Chit Chat Stocks - Levered 401k Portfolios; Airbnb's Grand Ambitions; PayPal and Perplexity's AI Shopping (NU, CART)

Episode Date: May 16, 2025

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks Podcast YouTube channel at 5:00 PM EST. This week we discussed: (02:27) Exploring Nu Bank's Growth and Market Potential (09:04) Instacart's Business Model and Market Position (16:50) Airbnb's New Services and Market Strategy (33:41) Challenges Facing UnitedHealth and Industry Insights (36:05) UnitedHealth's Turmoil and Market Reactions (41:21) Bubble Watch: Basic Capital's Risky Leverage (48:39) Earnings Insights and Market Trends (57:57) AI in Commerce: Trusting Technology for Purchases (01:01:34) Chime's IPO: A Potential Investment Opportunity ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠https://finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat 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 episode i'm one of your hosts ryan henderson and i am joined as always by the one and only brett schaefer on these episodes we talk all things financial markets we talk earnings news any headlines anything that could impact people's portfolio we try to talk about and we've got plenty on the docket for this

week. Some previously discussed announcements from Airbnb, UnitedHealth, kind of in panic mode, crisis mode, if you will, at the moment. A couple earnings to get through, and we've got some interesting bubble watch as well as our small cap of the week. But before we get to that, I do want to talk about our friends at Interactive Brokers. Interactive Brokers is the professional's gateway to the world's markets. Interactive Brokers offers commissions starting at $0 on US-listed stocks and ETFs with low commissions on other products, and there are no added spreads, ticket charges, or account minimums. Clients in over 200 countries and territories trade stocks, options, futures, currencies, bonds, funds, and more on 160 global markets from a single

unified platform. Clients earn interest rates of up to 3.83% on instantly available cash and pay margin rates up to 53% lower than the industry. You can also earn extra income on your lendable shares and IBKR's award-winning, powerful trading platform helps every level investor succeed from beginner to advanced on mobile web and desktop. When placing your money with a broker, go with a broker you can trust. Make sure your broker is secure and can endure through good and bad times. We use IBKR here at Chit Chat Stocks for their best in class international coverage, and you can too by heading on over to ibkr.com. Interactive Brokers is a member of SIPC. Brett, where do you want to kick things off? Well, we're not in the heart of earnings season

anymore, but maybe NewBank? I did a research report episode on them a couple of months ago, and it seems like, well, unfortunately, I don't own the stock. We just had a question in the comics what stocks are on your watch list new bank would definitely be one of them and they continue to just dominate the latin american online bank financial technology landscape they're in just brazil mexico and colombia and have 118.6 million users growing 19 year over year there was 48 deposits growth fx neutral which is excluding foreign exchange headwinds or some You know, I think the dollar throughout the quarter was pretty strong compared to some of those currencies. You have Mexico and Colombia deposits growing rapidly.

So we're seeing lots of growth in these markets. $557 million in net income in the quarter. That could probably grow to $1 billion in quarterly net income soon, maybe by the end of this year. Market cap is $65 billion, Ryan. feels like there's still a path to get this to 10 times earnings within the next few years. It's one of those where I come back to great founder, great business, at least it seems like it, you know, no. Financials can be tough. And there's always a bit of a black box there, depending on the lending standards, but the lending seems good

so far stuff like that i always come back and say why don't we own this thing yeah i kind of just took a cursory glance at new bank's earnings and i saw a lot of people upset with uh i think it stock dropped a little bit on this report although i mean the growth was good the expectations are just i think pretty high typically the a lot of investors who i think are probably migrating over from the tech world we're worried about margins like you know i'm i think we're they're worried about like oh margins are compressing welcome to the world of investing in banks this is you know it's not perfect operating leverage for banks in general yeah so yeah i mean margins i think ultimately for this business primarily you want to be focusing on active customers

active total deposits and then any sort of color you can get on the lending portfolio overall Because if you just look at numbers, they're always a trailing indicator, net interest margins. You want to get a sense of how the loan portfolio is going to perform over the future, as opposed to just purely paying attention to trailing net interest margins. Anyways, yeah, I don't know why we don't own this. I think I had this concern when you brought up the report, and it was a good report. I recommend checking out the episode. It dives into detail about how they make money. but latin american fintechs i just have a hard time with because we've seen a lot of them seem really sexy at the time look really good and then there was sort of a hidden what are they trojan horse i guess in the loan portfolio where uh there was maybe a ticking bomb and you didn't see it coming so that's probably my biggest hiccup or hesitation what if i showed you this headline ryan this is just a tease some of the articles paid from our recurring guest

latin american correspondent ian bzek who lives in columbia says and this is the title why i a former new bank skeptic am now looking for shares to triple posted two days ago what is it that's got you know ian knows latin america he knows the underlying markets that these this company is operating in i gotta say it's a nice uh how do you describe it it's a nice vote of confidence that this business is not masquerading as a good business that uh well i'm trying to remember the fintech companies well we're going to talk about one of them today block uh what was that era 2021 2020 where there was just a lot of fintech nonsense crypto buy now pay later everything upstart it looks like new bank is one of the gems there was one that was

like berkshire had taken an equity stake in it and they sort of had a lending bomb go off in latin america uh stone co stone co that's right yeah yeah i mean if if ian bzak gives it his uh mark of approval that means a lot more than my opinion on the company because he probably follows it a lot more closely and has boots on the ground plus just a phenomenal investor all around yeah i'm gonna have to give that article a read maybe i should just take a flyer on this it's it's one of those where the every quarter the charts are great to look at and customer growth is fantastic and for some reason i just without ever looking at it i instantly think this is too expensive without even looking at the valuation i just

think it's going to be outside of the valuations i look for and it's not crazy wrong yeah no you mentioned it in your report it's it's really not too crazy of a valuation at all do we want to talk here's here's an interesting one americans still like paying someone to go get their groceries the recession instacart heard nothing about it yeah they are uh we have a comment here though from another uh investing podcaster matt money that says i have 95 leaps on new bank for january 2027 so hopefully that works out for you could be a could be a not not bad investment there but Yeah. I think that's all I got on Nubank. Let's transition to Instacart. The business, I frankly don't understand, but people seem to keep coming back each year. So it looks like

they're turning themselves into not the worst business model in the world. Yeah. I find it almost when you don't understand the consumer behavior, this is not a slight to you because you're more of the rational consumer. Frugal. Yeah. i tend to think there might be some legs here i think you underestimate american laziness and yeah instacart that is probably them and doordash are probably the two businesses that i would have thought wow they were big covid beneficiaries but that's gonna get eaten away by competition i guess zoom too but that actually did happen but there are the two instances where it did not

happen. And COVID gave them, I think the headstart or the boost that ultimately is helping them today. They still continue to grow their total orders and their total orders are actually accelerating now. Growth, the growth in total orders, 83 million total orders, I believe this quarter, which grew 14% year over year. Average order value declined by 4%. Not sure if that's that's intentional by design if instacart's offering stuff on like i don't know trying to incentivize like less merchandise in your typical basket or maybe that was just the typical ebbs and flows of a business but the part that i like here is the advertising revenue they it makes all the sense of the world for cpg companies and food brands to advertise on instacart and get like

premium listings there. I mean, that that's a perfect place. You know, people are shopping on there. It's like sort of the digital front aisle or whatever the premium placements are in the grocery stores. You know how they put all this stuff in there that they're trying to get rid of as quick as they can. It's kind of the digital version of that. And they've done a really good job driving the advertising revenue from that category. Operating margins are solid 12% gap operating margins. Over the last 12 months, they have earned $457 million in operating income. The market cap today is 12 billion. So a little over 20 times EBIT to EBIT. If I backed into it, I could be slightly off on the numbers there, but ballpark, let's call it just over 20

times a any interest in this business because spoiler alert i actually do have a lot of interest in this business and then b do you think this makes sense as an acquisition candidate for doordash or uber well definitely makes sense as an acquisition candidate not sure if i would get through from uh anything competitive standpoint i guess there's only a few competitors in the space now, but I was going to be just curious on gross margin versus operating margin. Yeah, I just wanted to confirm it was high. So 75% gross margin, 13%, according to Finchette here, operating margin over, I'm assuming the last 12 months. So there's plenty of room for margins to keep rising. And we're what at 20 to 25 times. If you can get around a thesis that operating

margins can go to 15 to 20 to 25% to 30% as they gain more scale. I would definitely be interested here, but let's say I don't, uh, I don't know how they define their expenses on their income statement. So they could have like, uh, I don't know, there could be some cost of revenue in the income statement. So don't say this is not a recommendation to buy, but it looks cheap and it looks like a durable player out there. Um, the other thing I would want to research is the market share gains and losses versus doordash and uber eats i'm a bit surprised that the two larger players in the space doordash and uber eats have not eaten into instacart's market share similar to how grubhub's uh struggled and what was the one that uber bought postmates and

instacart seems to be doing just fine but yeah definitely some interest stock doesn't look too expensive yeah we've seen a lot of like second tier marketplaces if you want to call it that think lyft grubhub uh just eat takeaway i think that's more european get just kind of wrecked like a rough couple years especially uh following covid it I would have had no way to predict three years ago whether or not Instacart would be in that bucket or the DoorDash slash Uber bucket where the marketplaces have thrived and had sort of strong brand customer loyalty despite there being other alternatives. Instacart's totally proved that they can be a legitimate marketplace. and i think people i mean it's synonymous with shopping online for groceries at this point it's kind of the go-to when you think about that if i were an uber shareholder i would not be upset

if they spent some money to acquire instacart obviously don't want to add a crazy premium but i think under their app this is more powerful they obviously reach more customers and they already are starting to sort of loop in those convenient store type trips to the uber eats to the uber eats app so i think this this seems like a reasonable acquisition canada i like the business and uh frankly this might be on my research list companies i need to look at yeah or maybe mine i need to pick one for i think my next research one's coming in june need to pick one still so maybe i could steal it from you i would i guess another thing i like here is that unlike food delivery or restaurant delivery there's actually no how am i trying to say this

customers are generally they get upset with food delivery over time i think the product quality is way worse than in a restaurant or with traditional food delivery like pizza or chinese food or you know, takeout and the fees are very, very high. Whereas Instacart with grocery, it's something that is a larger purchase. It saves people a lot of time where typically a grocery store run might take, you know, 20, 30 minutes and you got to drive both ways. So I see the long-term value proposition there. And then you'd also don't have self-driving risk as you have with Uber. So maybe Instacart is – maybe grocery delivery is the best part of this entire gig economy, food, transportation, and restaurant delivery value chain. Autonomous shopping is not a threat yet.

The humanoid robots. But that would be a benefit for them, right? Because – True. Yeah. And it makes all the sense in the world from an advertiser's – from a brand's perspective to try to advertise there. And the grocery stores. Yeah. And you can deliver true value. If you're Instacart, you can deliver true value to advertisers. There's a lot of marketplaces where I kind of think maybe they've got a good ad sales force and they're able to attract advertisers, but it's not somewhere that's really going to draw that many advertisers naturally. This is not that kind of business, I don't think.

but let's shift gears a bit airbnb had some big announcements we just did an episode on them and a lot of the predictions by drew from speedwell research came to fruition or kind of it was it was what we were expecting we should say yeah yep generally and if anyone wants to listen to that episode it's in your podcast player already if you're listening to this podcast it's going to be the one right before it or right after depending on how it's ordered ryan you have the notes on this so why don't you take us through it but it seems like as a tease a lot of investors at least on fintwit are very skeptical of these new announcements yeah and someone wrote an open letter to brian chesky which i i don't know i love when people

just jot down their thoughts on a google doc and call it an open letter to the ceo I mean, maybe he read it, maybe it worked, whatever. It did attract a lot of investor attention. We'll talk about that in a second, but let's get to the actual announcements first. Airbnb, they had one of those very pretty videos, as you'd expect, plenty of press releases around this. And ultimately it came down to basically announcing three things. So here's a quote from their press release.

It says, a great trip is about more than the home you stay in. That is why we are introducing Airbnb services, incredible services to make your stay more special. Airbnb experiences, explore a city with the locals who know it best, and then all new Airbnb app, a redesigned app that makes it easy to book home services and experiences all in one place. Some of the service, they're launching with 10 services categories. So the categories are chefs, photography, massages, spa treatment, personal training,

hair makeup nails prepared meals catering and then they've got another list for experiences not going to go through all of them but it's different than the home listings right home listings you're just aggregating like like the people are coming to you and in some case that's true but here they're actually uh they made sure to specify that they are quote vetting for quality they want good experiences for services right because the experiences are already there and anyone can just sign up for both i mean they said they're gonna like a decision team will make uh allow them to be on or not apparently yeah for the services right i mean i can check the language but it said vetted for quality on experiences as well if you check the press i mean they vet for

quality on homes right you have to take your pictures and yeah i guess i'm not sure whether or not they said okay for now it says sent a small internal team decides which experiences qualify that seems a bit i guess it seems a bit rough because you want as much supply with that one as possible i don't know i mean i don't know if there's like liability issues or something but i don't think so because viator already exists and airbnb experiences already has existed for many years they just haven't advertised it they're on there you can check them out i mean i looked it up for a city like uh buenos aires as an example for their newsletter and there was already 68 experiences available yeah i guess i'll save the discussion questions here for a second but shortly

after a guy named chris pike might be saying that wrong pake maybe p-a-i-k from pace capital wrote an open letter to airbnb that i think is worth talking about in this letter he talks about basically building companies from bottoms up versus a top-down approach and he says airbnb's dna is bottoms up your founding story wasn't a master plan it was two designers renting airbeds to pay rent every major unlock since instant book super host category browsing came from observing how millions of hosts and guests actually behave then institutionalizing those patterns that is bottoms up to the core and he says experiences and services i think is included in this as well is a top-down import he says experiences reverses that playbook their central curation a small

internal team decides which experiences qualify which violates the crowdsourced logic that made home scale it's labor-heavy supply i don't know if i totally agree with this one but a spare bedroom this one makes zero sense i mean airbnb is not they're just taking a cut like always right yeah i think the idea is that uh it won't scale like homes like uh so he says a spare bedroom can earn money while the host sleeps a three-hour pasta making class cannot the yield curve is inverted so basically like it's not going to attract as much demand look i don't i don't agree with that there are business models that have proven this work and then people people take these classes already yeah repeated relaunches he says this product was paused in

2023 reopened to new hosts only last september and is being relaunched again this month these resets are signals that the market not the mechanics is rejecting the idea there is also he kind of takes some jabs a little bit at chesky like i think in one part he's like look i know you've built something really good so it's probably easy to think you can do whatever you want but this is not like you can't will this market into existence and the market already exists yeah so i didn't think some of the some of the jabs were fair but i do think some of his critiques around experiences being not sort of airbnb's core are legitimate my question is to you what do you think broadly of this announcement do you think there's any validity to some of

these critiques uh let me go with the last one first i think the central curation one maybe could have some critiques i understand why with the services they would want to vet people because you don't want to send an unqualified i don't know personal chef or what would it be a massage to someone's home uh you know that the airbnb that they're already renting that would be not good and you obviously don't want to have you know bad actors in that situation but everything else here doesn't really make sense to me uh people need to remember that viator exists you can look up any trip thing like that's an experience this is a direct experiences competitor that is called viator and it's doing things you would do on vacation that's not staying at the

hotel or Airbnb, which are tours, activities, cooking classes, I don't know, the nightlife bar crawl things that people pool together and do the little deals to hop around the cities. If you search Viator in the city you're located, that would probably pop up. And if you don't live in a tourist area, search a highly tourist area. These experiences, I mean, there's an existing market for it. And the way that he said that, like the signals are that the market doesn't want it, it's because they essentially hid the product within the marketplace. They weren't accepting new host for experiences.

So there wasn't much supply on there to begin with. And I would argue that they maybe dropped the ball by not focusing on this for a long time because Viator has grown really quickly in the last five years. And it's now probably a decent competitor for Airbnb experiences. Services, this is how I think they're looking at it. They're trying to look at what a, maybe only upscale hotels, but what hotels can offer their guests. Essentially the spa, the gym, restaurants, food, all that stuff within a very nice area. You don't even have to leave the hotel. And one of the key things that Airbnb is trying to do is turn some of the people that go to hotels and convince them that they can stay in an Airbnb.

And the services one, look, Ryan, it's not for us. It's for people that are staying at a $10,000 vacation home. And you'd want some catered stuff along with that. I think there is the TAM on that one very large and probably not. But if they can say, look, you can go to a hotel and you can have all these catered experiences and stuff like that, and you can ever leave the resort or you can stay this very nice vacation home. We can have food provided for you. We can bring in a private chef. We can bring in a spa day at your hotel.

And that's that's a value proposition right there. I don't really I think people critique Airbnb because they overhype their products. but they do that on purpose to drive virality and free marketing it's a playbook they've had for the last 15 to 20 years listen to us now we're doing a 10 to 15 minute segment on that everyone's going to know what this

product is and I think there is an existing market for it and what it's going to do is is the addressable market on experiences and services that large maybe not but if you build

the But if you add on all these other things, it can help more people book stays on Airbnb, which is their cash cow. So I like it. It's fine. Yeah. When I saw it, I didn't love it. But thinking through this, recently my family went to Italy. We used Airbnb, I think, to book a place.

we got like photos done like family photos while we were there we got uh uh cooking class done as well or we went and took one so those things could theoretically be done on airbnb as well especially if you're thinking about those prior to like a trip like things you want to do while you're there yeah they have you as a captive audience where they can say look while you're there book our class it's not our class but book uh who would be giovanni's class and sure you know i i do worry that this i think it would be better if they were doing this today and they hadn't had sort of a botched launch two years ago maybe it would feel like a more unique product but you think about it

i mean two years ago they let's not pretend like they didn't try to make experiences work i mean they redefined their nights books to nights and experiences booked they talked about it on conference calls they you know it was they did they spent the same amount of money on some designer to make a nice video uh and this was two years ago launch i think it was 2023 when they first announced or was it last year this guy might be getting it wrong i mean they launched experiences first in 2017 2017 that's when they first launched it yeah i feel like they like tried to relaunch this like a year or two ago maybe maybe that could be correct but i know the initial launch was well before the pandemic i get my product launch history from brian chesky's twitter

account so maybe it's just him reposting stuff but you know this has been out there right like it's it's not like they haven't been trying to make this grow so i do to some extent maybe worry about lack of focus here however it's certainly a viable market to go after i don't think it'll be as big as stays but i think this could be supplemental and hopefully they are not investing too much into this and it's not going to be too costly of an endeavor to go after it my guess is it won't but if you're using like centralized curation where you're going through and picking all these things then i worry that you're maybe allocating too much resources to it maybe and look with the

with the thing that it hasn't been working look they paused no one could join the hosts now people could book the existing experiences so like again there's not very many offerings out there and they didn't market it at all at all it was very very difficult to find throughout the application so i would expect them to market the hell out of this and market on both sides of the marketplace so they're going to try to get as many hosts to join as experiences which there are a ton out there just look at viator and then they have the existing users to try to market to i don't think it's going to be that difficult um but maybe i'm wrong maybe i'm too optimistic if we look at i was trying to look up the timeline they let's see here's what it says just to clear it up

for the listeners they first launch experiences 2016 halted during the pandemic they resumed it in 2022 but again paused in early 2023 uh maybe so that it wasn't very long like they probably just said, maybe we have more things to focus on the core. I don't know. Chesky kind of goes back and forth on some of these things. And then they finally started taking new applications from the host side of things to join late last year. So I wouldn't really call it a dead product. I think people are very misunderstanding what actually happened. Now, the initial launch in 2016 was not as big as they thought it would be. But post-pandemic, Like, anyone that says that this isn't a viable market just doesn't understand, like, normal tourism.

I mean, if anyone has the right to win in this market, it's Airbnb. Sure. Well, okay, I agree it's a viable market. But honestly, I'm skeptical that – it's so hard. When apps become synonymous with one thing, I find that rarely, especially American heavy apps, do they successfully cross to other markets. I really can't think of many instances where that's worked. i mean let's not pretend like just like it's a different app though like well now it's it's all within the uber app now it's not all on the uber eats app i'm so there's both yeah you can do

everything's in the uber app now but there is a separate one as well the i don't know i'm skeptical i would hope i i would love for this to work out i'm a shareholder uh i've been i've bought some and i think two weeks ago some more i like the business but it's not like i don't think this is going to be instrumental and change the financials of the business anytime soon would be my suspicion if it does that's a cherry on top i don't think you need it in order for the stock to work from here but any last thoughts and then we can shift gears yeah the one that i would be the most skeptical on it just being a giant market opportunity someone spends 50 on a tour that's a lot different than spending 100 bucks on a

vacation rental so maybe it's just not that large to begin with yeah all right before we move on i do want to talk about blue chippers club this was started by two friends of ours with the goal of building a tight-knit community of stock focused investors inside this community you can share and break down your portfolio, pitch stocks, receive feedback, and participate in weekly calls. I have joined those weekly calls on a pretty regular basis as much as I can. And I love having that instant feedback with a lot of listeners have joined, a lot of friends of the show have joined. And it's just nice to talk through ideas and see what everyone else is thinking.

It's a great place to collaborate with others. So if you're interested, go ahead and head on over to bluechippersclub.com and check it out. that's bluechippersclub.com the link will be in the description do you want to talk united health uh i don't even i don't know what's going on all i know is the stock's down ryan so maybe if you have some information you can help but this one immediately goes in to the too hard pile that's what i would say yeah i'd say it belongs in the too hard pile as well but it is a huge business obviously it's one of the biggest insurance companies in the world might be what might be the biggest i think it's the largest health insurer yeah

so i think a lot of people know what happened last december uh the ceo was shot and killed and that's it yeah this was an i believe it wasn't the head honcho it was the ceo of one of the divisions so second level oh really yeah oh confusion because i think it has a similar name but okay ryan thompson either way i mean that's either way feel feel terrible i mean it's terrible situation yeah uh but since that moment it's kind of just been a spiral of bad news and really bad incidents of the company as well so last week the company had some rough earnings and the ceo shortly after i don't know if this is the new ceo or maybe he's been in the role for a little while stepped down for quote personal reasons now with all the scrutiny

that united health has drawn and there are a lot of people that are like kind of the assassination has started like a lot of people getting very active about hating united health so the personal reasons there could be worries about personal safety that kind of thing um could be wrong there but it's cited as personal reasons and today the wall street journal reported that the department of justice uh the department of justice's health care fraud unit is conducting a criminal investigation into the company for possible possible medicare fraud they also already have a civil case going on medicare fraud as well this quarter they had surging medical utilization which i guess is to say what that is i don't i assume it just means people are like

yeah having more medical incidents and it's more expensive for them so it's affecting their profitability maybe it could be something else we have no clue no i i think that okay i'm pretty sure i'm right on that but uh they decided to completely pull their 2025 guidance so string of bad things obviously ceo assassinated that's terrible uh earnings not great pulled guidance new ceo resigns and three days later they are being investigated for possible medicare fraud united health is down almost 60 it has not had a drawdown like that since the gfc the forward earnings multiple which keep in mind forward earnings so that e can change dropped got cut in half in a matter of like three days i think it was trading at 11 times

forward earnings is there any price where this becomes researchable for you no i don't know anything about the business i don't know i i it would be very hard to understand this business you're at the whim of what the government decides to do they could say they could all decide that obamacare is done whatever go through the legislation and stuff like that but why what is this stock is the stock for me no i i just have no interest in this unless you have researched the company and were optimistic about his business prospects before this stock collapse there is no way you should invest in it you don't look people made money on And during the short banking crisis of, was that 2023?

People made money on that. You also could have said, oh, Silicon Valley Bank, First Republic, they take care of their customers. I guess it's different than this situation. Or, oh, they're leaders in their field. I'm going to buy. Buy the dip. You have no idea what this business is.

And it is so complicated. I could probably do a month of research and still not understand the healthcare industry. anytime i try to research health care i immediately go to sleep i get i literally can't do it so i'm gonna play a different game this is not enjoyable for me to invest in it doesn't seem like there's a great risk reward given that it could easily just go to zero and i'd rather play different game give it a percentage odds guess what are the percentage chances you think berkshire acquires zero zero they tried to kill this business with that partnership i'm not familiar what was the partnership jp morgan amazon partnership to try to right

solve health care whatever that was that got nowhere yeah they do own davida i guess which has been a very has been a credit quite an impressive stock yeah yeah a lot of the health care industry i'm with you i think it's it's always interesting when a lot goes wrong for a company all at once and without knowing anything my gut tells me that this ends up being a i don't know i saw this recently that there's a basket of stocks of like always worried about something happening and nothing ever happens and i think health care might be in that industry or that space some some of the big health care businesses google might be in that space for me uber i think is kind of in that area

i my gut tells me this could work but i have absolutely no interest personally plus i think i have just a mental cutoff at like 200 billion dollar market cap like i don't feel that inspired to do research on a new business especially one where it's an industry where i like need to get up to speed on it the whole industry google amazon whatever it doesn't take that long to get up to speed on that health care that's a little different health care could care less that's that's my that's my statement what do you want to talk about now bubble watch let's do bubble watch yeah did you see this i'm sure you did it was all over the internet yes i saw i honestly i stopped watching after you started talking about like

uh how poor people don't have enough access to borrow money at really high interest rates just yeah yeah yeah the u.s government has allowed you to get a 30-year fixed loan on homes but there's not enough access to debt in this economy yeah um okay let's give some context for the listeners that are on twitter there is a new startup out there called basic capital and they did a launch video i don't i have the launch video here there wasn't really much that i think we don't need to listen to the full minute 30 because they don't talk about the full product, but here is what basic capital is going to offer its customers. Essentially, you can get, would it be four times or five times leverage? Essentially, you put in $20,000

and they invest $100,000 for you. So you have $20,000 in equity and then $80,000 is levered. now we can look at it i mean it's you know you can stop right people use debt it doesn't necessarily mean it's a bad thing but the way you're financing it seems a bit risky here's what the founder says uh you get uh so the four times financing of your say twenty thousand dollars you have add eighty thousand dollars on top of that that is at a six point two five percent floating interest rate floating the assets are split drum roll ryan ten percent s&p 500 index fund and ninety percent in a private credit fund uh yeah who's private credit their own private credit fund actually yeah actually there people

haven't confirmed this but there's been discussions that given the way they're saying there's no margin calls and stuff like that they would have to basically funnel it into their own fund i'm not an expert on this type of stuff but the way he argues it is that you have the 90 credit is yielding eight and a half percent and your loan is at 6.25%. And given, I guess the math works out to 11% returns on the original investment. And then let's say this is what he's just spitballing on Twitter. He goes, and then you get the equity market upside from the other 10%. Let's assume that's 8%. Yeah, let's just assume that stocks are going to do that. Well, guaranteed. He says combined, you get 14% return with less equity market exposure. The additional 4% to 5% pickup

compounded over 30 years has massive impacting on compounded over time. However, there's a lot of skeptics, and the number one would be, this is an anonymous account called Jake from Economic. He is very good at dissecting fees and stuff like that, and just how all these new financial products work. If he starts being skeptical of your product, you might need to revise it. That's kind of would be my rule of thumb so if we look at and again it's hard to talk about over audio but if you look at the returns you are long 50 s&p 500 450 to private credit fund which again he's essentially like the founder is saying look there's this eight percent return on this private credit fund a year uh you know interest he's like imagining that these won't default

okay uh then you're short again short in this case basically your expenses 400 you have a 6.25 payment in kind loan 300 a year in fees so you need to be giving them enough money to make up for these annual subscription fees for the product you have a 0.5 expense ratio and five percent taken of all gains. And the way he looks at it is they said, this is their marketing pitch, you've been able to lever up your home buying, why not lever up your stock portfolio? And I couldn't really say it better than myself here. I couldn't say it better myself. He says, comparing five times leverage on opaque credit to owning a home with a mortgage is BS. A mortgage historically turned a rising expense in rent into a fixed payment while equity was built over time.

the liability was fixed and decreasing. In this case, the liability compounds. And there's obviously way more potential volatility. Have you ever seen what credit yields do in a financial crisis? I was just posting a lot of Michael Burry memes looking at mortgages, kind of glancing at the screen. This seems destined to blow up. It's like they're saying, we saw how mortgage-backed securities over a 40-year period turned into the great financial crisis why don't we try it with 401ks and roth iras you know what i always think though when we criticize these things because they they do deserve criticism we're giving them free press free marketing no i think we're giving them do you think this is what they wanted not a single

listener to our show i am let's say yeah like here's tyler in the comments uh actually a different tyler tyler franklin two tylers of our small yes we're a lot of tyler fred says if you give money to basic capital you deserve to lose it i ryan have a high i put our audience in high esteem i think they wouldn't invest in this yeah no yeah i totally agree but when you're responding and you're giving it impressions and the video look i worry that it ends up yeah you know what i i take it back i agree if you invest you you deserve to lose it the uh yeah and it's just i think we can kill this i think i think the internet can kill this product i literally think they can kill this business by just saying by just uh what do they call it canceling to death

that that video maybe yeah the i mean i i just don't use credit to buy securities boom i think that's like for the average person i think that's a fair thing to do like follow follow that rule i would consider myself the average person yeah and the way like i don't disparage people okay let's say you took your equity portfolio let's say you're young like ourselves and you took your equity portfolio to 120 percent which just means you're taking on 20% margin. Now, this is not 500%. This is 20%. That can make sense. You have more income coming in. You're leveraging it a bit. Maybe you get a decent margin rate, like at our friends at IBKR. Shout out to our sponsor. But in this case, you're levering up quite a bit on a highly

volatile asset, including this private credit stuff. People can make all the arguments they want that are way smarter about this than me but i think common sense here just says it's ridiculous and one of the arguments uh from i think the defenders of this product were saying that oh well you're not going to get margin call given the structure of it so the worst that can happen is your equity gets written to zero okay well that's not great remember buffett's rule number one and if the margin call is not there it has to be picked up by someone else which i would say that's free like someone is taking on that risk and it's fast to someone else yeah yeah yeah i think this is just destined

to implode okay do we want to rip through some earnings we should also mention uh our friends at FinChat. We use them all earning season long and in between. You can get financial data on all stocks globally. And I forgot to mention this. I don't know if we mentioned this during the episode. Morningstar Research Reports are now on FinChat. If you are a subscriber to FinChat, you can get Morningstar Research Reports. I've been reading some. These things are great. And they're really helpful, thoughtful, especially their earnings summaries. It's on, I think, 1,700 stocks, so most of the big ones. Gets you up to speed on a lot of stuff.

Is that kind of what it helps for? All right. Well, hey, the product's getting better every day. And you can get 15% off with FinChat.io slash chitchat. Do you want to talk block earnings or favorite psychological short? Yes. Jack Dorsey, I guess, has not worked through this turnaround yet. This is recommended that we talk about this stock by a listener.

Their new, I think, ticker is XYZ. I'm not sure whether their name is XYZ, but I think they're still blocked. When did they lose you? The name change or the ticker change? the yeah i think they lost me at officially it probably should have been earlier than this at the after pay acquisition but it should have been earlier with the what was it the bitcoin stuff that they were doing like a year before did you know sidebar they just integrated the after pay tech to cash out dorsey's got a lot of vacations to go on it's been three years

And you know what? At the time, we called that one of the worst acquisitions of all time. Too soon to pat ourselves on the back. No, we don't need any back patting on that one. Everyone called that. Fair. Not everyone. Okay.

There's a lot of growth guys out there that thought it was attractive. But I can remember one person saying that they were disappointed as an after-pay shareholder that they didn't get more from Block, which is quite interesting seeing that the market cap today of the combined company is less than the acquisition price. We want to go through some context here, Ryan. The stock today, I don't know if you've been following us, is at $57, which is below 2018, 2019 levels. That is what? Dead money for close to a decade now. And we look at some of the underlying business. It's not bad. Transaction-based revenue growth slowed down recently. but it's still growing they're losing share to toast but this is a solid business depending on

how much you have to pay on marketing and incentives and stuff like that but one concern and we've seen this floating around is that cash at monthly active users has flatlined i would argue really like we tried it when we were shareholders back in the day you know to kind of test the waters and i would try to use it but honestly who needs this app i don't know i don't know why it needs to exist i do like look good i think part of this is because they've been cleaning the app away from crime which right after the hindenburg report yeah but they've been flatlined at 57 million users i just think venmo is winning this battle and they were doing all these like huge incentives to get people on the cash app like

you know send send it to a friend and that friend will get whatever 50 bucks 10 back in bitcoin if you use our debit card is that a real thing uh at least like once a month yeah i used to do that and then just immediately sell the bitcoin yeah it's not profitable whatsoever outrageous lifetime value expectations for those uh those customer acquisition costs to be worth it yep and i don't Obviously, the Bitcoin stuff was a red flag. And if we look at the price today, Ryan, and perhaps they're under-earning, you could argue, but give that Jack Dorsey. That ought to call it a bump. Let's say just pencil in $500 million in useless expenses when he's your CEO.

It says the EV to EBIT is down to 31 today, even though the business has continued to grow revenue and gross profit and earnings, really. Price was so overvalued before. And perhaps it's a buy today if they fix things, but it's still in an 80% drawdown from all-time highs in 2021. one. This is an ugly mistake if you invest in this. And this is one where I think you if you just don't lose your mind emotionally when you have a 10 beggar, it's one you can prevent from

happening because you could have seen the writing on the wall. And these are the things if you're going to invest in individual stocks and aim to track or beat the market or just not blow up your retirement savings these are the this is the one thing you need to avoid everything else you'll be fine these are just the one this is the one thing yeah when something drops 80 percent and it still trades at an ev to ebit of 31 that's tough the thing for me i don't think i'll really ever be interested in this i was thinking like you know if they got rid of dorsey and they brought in like a very yeah let's just call him a great ceo i don't know what his pedigree would be whatever you still have uh i guess point of sales slash operating system business that is highly

competitive and in one of your biggest markets which is restaurants toast is kind of well that's doing better than you it's not they're crushing yeah but doing better they're doing better shift for is extremely aggressive although that's not necessarily their bread and butter of a market but yes they're competitors in all these places and frankly just the point of sales business in general is a competitive space and i've lost any sort of belief i had in the cash app i've kind of lost it over the last couple years i don't know anyone and i have moved across the country and where where is this now supposed to be popular by the way keep in mind it was like south and southeastern u.s is where cash up was supposed to be popular i've moved to

texas i've never met a single person that uses it the only people i know that use it uh the only people that i the only app is venmo um so i don't know it's one of those where it somehow has 57 million maus and i don't know a single one which just doesn't seem believable yeah where are these maus it's sort of like the maybe the facebook ones where oh they logged on this month for facebook marketplace that counts as an mau when we gave them 10 10 dollars worth of bitcoin they they logged on yeah let me give you another way to i'm going on the next segment after this another way to capture the multiple compression in december 2020 their price to gross profit was 36 today 3.9 price matters this is a big lesson in that yeah management matters where they put money

matters let's see if you invested ten thousand dollars in block in 2016 you would have let's see here no it's been fine since the ipo it's been okay all right if you invested ten thousand dollars in 2018 you would have if you invest if you if you invested five five years ago you would have lost money let's just leave it at that yeah exactly well a lot of other stuff is done quite well do we want to hit small cap of the week ryan uh i'd rather save it because someone asked us to talk about semrush so let's save it and dedicate some time to it for a later episode next week we can what about yeah because i know you had a lot of detailed notes there so i didn't want to

let those go to waste but we can save them we got another episode next week so we can put them there How about PayPal and perplexity, Ryan? I think this could spark an interesting discussion. PayPal is going to process purchases on perplexity, one of the AI engines, bots. I don't know what to call them. Here's the quote from the press release. The entire process, including payment, shipping, tracking, and invoicing, will be handled behind the scenes with PayPal's account linking, secure tokenized wallet, and emerging passkey checkout flows. Talk about buzzwords.

which could eliminate the need for passwords and streamline the experience to a single user query or click. So what this means in layman's terms is you can directly buy products through the Perplexity chat interface and essentially tell your Perplexity agent, I guess. Again, if I'm getting these words wrong, any AI experts out there, I'm sorry. But you can essentially tell Perplexity, go buy this product and they will or it will my question to close out here is would you trust an

ai to do this for you and could it impact the payments landscape if this new layer of commerce gets added on me no obviously i would not trust an ai to do this i hardly do my like hardly do any shopping to begin with i'm going to be pretty meticulous with everything i buy is this a common thing no is it shopping through yeah i mean it's just don't people you want to browse what they buy yeah that's what i would that's what i think the big concern is over this agent commerce stuff remember we talked with i'm forgetting his name um the guy that is within the ai startup space has come on the show before he was talking about and this has been a huge thing now about the narrative of bringing the

AI agents to help you do busy work tasks. For example, I've been on this rental car insurance thing forever. If I could have assigned an AI agent to that, I would have paid quite a bit of money to get them to do that for me. And I'm sure there's other things out there like filing paperwork, stuff like that. That makes sense to me to have one of these AI agents do that. But shopping, I feel like part of it is the browsing, maybe for inspiration, but having them purchase it for you there's already one click checkout shop pay maybe three clicks i don't know yet a value here i don't think and maybe dunk on me if there's a huge disruption in payments but i don't think the payments landscape is going to get wildly disrupted

because of ai agents how many times does paypal paypal announce partnerships that don't end up being super material to the business i know it's good for press for both parties but they they are pretty partnership happy from what i've seen i think this is a bit of i say kind of meh if i'm a if i were a perplexity shareholder which i'm not and i don't uh unless here at BC, I don't know if you can be, or you're a PayPal shareholder, I don't think this is like the biggest deal. No, I don't either. Again, I'll just reiterate, I think AI agents can have a lot of potential for busy work. But with shopping, I think people want to do that. It's not going to solve grocery delivery, if you virtually say. No, Instacart will.

yeah maybe you could say i have a shopping list inspire me with items but i'm not going to go okay buy these avocados and then they're going to buy the wrong kind out of nowhere like no buy i i would still check the list there would still be things you need to check through all right i think we're running a long run chime s1 they went they're going public yeah we're here wait potential short or potential long because i immediately thought probably short i don't know aren't they like pretty popular i guess they're not a bank but aren't they they're yeah they're a semi-bank they pass off the s there's an fdic uh insured institution that they partner with to actually host the deposits they have 8.6 million customers

but they still are losing money it's like the same size as sofi almost yeah depending on price i like so far much better how do they make money uh debit card advanced payment loans bank accounts i'm sure they get fees from their partner bank too all right well i mean one to watch maybe they've done a good job with the growth algorithm getting customers onto the app. When I see their income statements, I just think, well, that and Google. Yep. That's why they're profitable. A lot of marketing spend. Yeah, no doubt. All right. I think that's going to do it. I'll wrap things up here. Thank you everyone for tuning in. Thank you for all the questions. Hope you enjoyed this episode.

Feel free to check out our chat on Substack, Chit Chat Stocks, Substack. We have a lot of conversation going on over there. Brett posts all the show notes as well, thoughts, and it's really good for all our research episodes specifically. So plenty of good write-ups there. Thank you all for tuning in. Brett and I are not financial advisors. Anything we say or discuss on this show is not formal advice or a recommendation. We may buy, sell, or hold any of the securities discussed on this podcast. Thanks again, everyone, for tuning in. 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 stream a new episode of north of north tuesdays on cbc gem