Chit Chat Stocks - Markets In Turmoil; Oracle's Wild Plan; Adobe + Dollar General Earnings; Revisiting a Small-Cap

Episode Date: March 13, 2026

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: (00:00) Introduction (03:17) Adobe Earnings and CEO Transition (06:06) Dollar General's Performance and Market Indicators (09:07) Oil Prices and Economic Implications (12:05) NIO's Market Position and Growth Potential (15:20) Oracle's Business Model Transformation and Risks (35:33) Amazon's Debt Strategy and Its Implications (40:16) Salesforce's Buyback Strategy: Risky or Reasonable? (43:55) Analyzing Kelly Partners Group's Performance (52:39) The Collapse of GoEasy: Lessons in Lending (01:02:21) Nintendo's New Game and Market Impact ***************************************************** Subscribe to Emerging Moats Research: emergingmoats.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.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* 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

This episode is presented by Interactive Brokers. You research your investments, but did you research your broker? In 2025, IBKR retail clients averaged a 19.2% return, beating the S&P 500's 17.9%. Over time, the broker you choose makes a difference. If you want to learn why, head on over to IBKR.com slash 2025. More on this later in the show. Welcome to Chit Chat Stocks, the podcast that helps you discover your next great investment. I'm one of your hosts, Ryan Henderson, and I am joined today, as always, by the one and only

Brett Schaefer. This is our weekly Power Hour episode where we talk all things financial markets. We do these live on Thursdays at 5 p.m. Eastern time. We also put them on the podcast players after the fact, so you can listen there as well. But if you ever want to ask us questions while the episode is going, feel free to head on over to YouTube, look up Chit Chat Stocks, and ask us questions there. We have a full slate today. Markets are in turmoil. Should we sound the alarm, Brett? Are we? I'm trying to jinx it. I know we're only in a couple, I don't even think we're in a 5% drawdown, but with where oil is going, we can do the CNBC cry on markets in turmoil. Hopefully jinx things because for anyone that doesn't know, CNBC has that. They put out

markets in turmoil whenever there's something crazy like the oil price going on right now or a bear market. And statistically, I believe some quant funds have run this or maybe some researchers. If you buy on the day after markets in turmoil, you outperform the market. Just buy the S&P 500 that day and you usually do better, which it makes sense. Usually the stocks are down when that's happening, but we'll try to jinx it. Get a little panic, get a little macro, but we also have what? Adobe earnings, your favorite stock, right? The one that treats you well really really easy to sleep well at night amazon bond offering we're revisiting a small cap of the week and of course we have a bubble watch i had to utilize ai to summarize exactly

everything nvidia has been doing in the last seven days and it's quite a lot we have some questions as well so i think and oracle and you gotta talk oracle oracle and forget oracle mr backlog. I think I should start calling them the, why don't we get on with one of those Oracle or Adobe? You have those, I think listeners would be interested. Well, why don't we start with Adobe for any of the live listeners because they reported 45 minutes ago. And the numbers looked really good across the board. Honestly, revenue grew 12%. I believe it was 13% in constant currency, which is an acceleration. That's the fastest revenue growth that they've seen in I think more than three years. Digital media and digital experience are basically growing

at the same rate, both growing 13%. Adjusted earnings per share grew 19%. Both of those beat estimates. Guidance was relatively good. I don't have the exact percentage in front of me, but again, higher than expectations. Remaining performance obligations were up 26% year over year. And they bought back $2.5 billion worth of shares. I would have hoped, I think, for a little more uh honestly given where they're at and how healthy their balance sheet is but nevertheless i mean it is they seem to be kind of consistent at this point it seems like they're sticking to like 10 billion or so a year in buybacks uh and at the current share price what uh you know obviously there's some spc as well how much could they take out per like what's the rate of decline

four percent six percent eight percent i feel like that's one of the most important things yeah it's a little hard to tell because it's been all over the place on recent quarters i mean one quarter they had four billion like i think two quarters ago they bought back four billion dollars worth of stock now it's two and a half billion in this quarter if they stick to two and a half billion at the current market cap i would assume they're reducing two billion two and a half billion a quarter it's probably around four to five percent uh share annual share count reduction not bad but there's also i think some weird vesting stuff going on and potentially the repricing or the like a new issuances of options that's something i'm going to keep track of

and having to like top those off for employees i'm curious what happens there but the big news i mean because they beat the top line beat the bottom line beat guidance uh ceo is stepping down After 18 years, Shantanu Narayan, I'm sorry if I'm mispronouncing that, he's had a good run for 18 years. I mean, by most measures, but this couldn't come at a worse time, I think, given all the uncertainty around the business for him to be stepping down. They also didn't name a successor. So they're like, oh, come on, guys.

That's your job. That's the one job of the board of directors. Either he's stepping down voluntarily or they just announced this prematurely, but they literally said CEO is going to step down and the CEO is going to help the board find a new CEO. It's like, why wouldn't you just delay this announcement until you found a new one? so don't you know that shareholders are suffering yeah that's it's tough timing especially with the narrative being so tough on them right now what did you think of the quarter like are you're a shareholder i know it's not your largest position but it's fairly large hold sell buying more what are your initial thoughts it's such a noisy one where it honestly has deterred me from making a really large position because i have moments for myself where i think wow you know this is

at the risk of ai disruption but honestly the results get better and better every quarter i mean text image and text to video models have you know they've been around at this point for three years and adobe has grown every single quarter since ads and they it doesn't seem to be them just purely raising prices. And if it was them purely raising prices with how fast AI is moving, I think people would have looked a different direction if they could. So I think the quarter was good. If you just looked, like if narratives, I keep thinking this, if narratives didn't exist and you had no idea what this business was and I said, look, it's generated 30% returns on invested capital over the last decade it has basically net cash break even net cash on

the balance sheet and it's trading at a 10 free cash flow yield you'd probably but like that's a very rare occurrence but the narrative is so so bad for them that you kind of can't help but be a little wary i thought the quarter was good i it's one of those where you read it you read the report you're like oh here we go nice and then you check the stock and you're blown away and granted i didn't see the ceo was stepping down by the time i'd after i'd read the report but uh yeah i was i was surprised well yeah the stock is down after hours hey good thing about them is if you're not someone that has to go hi i want this stock to do well this quarter if it's a three to five year time horizon the lower it goes the better the buyback is going

to look and it's either going to work or it's not over the next few years there's probably going to be quarters like this or or just any uncertainty around the ai narrative because as we talked about before each quarter they can put up good numbers but then people say next quarter everything's going to fall off a cliff and do you want to talk any other thoughts ryan before we move on to maybe the least ai at-risk company i've ever that we follow dollar general a real sexy name uh no i i don't know what it's going to take for some the tide to turn on adobe we'll see but uh let's let's shift gears a little bit let's talk dollar general all right well they reported this morning they had a comp store sales growth accelerate to four percent now that's nice for

the business but you look at dollar general and when people are worried about consumer weakness in the economy and then dollar general is accelerating comp store sales growth that's usually a sign that maybe there's trade down because usually you get people trading down from for example walmart down to dollar general something like that ryan's pulling up some charts here from fiscally i actually have one loaded on operating margin as well uh but maybe ryan can pull it up at the same time they're guiding for two percent to three percent comp store sales growth in 2026 what are you pulling up there ryan the operating margin yeah so they They have had a very tough time basically because, one, they've been attacked by Teemu.

They've been attacked by Walmart expanding a little bit into more rural areas. And really during, say, three to five years ago, they underinvested in their stores and the store quality got a lot worse. They lost a little bit of traffic. Their pricing wasn't as good. i would if anyone wants full details on the business and someone who comes in much closer i'd look at our friend alex morris at tsoh investing research he covers them quite well and has for a long time but really the biggest thing for the stock is generally historically and ryan i think you probably can even go farther back on the timeline there to show that

their operating margin was stable around what is that like seven to nine percent even if you exclude this the pandemic we had a nice little nine nine to ten i can let's go 20 years see what it's at it's dropped back down to it dropped at its lowest kind of like three to four more like four percent now we're seeing a tick up in 2025 a tick up in q4 their comp store sales growth is looking a lot better and if you look at them they're ev to ebit or pe or something like that Maybe I can try to pull it up right now. Stock didn't react that well after hours. It's fairly cheap.

Let me, I think EV to EBIT will work. If you look at them, EV to EBIT, it's 19. You kind of go, oh, that's not that cheap. But if you think margins can recover, this maybe could be a good counter cyclical for someone's portfolio. They do well through usually all market environments. They do well in economic downturns.

And the company is a serial repurchaser of stock. We can look up maybe their shares outstanding on fiscal AI. It's down, I mean, over the last 10 years pretty nicely. I think, yeah, 3% decline, you know. Hey, this is one to keep track of. I like the business. It's fun to look at them for a macroeconomic indicator. And I thought it was an overall solid earnings report.

I want to show you one piece of data I found on Dollar General and get your thoughts here so it's around store count um i mean you're building that little custom metric no this one i think they report okay yeah yeah so store increase per year is at their lowest they added 299 stores this year which is their lowest i think in more than a decade is this just a pure refocus on existing stores yes they're doing a lot of remodels i think they're doing 4 000 maybe 2 000 remodels i'll pull up the actual data here right now uh in 2026 and i'll look up what they're guiding for their actual store count growth let's pull this up right now and try to be quick okay so yeah they're guiding for two to three percent comp store sales growth

they are planning to execute approximately 4,700 real estate projects, opening 450 new stores in the United States. So a little bit of an acceleration. They're getting back to that growth and then 10 stores in Mexico. I guess maybe that could be a nice feature market to expand into, although it's a very, very competitive convenience store sector down south. But they're remodeling 2,000 stores under these. They have Project Renovate and Project Elevate. That's probably just some consultant stuff they're remodeling over 4 000 stores so yeah i think you're right there the focus is more on existing locations driving comm store sales growth and getting that margin back because they have i think what 20 000 stores like you're not gonna have that many

something like that you can't have an infinite amount of stores yeah it's not shocking that they might be at closer to market saturation today than they were 10 years ago okay can we talk markets in turmoil the oil the oil price people are freaking out about this ryan you're probably a straight of fort moose expert as we speak correct you just found out that what it is this week um and already i'm already an expert yeah the i guess it's still shut maybe by tomorrow morning it'll be open i actually have no idea but what i thought was interesting and maybe i can ryan can share this while i'm talking is what the price of oil has done in the past really week but the past month so in anticipation of the kind of build up for the attack feel i guess probably

reading through the tea leaves their price of oil ticked up it was hovering around the say 50 to 65 dollar range then when this happened and the straight closed i mean we saw in one day at least intraday, the highest, I think one of the largest moves ever in recorded history for the price of oil up from like 80 to 120. Now it's come back down, but it's inching back up every day. It's close. It's inching back up to $100. And I don't know, I guess you're in a state now, Ryan, where the price of gas isn't too destructive to your wallet, but we could see some rising prices there. And I think really what's interesting is that inflation, and again, this is stuff that we're usually not experts on, but we've seen the inflation numbers come in, they're getting

closer to 2%. It seems pretty tame, but this could be the exact moment where you have oil prices spike, commodity prices are spiking such as silver and inflation starts kicking up again, which could be tough. Yeah. It's funny how much people maybe don't pay attention to some of the stuff going on in the Middle East until all of a sudden it's like 20 cents more expensive at the gas pump. Yeah, they don't care. yeah we can see in our home state i saw last i saw an estimate i think i've had ai make this estimate due to the new gas tax in our home state of washington if the price of oil stays elevated

150 the price of gas per gallon in washington state of washington will be seven seven dollars if it goes to 150 yeah that's expensive people will be very upset i mean yeah it's expensive relative to its history here in texas as well but it's still cheap relative to some other states i don't know what can possibly like i have no take here i guess kudos to the people that have thought oil prices are going to go up for the last three years that i guess this is vindication Greg Abel vindicated. I saw, I think, someone, one of the press secretaries or whatever, like, this is just temporary. Like, don't worry about the gas prices.

It's temporary. Everything's temporary. Good enough for me, you know? Yeah. Well, we've also been told that higher gas prices are good for the country because it's going to make a lot of money, which is technically true. but I don't think regular people are going to be too happy that Occidental Petroleum is printing money. Where was I going to go with this?

So we're seeing, what, markets and turmoil headlines-ish from people, a lot of panic. Do you want to guess, as of the close today, Thursday, March 12th, what the S&P 500 is down from all-time highs? Five and a half percent. 4.2%. Wow. All-time highs for the, but not for me.

Yeah, well, our portfolios are a little more volatile sometimes. If you run a little concentrated, maybe a little less air exposure, a little more software exposure. But either this is a COVID-type moment where people are underestimating everything, or things I've heard that I think is interesting and makes a lot of sense is that compared to the 70s, when oil just totally destroyed the economy, when it went through the roof with the Arab oil embargo, is now the U.S. economy and many other economies are less tied to petroleum inputs as a part of the economy, if you kind of get what I'm saying. So it's going to have less of an impact where X percent previously was going to be having an inflationary impact from the price of gasoline

or the price of oil or petrochemical products versus now it's a lot smaller percentage of the economy just because of renewables, information services, stuff like that. You research your investments, you analyze markets, you manage risk, but did you research your broker? In 2025, IBKR clients outperformed the S&P 500. Retail clients averaged 19.2% while hedge fund clients averaged 28.91% compared to the index's 17.9%. IBKR's lower trading costs, competitive rates, efficient execution, and access to more than 160 global markets helps investors keep more of what they earn and put more capital to work. Over time, the brokerage you choose makes a difference. If you care about performance, find out why the best-informed investors choose

Interactive Brokers at ibkr.com slash 2025. Interactive Brokers is a member of SIPC. yeah it makes sense maybe we can talk about a uh honestly a potential beneficiary of all this a an electric vehicle maker sure okay this is i never thought i'd have this headline yeah i know you're cringing while reading this but i just want to talk about it real quick so this is an old flame of mine yeah back when i was like 20 so i'm going to say a name of a company those of you that have been around for five years in markets may get the chills or cringe but i have a headline here is neo actually investable i never thought i'd be saying this but i saw some numbers or saw some metrics on fiscal

i was just browsing companies that reported earnings neo was one of them and there was some things that kind of stood out to me so first off for those that don't know neo is a chinese electric vehicle maker that started with apparently a focus on premium vehicles and they went public in 2017 market cap then at ipo was 11 billion us dollars within two years the company had a 1 billion dollar market gap so 90 percent drawdown fast forward to 2021 and with all the other bubble stocks neo got cut up in a 95 billion dollar market cap by i think january of 2021 fast forward another two years and we had a i believe another 95 percent drawdown so just an absolute roller coaster of a stock truly uh brett maybe

you can share the stock price on the overview page too and just show all time it's now had two separate 90% drawdowns. But last year, the company released the Envo brand, which is a cheaper mass market vehicle that's intended to compete with Tesla Model Y. Since that point, deliveries have soared. They delivered 125,000 vehicles last quarter, which is up, I think, 70 plus percent year over year uh if you go segments kpis bread deliveries should be in there too i got it there right now you should okay yeah 124 125 000 vehicles massive quarter this was also their first quarter ever of positive gap well i don't know if they abide by gap positive uh uh operating income yeah hong kong uh numbers whatever that is yes so and apparently this is

just me doing some quick research on it they also pioneered this battery as a service strategy where customers can buy the car without the battery lowering the upfront cost and instead paying a monthly subscription to swap batteries and then they have like 3400 power swap stations which i guess allows people to like automatically swap out a battery or whatever chinese market's so ruthlessly competitive yeah so my question here is you've got a company that is delivering a legitimate amount of vehicles at this point you're i think maybe 200 300 000 over the last 12 months the they've finally i don't know if this is sustainable but they finally turned the corner to profitability is there potential to take a flyer on this could this be like a

byd like competitor that's a tough question i remember looking at neo and seeing a thousand page 20f not an exaggeration so is there some hair in this situation potentially uh you know what's what's there what did they generate last quarter 115 million i'm assuming that's u.s dollars in operating income what's what's our market cap i think it's like 11 billion today uh well it's gone up a little bit i'm seeing 14 now ah and what's our sales ratio one times yeah it feels reasonable for an automaker it doesn't feel cheap here the chinese ev market is just so damn competitive it's so competitive i don't know how you can choose a winner as a foreigner yeah here's my thing if these vehicles were actually offered in the united states i think

they would dominate they would dominate byd would dominate they're cheap they're they're very cheap and good i mean you could put massive tariffs on them they'd still be cheaper than probably the cheapest teslas that are available they have over 100 tariffs ryan so they made it so it's a little yeah oh yes there you go uh i i honestly think these would be a massive success in in the united states market just even if people have never seen the brand they will literally see the price i saw the byds being advertised in mexico and i went and just did like the quick conversion i was blown blown away by the price of the vehicles. It was astounding.

Yeah, it's about $10,000 or something that Latin America, you're going to have a little cheaper price, but BYD is quite popular in Latin America, especially just because pricing power, affordability, you know, is more of a concern compared to the United States on average.

Yeah, you know, well, Ryan, it's not very patriotic of you. True. But I own a Toyota, so I don't know if that's patriotic to begin with. The it's. I don't know what to think. I think the car market's too hard. It's just another example. Who could have predicted this? Not me. It is. Yeah. At the end of the day, it's still a car company. The let's I do want to talk Oracle because this I guess haven't kept up with the story. this oracle story that much until now but this they've gone full scorched earth like yeah where have you been right you've been you've been okay we've been talking about i've been i've

been harping on this drum for the last year i don't think i fully processed how much of a complete 180 this was from their existing business model like i thought maybe there was some element where it's just them servicing their own business they're generating their own demand but it's literally just a totally different business that they're going into so i'm going to give maybe a quick explainer synopsis on what has happened because some of these numbers have blown my mind so for anyone that doesn't know oracle probably a i think sort of a household name but traditionally very wide mo legacy software business their erp solutions are really mission critical in most enterprises by almost any measuring stick that like core software business has been pretty good

it's been i think 35 cash free cash flow margins for a decade yeah i mean and they do databases as uh i want to mention to you had it written down in the notes the a great anecdote for their competitive advantage is that amazon with aws has tried to be a competitor to them for a long time And I believe it took them something on the order of 15 years after AWS was founded with their competing products, mind you, to completely migrate from Oracle. So direct competitor took 15 years to get rid of their products. That's how sticky it can be. Yeah, I did not realize that. I guess I think about two years ago is when this shift started, maybe a little more.

they started building this infrastructure as a service business which unless i'm missing something there's no synergies but not really like maybe they can use some of their own computer whatever but for the by and large they're literally just building data centers and offering compute to primarily these frontier ai labs 80 i think of the workloads or compute capacities given to ai workloads versus like traditional compute capex as you can imagine has ballooned 48 billion dollars in capex over the last 12 months for oracle now i know we're in the age of like saying massive numbers for capex and pretending it's not a big deal but to put this in perspective this capital light software company for the longest time capital light is now spending

more than Taiwan Semiconductor on CapEx. That is, last quarter, they spent 108% of their revenue on CapEx. That number was staggering to me. Free cash flow for the first time in 20 years has gone negative to the tune of $25 billion. And the returns on all this is kind of just a massive question mark. So here's a quote from the conference call from, I guess, two days ago, says, when you think about the overall profitability of these AI data centers, there's two pieces. One is, you know, how profitable is it purely on the accelerators themselves? We gave guidance in the past that we see, you know, gross margin in the 30 to 40% range on that. That continues to hold for us as we continue to get better and better at running

these data centers, delivering them more cheaply, optimizing the amount of costs for networking and hardware spend as well as power. We see that continuing to incrementally improve. So 30% gross margins on these data centers. I've got no clue what the operating margins are, but this is like... Yeah, go ahead. Go ahead.

AWS has 35% operating margins. So you can see why there's been commentary from AWS management and probably Amazon, you know, Andy Jassy, that they've lost contracts to Oracle because they're severely underpricing them. yeah and they talk about that i mean they talk about being the cheapest competitor or the the cheapest player and you could be a grocery store margins i mean well maybe you'll

have two percent five percent operating margins let's see what happens you have to run a large sales force for these businesses you're going to be comping what was the standard like 10 to 15 percent of sales so knock that off right away like that that's coming down to 20 percent and then you have product development costs how much left you there's a reason aws azure and google cloud price at 70 gross margin because that's what you need to clear to get a decent decent hurdle right there yeah and i mean the other thing is like okay they burned 25 billion dollars this year so they've they've raised a bunch of debt i think added like 50 something billion dollars in total debt over the last four quarters i'm gonna pull up the net debt to ebitda right now ryan i

was prepping it for you the yeah it's ballooned the what happens if there's delays like they they really try to focus on how fast they're building these things but if anyone has ever i don't know existed in society you know that they tend to be construction delays with almost anything what happens i mean they they literally have a hole in the ground in the middle of texas is one of their markets that cash is tied to and they got to pay off the debt in the meantime and they're doing it on sort of speculative demand trends so like i did not realize that they are literally risking everything it's insane and at the same time blary ellison has to potentially backstop this paramount merger

with warner brothers discovery that is a whole interesting wrench getting thrown in the mix i think the chart you have of capex versus revenue at over 100 that is an astounding figure and if that continues or they better be happy that anthropic and open ai raised money because i think what an anthropic raised 30 at open ai at 100 billion okay that's good clearance they're doing deals with some of these uh the computer chip makers specifically nvidia where the computer themselves or somehow finance where it's going to help with cash flow they claim this we'll see how that looks on the actual cash flow statement coming up in the next few years but i think what they need to be praying for is andropping and opening i need to be able to raise over a what

what do you think 150 billion together 200 billion from their ipos they need to be raising a ton of cash before the ipos to be able to meet these demands because they have this backlog but so what yeah you can call yourself mr backlog all day that that should be like that back in the day a couple years ago we were talking about autodesk all the time that's what they would talk about i don't care what is your income statement and what does your cash flow actually look like two things one this this has gone from a capital light deep moat business to quite literally a construction company almost i mean at this point they are spending all of their money their equinix yeah but the other part is what i mean what do you think the chances are that in five years

aws azure and google cloud are picking up data centers at half the cost it would have taken to build and they're just retrofitting them for their own specs yeah let's not talk about core weaver nebius those guys are tossed in the mix as well uh i'm probably forgetting a few names there yeah it's extremely risky we'll see what happens i would not touch this stock uh it seems like i mean it's in a 50 percent drawdown but we're still at a market cap of 470 billion dollars revenue ev2 sales i guess which does include that debt they have over 100 billion dollars in debt now if your sales nine what's your gross margin and operating margin going to slump to if you're competing with these cloud providers by just underpricing them what you think you're going

to deserve an ev2 sales of nine i'm sure your revenue is going to grow but it feels incredibly risky it was already competitive like from what i understand google cloud aws azure they were already pretty competitive with each other the and i'm sure they're not new to this i mean they've all been doing this for the better part of a decade now so it would surprise me if oracle has found some like new method for delivering compute at a fraction of the cost i i here's my question to you is this the biggest risk a big tech company the biggest single risk or bet a big tech company has ever taken like i've never seen a company bet the entire farm on a business model pivot let's see what meta does in the next few years let's see what amazon does

because their income statements and cash flow statements are looking quite riskier but for the time being yes i think you can totally say that and again given the already levered nature of the balance sheet, given the fact that Larry Ellison has to deal with this paramount buyout, potentially being a backstop there. Things could get very, very hairy. There's a lot of data. Let's just hope that people can keep raising money, that's for sure, and I don't want to touch it at all. Before we move on, Ryan, we used a lot of fiscal AI charts here. Again, they're our sponsor. Use our link, fiscal.ai slash chitchat in the show notes. Go check them out. Get a 15% discount. although what's a new product that you guys have launched recently this query thing what tell the

listeners anything new that people can check out cross document search which is kind of a nice uh nice to have if you're looking for references of a certain keyword across multiple companies and multiple documents uh and the other one that we're working on here maybe uh i'm teasing this here but uh annotations it should be coming out shortly for that's my recommendation right it's been two years of me be asking you about it uh so transcript annotations filing annotations you can highlight store all that uh kind of be a nice note note keeping place for qualitative research as well beautiful beautiful all right check that out in the show notes why don't before we go on to some small cap of the week and a little, I'd say panic, I guess. Stock collapsed in the great white

north. Let's talk about the Amazon bond sale, maybe as a relationship to Oracle here. They raised, from what I saw, there was some conflicting numbers, I guess. Maybe AI is just making it so hard to find reliable news these days. They raised $37 billion in debt to fund expansion. they're going cash flow negative this year and i actually will say i have a insider source quote-unquote feel the work of the company that say that blue origin is overpaying and stealing talent from them which i just think is it's just bezos on bezos crime what like what are we doing here from amazon themselves yeah yeah i would be so frustrated if i was a shareholder look yeah blue origin we're going to double your salary it's steely from amazon then uh kind of besides

the point but if your base is like you're stealing from yourself yeah whatever um if we look at their cash flow it's gone was it negative last quarter i can look up on fiscal right now but no don't believe so it's forecast i'll pull it up uh last quarter was positive i guess 15 billion but the two before that, it was, yeah, if we go last 12 months, it was barely positive, I think. Is this, yeah, I think this is right. Either way, it's going to probably go cash flow negative in 2026, free cash flow negative, because if you look at their operating cash flow, let's see, cash from operations last 12 months is like, what, $140 billion? But they're guiding for $200 billion in CapEx. So even if they grow a little bit on that operating cash flow line,

You know, there's going to be. They're going to have negative cash flow. They're raising debt here. I think you look at them and you compare them to Oracle. Oracle's already four times net debt to EBITDA. Amazon has generally had a much cleaner balance sheet. There's probably, and maybe you can counter this if you don't agree, a lot more room for Amazon to lever up its balance sheet

to expand its aws business if they want and keep spending 200 billion dollars a year yeah it's it's funny i look at amazon taking debt out to finance infrastructure build out as like a positive and i look at it for oracle and think it makes no sense well they're not spending 100 of revenue on capex and they're not already four times levered yeah the other part is they've gone through these cycles before and they i mean they've been building aws and forecasting demand for literally 20 years maybe more and so i think they've built up a little more trust and the other part is you can you can almost see a direct correlation i think they added i remember looking at this the other day 10.2 billion dollars in aws annual recurring revenue

last quarter alone like and andy jassy has said as fast as we're building it we're we are booking it even faster so i i get kind of optimistic thinking about aws expanding at an even faster rate but part of that is because i know the economics i mean it's 35 operating margins they and and it's sticky and they they are not just advertising themselves at the low cost provider so i would say i take that as sort of positive news yeah they're cost disciplined And they came, and we don't have the details of the contract, so this is a bit of speculation on my part, but they went to OpenAI,

and it took a long time to close that deal for the latest funding round. I would assume they got better terms than Oracle did. That's speculation on my part, but we'll see. Yeah, they are much more cost-disciplined. Okay, last one on levered-up balance sheets. This is a listener question. People use the Substack chat to have these.

There's been a lot of good discussion there. I asked a question today, what stocks are people buying this week? And with some of the dips there, there's a fascinating discussions there. But here's one that people wanted to discuss on the show. $50 billion buyback from Salesforce. They're leveraging their balance sheet to acquire shares.

Do you think risky or reasonable? now i'm going to look and confirm what their balance sheet looks like before this but i feel like if they're at a six seven percent free cash flow and they expect to grow revenue and five to ten percent a year like this is a fine move you have a extremely durable operation yeah my guts without knowing exactly what sort of debt to ebitda ratios or debt to cash flow that 50 billion dollar uh bond or offering presents my gut says it's a good move i mean it's extremely predictable very cash generative and they have shown before that they can cut costs and still manage they were at about 15 billion dollars at the end of january total debt yeah what their earnings are

higher than that i think so i'm totally fine with i'm totally fine with this move i actually think it's something to be optimistic about if you're a shareholder the i mean we've we've seen it like i think the narrative has kind of died about or at least it's died down a little bit around like ai disrupting crms and stuff and you look at slack and salesforce and it's very embedded in a lot of these a lot of these companies that are supposedly doing the disrupting so it i think it's a very predictable business i do think um i don't know why i'm blanking on his name here the uh what's this uh benny off i think he's a bit of a goofball and could run things a little a little more with a little more cost sensitivity but he likes to hang out with celebrities and if

he wants to pull the operating leverage lever he certainly can i hope yeah i hope they do i hope they do i i wouldn't be concerned with that i think for individual investors there's a lot of people that get caught up in this idea that debt is bad and they invest in only high quality businesses like say the google's back in the day or something like that where the balance sheet is ultra conservative and the business models are just fantastic so you just have cash piling up but there's a lot of success stories of a company you know don't go to 10 times leverage malone style and try to just totally financial engineer the crap out of the thing but you can add on to subscription business netflix has uh begun to do it a little bit i think they did in

the past and you can if you're trading a cheap price take it on a little bit of debt i mean think If you take out low-cost debt at 4%, probably now maybe 6%, 5% maybe for someone like Microsoft, and you can buy back at a yield of – an earnings yield of 7% to 8% like a lot of these companies can, why not? It makes a lot of sense to me. Okay. When I sell my business, I want the best tax and investment advice. I want to help my kids, and I want to give back to the community. Ooh. Then it's the vacation of a lifetime.

I wonder if my head of office has a forever center. An IG Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range, infused with functional benefits.

Choose the coffee you love with added B vitamins, like coffee plus b12 to help support immune function and coffee plus b6 to keep your day moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on espresso.com yeah what's the uh saying if you can if you can borrow at three percent and you can buy back at seven percent for a long time your valuation is theoretically infinite that was i think someone in the malone complex said that so you know it hasn't aged well it's in theory that can work but like all good ideas you can take them too far as

a lot of the liberty people i think have given the stock price performance there do you we want to talk we have kelly bartner's group and this go easy stock collapse i think we can have both of those let's do kelly bartner's first sure you want us to revisit this stocks sucks i think uh another ai loser deemed by mr market yeah uh kind of a spoiler alert there i was going to get to that but yes that is i think anyone that's followed the story could have uh probably already known that so kelly partners group for those that don't know uh basically a an accounting an accounting advisory firm roll up based out of australia so i've got a couple quotes from my previous podcast that we did on them that I'll reread here. So Kelly Partners

currently has 37 operating businesses as the latest report. Again, this might've grown since we last reported it, but the majority of those operating businesses are located in Australia, but they've recently acquired a few in the US as well. These businesses are chartered accounting firms that primarily service small to medium-sized businesses. In terms of financial size, the operating businesses typically generate $1 to $2 million in annual revenue. At the time of that writing, I said for 2024, Kelly Partners Group had $16.2 million in underlying NPATA, which is like net profit after tax and amortization, I think. Using that figure, the stock traded at 17 times. Here are the returns since I wrote that report. Brett, maybe you can share the screen,

but spoiler alert, since I wrote that report, shares are down 42%. And I think they're actually down almost 60 percent from highs so what is happening it seems like there are sort of two reasons both of them linked to ai the first is that there's some concern that companies will be able to automate more accounting practices like traditional small medium-sized businesses will be able to automate accounting practices in-house and not have a need for an actual accounting firm i kind of think i would personally discard this risk it doesn't seem like that big of a deal to me. A lot of the businesses I know personally that use like an actual in-person chartered accounting firm, they're complex. They kind of like the white glove service.

They aren't really looking, they're not risking their business to switch to anything sort of AI generated. A two-person operation like ourselves who never used any outside accounting services and just runs an LLC and has me doing a couple hours every year trying to figure things out. I utilize AI now, but I wasn't paying. To be honest, we don't even pay for anything accounting or tax-wise. So it's a simple business, and I don't think if we're lost as a potential customer, it's not going to kill the industry.

No, I would guess most of the people using chartered accounting firms run a more complex business model than a podcast. the and and so i long story short i don't really give that much merit to that ai risk the one that i do concern myself a little more with is well first of all i'll read another quote here on why businesses are receptive to acquisition from kelly partners group to begin with so here was sort of how they advertise it kelly offers a standardized operating platform this takes out a big chunk of the responsibilities required for actually running their business and this is the business of a chartered accounting practice you no longer need to pay for your own systems hr it

marketing trainings all get handled by kelly which allows the partners to focus more on actually serving customers it also gives them more free time to handle more customers if they were working at capacity if ai can make it easier to function for the accounting firms themselves then i think part of the appeal to of selling to kelly partners group is diminished so and i honestly don't know what to think about that ai risk it seems legitimate to me like ai it might not automate accounting for the end customer the way some people envision but i do think it can automate routine a repetitive task for the actual accounting firms themselves as for the updated valuation they've got about 23 million dollars usd in cash flow operating cash flow over the last 12 months

237 million dollar enterprise value so you're looking at about 10 times ev to operating cash now keep in mind when a company sells to kelly partners group the partner or the accountant whoever the lead is they're staying on like these are operating businesses that continue to run and these usually a lot of the customers know the accountant really well it's like a personal connection so it's not like they're selling to kelly just for the money to get out they and maybe that happens in the in some cases but you need them to stay on usually so i do think there's some legitimate risk to kelly not being able to find as many acquisition candidates or the the value proposition not being as high if you are interested in learning more about kelly partners

group either a check out a podcast or i know that they are hosting you can tell me whether you think this is a red flag or not they are hosting an event now at berkshire this year potential clients there right no maybe yeah maybe some potential uh acquisition targets yeah we have tyler in the chat here saying that their minority interest or they don't own 100 of some of these businesses that makes the accounting look a little bit better than it does the financials look a little bit better so make sure to look at that uh when doing the numbers and there is a recent tweet today actually from mr and he shares a name with me brett kelly himself mr kelly saying that kelly partners group is building out our software engineering and now ai team uh with a new

partnership with the hello ai collective we have more than 23 000 private client groups all of whom will need ai advice and consulting services we won't say much about the unique way we can leverage this technology and other than that anderson built extension we can build a digitally enabled scaled advising consulting offering for the clients we already have and those to come through future partnerships so again there's uncertainty there but potentially i don't know opportunities uh if you want to talk with mr kelly he's very active on twitter he's actually we follow each other uh he's pretty accessible you can talk to their ir team there's a lot of interesting stuff never on the stock but seems interesting to me and who knows they have a long runway to grow

I like, I like Brett Kelly. He seems transparent, seems honest, and he's very clear about how he's trying to grow the business. I, I am curious if a lot of these accounting firms are trying to automate some of these back office functions that Kelly comes in and usually helps with. That's fair. that's actually happening in practice happening in practice yes but you have to think about small businesses ryan i would say that they're probably moving slower and if kelly can offer hey we have this as a service for you you sell to us we can obviously unfortunately that would require layoffs probably you're making a lower head count but if they can increase margins for you that's that's a huge part of the offering you could probably see that these accounting firms get a lot more efficient you have less workers or someone can just be much much better at their job

uh with with ai basically an encyclopedia helping you do like accounting uh i could see it doing my own taxes you i have a question hey what's the best way to do this but i mean these are it's tailor-made like the day i told her tailor-made for this because it's it's it's not an opinion on something it's like a distinct fact and an extremely complicated tax law and yeah if you can supercharge your accountants i feel like that can be quite helpful yeah uh tyler's got a few comments uh just around operating cash flow is not a great valuation metric for kpg because 100 of subsidiary cash flow makes it to that line item and is removed under financing so yeah maybe using the wrong might be using the wrong metric there it's hard to do it is it's hard it's hard

to do uh it's a business that's hard to do analysis on a podcast they have complicated financials so yeah serial acquirers generally can be a little fickle do we want to talk about the more counting or bubble watch for both i'll go quick through all this let's go through the uh non-prime lender that blew up go easy let's do it all right did did any one of your because you work for a canadian company and your canadian friends talk about this company did they know about this no not at fiscal but i did see our canadian resident jim gillies uh mentioned this as well all right interesting i would assume he knows it much better than me but i think this is a lesson in lending businesses. There's opacity that makes it hard to analyze unless you're just

an extremely good banking or financial analyst. The stock, and I'll get through what the business actually does, but the stock peaked in September 2025 and is now down 80%. So in a few months, it's down 80%. It was a Canadian compounder that turned into a thousand bagger just in the 21st century. So a huge winner, just a ginormous winner at its peak. And I bet there are a few listeners here. I don't know if Jim is listening. If he is, he probably knows it much better than me. There's probably some listeners that know this better than me, but let me try to quickly summarize. They make loans to subprime borrowers in Canada. They're focused on consumer lending and point of sale lending. Apparently, they massively underestimated loan losses recently,

so bad that the CFO resigned in September and they're going to have to restate earnings. here's a quote from the update quote after giving effect to the anticipated incremental net charge offs the company expects net charge off rate for 2025 to be approximately 12.9 percent management now expects forward-looking credit performance on lend care loans to be worse than anticipated and we're going to have annual net charge of rate increased to the mid-teens in 2026 before beginning to decline in 2027 and onward a net charge off of 13 is bonkers that means pretty much of everyone it's if everyone has equal loans they're giving them on 13 out of every 100 customers that are just not going to give them any money back i know it's different in practice

but that's how i think about it like you're you were so bad at underwriting loans that 13 out of every 100 loans you gave out you get nothing you don't get anything yeah and i i mean maybe this i i doubt this is baked into the model but this to me i mean there is a world in which you know you have 12.9 net charge off rate if you're earning 30 percent interest you know it could work but discover financial is like five so here's this is my thing with even some of the neobanks like anyone that's getting into personal loans this is what worries me is it looks it looks so good until it doesn't it's like the turkey before thanksgiving like go easy i was looking at this they wiped out six years

six and a half years of i think outperformance in a day like 58 drop stock price drop in a single day wiped out six years of outperformance you don't know when that day could come so i guess that that goes to how much you trust management but it's like even if the cfo was doing this accidentally or like not intentionally understating their net charge off rate like things can happen your models could have been wrong less people paid back it's this is especially with the subprime space this is the risk trailing pe is three you're gonna bottom fish here four p's what a thousand yeah four p's negative yeah uh yeah this is a it's a good example of why lenders are tough and why we've talked about like looking through financial history just everything

trying to be you know learning from history is that we get nervous despite again a sofa of the world looking good growing well being impressed by their operations i just like someone with a very long track record in lending over someone that's just starting something i mean you can even look at allied financial decades and decades of experience in consumer car lending or just the automotive lending space in general they got into something new they're extremely frugal people they're very very shrewd underwriters apparently but they get into new lines of business and it just goes terrible they just don't have that muscle memory there's a question here do you trust anthony noto uh in the chat which is the ceo of sofi yeah i mean i i think i trust him as

an operator but how long have they been in the personal lending space like yeah it's it's the unknowns to him like you know it's part of the business yeah yeah it's part of business and they have fee revenue so but he was the ceo of the nfl right c-o-o i think or something like that yeah he's not some guy that was working at progressive for 30 years you know like yeah So I'm not saying this is going to happen to SoFi, but it is a risk with those type of businesses. Yeah. Anytime you have a fast growing lending portfolio, especially if it's I think personal loans is like the majority of their loan portfolio now. These are the downsides is the net charge off rate can jump quickly and all of a sudden earnings look really depressed. That's true. All right. Let's move into Bubble Watch. Have to do this every week at this point.

And you seem to know more about this when we talked about it offline. Net is acquiring a company called Moltbook. What happened here? What's going on? Honestly, I have no idea. For anyone that doesn't know, Moltbook, apparently it's like someone created – I still don't get this entirely. So as the words come out of my mouth, I don't really understand what I'm saying. I'm going to their homepage right now.

Someone created a social media for AI agents. That's exactly what it is. It's just AI agents talking to each other. A social network for AI agents where AI agents share, discuss, and upvote. Humans welcome to observe. Lovely, lovely world we're in. I thought this was a meme website. Like, I honestly thought this was basically a joke.

But Meta acquired them, and I could not guess why. I didn't understand it. It's obviously not going to be whatever, their WhatsApp. It's not a hidden – I don't see how it's a hidden asset. It's a hidden social media asset. could be wrong here but i've seen some people say this is like a talent grab they just wanted the ceo just a few a little more talent they'll catch up just a little more talent are we gonna admit meta is a loser in ai can we admit this is what gemini says i asked why did meta acquire notebook

it says um primarily to secure a foundational role in the emerging agentic web and honestly i That's made up. I can't think of a more dystopian line. Okay. When I sell my business, I want the best tax and investment advice. I want to help my kids, and I want to give back to the community. Ooh. Then it's the vacation of a lifetime.

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look I understand that Meta is getting efficiencies on their advertising and their advertising is just an insanely good business

but they just keep making these new AI teams they're spending so much money they're acqui-hiring this Alexander Wang guy

for what 14 billion dollars they're doing this Malt Book thing it they have zero market share i would say it's 0.0 market share you're not a lot of anthropic or sorry claude chat gbt gemini maybe perplexity toss them in there right so that's it there's nothing else rocked on twitter only exclude the at replies on twitter no one's using grok

except for spacex apparently there's nothing there i kind of like i like zuck generally speaking but i think like you know you know how you want to find a business that skates where the puck is going he skates where the puck was oh like a while back he takes a big swing and just falls on his skates yeah and google just hits it right into the top corner look at the ability to launch new products compared to that it's it's it's on it's so much google run circles around they have built a phenomenal advertising business not taking anything away from that and their average revenue per user it's like 10 times or five times what most social media platforms generate but i'm they all every time they try to diversify their business it is a reminder why i don't own

shares it's tough yeah i i just can't find my i can't it just feels like they waste so much money oh they do they do but you know business still performs quite well that advertising business makes up for a lot of stuff all right we're going over time but i want to just say i mean let me go to this question people wanted to talk about nintendo because the stock started ripping on this new Pokemon game. Let me just give quick context within 30 to 60 seconds here about what the game can be.

I have had full writing for the Emerging Mode Stock Research Service that I have full thoughts on the company there. But generally, the game is a new game, Pokemon Pocopia. I didn't even know it was really coming out.

But it's gone viral. It's kind of like an Animal Crossing Minecraft thing for Pokemon. And the game is apparently good, in, people love it, and people are buying Switch 2s for it. Now, Nintendo announced that they sold 2.2 million copies of the game within a few days. And that is with only, it's a Switch 2 exclusive that's with, I think, less than 20 million units sold. So a huge amount of people bought it within a couple of days. If you kind of get my drift here, it's not like the Switch 1 where there's already 100 million out there. But it's similar to Super Mario Odyssey, which is the launch game,

one of the launch games for the original Switch, which sold like a couple million copies within a week. And over the life of that game, that sold 30 million units. If you run through the unit economics of what a first party game can mean for Nintendo's profitability, this could be a billion plus in earnings power if Pokemon Pocopia can turn into a 30 million unit seller. So it's unsurprising why the stock is moving. Ryan, I'm trying to run through the numbers there, but quickly uh we're running over time but anything anything on that before we get out of here i'm not a pokopia user yet but uh maybe in time yeah it seems like this has kind of become what do they say it's like in the zeitgeist now viral now yeah it's just like a pokemon go moment

maybe for the switch except where people actually pay a ton of money for it to begin with it's i mean yeah i kudos to you and leandro couldn't have been better timing on that episode hey that interview that interview is who knows maybe we take out new lows but that interview ended up being good timing uh go listen to that i'd say for a full analysis of nintendo ryan any other thoughts for the listeners markets and turmoil turmoil oil price might be 150 by the time next week anything before we get out of here no uh to to all the listeners use any volatility uh over the coming week as a chance to probably buy more of the companies you love would be my advice but that is going to do it uh thank you to everyone for tuning in i want to remind you

that brett and i are not financial advisors anything we say or discuss here on this podcast is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. So once again, please do your own work. Thank you all for tuning in, and we'll see you next time.