Chit Chat Stocks - Investing Power Hour #18: $UBER vs. $ABNB, $PYPL Earnings, Brett Was Wrong on $AAPL

Episode Date: August 7, 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 a recommendation. Now, please enjoy this episode. This meeting is being live streamed. Okay. Welcome in. This is our chitchat money investing power hour number 18. So we've been doing it for a while now. And apparently this is a listener favorite. People like it because we just talk about anything and we don't really have any structure to that, which any structure of the show, which is, I guess I should lead in. That's what the show

is all about. Come prepared with nothing and talk anything financial markets. So it's earning season, which I'm assuming has comprised most of your time, Brett, anything in particular that caught your eye? Yeah. I guess excluding our own portfolio, which everyone follows their own stuff. I was looking at, I guess I was just looking briefly at Airbnb and Roku just because their stocks were down and there's some interesting businesses. So maybe we'll talk about both of those. And besides that, yeah, it's just kind of busy right now. There's lots of stocks reporting, so much information coming in. It's kind of hard. I find it strange that people are able to trade or buy a stock the day after a company reports, unless it's maybe something you've followed for

10 years or something like that, because it's hard to process all that information. Sometimes I have to read the earnings report twice to make sure, okay, now that I got everything, under like I got the overview of everything now I can kind of look for the details that I may have missed beforehand yeah I don't know it takes me a while to digest the information

like maybe not the financials it's not that hard to like update any sort of like numbers you have but processing like the trends of the business And if there's been any diminishment to the business quality, it takes a little while.

Yeah. And I like to do people probably, if anyone follows us on Twitter, I tweet out those charts with the really no graphics behind them, just the stuff from Google Sheets. I like to, I guess we like to put in the kind of charts of everything that we're following just because if you're reading something in a table, it can be harder to see. It's weird to describe, but it's harder to see the differences of a certain quarter of like, okay, maybe it was growing faster historically than now. You can look at a table and say like, okay, that was growing faster. But if you visualize it, it can actually be much easier to see, okay, there's been an inflection here. Okay, there's been a stagnation here. Margins are deteriorating. It's so much better.

And I like to do that. And that takes a little bit longer. You just gave the entire pitch for like investment banking interns that have to do those slides. Well, not, I hope not because those slides, I think we do the absolute basics when covering stuff. I think a lot of those slides that people are forced to make maybe cover a little bit too much sometimes, but you know, that's just part of the job. Yeah.

love a good chart one company which we which came out this week as an also deep dive reported literally a day after which is a bummer i wish i would have looked at that uber had a great report you did you thought it was great well what uh well what did you like about it and for anyone tease there was we did an episode on that covering them that came out to do stay but yeah what'd you like they just generated tons of cash like they uh the mobility was like it was good across the board freight's kind of like hard to dissect what exactly is going on what's organic versus the new transplay stuff and it's kind of hard to see i don't know it's hard to see what's going on there but mobility really strong really good margins i think it was five

percent of gross bookings went to their ebitda line which a lot of it a lot of that ended up going to cash flow too um delivery was okay but it's just never going to have the margins that mobility has i don't think um unless unless advertising business gets huge but i agree so pretty i don't know pretty strong quarter there that was kind of the one that caught my I think it was up like 15% after hours. Yeah, I had a really unfortunate timing on a tweet. I said, I just kind of look at them. I guess we'll talk Airbnb as well later, maybe.

I said, I don't really understand why you don't Airbnb over Uber. And they both reported on the same day and Uber was up 15%. Airbnb was down 15%. So, so far, I look like a complete idiot there. But the thing I saw on Uber was their big increase in, not a surprise, stock-based compensation. So I saw that... Oh, wait, no. Yeah, yeah. Sorry, the other tables in the backwards direction. Basically, $470 million SBC over the last three months, which covers their entire $440 million in operating cash flow. And they basically get...

I guess this is something we could talk about that we didn't even hit on that not-so-deep dive. they have that kind of permanent working capital advantage where they have those accrued expenses that they're going to eventually pay out to their drivers. And that was a $486 million benefit a quarter. I kind of look at that though, is do you think that cashflow is one, creating value? And two, is that working capital advantage sustainable compared to other, maybe like an Amazon type working capital advantage? Yeah. I think the working capital advantage is fine. I think it'll stick around that might be uh inflating what they report or whether or not that's like truly cash coming to the business i'm looking at the most is that the most recent quarter is that

q1 three months ended june 30th stock-based compensation 470 million operating cash flow $439 million. Oof. They ramped that up, so I think that was something that caught my eye. I didn't really look at the report too hard. Yeah, I guess neither did I. The top line numbers

look great as they happen. I know. It's such an anomaly. I can't get around Uber. I'm a consumer. I use it frequently. or sorry customer i of course i'm a consumer but i'm a customer use it frequently frequently

i'm in well i don't know maybe once a week once a week really yeah it's a lot i'm going out with friends it's a lot of money weekend warrior you are a bit of a weekend warrior so it is how how how is that like let me just ask again we've discussed this before so maybe we'll cut up over shortly how is that has the pricing like when do you think it's going to impact you i mean it probably has in just like shared trips as opposed to single trips a little more friction yeah yeah it's like harder i don't know i don't know if it's made that big a difference and my anecdotal evidence probably isn't that useful because i now live with people so like more of my rides are shared as opposed to living solo right and most people yeah so you're

not most households are different yeah but i don't know i think they have a permanent place in society at this point yeah whether it's as long as they're still around i like the ceo trying to spin it on tv where he was like drivers are making 37 an hour and it's like well yeah but gas is double the price that i would say all the uber drivers that i've had lately except for one kind of brag about how much they're making driving uber yeah but that's come on everyone no one knows that actually it's all gross like uh not like like gross like like a gross booking it's uh the gas you know the gas comes into huge comes into play there maybe i may i'm wrong maybe they're making a ton of money but the evs it's still that maybe that could help solve it

for shorter trips but that charging time you have to do like twice a day for maybe a half hour or something like that who knows you know I'm starting to get mixed feelings about Airbnb

really well let's look at the quarter I'm not the only one okay if I have a bad drive on Uber it's not the end of the world if I have a bad stay on Airbnb it's like it kind of taints my mental image of airbnb well let's look at the quarter then i know you said that before

so i don't i don't think they won i i know there's a lot of anecdotes out there uh of people saying that uh but let's look at the quarter q2 nights and experiences booked basically just nights experience is tiny. Up 25% year-over-year. Gross booking value up 27% year-over-year. Revenue up 58%. Free cash flow is kind of tough for them because they have the accounts they hold for people. Revenue, $2.1 billion. Adjusted EBITDA, $711 million. Free cash flow, $795 million. But again that's you gotta back out some stuff there and then they announced a two billion dollar share repurchase program they have 10 billion dollars in cash some of that's funds of it held for customers i think but what's their value today mark um let me check for you

i think it's like 50 nope 75 billion enterprise value 67 billion they're larger than uber on a market cap right now pretty sure yeah yeah they're pretty close and yeah i guess that was really the big things they don't they have a pretty simple model but the business is still growing and apac asia pacific is still kind of down just because of the COVID stuff plus they closed China which I guess was pretty much non-existent right now anyways

I what are your thoughts I don't know it goes in the same group as Airbnb or Uber for me it's like too hard to make the numbers work to where the returns are worthwhile

well at the current price okay well that's yeah sure that makes sense that's on the corner it sounded sounded fine but i'm not relative to expectations i have no idea well sure well i like to i just kind of have the there's like the two things that don't match up right now there's all the anecdotes that people share of the horrors of airbnb right you just described them and yet they continue growing so i kind of i wonder if that's just sort of... I mean, what's a business like that?

Where people have... I mean, like the cable companies, the internet providers, where people complain all the time, yet historically they prevented printed cash. Do you think there's just going to be... I mean, there's always going to be bad experiences, right? They can't really control that.

Does that affect them? Does that affect their ability to generate profits over the long term yeah if enough people have bad experiences and it like ruins their like if you get enough customers churning away from bad experiences like a ride isn't all right that's the difference for me is a stay a bad stay is just horrible like everything about it sucks a bad ride is over in 10 minutes it's not the end of the world like if i get a bad stay i lose trust for airbnb i know what i'm getting with marriott or hilton if i have if i have a month-long stay yeah i'm obviously gonna have to pick something that's

more just like you know i'm not gonna stay in a hotel for 30 days but i between the two if it's like a two or three day stay yeah i'll take a hotel at this point well yeah that's not I don't think that's the question to ask really I get what you're saying there are all these horror stories just like yeah like

when does that actually show up I think having a bad reputation with customers is not a great thing I mean do they have a bad reputation though because it seems like of all the travel platforms they have pretty strong customer retention they only

have they spend a very very little amount on outbound marketing people come back to them organically maybe do they spend a little that they spend they spend a lot on marketing that's you know fair but and this might be numbers that they're giving

us that they can massage but they claim they don't have to inorganically or reacquire customers if you kind of get what I mean what's the what's that thing called that's like your customer rating NPS

NPS you're looking at Airbnb's NPS Airbnb's net promoter score is a 31 that's like slightly positive right I thought that's like pretty bad no zero is neutral

yeah I guess it's good it's probably about where I'd expected it's not going to be a 80 like some businesses that seem to really focus on making sure everyone's pleased um let's see what tesla's nps is oh i bet it's pretty high there's also damn abilities 96 yeah i think look these are based on surveys there's ability to juice nps numbers and it's definitely not the end all be all for an investment as we've learned from peloton right who would explicitly say it like 10 times in every earnings letter at every conference call um but yeah yeah it's uh i don't know that's like an impossible question

here's what excites me about yeah here's what excites me about airbnb and uh the science of hitting alex morris does some great write-ups on his premium stuff uh on airbnb and this kind of where helps solidify my thoughts on this is that you have it's really it's really really difficult for someone to replicate unlike a an uber versus a lyft like lyft can't even exist in the airbnb sense well vrbo exists but again it's that's slightly different it's a little bit smaller they they cannot exist with the same exact supply because the every list i know they can co-list but they can you can't exist with the same exact supply and demand where again it's not perfect but the bigger they get i just think the

stronger their competitive advantage gets just because if you have all the supply and all the demand coming there and it's all unique basically that's just tough to replicate and get however many listings they have six million because i know for sure i'm going to airbnb when i'm looking for that specific product i'll just i mean i'm just i'm in a price compared to vrbl fair that's fair it's a fair counter but i don't i'm just telling you i'm not i i don't think i don't think that that's like a huge issue in the industry it feels like one of those where and if we're looking at historically with booking holdings the competition is a lot more rational for whatever the industry dynamics are and everyone the online marketplaces are able

to um oh it's the thing that monger talks about that everyone quotes right how some industries are rational for some reason and some industries are irrational with pricing and you got you know some industries where everyone's earning 30 margins and some industries where everyone's earning dirt cheap margins and it's hyper competitive it feels like the otas are in that rational category. Yeah, maybe. I don't know. I don't have any like very unique thoughts on Airbnb, honestly. If you're listening to this ad right now, we know you're already a listener to our show, but for our avid listeners, we've also started a paid membership service called Chitchat Money Plus that extends beyond just our podcast. Every Tuesday, subscribers get access to

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Elliot Management has been quite active lately in two different companies PayPal and Pinterest I had a look at Pinterest quarter and it was horrible I mean it was terrible

yeah we covered that that one's still free I think on the Not So Deep Dead before we went pre-mail on those and their ability to get products out the door just seems like they're bad, right? Yeah.

Yeah. And I do like this new CEO. I mean, I think I like him. He was the guy that was at Venmo and he was like the head of Braintree for a while. And he's at Pinterest. Yeah. He's

Ben Silverman's replacement. Probably I have to imagine that was Paul Singer and jesse cohen's doing they uh are they do that do they have a board seat now i guess you might not know i have i don't know they're the largest shareholder i imagine in in jesse cohen's tweet it was like we applaud management's recent activity like let me pull it up actually yeah they're they're they can be uh frank i guess to put it the right word but okay what are your thoughts on just do you think they're

going to combine again try to like there's that rumor or what uh no I mean I guess maybe maybe that's why they took the activist stake in both I hadn't thought that through but in Jesse Cohn's gosh let me make sure I don't

botch this Jesse Cohn said Pinterest is a highly strategic business I kind of disagree but it's yeah actually I disagree entirely but it sounds to me you know whenever you make an acquisition they're like

we acquired a highly strategic asset that sounds like we're going to go shop this thing around that seems logical it seems logical but Pinterest to me it could die

it could die it could go away nothing would change for people's core needs Yeah, I feel like they have a whole bunch of users that don't care that much about the app. Yeah, I could be wrong, but they're hemorrhaging users. They don't report a time spent on the app, but I would have to imagine it's significantly lower than other social media apps. Yeah, okay.

now positive on those pair paypal i didn't check their quarter but the reaction was strong did you look at it at all no but i did read brad's deep dive it's stock market nerd check it out you just passed 10 000 subscribers yeah yeah yeah it was good deep dive but i i just take issue with the core service i don't think it's larger in five to 10 years. Interesting. It obviously has the benefit of having a massive, having massive scale.

So like, let's say we're collecting ad revenue on this podcast. We can, and when we invoice our advertisers or whatever, they have a preferred way to do that. And typically they're going to say, can we pay you via blah, blah, blah. A lot of people just default to PayPal because they know everyone has a PayPal.

It doesn't take quite as much time for them to set something else up. However, we've tried it with other competitors. Wise is one for business transfers. Way better, way cheaper. Cheaper. Yeah. PayPal, we just get upset about the fees. Yeah.

I just, I get, I get really upset. Not really upset. It's just annoyed because of the fees. I think at some point those fees are risking their moat. Fair. And it's an unwillingness to, I mean, this is kind of the innovator's dilemma, but it's an unwillingness to bring those down in despite competition. I'm rooting for, as a consumer, I'm rooting for Wise.

Yeah. financial services and fintech is super hard to invest in I think I think we both agree there but yeah I would I like Wise and I guess Remitly is slightly different but I like Wise

better than PayPal especially depending on the price of course but yeah it is tough especially like burgeoning ones or like ones that are young and they're supposed to be the next thing like i mean it's not hard to invest in visa or mastercard and i think a lot of the best fintech uh innovation is occurring at the companies that are seen as like archaic or legacy

like a lot of the big banks are really providing the best for consumers yeah my bank of america app's fine now it's definitely solid here's on paypal specifically we've taught this is kind of a well-known thing but venmo has a phenomenal network effect right people are on there you even though cash app has grown so much and i tested out as a square shareholder back in the day uh to try to see you know why it was better and stuff i'm Do you still use the cash card? Yeah, I use the cash card. They give out 10% back in Bitcoin on stuff.

It's ridiculous. I don't know how they're making it. They're not making any money. Do you have to hold the Bitcoin for a certain amount of time? No, I immediately sell it. But again, they give you great cash back rewards, which is why I use it. But besides the point, I don't use Cash App for peer-to-peer transfers. I still use Venmo.

And it'd be hard to switch to something unless maybe... It'd be tough because it's the same thing with PayPal. However, and maybe I'm botching this Venmo thesis, the counter thesis to Venmo is that their product development, like I said with Pinterest, has been extremely weak on Venmo. And maybe that can be fixed, but it just seems like that has really not launched any sort of innovative products, especially ones that can monetize well, like a card compared to the Cash App. Yeah, I think you're right. And it's not like they couldn't. I think there is a Venmo card, and I think they've tried it. They've maybe tried other stuff, but it feels like... Well, sometimes I'm, I'm hesitant to say they haven't been innovating because I'm afraid I just haven't updated the app, but it feels like they're a little hesitant to risk their core app by making too many changes at once. Like, okay, people are, people are worried. They don't know how to like, it isn't the same user experience. So they hop over to cash app and just do it that way.

I don't think there's that many, maybe that isn't what would happen. And it feels like there's a way to probably configure it where it wouldn't be too intimidating for your users, but it does feel like they're afraid to change the app too much. If you do like a ground up rebuild, you could lose some customers. i i think it's uh i think that risk is but i suppose snapchat's done it and they didn't lose customers yeah that's all another i guess they don't have customers their da user yeah we discussed how their da snapchat's da user um fake kind of but oh with the streaks feature oh by the way i uh did you end it are you i'm approaching a 2000 day streak i go on there once a day i snapchat one guy that i've been friends with since high school and we're both going to delete

it at 2000 because there's no other use for it but i looked at congratulations i'm pretty sure i'm in like the top 10 globally i will be sending your i'll be a little depressing here yeah i'll contacting them about your reward to be sent out uh what was i going to say no on venmo the risk isn't i think the risk yeah there is that risk of changing the app right but that's a smaller risk than having a way worse product than cash app because the cash app product strictly speaking is better just raise their rates i think they've done that actually instead of instead of innovating

here's let's innovate on price let's just yeah that would test the minimum charge what no

the maximum charge went up from $15 to $25 and then I never I never get charged on Venmo it's free

just do it three days later I mean that's how some people have working capital needs Brett that's true

but plus over the weekend I got great working capital over here I usually wait three days I don't think it's that big of a deal I've never done that Some people are impatient Well if they want to be that's fine with them

But Yeah maybe they will Maybe they will raise rates If they definitely started charging on all transactions That would cause an uproar though For sure but i just don't i guess that could be a move people just move to cash app i think they would or apple apple has i don't know i'm android so money via text yeah i don't know anyone that

does that but but um you know a ton of people are apple users as which is you know we all know that's pretty easy switch another one that's another business that's absolutely defied gravity yeah Ernie's report was solid right I gotta hold your feet to the fire here I think you've been dead wrong I've been a doubter I said that

I was kind of a doubter coming into this quarter but Grandpa Warren was right like it may very well be the greatest business to ever exist alright let's call the top there I agree with you though

no you would have said that last you would have said that last year too it's i mean the demand for iphone iphones are utility at this point this i think this quarter completely proved that uh no demand fall off for iphones that's insane yeah i well utility i think is maybe the wrong term but i get what you're trying to i get what you're saying it's not it's a necessity yeah well it's different because smartphone yes utility utility slash necessity but their differentiation through tons of different ways that either strictly competitive or anti-competitively they need them. But here's, here's,

here's what the numbers were basically. Well, actually products were down slightly, basically flat products. But I mean, still, you know, basically flat. I mean, not, not that big of a deal. Yeah. Funds, iPhone sales were up year to day or year over year, right? I will get to that, yeah Services was up, which Substantially, if I remember That and iPhones just drove the whole

Top line I mean, iPhone was 40.7 billion versus 39.6 billion a year ago So slight growth Mac down, iPad flat Wearables actually down Mac

Mac more than anything else Was Apparently impacted by the chip shortage i was listening to the call briefly and they said uh they're having huge supply chain problems with mac let's look america's grew europe grew greater china flat um and japan down rest of asia up yeah i mean i've been in doubt or yeah they continually prove me wrong how long do you think it takes for services revenue to eclipse iphone revenue that's a tough one because the higher it goes the more antitrust risk there is it's what iphone's about double

right now roughly oh gosh i just took out that tab no wait services about 40 and then it's more than double slightly more than double services was like 19 billion and iphone's a little over $40 billion last quarter, so annual trailing total month could be different, but I think it'd be unlikely because a lot

of that services revenue is developer fees? Well, yeah. I was going to say that next, but Google just paying them $18 billion a year, which I guess is not that big a part of services revenue anymore but the second is app store fees which

they're not going to go up and if iphone sales are kind of not growing i guess we don't know unit sales i don't know how much more services revenue they can get from that however you know they've executed extremely well i just think with services there's some antitrust stuff One, the Google thing agreement is really anti-competitive for both Apple and Google to lock themselves in. Two, again, the App Store fees, I just don't know. If you had to bet, they're either going to stay the same or go lower. Yeah, we do have a question here on Apple entering the car business. Matt H. says, any thoughts about Apple getting into the car business?

79% of car buyers wouldn't buy a car without Apple CarPlay. First of all, I find that stat incredibly surprising. BS on that survey stat. Wait, do you think it's not true or do you think it's... Oh, I think the survey is correct, but the survey stat is correct. But surveys are often wrong. That's a good question. I don't know if the car play is that big of a factor on whether people will buy an Apple car, especially if it's a part of like – there's no way.

Like if you can get a really good car at a good price, just plug in your aux cord. Who cares if it has Apple car play? That's insane. Yeah, that's why I called BS on that survey. howard good question on the car stuff they've been rumored to hiring people and designing stuff like the head of lamborghini this quarter i think yeah if they come out with some premium car could work why do they want to be in the car business honestly car business is tough and cars are different because

at least over the last century of evidence there has to be a ton of different cars on the market you can't have if you kind of get what i mean there has to be dozens and dozens of cars because no one wants to be seen different everyone wants to have something different than everyone else unlike the thumb and for some reason cars are different and i think would you consider buying an apple car oh come on no i well i mean it was a good price but i'm not an apple i'm not an apple person so let's say it's about on par let's say it's the price of your existing car everything else is equal no look here's this is the apple brand wouldn't do it for you you'd rather trust i'm the automotive for a long time i'm the fake yeah

that's what i was about to say i'm the fake like i'm the like the consumer that economists think exists i i try to actually think logically even though i know i don't a lot of the times but i uh if i'm going for a cheap car it's going to be toyota or honda and if it's a premium car i'll buy a mercedes that's it i mean there's no other logical choices you make ferrari well i'm not i don't think what about howdy what's wrong with that uh I'm just looking at quality. I honestly don't know the quality

of most cars. Well, maybe I'm looking at reputation, but we're derailing. Apple getting into cars. I think the car play is, with that the software just embedded in the stuff is still smart because it can really help with services and lock-in.

For example, they can keep being anti-competitive versus Spotify and get that you know it's tough to say the integration matters that much but integrating apple music into the car play to make it seamless again that gives them an advantage over you know someone like spotify and other competitors i mean i uh my parents cars both have car play and um and we just click spotify every time yeah i don't know how big of a deal that would be but spotify is

one i think we can determine i can like that should be said now well 400 what is it 450 million users it's a commodity run the uh yeah i know you're pretty sure the choir we own the stock but yeah no i i it still gives them carplay gives them a platform advantage maybe they're thinking long term because of autonomous that there will be more time spent on leisure entertainment activities in the car i do think apple translates to just about any consumer product Apple's brand maybe not the car though cars are tough

you're forgetting about the apple of cars which is Tesla right there's a lot of there's some Tesla bulls that we haven't driven away yet saying that I mean

I would at the same price point if I'm picking between a Model 3 and something else I'd probably go with the Model 3 I mean assuming that it's like the other ones like an ice vehicle and the same exact yeah same exact specs right yeah and i know i've heard bad

things about the customer support but the car is pretty cool still relative to most cars today the the model 3 is cool yeah it has a whole bunch of things that are totally useless that people love so you're i mean are you making a pitch that they're the apple of cars because that sounds about like apple right there totally useless things that people love yeah i mean you can put like the little fire on the screen people really enjoy that yeah um yeah we were talking with someone earlier this week about the debt uh the non-growth of plug-in hybrids and it seems I don't know, I'm just surprised that plug-in hybrids don't get more demand

I don't think there are as many available hybrids as there are pure EVs Well, there would be if there was more demand I mean, I was kind of car shopping going through that experience, I didn't find there wasn't quite as much hybrids that looked interesting as compared to the pure evs but uh we got another comment that says the tycon over any tesla you could give me yeah i agree apparently the porsche tycon looks quite nice yeah but that's like not very many people can afford those so like when you're actually looking at going for the

apple cars you have to make something affordable do you know what i mean yeah yeah i get it um I don't know. You got any other topics for the week? I see any other earnings. Any other earnings? I think Callaway reports today. I will be curious to see how Callaway does. Yeah.

I see the two greatest companies in the world. And apologies if anyone owns these. Skills and App Harvest report. Some of the worst reports I've ever seen in my life. Yeah. the SPAC fallout has been fun if you don't own it

the app harvest CEO is he's a legend he's crazy he's a little crazy yeah did you see that thing it was on the journal podcast of the biotech CEO who allegedly murdered

someone no yeah there was something like that i was gonna say speaking of crazy founders that's what inspired that uh skills over the last you want to guess year-to-date returns down 96 no only 76 market cap is still 640 million what about from highs because uh do the one year oh gosh i know that business i think is like just super self self-serving and uh skills or what yeah skills i think it's self-serving i think

it's a crappy business and uh has tons of problems wow you got the percent off all-time high exactly right 96.3 percent let's look at app harvest 4372 down to 155 app harvest 91 percent off all-time highs and they had negative

200 gross margins that is something yeah it's really crazy but they were they were reinventing the tomato oh yeah uh yeah that was a tough one they had what's her name on the board how could it be martha stewart yeah okay here's here's one that will be fun to have takes on revolve group first off as we discussed in the past maybe not on the podcast their ir intern who makes the slideshows is still

a little too horny um just very scandalous presentations yeah they do although that is the clothes they sell but let me just read off something we've covered um let me just read off the report and see what you think net sales grew 27 gross profit grew 28 so stable margins net income was down a ton so not sure why just glancing at it here and then free cash flow was

negative due to a boost in inventory I don't know just thoughts on that business I've heard good things from I've heard some anecdata from their customer cohort their target customer cohort

it's well liked But I just don't like retail Yeah it's hard Things change Consumer preferences change fast In retail I feel like Or they can't You can have durable brands

That But they nurture really well Aside from Nike and Lululemon What retail brands have stuck And not even Lululemon What has stuck over the last 20 years

yeah i mean lululemon for all intents and purposes is on that trajectory but you know hasn't proven it vans i don't know are they still are they still popular maybe north face patagonia patagonia the wrangler jeans what who's the parent company of that there is there's levi yeah levi's wrangler some of the jeans brands have done well but they're still like it's just like steady cash flow every year it's not like they're growing yeah and there's a difference between kind of the prestige stuff the luxury stuff and you know the regular stuff if you kind of get what i'm trying to say i mean part of the reason that some of these brands can't have staying power isn't necessarily their fault like they're i

I think a jeans brand is harder to – will have a harder time switching to direct-to-consumer than some other companies because jeans fit people differently. Fair. When tons of consumers go online as their preferred shopping method, it's harder to transfer. It's harder to transition. Also, there's a big potential to lose to startups. I would also say for clothing, this might sound like a really dumb analogy, but things go through cycles. In the 1980s, people were wearing short shorts. 20 years later, guys were wearing short shorts. 20 years later, they're wearing long shorts. 20 years after that,

they were back to wearing short shorts. If that was any sort of... If you were only in the business of... Around the loose suit days. The loose suit days of the NBA. The baggy suits. Yes, exactly. And now everyone dresses like a soccer player.

But if you were... And obviously, you could sell short and long shorts. But if you were only in the business of selling short shorts, you would have been screwed. Out of your control, you would have been screwed in the year 2000. That's just the risk in apparel plus inventory. I mean, this sounds simple, but inventory is tough.

It's just hard. Yeah. I mean, let's say the trends go out of your favor, so more people go to long shorts. You've now got shelves full of short shorts that are worth less. Yeah. and obviously this is an analogy for everyone listening but think of it just like types of clothes or or your brand or something like that and i kind of you know we've covered a ton of

different retail concepts on the show for the last couple years and i really think to trade a discount you just stole the words out of my mouth i think i said i was about to say i would I think I would only buy something in that category unless maybe except a Nike at 10 times earnings. Yeah, but Nike will never get there. Never say never. Never say never. Yeah, I guess that's true.

I think there were a lot of companies last year. Last year really put some stuff in perspective for me because I remember looking at companies and I'd go, I might get interested if there was a 70% haircut and then I'd think well they're never going to get a 70% haircut and then they'd get one and I'd still not be interested and so it's like

it's not only the valuations change it's when the fundamentals change everyone changes their mind yeah that is correct like when the price goes down again we're stealing this is well known but when the price goes down

it's almost always for a reason And it's tough because great companies or durable companies or whatever, however you want to describe them, are going to have sometimes a few bad quarters. And it's hard to know whether it's just a few bad quarters or if the business quality is reversing. And that's why the stocks sell off the huge discount centers. i think that all comes back to the combination of a competitive advantage and a good management team yeah because if you have those you need both of those i think this goes for probably almost all investors but the older you get or the older i've gotten the more you're ancient you're almost 25 the more appreciation i've gained i gained for buffett every time i like

I learned a new lesson I think Buffett figured that out It's like He's so choosy With What Companies truly have Competitive advantages

That I think I'm I'm a little too loose with it Yeah I think almost everyone else is Like maybe the Like What's more likely to be around

In 50 years Hershey or Shopify i think i'll take hershey 100 but hershey's on my watch list after we did that show and yeah it was a bit expensive but we did the show i just know it's permanent like i know and i've been to like three different settings camping trip or something like that where people have like candy and chocolate and people have reese's cups and hershey hershey bars it's like it may sound strange if you're outside the united states but it's those it's hard it's even harder to describe why those brands have such higher quality than any other consumer product and maybe

it comes down to stuff that has distinct flavors i'm not exactly sure but all right here's here's question does apple today remind you of standard oil in the like 1905 oh sort of like sort of unable to fend off regulatory pushback for 10 years but there's so much social pressure for them to stop what they're doing or stop the anti-competitive practices that even if you fend off regulatory pressure for long enough it will get to you like that was kind of the standard oil deal right i mean they were getting they were the target of a lot of regulatory issues from like 1890 all the way to like 1910. i imagine apple will be able to fend off like the different developers that kind of come after

to them for a long time but eventually like social pressure kind of causes that kind of collapse or that kind of not not collapse but um forces you to play fair here's yeah and here's i think where the analogy without getting into the details of what's exactly the same are the railroad rebates the same as i don't know something with apple i don't think um yeah it's a good thing for matt matt thank you for the comments being the lone commenter today they have convinced everyone that apple is privacy which is funny privacy means you can't give your data to anyone else you can go and give your data to apple we'll handle that but uh oh gosh where was where's the uh the analogy here there i think the

same analogy is they're not playing they're playing a um like a non-zero-sum game is maybe the best way to describe it where apple takes a ton of value from everyone i guess in their ecosystem and yeah they are providing value but they're extracting more and more and more from everyone and i don't in general either customers um regulators or everyone will just be upset with that if they're not providing more value than they're taking and now maybe someone will argue that they are providing more value than they are taking but i just think that's kind of similar to what happened with standard oil where they just became so dominant and so i guess the right term is greedy with how they could use their competitive advantage

yeah people whoever it is whether even it even if we're in a capitalist or socialist place if someone's taking more value than they're creating eventually people are going to get highly upset what uh what contribution do you think apple's ios changes had to the recession or the current environment i've like kind of played it out in my mind Because just through reading through conference calls, companies are struggling to find new consumers. They're struggling to navigate the changes. So they're pulling back on marketing spend. Pulling back on marketing spend is hurting the revenue for every company that takes in ad revenue.

The decline in revenue. But you can spend on the app store ads. hurting the bottom line and ultimately in a lot of cases probably causing layoffs yeah

IDFA which is the changes Ryan has mentioned it seems to be a tax on businesses of all size in America who operate anything really anything mobile right and or want to advertise mobile

or through Apple's ecosystem, I guess, is even a broader way to describe it. And what do we get back? Who's more responsible, the Fed, Jay Powell, or Tim Cook? Oh, gosh. That's an impossible question. But no.

Here's the thing. The Fed has to do stuff because inflation is running rampant. They have a reason. But Apple's is all greed because it's just fake. There was no reason. exactly why do they have to kill oh it was for it was for business purposes and i actually just saw

some theory that they're going to come out with an instagram clone on apple photos but that's a whole nother conversation um like they claimed it was for this reason for privacy right but it's and it's just because Is there, say, I don't know, 20% of the U.S. population? What's wrong with businesses being able to target me if I'm a potential customer? That's like how the world should work. I know. It doesn't make any sense to me.

And credit scores have been around for a long time. I mean, that's even worse. I guess I'm describing this like it was only because, I don't know, a small portion of the population got really angry about this kind of privacy boogeyman and now apple quote-unquote fixed it would you rather have to pay for facebook yeah uh the uh yeah would you prefer to pay five dollars a month for facebook or just get a bunch of ads well i think people probably would have preferred ads but then because it started free they say oh well if you're not the if you're not paying you're the product or if you're not paying you are the what are they in that yeah i think

you're right yeah and so i feel like that just became the everyone's like well you know it's free so we're the product and and they're harvesting our data which sounds so bad but it's like do you give it to them like you post pictures i mean it doesn't take instagram for example you post a scandalous photo and you're upset that they like know your age i know it makes like you're giving data to the world i know uh it's strange to me that someone's like instagram has access to my location data but i'm okay of posting myself in a bikini or if i'm a guy shirtless on the internet like yeah but either way from a business perspective Apple did basically nothing

like provided no value and they really severely taxed businesses of all sizes who advertise on mobile which I just think that's just

again that's another it can come back to bite them if people finally realize who's actually kind of causing that so you could either stay frustrated or go long apple exactly sometimes the right move would have been to go go long apple i guess yeah last year ish let me look at the chart actually i might i might still be down honestly let me look at the old chart here as we close things out one year it's up 13 three year up 232 i mean it never really got that cheap except coming out of covid and it really got

cheap before covid but there were still signs they were going to make a lot of these moves so that it was trading like 10 times earnings i think in 2018 2019 so it hasn't gotten that cheap lately but what's the uh what's the best performing stock ever uh it would be phil morris is it slash i want to get the stat here's the stat if you had one share of i don't even know what it's called but basically phil morris and you went to all through altria and you decided to rein and you could reinvest your dividends they would have had to stop you because you would have owned the whole company if you owned one share at the beginning you would own the entire company now if you reinvested all your dividends.

Yeah, Matt H. says tobacco. Yeah, always tobacco. I think that's the stat. Don't quote me on it. I think you could do just fine if a portfolio consisted of sugar, tobacco, and caffeine.

I think you'd do pretty well. And fatty stuff too. Salty and fat stuff. basically pepsico has done well pepsico frito-lay they are frito-lay i call that more sugar but i guess oh no sure oh the frito-lay frito-lay is of pepsi yeah that's what i mean yeah mcdonald's exactly yeah mcdonald's and some of the fast food concepts domino's is basically on just go long unhealthy addictions and you're going to do well in their portfolio yeah at the right price no it's not that's not financial that's not financial advice but yeah yeah and that's a

that's a good way to close it out then is uh with our disclosure that we want to remind you we're not financial advisors so anything we say or discuss is not financial advice do you want to tease what we got coming next week for ccm plus oh yeah we're doing and basically it's the first of our Arch Capital episodes, which is our investment fund. If you are listening to this, it will be a part of the paid subscription. So it'll be why we own Spotify.

We're going to discuss the thesis. How the business works, counterpoints, bear case, all that. Yeah. Yeah. And then we'll try to do that with all of our holdings. And then we have a pretty concentrated portfolio,

so that doesn't provide a whole lot of episodes, but we're going to do one a month. uh something like a why we bought why we own why we sold that kind of thing any changes that we made to the portfolio we'll pick one and do an episode on it for each month but that's going to do it um thank you all for listening we'll see you guys next time