Chit Chat Stocks - Celsius Buys Alani Nu; Coupang's Increasing Momentum; MicroStrategy Meltdown (CELH, CPNG, 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 i am one of your hosts ryan henderson and i am joined as always by the one and only brett schaefer we've got a lot of news this week for context on this show we talk all things financial markets we do these live on wednesdays at 1 30 eastern time 10 30 pacific time and it's all on youtube so if you want to

Starting point is 00:00:56 ask any questions feel free to send them into the chat at those times but it also shows up on your podcast players so you might be listening to us there and we've got plenty of topics celsius bought one of their largest competitors there's been some consolidation in the energy drink space we've got a online travel agency's rivalry heating up i guess you could say that and i'm looking forward to getting some of brett's thoughts there but a real big development for anyone that watches Brett got a new light in his background that could be changed the color could be changed so if there's anything we're bearish on you'll expect a red light and anything bullish we're gonna have a green light Brett uh exciting developments I guess how are you yeah got a nice you know

Starting point is 00:01:42 $20 light from Amazon seems to be well made you can change it to about 16 different colors so I thought it'd be fun to use it red on uh down days but besides that that's not the important topics. We have plenty of earnings this week. We had people asking if we wanted to talk coupon earnings, Portillo's earnings. Those are two stocks I follow. I actually have quite a few companies reporting this week. Also, the OMAB, Grupo Norte Airports. We might not get to that. Kava as well as a nice comparison to Portillo's, looking at some of the restaurant stocks. So plenty of things out there. And as always, there is no shortage of bubble watch this week and i think we have some fun ones little micro strategy update also app loving

Starting point is 00:02:32 short report which we'll talk about in a second but before we get to that i want to talk about our friends at public if you're serious about investing you need to know about public.com that is where you can invest in everything stocks options bonds crypto they even offer some of the highest yields in the industry like the bond accounts six percent or higher yield that remains locked in, even if the Fed cuts rates. What sets Public apart is how they give you the tools you need to make informed investment decisions. Their built-in AI tool called Alpha doesn't just tell you if an asset is moving, it tells you why the asset is moving. So you can actually understand what's driving your portfolio's performance. Public is a FINRA registered SIPC insured

Starting point is 00:03:10 US-based company with a customer support team that actually cares. Bottom line, your investments deserve a platform that takes them as seriously as you do. Fund your account in five minutes or less at public.com slash chitchatstocks and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchatstocks. Paid for by Public Investing. Full disclosures in the podcast description. I say we kick things off with Celsius. What do you think? Sounds good to me. We had plenty of people, I think four or five, who specifically asked us to talk about this company. They had earnings, Ryan. And I don't know if it was the announcement for the merger or the announcement of the earnings that shot the stock up 30%. But besides the point,

Starting point is 00:03:57 you may remember a couple of weeks ago, I said something along the lines of, oh, I think Celsius is pretty attractive here. I should take a look at them. You want to guess who didn't buy shares? I got a pretty good idea. Yeah. So feeling a little bit FOMO on this one. let's get into the details and then i want to get your thoughts on it for starters celsius i think most people know celsius by now but it's been this burgeoning fast-growing energy drink provider that i think went from basically zero percent market share or one percent to ten percent market share in a matter of three or four years they are buying alani new for 1.8

Starting point is 00:05:08 billion alani new has gone from i think around one percent to three or four percent maybe even higher market share over the last year or so and it's going to be an acquisition of both cash and stock so 1.3 billion in cash 500 million dollars in stock celsius doesn't have totally enough cash to do this so they're taking on 900 million dollars in debt it's going to be a pretty reasonable leverage ratio even after this so i wouldn't worry too much about the debt for context on alani news numbers they generated 595 million dollars in sales and 137 million dollars in adjusted ebita in 2024 i'm not sure what's being adjusted out there so take that metric as you will well did you see that it wasn't just ebita it was synergy adjusted

Starting point is 00:06:02 EBITDA. So I'd take that number with a big grain of salt. I think there was I'm not sure about this one. I know they did talk about the combined synergy adjusted EBITDA of the company, but I think they might have been reporting their adjusted EBITDA

Starting point is 00:06:17 exclusive. They might have had one where it was Alani New excluding out didn't include any synergies. I'd still like to see the cash flow and the operating income or the GAAP operating income. Yeah. And I didn't do, I guess, too much digging into Alani Nu. I'm not sure what all is publicly

Starting point is 00:06:38 available in terms of distribution partners, what cashflow looks like relative to adjusted EBITDA. I would imagine it's all right, but there's some working capital stuff there that's not always clear. If they're really growing their inventory very quickly, then they're probably going to have very poor free cashflow conversion, but who knows? We don't have those numbers at the moment. Either way, it is, and they are seemingly profitable. They have grown at revenue by 50% annually between 2022 and 2024. Technically, Celsius is acquiring the company at a discount to their own multiple. So they're buying Alani New at 13 times adjusted EBITDA and Celsius trades at 21 times their own adjusted EBITDA.

Starting point is 00:07:28 So I guess it kind of makes sense that they're using some stock in this acquisition. If you're a Celsius shareholder, you should be, I think, okay with that. Combined, they will have 16% category market share. I saw a lot of different takes. The market obviously liked this, I think. And I don't know exactly where I stand on this deal.

Starting point is 00:07:55 Obviously, buying a business that's growing 50% at 13 times quote-unquote earnings, that is optically good. That's an optically attractive acquisition. But keep in mind, Celsius themselves were going triple digits a year ago. These things can change really, really quickly, especially in a category that's becoming hyper-competitive. So it might not be as cheap as it might look initially. Brett, curious your thoughts on the deal overall. Well, the price looks good. I think if you're a believer in sugar-free category, if you're a believer that with this scale, they can have some sort of advantage versus the other upstarts out there that are trying to impede on what Celsius kind of captured that lightning in a bottle a few years ago.

Starting point is 00:08:45 Yeah, it makes sense. however i think the big picture it indicates that celsius knows or thinks or is aware of the fact that this industry is getting more competitive and if they were in such a strong position as a brand they wouldn't feel the need to spend 1.8 billion dollars to acquire alani new that is 1.8 billion dollars that you're not going to get back as a shareholder that's going into Alani knew if it was such a strong brand, they would have been able to, you know, Alani knew wouldn't have gotten 4% market share. So I think it shows that the moat here is not wide. It's not nearly as wide as someone like Red Bull, obviously, who's had decades of brand awareness and

Starting point is 00:09:36 reinforcement among consumers. Can Celsius and Alani new get there over the next 10 years? I think maybe, but they have a long way to go. So if you're making a bet here, the stock looks fairly cheap. I think I did some numbers for a Motley Fool article where I came up with something along the lines of a, well, if they can do $2 billion in combined revenue, you assume that they can eventually get to 25% operating margins like Monster Beverage. That means that they're at $500 million in earnings potential and the combined enterprise value. If you kind of do some back of the napkin math with this debt and equity deal. You have about $9 billion in enterprise value. So not crazy expensive if you believe the growth can continue. But I think this

Starting point is 00:10:21 deal is telling you that it's going to be hard. It's going to be a fight. It's going to be a battle for this company and they're going to need to execute. Yeah. Our friend Matt Cochran had a tweet after seeing this news and he just, it was pretty simple. He said, if you have to buy market sure you don't have a moat and i think there's some merit to that the and it's not necessarily well you have a week maybe it's a spectrum you have a weak moat yeah celsius brand is solid but i wouldn't say it's it's not nearly as good as red bull i mean red bull is a good brand i'd say as long along the lines of a coca-cola celsius is nowhere near close to that yeah agreed and the The other part for me is even in those charts that Celsius shared on their own presentation announcing the acquisition, they show that Alani New is growing really quickly, but there's also some other ones in there.

Starting point is 00:11:23 C4 is growing share really quickly. Ghost is growing share really quickly. Rain, I think, is owned by Monster. I'm not sure, but they were another brand that's gaining share. I just think – I had this kind of realization. I walked through Costco yesterday, and there's the energy drink aisle now. First of all, there was never – You're becoming a true Texan, Ryan.

Starting point is 00:11:47 Costco, Austin, you're living the American dream. Yeah, Costco is the American dream, yeah. But first of all, I don't remember there ever being a whole energy drink aisle at a Costco. Like there was, you know, maybe at the end of sort of the packaged beverage aisle, you could find some Celsius or some Monster. But now you go through, and I kid you not, there was Celsius, Alani New, Zoa, C4, Ghost, Rain, maybe not Rain, and I already said Zoa. But there are a lot of options. There's a lot more diversification and choices to be made from consumers. And I'm seeing this more and more, and I don't know if this was common 10 or 15 years ago, but a lot of the small upstart energy drink brands are signing these master distribution agreements with big companies like Pepsi, like Coca-Cola. Yeah, Anheuser-Busch would be one of the big ones too, yeah. Yeah, I think Molson Coors distributes ZOA's drinks.

Starting point is 00:12:57 So this combination between – like ZOA, Dwayne The Rock Johnson is kind of their big brand ambassador. this combination between like influencer marketing plus outsourcing or finding some sort of an equity slash licensing slash distribution deal with a parent company like or a bigger company like molson coors or pepsi or coke is kind of leading to like distribution is not as big of an advantage as it felt like it was 10 years ago or even five years ago like celsius kind of built they 10x revenue in five years and all of a sudden i it's hard to say that that's a bad thing but i think it attracted a ton of competition yeah i'd agree there's some puts and takes there's some headwinds some tailwinds there's some things to like and not

Starting point is 00:13:49 like about celsius where on the one hand you mentioned that there's a whole energy drink aisle now so the category is gaining share it's growing as a whole it's taking a share from the morning coffee it's taking share from soda it's taking share from the gatorades and the sports drinks of the world and that's all coming to the energy drink category and i see no reason why that won't continue over the next five to ten years but it's there's a lot of competition out there search energy drinks on amazon and you get a lot of similar looking stuff for a lot of the similar prices and it's just going to be tough i like the stock at 22 don't know if i like it at 30 as much but i think i can understand both sides here and i think the risk reward still makes sense

Starting point is 00:14:37 here you just have to admit okay there is a chance that this team doesn't get it done and if they don't well you know you sell and move on but if they get it right there is a chance they can regain their status as a compounder yeah yeah my worry would be that all of a sudden it's like 10 brands that have three to four percent market share and these small ones continue to just kind of eat away at the edges and that celsius this is kind of just the first of many acquisitions that they have to make there was some commentary from the Celsius call where someone asked is this like was a lot of new cannibalizing Celsius's business and the CEO said no which I just think wrong they are possibly be true like well I guess in

Starting point is 00:15:36 in one way the obviously any of the revenue that Alani knew had was not revenue that Celsius had So like that part is not cannibalizing their business, but they definitely, I think, stole some share from Celsius. It's pretty hard. Like you go down those aisles, you see the same people drinking Alani News versus Celsius. I'd be very hard-pressed to say that those two are not overlapping in terms of customer cohorts. I agree. All right. You want to talk coupon earnings?

Starting point is 00:16:13 Sure. I actually didn't take a very good look at this. So anything you say here is kind of news to me. All right. Well, let's go through and see, get your live reaction here. All figures here. So just remember that the one, this is a South Korean company that's reporting in US dollars. So the foreign exchange movements, which there were some pretty aggressive ones, the US dollar

Starting point is 00:16:34 appreciated a lot in the quarter, makes the revenue different. And they acquired Farfetch, who was about to go into bankruptcy or something like that. So I'm excluding that inorganic growth from revenue and gross profit. So we look at the numbers here, 21% revenue growth, 29% year over year gross profit growth. And given the change in the accounting for the fulfillment by coupon stuff, which just allows like a third party seller kind of deal to hop on their fulfillment network, they say that gross profit now because they're just taking a net figure down to that is the true indicator of top line growth. So I like that 29% number. Obviously, it's pretty good.

Starting point is 00:17:17 Then if we look at their developing offerings, which is Coupang Eats, International in Taiwan, and a few other things, they had 136% revenue growth year over year and are now at over $1 billion in quarterly sales. Annual revenue is now over $30 billion. Stock is at a market cap under $50 billion right now. I still am of the opinion that they can do 50 billion dollars in revenue and 5 billion dollars in free cash flow in a few years i see no reason to sell and i would note this time last year ryan or right around this time last year i think a few weeks ago from now they were trading at a market cap of just 25 billion dollars not bad not bad results i i saw really no concerns whatsoever uh not not a single number

Starting point is 00:18:13 looked concerning or something to watch it was a quite strong report yeah this looks good all those numbers you shared i mean gross profit's really the one to track and that and both the bottom line just to make sure that that's kind of going the direction that we want it to go what was do you have any uh numbers on bottom line margins cash flow so positive free cash flow i think a billion for the year maybe but either way positive while they're reinvesting a lot for growth so i think that's good the developing offerings are going to have quite a few losses here, but they're able to self-fund it and the net income, not very strong, but I'm okay with that because they've proven that the unit economics are there. And we

Starting point is 00:19:02 know from other e-commerce businesses around the world that they should be able to get about a 10%, maybe even higher depending on advertising and ancillary services that they add on here for the e-commerce marketplace. I had one final thing though, and I forgot to put the quote in here. So I'm going to pull it right up now on FinChat, see if I can find it from Bombsuit Kim, the founder and CEO. Tell me if this value proposition sounds good to you, Ryan. Quote, we made significant changes to upgrade our fulfillment and logistic processes, which enabled us this quarter to increase by 45% the deliveries that were either same day or dawn shipments ordered by midnight and delivered just hours later by 7am.

Starting point is 00:19:47 We've also been able to extend the order cutoff for same-day delivery by two hours. We've expanded our next-day rocket delivery to now provide customers with next-day installation services on thousands of items from large appliances, furniture, electronics, to even tires for automobiles. Talk about a quality service. You can literally buy this stuff on coupon, and you have one of their employees come and install it in your house. change your tires Amazon needs to look at these guys and copy some of this because I would like this to come over to the

Starting point is 00:20:24 United States yeah I just got a flat tire like literally this week which I guess you know speaking of true Texans the hit a pothole flat tire now I'm waiting a week to get this thing serviced yeah I would absolutely love

Starting point is 00:20:42 this is a very timely quote for you to uh bring brett but yeah i think they deliver tremendous value to customers that's pretty clear in the cohort spending people that are on coupon continue to spend more and more each year i wonder why so dennis hong sold this position i think this quarter i can't figure out why I think what I'm realizing is that sitting there analyzing super investor 13Fs or just investor 13Fs is just a huge waste of time. It's hard to – yeah, you don't know what their thinking is. It could be for a different reason whatsoever.

Starting point is 00:21:28 They might not even be bullish. They might be hedging a position. Who knows? This quarter looked really good. Any words on the expansion to Taiwan? So I'm trying to remember from the call, I think all positive things. If I'm remembering correctly, they're seeing 20% quarter over quarter growth on customer spend and are putting in some infrastructure investments within the market. And I think they just launched the subscription services. So the rocket delivery and wow membership, which for any listeners, I don't know. I know we don't have, I think, less than 1% of our listeners are in South Korea. That is essentially the Amazon Prime that has helped them really propel themselves and gain market share within the e-commerce space.

Starting point is 00:22:19 So I think all good news on Taiwan as well. Obviously, the concern there is not necessarily the market opportunity, but the geopolitical stuff. yeah really nothing it makes me want to buy more it's already a very large position in my portfolio but this is one along with remitly which i don't know if we've talked about yet but along with remitly it's a good example of one of the david gardner isms which is don't be afraid to add up if you if a stock is or excuse me if a company is doing well and you still think the price is attractive. Yeah. And something I've been thinking about a little bit for investors like us, anyone that's not running a fund, if something feels like a big percentage of your portfolio

Starting point is 00:23:10 today, I don't think it really matters. Like pay attention to, yes, pay attention to the valuation. What are you paying for today? But you should be looking at it as a percentage of what your portfolio is gonna be i think because it's not it's not a static number for invest like for someone who has a steady income i wouldn't worry as much about the current allocation as a percentage of the portfolio at least if you think your portfolio is going to grow a ton because you can add more money to it over time so yeah i think this might be i my favorite quarters are the one where the ones where you come away saying yeah everything checks out yeah thumbs up all right thesis on to the next quarter yep exactly exactly we're going to talk portillo's and kava later

Starting point is 00:23:58 portillo's a little different story they're still working out some kinks and this is a not necessarily a compounder but but more of a value play to hopefully turning into a strong restaurant brand but i totally agree let me that those are the ones when you come away thinking all right well i just spent two minutes looking at this nothing else needs to to be talked about i'll hold it and do nothing yeah agreed shifting gears a bit let me give you a wild stat and this is going to be also a shameless plug for fin chat there is a feature launched this morning i believe custom metrics you can now build your own formulas using the data that's in fin chat and so i built one Costco's enterprise value per warehouse what do you think the enterprise value is of an

Starting point is 00:24:52 individual Costco warehouse one sec had to unmute there the so the enterprise value of an individual Costco warehouse they do a lot of revenue per store this is a tough one I'm gonna say so I know what restaurants are typically valued at because I did the Portillo's and kava one for uh using this custom metric feature to kind of get a nice fun peek at it as i was looking at portillo's 150 million no it's going to be higher because of that valuation i'm gonna say 250 million it was 509 million wow for a warehouse it's come down a bit i think costco's gotten hit i think it's at 475 million somewhere around there we had tyler in the comments here say 500 million that's good good guess the so a single obviously that's flawed math because

Starting point is 00:25:49 the implication is that costco adds warehouses over time that's implied in the valuation but if you're saying that it didn't add any warehouses and you were just valuing the enterprise value per warehouse currently 475 million dollars for a single warehouse that's got to be more than like the market cap of a huge chunk of the nasdaq 2000 yeah good point a single location is worth more than boston omaha it's worth more than uh digital turbine i think it's about the same a single costco location i think is about the same market cap as or valuation as smith and wesson brands which is yeah that might make sense yeah no i yeah someone was talking yeah someone was talking about how costco is immune to drawdowns and i was joking around i think

Starting point is 00:26:45 something uh i don't know my chinese history well enough but there's something about the mandate of heaven it's something i remember vaguely my my brain from history in high school i call it the charlie munger mandate of heaven he's not going to allow costco to go down so i think that that's keeping the stock up there now to give to look the sales per warehouse i think is like maybe like high 200 millions a year now margins are obviously very thin but yeah 12 gross margin right that's the target yeah not the craziest when you put it relative to the actual sales that an average warehouse is generating it's it's pretty insane um the evaluation doesn't seem as crazy i do want to talk about booking

Starting point is 00:27:35 versus airbnb do you have any other topics you want to hit first no but why don't you as one of our advertisers talk about the new fin chat feature and tell people why they should come over to finchat.io slash chit chat sign up get a paid plan get 15 off with our link because of this new custom metric feature it might be too dangerous for us we might be making too many charts and uh I think people are going to have fun with this one. And if you've been on the fence, it's definitely a good way to get started. Yeah. So a little bit of context behind launching this feature.

Starting point is 00:28:10 We have FinChat has a data team that pulls in all the segment and KPI data. So company specific stuff like AWS revenue, that's not going to be captured in the income statement or whatever. So we go through and we actually pull it ourselves, but it's for a ton of companies. So the team has grown and grown, and there's all these derivatives off of these metrics that you could do, that you could ask the data team to do themselves. For example, there's AWS operating income that's reported each quarter. There's AWS revenue, which is reported each quarter by Amazon. So you could get AWS operating margin if we did it ourselves.

Starting point is 00:28:49 But you think about all the different formulas you could add, it was starting to get unwieldy for the data team to do it themselves. We've decided to allow the customers to build their own formulas for all this stuff using the data that's already on the platform. So there is truly an endless amount of custom metrics that you could build. You can do valuation stuff for all companies. You could do enterprise value divided by free cash flow minus stock-based compensation if you wanted to build your own formulas that way. Or you could do it on a company-by-company basis. Brett, I saw you were already using it for Portillo's and Philip Morris. And truly, I do think this is one of the biggest features we've ever shipped. So yeah, really happy about it. If you use our link, you get 15% off any paid plans. So yeah, if you come up with any good ones, feel free to tag me. I'll check them out because I'm constantly looking for new ones. But yeah, it's just a nice way to expand the amount of metrics you can see for an individual company. all right that's quite quite a good pitch there let's talk booking holdings versus airbnb some surprising numbers i would say after reading airbnb's report they talked about market share gains and i've been pretty confident about them and their trajectory over the long term maybe both businesses will do well here but ryan has some numbers here that perhaps will surprise some listeners. Yeah. Last week we spoke about how impressive Airbnb is proving to be as a business.

Starting point is 00:30:18 They're growing bookings. I think, I think they were going at like 15% bookings year over year. I actually don't have the numbers right in front of me, but booking holdings, I feel like I'm saying the word bookings a lot, but booking holdings, the company, uh, they are actually growing their bookings faster on a percentage basis than Airbnb, despite being much larger. Brett, maybe if it's possible, you could share this chart that just compares the bookings from Airbnb and Booking Holdings. And booking trades, I believe, at a cheaper free cash flow multiple, but benefits from a lot. The business models are quite similar, actually. So the same working Capital Dynamics. You have that same advantage. They both benefit from increased travel.

Starting point is 00:31:07 I guess my question is, you've got having the marketplace, the network effects here are huge, right? Both from Airbnb and Booking Holdings. The more accommodations that are on the platform, the more people want to go to the platform, the more people that go, the more reason there is to list your accommodation it works for both airbnb and booking so the larger you get the larger the network effect if you're looking at both of these business both of these businesses why would you own airbnb over booking holdings if booking is growing faster even off a larger base yeah i think that makes sense i mean that's all logical there what and i don't know an airbnb I like the company. I think what they would argue, or what maybe a bull would argue, is that

Starting point is 00:31:57 a few things. One, right now, Airbnb is purposefully, over the last few quarters, maybe the last year and a half, has purposely tried to lower the cost of, you know, bring down its average daily rate by making it cheaper for people to travel on Airbnb. And that's going to hurt booking value growth in the short term, but over the long term, it's going to lead to a better value proposition and more customers. I think the second thing they would say is that right now Airbnb has not launched any of its adjacent stuff, where booking holdings is already much more mature in that category. And third, I think they would, well, actually I have two more. The third thing they would say, and I think I agree with a lot, is that Airbnb is not

Starting point is 00:32:45 highly penetrated into many markets like japan or brazil and they still have a long runway to grow there and that could help them be a more attractive growth business in travel over the next five years versus you know their competition versus booking holdings in the last five years and then the last thing i think they would say is that airbnb still has a ton of unique supply on its marketplace which should give it a moat over the long term and i actually let me add a fifth thing in here a lot of people and more and more people are starting their search i'm not sure booking booking probably has similar numbers but a lot of people are still beginning their search within the airbnb app or website i think 60 percent of bookings start within the app

Starting point is 00:33:30 now and that again i think reinforces the moat and that people are starting their search within the airbnb app now that does this mean booking's a bad business no i think they're both good businesses, but that would be the bulk case for Airbnb over the next five years. And I think that's where people would be optimistic. Yeah, my gut. If you asked me, you have to own Booking Holdings or Airbnb, you have to choose one for the next 20 years. My gut would tell me Airbnb. And that's purely from consumer experience. Booking on Airbnb versus booking on booking.com it's been a nice nice survey yeah but all the stats would say you should be owning bookings in fact even you make good points but even the alternative accommodations growth which

Starting point is 00:34:26 you don't get the specific numbers on unless they call it out in the conference call which i think they did i think they said bookings booking for our bookings for alternative accommodations was growing i think in the high teens for booking holdings which is really more of a comp to airbnb's business we don't have the nominal figures so i'm not sure what's what i guess it's much lower yeah but it just i don't know i still feel do you think airbnb skews younger in terms of audience yes i think simply because booking came around much longer time ago so people that were in their 20s or 30s when the internet was first getting much more popular about 25 years ago, they would be in their 40s or 50s now where Airbnb came out as a novel concept, kind of a

Starting point is 00:35:18 risky concept at first. People didn't really, you know, the trust aspect, it took some very intentional brand building and trust and building of that marketplace. Well, that came out, I think in 2010, something around the GFC. So yeah, I think just because of the age of the marketplace, It's going to skew younger, which I think is a good thing. But again, both businesses are strong. I think you win by owning both of these over the long term. At least, well, I'm not sure about Airbnb's valuation right now, but they're both going to keep growing as businesses. Yeah, I agree.

Starting point is 00:35:53 Do you want to talk Portillo's earnings? Let's do it. We had a few comments and questions on them. Stock's down today. I think they probably round-tripped their earnings bump from yesterday, but I wanted to do it in a way that compares both Portillo's and Kava, which I think they had earnings come out on the same day. So first, we're going to go through Portillo's earnings, then I'll go through Kava. And we'll see clearly a difference in the businesses here, although one number stands out,

Starting point is 00:36:24 but is a little bit misleading, just given how Portillo's opens at such high AUVs. Let's go through it. So for Portillo's Q4, they had 0.4% comp store sales growth. So essentially flat, but that flip from negative over the last three quarters to positive in this one. So they're on a better trajectory to your stack on comp sales, which is essentially just taking it two years and seeing what the growth is versus that prior year was 4.8% in Q4 versus 2.9% in Q3 guiding for about 0% to 2% in 2025. They have a lot of work to do on their drive-thru. They've seen major complaints with that, and they're trying to get 45 seconds down on the drive-thru time, which I think will help a lot. They're launching a loyalty program and are still

Starting point is 00:37:08 expanding into the Sunbelt. Restaurant-level EBITDA looks solid. They had positive free cash flow in 2024, and they believe they can self-fund growth and eventually pay down some of the debt they have that came with their IPO. I calculated an enterprise value, which is probably back down to about $1.6 billion now. But when I made this yesterday, it was at $1.7 billion. When you include their tax receivable agreement, treat that as you want. They had $710 million in 2024 revenue. Stock looks fine, fairly valid. But again, look, that's not a fantastic report. you see some holes in there. That comp store sales number is not great. The problems with the drive-through, there's plenty of things to be concerned about with Portillo is that comp

Starting point is 00:37:56 store sales is eventually going to have to keep up with inflation. But like I said, the stock has held up quite well despite this week being kind of a down week for stocks in general. Now let's look at Kava's earnings. 21% comp store sales growth, group level margin of 22%, which I think is their kind of same restaurant level EBITDA margin AUV grew, which is average unit volume for the restaurant to 2.9 million. They're guiding for 62 to 66 openings in 2025 and 6% to 8% comp store sales growth in 2025. And yet Ryan, let me check on the stock today. Hopefully it didn't reverse course because I want to make a point here. Stock is down today. Let's look at the last five days. Stock is down 20% in the last five days. I think this highlights the fact that

Starting point is 00:38:48 price matters, valuation matters, and expectations matter when it comes to investing because Kava is clearly a business doing better right now, but Portillo's is trading at such a cheap price. And for me, why it's in my portfolio, I think it has a good risk reward where they don't turn things around on the comp store sales front. They probably don't lose that much money they're doing fine they're generating positive free cash flow the unit economics are okay on the business but if comp store sales start inching higher you know over the next few quarters in the next few years there's a lot of opportunity with this investment yeah this just goes to show the old saying when it's priced for perfection you need to be perfect and even if you i think

Starting point is 00:39:36 it's so easy to read the headline numbers and think how could the stock be down on this for a lot of businesses like i'm trying to think of some other ones uh hymns and hers for example there was great top line growth margins are heading in the right direction and the stock dropped on earnings there might have been some other reasons involved in that one but you can't look at it in isolation you have to have some idea of what the expectations are Now, generally, expectations can be sort of a short-term game, but I think Palantir is a good example here. If you take probably 20 minutes to do a little bit of math, it maybe doesn't even take that long, and you just think, if this repeats Salesforce's success for the next 10 years, what kind of a return am I getting? it you just have to have to be cognizant of that valuation um by the way another crazy stat

Starting point is 00:40:37 unrelated but palantir prior to this massive drop that it's recently experienced almost surpassed salesforce in market cap i was gonna ask pretty close yeah isn't that it's yeah it's very similar to shopify in 2021 i'd say given those the market value when Shopify had a market cap over $200 million and was generating, I think, a billion, maybe two in gross profit. So similar things there with Palantir and not surprising to see that drawdown. One thing I will note, though, with Portillo's versus Kava, you see that comp store sales figure and you go, this doesn't look great. Kava's is so strong. But remember that Portillo's locations open up with a bang because they have this established

Starting point is 00:41:25 brand and the Chicagoans that have moved to places like Texas, Texas, where they're opening new restaurants. So they start out at maybe eight, nine, $10 million average unit volumes, and they actually see a little decrease after the opening. And then they actually have to fight to kind of get that comp store sales growth going. Because the starting AUVs are so high, where i kind of think if you have an investor brain they they some investors just because they care so much about the comp store sales figure they'd be like well why don't we just open up at four million dollars and then steadily just grow and grow and grow they'd rather have you at a smaller auv because you just have to ask wouldn't you want to do more revenue per

Starting point is 00:42:10 restaurant wouldn't you want to generate more cash flow per restaurant so comp store sales isn't the end-all be-all, but it is an important thing for Portillo's investors to track. Okay. Before we move forward, I want to talk about our friends at Blue Chippers Club. I've noticed a ton of listeners hopping into the Blue Chippers Club. So thank you for doing that. For those that don't know, Blue Chippers Club is a tight-knit community of stock-focused investors. It was started by two friends of ours. Inside the community, you can share and break down your portfolios, pitch stocks, receive feedback, and participate in weekly calls. I like to think of it as that online forum, that community that's like sharing on Fintwit, for example, but way more valuable because you actually get the conversation, you get the replies, you're getting a lot more value, and you're bouncing off ideas off other investors.

Starting point is 00:43:02 And they also, those weekly calls last week, we spoke exactly about Alani New and Celsius. We spent some time on it. It really derives a lot of value, I think, for all the community members. It's totally free to join. If you're interested in joining, go to bluechippersclub.com and hit apply. I'm serious, 100% free to join. I recommend checking it out. The link is in the description.

Starting point is 00:43:26 I also- Hand up, hand up. I keep forgetting to put my earnings updates on there. i've been putting them on twitter i need to build the habit but i do earnings updates for our newsletter and stuff like that and they're all free so i want to put them wherever it's possible to get more you know we make money by people listening to the podcast not reading the newsletter i want to put them on the blue trippers club because you get better and more thoughtful responses i think it's going to be much more enjoyable to yeah just put them out there yeah

Starting point is 00:43:59 There's also been some good stock write-ups on there as well that kind of caught my eye. Maybe I should use that for idea generation for small caps of the week. But I do want to mention our friends at Public again. If you're serious about investing, you need to know about public.com. That is where you can invest in everything, stocks, options, bonds, crypto. 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. Public is a FINRA-registered, SIPC-insured platform that takes your investments as seriously as you do.

Starting point is 00:44:28 fund your account in five minutes or less at public.com slash chitchat stocks and get up to ten thousand dollars when you transfer your old portfolio that's public.com slash chitchat stocks paid for by public investing full disclosures in the podcast description now where do we want to jump brett i should we talk about this app love and short report yeah it is interesting it's hard to understand though i've read the report it makes sense but maybe it'll be hard in podcast format essentially they're paying what is it it's a self it's kind of a circular advertising spend is that what we're seeing here a bit yeah stocks down 17 today from this short report so i think it's worth touching on and by the way app 11 is becoming one of the largest

Starting point is 00:45:20 businesses in the world market cap still 105 billion dollars and it's down 37 percent in the last five days so um yeah it's a large company i think it's up 25x i think it was in the last two years um but basically so this research firm i think it's i assume that's just like typically a short uh sort of a critical research firm where they're usually taking short positions on the companies they write about wrote a letter to the google ceo sundar pichai which is thought was kind of an interesting structure for this um instead of writing it to like they're telling on them they're tattling they are they're literally makes sense i guess um so they sent a letter to ceo and he says, we write today to bring to your attention to what we believe is highly concerning

Starting point is 00:46:17 behavior of a pre-installed potentially harmful application created by AppLovin and distributed via AppLovin's partnerships with several major mobile phone OEMs and carriers. We believe AppLovin software engages in widespread illicit silent app installation activity in a manner that closely resembles that which is already explicitly forbidden by Google Play's device and network abuse policy i'm going to try to summarize this the best way i know how but basically applovin's advertising technology uses these user experience gimmicks so like a pop-up like it like right when you're about to click something go play any mobile game you'll see exactly what i mean yeah i've experienced this before yeah you have like a 20 second ad and there's like the

Starting point is 00:47:04 the multiple x outs like you have to hit x multiple times and and for some reason when you click on it it doesn't work or the x is too far in the corner that you can't click on it properly and it accidentally clicks on the app and then instantly installs it there's also this like fake clock like they'll have a countdown going in the corner and then the x won't show up and then like you're it's it's meant it's designed to get you to accidentally click on it and then it's a single app or a single click install and they're doing this for a lot of their own games which is kind of presenting this like you said circular revenue where they make sounds like a hundred billion dollar business to me ryan i just yeah they make people like this

Starting point is 00:47:48 i don't get it and honestly it's interesting because i i had no idea app 11 was the one powering these horrible ads but i've always thought like mobile phone ads what a gimmicky crappy business like they're they're all you mean mobile mobile game ads yeah yeah mobile game ads like they're always just spammy they don't feel right they don't let you exit out and now it's like putting a face to the name um but yeah basically he's trying to get google play to take it down because they think it's malicious um and they think it's potentially harmful activity But the interesting thing is they get paid for app downloads. So Applovin gets a payment from all these companies for app downloads.

Starting point is 00:48:34 But they're getting people to install their own apps. So yeah, it is the circular revenue where a lot of the revenues go into the software platform, but it's also a cost coming out of somewhere as well. So anyway, the short report seemed to work because it's down 17%. The CEO also does have a bit of a sketchy background, and management has been selling shares. I'm sold. I'm in. Yeah, there is. I'll read one more quote here. It says, Our report documents the full step-by-step process by which Applovin has smuggled these direct download permissions into not only its own games, but thousands of highly popular games, including Subway Surfers, 8-Ball Pool, Wordscapes, and Angry Birds.

Starting point is 00:49:20 here's another one that i think is a good quote given app loving's notorious user experience gimmicks i.e multiple x outs and fake countdowns many clicks are inadvertent yet they potentially instantly trigger downloads anyways app loving's entire business centers on app installs this is ad tech's version of rolling the truck down the hill the famous reference to nicola which rolled the truck down the hill and presented it as the car driving so it's this was the one where okay super micro computer nicola a lot of these other companies that are almost like meme stocks they generate this even hims and hers there's kind of some hair on it a little bit like you feel like there's something not right not quite right and

Starting point is 00:50:11 but the stock will soar and you kind of get caught off guard by app loving i did not see this coming honestly i had no idea that this was kind of i hadn't really looked into the business that much but i assumed that the ad tech was legit and that i guess i just thought they caught lightning in a bottle with their ai ad tech and peek under the hood says maybe that's not the case yeah i would step if you're a bull on this one just take a step back and say is it worth it to invest in this company right now even if it's even if the business is legit valuation is getting out of hand if you've made a lot of money on this one where if you're looking objectively is the risk reward doesn't make sense at all

Starting point is 00:51:01 that's just what i'd ask you yeah and the valuation i i don't know what it's at today but i remember checking and it felt very extreme recently yeah the sales ratio is high and if it's self if it's circular revenue it's technically even higher yeah it's that always sunny in philadelphia keep yeah keep the money moving yeah patty's dollars maybe that's just what they're they're getting in on all right what's your bubble watch this week yeah let's do bubble watch fun one i think i have two ones here let me just look at what i am saying oh yeah first let's talk about this lemonade slide you see this ryan yes the worst maybe the single worst slide in like there it sends masa son yeah yeah maybe since but that one's more like an artistic kind

Starting point is 00:52:04 of i have this vision and this one's just nonsense can you i'm gonna pull this up for you ryan do you can you tell what's going on here here's what i here's what i see the more they grow the more their adjusted gross profit grows the more they grow their free cash flow goes nowhere that is yeah that is their plan that is i know that is their plan it looks like a physics problem for my junior year of high school it's vectors we're learning vectors for anyone listening to this podcast there's a pink line that goes up and to the right through the way most ir presentations present pretty much every number so adjusted gross profit is what it says and it says they're growing the business adjusted gross profit goes to the right then there's this

Starting point is 00:52:50 line below it that goes directly to the right and does not go up at all and it says as they scale the operation adjusted free cash flow just goes straight to the right it's and then there's this weird circle that means absolutely nothing the it's basically dollars they're all they're all Yeah, it says as gross profit grows, our free cash flow will not grow at all, which is a weird thing to put in a slide. And I think whatever intern put this together might be getting some backlash from management. No, I think if you met the CEO, he would say, this is great. They say, overview of our model, metrics that matter. Remember, this is an insurance company, Ryan. They say the metrics that matter to them, adjusted gross profit and adjusted free cash flow.

Starting point is 00:53:36 Typically, we like free cash flow, right? There's one thing that matters for insurance. net income and growth in book value per share, because it's like a bank and you need to be accumulating capital on your balance sheet. Like your assets have to be performing better than your liabilities. That's it. It doesn't matter how small or big you are. And that's why whenever someone posts something bullish about lemonade, just look at the book value per share chart. Remember what Buffett says about insurance. He says they don't care with what is it called national indemnity, the one that Ajit Jain was just masterful with. They don't care how much

Starting point is 00:54:23 insurance they write in every year. They're going to write profitable insurance. Anyone can write unprofitable insurance. People look at, oh, well, Lemonade's premiums, they're growing so quickly. I can double Lemonade's premiums tomorrow if you gave me enough money to do so. I would just write extremely unprofitable insurance and you can grow very quickly doing that what's the quote if if you're willing to write a bad insurance policy in the middle of the ocean someone will find you and someone will take you up on it i think buffett talked about that they someone will find a bad insurance policy and pay you for it you really want to look at the loss ratios um and the net income and the book value per share those are really the metrics that matter

Starting point is 00:55:08 uh all right we have what micro strategy yeah talk about micro strategies let me find now this is my own tweet i forgot to link to it but i'll be able to find it quickly all right all right do you remember this wall street journal article highlighting on november 28th now i don't know if you want to pull up micro strategies chart here but november 28th, 2024, highlighted some of the people that are very, very into MicroStrategy. Here's some quotes from people that said, this 35-year-old wealth manager in Los Angeles went all in on MicroStrategy in September after selling his Bitcoin and Tesla holdings. Yet, he says he wouldn't recommend MicroStrategy stock to his clients, quote, unless you do the requisite

Starting point is 00:55:57 100 plus hours of studying Bitcoin on top of 100 plus hours of MicroStrategy, you should not enter this trade because it is a very sophisticated trade that 99.9% of Wall Street doesn't even understand. Other quotes. Once you see it, this is a separate person, you can't unsee it. In August, he moved his entire pension fund into MicroStrategy. He has also dabbled in call options or contracts that allow investors to buy shares at a specific price. Last one I'll have here. This guy, I guess he was in the Wall Street Journal, so he doesn't matter, but looks just like an East Coast prep guy that's going to get into this. Let's see. But he began investing in MicroStrategy in April and accounted for about 40% of his portfolio. Hundreds of bullish ops

Starting point is 00:56:46 and trades later, his returns have ballooned so much that MicroStrategy now makes up about 90%. percent options activity or let's see yeah all right that's about it my favorite quote michael saylor apparently recently said we don't have debt we have convertible debt which just to some degree yes there is it's a little different sure but uh if you don't hit a certain price you do have debt and people will you will need to pay back yeah and i guess the issue here is that like the panic selling will be extreme it has to be right like the the more this drops the more reason you have to sell yeah bitcoin's only down about 20 percent uh yeah things could get ugly. I don't know what's going to happen. Who knows? Maybe it's just a small dry down. But

Starting point is 00:57:48 I'm sharing the screen here, Ryan. I just love the timing of this article because you can always tell no matter what. I mean, you could probably see it maybe with us in something or something that we invest in. It goes up 10x. When people get extremely confident, when they're writing Wall Street Journal articles profiling you, when you are so confident and say that 99% of Wall Street can't understand this, or I got 100% of my portfolio in this, it is usually a sign the top is near and this article pretty much top ticked the stock it was over 400 a share when this article came out now we're down to 250 if you have any leverage in that portfolio leverage on gonna be some tough nights yeah what leverage on leverage on leverage yeah because the

Starting point is 00:58:34 stock itself is leveraged and true good point okay i think we're running out of time i've got a small cap of the week that i think will entice people but i might save it for next week because this week was pretty busy boston omaha we're revisiting this and we spoke with our past guest about it and kind of got some thoughts from i think one of the a very logical rational shareholder and he presented an interesting picture so next week you have that to look forward to. Stock's still down below $15 a share. I know I've gotten some heat for being skeptical. I would like to say that that skepticism has been correct, but maybe, hey, things can change. Maybe now's the time to hop back in. Not sure. We'll take a little investigation into that next

Starting point is 00:59:24 week. We have about a minute left, Ryan. You wrote remittly earnings. Did we talk about them last week no was it after i think they reported after but a good good quarter report good year a great year really this is a business that has a ton of momentum and i i think specifically with digital remittance apps there is a real network effect there like you want maybe not quite as much with remittly specifically but there's a lot of virality where you tell your friends about it If you're using that app and someone's in the same situation as you, they might use it too. And I just think that the more users that are on their app, the easier it becomes to add new users. And by easier, I mean cheaper.

Starting point is 01:00:13 And I think we're seeing that. Sales and marketing as a percentage of revenue came down significantly this year, and user growth was the best on record this whole year. So, yeah, just a lot of momentum, it seems like, at the business. You know, we have someone asking here why no profits? I think they're referencing Remitly. I wouldn't expect significant profits in the near term because they have one, a lot of corridors to enter and they're trying to expand outside of their starting markets. And that's going to take a lot of upfront investment, but it should pay off and expand their moat over the long term. Two, they're spending a lot on marketing, which is, as we're seeing with this revenue growth, very attractive returns on that marketing spend. And second, they're developing a lot of new products to add to the personal finance goals for these core remittance customers. So I wouldn't expect much in profits, but that doesn't mean they're not creating value. Yeah. Yeah. Remitly is probably one of the businesses I like the most in my portfolio.

Starting point is 01:01:16 the and it's for that reason having now worked in in the marketing side of things for fin chat for a while what i've kind of garnered is that a lot of businesses have pretty much no clue what they're doing with their marketing and it's hard to have what about ourselves chit chat stocks we literally can't find anywhere to put the money right now sometimes what companies will do when they don't know how to measure it they don't know what the the best traction channel is, is they'll just spread it across everything. They call it brand advertising, but it's because they don't know how to find the best performing places. Remitly seems to have this really perfected. They are not spending that much to attract their users and the users stay on for

Starting point is 01:02:06 a long time and they send more volume over time as well. I think it's rare to find a business that has like just that perfect kind of brand to go along with the industry like remitly you instantly know what it is especially if you're someone that sends a lot of remittances um and it it's a really intuitive app and i just do i think they've done a really good job with their go-to-market and i think that's kind of rare to find i agree it is rare and the fact that they can probably cumulatively spend, maybe this is too large of a number, $10 billion in marketing and has a long or a large reinvestment runway with attractive return on that spend, that is something you don't see very often and can give you that line of sight or just what

Starting point is 01:02:56 have you that can keep, excuse me, I was looking for this word, the North Star that can help the business grow and grow and grow. All right, we're going a little long though. thank you everyone for joining remember these episodes record live 10 30 a.m pacific time 1 30 p.m eastern time on the chit chat stocks podcast youtube page you can listen or watch the recordings on youtube after they are done you can listen sunday mornings on apple podcast or spotify let's hit the disclosure we are not financial advisors anything we say on this show is not formal advice or recommendation.

Starting point is 01:03:35 Ryan, I, or any podcast guests may hold securities discussed, excuse me, in this podcast, may have held them in the past and may buy, sell, or hold them in the future. Thank you everyone for tuning in for all the thoughtful questions and suggestions. And we'll see you next week.

Starting point is 01:04:02 I'll see you next time.

Chit Chat Stocks - Celsius Buys Alani Nu; Coupang's Increasing Momentum; MicroStrategy Meltdown (CELH, CPNG, PTLO)

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