Chit Chat Stocks - Investing Power Hour #17: Q2 Earnings Season, Shorting Crypto, Chipotle Earnings

Episode Date: July 31, 2022

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Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. This is the Chit Chat Money Investing Power Hour, where we discuss anything on our minds, all things financial markets. Oh, got a bit of a little technical hiccup, but yeah, no. So no rules here. Basically, well, sorry, one rule, don't bring anything to the table. So don't come prepared at all. Basically just have anything you've found from the financial markets for the week uh worth talking about and it's earnings season so i imagine that's been occupying most

of your time brett am i getting that right yep we had some companies reporting this week a lot of other interesting ones this is the big one i guess we've had some big tech report already but we're going to be before the apple and amazon so if we say anything about those reports and you're listening to it on the podcast uh we could be completely wrong probably will be but yeah, this goes live at around noon Pacific time every Thursday. And if you're listening on the podcast, you'll always be able to listen to it every Sunday morning. So yeah, let's get right into it. What do we got? Well, it's been primarily just reading through earnings. We have a comment already that says Elon sucks. All right. We appreciate the

comment. Well, there you go. I think that's the audience we attract, right? So not too surprised. yeah not really any big developments on the twitter news um no small stuff yeah yeah but uh i've been something i was thinking about this week so many people like bring out the microscope for earnings and try to analyze every little detail and like all right we've been you know kind of building our own tracking metrics for every quarter just to like keep up in Excel sheets, owning stocks shouldn't be that hard. Like it should be, it should be easy. Like you, I feel like people complicate it every single quarter and think it's like the end of the world. Like the businesses should, if they're really high

quality businesses be around for a long time, you don't have to psycho or microanalyze every single quarter yeah the easy part isn't or sorry the hard part isn't understanding the numbers and you can make it harder than it needs to be a lot of the times the hard part is a lot of the other stuff psychological um you know understanding management trusting the right management teams not yeah i guess a lot the hardest part really i think is psychological if you have the base of not you know being an over trader not being um well i don't know what's an example you think of over complicating the numbers is it just looking at some like tiny thing at earnings report and trying to hype it up stuff like that or like okay this is super important or like do you feel like

you know most companies you boil down to three to five things and a lot of people are trying to look like 20 things at the same time too much chaos um when you're trying to well it's just like google was kind of the one that came to mind because i was listening to that conference call and pretty much every single like well not every single question but a lot of the questions are like you know like marketing spend like a lot of people are uh pulling back on marketing spend are you seeing that it's like obviously they're going to see that like they're trying to pull any piece of data or anecdotes to like extrapolate it too far like you don't need to i feel like i know that's their jobs and they have to like like basically try to ask for certain inputs into

their model for management but it doesn't like it's not going to impact in 10 years it probably won't matter whether or not you got that little one input right yeah it is strange that the incentives seem to be for just getting that quarterly or annual model right when in reality most people don't care about that stuff some people do but it's strange how that and i guess that's maybe the people that are asking the questions on the conference call so you kind of just get you know those specific people if you get what i mean but yeah it is frustrating because on calls where a company is fairly mature and you have maybe a larger cap or maybe cap tech like alphabet. And you have the top analysts on there. You're not getting the rookies over there.

They really hone in on, okay, I need to perfect my model. I need to ask this one question. And I find the conference calls to be, a lot of the times, not very helpful in understanding where the business is at the moment. Because I could care less whether operating margin is, I don't know, 37% or 38% in the upcoming quarter. um but some you know some conference calls and maybe it's the way management teams treat the analysts or have a relationship with them or it could also be the fact that there's a lot of smaller caps that you know it's a lot more open um to all sorts of investors you can get a lot more a lot better questions i think for smaller caps not just smaller caps just non hugely

followed large cap tech you know you know those type of businesses yeah we do have a question in the chat and i'll get to that in a second but adding to brett's point uh something that's really been frustrating me with the conference calls and i swear it's happening more often now is people like analysts it's a lot of like look how look how smart i am questions Oh, right. Yeah. Yeah. And I mean, it's, to be fair, it's not crappy for their incentive. It's just not great for someone that's focusing on a three to five year time horizon or longer, which is what we're trying to do. Or the other. Okay. So like some of the, you can tell that some of the conference calls analysts are supposed to ask questions like certain analysts, they might not have a question, like a real question of any value. So they have to come up with one that frustrates me too. If you don't have a question, just listen to the conference call.

Don't ask. Exactly. Especially with a larger company, there will be plenty of people in the queue, I guess. And I love how the big tech companies get the top analysts at the firm. And then other companies that report the same day are like, all right, our next question is from blah, blah, blah from Barclays. like actually this is blank bar uh blah blah had a different company he had to report to like oh yeah good enough so this is mike filling in for todd no it's more like this is chad filling in for chet but yeah no all right we got a question that says uh is shorting uh it's from

josh router kiss i think i'm saying that right uh question for you is shorting crypto just as risky as being long crypto love these shows thanks guys can you short crypto is that possible i think you can uh if you're not like directly someone has to make a market for you uh i could be wrong but yeah it's definitely the same amount of risk right wouldn't you agree it's because you don't know from my point of view i have no idea whether or what any crypto will be worth one or $1 million in 10 years. So I kind of think it's risky both ways. Yeah.

Without any real way of like assessing the value of something, I think it's risky either way. I think you pretty much, like if you're doing that, you pretty much have to try to pay attention to flows, like money flows in. You probably have to be some sort of like a technical trader to short something or go long. Or you know that it's like a blatant fraud, but even then you might lose money because frauds can go on for a long time.

Something else that I thought about, I remember in sort of pertaining to these crypto, the crypto question, you, a long time ago, I heard Josh Wolf say the quote, like the SEC is always late. It's always the autopsy, never the diagnosis kind of thing, because they don't want to be that one that ruins the parade, the one that causes the bear market. aren't we seeing that play out right now yeah and it's fair by them because if if they i've thought about this like why isn't the sec more proactive it's probably because if they are more proactive they can be seen as the cause of something collapsing and not uncovering a fraud you know what i mean and that could get really hairy but we're definitely seeing that right now um i just hope yeah maybe it's better to let cycles drop like take their course but because okay let's take the whenever the celsius one or whatever some crypto bank that like

100 000 people had their accounts zero let's say those people right now are blaming celsius and And hopefully from here on out, we'll allocate capital to things that are more meaningful to society. You mean their savings? Yeah. Yes. Like they'll allocate their money and invest it in things that actually help benefit society and move society forward. If it were just the SEC's fault, it would be like, oh, this almost like they're trying to fight the SEC. they'd probably look for a new place to put it where it's like the sec ruined this now they

hopefully know the risk associated with their investments they learned it the hard way but yeah i agree i think although i do think it's a bit of a regulatory failure well let them to let it get this big and yeah i agree i i don't know that that part is true but i think there's a separate part of the SEC is in a really tough spot to shut something down if they feel like they just have to walk such a tight line

it's very very difficult and maybe they're too cautious and they probably have been with this crypto stuff over the last few years but it grew so quickly in the last presidential administration the SEC got

if i'm not mistaken basically gutted and was told to not do much so you had that kind of pause and then now they're trying to play catch up with the new uh what's his name gensler the new head gary things moved so fast they had a lot on their plate i just don't know if blaming them It's sort of like blaming the Fed for high gas prices. I mean, they can try their best. It's not the exact same. Yeah, no, it's Biden's fault. Well, yeah, it's either Powell or Biden's fault that Saudi Arabia is not pumping out more.

Or that Putin invaded Ukraine. Yeah, I don't know. Either way, crypto is just... And I just, like, I'll watch them, you know, I'm interested in learning about some of the stuff on how devious and people are being stuff like that. It's great. There's some great stories out there, but my money is staying. I mean, just far, far away, short or long. yeah i agree i listened to that mark andrews on andreessen uh interview on joe rogan or i listened to like the first 30 minutes and uh i don't know it's the there's a lot of smart people in it that like kind of draws me towards it but at the same time i just am yet to see a use case where it like really is a

big value add to society yeah i watched that slash listened clearly the guy's smart invented the browser come on but it doesn't mean he's right here and it's it's kind of strange how it's that uh uh what's that we're just referencing stuff today it's the nassim talib thing i haven't read his books but i read this short thing about it like he had a blog post on it where um and his example that he uses is a surgeon where you'd you're kind of heuristic or your instinct in your mind is when you have a surgeon that's going to perform something on you or a family member if they're clean cut if they have great credentials say harvard wherever johns hopkins um they you know i've only been at the best spots and they just look so professional

have a great look about him, super clean cut, you would think that that's going to be your best surgeon. That's your instinct. But your best bet is actually someone that doesn't look the part, maybe went to a second tier school, but made it to the same level as that other surgeon. Because you know that that other surgeon that might have a scruffy beard and not be the most well kept together is there because of his quality of work, not because of his credentials, If you know what I mean, I think that same thing can apply for a lot of these basically people that have investing takes or, you know, in the finance business world, people trust someone like Marc Andreessen because of his track record, rightfully so. But it doesn't mean that they're correct. I think that happens with Elon Musk.

That happens with Warren Buffett, even. It happens with everyone. What do you think? More the merit of the man and not merit of the idea. Yeah. And I can, it's, it's affected me for sure. It affects everyone. It's kind of something I try to catch myself. Okay. Like, do I like this idea because a few other people that have great track records like it, or do I actually think it's smart?

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members will get one Arch Capital Fund episode a month where we outline why we bought, sold, or continue to hold a stock in the Arch Capital Investment Fund, along with shows on our broader investment strategy. sign up and become a chit chat money plus subscriber today we can't wait for you to join our community yeah all right other topics i don't know if you use instagram anymore so we may be total we may have no takes here but uh there was the instagram going into more video and basically trying to make themselves more like tiktok but there was actually just news today

that they are temporarily walking back some of the changes amid mounting criticism uh for something like the recommended videos and straying away from friends thoughts on this you know what the mounting criticism was right I maybe it was just Kylie Jenner and Kim Kardashian complained on their

on their Instagram stories like well I would that was the big ones all those obviously the popular users however it was also weird that they said make out about friends again when they have 300 million followers so that was a bit strange i thought that was strange but here's the thing they're friends with all

those people well of course but here's what uh the head of i'm reading this kind of in real time so this is from casey noon who runs that kind of social media uh sub stack and here's a tweet the vocal criticism on twitter and elsewhere wasn't just the usual griping over redesign so like compared to how the news feed you know people were saying they hated it but in reality they were using it constantly, it was actually showing up in the data. So maybe they went a bit too far. Generally, though, I guess we just had Meta's earnings, Facebook slash Meta's earnings. What are your thoughts on this redesign?

I don't know if you use Instagram anymore, but if you do, maybe you'll have better insight than me. Well, a bit of anecdata for you. i actually kind of well i deleted my instagram i'd say six months ago maybe longer for this reason i mean part of me wanted to have instagram to kind of keep up with like friends and family and it's almost like you can almost treat it like a modern day photo album that's what that's that's that's what their idea was at the start see what everyone's pretending to do yeah by the end that basically didn't exist i was not keeping up with anyone all all everything

i saw was from essentially either like promoted accounts influencers or you were going to the reels page and it was just a bunch of random people that's fine maybe that's like a business model that works i think tiktok is i mean tiktok you're not really talking with your friends you're it's not a social it's really not social media at all it's really social discovery it's just it's not social it's random discovery it's yeah it's it's video but sorry go ahead um that's fine it got me kind of addicted because it has that like basically feedback where you feel addicted to it whatever it hits like it gives you like a dopamine rush every time you refresh but i that wasn't what i was using it for and it felt like i was wasting hours of my day as

opposed to like keeping up with people that would potentially be relevant later on like you know like you see them again you kind of know what their life's been up to so it's not like a total refresh i never had it was basically going away like instagram kind of sucked towards the end of my use so i got rid of it by the way they make it kind of a pain to get rid of it i know a lot of social medias do that but it uh to actually delete it not just log not just uninstall yeah yeah what's harder that or the wall street journal probably wall street journal that's like a i was on hold for an hour just to like delete or cancel my membership with the wall street journal so yeah i think uh i was thinking i might bloomberg could be honestly

a better deal i think bloomberg is there's a lot of stuff i always click on like at least a few times a week i click on it it's a bloomberg article and i kind of want that all right there's a good comment from matt there's a good point matt um well there are other methods but that is actually a big pull of instagram is the romantic and more romantic's a nice word it's I wanted to, yeah, I wanted to use a family friendly term. The, there's a lot of, I mean, I guess sexual stuff as well. Basically sexual attraction is a big part of Instagram, I guess. Is that the family friendly term for keeping, keeping people on the platform? No, I mean, that's, that's very much a huge part of it. And it felt like, I'm always like, I'm always like a little cautious to like, say like, well, I kept getting that stuff like fed to me basically on my content feed because it makes me, cause I always think like, are they just curating the feed for me based on my preferences? Cause then it's like. No, I don't, I, people make fun of people that say that, but it's not. Everyone's getting it though.

Yeah, I don't think it's that crazy for Instagram to have this idea that all guys under the age of 40 are super horny. It's not like that's a pretty... If you know what I mean, that's not like they're targeting you. They know what generates more clicks, I suppose. Yeah, exactly. All right, other topics or do you want any more on Facebook? I saw revenue was down, but I guess I was kind of expected for it to be flat. Yeah, I read the report, did not read the conference call, and they're pretty dry on their report of the reports.

They don't give out a whole lot of detail. They talk more on the conference call, but it's sort of – I think it's in sort of a precarious spot. And they are not – Zuckerberg is unwavering on his commitment to the metaverse. Kind of props to him for it, but they're just putting – they generated $450 million in revenue from Reality Labs, and they lost $2.6 billion operating loss. That is – yeah, there's spending a lot. And they're guiding for, and this might just be lumpiness associated with like product launches, but they're guiding for lower Reality Labs revenue next quarter. That's not seasonality because this time last year, Q2 to Q3 revenue almost like doubled. Yeah.

I think there's a lot of lumpiness in that business, but. well it might have been oculus stuff but i would be concerned about there's a lot of numbers out there about hardware sales for vr devices i would just be a bit concerned that people seem to get these as gifts and then stop playing i think that's exactly what it is still and i remember everyone's like no this is gonna be like this is gonna be it for you know this is gonna be the new format it's going to replace the iphone like that's just not going to happen and maybe that's my maybe that is my uh shoot what's the name steve balmer quote maybe that'll be a steve balmer quote like this will never be successful like he said with the iphone but

i think it's a huge bet on something that could very easily not be a success yeah it's really so bad as is it's really hard to judge because okay the vr free gaming whatever that's a whole different category but the true thing is that ar stuff to have it as the glasses to replace the phone that seems like the technology will be insanely hard to do and it seems like the three companies that are working on that are facebook or meta excuse me alphabet and apple yeah one i would bet that apple and well i bet that apple can get the hardware right the most i would bet that you know they were getting right but second i would bet google kind of knows how to make the operating stuff a lot cleaner um similar to how everything's worked

smartphones but i just wonder whether people care because i don't i don't put on a vr headset i can't remember possibly once but vr vr is different i'm talking about the ones that yeah that are more theoretical that these companies are working on um i don't like betting on theoretical things exactly but i know it i know it was a success for all the apple shareholders but for every apple shareholder that succeeded i feel like there's probably a hundred companies that tried to do something crazy like that that totally failed yeah and i feel like once you're do you really need to wait before the iphone moment because and i guess we were really young during that time so it's tough to get a read and i know a lot of

the times people the iphone is dead but couldn't you wait until after the hit product comes out because when the iphone came out after a couple years you kind of knew that they had really something on their hands and maybe they were going to succeed maybe they wouldn't but it seems like the probabilities versus the price you're paying were so much better after you knew the product came out so let's say i think meta has a project for 2024 for some ar glasses can't remember exactly that's their plan right now could be any year or the next five years let's say they come out it's a giant hit wouldn't you just wait until that happens am i crazy that's i mean that's what shareholders have done well i guess because everyone's selling or what yeah you the thing

about this whole situation is that you are inevitably going to lose shareholders because you're pivoting your business. You're pivoting what investors are buying. So you're going to see selling. I think that's just a fairly obvious statement. People were buying your social media apps because they were cash-generated machines that had a great network effect and you were kind of choosing it for all its cash but they knew they had a good idea of the kind of cash the business overall would be generating i could not guess within probably within anywhere near ballpark what facebook will be generating in cash in five years from now on well i mean from uh just in general or what in general or from the core apps

like uh well core apps are a little more predictable but i'd say you could what if they start allowing more money into the reality labs that's fair that's fair but yeah consolidated yeah i have no idea and i guess that's why the stock looks so cheap right now if if you believe is it's going to stop looking cheap because that that e can change but the uh like their free cash flow is down i want to say 50 year over year they spent seven billion dollars on capex what on earth are they spending that on well i think it's okay here's what it is i saw i don't follow the company closely so someone can correct me but i believe it is just um okay so they're working on competing with tiktok right and they need to get their ai algorithms whatever you want to call it

better they have to spend a ton on servers to get that correct if you kind of get what i mean so that's a lot where the capex is coming is is uh semiconductors which again here's the big question that we can move on we're gonna get a question here uh from michael here's the big question should and this might seem dumb as we're saying this but should they care so much about copying TikTok? I don't know. I don't know. I mean, they probably have better data

on whether or not their users were leaving. They had to do something to keep them back in. It's kind of a sticky spot for them to be in. Do you stick with the old form, stay true to your roots, but then lose a bunch of users in the process? Yeah. And it's not like the users have been that bad. It's just maybe it's the time spent that is way worse. I don't know. Yeah. Users actually still grew year over year, which is insane.

Well, yeah, I mean, it's international, so it's tough to look at certain markets. We look at our own market. But there's a difference between daily active users growing and hours spent. I wonder, you can be a daily active user and check for five minutes. we've talked about with snapchat before how that's just a totally misleading metric and it's really useless or you know you can spend two minutes to be a daily active user or you can spend 45 minutes like people do on um tick tock right now i'm thinking maybe i just won't touch social media companies i've hey i've been saying that join the club it's hyper competitive and super difficult

to assess where who the winner's gonna be in 10 years yeah although yeah I mean to be fair

we own Alphabet right now so YouTube depends whether you consider that because they're in the same boat as TikTok social media

yeah so what is social media because TikTok and YouTube dominate are they social If Instagram changes to this Are they social media It doesn't make any sense

I'd say YouTube's I mean they're all competitors in a sense Maybe they're not social media Because I don't think YouTube's very social But the Hey we got comments right here I suppose that's true Yeah I have no idea

What you consider competitors But either way I get what you mean about avoiding that type of stuff. Maybe the only one left will be Twitter. And then, but that's still- It'll still be giving all its money to employees. Yeah. All right. Do you want to hit this question?

Sure. He says, hi guys. I think he meant to say thanks for the nice podcast over the past three years of following you. Can you guys comment on Spotify's new paid content option? Do they take a percentage? Your perspective, bullish or bearish? Uh, so I believe he's probably referring to our subscription now. Um, and so they, they do not take a percentage.

There is a percentage that's knocked off from Stripe, which is the, just for processing the payments, which, and it is quite high. Yeah. Which is surprisingly high. Um, they don't take a percentage for the time being, I believe they said they're planning to not take anything for the first, it was like three years or five years of, and then then they're taking five percent but apple takes 30 so um i like that they give the creators the option uh both platforms really it's nice that they do that um our kind of goal

with it was basically to provide we know we have a pretty hardcore um maybe not hardcore but avid fan base that actually uses our research to kind of supplement their own research process and we figured that would be worth the value and so we kind of added stuff beyond the podcast that we we wanted to bolt into the subscription the best way to do that was to put it through the podcast players because that's where our audience is um i don't know how big of an uptake there will be from content creators for subscriptions until ads are no longer skippable because there in the, in the listener's mind, Oh, I can always listen to the podcast. Cause I can just skip to the ads. I don't have to endure it. But if you can have, if you have to sit through,

let's say a 30 minute podcast and there's six minutes of ads that you can't skip, I think there may be a little more inclination to take a, whatever, 399, 499 a month for your favorite shows where you no longer have to have those ads um but for the time being it's kind of hard to hard to see the value unless there's something behind the podcast that you're also getting like strategy has their uh newsletter plus the show kind of thing yeah i think yeah we'll see how big these subscription podcasts can get it's not gonna be really meaningful to either company personally both have solid positives i guess for how it works with the back end and both have negatives i'd probably lean spotify's a little bit

better um just for helping out like the creator apple has some really annoying things that uh it's just not like the 30 thing is not that big of a deal because it encompasses as payments, and they can really help with foreign exchange and all that good stuff. But for a company that large, just some of the stuff on their backend for working with these subscriptions is just really, really poor. And Apple's is just way more clunky to work with. But either way, yeah, from an investing perspective, and just from the podcast industry, it's probably going to be small, at least for the time being. but there is a lot of potential there to give basically podcasts shows the

power to have this option. And if they can get the, if Spotify can get the advertising network, right, that combination of giving people the options should be pretty attractive for people to use them versus anyone else. But it's not, it's not part of the it's just so small yeah uh we have another question thoughts of the ftc

blocking meta's acquisition of a vr physical exercise company um and so i i kind of heard the news about this but i didn't uh really look into it um i think part of this is that regulators hate facebook um because of the incident involving the 2016 election the i don't know if it has any implications for microsoft and activision i have a feeling at this point activision is going through it will see but in the case yeah it's weird because vr and gaming are very like it seems like the same market right now but it's like fitness for this thing so are are they competing with nintendo switches would have would have a big fitness product with i think like 15 million games sold that ring fit thing i don't see the case of

blocking this acquisition from what i've read the basic things about you know this being anti-consumer or antitrust or whatever the standard things are yeah it's not anti-competitive in any way as long as they keep all the games platform agnostic and even if they don't keep so let's say they took all of activision's uh games and kept them in house um that would just be kind of a dumb move on microsoft's part because a lot of people playstation play playstation and they're not gonna i mean in a subscription world maybe maybe they would hop over but i don't think going to buy an entire xbox just because they're missing the new cod i could be yeah i don't know if there's any game maybe grand theft auto because it comes out so irregularly that someone would be

willing to buy the console just for that game uh you mean if they already have one yeah yeah there's a difference between getting a new one and choosing a console that has the stuff that has the exclusive game which had been around for a while versus you already have an existing same generation

hardware and moving to a different one just because there's another game that doesn't make much sense that'd be very very expensive but in general again I have no idea whether Activision Blizzard is going to go through it seems like that says yes

who knows yeah i do think there's something to be said for giving them with with activision in particular i think there's probably some incentive or encouragement to give them new ownership to give those employees a new parent company, essentially, to be run by someone else, just given all the sexual assault stuff that occurred under the old management team, or still current management team, I guess, for the time being. So I have a feeling that one would go through. Facebook, I don't know what the rationale now as for blocking this acquisition, but regulators also blocked or told Facebook a few years back that they couldn't acquire Giphy. So I think at this point, people just don't want

Facebook acquiring anything. Yeah. And you see a lot of investors out there saying that that's just unfair and it doesn't make any sense. Maybe you're right. No, I agree. I agree. It doesn't make any sense. Facebook has shown they're in a tough spot. I really don't. But it's just how kind of the regulators around the world are treating them and you don't have to be a shareholder yeah you can't change that as an investor so that's just something i think to consider all right other topics let's okay here's one for a modest proposal i'm doing this because uh i've been on this tape i've been on this beat for a while uh here's the tweet seeing all the hot takes on reality labs, but sure, it's wild levels of spend, but at least there's a theoretical

prize. My hot take is Amazon spending on Alexa is a more wasteful science project because it's not even clear what the prize is. Follow-up tweet, quote, Amazon employs more than 10,000 people to work on Alexa, and the documents projected its fixed cost to be $4.2 billion in 2021. Do you agree or disagree? Well, that's not as much as Span does. Reality Labs, but Semantics Yeah, I don't think Alexa is like a wonderful product Or I don't know what the end game is for Alexa

Maybe it's just data collection That's not a business It is if you have another business to feed that data to Where it's valuable What? Come on uh targeted products on amazon okay how how is that going to be more about the i'm i'm maybe being a little putting the rose colored glasses on but i think this i think amazon over time has proven that they don't just they don't keep spending on something if it isn't worthwhile

they would have cut this if they didn't see like some sort of end goal in sight it's not like what's the end goal it's not a pet project for management I don't think I know it was for Bezos initially but yeah it's his pet project he loves this

he got rid of Fire Phone way back when I think if this wasn't working at all or there wasn't any reward they'd get rid of that too what if it's making money no way it's making money there's no way they sell the stuff below cost do you know that

yeah they they had that in the uh congressional hearings and i think they look at this that okay like they're selling a ton of these products whatever the little i forget what they're called but all the different things that are connected to alexa and they're selling them for super cheap so they're not making any money on that they still gotta ship them and they're saying, whoa, we got 100 billion Alexa households. We're working. It's working. Okay. What's it going to do? How are you going to make money on this? There's no end game. No one cares about voice. All right. Sorry. That's harsh. Well, hold on. There is a convenience factor. Yeah. I'm not saying don't. Sorry. People care about voice, but it's not profitable at this time.

Well, let's say it's funneling. Let's say they have the ability to show that average order value from Amazon customers is higher if you have an Alexa device in your home. Is that worthwhile then? Potentially, but that could just be correlation. if ever if okay if on average i think that there's enough let's say there's a hundred million customers and on average all those spend higher let's say 20 percent more than all other customers without one like i do see my parents use it for their you know all right order blah blah blah and it's shipped in a day there is i mean it's a convenient maybe it's like an accessibility thing it makes ordering easier i just have never seen anyone actually do it so maybe i i have seen a lot of people use it on a regular basis

typically it's for menial tasks things like add this to my grocery list but it's just is it worth that much spend though like say they took alexa spend out boom canceled it done are they gonna lose customers i had i would have a feeling that the uh volume transaction volume may decline a little bit yeah really yeah i do so they're gonna do these household tests they're going to go off to some other place. What is the other option? They go pick them up at the store. But that's even more inconvenient.

Like you can do two clicks on your phone. I do two-click order. Boom, boom. It's there. It's a lot easier to just tell Alexa to order. It takes longer to speak it. No, it doesn't. If you have it saved,

it takes 10 seconds on your phone. It's the same amount of time. So if they took the spend out, it's just, I'm not seeing an ROI. I think it's speculation on your part that there isn't any value that is driving to Amazon. That's fair. It is speculation. This is not a brainless management team. They've proven their capabilities in the past. I don't know. A lot of spend. Where's the return on invested capital? I would love to see them show data. it surprises me that you're doubting

Amazon today I think that's going to be I'm not doubting it because it comes in lumps but the return on invested capital I think they've proven that before I don't care we just talked about this at the beginning of the show I don't care about their track record and other stuff I think this is a poor idea

I obviously could be wrong then why do you like IAC what then why do you like IAC that's different because of their track record. Yeah, but that's not like, like I can think one of their ideas is bad

versus it doesn't mean I wouldn't invest in Amazon. I think plenty of ideas that companies I invest in are bad. For example, Alphabet, other bets. Why are we burning $1.6 billion this quarter? I don't know. I would love some more information on that. Amazon.

Is Google Cloud ever another bet? i'm not sure i assume at some point the uh i mean there's some specific things in other bets that seem terrible but you know you gotta take it with what like i don't think it's different between if you want to invest in something and whether you think the management is making bad like a bad decision uh i think alexa's the spend on there is just not worth the return for example i see They've talked about experimenting with crypto. I thought that, I think that's a terrible

idea. But there's a difference between investing in a conglomerate that invests in other stuff. Berkshire, Markel, IAC, Nelmet, Brookfield, I guess, too.

Versus an operating business. Okay, Amazon is a conglomerate. Wow. Sort of. I mean, it's two. It's basically two businesses. The majority of the revenue is comprised

of probably AWS and e-commerce, but there's other. Well, no, it's retail. It's retail and AWS. I guess there's media. Retail? Yeah, but I guess you could add media in there as well. Because media,

I put that as the media division because they have Fire TV, Prime Video. So many businesses under there. And a lot of them benefit each other. Do they? Yeah, I think their advertising unit.

Having an advertising unit can probably translate across from CTV to wherever else they are. There's advertising on Alexa. You can advertise stuff on Alexa. That sounds awful.

for the consumer for the consumer that sounds awful not very invasive it's not like they're like talking it's just like you've got your screen and like you'll see like a product across across the screen okay okay that's not that's not that bad nick asks why does the market hate iac so much uh don't know not really a question i consider myself with if you had to guess why they if i had to guess yeah i mean the numbers look bad knowing why yeah you know why the numbers look bad yeah the numbers look bad i don't really like to focus on that though but seriously yeah it's sure it's a fun question to talk to talk about but i don't think it's really worthwhile when making an investment

that might be a hot take but I don't know understanding the counter thesis is probably important no why why is it not important to understand the

cynics point of view because if you think it's just I like to go extremely simple if you if it's over like if this price you're paying is worth less than the cash you think it'll generate who cares what other people think that's such crap it's you're you're being a a fake purist well it's really i think why people don't like ic

i know i know but it's not something it's something i definitely you know talk about stuff like that but when making an investment decision i don't think it's important it can can be fun to talk about but i think it is counterproductive when making your investment decisions to answer next question the uh i think the optimist would argue that they're in a transitional period where the current earnings on the business that they just basically merge together uh is not uh it doesn't look they don't look very good so uh kind of this turnaround period if you're valuing it on current earnings it's tough to do and it's a little uncertain what earnings will look like earnings power from this business will look like moving forward i

think that's probably why the market hates it any other topics i think we got what 10 minutes left uh let's scroll down the likes here uh shop five layouts any thoughts on that kind of that was kind of thanks a lot thanks a lot analysts what'd they say what do you mean i remember when toby was like i don't this is our stock selling off is the analyst's fault and then they fired people it's like it must be the analyst's fault too huh yeah well you can't pay people in stock anymore and so now you gotta fire them yeah the what about when you were what about when you were selling equity at the top was that the analyst's fault yeah i don't know Now, Shopify executive team, everyone loves them.

But I kind of think there's a few red flags there. I think it kind of helps to have a good understanding of what... Like Bezos' experience at DE Shaw, I think was very helpful in how he managed his business and how he managed Amazon early on and how he thought about issuing stock, stock-based compensation. I think without that, there's some time

like you can maybe start to believe that you're worth more than you are. Well, I mean, Amazon is a heavy SBC company, but... But he was very good at managing expectations, it sounds like. Yeah. Oh, yeah, for sure. For sure. As best as he could.

and the other people on the team could um yeah it's just you know what i was not a fan of his i was not a fan of toby's letter and it's never i mean there's never like a great way to phrase layoffs like there's no perfect way to do it but his letter was very like oh you you should feel bad for me because i have to lay people off like you poor soul yeah and i don't don't know why people make that stuff public keep it in house okay yeah i mean layoffs are always tough basically no matter where you look no matter what way you look at it i love when people call it payroll cost reductions or uh what are some other generous terms that they use uh yeah there's some good stuff we're downsizing or right sizing our cost structure right sizing our cost structures good

way to put it uh yeah dropbox did it perfectly they actually did it really really well at the peak of 2020 they uh they said we're going fully remote there's a sorry but uh there's employees we no longer need this is never easy you know we'll give you generous severance but we're we're gonna reduce our payroll yeah that uh yeah okay hey guys what what what three public stocks would be the most painful to live without that's a question from bentley oh okay i'm thinking assuming i'm assuming he means like the three that you wouldn't want to sell let's say like i assume he means like products of our lives that are like public companies that it would be difficult to live without okay if he doesn't mean that that's a good question either way i

it'll be fun to answer i'm going to go spotify easy prime amazon prime and twitter well no google sorry so you would not own all this google would be tough to live without i hate yahoo uh well yeah i mean that's not even a real business anymore it'd be bang but or duck duck go I mean, Google is more than just, uh, Google's just is more than a Gmail. There's so much more drive. And, uh, yeah, I use drive on a frequent basis, Google calendar, Gmail. I think I touch every one of Google's products potentially other than Google cloud. Well, I listen to Spotify uses Google cloud, YouTube.

I watched an absurd amount of YouTube. Um, what are your other two then? The iPhone. Sure. The smartphone. Yeah. I guess that's, that's a one everyone forgets nowadays since it's so.

iPhone. I do like me some Costco. Really? Yeah. There are some Costco specific, or there are some items that I've seen at Costco that I have not seen elsewhere or Kirkland Signature stuff that I really like. A lot of them, so it makes

it worthwhile for me. Plus, I do think it saves me money. It's part of the strategy. I mean, the save money and exclusive items, bold proof strategy. All right, here's the other question. Thank you, Bentley. These are very

innovative. Three public companies that you'd pay $8 a month to cancel. i don't okay this is a tough one are you sure what he means here i don't quite understand i read the question i don't quite understand it all right ben like follow up if if not here's another something that you would like really really want to cancel i figure i figure you should probably cancel it uh yeah i really if i had cable i'd probably cancel it i think smart tvs do fine um what other i hate i did not i mean i enjoyed the wall street journal but it's not something that i needed every day i think if i were doing it i would probably get like the weekend subscription

which i think they have just because there's more free time to read through it all that i canceled which was i would have probably paid eight bucks to avoid the cancellation process Yeah, they don't make it like Netflix What was the Oh, it says Like they're so annoying to you And you almost really are disgusted with it You're willing to pay money to keep it cancelled

Oh, to keep it cancelled, let's say Oh, keep it cancelled You pay money not to have it Oh, to not to have it in my life Maybe social media Social media minus Twitter Yeah Yeah I'd do with that one

That's I have a tough time Answering this one Can I do that Cause I'm Yeah If I had to like Yeah

It wasn't bad though It was just overpriced There was just a Cheaper alternative Yeah It is over Yeah it's overpriced I think

This is a hard Like Okay so They're so I'm trying to Alright Whatever I can't figure out how to answer that question.

Any other topics? I'm scrolling through. It's just earnings. It's just earnings, really. What earnings are you looking most forward to? Most forward to? Oh, actually, let's talk Chipotle to figure it out, to close it out. Excuse me.

Operating margins above 15%. We talked about that in the Not So Deep Dev shout-out first premium episode. Or sorry, CCM Plus episode. We talked about margins getting above 50%. They did get there in the quarter, and they said it was because higher uniforms, which is obvious, but a mixed shift away from delivery. So could that be an easy way for them to get better margins if we get less food delivery? Opus, buy online, pick up in store, Opus. I love that abbreviation.

Opus. Yeah, that's me. That's the highest margin customer right there. So, Chevrolet shareholders, I'm helping you out. But seriously, what do you think about if the margins are already about 50%, they can get closer to 20% and Chipotle is not that expensive. No, dude, it's like 60 times free cashflow. I know, but it's trailing. And if the margins expand a ton, it's not, I get that it's not 10 times.

I do think there's a point where it stops becoming the convenient, quick-service restaurant that it is at a certain price point. And I think that's probably the primary way that they can get margins to north of 20%. I will say I went to Chipotle three times in the last week, so you're welcome, shareholders. How is the quality? Consistent? Yeah, it's good. It's very good. It's still, I mean, it's good. It's good.

It's insane to me that, I believe it was beverage restaurant. Basically, restaurant level operating margin improved year over year with huge increases in input costs. I'm telling you, it was the delivery mix. And they also raised prices. And the price raised, yeah. It helps when they raise prices by 10%. It's a tough one. I feel like the price needs to be a little cheaper to make the risk forward better.

I mean, I think you stop to hop through some hoops to get to 20% operating margin sustainably. And you're paying basically as if that'll happen. Yeah, I agree. I was thinking that exact same thing in my head. All right. We got to run. So do you want to close things out? Yeah, I'll sign off.

Thanks for everyone that were in the chat today. We do this every Thursday. We try to go 12 o'clock Pacific time, three o'clock Eastern time. So if you're like a regular listener and you want to give us some questions, feel free to just look us up on YouTube, Chit Chat Money, and we should be live at that time.

Thank you all for listening. I'm going to end with a disclosure. Brett and I are not financial advisors. This is not formal advice or recommendations. We are general partners in Arch Capital, though, so clients may have positions in the securities that we discussed today. They actually do. So just remember, it's not financial advice. Thank you all for listening.

We'll see you next time.