Chit Chat Stocks - Investing Power Hour #84: RIP WeWork; Nintendo's Latest Move; Coupang Earnings Breakdown

Episode Date: November 12, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday. 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/⁠⁠⁠⁠ ****************************** Chit Chat Money is presented by Interactive Brokers. Switch to the best brokerage in investing today: ⁠⁠⁠⁠ibkr.com/info⁠⁠⁠⁠ ****************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, hosts 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. Anything discussed on Chit Chat Money by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. This is the Investing Power Hour number 84. It is, let's see the date, November 9th, 2023. My name is Brett Schaefer. I'm joined as always by Ryan Henderson. This is the Investing Power Hour podcast on Chit Chat Money, where we really talk about anything in the investing world. It's just the two of us. Sometimes we get some guests. We're trying to get a couple guest

appearances which i think are fun from time to time mix it up get a new you know voice in here because ryan and i generally have the same thoughts on a lot of things when it comes to investing but we're gonna kick things off today with a ton of earnings we're gonna hit maybe some gripes over uh as we've our funds have been in a little bit limbo as we shut down our uh the investment fund we started up uh it has to be in limbo for about a month here then all the stocks we like seemingly uh are going up before we can invest in our personal accounts which i found not very satisfying but ryan what do you got on the docket for us how are you feeling during what we might call the growth maybe part of the earnings season a lot of unprofitable companies

going right now? Feeling good. Yeah, you talked about it. There's some big frustrations for me right now in that, just full disclosure, most people that are listening to this probably saw we shot down the fund, our fund we were running, and we're returning the money. And Brett and I both had money invested in the fund. So in the meantime, it's in limbo. And we sold a bunch of the stocks that we owned and all the stocks well not all of them they seem to be ripping so a couple a couple yeah which is a little frustrating yeah there is there's a couple yeah to be honest some of them are down too like match groups down relative to when we sold some same with some of the others so they're on the on one side i'm frustrated that some of them are ripping i'd love

for all of them to be falling but on the flip side it's kind of relieving to go through an earning season and not own anything because you can kind of just like oh that was a horrible quarter like you know like you could be like oh god i don't know that or like we even had a couple where it's like well you know good thing i don't own that right now but uh anyway it's just a little weight off the shoulders so that's been fun but there are there have been a lot it feels like more so this quarter there have been a lot of like 20 plus drawdowns after a release yeah it's kind of one of those i well stocks have been ripping a little bit especially after big tech reported or it seems like a lot of those large caps reported and i think expectations

are kind of high for a lot of these things now there's some growth stocks or some beaten down ones over the last few years that it seems like the expectations are extremely low but i think a lot of the ones that have held up fairly well over the last few years the expectations are high valuations are high yeah so it's not surprising and when you don't meet your guidance and stuff like that when your guidance may have been irrational i think you're You're going to see that from time to time. Hopeful guidance. And you know what?

Yeah, hopeful guidance. We actually talked to, I remember talking about this last year. There were a lot of companies that were saying kind of towards the end of the last fiscal year, there were a lot of companies saying it's going to be rough, but we expect things to turn around by the end of next year. They were saying that last year. And at the time we said, how would they have any idea? like they have no idea what's going to happen in seven months eight months it's purely just hopeful that things turn around and now we're seeing some of those guidance revisions say yeah things aren't turning around um and stocks are getting absolutely crushed right now yeah the i think that's a good

point kind of a rule of thumb or something i like to look at is whether they talk about when they're guiding if they say oh we're guiding to a normalization of the macro environment which is sometimes a bit of nonsense but that is betting on something changing to the positive like it's outside of their control or i look for um guidance that basically says hey look you know things have been bad this year our guidance basically assumes that none of that is going to improve it might get worse so we're trying to be extremely conservative i think that's important for context for for people a hundred percent that i think a lot of the times well for one i think a lot of the maybe quantitative factors stuff moment some stuff they're not going to pick

that up so i think that's something obviously a lot of other fundamental investors are looking that looking at that but i think it's can be a nice little note to look at there's a huge difference between saying well things will go good if things outside of our control improve or we're still expecting the economy or our little niche in the economy to be doo-doo. Did you look at the Disney earnings at all? Just headlines. There's a point in the Disney earnings report

where they basically said we expect streaming to be profitable by Q4 of 2024. So basically a year out. and at first I kind of thought like how are they gonna know maybe they could raise prices or whatever but how would they know specifically q4 2024. I worked like well the quarter was okay yeah maybe you can moderate costs or whatever like on your own timeline but the the quarter okay but i can't help but think they are like massaging numbers because they they report the segment adjusted earnings and it feels like you can move some stuff around between the streaming

and like especially like within the entertainment divisions like you could just call some costs linear networks or whatever that are that are kind of a gray area which i wouldn't put it past the old uh old bob eiger yeah and i think you gotta look at consolidated numbers for them look at their consolidated cash flow they have a history of changing their segments all these media companies do and i don't think we don't need to talk about disney we got a lot of topics here why don't we got a ton of earnings celsius um bumble let's see top golf callaway coupon airbnb beyond meat affirm probably won't hit all of them but i want to talk first nintendo i don't think we need to talk about the earnings not too relevant but the most

important thing was the announcement of a second movie that has been made been in the works i guess for around three years. And it's probably maybe they're pretty patient. They're pretty slow. So maybe a year or two out. First, it would have been nice to tell shareholders that you've been working on this for three years. But I think that confirms a little bit of our thesis where you got to trust that they're doing these things. And second, this is one of the stocks where it's like, okay, the thesis is probably, it's finally working. All right, cool. Well, why did you have to do that right now when i don't have the money when when i'm no longer a shareholder things yeah that is funny we waited three years of owning nintendo for the market to finally come

around and basically say you know what this might be a this might be a sustainable business yeah maybe it isn't it's up it's up three percent today yes three percent yeah it's really the momentum which that is a huge swing for nintendo just so everyone knows yeah yeah usually usually doesn't trade much sometimes it's the yen that'll affect things but yeah okay what are your thoughts on this thing people are worried that it's live action i think generally they're people are concerned about that but it seems like they got a marvel guy in there it's going to be kind of standard stuff zelda seems like one of those sectors of the gaming industry where the fans are very have a very very high bar so i'm assuming that a lot of people won't like the movie even if

it's good the only way they'll like it if it's like if it's somewhere like the lord of the rings trilogy or something like that but i think it's it's not gonna be as big as a super mario movie but it'll be good and then i i don't know what do you think about taylor swift playing it yeah what's what's i think i think that the i don't know the story anyone that knows it well they know really well i think zelda is the queen person and then link is the the hero yeah or the guy that's doing a lot of stuff that you're there you went and then there's the evil it's the classic story that's the age old time um there's this comment in our chat says i think this nintendo cfo has just forgotten the password to his brokerage account i can't think of any other

reason for not buying back shares yeah they have bought back shares but they do it weirdly they say like okay we just announced a probably maybe 500 million dollars equivalent in yen and then they can they perform it in like five days and you're like cool you guys have so much liquidity why don't we just get this thing maybe cranked up to about two billion a year here since you generate four to five four billion in earnings give or take where the yen is trading yeah i their capital allocation will always boggle my mind. Chit Chat Money is brought to you by Interactive Brokers, but we like to call them by their ticker symbol IBKR. Designed for active traders and sophisticated investors, Interactive Brokers offers trading assets in 150 markets with

27 different currencies, charges USD margin loan rates from 5.83% to 6.83%, rated the lowest among margin fees, the ability to trade stocks, bonds, options, futures, commodities, and more with high interest rates paid on instantly available cash balances and the ability to lend your eligible stock shares to earn passive income all on one single unified platform restrictions may apply for more information visit ibkr.com member sipc open an account with ibkr today what they don't need to be so conservative i get it i get it the we after the wii u you were in some dire dire positions but it's already conservative because they built up that cash position yeah i mean what like what do they have today 12 billion usd in cash hard to tell

I haven't calculated it yet. So did you read the, they gave out their annual investor presentation this year. Did you check that out? The 60 page slide deck, kind of their old comprehensive thing. Yeah, I think so. When did they release that?

They released it along with the earnings report, I believe. Oh, maybe I didn't see it. Oh, okay. Yeah, I didn't. They didn't update. they did an updated one they did that last year as well which i'm not a shareholder so i don't i don't have any responsibility to do that yeah i know it always feels like there's a responsibility

to read everything um i will say i did go on another channel um ryan didn't have kind of make this kind of work but it was called the match let me confirm it's matt money yeah channel a lot of fundamental investors there yeah real matt money matt m-a-t-t and then money we discussed the nintendo update uh after earnings which is quite fun they got a nice little channel over there so thank you guys and we had a listener of ours i believe connected so if you're listening thank you for making the connection but i liked from that presentation the reiteration of talking about taking all of their franchises and putting stuff into visual content and then putting stuff into the theme parks over time for example building out the donkey kong land in japan

which i assume if it's successful in japan they'll just copy it and put it into the other ones that are you know around the world the four other ones and that might take a decade or two to really build that out but that's going to work really well and then i like how they talk about time and again about using that not necessarily just to make money, but to reinforce the gaming franchises and to make even more money and build and have even more

fans in gaming. So I think their strategy is coming to fruition and there really are some good stuff in this slideshow. 1.4 billion at the box office on Mario roughly. Yeah, well

we knew that, right? I remember it at 1.3, but yeah. stop tracking yeah one point 170 million 170 million uh people watch so far yeah and so it boosted what it boosted game sales basically by 30 on mario titles for the most part for legacy ones yeah and then they already talked about i believe this might have been the regular earning slides that mario game sold like four and a half million copies within the first week so mario wonder nice and then yeah so i like the theme park business doing well the visual content stuff is chugging along they're going to be slow not really a big big deal i don't think they're

not trying to make money off of this but the the only question now is the next hardware i think that's the little probably the only question left along with what capital allocation will be or capital return strategy will be yeah we've been saying that for a while but yeah mario kart 9 that'll well i guess yeah that that'll hopefully be if their history is any indication the mario the new mario kart will launch along with that yeah the but i think that's the only question left because the the expansion strategy seems to have been confirmed that it works how many online members do they have now the that was near the end i believe they had 38 million so not a big jump it's still solid but they don't give out like a revenue number they don't give out how many

people have what tier because some tiers are more expensive than others well anything else no i mean it's just a bummer that everyone seems to be recognizing what we've been talking about for a while when we're no longer still not yeah stocks not uh up too much uh we got a question do you think the japanese yen will have a turnaround which will help us investors i think that is referencing nintendo i have no idea it has been one of the biggest headwinds of ever really with the yen so but also just the base rates like it's probably not going to be as bad but i do not know i don't know i'd also say well maybe i'm thinking about this wrong but they're earning a lot in usd and converting

back to yen and they're making a lot right right 44 about 40 but it's like 40 percent usd and then the rest is mainly europe and japan and a little bit east asia as well so quite a bit of a headwind still for us-based investors yeah got a lot of questions here how would you value nintendo today i remember going through this when we were talking about nintendo and it's kind of tough because you don't just want to strip out like their their ass like do you strip out the cash but do you do it on an easy basis but yeah but what if they never return it uh i mean eventually it's going to get returned with that dividend like the dividend's not it's not small so the i think you basically just kind of have to get to an assumption of what you think they'll learn

over the next five years which is really hard to guess frankly a lot of it depends on the new switch rollout but yeah i think uh one thing i wouldn't value anything on the stake in the the pokemon company because i think the value of that comes from the exclusive titles that they launch on their hardware so the value is going to be earned from the pokemon earnings um it's it's yeah it's like okay look at what you think you kind of have a little bit of variability and maybe kind of discounted a bit just because the foreign exchange their history of cyclicality uh but yeah when the the new console launches kind of think okay will things be durable maybe grow a little bit stuff like that it's here's the other thing i was thinking about let me pull this up uh

because i was just kind of re re looking at nintendo over the years and if you look at their revenue and i will share my screen because apparently some people like it when we do that i will uh i'll let you off the list now you can do it so i've got the operating income up For anyone who doesn't know, this is in yen. For anyone who's just listening, basically, it's from 2016 to the last 12 months in operating income in yen. And it's a lot to down like 10%, maybe 20% from 2021. But if you look at it purely from, if you just exclude it. It's March, 2021. So the heavy COVID year. Yeah. If you just excluded the last three years.

So if you purely looked at it from like 20, the last 12 months versus March of 2020. So right before COVID, you'd say, and you didn't know the numbers in between, you'd think, wow, this is a business that's really growing. And I think you could say the same thing for the number of software units they're selling. You say, wow, they're selling a lot more software units, this must be really valuable business. Oh, they're still selling. Now they have an installed base that's twice as large, it must be continuing to grow. But because we've gotten that lumpiness, and because it's been basically flat to down over the last three years, I think a lot of people look at it and say, it's in rough shape, or it's not going to be sustainable. Or they hit the cyclical peak, yeah. Do you think it'd be fair to strip out, like look at a pre-COVID, post-COVID? Yeah, and I also think excluding that March 2021 year, which is basically going from April 2020 to March 2021, is fine because there's just a huge bump, one-time bump in users.

They have a chart in here. Yeah, so if you look at their sales of, maybe I'll share the screen. This is a pretty good one. everyone can see my 100 tabs so if you look at their first party software sell through uh which basically means the first party title so the ones they make themselves not the third party stuff like something from electronic arts and then sell through i believe i always get this confused sell through means sell through to the customer sell in means sell into the retailer if you look at uh 2020

well that was a huge bump and we're actually down from there but remember there was a pandemic if you take that year out like the it's been pretty linear growth and remember and i guess animal crossing maybe not remember but for yeah uh for anyone that doesn't know first party titles are where they make the vast majority of their profits it's funny if you look at that chart and you just instead of it's funny that if they sold half as much software first party titles in 2020 like so let's say it was halfway between 2019 and 2021 you'd probably have a much higher multiple on nintendo today yeah it is yeah i think without the pandemic the company the stock is much higher because people wouldn't be comparing it to that and they say oh it's a cyclical or not a cyclical

anymore it's just a compounder but what's interesting is that it'll be fine because eventually you'll generate enough cash um we don't want to talk about this one forever but uh here's a good one from tyler always with them a lot of questions then we maybe can hit one of his other questions which i think will be fun do you guys believe the idea that japanese companies are going to start prioritizing quote-unquote western capital allocation strategies let's say a little bit there's been it's been a slight change it might be a decade-long thing but the government is clearly prioritizing it just listen to what they say uh but in a lot of cases i think you shouldn't there should be a bit of a margin safety there i don't think an entire thesis can

rest on that but for example nintendo has improved its capital allocation policies a little bit from a capital return standpoint it's not maybe ideal and they could probably do a little bit more maybe a special dividend stuff like that but maybe it's improving i i wouldn't bet on that uh happening though maybe do more i could do more i could certainly do more but yeah the uh but they operate on a different timeline so if you're going to invest in nintendo and say like i want to make money this year owning the stock based on the next few quarters results you're going to be disappointed they run on a decade-long time horizon and durability and that's great but you have to be aligned with them or you're going to be disappointed yeah the i hope so to answer

tyler's question do you guys believe that the japanese companies are going to start prioritizing western capital allocation strategies maybe they might yeah i'm hoping buffett can uh you know provide some some good juju over there kind of maybe yeah well he's investing because the government said part of the reason is because the government said to start actually returning capital and stuff and there's some rules about if it's below book value stuff like that so they're doing it because the government is sick of the companies being very because like in general if you return if you return the cash back to society it's actually can go back into productive hands make citizens wealthier pensions blah blah blah so yeah it doesn't do anything to sit on

cash and corporate corporate bank accounts like that does very little in terms of productivity for society i do think uh i think we got ian gray in the chat too for anyone who remembers ian he's been on the show tons of times way back when um but the other part is it attracts capital if you start returning cash to shareholders more people want to invest because they they know you'll return it and that allows you to invest more into your workforce more into your products and i don't know you're going to attract capital from outside the country which i would imagine is beneficial for japan as a whole should we hit some of the other topics or yeah i mean everyone just keeps asking questions here maybe maybe one more ian has a question what do you think the biggest

threat to the durability of nintendo's businesses over about a 10 plus year time frame i think it's kind of paraphrasing it i would say the combination of game video game streaming so console-less games along with the growth of you know roblox and new age stuff minecraft that has less than the nintendo characters and they have less control over those type of things among young people which is why i think the theme parks and the movies are so important because you can try to capture a fan at a young age probably you know the key age is about 10 maybe a little bit below yeah i would typically say well my initial thought was that like the gaming tam whatever it is the gaming market as a whole shifts away from nintendo's core competencies

but that's really happened over the last decade where 50 of gaming revenue now goes to mobile and nintendo frankly has just zero presence in the mobile universe really i mean they have their own i mean it's not ago i'm talking about iphone well pokemon go yeah for like one year they capture the whole world but then that no no i said uh like they're they're hardware have their own mobile yes yeah but they adapted a majority of the mobile revenue comes from smartphones right so it's like they have no presence there and it doesn't really seem just because mobile's growing and let's say like streaming we're growing or like cloud gaming i don't think that necessarily cannibalizes nintendo's business i think it just expands the market so i kind of

i don't know i don't know what would be the big threat to nintendo long term long term i'm not worried because they don't disney they can reinvent themselves and they have the ip yeah and they don't have the if anything or like if they went the disney strategy and juice the juice the ip too much then that's actually beneficial on the shore and that'd be a long concern is you get to the state of like disney but if anything you'd want them to even lean into more of that all right the biggest threat hold on i'll say the biggest threat yeah biggest threat as a shareholder is that they just continue to accrue cash on their balance sheet for 10 years and it doesn't get returned at an increasing percentage yeah maybe it's not if it's just appreciated how

How much more value would they have generated for shareholders if they didn't let it sit in yen on the balance sheet? Well, I don't know if it's all sitting in yen. I actually should check that. But yeah, I mean, I do agree with you. I'm just trying to play the old devil's advocate. Okay. Other topics.

What earnings do you want to hit first? We should probably hit a few of these. I think they'd be fun. Well, this top golf. Let's do that. Or modern golf, I should say. This is previously known as Callaway. They are now called Modern.

Is their full name the Modern Golf Company? I don't know. But their ticker is MODG, Mod G. They acquired Topgolf. And we were believers, to be honest. I was a believer that this was a good acquisition. I really thought it was. Interesting concept, yeah.

Unique, very differentiated. people a lot of brand notoriety people knew like when you think about you don't say let's go to a giant like modern golf facility you just say let's go to top golf i don't even know if there really are any like working operational competitors but there are there are there's there's like there's a lot but yeah they're not they're not good and you don't know about them so that's kind of the point right and so this quarter they revised their full year top golf revenue guide which keep in mind they are i think they just reported the third quarter so they revised their full year guidance from 1.9 billion dollars at the top golf brand to 1.745 billion so more

than a 10% reduction in full year revenue guidance. That is huge. I am roughly 10%. First of all, how do you not know this? And how do you not communicate this earlier? Second of all, they're expecting declines in same venue sales and they are now expecting, here's what frustrates me. And we can talk about what we were thinking prior to this. they expect consolidated adjusted EBITDA of 575 to 585 million. My question is- So just ignore that. Just ignore that.

How much of that really turns into cashflow? And Nick Seipel and I were talking about it a little bit before this. He says, adjusted EBITDA only matters for management because they get paid on it. And that to me is really frustrating. It feels like you have a gem of an asset. and maybe it's a little bit that gets I honestly am thinking

it's not a gem anymore I've changed my opinion but I'll let you finish and then I'll talk I think it can still be a cash generator for them and the difficulty is for one they're growing fast

so a lot of investment going into it but also it's like not recession proof it just really isn't It seems like this is a place where people stop spending if consumers are tightening their purse strings. So this was kind of our concern, like is the spending pullback in any sort of a tightened consumer environment?

It looks like it has. And there hasn't been a tightened consumer environment X the pandemic, which was unique for Topgolf. They were either not around or relatively tiny during the GFC. Yeah. I mean, I still think they're good assets. I still think they can be profitable on a per venue basis because they do, whatever. The problem is the numbers that management gives are bullshit numbers. So it's hard to know. Yeah. I mean, adjusted EBITDA, just ignore that. Stock can still work. A stock can still work. I don't know about this stock. A stock can still

work if they're valued on adjusted ebitda it's just maybe you still got to trust management here is okay andrew uh is commenting here i think basically sums up what happened to me when i actually went to one of these with a group for the first time and he says the problem with top golf is that it's fun for the first time or second but after the novelty wears off you realize the food is mid and overpriced and you could spend a hundred dollars better somewhere else yeah i mean i after going to one of these like i actually was there with you ryan and a couple other guys i was like okay this was fun but i would not like i would not be the guy that says hey let's go to top golf and it's not like i'm an insane like crazy but true golfer like but you do

golf like i i think you're beyond their kind of target customer so i would say like you golf regularly but those golfer but the target customer is not going to be a regular customer for top golf because they're not actually caring about golf it's just like a novelty for them and it's just a fun little group event and i just i think about it as like a bowling alley except yeah drastically more expensive and that's not look and i also have a lot of debt yeah i i've really changed my mind here um glad i kept it on the watch list yeah i agree we had this was one of those where we kind of had a bad gut feel about management and just the numbers in general and i'm glad we held off is there are they need experience with these venues they talk about

that where when one gets put in in a different city the first year you see this massive inflection and kind of or well you see tons of visits and then it kind of declines because people go for the first time and then you know you don't get the regular customers which like look it could still be a good visitor spot yeah yeah sure here's the thing though if they don't uh yeah here's a good point for manager again if you become an avid bowler you go back to the bowling alley if you become an average golfer you don't go to top golf exactly uh that's just something i thought like i was pretty bullish on this thing i thought but one okay but i was just trying to think of this like if their same venue sales don't turn around like they could be in trouble

yeah yeah all right other although every time i go i mean it is pretty packed that's annotated but whatever but there's okay like that's still like what happens if the consumer consumer spending generally is going up still like across the whole country on probably more necessary needs like yeah yeah yeah consumer spending is going up but i would be surprised if like discretionary spending like stuff like this was going up i don't know i guess i mean just looking using like companies like dollar general the discretionary spending dollar general target all that stuff all the it's been mixed to like necessary items consumables stuff like that so even though spending's going up it's like

push towards stuff people need well i would say the discretionary is more travel and entertainment which is which is i guess we don't have i don't have the data i don't have the data it should be fair i'm going off of a little bit of a field there all right anyway bad quarter for modern golf and i think i'm going to stay away from it for a little while do you want to talk about any particular well i got four here well one well i got four coupon airbnb beyond me affirm what do you want how's beyond meat doing not good let me go up to the earning support and just read off the numbers now i should say there's some adjustments in here but uh because they had to do some write downs but either way

and i tweeted something about this out and some uh private account on x slash twitter said like their borrow is insane for shorting so the stock's actually up today on this but it's just kind of one of those broken stocks where it's it's weird you know it's it's too expensive to short but the company's clearly insolvent so third quarter financial highlights net revenues of 75 million A decrease of 8.7% year over year. Gross profit was a loss of $7.3 million. Tyler, tell us in the chat, they affirmed their operating losses. Yeah, yeah.

Gross margin, negative 10%. Kind of tough to make money on that one. Net loss, $70 million on $75.3 million in revenue. don't worry adjusted EBITDA was a loss of 57.5 million good thing they included that there and they said they're seeing double digit growth in Europe so fantastic fantastic stuff and cash flow I hadn't looked at this in a while but I remember looking at beyond me and they were they they basically said we lowered our prices by like 15 percent and our volume still declined i was like okay yeah yeah it's over i mean i i i'm literally their target customer and i have

i don't like that's how i knew this thing is ridiculous but uh it also means like you listen to our interview on with upslope capital on short selling doesn't necessarily mean it's a short you got to have different circumstances than just the stock is ridiculously overvalued going bankrupt they have about 217 million dollars in cash through the first nine months of this year they've burned 80 million actually probably close to 100 million in true free cash flow i'm trying to kind of add it up here but they depleted inventory by 40 million so even though your working capital is coming down you're stripping the balance sheet of inventory you're still burning cash record want me to read uh want me to read up the market cap yeah 455 million dollars

up seven percent today let me find i'm always cute i should start reading these conference calls because i wonder how many analysts are like great quarter guys i love that yeah hey you beat your you beat estimates you beat your estimates that you told us to give it's like yep all right well no i think that equity should be worth zero however they also have uh over a billion dollars in debt on the balance sheet oh that's right and they actually raised cheap debt which i was blown away by i would love to know who yeah it's uh convertible notes and i would love to know is it uh that sustainability linked notes probably gotta love that i love the sustainability link notes software companies

always do that they're like we just launched not financially sustainable but environmentally sustainable yeah can it be called environmentally sustainable if the business isn't sustainable yep okay uh want to hit okay let's flip back yeah yeah you will flip back flip back you okay you do years now this is kind of interesting so whatever we were officially bankrupt long time coming we visited that we we talked about them on an episode i want to say i don't know three months ago and july yeah it was right after they did this kind of big financial restructuring which like kind of guaranteed that they were going to go it diluted the crap out of shareholders and basically solidified their chances of going bankrupt and so they have done so uh basically whatever don't need

to talk about the terms of the bankruptcy but there's a statement from co-founder adam newman he says as the co-founder of we work who spent a decade building the business with an amazing team of mission-driven people the company's anticipated bankruptcy filing is disappointing i love how it's like the company not not not like it had anything to do with you uh it has been challenging for me to watch from the sidelines since 2019 as we work has failed to take advantage of a product that is more relevant today than ever before i believe that with the right strategy and team reorganization will enable we work to emerge successfully first of all i love how he's pointing fingers because it's like he's like oh i left in 2019 just like casually drops

We had a valuation of $40 billion. Yeah, when I was there. How cool would it be if he bought WeWork out of bankruptcy? I mean, it seems possible, maybe. I don't know if SoftBank will sell to him, which I think they'll basically be the owners here. But people say he's worth $1.7 billion. I think he got a good, handsome payout from SoftBank, essentially, when he left. i mean he probably has to take on a lot of the debt so it's not like he's just buying the equity

which is worthless it's i mean it would be a big financial commitment but i would love to love to see his charts again love to see his powerpoints he's a compelling man that is one thing that's certain i okay if he actually announces i don't mind buying we work what would you think would you be surprised i think no no i think the odds probably two to one that he buys it actually i don't know how maybe soft bank's not looking to sell but i would be i was soft bank because it's going to burn a hole in your balance sheet for years the how do i say this it's just like season seven of a show that's run its course for too long and they're trying to do some gimmick to get people entertained again i'm kind of done with

we work i don't necessarily care anymore but i think this would be fun i would love him to buy it out and then try to transition given the commercial office to residential theme to transition all the buildings into kind of that we live the kind of residential stuff that were kind of loopy kind of wacky and you know just because there'd be some great great videos that come out of that would be probably very very funny and we company i think he could raise money yeah given this marketing environment just throw an ai spin on there he'll get a couple billion i'm sure the wii economy has has expanded since he left the wee tans there the uh anyway i just thought that was absolutely hilarious to see him you know chiming in but uh any other big reports you want to talk

about well the ones that i'm interested in one i should say i did buy uh after maybe we can talk where that is coupon um i thought that was really good maybe i can pull up the numbers just so i have them in front of me but stocks down on this report because they're well after reading through the comments call i think it's likely because they're developing offerings losses increased but i'll get to i think there's a clear explanation there and it's actually quite bullish uh but let's look at uh let me try to pull it up just trying to delay here okay here's the numbers this is in usd i should say their headquarters is in seattle so we should go to the annual meeting no one will go maybe we can talk to the ceo be kind of fun down uh okay net

revenues up 21 percent uh 18 fx neutral gross profit increased 27 to 1.6 billion a lot of the gross margin expansion was because of the change in revenue definition for their fulfillment by and logistics by coupon, which is basically their delivery stuff that they outsource to third party merchants. And they changed that from a gross to a net revenue basis. And that's actually been a headwind to revenue growth, but obviously the business hasn't changed. So their gross margins should start expanding. Gross profit margin, 25%. Net income, $91 million. dollars active customers growing and accelerating up 14% year over year to 20.4 million. Now I should say on the cashflow number I'm about to give out, they had a big working capital

advantage here that probably won't be as extreme in the future, but they do have a working capital advantage that should be sustainable as they continue to grow similar to Amazon. Free cash flow was $1.9 billion over the training 12 months. So they're generating a lot of cash now and have a lot of room to reinvest for growth but the one concern people had was their developing offerings uh their adjusted ebitda loss there went from 44 million dollars in 2022 to 161 million dollars just in the quarter however they said uh and i should say that their their main segment is just e-commerce in south korea developing offerings is international food delivery payments kind of some of that other stuff that they're working on, some of the newer stuff that's not very profitable

as a small percentage of the business. They said that Taiwan is going extremely well and growing faster than Coupang was on the same timeline from when they launched. So that's why the losses are increasing. And I think that's a fantastic sign because they have so much cash that they can reinvest into a similar market, very dense population, play the same model. I really like the core. Yeah. I would maybe be a little more hesitant if this was like their first time expanding into an international market because you don't know how much money they're going to have to deploy and plow into the market to get to kind of similar economics to what they have in South Korea. But they've tried, I want to say three or four different markets and basically

pulled out or said, it's not working for us. So for them to continue investing, and they say this in their capital allocation strategy that they're very cautious about investing in new markets. They'll only do it when they're starting to see positive traction. I like it. That to me is a huge positive. And the fact that they are, it was either they're having the Taiwanese merchants sell back into Korea or is the Korean merchant selling into Taiwan?

I can't remember, but it expands the TAM both ways. And at this point the network or the scale is there from the user side to make it really valuable whenever you enter a new market. The other thing I was going to mention here is I believe they also talked about Eats, their food delivery business growing quite quickly. And part of that is they were discounting it heavily with basically if you were like a RocketWow member, I think you got like 20% off off or something like that. Or maybe it was less, but that if that's growing quickly, I imagine that's also kind of contributing to the losses, but I'm guessing it's fairly sticky service. And even if you, even if those discounts kind of wither away, I'm guessing people will stick

around. Yeah. And the rocket wild membership, which for anyone that doesn't follow this company closely is basically the Amazon prime for them is only $4 a month. I don't know what they do for an annual, but just multiply four by 12, basically 50 bucks a year. And South Korea, it's not like this is some emerging market that is much, much poorer than the United States. I think they easily here will have pricing power to raise that up to 10 bucks a month eventually. And they're getting a big chunk of the South Korean population. And yeah, as a famous value investor used to say, as for me i like the stock i really this is probably the maybe it's it's it's always scary when something's your most exciting idea or like it's the one you have them you're like wow this

seems like such a great opportunity because probably missing something but i i liked it as for me i like the stock yeah that's fair i agree i thought the quarter looked pretty good all around i mean active customers are kind of beginning to grow again and it seems like the margins contracting is for good reason because they're seeing places to invest so i like that you want to talk about a farm's earnings because if i'm not mistaken you you said they looked pretty egregious on twitter i think it was it's one of those where and this is kind of this part of the earnings season which is always probably two three weeks after big tech where you get the the shareholder letters that are all so pretty and the biggest uh maybe offenders here would be block

airbnb stuff like that where it doesn't it doesn't mean it's a bad investment i like airbnb like their management but it always makes me laugh when i'm like man did i the ir team spend like 100 hours combined to making this thing i mean i wonder my gosh i honestly wonder what kind of an index of of these pretty ir pages would have how they would have performed because i would if you could put it's indicative of a non-frugal culture if companies have people dedicated to making pretty slides for investors. I genuinely believe it. Okay.

Meta. Berkshire. Apple. Alphabet. They're so basic. Yeah. It's so easy. All five big techs.

Amazon. Amazon's just a bunch of horrible bullet points. It's actually kind of difficult to read and organized poorly, but who cares? It doesn't affect the results. Yeah. Apple, nothing. Microsoft, really lame stuff. It's actually hard to follow.

and they always try to make you download word documents which sorry guys for google drive over here alphabet gives out no disclosures it's actually sad they're one of the most important companies in the world they're like actually we're not gonna give you youtube revenues you're gonna have to try to make some sort of estimate here oh and any sort of any what the revenue are for these giant segments yeah you're not gonna know anything um with apple apple it's like three paragraphs is their press release i'm like are you serious makes it really hard to talk about okay well affirm uh yeah some of this is just those cautionary statement disclosures they have 19 pages in the shareholder letter then we get to the income statement and balance sheet and

i should say there were uh provisions for credit losses which is a non-cash i believe i don't follow this company closely, but again, their provisions for credit losses. So it's like, could it could be a real thing. And they're also one of these companies that has 1, 2, 3, 4, 5, 6, 7, 8 operating expense lines. That's usually not a good sign. Okay. Total revenue in the quarter 497 million uh operating loss 209 million like it's just the model the buy not pay later doesn't work i also looked which i thought was quite illustrative of how difficult these companies have it because when you're attacking the strongest modes possibly ever with visa and mastercard they added over the last 12 months 20 000 merchants they now have 260 000 give or take

visa probably adds that many in a day they have over 100 million merchants in their network and they probably add an affirm every day just to be clear that they had in the last year and they add an affirm because the affirms come to them affirm it's outbound And they're trying to get merchants on to offer this BNPL solution, whereas Visa, it's literally just merchants plugging in. So it's not only meager growth, but costly too. But like Chamath said, this is going to replace the Visas and MasterCards of the world, which just makes sense since they run on those rails. we gotta we gotta start accepting people with these narratives again because we you want to buy visa at a discounted price right so we should say yes totally

by now peddlers gonna eat the world crypto's coming all that good stuff good comment here from tyler a bank with a pretty ir deck is a days away from a run probably he's exaggerating but that's just an example but if lvmh or william sonoma has a pretty deck i feel that's needed wouldn't be worried if a fashion retailer has or would be worried if they had some ugly presentation materials i think that's probably the exception to the rule yeah you know i wouldn't be concerned um we always joke about the revolve group one which i think is quite funny maybe photos yeah basically what you have naked photos like all right guys this is not worry honey i'm doing i'm doing research doing my due diligence yeah exactly exactly but i think that's a good

point that's probably part of the branch um always good although i still want to like listen if lv it doesn't make me invest it doesn't make me if they gave me like an investor i don't know if they just gave me like 12 pages with the financials like i know you're a luxury company i don't your your financial statements don't have to be luxurious like yeah i don't know apple's a luxury company i think and well we're going to talk with leandro potentially uh invest quotes potentially potentially haven't nailed it down as an interview for the luxury month and i would say you're right they have the premium brand but it's not the definition of a luxury company but that's picking it from the industry people i mean there's just six pages of financial statements you know

they don't they don't juice it up i think some of the best companies realize that it's a waste of time doesn't yeah it doesn't change the brand all right i want to talk now uh let's just say i've never owned this stuff but i do like the management i do like the company i do like the brand uh airbnb i did some tweets about it which got some really fun feedback i appreciate a lot of people are very snarky on the old twitter machine but i uh i try to take it with a thick skin because you know i don't know you know how they are especially when you throw something out there that might be a hot take so i basically said booking holdings uh q3 gross bookings approximately 40 billion airbnb 18.3 billion

uh so about half give or take and i asked does airbnb ever close the gap um and there's a lot people that gave out some great data on how booking is actually like expanding this gap they're growing quicker especially as they launch the basically airbnb competitor across their brand they also have the hotels and stuff airbnb's quarter was interesting uh they have great margins stuff like that they don't have to like it's not like a distress situation but i'm curious your thoughts if you've read either of these and what do you think about the airbnb versus booking competition because the narrative among a lot of people is that airbnb is kind of the new age growing taking share but that's not

true anymore booking is really fighting back and fighting back well right now yeah remind me on the booking model basically they take like all the available rooms from hotels and list them and take a commission right it's it's it's basically a suit i haven't looked at the company closely but i assume it's a similar business model to airbnb but with broader amount of accommodation and now they're getting into a lot of alternative accommodations which essentially means the airbnb style so they think counter position themselves really well and investing very aggressively I like bookings. I like the management team. They're very rational and candid about expenses and very shareholder friendly. They had a whole thing about how ridiculous some of the

companies are with stock-based compensation. I remember that the CEO basically tore into all their competitors was like they are egregious with it so i i like that have you seen the uh have you seen the speaking of a competitor have you seen the expedia headquarters in seattle maybe look up the new one look up a picture of the new one and look where is the location it's on the waterfront on oh god north north of downtown i'd look up look up a photo it uh i like bookings i don't really have an opinion either way in terms of who's going to do well i think they can both there's probably room for them both to grow accommodations on the platform yeah i think my guess we're i'm kind of doing this right now because i'm looking at

booking a hotel for like a trip there will always be room in the marketplace for hotel stays there'll always be that's not the question yeah yeah and if well i'm saying if bookings accommodations primarily come from hotels right i think it's all hotels right now no i don't know if you haven't been here but they have seven million alternative accommodations right now so i thought you said they were just starting to roll them out no they have it's oh Oh, is that the VRBO? They own them? No, I think Expedia owns them.

Isn't that just as many active listings as Airbnb has? Exactly, yeah. What? Is it just bigger? Expedia owns Vrbo. So what, the bookings platform? I mean, I've never heard of it, so I'm guessing it's huge in Europe or what?

Maybe. Honestly, I haven't looked at the company closely. i think i was gonna if i thought airbnb was looking at an attractive place i'd i'd like as the stock definitely take a look at booking more closely i should say i don't know it that well so could have gotten something wrong there well i uh i don't know maybe we should do like a month of like travel or like uh you're you're reading my mind i did a tweet on that and i basically said Airbnb booking Expedia and then I asked for

one more and there's quite a few small ones out there so it could be fun to do a niche one we did do if anyone's interested eDreams is a European one the name's weird trust me it's still a travel OTA from why am I

blanking on his name Chad Garcia Chad Garcia yeah thank you thank you very much Ryan he's been on twice listen to that one i thought it was a really good pitch yeah it's interesting the narrative on that do you okay here do you think airbnb needs to be concerned at all and do you think it would be smart for them to move into like bookings turf and try to get other sorts of accommodations on airbnb

potentially i think there's a lot of pushback for i mean they've they've been trying to do it apartments but there's been a lot of pushback from kind of the apartment whatever community well okay that's that's different that's using your apartment as an airbnb i'm they've mentioned offhand getting boutique hotels and then like literally like apartments like you know like an apartments.com style just mentioned just uploading other people's kind of inventory i guess no no not other people like other platforms is what i mean yeah i mean not stealing their inventory but doing a similar model to how booking works stuff like that other sorts of accommodations onto the platform i would worry that would dilute the brand a little

bit because i do like how when i go to airbnb i know exactly what i'm like what's going to be there what type of stuff they're good at like configuring the app in a way that's understandable so i would say the more listings you can get even if they're someone else's listening say they sign a deal with marriott or whatever the better because you can just have a sub tab that's like hotels right but i don't know how much volume they'd get through like airbnb hotels you know what i mean yeah well i don't think they'd get much at all with marriott but with smaller ones they could probably do do well what about uh as i know we're gonna we're at about an hour so we should wrap up here oh what was i gonna say do you like how the company

does all these product release things and then it's just like the smallest update you could possibly imagine or they're like we tweaked the review system slightly big release guys it's it's annoying now i think it always starts with the what's his name behind some like behind some table at their corporate headquarters he's like we've been making significant changes and today is the biggest product rollout ever we now have a star rating system it's like yeah i know he's like you can now filter for wi-fi speeds whoa um i actually don't think you can do that. Okay. Well, it's been an hour. I think we should explore the travel OTAs more. I think this is a very interesting time for them. But for anyone that doesn't know, we are continuing our

Sinstock theme this month. We are currently in the weeds researching MTM Resorts. Super interesting company, just reported earnings. We're going to be doing Smith & Wesson. We're going to be doing Altria Group. We're going to be doing Diageo. I can never say that right. And then in December, we're going to be doing luxury. So we'll finally, as two people that aren't maybe that stylish, we'll finally figure out what a luxury company is because it seems a bit weird and I never understand the definition, but that'll be fun. And you can always listen to these freewheeling conversations every Thursday. We go live 9.30 a.m. Pacific time on YouTube, or as most of you are listening to the podcast, you can do that right as well. It'll come out Sunday mornings.

Okay, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I may have our own securities discussed in this podcast. Thank you, everyone. Again, thank you for the comments. And we'll see you next time.