Chit Chat Stocks - Oracle AI Dreams; Amazon Return to Office Mayhem; Boeing Union Woes (AMZN, ORCL, SNOW, DAVE)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is our weekly power hour episode. And today I am joined by the one and only Brett Schaefer. My name is Ryan Henderson. We do these shows weekly on Wednesdays at 10.30 a.m. Pacific time, 1.30 p.m. Eastern time. We do these live on YouTube. So if you ever want to get any questions in, go ahead, head on over to YouTube, look up Chit Chat Stocks,

Starting point is 00:00:57 and you can comment any questions or feedback you want for us. We always appreciate the comments we get. And on the show, we talk all things financial markets. We riff on the world of investing, and we've got some topics slated for this week. I've got some actually fun ones. We got a recommendation last week for our small cap of the week, which I'll be talking about. But, Brett, I guess welcome to the show. What do you have on our docket today?

Starting point is 00:01:23 Yeah, it's going to be a fun one. You had a lot of stuff, Boeing Union Strike. You know, things seem to be going quite well for that company as well. Always AI spending with Oracle. Classic. Yeah, you'll never guess, but they are bullish on the potential of AI and how people are going to give them money for cloud computing. And I'm interested in that small cap of the week.

Starting point is 00:01:47 We also have a question about emerging markets, which I think is fun. uh we can talk about countries that interest us and why i think that's always a fun discussion because it's scary to move outside of the u.s or outside of whatever home market you're in i think we can learn a lot and we're going on that journey with everyone before we do though i want to talk about our friends at public if you want to earn a 6.9 yield for the next four years or more you need to check out the bond account at public.com It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9% yield until 2028.

Starting point is 00:02:29 In other words, no need to worry about the Fed's upcoming rate cuts. With a bond account at public.com, you can earn a 6.9% yield even as rates fall. It only takes a couple of minutes to get started, but you have to act fast if you want to take advantage of some of the highest bond yields in years. Discover how you can lock in a 6.9% yield until 2028 with the new bond account only at public.com forward slash chitchat stocks. Where do we want to start, Brett? Ooh, I don't know. I don't know. What do you think about this?

Starting point is 00:03:08 I was going to say Boeing Union stuff, but I'm not sure everyone wants to even talk about that. Let's do Oracle. That's sexy. That one seems fun. And Larry Ellison, he's looking spry. He's 80 years old. He just turned into the richest person in the world again, I think, for a brief moment, which feels like, hey, I've kind of been in this. I've seen this movie before, circa 1999. But what did they have to say? How is their business doing? business seems to be doing well i guess i did not realize this but one of the biggest ai beneficiaries is potentially oracle uh they are one of the biggest data center operators globally and apparently all this ai spending is somehow helping them i'll be honest don't know oracle's business model very well at all it's not something i've uh ever studied or really even had much

Starting point is 00:03:59 interest in studying databases right databases yeah it's sticky i bet it is um it's i i guess what happened was they came out and had better than expected earnings but then they also raised their 2026 guidance which i was like all right that seems a little forward right like i think that's two years out for them well maybe they're on a different fiscal year yeah Anyways, but then either at a shareholder meeting or in some sort of a conference, they said that they expect to surpass $104 billion in revenue in 2029, which – Okay, that's aggressive. I don't – so either it's a red flag that they're giving 2029 forecasts or it's a testament to how predictable their business model is. I'm really not sure which.

Starting point is 00:04:54 And the stock soared on the news. Basically, a whole bunch of quotes around how all the spending from the major cloud providers and the companies that are spending tons and tons on CapEx seems to be flowing through to them and they expect revenue to double over the next five years, which for a business of this size, this scale, that would be huge. I'm sure there'd be high incremental margins on that as well. So Profit Outlook looks good for Oracle. I believe the earnings multiple has basically doubled over the last couple of years. I was about to pull that up. You're reading my mind here. Yeah.

Starting point is 00:05:33 So Larry Ellison, who is still the largest shareholder, I believe, of the company, surpassed a one Jeffrey Bezos. So congratulations to him. I'm sure he doesn't care. i i'd be surprised if he spends that much time really focusing on oracle he seems more like an eccentric character so um anyway yeah what are your thoughts on all this yeah he did say in his book or the book that was written about him that he will he thinks he'll be known more for his japanese zen garden that he built at his compound in san francisco so we'll see about that but they They carried down, I believe, he custom got a truck and carried down boulders from Yosemite.

Starting point is 00:06:20 Maybe not in the national park, but where it was illegal, obviously, and put them in his backyard. So he's an eccentric figure. That is true. I mean, can we get Cisco back in this even? They got to be kind of like, all right, well, maybe, you know, maybe we deserve to be doing this. Maybe we deserve to get back. If Oracle is soaring, if Microsoft is soaring, if we're talking about AI infrastructure, hey. And on the flip side, I think we can skip to this segment as well.

Starting point is 00:06:55 So Oracle, AI darling, I guess, didn't see that coming, although maybe I should have. People said that was kind of like an obvious beneficiary. Like Snowflake's chief financial officer came out at a conference this week and had some – took a stance that I really haven't heard a whole lot of executives take a – be basically in the ballpark of. Like he said – direct quote here – I'm not going to buy any more GPUs until I see the revenue to support it. So now I think this was – a lot of people took this kind of out of context, which was – it was in reference to the soaring costs of GPUs because there's the lack of supply at the moment. But any way you slice it, the statement is still clear. He's not buying any more GPUs until he sees the revenue to support it. Maybe if costs come down, he'd feel a little more incentivized to buy some more GPUs.

Starting point is 00:07:53 but basically it's pushback on this ai spending until until he sees some sort of benefit from it so and we i posted this whole bunch of people commented all right like you're going to be dead in the future like you know you got to invest now for the revenue later you know what i honestly i don't know if i disagree with the guy like you can generate good business returns without needing to buy endless gpus and i know everyone wants to talk about the uh the investments in ai and and being that but you can serve a lot of value to customers even if you're snowflake without having a ridiculous amount of gpus i know that's kind of a hot take but uh okay that mentality ryan and i've talked about this time and time again is exactly like cisco in 1999

Starting point is 00:08:49 is exactly like telecom and the fiber builders in 1999, 2000, 2001. The history might not repeat the same way, but that mindset is similar. And I don't think Snowflake can be complaining, at least from a top line perspective. I know people worry about, well, their underlying profit margins, the consolidated margins are quite bad, but the gross profit, the unit economics seem to be quite strong. If we look at this chart here, gross profit since January 2019, so I think that's honestly the calendar year 2018, but fiscal year 2019, it's grown at 100% plus compound annual growth

Starting point is 00:09:31 rate through the last 12 months, gone from $44.9 million to $2 billion. I don't think these are nitwits. And there's such a consensus around you need GPUs, you need whatever. Uh, are you ready to call the top Ryan? I know this is on value after hours, like when they ask what inning it's in, uh, it's kind of the same question, but are you ready to call the top, uh, psychologically put some psychological shorts on? I, yeah, I don't know. Because on the one hand, I, first of all, not in love with the way that Snowflake kind of runs its P and L, uh, stock-based compensation is ridiculous and the other part here is it's different for different

Starting point is 00:10:20 companies right like i've got a comment here that says aws gcp and azure can't find enough gpus to meet customer demand they might have applications where like the spend on gpus is warranted like they can see a direct revenue correlation they can see how it benefits customers instantly snowflake i'll admit i don't know the product that well but maybe they don't need it maybe you know maybe some sort of conversational ai or whatever it is you're looking for it doesn't really fit their customer needs yeah go ahead i was gonna say you know it could be very beneficial for amazon for example with code whisperer if they've got a whole bunch of developers using that like and they want to keep training it whatever it is

Starting point is 00:11:06 it makes sense for them to keep spending on it yeah and one thing i would say is amazon google azure with their cloud computing stuff cannot you know the demand is quite high right now but the demand is high because there's companies like open ai and anthropic which have tight relationships with some of these customers that are spending an absurd amount on cloud computing credits while simultaneously running, you mentioned a P&L, that's probably 10 times as ugly as Snowflakes. The reports are that OpenAI is losing an absurd amount of money, which is why they are trying to go to the capital markets again to raise over like $10 billion, I think. So, hey, if that can continue, sure, that's great. But you're betting on either a

Starting point is 00:11:58 change in the unit economics or pricing power or that VCs just keep wanting to throw $100 billion at these things that go into the cloud companies, which, hey, I wouldn't mind. It's probably not going to kill their whole business if that goes away, but I would be hesitant at this moment. We talked about it time and time again. I think Oracle, Snowflake, two contrasting takes there, but I would much rather have a management team that's like Snowflake, that's underselling this stuff because they can take advantage

Starting point is 00:12:32 if they have that customer relationship. I think it'll be fine. They're not the ones that are building the cloud infrastructure. No, I agree. You want to talk about Boeing's strike? Which has been a while. Remember in like 2008,

Starting point is 00:12:44 I think it was 2008, when there was a strike and it felt like, maybe it was just because of where we are, but it felt like everything, people cared so much and now it's kind of gone i don't know it just seems like people aren't talking about as much in our neck of the woods yeah i think it's probably because amazon and microsoft dominate

Starting point is 00:13:03 the conversation so much locally now especially amazon i mean just they're the king of clickbait headlines you write it out you write an article about amazon it's getting clicked on and we're going to talk about the return to office stuff here um but with the union strike last time That's what caused them to move to South Carolina. And it's what the theories are of what happened with the downfall, part of the downfall of getting away from their engineering roots and trying to cut costs. It'll be interesting to see what happens here. But I thought one note from the Wall Street Journal was quite illuminating and potentially

Starting point is 00:13:38 scary for shareholders. I guess we started out being a little bearish on a couple of companies. And we had this comment last week that we're being too bearish. And I want to say that, hey, if the market falls, we'll be less bearish. But earnings ratios are high, and we're going to tell it how it is. Also, I will say we've done a number of episodes here where basically we ended up buying. I think the titles were why we're buying certain companies. So I would definitely say, generally speaking, I hope we're more bullish than bearish.

Starting point is 00:14:10 But on the market generally, yeah, I guess we may be a little more skeptical. Yeah. Yeah. Ooh. Also got a comment about the Hawaiian Alaska merger. I think we should talk about that specifically. Maybe some points arbitrage for those airline points. Let me get Ryan on that Alaska card. Get him those points. Get him that companion fare. We'll work a trip to Omaha like that. But no, back to Boeing. The anecdote I saw was that the Boeing machinists, who are the ones striking right now, and the most important workforce within the company, the starting pay is $21 an hour before benefits. Amazon drivers now get paid $22 on average. You work at

Starting point is 00:14:47 Costco, I'm guessing in the Pacific Northwest where these factories are, you get paid more. And that's not too far from like a fast food job or something like that. I think that's got to be one of the problems is you're not paying $21 an hour. I want someone who's building plants to be paid a little bit more than that yeah i suspect there's probably more people making above the minimum than you'd get at like a fast food operation or something like that fair yeah that's fair but but either way if you can get more at an amazon driving job that's way lower than i thought yeah yeah i would have guessed it's significantly higher than uh yeah it's interesting 30 000 workers that is not the entire workforce for what it's worth but uh still a good

Starting point is 00:15:45 portion of the machinists um the this could not come at a worse time for boeing yeah like they are in a cash squeeze well i shouldn't say that they've got they need to conserve cash And it's coming at a time when they're really – the whole story is can they increase production because there's all these slowdowns going on, a lot of FAA involvement because there needs to be. And so basically all this red tape and it's just their production, airplane deliveries is down I believe 46% from its highs. So there's – it's a high fixed cost business. They aren't delivering the planes they want to deliver because they can't get them out the door fast enough. And now you have machinists walking out on the job and it sounds like maybe you can't fault them. The negotiations did not go the way they wanted at all and I believe it was like 96% of the union voted for a strike versus like 4% that did not.

Starting point is 00:16:55 So I would be so concerned as a Boeing shareholder because I don't think this business is going anywhere. It's critical to the world. But – Stock doesn't have to be worth anything. I don't think the stock – I don't see how the stock works out from here, honestly. They have so much debt now. now it's due in 2062 and i bet that they would find a way to get some some of us yes in general it's longer duration it's not like it's coming due in the next two years or like they can't

Starting point is 00:17:32 service it but it's just really hard to see how this works out from a shareholder's perspective yeah i would much rather bet if you're betting on a turnaround for a bloated um american company that's getting kind of either disrupted or I guess Boeing's a little bit different where it almost killed itself in a way. I would rather bet on an Intel turnaround just because of the potential upside where I think with Boeing,

Starting point is 00:18:01 they've generally done like 10 billion in free cash flow when they're humming. And if they get back to that, yeah, you'll probably make decent returns. Maybe the stock doubles, maybe you get a solid total return over the long haul. but intel i think has much more upside if they become the next the second tsmc which yeah which one's more likely they're both pretty unlikely i don't know if i'd bet on either

Starting point is 00:18:27 but there's much more upside with intel and both have tremendous downside yeah i honestly just think there's a lot of factors working against bowing today you've got like if everything goes right and that means there's no hiccups no plane safety issues over the next five years production slowly continues to ramp up the fa involvement starts to dwindle so it's like not as much checks and they're able to do things a little quicker then they end up paying down their debt but it's gonna be a while until they're returning any of that cash to shareholders and they now live in a world where they're 30 40 years ago they were like the premier spot for engineers in the northwest i'd say in the country one of the

Starting point is 00:19:15 premier in the country yeah they can't compete really i don't think on a salary basis with some of the local tech companies here in seattle um which is still where a lot of their engineering yeah it's a little different but yes yes i think that does have an effect and i think it has an effect on what degrees people go after yeah because they understand that before they choose their major yeah and then the other side and we saw this with the automotive businesses having a union is just difficult it just presents difficulties constantly if as a shareholder it might have been the right thing for the machinists um whenever i can't remember when the union was put in place. But as a shareholder, yeah. It's like TV rights with sports leagues, right? At

Starting point is 00:20:09 the end of your deal, they're going to want to take back some of the profits because they helped build it. So you're just going to have to renegotiate and give a lot of that back. So I think they're in a really difficult spot and I'm staying away from them for the foreseeable Speaking of the airline industry, we got a comment about the Alaska-Hawaiian merger. I should have put that in the notes. I didn't really find much, but I did read that blog post today. Merger Ryan got finalized. That Hawaiian flyer bet, not like flyer, like a stock flyer, like, oh, we'll take a small chance and a small position on this one.

Starting point is 00:20:48 Would have worked out last year. I'm going to show you the flight map. they're essentially merging uh all the like the membership programs except they're keeping the hawaiian brand just because that's important for you know the the brand among the islands you know really it can be a little bit of a separator i guess and they're doing some discounts for inter-island stuff that they had with uh to help with the competition you know in a membership program for that which hopefully could help but i'm gonna show you a screen of the flight map i don't know if it's uh or can i even find that yes

Starting point is 00:21:25 this is now one of the big airlines and i think i wouldn't be surprised if they kind of dominate the pacific ocean at least the northern pacific ocean yeah i agree i'm not i'll tell you what i'm not interested in alaska as a combined company now with hawaiian i i'm just not but hawaiian itself ended up being a great investment and i think you actually we visited it what a year and a year year and change probably was about a year ago yeah yeah we looked at it it was basically selling at like liquidation value and what's it up now let me oh it would be yeah it was like four dollars a share i'll look it's probably right around eight yeah it's the merger 18 that was the merger so would have been wow quite nice

Starting point is 00:22:23 quite nice we didn't predict it we predicted there were potential buyout candidate we didn't think it was going to happen this quickly uh but yeah it's a tough thesis to have that a company is going to get bought out like that especially when a lot of mergers weren't going through in the industry i mean it kind of made sense and and you're i don't know if you pitched it or we looked at it together what it was but i remember thinking okay you've got a valuable customer base that flies regularly with you you've got planes that i believed were i believe were owned they might have been leased um i think the new 787s they had a good supply of that yeah yeah um they had pilots trained during a pilot shortage i mean it just made all the sense in the world for a

Starting point is 00:23:05 bigger airline to come in and try to pick them up at a slight premium because if they can get them earning money on a more consistent basis i give them a little and with boeing boeing can't get the planes to alaska you know they have that that 787 and uh they have the existing ones it's probably one of the most valuable things they got in this relationship besides the fact that now they dominate the outer island you know australia new zealand japan and the united states coming to hawaii yeah hey look are you interested in i still don't like airlines would you be interested in alaska yeah airlines stink but alaska seems to be extremely well run and they've gone from a tiny company in alaska to dominating the west coast and now maybe even more and i don't know

Starting point is 00:23:54 how the stock is done over the long term let's maybe do a little do a stock chart comparison on them see what it is but i wouldn't definitely not bet against them they seem to do they just seem to be well run in my opinion yeah i just get so bleh with airlines people are like oh it's like the railroads now they're kind of like the railroads yeah i just mean that like it's the competition is rationalized and all that but it's still like consistently competing on cost and the it's very hard to predict what profits are going to look like you're constantly going to have these huge events that slow it down i don't know i don't love it all right well if we look at the total returns from our friends at finchat.io check them out finchat.io slash chit check get a

Starting point is 00:24:48 15 discount extremely valuable any listener would love them if we look at them i don't need to share the screen here but i just did a chart comparison of the total return uh since yeah alaska's been public since spy has been a thing total return of spy 2181 percent total return for alaska 960 percent although i will say for a good chunk of 2012 to the pandemic they were outpacing the index yeah fine return but still like look it's a tough industry best performing airline maybe i don't know that's probably not accurate but great performing airline still underperforms the index it's just yeah tough industry what do you think of the uber waymo news yeah someone has a question here uber waymo atlanta and austin i didn't know that

Starting point is 00:25:46 they were doing atlanta is that essentially they're doing a new geofenced area there yeah so they started the partnership in 2023 in phoenix um and then they just announced the planned launch at the start of 2025 into atlanta and austin i'm curious what waymo slash alphabet sees as the benefit for this deal because my thinking is you can run a single update to Google Maps that gives a notification to people in that area and then you can say download the Waymo app. We have these two.

Starting point is 00:26:24 However, I can also see that people already use Uber. There's relationships with credit cards. There's relationships with all sorts of families. You know, a lot of people are locked in to Uber. Now, over the long term, my final thought would be where if we get to a full steady state autonomous vehicle ride sharing whatever industry it's all autonomous vehicles which i think makes sense in major cities i think the vast majority can be like if it's five percent why can't it be 50 i wonder where the value is going to accrue

Starting point is 00:27:03 because under these partnerships from what i'm aware of and correct me if i'm wrong anyone uber's managing the fleet they have to have the storage space that's the most costly thing for the variable cost the upkeep costs waymo has the vehicles and the software and the hardware but that's fixed costs up front i think waymo can earn a very good if if i'm right reading the press releases that uber's the one managing these cars waymo can earn a nice little profit But I wonder if most of the profits will flow to them. But it's a big TBD, I think. I don't know what to think yet.

Starting point is 00:27:48 Yeah, I guess when a consumer starts that sort of digital journey, you decide, all right, I need a ride share. You're not going to maps. That's not really where you start. You basically decide whether or not you need a ride share, and then you go to Uber or Lyft or whatever. Right. So maybe they thought it was going to be too hard to get off the ground in terms of competing from the rideshare perspective. I do like Tyler's comment here. He says, this partnership gets access to customers to create knowledge of the brand. Then you can move Uber's customers over to Waymo with cheaper rides.

Starting point is 00:28:24 Just think if you didn't own a car and you had Google Maps and all you did was point the directions thing and then it said, all right, this is what a Waymo costs, hop in. It seems like such a seamless update to me yeah but if you didn't have a car would you really spend that much time on google maps well you're looking for like how far something away is sure yeah but i mean everyone's starting you would just start with uber to see what the pricing looks like i would imagine well you have to figure out where these places are you have to figure out the distance yet no one's searching on uber for stuff like they do on google maps I think almost everyone that doesn't have a car is still using Google or Apple Maps on a regular basis.

Starting point is 00:29:10 I just feel like you'd start your digital journey figuring out what the price is to get to you somewhere if you didn't have a car. Well, you have to figure out where the place is. I guess if you have the address, sure. But I think a lot of people search for the place on Google or Apple Maps maybe and then figure out the distance and figure out where something is. I think you might be overestimating the average consumer. Obviously, the big advantage here if you're Waymo partnering with Uber is you get visibility with customers. I don't see what other value they provide, right? Like they have the reach.

Starting point is 00:29:52 Managing the fleet, you have to keep these stored overnight. That seems like something to me. Okay. fleet management but i mean what you just basically pull a facility a charging facility and you have them go there at the end of the night right yeah well there's a lease it's a lot of space yeah i just i don't know i think google could do that on their own i imagine they're partnering more for the reach but the either way it's validity to waymo as a business and i think it you eventually can start marking this up to something if you're doing a google some of the

Starting point is 00:30:34 parts valuation i don't know what it's worth and i don't think it's worth valuing at the moment but it's not you no longer mark it down as a zero or even the people that called other bets that that line item on google's income statement that was other bets it's no longer a negative value potentially yeah as long as waymo's still there that's true uh i would just there's a lot of people that looked at this partnership announcement as validation that uber that waymo needs uber right because there's been a big debate i don't think this changes who has power over the long term in the ride sharing industry and it's who has the autonomous vehicle technology that's where the power remains or at least the majority of the power is

Starting point is 00:31:27 it is because they control the destiny if everyone loves autonomous ride sharing alphabet slash one email can say all right take our price or we're pulling and all your customers will be upset it's similar to a content provider yeah almost a cable tv thing where it's like okay well we have the power everyone wants to watch espn sorry the fee's going from five to six bucks yeah i think it's i think that makes sense and if there were a big tech company that i had faith could build a successful consumer app it's probably google they i mean how many of their apps have more than a billion users i think eight something like that uh 15 ryan oh no 15 is over 500 million yeah i think you're

Starting point is 00:32:22 right with seven or eight yeah like i'm sure they could be successful doing it um what are you pulling up here uber's valuation yeah uber evita ebit might be a little bit wonky 78 uber eevee to free cash flow i would watch out for spc there when calculating this 35.6 are you in or out uh i'm not in no i was yeah i know this means nothing but i was really interested when the price we visited a while ago the price was a lot lower and it seemed like they were on the path to higher profit margins i can't remember why i said no maybe it was just that i thought they were too spendy but i'm i'm less interested today here's here's a good question maybe final question on this segment

Starting point is 00:33:16 what happens when waymo undercuts human drivers on the uber app and i think that means on cost that's a great question because they like they're like a hive mind of choices that can set some price, I think, or I think, but Uber sets all the prices. I would want, I would love to understand the relationship there because eventually you would think without the driver, you can have a lower cost, uh, on a per ride basis or per mile or whatever it is. And that to me means that like, who wouldn't choose this? It's the same place. You don't have a driver that might be, uh, you know, Uber drivers have that stereotype of being extremely annoying or at least 20% of them trying to talk their ear off about their entrepreneurial journey uh or something obviously you know like

Starting point is 00:34:07 you know there are concerns there um but on the cost front even like if it's cheaper it feels like they will have unlimited demand as long as they're a small part of uber's overall pie and they grow to a small bigger and bigger pie and then we see what happens yeah it's also if we're geo-fencing it in it's probably a small fraction of the rides on uber's platform definitely globally yeah but within those cities it can be a high percentage yeah but you're probably also getting a lot of drives into the city kind of thing so you know like it has to be start to destination has to be within that geo-fenced area I imagine it's still a small fraction.

Starting point is 00:34:53 If you're an Uber shareholder, does this make you more comfortable about the Waymo risk long term? Yeah, I mean slightly, but I don't think it moves the needle too much. I still think there's major uncertainty there. It's like a slight improvement that they want to work with them. But again, it comes back to, for me, who holds the power over the long term. okay let's talk small cap of the week yeah and i want to also talk amazon's back to the office which people are upset about but why don't we're halfway through the show before you get the small cap of the week do you want to talk about our friends at public once again

Starting point is 00:35:35 sure thing you heard us talk about them earlier and earlier in the show but if you want to earn a 6.9 yield for the next four years or more you need to check out the bond account at public.com It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. Best part, if you act now, you can potentially lock in a 6.9% yield until 2028. The new bond account only at public.com forward slash chitchat stocks. Our small cap of the week, this was recommended by a listener and it was Dave, ticker is D-A-V-E. And so you sent this over to me and I was like, great. I've been looking at David Buster's a couple of times now, actually read a couple of reports on them. This is fantastic. I can't wait to dig in. That is not the company. The company is literally Dave. It's Dave Incorporated, which I can honestly say I've never heard of in my life.

Starting point is 00:36:32 So what do I do? Well, as the small cap of the week presented by Yellow Brick Investing, I looked up the ticker on joinyellowbrick.com. It is a repository for great investment pitches. This has actually become a literal part of my process every week. Anytime I find a small cap I haven't heard of, I literally just look up the ticker, and I found a high-quality write-up in this case on Yellow Brick on the ticker Dave. And I'll just go through and read the first line of that write-up. So I know I'm kind of ripping this off, but then we can kind of give our takes on whether or not it's something we're interested in. It says, Dave is a fintech company that offers digital financial products to financially challenged Americans. Its main offerings are extra cash, an early wage access loan, and a digital checking account designed for people living paycheck to paycheck. Payday loans, more or less. So like friendly or won't break your arm payday loans.

Starting point is 00:37:35 Yeah. And I don't – so I kind of got the ick. What was the term you used last week? There's an odor from it. Yeah, it smells bad. You know how people get the ick? That's like a thing now. Like girls get the ick or whatever.

Starting point is 00:37:52 Yeah, some sort of TikTok thing. Yeah, girls. I get that with certain investments where it's like something doesn't feel right. And it's just like the area, the lending to challenged Americans. It's just like if something goes wrong, how much credit is there? Is there like any sort of banking relationships that are a big issue here? um so it's basically sort of an upstart um if you remember upstart from kind of 2020 uh oh not upstart the company yeah i was gonna say not figuratively an upstart and then i realized

Starting point is 00:38:29 you were talking about the real one that i'd forgotten about for about a year well that's not great are they talking about ai how they're gonna be an ai beneficiary i didn't go through that much of the investor relations materials i assume they mentioned ai but basically yeah it's automated loan decisions, which is fine. But I'll go on here a little more. The short-term early wage access loan has 0% interest rate compared to the 30% to 300% APR charged by legacy payday loans. It doesn't charge late fees either. It says the majority of Dave's revenue comes from a non-mandatory express fee of about 3% to 5% of the loan size. Instead of waiting for the three to five days for the money to arrive, borrowers can access the money instantly if they

Starting point is 00:39:13 pay the fee so take these what's that take rate that's what it is not yeah almost almost in the way of venmo like so if you know you're getting your paycheck coming up in two weeks you need money today though you got you can't afford groceries you can take out an early wage access loan from dave and if you pay three to five percent you get it instantly if you wait you get it in three to five days, but keep in mind, these people are pressed for cash. They need the cash. So a lot of people opt in for this three to 5% fee. And then you end up paying it back quickly. It's like within two weeks, right? It's, it's, they connect to your bank and just see when your payday is and it's owed like the day after you get paid or whatever, or maybe it's like two weeks

Starting point is 00:40:06 from whenever you get the loan. So it's really quick duration loans, 0% interest. But more often than not, people are taking the charge on the little fee just to get the money instantly. It's very important to note too, Dave does not originate the loans themselves. They have a banking partner called Evolve that performs the loan originations. Dave just brings them the volume. So I was concerned about this going in when I saw it was a financials company.

Starting point is 00:40:36 I was like, oh, God, I'm not going to be able to analyze. You can analyze it, but with some of these fintechs, it's really hard to figure out what's the proper valuation to use. That's not the case here. It's mostly fee revenue. There's not a whole lot of credit risk. It's actually a little easier to value. So you can look at it on sort of an EV to gross profit basis or maybe an EV to whatever we think forward earnings are going to look like type of valuation. It really is very similar to Upstart here.

Starting point is 00:41:03 There is – you've got – like you're not taking credit risk per se, but you have risk with your banking partner. So in this case, yeah, it says I think Evolve might be under investigation. So apparently there was a big – I think the company was called Synapse like last year that went – they had a huge accounting problem. and their banking partner got like for the grunt of it is essentially what happened and so they're cracking down on a lot of these fintech accounting practices and um evolve as the banking as a service provider um received a bunch of consent orders and everyone's worried that dave is going to lose their main banking as a service uh provider here so i don't really understand that relationship that well i don't understand if dave would be able to switch to another bank

Starting point is 00:42:01 i don't know if uh evolve if the concerns are overblown here so there's sort of some key man risk if you want to call it that or key supplier risk the business model might be deemed illegal and they got to get a banking license it's yeah it's not like nothing dave is doing here is wrong in my opinion i know but it might be deemed that they might not want in general this type of relationship to happen that's my concern let me just go through some of the numbers just to paint a picture for anyone that's looking at it market cap 460 million dollars for dave i'm talking about dave here last 12 month sales 293 million dollars operating margin last quarter, 7%, but they just kind of turned the corner to profitability. So they could

Starting point is 00:42:55 get to higher margins quickly. Difficulty here, and I'll just go out and say, I'm not interested in this. I'm not going to delve a whole lot deeper. The business model for me seems very fragile. The small caps of the week that we've looked at in the past that I was interested in, none of these are going to be ultra wide moat businesses, but I want the ones that aren't highly dependent on any one thing because if that does go away and in small cap land it goes away all the time um or if you lose a supplier you lose a customer whatever it is um it's a huge risk to the business model and your investment so um yeah the relationship with evolve is kind of concerning to me the area that they lend in i don't love um it's just not one that i'm going

Starting point is 00:43:46 to dig a whole lot further on yeah and i just so you say okay they have zero percent interest rate compared to 30 to 30 100 aprs for the traditional one why is that to have they made some innovation that can make them give the worst borrower zero percent interest uh i don't know i i think that's concerning because there's no amount of ai or technology that can solve for someone being able to pay something back like that they don't charge late fees that's fine they have that express fee i think that it just seems like in which again with with uh same as you i'm not going to investigate any further it seems like potentially flimsy revenue where someone goes hey look i got to go to this solution i need my money now okay i pay three to five percent of it i have to take

Starting point is 00:44:46 the hit i need the money but is that a recurring relationship i don't know is that a healthy relationship are you going to be able to upsell to any other i would say there's a huge market the yeah that's true difficult yeah i don't know there's a lot of difficulties here one thing is okay so they don't take credit risk this cannot make sense for evolve I agree. Apparently, the delinquency rates are like 2%, so it ends up working out. But the issue is if something happens in their algorithm that miscalculates or they lose whatever and delinquency rates rise, Evolve will cut off volume to them. The same way they had – the same way Upstart – everyone is like Upstart doesn't take credit risk. They're fine even if loans go bad. That's fine, but the banks will stop pulling – the banks stopped pulling volume from them.

Starting point is 00:45:41 Because it wasn't performing, yeah. Yeah, so it's just not something I'm interested in. And it's also not an industry – like lending to this cohort of Americans is not – it's not something I either want to learn that much about or know that much about to begin with. Maybe I can learn more. How many great payday lenders have there been in terms of like performing businesses? I hear – there's one ticker that used to get thrown around called CACC. Oh, okay. Yeah, yeah, yeah.

Starting point is 00:46:16 Credit Acceptance Corp. I think that's been a great performer over the long term. But besides that, I don't know. I know there's one. It's like Go Easy Financial or something like that in Canada. Maybe there are a bunch, but I guess I missed them. Yeah, so I'm going to pass on this one. Although, this inspired me to look at Dave and Buster's next week.

Starting point is 00:46:41 And I will give another shout out to Yellow Brick Investing Because a whole bunch, I was able to get up to speed on Dave and maybe I'm, you know, don't know the business that well still, but able to get up to speed so quickly by literally just looking up a ticker on joinyellowbrick.com. It has stock pitches from all across the internet and they're high quality write-ups, high quality pitches. Highly recommend going and checking it out. You can get a discount using joinyellowbrick.com slash chitchat for any of the paid plans. And you get real-time, like, I think it's a month or two months delayed on the pitches if you're on the free plan, which still tons of value there. But if you want more real-time stock pitches, you can upgrade to some of the paid plans. Very affordable.

Starting point is 00:47:29 Yep. It's a great service, which is why we use them on every show. And, yeah, I was going to mention Dave & Buster's. Could be a fun one. And it looks like it passes through that market cap. Well, below the market cap threshold for the small cap of the week. You want to talk. I'd say let's close out with we had that emerging markets question on Twitter.

Starting point is 00:47:50 We'll hit that, too. But maybe first, Amazon's return to office. A lot of people in the comments here asking about it. What do you think? I think firstly, they said we said they saw that Seattle was number two in traffic to Los Angeles. and they said, we got to be number one. Yeah, that is a real bummer. For anyone that lives in Seattle,

Starting point is 00:48:14 if you don't live in Seattle, traffic is a nightmare. We can be number one though. I think we would be better than LA. We're going to get there. Let's get there. We'll get there someday. So forcing people to go back to the work, going back in office, it's a huge,

Starting point is 00:48:33 it really is a kind of a huge ask um but i love all the people that are like shame on you you better be working hard for me like you should be going to the office you get paid well and they're just like they work remote or they don't have to experience that i will say i feel for the employees that signed up potentially under false pretenses that they thought actually i met someone i want to say like a month ago who lived out on the peninsula and that's a long ways away for anyone that's not from washington you got to take a ferry and they bought a home on the idea that they could work remote or that they could uh maybe do three days a week in person that's a huge ask for them to go in person every time

Starting point is 00:49:26 So what you're going to get most likely is probably a lot of voluntary resignations, voluntary layoffs, if you want to call it that, people that want to work elsewhere, which if you're an Amazon shareholder, potentially some cost savings there. And I don't think you have to pay severance. At least in the short term, that is good for shareholders. Does this – do you have any concern that – are you an Amazon shareholder? No. We were back in the fund. If it's cheap enough, I'll be back, but let's get past this AI expectations, and then we'll get there, if that makes sense. Would you be concerned that they're going to lose engineering talent?

Starting point is 00:50:14 I don't think that's been their big advantage either way, maybe excluding AWS, because the brand has been Google to be the premier one that people started Amazon and moved to Google for premier engineering talent. I don't know if that matters too much, but I do know that here's what I think is most important. Getting rid of, oh, we just had a comment pop up here. getting rid of the alexa division and possibly project kuiper what are your takes on the

Starting point is 00:50:56 every time we talk amazon you boycott alexa what are your takes on the five days in office uh on the five days in the office yeah it's gonna it's a forced layoff like it makes sense or sorry stealth layoff where they're going to convince people to quit now do i feel for them a little bit but if you knew that this was potentially going to happen and you get paid over a hundred thousand dollars a year and you have great benefits they don't have too much sympathy for you like okay you got to go in you know it's tougher blah blah blah it's okay but hey i don't think it changes much and if they keep looking to cut costs that's fine with me because i read this morning in an article in the journal about the cost cutting that they have

Starting point is 00:51:48 350 000 corporate employees and i don't think do they need to have that high ever again i think we could strive to never reach that level ever again yeah yeah maybe it it's so hard for these companies not to just keep hiring okay for anyone in the that's listening that is excluding the warehouse warehouse is like over a million so that's this is office corporate people question for you do you think office corporate people ever overtake warehouse employees in terms of in terms of numbers i hope yeah i mean i hope not automation robotic automation throughout the warehouses yeah you can automate the corporate jobs by putting all these email senders on chat gpt self-driving delivery trucks

Starting point is 00:52:48 self-driving delivery truck yeah i guess those are all contractors mostly right yeah i'm not sure exactly who's defined as an employee but they are one of the biggest robotics people for the warehouses hey you know you could be right um how about combined you know let's try to doesn't seem like these people are too happy to work for you anyway so let's win win win win for shareholders win for management win for the people that want to stay win for the people that want to leave let them go what segment of amazon's business that is not one of the big ones so not retail not aws not trying to think of the other ones the third party third party slash prime yeah i kind of throw that in with retail but uh prime i guess

Starting point is 00:53:36 what are you most optimistic about that could actually deliver okay i kind of bundled that in with retail but are you saying what about advertising outside of retail like outside of amazon oh you mean like amazon prime video yeah i'd be bullish on that they've set up a pretty good offering where yes they've lacked versus netflix on their original stuff but they have a ton of consumption across free and you know like okay watch this movie it's on prime or you can rent it on here it'll have ads i think there's a lot of room for that i'm not sure how big that'll be but advertising in general yeah but if you're like what besides cloud and besides this retail stuff which will include all the different spokes around the retail hub there's it's it's kind of

Starting point is 00:54:33 tough to say but project kuiper now hardware now i mean they've all been bust besides the ever since the kindle nothing has worked you don't think product the only my only concern with project kuiper like i love in theory i love the business at scale like it seems like it'd work great it's going to be very costly to get there in the meantime and they're far behind not certain yeah they're very far behind uh so you're just saying cut all the cut all the other butts well yeah i'm trying to think of what the other other bets are remember like they they didn't update on the astro bot what's what's wrong with the astrobot it's probably cost a billion dollars a year to

Starting point is 00:55:28 maintain that rmd uh or is it the old astrobot or is that a game that i just saw i have no idea i don't know what that is um amazon astro yeah look that up okay i will you want to talk emerging markets yeah so we had a question here uh actually we had a comment here in the chat that said guys what about some swiss gems nestle and young i'm not going to pronounce that don't know if you're playing a joke on me but that could be a real name uh and nestle seems fine it's fine i don't like european companies i said yeah except i like the reporting What?

Starting point is 00:56:13 Except LVMH and the Nordics. Except if they're Swedish. I'll take Swedish. Swedish cereal bars. Let's talk about emerging markets and international markets. Sweden makes the cut in Europe. Or Europe excluding Sweden, we're out. I don't know.

Starting point is 00:56:29 Unless you're like Hermes. I just don't love – unless you're a luxury brand, yeah, I'm kind of – Hermes, Ferrari, LVMH, I'll exclude. The rest of them, it's usually like – if it's the same company in the US, same company in Europe. Well, I guess at least you have lower costs in terms of development talent in Europe. But I just get – I don't know. Maybe it's like the shareholder returns ethos doesn't seem quite as comparable to the US. I agree.

Starting point is 00:57:08 Yeah, you got – I mean we have some comments here. Yes, there's comparisons. ASML, Booking. Booking is not. There are a lot. A lot of that has US exposure. We're talking like – Booking is a US company doing business in Europe.

Starting point is 00:57:22 Yeah, exactly. Exactly. So the argument is you got someone like Unilever, someone like Nestle. I don't know what their earnings ratio are, but the argument usually is, well, they're at a lower earnings ratio. Okay, but they're not levering up and buying back stock. So why do I care? Why does it deserve to go to 25 times earnings? I don't know. Now, if it was at eight times earnings, okay, let's talk. But it never seems to get – I feel like it doesn't get the – I think sometimes they kind of have a similar philosophy to Japanese companies around like not being too aggressive.

Starting point is 00:58:01 A lot of them are family run, want durability, want longevity for the business, not trying to optimize for the short term. that's fine but the japanese companies trade at huge discounts i don't really see that as much with the european companies well not as yeah not as big of a discount now let's get to the question the question was essentially what's your take on emerging markets this week uh i don't know exactly what they mean like do we have do we have a prior take on them but i'm just gonna pretend like it's in general what's your take on emerging markets i would say i guess japan is not an emerging market but i like mexico and i like japan it might be emerging in terms of its valuations hopefully yeah yeah it's emerging is like its valuation or like the united kingdom the re-merging market

Starting point is 00:58:47 uh you know because it's turning into an emerging market that's a i heard an english person say that so i'm not trying to bag it i'm not trying to bag out the english for that but uh no we have a ton of and we have a ton of listeners in the uk uh australia and sweden and really in some of the nordic countries i will say sweden seems to be maybe sort of a tech hub potentially i think it's just they just have long-term mindset and speaking of which ryan i've someone had a theory once this is a great reddit theory of why i know we've kind of been seattle homers today of why so many great companies have been started here and they they the theory was is that we've had such large nordic and japanese immigrants as a percentage of the population over the last 150 years and those

Starting point is 00:59:35 cultures are focused on long-term durability i like that i thought you were gonna say bad weather oh but maybe i think that's why inside i think that's why they came here though at the start because the weather matched up but yeah yeah all right yeah i like the theory it emerging markets that i like probably um mexico i like as well uh i don't love most of the south american markets although i do think you can find some really good discounts there for companies that especially that have like that are functionally monopolies and almost like government-run monopoly like uh what's it petrobras in brazil i think yeah or the colombian equivalents yeah i know there's one that was like the panama city airport

Starting point is 01:00:26 slash panama airline i thought was interesting there's some chilean ones that are interesting um colombia as well argentina i think there's an airport there that's interesting although that one's more risky than most you know argentina obviously is in a quite the terminal i'll tell you one that i'm not interested in and it's simply because it's a market i don't understand and the stock market is booming and that is india not saying it's a bubble but when people are saying well the indian stock market's soaring you got to get on this it's a growth story it's a growth story that makes me a little skeptical as an outsider yeah i it's it's a market i haven't studied much at all to be honest the what are the we're running up on time but what are the

Starting point is 01:01:16 markets that are easy excludes for you uh india at the time right now especially because valuations china china china i'm trying to think of ones that actually have open markets that we could invest in maybe the gulf countries given they i think you technically can invest in some of those possibly i mean i think you can go into egypt too i guess western i'm open to most i'm open to most like the right company uh right product right right business it doesn't matter where it is as long as unless it's like i feel like i won't any capital return to me, I'm comfortable with it. Yeah. No, I agree. I agree. As long as the rule of law is fine, but you need a higher margin of safety in a country that you don't understand.

Starting point is 01:02:15 Now, Mexico, I think I understand a little bit more than India. It's a lot, just as an example. But even in Mexico, I'd want a margin of safety. All right. Ryan, as we're closing out here, the fed just announced its interest rate what mumbo jumbo do you want to predict was it 25 or was it 50 you're not looking i thought there was a letter sent to the fed that it needed to be 75 from those from those senators that couldn't predict that they needed to raise uh aggressively in 2022 yeah from the acting politicians yeah okay what do you get 25 or 50 a little coin flip um 25 50 home builders let's rip let's ride yeah i'm guessing the home builders rip but i'm guessing ally not so much all right we'll probably talk about the impacts of that

Starting point is 01:03:15 next week or maybe not uh because you know it doesn't necessarily matter and it's boring yes exactly but i think that game was kind of fun all right let's hit the disclosure we're going long uh blah blah blah blah 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 may have held them in the past and may buy sell or hold them in the future we have a comment here saying chit chat macro yeah maybe spin off a whole show that's what we make all our money talking gold bitcoin macro all that all that good stuff but yeah thank you everyone for tuning in. These go live every Wednesday, 1.30 p.m. Eastern time. You can watch the replays

Starting point is 01:03:58 on YouTube, listen to the replays on YouTube, or listen to the replays when they come out Sunday mornings, Spotify, Apple Podcasts, Overcast, anywhere you get your podcasts. All right. We'll see you next time. Thank you.

Chit Chat Stocks - Oracle AI Dreams; Amazon Return to Office Mayhem; Boeing Union Woes (AMZN, ORCL, SNOW, DAVE)

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