Chit Chat Stocks - Google Search Is Not Dead (Yet); Chipotle's Big Slowdown. Plus, Tesla at a Crossroads (TSLA, GOOG)

Episode Date: April 24, 2025

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks Podcast YouTube channel at 5:00 PM EST. This week we discussed: (01:27) Tesla Earnings: A Controversial Quarter (14:50) Alphabet Earnings: Growth and AI Integration (26:52) Philip Morris: Transitioning to Smoke-Free Products (33:38) Exploring Nathan's Famous: A Small Cap Opportunity (38:57) Chipotle Earnings: A Personal Anecdote (44:36) Nintendo Pre-Orders: High Demand and Market Potential (54:48) Market Sentiment: The Impact of Political Events (59:04) Nelnet's Financial Moves: A Positive Outlook ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠https://finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. welcome to chit chat stocks this is our weekly power hour episode i am one of your hosts ryan henderson and i am joined as always by the one and only brett schaefer on these shows we talk all things financial markets news of the week we've got our small cap of the week and this week we have plenty of earnings to discuss tesla always controversial this week or this quarter i should

say maybe more than most google reported uh just under an hour ago as we're recording this and just a reminder we do these live on youtube thursdays at what is it 2 p.m pacific time 5 p.m eastern time so just after the market close on thursdays so if you ever want to ask us questions feel free to tune in there and throw some in the comments brett where do we want to start what about tesla earnings ryan i know everyone is probably clamoring to talk about them they had a peculiar reaction to a negative earnings report i think it probably just has to do with broad market flows but it's tough times for the electric vehicle maker there are more promises to be had from the management team, Elon Musk in particular. And it seems to be, Ryan,

that we are still one year away from full self-driving. Yeah, we've got to discuss that. But before we do, I do want to talk about our sponsors for this episode, Interactive Brokers. Interactive Brokers is the professional's gateway to the world's markets. Interactive Brokers offers commission starting at $0 on US listed stocks and ETFs with low commissions on other products. And there are no added spreads, ticket charges, or account minimums. Clients in over 200 countries and territories, trade stocks, options, futures, currencies, bonds, funds, and more on 160 global markets from a single unified platform. Clients earn interest rates up to 3.83% on instantly available cash and pay

margin rates up to 53% lower than the industry. You can also earn extra income on your lendable shares and IBKR's powerful award-winning platform helps every level investor succeed from beginner to advanced on mobile web and desktop. When placing your money with a broker, go with a broker you can trust. Make sure your broker is secure and can endure through good and bad times. We use IBKR here at Chit Chat Stocks for their best in class international coverage and you can too by heading on over to ibkr.com. Interactive Brokers is a member of SIPC. I think it's Tesla the time uh let's maybe go through i should probably go through some of the headline numbers just in case anyone did not see them um this was a bad quarter by pretty much any measure

so earnings were significantly lower than analysts were projecting um when we look at like top line figures automotive revenue declined 21 year over year some of that was to be expected since they released their deliveries numbers in advance and deliveries numbers were down significantly as well so still still doesn't make it good no yeah you want growing deliveries there was yeah correct the results were uh minus 20 percent revenue growth is typically not a good thing, but it tends to get reflected a week before when the deliveries numbers come out. So there'll usually be a price reaction then as well. So on the revenue numbers, I don't know if that was the biggest surprise. Earnings numbers were certainly a negative

surprise for analysts and investors. I'd say maybe the only positive from the quarter was this energy business that they've been working on. They continue to grow revenue there. But we don't really know the economics of it. Don't know how profitable it is. From the solar businesses we've studied, it's a difficult business to run profitably. Ryan, it's not solar really. I mean that was a total scam. This is like the battery storage.

It's mostly that. It's mostly the – I don't know if the Powerwall is included in that. I know there's people that know this business inside and out that can correct us if that is incorrect here. But it's those battery industrial commercial plants that can help with storing energy when you need it and you can use it later. So there's utility industrial use cases for these. But as you mentioned, the gross profit looks okay, but it's for a company with a market cap of, well, it was $800 billion. Let me see what it's at today. Maybe it's at $900 billion.

Oh, no, no. We're at about $800 billion. Just $800 billion. Ryan, nothing too crazy here. For a company of that size, it's not going to be meaningful. The electric vehicles are going to drive the boat here, drive the bus. And you see demand cratering in the United States. But I think it's even more of a concern in places like Europe and China,

where you not only have the existing European brands there in Europe, And then in China, you have the homegrown, just so many, I think 100 different electric vehicle companies like BYD and others that are taking over that market. But you also have in countries outside of North America, well, outside of the United States, you have the ability for these Chinese electric vehicle makers to sell a lot of the times in some of these other countries, which I think just puts them in a very, very tough position. but ryan as you're about to say here it all rests on full self-driving arriving uh next year right are we in 2019 or 2025 yeah yeah so for a little bit of context i think it's kind of been like groundhog day uh for the most part lately where results have been a little underwhelming for tesla shareholders but then and i saw this meme passed around quite a bit this quarter It's like the donkey with the carrot on a stick where the conference call comes around and Elon launches into the vast profit potential of full self-driving and how we are incredibly close to launching it nationwide and full self-driving is going to be so available to everyone.

and ultimately it's kind of this it's kind of this tug of war of like terrible current results with this because yes i'll i'll just say like if all of a sudden nationwide full self-driving was applicable to all teslas yeah that would be a great value unlock they've been saying that for a long time it has not been the case i think there's obviously some regulatory headwinds there beyond actual technological headwinds as well. So it would make sense that there's a little bit of push and pull there where it's like, well, every quarter he says we're a little bit closer and there would be a big value unlock. And so the stock, I guess, refuses to go down on what seemed like absolutely horrendous results. Right. Forward earnings ratio, probably well

over a hundred now if this trend continues throughout the year. I thought going into the report. It was fascinating, if you want to put it that way, to see that the forward earnings multiple was higher than the trailing earnings multiple when the numbers look like that is not remotely going to be a possibility. But as I was going to say that I was on mute, I was trying to interject with a joke. Don't worry, Ryan, one more software update. And it's here. I guess at what point do most people stop believing? Because I would have thought this would have happen soon. But it seems like they can keep dangling it forever. And if you can, the company is still not going to be in too much trouble because shareholders will value it at 100 times

earnings. They can raise more funds if need be. We have an interesting comment here that says, what do you guys think it would take for Tesla to go through bankruptcy? Is it practically impossible given that they can just raise equity at 100 times earnings? Well, if they're increasing their production capacity right now and if demand doesn't grow for a couple of years and they increase the production capacity in fact if demand keeps falling like it is there that balance sheet can evaporate quite quickly even though they have like 30 billion dollars in cash there's not going to be some time in 2025 unless things get totally out of whack and get significantly worse from here I think it would be essentially the same trend of 20% revenue declines in the automotive business for two to three years.

Yeah, and I remember thinking that in 2021, where it's like, well, the stock is so expensive, they could just raise money at will and just continue to finance their own growth with just equity issuance. Equity issuance takes a toll on the stock price, it does. and when you set the precedent sustainable yeah when you start thinking like your stock is the new currency that you can use however you please it almost always ends poorly so yep uh no i don't think it's this like endless financing endless free financing pool that they've got i think they'd probably they're probably going to be somewhat reluctant to do any huge big equity issuances. What does surprise me here though, for a long time, probably for five years straight, investors could look at Tesla and say, well, we've got revenue growth. We've got vehicle

delivery growth, revenue growth. There's a whole bunch of other accounting issues we could say, But it's growing. I would have expected a lot of investors to look at this and just kind of run for the hills purely on the revenue growth side of things. Like just seeing revenue down 20%, I would have expected people to kind of flee. But I think there's just a cohort of people that will believe whatever Elon says on a conference call. it obviously the day they die though like how eventually i would say people are going to become doubters we'll see so here's the other thing that's interesting is there's been some demand issues clearly in the states uh and a lot of it's been painted as political backlash

for the tesla brand i think them talking about that is even worse like if they start to say it's some sort of a political sign to have one that's like that's even worse for the brand because then all of a sudden you've got more and more people saying like the more you talk about this being some sort of a controversial political thing to own a tesla suddenly that decision has to cross people's minds when they're buying a car so and we're yeah we're definitely seeing that in a place like where i live washington state but i don't know if that is really everything here because we saw demand to stop growing before his pivot to uh supporting the current president so i don't know if that actually matches up and is the entire story here yeah i don't know i think

we can wrap things up here i think results are going to look rough for uh tesla this year would be my suspicion unless things really turn around and it's funny that like on the conference call he's like i'm you know i'm saying we should not have we should have lower tariffs but it's his call it's like well yeah the tricky situation obviously benefits tesla to not have significantly high tariffs so um yeah we'll see i i know it's fun to talk about tesla but i just kind of don't care like i like i don't i'm never gonna own it i'm never gonna short it because it's just as easy to get hurt doing that i just i kind of avoid it altogether and there's always accounting flaws yeah exactly i'm gonna bring up this last thing before we move on is and i guess no one really

cares anymore but in q4 2024 bitcoin went up and for those people that don't know desla holds bitcoin on its balance sheet because of course they do uh so bitcoin went up and the way it works is it's not like a cash balance you have to include any gains in your earnings so they included it in their earnings and then in q1 of 2025 they did not include it in their earnings which i guess yeah yeah so again these are adjusted figures but this is the type of thing people have been saying for years about misleading earnings figures and especially when a lot of people don't actually look at the underlying figures, they are simply looking at the adjusted earnings per share figure that gets floated around on CNBC and all the news wires. And that's the

number that gets tossed out there. So I'll just say that even I don't know, no one seems to care and no one has for years. And that's what Ryan was just talking about is the fact that this stuff has been going on. And it's not like it's going to move the stock price down. But I will say Compared to a $5 billion company you think is overvalued, say one of these quantum computing companies, the fact that Tesla's at almost a trillion dollar market cap probably makes it a safer short than others. Although, again, things can move wildly in that direction. Don't make 100% of your portfolio a Tesla short. All right. We want to talk Google or Alphabet earnings.

I believe the conference call is going on as we speak. All right. Well, what do you think they're going to say? High AI demand, good CapEx, Google search is growing. We'll see about the tariffs. We're not going to talk about the tariffs because no one knows anything. Do you want to go through some of the headline numbers, just kind of walk through the revenue growth that the various divisions? Sure. Okay. Consolidated alphabet revenue grew 12% or 14% in constant currency. That's compared to 16% growth in constant currency from the year ago quarter. Pretty much good growth across the board. Google services revenue, which is,

yeah, that's the Google search division along with YouTube ads, Google subscriptions and Google platforms. That's 10% growth to $77.3 billion. Google cloud revenue grew 28% to $12.3 billion and had, what was the operating margin figure? About 20%, give or take, Brian? I think that sounds about right. Probably high teens. I can look now. And then total net income increased 46%.

Well, okay, we should look at operating income instead. Operating income increased 20%, which means they're getting a nice little operating margin expansion by two percentage points to 34%. and they increased the dividend by 5% and continue to buy back stock. Let's see what they talk about on users here. They're hyping up Gemini 2.5.

I will say, I think I helped out the Alphabet team by subscribing to the free trial for the Google One Gemini Advanced program, and it, I got to say, is quite the helpful AI tool. The deep research thing is nice. Let's see what kind of numbers they're talking about here. Okay. Search saw continued strong growth boosted by engagement. We're seeing with features like AI overviews, which now has 1.5 billion users per month, driven by YouTube and Google One. We surpassed 270 million paid total subscriptions and cloud grew rapidly. that seems to be about what sums up the quarter i'm sure on the conference call people are asking things so if they have any forward-looking indicators on how advertising demand has

collapsed in april maybe this we can honestly look at what the stock is doing to see about that and it seems to keep going higher so maybe they didn't say anything negative but again we're recording this as it's going we're not listening but ryan you're a shareholder of google i'm a psychological long of google so supporting the team especially when compared to apple i don't know why but i really want them just given how lazy i think owning apple was at 40 times pe uh i just really want google to or alphabet to get better higher earnings and just outperform them for some reason what did you think of the quarter google search is not dead yet no from what i saw everything looked pretty good uh gonna pat myself on the back here

uh with all the tariff news and over the like the last two weeks i've been buying google a bit and it was my third largest holding going into this so nice little earnings jump but probably back to prices that were like probably back to like three weeks ago prices so nothing that crazy um it's good like you you look at the results you read the conference call and you just think this is a really durable digital business with a high with the ability to raise margins if they choose uh and they invest heavily into capex and ai and developer talent and And, you know, they make that choice, but ultimately they've got some of the best businesses really in the world. Search is, there has not been a slowdown.

Since the AI is going to kill them, they've grown. They've just continuously grown. It seems like it's a, it's not going to be a monopoly if OpenAI and ChatGPT has hundreds of millions of users, but maybe that's not the end of the world. maybe the whole pie keeps growing as more and more people use these AI services. And the fact that they're adding AI use cases to Google search and all these other things, maybe will help just monetize better, get more usage in general. Yeah, I agree. And 2025 will be a huge test when it comes to margins. Well, maybe 2025 and 2026, because they're doing this accelerated CapEx program, and once that depreciation rolls through to the balance sheet, if we still see that

consistent revenue growth, well, then that margin seems quite sustainable. And as that normalizes, as that spend normalizes, we should see free cash flow per share inflect higher over the next five years. Yeah. I was speaking with someone from Harris Oakmark for an interview, and he said something which i thought was pretty thoughtful where it's basically like this is a company who historically has had phenomenal returns on invested capital obviously there hasn't been a big requirement for return for investing capital um and now you have potential what management sees as a huge reinvestment runway a new huge reinvestment runway and they have the the ability to deploy a significant amount of capital so in an upside scenario maybe this is like great

for google i think a lot of people when they see the capex guy they think about the downside which as you know as investors you should but there i do think there's a lot of upside potential with the spending and potentially uh it's it's not really that priced in uh it doesn't seem like any upside is really priced in from it so um yeah i'm comfortable owning it the capex it's kind of like this big question mark and it's probably why the stock trades pretty cheaply on trailing multiple because it's just uncertain what the returns will be but especially if there's a tariff induced recession yeah cloud progressed well uh youtube continues to be just phenomenal So what's that growth like?

10% this quarter on the ad side. Subscription is probably a little better. Yeah. They continue to push people towards the subscriptions and the ad revenue continues to grow double digits. That thing's got to just be a cash cow, honestly. Maybe. Infrastructure spending. Think about what?

We're in a problem and I'm making a bunch of money. There's just a lot of hosting fees, I would say. Well, internal, but a lot of hosting expenses for the data centers. and the live streaming and all of that yeah there's probably a big compute cost but i mean cost to create content is non-existent which is nice true true that is the definitely the benefit we got a comment here that says if the cyber cab releases in austin which is apparently is where it's going to be that you have to take a ride you have to try to take a ride sure yeah you're gonna risk your life yeah i'll maybe take it like 20 feet uh but

no you know what the the i think everyone's kind of thinks as austin is like this experimental town and it's like oh well you know we can we could just test anything there it seems like based on tesla conference call because he said they're going to deploy uh fsd to austin in june which i guarantee that gets pushed back like i mean i wonder if he just like that was like a negotiating thing with the city like oh i'm gonna say it on the conference call so that you have to like if it's not there by june it's on you um but waymo like is operating here but it's really hard to get a ride like it's very restricted i think they haven't even opened it they trained waymo cars for like three or four months leading up to even letting people uh get in the cars so

yeah they're still well behind waymo from any sort of development perspective yeah again i'll believe it when i see it uh but let's get back to alphabet anything else ryan before Sidebar. Sidebar. I actually had a very weird run-in with a Waymo the other day. I was trying to cross the street. I was kind of jaywalking, and I tried to wave it past. I guess that's kind of a stupid thing to do because there's no driver.

But I was like, go ahead, and I just couldn't process that. So it was like this standstill with a robot. Anyway, yeah, the rest of the quarter seemed good. I don't see any reason why this can't grow earnings double digits for the foreseeable future unless they generate nothing from Gemini and – or sorry. They're pretty levered to consumer spending. Like we've seen numbers that Timu stopped spending on Google in the United States. So that could impact them starting, you know, that was on, quote, unquote, Liberation Day again. But it's been declining for a while, right?

It went basically from billions to zero overnight. So, look, yes, advertising spending does come through from consumer spending. And if consumer spending goes down because of these tariffs, yes, Google is going to get hurt. But I agree with you over the long term, given their competitive positioning and how they're standing up to probably their biggest competitive threat ever in OpenAI and ChatGPT, I think over the long term, they will be fine. Yeah, and I can't remember where I saw it, but I saw like a top 10 most profitable search queries for Google. And it's like none of them are a ChatGPT query. Yeah. Car insurance.

Like that's not – you're not just going to put that into ChatGPT. I know, but you might change that to, hey, Gemini or hey, ChatGPT, can you recommend what car insurance is the best value for people in my local area? And they'll toss you a few results. Yeah, you could. But okay, the one thing that gives me a little bit of confidence is that OpenAI got to scale really quickly. They have hundreds of millions of users, if I'm not mistaken. and that happened fast it's not like this thing where it's like and now obviously there could be like still some search volume that transitions but they got to scale fast people use them as

part of the daily workflow and in that time search volume has search volume and revenue has continued to grow so yeah i don't think it's this winner take all for sure and it hasn't even seem to carve into their business much so i don't know i would just say it's not a risk-free investment there are downside scenarios that i think people can understand it's not guaranteed to work true now speaking of risk-free investments philip morris i'm just kidding uh no breaking through 170 today yeah oh yeah order earnings yesterday morning and the results were really good across the board currency issues continue to be significant i think it was like a six percentage point swing in uh revenue five or six percentage points so that should be reversing

though right am i am i doing the math correctly because i don't know the dollar depreciates the dollar depreciates as it has been that should be good for u.s earnings true well yeah hopefully it does uh in this case because i think they purely from investment yeah i think they increased guidance for because of currency but again adjusted it was still strong yeah that's right they did uh zin was great 44 of gross profit now comes from smoke free i think it's possible that by the end of the year more than half the gross profits come from smoke free at least on the current trajectory at least close either way it'll keep moving towards 50 yeah and we're seeing big margin expansion out of the smoke free as well so it's if that continues it should happen quicker

than revenue getting there so um yeah a really good quarter icos continues to grow volumes really quickly um so they grew volumes i believe 10 percent year over year zin had its in terms of volume increases quarter over quarter this was its biggest volume increase ever like double its previous biggest volume increase however there were supply issues last quarter so they kind of filled some of those supply issues um or fixed them and so i think it might have been a bigger test will be the rest of this year as we've seen some of the new approved competitors come online and see if they can retain their market share and retain their good price positioning within that market in the United States. I did see, though, that they seem to be taking advantage of

their global presence with their existing tobacco business and bringing some of those nicotine pouch brand, or excuse me, it's Zin, I don't know if they call it something different in some of the other markets, but the international growth outside of the home nordic markets is doing quite well now which is a great sign for maybe even a new uh runaway of growth going forward let me just give some maybe the numbers ryan uh organic shipment volume growth 3.9 net revenues growth 10.2 and adjusted operating income 16 i think that highlights kind of the big dynamic of what the thesis would be for philip morris which is uh the tobacco business may be stable or start declining a bit, depending on how that dynamic works. But you're

going to see them dominate the new nicotine products with the Heat Not Burn, the Vapor, and the Zin. And you see some steady shipment volume growth. But due to the pricing power of this industry, especially with the legacy tobacco, we should see net revenues grow even quicker. And then with margin expansion, operating income will grow at a double-digit rate. And it seems like that formula is still working this quarter. Yeah, and they're able – I mean I kind of don't really want them to be buying back a whole lot here, but they still continue to return a lot of cash to shareholders via dividend. I think it's around 3.5% to 4% right now, dividend yield, which is okay. Yeah, it's not bad, but it was a lot better.

Yeah, it's kind of – after looking at some of their earnings figures and what they're guiding for this year. So it's tough to really make myself want to be a buyer here. It feels good to be right about something. And in this case, I thought it kind of played out like both of us thought where the smoke-free business would continue to grow. It had stronger economics. So profits could grow faster than revenue. And then the international cigarette or combustibles business was good, but it shouldn't grow too quickly. That all seemed to play out. However, it's an uncomfortable feeling when you have a thesis you're happy about, a business you're comfortable with, but the multiple expands a lot.

Right. It gets realized so quickly where you have to be forced to make a decision. I'll say right here, enterprise value, $300 billion. Can they get to $30 billion in earnings at some point in the future? Maybe. But the path to like in March of last year, the path to getting to 10 times earnings was OK, maybe in a couple of years they get there and I'm pretty certain they will. But now it's I think in 10 to 15 years they get there. So that's just a whole different story. And I don't I mean, I sold the stock because that was I saw like I thought Airbnb was a much better risk reward and just a better opportunity at that price. But I don't know if you could go wrong selling or buying here because I don't think it can be a huge mistake selling given the size of this business. But I also think it's a winner. It'll pay out that dividend, and it's a great business that should continue to win over the next 10 to 20 years.

Okay. I do want to shift gears. I want to do our small cap of the week, and then we can hit Chipotle earnings and some of the other topics as well. nintendo's pre-order numbers which i know you are excited to the road to 30 the share rhyme i'm gonna win this bet i'm remember remember my predictions oh i remember yeah getting close i want to talk about blue chippers club blue chippers club is a tight-knit community of stock-focused investors that was started by two friends of ours inside this community you get to share and break down your portfolios pitch stocks receive feedback and participate in weekly

calls i'm going to share a little story here in a second i really do like this idea uh we're in this community ourselves brett put some notes on his airbnb uh purchase i was on a call yesterday which was uh part of my my story here in a second um and i just i think it's a really cool concept to have actually a tight-knit community of stock focused investors that you actually talk to and collaborate with and and get real feedback on if you're interested in joining head on over to bluechippersclub.com and hit apply the link will be in the description that leads me to my small cap of the week was on a call yesterday um and it was basically the questions were you know are you seeing anything interesting right now any stocks that interest you

and a listener to the show mentioned uh nathan's famous i did not realize this was a public company so looked at the market cap 384 million dollar market cap so qualifies for my small cap of the week so i did a little digging did a little research been in business since 1916 started as a hot dog stand in coney island and i know you're a big fan of the lack of healthiness of the u.s consumer and investing in that trend so this is right up your alley however it's not at all really the business model that i would have thought it's basically become like a licensing business for the most part so they have four different segments to the business model um branded products which is what everyone thinks of for nathan's famous they sell hot dogs to like

restaurant chains movie theaters convenience stores and the production of that is actually outsourced that accounts for more than 50 of sales so that's the biggest part of the business and then there's they have five company-owned restaurants including the original coney island stand i think this is like it accounts for some of the sales but i think it's more of just like an icon type of thing like it's just meant for people to kind of share in the brand a bit like more of a storied history with those stores as opposed to anything like they're not investing in that business line. Third one here is franchised restaurants. So franchisees pay Nathan's a standard $30,000 one-time franchise fee, and then they pay 5.5% of restaurant sales.

So that's pretty good business for them. It's asset light. And then the fourth one, which is the biggest, is product licensing. So in March of 2014, Nathan signed a new license agreement with a subsidiary of Smithfield Foods. This agreement, and I'm reading off a quote here, This agreement granted Smithfield the exclusive right to manufacture, market, and distribute hot dog products under the Nathan's Famous name. The agreement is in effect for 18 years, and Smithfield is obligated to pay Nathan's an exceptionally high 10.8% of annual sales in royalties. For context, the typical industry royalty rates are mid-single digits. Such a high royalty rate underscores the perceived strength of Nathan's Famous brands, as well as its underpenetration in the grocery channel. this segment only accounts for quarter of sales but it's the vast majority i believe almost 80

percent of operating income and if we look at the financials over the last two decades i was pretty blown away uh so 2005 they they were doing 33 million dollars in revenue in 2024 so this last year they did 139 million and then operating income has grown at basically 12% a year for the last two decades. Pretty solid cash flow conversion. Nothing too crazy. I think it's like 70% for cash flow conversion. Current EV to EBIT is 12 times roughly. And the total return over the last five years has been about 14% a year. So I'm not too interested at the current price. I think a single digit multiple, I might've been slightly more interested. um so maybe i'll throw it on the watch list but this was such a different business than i was

expecting yeah it seems like a solid business solid brand i i guess i worry a bit like what do i know about growth going forward i i just i i have no clue uh but seems well run seems like it looks like here consistently strong operating income i would wonder like it looks like uh using this chart from FinChad, like $25 million in operating income in 2016, and it hasn't really grown in line with revenues up to 2024. Its operating income is only up to $33 million. And we did see some stagnation coming from the 2015 to 2024 period. Maybe there was some divestiture or something like that that caused that. But yeah, I would want to know why the earnings seem to be stagnating a bit. I would also be interested in what their

capital returns program is, but it seems all right. I could see this one working. Did you know this was a public company? I did know it was a public company. I saw it talked about on Focus Compounding once, who covers a lot of micro cap and small cap value stocks, but I didn't really know the business model that closely. I hadn't looked. I just kind of know they mentioned it and we're talking through that it looked fairly cheap but that five-year total return category seems solid i would just be interested in what their capital again the capital returns program is because that can really shift the gears for what is probably not a high growth business but one that could

work well for shareholders if you're doing a dividend and buyback at 10 times earnings all right do we want to talk chipotle earnings let's do it ryan tough for the mexican bowl slop my thesis of i don't go there anymore so therefore it's gonna struggle seems to be working uh have you what is your anecdotal evidence on them have you been visiting them more or less the same well i've got a girlfriend now so uh i eat out less chipotle was my solution to my inability to cook so at this point its volume has certainly declined uh my personal volume the and i will say i don't think i went there once this quarter that wasn't by intention but i don't think i went once you're not boycotting them and clearly that's being

reflected in the comp store sales yep i'm about to share i'm about to share a chart here ryan from our friends at fin chat yeah i don't know if people can see that that well but negative 0.4 percent essentially flat quarterly year-over-year comp store sales figures again that's just measuring revenue growth from existing restaurants the worst figure excluding the pandemic flush in q2 of 2020 and it's just trended downwards ever since 2021 i don't know why this stock is flat today i don't know why it continues to trade at such a high multiple and i i'm not getting anywhere near this thing um no yeah what do you think ryan Their CEO left, which I genuinely think is pretty telling. Brian Nicol went to a sort of struggling brand in Starbucks, or at least it was temporarily struggling when he joined. I'd say they're still probably struggling a bit.

Cheaper PE ratio, though. Lower expectations. Correct. Went to a struggling brand, left Chipotle. I think maybe he knew there was some writing on the wall, there was some difficulty ahead potentially. I don't know if this is like internal operating issues or more just macro environment, but that is their worst comp sales figure in five years, probably longer, probably since E. coli crisis if you strip out COVID. so yeah i don't know i it doesn't i don't like this business at all like sorry yeah i like the business i don't like this stock at all it seems like there's trailing earnings yeah and they're trying to expand into mexico i believe they just launched their first location in mexico it's going to be a basically a test that's one store it's not meaningful for this anytime soon but nice for I'll say a shareholder such as myself they're going to be the ones operating the restaurant and the fact that they won that contract if it is successful you know there could be room for

a couple hundred stores in that market but again that's a test restaurant that's going to probably launch within a year or two and then what are they going to have 10 five years from now in Mexico it's not meaningful whatsoever what is going to drive the bus is North America sales and i i'm curious what's going to happen with the other restaurants here's something interesting too the comp sales mix minus two percent transactions so they raised prices three percent to try to offset it transactions were negative two i am hearing a lot of like anecdotally people going less not really getting the same quality that they used to i was early on this ryan i was early on this i've been saying this for three years

you you said this before 20 plus comps so it's in cumulative relative to when you started saying this the restaurants are generating much more in sales but yes you were early to this trend of potentially lowering quality um i don't know there's not much to say here it's basically like people have a lot of faith in this brand and a lot in this concept but part of the difficulty for me with a business like this is are you potentially near saturation in the states does this concept translate internationally i don't really think so and they've yet to prove that it does i'd be interested to see the numbers internationally there's some in the middle east and europe uh just getting that fresh food though is tough

in different geographies like okay you're in sweden how do we get those avocados they're fresh it's just much more difficult than the highly processed stuff you see at a mcdonald's or a burger king or a subway it's a good business i i just don't know you shouldn't buy any restaurant at 40 times earnings. And it's crazy to me. This reaction, it's up 1.6% today. I guess we're recording after hours. So it was up 1.6% the day after reporting this. This stock movement is even more surprising to me than Tesla's. Tesla's actually didn't surprise me. I just know it goes up and the investors don't care about the numbers. But Chipotle, what is going on? yeah it felt like the whole thesis rested on like five to ten percent comp sales for

consistent volume yeah yep five years plus um okay let's talk nintendo pre-orders i also want to i'll quickly say this i thought this stat was interesting gucci five quarters in a row maybe more now of minus 20 comp sales that brand might might be dead they've they've been brought back from the dead uh from time and time again they're kind of a dramatic company they literally had a movie made out of them yeah it's you know you sacrifice quality and you erode your luxury brand you're you can't sell stuff for a thousand bucks anymore that's why it's a delicate model and the Hermes's and the Ferraris of the world and Louis Vuittons I guess although LVMH owns some other stuff that might not be as high of quality and they could be doing the same thing

yeah it's good stuff I will mention around before talking Nintendo pre-orders which I am excited about as a shareholder there's going to be and maybe I'm teasing this a bit Our friends at FinChat, Ryan's boss, are doing a spring sale starting next Monday, where instead of getting 15% off using our link, you get 25% off. And that's either if you use a monthly plan or a premium plan. You just saw us. I mean, I don't even know if I read the Chipotle press release or the conference call. FinChat has all the information I need. all of the key KPIs updated pretty rapidly for the quarterly results. I was able to go in there,

check the PE ratio, check what the stock has been doing, check that KPI with the comp store sales. You can look at restaurants as well. You can look at various valuation figures. It is fantastic. And a tool that I use daily in my stock research. So longer advertisement than usual for them, but that's because they're doing the special spring sale, 25% off starting on, I believe, You can correct me if I'm wrong here, Ryan, April 28th. So if you're thinking of signing up, wait a couple more days, and we think you won't regret it. Yeah, it'll – just for logistical context, April 28th, Monday through May 1st, Thursday at midnight, you can get 25% off FinChat.io slash chitchat. We don't do – we only do two sales a year.

So if you've kind of been on the fence or you're a free user, even if you just are exploring data terminals, this would be potentially the time to buy one. Perfect. All right. Nintendo pre-order, Ryan. I was thinking this week, I don't own enough Nintendo. It's pretty much full position for me. I think it's about 6% of the portfolio. I feel like I should own more. I think it's essentially like pre-orders went live for a lot of the retailers in many, many different countries. these could be like in japan there was a kind of a lottery you can i think buy direct from nintendo or you can go to retailers you know for example in the united states you could have a walmart a target a best buy a game stop i don't think they actually have a deal with amazon in the united

states but the data we're seeing is that sites are crashing because demand is so high there are lines out the door from anecdotes from videos at game stops people are going to be waiting like it was the first iPhone for this thing. 2.2 million people entered the pre-order lottery in Japan. That is 2% of the population of that country. And it was so popular and demand was much higher than they anticipated, which they built up a ton of inventory in anticipation of this pre-order demand that the president went on the Twitter account of, I think, Nintendo Japan or something like that and apologized and said, we're working through this issue. We're going to bring more supply online and hopefully they can do that without the semiconductor shortages that hurt

them during the COVID-19 pandemic. It seems like the Mario Kart bundle at $550 is still doing fine, even though there were fears over a price hike to $80, which people were concerned about. But if you adjust for inflation, again, it's not really that much of a price hike. They're kind of taking that standard game price and just bring it into the 2020s. If I do some quick math here, Ryan, you have $500, say, give or take with the depending on what country it is, it's a little cheaper in some countries compared to others. And you add, you know, some software on there, which would be the game sale. So you know, you got to buy at least one game. If you buy a game console, if they do $500 times 20 million units plus one game, which would be $10 billion in

revenue you're going to add on the subscription revenue you're going to add on that ip revenue which will be a little bit of a bump there and you're going to have the people that pay for multiple games because they don't sell typically 20 million software units a year they sell 150 to 200 million and that'll add even more to revenue so there could be 10 billion just from these console and game bundles in this fiscal year. The record for revenue in USD was about $16 billion in the COVID pandemic year that saw kind of a boost in demand during the original Switch cycle. I think looking at these figures, the fact that Switch 2 costs a lot more, the fact that Mario Kart costs a lot more, the fact that they've built out the Nintendo account,

the nintendo switch online and the add-on stuff that brings people into this new concept much quicker where the fact that you can have like again there is that recent uh zelda game that came out i think in 2023 you can have like a i think it's a 10 or 20 purchase that gets you an upgraded switch to version so there's just much more of an existing user base that's going to get on board to the switch too quickly i think they're almost assured the unit eclipse there's 16 billion in revenue in USD terms and definitely in yen in fiscal year 2026, which is the one that started this month. I don't know what the stock's trading at. Maybe we can look at my market cap here quickly, but I like my bet of getting to $30 this year. I think we don't need that for the stock to

work, of course, but this is what I would be looking for if I was betting on that to happen. i think you might be able to pull this one off brett thirty dollars what is that 33 no sorry 50 up from here yeah yes yes out on 10 yep is that 20 and i think it would have been about 100 gain from the start of 2025 but i'm not exactly sure it's always hard to get the right numbers because of the adr and stuff like that tyler asks sub stack post with brett's nintendo projections you willing to throw those into i'll probably do that yeah i was thinking of doing an american express update but i don't actually own them anymore um but i guess i have them on the top of the watch list yeah that could be good kind of going through the math and then doing some

valuation work of what it means if the price was at thirty dollars um we have another comment here from tyler that says if they sell enough consoles switch online is going to be huge such an analogous setup to the iphone and services yeah and they changed things up a bit where they've actually i wouldn't say turbocharged but i guess brought their online chatting and online um you know when people have the headsets on and are talking live with people they actually have enabled that kind of similar to if you were on a pc or an xbox or a playstation it's not like you can do cross uh chatting but you need the nintendo switch online to do that so i hopefully that will drive even more people to sign up for that annual subscription which should be more high margin

revenue for the company i uh i'm on board it's a psychological long for me how about that yeah same with uh uh miyang uh alphabet which i don't own unfortunately after this after i remove but yeah so you're on the if we're doing the disney versus nintendo team you're you've fallen out eiger eiger's dead to you furukawa miyamoto those are your guys yeah i've always well no i read bob eiger's book when i was an impressionable college student and thought man this guy's so great and five years later i am not fond of him at all the bigger pet peeve for me at disney is their horrendous reporting but that's neither here nor there no i think yeah nintendo over disney i i would certainly in 2025 and i think over the long

run i would be confident making that bet it's what do you want to talk about next run bubble watch let's go bubble watch this was sad to see i i look at the notes for everyone that's listening if i ever just want to be if i ever want to get a sentiment check on the market i open the notes for our power hour and i see brett's bubble watch and it just is so disheartening yeah this uh let's say two caveats here one this made me think that i should get my ass hits out of u.s out of the u.s And second, I would say this for any president So it doesn't matter what president did this It could literally be a president

Who I don't even know I would be doing the same exact thing Alright I think some listeners know what I'm going for here And here's a quote from the Wall Street Journal The price of President Trump's Meme coin Let's just

Take a second to digest that First The price of President Trump's meme coin surged wednesday after virtual website and x account said the coin's top 220 holders would be invited to an exclusive gala dinner with the president next month hate to be 221 that's just some arbitrary numbers the top 25 holders will get a vip tour of the white house price shot at 50 on this news this has this it should be illegal it can't be legal to do this there's no way that's not securities manipulation i know i know unless trump coin is not considered a security which

which i guess crypto yeah well you know whatever it's so this is so like he president trump does a lot of crazy things this probably makes me the most i don't know sad i guess that like we're stooping to these levels because it's it's something that like a you do is like a minor celebrity pumping a meme coin like you don't you probably don't need to do it as the president uh so yeah it's a bummer it kind of makes me think he's struggling financially somehow i read that and i just think like is he does he need money um anyway yeah i actually went through the same process as you brett not when i read this but over the last i'd say two months I've kind of been thinking more about how much exposure do I actually have to U.S. companies and U.S. markets.

And I have a lot of – Joe Morris, that's pretty good. And Coupang. Yeah, my two largest holdings, which I think make up about 40% of my portfolio right now, are Coupang and Philip Morris. Philip Morris gets categorized – I mean, it's a U.S.-listed stock, but the majority of its business is international. although if zin keeps growing there is some exposure uh but yeah try to try to i think it's an important exercise that everyone can probably do and now is probably as good a time as any to do it how many companies what percentage of your portfolio does business outside the united

states um if you had to guess what percentage of your portfolio would you say oh let's say coupon sizable position uh no philip morris anymore i guess unfortunately given this run after earnings and then some mexican companies probably about 25 percent of the portfolio i'd say about 35 40 percent um and then if we include like some of the global ones within there such as airbnb which i think is half outside of north america you could toss on that as well yeah i think are we again i've written about this on our sub stack are we people that are going to make currency bets no no that's not something we do but having even if you run a concentrated ish portfolio of 10 to 15 companies or maybe even 20 or less if you have global diversification it can

just give you yeah much worse sorry your drawdowns are probably going to be significantly less severe. And it gives you much more flexibility where, for example, let's say the bear market kind of resumes and some of these high growth tech stocks that were really overvalued or even something like a Chipotle, they keep falling and they get to a reasonable multiple. Now, if you only owned high growth tech stocks and the Momo, QQQ, Nasdaq 100, Magnificent 7, if you only own those while your portfolio is down and if you wanted to rotate into them you're already rotating into them but if you have some international diversification maybe that gives you more not necessarily dry powder but just more flexibility to take advantage

of price dislocations around the world you're not tying yourself to one sector one uh u.s market or one you know just the nasdaq 100 a small subset of that market yeah could not agree more okay we're running up on time here anything let's nail that can we can we celebrate sure be great yeah yeah i think so they had a nice 8k no press release on something that could greatly impact their business let me try to just read this and define the print is always small and 8k they sold their stake they sold a portion of their stake in aloe yes all right so let me just read this off on april 18th uh aloe holdings executed a financing transaction that will result in gross proceeds to aloe of 500 million dollars in conjunction with the financing

nelnet aloe and the museum of america american speed that is a weird name uh uh entered into a agreement as a part of the transaction al will redeem all of nelnet and sdc's respective outstanding preferred membership interest and let's see uh immediately upon closing nelnet expects to receive aggregate cash proceeds of approximately 410 million dollars will recognize a pre-tax gain of approximately 175 million dollars and immediately following the transaction nelnet will not own any preferred and they will have their ownership of the i believe common equity if you want to call it that reduced from 45 percent to 26 percent 420 excuse me 410 million dollars in cash probably good given that gain they have to recognize on a net basis going to be

under 400 million dollars but before the stock jumped that was over 10 percent of the market cap brian not not bad and when you say jumped you mean three percent yeah three percent five percent that's a that's a wild day that's a nil net shareholder uh yeah do you think they can generate more than a billion dollars in cash this year kind of operating or maybe just combined from like the loan portfolio the the software business that should be like 100 ish 100 to 200 million dollars in cash flow plus this i guess the bank doesn't matter maybe add in some solar and then you have that uh what is it the financial services depends how the financial services performs but i think so and i think they can get close and look they're trading at a market cap of

four billion dollars ryan and what's even better and i know this is a sore subject for some people But student loans are finally going to get starting normalized. So that's really – they're looking out. This government is looking out for the Nelnet shareholders. These are the most important constituents in our country, and we are grateful in our time of need for you helping us out. Yeah, that was obviously the platform this administration was running on was to do all they can to help the Nelnet shareholders. No, I was pleasantly excited – or pleasantly surprised, I should say. I think all excitement is pleasant.

But I was pleasantly surprised that they finally had to realize the value of something because they love to pretend things are worth less than they are when they own them. So it's nice to see that. Yep. And I think their true book value or intrinsic value is still significantly higher than where they're trading it today. Let's see. We're done with the episode for today, guys. Someone said opinion on Robinhood. We need to do an update on them. I'm doing a research episode of Interactive Brokers. I know people like Robinhood, they just seem to be doing, I don't know, their business seems to be doing fine as well. So maybe we can check in on them at some point.

And someone asked, who are the Seahawks drafting tonight? hopefully some beef on that offensive line because it's been sickening watching them not been able to block for any quarterback for about 10 years and i think that's we'll leave it ryan anything else before we get out of here no and i'm uh sure most of our listeners are lost but the nfl as of we're as we're recording this there's the nfl draft tonight so we've got some comments uh in chat talking about it but yeah i think that's gonna do it uh you want to take us out here let's do it all right thank you everyone for tuning in as a reminder these go live 5 p.m eastern time on the chit chat stocks youtube channel you can listen to them and the

recordings when they come out on friday mornings not sundays anymore friday mornings on spotify apple podcast youtube or your podcast player of choice if you enjoyed this episode if you enjoy listening to the show we keep everything free so the best way to support is either to subscribe to the Substack, give us a review on Spotify, or give us a review on Apple Podcasts. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, once again, and we'll see you next week.

We'll be right back.