Chit Chat Stocks - Is Tinder Dead? Big Tech Capex Boom; 10 Software Stocks That Are Finally Profitable

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is our weekly power hour and I am your host or one of your hosts, Ryan Henderson, and I'm joined today by Brett Schaefer. As always, we're talking about all things financial markets. This week, we got a lot of earnings on the docket. We've got Match Group, Airbnb, Coupang, and then we're going to talk about the massive rise in capital expenditures

Starting point is 00:00:59 at the big tech companies and what it might mean for big tech earnings in the long run. Brett's got some other companies to discuss as well. Tons of topics. As always, we're doing this live on YouTube at 1230 Eastern time on Thursdays, 930 Pacific time. And we post these on our podcast players as well. So if you want to ask questions and you want to listen to the show live, feel free to go to YouTube and check it out. But without further ado, how are you doing this morning brett we had a couple of companies report so how's the portfolio surviving all right yeah nothing nothing too crazy i seem to have had a lot of stuff that had a negative reaction after the report but then recovers in the days following so pretty neutral earning season i know a lot of

Starting point is 00:01:46 people or a lot of the growthier stuff has been hit pretty tough so i guess i don't know if i'm grateful but maybe more happy that i'm not in stocks that are down 30 percent uh but nothing yeah nothing nothing too crazy kind of as expected for a lot of earnings reports out there and yeah i actually had my portfolio it's not very big uh i think it's only six companies at the moment i'll probably build it out to you know 10 maybe a little bit more they all report within three days time so it's quite a busy period for me but i'm still reading through these reports and yeah we're going to talk about a lot of them very busy earnings season and uh i'm excited to talk i got shopify i got roblox

Starting point is 00:02:37 coupon there's really an endless amount any suggestions people have we can go through them kind of as we go and as we record this episode six companies you're harnessing your inner Druckenmiller I take it no I concentrate not not that crazy but you know it's the personal account building it out over time it's not like the set pool of money all right well before we get into the episode further I'm going to let you in on a little secret you know how much you hate fees on options trading you know how these fees can be as high as a dollar per contract well public.com has just launched a first of its kind options rebate program that can save you money in a sleek modern trading experience public.com options traders have zero commissions zero per contract

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Starting point is 00:04:03 Well, we had a question on Match Group, so maybe start there. Another interesting report for sure. Some positives, some negatives. A lot of thoughts there, I'm guessing. Well, you have the notes, right? Why don't you go through the numbers first, and then we can give our... Okay, I don't have the numbers right in front of me. I had my overall thoughts first. But I think I could summarize it as Tinder bad, Hinge good, Stock cheap. Is that fair enough?

Starting point is 00:04:32 It may use ugly, maybe, to add in there. I think that's something that, unfortunately, they aren't very, or haven't in the past, been very forthright or consistent about giving out their their active users they only give out like the paying subscribers all that type of stuff and now they're saying they're giving out more disclosures on that and turns out the MAU declines at tinder monthly active users the active users on the platform are perhaps worse than we thought we knew that they were declining and there's just a lot of dynamics there so I think that perhaps is the most interesting thing to talk about this quarter but yeah i i totally agree let me let me summarize the situation so basically

Starting point is 00:05:19 tinder has been this online dating behemoth i don't think that's a secret to anybody that kind of pioneered the mobile online dating space and they grew into really a global juggernaut and now they've slowly started to see more competition come in over the years primarily from Bumble and then MatchGrip's own app, Hinge. And so we're starting to see a trickle away on the number of users and engagement on Tinder. And I think a lot of that is coming from competition. However, a lot of it is also likely coming from poor product improvement over the years, poor product development, because Tinder, for anyone that's been on it, probably knows

Starting point is 00:06:05 it's not been the greatest experience. It's been crowded by bots and people that are not there for the right reasons. So that's led to people trickling away. However, yes, you mentioned it. They're losing users, but the average revenue from the people that actually pay is going up because they instituted price increases. So revenue overall for Match Group was up 9% this quarter. Revenue in general continues to go up primarily because of those Tinder price increases that we mentioned. However, the concern is that that's going to start to fade away here as engagement on Tinder continues to drop. However, there was an important caveat in the conference call that a lot of that MAU decrease or at least a decent chunk of the MAU decrease was from them

Starting point is 00:06:58 getting rid of bad accounts. So that is one of those things that you kind of have to, it's a pill you have to swallow for the quarterly earnings, but it's one of those things that drastically improves the platform for everyone else on it and improves the likelihood that someone's going to pay. So pairs has declined, users have declined, but the average revenue per pair is counteracting that. It's helping Tinder. Hinge, on the other hand, It seems to be a perfect business for all intents and purposes, huge network effect, profitable, and continues to just grow at will. And a lot of it – they're spending money on marketing, but it seems like they don't really have to spend money on marketing just because it's kind of had this virality thing going on at the company. So – or sorry, going on at the brand.

Starting point is 00:07:45 Yeah. Well, they have said that it's less – they've had to spend more on Tinder than Tinder – when Tinder was at that size. that they've had to spend more but i think that's just because tinder was almost a perfect viral business doesn't make the hinge business bad but not as uh i mean you know when tinder started it was it was a such a flash in the pan or not a flash it was it was like a bomb going off of i don't know it just it's it was so viral when it started a decade ago yeah and so marketing i I guess maybe to summarize the rest here, this business is predominantly Tinder and Hinge. They're having to spend more on marketing for Hinge because they have more of an uphill battle.

Starting point is 00:08:31 There's more competition. They got to get their name out there than they did with Tinder. However, they're also having to spend more on Tinder now to kind of revitalize the brand and have people see it not as this cesspool of bots. Just to be frank, that's what they were concerned about. and so they want it to seem more um friendly primarily to women is what they've spoken about on the conference calls a lot so they're spending more margins are contracting a little bit um the stock is down like 80 i think i haven't checked it from its size report i think it's down a couple percentages now after today it's up a little bit but yeah yeah so they're repurchasing a lot of

Starting point is 00:09:14 stock they're repurchasing and i believe if i annualize the current amount it would probably be close to 10 of their market cap yeah so probably one of the cheapest tech stocks out there for a business that's still expected to grow but the difficulty is that people really don't know where tinder is heading so i want to get your thoughts what do you think of this quarter overall and that do you think do you think tinder is actually dying yeah so i thought the quarter was all right nothing too crazy that i don't think people expected or that i i didn't expect the guidance on tinder is a little bit rough where i think they're they've been setting expectations low so i'm not too concerned about whatever revenue guide they have there

Starting point is 00:10:05 you know they talk about eliminating the bots that's good eliminating the on they call them the unhealthy user which is just i think a nice way to say the people that aren't nice on there um the percentage of like daily and weekly active users as a percentage of ma user going up which is good that just means that the marketplace of the existing users might be a little bit more healthy um they're talking about making it they haven't implemented this yet but users on tinder are going to be required to have at least one face photo going forward which i think is a good thing because you don't want those i don't know if you're on a dating uh profile you probably want a face photo they're also implementing the

Starting point is 00:10:54 ai profile generators which one of the big hurdles to making a um what i might call robust is probably the wrong word but a a fully like a full profile not just loading up one photo and having no no um no notes on it or in your bio it takes a little bit of work so they can have some ai tools to help with that that'll help as well they're talking about really and this is a multi-year thing, improving the product. And it's going to take a while. And I'm not sure exactly. They keep talking about, well, the payers will turn around. Well, the users are going to turn around. That is the big if that's in their plan. I don't know how much confidence I have in them. But right now, the business is generating a lot of cash. If they turn things around, yeah, we probably get a

Starting point is 00:11:44 multiple re-rating in the stock does quite well but yeah it's it's there's a lot of give and take i'd say especially with the tinder business where it's i don't think some of the things people look at are not as bad as they seem because i don't think the payers are that big of an issue because Yes, some of the payers are going down because as MAUs decline slightly, there's usually a consistent amount of MAUs that I'll pay. So that's going to go down a little bit. But part of the reason it went down is because they're implementing those price increases, which is something they said that they essentially can do overnight. So they can gain revenue if they wanted to by raising prices if they feel that they have the ability to do that. but the product led and the improvements for the platform are going to take a

Starting point is 00:12:39 long time because they have to change the reputation of the brand. They have to change a lot of things and it is a slight turnaround story there. So I'm not so sure. I'm not sure on that, but I still think what's interesting about this business is that revenue keeps climbing. It keeps generating cash. We might see record cash flow this year. Now, I'm a little bit concerned about the conversion from cash flow to their adjusted operating earnings and also the difference between adjusted operating earnings and gap operating earnings. I think there is a widening of a gap there, but I haven't run those numbers yet. It's weird. The narrative around the business is so bad and it just keeps growing.

Starting point is 00:13:27 Yeah. So when I read the report, I thought, not that bad of a report. Obviously, some concerns, some headwinds with Tinder. And then I saw the stuff about them kind of cleansing the platform of bad accounts. And I thought, wow, this is all right. But then you listen to the conference call or you read the commentary and it's just kind of the whole – a lot of the questions, a lot of the executive commentary was around like – it was very negative on Tinder. It was, listen, we're struggling. There's no doubt about it. So it almost like – it was almost them admitting we don't actually know what's going on. There are problems. Users are churning away. And then they said, we expect to get to user, get back to sequential user growth in the back half of the year.

Starting point is 00:14:21 Some analysts asked, you know, like, how do you expect to do that? Are you going to raise marketing spend or anything like that? And they're like, no. To be honest, we kind of just hope the product improvements work was more or less what they said. There was some other stuff as well, but they're lapping easier comps. But a lot of it was basically like, they were kind of, they did the same thing last year. They were punting towards the end of the year. They were like.

Starting point is 00:14:45 Yeah, I agree that when they say, look, we're expecting the product-led stuff to lead to user recovery and stabilization there, there's not 100% certainty that that's going to happen. One thing I did like, though, is that the analyst was essentially saying, are you going to increase product, excuse me, like click through marketing spend to increase payers and increase MAUs? And they essentially said, no, we don't want to buy users. We don't want to buy payers just to get a number up, which I thought I liked. They're saying, look, we want to do this in a healthy manner. We want to build a platform that people actually enjoy using and get use out of. So I like that, but they are going the hard route. And I think previously that old management team, you could see it was some of the subscription stuff they would throw out.

Starting point is 00:15:37 It would be like, hey, one day, I don't know what it would be like one day premium, whatever they call it. And it's like a dollar and you can pay for it for just this day. And then that gets the payer number up. So I think they're trying to do it in a healthier manner. That's not just manipulating their KPIs, but there obviously are some issues. And I think, honestly, is there any other issue at the business besides Tinder MAUs? Because I think if that's solved, the business is extremely healthy. Something that's been underrated about Mash Group's performance in general over the last couple of years is that the legacy apps were actually making up a decent chunk of the revenue pie.

Starting point is 00:16:22 So some of the – like the OkCupid, Plenty of Fish and Match.com, their trickle away, like it's not that costly because they're not putting money into marketing, but it's actually been a bit of a revenue headwind the last couple of years for them. It's been offset somewhat by the emerging apps, but I don't think that's – I think it will become less and less a part of the pie over time, but it has been a headwind for them. The only other thing I'll add, and then we can move on because I know not everyone really cares that much about Match Group, watching Bernard Kim come in and try to make some real product improvements and actually move the business forward in a healthy way kind of shows me now how incompetent the previous management team was and how little was really going on. In terms of development and improving the platform. Right, they're just kind of sitting around doing nothing. Yeah. Yeah, it's a bummer. I hope that they can actually turn this around because, I mean, they still have the leading dating apps by a long shot.

Starting point is 00:17:35 So other than, you know, the one which is really Bumble, globally they have the leading apps. So I think they're in the right spot to grow over the long run. And it's just a matter of kind of what happens with cash flow in the coming years and whether or not they can buy back stock. I'm probably going to keep my position about where it's at. Yeah, I was going to say, you're holding? No sells, no buys? I don't really see much of a reason to buy after this report. I don't think a lot changed in my mind.

Starting point is 00:18:07 it also was kind of funny that they just said like they dedicated a whole page to some like random big headline number that they threw out there like hinge could be a billion dollar business it's like yeah okay we're not gonna ignore all the issues at tinder just because hinge might be one day a one billion dollar business so yeah where the stock goes down enough we get a some of the parts situation tinder is free or whatever you know you buy this you get tinder for free but yeah i think i'm in the same camp just holding uh i think if they can't turn around the users this year probably so um not gonna win them all but i see this still is a good risk reward and they're returning a lot of cash to shareholders so if things are stable

Starting point is 00:18:53 they'll buy back half of their market cap within the next few years and it's not bad i don't think that's that bad all right next topic ryan what do you want to hit do we want to talk about capex at big tech sure yeah okay so for anyone that's followed this sort of situation i don't want to call it a situation it's basically been the headline news of this earnings season all the big tech companies meta google amazon microsoft not really apple i don't think they have all announced that they are going to really start hiking their capital expenditures. And a lot of it is coming from these AI investments. This is not showing up right now.

Starting point is 00:19:42 And let me put some actual numbers on this. So in the last year, 2023, Microsoft had $35 billion in capital expenditures. This actually might be Cloud CapEx only. um yeah this is actually this chart is just cloud capex so meta had 27 billion they were expecting it to jump to 38 billion next year aws had 25 billion they're expecting that to jump to 38 billion google from 32 to 49 microsoft from 35 to 52 basically every company every big tech company is expecting their CapEx spend, especially for the cloud, to absolutely shoot up. This is not reflected in the current earnings. So John Huber, it's something like Sabre. I can't

Starting point is 00:20:36 remember what fund he runs, but he runs Base Hit Investing on Substack. He has a Substack. It's a great blog. So he's got some quotes here. He says, combined CapEx at Microsoft, Google, and Meta is set to grow around 70% in 2024. As a percentage of sales, CapEx will grow from 13% of sales in 2023 to around 20% in 2024. So a huge jump. He then goes on to say, this spending hasn't yet hit the income statement, but it will in the next few years as depreciation expenses are set to triple in the coming years as depreciation and amortization catches up with today's CapEx spending. All this is just to say you're potentially paying a much higher multiple and maybe you should expect earnings to not grow at the same rate they have been

Starting point is 00:21:24 now that they are becoming more capital intensive businesses. And this could work out. This could lead to higher revenue growth, but I think it's pretty uncertain whether or not these cap capital expenditures are going to have any sort of direct uh benefit to the actual top line so i guess any thoughts there before i give this last quote i think uh at least this year it should benefit the top line but i i what i think you're saying is that There's this huge anticipation of AI spend that's expected to continue and grow over the next 5 to 10 years. And if that underwhelms, we're going to have a lot of CapEx being spent here, but the utilization might be lower than people think. So you're going to spend all this money, these expensive semiconductors, building out all these data centers, all this good stuff.

Starting point is 00:22:26 And the earnings power behind it might lower some of the ROICs, return on invested capital. I think looking at each company might be helpful because I think when you look at AWS and Microsoft, they're essentially looking at customer demand and then just building the data centers. Yeah, there has to be a little bit of planning over like one or two years, I'm assuming, maybe even a little bit longer. but they're they have these cloud customers who are going to spend and they know how to get a good roic they just price it where they get a good good number and now if demand falls off the cliff that's still a concern but someone like meta they kind of i think they're doing all the spending in a different manner where they have to monetize it themselves which i think could

Starting point is 00:23:14 work out and be more profitable but it's a bit more ambitious um google it's a it's a bit of a mix but can you explain that a little more on the meta situation because i don't know if it's everyone quite just because they're not selling third-party cloud services they're building it all internally they're not a public cloud vendor they're doing it for meta's own applications yeah and you know they're adding on what they i think they're calling it meta ai the ai assistant i saw it on whatsapp where it's on all their products now and how many meta how valuable is that like how what's your return going to be on that on all these whatsapp users that aren't don't look at ads anyways yeah the last thing i need is another general purpose

Starting point is 00:24:00 llm to yeah to be any sort of search type thing yeah we got a lot of those out there if there's something that's targeted for a specific use case like a customer support LLM. That's great. I'm a fan of more and more of these specific layers built on top of GPT or any of the other general purpose models. But just to build another one, I just wonder how valuable it'll really be. Yeah, I agree. Okay. We have a comment here from, and this reminds me, from the writer of firm returns one of our sponsors we'll be talking about later said the podcast from the circuit uh was a good one on this topic i did toss that out on the twitter machine and i really wanted to i want to talk to those guys because they're two semiconductor analysts i have no idea

Starting point is 00:24:56 how to contact them so i literally i actually just left them a apple review gave you guys a five stars so if you're listening i left a review and i left my email in there so email me i'd love to do an interview with you guys on this topic well one thing that um they discussed that i hadn't thought about before and what i thought was an interesting comparison is if you remember from the dot-com bubble um posts so leading up to the bubble there was all these basically computer and internet equipment companies and they were saying look there's going to be insatiable demand for internet services the internet is going to grow to an infinite size and it did happen 25 years later but they're saying you got to buy these equipment makers because they're going to

Starting point is 00:25:39 sell this equipment uh we need to build out all this internet capacity and then a couple years later we have you know all the dark fiber all the capacity that was built and then there's no demand because you built about 10 years ahead of what was actually going to be there i worry that the same thing could happen here where you build out all this supply and the demand is actually growing slower than people think and i could easily see that happening we also have a comment here that says john huber is legit so hey go check that out i did really enjoy this article uh so if anyone maybe i'll even toss it into the chat here and then we have another comment if ai demand comes in low then they don't buy more servers next year the demand will grow into the

Starting point is 00:26:21 supply of the data centers in the worst case scenario in the best case they capture a whole market yeah i think that's in how the cloud providers the hyperscalers look at it but for someone like meta i'd be a bit more concerned um yeah i don't know yeah i'm not 100 like go ahead there there there's the gpu costs that might come down especially because you have a huge investment from all these companies on their internal uh semiconductor divisions now which i would say alphabet way ahead of the game there i don't know i wouldn't know i don't know if that means they're losing an ai still but you don't believe in the graviton to be doing some smart moves um sorry you go ahead i said what about aws's graviton or gravitron or whatever yeah

Starting point is 00:27:16 they're they're doing the the same but i think alphabet was first uh by a few years there yeah and they're considered they're considered the best uh besides nvidia yeah i guess they just wonder i remember looking at amazon and i thought all the capex it's like yeah it's you know obviously a different business it's very capital intensive but every time they put dollars into capex previously i kind of looked at it and thought this is expanding their moat because it was a lot of infrastructure investments and and expanding their logistics advantage and i think but aws they're probably doing it purely because they see the demand but i just worry that some of the CapEx that's being put into AI here, I don't know if it's really deepening anyone's moat.

Starting point is 00:28:05 Yeah, that is interesting. Also, it's great when you can spend a lot of CapEx and know that the ROIC is going to be solid. But unlike, say, over the last 15 years with Amazon e-commerce and retail, we have pretty high confidence that this is not going to be an insane return on invested capital, but a good one. With this spending, I have no clue. I'd say a lot of uncertainty about whether the ROIC is going to be positive. I just don't know. There's just a lot of, I think it could easily become the fiber overbuild of 99 and 2000. Okay. Shifting gears here. I'm going to read you a list of stocks and I want to know if you think any of these or even if it's not something most of them I'm guessing you probably haven't followed at all but if they're even slightly

Starting point is 00:29:01 interesting to you so these are 10 stocks that in the last year finally turned profitable and it took a lot of searching for me to figure this list out because a lot of companies either didn't actually turn profitable or they just aren't really growth. I tried to do the companies that IPO recently and they've been like high growth and they were finally pushed to profitability and they just got there. So I got 10 stocks. The first one, Fiverr International. We know this business, freelancer network. It finally reported its first quarter of gap profitability. So congrats to them second one sem rush i think i've maybe mentioned them to you before but they help run help companies run marketing campaigns another two quarters in a row of profitability

Starting point is 00:29:51 third one you know though there's a there's a million that's that's a commoditized all right third one digital ocean they're like a fourth they're trying to be a public cloud vendor but they're like geared towards like small businesses i don't know it sounds like a terrible business to me it does we're gonna do cloud but we're gonna sell it to small businesses all right um fourth one i think you might like this one bill holdings yeah interesting yeah it's basically invoicing software but they finally reported a positive net income quarter because of the interest income that they hold for customers right i remember covering that one we did a show on them within the last year within the last 12 months and it's an interesting one for sure five-year revenue

Starting point is 00:30:47 kager this is the revenue kager so the annualized growth rate 75 percent wow what's our valuation looking like maybe like a gross profit or uh i didn't ev to gross profit of uh looks like five times well not bad but bad gross profit and they are not profitable on the core business yet yeah payments is on the one hand if you get your payments embedded into these businesses it can stick around for a while on the other hand it's it's a it's a highly competitive industry and almost every fintech company i feel like has underperformed the last decade but maybe that means i don't even know if i'd consider them i don't know if i'd consider them

Starting point is 00:31:37 fin it's more like software it's invoicing software really okay yeah true um all right fifth one here wix this is a business you're familiar with drag and drop website builder uh finally had a couple quarters of positive net income i think they maybe had some like five years ago but then they started investing really heavily into this uh not the subscription business but the commerce business so any thoughts there interesting yeah uh i think the stock is at like 120 which isn't too expensive if i i've been loosely tracking their numbers um it's it's okay because it could be an ai beneficiary on the one hand because they can help people build websites quicker and they've hyped that type of stuff up i mean they're kind of press release i don't want

Starting point is 00:32:32 to use a derogatory term but they give out a lot of press releases the for a lot hold on to nothing but i also think the press release happier where this could be heavily democratized if it's if it's much easier to build a website and it's really easy to build software that builds websites so i don't know yeah yeah i just i think they're a little more expensive here okay i'm gonna go through the last five here pretty quick number six monday.com i don't know if you're familiar with this at all it's kind of like a workspace operating system type of thing it's for team collaboration it usually starts in the marketing department i actually used it at a job once yeah now they've had two quarters in a row positive gap profitability let me tell you

Starting point is 00:33:18 a mind-blowing stat if I can find it. Shoot, I don't know if I'm going to be able to find it. Customers that contribute more than $50,000 in annual recurring revenue went from $72,000 to

Starting point is 00:33:37 $2,600 in the last four years. Not bad. So they went up market. yeah i guess that probably helps but the the other part is pretty high retention rate 110 across all customers and even higher within the big businesses i think it's it's interesting to me and it feels like one of those software companies that actually just like had zero struggles throughout covid kind of interesting right yeah seems to be well run what's the big

Starting point is 00:34:12 question here ryan valuation earnings multiple or or maybe gross profit because i know they're still investing ev to gross profit 12.7 it's expensive but i remember didn't they come out at like 40 times sales they were probably super expensive yeah it's also another one of the companies that's headquartered in israel i believe right um you got three of these here actually i think maybe more i don't know okay number seven this one might be one you're familiar with docu sign yeah that's a tough one now let me let me try to convince you here two uh for the last 12 months last last 12 month earnings they've been positive for the last two quarters if that makes any sense basically they've gotten to get profitability this is a business that is actually

Starting point is 00:35:11 still growing despite all the executive turnover all the competition bad narrative terrible narrative terrible narrative sorry i just punched my desk in case anyone heard that um the revenue cagger over the last five years 31 and a half percent ev to gross profit five times it is kind of attractive to me i think there's still a long-term tailwind here you might have mentioned this are they buying back uh stock i don't remember but here's the other thing to me no one even as we move back into a hybrid world a hybrid work environment whatever no one's looking back at covid and thinking man i miss signing i miss signing documents in person it's not like one of those temporary covid benefits yeah i just i think we

Starting point is 00:36:07 we talked about this stock a while ago and just like the concern is they have to build some sort of competitive edge outside of just signing a document so you got to make it a much better product but you know because a lot of these companies can come up with a commodity product that's very similar just bare bones signing stuff so i wonder how important is any sort of add-ons or any sort of – I remember they – I don't know if they still brand it this way, but they talk about the quote-unquote agreement cloud. I don't know how important that is. Contract Lifecycle Management.

Starting point is 00:36:38 Yeah. Agreement cloud I think is Adobe. Maybe to like lawyers and financial people and accounting departments or something. It's very valuable. I'm not sure, but numbers look okay. Okay, number eight, Nutanix. I have no idea what they do, so don't even ask. But they got to profitability.

Starting point is 00:36:59 Number nine, got to be one of your favorite companies, Palantir. Cold stock, baby. Palantir, almost a $50 billion market cap. To be honest, I don't think anyone really knows what they do. But it's – No, I mean you can figure – I mean they don't know the inner workings because it's like a defense contractor. But you know what their product set is. no there actually is a video on youtube of a product demo that they did

Starting point is 00:37:29 and back in the day we published a show on them and i kind of summarized the video and it does actually make a decent amount of sense what they're doing and you can see how it's valuable but i think a lot of people that follow it just see the revenue going up and earnings going in the right direction it's it's it's i'm not look i don't touch colt stocks why would you touch a cold stock it just doesn't make any sense to me okay number 10 last one here crowd strike yeah super expensive but 65 percent revenue cagger over the last five years this and it's a big business they've turned the corner towards profitability it seems like the cyber yeah the best best uh run or the fastest growing cyber security company obviously that's going to be

Starting point is 00:38:18 growth market a lot of smart people are in this thing it's just out of my wheelhouse it's one that's covered a lot it seems to be you know covered by a lot of funds and stuff like that and that's fine but i just don't know where i'm going to get an edge there and it's okay like if i'm going to buy something that's a little out of my wheelhouse it's got to be cheap yeah so to sum up you got fiverr semrush digital ocean just just so you know if you read the proxies on all these companies you'd probably veto most of them bill holdings wix monday.com docu sign nutanix palantir crowdstrike do any of those interest you any that you would dig into more i would look at Wix, DocuSign, Monday.com more. I guess I've looked at some of them in the past,

Starting point is 00:39:17 but I'd like to get an update on those. Those seem like businesses where I could see some durability there, but someone like Fiverr, and I think that's probably why the stock is down so much is I'm not sure about the durability of the market, especially with AI taking over a lot of that stuff, but who knows? Maybe that's why there's a buying opportunity. All right, we're We're getting close to – we're over halfway through, Ryan, so why don't you talk about some of our sponsors. Maybe we'll save the FinChat one and make it an embedded one when I talk about Shopify earnings. So if you want to talk about the others. Sure.

Starting point is 00:39:51 One second real quick. Let's talk about our friend at Firm Returns. This is a stock research blog. We've talked about it a number of times on the show. It has global coverage, but it really leans more towards the UK as it's his home market and he has easier access to management. I really recommend just going and checking out his blog. There's tons of free content, and he provides ongoing updates on the companies that he's actually invested in. One of the big ones that he's covered really well, not big in terms of market cap, but big in terms of great coverage, is TinyBuild.

Starting point is 00:40:23 It's a video game publisher over in the UK, and he's spoken to management a number of times there. Pretty interesting, I guess, setup in terms of that stock. Anyways, there's also a paid tier that gives all firmers, as he calls them, which is audience readers, four in-depth research reports on new companies each year. That's not really on a precise schedule, but they're very thorough write-ups. And I really can't express it enough. The coverage is very broad, a lot of small caps in the UK, which if you followed the show, you know we talk very little about UK companies. So it kind of gives you that home market exposure where someone really knows the actual businesses. But yeah, I recommend going and checking it out.

Starting point is 00:41:06 If you use our code firmreturns.com slash chitchat, you will get 20% off any paid plans. But also, as I mentioned, lots of good free write-ups over there as well. And then I've got another word from our friends at Public, but I got to pull it up. So why don't we take a little break here, and Brett, I'll let you talk about Shopify real quick. Yeah, we'll do various other – let's talk Shopify. Actually, I have something I want to talk about first, which is more of a note for our show specifically. Actually, let me pull up those notes. So I get updates whenever we get any new reviews, and we did get two, unfortunately, one-star reviews this week.

Starting point is 00:41:50 One of them was because one of the mics was low. I believe it was on one of our interviews that I did. So that's my fault. Try to not have that going forward. But when you do interviews sometimes, unfortunately, the other person sometimes has a low mic. But the other one I thought was a classic one-star review that we get. And I'm going to read off here, Ryan. Then I'm going to read off where the stock has been.

Starting point is 00:42:16 So this person was not happy with the 10 rapid fire stocks episode, said, just listen to 10 rapid fire stocks episode. And it was horrible. Why would you comment on stocks when you have no clue about the business? Question mark. One guy is constantly like, OK, that's kind of nonsense. He mentions factor in relation to HelloFresh. Essentially, he and then he goes on and on and on. This person was very mad that we were not bullish on HelloFresh. And I want to say that unsurprising, like every one-star review out there, Ryan, stock's down about 97% from all-time highs. So I will say, in that Rapid Fire Stocks episode, first of all, that is kind of the

Starting point is 00:42:59 point of the episode is we're looking at these things for the first time. It's audience recommendations, that kind of thing. But I do remember saying, I think a lot because we weren't that well-researched because it was kind of a first glance. But, yes, we do get a lot of one-star reviews when we talk bearishly about it in companies or if we're not optimistic about them. What's weird is that it's usually when we're right. I mean, we're not right about everything, but it's usually when we're correct and the stock's down like 97%. Never forget.

Starting point is 00:43:34 This is why I bring these up is because I know there's a lot of listeners out there that like the show. And if you like the show, you probably don't even think about giving a review. if you can maybe toss in one of those five-star reviews there on apple to help get that one out of the out of the uh out of the feed there for new listeners because i don't think that represents what our show is about yeah i think generally most of our shows are quite well researched but anyways let's uh let's talk about our friends at public.com earlier in the show you heard us mention the investing platform public that's where you can trade options with no commissions or per contract fees and you get a rebate of up to 18 cents per contract traded. NerdWallet recently

Starting point is 00:44:14 gave public five out of five stars for options trading. If you want to see why, go to public.com and start getting a rebate of up to 18 cents per contract traded. This is paid for by public investing. Options are not suitable for all investors and carry significant risk. Full disclosures are in the podcast description, US members only. Should we talk Shopify? Shopify, yeah, yeah. All right. I got some notes here. First off, shareholder letter. Right in the intro, they said, this is a direct quote, we are building a 100-year company. What do you think there, Ryan? Does that make you more bullish or bearish on a stock?

Starting point is 00:44:51 I'm not trying to say this as a leading question, but if you read that, what would you think? I don't mind, I guess. It's fine. At least they're thinking long term. That's true. It's a bit annoying. I don't love the Shopify management team. I think they've built an absolutely wonderful platform.

Starting point is 00:45:16 But as a public shareholder, I just don't – maybe it's not my cup of tea. I kind of like people that pride themselves more on the capital allocation side of things. And it just – they don't, I guess, feel as geared towards the public shareholders as much as making the employees happy and kind of having like – I don't want to say empire building, but like – No, here's what I think Shopify – Go ahead. This is what I think Shopify's number one priority is, feeling superior. Yes. Yes, they really seem to worry about their reputation.

Starting point is 00:45:52 They really seem to worry a lot about how people view them versus Amazon. And it's like that meme where it's like the two guys in the elevator and the guy's like, you're going to wish you never saw us. And that's Shopify and Amazon's like, I don't ever think about you. Right. Yeah. I'm sure Amazon, when Shopify was growing 100% during the pandemic, they were probably like, all right, let's kind of get on this thing. But now it is. I believe Amazon's GMB is probably growing quicker. but let's go through some numbers because Shopify is still good business. Gross payment volumes

Starting point is 00:46:24 grew to $36 billion in the quarter, representing 60% of total GMB. So that's just now 60% of Shopify payments volume, payments from customers to merchants are on Shopify's internal payments, which they make a lot more money on. And that is up from 56% in the first quarter of 2023. so still climbing. Gross profit grew 33% year over year, 12% free cash flow margins, although we had $238 million in operating cash flow and $105 million of that came from non-cash SBC. So not bad, but still a little bit of a headwind there on SBC. In Q2, I think they're expecting a slight slowdown to high teens revenue growth. Let me look at some more numbers here as I try to do a little internal FinChat ad for us. I'll share the screen because they have some wonderful

Starting point is 00:47:14 KPIs. That's one good thing about Shopify is they are great at sharing metrics. I think Match Group, you can learn a thing or two from them, just giving out consistent metrics here. Let's look at some of the key segments. So we have subscription solutions, which is essentially just the software revenue. Since December 2019, so I guess right before the pandemic, that's grown a 27% clip on quarterly revenue. Actually, why don't we do Q1? Because there is some comp there. 28% growth from March 2020 to March 2024, $188 million to $511 million. Merchant Solutions, which is essentially a lot of that is payments, grew at a 48% clip, $282 million to 1.35 billion. If we look at gross payment volumes, let's add some more stuff there.

Starting point is 00:48:11 Nice little CAGR. We can do trailing as well. Kind of showing off all the stuff here on FinShed. I guess this is a little bit of an embedded ad. That's grown at 41%, highly impressive as well over the last 12 months there. And now let's go to valuation. Very interesting one. I'd say I'm going to toss up. How about EV to gross profit? Unfortunately, not a lot of these companies are very profitable. Okay, let's try to get one that'll go a little farther back. As you can see here, Ryan, did you know that Shopify used to trade at over 100 times gross profit? I guess you probably did. Yes, I did. It's fascinating to remember there. Now, today... It was 60 times sales. Yeah, exactly. I guess that is. It's hard not to be 100 times gross profit when you're 60

Starting point is 00:49:03 times sales. Today, after the stock fell after this quarter down back to 20. So huge collapse in the multiple, at least kind of on a top line basis there. And that's right around where they were before the pandemic. But I will say that they were much smaller business before the pandemic. So I think that should be factored into things there. If I'm not mistaken, there was a point when they were i want to say it was like 150 almost 200 billion dollar market cap yeah and they were doing like two billion dollars in revenue yeah no no uh three but still okay question for you right today the ev i'll get my thoughts after you go first today the ev to gross profit is 20 do you think shopify is cheap today and maybe tell people where they can find those

Starting point is 00:49:54 wonderful charts at finchat.io i think the platform is well positioned to grow i will say that i would not call this thing cheap but and part of the reason i wouldn't call it cheap is i'm not necessarily like not really sold on their ability to generate consistent cash flow which for me is kind of how i measure the valuation of a business so it's hard for me to call it cheap i think they will probably grow their gross profit in excess of 15 for quite a long time they're just really well positioned they have the best platform and e-commerce just continues to grow so it seems likely to me that they're gonna there's a good chance that the stock goes up but i'm not particularly interested in buying if that's what you're asking and to follow it up

Starting point is 00:50:45 FinChat.io slash chitchat. If you are interested in having a stock research platform where you can see all the segments and KPIs for each individual business, that's where you do it. You get 15% off any paid plans using code FinChat.io slash chitchat. I want to say something. Yeah, I was going to say that helps us out if you use that link there. We greatly appreciate it. And the link will be in all the show notes wherever you find it. you at fitchat.io slash chitchat save you so much time makes your investing process really efficient

Starting point is 00:51:20 and it's not going to be the same cost as a bloomberg terminal that's for sure okay what else do you want to talk right little shop so hero and zero of the week wait i gotta say this hero and zero of the week the zero for the week i'm sorry max love chin i really like you but this This is – you were just asking for it on this. He says, we delivered – this is the first line of the shareholder letter for Affirm. He says, we delivered another set of excellent results in our third fiscal quarter. In the parlance of our times, we slayed. The stock dropped 8% the next day.

Starting point is 00:51:59 You said that? That's a tough one. Are you familiar with slayed? I am familiar with the term, yes. I don't know if I use it that much. Yeah, we don't need to mess with those companies. I'm sorry. You're just not there.

Starting point is 00:52:14 I will say, though, still want to talk Shopify. We got some good questions from Luke in the chat here. It says, here's some questions I'm wrangling with the Shopify. I think he follows it a little closer than we do. If consumer spending slows, how severely will B2C companies like Shopify be impacted? And we'll say that, at least in North America, consumer spending is extremely healthy right now. To what degree are consumers relying on credit and BNPL services, so buy now, pay later services, like you mentioned there, Ryan, to maintain their spending habits, especially ones that are doing discretionary purchases on e-commerce, I would say. Is the claim resilience in consumer spending a temporary phenomenon driven by dwindling savings, or is it indicative of a generally robust economy?

Starting point is 00:52:54 Yeah, I mean, I think with Shopify, like you mentioned, right, over the long term, they should be advantaged. But it is interesting to think that, okay, are they growing this quickly? Is gross profit growing at 33%? Is how much of it is just some sort of macro uplift? And I think maybe some. And I think if you're going to buy today, especially at a gross profit multiple of 20, you'd hopefully expect, you know, a good amount of that to convert to free cash flow over time as they scale. You really need to be confident that the quote unquote, you know, terminal growth rate or the growth rate even five years from now on a top line perspective is still going to be like 15 percent. right? So that's one where I do have struggle with these questions about kind of the macro

Starting point is 00:53:53 consumer spending. I think you have Shopify on your watch list. If you're really confident in the mode of this business, it's one where you would want to buy when the numbers look ugly during a recessionary period, because there's going to be analysts out there worried about the next quarter that's what that's what i think yeah i don't particularly worry too much about like consumer spending contracting really quickly i think if you know if it if it does that hurts everyone it's hard to still i would say the businesses that have competitive advantages today that just if anything they're probably amplified during difficult times so it could It could certainly affect the stock, but I don't see it affecting the business over the long run.

Starting point is 00:54:46 But that's where I think trying to be a bit proactive is that's where you could maybe expect a buying opportunity to present itself and then not being afraid if the stock falls 50% to take a position. Yeah. Yeah, I think that's fair. It feels to me like – I've said this before, but it feels like we're kind of in no man's land with equity markets right now. There are certainly some stocks that I think are cheap. Individually, everyone obviously thinks that. It's like stocks are in no man's land except for the ones in my portfolio. It just feels like I'm not – if we kind of model these out, the returns don't look good for most companies that I'm looking at.

Starting point is 00:55:29 Valuations feel a little stretched. So this is where I think going back to that Druckenmiller episode we did, it's so valuable to know different asset classes and to be able to say, I'm taking a break from – maybe not a full break from equities, but I'm stepping away. I'm going to reduce my exposure to purely stocks right now because it's just – maybe you don't see the return there, whereas you could get fixed income earnings. I think I only know stock investing. um i yeah now's the time brett to learn no better time in the present to learn about fixed income strategies and short commodities and and currencies and all that stuff yeah that that that is what's your order what's your order for things you would want for asset classes you'd want to learn next i and consider shorting an asset class shorting would

Starting point is 00:56:25 be the one for sure. I don't have the capital to invest in fixed income. So I'm a little far away from that. You need a little bit more sizable chunks. But I will say, I think for a lot of people, they just go long stocks. They just own stocks, right? I think taking that quote or that lesson, and I will say, if you missed it, I would recommend listening to our full interview on Drunken Miller that came out earlier this week. You'll find it in your podcast player of choice that you're listening to right now. You can take that lesson, I think,

Starting point is 00:57:01 and almost say, okay, there are going to be some times where maybe instead of I get a bunch of money and I just keep buying a bunch of stocks, I just sit in treasuries for a little bit and I'm not seeing anything for this month. And then you don't see anything this month. You don't see anything next month. you don't see anything for a few months, that's not a big deal. You can sit in cash. And I think

Starting point is 00:57:24 this is one of those times where I'm not seeing that many opportunities out there. But as opposed to the beginning of 2023 and late 2022, I saw a lot of stuff that made sense to me. And also in probably around seven to eight months ago, wouldn't you agree? Kind of September, October 2023, there was a lot of stuff that made sense to me, I think to you as well, from a risk reward basis, but sitting in treasuries that are paying you 5% isn't the end of the world for a few months, especially if it's not your entire portfolio. I agree. Yeah, I agree 100%. Let's talk about Roblox real quick because the stock was down 22% after earnings. Yep. About 20% as I made my notes. I have some numbers on here.

Starting point is 00:58:16 We can probably look at some nice FinChat KPIs, although they reported this morning, so I'm not sure if they're updated yet. Uh-oh, I have to sneeze. They are up to date, by the way. They are, okay. Posted a chart about them. That's a quick team over there you got.

Starting point is 00:58:31 And I will say, I did give a little suggestion for a show that we're doing on a smaller company for recording a specific stock research episode, and the FinChat team, Ryan's one of them, so i guess i have a more direct line uh they do take your suggestion so if there are companies that you want to get added for kpis and all the specific numbers they give the you can give a suggestion and i've had 100 success rate with them adding it okay let's go to roblox have did you forget about this company ryan i kind of did i think for the last year i don't know if i'd say

Starting point is 00:59:06 i forgot about them i have cousins that are younger that kind of live on this thing but I pretty much omitted them as an investment quite a while ago, and I'm happy for it so far. I'm okay having not cared about them as a potential investment. Yeah. All right. Let's go through the numbers then because, yes, the stock has done quite poorly, but, hey, maybe it's an opportunity today. Revenue grew 22% year-over-year last quarter. Bookings, which is kind of their cash inbounds, they have a weird gap accounting stuff, that grew 19%.

Starting point is 00:59:40 19%. So both top line numbers, solid daily active users, 77.7 million, um, a slight slowdown, but still 17% year over year growth. The AU growth was positive for all regions and all age groups, which I thought was a good sign. Our spent growth was positive for all regions and all age groups, uh, still operating cashflow positive. I think they've been operating cashflow positive for each of the last like eight or nine quarters, which is good. Uh, but they're still investing a lot for growth they do their own infrastructure so capex is going to be heavy there but i still i think they're free cash flow positive like ryan mentioned stock down 20 today what's interesting though is this the stock is not that cheap still 2.8 billion dollars in 2023 revenue market cap of

Starting point is 01:00:28 just under 20 billion dollars right now so not even that cheap even if you think they could get to really elite cash flow or earnings margins. Do you know where that's from? Do you know why the stock is down so much and the valuation hasn't changed a whole lot? Why? Delusion. Really?

Starting point is 01:00:47 A lot of delusion here. I mean, not as much as block, but yeah. Yeah, you like my tweet? 7% compounding on... Yeah, there was 200... 210 million in free cash flow or something like that and they did $250 million in stock

Starting point is 01:01:03 based compensation this quarter are you looking at really frustrating for me yeah for me they don't seem to care that much it's another example of a company that just really doesn't seem to care that much about minority shareholders and they seem to be prioritizing making their employees happy instead of like growing the long-term free cash flow per share or you know what in this case they are growing free cash flow they're not growing real earnings yeah and now they haven't been public for very long so the chart here isn't it's only three points here but i'm sharing the screen and yeah you're right ryan because i kind of try to comp after the ipo year and there's going to be a big jump shares outstanding growing at about four percent per year that is a big head

Starting point is 01:01:53 went yeah you can probably move it to quarterly and get more would be my guess yeah i guess we could go quarterly still same sort of rate yeah just looks prettier yeah it's just a frustrating company for me i i have been positively surprised by the durability of this business the fact that they've gone from what is it 30 million daily active users to 77 million in a matter of three or four years gives me a little bit of belief that this can a little more belief that this platform is here to stay and it's not just you know a one-hit wonder like a fortnight or something like that um but i just don't think they really care too much about shareholders yeah i mean look at this revenue growth 54 annual rate from 2018 to 2023 so that's one two three four five years i

Starting point is 01:02:47 mean that's that's highly impressive but yes i agree with you not so sure they think about shareholders and that is important one company we didn't talk about today that i think cares about shareholders but does some of this funky stuff as well might have a better balance is airbnb uh they're down today i don't think the stock is really that cheap either i mean a lot of stuff as a as we talked about maybe the opportunities are there but we're not really seeing much right now they talked about again they're like look we we generate a lot of cash we have this cash pile and we're plowing money into shares uh to share buybacks that we have from this excess cash and they're reducing share count they're actually talking not just about the

Starting point is 01:03:36 nominal buyback as a lot of companies just go oh we're buying back stock but they actually talk about look our share is outstanding look at the chart it's going down and they talk about spending on marketing and spending on new products and stuff like that with a focus all the time they talk about roi and they talk about how it can actually generate good returns and i think that's different than the roblox or shopify talk where they're like we're building an empire 100 year company we're building a great platform blah blah blah blah and it's like all right well we're shareholders so we care about different things yeah our interests are not aligned yeah they may not be aligned i think that can be important but a company that grows revenue at 50 can you know

Starting point is 01:04:20 that solves a lot of issues um which i think that's how alphabet has performed for the long term very true all right did we hit all the ads ryan yep talked about everyone talked about our friends at fin chat public and firm returns once again just go ahead and check them out they're all good places yep thank you to all the advertisers uh helping support the show and thank you to all the listeners that tuned in uh to the live stream here um all right well let's hit the disclosure we are not financial advisors anything we say on the show is not formal advice or recommendation ryan i or any podcast guest may hold securities discussed on this episode uh may have held them in the past and may buy sell or hold any of the stocks talked

Starting point is 01:05:08 about in the future. Thank you to everyone for tuning in, and we'll see you next time. Do you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya, and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today, I'm still figuring it out. Somehow, things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride.

Starting point is 01:05:52 Stream a new episode of North of North Tuesdays on CBC Gem.

Chit Chat Stocks - Is Tinder Dead? Big Tech Capex Boom; 10 Software Stocks That Are Finally Profitable

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