Chit Chat Stocks - Power Hour 15: Elon Pulls Out of the Twitter Deal, Netflix, Microsoft and CTV Advertising

Episode Date: July 17, 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 ***************************** This episode is sponsored by Stratosphere. Get started for free at stratosphere.io to get the powerful software and research for informed investing decisions. ****************************** 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 recommendation. Now, please enjoy this episode. Preparing to live stream. This meeting is being live streamed. All right. We are live. This is the Chit Chat Money Investing Power Hour. I believe this is our 15th show. Investors seem

to be enjoying them or listeners seem to be enjoying them. So we're going to keep them going as long as people like them and uh the only rule is that we can't come prepared with anything it's supposed to be off the cuff just raw thoughts on the markets for the week brett do you have anything interesting that you've been looking at anything worth uh talking about well i think we got to talk about the twitter fiasco um that continues to boil over and i guess there was the unity acquisition that i think is an interesting case study in management um or trying to evaluate you know an executive team uh any other stuff i mean inflation's high we can talk about that but every every single thing in financial news is talking about that so maybe not

i don't know well let's start with twitter i've got a few things in mind not related to twitter I'm not very familiar with the Unity acquisition, so maybe we can save that for after. But I also should say, if you're watching this, we do this live on Thursdays at 12 o'clock Pacific time, 3 o'clock Eastern time. Feel free to get your questions in because we do find a lot of good questions. We got a really good one last week that had us riffing on stock-based compensation for 15 minutes. So let's start with Twitter. Did you read the lawsuit papers, the official papers? I did. I didn't read it all. Some of the part, you know, the legal mumbo jumbo that might be maybe make it so I actually don't understand it. But I skipped some of that, just kind of went through the highlights. And then looking at, say, the people that know this market extremely well.

Um, they seem to think that the Delaware court, if they're going off of historical precedent, will rule in favor of Twitter, um, to make, you know, Musk and the finance team back them, but, or sorry, uh, go through with the deal. however we all know elon musk typically wins and whatever he does and has not been afraid of skirting the law before so i'm not sure also you should change the gallery view oh that's true right how about we can see people i've been uh reading gosh how am i blanking on his name the the best bloomberg the bloomberg guy that's an expert in stuff yeah matt levine matt levine uh and someone said he was he was this was the moment he was born for he was this is like jordan in his prime and the coverage has been great i mean he knows he has a pretty good view and understanding of the whole thing the other thing i found interesting

was uh that interview with the old uh chance what is it the chancery court like uh she used to be a vice president or something uh on cnbc and she talked about it'll be hard to enforce a full acquisition so chances are they will end up trying to find trying to put sanctions on musk in some way either like a million dollar fine a day 10 million dollar fine a day and i was just thinking like if you find a million dollars a day how long does he hold out that's a lot that's that's a lot it is yeah i mean there's more things they can do which is you know uh they can go into his other businesses and kind of lock them out or stuff like that i don't there's a lot of nuance what they can people can do legally so i'm not going to say specifically what they can do but

yeah that that lady was on cnbc talking from that point of view how it'd be really hard because he sometimes just does what he wants however there was also a lot of people that gave opposing views that it won't be that difficult just because they'll have legal authority to um interfere in his other operations if you know what i mean however we we all we don't know anything about the situation. Okay. So say it looks like Twitter has a lock and shut case based on the historical precedent of those other ones that the Delaware court forced to go through, even though some things changes like two months after the deal signed, which in this case, they're accusing them of having things changed two months after the deal signed or

whenever it was even though they haven't really given any evidence however if they rule in favor of musk do you think there is any negative ramifications for the business world in general because i think it could be pretty large how so well if anyone is allowed to back out on a deal that is not very I don't think I don't think this it sucks to think someone's above the law and I hate that

but I don't think this would be if they let Musk back out in some way which doesn't seem like the likely scenario in any way but if that did happen I don't think that would be precedent for future

cases and i think people know that well if they want to like start pump faking buyouts over and over well that's what elon's done the i think if like if someone i think it is a precedent though if it happens so if it happens is therefore it could happen again someone some rich person could be above the law i don't think that's great for the rule of law in the business world and there's other precedents too that would be yeah but if it's newer it supersedes it so it's the new right that's how court history works roe v wade that just happened you know the do you not use any of the older cases well i mean this one would supersede it because that like i mean there's other ones what if there's some true true could be but the thing is like

okay here's why did he sign the binding agreement so if that part was really dumb like i tend to think he's pretty and maybe this is a controversial opinion but i think he's like fairly calculated with what he does sometimes like whenever there's bad pr he's always out ahead of it um he tends to know what he's doing if this was just a long-winded way to sell some of his tesla stake and realize it he should he did not need to sign the binding agreement he could have said oh i'm interested in buying and then made this whole fiasco about users not being real before he put his put the pen to paper and waived due diligence yeah that didn't seem very smart he's in a bit of a pickle twitter's also in a bit of a pickle

what scenario would you like to see coming out of this well with no financial like skin in the game either way I would just like to see fairness in contracts and rule of law be held up if okay

here like I don't like Musk and his companies I think they're pretty what's the best word scummy like not you know they don't do things the right way which I don't like But if they find evidence that, say, 50% of the MAUs, which is the daily active users number they're going over, are fake, I would want them to rule in favor of Musk because that is a huge material breach. Or if there's something else that comes up, they find evidence.

There's just no way. There's no way. It's just not. I engage with people on a daily basis. and i know no way that all the users on there aren't real half my family half my friends are real the the the yeah the thing is global i i'll just say like that's that's you know i i just want kind of the rule of law to go through also as a yeah i i don't know like the outcome doesn't matter that much to me i'll just be entertaining but it'll be interesting to see because twitter

seems like a company that's not managed very well and elon has been extremely good at winning in court if you were any sort of legal thing so it's it seems like he's got the advantage here if you're a twitter shareholder what would be the ideal uh outcome my thought is i saw something that and this is kind of all just twitter speculation someone was saying you know he could have to owe five to, I think it was some sort of a sell side or buy side note that said he could have to owe like five to $8 billion of damages. That's, you know, just, he owes that doesn't have to buy the company, but he pays that to the company. Isn't that, wouldn't that be better? You get five to $8 billion cash in the door. You keep going about your business plus

that liquidity. Oh, yeah. They'd already started a buyback program. The stock would probably go down, too. That would probably be a better outcome. I have no idea how likely that is. It's trading like the acquisition won't happen. So what's the market cap today?

Probably, I'm guessing, $30 billion? Yeah, something like that. 2028. So if you got $8 billion in cash, What do you treat an $8 billion settlement as? Is that operating cash flow? I am not sure how they treat that, but it's definitely a one-time charge. Yeah, I mean, that's a better outcome than having the deal go through.

But if they're not going to have a huge cash payment, like if it's only a billion dollars relative to the size of the business, I think given their lack of performance stalling of growth I know they've had a couple of decent years advertising wise I think

but the advertising landscape is getting tougher right now true and given I think the deal I think you'd want to hope for the deal to go through as a shareholder that's a win it's a win

yeah for sure the company is not worth that much it's not it's not worth unless they can supercharge growth it's not

I don't think it's worth $54 a share okay you'd rather have a $44 billion buyout for let's say a fair value $30 billion company maybe it's less

maybe it's $25 or would you rather have an $8 billion cash injection for that $25, $30 billion company. No, that's what I said. I'd rather take the $8 billion.

But the lesser it goes, at some point, you'd rather take the buyout. They have a huge... Also, Twitter has a huge... If I'm not mistaken, let me look at their balance sheet quick. They have a huge cash position already

of like $6 billion. What does that do for them? I could be wrong. That might have been blocked. I confused the Dorsey companies. All right. First quarter results. sorry go ahead the uh i kind of lost my train of thought did you see i guess trump is going

after elon now as well so the two two titans going at each other in terms of uh managing managing the public's opinion the social media um warriors i don't know how to describe them Yeah, their worlds are colliding and I think they're more I know everyone has strong opinions of both those people, but I think those two guys are so similar. It's not

super similar. Those two, the loyal supporters of both would tell you that they are not. Especially now that they're butting heads. Hey, well, must come here to Texas. Okay, here's Twitter's balance sheet.

$3.4 billion in short-term investments, assuming that's all cash. $2.28 billion in cash and equivalents. No other, it looks like nothing other than long-term. And they got some convertible notes. I guess they got some senior notes as well. Net cash position isn't that strong. But still, what's another, a little bit more of doubling the cash position going to do if the business can't see it?

I think it's, it's such a, it's like being a fan of a sports team that's, you know, never can seem to get it together. It's been idling for. Exactly. Yeah. This episode is brought to you by stratosphere.io, the best web-based research terminal for company specific metrics like KPIs and segment revenues. The service saves time, has a beautiful interface, and has the best data visualizations on the internet for equities. Now, our favorite features are the 10 years of data with data visualizations. This includes company-specific KPIs, charts for all the financial metrics you

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We hope you'll join us on there today. I don't know. Yeah, I don't know what Twitter would do with $8 billion. dollars hopefully i honestly maybe the best thing to do is for them to just become like a holding company and just start buying other businesses because i don't have any faith in twitter's business anymore i don't think you can put there's there's no okay let's say you put more capital or more investment into engineering staff or research and development how you've been doing that this whole time there's been no improvement to the platform maybe there's been marginal

improvement so it's almost better to just go find a different business the uh oh what was like oh the other thing i was going to say is like who who should be the remaining shareholders of twitter right now what type what what type of people think it's right to be a twitter shareholder right now well i think it's all merger arbitrage right now right well unless you're a contract lawyer i don't think you have any sort of edge on whether or not that's going to happen even if you are a contract lawyer maybe you shouldn't be either because elon might be able to be above the law so i was i'm like who maybe it's merger arb yeah but i don't know i mean if you're just a if you liked the business for what it was i don't think it'll be that necessarily moving forward and

they're probably going to have lower ad revenue i'm guessing i agree also the employee turnover has been strong i feel like merger are you got the activision booster deal right there buffett's in there he's a long-term expert on merger are i uh right that one's the spread's not as wide as twitter's but still very very wide that one seems to me a lot more interesting or maybe not interesting from an entertainment perspective. I think the outcome is more likely in that one. Yeah. But we're going to have hindsight 2020

because the experts, Matt Levine, all the other people that have looked at the case law for all these merger type cases in Delaware say it should be a lock and check case. So I think if it gets forced to go through, will think oh yeah that was the obvious move right musk and the team had no standing but i feel like we just have a bit of um what's the word shell shock or ptsd with you know musk evading basically when any sort of agency or anyone is trying to get him to do something

not illegal he just shrugs him off like i think there was actually an article out today that when he signed that agreement with the sec you know he's kind of ignored that with tweeting material stuff on twitter um if you remember that one and then with the 420 buyout thing apparently he's just stopped communicating with the sec at all even though that's a huge deal that so i kind of i think that's definitely in the cards i wouldn't you know if he's had that strategy of just ignoring what these people say it's hard to believe you won't try that again if he really doesn't like what they tell him to do yeah well let's move on the uh i don't want to talk about twitter i can't let him live in my head for uh for too long the uh something i

have been kind of interested in i so i i like hit pause on that saudi america book and then i like resumed it and finished it and then found it fascinating and i looked up some like video renderings of fracturing or fracking that engineering is really kind of sick it's pretty cool yeah big time innovation that's why gas prices are way lower than europe in the u.s for any u.s listeners yeah it's it's cool stuff i i guess i've never like dug into like how uh how advanced the oil and gas actual like technology really is and how much value it actually provides to human beings yeah there's a it's a cliche i'm sure everyone's heard it but if you're long oil prices you're short um innovation which makes me sound like tatty

wood but it's true yeah or even short innovation within its own field exactly yeah yeah that's probably not what she was referring to but yeah well no one knows what she's referring to the uh the other thing i was thinking about was let's say and i tweeted this this morning but let's say you took a basket i've been thinking about stocks that like you could lose all your money but the upside is there and if you took a basket approach with those so scenario let's think poshmark like we just we just covered them on the podcast they have uh pretty significant cash balance and they've at one point we're generating more than a hundred million dollars in cash in a year their enterprise value is like 200 million dollars so it could theoretically be trading at

like two times its power well yeah but the funds pay the funds payable to customer thing makes it look a little bit better the enterprise value should be a little bit higher and the funds payable makes free cash flow look way, way better. However, that's probably a permanent part of the business. So I just wanted to make that clarification. That's why the numbers look so good sometimes. Yeah. But they, you know, it is, if things go right, that's a permanent part of the business. So my thought is, and the other one is like Carvana, which is kind of in like a even stickier spot, but it's, there's, there's a bunch of businesses right now where if things went right and they returned to some level of profitability over the next one to two years and

were still growing, they should multiple re-rate or should at least see big appreciation in their stock price. If you took a basket approach with those, let's say you think the upside is more than a double. Or let's say the upside is 5X, but you could lose whatever, 80% of your money. Isn't that a risk you should take? Depends how many of those are out there. Do you have 10 of them? Yes. You've got five that the average upside you think is like a 4X, but you could lose more than 50% of your money. Isn't the risk still there? Risk reward. Yeah. If you could quantitate the down, I mean,

the downside is easier to calculate because it's zero. You know, the businesses that have that downside. But I think the upside is not, you can't, it's not like five X exactly. If you get what I mean. Yeah. I think management's huge. Management's huge in these situations. What's tough is that when we look at these types of businesses, Carvana, Poshmark, there's been plenty of others that seem super cheap and have some hair there. I always come away disappointed in management or not always a lot of the times I come away disappointed

in management and I think that's the deal breaker for me a lot of the times maybe I'm too picky with management but compared to that's just I hate taking that risk of having a bad management team

yeah it's always a possibility but still it could be shitty management it could be a not that great business if it's cheap enough it could still be worth it

yeah at the right price anything's yeah I mean at the right price you buy anything well maybe I don't know some businesses like carvana i think the chance of going to zero is super super high but i mean say say uh yeah posh

mark um let's say it's cash it's a net net why wouldn't you because they're going to take that cash and destroy shareholder value we've seen it we you can't go back we've got some uh comments in the chat but uh travis benny says hey guys been listening to the chit chat money podcast for a little while now and really enjoy it thank you uh love these free form conversations as well see been getting a lot of feedback like that and i'm shocked but that's good we're gonna we'll continue if this question is not appropriate for this conversation feel free to disregard oh yeah this is fine how do you determine the companies that you cover on the ccm podcast it ranges we get a lot of inbounds i guess from listeners where or requests i should say from

listeners to kind of cover ones but if it's something where we feel like maybe it wouldn't we wouldn't provide value to listeners by talking on it or it isn't worth speaking about what we might disregard like some some of the ones that we've that are probably in that bucket are like asset managers well we made that mistake with brookfield asset management um yeah sometimes we make that mistake but yeah typically it's either a recommendation we'll make sure it's something that's going to be within our wheelhouse and then we just kind of find something that looks interesting at the time to us and we haven't like necessarily covered it for example we're doing we're recording chipotle tomorrow with brad freeman um we've you know i guess i'm

shooting for both of us but i've been discussing chipotle stock with ryan for a few years we vaguely followed the stock um but this is kind of a way for us at maybe a price that looks decently attractive who knows we haven't done the show yet but like it forces us to do the research and then since we think it could be a compelling opportunity or like on its face it kind of looks a bit you know better then we think that that'll be helpful for the listeners as well and then yeah a lot of the times i think the next week we're doing warby parker and that was a listener suggestion so basically that and then interviews we kind of try to find either people we've known and had back on the show or anyone who's written a good report on a specific stock or pairing up someone

who's a good analyst and uh an interesting company for example the one we released today asml with boy andrew invest quotes on twitter uh from best anchor stocks he knows asml super well and he's a great analyst so that's what we're looking for with those interview shows yeah the i mean there's not any like one way that we generate new companies to do on the show uh brad said that he likes to use this as a way to outsource his research uh because he said like If he's thinking about looking into Chipotle, we segment the different – I think all the listeners know this, but we give each other different segments. So I'll basically – if Brad wants to know about the earnings last quarter, that's my segment. I'm basically doing that work on his behalf.

So it's kind of nice to get sort of the initial idea filtered to get other people's takeaways on the business. So usually it's either something we're interested in or it's a listener rec. those are kind of the two primary ways all right that yeah that is it it's not not an exact science and then we rotate who chooses so we rotate every week okay next topic next topic here microsoft got chosen as netflix's partner now that was super interesting uh i should explain netflix's partner to do uh for the i believe it was supply side platform but basically to help them run their advertising on their new advertising supported tiers did you have any thoughts on that and were you surprised well honestly i had no idea that microsoft had an

advertising like arm and apparently it's doing 10 billion dollars in revenue come on bang 10 percent market or like five i forget what is it five percent or eight percent market share linkedin too right linkedin is there there's advertising on linkedin isn't there oh for sure i didn't know they did video advertising so so that was i think the big surprise actually met someone that worked at linkedin like i want to say two weeks ago and he he said it's really nice he said they get a lot of flexibility from microsoft and it's kind of nice to have them as like a parent company because you get the resources if you want them but they give them the flexibility to be their own company so i don't know kind of just random anecdotal but uh

no i don't i don't really have any takeaway i guess like they're cutting out roku are they Okay. I thought, do we now, I never know for sure because sometimes the black box, if it's still played on a Roku device, does Roku get a cut of that advertisement? The way I understand it is if it's not a subscription, if it's ad supported, you can either give Roku a percentage of that supply, the advertising supply, the ad inventory to fill, or which is through their, I think it's called OneView now. i think yeah they acquired data zoo which was like the supply side platform and they turned it into one view and so they can either fill that or you give them some content that they get to use for their roku channel so maybe if uh if they've given all the supply or all the ad inventory to microsoft's ad platform they'll start uh pushing some netflix content onto the roku channel maybe that doesn't make a lot of sense though so i would be quite surprised given for

if netflix was going to do that but they're i guess and not as strong of um competitive positioning as they used to be there's also the trade desk one advertising for disney's properties which i think is also interesting big win for the trade desk i don't disney properties hulu hulu and i think you know the as they bring more ad supported channels um to streaming you know sports stuff like that oh yeah i don't know i just i thought they would i thought the way it worked is they tend to like diversify where it's not just a single supply-side partner or DSP

or whatever. Advertising exchange. I thought they gave like, all right, 5% we'll let Magnite experiment with and other whatever we'll give to a few others. Yeah, I thought that's how it went. Doesn't it feel risky to just pick one, I guess?

Plus they gave you like a giant discount. Maybe Microsoft gave Netflix a huge discount. True. They're going to switch them to Azure. That would be the big one. I mean, it makes sense because Amazon continues to invest heavily in prime video, but I guess that's a different discussion. Yeah, it seems similar to payments where I think people were a little shocked when Stripe was the only partner for Shopify. You want those back-end payments providers.

You want to have multiple, see who's doing the best, who's getting the best completion rates. and you can work them against each other for pricing. I think you'd want that, but maybe this is just the primary partnership. I didn't read into the Microsoft agreement, but I don't know who else they could have picked because a lot of those... Okay, a lot of the advertising technology companies

seem a bit small for how Netflix is trying to come out. you know they already have so many hours streamed on the platform if you get what i mean yeah i don't know it's just ctv i can't i can never get my i can never wrap my mind around it entirely yeah oh we well back in the day not back in the day like four years ago we were just like well we use roku and it's at four times sales and it's growing quickly that's and the margins were increasing but besides that um yeah i don't have my old investing style was very much i kind of wish i had it sometimes like when i first started it was like oh i like that product don't buy the stock yeah now now i i'm like just second guessing myself over and over yeah i mean it's

probably for the best but it was more fun to just be like a cheerleader yeah it is i don't know yeah i don't like i think there's definitely if you have any good like if you think yeah i don't know if you have high confidence in a certain part of the ctv market be it disney netflix or or roku or Trade Desk, Magnite. I don't even know if Magnite's in that, but the advertising technology companies or Paramount or something like that. I think

there's a lot of chance here to get outsized returns, but I'm just not sure where... I'm truly not sure where all the value is going to go over the long term. It's got to go somewhere. It goes somewhere, but I'm not sure versus the prices that these companies

are trading at, if you get what I mean. Yeah. i don't know roku's a conundrum to me too i love the platform but the more i think about it i'll use the fire tv i don't care whichever one it's the cheaper one in my living room yeah if the thing is this might be a testament to how shitty roku's gross margins have been they are the cheapest one when i did it when i bought mine like a year ago on amazon on amazon so yeah they are

unless Amazon starts giving away TVs for free to Prime members I'm not sure if I would go to that from Roku because I tried to use Grubhub Plus

oh yeah you tested it out yeah what a joke the bad product there's a delivery fee oh yeah i did uh i did investigate that there was a what is it two dollars another two dollar fee yeah my okay my nine dollar burrito from chipotle that i wanted came out to a sixteen dollar total so yeah maybe my delivery was free with prime but there's a ton of there's a service fee a still another delivery fee i mean well there's there's taxes right i mean the taxes the burrito

comes out to like 10 something but uh burrito comes out to less than 10 i know it's like 950 right now right in our area it's still six i mean it's like another 50 or 60 percent surcharge yeah it's bad and i think the industry's just screwed it's not sustainable like i uh I download a Grubhub Plus because you get the year-long free trial, but I don't think I'm ever going to use it unless somehow the podcast starts taking off and we have a lot more disposable income. If you don't cancel by the end of your membership, it automatically bills you. I wonder if that was the play here. 12 months they're gonna have a significant amount of grubhub plus members paying yeah i'll probably just cancel here soon but i always get like sort of angsty like anxiety that i'm gonna forget to

cancel and i just cancel immediately well that's weird i guess it's smarter though here soon yeah but i got a year i might need it the yeah but that is big for subscriptions is people don't uh a lot of times people forget to cancel that's that's a big part of the model but hard to cancel yeah well that i don't enjoy that like the newspapers do that i do not enjoy that but a lot of people forget they subscribe to say even netflix what's the most valuable subscription you've ever had prime you see there's not even i paid for it like my family had it i said i'm on my own now but uh i paid for it myself it's worth it it's so worth it i mean it's amazing i don't pay for it i don't pay for it right now but i paid for it myself in like 2015

you think that's more value you get more value out of that than your spotify a hundred percent i don't go to stores except grocery stores and it's great i don't care about shopping so plus the video plus the saving on costs plus the one day shipping which is back now basically except on prime day oh yeah it's fantastic i think mine might be chegg honestly that's probably the highest ROI it gets you a degree wow I was more of a password share

on that one it is yeah I was thinking about that the other day Netflix is probably not up there for me it's Prime dude it's so worth it I mean I don't subscribe to Prime Costco membership

I think a lot of people get value out of that you get like discounted gas yeah probably save i'm guessing you save 40 bucks a month on gas if you're a costco member yeah but it's all coming out from the time you wait line and how much farther it is away from your house it's never that bad uh not the ones i've seen 30 minute wait i've never had a 30 not wait at costco i've seen those but costco members shows like i i've just i think the i think the gas thing is just uh it's not it's not a scam because they obviously give a good value but people just go crazy on the gas like drive 10 minutes cheaper who care if you have to wait

longer if you have to wait longer and drive 10 minutes further you're valuing your time you're valuing your time your free time at such a low that just isn't the case that isn't the case you don't have to you don't have to wait i'm not sure where you've come up with this idea well wait not 30 minutes but say 10 minutes compared to one that's just empty most i've had is like there's four cars in front of me and there's three pumps plus but if you have to drive 10 minutes farther it's not like okay let's 10 minutes yeah gas like two is a half a gallon or something maybe all right two dollars you're saving 20 of the tank it is worth it no but the time the 20 minutes in

time that you have to spend the extra 10 minutes each way i don't think that's worth it you're wrong it is i you can do the math it's two or three dollars of gas to get there you're maybe spending 20 extra minutes to get it and you're saving 20 bucks oh you're not saving 20 bucks no way

saving pretty close to 20 bucks no way dude no way I would say most of the gas stations around me 540 550 a gallon at Costco it's 5 dollars 50 cents a gallon

so you're saving 10 you're saving 10 bucks at best i mean unless you have a truck i don't think that's worth it it's just not true plus there's enough costcos out there well they're most of i mean most you could live close to one but most of them yeah on average probably 10 minutes from your house and if you're grocery shopping there anyway that's fair that's definitely fair but I've seen a lot of people go out of their way oh I gotta go to Costco to get this gas I'm like dude just stop here like what are we gonna save 10 bucks

like I just value my time higher than that being on the road because I hate driving it's just not yeah I'd rather just pay a little bit more for convenience alright the uh

anyway that's probably I would put that membership above my prime really yeah i think so big jar of peanut butter dollar 50 hot dog oh yeah you get a lot out of costco yeah but i'm not feeding a family of six i think it's a family stuff a lot of the stuff that doesn't go bad it's you can buy it for a long time but can't you get i mean i've seen similar

deals on amazon like for giant stuff and yeah the ui is shitty sorry not great sorry for swearing um the ui isn't great but like can't you get a giant thing of peanut butter for cheap there huge container right it's not that different plus you don't gotta drive some of the private label stuff is actually uh pretty good some of the kirkland signature oh yeah i i yeah some of that stuff some of the items they have there for sure it's like uh what is it what is it amazon's choice well amazon's choice yeah yeah that's more of like the kroger that's more of amazon choice i mean yeah some of the the treasure on aspect of costco for sure but i still get that much value out of well i get no value out of grubhub plus doesn't matter to me well yeah prime video

for six months out of the year because they have all the local sounders games or the local soccer games for my area where everything else is a blackout market so i'll use prime video for that but uh there's nothing really else nothing else really on there that i feel is a must watch maybe i'm wrong once this lord of the rings thing comes out uh you hit you you haven't even watched lord of the rings unless you changed that since we had the rings you didn't watch it oh well i guess we you said no two years ago when i was watching it not read the books and i did not uh i did not read i didn't watch the movies in proper order yeah because you watched like the second one well when we were living together while i was watching it you came like halfway through

i mean it was always showing on like cable tv like they always have reruns of it that's right like every day well also amazon prime has thursday night football now i mean during the football season i'm gonna be on that and it's exclusive now um yeah i just love i don't think this is how everyone thinks but i just absolutely love the efficiency of never having to go to the store except to get groceries or uh or food it's it's amazing i don't mind the store i just if people enjoy shopping i get that but i don't like going to stores it's just not how i want to spend my day and amazon has freed me up with an incredible subscription deal to how many hours of my year dozens dozens of hours of my year i could do whatever

whatever i want now that value is i don't think everyone looks at it that way but that value is huge to me plus it's split over multiple family members true yeah i mean it's super valuable if uh your password sharing well i mean family you know a family account yeah the uh all right enough enough of amazon uh yeah the you look at jp morgan's earnings no bank earnings are a mystery to me yeah what was there anything or anything fascinating i know it's such an important one but i just look at if the stock went up or down Apparently they have Oh

I didn't see this Down 4% Alright Q1 2022 The firm's board of directors Has authorized A new common equity Share repurchase program

Of 30 billion dollars That was first quarter That was first quarter Second quarter Most recent quarter We have temporarily Suspended share buybacks This is a firm

Not JP Morgan No this is JP Morgan Oh The firm In quotes I thought you said a firm Okay okay that makes sense $30 billion they'd be buying like

Themselves 10 times over Yeah that's why I was confused So J.P. Morgan Was gonna Had a $30 billion Stock buyback Looks like the market's cap's 10 30 billion so

But they authorized In the first quarter And suspended in the second Why did they suspend it? Jason Moser's got a perfect gift for it, the Ferris Bueller. Life moves pretty fast. Yeah. I don't know why, I guess.

It says, J.P. Morgan suspends buybacks and warrants on global economy. Well, all right. I thought, what's his name, just did that whole 60 Minutes interview where he said the consumer is strong. Who was that, Diamond? no yeah i thought but i it's so strange to me how in this sort of market environment everyone looks for just a random anecdote about how from someone that could have information about who might be in the know like the consumer is strong but like a month ago he said

watch out for a hurricane who knows no one knows it's not like it's all bs I mean, they'll see the data coming in, you know, JP Morgan over the next year or so. But like the predictions, how do we know how the consumer's feeling? Like the sentiment is, here's what's crazy. There's the Michigan surveys and yes, surveys aren't perfect, right? But you see the Michigan sentiment surveys and it's the worst since I believe, don't quote me on this. It's the worst sentiment from consumers since like 1971. So, through the oil crisis of the 70s and the bad, terrible inflation, people are way less confident now, but they're still spending like crazy on travel, all that stuff.

So, all this data, I don't think it ever fits into one thing. It's just kind of nonsense. You just kind of have to take it as it goes. did you uh did you see the south park movie had a had a clip of matt damon selling out for crypto i saw that clip it looked very south parky very grotesque and also funny did watch the clip yeah i think i retweeted it fortune favors matt damon that that is a good that is a good slogan for sure i think that's how it went i want i really hope we get like a leak or something of how much he got paid for that ad

maybe like two billion something like that i could be it's crazy that he like i mean he really did sort of risk his reputation yeah reputation among the investment community but does he really care about that maybe other people that bought a bunch of crypto that is true if if someone decided to buy crypto because matt david walked in an airplane hangar with uh oh shoot what's his name the explorer marco polo marco polo statue then yeah i guess i wouldn't like i lost a lot of money i wouldn't like i wouldn't watch his movies anymore uh but i think personally if he's in a good movie i'll watch i still watch margin call even though kevin spacey turned out to be a creep yeah i think i

mean matt damon's top-notch actor but uh i can't i can't unsee crypto.com ad when i look at it yeah there's been a lot of other actors too right we had who are who are the non-investment people that either shilled out for it or went laser eyes at the top who didn't who didn't he did that yeah he called the top really his wife i mean tom brady's wife did it too uh what's her name i I forget. Giselle. It's a hard name to pronounce. Snoop Dogg. Who? Snoop Dogg. I think it was

like Nicole Kidman or something. I'm trying to look at all the... Ja Rule. Ja Rule always calls the top. Yeah. Unfortunately, Larry David... Trevor Lawrence took, I think, his salary in Bitcoin. That's right. There was

that offensive tackle that used to play for the Seahawks. That was... He's an advocate for crypto as well like not even getting paid for it well maybe he is he probably is the locker room tell is a real thing yeah we had that we had that we were in a locker room every day in 2017 and man bubbles oh my god in the locker room i remember people hyping up bitcoin and i was was like i don't know man because we like someone people would say like oh this guy's interested in stocks you should talk to them they'd be like i got this bitcoin like i don't know what it's

gonna do and they'd be like dude it's going to the moon like uh they were so confident when i was at like 17 000 back in 2017 just insanely confident and i was like wow it's almost gone full circle huh that is correct yeah i was thinking about that if we go a little bit further down from here wonder how much that hurts psychologically for people that bought six years ago that's yeah that's like a horrible feeling i mean a lot of equity investors probably feel that way as well but yeah not as bad though not as bad the thing is they didn't have to there's so many of the new ones that were ipos that have gone down 80 or 90 percent that they don't have like the reference point of oh man it's back to 2016 levels okay you're meaning stocks

yeah they're down like i guess yeah yeah all right all right serious topic unity made an acquisition i again i follow unity loosely so if we get anything wrong here i just want to use it as an example for a broader concept they acquired a company and people seem to be very upset it works within the ad marketplace thing and people seem to hate this company they bought also there was some weird financial engineering they did where uh they're getting like funding from someone and they're going to start buying back stock at like eight or nine times sales when their margins aren't high right now. So if you look at their management team, the CEO used to be the CEO at EA from 2010 to 2013 or

something like that. Dates could be wrong, but I believe his tenure ended in 2013. During that time, EA made some of the worst acquisitions they've ever made. And he almost made the company like, didn't ruin it because the stock's done well, but one of the hardest companies to ruin because of the monopoly on sports games. And they almost started destroying lots of shareholder capital. They did, I guess, with acquisitions that were very poor. in hindsight is

was that a big enough of a red flag to say yeah Unity is not ownable because this guy he had such a bad track record back at EA we're afraid it's going to happen here and yeah we don't know how this deal for Unity will go

but isn't this just kind of another indication that you know he might be the same old dog no new tricks here yeah it's possible the uh the problem is like i've heard it sucks because i guess it's the same as like ea way back when is i've heard great things about unity's core core competency uh their core business model and how it makes it easier for developers

but when the conversation becomes like essentially how do we get people excited about our stock again which feels like that's kind of what it is here between the buyback and then like theoretically synergistic acquisitions or stuff that would maybe get shareholders excited that's like my giant red flag they're just incinerating capital well here's the broader question can you is it smart to like i think you could have seen this like you shouldn't have been able to trust this this person as the ceo knowing their history of mismanagement at ye

how long was he the ceo of the uh uh let me check i will confirm you said he was exiled in 2013 I think for lack of a better term let's look at Wikipedia he joined the company in October 1997

you returned to EA so he left at some point served as CEO from February 2007 to March 2013 um when in 2013 the board of directors accepted his resignation because of the company's financial performance i don't have the exact stuff but the one of the video game analysts and reporters for bloomberg tay kim had a nice thread of all the bad acquisitions he made at ea and if we look at ea's stock price our chart during that time span let me get a little uh wide charts going here

it's not that that was a time period where they kind of were treading water even though they should have been they have the dominant position in part of the gaming industry if you know what i mean if you know what i'm trying to say i kind of just generally hate acquisitions well i think i'm sure there's stats on it but i feel like three out of four times or 75 percent of acquisitions end up not great for the acquirer yeah look at their stock price from january 1st 2007 to january 1st 2013 down 71 yeah some of that was the gfc but activision blizzard and take two interactive and other publishers were doing quite well during that time span the secular taiwan game was huge again they had the lock on fifa madden um so how when you

hear the line the board accepted his resignation what does that tell you well it said for financial performance i mean it was one of those we all know how that goes it's not hard to imagine you don't have to be in the room to know that most of the time it's we want to fire you but if you want to resign, go ahead. I'm sure he's fine. Apparently he got this job somehow. Why isn't the founder of Unity? Is he not

involved? Not sure. I'm not sure. Look, I could be saying all these things and Unity could be this acquisition could be amazing, but... Given his track record, he's probably... I worry, and I do think that's something that's really

important to look at as an investor is, do you trust management to take care of the cash that they have at their disposal? Not take care, use it wisely. Because so many use it poorly and you can just see it happening in hindsight. I just think finding the ones that have a good track order, using it smartly, yeah, Buffett, the EZC sample, but there's others out there. and sticking with them for the long term is like how can you why buy something else i guess you're either invested in an allocator or you're investing in a concept the goal if you're investing in a concept is that whoever's at the helm allocates the capital to to that concept like growing that concept so like let's use chipotle as an example

uh whoever they brought in that taco bell executive poured money right into the exact concept that they had essentially they cleaned up some sanitation problems but into the exact same concept they didn't have to go out and make a tough acquisition and make something else work if but if you're investing in sort of a conglomerate take iac or berkshire you are investing in that allocator yeah but i think that's it's way more gray area than that like it just is Chipotle's

nickel at Chipotle has a great track record in the franchise industry and Toggle Bell was a huge success story the last decade

if it was the CEO of oh gosh what's a middling well let's just use another young brand's one Pizza Hut who's got its

lunch eaten by Domino's I think that is just something you really should pay attention to as an investor. Unless you're in one that's a ham sandwich company, which there are a few and far between, maybe EA wasn't. Yeah, but I think there's a difference between Chipotle and a ham sandwich company.

I don't know if I believe in ham sandwich companies. Well, EA, I guess the stock was down 70%, but the business was still around. Still messed up a ham sandwich. Yeah. Coca-Cola, Hershey, Pepsi. Brands can die. Yeah. Under Armour.

That do not compare Under Armour to Hershey and Coca-Cola. Yeah, there's definitely, it's not black and white, but I just, I don't know. it's not doing the same thing twice or what was the quote like doing the same thing three times or something um and expecting a different result it's the definition is the definition of insanity so investing in these people who have the track record of destroying shareholder capital like kind of i don't know we're running out of time but we got alex should we answer this try to answer quick thoughts thoughts on investing behind the roku channel uh that is the land of uncertainty i see some advertisements on my home screen for the roku channel and i could not

uh i laugh every time because it's like roku channel wow watch two broke girls here we go all right i watched i think i watched the big short on there when they had it on at one point but it's i only visit if it has like some really good third-party content uh but we are running up on time i'll uh i wish i would have saw that earlier but now it is sort of the land of unknown i have no idea whether or not the roku channel could be something it's nice to have an alternative if if uh if a company doesn't want to give away their ad inventory to you to have a place for them to compensate you in another way which is for them you to be able to license some of their content so i guess the roku channel is good for that but i don't know if it's worthwhile i don't

know if it's worth a bunch of spending they yeah they say their top line numbers that great without giving any exact numbers however how much you know what's the margins yeah we'll see i've got to sign off that's uh that's gonna do it but we're here every week on uh thursdays 12 o'clock pacific time, three o'clock Eastern time. We should put a disclosure on this. We want to remind our listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities discussed in this podcast. Thank you all for listening. We'll see you next time.

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