Chit Chat Stocks - 6 Share Cannibals At Low Valuations; Disney Bails Out Fubo; Trevor Milton Is Back? (DAL, PTLO)

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 we've been off for a little bit on these power hour episodes so this is our first one back in the new year brett has been on vacation here i guess i should introduce i am one of the hosts ryan henderson and i'm joined as always by the one and only brett schaefer i guess brett any uh any anecdotal evidence from your time

Starting point is 00:00:57 in the land down under was there any uh any companies that seemed investable uh out there well there's not many public companies in new zealand i was in new zealand not australia i saw some celsius cans at the store people are excited about that it's not really a big market it's probably the size of a single u.s state but either way seemed like those were popular uh fever tree those drinks were down there and i have to say it makes me more given the you know the places i stayed on the trip you know hotels airbnbs hostels stuff like that i think people still underrate the affordability of airbnb versus some of these

Starting point is 00:01:43 what i would call average and overpriced hotels that was one of my big takeaways and that's Probably one of my biggest anecdotal evidences. I had a similar experience. If it's a night or two, you can kind of get away with the hotel. But yeah, I think anything more than three or four days, Airbnb is certainly more affordable. We're going to get into – yeah, go ahead. With – how should I say it? Big resorts, stuff like that.

Starting point is 00:02:13 if it's a very nice hotel resort and it's going to be very, very expensive, that's going to be better than most Airbnbs. But those average ones where I really feel like they just are overpriced, I think you can get a much nicer Airbnb for that. And I see so many people still at these resorts that I think over time we'll be switching to alternative accommodations. But let's get into the episode, Ryan. Maybe we can talk about that in any specific segment. Yeah, absolutely. We got a lot to talk about this week. There's been news over the last two weeks, so plenty to discuss. But before we do, I want to mention a word from our sponsor, our friends at Public. If you're serious about investing, you need to know about public.com. That is where you can

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Starting point is 00:03:37 in five minutes or less at public.com slash chit chat stocks and get up to ten thousand dollars when you transfer your old portfolio that's public.com slash chit chat stocks this is paid for by public investing full disclosures will be in the podcast description where do we want to kick things off brett there was uh i think the biggest news is probably the disney stuff so we can go there if you want we could do that you want to save trevor milton for the second one yeah that should that's a fun bubble watch yeah i guess it kind of relates to bubble watch but not this bubble the last bubble someone said that he's like one of those japanese soldiers stuck on the islands in the pacific in world war ii and they find him in 1970 still trying to fight

Starting point is 00:04:22 yeah yeah i like the analogy um let's yeah let's save it for a bit i mean i guess you got two two uh different events for your bubble watch this week but i want to talk about disney we have been um i don't know maybe vocal disney critics you could say more so bob eiger critics than anything else um because the the business still seems okay but there was some news that came out this week that disney is essentially acquiring 70 of fubo um fubo had an ongoing lawsuit with disney and a couple other uh media companies i can't remember which ones they were but basically the companies that teamed up to build the venue that that like sports streaming sports first streaming platform um fubo sued them because

Starting point is 00:05:18 In asking for sports rights from those companies, basically the company said, no, you have to also add all these other content rights as well to offer whatever you offer, which was basically Fubo didn't need them. And so Fubo was basically getting charged more than they had to. And then when they turned around and built Venue, they gave themselves kind of preferential treatment there. So there's an ongoing lawsuit. Essentially, this settles the lawsuit. So it's kind of an injection of capital. Disney gets 70% of the business. There's also a term loan in there as well.

Starting point is 00:05:56 There wasn't that much depth into the financial terms. But basically the thought here is that they are going to – Fubo is still going to remain a standalone publicly traded company. They're going to integrate Hulu Plus Live TV into Fubo. So coming out of this, they will be, A, better capitalized because they'll have that injection of capital from Disney. They'll also have 6.2 million subs in North America and more than $6 billion in annual revenue. And they'll be growing revenue 10% plus, essentially, according to their presentation that they put together. Now, I've seen something that said the combined business will be cash flow positive immediately, and they are targeting 5% adjusted EBITDA margins in 2026.

Starting point is 00:06:46 Take that with a grain of salt. Don't know what all the adjustments are there. But basically, they're projecting that they're going to save costs. There's going to be content cost savings, which I guess makes sense if you're licensing from Disney. There's going to be advertising optimization. optimization i guess not sure how exactly that works but i assume they they have better in disney probably has better inroads with advertisers maybe there's better tech there as well and then there's just the you know the standard kind of operational efficiencies there's probably duplicate roles

Starting point is 00:07:18 between hulu plus live tv and fubo so probably some uh layoffs will go on there as well basically they're projecting $120 million in run rate cost synergies. Now, most acquisitions never seem to hit those synergy targets from the ones I've seen. I guess I'll pause there because that was kind of a lot of news. What do you think of this deal? Does it make you any more or less interested in investing in fubo i guess more but it was the interest was negative absolute zero so maybe it's slightly higher but still no come on not not touching this whatsoever why would i touch it's like a legacy media thing wrapped in a virtual cable bundle what what's the point of it I mean, YouTube TV just sells at a loss and Alphabet doesn't care.

Starting point is 00:08:19 Okay, great. Like if Fubo has some local sports that they can offer, that they only can offer, like they're the only person that can offer, or excuse me, company that can offer those local sports rights to people. So they're forced to pay it if they don't want to pay the traditional cable bundle. Is that a long-term sustainable business model? I'm not sure. I look at these presentations and all I see is lie, lie, lie, lie after lie.

Starting point is 00:08:45 It's the same thing over and over. And I have some advice for these people. Instead of spending $3 million for these consultants to make these, you can give us $10,000 and we'll slap random numbers on some presentations for you. And it will be just as accurate as what you're putting out right now. But will it be as pretty, Brett? Yeah. Can we make it as pretty? Well, it's the age of AI, Ryan. I think we can do it. I think we can just

Starting point is 00:09:11 tell ChatGPT to do it right here. I personally, in my personal life, hate this because I want Fubo to die and get rid of the local Seattle sports rights because I hate having to pay that if I want to watch that without getting the cable bundle. It's wildly expensive and egregious to pay 90 bucks just to watch a baseball team every month. And I don't think this is smart for Disney. aren't you trying to get away from the traditional model aren't you trying to go d to c i it just seems like just a mess and they've been a mess in their live tv in their traditional media for a long time now i still don't get the strategy yeah the other thing about this is it's like and it seems that a lot of the content or the legacy media companies that are converting

Starting point is 00:10:01 to streaming tv don't really seem to grasp this because maybe they're so they have such a good understanding of their product that they just think everyone else does too but these kind of deals are just a little confusing to customers like okay i'm getting hulu plus live tv and fubo like no one even knows what those are to begin with yeah it's like i think part of the reason netflix has done so well is it's such a simple strategy people know exactly what it is like you're getting content on netflix if it has the little n logo it means they made it if it doesn't they're licensing it boom it's easy you have a finite time to watch it if it doesn't have the n logo in the corner um so i just yeah i think this is a mess i would probably predict this

Starting point is 00:10:51 doesn't go particularly well we have said on the show before that there isn't that much appeal to just owning sports rights because – and just to reiterate this for anyone who isn't familiar with the media landscape, but the negotiating or the bargaining power for the most part belongs to the sports leagues themselves. If you negotiate a deal with the NFL to have their TV rights over five, six years, well, in five or six years, whatever margin you make, the NFL is going to come back and say, okay, we're raising the price that much, right? It's like you're taking a big gamble on sports.

Starting point is 00:11:29 Fubo has proven that they can't be profitable with this model. Free cash flow has been negative for, I think, basically its entire public history. It's an unsustainable business. Yeah. Maybe Disney can make it work because they have other things to sell and you can have it as almost a retention tool as Amazon does or something to just lock in your subscribers and you make money in other methods. but standalone it's really really hard and especially with fubo's model and you're competing with youtube tv they don't care about being profitable on their subscriptions no no they don't uh and youtube tv is really the elephant in the room there there's also

Starting point is 00:12:09 uh they they had a slide in their presentation of like basically like where they're positioned relative to the competitors and it's they're like slightly bigger than some of the other ones kind of middle of the pack i think on pure streaming tv they're like the second largest but they offer the same stuff yeah all the same yeah it just feels like this was kind of an expensive way to settle the lawsuit true more so than anything else they said basically the legal like the legal dispute is done okay we own fubo great either either pay a settlement or just buy up i guess I think the settlement might be cheaper given how much Fubo is going to lose money. I don't see how – sure, they can say they're going to be target-adjusted EBITDA.

Starting point is 00:12:56 Those are fake. Like, it's not real. Your cash flow is still negative. I don't get it. I don't get the strategy here. I don't get why Disney is trying to get bigger. I don't like it. I don't like it one bit.

Starting point is 00:13:10 All right, what other topics do you want to hit? well i do have uh kind of one of my listicles that i do that actually is kind of interesting and potentially actionable and there's a couple companies that well we've looked at in the past and there's a couple that i actually am quite interested by but we can save that as well do you want to talk uh trevor milton bubble talk what's our segment called again here yeah yeah a bubble bubble watch i'm calling it brett's bubble watch i think honestly i i came i think it was the first episode before we went on christmas vacation that i did this like it was the first time i did this segment did it mark the top it might have i think i'm i'm trying to jinx

Starting point is 00:13:55 it every week as much as possible we're going to do this each week because the market seemed to be going sideways and a little bit down after starting this so hopefully hey it gets exciting again we don't go up and to the right. But we're essentially just looking at what, we're not calling it a bubble. We're saying stuff that might be on bubble watch. You know, is it a bubble? Is it not? Are we getting into those animal spirits? Are we getting back to everything goes up no matter what? You guys know how it goes. And one thing I saw this week, I think I might be on the ground floor here. Trevor Milton. Do you think people know who that is, Ryan? refresh it for anyone that doesn't the founder of nicola he pronounces it nicola like n-e-k-o-l-a

Starting point is 00:14:42 i don't know if you watched the video i think it's nicola but hey it's his own company so maybe maybe that's how he wanted it to be pronounced and it was that fake uh hydrogen fuel cell truck company that was going to revolutionize the semi-truck market and they got caught by Hindenburg Research. It was actually the first, I believe it was the first short-selling report that put Hindenburg in the limelight and has gotten them much more notoriety. They basically caught them faking a video where instead of the truck actually being operational with an engine or battery or however it was going to get propelled forward, they just rolled it down a hill and they had him in the car waving and they didn't tell anyone about it. So he's back on

Starting point is 00:15:27 Twitter after a four-year hiatus. He has a Twitter account with only 500 followers. So I would say get in on the ground floor, guys, because this is going to be entertaining. He's got some videos here. And he is only following two people, Ryan, Elon Musk and the Department of Government Efficiency. Maybe he's eyeing a cabinet position. I don't know. But besides the point, he had this tweet and he had a video associated with it. And I'll just read out what he said. quote, the short sellers and government were able to change the story and rewrite the truth because the company refused to stand up and tell the truth. Any public company raising hundreds of millions of dollars from partnerships with big names goes through a due diligence process with

Starting point is 00:16:11 the investing party. The SEC is then notified of these partnerships and then ensures compliance through appropriate filings, all of which were correct. Nikola met all SEC and due diligence requirements during my tenure maintaining full transparency and accountability despite public narratives no evidence ever showed regulatory breaches or misuse of funds under my leadership not one dollar exclamation point there hashtag facts only i would say there could be some other facts only that we get to the story but is he trying to say that just because they filed with the sec they're they're not a fraud i mean did enron file with the sec yeah it's a worldcom this is uh from from my experience and what i've watched is that you don't get two shots at this

Starting point is 00:17:02 like if you're going to be the revolutionary innovator and you go fraudulent once you make that mistake you get caught everyone forgets about your company there's no rebounding so i i would bet we are not talking about this guy in a month maybe he makes maybe he tries his hardest to make some noise but yeah 500 followers he's speaking into an empty void no one really cares anymore it's not empty i'm there i'm following him once you've lost a whole bunch of people money but she has they really don't want to hear you talk again is kind of what it feels like um i would suspect this guy that's trying to revive enron will kind of feel the same way and doesn't get two shots at it that one needs that one's a pure scam that one's not even it's like a joke

Starting point is 00:17:54 that one's a more of a joke like it's it's it's more just one of it's it's almost like a one of those youtube scam not scammers prank videos the worst people in the world those are those you know yes prank people took over a company or tried to say that they're doing this it's essentially what that is this is a little different but either way uh scammy scummy all of the above what are some other examples of people trying to revive their reputation from the dead hard to hard to think off the top of my head you don't hear him coming back oh oh wolf of wall street guy yeah he was he's been tweeting i don't know what he's up to seems like he's up to a lot of scams i would bet if sam beckman freed

Starting point is 00:18:44 gets free or is able to tweet again he's gonna try to start defending himself that guy's a sociopath sociopathic liar all of these people the Enron guy that went to prison he's now I think he might be a little bit reformed after his prison time because he teaches people how to identify fraud

Starting point is 00:19:06 kind of like those hackers that get hired by the FBI or CIA but can you think of any no not really it's And I can't think of anyone that has successfully like really come back from it. I guess you could say – and this wasn't necessarily like fraudulent, but Ernie Garcia, the CEO of Carvana, has kind of successfully taken his company back from the dead.

Starting point is 00:19:36 Yeah, some people might argue fraudulent, but I'll say we're on the fence. We don't know. Unproven. Yeah, unproven. Yeah, if any court takes that, we – there's no proof for any of that. Yeah. So, well, I, it's kind of a bummer to see Trevor Milton back. You know, I had an anecdote. I, I kind of want to revive this segment. We used to do like anecdotal evidence every week. I think it was like more so related to companies, but I want to do like anecdote of the week. See if anything's actionable, what we see in the real world. Slack. I, I wish Slack stayed public. I think it's a good business. it was probably just run with bad expense the operating expense line was probably just too was overrun when they were public i mean because they were just losing a ton of money

Starting point is 00:20:27 probably yeah i mean people stick with it they still got a nice premium buyout from salesforce it's a very despite having lots of like lower cost solutions like i think the microsoft whatever version plus google chat that kind of stuff it's still very sticky very sticky software um once you've got like a team really running on that and you've got a whole lot of information that's been stored in slack you kind of don't want to switch so i don't know i i kind of wish it was still a public company um i don't know why it kind of came across that this week but But yeah, bummer. Salesforce still carries on.

Starting point is 00:21:12 Did you see that bit about someone was complaining about like Salesforce, they just keep increasing prices? Did you see this? Yeah, I saw that from – Guy Spear had a bad moment there. Famous investor where he said, we can't leave Salesforce. They keep raising prices every year. And then he concluded it was a Ponzi scheme. i would conclude that is a good business but my other question is you run an investing firm what like you can't just say bye

Starting point is 00:21:42 i don't get it yeah also why do you need a crm yeah like what's it's are you do you need that for clients i feel like exactly like a hundred clients yeah you have like your administrator or whatever you're – don't you have like an admin basically account, admin portal for everyone so you don't really need a CRM? But whatever. Anyways, yeah, I think that was probably like describing one of the things that's great about the businesses but – Just think of how much Slack is going to get better

Starting point is 00:22:23 when Matthew McConaughey starts adding AI to all of this stuff. I thought it was funny that now they call it, and I looked it up because, hey, I agree with you. I'm on some teams that are in Slack. They're stuck on it. They're probably not going to leave, and they can probably slowly raise prices for a long time. Their tagline now is Slack, AI work management. Just say it's chat. It's chatting.

Starting point is 00:22:49 Yeah. it's yeah did you see the like they hired 2 000 salesmen to sell ai agents like yeah yeah okay i guess those they're gonna they're sell them and then replace them on their jobs we have some questions though from the chat someone came in and actually asked this one on twitter and in the chat so i want to hit this one i actually didn't even notice the thing and I'll say maybe I can give myself a bogey here because I was on vacation and it is a company I do own. So Stephen, Stephan says, hey guys, apologies if you discussed this already. What are your thoughts on Jack Hartung joining Portillo's board of directors? Do you know who

Starting point is 00:23:35 that is? Hartung? I don't know who that is, no. That is the 22 year chief financial officer at chipotle who recently retired i would say given chipotle's track record given that they're in the same industry and kind of trying to do a similar thing and expand nationally that this is a very good thing and i would hope that he would maybe want to join an operational role given how how like that 22 year run at chipotle was fantastic so i take that as a and i think it was released yeah yesterday i guess i didn't see it i take it as a good sign yeah it's hard to see that as anything but good news i mean his track record is impeccable and he's i mean he's not really coming out of retirement since being on the board of anything i i have a hard time calling

Starting point is 00:24:31 that coming out of retirement i think that's more like what you do when you're in retirement But nevertheless, having him as sort of an advisor and being able to give sort of best practices with his experience seems like a no-brainer, good thing to have. Do we want to shift gears to this, I guess, emerging share cannibals list? Yeah. Yeah, let's do that. One – before we do that, we have two questions here that we're going to hit quick. One is kind of funny. says doesn't investing in stocks just feel like loss aversion confirmation bias and hurting wrapped

Starting point is 00:25:08 in the warm blanket of survivorship bias lol your thoughts thanks well i would say stop overthinking it whoever is sending that into us and decide to index or just have fun because i believe that you can get all complicated and all these psychological things and how a lot of people overthink this type of stuff and either invest in some stocks you think are cheap hopefully they do well don't get over for overly frustrated if you're trailing the market for a bit and if you don't enjoy it just index or buy a 60 40 yeah that uh question kind of put my brain into a pretzel there um it does you may be kind of could be right yeah reading into it a little bit too much would be my opinion and i agree with brett i you know if this if you find kind of

Starting point is 00:26:02 chasing down stocks and looking for kind of undiscovered opportunities or promising businesses all that like intellectually stimulating you like that you enjoy that process i say go ahead and invest in stocks if not if it's not fun for you if you're not enjoying it then uh there's no harm and indexing. Okay. And then the other one, do you think tobacco will do good if we see higher interest rates for longer? I would say perhaps, but that's not what we focus on. I think tobacco will probably do all right, regardless of the interest rates. I bet if you put together like a tobacco revenue versus interest rate chart, there would be zero correlation over the last hundred years would be my prediction. And some people say they do

Starting point is 00:26:50 better in recessions so maybe yeah well actually when are you raising rates i don't know it's all too confusing they do fine it's a consumer durable it's an addictive product it does fine throughout market cycles all right yeah there is or go ahead run i was just gonna say it is we've talked about this at length on this show before but it is kind of a unique time for the tobacco industry where you're seeing like this disaggregation between companies that have real viable new product line type businesses, kind of the new tobacco age, if you will, and ones that are purely legacy portfolios, legacy combustibles, that kind of thing. You're just going to see real sharp difference in volume growth would be my expectation.

Starting point is 00:27:37 So I would focus more on like their actual product portfolios and where they sit as opposed to anything macro related for them. I agree. I agree. Shall we do this share cannibals list? Yes. Yes. What? Let me just introduce it for you.

Starting point is 00:28:02 You got six stocks here. These are kind of the lists you do from our friends at FinChat. what were the criteria why do you think this list is important and yeah what fascinates you why do you think this is these are promising criteria for a stock you might want to buy yeah the goal here was that basically to find companies that are buying back more stock than they ever have while simultaneously trading at record low valuations um to kind of hopefully that's you know sort of a perfect combination that leads to good returns there i've got six here one of them the first one here this is in no particular order is alibaba we have kind of a

Starting point is 00:28:51 no china policy it trades at a cheap valuation for a reason because invest american investors have kind of soured on chinese markets um and i think justifiably so but they are ramping up buybacks for what it's worth i if you're alibaba here and you want to reinstill confidence from american investors i would suggest a dividend to actually give them the cash i think they have a small dividend okay then yeah i would plow it in there because you're gonna at least actually give them some cash they can take away in case there's any sort of terminal risk but the second one here is Match Group. Now keep in mind a couple of these, I think a lot of them here are actually software businesses. So you get a lot of stock-based compensation as well, but nevertheless

Starting point is 00:29:42 seeing a good increase in buybacks is typically a good sign, especially when it's coupled with low valuation. But yeah, Match Group has a current buyback yield of 9%. So number of shares being basically dollar amount of buybacks compared to the market cap. They traded an EV to EBIT of 13 times and they did just pledge to basically buy back a ton of stock at their latest investor day. We have talked about Match Group so much on this show. We're scarred. I think we're scarred and that could be an opportunity for someone else. I think we're kind of – I don't think we see this one clearly. And if someone comes up to this one with fresh eyes, there could be an opportunity here.

Starting point is 00:30:27 But I got to say it's just – I got to stay away from this one for now. Yeah. I think we were just blinded to the Tinder problems. And this is – actually, this is one of the companies where it would have been nice to have – the alternative data actually I think was a good leading indicator. like the alternative data providers were showing like bigger tinder usage drops than match group was kind of reporting and also they were letting on right because they weren't they were they just never shared those usage numbers yeah exactly and they would kind of like occasionally mention the users in passing and it seemed like they were maybe only doing that when they wanted to

Starting point is 00:31:14 during like calls and stuff so yeah i think it was kind of kept under the rug how how much users tinder was churning out or losing each quarter um but if that can flatline you've got a real i think promising business that can grow cash flow um over the foreseeable future but the third one here is paypal they have a 6.3 percent buyback yield they're not at a record low valuation they are all time um here i'll share my screen here they've bought back more stock over the last 12 months than any other uh 12 month period 16 times ebit they are buying back a lot of stock and i've actually kind of flip-flopped on this company because my thought here was basically that they're getting disrupted by the wallets the apple pays and google pays of the world which

Starting point is 00:32:14 they probably are to some degree but they've the financials still look pretty solid and uh the brain tree business i think can improve because right now they kind of have low take rates if i'm not mistaken or they're they're like discounting relative to the add-ins and the stripes of the world but they're seeing a lot of volume growth and i know we don't get like super clear numbers on it but i think there might be some value in paypal i can see it working yeah it's yeah the same concerns i had a couple of years ago are the ones i have today but a couple of years ago was at 40 times earnings and now it's at what, 16? And they're returning a lot of cash to shareholders. So you're getting compensated for a lot of that risk today. And perhaps that makes

Starting point is 00:33:06 it more interesting. And they got a legitimate CEO now that seems to be more on the ball. Yeah. Although it does seem that people say that every time they get a new CEO. Yeah. Grass is always greener. Yeah. Yeah. Okay. Let's go through the last three here. Altria is up there. I mean, They always trade at kind of a cheap valuation. But the buyback yield – and keep in mind, they pay out majority dividends. So I think the dividend yield ballpark is like 8%. Yeah, I just looked it up.

Starting point is 00:33:38 Okay. The buyback yield is just under 4%. So between buybacks and dividends, you're getting a healthy return back to shareholders. And then the last two, number five, and this is the one from the list that piques my interest by far the most, Adobe. Adobe bought back over the last 12 months $9 billion in stock. Now, keep in mind they do pay out a good chunk in SBC, but the buyback yield is just under 4%. They are trading near their lowest valuation in a decade. I think they actually might have hit their record low valuation.

Starting point is 00:34:14 there was kind of some gap accounting stuff that uh may have inflated earnings a bit i think there was some sort of a tax payment with uh what is it the figma acquisition that didn't go through yeah um but the narrative around adobe is that this is like the one company who's most poised to be disrupted by ai and i kind of i kind of would take the other side of that i think that we we had that conversation with sean wang who's really bright and he's kind of a uh something around an ai yeah exactly startups but i was having a conversation uh with someone who listens to the show works at adobe um and he kind of raised a good point which is just that like if if the thesis is that ai is going to disrupt code like like it's going to make it easier to

Starting point is 00:35:11 write code i think it's going to be a lot easier it's going to be that's not going to be one of the first dominoes to fall essentially like generating images requires very little review right you know ai generates an image you look at it ai generates code you have to spend all the time basically as much time as you would have thinking about the code and writing it yourself to review it because you have to it has to be good and you it's kind of when you're in the flow of writing code i would imagine that you're thinking of the next line all that whereas you basically have to do this all over again and review i just kind of don't believe that it's going to replace the development role that quickly um and so the idea that it's going to get easier and easier to write

Starting point is 00:35:59 code and and that's going to lead to a whole bunch of upstarts disrupting adobe i kind of just it seems more like speculation than any sort of proof in the numbers adobe's continues to grow and it's not only through price realization they're growing still predominantly through volume um and it's trading at record low or decade low valuation yeah i don't know about adobe i'm not i've never had a good take on it either way i've never been very bullish or bearish on them i can see that argument working out i could see this being a good buying opportunity anecdotally though we canceled our subscription for ccm but that was really because we were overpaying for podcast editing and that's not that's not their core market i don't think that's

Starting point is 00:36:45 a harbinger of you know it was it was not very much money however i could see either side being right i have no strong take on adobe i wish instead of autodesk stock soaring i wish we could turn autodesk into a quote-unquote ai loser and get rid of the management team and maybe that would be a good buying opportunity but alas it's approaching 300 a share maybe that one will be on the watch list forever yeah it's uh you do you do see more and more companies kind of eating away at the edges of adobe it seems like canva yeah canva uh riverside where we record our podcast software you know it has a pretty useful editor that allows us to not have to go into their audio editing technology for adobe

Starting point is 00:37:43 but there's nothing that offers the same bundle um so you can't get as much kind of if you're a creative studio and require more than one solution i imagine it's harder to compete with uh adobe in that regard last one here because we're going a bit long it's just paycom uh we've talked about them before on the show i believe we did an episode here but you own them right i do not small position start a position not a big position um but it's trading near kind of a decade low valuation and a three percent roughly buyback yield which isn't huge um but it's one of those where so i went i went into the office i work for finchat for anyone who is new to the show and has not heard me say that before and spent a week in the office and it gave me a newfound

Starting point is 00:38:36 appreciation just for b2b sass in general and how much how much of the switching costs really come from the time investment into switching and how little companies want to do that and if you're running your whole payroll on Paycom, it's going to be such a pain to switch to a new provider, even if – and I'm not sure like if people prefer different payroll technology or whatever, but even if you did, it's so much easier to just stick with the provider you've got, even if they raise prices a bit on you. So that's kind of my – it's kind of a depressing thesis for Paycom, but yeah, it's a bit of my thesis.

Starting point is 00:39:17 Yeah, don't be an egregious price taker. keep adding value to them. It can be a great win-win scenario as long as you just don't take egregious price hikes. The thing is these businesses are so good and I know Paycom has run much more efficiently. They're so good that they were all run or 90% of them were run with, I mean, the expense line just so bloated and it is frustrating. All right, we're going to get to another segment, Ryan. And I will say, you talked about the buyback plus dividend yield, which is the shareholder yield. That is one of my favorite metrics you can find at our friends at FinChat, your employer. I think when Ryan mentions that he works at FinChat, that should be,

Starting point is 00:39:59 you know, if it's that time of the day, and if you partake, maybe that's the time to take a drink. But they have the shareholder yield that they calculate for you for every company. And it can be quite helpful. And it just saves a little bit of time. You know, you can do that yourself with combining the dividend and the buyback yield together but the way they do that for you for every company it saves you maybe a couple minutes each time that adds up and that provides a ton of value and that's why we use finchette on a daily basis in our research process and you get a discount using our code in the show notes 15 off and save yourself some money as well all right what other topics do we want to talk about ryan and do we have any other sponsors

Starting point is 00:40:40 we want to hit before we move on? We should talk about the Blue Chippers Club. For anyone that doesn't know, Blue Chippers Club, this was started recently by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community,

Starting point is 00:40:57 everyone gets to share or break down their portfolio. They can participate in weekly calls. They can write up simple stock pitches, stock notes, and they can also compete in fun portfolio performance monthly competitions. I really do love this idea. It's basically with the big social platforms, you can get a lot of ideas, but I'd like having one that's a little more tight knit where you're actually sharing your ideas a little more in depth and you can actually collaborate with other investors.

Starting point is 00:41:27 And there's just, I don't know, more of a takeaway there. I always had the goal of kind of building a network or community of friends to bounce investing ideas off of. and blue chippers does just that. If you're interested in joining, head on over to blue chippers club.com and hit apply right now. It is completely free to join. We've had people reach out and say, how much does it cost? You know, what's where's the catch. It's free to join. They're just trying to get as many people into the community as possible. They'll worry about the rest of it later. It's, it's actually a really just cool platform. So recommend checking it out link will be in this in the description all right let's hit a little bubble watch before

Starting point is 00:42:07 we get to your small cap of the week first one did you see block our good friend jack dorsey surfer man on the beaches around the world with attractive women hey you know getting caught with bottles of wine walking on the beach kind of looking like a shaman he is changing his company's name or excuse me the ticker of block to xyz can you do you have any idea why is this because it's a conglomerate is it saying there's x which the company that he founded that elon musk bought and changed the name from twitter to x is this because his is xyz what do you think here and should shareholders care is this i guess it's just par for the course for this guy now sure shareholders should not care they should know what they're getting into i think

Starting point is 00:43:03 yeah and it's one of those basically i only have two hard rules i think in investing maybe there's more but there's two hard rules i have no no chinese companies i've been burnt with them before no apparel i guess no apparel But that's not really a hard rule. That's me. And no Jack Dorsey companies. I'm sorry. It's not doable.

Starting point is 00:43:31 This guy does not care. Like shareholders are an afterthought. Like there are people – there are people that run companies that I think primarily run them for like personal notoriety and whether or not – maybe I'm making some assumptions about Jack Dorsey here. but i think he likes to feel important and uh and there's a real there's a religiosity religiosity with bitcoin he's trying to be like uh push that out into the world and make it a thing he wants to be one of the people that's like a pioneer for it and look he just treats it like he treats the company like a personal piggy bank frankly and what i would be more concerned about is we have seen let's see if i can pull this up here

Starting point is 00:44:29 so actually the seller ecosystem the the real square uh business that kind of got things started um i'm pulling this up this the seller ecosystem has done a good job growing they've grown gross Although I will say, talk about serial adjusters. I don't know if there's any company that adjusts metrics more. But active users, monthly active transacting users, according to FinChat.io, is 57 million last 12 months. December 2023 is 56 million. And only 50 million of them are drug dealers, according to Hindenburg. There was some concerns that that is a platform for facilitating illegal transactions, but it's kind of flatlining. Oh, it is flatlining. I think it's because they're getting rid of the pig butchers and the – that is the people that are trying to scam you for money. There's people that you've probably gotten the random text messages.

Starting point is 00:45:31 Hey, how are you doing? Yeah, it's those people. yeah it's i mean i i don't for the longest time i was like i don't really like dorsey but uh cash app such a good business it's just kind of i think lost a little bit of relevance lately maybe it's a more competitive field now um but people just sell they sell in the u.s what do you mean oh zell yeah they do which is mind-blowing to me also venmo it's really sticky venmo is sticky yeah um but no i have no interest in square whatsoever they've done the name change now they've now done a ticker change which you know what that's probably not free like

Starting point is 00:46:20 I bet it costs money to change your ticker And is that what really matters To Dorsey? Yes But shareholders, no At least he's not a consultant guy He probably just sits in his house And meditates and then goes This is our path

Starting point is 00:46:35 But the stock's trading at $82 And I remember this vividly This is one of the first companies We ever looked at Back in like 2017, 2018 And we had no idea About valuation then we're like oh yes this seems like a promising company it's growing quickly revenue looks great

Starting point is 00:46:55 the stock was at 90 then revenue has grown quite substantially since then stocks flat it's been almost in years are we in year eight year seven and it doesn't look cheap really either that's the thing that always blows my mind is like it's never cheap it's somehow the same price they're somehow growing and yet it's still not getting cheaper it sort of feels like maybe i mean on a sales basis sure it's getting cheaper but if you just are consistently worried about them ever really generating earnings and returning it to shareholders what's it you know i guess well it deserves a discount for that reason they gotta i mean ryan they need to be investing money into their bitcoin cold storage product this is where the money should go not to

Starting point is 00:47:47 investors. You have your small cap of the week, but I have one more bubble watch. And here's a quote. This is a more serious bubble watch with the AI data center build out. Here's a quote from someone on Twitter. It is re-quoting someone from UBS call with data center expert. And the quote is, you have a 10 year runway and all that is booked out. I don't think we'll ever get to the point where we're overbuilt that should be sirens in your head that we're going to overbuild this is exactly what the semiconductor industry was saying in 2021 and guess what it went through a down cycle it was the exact sign of the top when people said well semiconductors aren't cyclical anymore turns out they were look at taiwan semiconductors revenue chart at the exact peak

Starting point is 00:48:38 when people said there was no cyclicality, that was the top of the cycle. Now, I don't know if this is the top of the cycle, but I love this comment from actually a past guest on the show, Simon Handuran from MOS Investing, MOS Capital, and he replied, and I agree with this wholeheartedly, saying, thinking you will never be overbuilt

Starting point is 00:48:57 is exactly how things become overbuilt. It's a story as old as time. True, telecom, railroads, electricity, utilities. it's following the same story as always but that's my thoughts what are your thoughts i do think there's some risk that well for the cloud compute like data centers those like offering elastic compute long term 10 years out i imagine it's a bigger business they're running more workloads you know much bigger much higher revenue i don't think that's a controversial take in any way, but I do think you're getting a lot of – AI is driving

Starting point is 00:49:38 a lot of extra workloads and training and compute costs to the data centers that might not be – maybe it's – what's the old quote that like the internet will be – people underestimate the implications in the long run, overestimate it in the short run. It could be the same here with these AI workloads and maybe it continues to grow, but there could certainly be a cutback in terms of those costs, which would lead to, I imagine, a deceleration in AWS, Azure, GCP revenues. And they're fixed cost businesses. So if you overbill, and we saw that with Amazon, their profit margin went to basically zero in 2022. I think, yeah, I got nothing else. It's, look, $80 billion from Microsoft this year.

Starting point is 00:50:36 $80 billion on data centers. Eventually, we hit a ceiling. Someone's saying that we have a 10-year runway and we're never going to get overbooked. that's not focusing on return on invested capital. No, and no one can really forecast that, actually. I imagine no one can say they have a 10-year runway with certainty. I have become – I was a bit of an AI bubble truther. Like I was kind of a believer in that for a while.

Starting point is 00:51:09 And maybe overall costs, yes, it could come down, or overall money spent on ai training that kind of thing but i i'm i'm a i'm moving more and more if there's a curve of overestimate in the short term underestimate in the long term for ai i'm moving more and more to the underestimate in the long term and it's probably some bias but there's uh it just feels like it could really replace a lot of redundant work i hope so it'll open up people up to more fulfilling lives the usage is there the fact that open ai said that they can only be profitable with their advanced model if they charge people a thousand dollars a month that's where i get concerned yeah all right we uh we're

Starting point is 00:51:57 running out of time but we do have some other segments to get to ryan do you want to hit our small cap of the week presented by yellow brick investing definitely yes as brett mentioned This is the small cap of the week presented by Yellow Brick Investing. If you do not know, Yellow Brick Investing is one of the best places to find high quality stock pitches across the internet. They track thousands of blogs, newsletters, fund letters, podcasts like ours and more to collect and summarize the best stock pitches and bring them to you in a single place. Basically, if you are running out of ideas, maybe you feel like, you know, I'm not finding

Starting point is 00:52:35 any sexy new investments, nothing that's catching my eye. Just go to joinyellowbrick.com slash chitchat if you want to give us a nice little link click, and I guarantee you'll find something interesting. But the company this week is Raspberry Pi. I believe someone actually reached out to you telling you to look into this, right? That is correct. And I thought, huh, I used these in college for a little bit of engineering projects. Really? When you learn that, I don't know, when people get embedded in a technology or software while in school, that's a good indicator that there could be switching costs because of that educational advantage, Autodesk, Adobe, stuff like that.

Starting point is 00:53:17 So that was an indicator I should look at it. And a little spoiler for your numbers here, they look good. I mean, it looks like a good business. Yeah. Yeah. I honestly had no idea what this company was. It's not a bakery. It's not a bakery conglomerate, if that's what you're picturing. Yeah, no raspberry tarts here. Yeah, although it is based – or it's listed on the London Stock Exchange. But here's a quote from one of the Yellow Brick write-ups.

Starting point is 00:53:50 It says, Raspberry Pi is ubiquitous in the tech world, yet virtually unknown outside of it. they make computers and related computing hardware they also make their own operating system so it is a computer company except their niche is that they make tiny computers called single board computers if you look up raspberry pi you'll see what these look like if you're not well versed in tech like me i recommend checking it out because you're probably picturing a mac or something like that and it is really these like tiny little uh almost look like raw semiconductors like a raw motherboard almost yeah anyone yeah yeah for robots stuff like that yes and it has essentially just become uber uber uber popular with like the hardcore developer community um

Starting point is 00:54:36 engineers hackers that kind of thing um which is always a good sign and they aren't super promotional like i imagine most people don't even yeah we just got a comment here never knew they were public most people probably don't know they exist um or at least are available to public market investors gotta love london you gotta love the they just they gotta get some of their their stuff in order over there i mean the valuations are insane but sorry i'm interrupting continue yeah it says raspberry pi designs products to be disintegrated which allows customers to only pay for what they need without being forced into buying more expensive products that incorporate seldom use parts in features costs of products are kept very low by using things like commodity

Starting point is 00:55:17 parts and older process nodes for chips i know this is getting a little more technical but it says they're not trying to compete with typical computing companies instead they're playing almost entirely at the low end of the market dot dot dot this is not for data centers the part that attracts me is that so apparently the company started by really attracting the engineer developer hacker audience they actually have the second biggest like i think technical like uh tech uh what's it called uh board on reddit so behind apple computers raspberry pi is the second largest um and basically a lot of those engineers developers hackers they were using them at home for personal stuff started to integrate them into their companies and use them there and now about

Starting point is 00:56:07 75% of Raspberry Pi's, I think it's $320 million in revenue, is now attributed to commercial and industrial customers. Now, the stock did jump 50% in the last month, which is a bit of a bummer. Dang. I should have gone with my invest in that investigate the Druckenmiller. Sometimes that works. I was like, oh, this looks good, but I'll wait and research. Whoever mentioned it, We communicate from time to time. If you bought it, congrats. Seems promising. It was fairly cheap back then.

Starting point is 00:56:40 Maybe. Yeah. I mean, it's still reasonable. So the market cap is $1.35 billion USD, basically. They have generated $31 million in last 12-month net income, although they've got $30 million in net cash. So let's call it a $1.3 billion EV. The operating income is like, I think, $41 million last 12 months. So on an EV to operating income basis, 32 times trailing numbers.

Starting point is 00:57:14 This is a business that has grown really, really quickly. Brett, maybe you can share the screen here on this chart from Finchette.io. So basically from 2014 to 2024, they've gone from $8 million in revenue to $320 million in revenue over that 10-year period, which is more than a 40% annual growth rate. And they're quite profitable, actually. I think it amounts to basically 10% net margins, a little maybe low teens operating margins. Profitable every year since 2018? yeah pretty good pretty good probably do some digging on it's probably not something i will know like the end market super well on um maybe it's the kind of thing that you still invest in

Starting point is 00:58:04 investigate uh but yeah it actually started as a non-profit shifted to a profit and or for-profit company obviously um and now it's like majority owned but like the owner is a charity uh the primary owner. I don't know if that has any bearings on the investment thesis, but the largest shareholder is some charity organization. I think that's good because they're not a charity, but they want to make as much money for the charity that owns them. I think that's fine incentives, right? There's alignment there. Yeah, for sure. All right. Any other topic? Oh, I should mention Yellow Brick. Let's mention Public again, right? Yeah, public as well. We mentioned them at the start of this episode. But if you are serious about investing, you need to know about public.com. That's where you can invest in everything, stocks, options, bonds, crypto. You can even earn some of the highest yields in the industry, like the 6% or higher yield. You can lock in with a bond account.

Starting point is 00:59:01 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. This is paid for by Public Investing. Full disclosures will be in the podcast description. I was checking out their six-month treasury account. That's something you don't have to lock in as much as the bond account. And with interest rates rising again, could be a good place to park your cash, get much

Starting point is 00:59:35 better yields than your high yield savings account. I was checking that out as well. They are right when they say they have really anything across the personal finance spectrum that you could be interested in. So go check them out. Okay, let's do a tease for earnings season because it's going to be getting right into the swing of things. I know the Q4 one after the holiday and New Year's season kind of starts right away.

Starting point is 00:59:58 But we got just a little tease this week with Delta Airlines and their earnings. They're always one of the first ones. And I think it's an interesting one to look at consumer spending, travel. I'm an airport guy now. If you didn't know, Ryan, I own one of the Mexican airports. So this is very important stuff to me. Big news. Yeah, huge news.

Starting point is 01:00:16 And as a little tease, we are doing a, I don't know if it's going to be the title of it, but portfolio shakedown where we kind of interview, critique, ask questions about each other's portfolios and how we're looking at all the stuff we own in 2025. We're going to do that for a Wednesday episode. But let me go through these quick numbers here. The premium carrier put up accelerating results in Q4. There were two quotes that were interesting from the quarter. Quote, during the months of November and December, Delta saw four of the top 10 revenue days in the company's history and double digit growth in cash bookings driven by both leisure and corporate travelers. Second quote, American Express remuneration. I can never say that one.

Starting point is 01:00:56 Essentially money they get from American Express for their credit card deals. That was nearly $2 billion, grew 14% year over year and was supported by an acceleration in card spend and acquisitions. They're bringing down debt. EV is about $57 billion and they're guiding for over $4 billion in free cash flow next year. Say they get $4.5 billion in free cash flow. That's an EBITDA free cash flow of 12.7. I don't think I would own airlines, but it seems like the travel industry is seeing no slowdown in demand. So that's good for airports. That's good for anything related to the industry. It'd be good for Boeing if they could start producing planes, but we'll see if they can do that. So yeah,

Starting point is 01:01:40 I'd say this is a great indicator for the consumer economy does American Express does the stock change at all when Delta reports like does it have reactions to it yeah I looked I don't think they did but I'm sure there's alternative data and they're actually down

Starting point is 01:01:57 yesterday look over maybe the last five days yeah I guess they went down but I would think that they would have gone up I think that was more of an interest rate thing since they're financial but i i took that as a good sign for american express's business yeah i think that's a good sign for just consumer spending in general delta's kind of considered one of the low-cost carriers right but they're premium yeah

Starting point is 01:02:24 oh it's south i was thinking of southwest um but yeah i i am more i'm curious about basically like the low-end consumer how they shake out in terms of spending because we've we've seen a couple struggles in the recent quarters discover i'd like to see what discovers numbers are yeah same with basically all the discount retailers curious what these will basically what what their numbers what their numbers will look like and if there's any sort of trade down uh among the i guess middle market consumers as well all right though i think that's about it tiktok's getting banned we'll talk about the next week let's maybe we will finalize that but yeah we're going over an hour here uh we're going to cover hey we'll be we didn't do this one on wednesday since ryan was on

Starting point is 01:03:21 a work trip but we typically do these wednesdays at 1 30 p.m eastern time just calculate that for whatever time zone you are in do them live on youtube and then go out well the recording will be living on YouTube after that. But the podcast recording on any of your podcast players will go live on Sunday mornings. And we're going to be talking earnings season, any sort of investing news, stocks we're interested in and any questions you have. So join the live chat, ask us questions on Twitter and we're going to talk about all things investing throughout 2025. Let's hit the disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast,

Starting point is 01:04:04 may have held them in the past and may buy, sell, or hold them in the future. Thank you everyone for tuning in, especially those that ask questions during the live episode or on Twitter. And we'll see you next week for another fun episode. Bye.

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