Chit Chat Stocks - 8 Fastest Growing (and Profitable) Software Companies; Amazon's New Supercomputer; Enron Coin (AMZN)

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. I am one of your hosts, Ryan Henderson, and I am joined, as always, by the one and only Brett Shaver. On these episodes, we talk all things financial markets, anything that's going on in the world of investing, anything that's on our minds, and stocks that are piquing our interest.

Starting point is 00:00:53 And this week, we've got a lot of news. I think the bubble, there are signs of excess showing up again throughout the market. Last week, we had the sort of a funny meme coin. And then this week, there are some speculation around a once defunct energy company, probably one of the most famous bankruptcies of all time, trying to get back into the world of, well, I guess, meme coins. But we're going to talk about that in a second. I guess, Brett, how are you this morning? Earnings season is basically over, Salesforce reported yesterday, but it's kind of lighter on the news. I guess, how is everything for you in the world of finance?

Starting point is 00:01:33 It's going well. Been looking at some Mexican companies, lots of interesting stuff down there, lots of stuff I think I'm going to cover on the podcast. Can't do it, I don't think, every month. I think people will get tired of those companies after a while. But, you know, railroads, airport companies, fast food franchisors, I've been looking at that a lot lately as most of my earnings have been done. So they were done in the last few weeks. But, yeah, excited to talk today.

Starting point is 00:02:02 I think we have solved the Internet issue. I can't really tell on my end, but people in the comments can let us know. I guess listeners of the podcast can't really tell, but I think we have a much narrower connection now. and hopefully that'll continue going forward because we want the best show as possible for the listeners. Yeah, it looks good to me so far. And for anyone that watches these shows, you might've noticed that I have kind of chaotic background here. I'm in between places at the moment. I am moving. So saying goodbye to the Pacific Northwest for a little, not that anyone really cares, but if you watch, you might notice a couple of different backgrounds.

Starting point is 00:02:40 Before we get to this week's topics and Enron coin, if that is the meme coin they're going with, I want to talk about our friends at Public. Heads up, folks. Interest rates are falling, but you can still lock in a 6% or higher yield with a bond account at public.com. It's a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6% or higher yield with a diversified portfolio of high yield and investment-grade corporate bonds. So while other people are watching their returns shrink, you can sit back with regular interest payments, but you might want to act fast because your yield is not locked in until you invest. The good news, it only takes a couple of minutes to sign up at public.com.

Starting point is 00:03:24 Lock in a 6% or higher yield with a bond account only at public.com forward slash chit chat stocks. Where do we want to start, Brett? Enron coin? Let's kick things off with something that will entice the listeners. Enron coin sounds good to me. what i guess you were the one that researched this so i'll kick it off with a question what the hell was this uh researching is a loose term here i saw a tweet just like everyone else saw a tweet uh enron which i didn't even know they had like an account i didn't know they had anything

Starting point is 00:03:59 left maybe someone bought enron i don't know but whatever the rights were to the name apparently they still got a website they still got a twitter account they uh posted a like this kind of weird vague strange video that was just like snapshots of the world and energy and like just this like people being happy and like i guess also trying to encapsulate the energy crisis i guess um and they said we're back can we talk question mark um i believe that's what it said anyways i think it said we're back can we talk um let me double check that but the basically the whole, I guess they're trying to, yeah, it says we're back. Can we talk? They put out a press release that says Enron Corporation announces relaunch with a vision

Starting point is 00:04:56 to solve global energy crisis. For those of you that don't know what Enron is, I recommend there was a really good book written on it. There's also documentaries written about it. Basically one of the highest profile bankruptcies of all time, a company that everyone thought was like a staple in the energy industry i believe it was at one point one of the biggest companies in the world anyways so they post this press release and basically the moral of the story is that they're they teased some sort of token like some sort of crypto token and said shocking yeah okay so here's what it says enron announces relaunch with a vision to solve global energy crisis and then he says it says key pillars of enron's vision adaptation as

Starting point is 00:05:46 strength leadership by example which all the irony in the world uh forgiveness and progress well you're going to need a lot of forgiveness that's for sure uh for permissionless innovation says decentralized technology is advancing and we will of course have a role to play in its future in solving the energy crisis so basically they're going to launch some meme coin and hope to come back to relevance i hope no one ever talks about this again and that's the end of the story if we're going to mean something let's not mean this like can we just let this die yeah let's see it says about Enron Corporation. In 2024, Enron begins a new chapter dedicated to solving the world's energy challenges with innovations, adaptability, and a commitment to a brighter

Starting point is 00:06:36 future. Yeah, this smells like a pumped up crypto mumbo jumbo. And we're getting a lot of that lately as it's getting increasingly clear. And we're not going to go on rants about this again. We want to talk about other stuff. You know, we can't just be talking doom or stuff about a market bubble but it seems like you can do fraud all you want in the crypto space and in the stock and equity and normal financial market space there's actually rules so not surprising yeah yeah i hope this goes absolutely nowhere and who's who is even doing this like obviously the executive team from what was his name that like cursed out the analyst on the conference call uh skilling kenneth lane jeffrey skilling i think were the names those are the two big guys

Starting point is 00:07:25 i i believe they've both since passed um no scaling i think it's still scaling went to jail i think he's actually still alive and he does seminars about how to identify fraud so it's kind of a you know go to prison comeback reform kind of thing yeah like all right talk to a serial killer about how to find them yeah he seems to be alive but uh kenneth lay i think died right away he was pretty old okay well yeah i'm curious who is even left to like do this promote this push this press release like who there's no company left right am i no no i mean it's it's completely it's not the company it's had nothing to do with enron uh it's going to be the same people that probably bought or hacked into roaring kitty's account they're just doing it to pump and

Starting point is 00:08:14 there's nothing about it there's nothing else there all right we'll leave it there um yeah we've got a couple messages here in the comments pat gelsinger the now former intel ceo right retiring um thoughts on black friday spending consumer seems to be doing okay yeah looks like i will say every single year you see something about amazon had their biggest black friday sale ever and it's like yeah it's online commerce it should grow a little bit every year um i imagine and then some other topics the united healthcare i think the insurance ceo um passed away this morning like he was assassinated yeah that i mean we got no comment on that no sad um yeah obviously sad is united healthcare insurance its own company yeah it's the largest health insurer

Starting point is 00:09:07 in the united states that's the extent of what i know about them we had one question though and yeah i think we can hit maybe pat gelsinger seems like he got the football coach i have decided to relieve be relieved of my duties uh you know fire fired but they say he actually decided to retire there's one question on alcea and we can hit that later i mean what do you want to hit first there's there's a lot of stuff here i well i do want to talk about my small cap of the week because i find it pretty interesting but let's start with uh i actually have i made this thread this week and it might surprise you a little bit um so it's the eight fastest growing software companies of the last five years that are profitable and by profitable

Starting point is 00:10:00 I just mean they turned the corner to profitability, so they're marginally profitable. Do you want me to go through these and see if any intrigue you at all? Sure. Sure. Okay. So first of all, I got one of these wrong. So I will say that. I was looking at the wrong quarter.

Starting point is 00:10:19 They had a quarter of profitability. They came back. But number one, the fastest growing software company of the last five years that is also profitable is CrowdStrike. um the yeah everyone knows them for breaking the internet i will say last week we talked about this briefly because they had earnings and there was this big discrepancy between remaining performance obligations and uh revenue and i looked i read through the conference call and basically they had exactly what we thought one-time discounts um and long-term locked in some one one-time long-term deals to kind of make their customers feel better and they only saw like their gross

Starting point is 00:11:02 retention dropped by 50 basis points on their falcon product so they broke the internet and lost less than one percent of their revenue so not bad not that is pretty impressive um anyways so they're the fastest growing 52 annual growth rate over the last five years Number two, this is the one I got wrong. Zscaler, another cloud security company, they've grown 47.5%. They're kind of on the cusp of profitability but not showing it on a recurring basis. The other thing – okay, number three here, Datadog. How come every new age cybersecurity company just seems to have like absurd revenue growth?

Starting point is 00:11:46 Everyone I look at. That's a good question, Ryan. And yeah, there's a lot of companies out there that seem to be growing extremely quickly. And I have no idea why I should like the stock. It's just, I'm looking at the rest of your list here without spoiling it. And perhaps there's one company on here that I could get somewhat of a thesis on, but that one's trading at like 45 times sales. So I guess number three was Datadog. Number four, Applovin.

Starting point is 00:12:15 36% revenue cagger over the last five years. outrageous valuation because revenue has been accelerating lately five smart sheet which i think is like workflow automation software for enterprises um it's grown quickly but i just think there's like a million of these things i can't help but think they're just like paying for marketing dollars to steal customers from one another and and it's not going to be and And neither one of them or any of them are going to be uber profitable. Number six, some people might love this one. Palantir Technologies, one of the fastest growing and profitable software companies

Starting point is 00:12:55 the last five years. Seven and eight, Double Verify and ServiceNow. Here's what I kind of think looking at these. And Double Verify, for what it's worth, is kind of interesting. They help advertisers and publishers detect fraud, monitor viewability. So they basically help – if you're a brand and you're advertising on Facebook or whatever and you want to make sure that you're not put in like – I don't know, the wrong channels, like stuff that just does not resonate with your brand. Same with like TV channels, that kind of thing. Double Verify helps you do that and just make sure that you're showing up in the right areas.

Starting point is 00:13:34 Sort of a brand safety advertising tech. Kind of interesting. Smaller company. Good revenue growth. But I look at these and I think all these have grown really quickly. ServiceNow, it's okay. It trades at sort of a ridiculous valuation or a valuation I can't really get around. And I just think I would rather have a company that gets a worse multiple but has a history of growing 10% to 15% than this insane growth at insane prices just because it's so hard for me to know what's coming next. And if there is any sort of collapse in growth or even a drop in growth, the stock is going to get crushed. I agree. Yeah.

Starting point is 00:14:19 And all of these companies, except for maybe Palantir, like I mentioned, I can sort of understand what they do. But in reality, I can't be a true expert on it. Almost all of these companies, I just can't get a grasp on what the mode is, what the customer value proposition is, why it's not replicable. hole it's just not the the the field i want to play in but if you took a basket of these over the last decade you've probably done quite well i mean think of one that i guess i i own maybe briefly back in the day when i was first starting and kind of just doing nonsense stuff which was mongo db and i saw that they're like oh we're doing modern databases in the cloud all right great i'll buy the stock i mean that growth has been phenomenal i'm not sure how they've done

Starting point is 00:15:04 recently, but I have no idea why people are joining them. Oh yeah. Wow. 160% over the last five years, 1000% all time. Yeah. Pretty good returns since their IPO in 2017. And that's just really because they've had, you know, durable double digit revenue growth. That's been way higher than I would have expected. It's so funny looking back at, I guess, who I was and maybe who we were as investors five years ago and it was just seemed so simple i just say wow look at the revenue growth and yeah i think they could get to profitability and today i'd be like uh look at that naive kid but he is that versions that version of these returns would have crushed my current returns so yeah buying shopify stuff like that yeah do any of these interest you uh do you have

Starting point is 00:15:58 any no yeah it's so hard to analyze and once you've turned the corner to profitability like if these are the companies that have successfully turned the corner you get rewarded by shareholders at least they have been in this current environment especially if they've been able to keep up solid revenue growth so these are leaders for the most part in their niche um and it just makes it a valuation that's hard for me to justify so and and it's even an expensive valuation relative to their own history so a lot of these are trading at uh premium multiples relative to their last few year valuations so i think yeah i'm not intrigued by a whole lot of them but i sometimes wish i had like that 2019 approach that i used to have of oh look at that

Starting point is 00:16:50 pretty revenue chart exactly buy a basket sometimes hey sometimes that can work and that is part of the motley fool strategy but not talking about that today let's talk i'll say a ryan had a little tweet on this people seem pretty interested in it quite a couple people are asking to talk about it uh just as a reference for anyone that doesn't know what i'll say it is it is that's a the name can't really mean anything we've covered them before on the show if anyone wants to go look in our catalog we'll have deeper discussions on them but they operate restaurants in Latin America and Europe, and they operate fast food, fast casual, and family restaurants for Domino's, Starbucks, Burger King, Chili's, P.F. Chang's, Italiana's, the Cheesecake Factory,

Starting point is 00:17:30 Vip's, and a few others like TJ Friday's. So essentially in Mexico, other countries in Latin America, and a little bit of Europe, mainly Mexico, Spain, Argentina, Colombia, Brazil, I think a bit, and Uruguay. Stock, Ryan, it's down 45% from all-time highs. PE is down 12.5%. EBIT to EBIT is down to 10%. There's still a lot of room to grow these brands in Latin America. 10-year revenue growth rate of 15%.

Starting point is 00:18:03 Earnings per share growth. I'm trying to just kind of come up with numbers really quickly here. 16% diluted earnings per share growth over the last 10 years. I'm seeing, let's see, dividend yield. I want to try to load that up here. Stock seems fairly cheap to me. People are asking why it's down. I think it's probably just the fallout from, at least recently, it's the fallout from the election and then the peso going down. Maybe. I'm not sure. I honestly have no clue why the stock is down. I saw our, what I call our Latin American correspondent, Ian Vizek, tweet in a response to my posting some FinChat charts about it that he sold when it was at 80, thought it was a good buy at 60, and was surprised to see it go down to 40.

Starting point is 00:18:58 So, hey, maybe there's something interesting here. Let me try to pull up the dividend yield just to illustrate how potentially it could be a nice dividend grower. We'll get FinChat to load here. I think it's right around 5% or no, it's only 2.6%. But what are your thoughts? Does this interest you at all? Yeah, I think there's a lot that's interesting in Mexico in general. I will say having owned some Mexican equities in the past, the one frustration that I remember having is – and if you're tucking this away in your portfolio to have for 5 to 10 years, it doesn't matter.

Starting point is 00:19:37 But if you're constantly looking and you're curious, I remember being frustrated by not knowing why something was going down. Like there'd be some sort of a change and I'd be like, is this related to the tariffs? Is there macro news? Is there like an earthquake in Mexico I haven't heard about? Yeah, but do you know that for when your stocks are going down in general? You usually have some idea. Yeah, but isn't that just – I'm talking about big swings.

Starting point is 00:20:01 You can usually figure it out and it doesn't matter if – like I said, if it's long-term, it shouldn't matter. It's almost always more noise than news, but I just remember having to dig for it. I'm looking up the ticker on Twitter, like, what is happening? And I'm just getting a whole bunch of meme coins. So yeah, I think this is attractive. We're going to be doing our episode here on stocks to hide in during a potential market bubble. This is the kind of security I'd be looking at for that.

Starting point is 00:20:32 Yeah, I mean, I guess it does have what you might call a margin of safety. just because of that stock price and their durability with being attached to the American brands, the durable revenue growth. I don't know if I would hide in this one compared to maybe some other things, but I could see it being put on the list. I don't see how the currency is a headwind if you've got, you're buying in peso, you're selling in peso. I mean, this is, I guess I can't go through. I don't have all the numbers in front of me, but the numbers I'm citing for the stock price are in pesos. So even in U.S. dollars, given the peso has depreciated, your actual returns, if you've held over the last year, have been much worse.

Starting point is 00:21:14 But they operate in countries outside of Mexico. So if those currencies are depreciating versus the U.S. dollar, or excuse me, versus the Mexican peso, then that can hurt their growth. Well, I think they have pretty big exposure in Argentina and all that currency is depreciated a ton, but maybe part of the thesis is Argentina is on the road of recovery and he's kind of beat that hyperinflation, fingers crossed. Yeah. Yeah, I'm intrigued by this one. There's a basket of like four or five Mexican equities that I'd feel comfortable owning. Yeah. And as full disclosure, I do own, as of this moment, not Alsea, but I do own one of the Mexican airports with the ticker OMAB, O-M-A-B, and the Mexican Stock Exchange, which I did a research report on last month. Now, I'm not doing a Mexican stock for this month's research report. I'm doing one that's in the cannabis space, which a lot of people have asked to do.

Starting point is 00:22:18 And I think that'll be a fun one as well. But I'm going to name just before we move on here, a couple of companies, Ryan, I'll let you choose what the next Mexican company I should research. I have three choices, actually four. One, the Pacifico Airports Group, which is, I think, Guadalajara, Cabo, and a couple others. the Northern Mexican Airport Group, which is kind of the industrial region up north, ALSEA, or the Mexican Railroad, which is called like Grupo Mexico Transportes. I can't say it without the accent. I would prefer the railroad just because we've looked at the other ones before. All right. Yeah, it does look fun. And maybe, you know, that's the manufacturing reshoring theme.

Starting point is 00:23:07 You have the tariff headwind narrative right now that may or may not be implemented. You could potentially, and I haven't looked at this company in depth, so this is nowhere near anything of like my thoughts on the company. You could see a potential ability to climb the wall of worry. And I looked at it already and dividend yield is, you know, that can be dangerous if you look at it in isolation, but the dividend yield is six and a half percent. So not bad if they can sustain that and grow it. But yeah, if you're getting a 6.5% dividend yield when the US treasury yields at 4% and you believe the company can grow, it seems like a no-brainer.

Starting point is 00:23:48 Even with any sort of currency headwind, it would take an insane currency headwind to make that not pay off. So yeah, and yeah, we don't need to go into that. But it's not going to be like an Argentina level one, because of at least related to the US dollar, just because Mexico and the United States have such a strong trade relationship. Someone says I'll say is my vote. Maybe I think we're definitely going to try to cover I'll say at least maybe in that list of stocks we're doing, because we've covered them before in an interview. And it seems one that is fairly attractive and interesting to take a look at given this drawdown let's move on to another topic though someone says uh south korea martial law i will say that was a it's a coupon shareholder that was an interesting wake

Starting point is 00:24:32 up to to read about and luckily it's over but that that seemed uh it's all my only thoughts on that one what about intel ryan pat gelson you're gone is this the bottom or is there more opinion is it ever the bottom i mean it's just feels like a revolving door i remember well maybe there haven't been that many ceos but i remember when pat gilsinger came in we thought man this is the right guy for the job i think we like they're gonna be in good spot he seems like he's doing all the right things and then all of a sudden the business struggles the it's sort of a herculean task to turn this thing around he can't do it on his own he can't he can't do it in general and we're looking at it like this is a pat gilsinger problem not an intel problem

Starting point is 00:25:22 i think at this point there are certain companies for me that aren't savable like you could even have a great i think boeing is like that it's not not i'm saying not It's such a big, complicated organization that for you to turn it around and make it compete with much more dynamic, fast-growing, younger companies that have not let bureaucracy slip into the company, it's just hard to walk that back. Once the bureaucracy is there, it's so hard to walk it back, which makes it all the more impressive that Meta was able to do it. Yeah, I think, you know, it's not the most fun thing in the world, but you probably have to lay off a bunch of people, which both Intel and Boeing are doing. You have to, and that is just a blunt force tool when you're a company of that large. It's just like, all right, we just have too many people. We're probably letting go of some good people, but it's just what we have to do, especially with how unprofitable we are at the moment.

Starting point is 00:26:30 and then specifically with both of them you probably have to break yourself up you with intel and i'm stealing this directly from strategery with ben thompson had this idea and he's been basically pushing intel and he has a lot more influence than us he can probably like literally influence the company to make these changes he says split up the manufacturing from the software design you have to become modern and you can have intel be one of the first customers of this new foundry. But you basically have to say, look, we're so far behind TSMC. We probably need $100 billion of investment, if not more. We talked to Amazon, Alphabet, Microsoft. Who else? Apple, NVIDIA, Vance Micro Devices. I could go on. Maybe even ASML and some of the

Starting point is 00:27:17 chip suppliers. They all invest money into this new company. And then we build up the new fabs and almost how asml did it with their lithography tools and that i think it was multi-decade or maybe a 10 15 year time horizon i'm building this new technology that's probably the way i would do it but that's going to take a lot of coordination and i'm not sure they will yeah it seems too difficult for any one person to solve sorry that pat gilsinger he's uh it seems like you're getting pushed out or quote-unquote retiring um but yeah it's i don't know who's going to be able to walk in and solve it breaking it up sounds like it might be better just because i think at least having some sort of smaller operations will help you need

Starting point is 00:28:11 outside customers where you're not like when when intel itself is the number one customer for your foundry, it just makes people, I think, disincentivized to go to you versus TSMC because you're not sending orders to your competitor. Yeah, that's a good point. What do you think the odds are that that actually happens? When push comes to shove, I think they're going to have to because similar to Boeing, they are what? National security. America wants them to succeed, needs them to succeed they have all these loans coming from the chips act they have these new factories coming in arizona uh and ohio i think or maybe it's just ohio and i think arizona is tsmc either way a lot of factories in the united states they don't want these to go to waste

Starting point is 00:28:57 and regardless of what the share price is going to do the company is going to survive yeah it's i think it'll take a big activist to make the breakup happen because this kind of reminds me we were studying bill ackman a while back and very very different operation but wendy's way back when used to own tim hortons and wendy's itself was kind of this bad operation and tim hortons was kind of this jam in canada and it just made me realize that like if you're a manager there if you're on the board of directors there and you're on this big enterprise you feel better as a part of the big enterprise probably get paid more as part of the big enterprise you don't really want to lose that your job security so

Starting point is 00:29:45 uh there's all this all the reluctance in the world from existing management to be the one that pioneers that change i think you probably need a big push from activists yeah and i brought We're up here right now, Ryan. Market cap of $95 billion. Not crazy for an activist. I think someone could come in there and do something. Might have to be a team, but who knows? Maybe they could shake things up here.

Starting point is 00:30:19 Private equity could buy it. Yeah, that would be... That's what we need. Yeah, we're not private equity haters here, but I don't know if that's the right... method here they probably need similar to boeing they need engineers running the company and they need partners that understand what matters first and that's the technology yeah and the safety all right do you want to talk about the week yeah let me try to make sure we get all the questions

Starting point is 00:30:47 here for someone said portillo stock pitch i have nothing to say on that i did unfortunately not win the stock pitch competition that was floating around the internet there but you know it's fine it's not like it's not like it made or break my my life but i did post the full stock pitch since i didn't make it uh to the sub stack that we run the newsletter and the link is in the show notes there so please go check that out it seemed like people enjoyed that whether or not they agree with this statement or not and yeah i think that's everything on the questions there so yeah why don't we hit small cap of the week ron okay and shout out to i believe the name is Cole Barsia on Twitter for recommending this one. We are talking this week's small cap of the

Starting point is 00:31:32 week presented by Yellow Brick Investing. For those that don't know, I say this every episode, but we love Yellow Brick Investing here. It is one of the best places to get high quality stock pitches on the internet. Just go to joinyellowbrick.com, look up the ticker. I guarantee you're going to find a high quality write-up on whatever company. Anyways, that is what I did. So Cole Barcia recommended Pubmatic and went to join Yellowbrick, typed in P-U-B-M, ticker, found a bunch of write-ups. And I actually realized we discussed this a long time ago. So I went and checked some of my own notes as well. Were we right or wrong?

Starting point is 00:32:11 Did the stock do well? I think it was just like I found just my research notes. So I didn't have any sort of take on it. But the stock has not done well relative to the IPO. So Pubmatic though, for anyone that doesn't know, which probably most people, since it's not a very household name, operates a sell-side advertising platform that matches digital content creators with ad buyers. Pubmatic sits between these two groups, buyers and sellers, and the company is focused on

Starting point is 00:32:40 the sellers of advertising space and earns its revenue from them. So we are a seller of advertising space. They make their revenue from the content creators. I don't think they operate in podcasts, but nevertheless, other forms of content creators. The buyers, either direct advertisers or demand side platforms, which is like the Pubmatics of the advertiser side, can access the sell side platform, review seller ad space inventory available and bid on and purchase space that best aligns with their goals. This is Pubmatics basic business model.

Starting point is 00:33:13 Basically, if you're a content creator, blogger, video maker, whatever, you can use Pubmatic to help generate more revenue. Here is a snapshot from Cole Barcia who tagged us and said potential small cap of the week. He said, here's the 2024 financial snapshot. Revenue, $294 million. EBITDA, $91 million. SBC, $39 million. So stock-based compensation. So a good amount of stock-based comp there. $140 million, more than $140 million in cash and no debt. That's nice. It's growth of revenue and EBITDA above 10% in 2025 and beyond, buys back $100 million a year in stock, led by three co-founders with a combined greater than 20% ownership, named an SSP leader. Okay. A couple of things here.

Starting point is 00:34:01 Revenue reaccelerated. If we look at the revenue chart, which I'll actually just pull up here. Oh, I can pull it up. I actually got it loaded up right for you on FinChat. Okay. Yeah. So revenue re-accelerated along with really the advertising industry overall. So they're not alone. There is going to be some cyclicality here. The other thing, and I'm not sure exactly what they acquired. They might have acquired maybe

Starting point is 00:34:24 some smaller sell-side platforms. But if you look at the operating income, the GAAP operating income, it's $10 million over the last 12 months. The EBITDA is $91 million. And the operating cash i think is around 84 million so huge discrepancy the majority of that is coming from a stock-based compensation b amortization of intangibles so or amortization and depreciation i think they had a big acquisition they're writing it off or they're amortizing it over time so that's going to hurt the gap financials but cash flow i would say cash flow minus sbc is kind of the metric to pay attention to here so you're saying i have operating income up here it's not that great you're saying right now there's a temporary headwind on that on the gap figure yeah from

Starting point is 00:35:14 the amortization it seems i would go with free cash flow minus stock-based comp as sort of your earnings metric the thing that i do find intriguing here is they earned 84 million dollars in operating cashflow. Last 12 months, they spent $83 million on buybacks. So they're spending all the cashflow on buybacks. They've got more than $100 million net cash in the balance sheet. It's an $800 million market cap. So they're basically buying back 10% of their shares every year at this pace. Not net though. Net's like five, right? Yeah. The stock price compensation is going to offset that a little bit. um probably i'd say 40 percent of the buyback spend will be yeah pushed back through stock

Starting point is 00:36:04 based comp but good reduction in shares if they can maintain this and it's not like they're doing this one-time temporary buyback if they're spending 83 million and they're earning 83 million it's doable i like this you got a potential share cannibal here with good actual growth i would probably need to take a deeper look at uh their just end markets and how susceptible they might be to an advertising slowdown and competitors yeah yeah competitors too the it is a competitive space i like these businesses i think they're fairly easy to understand and advertising is cyclical to some degree but you can for a supply-side platform like this people will slow their ad spending but when you slow your ad spending the average price for advertisements

Starting point is 00:37:00 goes down and it's kind of this reinforcing cycle where you've got lower ad rates you you want to spend more because you're potentially getting a more attractive rli or return on ad spend i should say. So it's not quite as cyclical as some other spaces or other industries. We even saw this coming out of COVID. It slowed down, but it didn't come to a grinding halt. So yeah, this intrigues me. Basically 11 times EV to free cashflow. It's interesting. Yeah. I like the balance sheet there too. I just wish given their cashflow needs, I wish they would just stop the SPC and the fact that they would still have positive cash flow. And you could just, I don't know, I just don't like that extremely heavy SBC, even if they are still generating positive profitability.

Starting point is 00:37:49 It's, yeah, definitely interesting. I think you see a lot and I get a little bit confused in the space. I haven't looked at it in a while. But the fact that someone like a Netflix or someone like a Spotify still needs to turn to these providers indicates that you can't really do it alone unless you're the Googles or the Facebooks of the world. So there's definitely a value here. And given the fact that big brands want to get all through to the actual value, valuable parts of the internet, where, for example, I'm sure I'm not sure Pubmatic works with Spotify, but they have their new automated platform for podcast advertising.

Starting point is 00:38:29 They're trying to grow that. Doing it by themselves at such a small scale at the start probably doesn't work. You need to go to, and I think on maybe them, it would be the DSPs. I honestly get the terms mixed up, but whatever. In the value chain, they're still working with these third-party providers and it seems like they're here to stay. Yeah. I mean, there's a place for these supply side and demand side platforms in the advertising

Starting point is 00:38:59 market. The walled gardens can do – they take up the majority of advertising spend, especially digitally, but it's really like just a relationships game. If I'm an advertiser and I want to find – sorry, if I'm a creator and I want to find a bunch of advertisers, I'm good at creating. I'm not a salesman potentially. If I can go to the supply side, they can offer up my inventory to their DSP partners and they already have all these relationships with potential advertisers where you're not getting as much revenue potentially or it's not as high margin or maybe there's a fee off the top, but it's guaranteed revenue and you can focus on creating. So I do think there's a world where these just continue to exist. I don't think they're going to be pushed out. I like these.

Starting point is 00:39:50 If you can find them at the right price and they seem like they have durability, which it looks like PubMedic does, I think they could be a good investment. Yeah. Do you know why revenue growth has slowed down? Well, I would assume that part of the revenue growth slowdown in 2022 was just the advertising market overall. Okay. So maybe we're just digesting that ourselves. Yeah. Remember in 2022, there was just so many advertisers that pulled back.

Starting point is 00:40:20 And I thought that meant that the whole world economy was in a recession because digital advertising spend was down slightly. I remember those days. Yeah. Yeah. So, yeah. I think I would assume that was part of it, but probably worth double checking that. It started accelerating again. I mean, it looks like it's up 10%, 15% over the last year.

Starting point is 00:40:46 So, certainly moving in the right direction. I would be a little concerned if some of that was inorganic. You don't want them acquiring their way to revenue growth. But I remember reading in that thread that the guy sent me, that Cole sent me, there was good core advertising growth as well. But there's also political ads as well that might have helped temporarily. You're not going to see those as much moving forward. But yeah, I would say that's of the small cap of the weeks that we've done, the 25 we've done now, that's probably in the top five. All right.

Starting point is 00:41:22 Well, interesting. Interesting for sure. Maybe I wanted to put on the research list for 2025. All right. I guess let's move on here. But before we do, Ryan, do you want to talk about some more of our sponsors? Yeah. A couple of things to note.

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Starting point is 00:42:32 Public and Yellow Brick. They helped this show keep going. every week okay you want to talk amazon supercomputer ryan sure yeah have you heard about this my expertise your expertise on uh yeah we do have a maybe as a tease we did we did bring on i'll call maybe an ai and cloud expert especially in the startup space and we're going to be bringing him on next week or maybe the week after for an interview and that's going to be a really fun one. I thought there was maybe a lot to learn in that interview, but also I learned that I don't know much about the AI startup space and it makes me worry about investing.

Starting point is 00:43:15 Yeah. I know we're talking to an expert when every question I ask, I'm like, gosh, I really hope this is not about to be a really stupid question. Yeah, that's true. That's true. But hopefully- It means we're driving value for the listeners. Yes, exactly. Exactly. I think listeners will find a lot of value out of that. So here's my news amazon's new supercomputer they have the annual aws big conference i think that's in las vegas i think honestly one of my roommates is there right now but i don't know for sure the company announced a supercomputer that will have hundreds of thousands of its homegrown

Starting point is 00:43:50 tranium chips in them now that's not good for a stock pump i mean come on in 2024 that's booming up at least two three percent here's some quotes from the wall street journal quote the chip cluster will be used by the AI startup Anthropic, in which the retail and cloud computing giant recently invested an additional $4 billion. Quote, a key part of Amazon's AI strategy is to update its custom silicon so that it can not only bring down the cost of AI for its business customers, but also give the company more control over its supply chain. That also could make AWS less reliant on NVIDIA, one of its closest partners, whose GPUs the company makes available for customers to rent on its cloud platform.

Starting point is 00:44:32 Last quote. SEO Kant, co-founder and chief technology officer of the AI coding startup Poolside, said it is getting roughly 40% price savings compared with running its AI models on NVIDIA's GPUs. But a downside is that the startup needs to spend more of its engineers' time to get Amazon's associated chip software to work.

Starting point is 00:44:54 Also saw a note that Apple is going to be one of their newest chip customers, but I didn't really understand. Don't know if that's like AWS contracts or something along the lines. I think it may be the biggest takeaway I had there is Apple is so far behind in this type, in the AI stuff right now.

Starting point is 00:45:13 I know they're good with chips, but that's more of the personal computing ones. Ryan, what are your thoughts here? NVIDIA, is it toast? Are we done here? I thought it was interesting. They said that it's way harder to work with these Amazon chips,

Starting point is 00:45:24 but the price savings are so much that we're switching to them from nvidia yeah it seems like that's i would guess that's probably any chip provider that's trying to compete with nvidia it's the sales pitch for all of them uh like it's it's not going to save you time but it will save you money um and that seems to be the case for amazon here it sounds good i will be honest a lot of these words yeah a lot of mumbo jumbo that i don't quite follow but it's hard not to be optimistic on the cloud provide on the hyperscalers like we yeah in our whole discussion that we had with sean yesterday and i'm not sure when it'll come out but um it there's just it's like all the money is going even though all the

Starting point is 00:46:16 big tech companies are the ones that are spending the most on this stuff it's all funneling back into like compute uh compute costs so it ends up going to the aws of the world um yeah if they can have 40 real price savings and they can offer it and maybe they can make the software a little easier over time it would potentially hurt nvidia yeah but i would not be ready to say this is an nvidia killer i i think it is something that should be the number one concern if you're an nvidia shareholder is tracking this type of stuff because these are their biggest customers and they will continue to be their biggest customers and if they replace it with their own that's clearly like that's one chip that isn't an nvidia chip

Starting point is 00:47:07 yeah and you mentioned the the buzzwords here amazon's calling it a quote ultra cluster uh don't you know i kind of like that it's not it's not a big cluster it's not a supercomputer it's an ultra cluster of gpus for our ai whatever it is which i think is fun i love when people say supercomputer like just that word everyone's like oh okay that's good for yeah like you said good for a two percentage point bump um yeah no hard seems like good news i just find it a little bit of a bummer that so much of microsoft and increasingly google but microsoft amazon for sure like so much the business is heading towards this world that i have zero like knowledge in Yeah, that's what I get nervous about. Yeah, I agree with you where buying say Amazon's stock today. You know, we were very bullish on them at the beginning of 2023, the end of 2022. And that is because I thought I understood the retail business quite well. And I thought it could be much more profitable than people thought.

Starting point is 00:48:20 But today, you're almost making a bet. I just think a lot of this optimism around AI is priced in, and I have no idea what to think about it. Yeah, it certainly is. And we're seeing that all over the place with valuations. All right, let's shift gears a little bit. Our friends – no, I don't know why I'd call them my friends. super microcomputer uh yeah did something quite interesting this week they put they quelled all concerns yeah large committee yeah the the independent committee came up with a decision

Starting point is 00:49:00 uh i thought it was kind of like a so old soviet union announcement from joseph stalin but maybe that's a bit harsh all right here are the notes and here's the update because i know we've been talking about this company really throughout 2024 uh smci who all uses their ticker here they're audit review from an independent committee, which began on August 30th, was concluded this week and found no wrongdoing. Quote, among its findings, the independent special committee determined that the resignation of the company's former registered public accounting firm, Ernst & Young, and the conclusion Ernst & Young stated in its resignation letter were not supported by the facts examined in the review. The special committee's interim findings reported few Ernst & Young on October

Starting point is 00:49:44 2nd, 2024 of the special committee's final findings. Yeah. It's a bunch of lawyers speak to try to confuse you, right? I mean, that's just crazy. Like the amount of nonsense in those, in those sentences is, is crazy. Second quote, the special committee is comprised of Susie Giordano, an independent member of Supermicrocomputer's board of directors. Mrs. Giordano, an experienced attorney joined the board in August, 2024, specifically to lead the special committee's efforts to review the matters outlined above independent from any existing directors you read that right ryan the special committee was one person and they were hired in august of this year so the committee was one person she joined the board this august and it took her around three

Starting point is 00:50:27 months to conclude from this very complicated business as we could tell from that hindenburg report that nothing was wrong the giant auditor the giant auditor one of the big four auditors said we can't figure this out but she can suzy giordano can't and she received a 250 000 stock option grant when she joined the company i think that's doing nicely today after her findings is super microcomputer vindicated here what what's going on oh certainly certainly they are yeah no we're first of all a one-person committee is an oxymoron you there's no such thing you cannot have a committee of one person isn't a committee like meant to be a group i don't know there might be some college football fans that would like their athletic director to be a one

Starting point is 00:51:15 person playoff committee that this this committee is probably the only committee with less integrity than that one but that's that's a whole different topic uh yeah the other thing here is so their massive auditor that gets paid five million dollars a year uh couldn't solve it but you brought in this one person who has a separate full-time day job let it let that be said uh she has another day job who came as a chief legal officer who came in in three months and said yeah no these books are fine and was subsequently paid 250 000 to do so so yeah now this is the picture of integrity and ethics here.

Starting point is 00:52:02 I cannot believe the stock is up on this. Well, I think it's probably because it's heavily shorted. This is just... It just doesn't make any sense. This is like a self-owned of a press release.

Starting point is 00:52:18 Yeah, I don't know. I don't know. There's a lot of stuff moving around with Supermicrocomputer, and All I'll say is if it walks like a duck and quacks like a duck, it usually is a duck. There are tendencies among all of the shady companies out there, and the pattern matching is fairly easy. Now, sometimes the pattern matching is wrong, but I'd say 95% of the time, it is right. I think in 20 years, there'll be an announcement from their Twitter account that says, we're back. Can we talk? And then they're going to be launching a new token. They'll be pulling an Enron in 20 years.

Starting point is 00:53:04 We're going to be talking about super microcomputer token. Yeah. Yeah. If all else fails, launch a token and sell out. It seems to be the corporate strategy these days. Yeah, yeah, that is true. All right, do we have any earnings this week, Ryan? You have about 10 minutes left here. Salesforce reported yesterday, and Mark Benioff said – let's see if I can find this exactly. How's my Einstein AI doing? Is he good?

Starting point is 00:53:32 Is he in good spirits? Oh, gosh. Okay, I asked Fincheck Copa. I said, give me five optimistic quotes from this latest Salesforce conference call. first one says this is a bold leap into the future of work where ai agents with humans unite to transform all our customer interactions whatever that'll take a full i mean that's going to take a full ultra cluster to to compile all the quotes all right number five here this is the most excited i've ever been about the software industry mark benioff i would venture to bet he has said

Starting point is 00:54:08 that 20 times in the last 25 years he's just like he is perennially optimistic which good for him but there you know what also i think matthew mcconaughey is still an advisor to this company that's good that's good yes he was in a commercial i couldn't understand what the commercial was about but it was a commercial and it was about salesforce i did have matthew mcconaughey in it so i do know that what did i watch the other day that was the most pointless commercial for enterprise tech it might have been sap yeah yeah or service now so bad yeah just like the most arbitrary video idris alba in it for the the service now one i mean the only the worst commercials out here now though are the new apple and gemini ones

Starting point is 00:55:03 talk to your phone it's your new friend say hey are you lonely don't worry are you here to quell all your loneliness are you terrible at your job have apple write a summary and don't read it are we crazy the you know what is funny is these you know how there's ai summaries on text now for apple yeah who the hell needs that what it's uh there's been so many funny memes like of people like getting broken up with over text or something and apple's like doesn't see romantic spark doesn't want to hang out with you anymore it's like yeah exactly quite dystopian but i'm looking at salesforce's chart here ryan we can make fun of salesforce all day but i mean this revenue growth chart 22 compounded from january 2015 to the last 12 months

Starting point is 00:55:58 37 billion dollars in revenue this is it it's kind of an undeniably great company yeah i mean they were they're integral to a lot of businesses and they they have a lot of price and power and And a lot of it, it's, we've talked about switching costs before and how much of that has to do with time, investing time into switching. I think Salesforce is one of the biggest ones for this, where you've got so much of your data on Salesforce, you, you really rely on them and use them on a day-to-day basis. The last thing you want to do is really switch and train everyone else to use another software. So, yeah, it does not surprise me that retention is quite high and they've become more profitable, mostly because activists came in and said, get profitable or Benioff.

Starting point is 00:56:56 I was going to ask you, Ryan, when do you think the activists showed up? I'm sharing this chart here. Operating income basically was nothing until January of 2022. And now it's seven and a half billion dollars. Because they have to be. Yeah, exactly. It's funny that if Benioff had it his way, there would be no growth there. Yeah, they would spend $10,000, $25,000 on each employee for the annual retreat that they do.

Starting point is 00:57:23 Salesforce sounds like one of the best companies to work for. Yeah, Dreamforce, the big tower, flying people down to San Francisco for these company retreats. I have heard they pay exceptionally well. Yeah, yeah. Like I said, I just said it. It sounds like a great company to work for. Now, could we double earnings if we got a little more efficient? Maybe.

Starting point is 00:57:45 Maybe, but I guess everyone's happy. Stocks up, earnings are up, employees are doing great. Benioff can hype up AI in the conference calls. He's in the zone again. McConaughey's happy. All is good. Yeah, those stock options are doing great. You know who else reported this morning?

Starting point is 00:58:05 Chewy. How are they doing? I got to say, I don't like this business at all. Is it Pets.com? Fine. maybe i don't remember really the pets.com model if they even had one but the uh customers have like flatlined for three years like active customers have been 20 million for i want to say 12 quarters in a row now roughly uh but the spend per active customer

Starting point is 00:58:33 continues to grow it's just so much on discretionary items it's not even on like the food like i mean all pet items all pet spending is discretionary but i just i think they consider food non-discretionary but yes i guess you could say it is all discretionary um they do say 80 percent of their their sales come from auto ship customers which is up like is it 60 percent a couple years ago but their profits like their net margins are 0.1 percent how do you do that when you know that four-fifths of your orders are going to be at the same time every year or every month it's not like as much of a logistical challenge yeah it is interesting and i i don't have the revenue growth numbers in front of me but i'm it should be concerning if revenue growth is slowing

Starting point is 00:59:31 down, that profits aren't showing up because you would have thought, oh, they're reinvesting in warehouses. I just think auto ship and sending a note on your dog's birthday can only go so far if Amazon has the efficiency and the spending and the faster shipping. It's going to be hard to compete. Yeah. No, I don't love that business. Dollar Tree reported and actually looked all right.

Starting point is 00:59:59 all right comps are coming back up especially at family dollar um the value wars are on it doesn't really surprise me that people there's potentially some trade down here i would imagine um walmart obviously reported really strong comps a while ago it seems like people are just consumer spending is tightening we're seeing it through the restaurants and fast food and we're definitely seeing it across the uh well the bottom the lower the lower cohorts of incomes dollar stores fast food restaurants you know the cheap the cheaper levels are definitely slowing down then dollar dollar tree might seem cheap you know who covers these companies the uh you know dollar general dollar tree that whole industry very well is the science of hitting excuse me

Starting point is 01:00:51 Actually, it's not that name anymore. The TSOH, Investing Research Service, we have on quite a bit on the show. Maybe we need to bring back Alex on to talk dollar stores. That could be fun. Yeah, I would certainly be up for that. There's, I mean, Dollar Tree, I think, has like 20,000 stores across the US. That might be, you know what? We're talking about stocks to hide in during a bubble.

Starting point is 01:01:15 Could be that, yeah. And they're counter-cyclical, so they do better when people trade down. definitely yeah wow all right well i think that's gonna do it we're on the hour mark here ryan anything else before we kick uh kick things out or end things now we've got an awesome slate of interviews coming out if you haven't already rehar jerk came on talked everything meta i would consider him we've got our latin american correspondent in ian we've got our meta correspondent slash expert in Rehard. And we also have a Sean Wang interview, which is going to be coming out, which I am particularly excited for. We had the discussion

Starting point is 01:01:58 yesterday. And like I said, or like Brett said, he is an absolute expert. What else is on the docket? David Gardner episode? Yeah, David Gardner episode. We're going to go through his investing style and how he's generated what I'd say probably 20% annualized returns over the last few decades. So you see that, you know, he's one of the proven greats out there and he did retire a couple of years ago. So we'll try to go through his philosophy.

Starting point is 01:02:23 Interview on ASML coming. We have a research episode coming. We have 2024 recap and 2025 predictions. Lots of fun stuff. And before I close things out, if you like the show, if you enjoy it, if you open up that Spotify wrap today

Starting point is 01:02:39 and saw that we were one of your top shows, give us a little review. five stars i need a spotify or apple it's the best way to help us grow bro i i had a customer customer a listener reach out this week and say can we revisit the berkshire versus magnificent seven now yeah what was it five years ago now sure let's let's check it out yeah no it would have been fang at the time so it's fang okay yeah if nvidia was in there it would of crushed it. But yeah, we'll definitely be doing that, I think, as an annual update for the 2024 predictions episode. But let's hit the disclosure. We are not financial advisors. Anything

Starting point is 01:03:21 we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guest may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, once again for tuning in, joining the live show, or listening wherever you get your podcasts. And we'll see you next week. Thank you for watching.

Chit Chat Stocks - 8 Fastest Growing (and Profitable) Software Companies; Amazon's New Supercomputer; Enron Coin (AMZN)

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