Chit Chat Stocks - Investing Power Hour #41: Exodus at Salesforce; Taiwan Semi Earnings; Amazon's Shopify Killer?

Episode Date: January 15, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday at 4:00 PM PST. On the show, Ryan, Brett, and a rotating list of guests have an unscripted discussion on a variety of investing topics. You can watch the show on our YouTube channel here: https://www.youtube.com/c/ChitChatMoney Follow the show on Twitter: https://twitter.com/chitchatmoney Subscribe to our newsletter: https://chitchatmoney.substack.com/ ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. This is the Investing Power Hour, number 41, as we roll on through into 2023. My name is Brett Schaefer, and I'm here as always with Ryan Henderson. These shows, how should we describe

them, Ryan? I always have trouble describing what they are. Do you have a good description for the listeners financial randomness maybe anything financial markets riffing on we should come up with this like a really catchy name i feel like power hours yeah it's good but it's not great it's good but it's not it's not perfect yeah but either either either way it's just the two of us we got some topics that we're going to talk about either finance business or just peer investing stuff and yeah what do you got on deck ryan to tease it up today well there's an exodus at salesforce going on um we just talked about amazon for a show that's coming out on tuesday um and they had buy with prime news which i'll

kind of touch on again and then a bunch of other stuff as well yeah the use car index Monday.com is raising prices. Spotify had some advertising report, which is kind of interesting. Okay. And I have Taiwan semi-earnings and a Disney activist reports. We'll have plenty that will last us through this next hour. A couple of housekeeping items. If you haven't yet, subscribe to our newsletter on Substack. It's just called the Chit Chat Money Newsletter. That is the best way to keep up with the show. Second, if you like watching these episodes, which these go live on YouTube every Thursday at 4 p.m. Pacific time, 7 p.m. Eastern time. Some of them might not be on 4 p.m. if we have some sort of travel for the both of us, but they will be

most likely on Thursdays, once a week on YouTube, or you can watch the video potentially on Spotify. Either way, the best way to watch it is on YouTube, and you can watch the replays whenever you want. Third, if you enjoy the show, give us a review on Spotify or Apple Podcast. Before we get started, this episode, today's Investing Power Hour, is presented by Stratosphere.io. It is the best web-based research terminal for company-specific metrics like KPIs and segment revenues. Stratosphere has clean data for KPIs, segment data that is triple-checked for accuracy, and beautiful data visualizations, helping save you time and frustration digging through

SEC filings. we use stratosphere constantly for investing in our research and in fact we probably called our investing home stream home screen uh excuse me and you can too for free by going to stratosphere.io that is stratosphere.io the link is in the show notes and as a disclosure or not a disclosure just as a tease for the mid-roll ad we're going to be checking out some sort of kpi on stratosphere sharing the screen and having fun with that. Okay, I want to tweet out the link, Ryan. Why don't you go through your first topic?

Sure, it's Buy With Prime. So for those that don't know, Buy With Prime, it's the... Amazon basically is out or it's allowing merchants to integrate the Amazon checkout and delivery process, even if it's not on an Amazon shop. So basically, merchants that have their own online stores can integrate Amazon's fulfillment, the entire buying process, so from actual purchase and then the payments associated with that and then the actual delivery and handling of the package to consumers.

Outside merchants can now adopt that and integrate it into their checkout process. So originally, this was just invite-only. I think they launched in April of last year. Now, they're allowing all eligible merchants in the US to have it by January 31st. They had a little report basically saying – covering what data they saw from their invite-only participants, and they said that it on average increased shopper conversion by 25%, which makes a lot of sense. And they're also integrating, merchants can also integrate Amazon reviews into products as well. So they're adding that also. But basically, this is a way for Amazon to kind of fulfill any of the excess capacity they have in their fulfillment network, while also providing value to merchants and getting the payment volume or the payment flow between the consumer and the merchant as well. Um, it feels like a huge win for Amazon and it feels like a kind of a, the, the only loser I can think of in this scenario is Shopify, maybe some other, maybe Wix to some extent, but not really because it's probably, if anything, it probably kind of equalizes the cms services would be my thought that like if you can yeah levels the

playing field yeah yeah i agree basically at least on this on the delivery side there's no bet that if you're using amazon prime when you're offering it there isn't that much of a difference then on the on the actual shipping product side between a shopify and a wix so maybe it kind of levels the playing field so maybe it's a net benefit for wix but for shopify it feels like this is a huge uh basically like a i don't know it's a stab in the back like not even a stab in the back just a really smart move there's i just they'll eventually make some sort of decision here shopify will i don't i just don't know what they can do because this is i guess there are two paths and i guess within the paths there are smaller decisions they can make one is they can

allow shopify merchants to add buy with prime to their stores which is the best thing to do for the merchants to give them that option or second they can restrict their merchants from adding buy with prime which will hurt their financials potentially yeah because so anyone that hasn't looked at Shopify, more than 50% of the revenue... Oh, sorry. Restricted will help. Adding it will hurt their revenue. Restricting it will help them.

I got that mixed up, but people understand what I mean. Yeah, a lot of Shopify's revenue comes from payment volume and the fees on Shopify pay. Yeah. I don't know what they're going to do. I think the stock...

Look, e-commerce is going to grow. So the democratization of e-commerce is probably going to continue with small business sellers online. And that's all going to be a benefit for companies like Shopify, right? But if Amazon is providing all of the value to the merchants, delivery, fulfillment by Amazon, checkout by Amazon with buy with Prime, reviews, all of that stuff, more of the profits are going to go to Amazon over time, right? Because they're providing more value to both the merchants and the consumers. Yeah, I would think so. What do you think Shopify stock has done over the last five years?

Without checking? Yeah. I will load up Stratosphere after I answer. I'm going to guess it is up 150%. No, but feel free to load up Stratosphere. Okay. Let me share the screen. Actually, I'm going to make a new tab so people don't make fun of me for having 30 tabs open.

yeah you're a chronic tab user yeah it's cleaner for it is better for the listeners too alright shop actually why don't I share it already so I can show everyone how it works okay type in shop loads up real quick you think this annoys

podcast listeners potentially but you have to just describe what's going on here okay let me get that screen out of the way five year return wow i was not not bad not bad 228 yeah close pretty pretty darn good compound annual growth right there 27 what's the 10 year are they not wow even 10 years they're up 2000 what was their cagger and uh in 2022 at the peak must have been absurd yeah yeah well that's that's

a bubble for you let's look at three years ouch minus 17 not really not really as bad as you'd think though one year minus 69 not great well the price you pay matters we all knew that some of us forgot it though anyway um yeah i think i don't know well what do you think is gonna be in a really difficult spot is there okay here's we're gonna get this wrong but what do you think they're gonna do shop shopify shopify yeah i don't think they're gonna offer it to their merchants wow you think they're gonna restrict it yeah at least that's what they've tried to do so far um or they at least have heavily encouraged not using it i can't remember what technical reason they used why no they gave out some propaganda some some real some big time bs

of why it wasn't safe or something like that uh which doesn't make any sense but i could see that i could see that happening but it's i think it's that that'll hurt their business because on the margins people are going to choose either to sell on amazon or sell on other website providers big commerce has that integration now i'm sure everyone else is going to add this if they're the only ones left out they either have to build the same logistics experience which is impossible

or they're going to have a worse experience for their merchants yeah I think the software I think their platform is still good enough to attract a lot of merchants

if it's a popular brand I think it's still superior to all the other content management systems that you'll probably still go with them especially if you lack technical expertise what if you're bigger

and you go to big commerce maybe I think if you're bigger it depends on what kind of scale we're talking about because you'll probably just go custom or maybe even WordPress

but I just think I still think when I look at the like the software the platforms among the content management systems

I just don't think anyone competes with Shopify even if you have the Amazon integration I have a feeling that a lot and this is like

just pure gut I have a feeling that a lot of people that shop on Shopify websites aren't as worried about delivery times. Fair. That's a fair point.

Yeah. Like Allbirds, for example. Allbirds is powered by Shopify. It's probably one of their biggest customers. It's not like an impulse purchase where you're like, I need it in the next two or three days. Right. But the value is higher,

if you can say. It's a better value. Yeah. I mean, it's always faster. It's always better. but i think it's on it yeah it's probably less for something like that and shopify has the best integrations across other platforms youtube um spotify i'm sure the other social medias as well right so still think though like i i know other companies can build those but that comprehensive of offering is nice where you can distribute

your website or your selling whatever it is to as many eyeballs as possible. This might not hurt Shopify as much as I'm guessing that it could,

but I think it still benefits Amazon in a huge way. Yeah, I think... Hmm. Yeah, we'll see if it hurts them. I guess we'll see. We'll see.

All right. Salesforce. I don't know if you've heard, but... I have not followed closely, but yeah. So yesterday, the CTO of their cybersecurity segment left the company after being there for 10 years. His name was Tahir El-Jamal, I believe. Sorry if I'm saying that wrong. A couple months ago, so in November, their executive vice president of cybersecurity, Mark Carter, left.

And then Brett Taylor, who was the co-CEO, was supposed to be the successor to Mark Benioff, left in November also. The Slack CEO, Stuart Butterfield, the Tableau CEO, Mark Nelson, both those companies were acquired by Salesforce, both left in December. So within the last three months, it's just been executive exodus at Salesforce. This month, they also announced they were laying off 10% of the roughly 80,000-person workforce. They pulled their guidance for 2023. That's not fun. And they didn't do it during an earnings call? They did it just randomly?

No, no. I believe it was part of one of their quarterly reports. Okay. They said, basically, we don't know what's going to happen. They said, due to economic conditions, which I love when people say that. What an excuse. Due to economic conditions. The economy is great.

Labor is so tight right now, and inflation is coming down. The economy couldn't be better. It's such a cop-out. Egg prices are high, though. Hey, I mean, I think egg prices are really impacting Salesforce subscribers. No, but the – okay, maybe there's like a general pullback. You could just say – you could just give shitty guidance. You could just say, honestly, we think it's going to be a rough year.

But instead, it's, no, we're pulling guidance because of macroeconomic conditions. it's not it's it's your circumstances not the economic circumstances there are so many companies that'll do well this year yeah well hey i think my thesis is coming true salesforce sells their software to too many unprofitable silicon valley companies and during the silicon valley slash venture capital bear market that's going on right now they're going to get hurt um yeah and this is also okay go ahead i was going to say buying slack at 25 times sales is not that doesn't help i'm pretty sure they have less customers than when they acquired them on slack so that's yeah on slack i read that somewhere interesting interesting

all right you want to well the business i revoke that quote i'm not sure about that and it's probably wrong but i thought i read that somewhere okay so take that with a grain of salt what do you think salesforce salesforce's trailing 12-month revenue was and what do you think it was in 2014 i haven't i've never looked at this business in depth um well we're going to do so I'm going to go $50 billion in revenue. Just go nice round number. And I think in 2014, it would have been $14 billion. All right. Not bad on the first one. $30 billion. But in 2014, it was just $4 billion. And if we go back even further, which again, I know we're advertising stratosphere here. Where's the scroll through thing? I guess we'll only go back to 2014. But either way, it's grown rapidly since then. There's only $4 billion in 2014. their growth has been yeah

is it oh I'm an idiot go back even further January 2004 was under 100 million dollars the growth has been so impressive but I wonder

if the next five years are going to be tough for them yeah I'm done looking at charts of more than 10 years. What do you mean?

I'm starting to... After... I'm growing into the... I'm going to be a macro... I'm going to be one of those bear... Those like perma bears. All right. The world is different

at 4% federal funds rate. You're probably right. I mean, don't get me wrong, Salesforce probably provides a lot of value still, but it's a different growth. It's going to be so different. How many companies would have never even gotten off the ground from 2010 to 2020 if they tried to start this year? Oh, yeah, I agree. Beyond Meat wouldn't exist.

No way Beyond Meat exists. Yeah, they've been structurally bankrupt since existence. I do not know how they're still trading publicly. Yeah. And what's interesting for Salesforce is would these companies have, even if they existed, would they have a 200-person sales staff or a 10-person sales staff and be a lot smaller? That's where I think the impact is on Salesforce.

Again, we haven't looked at them closely, so maybe I'm talking totally out of my ass here. We are going to look at them, though, in two weeks. that is correct and we have the so what you've been saying here though is that they laid off 10 of the workers probably right what also concerns me about salesforce is they bought that that giant office thing that seems to be a big uh wasted expense the salesforce tower they have this weird media division they have these events where they bring in like the foo fighters i get give me a break you're not profitable that's all the and all these

Yeah, go ahead. Benioff sent a Slack in the all-company Slack channel that said, our newer – I'm kind of quoting here. It's not an exact quote, but I'm basically trying to give you the gist here. the he said our newer employees are not nearly as productive and and questioned he put as a question is this because they don't come to the office is this because i work from home policy and then i'm just thinking like are you just upset that you bought a giant building you let everyone work from home just tell them you're the ceo yeah if you come to the office well yeah this sort of stuff i think people are getting a bit or executives are getting a bit we saw starbucks do this too right they're getting a bit how am i describe it frustrated that they're

not uh just doing as well this year we've seen shopify they eliminated all employee meetings there's like these strange things that these companies are deciding to do and i kind of from my perspective which is a total outsider you just hire too many people it doesn't matter if they're working from home or in the office if they are not good hires they're going to be bad and they're not going to be valuable to your company and if you doubled to your workforce in two years yeah there's going to be inefficiencies that's just no one can manage that i do think there's something to if you were hired remotely you've never met anyone physically maybe okay maybe you've met him once you've gotten dinner gotten drinks something like

that you you feel like a free agent almost yeah i agree with you don't feel bought in and the i think okay tobias carlisle had some couple like a year ago where he's like in 2020 it was like what can we do to make you like feel happy like the the company is talking to the employees what can we do to make you feel happy what can we do because they yeah they needed everyone to stay they need yeah they so many people had so many options for their work and now after enough layoffs everyone kind of has the mentality of you get to the off and i think we're seeing it more gradually You get to the office, you work later than your boss, and you do the work that's required or you'll be fired. And there's no, like, it's just way less forgiving.

And I know we, like, you know, we don't have to live that life. So it's not that we're just kind of sitting here on our podcast complaining about it. But I think it's just totally changed the workforce dynamics. Yeah, I agree. I'm definitely pro work from home, except I think you're probably right for maybe, say, a new hire or for your first year or so, maybe, you should be required, especially at these larger companies, to be in person. And then you can maybe graduate once you get your feet set, once you understand the culture, once you understand how things work within your company or whatever, then you can maybe graduate to have the option to work from home. But yeah, it's the start. It's probably a much more valuable to, because if you start at home, you're just kind of, all right, your company is the computer screen.

But then I think, I think it'd be really difficult to run sort of a hybrid environment. Oh, well, they've been there for four years. They can go work from home. Now you come to the office. Well, I guess it depends. Measuring productivity too. You're like, if you're a person who's come to the office every single day, and let's say you got the same role as the person next to you,

get the same amount of work done. If he gets a promotion, you think, what the hell? I guess. But it really, I guess it depends how much value you provide. If you're a very high value add to the company, You can probably, I worked as an intern at some place where some salespeople, it was a sales-driven organization. Some salespeople didn't really show up at all, but it didn't matter because they produced. So, I think it matters.

Yeah. Depends on the role, I suppose. Sales has a lot of roles. Yeah. But I agree. All right. I'm tailoring off of that because this is kind of relevant. Mudda.com, which is kind of a workflow management platform where you're basically –

I feel like this is like me describing every software company. But basically, you're like updating, reporting what you're doing during the day. You have like a schedule. You can track progress and then people above, and you can assign tasks. And then it's usually meant for, I think it started within the marketing department and then it usually expands beyond the overall organization. This is what their catchphrase is. A platform built for a new way of working. Oh, yeah.

Thank you. Every other software company in existence. Anyway, they raised prices on their pro plan, I think yesterday, by 35%. that's sharp that's that's high and now people i've talked to and from just looking at like the net revenue retention figures it seems like people love this platform and continuously like add seats and spend more money on it how many though i think money.com was able to do this probably from a position of strength where once you're really on it and you use it a lot, it's a pain to switch.

But how many other companies are going to have to do this? They're going to have to try to raise prices as either cash burn runs out, they have debt that's coming due, and they have to get profitable in the next year or two. how many companies are going to try to do this and then it's just basically I imagine a whole bunch of companies are going to consolidate their software spend which maybe Microsoft's the beneficiary

possible maybe maybe Microsoft could be a beneficiary I think this is the thesis on SaaS though where people I guess investors

the last decade have talked about land and expand well this is the expand and sort of also the expand is expanding throughout the organization but the i guess the general thesis on sass is that you get within the organization and then it's high switching costs i could see a lot of companies trying this and we're going to we're going to find out who are the legitimate value ads or the unnecessary sass platforms right so if money.com is really providing that much value

they could raise prices by 35% that's a steep gain in one year maybe they haven't raised prices in five years I think they did it last time in 2019 I saw maybe they're providing a lot more value now it's an aggressive move

if they aren't profitable next year within two quarters after a 35% price increase I think this thing's unownable. Probably. We own it vicariously through Wix. That is true, I guess.

What do you think? What's their revenue growth been? Wow. Pretty impressive. Yeah, like 80%. Yeah, they went, if I'm looking at stratosphere here, 2019, $78 million in revenue, trailing 12-month, 465 million dollars in revenue that's pretty darn good now you just gotta fire half your

workforce and you're free cash flow positive but yeah let's look at that thanks for all the work uh they are profitable brian unless this is incorrect it is saying they're i think they oh wait no no they teeter on gap profitability but they're free cash flow positive excuse me I was looking at the wrong number here, operating income margin of negative 37%. They're cash flow breakeven, I believe. Well, I'm assuming that's some… Chronic stock-based compensation issues. Yeah, that's what I'm going to guess.

Okay, we're about halfway point here. Why don't we do the halfway point ad for Stratosphere? I'm going to share my screen, and Ryan, why don't you… give me a company that's large so we can get the KPIs and we'll look at an interesting KPI and see if there's any interesting thing there. Name any company.

We're looking at Meta next week. Okay, let's do Meta. So maybe we get a jump start on that research. Well, let's look at what one do you want of the KPIs? DAUs? MAUs? ARPUs?

Let's look at ARPU. Yeah, go ahead. Oh, shoot. Pretty darn good. In 2021, do we have trailing to a month? We do not have trailing to a month yet. In 2021, it was $41. In 2013, it was $6.08.

That is some impressive growth. Now, I think 2021 might have been a bit of a bubble year if we kind of look at this chart, right? I could see it reverting back in 2022, I bet. if we looked at their financials, it has reverted back. Yeah, I bet it's come down a little bit with

coming down. Go to operating margins. Okay. Yeah, look at that. It used to be 50%. 2017, they peaked and then everyone, that was when they figured out they had some expenses that they were

neglecting, and now it's down to 30%. It's lower than it was. That's crazy. ARPU has, what was that, like a 5, 6x? Something like that? Probably. Since 2014, their operating margin is lower

today at 30% than it was in 2013. It looks like 35%. Yeah, 35%. That's crazy. Overlay the operating income chart on that. So margins have obviously contracted, but I wonder nominally.

Well, nominally, it's higher. It's still down. Well, it's down from last year, but last year was a bit of a nominally with the bubble spending. True. But I mean, yeah, it's way higher than 2013. They only did $2.8 billion in operating income. Last 12 months, we are at 35. yeah the way

that everyone talks about meta you would think that operating income was zero over the last 12 months

yeah I mean you'd think you'd think they're planning to burn 50 billion the yeah

this is let's say this is all you know what would you buy the business at don't look at

the market cap these two charts yeah that's very i would need a discount because you need more information if you only know these two things 35 billion dollars margins deteriorating mark operating income has grown at an impressive rate 10 times earnings i mean i mean being like literally being a buyer like okay like i'm actually buying shares oh buying let's say under 10 times operating income so maybe 300 billion

dollars was the market cap yeah 350 wow it really i mean and it's up a lot we look at that stock chart from the dip there was a yeah and maybe it was it's hard because there's so many stocks to look at you can only invest in so many it's possible that meta was a generational buying opportunity in the fall of 2022. Now, I don't think it was a generational buy-in opportunity in late 2021, like a lot of people are talking about, but maybe because so many people were talking about it as the stock went down like 70%, every 10% down, generational buy-in opportunity, generational buy-in opportunity, generational buy-in opportunity. Oh, this is cheap. This is cheap look at the pe maybe that is what uh i know that you can change that's crazy no that's what

i'm saying maybe that is everyone everyone everyone uh maybe that is what caused the opportunity to exist because everyone just got beaten down uh by that we'll see the stock's still down from sorry let's start this it is hilarious to watch zuckerberg have complete disregard for analysts. I do like that. As a non-shareholder, I commend it. Because the analysts are begging for cost

reductions. And he's just like, we're seeing some great progress in the metaverse. Yeah, Matt H. says, I'm talking myself into a meta-investment. Yeah, maybe. Maybe.

Google is at a similar price. you could theorize on a forward multiple um but yeah i mean medic could be and they keep putting up good numbers i mean whatsapp there's some green shoots whatever this is not a meta podcast we'll do that on a separate show um and he also asked about the data center spending at meta like impacting margins in the near term i think that's possible they're also doing that gigantic ai spending that is a one-time bump so we'll see uh but let's go to my topics unless you have something else, Brian. I was going to say, that's an interesting thing. Talking yourself into an investment. How many times do you think you've made your mind up within like a week of researching

a business? And then you just spend a month or two finding confirming evidence for your decision you made. It's very hard not to do that. I think, right? Pretty hard not to have that idea in your head it's really which is why i think doing too much research is harmful there should be almost a time limit like all right you hit your 10 hour limit no more research if you haven't made your decision you're either out or in because if you do too much you can convince yourself to buy anything. Yeah, it's true. Yeah, it's so true. It's hard to get rid of. What would be an ideal process for researching a business? What's your ideal process for understanding where it is now? Well, the audience should know that I'm 26 years old and that hopefully my process is better

10 years from now, five years from now, but the ideal process, that's, I think, one is the discovery process needs to be organic. That's ideal. Or you find it either just reading some sort of article, not an investment pitch, or reading some random article, see it on a screener, whatever, right? Something like that. Listening to a podcast? Maybe, maybe, maybe.

That's our whole podcast. Well, no, I know, but it's a little bit, I know it's great. The majority of the stuff I find is either through podcasts, the internet, or other parts of the internet for potential new ideas. And I think that's great. But I'm talking an ideal world. You want to find it purely organic because you want it to be unknown as, you know, as unknown as possible.

Maybe that's not possible in large cap land, but either way, then you read the annual report, the latest one you write down the notes any sort of relevant thing there then you read the proxy i think you don't need to read the 10q at that point um then you go to the earnings whatever their like earnings presentations are and earnings releases kind of get a context of what they think about the business the important things they're thinking of then i read the conference calls and any other transcripts and then i go and see what other investors think yeah i think probably the biggest thing the thing that helped me in so we looked at amazon recently something i liked doing and i'm

gonna try to do this again and it was helpful because amazon's conference calls were so short is reading the previous four in like in in the time that they were produced so you almost get the experience of being a shareholder for the last year. Yeah, don't start with the latest one. That's actually great. And then you go, yeah. And you can start earlier if possible. Yeah. If you have more time.

You probably don't need to read all four from 2017, maybe just one from 2017. Yeah. The other thing that's like a big, it's a growing signal for me now, is not when someone buys a position, but when someone

buys a position for the second time. If another investor, an admirer or someone, has re-entered a position or they've owned it for a long time and now they're pitching it, that's a better signal to me than a first-time buyer.

Yeah, because it could be a starter position. It could be something that's going to leave the portfolio in a couple of months. What's an example? Did you see that recently? that made you think of that yeah i i read a vic pitch on amazon when we were researching it and the guy was like i've owned this for seven years i'm i'm pitching this now for like the first time on here it's the best buy it's been in seven years is what his thesis is as an owner yeah

interesting or but like because when i was thinking like when i was when we're looking our own portfolio i when we re-enter a position that we've sold before it means i feel like i have a good grasp on what the business is worth that's true yeah yeah all right let's move to the disney activist one i'm going to share the screen but don't worry for the listeners i will describe it as well first slide here who is this try and partners have not heard of them although i I will say I'm very not up to date on what the other funds are that are out there in the universe.

First slide, Disney. Restore the magic. That's pretty good. Yeah? Disclosures. Okay. That's a lot of words, huh? Did they not go to PowerPoint school?

Did they know that you're supposed to have less than 100 words on a slide? Whatever. What do they say? Disney is the most advantaged consumer entertainment company in the world. Would you agree with that, Ryan? yes

you think one I'd say two maybe Netflix now I go Nintendo one I'm still taking Disney number one yeah I think it's 1A 1B to me it's pretty close to me

let's see they say it has unrivaled global stale irreplaceable brands inimitable parks and can leverage the Disney oh drink why will to monetize its intellectual property for these three reasons we believe the company is well positioned to succeed however disney's recent share price and operating performance have been disappointing

blah blah we all know that we believe the current investor sentiment on disney is low they underline this it is low oh great reflecting the hard truth the company is in a crisis don't you love how they talk to management it's think of your management is reading this like it'd just be awful Tryon believes that it is well positioned to facilitate positive change at Disney that's also if you're playing the activist drinking game

you gotta take a lot a lot of drinks here they always say facilitate positive change facilitate positive change is pure here gosh there's too many words in this one slide let's see Tryon overview

don't care about you guys what differentiates us I don't care I don't care how big is the position and I've looked at let's see if they have that I'm pretty sure

it's not their total AUM is 7.6 billion well they wrote an activist letter anyone can write an activist anyone can write a letter I don't think activists I don't think it's considered activist until you're actively vying for a board seat or something.

Yeah. What do you think about this, though? Disney total shareholder. This is good stuff. Disney total shareholder return consistently underperforms. Over the last 10 years, Disney is up 107%. S&P 500 is up 223%. And the company proxy peers are up 478%. I'm assuming that's the ones they're comparing themselves to

on the proxy statement. That's a pretty big indictment of Disney there. uh financial performance has been disappointing since 2018 adjusted revenue is only at 41 percent and 24 billion dollars were driven by uh the 21st century fox deal and record park performance yes to say how much that is due to just price increases at parks yeah cost of services over the same time. We're up 66%, meaning that as a percentage of revenue, cost of revenue has gone from 55% to 65%. SG&A is up. Adjusted EBITDA margin is down. Free cash flow margin has really gone down significantly in 2018. We were at 16.5%, and now we are basically break-even.

They're only generating $1 billion in cash a year. And they've gone from one times net leverage to 200.7 times net leverage. What's their advice? I know, I know. It's 35 slides. Okay.

Yeah, where's their advice? Where's their advice? Yeah, they acquired Fox. We all know Fox acquisition is not delivered results.

Okay. Yeah, they said acquiring Sky would have been bad. What do they want to do? What do they want? I think this is a giant it's a giant 35 page complaint. Yeah, where

Okay, they better have some sort of What did Musk say to that guy that was trying to get on the board? What are your great ideas? Oh, to Gerber? Yeah, that has been something. What are your great ideas?

That's what Iger would probably say if you were reading this. okay this is this is this is a bust for listeners they didn't say what to do okay well well let's ask ourselves that question ryan what do you think disney should do probably it's a tough question but what is this why i don't own it because you don't know what they can do yeah i don't like what do you get more creative i don't know like have a new hit they're already They're juicing their brand. They've got to come up with something new that's wonderful,

that's additive to the business. Or what do you do when you run out of new ideas you acquire? Which has been really stupid so far, the acquisitions have been. So if I'm just, I would have no idea what to do. Yeah, I agree. They're in a tough spot. It's weird to say they're in a tough spot because their market cap is so high. If they were comfortable being a smaller business, it's such a,

it's such a high quality business, but their, their market cap, their enterprise value, the expectation of how big this business should be is too high. Jack up the prices on the bundle. That's my answer. Do you think, what do you, do you think there'd be churn or what? Yeah, some, but they doubled prices on ESPN plus and saw nothing. Yeah, but that's sports. If anything, we know sports is a tough market,

but if anything, there's pricing power. That's what I'm saying. What's the bundle? $15 today? You get ESPN+, Disney+, Hulu Live TV. I would come up with your best series that you've got and then double the price of your bundle. Disney bundle. I'm looking at the price right now.

You can tell how good of an investor I am. It is now $20 a month for no ads. And if you have the trio with ads, it's only $13 a month. Yeah, let's bump up that ad one to $20, to be honest. I feel like they got a lot of pricing power. Okay, well, that was a bust of an investor activist deck. I'd be surprised if Iger even read that. Yeah.

The only reason I'd read an activist deck is to see if they have any ideas worth considering. Honestly, I'm probably going to... First, someone... Your assistant comes to you the day, and they say, oh, someone wrote an activist deck. You go, okay, what's their AUM?

Can they hurt me? Oh, no. Okay, don't worry about it. Yeah, that's fair. Okay. Okay. Next thing, let's look at Taiwan's semiconductor earnings. They're always first of the season. Revenue grew by 27% last quarter to $20 billion USD. And if we're looking at by platform, 2022 revenue by platform year over year, we have HPC, which is their... Just think of cloud

data centers stuff like that uh that grew 60 smart chrome grew 30 iot internet of things grew 47 automotive grew 74 i mean is this just one of the best businesses in the world right buffett thinks so he does think so look at that operating margin too 52 for a manufacturing business and as you think about that we have a comment from matt h more lindy which means more lasting i think that's probably what he means disney or apple oh disney 100 but i don't know disney's lasted longer so by definition they are they they were incorporated 100 years ago or i don't know exactly when but it was before apple so who do you think has a higher problem okay I assume the reason he's asking is not who's been around longer.

Who do you think will be around longer? The better bet? Oh, Disney. Come on. Yeah. Yes, but I could see it having way worse returns. Oh, I don't care about it. Yeah, sure.

Sure. Disneyland will be here. Unless the world somehow goes to the dark ages, Disneyland and Disney World will be here. 50 years from now. He also says, I think it's more probable that Weschler took a huge punt on Taiwan Semi.

I don't, I guess, I don't know if he's spoken out about it yet, but that would be a huge chunk of Weschler's money that he manages. Doesn't both get $10 billion? Well, they started with $10, so I bet it's higher now. They probably have $20, something like that. Still, either way,

that's huge. But so far, the company has executed. Here's the question I posed to the Twitter audience today. Do you think Taiwan Semiconductor could be the largest company in the world 10 years from now? I'm not saying do you think it will

be? Do you think it could be? Is there a path? I think there is. Yeah, I mean, sure, it could. I think I'd have a different answer for will. How big is it today? What? $440 billion market cap it's possible

but damn that'd have to be a hell of a ride and I think it would have to be at the expense of like every other I think Amazon, Microsoft, and Apple will still be bigger you said 10 years?

yeah 10 years yeah that's they're going to make up a lot of ground 10 years what if in 10 years they diversify away from China

and that risk goes away and they start trading at 25 tap earnings instead of 10 well yeah that would certainly help I mean yeah it would definitely help

but the yeah I guess obviously that would help but yeah yeah I think it's probably unlikely but it's it's only possible

it's only possible are you are you talking yourself into an investment here again No, no. We always sound so bullish on these shows, and none of the companies we talk about we would buy. What are you bearish about?

Bearish? If you had to pick a company to go bankrupt this year. We already talked about it. Beyond Meat, right? Isn't that so easy? No, the convertibles aren't due for two years. They're not going bankrupt until- Not this year? Well, Carvana. Carvana. Look at that balance sheet. It is bad. I believe it's up I'm pretty sure it's up like 60% year to date

yeah I was writing a fool.com article on it and I was frustrated because 46% this morning yeah it's a 46% today 75% in the past 5 days yeah I think it's a short squeeze over the last year

it is down 96% including that jump Yeah, I mean, the base case is Carvana is going bankrupt. It might not, but the base case is it's going to. That's systemic. Fed needs to step in. The Fed, yeah. Everything's systemic now. Yeah, that leads into your used car prices thing, though.

Because if used car prices fall more, they are screwed Carvana is screwed but it seems like you have a data point here that they stabilized last month yeah that's pretty much the only data point I have there's like the Mannheim used car index and they produced

their data I think for the month of December the average US car the average I think it's US used car price was flat month over month so it wasn't declining I think it might have even bumped up a little bit but

also the holiday season it might be more in more demand I don't know like how far can used car prices go down well I'm going to pull up the chart and show you Ryan that we're pretty far away from where it was in

2019 pretty darn far even inflation adjusted let's pull up the old chart there it is and I will share the screen. I bet you've seen this, but... So I've looked at Ally so many times and there's one unanswerable question for me. This is updated for December.

We're at 219 right now for their index to 100 back to 1997. In 2019, pre-candemic, we were just a tad above 150. So even adjusting for inflation, over the last two years. I feel like it's still got to be a bit of a bubble, especially with interest rates up

because the financing on the purchases are going to be more expensive, similar to homes. Or people are just going to spend a thousand bucks about their car, I guess. They can do that if they really want. Okay, here's the thing. If you don't think that the used car prices drop to like 150 back to the 2019 levels. And if you don't think that...

Or even 200 or 190. That's still pretty far fall from here. Okay, but what are the driving factors? What would happen to like car repossessions? I think that's a little different although it is to be honest not an industry I know very well if okay let's say like a whole bunch of people

were defaulting on their car loans used car prices there'd probably be a bunch of used cars available supply would go up prices I would think would go down right is that plausible yeah

but then you also have to weigh like new inventory from like the automakers yeah and it feels like there's going to be a glut of cars yeah I agree

well let's bookmark this maybe anything in the used car market is untouchable I say let's bookmark this and we'll have to look at this six months from now I want to go to that Spotify report though because that'll be interesting I'm sure any listeners will be interested in that too let me pull this bad boy up

yeah only got five minutes but I think we can hit it Spotify is a holding with an arch capital our fund that Brett and I co-manage although we should are you able to share

no I'm not okay I'll do it right now just pull it up yourself it is a holding but one that to be honest both of us get frustrated with so it's not like we're going to talk too bullishly on it that's very true

it's been basically this is like an ads report and more just I guess podcasts in general it shows the year over year growth in podcast downloads if I was going into this blind and I had to guess what

downloads what download what growth rate downloads grew at in the u.s i probably would have guessed under the number they reported okay and what is the number oh yeah right yeah 33 so podcast downloads in the united states grew 33 year over year i'm basing that solely off some of the attrition that we had uh it was kind of hard for us to grow listeners last year however stagnation not attrition let's be fair we gotta be fair to ourselves flat it was flat for a bit it was flat all right but then you scroll down and it shows the podcast that performed the best and is it right there okay right here yeah and it's health and fitness religion and spirituality history and then oh this is ad spend by advertiser like which

which area people advertised on more and then music also grew and don't see investing in there i don't see business podcasts i think business podcasts were also on a bear market but i also get how you know religion and spirituality they might get a boost if uh you know during a bear market whatever one's whatever he gets crunched but 100 you gotta pray for the gains there was definitely a bear market in uh investing in business podcasts that's got to track the market as well anything else you thought was interesting here no i mean just the international growth um it's impressive i mean say some of the numbers yeah yeah so podcast downloads in france grew 379 percent spain 298 percent italy 244 percent

germany uk which are more mature markets both 64 and 52 percent so i mean downloads are growing quickly across the board, but it feels like still, it just kind of puts in perspective and it's been annoying as a Spotify shareholder because it doesn't feel like podcasts fulfilled what we thought they could be necessarily, at least in the last year. But then this kind of puts back into perspective for me, how young and nascent the market is, especially for podcast advertising. Yeah. And another thing I thought was interesting was the diversification of where they're listening. And this is where I guess we're talking around book because we started doing video on our shows. So there's 82% growth in smart TV, 131% growth in car listening and 83% growth in smart speaker. this convergence of youtube shows and spotify shows i think is going to be a bigger trend

over the next three years where the smart tv is going to become more and more important yeah i'm curious if our audience what percentage listens listens in their car on their commute versus over a smart speaker or smart tv do we have any way of knowing whether someone views us over smart tv we might uh we might i don't know if they give smart tv but i think they give a few different devices um let's look at that we'll find out anyway it's uh it's five o'clock on the west coast so all right close it out good show remember yeah check out stratosphere for free at stratosphere.io the presenting sponsor of chit chat money we are not financial advisors anything we say on the show is not financial advice or recommendation. We are general partners

at Arch Capital and clients may hold securities discussed in this podcast. Thank you all for listening. Thank you for the few in the chat, Matt H., as always, with the comments. More of you should join, though, and join at 4 p.m. Pacific time every Thursday or watch the replays on YouTube. But either way, listening or watching is good with us. Thank you all for watching and listening. We'll see you next time. We'll see you next time.