Chit Chat Stocks - Fastly, Snowflake, & Elastic with Tim Beyers

Episode Date: September 22, 2020

In our first show back, our hosts Ryan Henderson and Brett Schafer interview senior analyst and lead advisor for The Motley Fool, Tim Beyers (21:58). Before we get to our interview, Ryan and Brett have a few big announcements for Chit Chat Money (1:01) and also take some time to debrief on their summers away from the show (2:08). They also cover a bunch of the big news stories that they missed during the summer (6:19). During our interview with Tim Beyers (21:58), they get his take on the world of software, and take deep dives into Fastly (41:07), Snowflake (51:20), and Elastic (1:04:35). After the interview, as always, Ryan and Brett discuss who’s in hot water for the week (1:19:44), FMK (1:26:28), and their anecdotal evidence (1:27:54). --- Support this podcast: https://anchor.fm/chit-chat-money/support Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

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Restrictions apply. Welcome to Chit Chat Money. We are back. It is Tuesday, September 22nd. If you're listening to this on Tuesday, we have Tim Byers. We have an interview with Tim Byers, one of my favorite software analysts. Not our traditional show. We've got a bunch of different stuff.

So we're going to debrief on our breaks, talk about any stories that we missed from our hiatus. Yeah, the last over three months now. So basically June, July, August, and whatever we've had here in September. Yeah, it's been a while. And then we have some big announcements, which we'll get to. And then we also, on the back half, as always, we've got our Hot Water, Fuck, Marry, Kill, and Anecdotal Evidence. Let's go. all right welcome in before we get to the news stories and talk about our breaks we have some big announcements um so chit chat money is officially a business now ccm media group so So thanks to our wonderful fans, we have a studio.

So if you're watching this on video, that's right. We have video now. So we're going to have a YouTube channel. We will have on our chitchatmoney.com, there's going to be a podcast section where you can watch the whole video, the whole podcast. Just as a YouTube link, but yeah, you can watch it there as well. So it's going to be really easy to watch. And then also we have a producer now, Brady.

Brady, welcome to the show. I don't know if they can hear you from there, but give a hello. Hello. We don't know if you can hear that, but he did wave, and he is Ryan. He is your brother. Yes, that is correct. Brady Henderson. So he's with us now, and yeah, should we name the studio?

The Anchor Studio? The Anchor Studio. They're our only sponsor right now. Yeah, there's a lot of sponsors that we'll need to – yeah, they're vying for that space. Okay, so those are the big announcements, and then we're going to debrief on our break. So you scavenged the wilderness for three and a half months. Yeah, do you want to do mine first? Yeah, did you encounter any bears?

No bears. I was actually going to make a joke that I didn't see any bears in the wild. So the bull market still has room to run. That means something for sure. No, it does. I mean usually people do see bears. It was like unusual for me not to see any bears. So that's a good investing omen for me for the next, I don't know, maybe for the next year or so.

So where did you start again? you started like san diego area uh yeah so it's the pacific crest trail if anyone's actually interested but i didn't start at the mexican border uh typically people do these big hikes that go from the mexican to the canadian border and it follows this one trail so it's called a through hike and you basically are going on your own but there's a few thousand people that typically do it because of covid in the spring i couldn't start till later in june so i started up higher on the map farther north so I started northeast of Los Angeles in the town called Tehachapi and then you wave weave your way through the mountains you're just hiking picking up your food along the

way at either a store or you get it mailed to you you have your gear with you so you're basically homeless and carrying all your your life on your back and then I made it all the way up a good portion of Washington until the smoke got kind of bad and I just have a little bit to finish up there but yeah hiked over 2 000 miles of it pretty rugged uh and no bears which is no bear thing yeah a lot of you know deer squirrels marmots any scary experiences anything where you're like i i could die right now uh there were some wildfires close by to me which was scary and i'll tell you the night is scary like i thought about that like we were driving late at night and i was like it'd be even scarier if i was pitching a tent right now yeah you can if you're by yourself

and you're in your little tent and you hear any noise in the night like sometimes you hear an animal walking and it's like a stick breaks and you're like good god this animal's coming to kill me right now oh they're really just walking around but like yeah in the night you're scared like a wolf or a mountain lion or something but they're they're never gonna really come after you which is weird though to think about how there's lions kind of roaming the mountains that did you get like two hours into your hike and go like oh shit this might have been a mistake no the first day was hard it was one of the windiest days probably 40 miles an hour winds in the desert so that day kind of sucked to be honest um but you have the adrenaline the first day

but then like the middle of the hike is where we were like man i haven't even been halfway yet and you're just walking through northern california that was the whatever what's the mile people always say like it sucks for marathons like the 21st mile that was yeah something like that we're something like yeah okay well um my break uh i i got like a two-month airbnb had to work virtually for the motley fool but i was in virginia so kind of got that east coast experience yep the motley fool there's a lot of hype about them being like a great business and all and they are like to work for right you have good benefits everyone's nice are insanely happy there and it makes sense It's like – and also kind of a kick-ass investing team.

Like I was – they've got top of the line. And I know I'm sort of – we have a software analyst from The Fool on our interview today. So you'll get to see it, but they're good. And there's even people that aren't on Twitter that you're probably not paying attention to that are really good as well. Yeah, and that's Tim. He's one of those guys. One question, what did you do on a typical day? I don't know if you can – you can't disclose everything like the trade secrets or whatever, but what were you doing?

I know it's different virtually this summer, but – Yeah, it was – so we had like our morning meeting, which was basically just catch up, and then there's like different channels and stuff where you're kind of sharing different articles or whatever is going on in the day. And then you have different projects that you're working for. So like I had – I got to do a stock pitch to the investing team. Nice. Were you nervous? A little sweaty? Yeah, I was a little nervous.

So you got to do it live over Zoom and – but basically you're working for that kind of stuff, and then we have different assignments kind of – it was the Motley Fool University for analysts. So it's kind of like fun summer school if you actually – if you like investing. It was nice. Yeah, it was a lot of fun. But stories that we didn't get to discuss while we were gone, we've got like what, six or seven here? Yeah, basically the big – either it's like a trend from the summer or a huge news story that we didn't get to talk about that everyone is still talking about now. So an example is like Nikola, which is quite timely because today there was a big blowup, but yeah. There was a – there's probably a bunch of stuff that we're missing on here, but the first one we have is basically the whole year of IPOs was pretty successful, unless I'm missing any big ones.

But we had Unity, Snowflake, JFrog, BigCommerce, Encino, Agora, and Lemonade. Those are just a few of them. Airbnb is supposedly real soon, right? Yeah. Procore is one that I've obviously talked about and want to – I'm excited to see them on the open market. But yeah, those are – and there's still supposed to be some good ones coming out soon. But all in all, very successful year, and I'm curious if it gives you any signs of like froth because some of these also – it was successful, but it depends who you're looking at. Like if you're looking at the investment banks, yeah, great year.

True, true. But if you're looking at Bill Gurley. Yeah, Bill Gurley was probably not having a great summer. It's kind of like that – whatever the Arthur thing with the fist that LeBron James would always do. but it seems like i don't know the spacks are really what we're kind of the frothy stuff i know that chamath kind of led that and he seems like he's doing fine he invests in kind of bold things but the spec thing feels just gimmicky the ipos seem pretty standard it's nothing compared from what i didn't live through 1999 but from what people are saying it's not even close to

the mania it's like 10 of the mania of 1999 and one question i have here any like you probably saw these come you know across your twitter timeline or you're watching something about them or maybe even reading the s1 what one of these companies unity snowflake all the others were you like all right this is a great business we need to look at it further yeah it was hard because once like people on twitter catch on too fast i almost like omit it like i'm like this is not i don't want to touch it because it's consensus snowflake yeah so snowflake i really didn't look into that much and we talked about on the show today so if you're hoping to get some analysis don't worry you will um but unity was probably the number one that i looked at really

intriguing and then encino is also really interesting really it's just so like it deters you when the first day it jumps like 150 percent what does encino do they're like banking software So they help banks write loans, but it totally uproots the whole workflow system for a bank. So it's a long sales process, kind of sticky, big clients, that kind of thing. All right, other news. Oracle officially took their stake in TikTok. I didn't read too much into this, and honestly, I don't care. Am I the only one?

I was going to ask, does it matter? From the whole summer, this has been a thing. I think before I left, it was kind of like turning into a big deal. And then in July, there was a lot of controversy about shutting it down. Yeah, like Walmart was going to buy it. I mean it just like – and then there was, yeah, we're going to shut it down. There was a lot of government involvement. It was all tricky, and it was hard to like trust any headlines.

Right. It felt trade war-y, like the same trade war headlines. Is that what you were thinking this summer? Yeah, and it just – I don't know. I just didn't care. Like I've never used TikTok, and I know it's flashy and people like it, And it's like got a lot of adoption, like 500 million users or something like that. But it just feels, I don't know, like I'm not buying Oracle because of this.

Oh, no, no, no. They're just, all they get is to use Oracle Cloud. It's not a, and there was a joke that all the engineers are going to be so disappointed when the head CTO or chief technology officer is going to have to say, yeah, we're going to have to transition this entire operation from AWS down to Oracle Cloud. You guys ready? We're going to be spending so many hours on this. going to be weeks and weeks of transition maybe even a year of all that um portnoy also took over

the whole financial community so yeah that was big that's in terms of things that i wasn't expecting in 2020 that might have been number one was he do you think he was like the bomb that lit the whole day trading gambling style fire that just propelled to make it five times as big as it has been or do you think it's like a less of a deal than the media is saying where it's just kind of he's on these videos and it seems like it's right in your face but it's honestly not that many people are doing it i okay i don't think it's as big of a deal as people made it like i i read a number citadel security said that 20 of stock market activity on average comes from retail investors so in that regard i actually don't think it matters that much but i think people were just

so offended that he came at like warren buffett and they're like this guy's a newbie like yeah how you know and they didn't know his gimmick they like didn't know his shtick okay and so it was like a shock to the system for everyone but yeah he's like a professional troll that's kind of you gotta just just basically if he insults you like you just ignore him you know what i mean like if he's coming after your business he's not doing it seriously and it came at a perfect time when we all needed entertainment like him on cnbc was great like it was if you're if you're looking not like it's funny it was fun to watch yeah it's not you should be watching cnbc for uh investment advice it's basically a financial entertainment network yeah um i mean i don't

know like people were bored they didn't have sports i feel like they just migrated to stocks and it the feeling is that when sports get fully back which they basically are now that a lot of people probably are going to transition back to watching sports and sports gambling okay so nicola is also a fraud um do you want like a bit of a summer here yeah i mean i today it seems like there was a huge news dump but what actually happened this whole summer because i left and people were so excited it was kind of a concept thing almost like virgin galactic um they went through they became public through a spack in the same deal and the thing just totally imploded yeah um trevor milton's out yeah so earlier this month for anyone that wants sort

of the thumbnails here earlier this month hindenburg research published a report calling nicola fraud essentially in that report it was cited that one of their videos where their like new truck their badger or whatever was driving on its own but it was actually just rolling down a hill um trevor milton immediately took to instagram live to refute these claims and was super vague in his responses so like there was no like he wasn't like he didn't actually refute him he was just like pissed that they actually came out publicly and did this i saw people comparing it to elizabeth holmes is that what it felt like or well i mean i wasn't around for the theranos thing but anyway uh then today or was it yesterday he randomly resigned and then

there was this massive dilution of the share structure right they have this long like this 53 million yeah i don't know exactly if that's the whole part of the deal but i saw like a headline about that but they're probably trying to get him out of the company sort of like an adam newman situation although it doesn't seem like he was it's weird that he would resign right yeah okay this guy smelled like a fraud from a mile away and you know what this if anything nicola gave me a whole bunch of hope to that i could detect frauds early on because even when it first came out and there was all the hype didn't you just feel like it was like bullshit yeah i mean i don't want to pat myself on the back but the last newsletter we wrote uh for the sub stack i said

that don't follow a story and don't invest just in a story and i use nicola as that because it seemed like it was only a story stock trying to just get momentum with headlines and not actually putting up real numbers also he he he refuted the claims on instagram live like yeah it's tough if you're trying to like it he checked every box okay no revenue um just renderings essentially of a truck that could be uh yeah now elon has the entire market share of renderings or tesla spacex is very paranoid with short sellers yep i mean it's like an innate it's in human nature to be able to like sniff out bullshit and i felt like this one a lot of people knew early on so did he do anything this summer that's worse than like elon's solar city um acquisition plus the

solar roof tile reveal which has been uh like in court has been decided like under oath that it was totally a fake okay so i i would compare the solar roof tile thing to the truck rolling down the hill because they were both like proven to be fake um tesla at least does have a product and revenue so there's at least something there um i don't know it was it it's similar like the whole ev space feels frothy like yeah i don't know um okay epic games also started war with apple you kind missed out on this uh tim sweeney took to twitter i'm not sure on the whole details of it um but basically epic and apple are at war right now and i'm i'm on epic side you're on epic side i was gonna ask like who's i know apple's the big bad goliath here so yeah and i've i've heard people

have the take it's like well it's app like they built the platform for them to be on they should get the they should get to set the rules but it's like how long do you get to do that well yeah the I think the big argument with setting the rules is that that's great as long as Apple's not competing with you. So then if they have Apple Arcade producing their own games, then you're competing with someone on your own platform where you're setting the pricing structure. It feels very, very anti-competitive. It's kind of the deal that Spotify has, and it's the deal that people have with Amazon Basics competing, the first-party stuff versus the third-party stuff on Amazon.com. It's very similar to that. and i'm i don't know any of the law details but it feels like it's not going to hold up well in

court or at least it won't hold up well on twitter where people are going to definitely side with epic yeah i feel like epic's definitely got the sort of the consumer behind them or the typical customer um last story enough though sorry do you think they're big enough though to have a chance because if someone like netflix did this they can just kind of they're big enough maybe to have some momentum spotify's a little bigger but epic are i don't know it doesn't seem like they're they have enough juice behind this you know this lawsuit i don't know it maybe i think they obviously could have done this earlier so there must have been sort of a time stamp where they were like we feel like this is the time where we can actually do it and have and have

sort of a meaningful or like a real chance at it yeah or the risk reward and maybe people love fortnite i don't know people do and it's becoming sort of a good medium to get your message out there i mean they had the whole basically attack on apple through fortnight and all the customers see it through fortnight's eyes so i don't know uh last story teledongo merger are we okay with that name teledoc and levango i don't think they called it teledongo but they should have put that in the uh sec filing i would laugh if they um changed that name and it would be some great jokes potentially but I hopefully they don't actually make it that name okay but the basics of it is that Teladoc and Livongo which are basically the two primary players in virtual

health care right well they're different so virtual Teladoc is the main virtual health care basically the platform where you can connect with your doctor or therapist or a few other things through your phone or your computer without actually having to meet them Livongo aren't the internet connected devices for like diabetes and things like that i don't really know that much about levango and they've branched out from diabetes i know they're they're sort of trying to take like the whole health aspect but yeah their main bread and butter is the diabetes platform it's like yeah they're more internet connected and then they're data powered like diabetes and chronic care solutions correct yeah and a lot of people sold on this i saw yes and investors we

respected like simon erickson uh who we've had on the show before and then someone like what peru saxena they were very upset as lavango shareholders for the share price there was a lot of you know noise about that kind of people you know not very happy with it or maybe were they just shocked i think it was the optics of like they thought lavango was smaller had all this room to run right and it and it's almost like the optics like lavango management knew were a little overvalued we might as well merge and make this thing legit and it's like management was admitting that they're overvalued by doing that i think that was for like sort of what the retail investors saw but it feels to me like they're getting a bigger slice of the same but

like it makes the chances that they succeed higher in my opinion yeah and they are definitely talking about the cross sell over to all of teldoc um they have what 70 million users i'm not sure uh you can i think they have 70 million users or not users like registered subscribers through their insurance providers or medicare things like that do you think though that the merger made sense at all i think it makes sense um just from the overview i need to know more about lavango in general though but what did you think i mean if you're like industry wise yeah there's synergies but i mean not jokingly there might actually be synergy just because they can sell with the same salesperson using you know selling both products at the same time

yeah yeah it makes sense we got to do some more digging into it maybe we'll do a independent show on it definitely yeah okay so that's going to do it for our stories next up we have our interview with tim byers um this was great i loved it is there anything particular that you uh thought was interesting uh definitely the talking about the three individual stocks snowflake elastic and fastly we know those names in general and we kind of hear those buzz buzzwords about them but tim was able to make it so i actually understood what each of those companies did and what those value propositions were to their clients in a way where someone that's not in computer science can actually get it so i thought that was great all three of those companies seem

And they're very pricey, but we were talking mainly about the businesses, which that was the best part. I think I learned a lot about those three companies. The other thing is he isn't like a developer at heart or anything like that. He just – something that I found kind of inspiring was he just put in the hours to become a really good software analyst. Like he just studied tech, and his answer to the last question that we always ask was really good. So I'd stick around for that. So yeah, here you go. all right today we are welcomed by tim byers tim is a senior analyst and a lead advisor at the

motley fool a bit of a background this summer i interned for the motley fool and like the first two weeks i had a whole bunch of questions about software companies and every single time i asked that everyone would say go talk to tim byers and so i didn't know who tim was finally got to talk to Tim Byers, asked him a bunch of questions, and I swear he has all the answers. So we get to ask him some questions today. Before we get into software and company specific questions, how did you get your start in the world of investing? When did you begin? Wow. I mean, it's great to be here with you guys. And yeah, it was great to have you as a summer intern, Ryan. So I have a weird background. And I don't know that you should take the path that I took, but here's how it happened.

So I started investing in high school, but on paper. So I was in what was called the stock market club. And really what we did, we competed. At that point, I was living in California. I was living in Southern California. We'd moved from New York to California. So I went to high school and graduated from high school in California. And I got hooked because we were in this club and we came in something like number four in the state. The problem was that my strategy was to pick a lot of penny stocks

and some of them hit and they went to the moon and that was probably pure luck, but I was completely hooked by that point. So when David and Tom Gardner wrote the original Motley Fool investment guide back in, I think I got my copy in like 95 and I had started my career coming out of graduate school in 93. I was working in PR and, and marketing. I read that book and it just, you know, I, I just got fever sweats.

Like I was all in. And by, by the time, um, around 2000 I applied to the fool for the first time, but I definitely was not ready. I did not have any meaningful experience because I was a marketing and communications grad coming out of college. I had no formal financial training whatsoever. So after that, I started at The Fool in 2003, but I spent the years between 2000 and 2003 making my biggest investment mistake, which was selling Amazon at $7 a share. And yeah, it was just brutal, right? And I spent, I basically sold all of the shares that I had. I just kind of did hobbyist. I just dabbled.

Sold everything, went to cash, and I spent two years reading everything I could, including at The Motley Fool. Started doing financial models, everything. I just devoured everything I could. But during that period, I also had a lot of work behind the scenes in marketing and PR, but for tech companies. And so that's sort of how I started to meld things together. So when I applied to The Fool, the first thing I wrote about was this tech company that you may or may not know called Akamai. So I wrote a story about Akamai as my application to be a freelance writer for The Fool and they bought it. And I've been there since. You have done a ton of writing. How has that sort of shaped your investing style? And I mean, does it help you in sort of your thesis

development process? It does. I think it, I think it forces clarity, especially if you have to be brief. If you have to be brief and fast, then you better know what it is you want to say before, before you start. So there's in every 300 word article, there's at least 15,000 words of research and work that goes into condensing that into 300 words. So I think if you want to be a great investor, I mean, this is not my piece of advice for novice investors. I have a different piece of advice for that. But if you want to invest, if you want to get clear about being good as an investor, you should practice the discipline of writing out what it is you believe, either about that business, about a market, about something, if you could do that, even if it's just in a journal

format, I think it will, I think it will force clarity. And I've got something like, I don't even know anymore, maybe 8,000 articles at The Fool over the years. Wow. That's a ton. Do you still do a lot of writing? No, because on the, on the side of the business that I'm on now, now that I'm an internal employee, it's not frowned upon, but it's just, you know, we have the contractors to do writing for fool.com. And then those of us who are working on like the portfolios or working on ideas for different services, that's got to be our focus. So it's not frowned upon, but I do write like in cloud disruptors, which is the product that I work on primarily. I write the quarterly letter and I write the monthly letter.

Right. That makes sense. You mentioned this before that you were working in technology marketing. What else has pulled you towards investing in software or at least focusing on that in your work? I found that I got, I would say, I got so interested in technology and I kind of learned i learned the language and which is it's a little bit weird to say but i think of i think of technology and particularly uh investing in technology is like learning a foreign language i would so i would agree with that as well would you okay because so when i was you know probably not that much older than you guys and i started at this agency i used to stay late and um your audience will probably not remember these names because these magazines, I'm not even sure how

many of them exist anymore, but we used to have like this rack of magazines that I could pull off. So I'd pull off the copy of InfoWorld, Open Systems Today, Linux Systems Journal, and I would just devour these magazines. And I was like, I don't yet know what this means, but I know I'm going to learn it if I keep reading this. So it's like an immersion exercise. Like, and as I did that, I started to get clear on it and I started talking to people and that's how I learned the language. And so I got really super curious. So when I started investing and writing about stocks, I knew that I knew the lingo, which meant that I could write and I could get paid writing about stuff that other people were like, you know, I don't know what that is, you know? And so it was

a way for me to get paid to be honest as someone that struggles with the terminology there's definitely that barrier you've got to understand the language if you're going to be able to write about tech definitely yeah at least the super like technical companies kind of like the cloud ones we're going to mention later uh but specifically with software what are the some of the primary metrics when you're actually going to invest that you pay attention to and maybe some of the sass ones that you pay attention to that people talk about a lot Yeah, I mean, almost all of those companies use two different, it's sort of two sides of the same coin, but there's a dollar-based net expansion rate and a dollar-based net retention rate. The only difference between those two is a really, the major difference is that if you're using a retention rate, you include in the numerator, everybody that churned.

so if you were trying like if restaurant comps like if you ever analyzed a restaurant you're basically taking the same sales by square foot from the restaurants that were open over the same period you don't add in the new restaurants because then it's not a fair comparable it's not comparable store sales it's like store sales so comparable store sales that's an expansion rate I had this many stores. That's what they did last year. That same group of stores, here's what they did this year. That's an expansion rate. Same group of software customers. What did they do year over year? A retention rate is I had this many software customers. Now I have why many software customers year over year. How many dollars between here and here were spent? And so I include all of the ones that churn. And so where that is really useful is for a company that's dealing with a lot of small businesses. Like you really don't want an expansion rate for say like Shopify because it deals with so many small businesses. It's going to churn. What you

really want to know if you're analyzing Shopify is what's the dollar spent versus year over year. That's why gross merchandise volume is such a big deal. That's another metric, but anything that relates to, to get to your question, Brett, like the idea is I want to be able to discern a couple of things. The first is, do customers really like this or not? If they really like it, then the odds are that they will come back for more. And even if they're not generating cash flow today, they probably will at some point. So other metrics that these companies report a lot that I pay attention to are the number of enterprise customers that are paying at least $100,000 or more. You know, so, you know, Datadog has something like, I don't know, 11,000 customers, but it's about 1,000 of them that pay over $100,000 a year. So that tells you a couple things. First of all, they do have a core group of customers that are really driving revenue. That's about 70% of revenue. and then their opportunity to grow is embedded in their existing customer base. That's not always a

good sign. It could mean that they just really are terrible at converting customers or it is that they have some real runway. So it kind of depends. You have to sort of mesh it together with other metrics like an expansion or retention rate, but that's a big one. I would also say gross margin. Gross margin is a big one, especially if gross profit is consistently growing faster than overall revenue, then just the business is getting more efficient. One last one that is kind of special to these businesses, because so many are unprofitable, is what's called the rule of 40. And I don't remember which VC firm came up with this, but the rule of 40 is basically

this. you take the sum of the revenue growth rate and you add it to the operating margin so let's say revenue is so like snowflake which i know we're going to talk about later but snowflake is one of those where the revenue growth rate is amazing it's like a hundred and i don't know 30 percent last year something like that triple digits yeah it's a triple digit you know growth rate the the operating margin is like negative 60% in the most recent quarter. So the rule of 40 says, if that's a negative 60%, I want 40 in the positive. So this better be growing at a hundred percent or higher, right? If I'm taking a hundred percent growth rate and I'm taking 60% off the top

because it's a negative 60% operating margin, 40 is left. That's good. It should be 40 or higher. And what history shows us is that if it is 40 or higher, and if it's growing, particularly if it's expanding, then that's a company that even if it's burning cash and unprofitable right now, it's likely to grow into a profitable and cash flow generating state. i saw on twitter um it was basically one of those warren buffett memes i don't know if you've seen this one where it's like the paper next to him and it was chathan pedagunta and he basically like on it said this was after the snowflake investment from berkshire it said cloud native architecture is an economic moat and so i wanted to ask you about that what are like the economic advantages of being cloud native i mean is it that hard for legacy or incumbent players to migrate to the cloud is it like a really expensive process what's the advantages there it is an

expensive process it's harder to do if you are so um are either of you guys familiar with splunk not really no not really okay okay let's just let's use a generic example then let's say you're a company that has traditionally sold software licenses which means that I'm a salesperson I call you up say hey you know Brett Ryan you know I want to you know I want to sell you guys my software. I know you need a hundred seats. So let's sign a contract and I'm going to come. I'm going to bring in my consultants and we're going to install all that on your machines. And you say, okay, cool. All right, let's do this deal. Done. We've signed a one-year agreement and I come in and I do all that. Well, now a year later, I have a new upgrade and I'm going to come in now and I'm

going to do another upgrade. And you're going to be down for a week while I come in and do that upgrade. You're going to be like, that's not great. That's really not great. I don't want you to take my business down for a week. So that's why the cloud is so important. Never goes down. It's always up. You don't ever have to deal with those updates. So that's a big benefit of it. Now there's another business side of it. If I'm a cloud provider, if I'm a provider of software and my software is delivered via the cloud, it's much easier for me to sell you a subscription because all you have to do is just, you know, buy the subscription. I'm just going to deliver it to you. You're going to access it over the web anyway. So there is no software that's transacted.

You're just getting what you need. And that's better for me as a delivery mechanism. So it reduces friction in the sales process. That's what makes it so powerful. It really reduces friction in the sales process. I don't have to come and spend weeks installing software for you and you don't have to be down while I'm coming in and installing software. Okay. That does make sense. It's a huge advantage. That's a big advantage. Yeah. Yeah. So specifically with the stocks though, they're all valued or I wouldn't say all valued, but on average, they're valued at high revenue multiples. I think right now we're

at an average of 15, which is an all time high. Yep. What, I mean, obviously people are assuming high cashflow margins and high net margins at scale. What range or any sort of type of cashflow margins do you think these companies could achieve 30% as high as 50% or, I mean, who knows? I don't know. Yeah. It's really hard to say. I mean, it's really hard to say, but if we were to take just the best of these companies in the world. If we were just to look at AWS as a proxy, AWS is about a 30% operating margin, just that portion of the business. So if you considered that a proxy for the cashflow margin, then 30% is like world-class. We could fairly consider AWS us a world-class business on its own. So a 30% free cash flow margin in a cloud business

is world-class. Now, there are some companies that do say they can get there. One that just went public, it's an open question as to whether or not you should believe this. So take this with a grain of salt. But during its roadshow, JFrog, the liquid software company, basically managing versions of software out in the world said, we're going to hit a 30% free cashflow margin. So, you know, you choose whether or not you want to believe that it's, it's certainly possible, but I think 30% is world-class. There are some others that are probably unsung. And there's one, I'll talk about, you have a question for me out at under the radar company. I'll hold that one, But there is another one that does say that they are getting there.

They're getting there like close to 30%. And I might surprise you about which company that is. All right. And I saw that Zoom video. This might have been a freak quarter, but they had over 50% free cash flow margins. It's incredible. That might have just been a fluke from the pandemic, but there may be some businesses that could be even higher.

But you're saying like 30% seems like a good goal if you're kind of doing a valuation metric of what these companies could be producing in the future? I think, well, you know, what I think about that is when you're using history, I think you should look at what we've seen. Like you should look for evidence. And what we've seen is that 30% is possible.

50% is also possible. But look, I mean, Zoom had, you know, Shopify had an amazing quarter. zoom came along and said hold my beer i mean i i i don't i've never seen that before i've never seen a quarter quite like that so do i want to believe that they can hit 50 margins sure i would love it if we could if we saw that but let's see some sustainability there first right right and i guess now we'll transition into the company specific ones we're going to go over fastly Snowfield Lake, and Elastic. Those are three companies that we don't understand very well.

And we think that a lot of other people probably don't as well. So it could be good for the listeners out there. First thing we're going to do is Fastly. Just start off, what do they do? Maybe try for a non-technical definition and why are investors so excited about it? Because they've had a great run over the last year sure so um let me ask both of you guys a question from your from your family or friend did you ever get like starter tools did you ever get a starter toolkit uh yeah sure yeah okay think of a starter toolkit as cloudflare these are all content delivery networks okay so there's a broad category called a content delivery network which is I watch my Netflix in order to make my Netflix come to me much faster. Like I don't want any

delays, any flicker in the screen. That video should be, it should be queued up and delivered very close to me, like a server or some kind of service in my neighborhood, or at least within a few miles of me. So that's a content delivery network and Fastly does that, but so does Cloud Flare, and so does Akamai. Cloud Flare is that starter toolkit. It gives you everything. It's nice. It's safe. I had one. You're 18. You start screwing around with tools. This is the one. I got a starter website. It's a new thing. I want Cloud Flare to do everything for me. This is the one that's got the socket wrench. It's got the adjustable wrench. It's got the screwdriver. It's got the hammer. It's got the basics. It's all right there. Then Akamai is the mechanic shop.

Like, okay, this is a very specialized tool kit because I'm working on exotic cars. You know, like this is, I need really super specialized tools and it's really expensive and there's enough of these exotic cars in the world. There's enough super rich people in the world that I'm going to have a pretty healthy business because people will bring their Jaguars to me, you know, and there, that is, you know, that that's, that's really industrial strength, like very specialized tools in the middle is I'm a homeowner. I, the starter toolkit, isn't going to do it for me anymore. And there's going to be a bazillion jobs that I have to do as a homeowner. Fastly is my adult toolkit. This is, I got the workbench. I've got a good

socket wrench kit. I don't just have the adjustable wrench. I got real wrenches. I got multiple drills. I got multiple hammers. I got a plumbing wrench. I've got all of this stuff. So this market kind of segments, this content delivery market, it segments between the company's small businesses that are starting out, but they want somebody to handle everything and they go to Cloudflare. Then they have multinational businesses and they have content delivery and security needs around the world. And they go to Akamai because Akamai has the biggest footprint, the most servers in the world. Fastly is by far the most functional. And it's also the one that the most needy businesses go to, like the ones where the

content changes so repeatedly that they really need something industrial strength so is that why uh it's an advantage for someone like tiktok spotify or netflix to use fastly yes it's why tiktok uses them it's why the new york times uses them um and and it's why we use them at the motley fool so um lots of the the major advantage to fastly is because that toolkit is so rich you start figuring out as you go along new ways to use it which is why the retention rates and expansion rates are so high go ahead sorry i interrupted you no no it's fine um so as uh over the life of the business you talk about how the smaller businesses tend to start with like cloudflare and then for the households or the expensive cars they're either at akamai or

Fastly. Do you see them as they grow switching? Or if you start with Cloudflare, do you tend to just stay? If you started with Cloudflare, you have an incentive to stick around as long as you reasonably can. But I also see these markets as fairly distinct. That fat middle is going to grow a lot. The way this market shapes up, which makes it very interesting, is you don't know you need a CDN until it's painful. And then, you know, you need it. So you don't like, it's not something you start with, you know, necessarily, unless somebody told you, you needed it. So when the pain gets too extreme, that's when you go to like the times, the New York times, they went to Fastly because Akamai failed them. Oh, wow. Is it difficult to switch? Like, is that a painful process?

It would be hard to switch. It's definitely not something that you take lightly. And Fastly is a pretty advanced toolkit. And just imagine if you were to optimize your entire website, you'd be making some changes. You'd need some help to get that done. So it wouldn't be fast. Pardon the pun there. But Fastly does have about 270 of these very large customers of an overall customer base. It's just about 2,000. So they've got a pretty robust footprint of customers, but it's not the same. Like Cloudflare has more customers, and so does Akamai. The ones that have the biggest problems go to Fastly. Okay. And you explained this a little bit, but they don't have very many customers. Like you just said, what value do they provide fastly that would warrant someone paying so much for

their services every year? Yeah. So a couple things. If you are for a company like The Motley Fool, but just in general, the first thing you want is if you have any kind of dynamic content, If you're Netflix, if you're the Times, any kind of media company, or if you're doing any kind of e-commerce, you want that to be fast and you want it to be secure. And the greater the distance between where you are encountering a customer and the point at which you execute some kind of transaction or deliver some kind of value is important. So you probably do want a CDN. So let's just take an example.

You're buying something. If my business happens to be in St. Louis and you're in Washington and you're going across the country in order to execute a transaction, it's really not that long before you get frustrated at showing up at my store. So you want to be able to see things immediately. But there's another value to it. Because you're on Fastly, I may be able to determine, hey, this is Brett again. So I will give you a customized experience. Fastly will allow you to do that. I may be able to figure out if somebody is spoofing you or phishing because they look like you, but they're really not and they're attacking my website. Fastly will detect that and block it before it gets to my main network. So there are multiple ways this thing adds a lot of value to a company who uses this, particularly an online business. All right. I think that does make a lot of sense. I think you're making some headway.

We're getting this a little bit. Last question on Fastly. They just acquired Signal Sciences, I think for $775 million or somewhere around there. What do they do and how is it going to integrate into Fastly's business? Because they talk about security, API protection, stuff like that. Yeah, so Signal Science is part of the, Fastly is trying to make a pretty big bid in security. And so Signal Science helps them with that. There are different ways that you can get attacked inside of a network. You can compromise different elements. You can spoof different types of different parts of the network. Signal science is part of a toolkit that exists out at what we call the edge. And so if you thought about a network, the internet is a giant network. And

the edge of that network is basically, it's that. It's a phone, it's a device that I'm talking to you on. And so we want to be able to protect all of those things at the source. And so signal science is going to help with that it'll look for signals that something is wrong here and we need to act we need to throttle some traffic so um if if you have it an overall network and you're using fastly fastly's out on the edge it's like the outer moat and it's seeing everything that's happening that's coming in and trying to get into your company and it'll say oh that's not right we should stop that and it can automatically see that's wrong let's stop it and we stop the threat before it even gets into the network so signal science is part of a suite of tools that fastly

is using to get smarter about being secure at the edge does that make sense no i think that does make sense yeah no it seems like it would integrate pretty well into what fastly already offers probably have to know what the exact tools do but on its face i think that does make a lot of sense at least if they've gotten them for the right price. Right. Okay, I'm going to switch to Snowflake here, and I'm sure this is one that a lot of listeners are looking forward to. So I am the layman, and if I look on their S1,

all I see is a bunch of data buzzwords. As someone that does not understand the terminology whatsoever, I need an explainer. Can you explain, as if you're talking to a five-year-old, what exactly they do? I think you're smarter than a five-year-old, Ryan, but I'll give you that credit. But I will say it is difficult. And the best way to think about it is if you're in any business whatsoever, when you collect information on a customer or you collect information about a series of transactions, you've got data. and there are two types of data there's the data you need to say um handle a transaction you know there's the there's just basic transactions data or even better like

let's say you were playing a game and your player record and your score and all that stuff that gets handled in a database but it's all done in real time in order for the game to operate it has to have some kind of database snowflake is a different kind of database it's where you take everything it's basically it's the past you know in the game the database in the game it's like in the present like here's the data and the database is feeding back and forth with the game and making sure that it's constantly up to date so you have a good experience so your character doesn't just suddenly disappear in the game that you're playing. The database has those records. Snowflake is basically like a giant filing cabinet. Although I don't know that we use filing cabinets anymore,

but if we were to think about filing cabinets, like, you know, that's an archive, like just a massive archive. We just have an endless archive and we're putting data in there and we want to be able to tag it we want to be able to retrieve it we want to be able to find what we want but we want that filing cabinet to have a couple of features the first feature we want is we want anything to go into it so if um it shouldn't like just fit in a folder it should be like you know what if i want to put a basketball into this you know filing cabinet i can do it if i also want paper in there, I can do that too. So Snowflake is this unlimited, really flexible filing cabinet and I can get anything out of it that I want very, very quickly. And all of this is hosted

in the cloud and it works inside any cloud and that's a big, big advantage. So if you thought about it as that same filing cabinet. I could get that anywhere I wanted. So let's say I had three different offices and there's a filing cabinet in one office. The same exact filing cabinet is at the other office and it's also in the third office. So anytime I go to one of my offices, I got what I need. It's there. It's not like I go to a different building and my file cabinet is gone, which is what happens if you had your data in one public cloud, like say AWS, then you're only going to get what you need in the AWS buildings. If you go into the Google cloud building, you're not going to, you'll get the Google cloud stuff, but you're not going to

get the AWS stuff. Snowflake is, I go into the AWS building, got what I need. Go into the Google cloud building, got what I need. Go into the Microsoft Azure building, still got what I need. It exists across all of the clouds. So it's an archival system. It's really complicated, but the term for it is called data warehousing. You can also use it as a data lake. The difference between a data lake and a data, this is really stupid, by the way, but I just, yeah, for that stuff. It, it, it, it, this is literally how it works in tech. So a data lake just means think of it. It's just a blob. It's amorphous. It's just a big body of water. I want to throw anything in there. Doesn't matter what structure it is. Could be an image, could be a file, could be an audio. It could be a metadata log,

like the logs of what happens on your website, which is like really geeky. All of that, just throw it into the lake. and it can it can all be stored right there then there's another part of snowflake if you want to choose to make it that way he said you know what i know what data i want to analyze later so i'm going to set up some structure so like a warehouse like inside of a warehouse like where we store like goods an amazon warehouse you would imagine

that has defined shelves really clear spaces where everything belongs and it's super organized that's a warehouse so basically if you are a data warehouse is just like a regular warehouse it has a structure i can put certain things in it and everything is very it's very clear where everything belongs and so snowflake can be the place where you store everything it can also be the place where once you decide what you want to store and retrieve later you can actually make inside snowflake a data warehouse and say okay all of these contracts by year yeah i want them in this data warehouse instance so i i have a i bought snowflake i have it across any cloud that i want and i have one part of it that's maybe a data lake

then i have another part that's like a data warehouse so you could see the the whole value proposition of this is if I'm a company, I have data, I want to make use of it. It's much cleaner if I can do all this in the cloud. It's really good if I can do it in any cloud so I control the outcome. I don't have to depend on AWS. And it's even better if when I decide I want to do something different with the data, I can just stand it up and do something new. I can stand up a new data lake i could stand up a new data warehouse i could do some machine learning and snowflake is going to charge me just like the phone company does just like they're going to charge me for when i use it so for anyone that thought and this was me um of sort of the similarities between

like alter x and tableau and a snowflake snowflake is making everything really easy to find and really accessible whereas they don't have a visualization component they're not taking it and making it more actionable for the business right you would have the way that those tools interplay would be snowflake would be a source of information that you would express visualize in alteryx or tableau probably more tableau than alteryx but yes those are you know those that's the layer on top of snowflake so why do you think why do you think berkshire took a stake i mean this seems atypical for their type of company yeah what what do you think their thesis was or is it is it meaningful at all either like is it that's a good question too that is a really

good question right i mean it's hard to say what their motivation is but at the on the other end of it. Um, I just looking at it, it's very rare guys when a, the technology and the business lines up so well. So let me describe what I mean. Um, this is going to get into the technical part. So I'll try, you stop me if I'm getting too technical, but this, but this helps, I think to understand why this business is so beautiful to me. So the way that Snowflake works is it separates compute and storage. What that means is storage is, I got data, throw it into the lake, throw it into the closet. Compute is, I've got data, now I want to do something with it, I want to organize it and make something of it. Storage and compute, those two things are

separate inside of Snowflake. The reason this is important is because the way Snowflake prices and this is genius and I really like this. They say it'll cost you next to nothing to put your data in Snowflake. You don't have to do anything with it right now. You don't need to pay the premium to compute with it right away. Just throw your data in here. So imagine for example like if you were out hunting for an apartment to use an analogy here and the landlord said or you know what even better like office space because you were starting a company and the landlord said like you know what Ryan and Brett I will charge you a dollar to put your furniture in here don't worry about it you got I got you covered your space is set just put your stuff in

and then you call me when you're ready to work like would you take that deal yeah 100 of the 100 of us would take that deal then what happens is you start working and you start earning money and you okay okay we're in we're working now like great all right the meter's running and now you get a bill at the end of the month for all of those days that you worked but the space itself was almost nothing. It really didn't cost you anything. But once you started generating value from that space, and in Snowflake terms, generating value from that data by running compute jobs against it, now you're paying money. And you know what? The unit economics on Snowflake to offer you that storage space is so low that they can afford to do that. But what does that do?

it incentivizes you to get data into the system. And once it's in the system, what are the odds that data's coming out? Pretty low. So it's a very smart, it's a technical advantage, but it also is a business advantage. And I don't know if Berkshire looked at that and said like, that's genius but i looked at that and said okay that explains why this is growing so quickly i think yeah that makes a lot of sense ryan yeah yeah it's i mean it sounds like a remarkable business but i i'd be remorse if i didn't ask about valuation because that's probably what most people are touching on i mean what advantage i mean i guess that pricing model might be an advantage but what advantage or sustainable edge do they have that warrants

the valuation they have now and nothing warrants the current valuation okay let's just can we just say right there full stop full stop nothing nothing in the world could possibly like the end of day one my estimate of the price to sales ratio was 173.8 yeah i don't know how to process that right so i can't justify the value there is no advantage that is so fundamentally rich that it justifies 173.8 price to sales ratio i just don't see it like where i looked at it to be honest is i ran a model on it and i i showed you this ryan how I did, what's the expected growth rate? To get a 20% annualized return, what kind of growth would I need to see? And I looked at it and said, if this goes out at a $35 billion valuation,

which was going to be high at the time, because remember, their last private market valuation was $12.4 billion. So they were going to go out at $20 billion. It ended up, they went out at way higher than that. But I looked at 35 billion, it had to go roughly between 48 and 50% annualized revenue growth over the next 10 years, which is high. But in the S1, they said, we are not yet in our growth phase. When we get into our growth phase, our revenue growth rate will be 40% annualized which is i've never seen that before so they're either dumb or they have a really good business so that valuation at 35 billion felt like okay i could live with that i would i would i highly recommend people put millions of dollars in it no probably not because it's still going to

be rich yeah but at least i could see it but i can't see it at 173 there's no way yeah i don't don't think many people can it's probably a lot of uh traders and it's kind of seems like it's kind of a whole big thing people are looking past the business uh but we'll get to the last uh company here that we wanted to talk about specifically and that is elastic another one that i've looked at seen their investor relations page and said i still don't get what they do so can you explain and i hopefully we get it because i think we got snowflake and fastly a little better now this might be the most confusing of all the the software plays that i've read yeah at least to me and to ryan uh so what does elastic do um if you can't explain well let me see if i can try

and simplify it we already know what google does google searches the internet for meaning elastic searches corporate data for meaning elastic is for corporate data what google is for the internet oh okay that makes sense so it is um the primary product here is called elastic search and it is the technical term for this is basically it's an index engine but really what it does what it's attempting to do and ryan will remember this you know we have this tool internally at The Motley Fool that we call Fool IQ, in which we can put structure and labels and data around individual companies, and we can put in, you know, analyst takes on it. We could put, you know, certain features on it. We say, hey, this company has, you know, high ownership. And so Elastic

helps us categorize all of that data. It helps us index and identify data that goes into a system so that's very easy to get meaning out of it. And so it is hard to understand. It really is complex and it's sold as a stack of software. But essentially, the basics of it, if you understand that what Elastic is trying to do is give you a mechanism to put in corporate data, corporate data, and then index it in a way that you could derive meaning out of it. That's not the same thing as something like Alteryx or Tableau or even Snowflake. It's different. It's basically, it was really built for just like messy data, stuff that has no structure whatsoever and you really have to put some kind of index around it in order for

there to be any meaning whatsoever so like you know um if you had recipes in a cookbook like if you put a cookbook into elastic one of the things you could do is you could query that and say like how many of these recipes have um give me an ingredient something eggs eggs how many of these have eggs boom it pops right up okay so it is it's intended to create some kind of cross-referenceable intelligence out of data that you put in it then there are other tools in the elastic stack for actually expressing meanings so something like log stash which is part of this elastic stack is for taking logs and a web log is for metadata again stupid technical term but like your website you know you guys have a website for this podcast

there's metadata about that website metadata just means like what is you know it describes what this website is okay who owns it when was it started how many hits does it get a day you know things like that and we call that a log and we call that metadata and so elastic can pull some of that in and make meaning from those logs and then they have this visualization tool that they call kibana and so you can take all this and anytime you have data that you're making meaning from you can build some products around it one of them is this visualization software and then there are other use cases for elastic so again making meaning from corporate data right Google for corporate data. If you can do that, what are the other things you could do? Well,

if you can make meaning from corporate data, one thing you could do is say, like, search for things that are outliers. So you might be able to have some hand in security. You know, you could say, you know what, this data that we're getting from our network systems tells us that we may have an intruder in the system. That's called a security information and event management use case. Splunk does that too. You could also call it observability. I'm going to put all my logs from every network device inside of Elastic and let's see what happens. And so Elastic captures all that stuff and then it does what's called observability and it observes everything and it looks to see where problems may be. So this is super flexible. That also happens to be what

Datadog does. The beauty of Elastic is also the problem with Elastic. It collides with different companies. It's beautiful, but it collides with Datadog. It collides with Splunk. It collides with other companies that make meaning of data. It doesn't collide with Snowflake because Snowflake Elastic is an archival system, but the beauty of Elastic is that developers love it because it's such a flexible tool. If you can make meaning of data and you have the tools to do it, you're going to make a lot of developers really happy, and so that's why it's so popular. Okay, so if you had to choose one of the last three companies that we just talked

about, so Fastly, Snowflake, or Elastic. Off the bat, who would it be? And you can, sorry, you can include valuation. You could also say like the business in general. I know they are both, they trade at different, you know, price range, like valuations, yeah. All things being equal, including valuation, it's Fastly. Because I don't believe, I prefer companies whose opportunity is dramatically misunderstood. And I believe that Fastly is unbounded in the way that Snowflake is.

But I also don't think that's widely understood, because Fastly is very under the hood. It's a toolkit, and it's only as good as the use cases that you discover. But what I'm finding, the more developers I talk to, people are discovering that this thing can do just about anything. and it is very similar the more that you use it the more that fastly earns and so i i think it's unbounded i i really like it i love snowflake i hate the valuation but boy do i love that business yeah it seems too many people liked it uh so we talked about elastic snowflake and fastly are there any other maybe under the radar sass names and now there's a ton out there that you think people should maybe go and try to research that you think are interesting this is one that i own so this is the one that is gearing towards a 30 free cash flow margin but isn't there yet which is box um box is very unloved because it feels like the kind of company that it's just a

file storage system that's all it is just a file storage system who cares about this is file storage in the cloud there's no advantage people think that google's just going to eat their lunch or something right exactly you know nobody cares about this um they had to be fair um they've had kind of a rough go of it because they've been in a transition period they've had to work to get their they've really been kind of plotting to get to the point where they're what's called fed ramp compatible, meaning that the federal government can use the Box software in the cloud for different agencies. And they really had to work hard to get there. It looks like they're finally getting there. They had like this four-year roadmap where if they could get there and they can start getting

the biggest accounts, instead of trying to get lots of users the way Dropbox does, Box is trying to get the biggest accounts. And if they can get there and they can do it in a secure way, including the federal government, they believe they can get to, pardon me, a very high free cashflow margin. I think it's possible. I really like the culture. I really like the co-founders, the founder and the, you know, one of the founders and the co-founder is the CEO and the CFO, CEO is Aaron Levy. Very good business. And it's just different. You know, Box is essentially an embedded file system inside other cloud tools. And it's in a lot of the big ones. It's in Salesforce. It's in Microsoft. It's in, you know, tons of them. But it's not the highest margin

business. And it's just been kind of plodding slow to get to scale and especially to achieve this FedRAMP compatibility. But I think if they get there, they could get that free cash flow margin. If they do, where they're trading right now is completely unfair. Right. Okay. Okay. That's interesting. I never really looked into that. Box for any listeners. That's ticker, I'm guessing, BOX? BOX. BOX. All right. Our last two wrap-up questions. I'll let the first one. what is one financial saying that you disagree with? I really do. I really do hate, you know, buy low, sell high. I don't like the David Gardner version of that, which is, you know, buy, you know, buy high and, you know, or buy low and then keep buying and keep buying high.

I don't really like that that much either. I like, you know, buy once or buy multiple times to just hold relentlessly. I would rather sell never entered into the equation if I could help it. If sell was never part of the decision process of investing, I think we'd all be better off. And they've done studies that show that people are way worse at identifying when to sell than when to buy. People can have skill in buying, but fund managers have had a really poor time selling. So maybe if you just take that out in general, it could help you out. I mean, I like that. Yeah. Okay. Last question. All right. Yeah. Last question. We asked this to everyone. What is one piece of advice you'd have for anyone starting out in the business or investing world? So is

this, I have a question. I hate to answer a question with a question, but is this for people who want to get into the investing business or who just want to invest? Could be either. Could be either. Yeah. Typically for people that are already investing. Okay. So who are already investing and may want to consider the business of investing long-term. Right. Yeah. Okay. I would say my best piece of advice here is to, a lot of people start as a generalist. I wouldn't necessarily do that. I would say, what is it you are naturally geared towards? I was very interested in tech So I just went after it. And I made a niche out of studying software, deep tech, hardware, because I was just really interested in it. You know, you're not going to get stuck. You're not going to get pigeonholed in an industry. if you get good at analyzing a particular industry, that skill is transportable.

You can learn the mechanic. If you can learn the mechanics of one industry, you can learn the mechanics of any industry. If you could learn the mechanics of software, I promise you, you can learn the mechanics of banking. And if you can learn the mechanics of banking, you can learn the mechanics of software. So I don't think it's a bad thing to specialize early on just for the intellectual discipline of learning how a business works. Learn how money flows through a business. The financial statements are important. Learn how to do that. But if you learn how a sales funnel works and how money gets from how it gets exchanged, how a deal works, how long it takes to do that deal, what kind of money do

they get what are the incentives to make a deal and then how that company can grow and compound over time if you learn that early on in in one industry you will have the tools to learn how to do that in another industry and then another industry and then another industry and you will continue to be able to repeat that discipline so um that's been my experience like you can you can learn how to look at different industries by learning to master one. It's almost like this great book for anyone who's interested in software investing. It's an old book. It's from I think 1993. It's called Crossing the Chasm by Jeffrey Moore. And the whole idea of Crossing the Chasm is in tech markets, the way tech markets tend to work. A company that is growing, a startup that

is growing that learns to eventually cross the chasm into mainstream adoption starts by winning some early adopters with its technology but then ultimately it has to find a niche like some kind of industry problem that it solves and then once it does that then it starts transporting to other different industries and it gets some adoption and once it has enough niches then it makes the jump across the chasm and it gets closer to mainstream adoption. I think you can build an investing career the same way. I really like that. Yeah. On an interview I listened to yesterday, Rory Sutherland said, if you go to a Thai Italian fusion place, you know, you're either going to get a bad Thai meal or a bad Italian meal. So focus drives quality. I like that theme. Okay. That's

gonna do it for us thank you so much for coming on tim really enjoyed it absolutely thanks a lot guys really appreciate it all right welcome back thanks again to tim byers for joining us um second half of the show we got hot water now yeah how many do you have uh i got five um yeah what about you okay i think i have four so let me just pull it up real quick have a week yeah so uh you want to go first you want to go you go ahead okay so fin twit is in hot water for me why um because it appears fin talk is taking over yeah i'm i'm sorry but is fin talk the worst thing that's happened to finance since like forex trading was introduced uh i mean there's nothing wrong with forex trading people make a lot of money but there's a lot of on these games a lot of there

could be some of that there's also a lot of idiots that a little in over their heads including us we i guess we did that but fin talk yeah i mean it's pretty cringy i don't want to there's no individual like people to call out but it's just it's pretty gross i don't i don't like it such bad advice maybe we're getting like the wrong stuff maybe they're only highlighting the shitty videos yeah but investing isn't made for 20 second videos that's just not how you invest yeah well or learn about investing um from 20 second videos if you think you're going to become warren buffett from a 20 second clip of some guy in some fancy kitchen talking about compound his money one percent a day um you're gonna be disappointed yeah um second one and

some of these are not from like this most recent week but san francisco is in hot water this one's kind of real um apparently austin texas is like the new valley right according to twitter developers just leaving i and i have yet to read a good yeah anything good about san francisco and probably the last six months i'm sure it's still fine really i i i'm thinking from the mentality that people have it's probably going to be optimal to move to san francisco in about three years yeah it's gonna be great i mean hopefully we're gonna be buying the dip on san francisco yeah i'd buy the dip out of san francisco just maybe not yet maybe wait like three to five years move down there it's gonna be fantastic pools are also in hot water um the onion which as we know

is the highest form of journalism released a very important report titled majority of time in pool spent urging others to enter the pool yeah that's it's pretty accurate yeah this is a while back but i just thought it was a funny you're really liking the onion article there i mean they from the real headlines that are out there now i mean in the financial world and just the world at large they've had to put some extra effort in to make make sure people realize that it's not an actual real article that's an onion article um yeah it's hard to tell the difference sometimes climate change deniers have also had a rough year yeah so they're kind of in hot water for what i mean i've been gone just like the smoke everything well i hate to break it to you but

it is a complex picture the fire was because the fire i researched this heavily because i almost i was in the the mix of the wildfires the wildfires are caused by forest mismanagement everywhere basically on the west coast yeah so well either way but it is yeah don't don't give a score to climate change deniers no i mean they're not right but it's in this instance they're not wrong okay all right what were your uh hot waters uh well the market because today was down it opened down 2.5 percent and i think it was because tropical storm beta that's the name just made landfall over houston um great timing great name for that uh that seems like an etf for like someone like from instagram or fin talk trying to pitch a smart beta etf like

this is tropical storm beta i saw i i saw a tweet and it was like this is the etf that's like all picks are based off weather forecasts and stuff like that that's basically we've got okay what other ones you have uh the guy that was in charge of keeping hot dogs at a dollar 50 at costco you may have seen this it was a viral um screenshot from an article or a book so the ex-ceo at costco in order he was he really wanted the hot dog to be a dollar 50 which is their deal to get a lot of people in there and he said if you raise the price of the hot dog i'll fucking kill you that was a direct quote great line and it's really the main proper management right there the hot dog this the free samples and then the gas being like sold below price that's how you get people in

there um it okay you know what yeah i actually side with the cosi or the ex-ceo on this one because that is like the greatest deal on earth yeah it's amazing it's amazing customer acquisition costs there it's basically marketing all right next one this is a little serious it's corporate bonds there was a nice chart in the financial times about how over the last 40 years credit worthiness has gone down substantially in the corporate debt markets they had a nice charts of the a like triple a down to c which if you're trading at c level like c like not even triple c level like they're about to get drowned yeah they're about to get drowned but there's a staggering amount of b-rated stuff not even triple b or double b you know this from the big short

right how it goes triple a yeah there's a lot like it was like i don't know half of it maybe a third it was a staggering amount if you're thinking like who cares because you're not like buying corporate bonds remember that you might be buying stock in some of these companies that have this shitty debt yeah on their books so the federal to save them just like boeing or something right yeah it's possible i'm still mad at that even though that was this spring i yeah i just am torn between like what is the fed doing and all right just close your eyes and trust the fed yeah or just ignore it altogether i think that might be the best thing my next one i did have the wildfires but they're they the wildfires are in hot water because i'm going to get my air

microclimate helmet did you see that it looks like a space suit and the guy were in the the the business suits it was oh man call me crazy i think it could work no you're totally wrong okay um fuck mary kill uh the theme here what you say your last one no no oh uh one more one more they're launching a water futures contract next is oxygen i think as barbarian capital said on twitter this just seems i don't know i would not want to be buying water features like dude i got flint like it's like a 40 yield i mean like isn't that just really like morally not sound yeah i don't know i feel like morals have gone out the window over the last two years yeah um okay fuck marry kill the theme here is companies that thrived because of the pandemic

okay so zoom teledoc and who's the last one uh peloton peloton i'm killing peloton because i think there's a chance that they're i don't know i just don't i feel like there's they have a high ceiling but also a low floor so i wouldn't touch them and i don't know them well enough um but yeah i'm gonna kill them i'll marry teleduct i like the business a lot especially with the combination of lavango i think they're buying a lot of growth lavango has to buy slower growth but whatever that can change and i do think they're actually right where there's going to be a lot of synergies there but i i honestly have to research it further since i was off the grid for about three months and then the last one is zoom i'll fuck zoom just because that free cash flow margin number

was so impressive like they had the sexiest earnings maybe i don't know of all time and the stock does reflect it but yeah yeah and like what if it continues like what if next quarter zoom posts and other earnings like that like that i mean it's priced in i don't know that they said that last quarter dude i saw um i wrote an article in 2019 that zoom was the ipo to buy i had not touched shares you gotta walk the walk you can't just talk i was talking i was just talking to talk did not walk the walk yeah i don't want to even look at what the numbers would be okay um anecdotal evidence that i've just got are you doing the same what the fuck mario go oh um yeah i mean yeah i'd probably say the same there maybe maybe bang peloton yeah swap it

with zoom but i mean zoom's a good zoom's probably a more established business in my opinion um okay anecdotal evidence uh story time here so we like we mentioned we are a business now um and so we We went office shopping, and we got free rent for 2020. There was like a down payment, but free rent for 2020. How – and then it's rolling month to month. So basically commercial real estate is completely screwed. They're very desperate. Like how long does this last?

Yeah, and there's no one in the office that we're in right now, and it's like a – whatchamacallit? It's like a WeWork basically, right? Yeah, with – yeah, I guess – I've never been in a WeWork, but yeah. I think it's a WeWork but less fancy furniture really, which is fine. I'll pay way less for that. Yeah. I mean I only have looked at WeWork pictures, but it sounds about right. I don't know.

I mean it just seems like how long can this go on for before some of these commercial real estate companies are going under? I saw an article in Bloomberg that a CMBS, which is a corporate mortgage-backed security – MBS like the mortgage-backed securities from the big short and the financial crisis. uh there's one that's going pretty badly either i don't know if it can go bankrupt but it's failing uh pretty bad and there people are worried about how that's going to impact the commercial real estate market uh it doesn't seem great i don't know anything about that market but it seems pretty common sense that i would not want to touch it right yeah i'm curious like we'll start to see people trickle in if people start coming back but i haven't seen it yet and so i think

there could be some opportunity if you had if you were an expert in the market of that specific market commercial real estate and you had the guts and you had you thought you were smart there could be a lot of opportunities to make some and the right time horizon if you have the right time horizon i think people will come back to the office maybe but if you read hastings you think so yeah he was i think he he's usually right so maybe yeah uh what was your anecdotal evidence anecdotal i have two uh this one is just a quick stat here that i saw that i was really intrigued about so did you know that kids under 13 spend more time on roblox than youtube netflix and facebook combined i've never used roblox so i don't make you feel old yeah i mean i guess you

know you're telling me it so i i believe it yeah yeah isn't that crazy kind of have to yeah but i mean it feels like they're either spending the time playing the game roblox or they're either on like twitch watching someone play the game or on youtube watching people play the game so either way not youtube apparently youtube doesn't what they don't show it no i'm saying roblox is not it's like a game building toolkit too it's like what like kind of like minecraft type of thing yeah that's a decent analogy i've never played it's easy to just kill time in those games yeah so apparently they're spending more time on that than youtube which is the biggest number you could have taken facebook out of there because no one under 13 is touching facebook but youtube

and netflix that's a big deal do you know like how roblox gets monetized at all uh no but there was a invest like the best podcast about it that i totally forgot how it all works but if you want to i think i don't know it was like probably six months ago re-listen to that um you kind of got the gist of it but i just know surface level about the company okay anything else yeah so there's that tweet uh if you get to buy only three stocks for the next 30 years and then you cannot sell for any reason um what would they be i thought that was a good discussion to have i saw a lot of c limited on there which i think is absolutely absurd like i get that it's a great business and people they have a ton of momentum right now but 30 year time horizon in southeast asia for a company in a super

competitive environment i i don't i don't get it but and who'd you pick again spotify a little riskier but i think they do have very stable long-term growth in a market that's whatever you know our spotify pitch and i said ultria because everyone smokes very easy pitch and i said boston omaha just because they're long-term capital allocators and it's a bet on the business leaders that say they're going to be there for 30 years and not a bet on the actual company at the moment well it's a bet on the company at the moment but it's more of a bet on the business leaders yeah i don't know 30 years is a long time so if i'm gonna do 30 years out i'm gonna do someone that's been around for 30 years prior because at least that means there's stability

maybe i guess google isn't 30 years but i might take google google yeah google's a good bet i'd say microsoft i mean microsoft that's maybe that's the bold thesis on big tech is there like no one knows who's going to be there in 30 years but big tech probably will i'd say microsoft microsoft and google i would say for sure yeah facebook i'd have no idea that's why i'm decently bearish on that but that's my that's my two anecdotal evidence okay well then that's gonna do it thank you guys for coming back and listening we also have an interview for next week i'm not gonna say who but it's a it's a four-way now should be yeah two guests yeah it should be a fun discussion less of an interview more of a discussion i think we'll see how it works um and you should probably say

what our youtube is right oh yeah the youtube the channel is what brady it's chit chat money right okay chit chat money is the channel um you can probably search it and find it but there's going to be very little videos for the time being and yeah i mean it's basically just going to be a podcast if you from here that weird inclination of watching us talk which apparently some people like so that's why we're doing it and then eventually maybe we'll put on spotify when they went and you're gonna get that cool new poster too yeah it's exciting if you didn't see that on twitter you may know what i'm talking about but i'm gonna get a poster to see in the background here we might do some stuff with the background but i don't know if you want to watch on youtube

it's there and i think a lot of people like that um so that's your alley also uh if you have anything, new fundamental analysis shows to recommend chitchatmoneypodcast at gmail.com. That's still our email. You can always hit us up on Twitter. We are not financial advisors. Anything we say or discuss here on Chitchat Money is not formal advice or recommendation. Thank you guys for your time. We'll see you next week. Thank you. It's an honor. This family is on the brink of civil war.

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