Chit Chat Stocks - IPH #86: OpenAI Debacle; $NVDA Blowout Earnings; Walls Closing In On Crypto?

Episode Date: November 26, 2023

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Welcome to Chitchat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chitchat Money is a CCM Media Group podcast. Anything discussed on Chitchat 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 on chit chat money my name is brett shaffer i'm joined as always by ryan henderson no guests today if you like our friend john rotante i will listen to his not really an interview he was just the third member of the show last week he had a great discussion and i believe uh probably 90 you know we have locked into the schedule but you never

know what actually happens uh we're gonna have the smattering guys on next week but we're gonna get today's show just me and ryan lots to talk about i think we'll try to cover maybe open ai from our perspective but that's been covered ad nauseum across every sort of news outlet around the country so don't think we can add anything special from a reporting standpoint but ryan looks like you added a bunch of topics i did not have any uh so thank you for doing that but how are you doing today you just started a new job and i guess i should say that is why we were starting at a later time so how's that been uh maybe talk about that if you want yeah it's uh i guess a little bit of life update for me for the listeners that care uh started a

job working with FinChat, previously named Stratosphere. They've been a previous sponsor of Chitchat Money in the past, but it's been good. The first week's always a little tough because everyone's like a little more in the routine than you are. So you feel like you're kind of like just asking the kind of boring questions and getting up to speed on everything, but um i'm getting there and i gotta say i i was not making enough use of the platform because there's a lot of stuff on there that i didn't realize that that's actually already pitching i know already talking to your book huh all right but i've been like i've been like going through the platform this week because i have to you know basically for the role and i'm like i've been a

user for a year and i was like i missed all these stupid things but helpful things anyways um yeah new job so doing that throughout most of the day which makes it a little tough to do these shows at 9 30 pacific coast time so i think kind of the two mid early afternoon west coast right after work east coast might be kind of where we end up or where we land with these shows but yeah lots to talk about this week um yeah so really the from yeah from the podcast perspective i I know only a few people actually listen live, but unfortunately, if you enjoyed the 9.30 a.m. one, we're not going to be probably doing that for the time being. We got to make money ourselves here. The podcast is not gushing cash flow, although hopefully over time, we build it into a little bit of a business here.

But yeah, we're thinking we're going to change to 2.30 Pacific, 5.30 Eastern. So, hey, maybe you can join us live there and ask us questions. that will be on Thursdays typically, although today it is Wednesday. I actually don't know if I said Thursday, but we're doing Wednesday this week because of Thanksgiving. And as always, it'll come out Sunday

on your podcast player of choice. Yeah, why don't we, let's just get the OpenAI stuff out of the way first. We obviously don't need to go through the timeline, but from your perspective, what were your thoughts as someone who's, we're both kind of just generalist investors that are deep in the weeds here.

i gotta say i was surprised how many people cared like i saw this national news i just thought like what i don't what's the big why does everyone care so much like okay he's a little bit of corporate drama but it's not like i don't know like the world isn't running on this yet it's not and it's not isn't the whole point that you don't that it doesn't need to be one person like it's it's an ai it runs on itself you know well the whole goal is to replace the ceo with ai over time i gotta say ryan was i was right i gotta brag this summer i said i don't trust sam alton it sounds like okay so i read something that one of the board members wrote kind of like a public letter or something scathing open it it was like basically bad mouthing open ai and saying

that uh who's the other one that's like the one that amazon just bought like 40 percent of or something like that anthropic yeah yeah they they're open ai defectors yeah yeah basically one of the open ai board members was going out and saying that yeah anthropic's doing a better job with safety or whatever and she might have that opinion or it might have been a he but you might have that opinion but if you're the board member it's kind of a bad look to say that apparently sam altman like expressed that and so it sounds like he was butting heads with the board to the board was like let's fire him which feels like they overstepped uh since they're all gonna be basically kind of uh shit canned

it appears i guess or they have been yeah at the time of this talking yeah tbd what i guess anything can happen you know what i thought was funny did you see that that this was the most hilarious part it was okay for anyone that doesn't keep up with it and relies on us for their financial news first of all you should probably find another financial news outlet too because we always do a bad job we misremember things but we're not reporting yeah we are just talking whatever we see out there this is you know we can't go to cnbc and other places for actual reporting there was a letter so after sam altman was fired by the board there was a letter from like was it 90 of the employees maybe it was 95 of the employees that basically said we all quit

unless the board resigns and one of the board members that voted to fire sam signed so he's like unless i quit i know unless i'm fired i quit i was like what is happening and i guess sam's back satya nadela uh showed his power showed his relevance and expressed that uh sam will be in the seat one way or another and now they've got a new board and uh open ai is i used chat gpt this morning for like one of the first times ever and it it seems like it's running pretty normal so nothing's changed except yeah i think i guess yeah i think it's a bad look on all parties involved really not very didn't seem very professional microsoft seemed to be caught flat-footed here you're giving all this money to this company and you have no sort of any of

what 49 stake but actually no control and maybe they're about to fix that but it's still a bad look apparently i didn't know until like 10 minutes before that's insane yeah so i think it's a bad look on their part i think it's a bad look for altman and obviously the board members who totally dodged this it i don't know if anyone wins maybe google wins if they kind of fall if if OpenAI reduces its lead, but I don't really. That's a big TBD. Mark Benioff doesn't win, that's for sure. Well, maybe they win because now they aren't going to waste money.

Should we provide context for that one too? Yeah, they said they're going to provide sales force. Mark Benioff is the CEO and founder, so they're going to match anyone's salary, which if you don't know, some of these salaries are like $5 million, $10 million a year. so yeah like that's that's some big expenses for a company that does crm management and i thought what was also hilarious is i found out that salesforce put an ad up on the vegas sphere

which is five hundred thousand dollars for a day uh don't totally relevant for enterprise software for sure needs they need the activists back i don't know what's happening but benioff cannot help himself from trying to be the center of everything yeah well as much social influence as possible as it's whatever uh anyway let's move on similar to autodesk of the business is too good where like the stock's not made on the gutter and it's not like they can run the business and the grandmother can do a lot of useful things but i i still and i stand by this i've said it plenty of times throughout this year that i get a bad feeling from sam altman and i don't think this changes it i don't look if you look at all the things that he's reportedly trying to do

he's it's like elon musk on steroids he's building the most important startup in the world probably definitively or maybe you know at least up there he's apparently building world coin which if you found world coin that's to me and look up what world coin is for anyone we don't even get the weeds that i i think that's a huge red flag um they're trying to build an nvidia competitor and apparently he is trying to build a apple competitor for the iphone with the old head designer from apple so i think setting his goal like the man is obviously ambitious but he's i think i would just be worried if i was microsoft yeah it's not gonna be that relevant So the bottom line, and it's probably going to help with Azure, but it seems like they're

running so far, so fast or so fast. And I just don't, I just get a bad feeling from this guy and it hasn't changed. I mean, this weekend kind of confirmed it. Chitchat money is brought to you by Interactive Brokers, but we'd 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 yeah i don't know i thought maybe i liked him more after this weekend i guess but the part that kind of weirded me out was he went to uh whatever he was in front of a court for some reason and he was like i own no equity in open ai and then this congressional hearing yeah okay and then this weekend he's like if i say anything bad about open ai the board should go after me for the full value of my shares yeah was that a joke that he

has no shares or was he just lying in front of congress i'm very confused so yeah i don't like this effective altruism stuff about like oh i have no stake here oh i have no like oh i'm just doing it for the good of the world i'd rather have you be aligned with the model works pretty well to have skin in the game have shareholders here i also don't like i saw reporting i like effective capitalism but that works just fine yeah and you need to have regulations that's conversation for another podcast that's not our uh it's not fun to talk about but here's another thing you can't go a day well maybe this weekend obviously he stayed he laid low he can't go a day without seeing this guy at some conference at some forum at some call that's it we've we've

learned this time and again i mean we learned this from what spotify when daniel leck went a little bit um not crazy but right was like oh we're gonna be so big we're gonna spend so much money so great he was on like some sort of news outlet some sort of forum every day alton was doing that i saw the reporting was he was at the formula one race this weekend in vegas that's when he got the call uh for the google meet he's at some conference the day before he's at conferences like every single day and i i think that generally not just for him is a red flag for for managers if they can't stay out of the spotlight yeah i bet but it feels pretty important when he goes to those conferences though like sam was here with us future oh okay okay look he's wearing a guest

pass he's not the ceo anymore whoa yeah it's like okay yeah what are your thoughts on the future of humanity well let me talk about our goals for artificial general intelligence and some of the things that have been leaking out about their plans and what the company members believe with artificial intelligence it's quite eccentric i'll say so it look i guess it's fun to watch from the sidelines but that's my take still don't trust these guys yeah but this is this is good product hey this is satya making google dance right i guess i guess yeah the uh anyway all right let's talk about the other relevant news another man who's no longer ceo in this case it's stuck changpeng zhao i believe is how it's said cz cz uh cz former ceo and founder of binance

was pled guilty to a couple of charges, I believe, and Binance themselves are going to have to pay $4.3 billion in fines. And I think CZ himself has to pay $50 million. Maybe. I think it's at the maximum where he could potentially serve up to 18 months in prison. It's something I read out of the Wall Street Journal article. The one thing I was thinking when I read this is this is probably the best day sam bankman freed has had in a year i guess like i was and it's kind of funny because i i'm still reading through that book number go up and he was like like sam was dunk spf was dunking on cz when they were being investigated and then lo and behold obviously that didn't turn out so well for him either but the other part that i thought about this is and reading

that book has made me realize that everyone in the crypto space, it seems like, lends to each other. They all lend a ton of money to each other. In some cases, as we've seen, that's money that does not belong to them. If this creates forced sell-offs, we saw this with, was it Celsius that went down and then the Luna, Terra Luna thing, that's what first set off the FTX collapse. They all have loans to each other and it creates forced liquidations of a lot of these coins, which I think that's when you kind of see the tide come out and a lot of these exchanges end up having had some malpractice somewhere in there. The other thing I find interesting is we had, there was like that interview with becky quick on cnbc last year and cz and she's like what

would happen if you had a 2.1 billion dollar redemption today could you handle that and he like like didn't really directly say yes which was kind of concerning a lot of you know the the funniest part was like language during the interview like he's like uh i don't know he's like kind of sweating and then you just like see the binance coin like dropping they like show the live chart as he's talking. But this is a $4.3 billion charge. This is a big issue for Binance and would probably require them to sell a significant number of their crypto holdings, try to recall loans that they might have out, which I don't know. It felt like for them being the biggest exchange in the world, I would have expected more of an impact on

crypto prices yeah i think that's the one surprising thing but yeah i agree these things have always been houses house of cards they will continue to be houses of cards you are just seeing basically evidence of time and time again they're all doing bad things they're all using customer funds they're all operating in shady countries with no regulations except maybe coinbase maybe they just don't i guess they're trying to follow the rules uh yeah but great good cool probably why the market shares collapsed it seems like so yeah well great yeah you can follow the rules with magic beans it still doesn't it's still the you know that doesn't make your business sound uh the earning a take rate on magic beans yeah i mean binance i don't i wouldn't be surprised

they're installed i don't know these things are so opaque i wonder though oh tether is the big question and again stuff's also complicated we don't really know what's going on behind the scenes i've tried to read up on this but there are so many shady things going on it's it's tough have you read number go up or download the book no i read the other one easy money i'm gonna read never go up eventually if for more i don't know for for a lot of tether info and it's pretty uh pretty informative huge space it's like this reporter that was going after giancarlo davosini or whatever the founder of tether and try to talk to him for like months he's very evasive kind of get an interview talk to a bunch of people at tether no one really knows

what they're backed by it's kind of interesting but the other thing i was yeah i mean they could just be printing they could just be printing tethers with no backing yeah it's it's it's very cheap and the other thing i wanted to mention though is that this is not the sec uh this is not the litigation that they have with the sec where they're like uh i think they're currently in litigation with them that's a totally different charge this was around basically operating in countries or like facilitating money money laundering or abetting it so or to yeah i mean when you help north korea finance its nuclear program the government of the united states is going to come after you pretty hard but you're on the top of that list

so yeah the all right but this was in seattle we missed the uh we should yeah that's the only that's the only one i wanted to say when i saw i was gonna be in the seattle courthouse i looked up where it was traffic would have been brutal to get down there but i wanted to go down there and see him and start heckling him just yelling like you gotta tweet your way through this wall it's easy it was yeah i don't know just hold up that four thing where he's like you know where you i don't know when you're talking trash to spf and stuff you're the same guy you guys are both the same yeah okay i wanted to talk about this which is kind of interesting so i guess shout out to stratosphere here and this is why it kind of

came up uh drink whenever ryan mentions uh his new job that's that should be the dream game for listeners but obviously it's a great platform that's great yeah the so basically i was trying out like the screeners tool and i never really do screeners that much but i thought it was kind of fascinating because i wanted to do a screener based around uh basically who's been able to buy back the most stock over the last decade and only 19 companies above like 50 million dollar market cap in north america only 19 companies have repurchased more than half of their stock in the last 10 years cumulatively uh but i kind of going through them and there are a number of them ended up doing really well so like murphy usa the gas station operator they i think they're up

like ninefold or around that so really good performance but there's a lot of them that were actually negative returns over the last 10 years, despite buying back in some cases as much as 70% of their stock. So it's kind of interesting. I looked at basically, I titled the segment, how many buybacks are too many buybacks? So the cohort of companies that bought back more than 50%, which I think comes out to around 6.7% share reduction every year, the median return for the stocks in that cohort was 84%. The average was a lot higher because Murphy's USA performed really well, but the median was only 84%, significantly underperforming the market.

But if you look at the stocks that reduced their share count by only 6% to 7%, so not more than 7%, but 6% to 7%, so slightly lower, the median return was 136% over the decade. So 50% outperformance by the companies that bought back slightly less. So I don't know if I really have a takeaway from this, but I guess my thought here is that you would have had a higher chance of underperforming by going after the stocks that ultimately reduce share count the most. A lot of these companies ended up buying back when really the better use of capital would have been to invest in their business. So like maybe it wouldn't have been the better use of capital, but it sounds, it seems like looking at some of these businesses, there was fundamental problems with the business. That's why they got a dirt cheap valuation. That's why they were able to buy back so much stock.

And the harder thing to do would have been to invest that capital into the business and improve it in some way. But the easier thing to do is just to buy back stock. And it seems like a lot of the companies that bought back the most stock, that was the situation. They chose to do it instead of investing into the business and trying to pivot or something like that. And maybe it was just like, they felt like that was kind of the last thing they could do.

But I guess my takeaway is maybe you want to find, I mean, if you can find something that can buy back more than 7% and it's a good business, that's one thing, like if it's a Murphy's USA. But maybe you want the ones that are like on solid footing and the business out – determine that the business is going to be fine first and then look for companies that can return that excess cash to you as a shareholder. I don't know. Any thoughts on that? Yeah, it makes sense. Yeah, I think I agree.

the you gotta have the combination of good capital allocation or consistent capital returns but you gotta have a durable business i think it also makes sense that a lot of these did poorly because if your stock's trading at a really dirt cheap earnings multiple then it's likely that you might be in a distressed situation or you might the market might be heavily discounting your future and then you can buy back a lot of stock and if that's a mistake it'll probably show up in that core whole cohort but yeah it's the combination of i think first look for do i like this business and then second what's management what have they done with buybacks and then what are they saying they're gonna do and you can find some good opportunities there like uh matt money says in

the chat uh which i just joined their channel the other week says autos which is perfect example yeah that's a good one i think that i guess maybe if i had to have a takeaway here it's that don't buy back or don't buy something purely for the buyback you have to have belief that the business is going to be able to grow the top line i think at at least like four or five percent over annualized over a decade because a lot of these companies was looking at it it's like i was basically just pulled up shares outstanding and earnings per share and earnings per share are down substantially for a number of the companies that bought back a lot the earnings per share are down substantially over 10 years even though they cut their share count by like

two-thirds so it just tells you that they should have been like they're earning a fraction of what they were earning 10 years ago and maybe that money would have been better spent trying to pivot or maybe it wouldn't have maybe they they had no no other choice maybe they could have just bought treasuries and just given the interest back yeah and that's another point of uh look at like historically okay are they buying back stuff with the earnings or the cash flow they're generating or is it not sustainable in that regard and it's pretty easy to chart uh that type of stuff. We got a question from Sandeep from a little while ago. Sorry, I couldn't hit it right away. What's going on with the IAC valuation? Should we just stop investing in conglomerates?

I don't know if that means in general, but they made the bad acquisition with DotDash Meredith. Hasn't really been going that well. Last quarter, it was recovering, I guess a little bit, but still way underperforming their initial expectations. And the market does not like that. i still i still own it i should say in the personal account um i think it's pretty darn cheap here and i trust them but the last investment they made was a mistake i don't know if that means they're bad investors because the previous three large ones they made which would be turocare.com and mgm resorts have all done extremely well so three out of four but last one probably the biggest one it was like two billion dollars was yeah yeah not a good one was

the biggest it's kind of like disney right made a bunch of really good acquisitions and then paid a ton of money for uh time warner or a fox uh basically the fox assets and that didn't turn out so well either the this is kind of a good example that we can now do because we don't have the fund anymore and we'll be getting our own personal savings back here in a bit and let me think is this one that you will continue to own if i know you're a shareholder now but if you don't see any improvement in dot dash meredith are you just going to continue to own this um well that depends on how the other assets are doing yeah because mgm i think is pretty attractive if anyone wants to listen we covered them two weeks ago one week ago on a not so deep dive and we both came

out fairly optimistic for that business i think the turo ipo could be promising um but i mean yeah if it deteriorates a lot i don't know it's a tough one it's a tough one i still own it i'm still on it i don't know if i'll be buying this one back the i don't know if the turo stake justifies i don't know if it writes the wrongs of dot dash meredith right now the let's see if they updated the filing but i'll search while you're talking also if turo ipo is like they're probably gonna sell it wouldn't you think probably depends on the price but i'm guessing they'd sell their stick updated s1 last week let's check those financials

yeah they i don't know but they hold they got mgm they got angie so i don't know if they they're not opposed to holding public company so i don't know if that's a for sure thing but it's possible they might also i found it funny that tarot's been refiling their s1 for like literally three Almost two years. Oh, two years. Almost two years now. Okay. Nine months, 2023, $666 million revenue, up from $600 million last year, $21 million operating income.

We're at about, let's say, 50% gross margins, spending almost $100 million on marketing, $100 million on GNA. It's a decent business, and they're reinvesting a lot for growth. 2022 is an outsized year so i think it's kind of normalized here but pretty close to probably going to be doing a billion dollars in revenue here next year if i keep on this growth rate 50 margins you can probably get down to 20 25 now probably a little maybe 20 is probably the high end uh so two maybe 200 million normalized earnings 30 you know that could probably be four or five billion dollars in this in this market i don't know if it's worth that but it could trade that i i've been thinking about like uber's position in this and i

maybe i'm wrong and it doesn't seem like apps usually do a very good job of it feels like especially in america a lot of people just kind of want to fragment their apps like you want food delivery even if you have uber all the time you use doordash that kind of thing where they're airbnb versus expedia right so i think it's hard to transition if you're an app But I would think Uber has a pretty good position to get into the car sharing space, which would kind of concern me. If Turo is a big part of the thesis as an IAC shareholder, I think that would be a genuine concern for me. Yeah. And I think you definitely, if you're going to look at Turo, want to look at Uber and follow them closely.

I just wonder if car rentals, what priority that is for them. because if it's lower on the priority list compared to eats or whatever they seem to be investing a ton in the grocery and kind of general items retail delivery space for quick delivery i wonder if that's lower on the priority list and maybe that would make me a lot optimistic on turo but yeah i mean they got a lot of users yeah okay i saw this this week and then we can take any more questions or anything that we might have. I saw that the CEO of, and I don't know this business, but the ticker is CLMT and it's Calumet Specialty Products Partners. I think it's like $1.4 billion market cap. The CEO bought out of the money call options that expire in 14

months. He's betting that the stock will be 45% higher by the time. So in 14 months, 45%. What do you think when you see that? I think it was like $300,000 worth. It could be a decent amount for, is that nominal? It depends. I don't know. Marking it. I generally don't want to play that game.

So if a CEO wants to play that game, that's fine. But I'm not playing that sort of game with my investment. So I wouldn't like it. I'd rather have someone like is the RH guy a little bit aggressive with his buybacks, convertible notes, buying back 17% of the shares outstanding in one quarter? Yes. But he's got a long term ownership stake in the business. They have a long term vision. Maybe I don't agree with that vision. Maybe I think it's risky. but that is something that makes me more attracted from a manager capital allocation perspective than, than this. That's kind of what comes to mind. What do you think? Yeah. I don't know if the CEO is just like a very risk tolerant guy. I don't know if he was hoping that people would see this and be like, wow,

what a bullish signal. But my thought here is like, first of all it makes me think that he's i don't know kind of focused on his own personal returns outside of just being a shareholder in the company you know like not to mention it's kind of clearly quite risky so you've got to have a risk tolerance that probably aligns with a management team that's willing to do that it might force him to make some risky decisions with the business i don't know what kind of percentage these of his portfolio or his net worth these call options are i assume it's probably pretty small on the flip side it does seem like unless he just likes to throw away money it seems like he's probably got a sense that

the business is really or the stock's really undervalued and the business is performing well and the world doesn't see it yeah i don't know maybe they'll see it in the coming year yeah yeah i would want to know how much of his net worth this is and i yeah i i don't i don't know this can't this one i'd have a tough time with this one i think generally part of me thinks it's a red flag for the for the management what if the IAC see what's his name uh blanking on his name the I don't know if his title is CEO or not but what if he were doing this with IAC what would you think that would it would make me nervous it would be another

red flag maybe it's not red flag because maybe because I don't know what the actual definition we have for red flags are or what the listeners have in their minds but i think if you add up like three red flags it's a sell signal possibly joey levin that's his name joey yeah yeah the i wouldn't like it now because it's not thinking long maybe it's thinking long term but i'm just ready to be by the stock yeah i agree all right uh we had some earnings this week nvidia which i'm sure everyone comes here for our nvidia takes yeah don't we have to we just have to mention it for a minute we should we just talk about it for three seconds so we can put in the title yeah blow out nvidia nvidia data center revenue was up 400 i don't know that's not

let me check they uh are going through the super cycle the growth has been insane and they have not the peak yet although i will say one thing i saw was that 20 to 25 of their revenue is coming from china at the moment and that's going away because of the regulations so i would be concerned about that they said it's going to be made up but look they are relying on and i guess we don't necessarily we may not call it above you can call it a bubble or a boom the ai bubble at ai boom they're relying on that and there's a lot of people that are coming after them advanced micro devices is doing fine you got the internal stuff from the cloud providers look the fact that the stock went down a little bit on this should show that expectation investing

matters everything's priced in yeah i hope that was coherent but i i that's my thought on nvidia i don't have anything else i have nothing about the business they're doing fantastic but not my wheelhouse yeah the uh and just to correct myself the data center revenue was up 280 year over year week wow terrible it's a pretty insane chart just like the quarterly revenue almost makes you think it might be unsustainable ryan almost makes you think almost makes you think that is their quarterly revenue

next quarter for this next year for this quarter higher or lower than this one the expectation right now I think I saw in the Wall Street Journal is for like a double in revenue yeah I think so that could have been

but either way their margins are so high right now it'd be similar i don't know i mean how much of this is just hinging on like companies building internal chatbots or yeah or venture capital pouring billions of dollars into the space which goes to this yeah i don't i worry about yeah i do worry about the sustainability here i think ai long term probably very helpful to a lot of businesses but i wouldn't be surprised if a lot of companies pulled back on some of the investment kind of in the next year or so well here's what kind of leads me again we're not experts on ai so maybe the stuff the cost

of the stuff will come down or maybe the returns will be so high but if nvidia chips cost so much money the roi across the board for the companies buying these chips is going to be so low a lot of them will eventually go out of business so it doesn't seem like sustainable to me no i think that's fair okay well that's our nvidia take we can throw it in the title hopefully people listen uh hope you're there to come here for our semiconductor takes yeah yeah speaking Speaking of a company that we may know a little more about, though, Autodesk Earnings, strong growth, bad capital allocation yet again. Companies on the watch list for me, I think I would buy at the right price. Andrew Anagnost, got to go.

It's time for Elliott Management and Paul Singer to step in, take control of the business, send one of those really weirdly worded tweets out from jesse cohen's account where he says i look forward to working with autodesk and then uh suddenly andrew agnost is no longer a ceo in two years yeah maybe put a product yeah make a product that is fine but i saw i saw the chart this morning the stock-based compensation is ridiculous and it needs to it needs to stop it's it's an illness i think it's like a it's a plague in silicon valley or something i don't know what's going on i don't know how they've gotten away with it for so long i don't know why investors just keep letting it go but because the business is so good stock miscompensation for them has

compounded at 19 a year for the last decade and i believe that is twice the rate of revenue let me double check that yeah so the percentage of revenue yeah I mean as a percentage of revenue well

pretty deep I think it's over 10% yeah it's a big expense they're a bit of waste before it but that

the architecture and construction business man that's good isn't it I mean man is that a good business and speaking of an AI beneficiary

this is a clear one who has been investing in it for years, that's going to lead to even more productivity gains for the software, more pricing power in the long run. Yeah. Yeah, I've got it here. It is a great business. It is a great product and set of products.

But a concern here, and I think this is fair, revenues have grown at 8.4% over the last 10 years on average annually. Stock-based compensation, 19.5% annually. But, okay, this is kind of interesting. Total operating expenses is only up 8.5%. So maybe stock-based compensation as a percentage of operating expenses is just climbing. Maybe they're just reducing the cash compensation to employees. yeah which is fine but look the scale like operating expenses should scale for this

business but maybe there's more cost of revenue in there maybe they're hiding cost of revenue in there i know a lot of companies do that market cap i know we both like this business obviously the price matters market cap forwarding to uh you know it's down seven percent today so i'm not sure the updates for these things let me just do a double check here across the board yeah okay 43.3 billion dollars their guy they do about two billion dollars in cash flow normalized right now yeah as you might know spc affects that what would you be what price would you be attracted to buying this in the personal account is andrew the ceo yeah nothing's changed well i own it and it's just purely out of laziness i feel like i'm gonna sell it but

i'm not gonna use cash flow i'm gonna use ebit and i would say at mid-teens ebit multiple okay what would you say yeah it's hard to I kind of go for like a market cap number just because I know that their potential earnings power is so high. And at the right price, that buyback is going to make a lot of sense. Maybe a market cap of like $30 billion. That buyback is the most measly buyback right now.

I know. At the right price. At the right price. That would be helpful, yeah. But it doesn't go anywhere. And it helped me with a nice viral tweet, though. they've spent a decade buying back stock and it's in the same spot i do laugh every conference call we continue to return cash to shareholders buying back stock and then look at the chart

share count hasn't gone anywhere i guess if they didn't do it the share count would be going up a lot but yeah i mean great business continues to be on the watch list at the right price i mean but management continues to disappoint i mean that sums it up but look ac revenue growing 17 it's even accelerating they have the pricing power they can raise prices on revit five percent each year no one can do anything no one's gonna do anything because the value they provide is much higher than the price that you pay especially on the enterprise bundle and they have all these new products that are succeeding vitally but again there's multiple things that matter to a stock it doesn't matter that revenue is going up and that they have good products capital allocation

matters so yeah yeah it's a it's a bummer everyone i think i'm going to sell it and probably replace it with something don't know what it's going to be maybe some match group we'll see yeah yeah their capital allocation will not you know they've said some things over the years that uh that aren't the best it's a low bar to be better than autodesk and they're actually probably in that zone of like similar to autodesk at a 25 to 30 billion dollar market cap right that's like match group down at 10 or so yeah the thing that's kind of funny with match group is what was it two quarters ago i think the stock was trading in like the low 50s and And the CFO, Gary Swidler, came on the call and gave the most incoherent explanation for

why they didn't buy back any stock. And I thought, this guy is a fool. And maybe it was just the fact that he knew the business was going to put out bad results for the next two quarters, because the stock's down 40% now, and they are buying back stock. So it would have been, at least in the short term, kind of money wasted, especially if you know the stock's going to buy back. So if you see them buying a stock back, just know the quarters that are coming are going to be rough. I guess technically, if you just look at what they did, they were smart. They waited until the business kind of troughed.

And now they're going to buy back as they think the business is doing better. but yeah the answer you gave might have just been an excuse but it didn't sound good at the time i don't know but it's kind of it's kind of an interesting thing because it's like what do you say if someone says like why don't you buy back any stock and the answer that you have in your mind is oh well our our businesses are in trouble right now what do you say do you tell yeah do you tell analysts oh we're about to report two really bad quarters so uh we thought it'd be a waste to buy it back now or do you say well the stock was really volatile and uh we just never really got around to buying it back like is that yeah i don't know yeah and usually they just say well

we have it in our toolkit we'll buy back when we think it's optimal use and then they say something vague that you can't really take away from but he accidentally just said something that was probably the honest truth where he's like well i think the stock's gonna go lower um i think the thing you should say which is probably a lie in a lot of cases is we saw higher roi opportunities across the business investing in our product and investing in our workforce yeah that's that's what they always say that's what they always say all right about 12 minutes left or so anything else starbucks and china maybe yeah starbucks there was like a wall street journal article this week is losing to Luckin Coffee now.

Kind of Luckin Coffee's really caught fire there, which it kind of points to, when we think about investing in China, at least for me, I tend to think about the risks associated with reporting and the risks associated with government, being able to kind of interfere with business results. The one I tend to overlook

is that it's just a very different consumer environment. So when you have an American company investing a lot of money over there in new stores and stuff, you got to like factor that into that. The consumer is very different just because Starbucks is loved over here. It doesn't mean it's going to be loved over there. People really seem to appreciate the Luckin brand, I guess, which I don't know how that business is still around. They were like caught on the accounting scandal. I guess they just roll with the punches there. um but yeah bummer i think for starbucks howard schultz has said that he sees it

being like i think as big of an opportunity potentially as the us so uh i would be concerned for a starbucks shareholder because that's a big part of their growth plans yeah i don't i don't know what people see in starbucks that's How is Luckin Coffee still around? Remember they were like- Well, they just said revenue was higher than it was. So the stores were still there. And I guess probably a good unit in economics.

Yeah. You know what? Someone pitched it. I remember someone pitching it after the accounting fraud and everyone laughed them out of the room. I think that person, I can't remember who it was. but they probably made a lot of money if they bought it let's see oh yeah oh yeah is it even still it's not still traded over here is it oh they still have an adr okay oh juicy there we go uh it got down to like two bucks a share or one dollar a share after the accounting scandal and

It's up to $32 now. Boy, whoever did that. Three years. Yeah. The Chinese market is, it's not like there's not fraud anywhere else, but over the last 15 years, there are a lot of scams, a lot of fake stuff in that market. And yeah, not surprising. Vulcan is not the worst at all, but that long shot. All right.

go through my likes here did you see speaking of which i wrote an article at c limited stocks down a lot have you kept up with this company at all martin kept down about 20 billion now arena free fire right it kind of fell off yeah users have been declining yes what about your favorite company beyond meat still reporting heavy losses uh but the stock sells a market cap of 400 million dollars so it's one of those zombie companies that you can't get a short uh that shortage just is or excuse me the borrow for short shorting is so high no one like the company is clearly going to go out of business within a year i mean the demand for these fake meat products is going off a cliff no one cares

about it anymore but the stock is just going to trade like a zombie stock it's kind of weird the other thing that's yeah i actually kind of i went to the grocery store this week and i saw beyond meat products and i just thought like the other thing that's kind of funny and i don't know if this has actually affected sales but when like the sausages because they have the beyond meat sausages when they're like upright you know like they're not laid flat the sausages droop like droop to the bottom and they like compress so it's kind of hard to describe but it's a horrible look it looks disgusting the uh yeah i mean it's just bad it's just not good stuff i don't even eat meat and it's not but that's just an indicator to me that no no these things are just getting

pumped into the market by vcs and no one actually wants them no you try them once and then there's no there's no consumer loyalty like who's like like that you know there's not fans but people that are loyal to certain snacks like cheez-its or something there's no loyalty to these products you try them as a gimmick and then you're like man these aren't very good yeah i it is kind of interesting that like you can't really make money shorting it right now but the equity is currently worth something and it will probably be worth zero in less than a year because they did take on a bunch of debt which i mean oh yes this will be owned by the bondholders here shortly yeah well i think there's negative the bondholders i mean what are they going to get

this thing's worth nothing there's there's over a billion convertible notes and i wonder where those are trading because maybe the yeah i don't see why anyone keep like when they raised i think they raised a good chunk of debt it was at a time when they were really struggling like the the cracks were already showing the signs were there that this was going bankrupt and they raised at attractive rates like convertible notes yeah and converting it like 20. yeah well the banks were uh the things to do okay here's what i want to close things out on because just given how much people like the tweets people like talking about big tech i had a tweet talking about apple um and in in the tweet i guess you have to be a little bit more definitive you can't have a

bunch of clarifications on the stuff so kind of read it out and see what you think to degree or disagree here so i basically had notes of they have a big chance of losing about 20 of their earnings if the google search uh payment goes away they have major exposure to china on both consumers and manufacturing there's app store litigation around the globe that is finally showing life uh they are apparently and this might not be true because they're so secretive they're apparently way behind in ai the stock is at a p e ratio of 31 revenue growth revenue is stagnated and they're i guess the messaging thing is kind of a joke but yeah they're they're finally adopting the standard messaging stuff that could have wrote the blue messages moat which

people laugh at but it's as we've discussed before is legitimate i said why is this not the riskiest large cap slash mega cap right now what are your thoughts there would you is apple your would you put it at the bottom of your let's exclude test because we don't need to talk about that people hate when we talk about that besides that is the riskiest one of the the mega caps uh yeah probably but who's gonna sell it we talked about this who is gonna sell it it's owned by a whole bunch of index funds that's no sellers might be a bull case the uh uh yeah i think there's a lot of risk i i don't think that google stuff's gonna go away would be my prediction i also think that hurts google just as much as that hurts apple maybe more so google you don't

think it's going away what's the what's what's the reasoning there i think it's beneficial for everyone i think it helps the consumers i think it helps apple i think it helps google i think it helps the indexes because it helps both those companies which helps pension funds which helps shareholders which helps people like consumers aren't hurt by the fact that they get access to google's like best in class search engine here's here's where i'm going to disagree there what microsoft's because bing can't so if google's got oh right now a legal monopoly smartphone um search now they may be investing in their product they probably are but if their moat gets eroded a tiny bit here they are going to be and there's more open like more openings

for competition there's going to be more innovation more product stuff they're going to be a little bit more incentivized to improve their products their search products so no i think it's beneficial for society for this to go away really i mean it's not like but what it's not like the how are they somewhere like the profits will stay within the s&p 500 index that earnings that earnings will it sure but i don't think that really helps the consumer that much like what is the search you don't think they're investing in their search browser now no i'm just saying there will be more incentive if there's more competition that's better yeah but i think i think a lot of the reason that you don't have a formidable search engine competitor has more to do with the fact

that there's such a scale and data advantage with google already that people people can't catch them that's why people compete well then they should stop paying and nothing will happen they'll center incentivize apple to build their own search engine that's for sure i mean i the only difficulty there is i think well now now i'm putting like google shareholder hat on then suddenly if you're apple i think you'd rather have if google takes their bid away i think you'd rather have a 10 billion dollar 50 percent of what google's paying a bid from bing than build it out yourself this doesn't that doesn't make logical sense because they're not to allow someone else to bribe apple if the google payment is made illegal why is it a bribe perspective

is it not just bidding to be the platform like it's like an auction like they could they're going to uh like if they rule that this sort of default thing is illegal it's you're not and no company is going to have the ability to do it because you can't say Google is not able to do this one thing but Microsoft is because that's the whole point of the case so either the payment stays

or the payment goes away can't they just make it an open bid whoever bids the most for the well it is an open bid right now I thought you were saying it was like a handshake bribe like if it's an open bid

why is that anti-competitive because the only one that can have a positive roic is alphabet no microsoft could have a positive roic on that according to microsoft they can't then isn't that like saying that your browser isn't good enough or saying that your search engine isn't good enough and that kind of like admitting defeat i'm just telling it like look there's a lot of nuances here but for apple's perspective either this stays or it goes it's all or nothing because okay look maybe the government might not do things that are logical that could happen but from if they're worried about the antitrust stuff

it doesn't make sense to say google is allowed to not allowed to do anti-competitive things but run a lot of these other companies now to do it because it's been an open bid anyone can come out to apple and say hey we'll bid more than afflebit i bet they have a like a contract length well sure yeah yeah of course the i don't know i feel like as a consumer i appreciate the fact that my safari default search is google use safari i just download chrome i mean what's interesting is most people like 40 40 is most people use safari then that's i guess that's true but like there would be a i mean it's not that hard to like have google be your default you can change that your settings

we've gone long yeah uh well we'll keep develop there'll be more developments on that i guess we'll get a verdict at some point uh but yeah that was fun discussion for anyone we got some uh people in the chat saying curious about open ai stuff i said check the replay and some guys said no thanks which is funny but that's we're not going to talk about that again go check the replay uh talking about that uh this will come out sunday let's hit the disclosure we are not financial advisors anything we say on the show is not formal advice or recommendation ryan or i may have positions in the securities discussed in this podcast thank you everyone for tuning in remember 2 30 p.m pacific time 5 30 eastern tentative new timing on thursdays

for the power hour the replays come out sunday mornings thank you everyone for listening we'll see you next time Bye.