Chit Chat Stocks - Power Hour #14: Amazon Grubhub Deal, Companies Repricing Stock Options, Low Bid M&A

Episode Date: July 10, 2022

The CCM Power Hour is a live-streamed show every Thursday at 3:00 pm EST. On the show, Ryan, Brett, and a rotating list of guests have an unscripted discussion on a variety of investing topics.  You can watch the show on our YouTube channel here: https://www.youtube.com/c/ChitChatMoney  Follow the show on Twitter: https://twitter.com/chitchatmoney Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. All right, we are live. The channel says preparing to live stream. There's always a delay, so it's a bit of a mess starting out here. But this is the investing power hour. This is number

14. So we're getting in the teens. This is becoming a consistent routine for us. Wherever you're listening, you can watch this every Thursday at 12 p.m. Pacific time or 3 p.m. Eastern time on YouTube. Just look at the Chit Chat Money YouTube or wherever you listen to podcasts. You can re-listen to it and it comes out every Sunday. All right, Ryan, the only rule for this show is no preparation. So how are you feeling about the markets this week?

We're back. The markets are back. Everyone's happy again. Dead cat bounce. dead cat bounce okay it will be i don't i don't know the problem is everyone keeps saying it's a dead cat bounce which makes me think like maybe it isn't but and it's it's happened like 10 times on the way down recently so i i feel like everyone's just like oh it's gonna happen again but i don't know i don't really care i don't i don't care but it's

it's pretty entertaining. It is fun to see. And it, it obviously affects us as well. When short-term moves are so volatile, volatile upwards or downwards, it can really affect your emotions. It's tough to be aware of that.

If you know what I mean, you know, what's funny is no one, whenever I hear people say like, obviously it's volatile, no one's ever referring to the upside. That is true. like they're they're only referring to the downside people are whenever i hear people

like recommend some crypto they're like just you know be aware that it is volatile it's not them saying like oh it's it could go up a lot it's them saying like this could go to zero and so it's like i don't know i hate when i hate when people use the word volatile you could just say like this this is risky wow that's true it's well they use it in the wrong way yeah volatility used correctly can be useful but just in that it can have swings either way but no one ever uses that way i feel like yeah agreed everyone talks about it as basically market drops and well there's a lot of volatility on the way up in a lot of stocks blow off tops february 2021 throughout the last year so who knows all right anything you've been

looking at this week anything interesting i've been thinking about meta platforms although i know we discussed it last week um i don't know i think instagram it feels like everyone is still on it and that's all i gotta say i feel like that's the long thesis right there at this price yeah it is like i was with i was at a large gathering this week and there were a lot of young people and everyone's still on instagram like the world's still the world's still like a lot of people live for instagram they're like oh i'm gonna go to this place solely to get a picture so i can post it i'm like what i don't know was this maybe that's the metathesis right there yeah was this our producer slash uh co-owner of the company's

wedding uh yes the man behind the glass yes the man behind the zoom uh brady ryan's brother third member of the team so everyone i know he's not on social in our socials but everyone good thoughts he had his wedding so congrats to him um but yeah that is the prime time i mean weddings i mean that's got to be one of the number one besides maybe like those big music festivals or concerts stuff like that i mean weddings is prime time instagram what a glorification i don't even know what the right term is but it's the right much it's it's a perfect instagram uh event i guess is probably the way to describe it there wasn't even it wasn't even like that like some i feel like some venues are literally instagramified if that's a word like they've been

built for people to take pictures and post them this was more just like it's a wedding you take pictures you'll probably post them but it i don't know like instagram i think still rules social media i know you i know tiktok is like consuming people's hours but i've heard and this is not that useful but i've heard a lot of people get exhausted of tiktok because it's so they spend so much time on it and it becomes so addictive that they have to get off as opposed to instagram it's like a durable addiction right if that makes sense yeah no i got you tiktok is meth and uh instagram is caffeine that's a good way to put it i was gonna say it's like it's too hard of the social media drug it's the instagram's more i know and we're not even talking financials

about anything uh but i mean that feels like the log thesis right there and it's so it's more dominant across the world india's been tiktok all right but we talked about that last week let's do other topics um oh gosh there was one on my mind but we're not supposed to prepare so let me go through my um i uh i spent some time like just filling out some spread doing some spreadsheet work for dropbox this week because it's it's overdue and that business everyone thinks is dead but they just keep growing and i know we own it so it's like just i don't know if you're a listener be cognizant of that but uh everyone hates them they all they're like oh the platform's gone nowhere but subscribers

have gone revenue i i believe it's compounded at like 18 or 19 percent like high teens i could probably pull it up right now actually i think which if someone are you sure it's that high i thought it was slightly lower but maybe it's slowed down recently yeah it was a little faster up until last year but i'm gonna pull it up because as of the most recent quarter as in the most recent quarter revenue has compounded since 2018

Q1 revenue has compounded 15.5% so not as high but as a last year from 2017 to 2021 it had compounded at 20% gotcha

bit of a slowdown but still If you just read the financials off and you said, all right, name this company, grew revenue north of 15% for the last five years, free cashflow margins of whatever it is, 30%, reducing share count, 16 million, I think it's what it's at, subscribers, and has raised prices by 5%. percent a year i don't think most people would guess dropbox yeah it is it's weird whenever so like say we're having a conversation with someone and we say yeah we own dropbox we think it's really cheap durable and people kind of just do the same and it it's not like against nothing it bores them yeah they go that's boring and uh they say well isn't google just gonna eat their lunch isn't all those other companies just gonna eat their lunch what have they even done And to me, that is honestly a bullish indicator because you want the stock cheap if they're going to run this buyback program.

But here's here's something a different topic. Wait, let me pull up the like tweets here. OK, this is a good tweet from what was it yesterday from Frugal Mogul, which is a good name on Twitter. You can have either five million dollars today or one billion dollars in 60 years. What do you pick? So I saw that tweet and I saw someone did the compounded growth rate. The discount or something? Yeah.

Yeah. I think it was like nine and a half percent, I think. Oh, you think you're going to have to perform that? I'd like to think that I could, but I'll take five percent or I'll take the five million now. purely because i would just want it while i'm younger that's true the interesting thing there's just less things i can do with a billion dollars when i'm 80 than when i'm then 5 million that i could do with when i'm 20 25 say and we're not allowed to take out debt um basically like someone like berkshire hathaway gives you you know some of the money now at an interest rate

for the billion dollars if you get what i mean we're not allowed to do that cheat code yeah no i'm just you know it's more fun to have like it's in my mind it would be more fun to have 5 million at the age of 20 than a billion at the age of 80 5 million at the age 20 yeah yeah i agree it's dangerous though um but you could yeah if you don't have that cheat code you're obviously not getting it until and let's let's assume that from here the index dividends reinvested annualizes 8 or 9%.

Yeah, I'd probably say more like 7. We are off 20%. Yeah, but still. Whatever. But everyone's been saying that for the last 25 years. They've been saying, well, it's not going to compound at that high

of a rate. It's stayed, so maybe we're wrong. Let's say it compounds at 8%. And I would rather have a risky, I would rather take the risk that I could do it myself and get more because that process is more fun too. The whole life's too short to index and you're basically getting index performance from 5 million to a billion in 60 years. yeah i totally agree with that all right here's another thing so there's the amazon prime day which is kind of a weird thing but uh buy with prime launched uh in conjunction with this for a few websites i think they're still kind of beta testing it i went to one of the websites there was nothing that interested me it was like weight loss stuff um one of those kind of sites

that gives you those like powder bags that are like these weird nutrition things are going to help you lose weight, blah, blah, blah, magic stuff. But everything costs like 50 bucks for one of those pouches. But even before you go to add to cart, so it's not buy with Prime isn't going to be when you click add to cart and then go to your whatever payment thing.

It's actually before that. So you have add to cart or buy with Prime. And when I clicked buy with Prime, I had to confirm my login, which it's already on the computer. So I logged in and then it has my credit card information already. It has my delivery address already from Amazon. No shipping, next day delivery. Or sorry, no shipping costs and next day delivery.

It was like a three-click process. I think that if they execute this correctly, it could be dangerous for some of the website builders or the payment stuff associated with that. But it's a huge industry. It could be dangerous for the website builders that generate a lot of their revenue from the transaction process.

Yes, exactly. Okay, I will say this. Or even PayPal, maybe. Yeah, we own... Is Stripe in that? Is Amazon a Stripe customer? They're not. Oh, that is a good question.

I want to say, I do not know this for sure, I want to say they used something from JP Morgan, but yeah, Stripe. I mean, Stripe and Shopify have a huge partnership. Yeah, that does feel like a bit of a killer to a large portion of Shopify's revenue. It's such a good, the value of Prime just keeps growing, and now you're seeing the Grubhub thing?

Oh yeah, that's what I wanted to talk about. Let's talk about that next. Table that, let's talk about that next. This episode is brought to you by La Quinta by Wyndham. Here you are miles from home and ready to start your vacation. Good thing you're staying at La Quinta by Wyndham. They have free high-speed Wi-Fi

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Infrastructure as a service. That's what it is, right? Essentially. I-A-S. Sort of. I'm in. I mean, it's such a brilliant move. And I can't believe, yeah, they have to execute it right.

And I would think that this gets a lot of adoption. Maybe I'm wrong. maybe merchants like just don't want amazon involved at all but if they do and they understand the convenience for customers this is like such a brilliant move and it took them a whole bunch of excess uh fulfillment capacity to do it which shocks me like why exactly why were they waiting it was like they built it all out said wow we overbuilt how do we service this now oh we'll let other people on why didn't they do this earlier i maybe they just couldn't be uh but i don't know i think they wanted to go out with a bang because if they had to beta test this for a

while say like two three years they didn't have the capacity to roll it out to a ton of people because they were worried they wouldn't be able to fulfill one day or two day shipping maybe that would give someone like shopify a chance to counter punch and now if they can roll this out within six months or something like that that it's just going to be tough for shopify to respond and and everyone else really yeah the good thing this would suck so shopify isn't the only one that has added this a whole bunch of other websites have added it wix has added it for any of their merchants big commerce or uh big commerce squarespace i assume has added it um i imagine all the website builders have but shopify has the most revenue as a most revenue

from transactions as a percentage of their revenue of the other website builders most website builders generate the largest portion of the revenue from the subscriptions shopify now potentially to their detriment has gone beyond that and made it the transactions Which, whatever, they still have the core subscription business, which is great, but the market did price in growth in transaction revenue. It would worry me as a Shopify shareholder, but I've also heard the argument that there's a little bit of reluctance from the merchant side to include anything Amazon-related in the process. I would think, though, that they would know better. but i think that's anecdotal but not in practice because you can still almost everyone but what like nike the top brands have their stuff on amazon

yeah who are the brands that don't nike i don't know for sure lululemon but i believe so i know nike for sure that was a big thing they had a spat with them because of the knockoffs stuff like that um i don't know apple there's been a lot of discussion with that but i believe they do not and that is right in their ethos um but yeah most people are going to be on there and i feel like apple wouldn't even i feel like amazon wouldn't be that useful to apple yeah it's not that yeah and they're not that useful to each other um all right let's talk about the grubhub thing because this was interesting uh let me just explain what yeah explain yeah okay so if you didn't see um if you are a prime member in the

united states you can now get grubhub plus which was is basically their own prime thing that grubhub had for free food delivery so on any restaurant that is a part of grubhub plus you don't have to pay delivery fees um on your so you yeah the customer would typically if you're going to subscribed to grubhub plus you would pay $9.99 a month and then you get delivery from all the restaurants that have signed up to be a part of the program you get delivery for free you still have to obviously pay for the meals but you get the delivery component for free or you get it for that $9.99 a month now you get it for free if you have a prime membership yep i connected it already um i don't use food delivery very often at all and really i wasn't using doordash or uber eats

uber eats unless they would give me a fat coupon because well it's super expensive and i can you know i'm not in a place where it's that hard to drive and go get something um or walk and go get something but this could be i don't want to overhype it because food delivery is a bad business but if i'm doordash i am sweating right now i mean this seems for one here's why it's such a big deal is because so many households in the united states are prime members and if you can get this account on there and basically amazon's gonna say okay this is kind of how i'm envisioning because the the economics on this are probably poor at least at the start amazon's going to take a brunt of this the losses that are going to pile up at the start right because when you're offering

this for free for prime members they're obviously they're going to do a revenue share with grubhub whatever it is um what am i trying to say it's not going to like it's not the unit economics would look terrible at first but amazon has so much capital that they can they can absorb this easily and then door i mean grow hub has fallen behind really really badly in the united states but i honestly think this could save them it doesn't mean that this the the business is gonna be good but i i think it's more of like a bad thing for uber and doordash yeah that's what i thought initially as well one thing that matters though is the amount is the actual restaurants that are on the program i've heard from people that use dash

pass and or grubhub plus type of thing that a lot of the restaurants opt out of that stuff or that they have like a different charge maybe it's like reduced but it's still not it's still not free and so people feel like the value isn't there i guess if you have the prime membership it doesn't really matter it doesn't really cost do anything but i wonder if people just aren't if maybe people just don't end up aware that they can get the grubhub plus thing yeah but maybe grubhub doesn't have the reach to tell people unless amazon does if amazon makes it very clear then maybe it's worthwhile but i think a lot of people already use doordash enough that they it's just like habit yeah but i i check both apps but

am the rational consumer i mean okay here's the thing yes there is probably a little bit of uh switching costs i don't know if that's even the right word people stick with their app right you're probably maybe already paying for dash pass you get the whatever the partnerships they have i think with some credit card companies however this is such a better deal like i would think if people's wallets are tightening which they are right now I just don't – yeah, I guess not everyone's the rational consumer. Not everyone is trying to think so frugally like us, but this would get me back into food delivery, if you know what I mean,

and I was basically out because it was so expensive. Okay, so it gets rid of the delivery fee. Does it get rid of the random fees that are also associated with it? The transaction fee, the Seattle fee. yeah i haven't tried it out yet um so i will report back if this is more this is not the game changer i'm thinking because the amount of times i've bought like a burrito for eight bucks or 10 bucks and then it's 22 after fees yeah i'm done with that stuff yeah i mean like it's not i'll drive i'm not doing that yeah it's ridiculous but i actually got a uber just like

i swear like once a month they'll say like here's a 20 gift card i'll be all right with for your first order and so i'll use it or 50 off i get that email 50 off the 50 off still might not be worth it after fees but the they gave me a 25 gift card for my first order and i think i built some random account and so i was like all right whatever i'll take it and then i uh i put in the wrong address and it and so i had to cancel the order and i lost my 25 coupon i was like all right i'm not buying from there it doesn't matter but just a sad sad moment could have been a free burrito but it was a one burrito for 22 it's unbelievable we got chipotle burrito yeah which as we all know isn't even that good anymore whoa just kidding i mean it's not like you just had

one sloppy experience no i mean we had that one in iowa but or was it iowa i think it was iowa yeah i mean that's iowa it's tougher to get those fresh ingredients but the seattle one it's not hasn't been the same anymore i've been to multiple it's not the same i got the softest scoop of rice the other day all i'm asking for is here's the thing it's it needs to be warm like it's it's sometimes it's cold i'm like come on just make this warm it's poor what's it called when they don't raise prices but they reduce portion sizes oh shrink inflation yeah they're hitting they're hitting inflation from both sides shrink inflation and inflation because they increase price of the burritos and i'm getting these sloppy little

portions they have been increasing the price of the burritos yeah i mean it's a tough spot i don't think restaurants it's a tough i think this shows that there's a lot more risk in running a restaurant than people may think i don't know if restaurants deserve premium valuations because of the macro factor supply costs labor costs that can bite you in the butt yeah 100 even if you have like the best reputation it could disappear starbucks is a great example oh wow is this a hot take or what oh the yeah okay you're talking about the labor no yeah the reputation with like labor like they used to be known as someone that took really good care of their employees they used to have all those like tuition help or whatever programs like scholarships

and now they're seeing the rise of all these unions and hearing a lot of backlash from baristas cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply i don't know it is it's tough business to be in it's a horrible business to be in it's yeah i like going uh companies that don't have labor you know there's a difference between labor and employees um all right here's

another one let's see what was what about the options thing yeah i was about to bring it up here here's the article let me read it off peloton is repricing options in one of the internal memos this is a clip from an article so it's kind of cutting in quickly peloton told employees that eligible team members will have their post-IPO options repriced to Peloton's closing price on July 1st of $9.13. That's about 90% off, I think, from the highs. As an example, Peloton said options granted on March 1st had an exercise price of $27.62, and employees were not benefiting financially until the stock passed that threshold. Shocker. After the repricing, Peloton employees will be able to exercise their option after the price passes $9.13.

There's so many things to talk about with this from an investing perspective, but generally thoughts, concerns, from looking at a prospective company, what are you thinking of with this option, the tech employee stuff right now? So this just means, let me make sure I'm getting it right, that it'll be those same options will vest at whatever the... they can invest the nine dollars yeah and i'm not sure if it means more dilution to make the dollar amounts equal so i feel like it would have to be one yeah so this could be triple the dilution or it could be a third of the amount at a lower price or a third of the quoted dollar amount yeah

well if it's more dilutive that sucks for shareholders and it's uh the thing is like they probably would have gotten away with that 2020 they didn't have to that's not something they had to think of yeah the uh we're starting to see okay there were all those stock-based compensation haters us included in 2020 and there were a few companies that were just like ridiculous issuers of stock to employees and everyone kind of overlooks it during a bull market and now we're seeing just how much of a problem it can be when a company hitches their wagon to the stock price peloton included but also the big one that i'm thinking of is docu sign docu sign had all their apparently a bunch

of their sales reps are all quitting now because their options are like not going to be worth nearly as much as they thought and they they whatever they said the opportunity isn't there anymore and dan springer talked about it on the conference call shortly before he was asked to resign and he's like the a lot of the problem is the the multiple compression that we've seen recently. I'm tired of everyone saying, well, there's nothing we can do. It's the business cycle. You put yourselves in this position. Exactly. I cannot stand that. That is a huge red flag to me for management. And in general, if someone's heavy SBC, it is a bigger risk. That in and of itself, no matter what I think of the business, whatever, is a bigger risk to me

because you cannot predict what the stock price is going to do in the short run, even if they continue to execute with their business plan or with, you know, they continue to execute like you think. It inherently has these risks. Employees are going to get emotional if their stock looks like it's down or whatever. The value of their shares looks like they're down 80 percent, even though the quote unquote value of the business hasn't changed. It is very difficult to get like convince people of that and i would just much rather pay people in cash and if you can't that's fine but and you maybe have to pay people in stock if you're unprofitable you're still kind of growing and stuff like that but as an investor i want a way bigger discount

if a company is doing that um and we're not like against investing in a company that i mean i'm not against investing in a company that does stock-based compensation we own some but it's just another factor to consider it's definitely a risk and we're seeing it play out right now um and the risk is just one employee attrition and two uh heavier dilution than you might have thought yeah i wonder what all the tech all the tech employees that have been getting these insane options that i i bet part of the thought was well you better give me these options because i'm in like i'm in hot demand from a lot of companies now that doesn't seem to be the case like there probably aren't a whole lot of alternatives like let's take those docu-sign

sales reps you don't think equity values have compressed in other places yeah i mean maybe big tech has weathered the storm a little better maybe that's they're gonna have an easier time hiring but you gotta i don't know just don't don't take too much stock i guess as an employee yeah and don't issue too much as a company yeah unless i mean sometimes you have to you know what else why why on earth i've been thinking about this why did daniel eck buy call options oh the uh the warrants basically college yeah uh yeah that's an interesting thing i don't necessarily like it wasn't huge but i mean they're gonna expire worthless i know it's just a waste of money it feels so short-term minded yeah it was it was a bit strange no one really asked about

it so i don't really have any thoughts on what i mean it's his own money so it's not like a big deal to shareholders hey the company got money because they they he bought them so technically the company got some cash for it but it is super strange all right we got a question here thank you achilles if i'm pronouncing that correctly for being the one person i think to join the show every week on the note of spc what is the right way of treating the rs using options that will in the future uh that's the first one let's just hit that one first i think it's very tough people do the black skulls every company does the black skulls model um i like to keep it simple conservative and assume whether it actually happens or not that all of them will vest

and i just kind of i don't think uh i think there's a lot of false precision with this and all i really try to do is look at say two factors one how many um options rsu is basically combination of potentially dilutive securities outstanding? How many of their are existing out there compared to the share count? And what is their granting pace historically?

I like to just not go anywhere further except for saying, okay, I'm thinking share count maybe will go up by 3% a year. Or if, say, it's a company that's reducing share count with buybacks, it'll go down by 2% a year. I don't like to get

any more precise than that um there's no exact math that's how i like to do it because you just want a general sense i think of where the share count could be moving um but there is so you have no idea exactly what's going to happen i mean someone could we're researching what poshmark tomorrow and they randomly just granted three percent of their shares outstanding uh in may stuff like that can happen um and there's a lot of unexpected things with uh stock options which is why management trusting them trusting that they're good capital allocators blah blah all that good stuff is so important with this with this type of thing that's one of the key things i think i look for in management because it's one of the things that they can control um

with a lot of i mean they they have the you know they have all the control there i think our majority yeah here's the way i do it it's basically the same as yours and you can tell me if i'm thinking about this wrong but so i just went to a dropbox 10q from like 2018 2019 because this is the most recent one that was in my mind but on the first page it says at the bottom of the page says as of april 30th 2018 there were 73.8 let's say million shares of the registrants class a common stock outstanding then in parentheses it says which excludes 14.7 million shares of classic common stock subject to restricted stock awards that were granted pursuant to the co-founder grants blah blah blah you can choose to include those or not but if you

we just we we count it we include as the fully diluted shares outstanding and then if it doesn't or just do both great or just do both to see how big of a difference it is yeah you can you can do both but that way let's say they don't vest or they don't hit the options price nice little surprise it's great like you're on the it's on the well not if you're a shareholder the whole time probably but it's uh at least your your your claim on the cash flow isn't being diluted and and that's it's a positive surprise in that sense and and that is a great point when having the options there, you typically want to price in that they're going to vest because that means you're right and the stock price is higher five years from now. So if a lot of the options aren't

vesting, that means, well, you were probably wrong and it doesn't really matter. But here's the follow-up question from Achilles, but what share count do you treat as the actual share count? I think it depends. I like to keep it simple and just start with whatever is listed at the top of the 10Q or K. Start with that. That's the current shares outstanding at the end of the period or the last when they filed the form. And then do whatever, say, go through into the stock-based compensation section of the filing. Look for any sort of potentially dilutive securities that are there, RSUs, options, PSUs, warrants, blah, blah, blah, Convertible notes, potentially those get tricky, but do the ordinary one and then also add in whatever those are.

If you want to do a fully diluted share count, but with a weighted average thing that is in the income statement, I ignore that completely. It's not helpful to me. It depends on the company though. So some companies don't issue stock like Constellation Software. Their weighted average share is outstanding. Well, it'll be the exact same. It's going to be the exact same. But if you've got a company that issues a lot of stock-based compensation, the weighted average shares is going to be very different than the dilutive securities or the fully diluted share count later on once those do dilute. So is there a way – I know this isn't going to help podcast people, but is there a way to share my screen?

just so i could show people where um can i give you that option yeah we also got another question at what level of spc does it raise a red flag for you i don't think there is any i have a hard rule on that yeah no hard rule participants i don't even know how to do this i'm just looking at the per share performance okay i'm gonna make you a co-host so you'll be able to do it But the question came from Lars Thorne. He says, at which level of SBC does it raise a red flag for you? Let's say the share count doubles over a year and they spend a lot of money on stock-based compensation. Doubles? Doubles? Or are you just trying to make an exaggerated scenario? Yeah, I'm trying to make an easy, rounded scenario. But revenue, 10Xs, and let's assume cash flow is in line with that. I'm still fine that they paid out all that SBC because my per share growth is- 5X.

5X. So I would just focus on the growth on a per share basis to cross all the different financial metrics. But I mean, yeah, revenue per share. I mean, the key ones are revenue per share, gross profit per share, operating income or net income per share and free cash flow per share or maybe operating cash flow per share, too. But yeah, I just do all those per share. And if you want to get, I mean, this isn't even fancy. Sometimes I like to do it with both the ordinary share count and then the fully diluted one, just to kind of see if there's a giant difference and whether we need to be pricing in any sort of dilution that's coming down the line. But yeah. All right. What do you got here, Ryan? Yeah. So this is just how you kind of access it. You go to the whatever the most recent 10Q. I think some people might not know where this is. So I'm trying to give them an actual good idea. So this is Dropbox as of April 30th, 2018. I don't know if you're going to be able to see that. I'll try to zoom in here. there were 73.8 million shares of resident class a common stock that excluded 14.73 so i add the 14.73 plus the 73.8 and then at the end they've got another 326.6 million of the class c or class b sorry so uh i just added all those sometimes it'll say they'll include it if it's in the money so they'll say which includes 10.5 million shares or whatever so then you don't have to add it

obviously, but that's how I get to my fully diluted share count. And that can differ materially from the weighted average figure that they'll report the income statement, because there could be a whole bunch of options that are issued to employees at the end of the quarter, say, and the weighted average is going to be very different.

Plus they could be out of the money. So they might not be included. So that's, that's the best way to measure it, in my opinion. And there's other ways you can look at the share count, like, uh,

Um, you can go to, Oh, what is it called? The, the state, what is that part called? The statement of shareholders equity, that, that fourth one that everyone forgets about, uh, that people have to file for every quarter. Um, you can find the share kind of usually there. And then also near the end of the filing, I usually control F. If you're just trying to look for it quick, you can find the stock options outstanding.

You can find the specific RSUs and that's where I'm looking for that granting pace, because that can kind of tell you what the future, uh, um you know sbc not future sbc excuse me future dilution might be but with that it's a little bit of an exact science because you never know when someone's going to start granting a huge thing ceo leaves and they bring in a new one they give them a huge grant stuff like that i want to give a little a bit of like a painted picture too for anyone listening on the podcast because i know i just shared my screen and no one can see that over the podcast if you're listening but the reason we care so much, and this is going to sound very basic, is because your shares that you own are

claim tickets. And so even if the revenue... Everyone talks about revenue growth, cashflow growth. And especially at an inexperienced level, or if you're learning, it's very easy to overlook your claim ticket on that growth or your claim ticket on their financial performance. So let's say the business had $100 in cash and there were 50 shares outstanding and you had, or let's make it more round, $100 in cash. That was like the whole business. It's worth $100. And there's 100 shares or 100 claim tickets. You own 10 of them. You theoretically own $10 worth of that company. And that's in liquidation. It's 10, 10, 10 of your claim tickets are worth $10. We now we're not really like modeling it out towards liquidation, but in theory, what are your claims worth on their cash flows? That's why we care, I guess, about the shares outstanding. I know that's sort of a fundamental concept or very basic concept for probably our more advanced listeners, but it's very important. Yeah, it's very important. That's why free cash flow per share is truly, and I'm not saying this as an exaggeration, truly the only metric we care about in the long run. That's the only thing I care about. And weather management is doing rational things with the free cash flow that they get. um all right other topics other topics well the cryptocurrency market good questions though yeah great questions um thank you both uh all right other topics cryptocurrency continues to

deleverage there seems to be a credit crisis which i think is funny because it's like a credit crisis and a you know magic being credit crisis i think i said this last week but But you have FTX saying they have $2 billion in cash and they're trying to backstop the cryptocurrency industry if needed. If you're a VC in FTX, are you like, hmm, okay, I don't know if this is the smartest move, guys, because yeah, you get this take rate or whatever on these magic beans people are trading which the ceo admitted they are or magic boxes but buying them seems to you know like what value are they getting here it's if you're just buying the accounts

it's not the end of the world but if you're buying companies that are hemorrhaging cash i would be very concerned as a vc especially if you're not just axing all those employees as soon you purchase the company exactly and there because you're just hurting your own financial performance yeah and these investment crypto investment firms which i think whatever um i believe is a bit of an oxymoron but yeah there's rumors they're not rumors reports that the i guess i don't want to say the name lost 99 of customer funds like trying to short luna which was a cryptocurrency that collapsed um and apparently they totally it must have screwed up counterparty risk something like that and you have companies like block fi like that just totally collapsed there there's this

well maybe it's known to a few people but it seems to be this totally unknown leverage in these systems and to be honest i'm surprised that the crypto prices aren't down farther given all these blow-ups i think time is more of the killer because if all right we keep getting these rallies or not even rallies let's say it's up from like 18k to 21k yeah it's been in this band kind of right it's like enough for people to feel like all right i can get out and it's it's I think if they don't see great returns over enough time, they will get bored of it, is my opinion. And then you'll start to see withdrawals. And so I do think there's just a time element to it.

Because if it drops fast enough, instantly, there's still the mindset of anchoring to what it was and that you're getting it on a discount. Whereas if it's the same, you start to reset what you think the price was. Does that make sense? Let's say Bitcoin's at 65K and it dropped to 20K tomorrow. And there is no fundamental value. So your idea of what it's worth is 65K, despite the price being quoted to you at 20. So you think you're getting a discount. If it sits at 20K for a month or two months, you start to think maybe it isn't worth 65K.

Maybe it's worth 20K. Yeah. And if it sits and if it doesn't get really materially above 20K for three to four years, then people might just forget about it. It's so interesting how this is going to play out because there's people that are super bullish. I was stuck in this. I got in this super unlucky traffic jam. i mean it was unlucky for the giant accident but like the whole highway was blocked you know and i listened to all of the mark andreason show with uh joe rogan and you know interesting stuff

clearly a smart guy and he just seems dead set that he's right on this crypto stuff so there's going to be money flooding into this and it's just going to be fascinating what actually happens because i'm of the belief that it's all just nothing and kind of fairy tales but i don't understand is why why are people there's the moral appeal or like the eth like i don't know if it's moral appeal but like people believe that there shouldn't be a central entity and that it's the the currency of the world should be like a function of the market like a function of buying and selling as opposed to one potential essential entity that can manipulate it but for what i i don't believe that but why are people so afraid

to come out against it yeah no i've said i think i tweeted that the other people are coming out now but it was like people were so afraid of like ruining the reputation by saying like oh i'm anti-crypto like there's nothing there's nothing here yeah it is strange that no one like what's changed what has changed since the start of like nothing's changed like what tangible benefit has humanity gotten from bitcoin rising in price well it seems like people raise a lot of money through some nice conferences or parties but the uh that seems nice you know that there's some nice parties there's only been detriments right chip shortage oh yeah i mean come on you know my waste waste of resources yeah uh yeah if we eliminated it semiconductors energy yeah i mean it's a net

positive to society um it's kind of funny to me it reminds me of like the someone that's like oh yeah we're giving some solar panels to this african village you know that's super poor and uh you know when dorsey went to africa and was like we're bringing bitcoin to africa and i can only imagine all the people that are like dude we just want clean water electricity internet and hvac like you got billions of dollars how about you just do that for us come on you know they're like we're saving the world it's like dude just get these you're rich let's just get people running water okay like did he ever end up going to africa i feel like uh he just went there for a a trip to meet a bunch of you know business people stuff like that but he

never ended up staying yeah i do wonder if people were like yeah listen we don't want what you're selling so you can either help or go back home we'll take the money but we're just gonna you know we need to get some basic necessities for our you know what else there was okay so i looked into i i watched the block investor day thing oh did you block out five hours it i don't know if it was that long but the uh when they went into the crypto part first of all they do intentionally keep a lot of it a black box but one of the segments of their business in there is grants to crypto projects grants grants wow they're giving money away there's no way that that is like considered um charity so yeah i mean it's no it's a tax write-off so

they're literally giving shareholder dollars away yeah i mean the stock's uninvestable i mean it's clear it's pretty clear even if it's a tiny amount they're just blatantly giving it away yeah i mean if you saw dorsey's tweet like this might look there's a ton of square block shareholders out there but if you saw dorsey's tweet about uh what was it expanding the world's consciousness basically repeating what adam newman said about elon and stuff like that and you still think it's smart to own a company that he's running like i'm sorry you can't like i just don't think it's just like there's a way i mean it could turn out great and they could succeed but i either way like say the stock is double from here in five years something like

that right if that happens i still don't think it's a smart move to own it today the risk reward isn't there have you seen the jurassic world the new jurassic movie no don't really like those not my favorite yeah i watched it last night it wasn't it wasn't spectacular but the uh is it streaming or in theaters it's in theaters in the uh well your guy it's no homish hometown hero oh yeah chris pratt yeah like stevens he's like north seattle hero yeah um there's like this figurehead character that's like loosely based off like this elon musk dorsey type figure who's like basically like the enemy and in there in one part there's like this guy who gives this just full of shit speech where he's like we are we are

we've built this dinosaur sanctuary to elevate the world's consciousness and they like taking shots at that like that type of thinking and then afterward he's like oh that was all a bunch of crap like i don't believe any of that and so i i don't know maybe i should watch it just for that scene that yeah listening to that was kind of an interesting character to see um and it's i don't know who it's i don't know if it's based on any one person actually but it's like loosely based on like this tech figurehead type character interesting interesting yeah maybe i do need to watch um all right we got probably time for one more topic anything else i don't know got any more of your twitter likes

no no let me take a look the uh it's boring until earning season really you know what i think about a lot is and hopefully there's no like amc people that listen to us but like how did that that ceo of amc get there like how did he become the ceo no i think he isn't he like a little crazy no i think he was normal and then he just played to his saying this like a political term but playing to his base now he like per like do you think so or do you think like dude he didn't purposely have his pants off during that thing you know he didn't purposely he's he's playing to his base and trying to raise money and i think they are selling stock uh which could be a bit selfish and immoral but i think that's a strategy from what i've read um yeah if you yeah yeah i

guess that's probably more accurate and considering that he sold like whatever it was 100 million dollars worth of stock oh would you okay would you have done the same thing it's impossible position to be in for 100 million dollars if you knew you would get the financial benefit that adam got would you act like that and do stuff that is sort of unorthodox a lot of money it's a lot of money but i i don't know if the reputation risk if you're already in that position i don't know if the reputation risk is there because you know would you rather be would you rather be rich and respected by no one or you can still be like what i'm saying is you can still have the money you want by not doing that um just because if you handle the situation well you're going to set

yourself up for success over the next couple whatever decades or however it is here's another one rumors that avalera i know this isn't a popular stock is going to get bought out um which would be disappointing for long-term shareholders because the stock's down a ton that's something we've it's a company we looked at loosely seems like an interesting business the the topic i want to do though is the risk of private equity takeout below or an acquisition during a bear market that's say a 20 premium but way way lower than what you think it can be in five years is that a huge i think it's a big risk right now i I wonder if it's just companies not wanting to deal with the bear market.

Like not wanting to have to deal with the pressure of, of employees and the stock and compensation related to that and how like employee morale and maybe that maybe it's better to just be, well, now that our stock's not going up, maybe we go private. Yeah. That's interesting. And yeah, I think, say, we come out of this bear market a year or two from now, whenever it is, I feel like the companies that come out the other side that, A, didn't take the buyout offer, still try to execute on their plan, still acted. You see management acting in ways that you think is not stupid for shareholders, right? That can be a huge positive indicator that this is a company that has their right head

on its shoulders, they're the executive team, blah, blah, blah, right? I think that can be a huge positive indicator compared to investing in something, a company, say, three years ago that had never been in a bear market that went public five years ago or something like that, five years before that. you're there's a little more unknown there on how this management team is truly thinking or what like they're actually going to do yeah it feels weird avalara's case in particular because that felt like a very competent management team they outlined a 10-year plan of like a well-run business yeah and a business that seemed

to have barriers to entry and they were really doing well. And it was one where I read there was actually a good value investors club write up on them recently that sort of outlined the competitive advantages and why it's difficult for a Shopify or an Amazon or wherever you sell to be the provider of that.

Yeah. Why didn't Shopify take them out with stock, Don? all right yeah there's no confirmation on this but it's up seven sixteen percent on a takeover rumor so there's something's got to be there you know people know all right two minutes left what do you think of the buff dog in sun valley he had the mask on stay safe you know old man that's smart smart um did you see his shirt no he does wear that hawaiian shirt yeah loves the sun valley fluorescent yellow yeah uh i mean yeah some valley is interesting it's a great place i've been there um not to the conference obviously but it's a weird uh it's a weird conference for sure

it's where he had the famous speech it's where he had the famous speech in 99 yeah and then bezos when i was the only one that went up to him which is very looking back now is like cool story yeah all right you get one ceo in their prime who is it okay it depends on the company but i am going to go bill gates because smartest man smart one of okay probably the smartest person that ran a public company the last 50 years i think i'm in yeah i would go gates i think i'd take bezos maybe i haven't read up enough on gates but bezos did turn a bad through sheer willpower turned a bad business and submit and through a little bit of you know some good innovation

with prime turned a bad business into a monster which i guess that's huge props for the yeah that's what i mean you think about like i always think about now what he's built how it's just like an absolute logistics machine it's not just him but yes he led the charge and how they can yeah leverage that now it to me and it isn't like he he did not just fall into a gold mine no it's a hard business except for yeah it was a it took tons of execution and so i think i i think he's going to be my number one yeah rock for the tsmc guy seemed real just all right well yeah we have the basic choices gates and bezos but i think they're basic for a reason because everyone knows them um all right i'm going to end the live stream that's going to

do it check out the if you're watching on youtube you can listen to all the other shows on the spotify and apple links or wherever you listen to podcasts live on youtube every thursday 12 p.m pacific come join us thank you all for listening