Chit Chat Stocks - Power Hour #16: Elon Paper Hands, Big Tech Layoffs, & Netflix Earnings

Episode Date: July 24, 2022

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podcast guests is not formal advice or recommendation. Now, please enjoy this episode. This is the Chit Chat Money Invested Power Hour number 16. We come with, there's only one rule and that is no, you're not allowed to have anything prepared. We're supposed to just wing it essentially on all things financial markets um which haven't been too lively over the last week frankly um am i missing anything was there was there anything entertaining that's like that was like a total headline that we should have talked about well i think monday there was some other oh with the twitter deal they kind of had that expected thing they're going to do the expedited court stuff which i don't think that was that exciting and then

everyone was looking forward to netflix and tesla earnings but they kind of had no big surprises uh on the positive or negative side at least from what i glanced at i don't follow those companies super closely but those were kind of the two earnings i was maybe excited to watch because everyone likes following those companies everyone likes having a take but pretty boring so far i mean earning season doesn't really start until next week when we get uh the big three the big four i think microsoft apple amazon alphabet slash google i mean those are the big four that's the most important the uh yeah the netflix quarter was a little underwhelming for you a little underwhelming it wasn't really anything like that noteworthy they did they still

are seeing elevated churn in the u.s and canada like they're they're still losing subscribers at a higher pace than they like i think they lost 1.3 million paid subscribers this quarter in the u.s and canada last year at this time they lost 0.4 million so and they they called it they They literally said, we're still seeing elevated churn. I wonder if that has anything to do with competition, because those are probably the two more mature streaming markets, if I had to guess, and they're losing subs. Granted, this is the quarter when they usually lose subs.

It's a weaker quarter for them, but I don't know. There's so many options now. Yeah. I was thinking you got the new Game of Thrones coming on HBO and then the Lord of the Rings show a month after on Amazon Prime. That's going to be some tough competition in the Americas. I wonder how the international distribution will be on those because I know Netflix definitely has that, or at least historically has had that advantage with international distribution being a lot cleaner because they have less licensing deals. But I think those are a big threat Yeah, the United States It's tough to I don't know Well, yeah

The The other thing is They kept Stranger Things Season 4 That carried Into the second quarter And I think that might have helped them Where

Like it may have elevated the paid subs more than is truly indicative of what they have on a recurring basis without any of their extreme high paid content. Yeah, I agree.

Having that, I mean, making that choice, it might have made the numbers look even better, but we'll see. Oh, you know what else I wanted to say? Last week we talked about the value of a Costco membership, and I got the numbers wrong.

So, I went back this week for gas, $4.89 a gallon. The local gas station next to my house, which is closer than the Costco, $5.79. Big break. $0.80 a gallon? That's high. That's high. That's a good mix. What are usually, that'd be like $15?

No, probably $15 a tank. if you're filling up a 16-gallon tank, maybe 17. Yeah, it could be worth it. Yeah, no line. I drive a little more than you, I think, so I probably fill up

four to five times a month. Oh, that's rough. Car is small. Gas mileage isn't great, but... Some people are probably listening to this like I have to fill up, yeah, twice a week. Yeah, there's some people filling up that tank.

Yeah. Well, I guess we talked about that last week. The last thing I want to talk about on Netflix is the ad-supported tier. We talked about them getting the Microsoft deal, but I think they gave out a number of streaming hours this week. And it seems like even if their subscriber numbers are steady, or they're running in place, not really able to get that stable growth of the subscriber numbers, seeing how... And I don't have the exact data in front of me, but I know they shared some stuff. Seeing how much more, just in general, Netflix is watched in a lot of markets than other streaming services makes me... And I still don't like this space in general. It just makes me more optimistic about the potential of the ad-supported tier and their ability to price it fairly low and still make a lot of money. however it's it's a it still feels like a really they gotta walk a thin line because it is adding the freemium it's just a totally different model than premium and you gotta

make sure you get that stuff correct there could be a lot of mistakes to be made yeah and now that i think about it it was probably good for netflix to wait on the advertising model until ctv ad tech was at a level where it was like not degrading the experience or detracting from the experience the interesting thing is i don't think microsoft even has connected tv an existing connected tv advertising business from from reading into the partnership it sounds like they're developing it for this netflix partnership that just seems like a risk that they didn't need to take i did see i saw some speculation that they are cozying up to microsoft with this partnership to be acquired after the activision deal yeah that could be interesting

i know a lot of people are throwing that theory around yeah i uh i don't know i don't know microsoft if they did that i would just okay they're so big their core stuff is so profitable i would just be like slightly worried they're getting a bit bloated you know with all these different parts i know they have a decent you know they have the advertising gaming slash media division or those are two separate things sometimes they overlap a bit but and netflix would kind of fit into the gaming ish because they're both entertainment but i would just worry a bit about all these acquisitions and the company bloat if if they if they went after netflix for a deal yeah i never like it when big companies just like

start acquiring like as their growth strategy even though even though microsoft's growing nonetheless that yeah it would kind of concern me two that would have to be probably like a 150 billion dollar acquisition right it'd be quite large

maybe they'd take stock but maybe maybe yeah that is interesting because they I don't know if they have the cash on hand maybe not Maybe so

I do like I Netflix for me will always be sort of Outside of my Like I'll never have a Edge on whether or not I want to buy it like whether or not I think Okay this would be the winner

Like I do think it's durable But I don't know what Cash flows will look like Yeah I'm unsure if it's The industry's durable I would be much more confident in short form video or like say up to maybe youtube style stuff as well and video games being more durable um than video you kind of hear what i mean i just i was watching a video or i was watching a clip of rich greenfield that's his name right yeah rich greenfield from

light shed um on cnbc this week and he said youtube accounts for 50 percent of all connected tv advertising revenue so yeah probably more comfortable making that bet that they're going to stick around and be the durable the one durable sort of i mean it's also idiosyncratic it's very different than you know it's not long form content which is sort of not necessarily commoditized but competitive well but some of the stuff on there is longer you know definitely an hour long stuff there but yeah it's it is completely different all right new topic uh trying to go through my likes it has been a boring week there was a good let's see if we're going into compounder land which we tend to to be in there's a good tweet from willis cap who is uh i think some people

listening may know who that is but anonymous semi-anonymous account on uh on twitter and And they said, I think one of the starkest lessons from the past few years is that if you are analyzing something on future scaled margins and or insane growth, then you need to make sure you use an adequately high discount rate. um i think that encapsulates at least this is excluding saying the you know 50 times sales stuff or not the 50 times sales this is including like the meme stock speculation the crypto speculation kind of those bankrupt you know speculative stuff but maybe just the people that thought they found a high quality business and overpaid us included um do you think that encapsulates what happened for a lot of, you know, compounder style, buy and hold style investors over the past three, what would it be, three years-ish?

Yeah. Yes. And looking back, so we were looking at a company today, Warby Parker, which we're going to do a show on here shortly. And I was just thinking like people's last year, investors' time horizons and willingness to just accept an optimistic future and forecast that everything would go right was so common. And their time horizons expanded so long. It just didn't make... Now I look back on it and it's crazy how prices can drop by 85% and you're still struggling to make the case that this is going to work out. yeah i think a key is there's a huge difference between someone that has proven positive cash flow consistently versus someone where it's more theoretical and you need tons

of margin expansion there's a lot of other nuances to every business sometimes maybe a company is only cash flow negative for one year because of some weird thing that happened but But I think maybe it's changed in my mind, and I'm assuming we've discussed this, plenty has probably changed with yours. When someone is, or one stock is, say, unproven, unprofitable, but has that potential for high margins or good margins, say 20% plus or something like that, I want a way higher discount than a proven one. um yeah it's just proven cash flow generation because if it's unproven there could be costs in there that just they can't figure out how to scale they can't figure out how to get operating leverage even though theoretically say a company with and there's plenty of them out there with 55 plus 60 plus gross margins all the way up to the 90 software ones who never seem to get

that operating leverage and it shows up on adjusted EBITDA, but it never shows up in cashflow. Well, that is another good point. I saw a, maybe I'll pull up the data on this. Where was it? It was a good, sick of is all right. And this is going to be like a spoiler for the Warby Parker show for anyone that ends up listening. I don't like when,

Companies Like it's really starting to sicken me When companies act Like they're more than they are If you sell glasses Your mission statement Shouldn't be to change the world Yeah

And you shouldn't use adjusted EBITDA You're not software It's not indicative of your cash flow And you're like essentially a retail business Yeah Well I don't think anyone should use Adjusted EBITDA ever but there's some companies where you know it's better than others here is something from

Voss Capital V-O-O-S just subscribe to their sub stack believe it's free seems like a good spot for V-O-S or V-O-S-S V-O-S-S excuse me here is a nice quote and I think it kind of like I did the tweet from that football coach it was like they are who we thought they were like we've kind of been seeing this without putting any data to it. He ran the numbers or they ran the numbers on a lot of software businesses. And here's the quote that kind of summed up the big takeaway from this sub stack. Since 2016, the median software company has increased their stock comp rate as percentage of sales from 4% to 9%, effectively having 500 basis points of hidden margin compression. That's kind of like putting numbers to what we've been seeing when looking at

uh you know one new company every week yeah it's kind of it's i'm starting to see it from like the employee standpoint too is wow like they offered a great compensation package or stock compensation package like i couldn't turn it down i'm like why are you talk to someone like anecdotally or no yeah anecdotally and it's not like uh it's not a a public company i don't think but they were like it's their whole hook to attract talent like just give them cash give them a good salary and then the other thing i i've met a lot of people who say yeah i'm just waiting to my options fest and then i'm out of here it just creates this like hurdle date where it's like if you just paid them well maybe

they'd stick around it's like oh i get paid well here but giving them that theoretical date where all right that's when my bonus hits i can get out of here after that it gives them like this i don't know this like looming date for an out and i just don't it has such a strange effect on the morale of an employee and maybe it isn't like maybe it isn't that they're doing like shittier work or i don't know if we're swearing on this show anymore but the uh worse work it's just that they are distracted if if their stock and their whole net worth is kind of tanked over the last year they're probably looking for a way to make money elsewhere or looking somewhere else to go because you've you've now leveraged you essentially it's like

embedded leverage oh yeah you're preaching to the choir here now we talk about this i feel like every week so i want to segue to something related and when someone you said you know might be like okay i'm looking for a way out all right let me just go to um fang a fang company who I know is reliable, is looking for my skills. Here's a headline I saw yesterday, and we've seen multiple headlines from other companies. All right, this is from Zero Hedge, but it was Bloomberg. All caps, because of course, Zero Hedge. Microsoft slowing hiring in some groups, eliminating open jobs. So generally, what are your thoughts on that? But I feel like it's a bit – you could spin it positively or negatively, but it feels like a lot of the job market is tightening up in these tech service, basically non-labor opportunities.

Yeah. Well, I think it's accurate. And it's kind of surprising me because we kind of thought the other way around that they would be hiring at cheaper salaries. like they could pay less and still get those employees or pay less than they typically would. Like, let's say the other, you know, a company that was working at a SAS startup or whatever was making a hundred thousand plus another a hundred thousand stock options. And now that whatever, or RSUs and the stocks worth nothing, the,

I'll bet Microsoft could have come in there and offered them 150,000, which is a discount to whatever the other companies would have been theoretically and got them because there's more job security and people are less worried at those companies, but to see them slow it kind of shocked me. I wonder if that's to keep existing employees like not affect their compensation, but at the same time, like I wouldn't, I wouldn't think that they're other than Google, which is a primarily ad business like Microsoft,

I wouldn't think that they were that affected. It also makes me realize recessions and inflation helps nobody. Like I thought before, but when we didn't have inflation, I thought, oh, this is an inflation protected business. Like they'd be fine. They could pass along any cost increases because they have pricing power. Pricing power is so much more rare than I actually thought.

yeah there's only a few companies out there maybe that's why buffett is so picky um yeah i also think it's possible these could be specific situations where the big tech they kind of got so big and then they have these hiring departments that they put on autopilot and they just got too big if you know what i mean is that possible right because i mean i was driving past i was driving in seattle yesterday and i saw all the google buildings it's the middle of the day there's no employees at them and there's just tons and tons of buildings that they paid for i'm like there's just there is bloat that probably doesn't matter when things are going right yeah and i there was another anecdote uh

the i forget the areas i think it was new york nashville and then bellevue so right by us the amazon and facebook or meta are pausing i think i was just reading some reuters blurb are pausing their new office building construction to re i don't know i think it's like re-strategize for hybrid work environments or something like that so that could mean that they're like oh shoot because i think they were building like the tallest building in bellevue which is second biggest city in seattle uh the for amazon was for like their new headquarters in the bellevue area they're gonna have like 12 000 new jobs it seems like maybe they overthought that and then google or something was doing similar stuff although they've already pulled back in

meadow in new york city what do you think of i feel like commercial real estate it could lag but it feels like I wouldn't want to be in that market at all. There's so much uncertainty around how, like whether these big companies and not just big tech, but big companies in general decide what, like they decide whether these commercial real estate companies are going to go bankrupt essentially. Yeah. I mean, I want to, I want to, well, maybe not.

I mean, not in like a hybrid work environment. I feel like we've been saying this for like a few years. that it's not very advantageous for commercial real estate. I don't think it'd be fun to be a real estate agent anywhere right now. I saw the Miami home sales were down like 28% or something like that year over year. Wow. That's not surprising. Last month.

Yeah. Phoenix. I saw Phoenix has gotten hit hard. Not surprising that Arizona and Florida seems to be the spot where there was the most excess if you look at historically uh what's happened there yeah home slow down i saw that zillow um speaking of which i rode by bill gates's house on a boat the other day oh really kind of i would there was a bunch of boats like circulate circling his property like taking like pictures and stuff and it just made me think like that would be kind of annoying like that would kind of suck and there's like security that if you're there for too long will like come out onto the dock and like shoo you away yeah i don't really get going to see people's

houses like great it's a house what they live in it i'm sure it's got some rooms i'm guessing they have a kitchen i'm guessing they have bedrooms and i'm guessing they have a living room and probably again it's like a compound it's kind of cool to look at but is it though i thought it was pretty cool looking it's a house yeah i thought i find those things strange i found those things very strange all right uh here was the other okay on um the housing zillow apparently this is their update from yesterday is saying that housing bears are wrong they are forecasting that U.S. home prices will jump 7.8% between July 2022 and June 2023. Does that feel...

Now, they forecast that home prices are going to jump 7.8% between July 2022 and June 2023. What do you think? I think they're wrong. If they're right, that means no one's going to have any discretionary income to spend on other stuff. It's all going to be tied up in mortgages. It's something that I struggle with because it feels, just anecdotally, it feels like we kind of have a housing shortage. There are a lot of people that want to buy houses.

There isn't enough available inventory. but it looks like that at the peak of every bubble or mania or whatever you want to call it euphoria there's always low inventory and we're in a well i guess you're probably looking at the data too but we're also in an area where it's extremely bad i mean inventory was at its decade low in may but since come back up so like part of me is like all right people are going to be like because rates higher prices are going to have to drop just because of affordability yeah and we just had a comment here didn't mortgage rates just hit new highs i think so i don't track it every day but it's like more than doubled since the bottom during the copa lows and that doubles uh the

payments prices are gonna have to drop but at the same time i still see them in such high demand because of that like people looking for houses and granted that is anecdotal everyone's got their own anecdotes when it comes to real estate but so i see that there's like sort of a buffer or some sort of mark sort of like i think the shortage provides a floor in terms of prices but the higher rates go there's simply no place for price to go but down because there's it's not in the realm of affordability yeah i agree green wall capital friend on twitter said These are the same people referring to Zillow that lost money flipping homes in an insane real estate bull market. So I don't know if we should trust Zillow on this one.

Here's the thing. Zillow was simply – weren't they just ahead of the curve? I mean, sure. They shut down their operation before everyone else. They started firing employees before everyone else. And they didn't find sense. i mean are we going to compliment them for think about that the housing prices have been going up were like fat they were going up faster than the 2008 bubble or the 2006 bubble

and they couldn't make money i mean how that screams incompetence to me they okay i want to say that i think part of the them hemorrhaging money was the fact that there was so much corporate expense that goes into building that program out and ideally yeah you have to do it at scale but yeah it seems the incentives on any i buying program don't line up like you're getting the worst choice of houses yeah and it's like buying from someone that owns the company yeah they are going to have more information on the asset that you do apparently but apparently they could make money apparently they lost what was it four billion i can't no not four billion it was a lot though okay but they well they still have inventory that

they have to sell there so they could have some i haven't kept up with them but i remember them saying that that could closing that down could end up being profitable for them but okay fair jury's still up jury's still up the uh yeah i think they should have had the foresight to never enter the industry at all it was it was one of those where everyone thought it was a bad idea like it was universally accepted as a dumb strategy and they they went for it anyways and then they recognized i think what everyone else was saying yeah oh dumb strategy unless you're individual and even then it's a lot riskier than seems buying and holding real estate properties okay now we need to hit we gotta juice views we gotta hit the clickbait phillies for a minute

thoughts on tesla having paper hands dumping dumping the big part we got to talk about it i mean i knew it was coming you did i totally knew that was coming are you serious you can read musk like a glove yeah i mean i mean everyone knew that was like he was just going to hold it through like what if it went he's not going to lose a billion and a half i think that whole i think him buying it in the first place was probably a bit of a marketing tactic. Fair. I don't think he's going to lose money

on it intentionally. I don't think he's going to let the company lose money on it. They sold, what, a billion dollars worth? They purchased it for a billion? A billion and a half? I have no idea. I thought they lost... They lost

some money. They lost a little bit, yeah. But they sold, like, 900 million? I can't remember. yeah it's funny as far as I'm as far as I know he's been rather quiet about it not well the sales

yeah do they ask about it on the conference call I don't listen to those there I guess no time but yeah they yeah I don't know it's so I guess everyone wanted to take on that but or

like they wanted some reasoning, but I think they just kind of got their heads on straight with their finance department. And what's interesting is you had these theories the past, say, year or so, maybe a year and a half, probably after Block, which was formerly Square, put Bitcoin on their balance sheet. And there was this huge theory that corporates were going to put Bitcoin on their balance sheet. And Tesla was one of the first ones to do it. And I think i just don't think they're gonna i don't it just feels uh this is just kind of a nail in the coffin for that i i'll bet if if he ends up answering why he sold because i imagine there's a lot of overlap between bitcoin owners and tesla stockholders

and so that probably there's only one i think there's only one community more passionate than tesla shareholders and that's bitcoin owners and so that's true it's probably going to frustrate a lot of people i think he'll eventually have to answer why he did why he sold and i i'm going to put it out there that he says it's for environmental concerns yeah that's a good read he had been tweeting about that and saying all about the environmental concerns which which isn't wrong i agree i agree with him but why'd you buy it in the first place you knew about it yeah you definitely knew about it what they changed their names to that was such a bad like that was one of the best sec filings ever when they changed his name to techno king

and then master uh yeah the cfo master of coin oof that's tough that is tough it doesn't yeah I don't really know what to think of it. I would have expected him to sell. But, I mean, they were profitable otherwise, weren't they? Yeah, it seemed like a fine quarter. Is the business worth $800 billion or whatever? I have my doubts. But they've generated – well, the last two quarters, they've kind of started running in place a bit, but generating slight positive cash flow.

although they have operating expenses have like some of them had declined which I think would be a concern just because if you're trying to scale up into a tech giant

you might want that R&D spend to grow but again seemed like we got a comment seemed like a boring quarter I see the comment

thank you Andrew very funny said Musk is paying his lawyers in Bitcoin that i mean you can do that uh and that is a great way to pay people anonymously so let's do some scenario planning around uh the twitter deal okay all right let's say he uh elon musk loses the deal they force him to purchase twitter at the agreed-upon price or or even

a discount to say 50. yeah how does he finance it he sells tesla that's you can't sell spacex there's not enough i wouldn't think there's enough liquidity there you know just sell a lot right so he has some cash yeah i think he has well after this greek trip that people are talking about the greece trip i don't know but uh no that's a joke he i think he sold like 10 billion right to help fund it so he'd probably have to sell like 20 billion more i'd say he can't do you think he's gonna get the debt from the financiers whoever they are well that goes above my pay grade because i think when they said they have like which is funny funding secured which is a funny callback the uh the banks like after they've said that and these are reputable

banks i forget the who's actually doing it they're required to fund it if you know what i mean legally so i think they they kind of have to and it's like who are the other ones like andrew seen Horowitz and some BC firms. So I feel like they'll be fine to fund that part of it, but a lot of it's themselves. Well, I can't imagine the employees will be, it's so weird to have like your own owner forced upon it. Like you now run a company that no one, that you weren't, No one wanted you to run. You can sell it a year later. I mean, you can try to sell it immediately after, but what are they, what is someone

going to buy that? Right. He doesn't, he's not forced to keep it. He just has to buy it from the existing shareholders. Yeah. I'm just, don't buy it. Don't sign a binding agreement. The, who's more upset though?

Tesla shareholders or Twitter employees? You know, a stat I read, sorry, go for this first. Maybe I'll remember the other step. i'd say tesla shareholders i talked to a twitter employee friend of mine and said they are getting out they work at twitter they're leaving and quote i'm a fan of elon musk so it would be just like a terrible workplace environment after that because you've got probably a whole bunch of resenting employees yeah probably aren't going to be too happy to

too fun to work with and it's a company strife yep and it's an impossible business model so it was already tough and so much data to go through to manage yeah okay here's the other here's the other thing i saw an estimate i don't know i want to know your first emotion when you hear this stat. There's an estimate that there are 6 million individual retail investors that own Tesla.

I buy that. Did you listen to Bill Brewster's conversation with Vitaly? I'm not sure how to say his last name, but they talked about Tesla. He wrote a short book about the company, I think, too.

I did not listen to that one. yeah it was a good conversation kind of it's funny how there's people on either side of the aisle but it's so hard to sit in between like you have to pick like either it's completely overvalued or it's the greatest company in the world you have to own it yeah it is weird how and we're all presented with the same information that's what makes it so exciting yeah i mean i yeah i've talked to plenty of people where they're like well the company is doing so much good for the world which i might disagree with but the but the other stuff you know you just got to take it uh you know you know i mean like the other stuff that's clearly

kind of crazy you just got to take it and i'm like would you though like is that the type of company you want to invest in that kind of just makes me i don't know the lack of focus or like i don't know if ignorance is the right word or like because it's not ignorance it's like choosing to be like you you know like it's there but you're choosing to be to not consider it if you kind of get what i mean in your investing process i just think that's really underrated in looking at the management team are they it doesn't matter what they're saying because management teams lie all the time, whether it's just like a fib or they say, we're going for the long term. And they actually, how are they acting? If it is kind of like, do what I do, watch what I do,

not what I say. And I just think that's so underrated when you look at a company and you're like, well, they're saying all the right things and they're saying they're going to do this and this and this, but what they've actually done in the past, how they paid themselves in the past egregiously is not lining up and i i guess a lot of people i think kind of ignore that um with tesla it's been fine but in a lot of other cases i think it can be a big risk and we've seen it play out time and time again yeah there's also that lawsuit around executive compensation oh really for for what i didn't see this i don't know but i saw it was the same judge that's doing the twitter case i believe oh what you don't know the details of it i may have to

look this up because that is just saw it on twitter that can be sweet i would be so happy if we uh saw that i think was it the well who knows don't want to get too excited but the was it the one around like the 10 5 what are those the 105 b i forget how to actually say it Those plans? Yeah, probably. I don't know. I honestly didn't really look into it that much. There's so many.

I feel like there's tons of outstanding lawsuits right now that are just kind of, you know. That's slow moving. Courts are slow moving, right? Yeah. Except in Delaware, apparently. Unless you're going up against Twitter. Well, unless it's merger, because I guess that makes sense.

You don't want a merger to take five years. The company could totally change. uh all right other topics yeah i was thinking about something okay amazon every time it's kind of like an obvious statement now and it's like jeff bezos's mantra or whatever the whole your margin is my opportunity but they Every single time they've chosen to compress their own margins to operate as break-even as possible, they've deepened their competitive advantage. And I've just kind of been – I don't know why I just had the epiphany, but originally there was a video. It's like, oh, are you an internet business or a shipping business?

And he's like, we care about the customer was the whole thing that the focus on logistics obviously has become a huge moat for him. The other one paying employees more than everyone else. That's obviously going to be a hit to margins, but it deepens the competitive advantage. There's like countless situations where they've done that. So I think the longer that they can do that and the more times they choose to compress margins, like the deeper and deeper the competitive vote gets, but. Yeah, I like that. I always wonder if I'm just, why I don't own it. Yeah, it seems pretty cheap right now to me.

I like Jassy, even though a lot of people don't like him just because the stock went nowhere, but whatever. It seems to be making the right moves now. Here's something I kind of like. Yeah, buy with Prime, I think, is absolutely genius. I will be using that every time it's available. I mean, who wouldn't? Like, come on. I didn't buy it, but like Prime Day,

they had buy with Prime beta for like 20 shops. And I tested it out to see the click-through. I think I mentioned this a few weeks ago. It was great. Like, it's the same checkout experience. I know sometimes it's clunky on Amazon, but the clicks are minimal. Typically, the UI is not shiny with a lot of Amazon stuff, but it was pretty seamless. And yeah, that is a classic your margin is my opportunity because going out to the payments ones there. Now, here's something that came out on Amazon last week. They are testing out a big slowdown in private brands, which is like Amazon Basics, stuff like that, because it hasn't been as successful as they wanted. And there's been a lot of antitrust stuff around that, which I never really got that portion of it because Costco, Walmart, and Target all have their own private brands. So I'm not really sure what the case would be.

But that's not really the point I have here. The other point I want to make is that typically when someone's, say, searching on Amazon, you would have seen the first one, like search result would have been the Amazon's Basics brand for, say... What was it? There was that joke about the basketball, which I don't know if I'd buy an Amazon Basics basketball because unless you're really good. but then the second one would have been spalding for example yeah but it would be sponsored but a lot of times say someone might pick and in this case you might not buy the basketball because

who would buy an amazon basketball but you'd buy the amazon basics basketball they sell that cost they're making no money off of that they're basically you know going the costco model you know they're just earning money off of you from your prime subscription but if basics got eliminated the first list is sponsored from spalding their ad business could take off even further and i think that's way i mean pretty clearly more profitable yeah but they don't need they don't need more profits they need a deeper competitive advantage i i like profits i don't know the i suppose they do need more profits at the current uh after the last quarter, but we'll circulate the ship.

Yeah. But that's just an example. Them changing that up. They said they had 250,000 private label products and that seems like a pretty easy place to get some cost savings to not have those except for, you know, maybe the thousand that sell well, it just seems like a giant waste. yeah yeah maybe i don't know i like having amazon amazon basics offered just because it's so cheap i i i get that but for the right thing i would not show up to the court with an amazon well yeah i mean like a basic electronics thing maybe you know is a better example but if and maybe this

is not thinking customer friendly and why they might not do it but if they don't have amazon basics say a cable and there's something that is 10 more expensive but they're getting a better margin on that sponsored listing it's kind of weird because they could the antitrust is going after the amazon basics when it's the most customer-friendly part of the business because they're making no money off of it and i think a lot of times they sell it below cost which i think is kind of insane but yeah the uh i found something interesting i'm talking about i was looking at domino's earnings this week and uh there was this quote from a former manager i assume a store manager that said you could very easily have pizzas made by a machine significantly faster

than you could even have a make line put it out as long as there was somebody doing quality control checks which of course you'd want to make sure that you're putting out a good product every single time you could automate that process he says you could probably even automate a system where it was pulled out of the oven and cut the specific way that a customer wanted and basically just goes on and on about all the automations that dominoes could and are still to have i agree i wonder if anybody will be able to really compete on the pizza front with dominoes like i mean if the other big brands invested they could definitely do it i mean they have the best

their position the best but pizza hut could do it i know they kind of have been running in place papa john's had the huge activist thing i guess or the ceo had that weird the founder everyone realized the founder was insane and a racist, but yeah, I mean, pizza feels like the easiest food to automate, right? At least those basic ones. Yeah.

All right, if you had to pick one of the big companies that exist today, more than like a $10 billion market cap, let's say, that won't exist in five years in five years wow i made a short list on robin hood once so how companies you think will fail yeah or to track i never really short uh

let's see what ones are over 10 billion is royal caribbean over 10 billion let's look robin hood's market caps are always way off down to nine so they don't count but I'd put Royal Caribbean in that simply because their capital structure is like scary bad. Uh, where is, yes, Lucid Motors. I mean, that's a 35 billion, $36 billion market cap pre-revenue premium electric vehicles. Yeah. I mean, come on, this is, it's a clear who owns. I just

35 billion dollar market cap 36 probably even higher fully diluted I mean it's gonna be how like what's the I don't know

what's the both thesis are they the ones with the Amazon order no that's Rivian that's I I wouldn't choose Rivian because they have giant industrial orders

but and I see their cars on the road Lucid was I mean they got car of the year But I've done some movers for The Motley Fool on them. I just look at their earnings to kind of summarize some stuff.

And they look tough. Sweet IR page if the guy looks like James Bond, though. I wonder what the correlation is between companies that spend way too much money on their IR page and whether or not they're hemorrhaging money. okay lucid group 57 billion dollars in revenue oh my god you're not gonna give me the okay yes they i guess they have five billion cash so uh let's go this is the income statement uh yeah i think for the ipo yeah they raise a lot of money probably spec 57 million in revenue cost of revenue 246 million rnd 186 million sgna 223 million and let's go to um capex 200 million so yeah i think lucid uh they're in a tough spot i

don't i i would make that choice if i had to make a bet on that scenario you gave out yeah that's probably a good one i was listening to a podcast earlier this week with uh a couple of it was eric it was the ceo of zoom and then the ceo of viva systems and he the viva system ceo who i liked he seemed like a smart guy like said something just really threw me off it was on the acquired podcast and he was talking about they were talking about how many rounds they raised in the private markets And Viva didn't have to raise that much They raised like one

And then they were going to raise a second But they didn't need the cash And they just went public And they made it sound Like It was just the way he said it It was like oh we didn't even need it We were able to just unload

Our shares onto the public Like The idea And I think it's kind of Just ingrained in sort of the venture capital culture is that your stockholders are who you dump it to venture capital or your partners the public stockholders you mean yeah and it just like he didn't even know he was saying it and everyone kind of like agreed along like oh my gosh look at they all bought it like that

earlier and it's like it just the there wasn't the idea or the approach that the public stockholders are your partners yeah uh that is not that would not be if i heard that said by ceo from a company i was looking at i would be scared yeah and i may have like misinterpreted how he how he said it but it's just i think being raised essentially by venture capitalists where they are like with you in the journey and then you can re-raise and then they help you find capital the next time and then they they put you on to different you know uh let's say hiring places or pr firms or they have all these connections and you see them as your partner it ingrains this idea that your partners are only the ones who you see and not the

not the public stockholders that's kind of my concern with any big venture capital backed company yeah which are there are a lot of you definitely that creates a risk for me and i think you have to wait like a few years on the public markets to see how it plays out how basically again this comes back to that watch what i do think see what they do and if there are some say bad signs, red flags, take them

seriously. There are so many companies out there. I know it sucks to research something for like five hours and then say, oh, shoot, I saw this big red flag.

Everything else looks great. But I just don't i think you gotta be when you see that like you gotta be like all right there are plenty of fish in the sea there are thousands of other companies publicly traded just gotta let this one go you can be picky like you can be super picky yeah yeah all right a few other hot topics buffett's gone long oil true thoughts because a lot of people have been talking about it I've kind of absorbed some of their takes.

Do you think he buys the whole thing of Occidental Petroleum for anyone who doesn't keep up? Let me look up. It's funny that they're, yeah, 20% or something like that. It's funny how their ticker is Oxy. It makes me think of Oxycontin for some reason. Enterprise value, $93.6 billion. Yeah, this could be the nice elephant out there for them to take over. Would they like industrials for operating companies?

He seems to think oil is going to be around for a long time. And let's look at how much cash they generated trailing 12 months. Obviously, I get it. I know everyone listening, trailing 12 months is an end-all be-all, but it kind of sets up where we are at current oil prices. Wow. Well, let's just look at operating cash flow, $13 billion. i mean yeah this is below you definitely see it maybe they don't want to sell but

he clearly likes the business he loves this simple like theses that uh are understood like he likes the simple theses where basically you can say people are discounting this way too much I think if people are right, him and others, people that are long oil stocks, are right that oil dependence will be longer and the prices aren't going to collapse or something like that, and he thinks the management team's good, then why not? You can see why he's buying it. They'll probably throw out an offer, maybe a cool $100 billion. I mean, you can't have – you can't own a company like Occidental Petroleum without having some sort of guess on where oil prices will be. Yeah, and I think – well, yes, but I don't – I think if you own it, you can be a little more like, okay, if it's down one year, we still know demand will be there kind of deal. and there is that uncertainty but

yeah they bought a lot of oil companies not a lot but they bought oil companies in the past when they were super cheap PetroChina right they talked about that a ton in the early 2000s I think it was like two or three times earnings yeah well who knows

maybe Occidental Patron would be two times earnings we just don't know but yeah I mean that one PetroChina seemed certainly cheap but so many people asked about that at those old annual meetings I think it's just because one of those weird companies they bought what do you think about all the uh companies that are reporting rough revenue but then good constant currency revenue right now like all

the foreign exchange problems for the us listed or the us-based companies that operate internationally uh tough one tough one that netflix does a lot of they um pay for content costs in the same currency where they collect revenue sometimes they try to do that and then they also bought i think it was a billion dollars worth of euro bonds that are up like 500 million dollars year-to-date to offset their losses. Yeah, foreign currency, I kind of put that in the category of if you need to focus on foreign currency for your bull case, you probably shouldn't own the stuff. Yeah, but if you're getting like an 8% swing in revenue growth, I would assume that the

distance between the dollar and every other currency doesn't keep at this pace. If it keeps at this pace, and you're in the United States, congratulations, because we're all going to be filthy rich. So, you know, we can go live in Mexico. But we're operating internationally.

Exactly. It's an unknown. And if that needs to be a part of your bull case, don't buy it. Yeah. I just think it's as simple as that do you think that a company should hedge

no clue no clue maybe but yeah I think you should just consistently have a consistent strategy don't you know what I mean it needs to be the same one if you do hedges

it needs to be consistent no matter what matter if your hedges are working or not and if you don't do hedges don't do them because then you're a 4x trader and i don't want you don't want your corporate balance sheet excuse me your treasury department being a 4x trader well i thought netflix did a good job balancing it but good they're all staying drunk together they got 10 of them over there working the the ropes like it's just an impossible market to actually predict so i remember was it netflix or well you know what another god the international companies if you own

international companies you'll probably see a boost from this yes we own a well-known japanese entertainment company that does a lot of business in the united states yeah the yen the yen blowing up or whatever going getting really depreciated versus the dollar yeah it could be for a jet if there's Japanese companies that pay salaries in yen and then sell stuff internationally, that could be a huge benefit. But again,

it feels unpredictable. It's crazy how if you're in America, all you think about or all you hear about is inflation. You don't think about how much worse it is in other places. It's so bad. I was looking at Nigeria once and they're like, inflation's come down

to 11%. There's riots And I think there was riots in Ecuador this morning. Yeah. Well, I mean. Around inflation and cost increases. Like, it's so much worse elsewhere. Riots in Ecuador.

Yeah. Yeah. I don't think. Let me close things out with making everyone, our American audience, bad. I think Americans are generally a bunch of wusses when it comes to this stuff. we literally have we live in paradise and people are complaining most of us live in paradise obviously some people don't but it's like people are like oh my god gas is expensive like it's literally sent down from heaven that allows you to travel insane distances so quickly it's

amazing you can fly in the sky and communicate with anyone around the world and but you're like oh my God, that stake was $5 more than last week. What am I going to do? Sorry. Don't need to rant on that. It is. Yeah. Well, that's time. So let's wrap up. I'll throw a disclosure on this. Brett and I are not financial advisors. So anything we say or discuss is not formal advice or recommendation. We are general partners at Arch Capital. So we may have positions in the securities discussed in this podcast. If you want to listen to these, we do these on Thursdays at 12 o'clock Pacific time, three o'clock Eastern time. They're on our YouTube channel. If you just look up Chit Chat Money on YouTube, you can easily click into the live video at three o'clock Eastern time and

ask questions. We appreciate Andrew for asking some questions today. Thank you all for listening. We'll see you next time. this family is on the brink of civil war on september 18th mob land the hit original series is back on paramount plus we are the harrigans don't know the net and google us from the underworld of guy ritchie do you want to step up the ladder i want karma dead starring tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself? Come on, come on! I'll give you

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