies out there bidding for this this asset it's growing quickly has a bunker broker brokers under it open door zillow or not redfin anymore but the combined company rocket mortgage why not why not want this out under your umbrella and if there's any company that will shell out money for an acquisition and then do nothing with it zillows might be number one up there they uh happen if you go through i want to maybe i'll do this right now zillow acquisition history and we'll see how much of these are actually relevant to uh julia um yeah a lot there's a lot on there julia three and a half billion dollars street easy postlets hot pads rent juice showing time dot unless i'm missing

something i don't think any of these have been very transformative to the business talk about a company that has had a head start in its market and just gone absolutely nowhere this could be you know maybe this is the one that gets him over the hump Do we want to ask or follow some of the questions that we got from listeners this week? Sure. Yeah. And I had notes on Intel, Apple. We'll see what actually happens there.

Nothing has happened. It was just rumored that Apple is going to pull an NVIDIA and invest in there. My prediction may be coming true. Maybe, you know, things are starting to happen. The only thing I'll say on Intel, because we don't have time to get to it today. I find it hilarious that every single article I read about companies investing in Intel say struggling chipmaker Intel. That's how they introduce the company every time. Yep.

All right. Here's a couple of listener questions from the Substack chat. Go join. You can ask us questions there. We're not as active on the Twitter machine anymore. Okay. Referring back to the portfolio breakdown episode, I'm curious if y'all's investing portfolio excludes your retirement assets. Mine does.

my risk appetite for my retirement assets is very different than my risk appetite for my investing portfolio. It is not for me. What you see on Port Sido or any sort of sharing we do of portfolio assets, that's all my savings outside of the emergency fund and a high yield savings account. yeah no i mean those are my all my equity holdings are in my either brokerage or roth IRA so that's i mean i have money for like personal life plans that i set aside and just put into a high yield savings which maybe you could kind of deem that like separate portfolio but But no, the vast majority of my money at any moment is invested in the portfolios that I post and the equities we talk about on the show because I'm 26 years old and-

Life's too short to index. No. I'm also not planning for retirement anytime soon. Yeah. We don't have 401k. I don't have a 401k. I don't. Yeah.

All right. Next one. how about investing in nike in the lead-up to the la games in 2028 i think this one will be short nope never invest in apparel yeah i'm not i'm not interested and i don't know what the la games are actually is that the olympics oh okay sorry i don't follow the olympics very much anymore uh i don't see that being a huge catalyst for growth honestly would be my take okay i'm curious what would need to change in your conviction for one of your top five watchlist stocks to become a buy for instance instance i purchased grab after listening to your

podcast it's on spry and watchlist but i don't think he has purchased yet ryan you go first the price to drop the valuation to kind of get in the range i like and it's there are times where i take a flyer on something kind of regardless evaluation as just sort of a starter position but grab i added to the watch list and i had sort of a concrete valuation of where i wanted it i wanted it below i think 25 times ebit uh forward and it hasn't gotten there yet unless i'm getting some of these numbers off but i'm pretty sure forward ebits above that and it's up since i just spoke about the company but typically if we go through a research episode and i've actually this has been a mistake for me where people have liked the research episodes and

ended up buying the stock and i haven't and they do better for it even when i like the stock so maybe if i if i say yes at the end of the episode i like this maybe i'll just start taking tracker positions and following it a little more closely what's funny is usually stuff that i say ah gut says bye keep it on the watch list don't like it for now a lot of that stuff ends up doing well for me um hims and hers celsius maybe lululemon now it has started to run since i called it a psychological long but i'd say in general 95 of the time when i have something on the watch list it's because i think it's a good business but i want a cheaper price we're not going to put something on the watch list we think is a bad business yeah no i i don't put value plays

like dirt net nets on the watch list that's time sensitive so i don't do it and i'm getting dunked on in the chat here for not knowing what the la games were i'm sorry i don't watch the olympics i I do follow sports, but I don't watch the Olympics. I mean, most people know where the Olympics are, even if they don't like sports. I know, but I didn't know it. I guess I could have assumed based on the name. But still, I don't think – has that historically been a big catalyst for growth for Nike? No, it's going to be price change.

It doesn't matter. It doesn't matter. I think that's going to do it. We're running up on time. So thank you, everyone, for tuning in. Thank you, everyone, in the chat for the comments. And thank you for listening today. I want to remind everyone that we are not financial advisors.

Anything Brett or I says on this podcast is not formal advice or a recommendation. Thank you once again for tuning in. We may buy, sell, or hold any securities discussed on this podcast. Sorry, I had to get that last one in there. Thank you, and we'll see you next time. Thank you.