Chit Chat Stocks - $NVDA Is King Again; A Credit Card Mega Merger; Underrated Network Effects; A Rivian Bankruptcy?

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome in to Chit Chat Stocks. My name is Brett Schaefer, and as always, joined by my good friend, Ryan Henderson. We are live on YouTube for the Investing Power Hour, number 99. So next week, we've got to do something special to commemorate number 100. But Ryan, we're going to get started today.

Starting point is 00:00:56 And it has been a fun week. I think my first question for you, besides welcome to the show, as always, NVIDIA approaching a market cap of $2 trillion. Are you calling the top? Is NVIDIA finally overvalued? Yes, and I will give you a very definitive answer after I quickly talk about our friends at Public. You might know public.com

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Starting point is 00:02:14 Full disclosures are in the podcast description, US members only. Is NVIDIA overvalued? Wait, one tease before. I see we are live on YouTube. This will be fixed for the people listening after or watching on YouTube after. But for some reason, the new streaming software we are using to record everything just puts the title as the previous episode, which I'm not exactly sure. I think I'll try to change that midstream for anyone.

Starting point is 00:02:43 This is Investing Power Hour number 99. You are not watching a replay. But Ryan, continue as I try to change that and then tweet out the links to everything. i have absolutely no idea whether nvidia is overvalued my gut says yes but my gut said that a trillion dollars in market cap ago so what you know what does that matter the the thing i find interesting is like this is probably the biggest business i don't care about the not that not that I don't care, but I don't think I have much of an advantage in terms of informationally. I don't think I know the business very well.

Starting point is 00:03:28 I don't know the industry that well. And so it's one where it could be worth $10 trillion, and I still don't understand necessarily whether or not it has some major lasting competitive advantage where it's totally impregnable. impregnable. It can't be stopped. And there's no competitor that could get to what they've done. I really don't know it well enough. So yeah, I think my gut reaction, any time a stock, what, five Xs in a matter of a year, is it has to be overvalued. But so far, I've been wrong all along the way. I haven't been shorting it or anything like that. But this report was pretty remarkable. I'll pull up a graphic. I'll let you talk for a second here, but i want to pull up a graphic that i made i'm getting good with canva so i'm i'm really proud

Starting point is 00:04:18 of these little graphics and i'll show it here in a second but what do you think of the quarter well my psychological long is doing quite well no kidding kidding but pretty impressive stuff and it's hard like i've had i guess some takes like everyone has or a lot of people have had that nvidia is possibly over earning given the margin expansion they've had but it's impossible to tell how much longer they can ride this boom i don't think anyone has any good predictions here the uncertainty is just huge and it has turned into as tesla was with obviously a little maybe not as good fundamentals and during that time period uh into a bit of a trading sardine where the popularity among individual investors is enormous. The popularity among options trading

Starting point is 00:05:12 is enormous. And that is going to lead to more volatility, almost assuredly. But is NVIDIA going to continue growing these earnings as Ryan was showing? I don't think there's any good reason just because we don't know how big this current AI boom is going to be. And whether they have the moat that can retain the market share they have with these AI services versus the competitors like Intel, AMD, perhaps Sam Altman's venture, stuff like that. There's so many variables out there that I think anyone that tells you, hey, you know, it's time to get long NVIDIA or it's time to get short NVIDIA at this price. I think you're kind of flipping a coin. Yeah, 100%. The growth rate is staggering. And obviously, the growth rate has to slow down. But I think you raise a good point, which is like, maybe we were totally wrong. My prediction was that we were in an AI bubble or hype cycle, and maybe there were some long-term implications for it, but if this proves not to be a bubble and that every company is spending on these AI models because they really increase the value of their service, then NVIDIA is probably early innings here.

Starting point is 00:06:47 but they grew revenue 265% year over year, $22 billion, I think, in revenue for the quarter. It's pretty staggering. You can just see the massive acceleration over the last year. Like I said, my gut tells me this is not going to be an outperforming stock over the coming years. it is bigger than amazon officially it is bigger than the entire chinese stock market combined uh it's probably bigger than a lot of things but art crimes though the gdp comparisons let's go guys not not the same i would say if we're going to capitalize gdp numbers maybe but those comparisons are always flawed but i thought it was interesting the chinese stock market totally bonded bonded out here's a good question what performs better i think it's either

Starting point is 00:07:47 the hong kong or the shanghai index either or what performs better over the next decade nvidia or one of those indices that's interesting i'm not particularly optimistic about either the The – what's also interesting is that NVIDIA, I believe, had a huge slowdown in their China revenue because there was government restrictions from the US around them selling that much there. So they're kind of at odds with one another right now. the maybe the chinese the the hong kong stock exchange or the stocks traded on it the stock market in general will be slow because they don't have as much access to nvidia's chips so they can't innovate as fast or something i don't know the well i would probably pick i'd probably pick the china's frankly i'd pick the chinese stock market i think just purely betting on like if

Starting point is 00:08:48 we just ignore the regime uh or the government they're purely like mean reversion which i've been wrong on for the longest time but everyone seems to be bullish on chinese equities it seems like yeah and yet the prices still keep going down yeah i agree with you i like neither it's an interesting question though one more though on the old nvidia is does this company at some point actually let me change it from just a comparison to apple does nvidia at any day in 2024 have the largest market cap of any company in the world is currently number three only two ahead apple and microsoft with about a trillion dollars i believe give or take i think it's possible it's certainly possible that would be quite insane

Starting point is 00:09:56 and i want to take a yeah i want to take a second to give a shout out to beth kindig who i don't know if she could have foreseen this ai bubble whatever you want to call it coming but in 2021 she wrote that in five years nvidia will have a bigger market cap than apple and everyone called her absolutely crazy there's a chance there is a chance that that looks right because she's got till what 2026 to make that happen i think if it does happen it will be helped by apple's stock price coming down actually as opposed to just nvidia soaring yeah it's apple stock has struggled a little bit this year that is correct i think i read something on that i don't follow it too closely all right we got

Starting point is 00:10:46 some questions people are joining in for anyone that is a first-time listener or is unaware we do these live on thursdays at about 12 30 p.m eastern time so if you want to join have any questions for us. We can talk anything in the investing world. We might say we don't know anything about your question, but you can ask away and maybe get us to do a certain topic. But we have some questions in here. Thank you for everyone joining. Do you guys have any takes on Blackstone, KKR, private equity companies? I think my only take on that is that higher interest rates for longer don't know whether that's going to happen but i'd say under that scenario i think these companies struggle more than people are expecting uh other than that

Starting point is 00:11:37 what's the rationale there well it's just the higher cost yeah yeah exactly to perform these deals they were in regardless of how well they executed they were in an ideal interest rate environment over the last say post gfc do i think that changes their funding inflows no and that's what's going to matter at the end of the day as long as they don't act incredibly stupid um i remember we talked about kkr once and they had some decent exposure to china with something like bite dance stuff like that which i would be a little bit concerned about but on the whole that's the only thing that i'd factor in i don't i don't like those type of companies where i invest in asset managers just not my cup of tea right it's like gatherers more

Starting point is 00:12:26 so than anything else yeah yeah it's yeah it's i've been blown away by their ability to collect assets over the last year or not over the last year certainly over the last year but over the last decade i mean they are perhaps it's because they don't have to mark their book down as much So a lot of attracting capital is selling past performance. So if you don't have to mark it down, you can potentially say like, oh, well, we've actually performed better than the index right now in these tough times. So here's another reason for you to add capital. So I do think – and I'm not totally sure how all these deals work out, but I think they could probably shift more to – because there's usually a lot of levered buyouts here. And I assume they could kind of reduce the leverage that they use in some of these buyouts and shift it more towards funding from investors would be my guess with interest rates rising. But yeah, no doubt the interest rates will probably hurt them a little bit or at least slow them down. I think these businesses will just continue to collect capital and collect fees.

Starting point is 00:13:43 The one thing I've learned probably over the last, I don't know, five years, really probably last three years since we started trying to manage money on our own. these endowments have unlimited capital to give to allocators like a kkr and like a blackstone so it wouldn't be surprised me it would not surprise me if they continue to grow i agree okay other questions will you be following the booking report this afternoon yes i'm interested in that in relation um i saw there's a great write-up update from our friend at the tsoh investing research service on airbnb and i think if you follow booking you should be looking at airbnb if you follow airbnb which we do we don't own it um but it's one of my watch lists you need to be following booking as well because there are i wouldn't probably a duopoly

Starting point is 00:14:48 at this point don't want to put too much hate on nvidia but or excuse me expedia that was a funny that was a that was a funny slip that i don't think nvidia is getting into to otas other question that i think is more interesting so i love this honest comment from mark says hey chaps loving the show as ever thank you uh bad week for teledoc has my position down 89 i have a buy and hold forever strategy but this is really testing it sensible decision is to cut losses right okay interesting question and i follow the stock price and the earnings headlines i think it's a fun one to look at kind of the covid boom stocks zoom roku teledoc all those block slash square and this is an interesting one i i you know i appreciate the comment because

Starting point is 00:15:41 not any investor out there like there's not a single investor that's not going to have a big dog every once in a while buffett invested in ibm for example that was a you know not the end of the world of a mistake but you know a bad mistake even the best out there are going to have bad investments and i think this commenter is following the david gardner style and it says hey look should i cut my losses and you know just go for something else with that sort of style now david gardner takes it to the extreme it says i'm never going to sell stuff but i think in reality when you're an individual investor it probably works to just take the the tax write-off if you're not interested in the company anymore just kind of look at those each year

Starting point is 00:16:31 i forget what the exact number is you get every year for the the uh offsets but i'm explaining this poorly, but in a vacuum, it shouldn't really matter because if you have a position that you have your basket of portfolio and you kind of let them ride, some will turn into huge positions if they do quite well, but the losers will basically become irrelevant over time and it's really no different from selling. But with especially people in the United States, you can get that tax write-off. So if you have those, I'd recommend doing that if you don't want to own it anymore. But if you're going to really run the David Gardner strategy, maybe psychologically, kind

Starting point is 00:17:08 that never sells stuff could fit because when you go through that the losses are going to be there basically either way it doesn't truly matter that much at this point if and if teledoc goes down another 50 right as long as the biggest mistake we've done it before is averaging we still do it so much is to average down so much into into a big loser whose uh business is not doing well Yeah, I don't really have a take on Teladoc just because I haven't followed it closely at all. My only advice would be, as much as you can, try to ignore your returns to date. Don't worry about your cost basis.

Starting point is 00:17:53 Just worry about Teladoc as an opportunity against the rest of the stocks in your portfolio or the rest of the stocks in your kind of wheelhouse and just say, do I want to invest in Teladoc today versus the rest of the investments I like? If it's not screaming at you when it's down 90%, my gut would say find something else and probably not average down here. But yeah, like I said, don't follow it very closely.

Starting point is 00:18:21 And Tyler mentions here, Gardner sizes appropriately for a never-sell strategy. Yeah, if you're going to do that, you got you're gonna have home runs in 10 years hopefully that are not four run home runs but potentially 50 run home runs uh if things really work out but you're also gonna people aren't gonna talk about the ones that are big misses right strikeouts where they could go to zero so you know it definitely size appropriately not everyone's gonna end up like an nvidia in fact most of them will not so definitely i think probably start small with positions like

Starting point is 00:18:58 that yep i agree all right but we got some other comments a little more sorry do you want to talk a little more about booking or no the earnings are out that's a sour a little bit yeah i'd recommend reading listening to ryan's uh show that he did or well we did together but he was the one that led that episode. I'd say let's wait for the earnings to come out before we give a full discussion, but I'm definitely looking forward to that one today. I'm looking forward to Carvanha's good old psychological short. I'm sorry, I won't have that joke too many times. It's a little bit of an inside joke for the FinTwit crowd, but I'm very interested in reading that one because that one has been an enigma and just a wild company that is

Starting point is 00:19:45 extremely aggressive. We have some other comments I might want to hit later, But the one topic I wanted to discuss this week, and you have some good notes on this, so I'll let you start out, is the big news. I think it was, was it Monday or Sunday, came across the line as Capital One merging with Discover Financial, going to be a huge merger for over $35 billion. But Ryan, I'll let you lead into it. What are the details here? What are your thoughts?

Starting point is 00:20:16 Yeah, I can't remember which day it was announced. But I just kind of went through my notes on Discover because we recently visited them as a potential investment. We did a not-so-deep dive, I want to say, about five or six months ago maybe. But yeah, Capital One is agreeing – they have agreed to buy Discover Financial Services for more than $35 billion. I believe this is an all-stock deal. I actually did not look specifically enough at the terms. But I just want to go through each of these businesses. Maybe they're not that well-followed.

Starting point is 00:20:49 And kind of think about some of the synergies and potential implications here. So what does Capital One do? Capital One is the ninth largest bank in the country. And from what I understand, they're more of a traditional bank and they have the physical branches. And then they're just a major credit card issuer. So they collect deposits primarily from consumers. They lend out mostly through credit card – standard credit card programs where for anyone that doesn't know, it's just you're earning on carried balances. So as the bank, you're collecting interest on

Starting point is 00:21:22 carried balances, but for the most part, you're not really going to be, hopefully most of your credit card holders are not often having carried balances because then these can be really rewarding programs, but they have to be managed properly because it can get out of hand if you don't have the right parameters around it. So anyway, that's Capital One, credit card issuer, ninth largest bank in the country discover financial is a bit different they have two separate but complementary segments to their business one is digital banking and the second is payment services so i'll go through each of these real quick these are from my notes from the previous show it says discover is a digital only bank with 115 billion dollars in total

Starting point is 00:22:05 deposits that might have gone up since we last looked at it or gone down it says the deposits come primarily 65% in the form of consumer deposits. And they also have like brokered and borrowings. And then they take those deposits and lend them out at higher rates, pocket the difference. The way Discover does that, that's what typical banks do, right? That's the banking model. Discover does that primarily through credit cards, also like Capital One. Credit cards account for 80% of Discover's loan volume. And then the second part here, When we did the show, we talked about Discover Financial. We didn't really give that much value or I didn't give that much time to the payments network side of things. So beyond banking, Discover also operates its own payments network, similar to that of Visa, MasterCard, American Express. I think that's really the only other three. This means they process and settle transactions made across their various networks. The way you can think about a network, because I've been hung up on this probably for most of my investing life, is they help banks communicate with one another.

Starting point is 00:23:19 So you're being kind of the arbiter or the middleman between a consumer bank and a merchant bank because there are millions of banks around the globe and you have to process and settle each transaction from the consumer to the merchant and it's really hard for banks to do that on their own. So you have to go through a network. There's basically been four networks that have been developed over time, Visa, MasterCard, American Express, and then Discover. So, in total, Discover has about the same coverage as Visa and MasterCard in the US in terms of not process transactions, but total locations. It's pretty good coverage in the United States. However, internationally, they're nowhere near it. So, it's the fourth largest payments network. Why would Capital One want to buy Discover? I know I'm going long here, so I'll try to make this quick. Here's a snippet from the Wall Street Journal. It says, buying Discover would allow it to process card transactions on a payment network that isn't controlled by Visa or MasterCard. That could give it a new revenue stream and result in cost savings. They could also potentially have some synergies with the credit card programs. They could start to rebrand some of the cards. But they said they're going to keep most of the Discover branded cards, Discover. So I don't think that much will change, but it could potentially take some of the money that they're constantly paying Visa and MasterCard away and make it their own revenue line and juice it as well.

Starting point is 00:24:56 because they have so many credit cards of their own. So they're taking this small payments network from Discover and amplifying it because they have all these merchant relations or these banking relations, and they could potentially expand the coverage as well to all of Capital One's partners. The buyout was a 27% premium to the closing price. So congrats to Discover shareholders.

Starting point is 00:25:20 I should also mention that there was some executive turmoil at Discover, So it might have been, I don't want to say like a bailout, but they might have been eager to sell. Discover might have been looking for a buyer. We did get a comment though that said Buffett is a big Capital One investor. There's a secret position that he's been investing in. What are the odds that Buffett had anything to do with this? What are your thoughts? Possibly, but I don't.

Starting point is 00:25:52 I wouldn't. Is that really the interesting question, though? Because it's just kind of, yeah, maybe. But, yeah. He probably got the call. I'm sure if he's a large enough shareholder of this company. Yeah. I'd be very surprised if the secret position was Discover

Starting point is 00:26:10 because you can't – he'd be tampering with – that would be a bad thing. Who do you think wins here? Who do you think loses? Do you think this has any bearings on Visa and MasterCard? Well, if I remember looking at Capital One in their investor presentation, because I knew we were covering this, I read the merger presentation. It seems like if everything falls away from Visa and MasterCard and goes onto the Discover

Starting point is 00:26:40 network and they essentially build a second American Express without different brands, but essentially build an American Express with a vertically integrated network. It would be a decent hit in the United States, but for Visa and MasterCard internationally, I don't really think it's much to sniff at. These are companies that we're interested in. We've talked about covering Capital One, and maybe that's a next one to cover for a stock report going forward.

Starting point is 00:27:10 I can maybe do that after we do Elf Beauty, which we're recording tomorrow, coming out next week. we've covered discover covered all the other payments companies my big takeaway is that when reading all this is that american express visa and mastercard had ideal positions in competitively just within the marketplace throughout the entire call they were talking about look it's almost impossible today to build a new payments network at least in the united states maybe it could be possible in a smaller market and you have to go to all these merchants it takes years and years and years discover has been the fourth player they basically have big

Starting point is 00:27:54 acceptance but they haven't made much money on it because they haven't gotten to the scale and there's capital one is essentially saying we're going to merge with this company and spend what we're going to spend 35 billion dollars yeah they're getting this asset that's already been built. But in order to properly compete with American Express, Visa, and MasterCard, and then you'd also say someone like Chase with the big credit card business that they have, we're going to need to spend a ton of money. We probably aren't going to win because Visa and MasterCard, yeah, this could be a moat test, but how much confidence do you have in them really seeing any market share losses. I think it also, again, shows to me that American Express

Starting point is 00:28:40 has been ahead of the game and people have underrated that in recent years because essentially they're saying American Express is in the ideal position and now we need to merge these two companies to hopefully get there over time. But the concern for me is that these brands are not good they're fine Capital Ones is okay, Discover's is not good the stock's still done well despite that but

Starting point is 00:29:09 maybe at 5, 7, 6, 7 times earnings this works but well I would say at the worst case they may have gotten Discover at sort of a decent bargain they

Starting point is 00:29:25 because I remember looking at Discover thinking they're potentially under earning here if they got back to kind of expanded net interest margins and they were in a good spot they'd be okay i i don't think it's a bad purchase necessarily i don't know if i buy all the synergies like i think that like you said they're trying to build a second american express but they don't necessarily have the american express brand at least in the eyes of consumers i'd be surprised that this really made a dent in any of the competitors businesses especially visa and mastercard at this point it's just not big enough to affect them really the transaction volume i'd be very surprised if visa or mastercard sold off

Starting point is 00:30:10 on this i think that's probably a wonderful opportunity i mean yeah well they have pretty extreme valuations anyways i don't think so i remember looking i don't think they did yeah well everything's up today but no nothing happened i saw some people giving a hot take that like mastercard and visa could be affected if they take all the money off of the the networks and i don't okay here's a few things one people usually have multiple credit cards i'm guessing two or three perhaps more if you try to be really efficient with it or inefficient and you're bad with it but you know people try to get the points the sign-on bonuses stuff like that and even though discover is accepted everywhere in the united states similar to american express

Starting point is 00:31:01 people are always going to want to have a visa or mastercard option in their wallet because they they are confident that that's accepted at a hundred percent of places but there's a lack of confidence from the other two and i don't like okay if capital one goes off a visa and mastercard and goes to discover's network i think now i'm curious if you disagree with me here that hurts the capital one brand okay if you're a consumer looking if you're a consumer looking to get a capital one card yeah potentially just lower acceptance internationally that's kind of tarnishes it a bit but maybe they can work to revamp that first or help expand its coverage but it's perception it's still under the capital one brand though

Starting point is 00:31:51 do you but if you have like okay we have our we have our discover card from capital one if i'm a customer maybe it's misguided but i think everyone thinks like this i'm saying okay i have my just capital one card it's on discover i might need to have a visa card in my wallet too as a backup yeah potentially maybe maybe that's not a big deal maybe you could just get rid of you could just call the discover network nothing and you could just have it like an american express card where all you see is capital one and yeah you know when you look at an american express card i believe it doesn't say anything about the network that it's on it just says american express you could just have capital one be similar where they don't even

Starting point is 00:32:36 have to think about the other payments network. Now, there are some questions here about whether or not the merger would go through. This to me really does not make any sense. Why would we have to block this? Why is it in the consumer's advantage to block this? First of all, there's a million online banks to choose from, not a million, but there's a lot of banks you can choose from there's a ton of credit card providers you can choose from so who are you protecting by capital one consolidating this you're protecting visa and mastercard basically which there is consistently litigation regulation whatever trying to get passed to prevent visa and mastercard from continuing to expand their take rate

Starting point is 00:33:28 why would you want to protect them i i think well i think this should get passed i don't I don't know if it will, but I don't see how it hurts consumers. I think they could make an argument that it creates a competitive advantage versus bank issuers. But in reality, I don't think that's the case because there are so many bank issuers of credit cards out there. You have the large ones, you have your local ones, you have the partners with the travel companies. they all basically use Visa or MasterCard unless you're American Express and you use yourself

Starting point is 00:34:07 yeah it doesn't seem like there's any anti-competitive stuff going on here but it is vertical integration technically so maybe there would be concerns if Visa bought Capital One

Starting point is 00:34:22 yeah that would be a concern that's an obvious one but i think there's a certain senator in the united states i know we have a lot of international listeners too that just tweets about every merger like it's evil so i i don't think we should take that seriously because she just seems to be yelling an old i guess it's not the old man yelling at cloud old lady yelling at cloud type deal yeah it seems unlikely that it would get blocked if anything this is probably better because maybe it'll force mastercard and visa to kind of be careful about increasing that take rate but seems unlikely so anyways yeah let's uh

Starting point is 00:35:07 yeah for any listeners we were debating uh internally which just basically means the two of us whether we should do an episode on capital one in the merger and we're kind of like maybe people listen if you really want to listen to one on that where we kind of do a full hour long analysis on the company and the merge the merger instead of kind of these off the cuff things let us know and we'll do one but right now it's it's on the table and you can reach out to us chit chat money podcast at gmail.com or reach out to us on twitter we are pretty responsive yeah yeah yep so and we do get a lot of emails so appreciate everyone that does that i know tyler email this a couple times so uh always appreciate getting that email another question here did you

Starting point is 00:35:52 see match groups press release uh this was kind of hilarious yeah well hey we're if we're talking about ai demand this could either get you bullish on ai or nvidia or bearish because you could say well are these companies going to be doing this in five years explain what they did and kind of the unique it was not really funny it's funny because people make fun of them but yeah so take us take us through it yeah so match group just announced this new press release and if you click into it it basically says this did not need to be a press release it basically says they acquired a thousand chat gpt enterprise accounts they they're they're paying for a new service that's that was the press release essentially uh the kind of ironic thing is first of all

Starting point is 00:36:51 those usually don't require a press release maybe well it was written by chat gpt ryan so maybe you get it funny i guess uh maybe it was required like maybe it was a term in the partnership if you want to call it a partnership maybe they just said like hey we'll give you a discount if you just drop a press release and whatever in that case maybe it's the right thing to do however match group also bragged on their last conference call about launching dark mode which it's starting to feel like they're just like announcing they think there's more product innovation than what's really going on uh i love yeah i love those type of companies that will press release everything the wicks wicks was like serial press releasers oh yeah they're the kings

Starting point is 00:37:40 of that stocks actually done well though recently earnings are strong earnings are strong uh 140 no big deal stock all right yeah wicks 140 really that is a good report i actually read it i read it i get their emails solid report accelerating growth it's a great core business i think you've got it's pretty sticky because as long as your business itself is not as long as you want to keep your website up it's kind of a pain to switch so as long as websites on the internet continue to grow i think their influence and their market share among content management systems will also grow so okay it's really just chipping away at wordpress yeah they got a good tailwind tough thing is though management not too good at managing

Starting point is 00:38:33 capital and they are operating in a country that is at war so it's also a tough one uh add some risks there yeah back on match group clearly people are making fun of this release as they should do you think it's a legitimate red flag i kind of think it's it's fine they're gonna do these things probably what you gotta expect not a thesis changer though unless it shows up in the op-ex and they say well we actually had to spend 50 million dollars more for these innovative ai licenses yeah then that's really concerning the i don't think it's a red flag i don't think it's a real red flag it's frustrating that they seem to have their eye off the ball a bit like i don't mind gary swidler i think he does a pretty good job as cfo but i just i don't know i worry about

Starting point is 00:39:34 the rest of the team we'll see we'll see well tinder ceo the tinder ceo is important she just got the position i would love for them to give her more air time talk about that see what they're doing there yeah there is a world in which five years from now we look back at this and i think this is you could say like holy smokes you were getting match group at 10 times cash flow that's insane because maybe tinder re-accelerates there's more adoption to be had abroad there's it's not nearly as close to saturation as people thought hinge grows even faster it's got a higher value user base people are willing to pay more and then all of a sudden you've got like these two pillars driving this kind of wonderful business and it's a great network effect but i could also see tinder

Starting point is 00:40:29 potentially going the way of match.com which that seems to be the bear case right now is that is this slowly turning into a legacy app i really hope not but i don't know i you can kind of see this is one where i can clearly make the case either way yeah well i own it for better or worse we'll see we're gonna ride uh i think i'm gonna ride through it for the next year or so at least uh but obviously update every quarter i've grabbed the run we're over halfway through so why don't you pull up a nice chart and talk about our good friends your humble employer finchat.io i'm gonna ask you to pull up the chart because i don't if okay for anyone that knows i you maybe hear this on occasion but i sometimes have to click around

Starting point is 00:41:20 to move tabs around and then it kind of sounds annoying so i don't want to do that but if brett's going to pull up a chart. That would be great so that we could see the FinChat dashboard, see what the platform is like. FinChat is the complete fundamental research terminal for investors. You get really intuitive and good looking charts. So if you're someone that likes to share charts, I really think the platform is awesome because they have like here, Brett is pulling something up right now and he can pick paying users for Match Group and it's just really seamless. They do have segments and KPIs, so company-specific data like users, like AWS revenue, like how many cigarettes did Altria sell last quarter and the last 12 quarters.

Starting point is 00:42:09 It's a very specific granular data that really no other platform has, and they've got it on over 1,500 stocks. And if you want KPI data for a specific business, just give me a shout and I will pass it along to the data team. And they usually get those up pretty quick. But yeah, very easy, wonderful platform, very intuitive. And I think it looks pretty sleek. Some invest kind of investment management platforms like anywhere that you're doing your research, that can be intimidating, a bit of an intimidating interface. I think it's a little easier. So if you want to check it out, FinChat.io, if you're interested in any paid plans, FinChat.io slash chitchat will get you 25% off. That's FinChat.io slash chitchat.

Starting point is 00:43:01 I'll leave it there. Actually, I have a question for you. How have you been enjoying the platform? It's good. It's good. Helpful. A lot of stuff on the old Twitter X machine. It's helpful for research.

Starting point is 00:43:17 gonna have for sharing quite a bit gonna have quite a few in the elf beauty episode that we're recording tomorrow stocks up 600 in two years it's quite the comeback story for them after being after going nowhere it was a dog about five yeah interesting because they're just selling cheap cosmetics to gen z and millennial women but they they got tiktok right so it worked. That seems to be a huge part of the business. That seems to be the takeaway that I have, but do you want to talk Rivian?

Starting point is 00:43:58 Yeah. What happened to Ryan? This could be, yeah, this could be ugly. I think I was talking with Travis. Can I ever say his last name? Right.

Starting point is 00:44:07 I think it's how you say that. Molly fool analyst been on the show before does asymmetric investing. Nice little YouTube channel over there. And he was worried. I was talking to him about it because I didn't really follow the company that well, but they were already taking, you know, they're at just over 10,000 in production per quarter, and they're already taking some of their initial truck production off the line and going for the SUV for their second product. and I was a little concerned about that. It turns out this might have been a real concern. I should say I've never had a position either way in Rivian, but the stock is collapsing today.

Starting point is 00:44:47 It's down 30%. Deliveries are stagnating. We see Q2 2023, 12.6 thousand. Q3, 15.5. Q4, 13.9, or basically 14,000 deliveries. And they're projecting minimal growth to just 57,000 for all of 2024. Gross profit per unit is going in the wrong direction. And we're seeing gross margin at a time when they should be inflecting really high to break even as they

Starting point is 00:45:21 ran production. It went from negative 36% in Q3 2023 to negative 46%. Last quarter, they are on a 1.5 billion dollar quarterly free cash flow burn and they only have about nine billion dollars in cash left so maybe one to two years at this current state things look pretty bad stocks definitely down i think the market cap is about 10 billion dollars right now so technically that enterprise value is quite low if but no that's not how you should value this company my question bankruptcy watch yeah next three years does rivian automotive or this current corporate structure file for bankruptcy do they have any debt right now uh i can check real quick it's got to be net cash right with all the money they raised i would

Starting point is 00:46:17 assume they have a net cash position the i think bankruptcy is certainly potential here i mean it just goes to show how hard and rivian is one of the more successful recent automotive businesses to have been launched at least relative to some of the other uh spacks if we want to call them that what was the big one uh to answer your question 4.4 billion in long-term debt, so what, $5 billion net cash, give or take? Yeah, wow.

Starting point is 00:46:55 I think bankruptcy is potential. It just goes to show how hard it is to scale an automotive business. Props to Tesla in this regard. Yeah. They did it a little as I'd argue.

Starting point is 00:47:10 A little not scammy. Not dangerous. They took bigger risks. I think a lot of risk in a lot of ways. Let's say that. That's probably a good way to put it. And I really think they were probably one of the biggest beneficiaries of low rates. And they had – because you look at them at this point and they're fine. They have gotten to a point where their production is scaled enough that they can survive for a while.

Starting point is 00:47:46 But you go back to 2018, 2019, if they weren't able to raise so much money, which maybe that's more good – that's like props to Elon on his ability to tell a good story. I don't think they'd be where they are today, not even close. Here's the question though. Is this Rivian report – is it positive for Tesla or negative? because we're clearly seeing deterioration in demand in the EV market. It's been a big trend over the last few quarters. However, we might see it crowding out.

Starting point is 00:48:27 It's probably bittersweet for them because they're definitely facing the same issues at the moment, but the question is, is the long-term growth there? I'm not sure. i'd say assuming that like rivian this quarter specifically it's maybe a bit of a red flag but because tesla's struggle and demand coincided with this struggle and demand so it's like pretty much a sign across the board but if rivian goes bankrupt it's i mean it's advantage tesla for them yeah yeah i mean but in a vacuum that's good for them but yeah

Starting point is 00:49:05 the mac it's a talent on them i think the the entire sector operating environment right now yeah well you know what i kind of come back to with tesla and maybe it's just the fact that i live in washington and they're like extremely common here because of all the tech employees it feels like there is less appeal the more popular they become for me like is there any chance that's happening right now you know there's so many Teslas on the road that there isn't that much attraction to getting

Starting point is 00:49:41 a new one now if they could just be the low cost provider the low price I think they're probably going to win no matter what but I think it's kind of I've lost my love for the brand potentially yeah no they're the true AI company Ryan

Starting point is 00:49:57 don't you understand Optimus is coming I think the Cybertruck give a little time but i'm increasing conviction on that given the reports from users i don't know why i call everyone users these days but it seems like because it's yeah it's kind of it's yeah the drivers it seems like that product's kind of a bust um and it's not actually workable like you got this yeah stainless steel rusting who could have guessed i don't know any engineer that's taking sophomore year classes um this reminds me though or brings up venom maybe a month i don't know how maybe time's going slowly vision pro what do you think bust or no i'm leaning

Starting point is 00:50:46 towards way flat i think it's i think it's almost huge now huge yeah i think it's i agree with you i don't know what is going on in silicon valley that they think people want this it isn't there no one wants this meta apple whoever else has some vr goggles it's time like i've never had even an inkling to want or to go to a store and buy one of these yeah haven't even thought about it what's apple's user base billion if they gave it to me for free i don't know if i'd use it exactly i think it's a good why am i going to go to the store and spend three thousand dollars to get it yeah let's say does apple have a billion users maybe what would you say there's 10 million kind of diehards out there that's probably a good estimate

Starting point is 00:51:46 a lot of bros on the west coast could be more yeah maybe let's say conservative 10 million there was what probably inventory for 500 000 units i think on opening you know kind of as we go through this year so you even have those fanboys they're all not all a lot of them are returning it so these are the core fans like i think as someone who's these are the people that show up to the events yeah like the smartphone was so good because it's so useful it basically nowadays you have to have it to operate in society plane tickets paying for things finding uh dates listening to music even in the early days you have to have a smartphone you don't have to have these so they it's like i don't know i think it wasn't yeah i totally agree the and we talked

Starting point is 00:52:49 about like paying for plane tickets basically needing the iphone today you didn't need it but it was still really useful in the early days to have all the different functionality that you're using elsewhere consolidated into one place right the phone the texting the emails the which steve ballmer said no one will ever use because you can't send an email from an iphone it's kind of hilarious entertainment there was entertainment gaming was very popular in the early days it was basically you know they could tack on a nintendo ds to something that's also usable it i thought was really kind of uh the adoption was clear from the early days as opposed to i don't see the use case here when they say that you're getting major headaches your neck hurts and that your eyes are

Starting point is 00:53:38 like you just stared at a screen for eight hours after 15 minutes i don't i you know it's classic it's been the last 30 years of just wait next gen next generation they'll fix these issues i don't know if they're fixable guys and if it takes a trillion dollars in r&d and capex well then great as a consumer that's wonderful but the stock you know stock returns are going to be poor yeah and this is nothing against i like mark zuckerberg i've had some negative takes over the years and maybe this is the all-time high speaking but i think first of all that that new meme of him it's quite hilarious but i think he's done a pretty good job guiding that company i think this is a misguided bet but he's done such a good job with a family of apps that

Starting point is 00:54:29 yeah i kind of shrugged my shoulders and it seems like he's for them it's worth the bet for apple i don't see why it's worth the bet never bet against meta is we have a comment here or never bet against zuck long meta that could be true but i would you should remember what was that crypto coin they were trying to pump in like 2018 oh it's not lima it's not that's the city in peru it's it was something like that it started with an l you can't remember it i mean i bet it i bet against them on that and it was a collection of companies right no no well ryan we're forgetting 2018 speak it was a protocol and companies were joining and it was going to be the it's not mad they were called that at the time do you remember

Starting point is 00:55:19 this coin facebook's cryptocurrency i'm gonna look it up facebook's maybe there was also one that was like three different businesses trying to launch something and it was pretty high it was like chase or jp morgan yeah maybe luna that might have been different it was libra is libra It was a permissioned blockchain-based stablecoin payment system proposed by Facebook. Now it's called Diem, D-I-E-M, and it was a total flop. So stock can work, but you can also say that not everything a company does is smart. Expected to work, yeah. Okay. I posted a list this week of eight businesses with big network effects. There were some comments, too, on companies that I was missing. But my question to you, who do you think has done the best job, in this case, screwing up their network effect?

Starting point is 00:56:27 uh okay that's harder than i thought i thought you're gonna paypal's out there for me to be honest i would say like here's the thing venmo's network effect is still strong for anyone that doesn't know it's a subsidiary i mean the paypal is the transfers they have worked as hard as possible to throw at venmo it's they have done nothing it's but they haven't done it slow but i use it all the time great network effect but i think the core like the money transfer paypal sending money to other people that was a wonderful network effect and their simple unwillingness to drop take rates has just attracted competitors unlike anything like you've seen the money transfer business has

Starting point is 00:57:28 really just that industry has erupted over the last decade because people are trying to get into it because paypal frankly takes a ridiculous fee so i don't know maybe that's me griping as a customer but it seems like that is a clear network effect that has they have invited competition i don't know if they screwed it up but they invited competition they definitely saw a lot of self inflicted wounds there another one used to be the owner of paypal ebay oh yeah that was a big network effect too i like how you put etsy in these eight ones why does etsy always get tossed in there i don't think it's like we got the best companies in the world and then etsy it makes sense it makes sense though it's developing potentially i think that is a

Starting point is 00:58:20 business that you've got unique selection now part of the problem is they've strayed a little bit away from the unique selection but they've just really grown their active sellers because i think it's a like it's a differentiated marketplace where you can get unique items and that to me makes it feel like more of a sustainable network effect but they just can't really tamper with that they don't want to start getting like commoditized stuff u-haul that's another network effect that i didn't talk about someone just commented that he says u-haul while not screwing up their network can be way more aggressive in their pricing for rentals no one moves and thinks i'm gonna get a penske to move yeah potentially people do go to u-haul first that

Starting point is 00:59:10 is kind of the known brand but i think i don't think it people look up like moving trucks yeah near me i mean yeah i can see an easy google advertisement on that where you see that u-haul is really expensive you go wait wait wait let me look up an alternative and that's easy google like but you all they are the most that think about the sponsor how much that sponsor listing is for you all alternative that's that's got to be quite a nice advertisement there yeah the it is the known brand and because you have to have those nodes in so many different cities it i think is valuable in that way where you can pick up your u-haul in seattle but you can drop it off anywhere when you move that's big but uh i guess i don't know the industry well enough i'd

Starting point is 01:00:02 be surprised if there were other moving businesses that weren't similar in terms of places you could drop them off and having that kind of different node model okay yeah etsy is an underrated network effect i think the marketplaces people got marketplace happy a couple years ago i think maybe that pandemic had something to do with it etsy's is fairly strong although their gmv i just looked it up kpis on old finch out there has uh has stagnated since 2021 maybe they'll fix that maybe that was just the code would bump and they're actually you know kind of the underlying growth is growing but it is kind of funny that they had an actual surge in gmv from masks yeah but that's what's potentially hurting them as we comp that period yeah it is interesting

Starting point is 01:00:52 remember when things like thread up poshmark were getting pitched as the next network effects like just wait they're building the marketplace man what's your i was a believer in poshmark for a while hey they got bought out you would have been right technically uh yeah i was i was a believer when they were like net cash yeah they were trading trading below net cash or something like that what's the most we'll wrap up here soon what's the most underrated network effect you had a lot of you know responses there i'm assuming that's tough well uh upslope capital mentioned some of the financials businesses like the exchanges the cme was one anywhere where you need i think especially with the bond exchanges like you need someone on the other side and so the places that

Starting point is 01:01:48 have the most uh the most buyers are going to be such high value so market access people don't really yeah market access that's one people don't really talk about those ones i like those what if i what if i propose that visa and mastercard are the most underrated network effect just because it's way way better than people think whatever i guess the but it's like uh yeah it is like when someone says tiger woods is underrated that is an impregnable network effect probably the most unstoppable network effect because you've had everyone try to stop it right like like the governments have tried to build their own yeah china and india consolidation from like capital

Starting point is 01:02:35 one here i'd be very surprised if anything disrupts them so yeah i guess you could say it's underrated but i think when people think network effect fees and master car probably the first two that come to mind yeah okay let's get some comments and then we'll wrap things up okay we had the u-haul one railroads and cell towers were the original networks i guess that's Yeah, Fits. Carvana. I'll say TBD on that one. How is that a network effect?

Starting point is 01:03:08 I think buyers and sellers in the marketplace. Right, right, okay. We got ICE. It's not the government agency. The exchange. Moody's, FICO. FICO's a good one, although I think... Yeah, there's a lot of...

Starting point is 01:03:25 Network effect is not the first... That is not the first competitive advantage that comes to mind for me when I look at, like, Moody's and FICO. Yeah. I think that's more brand slash social proof slash reputation. Yeah. All right. Well, I think that's a great place to wrap up. Thank you for everyone that joined.

Starting point is 01:03:48 As a reminder, we do these live on YouTube, 12.30 p.m. Eastern Standard Time. But you can listen to it on your podcast player of choice. If you liked this episode, and if you're listening now, I think you liked it because you're an hour in at this point, give us a five-star review on either Apple Podcasts or Spotify or follow the show on YouTube. It is the best way to say thank you and support these free episodes. Also, subscribe to our newsletter called Chit Chat Stocks and get all sorts of updates on the show. We've had recently on the newsletter follow-up questions with our friend Lou Whiteman on the show on Boeing that came out yesterday or earlier this week, if you're on the podcast.

Starting point is 01:04:36 Now, let me hit the disclosure. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast. We may have held them in the past and we may buy, sell, or hold any of these stocks in the future. Thank you everyone for tuning in and we'll see you next week.

Chit Chat Stocks - $NVDA Is King Again; A Credit Card Mega Merger; Underrated Network Effects; A Rivian Bankruptcy?

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