Chit Chat Stocks - Cybersecurity & Edge Computing with Muji @ Hhhypergrowth

Episode Date: November 17, 2020

This week Ryan and Brett welcome on Muji (18:35). Before the discussion your hosts share their stories for the week (2:20). During the discussion with Muji the three cover cybersecurity (27:09) and edge computing (45:22). Stayed tuned after the interview to hear about hot water (1:09:33), buy-sell-hold (1:13:43), and anecdotal evidence (1:16:33). Enjoy the episode! Follow Muji on Twitter: https://twitter.com/hhhypergrowth?s=20 Visit Muji's Website: https://hhhypergrowth.com/  Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Watch this episode on YouTube: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ/ Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

welcome to chit chat money today is tuesday november 17th uh we have an interview today with muji at hyper growth um that's his name that he goes by and you can find his website it's muji at hyper or is it hyper growth.com yeah it's three h's we'll link it in the show notes but it is fantastic stuff for anyone that wants to go into the details of software another interview where i learned so much that i'm probably gonna have to listen to it again see all the details definitely uh and then before we get to our stories for the week we have a word from our sponsor right yeah cm with uh seven invest yes i kind of butchered that but it's seven invest is our partners now and uh do you want to give the sales pitch sure so you can get ten dollars off

your first month it's usually seventeen dollars a month for their seven stock picks each month uh from their now seven advisors we'll have to get the new one on i'm forgetting your name but sammy yeah we'll get her on the show or yeah we're getting her on the show at one point uh but you get ten dollars off so it's only seven dollars your first month and it's not like you're locked into anything so you can go try out the service and you can help us out as well by using the code ccm at checkout great deal and uh i will say that reverse psychology that we used last week where we said don't it didn't work i think it worked nice we got a few signups so follow up on that and just keep not signing up yeah exactly um but what's your story for the week uh it's going to

be the door dash s1 uh cool you know it's one of the bigger companies in the valley and one of the bigger ipos that people are looking forward to and there's a lot to dig into red flags some good numbers okay and i'm going to be talking spotify made an acquisition of megaphone this week so i'll be talking about that and then we as as always we have current state of fintwit hot water buy sell hold and anecdotal evidence let's go welcome to chit chat money on this show host ryan henderson and brett schaefer interview industry experts and riff on the world of investment as a quick reminder chit chat money is a ccm media group podcast ryan and brett are not financial advisors anything

discussed on chit chat money by ryan or brett or any other podcast guest is not formal advice or a recommendation now please enjoy this episode okay welcome in who wants to kick things off yeah you go ahead okay so spotify acquired megaphone this week um it's one of the biggest podcast advertising and publishing companies it's if you don't know what it is it's sort of like anchor uh so they allow podcasters to connect with advertisers uh but you have to pay if you're an advertiser to use megaphone so it's kind of not necessarily has to be for the bigger podcast but you're you make more money if you're one of the bigger podcasts on there because i think it's what 99 a month to be on there that that was our

research yeah okay and then uh a little more about the acquisition earlier this year spotify announced streaming ad insertion so they mentioned on their press release that this is really just them trying to expand on that so advertisers like wall street journal espn disney bloomberg linkedin they've all joined megaphone and so they have their own ads that they insert into podcasts that publish on megaphone and into and into their own shows so you may be confusing that aspect so all these companies have podcasts as well um so they're able to and they're all signed up as you know publishers all these kind of companies have podcasts and probably a dozen or even a hundred of them so okay and so uh previously when we use anchor we read the ads this would be them doing

ad reads and just inserting it onto our podcast right i believe so yeah so some of it well we haven't used it so i don't know for sure but i think some of it might be read it yourself they insert it depending on what target audience they want or they just get it from a third party okay And Spotify paid apparently $235 million for this deal, but they didn't give the specifics on that. I couldn't find it in the press release either. But if you think about it for the advertisers, they can really sort of – I mean I guess this is the podcast customer value prop anyways is that you are getting a targeted ad, right? You're getting a lot of data around who your customer is, and you can easily target those ads by picking whatever podcast they listen to. Apparently, podcast advertising is up nearly 100% year-over-year for Spotify.

What do you think of the deal? Well, I have three thoughts. I think probably they're overpaying if you were looking at it as a strict acquisition. however it's going to help megaphone get better supply because spotify has probably all the deals they work for their music advertising they're just going to have a lot more access to get more you know a supply of ads which will help for the large demand for podcast advertising because there's a lot more demand right now than supply um you know there's a ton of shows out there with a lot of listens i mean even like ourselves that could monetize if they had the ability to

um and this will help with that and then again it worries me that they already spent all this money on anchor um and we feel a bit that they're dropping the ball over there so is that money been wasted um i don't know what they're doing with this compared to anchor because maybe they put the spotify streaming ad insertions onto anchor eventually uh but they paid up for that as well i think like a hundred and something million dollars um i don't know what the return on that investments going to be now right and do you think it'd be a good idea for megaphone to allow like any publisher to advertise with them so right now it's kind of like the bigger companies i know gimlet media i think has uh advertisements with megaphone um sorry they're a podcast publisher

and actually spotify owns them so yeah can they do can't they do ads as well uh i mean that's what i'm trying to get to is like do you think it'd be a good idea for us as a podcast to be able to advertise on other podcasts through megaphone may potentially potentially that could help increase the supply that is the big issue right now or even maybe artists like musicians whoever's trying to use spotify as sort of their audience as well i mean yeah they're just there seems like there's a bottleneck of not being able to get ads out onto shows and there's got to be a way to solve that and hopefully they can do it i'm just not sure how this reminds me a lot of the connected tv space yeah like it's early days but if i'm an advertiser i'm definitely not on

radio which is sort of the linear tv to the podcast market wouldn't you be moving over to podcasts i think you would be trying uh but for one the way that podcasts are set up you have the rss feed historically it was hard to get get any data off of that but if someone's on spotify or apple um i know apple doesn't really do much with it they just kind of have the app but if you're spotify or maybe even another platform you have the data on the users if you spotify especially just because of the users have been on with their music tastes all that stuff uh they can probably get more targeted things uh but typically with the rss feeds it was tough to gather any data you know like any ratings and stuff like that okay what's your story for the week uh it is the

doordash s1 so they dropped it last week not the one we wanted to see i know airbnb dropped today but we didn't get to it just because it dropped right as we're recording basically um we want to see the roblox and a few others and doordash we already knew we probably weren't going to like it but hey it's it's good to it's good to look at it so their mission they say is to grow and power local economies seems cool to me seems fine um i kind of take offense to that because restaurants always complain that they're killing the restaurant industry so i don't know how much they're powering local economies but hey you know it's a good mission to have it's not like a it's not like a crazy one i wouldn't like i'd almost be more optimistic about a business if they just

said yeah like we thought this would be a good idea and a good way to make a lot of money yeah like you could say that like you don't have to change the world or just take it out like the s1 now they dress up the first 10 pages to make it look like some i don't even know it's like an yeah it's like an art show it's like a slide deck it's tough it's just i don't know those they always turn me off although it doesn't mean the business is bad um their sales are up as people probably expect 226 in the first months of 2020 first nine months net loss though still of 149 million dollars they hit a quote i'm doing air quotes here adjusted ebitda margin of five percent i say that because there's a number down here that really skewed that um that i think they

were misleading people with uh they're now at 50 percent market share in the u.s uh i guess that shows how selling the they've grown quite quickly they had i think a strategy of two undercutting people um which isn't sustainable but they've also gone to the more suburban areas i know the college town we were at had it they were the only ones there um that's an advantage they've given into where the suburban areas might actually be you know tougher maybe to be profitable but not like unprofitable um so it's kind of cool that they've able they were down to like 20 percent market share in the in 2018 and now they've gone all the way to 50 so they're doing really really well although they're a lot of money to get there they're burning a lot of money and the business

model is i still think it's concerning i have concerns over the business model um they had 315 million dollars in operating cash flow for the first nine months of 2020 however 452 million of that was accrued expenses which means that these are non-cash expenses that they had to realize but they haven't paid out yet which would be either to restaurants or their dashers which is their drivers um i maybe that's part of the business where stuff sitting and maybe escrow or they haven't had to pay out people on a monthly basis something like that but if all your cash flow is just based on accrued expenses where when you stop growing that's not going to be a benefit anymore i i really don't think that means you're actually generating free cash flow yeah that's

not a great look and just looking at the numbers i didn't look at the s1 but they look okay but keep in mind they just were the beneficiaries of the maybe the greatest catalyst in the history of mankind for food delivery and you still can't be really cash flow positive yeah and it's like well once they hit scale it's like how could they reach more scale it's 50 market share and the you're you've got half of the market share in the u.s when restaurants literally can't uh people can't dine in so they need you yeah and you can't be like truly cash flow positive it doesn't i don't know it doesn't bode well for the business so are you more or less interested i'm pretty i've been uninterested in ride sharing or uh food delivery that whole market it feels like

no matter which way you look at it you're gonna end up exploiting one of the stakeholders yeah and in this case it's probably the restaurants if restaurants don't like it i mean that's a very valuable stakeholder in this chain the only time i use doordash is if i'm going to a chain like chipotle because i know that they have the bargaining power to actually make a good deal with doordash but if i'm using a local restaurant never do that because just call in and pick it up yeah if you're doing that um it the the history shows or i guess the studies or the news stories have shown that doordash really screws those people over and then another thing that does concern me is that dominoes has gone the like no we're not taking any third-party delivery apps

whatsoever that i mean are other people going to repeat that i know that doordash has a partnership with chipotle and likely a few other restaurants to do exclusive delivery through their apps but could some people replicate that i i think there is a potential yeah i mean that's like building your own fleet or own food delivery system is probably really cost intensive but it's worked for dominoes it's yeah it's worked incredibly well um all right is that it for your whole story that's it yep okay current state of fin twit i only have one thing um yeah i got one did you see the stuff about arc invest arc invest yeah it was going to be one of my hot waters but we can talk about it right now yeah so they didn't really there was this article that came out and

they didn't talk too much about the specifics of the deal but essentially a few years back they took a stake i think it's a private equity firm that backs fund managers uh they took a stake in arc invest and then uh had the rights to take another stake later on it was kind of like a call option resolute management is the name right and apparently kathy wood is upset about this tracking and yeah okay like yeah you've done a good job but you had to know you gave them the ability to do this and you're upset that they did it like yeah you gave them a gun and the option to shoot you and they shot you and you're blaming like that's your fault yeah and it sucks because their management firm is worth a lot now

because they're on fire. I mean, it sucks because they're not selling out at the top. Someone's just exercising the right to take over control, so it's not even like they can cash out when they're maybe never in a better environment. They've been the biggest bull in Tesla, Teladoc, Square. They've been right so often recently that they're the number one ETF that's non-passive.

Yeah, I don't know. They shouldn't be complaining about this. seems like a bad look yeah to be like these guys are the enemy here when you gave them the ability to do this yeah there's no way well i guess hindsight's 2020 but you can say like all right you wouldn't be here if resident didn't start you up you know yeah and i imagine there's a reason that they got those terms you might have needed them at some point um okay what's what did you have well i don't like to uh i try not to make fun of individual people unless they're actually famous so the all these people are famous uh the vc tweet trifecta this week you may have seen

the i don't know if they blocked anyone that's not from the valley um i don't know if they're just muting any of the people that criticize them but they there's been some tweets out there from you know paul graham sam alton and the nabal guy uh that people are like what are you talking about the one about telling your 11 year old about finance you know did you see that one okay so this one is from paul graham again i'm using his real name because he's a famous guy and he doesn't give a rat's ass about us uh he i told my 11 year old about the existence of finance i'd willingly answered first off it's an 11 year old you're just bragging that it gets smart um i'd willingly answered all his questions about drugs and organized crime and sexual practices but i found

myself reluctant to tell him there are people who made money just from betting whether prices of things would go up or go down and he was inferring to the invest public investment community but he's one of the biggest vcs of all time i mean does he need a mirror i don't know does this guy not own a mirror i i hate when they put the age of the kid of the kid i was talking to my kid told my kid 11 year old humble brag no big deal told my kid about berkshire's share buyback program they were really impressed uh all right this other one is from sam altman i think this was another one where he made it a mirror um he said the faker the job the more credentials matter uh i that's just uh i i uh we're people that are going about things without the credentials that some people

would like look at his bio it's like gp yeah yeah and then there was i know i hate that one wasn't too bad then there's the guy that the naval bros um do you know naval again that has no followers i like some of the stuff i thought his book was interesting but they tried to pretend that he invented leverage i mean they were like yeah there's this thing called leverage here to archimedes you know give me a long left lever i can move the earth it's like yeah we knew about leverage since roman greek in egypt i don't know he's got quite the cult following oh yeah he's got interesting stuff um i don't know it's venture capital is a weird world it's weird it's weird it is there's like a very real silicon valley bubble oh yeah and then there's cory hofstein a great

fin to a guy he said i thought we had peak think fluencer think fluencer earlier this week when someone gave neval credit for creating the mental model of leverage quotes but then we got paul graham on finance and this absolute gem within 24 hours of each other clearly still early innings i was like yeah we might be the vc i don't like to comment on them but because i don't want to get blocked because i like have access to these jokes but i don't know it makes me doesn't it give like a bad taste for venture capital yeah there's like some really some of the smartest people in the world are in venture capital but yeah no i get that you don't need to have a credentials to be a good vc but when you say that in general like doctors engineers phds lawyers

like they need credentials right yeah okay um next we have our interview with muji what did we recorded this a while ago but what did you kind of like about it i like to explain the cybersecurity stuff how it all fits into the one like edge networks how there's a little bit of a network effect because they're all spread out around the world how are they innovated and built the security stuff cybersecurity excuse me in the cloud um and the number one companies we talked about there would be CrowdStrike which he liked a lot and what was the other security company Zscaler yeah how they work with each other why people would use both things like that it's just interesting because I had no idea yeah and I if you are invested in any of these

companies or you've thought about it whether it's Fastly, Zscaler, CrowdStrike with what's the last one Cloudflare was that was that a Cloudflare yes if if you're invested in any of those things or looking into it this is a really informative interview it's not typically our kind of business but we learned a ton because we had a very low pace to begin with but it was really helpful so here you go cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included

with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply today we are welcomed by muji at hyper growth that's probably how you know him i believe his what's your twitter handle again at hyper growth with three h's three h's there we go and you can find his website as well. I'm sure if you look up HyperGrowth, the three H's, you'll find it. But before we get into sort of the crux of the discussion, which is cybersecurity and cloud or edge computing, why don't we start with your career? How did you get started in investing to begin with? So I'm a software developer. I've worked for myself for decades as a contractor, but I've

always been in and around tech and databases and data, which is now obviously huge topic since it's running the world. But I got into investing right around the tech bubble of 2000, 2001, a little bit before that, and started to get into tech stocks. Didn't really know what I was doing. And obviously there were some inflated values back then around 2000. And so I got into the Motley Fool right around that time, got into their forums and some of their newsletters. And so I've been investing since for now, two decades. Wow. That's a long time. Yeah. And if you, I guess this is a unique way to start. What's the difference between right now with maybe some of the people that are arguing that there's inflated values? Is there

any difference between any of the frothy things going on in the current market versus 2000? Have you noticed anything different? Yeah, yes and no. Certainly people like to paint a broad brush with that sort of comment. But back in the dot-com era, it was all about dreams. There was no revenues.

It was all dreams. And so companies today have revenues, are working their way to profitability and are already profitable. So it's really night and day comparing those eras that said there are still some companies nicola motors for instance that there are pipe dreams and you're really betting on a dream which i do not invest that way at all yeah i like concrete facts in the financials about how a company is executing before i invest yeah

we're the same way um and i guess if we want to get into how do you specifically look at companies i mean what do you look for and stuff that you invest in do you kind of stay in your software expertise? And next, how do you define hyper growth? So I kind of come from the David Gardner school of thought with rule breakers. And so I was always intrigued by that element of the Motley Fool where they'd really, I don't know, I guess you'd call it home run bets of companies that have a huge amount of potential and are doing well now. They should continue to do well in the future. But, you know, I call my blog hyper growth in my Twitter handle. That's kind of the starting point for what I look at. The company has to be performing extremely well on

the top line, has to have, you know, 50% or higher revenue growth year over year and have some huge impact at the top. But then I looked, you know, deeper than that. And this, it gets a little more intangible, I guess you'd say. But I like to see customers flocking to the company and spending more. So net retention rate or expansion rate should be above 100%. So that recurring revenue model should be in place. And then I like to see signs of operational leverage. I don't necessarily look for income. I like to see signs of leverage where they can really be swinging towards income at their whim. And so the model with these hyper growth companies is let's collect all the customers we can. And so that's kind of the starting point is, are they in that mode

where they're really amassing a tidal wave of growth right up front? And then can they swing towards profitability? And ultimately that's where the profits will ultimately come. So when a company, so you said you try to aim for companies that are hyper growing, I guess is the way you phrase it, but when a company goes from just that growth phase to generating profits, and maybe there's a slowdown on the top line, is that a deal breaker for you if it goes below 50% revenue growth? Or is that just an entry point kind of? I don't really look at entry points personally. It is slightly concerning if the revenue is dropping under 50% quickly, or there's signs that something's faltering. Maybe there's signs of the sales department faltering

or something like that, or some kind of upper management change or change in theory, or they're deciding to switch tactics of how their platform works or making major architectural shifts or things like that. Those are all pretty huge red flags to me. However, I do invest in companies that are growing less than 50%, but they're ones that started above 50% and have slowly fallen under that as I watched the signs of that operational leverage and profits coming in and filling that after the fact. Okta is one example of where it's a company that's under 50%. When I first started investing, it was maybe in 60%, but it's just swung towards profitability and it's still having a massive number of customers flock to it. Another sign I look for is

you know i like to get a kind of holistic view of the of their platform to see where the platform is now but then where are they expanding their platform how can they leverage the architecture they have into new directions new tam you know that's kind of getting more into the intangible side and it's a matter of knowing the tech and that's what i kind of focus on in my blog is explaining the tech for investors so that they can kind of understand where the potential is in these platforms and how they can start pivoting and adding tam yeah we appreciate that because there's a lot of us that are in our boat where we're not an expert we're not a professional in the software industry and these companies especially the b2b ones can be tough to

understand the terminology is a little confusing oh yeah times yeah but i mean tech is such an acronym heavy industry as it is and so you just i don't know you can get lost really quickly but But I luckily, it's funny, these two questions back to back is, you know, where did I get started? And I told you I was into software development and actually do software architecture. So I design, you know, how systems work. I finally realized that I explain how tech works so much in my job, you know, to explaining to customers, explaining to management about how these things piece together.

That's why I finally realized I can leverage that in my investing. And I deep dive into these tech companies and it gives me a better understanding of their platform. It's win-win. I can explain this to other people and weave a story around it, but I can also understand it for myself for my own investment purposes. Right. In terms of the hyper growth part of your investing, I'm imagining a company that sustains 50% revenue growth. I mean, they can't obviously do that for a very, very long time or else, just the law of large numbers. Do you end up looking for smaller companies just naturally? It depends. There's a lot of companies that are growing significantly, Shopify, for instance,

that actually grew beyond what I normally like to hold. I don't like to hold larger cap stocks because I feel like there is less runway for them to grow. And that's one I sold prematurely. and it cost me because he continued to go up and have a lot of success and now with the pandemic is is clearly well above 50 growth uh once again so yeah it's it's it's not it's like i said it's the entry point for me okay i need to see that execution up front but then i look at what do the customers look like what does the platform look like do i see the signs of leverage you know can I see underlying margins like operational loss? Does it jump from negative 40% to negative 15% year over year? I like to see signs that it's making moves to the positive. If it's going the

wrong way, that's a negative sign for me, regardless of the hyper growth. So it's just the entry point into looking at these companies. We want to get into our cybersecurity part of the discussion. The two companies that we're really going to focus on here are Zscaler and CrowdStrike. So how are those two different? And then basically, how does a company use multiple cybersecurity services? So how many different areas of cybersecurity are there to fill? Can a company use multiple at once there are endless uh layers to cyber security uh i we were just uh october is cyber security month we just missed it oh and last year october i released a blog series that was kind of multi-part called flavors of security where i really dove into the tech behind

cyber security where the attacks come from what are the attacks and then what are the ways to block those attacks and kind of at the end of it start talking about zero trust and carta some of the moves towards zero trust initiatives which is kind of the next gen of cyber security and so crowdstrike and zscaler are companies i know well they're they're in that next gen um category i'd say and actually covered them in depth in that series along with octa and so they're they're different, they're protecting different things. And so Zscaler is all about protecting traffic. So it's the traffic between points. So I have users across the globe that are all talking to this internal service. I can protect my users as they go out and talk to Microsoft Office and

Google Docs, Workday, you know, any of the enterprise SaaS applications. They can be protected in that, but then they can also be protected as they're talking to internal APIs, internal apps, that sort of thing. So that's kind of the two sides of Zscaler. Whereas CrowdStrike is all about endpoint protection. So endpoint being the computer, the mobile device that needs protection. And so the way to think about them is the easy kind of non-technical way to think about them is that they're the next generation of antivirus. So antivirus used to be this thing that sat on your computer, your McAfee and Norton scanners that sat and looked for certain signatures and files. CrowdStrike does that on your device or your

deployed workstations or your mobile phones, your servers, and they look for, they're kind of constantly scanning proactively for anomalous behaviors. So they're not, so they're partially looking at file signatures and things like that, but they're also looking at memory use. They're looking at usage patterns and trying to determine anything that looks out of the ordinary. And so both of those are, you know, kind of agents that you install. And those SaaS companies, Zscaler and CrowdStrike, have a complete view of the globe at any time. You know, they've got millions of points that they're protecting. And, you know, in one case, the traffic between them, in the other case, the devices themselves. Okay. And so then originally I had in the

cybersecurity section here, some questions on Datadog, but you through our direct messages told me that's more observability. How does that differ from what CrowdStrike and Zscaler are doing? So Datadog, I don't consider part of cybersecurity. It's a little more nuanced than that, But they are in the observability space, which is all about you, the IT staff, need to see what's going on. So you need to look at the logs. You need to look at output from your applications. You need to look at the kind of the real-time metrics of all your systems, meaning your servers, your database server, your web app server, those sorts of things. So it's all about observability, which is being able to view your infrastructure. So now in the world of the cloud, half your infrastructure or more to 100% of your infrastructure might be in AWS or Azure. You practically have zero visibility into that. You don't run those servers. So you need your servers to tell you what they're doing. What's the CPU usage? What's the memory usage? That sort of thing. They're starting to pivot into security, which is a new angle they're taking their existing platform.

It kind of changes the audience of their platform. Their platform is for developers and IT staff. Now it's a little more for cybersecurity professionals as well. So they are a cybersecurity company. But yeah, I just don't, I don't, I guess, put Datadog and CrowdStrike in the same industry. okay but they may and that's i guess the concern a lot of people have is they may slowly start overlapping and start competing with each other is that going to happen anytime soon you think yes yes and no i don't think datadog is going to get necessarily into threat detection

okay where they have built tools is once you know that some incident occurs in your infrastructure you can start tracing through to see what it is but it's more focused on oh i ran out of disk space on this server, or we used up all the CPU, or so many requests came into our web server, it overwhelmed our web server. It's more about that focus of maintaining infrastructure. What they added with security is on top of that, looking for cyber threats. But they're what's called a SIEM, which is a monitoring interface into cybersecurity. And so they're still staying within observability, but they're not doing the actual threat detection. They're just doing, giving you tools that your team can identify incidents and start to research them and keep

your notes in this in the same place okay and then i think i think i know what your answer will be to this question but do you see this space as zero sum then or do you think there can be a lot of winners in the cyber security area i mean do the customers have use multiple of these offerings? Like, does an individual customer use Datadog, Zscaler, and CrowdStrike all at the same time? Or is it just one company

that's going to win it all? It is definitely the latter. They all start working together. In fact, those two companies, Zscaler and CrowdStrike, do have a partnership to work together. Okta and CrowdStrike have a partnership to work together

for their respective things. And so all of these companies are starting to work together more and more. The way cybersecurity is looked at is layers of an onion and so first off they protect different things and so you want to buy them together to cover both aspects of all my servers and all the traffic going between them or all my devices and all the traffic going between them but um so but they're also all

moving kind of around into the same space so it's definitely a frenemy sort of relationship with some of these things because they're starting to do some of the same things like Okta and Zscaler are both getting into zero trust, which is, you know, ways of accessing your internal APIs and controlling that tightly. You know, they're starting to be in the same space in that regard. And so it's interesting to watch them kind of move and pivot their platform. CrowdStrike is a great example, actually. They have a threat Intel platform, you know, so it's not just observing things. It's about detecting anomalous behavior. And so one of the things I like about this space in general with cybersecurity, it is a complete benefit over the old way of doing

things, which is all networking appliances from Cisco, Palo Alto firewalls. You built up a castle and moat scenario in your enterprise and you build a protective buffer around your entire network and you tightly control who can come in and out of your network. That can't exist in today's world. You've got all these SaaS tools. You've got multiple locations. Now you've got so many different remote workers to protect. There is no boundary anymore. So what CrowdStrike does is they have all these endpoints that they protect across the globe on one platform. What that allows them to do is when they see anomalous behavior, they can put it together between multiple people. So that never existed before in cybersecurity. Everyone's their own island in cybersecurity. You had your own firewall set up, and you could only see your logs and your intrusions. Now you can see intrusions across multiple customers at once. Oh, it's all coming from one global region, and they're attacking multiple ones of our customers. CrowdStrike can act upon it and snuff it out in an instant across all their customer base at once. And so it's just a totally new paradigm in cybersecurity that didn't exist five years ago that these SaaS tools allow. Yeah, and is that because of the cloud-native aspect of these companies, or is there anything else besides that? It's cloud-native for sure, and it's slightly different advantages.

It's the age of data centers, so everything's coming about the edge and edge networks. right they're all able to spread and have servers around the globe so they can protect around the globe and all and then they build infrastructure to interconnect them um but absolutely the answer is yes to your question cloud native is what enables this you've got instant scale capabilities and global reach that way and so this wasn't possible before okay okay and then oh go ahead As I say, is it hard? I mean, well, how hard is it for the customers to leave? And as far as like moat goes for these companies, can a startup come in and disrupt what they're doing and a customer can just switch on a whim? Or is it they're locked in and there's huge switching costs? somewhere in between it's uh there are more competitors coming up and so if you're tied tied into zscaler it's twofold it or really both angles zscaler is an incredibly sticky

service once you go to using an edge network as your enterprise network which is basically happening there you're doing away with trying to protect your network between hq and your workers or HQ and satellite offices, and now just using kind of an edge network as your enterprise network. With Zscaler, you are protecting traffic. It's an interesting paradigm. They've got an edge network. You as a customer are on your work laptop. It's all about protecting the enterprise workforce. You're on your laptop. You use their agent that you've installed. It connects to the nearest edge network. And then your traffic for the majority of the rest of the globe is protected in their edge network. And then it exits the other end of the edge network and talks to whatever

service you're talking to. And then it repeats that on the way back. And then CrowdStrike does that same thing. These are extremely sticky services. So once you move over to them, you're kind of locked in. And Zscaler in particular is incredibly difficult to implement. they work with a wide variety of system implementers in order to do so I think that's a little bit of their downfall and I'm slightly negative on that on them because of that because other services have arisen that do very much the same thing you connect to an edge network from your device in a protected way it goes through the edge network it comes out the other end and talks to whatever web service you're talking to and then the reverse happens

now has cropped up with CloudFlare, which is an easier to implement service. And so ultimately the answer is yes and no. It's a sticky service. Their customers are going to stick with them. I think their customers do have other options if they want to go through a different implementation. And CrowdStrike as well, there are other vendors, Carbon Black that VM Sambot, a handful of others that all got swept up by other companies that are trying to roll up cybersecurity. CrowdStrike's unique moat, I guess you'd say, is that they have what is called crowdsourced threat intel. And it's again, exploiting what I was explaining before that they pull all of that intel from all of the customers across the globe into one place and

are looking for threats across the globe. And so again, if they see similar looking attacks on multiple customers, they can snuff those out immediately. And so there is a moat there, but someone could ultimately decide to use an alternate. It might come down to then price and implementation differences. So each additional customer that they have is a value add to the next customer so it's a little bit of an economies of scale and network effects is that is can that happen or is it yeah yeah absolutely there's definitely a network effect because the better the i mean it's just the way your algorithms are going to work the more inputs into your machine learning the the you know more accurate the outputs and so i think the more people that

they can see the threats across the better okay okay and then if we look more at the stocks um they're trading i mean both of these companies are trading at very premium valuations um is there a reason that they should be trading at these high valuations um at least looking at the sales ratios can they grow into these premium valuations very easily um it's just tough you know because they're one of the most highly valued companies on the market right now Yes. I own CrowdStrike and not Zscaler personally, because of the difficulty in implementing Zscaler. I think, and they had some stale stumbles about a year ago. Although they're certainly doing well with work from home right now. So they've kind of reignited their hyper growth. um i think they will grow into these you know going back to what i look for in a company hyper growth is the entry point i'd like to continue to see it but i mean just think about

the number of customers that crowdstrike is is gaining right now they were growing 100 customers wow uh growth uh year over year for a while now and so they're just so much scale is coming in to the size of their platform, that as soon as the operational leverages kicks in, they're going to be extremely profitable. And so, you know, potentially they could be disrupted. I think that's a long way off and we'll have signs of that if that does occur. So the answer is yes, I own them because exactly. I think they're just going to continue to scale top line and then the bottom line is going to scale from there. Okay. And then are there any smaller cybersecurity companies that you're looking at? I know you just

mentioned that there was a bunch that have gotten rolled up into some bigger companies, but are there any ones that are, you know, on their own and publicly traded? Certainly Okta is a fantastic company, also extremely sticky, that they are focused on identity. And so they're, again, different from CrowdStrike and Zscaler. They're focused on the identity side of things. So establishing you that you are who you are. But again, they're getting into zero trust and Carta methodologies, which zero trust is all about not trusting anyone. And so always making sure that someone establishes their identity up front. And so all these companies are starting to make moves on that front as well. Carta is kind of taking zero trust and then adding in

machine learning and behavioral analysis. And that's exactly a company that CrowdStrike just purchased is behavioral analysis of user authentication about a company called preempt and so they're all starting to swirl around zero trust it's it's it is the next generation of security and all of them are starting to swirl around edge networks as well it's starting to use and leverage you know kind of these global networking traffic platforms for handling and protecting traffic across the globe so it's not going through a variety of switches and you don't know where your network traffic your internet is going right and i guess that's a good segue because our next segment ryan you have a more question more question okay well if it will be

if you if you thought that one of these companies if there was one cyber security company that you thought could do everything um and it was sort of zero sum in that regard so let's say they could eat up data dogs sort of market observability yeah and just take over the whole cyber security space which one would it be yeah we didn't elastic is another one like datadog that's all about the the seam just the observability part it's not going to come from them uh who would it be i mean uh so where we're segwaying into cloudflare is making a lot of really interesting moves in cybersecurity um that's one that's certainly rolling up a lot of different features and uh So we can definitely, that's a great segue into that. As far as other companies that you were asking, Brett, I don't see any. I see Ping ID is often mentioned, but it's growing less than half of what Okta, the market leader is. And so, as I said before, I think you're going to see upstarts coming from a mile away.

There's a couple of private ones like Sentinel one that seem pretty interesting on the Datadog front, kind of Datadog and cybersecurity related. That seems pretty interesting using machine learning heavily. But I just don't see disruption coming easily. These are already the disruptors to kind of the Cisco and Palo Alto and FireEye old school, I'd say, of cybersecurity. And so, you know, I look forward to what's coming next. But Cloudflare is the one that's of interest to me. Yeah. So I guess we're going to discuss Cloudflare and Fastly. If listeners know that we discussed Fastly in depth with Tim Byers, I think about two months ago. So if you want to learn about what Fastly does, we're going to be discussing, you know, if the company, what the company does a little bit here.

But if you want an overview, go back and listen to that one. But we want to talk about Cloudflare, just get an introduction on that. What do they do? And then what is their new cloud-based security offerings? So they both came from the CDN space, to sum them up very quickly. And I do have a blog post. Feel free to see my blog as well. There we go.

What are edge networks? That kind of talk about where they came up from, which is both of them were focused on content caching. So it is creating an edge network, a network that spans the globe, that has several points of presence, which are edge servers that sit in various towns and they can cache content in Chicago. And so all the users across multiple states

within that region of the United States can call that versus a cache server in Hong Kong that's serving up Southeast Asia versus a cache server in London that's serving up that portion of Europe. And so it's about pushing content off of the origin servers where it's very expensive to maintain infrastructure

and handle a lot of requests. You push that content out, whether it's video, blog posts, magazine articles, whatever, can be pushed out to cash and served up repeatedly from cash and so that's kind of where i mean cloud did other things beyond that but they were both generally lumped into the cdn space and fastly is is solely as a cdn at this point okay um so content delivery network is what cdn stands for they are both upstarts in that particular commodity industry and so you know this is

an industry ruled by Akamai and several other companies exist in this space and they're all competing and it's been fairly well established what you know CDNs provide for you but where edge networks get really interesting is that Fastly and Cloudflare in particular have designed their platform architecture around edge networks which is a programmable software defined network So they kind of don't use the old model of, you know, kind of expensive hardware to inter-network their locations. They're able to use software to handle network routing. And so they have basically built programmable interfaces over those networks. And so not only do you have all these cache servers, but you can control how traffic flows between them very easily.

That's not something that I would say Akamai has. and so they're putting really powerful servers all around the globe have these networking capabilities in between them and now they're both expanding or have expanded into edge compute which is allowing you a developer to run programs on those what were formerly cache servers you can now be running actual applications and have dynamic content instead of just static content okay so how are you might have already you might have briefly answered this but how do cloudflare and fastly differ yeah because we've heard one fastly's premium and cloudflare's you know everyone can use it is that the way to look at it or yeah i mean that to me it's a little

simplistic i guess um and certainly they have different go-to markets and so they're very wildly different companies and how they execute. So Fastly is all about getting premium names in next-gen web. So Pinterest, Shopify, you know, these premium companies, DoorDash, you know, all these names that are doing extremely well, doing really interesting things with their web apps. They sign them up and handhold them very tightly to get their developers onto their platform. And so they've got a massive amount of bandwidth around the globe, and they kind of sign up these premium customers into that bandwidth. And so Cloudflare, on the other hand, kind of took CDN as kind of one of the things they did, they really focused on security and performance of

your website. And so both of these companies can provide you other things beyond just caching of content. Because they sit between, you know, all the users over here and their web server, they sit, you know, these content companies sit between these two things. And so, they can help manage the security of your web application. It's what's called the web application firewall. Again, that's something that you could buy appliances for, just put into your data center. But now this is all handled in the cloud for you. A request is made for your web service, it goes to Fastly or Cloudflare, they can protect you from denial of service attacks, you know, unauthorized users or, you know, other attacks. So they kind of provide a layer of cybersecurity over your applications, not over your servers, not over the traffic, but over your applications properly. Okay. What Cloudflare's differing approach is, is that they really focused on that entire platform holistically. So content caching is really but one corner of it. They really focused on, we provide a web application firewall, we can stop DDoS attacks, denial of service attacks, all of these other features over your web apps. So come sign your web apps up or your websites, and we'll provide a protective layer over them. Whereas Fastly is pretty focused on content delivery. They want to take your YouTube videos or your content and distribute across the globe really quick.

They have a heavy focus on speed so that if your content changes, they can redistribute your cash very quickly across the globe. And so they took different approaches around what to me is a very similar underlying platform, which is a programmable edge network and now edge compute. And so to me, the way I like to look at these companies is that CDN, content management, is but the first application that they built on their edge network. And it's what financed their edge network. But that's a commodity business. And that's not the way I look at either of these businesses. It is absolutely for what comes next. a the things that they're building on their own edge network and b what are customers going to build on their own own edge network once they can start programming on them it's not just i'm over here making a web post and posting it out now your web entire website can be hosted in the edge network itself you don't have to have an origin server under the edge network paradigm so interesting so much less there's a whole wave of other things with edge networks which is

CDNs are solely focused on publishing and consuming content. It's about publishing it out towards the consumers and the consumers are all consuming that content from the cache servers. Edge networks go both ways. It's not a one-way highway. So what you can start doing is internet fast lanes. You can route around problematic areas of the internet.

Say a sub-C cable goes bad between Asia and North America. You can route traffic around the globe around that. And so you can basically have a smarter internet. But because of that, it's not just publisher consumer. It's that as the internet starts generating more data from the consumers coming inward, that's a whole that's flipping the whole CDN paradigm on its head. Now you've got all this content being generated from IoT devices. Every car's got sensors that's being fed in. You've got autonomous driving coming. Obviously, that's the easy answer to what edge networks can do. but you've got fleet tracking. You've got asset tracking. You can have sensors in manufacturing. All of this is going to be sending data somewhere. Now you can be making decisions at edge compute servers about where that traffic goes, where you're pulling information from. You can be stitching together responses from multiple places around the globe. And so it's really changing the paradigm of how network traffic is going to start flowing. It can flow all

directions at this point and your shareholders are both you're a shareholder of both those companies right i am okay so we're gonna try to poke holes in your thesis then please do this is something we like to do it's called devil's advocate where we basically invented it right right but it's uh just basically we come up with some of the bear points or the counterpoints to the bull thesis. And then hopefully you can refute them. So the first one that we've heard before is that competition from Amazon or Microsoft is going to be difficult to overcome since they own the origin servers. Yes, they do. They do own the origin servers. Most of the traffic is going to the cloud. And so obviously AWS, Azure, Google Cloud are going to be

primary beneficiaries of that, all of which are rapidly growing. So absolutely, they're the origin servers. The benefit you gain from edge servers is that you are reducing the amount of traffic that hits the origin server. So you're able to pay those cloud providers less because you only have got a thousandth of the requests coming in as cache servers have to be refreshed instead of every single user hitting your API. However, they're not going to like that dynamic and they're probably going to build more and more edge capabilities. What they're not going to have is the programmable network between points that doesn't exist within the cloud.

All of that is handled by the cloud provider and not exposed to users so much. There's network services, but you don't have the programmable network that you'd have with Fastly or Cloudflare. So I'm not so much worried about that as being a negative. It only provides more interest in edge. And I think the customers are going to go to where edge compute is possible now versus what's called Lambda at edge at AWS, which is basically a part of CloudFront. They've even tied it to their CDN. And so to me, it's very backwards thinking by them. They need the programmable network in between.

The more negative case that I see is that it's the age of data centers. Other companies can spin up their own edge networks. They can spin up servers across the globe in any number of data center services companies like Equinix. And I see Zoom, I see Twilio, all building kind of their own edge network and probably not leveraging what's vastly in Cloudflare. And so there is that potential that they could basically end run around, but that requires a significant amount of developer experience in order to be developing it yourself. And so they provide the easy entry for sure. And so that's where I see maybe more of the disruption. yeah so it takes a lot of capital investment it takes a lot of investment from developers so it's not like microsoft or amazon can just you know flip a switch and turn on an edge network that can compete with fastly and cloudflare is that kind of what you're saying or yeah and i don't even see them being interested in that okay you know they're going to continue to to to innovate at core cloud right that's their specialty i just i think other companies that are more savvy could potentially be developing it themselves but as you just said it's a

crap ton of capital okay and then another thing people mention is that cloudflare and fastly are for basic use cases um at least right now and it's not for the highly technical stuff uh like self-driving cars and internet of things that's something people mentioned is that something that fastly and cloudflare could build out or is it like you mentioned you got to have the third party I forget the technical term, developers on there? Yeah, it's, I see where the point is coming from. It is capable of those things right now. What it's not, there's a very clear line

between what's ideal for core cloud and what's ideal for edge network to me. And it's, edge is not going to replace core cloud, okay? Because you always need that scalable compute, especially as we get into this land of machine learning and AI, you need a ton of compute, and that's just not going to happen at the edge. You've got a little bit of compute at the edge, so you can be making logic decisions, but you're not going to be doing huge calculations at the edge, unless you want to be paying out the nose for it.

And so, you know, every use case is going to be different. And so maybe that's where this point is coming from, is that it's maybe a little more simplistic in that you're making simpler logic decisions. But what it is doing is making a logic decision about where am I going to go ask this server for this response or i need information from a couple different places at the globe i'm going to go get it at once instead of going talking to a core service that's doing that amassing for me and so there's uh i think edge is going to chip away as more and more use cases are exploited by the customers okay and then this one's sort of more fastly specific but But I think Fastly has been sort of – the stock has been on a spiral down, and some people attributed that to TikTok news, and they said TikTok was relying less on them.

So I guess one bare thesis could be that more people are going to follow suit like TikTok did, and that's going to be harmful to Fastly. Yeah, usage goes both ways. So they're usage-based pricing. That goes both ways. and so the rug got pulled out from underneath them from their biggest customer, clearly. What I didn't like is that the management was just really kind of unsure of what was going on and probably rightfully so, the customer's not informing them.

They just didn't particularly like the way they handled it and so it's a fairly new executive team or CEO in particular and so that's what I was a little disappointed in, not so much TikTok, you know, that's just 10% of their traffic, but they kept clinging on to some hope that TikTok was coming back. I don't see it happening, so, you know, there's clearly something odd going on where they had to switch to some other platform. I think most of their traffic's going through Akamai right now, so not sure what's going on there, but that's, again, it's

it's it's fastly is more than cloudflare maybe a little more of the aspirational bet in what's coming with their platform that just went into limited availability the compute for edge which is their edge compute obviously that's going to completely blow up usage once companies start taking advantage of it but it's it's kind of their old business cdn which is more commodity coming head to head with their new business, which is as an edge network. And TikTok, you know, was making use of them for CDN. And so switched to a different CDN. Of course, you hear reports that TikTok has way, has degradated their performance and has more stuttering and stuff now. And so, you know, clearly these are the levers that any company can pull about how

performant your web application is. You can control how much cloud infrastructure is delivering your web application or delivering your content and so they pulled some levers and i don't know wanted a lower cdn bill or one that cdn that was more friendly to china i think that's what i was going to say i guess it might be hard for you to tell but how much of that them lowering their usage with fastly had to do with their relationship with fastly versus their relationship with the united states yes exactly and i think it's the latter right right i don't think i'm i mean just from the anecdotal things you hear about the performance being worse over the past month, clearly,

I think they were incredibly pleased with Fastly and why they were a 10% customer. They kept spending more and more. Right. All right. This is the last one. It's a little bit on Cloudflare because they have the higher valuation, but Fastly is not trading at a dirt cheap multiple. I like 40 plus times sales. A lot of people say that there's not enough upside for the stock, even if the business does well from here?

I think that's looking through the lens of what they are or were really at the CDNs. And again, CDN, extremely commoditized industry, not what I'm looking at. Cloudflare in particular, so both of them are very excited about their edge compute capabilities. And so they're putting the edge

into the hands of developers worldwide. I think with Cloudflare more than Fastly, they're taking advantage of their own edge network to build up their products and you can see all the baby steps they've been taking over the last few years but at the beginning of this year they introduced a cyber security product that is to me an exact replica of what zscaler does it can protect uh your enterprise workers from your device goes through the edge network and is able to protect their traffic to all the sas services that your workers use and then they also have a zero trust product that allows your customers to

authenticate and and access internal apis as well so that's the two halves of zscaler cloudflare debuted in january and then the pandemic hit and they made free for until september 1st recently during their cyber security week they released a whole bunch of additional products And are now wrapping what they call Cloudflare for Teams, which is access and gateway products, into a broader picture called Cloudflare One. And this is more of a direct competitor to Zscaler all around. It is wrapping up their other features like web application firewall, DDoS protection into their Cloudflare for Teams product. So it's all about enterprise protection, but it's protecting your workers and your apps in one. And so I think they've just added Zscaler's TAM to their own with these moves over this past year. And so that's really not accounted for in the pricing today. right and the the reason you'd want to look at the reason people you'd own a stock here is because you believe they can have sustainable high revenue growth for multiple years that's the reason this would be end up being successful um and that's just what you have to decide and i guess you know

they're adding that if you believe that's going to be true um there's no reason you want to hold on to your shares but we'll hit the wrap-up questions here uh first one we always ask what is one financial saying that you disagree with uh most of them no uh people saying it's different this time and mock in mocking tones maybe where things do change things have changed okay so the whole reason in my whole uh portfolio thesis is recurring revenue changed everything recurring revenue. You no longer have to sell X number of widgets and then X number of widgets plus a percent the following year is the traditional sales paradigm. Now you've got recurring revenue from subscribers that's locked in month to month and you have churn on top of

that. But then you can start eking out calculations like net expansion rate. My customer cohort from last year is now spending X percent more this year than they were last. And so you can really get a vision into the stickiness of their platform how much customers are growing it's not they're not starting from zero baseline every year they've got starting at their existing subscribers and moving forward from there and so i think it is different this time with those particular with sas companies it's it's a different paradigm of company and it's extremely exciting to me We're guilty of that. I really like that answer.

Yeah, we're guilty. Yeah, yeah. That's good. What is one piece of advice you have for any investors? I always answer note-taking. It's such an easy thing to do. And I take a humongous amount of notes. But just as for any individual investor, keeping track of your own thought process.

Because it's so easy to get swept up in the emotion. It's clearly an emotional day today. I think my portfolio is down 10% probably today. But then again, it's up well over 100% year to date. So keep notes about why you're making the moves you are so that you can refer back to them. But I try to ignore most of the day-to-day Twitter rantings of folks. And I certainly contributed to a little bit. But I keep notes on everything about all the moves that these companies are doing. I look at earnings. I listen to the earnings report. I keep a very condensed portfolio so that I can keep track of the companies that I follow extremely closely.

And so I have a high level of conviction in the companies that I own and think that they're better than the ones on my watch list because I follow them so closely. I know the moves that their platforms are making i can continue to watch the the the growth levers the customer levers the operational leverage uh you know i can look over all of that over time and just keep back and referring to my notes over and over again so i think notes is is the most important thing you can do as an investor and then uh lastly before we go where can people find you it's your twitter is hyper growth with three h's and then it's hyper growth.com am i getting that right it is okay it's hyper growth you gotta yeah yeah you gotta carry those h's okay but yes i i've i've

got a a twitter brand and a blog so i've kind of i've been writing on the motley fool for a couple of years or decades but but kind of focused on this technology explanation for the past two years and so i finally took it to a blog this past summer once i had a little more free time i kind of packaged it up as a blog in order to uh you know kind of keep this keep this up and and and make it a thing and so yeah that's the the twitter is is three h's hyper growth and three h's in hyper growth.com all right well we'll make sure to put in the show notes and we love reading your stuff so we hope you keep up uh keep up on our good content awesome thanks i appreciate being on the uh podcast it's been it's been a lot of great content lately with

tim byers and beth kindig and such sweet we'll try to keep it up too all right thank you thank you both welcome back in thanks again to muji for joining us had a blast we should say we should say for sure where you can find him because it's hyper growth with three h's right dot com all right because it is confusing and this stuff is really really well don't want people to get lost and he has a sub stack as well so you can just check out his twitter yeah you'll definitely find all that stuff but our hot waters now i just have two for this week i only have one because you took one of mine but so my week okay so my first one is beyond meat is in hot water mcdonald's has developed its own plant-based burger called the mick plant are we okay with

that name yeah i just think as someone that doesn't even eat meat myself i laugh because i have no no one actually wants these things but it just makes me it makes me laugh doesn't doesn't it seem weird that like i don't know the mcdonald's and the pizza hut crowd would be into the fake meat that seems like the i don't it seems like they're going about the wrong addressable market like yeah they go to mcdonald's for that food yeah i don't think it's a huge deal um i guess i don't want to say either that no one wants these things i just think the demand is a lot lower than um people are estimating yeah but i don't know beyond me there's some smart people on twitter that i've seen that are still you know long the stock i just think there's not a lot

of margin of safety and i i don't think there's any technical advantage i don't think there's much of a mode at all yeah well it sucks for anyone that's owning shares i guess that's well hey hey they're uh i could be wrong i could easily be wrong all right and uh dr fauci is in hot water this week as well because apparently there's a new thing called vouching um so it's when someone declines to date someone else because they aren't taking covid seriously uh the example that was used was if i had a nickel for every time i vouched someone this year i could pay off my student loans but that was from a match group thing right i don't know if that was from a match group thing it feels like an urban dictionary thing uh but have you been using this term no you can't say

that i have much uh experience out there in the dating world right now so i don't know i thought that was funny it's good it's good uh robert smith this one's serious founder of vista equity is in hot water he agreed to pay 139 million dollar fine in an international tax fraud scheme if you want to look up maybe the scummiest fund of all time i look up vista equity they were buying shares of companies that they already owned or like they would take a stake in someone with one of their own companies and then take a stake with a fund so it's just they're doing a lot of financial engineering to manipulate um what the values of their private investments were very soft bank-esque but really actually they were doing quite illegal things not to say soft make

isn't uh the story's not out with them but yeah and it was a tax fraud charge of what a 139 million dollar fine he agreed to pay and yeah they're hiding stuff in the caribbean i think they're not not like treasure chests but like you know money and bank accounts in the caribbean don't you think uh this is probably going on all over the place yes definitely i also i just realized or go ahead it's just like a few people have to take the fall or they get caught yeah i mean the caymans are their real thing i mean that's where alibaba that's the shares you're buying and if you buy alibaba in the united states you're just buying a cayman island entity that buys shares of alibaba i think um somehow you are your money is passed through the cayman island so

there's a lot of interesting things down there in those tax shelters but i was going to say did you ever see the quote about masa's son this reminds me i didn't have this down where he was like they talked about how he's losing a lot of money on those uh short-term options that they're trying to do with tech stocks lost like three billion dollars i believe which is again don't mess around with weekly options um but they said that you know masa sun is putting the 300 year plan remember that yes putting the 300 year plan on a back burner to focus on buying short-term call options on the latest tech names i was like that's a change in strategy right there he's an erratic man there's never been i've never read one good headline with him involved

not a single one well just the i mean the alibaba steak saved him yeah okay uh buy sell hold this week the theme is companies that michael berry owns he was very active on twitter and he's been getting back into like the financial grind i hope yeah i hope i mean he was very political for most of his tweets but i think now that the election's over we're getting like the best of like we're getting the uh i know michael berry the uh i want to just say michael berry i know you're listening uh that please stick to finance on twitter i don't want to not follow i want to follow you you know yeah it's just it it might ruin some people's timelines but uh here are the three companies facebook altria and cvs mary altria better send stock than facebook uh i'll

hold cvs i don't know much about i don't know i'll sell cvs is the second largest holding yeah i like all three but facebook is something that i don't want to touch just because i think there's a lot of um tail risk with them and i think that i just don't like their ethics at all i know i typically don't like to invest i typically don't care about ethics because i do like alter your group but in this case i think it's the ethics might actually impact the business because it can't go on like if all these problems go on and on and on you know uh girls getting you know more suicides tripling or whatever the number was you know i mean democracy in a few countries that's a big thing i think i'd rather own some cigarettes just that's a personal choice people

can make to uh give themselves lung cancer but yeah i guess i'll sell facebook hold cvs buy it's worth saying people because i i talked about altria on twitter before and some people were like ah feels like it's dead it's like okay when we say we're marrying altria this is the best performing stock ever yeah and marrying the dividends reinvested yeah and i get some if some people aren't comfortable with owning altria it's whatever you know make your own choice but i'm comfortable owning it and i think it's um if it's a i mean it's not an equity offering so we're not helping the business it's just changing hands i don't know yeah i would maybe marry it as well and it there's a incredibly high floor with that business yes um feels like you're buying with a

lot of margin of safety there six uh 400 year track record of people liking to tobacco tobacco so i think that's huge huge regulatory moat um yes yeah i might bang facebook Wait, no, we changed it. Oh, sorry, sorry, sorry. Not bang. Hold. Hold. Hold your, yeah, if you're listening in the car with your children,

that's when you. Yeah, sorry. Hold Facebook and I don't know enough about CBS, but. Seems super steady. They did that partnership with Elizabeth Holmes, though, so big red flag. Yeah. Anecdotal evidence this week. I have two.

Need to give an update. I flew down to Arizona and back this week, so I've got to give an update on the current aerospace industry. Flew Alaska Airlines. Both flights were pretty full. I like Alaska. Make of that what you will. We're not going to give you any advice, but, you know, is it time to buy the dip on Alaska?

Maybe. If I had known any airline stock, it would probably be Alaska. They have the great membership program. In my old job, people, the guys that I would work with that flew all the time, they got a membership with, or they had the mileage program with Alaska, which anyone could do. but they also got the credit card with a bunch of points and things like that so they were like we are not buying anything but alaska i think they have a lot of other people copy that that's not exclusive to alaska but i think they have great customer service so okay and my second anecdotal evidence i watched holiday this week um yeah i know don't make fun of me

uh gotta watch the queen's terrible what's what even is it it's like a rom-com christmas movie that's a netflix original uh i don't think netflix i think they talked about this on animal spirits but i don't think they can get movies right like their movies have sucked compared to their shows yeah i like trial the chicago seven it was solid i would try that one out but a lot of their movies have sucked i like to extract i'd say i've probably watched 10 on netflix the only ones i've really liked are extraction and uh trial the chicago seven but we'll see we'll see give them maybe i'd say give them a year more if they haven't solved that issue in a year uh it may be like well these guys have an issue they're wasting a ton of money on this uh what do you have okay

there was a nice tweet from dennis hong that i think was a good contrarian take he said something about investing in capital intensive businesses let me load it up he said unlike many investors who prefer asset light businesses we love capital intensive businesses as we believe the capital time and complexity of building out an asset heavy business creates ecosystem control thoughts on that yeah there are definitely some real tangible benefits to the capital that you have to put in to certain businesses like and i i don't know i mean people are saying that like software modes now are a thing but it's tougher physical modes are very real and they're they're also easier to identify though yeah economies of scale are very easy to identify the uh this came about because

there's a modest proposal tweet he brought up this from this book um the meg whitman the old The CEO of eBay had this quote. They have all these warehouses and inventory they're so proud of. I'm glad we don't have to deal with any of that. She was referencing, as people might expect, Amazon. So one of the worst takes of all time. That's going to be in history right there. Sorry, Meg Whitman.

I know you're smart, but it's a tough take. Yeah, I mean, there's definitely benefits to real infrastructure, especially for a company that's sole purpose is logistics. yeah and e-commerce so all right uh that's good no i got one more this will end with a fun one you remember neo yes they have their i don't know how many cars they sell they don't sell very many they have a 60 billion dollar market cap right now are you in or are you in i have not i have no knowledge on that i saw you've taken some heat on twitter for that uh oh there's one guy that talked about batteries as a service which um let's just say i disagree with that uh i think

all the ev companies are going to be dead money yeah it's just total dead money not even like dead money for five years there is like cannabis companies yeah it's the hype that rubs me the wrong way hyped up stocks are usually if they're talking about on fast money if they're talking about it on mad money it's likely a stock you don't want to touch yeah even if you like the business wait it's probably hyped up i don't know good rule of thumb that's going to do it this week thank you muji once again to uh for joining us uh what are the disclosures oh ccm use our user for seven investing yep um we are not financial advisors anything we say or discuss here on chitchat money is not formal advice or recommendation feel free to tweet at us for any

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