Chit Chat Stocks - Project Stargate; IBKR and Netflix Earnings: Brett's Bubble Watch; Time to Buy Bumble and Grindr?

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is our weekly power hour episode. I am joined by the one and only Brett Schaefer. My name is Ryan Henderson. And today we're talking all things financial markets. Earnings season has officially kicked off. We got Netflix, who's always kind of the leader for earnings season. They're the one that really gets the ball rolling. And they actually

Starting point is 00:00:55 had what looks like a very good report. Stock jumped quite a lot, so we'll dig into that. We have some big news out of one of Brett's largest holdings, I believe, and we got plenty of other topics to get to as well. We got an interesting small cap of the week and some other stuff. But before I do, Brett, how are you? How is the kickoff to earnings season? It's going well so far. Watch list is soaring. Stuff like IBKR seems to be doing well. We're going to be talking about them today although nothing i own has i guess reported yet some interesting financials out there netflix is okay i don't think netflix when it's not a battleground stock anymore so i don't think it hits the same as they used to they used to be a huge just

Starting point is 00:01:42 anticipation there but the stock is doing quite well i'm interested in talking about project stargate did you see this ryan are you aware okay well we're going to learn all about that and of course along with your weekly topic the small cap of the week we have my bubble watch which got a couple you got a couple on the on the docket there were some huge ones this week that uh maybe sign of the times kind of just yeah and actually i've got one for you as well that's kind of a sneaky one i don't know if it really qualified but we can talk about that in a second before we do though i want to mention our mention our friends at public if you're serious about investing you need to know about public.com that is where you can invest in everything stocks

Starting point is 00:02:34 options bonds crypto they even offer some of the highest yields in the industry like the bond accounts 6% or higher yield that remains locked in even if the Fed cuts rates. What sets Public apart is how they give you the tools you need to make informed investment decisions. Their built-in AI tool, Alpha, doesn't just tell you if an asset is moving, it tells you why the asset is moving so you can actually understand what's driving your portfolio's performance. Public is a FINRA registered SIPC insured US-based company with a customer support team that actually cares. Bottom line, your investments deserve a platform that take them as seriously as you do. Fund your account in five minutes or less at public.com slash chitchatstocks and get up to $10,000 when you transfer your old portfolio.

Starting point is 00:03:20 That is public.com slash chitchatstocks, paid for by Public Investing. Full disclosures in the podcast description. Brett, where are we starting? Well, maybe we should do a little announcement. you moved, because it doesn't matter, but you are in the state of Texas. I think it is funny that the winter weather followed you down

Starting point is 00:03:42 there. You went for the sunny weather, and for the first week, they had one of the random snowstorms. Well, as you mentioned, it might just be a dusting, but they called it a storm that they have every once in a while, so I'll just give a little PSA. Anyone in the

Starting point is 00:03:58 Austin area, I'm sure there are listeners, people on Fintwit or whatever, hit up Ryan. He's probably... dying to find someone to talk about investing with that's not me yeah no i uh 100 yeah if you listen to the show you're in the austin area or even in the texas area because we are moving we're kind of uh exploring other cities as well give me a shout and if we're close i'd be happy to connect i uh i do maybe we can start with some of my anecdotal evidence because let's do it had a long journey down to austin it was a three-day drive and there were a couple things that really

Starting point is 00:04:36 stood out to me first of all uh texas pacific western texas in general just oil rigs like one after the other texas pacific land corp which i believe just owns like pretty much owns west texas right don't they just like own the royalties from the permian basin i don't know i'm not i'm not very aware of this company they have like 80 margins apparently they just own the land they get royalties from the oil companies that come in and do the drilling which i guess that makes sense why they have 80 margins it kind of surprises me that they don't have like 100 margins i'm not sure what you really need to do other than own the land but yeah pretty much the entire permian basin is just oil rigs the other part that i wanted to or sorry the entire west

Starting point is 00:05:28 texas the other part i wanted to mention dollar general and family dollar those the we talked about this with alex morris but there's a slogan or i guess something that they've said before which is we went where they ain't they are in seriously some of the smallest towns i've ever seen it's like towns that have nothing but a dollar general which kind of makes sense why they have sort of that logistical advantage like i would be surprised if at any point they really had competitive threats in those towns in some of them where like walmart is not putting up a store team that close come on team is coming i i got a feeling even timu doesn't deliver there like they'll run some negative 80 unit economics but that doesn't even pass their threshold

Starting point is 00:06:23 yeah i always think it's funny that you never believe in a thesis or anything until you experience it with your own eyes which maybe it's a good thing to do but yeah you're like i had to see with my own eyes west texas lots of oil it's like oh yeah we've been reading about it yeah yeah seriously and the last one i'll mention maybe there'll be more as well throughout the show texas roadhouse publicly traded restaurant stock and i believe it's the financial performance has been really strong they've they've had great restaurant comp sales they i went to one and it's i i live in suburbs of austin went there hour and a half wait this place was popping and now i don't love rest like i don't mind quick service restaurants because there's kind

Starting point is 00:07:15 of a logistical element to it you can differentiate yourself you know your throughput really matters and you can kind of create advantages that way. But restaurant concepts generally I don't love. It kind of feels like retail. It can go out of favor, go out of fashion pretty quickly. But yeah, it certainly passed the eye test and the consumer or the anecdotal evidence barometer was kind of at the peak there.

Starting point is 00:07:43 So it looked like a pretty interesting concept. i might uh might do a little more digging on the stock any anecdotal evidence you've had lately oh i mean bubble watch my yeah i think i don't want to i guess i think i mentioned last week my roommate made all the money in the meme coin he put it into trump coin and he said yeah i know he and he said sell during the inaugural address which i actually think worked so he might be our new crypto analyst we'll keep updated on that but i think that's a sign of the times the crypto and gambling stuff is back in the mainstream maybe not as aggressive as early 2021 but pretty darn close now that's that's really all i got all i got yeah it's so i have not

Starting point is 00:08:40 follow this trump coin that closely and i can't think of a more obvious one to report on for bubble watch but i did see at one point i had a market cap greater than like pretty much most of the russell 2000 like there was like three companies that were still larger which here's we talk about this all the time but oh my god what a waste of resources like yeah what a waste of capital yeah i know if once everyone becomes crypto millionaires there's going to be nothing to buy because no actual physical production of of goods and food and services are ever going to be done ever again yeah i mean but that one's not even the the largest one can you give a prediction now i guess not a prediction on what dogecoin's market cap is as of this recording i'm looking

Starting point is 00:09:33 at it right now oh gosh i kind of don't want to because i don't want to know it but the uh let's go 100 billion 53 billion so much larger than trump coin and trump coin got up to 70 or something like that maybe i was reading something in the wall street journal that it was eight but maybe we're up at 70 who knows i don't even know where to look at the charts and some of these things. Let's talk some earnings. We got a lot of stuff we want to discuss, some serious investing topics. Why don't we kick things off? Everyone's favorite company, the one that I think David Gardner, one of our favorite investors, may have had a hundred bagger in a single day after today's trading. Netflix earnings, Ryan, how was the report?

Starting point is 00:10:22 Why is the stock up? Let me check right now. Stock's up 10% today. Why is that? Yeah, to go through some of the numbers, Netflix crossed 300 million total paying subscribers. They added 19 million subs this quarter, which is its largest ever net addition in a single quarter. Now, the content slate was strong for Q4. They had the Jake Paul fight. They had Squid Game Season 2. They had NFL games. so are you in on the sports content now i'm for streaming in or out it seems like the unit economics are okay i'm a little mixed i'm a little mixed so they're okay if you have a wonderful catalog of owned content to to like conjoin sports rights with then yeah that i think it makes all the sense in the world um the there here's a quote from ted sarandos from the conference call. He said, we were thrilled that some folks came in for the fight and some folks came in for the games, but they stuck around for Squid Game and for Carry On and for Black Doves and for

Starting point is 00:11:33 Six Triple A. I don't know what all these are. And for Nate Bargetzi's new comedy special, basically he's saying they stuck around engagement-wise with some of the other content. Now, I don't think we've had enough time to really figure out whether or not these people are going to stick around for months or they're just like, okay, I've got this subscription for a month. I might as well try to watch all the other content. So I think we got to see it actually trickle through next quarter, see if net additions are still really positive. If these people do stick around and they can draw a wider audience with these events, now these events, if this made up the majority of their engagement or usage or whatever it would probably be detrimental to

Starting point is 00:12:19 margins like you don't want to be purely a sports licensor or a sports producer but if they are drawing them in and hopefully keeping them as subs this seems like a wonderful strategy right yeah yeah oh yeah it's i'm i'm in on the yeah you you have to have it i mean it's becoming increasing part of the pie more of the traditional stuff is just going to the youtubes and the social medias of the world the podcast think about it show like us not that big there are i think what is the number thousands of hours spent each week people listening or watching our show and we're nothing compared to some of these other things so yeah you need sports the unit economics might be harder, but you definitely need it, especially with Netflix, given their size. If you want

Starting point is 00:13:17 incremental ROIC, or sorry, if you want to invest incremental capital, I think you're going to need to do it. And gaming, yes, that, you know, video games, that's, that also is an opportunity there, but it's going to be much, much harder for them. And this is, I think, along with the advertising, and they kind of conjoined together, these are the near-term targets, things, segments they can invest in and get, I think, what we're seeing, a decent return on invested capital,

Starting point is 00:13:51 especially because they're a streaming-only player that doesn't have to worry about these linear channels. Let me run an idea or a proposition by you. the year is 2030 over under let's go 2035 over under a billion subscribers a billion here's what i'm thinking here's what i'm thinking are we underestimating the netflix's like addressable market because it them drawing in this many people with some sporting events it's kind of you know we think about oh there's competition throughout streaming and and the streaming market broadly but they're

Starting point is 00:14:39 adding okay we talked recently about hulu plus live tv is combining with fubo and to combine they have like seven million paying subscribers so they added three of of those in a single quarter Like globally, are we going to be able, do you think they're going to be able to get, it'll be at different price points in different markets, but could they reach that eventually? You got to tell me what the GDP per capita of Asia and Africa are going to be. and maybe Latin America a bit, but Latin America still has a sizable presence on Netflix. I think they talk about it in the report that there's, I think, 750 million broadband households,

Starting point is 00:15:32 excluding Russia and China. Most of that right now is North and South America and Europe. But there's a big opportunity out there with many, many more people around the world. Sure, I think they could do it. The question is, what's broadband internet penetration going to be and how rich are some of these countries

Starting point is 00:15:51 with a ton of people going to be? I don't know the answer to that. But I do know that there probably still is a decent runway left to grow. I'm not subscribed, though. Honestly, I'm out. Really? I don't have.

Starting point is 00:16:04 What am I on there for besides my local sports team watching a game? People say that all the time. People say, oh, Netflix is dropping the ball on content. They just keep subscribing. I'm one of those people. we got a family account kind of thing. They said in terms of engagement with multi-account or multi-person accounts, they're getting more than 700 million people using the platform.

Starting point is 00:16:31 Yeah. Isn't average usage two hours per day? Yeah. It's background stuff for people to watch, I guess is probably what including that two hours per day. You have to sometimes look at the anecdotal evidence and look at what you yourself are doing. And in my case, maybe I'm just a unique situation where i'm mostly just a sports watcher and then you know i'm not watching much other tv because i got other things to do in my life but for something that's not maybe netflix is there yeah and look that's not something that needs to be litigated the data is there their usage keeps growing um stock's been incredible is it expensive today yes but is there any reason to sell if you are a long-term shareholder no i mean they keep executing

Starting point is 00:17:15 they have an amazing culture and they're competing with some of the worst managed companies on this planet that's true okay let me propose another question to you let's say they lean into these events more and more these fights these games sporting content in general they whatever the the roast type of stuff that they've done do you think operating margins still exceed 30 in five years oh i think it all comes to increasing scale with new markets it doesn't matter how much those subscriptions cost if they're watching the same things i really don't know they did they hit record operating margins this year they're forecasting i think between 43 and $44 billion, somewhere in there, revenue next year.

Starting point is 00:18:09 So yeah, the quarter was good across the board. It's no surprise the stock is up more than 10% to David Gardner. If this was a 100-bagger on your cost basis in a single day, that is quite the feat. Can't say that I've ever seen that. So congratulations. I think his cost basis is $1. Okay, well, the stock at the open, it might have been. But it's up 86 points today, and I think his cost basis was around $1.

Starting point is 00:18:40 So not necessarily there, but I think he's going to be sleeping quite well tonight. You know, who also had a wonderful call on this was Alex Morris, a friend of the show. He has done great work on Netflix, and I wish I would have relied on him a little more when things didn't look so good. It's amazing to think that they had really a one-quarter slowdown that presented like one of the best buying opportunities in big tech, if you want to call it that, of the last five years. And it just goes to show that even like wonderful companies that have grown 20% a year for two decades will still stumble every once in a while. And that tends to present pretty good opportunities. Yeah, and it kind of kicked them into, maybe it helped them a bit because they're like, okay, maybe we don't need to be so stringent about not advertising and not getting into

Starting point is 00:19:40 sports and not doing some of these things. And now they're on a new runway and similar to, it's not as big of a difference as switching from the DVD mailing service to streaming video, but this is another switch or another evolution in their business model that they seem to be executing flawlessly. And I think if you are anyone trying to learn how to be a business leader, you should study Netflix's culture because it's different, it's unique, but it works wonderfully. All right, IBKR Earnings, Ryan, should we talk about them? Another watch list stock that we've had, I believe, someone pitch on the show before,

Starting point is 00:20:21 Luis Sanchez, who I know has been following the stock, who runs, do you know his fund name? I should really- LVS Advisory. LVS Advisory. Check them out. I believe he has a publicly available report on IBKR. Came on the show.

Starting point is 00:20:35 I think the stock's up like 300% since then. I'm going to get into it, but you may have had a follow-up before we do that. I was just going to say rest in peace to Netflix's paying subscribers, KPI. They are retiring that, and they're going to do a biannual engagement report, which is just the biggest bummer. i know the finchette charts are gonna struggle it sucks it sucks i guess maybe we'll toss out some good ones for ibkr here they have some very interesting data yeah go through the earnings a little bit and i'll pull up some charts okay so again i'll shout out some of the long-term bulls here louis sanchez again been on the show before we should have him back on ibkr if you

Starting point is 00:21:22 don't know. It's a, it's international and no, excuse me, interactive brokers, but it is a, I'd say more than any other US brokerage. It's focused internationally. It's focused on offering all sorts of assets, stocks, bonds, whatever to individual investors while also catering to professional hedge funds and things like that. I'll say that the two accounts that I use is one, our sponsor, public.com. And second, IBKR. I switched from Charles Schwab to IBKR because they have a much better offering. And it looks like given that their customer account increased 30% to 3.34 million here last quarter, a lot of other people think the same. Let's go through some of the stats. Commission revenue up 37% to $477 million. Net interest income up 11%

Starting point is 00:22:11 to $807 million. And customer margin loans increased 45% to $64.2 billion. We had a question in the comments here about our thoughts on the high amount of margin reported by brokers. I think I would say that's what we would expect right now, given the animal spirits in the markets. And from what I read on their conference call transcript, they are seeing increased usage of margin, which I think is just to tell that people are getting increasingly confident in their investing skills. And Mr. Market, we've been there. Can't come back to bite you on that one. Here's my question for you, though. I know IBK is not overly expensive right now or doesn't look overly expensive and maybe I'm letting the stock chart talk to me. But I do

Starting point is 00:23:08 think that these brokerages benefit a ton in bull markets and you kind of have to normalize earnings. They can be cyclical along with how the stock market is doing. Is this the perfect stock to buy during a market crash, during a recession, Ryan? i'd say yeah i mean they run so light they like generate good margins even in bad times um i so yeah stock crash this seems like one that's just poised to benefit when things ultimately turn i wanted to show you this chart until and see if you thought this was a potential bubble watch indicator options volume oh options contract volume grew faster year over year than any point since 2021 sort of the peak of the last bubble yeah we're in the gambling economy

Starting point is 00:24:04 everything's everything's gambling ryan and i think fading that will do wonderfully for people over the next you know people that are focused on the 5 10 20 year periods and even longer for their portfolios don't dabble in the daily option contracts i was reading i should say a shout out to the podcast we did alex morris uh he has a kid less than one years old and or younger than one years old and took the time to come on the show and talk about his new book buffeted monger on scripted go check that one out and go check out the interview posted should be the second one right below this one in your podcast feed and why i mentioned that is in that book which he He compiles all of, essentially, the notes, transcripts, and stuff like that from Buffett and Munger at the annual meetings.

Starting point is 00:24:50 Munger talks a lot about not incentivizing gambling, not incentivizing poor accounting. And I just thought, man, he would be aghast to what is happening today. And I tend to agree with him. We're kind of, I wouldn't say anti, we're very skeptical. on chinese stocks ryan and on what the chinese communist party will do to businesses and potentially the uncertainty there because of the you know they can kind of do what they want but one thing i do agree with them on is that they decided to nuke the crypto industry seems like some society it's better for society long term yeah i it does i would think so

Starting point is 00:25:41 So to be totally honest, it seems like an extreme, maybe the biggest ever waste of human resources, both in terms of engineering talent and literal energy resources. We've got a whole bunch of comments in the chat here talking about the – well, I don't know if it's more catered towards AI. But the spending on energy for crypto mining and all this stuff, it's to no benefit. It's for people to ultimately hoard. And yeah, if you are a government, especially if you're the US government, where you borrow in US dollars, it doesn't make a whole lot of sense to have this be like – But you want to keep that going. You want US dollar denominated debt. So yeah, the threat to that is probably not good. So yeah, I think it's an extreme waste of resources. I don't think China was necessarily in the wrong there. Yeah, as to the gambling stuff, I think this week would have been a tough one for Charlie to watch. yeah and for a lot of us here who are trying to help people be a little bit more rational and conservative with their personal finances it's crazy how people will they'll they'll spend

Starting point is 00:27:09 an hour like assessing whether a 200 purchase is you know good or whether it's a waste of money for some whatever the good is but then what their their personal investing all right yolo we're done we're we're we're just gonna go gamble on these options it's it's it's quite strange i think it's so yeah it's it's feels toppy it does and here's the thing i'm not look if someone made money on it i'm not upset that they made money that's you make money in vegas all the time yeah i can go to vegas i can put eight do roulette eight times in a row whatever the odds are someone's gonna make someone's gonna come out a millionaire do yeah that's my point is do you think you stop do you think like oh wow i just 10x my money overnight

Starting point is 00:28:05 i'm done that's it no you're like eventually you redeploy it and get rug pulled because that's how these work there's there's literally no built-in margin of safety whatsoever uh and so yeah it just anyway i we can go on and on about it we do have a question here from tyler that we should talk about any thoughts on the tiktok ban it seems like oracle could be liable to an 850 billion dollar fine sometime in the next five years for allowing tiktok to run well not sure on the oracle part but no i could yeah i mean the fines could be sizable that's that's why they put them in we'll see what happens i don't know we're when was that inauguration two days ago we'll see let it let it breathe over the next 90 days and we'll figure things out i don't know what's going to

Starting point is 00:28:57 happen ryan doesn't know what's going to happen i wouldn't invest based on any one of these things happening but it's not like we can buy the stock anyways i yeah i will say if if the idea look people said it's a tiktok ban it is not yeah it's not it was a for sale technically they were saying you need to sell the business now if they come in and say we cannot sell the business that is because of exactly what's being accused here it has to be i know if if the concern is that the data is getting relayed to a foreign adversary i think you can call them a foreign adversary the and you're not willing to sell the business why is that why can it not be a u.s run thing yeah yeah i mean hey would you have allowed the soviet union to run one of the

Starting point is 00:29:52 broadcast channels in the 1960s no so i think that kind of proves the point right there let's talk bubble watch though we talked the coin so i mean let me just finish what i uh my weekly topic here we could have gotten the whole episode on this one but i'll keep it short uh again it's brett's bubble watch kind of tracking whether the animal spirits are back some anecdotal evidence and trying to have a good time our friend who has been on the show before i think but either way good follow on twitter does a lot of good work at oh i can never remember everyone's names fortune financial advisors it's lawrence hamtel and he tweeted overheard some local teens at the gym comparing their robin hood accounts talking about riz and making hella bread i don't know what it

Starting point is 00:30:41 means but probably a contra signal of some kind and someone responded and said how does it feel to underperform your local teens and he said i cling to the sharp ratio like a life raft yeah i mean that's we saw that back in college during one of the bubbles when you you you know you can see people's laptops open in class now um for people that are old you know people taking notes on laptops now instead of paper and there's about 10 of the robin hood accounts open and people are trading, pointing at things. Look, if 18-year-old dudes are doing all this stuff, that's a big bubble indicator. We were them not too long ago. Yeah, 100%. I've always thought that was one of the leading indicators is what are 18-year-olds invested in? Okay, probably straight away from

Starting point is 00:31:36 that the the riz the hell of bread i mean good for these guys i guess i a hopefully what's nice about it is either they're going to make money or they're going to lose money and they'll learn the right lessons early you don't want to learn these lessons when you're 45 and you think that you're a genius and then you blow up your family's retirement account these people will be okay i hope it's it's also look you hear a lot about the success stories because it's fun to talk about these right when things go poorly no one's broadcasting that like they kind of just probably stop talking about it and that that's probably the indicator that things are not going so well anymore that's true that's true when they're not trying to teach you okay i want to

Starting point is 00:32:28 get to some serious topics but the other one i saw i was making so when you put a video to youtube uh you can put some hashtags on it uh to try to i guess they tag it almost for if people search your video and since we're doing that buffett and munger unscripted one yesterday with alex morris i wanted to put in a warren buffett hashtag i'm gonna share the screen ryan here I don't know if you saw this, but I was quite saddened to see this. The war on Warren Buffet has been lost. There are 81,000 videos with the hashtag Warren Buffet, B-U-F-F-E-T, misspelling it. Again, that is buffet, like a lunch buffet.

Starting point is 00:33:16 And only 59,000 with the proper spelling. Again, I think these bubble watch indicators this week, we're at an all-time high and the war fighting against the misspelling of warren buffett's name it's a losing it we're losing right now and we need we need some backup we need some more troops look it's an honest mistake i get it but i'm gonna quote the guy just take take the two seconds to look it up on google like please it's it's the it's my first indication that this person has not studied warren buffett because it's the common it's such a common mistake that like someone as soon as i see the one t i'm like they're using this quote poorly or improperly let's talk about

Starting point is 00:34:05 the they put they give them like the meme with the chef hat and it's it's it's good stuff okay we got let's we'll do the second half of the show we'll have some more serious topics but ryan do you want to talk some of our sponsors as we're right around the halfway point here yeah the First one I'll mention here is Blue Chippers Club. Blue Chippers Club was recently started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community, everyone gets to share, break down their portfolios, pitch stocks, receive feedback, and participate in weekly calls, obviously optional.

Starting point is 00:34:40 If you want to join those weekly calls, Brett and I chip in or join on occasion. And we also post a lot of our notes there. or I've been working to post more and more of our notes. So any ideas, kind of rough ideas we have, it's just a more tight-knit community of stock-focused investors. I really like that they're doing this. I recommend that you join.

Starting point is 00:35:01 If you're interested, it's totally free. So head on over to bluechippersclub.com and hit apply. The link will be in the description. Okay. Any others? I guess we talked, we used the FinChat chart there on the show.

Starting point is 00:35:17 that KPI was quite useful, that options trading one, it can really show why earnings are growing for a business, whether it's cyclical, the visualization can help a ton. Use our link, finchat.io slash chitchat and get a 15% off any paid plan. The link is in the show notes there as well. I guess I've been talking a lot, Ryan. Maybe we save Project Stargate for later. Do you have a topic, maybe small cap of the week? And then we can talk. The biggest, I think, egos in the world kind of competing uh over over project stargate here yeah let's go small cap of the week first uh so got a lot of recommendations from uh i guess listeners of the show can't get to all of them unfortunately but i really appreciate it and thank you for uh sending

Starting point is 00:36:06 these over because it makes my life a lot easier especially if you provide a little bit of a pitch with it as well but this is the small cap of the week presented by yellow brick investing we mentioned yellow brick all the time on here but it is one of the best stock pitch aggregators on the internet pulls together stock pitches from fun letters blogs twitter podcasts all into one place so it's really just a nice uh single place to find new stock pitches i'd say it's the best by far there's no other comes even close i mean yeah it's a wonderful aggregator and one of the ones that was pitched by a listener was rev group immediately looked up the ticker revg on yellow brick and found a really high quality write-up and so here's kind of a business

Starting point is 00:36:55 description it says rev group is a u.s company that manufactures and distributes specialty vehicles and aftermarket components focusing on two main areas, fire and emergency vehicles and RVs. So the majority of the business, both revenue and earnings wise is specialty vehicles. So the like fire trucks and ambulances, they're actually a leading, they're a market leader in both fire trucks where they have 30% market share and ambulances where they have 50% market share. Here's a quote from the write-up. It says, demand in this segment is steady, predictable, and largely inelastic because replacements are essential for municipalities when vehicles reach the end of their service life. It makes a lot of sense. This is why I love doing the small cap of the week because I had no idea this business even existed. 80% of their earnings come from the emergency vehicles. The Brett share on a chart here on earnings per share, they had a divestiture, so it's going to be pretty inflated. But if you go to operating income, it looks pretty solid. For a little bit of history on the business, the company began in 2006 when AIP, American Industrial Partners, a US private equity firm, started consolidating fire, ambulance, commercial vehicle businesses and manufacturers.

Starting point is 00:38:21 And that private equity firm took the company public in 2017, but has been winding down. So they've been selling off their stake over the last couple of years from what it looks like. Also, AltaFox, I believe, owns a position here, which is a wonderful indicator, honestly, because I think they do. They got a good track record. They have quite the good track record. They do a good job. The – it looks kind of like a messy story where they've got this large conglomerate where it's been sort of pulling in these different manufacturers. But the top line numbers and kind of the face value numbers are a bit misleading because they've got sort of this gem underneath the hood, which is the emergency vehicle business where demand is very stable, right?

Starting point is 00:39:12 I mean, you're going to have predictable demand because people have to replenish their ambulances and stuff like that at the end of the service life. And operating margins are hitting record highs at the moment, I think largely because it's turning more and more into this emergency vehicles business. The earnings multiple, as Brett showed there, it's going to be a little misleading. It looks like it's single digit, but that's because of the divestiture, I assume. EV to EBIT is roughly 18 times. Analysts – well, I should say analyst because if you go to FinChat and go to the estimates page, there's one – I think there's one or two analysts that – That's always a good indicator. Always a good indicator.

Starting point is 00:40:00 Yeah. They expect EBIT to triple by 2027, which I'm not sure how they get there. I wonder why. but it kind of looks like potentially a hidden gem here at least in the emergency vehicles business I did not even think these are the kind of things that you just

Starting point is 00:40:19 feel like you never even think about these types of manufacturers or providers so it's always fun to take a look at any interest in the stock yeah maybe a bit 18 times seems a little expensive for a company like this I would be interested to see what their cash flow conversion is, and then what their capital

Starting point is 00:40:41 allocation policy is. Besides that, it seems like a, yeah, I get the thesis that this is a reliable business that's going to be around and that you're always going to need. No, nothing too crazy, but maybe one of those boring ones where if it's run, it's a good business, and if it's run by a good management team, you can get really good returns, similar to an AutoZone, maybe. You're like, is it going to grow that much? It doesn't matter. We're going to really, really, we're just going to crush it on the capital returns front. Yeah. I don't know if I, maybe it's my favorite small capital week that I've done. And maybe I need, frankly, the story looks a little messy, so maybe I need to do more digging, but it is kind of one of those critical businesses where

Starting point is 00:41:24 demand I imagine will be quite predictable. I'll mention one more time, it's yellow brick investing. If you use joinyellowbrick.com slash chitchat, you can get a discount on any paid plans. But yeah, just anytime you hear someone pitches you a new stock, just go to joinyellowbrick.com, totally free. Type in the ticker. You'll find a good write-up. Now, I know some people like to go 10K first, but yeah, sometimes it's nice to just get up to speed on a business quickly. let's uh we want to talk about stargate the stargate project ryan let's do it did you hear about this have you do you know anything about it okay so i saw this morning that masa son was talking about investing 500 billion dollars i don't know if it's only him investing

Starting point is 00:42:15 not really sure how that works um but i also watched the video where he was like giving a speech and trump strong-armed him into doubling his investment that i mean that that was that was a while ago yeah and he he's back in his i don't know this is his wheelhouse there's a boom happening and he wants a part of it for anyone that doesn't know he's the chairman of soft bank a big investment company over in japan that is not afraid to be aggressive they're the ones that gave adam newman and we work i think for maybe five billion dollars and he's talked about if general or excuse me if uh what what is it called agi um like general intelligence i forget the exact term they have it but essentially not just the the chatbots but really human like in

Starting point is 00:43:08 replicating a human in in these ai tools if it's true then we should invest a ton of money and he said that nine trillion dollars or something like that there's just a number i think you threw out of a hat might be not enough because of the productivity that we're going to have here which we'll see uh but the first step might be this stargate project opening i essentially just announced it announced it with a tweet um i have a couple of quotes from it no need to read the whole thing quote the stargate project is a new company which intends to invest 500 billion dollars over the next four years building new ai infrastructure for open ai in the united states we will begin deploying 100 billion dollars immediately masa sun is the chairman

Starting point is 00:43:55 of this company uh it will be in texas so ryan watch out electricity prices down there uh just stay just fair warning could go they could go up for you uh last quote here as part of Stargate, Oracle, NVIDIA, and OpenAI will closely collaborate to build and operate this computing system. This builds on a deep collaboration between OpenAI and NVIDIA going back to 2016 and a newer partnership between OpenAI and Oracle. First thing, executive drama. Larry Ellison, I thought he was Elon Musk's guy. Now he's going to his arch nemesis, Sam Altman. I don't know. I don't know.

Starting point is 00:44:41 Could be a breaking in the relationship there. What happened, though, after this announcement is, again, the numbers are big. And you had the owner of Twitter next respond to, I think, maybe it was Altman's Twitter. Maybe it was this one. Elon said, I don't know where they're getting this $100 billion or something like that. Like, that number is not possible. and then altman said that they basically said he wasn't telling the truth there's the whole spat of whether the 100 billion dollars is true and then at davos which i guess is going on this

Starting point is 00:45:15 week ryan if you didn't know um satya nadela the ceo of microsoft who's a part of this whole consortium it's all complicated whatever anything opening eye is just ridiculously complicated financially which i should say is a huge red flag but he satya nadela ceo of microsoft is at davos And they asked where, I think, Andrew Ross Sorkin asked him where the $80 billion is coming, or excuse me, the $100 billion is coming from. As a side note, why do you have to go to Davos to talk to Andrew Ross Sorkin? I mean, it seems like a bunch of waste of resources, but whatever. They asked Satya Nadella, where's the $100 billion coming from?

Starting point is 00:45:54 And Nadella just kind of responded, well, I'm good for my $80 billion. So I think Microsoft is going to be aggressive here. And we know, given their balance sheet, given how they're one of the biggest businesses in the world with over $100 billion in earnings every year, they can invest in us if they want. Now, the question is, where is the ROIC coming from? Ryan, do you have any thoughts on this? The number is staggering. Yeah, it's just kind of wild. ROIC?

Starting point is 00:46:27 Who cares about ROIC? I see. So I guess the whole takeaway here is just buy the cloud providers? Maybe. If they're just working on, quote, AI infrastructure, does that just mean it ultimately culminates? I feel like everything just somehow culminates into either TSMC or the hyperscalers. Well, Amazon and Google are not a part of this. But could that investment in AI infrastructure, like, does that mean they end up relying on the cloud providers? No, I'm saying it's going to be Microsoft and Oracle.

Starting point is 00:47:04 It's not. Like, Amazon and Google Cloud aren't a part of this at all. I got a feeling somewhere in there they exist. They exist in the industry, yes. But these companies are their competitors. They're not going to do any deals with Google at all. I mean, they're business arch nemesises. These are their number one competitors.

Starting point is 00:47:33 I know, but they all still rely on each other. OpenAI, I doubt, uses anything Google. Really? Yeah. I mean, before this, Microsoft was their only cloud provider. Really? was like and now i think they're moving to oracle i think we have masa sun he's back in the driver's seat larry ellison is back making speeches these are the dot-com bubble guys and they're back and

Starting point is 00:48:04 i think they kind of saw this and said you guys you guys think there's a bubble we'll show you a bubble and we're going to just go absolutely crazy here we'll see if the spending happens i I know one thing that's going to happen. Consumer surplus. If it works, there's going to be a consumer surplus because we have artificial general intelligence. And if it all collapses, well, there's going to be a lot of excess computing, just like the telecom bubble. So either way, I think we can sit tight. Well, the demand is limitless, Brett.

Starting point is 00:48:39 That's what you don't understand. Exactly. Yeah, yeah, yeah. Don't talk about numbers. I mean... yeah all right so yeah i just whenever this stuff comes up i don't even i honestly don't know what to say like people they can just throw around whatever number they want like i don't own microsoft so i don't own nvidia i don't own oracle so i really don't care like

Starting point is 00:49:07 if if there's if this is a project i will maybe care in the future but for the time being it seems to not impact my holdings at all yeah it's okay you don't have to chase yeah we don't have to chase those returns you did mention tsmc though they should benefit for sure and that could that seems like stock's a little expensive now but it seems like one of the safest plays out there not too expensive everyone relies on them they're going to be fine regardless of whether the AI bubble is a thing or not, yeah, good company. And the Arizona manufacturing plants are performing up to their, whatever, specifications. It's working in Arizona.

Starting point is 00:50:01 All right. I want to talk about the Switch 2, but before I do, we should mention one of our sponsors again, Public. If you're serious about investing, you need to know about public.com. that's where you can invest in everything stocks options bonds crypto you can even earn some of the highest yields in the industry like the six percent or higher yield you can lock in with a bond account public is a finra registered sipc insured platform that takes your investments as seriously as you do fund your account in five minutes or less at public.com slash chit chat stocks and get up to ten thousand dollars when you transfer your old portfolio that's public.com

Starting point is 00:50:37 slash chit chat stocks paid for by public investing full disclosures in the podcast description switch to officially official brett our resident nintendo follower give us the updates yeah well they said it's coming sometime in 2025 typical nintendo fashion they're not they just release things when they want to stocks up i will say uh i did buy some shares this week last week so yes i'm more bullish because of this we saw that's coming out in 2025 uh there are two important things i think for investors first it is not a radical redesign it is an upgrade same form factor which is a huge plus we're not taking a big risk for the form factor that nintendo has done in the past which sometimes works sometimes doesn't i think

Starting point is 00:51:31 the form factor is not going to be a concern here second uh let's see yeah here's the quote and this is from their official press release nintendo switch 2 plays nintendo switch 2 exclusive games as well as both physical and digital nintendo switch games certain nintendo switch games may not be supported or not fully be compatible details will be shared on nintendo website at a later date so that's the second thing backwards compatibility i think we are pretty darn close to having the thesis being fully confirmed and what did roaring kitty say i like the stock i i i do like the stock here what was my bold prediction for 2025 it finishes the year at 30 a share for the adr hire i would be more confident

Starting point is 00:52:21 in that today although you know can't be uber confident in that happening um but yeah i'm very bullish on nintendo at the moment is it i watched like part of the video of the release is it just bigger yeah well this is what's weird not in a bad way like it's fine but it's just bigger yeah i think it's gonna have better processing it didn't really have any details they just announced it was a thing okay i'm sure it'll have better processing i'm not really concerned about that they're going to sell games they had um essentially a mobile phone computer chip from 2013 powering the nintendo switch and it sold well so i'm not really worried about that i'm just worried that or i'm relieved that they're not taking a huge risk from a game style perspective

Starting point is 00:53:12 and risking a wii u situation which there was no reason i think they would do that but now we've confirm that they're not and i think even though the stock is up a ton the de-risking from all of this makes it maybe even a better buy than it was two years ago you have been banging the drum here on uh nintendo so and your prediction if i'm not mistaken if i read your writing correctly you think they could do more than five billion dollars in earnings in usd five billion dollars in earnings over the next what was it five years five straight years once we get a full you know give it a couple of quarters to ramp up unit sales uh because take some time to get uh you know into people's houses so maybe after the first holiday season or something like that yeah i think they

Starting point is 00:54:07 could do it maybe if the yen keeps depreciating versus the u.s dollar that could throw things into the mix, which I had no clue that the yen could depreciate this much. I thought Japan was one of the richest countries in the world, but whatever. I don't think, well, here's what I'll say. I don't think it'll depreciate as much

Starting point is 00:54:26 as it has in the last few years over the next five. If that happens and the returns get obliterated because of that, well, let's just take a trip to Japan. Okay. Alright. Let's go...

Starting point is 00:54:42 But this pitch on Bumble, I want to talk about – you know what else is kind of looking interesting is Grindr. I saw another pitch on that. Yeah, and that one has been one of the best performers. What's – yeah. So you're back in the dating apps as an investor. You are back. As an investor. Yeah, the – yeah.

Starting point is 00:55:09 no i i i don't know any of these stocks but yeah grinder i think is up the last year or so it's up like 3x and the thesis there should have been simple you have usually there's one side of the dating apps that generates most of the activity which is the guys and then you have both sides guys no wonder it's going to be the network just a cash cow twice as strong yeah yeah yeah for sure Okay, okay. The Tidefall pitch. So Tidefall is another good investor. They do a lot of public pitches. They'll release some stuff, and they're funding some quite well. They've produced a 31% compound annual growth rate since inception. It's only been a few years, but they've been extremely good. Maybe I'll toss in a link in the chat, but essentially their thesis can be summed up with this quote they had at the end of their write-up. At the time of our purchase, we bought Bumble for six times 2024 gap earnings or a 16% earnings

Starting point is 00:56:11 yield. At that valuation, we didn't need to know how fast the company would grow, but rather how fast earnings would decline. That seemed like a far easier question to answer as we believe growth will actually continue. Bumble has net debt of $332 million, strong eight times interest rate coverage, or excuse me, interest coverage on their debt, allowing for large potential share repurchases when management is confident on their trajectory. Bumble is also trading at a large discount to its peer match

Starting point is 00:56:38 group. Although industry growth has slowed from its pandemic highs, we believe dating apps are in a far stronger position than the headlines and self-reported surveys would suggest. With workplace romances increasingly taboo and gen z spending more time online than millennials dating apps are likely to adapt and remain the most common way that new relationships are formed very succinct i like it but i'm still probably not in i like to yeah i'm still a little skeptical as well you know what i this has been the biggest issue for me with dating apps like i want i want to like their business models but what is causing like where are the users going that's what i don't get like so burnout maybe tinder usage has declined a lot i mean hinge has grown but it hasn't

Starting point is 00:57:33 offset the tinder decline the everything all the macro data shows that online dating is still like one of the most common ways people connect relationships form like the population isn't declining right so like where are these users going i think it might have just been the pandemic bullwhip not sure not exactly sure i think part of it is mismanagement from these companies we've talked ad nauseum about how tinder essentially wasn't updated for 10 years now they're finally starting to do that but you had a lot of what do they call tech debt you work at a startup right tech debt you don't want that yeah i mean that's probably true think if no one think if no one updated fin chat for 10 years just didn't change and then here's here's the thing that's yeah this

Starting point is 00:58:29 is the funny part right you've got like think about the evergreen and emerging now i'm not a cto i i'm not pushing code but if you if you build the dating app today i think i'm willing to bet the systems that you build it on the apis that you include all that stuff looks starkly different than the system that match.com runs on so yeah pooling those into one group and saying we're gonna like we're gonna learn leverage best practices from one another i just don't think the synergies are really there the way match group claims they are yeah now bumble might be a different story yeah a little cleaner from what they own and did you hear let me confirm that with a quick google search here i think the founder whitney wolf heard is back yeah five days ago cnbc bumble

Starting point is 00:59:34 founder whitney wolf heard to return as ceo hero's journey ryan don't like that we're coming back full circle she's gonna take these things uh out and you know they're the classic stuff the old ceo said retiring retiring for personal reasons blah blah blah but she's the one that built this thing maybe maybe she's the right person to get growth back i did not i did not particularly okay growth maybe but i didn't particularly think highly of her as a capital allocator i remember yeah yeah i remember kind of looking at it and thinking like yeah she could drive growth but that's not necessarily the person i want stewarding the ship and we think about the acquisition today Maybe today the biggest problem is growth, so maybe today.

Starting point is 01:00:22 Potentially, yeah. Maybe today you need her. I mean, she was probably the one, I believe, pushing for that acquisition that they did, which seems to have been quite useless. Oh, yeah, Fruity or something? No, not even that one. The giant one they did pre-IPO. Oh, Badoo? Yeah.

Starting point is 01:00:44 Yeah, that one did die. I remember looking at that thinking, why on earth did you do this? It felt like they kind of just wanted to be more of a conglomerate than just a single app. Yeah, and that Fruits one seemed to not do much. I'm getting a Google AI overview that says Fruits is a dating app that uses fruit emojis to help users express their intentions. Shocking that that did not pan out. I for one am very surprised. Didn't work, huh?

Starting point is 01:01:14 Guess not. But Bumble could work here. It's cheap. It's cheap, and if they buy back a lot of stock, it could work. They're good businesses. I get a lot of people that say they're bad businesses. I think they're the definition of a good business. The cash just comes in.

Starting point is 01:01:32 It's something that's a durable need in society. I think there's ways to build moats and network effects and all that good stuff, but a lot of them have been mismanaged. The cash flow is there, though. do you think these businesses are just ripe for mismanagement like dating apps such as drama infested yeah kind of like media companies kind of like disney and stuff like that grinder might be the only pure play and like you said it's got the power users on both sides of the aisle

Starting point is 01:02:04 yeah i say that respectfully but it is true like it's it's yeah yeah we all know how it works guys spend the majority of money on dating apps. I mean, they drive revenue for those businesses. All right. We're kind of bumping up on time. Do we have any other topics we want to mention? I don't think so. I think we had a lot of minds today. Anything else, Ryan? Did we forget anything? Teasers for next time? I know it's earnings season, so we're going to not, we can't talk about every earnings, but anything you're looking forward to discuss on next week to get people to listen again i still have to pick my stock uh well we've got i know you're going to be researching an airport a mexican airport which will be quite interesting uh sticking with the

Starting point is 01:02:51 mexican theme there and then i'm kind of torn i'm picking between other either veil resorts or adobe for my next research report yeah we'll see i think veil resorts i've gotten a lot of interest from people on that i just yeah something about it's kind of like i just feel like i don't have any sort of uh differentiated view i probably don't on adobe either but the research is for that's what the research is for right i don't ski like if i skied i'd be like all over it i bet uh maybe maybe the skiers hate them so yeah i can't i've heard that i can't imagine that's a good thing. No, I don't think so either. Maybe that shows that they've been mismanaged. Okay. But yeah, we got that. Some good research reports coming down the line. We're going to do a investor

Starting point is 01:03:43 overview on Mike Burry or Barry. Going to be a fun one and an interview at I think one of the most timely interviews we've had on NVIDIA. Hopefully that won't mark the top, but it's going to be a fun one. Talking to the business, not really the stock or any day trading along that lines, it's someone who has, I think, two people that have owned the stock and appreciated multi-bagger returns on it. So we're going to talk to them, see what we can learn from them. All right. Let's hit the disclosure. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell, or hold them

Starting point is 01:04:22 in the future. Thank you everyone for tuning in to the live show. We do these every Wednesday at 1 30 p.m eastern time on the chit chat stocks podcast youtube channel so join if you want or listen to the recordings and we'll see you next time

Chit Chat Stocks - Project Stargate; IBKR and Netflix Earnings: Brett's Bubble Watch; Time to Buy Bumble and Grindr?

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.