Chit Chat Stocks - Rocket Lab Review; Nu Holdings + CoreWeave Analysis; Alphabet Is Cheap Again? (RKLB, NU, GOOG)

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 one of your hosts ryan henderson and i am joined as always by the one and only brett schaefer on these episodes we talk all things financial markets and there's been a lot that has happened this week we've got the american crypto reserve which i guess we have to talk about um some companies reported earnings we

Starting point is 00:00:56 have maybe the first big AI S1 filing. So IPO probably coming soon. And then we've got a couple stocks that are maybe worth taking a look at. One of them is very well known and has kind of been in a bit of a drawdown lately. And I'd say the market overall has been in a drawdown, which is why Brett has his red light in the background. When markets are down, He goes red, and when markets are up, we go green. But I guess welcome to the show, Brett. Yeah, Ryan. Quick question for you.

Starting point is 00:01:34 You're filing your taxes soon, I think, or have already filed them. We were talking about doing them, getting our business one together and filing our own ones. What would you rather have your tax dollars spent on, Cardano or Ripple? Yeah, it's so funny. Hard choice. They're both so attractive. It is so funny that Buffett wrote that – Buffett wrote a letter this year and he talked about how much he spent in taxes and he said, please spend it wisely as like a message to the government. And a week later, you see this.

Starting point is 00:02:10 But yeah, I guess we can get to that in a bit. Before we do though, I want to talk about our friends at Public. If you are serious about investing, you need to know about Public.com. that is where you can invest in everything, stocks, options, bonds, crypto. They even offer some of the highest yields in the industry, like the bond account, 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 called Alpha doesn't just tell you if an asset is moving, it tells you why the asset is moving. So you can actually understand

Starting point is 00:02:41 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 takes them 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 portfolio that's public.com slash chit chat stocks paid for by public investing full disclosures in the podcast description brett where do we want to start this week google is trading at potentially attractive price. Do we want to start there? We can, we can. And for anyone that asked some questions on, or excuse me, answered the question of what we want to talk about this week, people

Starting point is 00:03:27 asked to talk about new holdings and Rocket Lab. And I think they asked both of those two weeks in a row. So just to confirm that those are the two earnings I'm going to be talking about this week. So stay tuned for those later. But yes, Alphabet Run, according to the stock chart, I guess they're an ai loser again what do you think yeah it's amazing how quickly opinions change on their position in the ai world also just to clarify when brett says new holdings there that is the nu holdings not our own new holdings um yeah that's a tough name tough name it's a spanish company or it's a latin american company so the translation maybe makes it off but that is funny what uh have you been buying anything this week i have not i saw the drawdown yesterday now we're

Starting point is 00:04:19 recording this on wednesday march 5th so the day before march 4th there was a bit of a drawdown i think it was probably made three days in a row of a drawdown i opened up the portfolio opened up the watch list looked at my allocations and luckily you know i've had a good start to the year so there's some things that have been up but i didn't see anything that was overly expensive or anything I didn't have exposure to that I didn't want to before. So I haven't done anything yet. Stay inpatient. Well, maybe this conversation on Google might spur some action for you. So I don't know, I guess what really motivates me to talk about Google today. It's not like there's really any huge news. I mean, you can find probably some news on Google every single day,

Starting point is 00:05:05 but the stock is down 20 from recent highs it's not a major drawdown but sometimes i do wonder if you just bought like if you think about the the big tech winners of the last decade meta google amazon apple you could throw microsoft in there too and and i'm more so talking about the ones that have been a winner for like 10 plus years at this point if you just bought them a little bit every time they dropped down 20%, I wonder how it would have performed for you. Yeah. I think that's a bit of a fallacy though, Ryan, because you can look at any stock in hindsight and say, well, these are the best performers. If you bought the dip on them, you do well, but I'm sure it's done well.

Starting point is 00:05:52 I'd be curious more about dollar cost averaging because there's been for the last 15 to 20 years, maybe even longer, investors talking about how, at least for some of these stocks, not all of them at once have been overvalued. Or when you buy at expense, or if you only buy at an above average, quote unquote, trailing earnings multiple, and how that can show that a trailing PE isn't everything when it comes to valuation. Speaking of trailing multiples, in this case, it looks a bit enticing. Google currently trades at a trailing ev to ebit of 17.8 times that is below their decade average and it's not not quite at their all-time low in late 2022 it looks like they hit i believe

Starting point is 00:06:43 13 times trailing ebit um so still relatively close to kind of that all-time low but It's a ways away, I guess. Anyway, I think there's a couple of things that are kind of driving this performance. And honestly, I didn't do any checking. There might be other news as well. But one, there's once again some heightened concern about conversational AI stealing search share. Two, Google apparently, quote unquote, begged Trump not to let the Department of Justice break them up. What's the source there?

Starting point is 00:07:18 What was that? It was plastered all over today, a bunch of different articles. I'm not really sure what the source is. Okay. So I would like to know the original source. Someone with Google visited Trump somewhere today. I saw it all over articles. But yeah, I don't know what bagged really means here. But it makes – I think it made it feel like that was on the table since there's two ongoing lawsuits with the DOJ and Google at the moment. um so that kind of worried people and then the last one is still kind of the lingering concerns about capex spending next year and the impact that might have on roic going forward i find it unlikely that google will be broken up could be wrong here but even if that did happen i'm not sure it's necessarily a bad thing for shareholders so i'm kind of going to omit the

Starting point is 00:08:08 second one there uh the third one the capex spending we've talked about this before it's something that they can control um and we've actually seen microsoft in particular pull back on some of these initiatives pretty quickly um so i tend to think that that's kind of maybe not the biggest concern in the world there's there for the last i'd say 15 years there has been concerns about google wasting money and they continue to grow earnings on a per share basis and free cash flow on a per share basis every year and i think they really do have the ability to kind of pick their growth rate uh in terms of profit metrics they can or they can pick the operating expense line yeah for sure maybe not as much anymore because they're getting forced

Starting point is 00:08:57 or are choosing to be aggressive in ai because they're worried about the threat there so maybe that's changing a bit yeah and so i guess that one is kind of the big one i want to spend some more time on we are now more than two years past the launch of chat gpt do you feel like google has lost search share i know there's stats out there but i kind of want to get your gut check on it yeah i'm trying to look at the ranking right now because there's been a lot of screenshots tossed out there about how ChatGPT is number one and that their monthly active users have

Starting point is 00:09:36 started to grow pretty quickly again. Yeah. Okay. SensorTower says that the number one free app out there at the moment on downloads is ChatGPT. It says the number two is Jimmy John's. Maybe they did some promotion. Not sure.

Starting point is 00:09:52 What? Number four is Grok. Number five is Threads. Number six is Yeah. Okay. I mean, I think SensorTower, they're one of the top sources for this. I think the concern isn't necessarily losing in traditional search, but that we're seeing replacement going to ChatGPT. That's obviously been a concern for a long, long time. And if we see the monthly active users or whatever they are, daily active users that ChatGPT is touting, maybe 300 to 400 million. I'm not sure what the number is today. Yeah, that is stuff that's not

Starting point is 00:10:27 going on on Google. But I've also seen, and again, there's just news every day on this stuff where you have a Google executive at an investment conference saying that these new AI overviews and all the stuff they're adding to Google searches is actually increasing the amount of searches people are performing and increasing the amount of commercializable, is that a real word? The ones that they can make money on, the amount of searches they can make money on. So is chat GPT a concern yes i mean it gets a lot of use but i i still think google stock is cheap here and i like the fact that i saw that sergey brin essentially wrote a letter to not sure if it was the entire company or essentially the ai research team and said look we don't want you burning out

Starting point is 00:11:19 but i found that you need to work 60 hours a week and if you don't uh you should leave we don't want any freeloaders here and we need to work hard on this and we need to win so i like that he's back kind of pushing everyone forward and we'll see we'll see do you feel like okay we go back to chat gpt's launch two years ago google instantly took took a hit because everyone thought it was going to steal searches from google do you does it feel like more of a concern today than it was for you two years ago i'd say it's a i didn't have much of a concern at all two years ago so maybe i'm slightly more concerned now because chat gbt keeps growing in usage but it seems like it's not taking from search it's an additive tool and maybe google

Starting point is 00:12:15 isn't capturing these new you know llm search query opportunities but it seems like it's not taking away from when people search on google uh hotels in colorado hotels in denver and that's where you make a lot of money yeah i wonder i do feel like anecdotally i'm seeing friends people colleagues using some sort of conversational ai more and more in their day-to-day that is maybe replacing some of what they would do on google but in the numbers we're not really seeing that play out now the other part that kind of makes this difficult to parse is that ad comping it against late 2022 which was when chat gpt was launched advertising in general has been that was kind of a cyclical trough or it dropped a bit at

Starting point is 00:13:09 that time and has come back so it's kind of hard to tell how much of searches revenue growth has come from just sheer ad dollars coming back online versus more and more queries that can be that are monetizable like you said it sounds like from commentary on management there is more and more search queries i tend to think that this is a bit overblown and that google at 17 and a half times earnings is going to get you an adequate return yeah i like the stock here i don't love it that's forward ebit ebit you have there trailing pretty sure what that's trailing trailing oh wow king kong quite a bit i thought i saw it was closer to 20 just a couple of days ago gotten a little cheaper it was closer to yeah the the it's been about a 15 percent drawdown i think

Starting point is 00:14:05 in like the last half a month well not bad yeah we got some comments here that says google's been a 20 drawdown twice a year for the last decade chat gpt has been available to the public for two years and it has an impacted search are we still going to be debating this in 2030 yeah that's possible because it's yeah we've already talked about this and the one it might be additive but they might be stealing a bit the pie might grow of your interactions with these smart digital tools and hey it's not going to be a monopoly anymore but you're still going to make a ton of money anything else on alphabet ryan yes first of all here's my prediction 10 years 15 years out this ends up being a pretty dang good investment for people buying today but i have a feeling that

Starting point is 00:14:52 there is going to be a search ad revenue slowdown next next quarter and everyone's quarter i don't This is more just like a random thought, but there's some quarter coming up. There's going to be a search revenue slowdown, and everyone's going to say it's finally here. This is Google search. Their dominance is melting. It's going away. This is the beginning of the end, and that will present a great buying opportunity would be my suspicion. The other part I wanted to talk about, this is totally unrelated, but the progress at Waymo has been really pretty impressive.

Starting point is 00:15:30 This week, they came out and announced that they are now doing 200,000 rides per week across just three cities, so San Francisco, LA, and Phoenix. Seven months ago, they were servicing 50,000 rides per week. So as you would expect, it's growing really quickly. I couldn't tell what happened this week, but Uber announced that Waymo services are now online in Austin. I've been in Austin for a month, and Waymos have been available. So I'm not sure. I think they're exclusively on Uber now, but I can do a quick Google search to check that. Yeah, it comes full circle there.

Starting point is 00:16:14 I'm pretty excited about this. I'm going to try it out personally just because I want to experience it. I have heard nothing but raving reviews about Waymo. and part of it is it's not cheaper than a traditional uber but you have more control you control the music you control the ac you control everything which maybe for some people doesn't matter but in austin having control over the ac is kind of a big deal um it's just kind of a more controlled environment and people tend to really like these rides the other part is it has become and i don't know if it's just me surrounded by people that care about this people know what

Starting point is 00:16:55 waymo is like not just investors not just people that follow google people truly know what waymo is and part of it's because you just see the car and you don't see a driver and you're pretty blown away and you wonder what it is but i i it's not a contrarian take at all but i think there is like just the sky is the limit for this business yeah i think so as well tbd on unit economics but i think they will be able to figure that one out yeah lots of stuff spinning out 100 billion dollar market cap there's a lot of excitement here maybe you get a lot of cash reinvest but But, you know, whatever. All right.

Starting point is 00:17:36 We got some. I wish Alphabet just had maybe Apple's finance department. They would just be a lot better. And their returns would have been maybe if they had that guy, that one guy, the CFO from Apple. That's really good or whatever. Yeah. Italian guy. I think he's Italian.

Starting point is 00:17:59 I honestly think if he was there the last 10 years, their stock would be twice as high. Like the price, like the market cap might be the same, but the stock price would be twice as high. But that's my rant. All right. Would – but on the flip side, we often come on here and say Apple is squeezing their ecosystem and there's been a lack of innovation. True. Well, hey, look. Have these investments been worthwhile for Google?

Starting point is 00:18:26 That's fair. That's fair. What's interesting is that Apple is, I think the rumor was or some reporting, and I did check what that begging thing was, and it was reported from Bloomberg. So I generally would trust that to be more reputable than something like Patriots Weekly, you know. But if you look at Apple, there was reporting that they're delaying their Siri, smart Siri conversational tool, essentially their LLM until 2027. Essentially, they can't figure it out. So maybe they're in a worse spot. But who knows?

Starting point is 00:19:00 That narrative, they're trading at 30-something times earnings in Google. What do you think of this? What do we got here? 17. Yeah, trading at twice the multiple, basically. What do you think of NVIDIA and Apple trading at the same multiple? Which one do you think is further away from what it should be? Maybe NVIDIA.

Starting point is 00:19:26 Who knows? this could be the cyclical top. I don't know. The thing is, NVIDIA is, and you have to look at the historical financials, you cannot argue this, it is a cyclical. It has gone through cyclical downturns. And is this the cyclical peak? Maybe. Maybe we still have more room to run. But it has all the characteristics of a cyclical peak. Margins are inflecting higher. revenue is booming supplies there's a supply shortage and eventually there will be a supply glut and that's just how this business works so i'm not sure i'm confident that nvidia's earnings are more stable like they could get cut in half within a year apples i'm not worried about

Starting point is 00:20:12 that okay speaking of beneficiaries of chip constraints core weave do you want to go through maybe some of the numbers here because this is the most i think this is the most astounding growth rate i've ever seen on an s1 yeah i mean zero if you're starting at zero yeah you can look at the percentage numbers look high but it's been quite phenomenal they for anyone doesn't know this is a startup hyperscaler focused specifically on ai they i believe got their start because they were a crypto mining tool team and they switched because they had a bunch of gpus so they could start this thing up and then they've acquired a bunch of gpus from nvidia and are trying to be a cloud provider for ai and so far doing quite well we have their s1 uh came out i guess they're going

Starting point is 00:21:04 to try to file soon or go public. Excuse me, they have filed. They're going to try to go public here soon. Revenue in 2024 of $1.9 billion, basically up from zero a few years ago. And I think that was actually two years ago. $15 billion in remaining performance obligations. I thought that one was the most impressive. They're signing multi-year and long-term contracts, 17% operating margin. I think that might be adjusted. So I should have gotten the free cash flow. I'm assuming it's quite negative. Here's a quote from the S1. And let me see if what scale of 1 to 10, what do you think the temperature is of the AI boom right now? According to IDC, AI will generate a cumulative global economic impact of $20 trillion or 3.5%

Starting point is 00:21:58 of global GDP by 2030. The generalized cloud infrastructure that drove the cloud revolution beginning in the 2000s was built to host websites, databases, and SaaS apps that are fundamentally different needs than the high-performance requirements of AI. That's a good story, Ryan. And that might be the biggest number I've ever seen on an S1

Starting point is 00:22:18 besides Coinbase saying their market opportunity was the entire global, all the dollars or basically every currency available in the world, which was like $100 trillion. Quote, here's another one that I thought was interesting from the S1. We recognized an aggregate of approximately 77% of our revenue from our top two customers

Starting point is 00:22:43 for the year ending December 31st, 2024. And I think over half of the revenue comes from Microsoft. Maybe the biggest, the most perplexing thing from this is why is Microsoft spending so much money on CoreWeave? You have your own cloud. Are they way behind in this stuff? Yeah, some of this might be chat, GPT, or that wouldn't be consolidated into Microsoft, would it?

Starting point is 00:23:11 Maybe the Google Cloud advantage with their own semiconductors is bigger than we think. Microsoft has been way behind in building their own chips. As someone who is not well-versed in this stuff, From what I understand, every cloud somewhere in some niche, in some industry has a better performing system or process for certain applications. So I think it's very mixed. I do think Microsoft leans on CoreWave. Microsoft probably leans on AWS in some aspect of their business.

Starting point is 00:23:51 They probably use Amazon Web Services. I would be very surprised if they did not. So I'm not sure – it is kind of concerning that 50% of their revenue comes from a single customer. I would assume the other big customer then is one of the other hyperscalers, I'd have to guess, Amazon probably. I don't think – I didn't see Amazon or Google in the report. It might have been NVIDIA for training stuff, and it might have been – there was Mistral, that French one. There was a few other ones. I don't remember seeing Amazon or Google, but it could be.

Starting point is 00:24:24 That could be true. Oh, it might have been IBM, since they're kind of a smaller cloud player, but something large there. And I could see them needing to, you know, not having, kind of being behind the eight ball and being aggressive and getting these chips. And yeah, according to the AI overview on Google, helping with the usage there, Ryan, yes, Microsoft uses Amazon Web Services to run some Microsoft workloads.

Starting point is 00:24:44 So, hey, it's kind of like intercompany deposits for FDIC. We got to mix and match here. there isn't like something that i always kind of thought about was like the developers probably have these like intense uh preferences to like a single cloud provider from what i've seen that is not the case like it's basically like who provides the best solution for this example this particular application now if you can save money and go with one vendor and you can make there's you can do like this hint it seems like big companies might lock in discounts to be exclusively on someone i think that's what spotify did with google cloud and i'm guessing what

Starting point is 00:25:22 netflix does with aws but makes sense how isn't it google cloud could provide some services to netflix and probably the same with microsoft yeah there might just be holes and certain vendors what they offer um but yeah there are you can get the bulk discounts the what should this trade at and what will this trade at if it goes public today i will say going from zero to two billion dollars in revenue maybe chat open ai might have done that but i've never seen that on another s1 remember that peter lynch quote ryan you don't want companies growing too quickly it's dangerous yeah i'm sure i i bet the moat here is not super wide you could probably make the case for that with just about any other than the hyperscalers which i guess this technically

Starting point is 00:26:18 is like a hyperscaler um they think they're a hyperscaler i'd put meta is more of a hyperscaler than that yeah i'm not really sure how to define the term hyperscaler but this i got a feeling this is going to command a ludicrous multiple toss me a number i think it will trade at a market cap north of 75 billion dollars yeah it's a good number because one the ipo system is broken but two uh people just love i mean they love top line growth and and this is also one of the few AI focused recent beneficiaries. One of the ones that's come from been sort of a private markets VC darling to actually be available to a lot of investors. So I suspect people will kind of clamor at the opportunity. Should it trade there? Probably not. Like you said, it's probably

Starting point is 00:27:17 attracting all the competition in the world. But I have a feeling this will be the gateway company for the rest of people considering going public. So you think it's the start, not the end? I think this might be the Rivian of AI. I don't know about that. Well, it depends how the IPO goes. Obviously, if the IPO is a huge success, it's all the incentive in the world for other companies to try this.

Starting point is 00:27:52 Yeah. Well, other companies went public around Rivian. i just mean it's signaling that the animal spirits are here i think it's gonna go for over 100 billion and what it should trade at i think given the the obvious like huge percentage chance this is a zero because if they're they're spending so much money on data center buildouts and if the demand doesn't show up it's over i think it probably deserves to trade like 5 billion i wouldn't buy it for more than that i mean this is a highly unprofitable business it's been around for no time uh it used to be a crypto mining operation so you know that these

Starting point is 00:28:32 guys are not in it for the tech they're in it for the money and you're competing against what if microsoft says all right we're packing up we're going home eventually i am 100 sure i should never say that but i am 100 sure that this will not trade for five billion so well if you'll get your opportunity i'm not gonna be buying it that's that's for sure yeah i remember when we first started someone just i think it was jason moser just said he has a hard rule against ipos that's i think that's served me incredibly well to never buy an ipo and it makes all the sense in the world why not to the i could see 100 billion be a real possibility i said 75 i'm gonna up that airbnb got 100 billion dollar valuation when they came public i think this is well with about

Starting point is 00:29:21 with a little more of revenue and uh operating history but yeah maybe made a bit more sense i don't know if the revenue was that much higher than two billion dollars when they went public i think so it was 2020 so maybe they had that collapse but let's confirm yeah i guess it's covid so it might have been off but the uh keep in mind they were not as profitable back then either um but the other part that gives me some confidence here is complex ai beneficiaries i can think of one that has a valuation more extreme than what we're talking about palantir if they can command a what was it 180 billion dollar valuation yes six it's it's it's hovered between 50 and 75 times sales yeah i think this is about the same revenue maybe

Starting point is 00:30:15 slightly smaller than palantir and it's growing at a significantly higher rate i can see that being a real uh i could see it getting maybe not the same quote like following but more than 100 billion i think is possible yeah 200 billion dollars yeah maybe maybe yeah all right to circle back 2020 revenue 3.4 billion for airbnb 2021 6 billion 2019 4.8 billion so it was much larger yeah still yes a aggressive valuation and you mentioned the ipo process being broken broken for us but it works well if you want to raise money at attractive rates yeah does it serve the company well is that the healthiest process for a company because it's the one that'll get you to go public the most i mean look at coupon

Starting point is 00:31:11 they seem to be doing just fine the business seems to be doing just fine they raised at i think a 90 billion dollar valuation raised about five billion dollars so yeah it worked well for them it works well if you understand what it is and that your stock's probably going to go down 50 in theory this is the way to go right if it's the cheapest form you get a crazy multiple at the best time you raise the most amount of money and then you just make it super ingrained in your company's mind that this is not going to last and things are going to get rough and you don't over invest during that time period that it's kind of weird to think that like knowing a 50 drawdown is in front of you is the healthiest thing or the best move financially

Starting point is 00:32:00 but if that's what the ipo market is like i mean that's kind of the way to go let's shift gears a bit though uh got a couple of other topics to hit anything else you want to discuss i want to talk about this insane target quote that i heard during the conference call but okay we had a comment here that agrees with you on waymo someone someone named dex says i took a waymo on a visit to phoenix in december and then immediately sold my uber and tesla positions the following monday waymo wins yeah people are bullish on this product people love this product yeah it seems to have a lot of consumer confidence which what impact could this have on google in the long run i'm not totally sure and you're you know for

Starting point is 00:32:53 this to have a material impact on the revenue line you got to have some pretty rosy assumptions but um yeah i mean i agree it's better than cruise episode yeah let's talk this target quote and then i want to get new holdings new bank and rocket lab earnings i have quite a fascinating shared from our friends at FinChat using the new custom metrics tool and the small cap of the week. So I think we got those four things left. Ryan, let's kick it off with Target. They are blaming the tariffs for Q4 2024 earnings, huh? Yeah.

Starting point is 00:33:26 Okay. So for context, Target, I think you'd call them a discount retailer. I mean, they're a discount retailer. They had pretty bad results. They reported yesterday, as of this recording, Comp sales were up 2%, but it's coming off of a pretty low base. And the number of transactions grew by a bit, but the average ticket continues to drop. Comp sales, I'm not going to share this chart, but using FinChat, you can just compare comp

Starting point is 00:33:56 sales of Walmart and Target. For the last, I think, 13 consecutive quarters, Walmart has significantly outpaced Target's comp store sales. Part of that is the fact that Walmart's slightly more levered to grocery and Target's slightly more discretionary categories like TVs, electronics, that kind of thing. But I wasn't going to – there was really no reason to talk about Target's earnings because they're incredibly boring. Except for then I was reading through the conference call looking for some quotes on consumer confidence, and I saw this. This is what the management team gave as their reasoning for weak consumer confidence. he says we talked about extreme cold that's one reason i was reminded this morning that there

Starting point is 00:34:42 were floods and fires across the country in february which first of all if someone has to before you announce earnings you shouldn't have said this for a nationwide retailer that has stores in all these areas before earnings someone needs to give you an excuse for why consumer confidence is weak. That's a terrible sign. Yeah, sorry. I was at the Lodge in Aspen this whole time. Yeah. He says, consumer confidence has dipped. We've seen all those numbers. There are some other factors as consumers think about the potential impact on tariffs and what it will mean for them. So let me get this straight. I guess here's my question to you. Do you think people really spent less money at Target because they were concerned about the

Starting point is 00:35:29 potential implications of a tariff hike on canada and mexico yeah right no one's thinking through that second wouldn't that make them spend more money to get out ahead of the prices yeah if there's any impact it would be more but it wasn't going to be in q4 because that's not how most people operate it would be like right now as people are say concerned about stocking up on something that becomes some viral news thing yeah target tough spot i don't like this company whatsoever there are three players bigger than them walmart costco and amazon and i don't see a reason why if you have the those three options in your area for your cheap discount retailer online or offline why you would go to target no i agree and i've actually been going to walmart

Starting point is 00:36:22 a bit lately because they have you are a true american now ryan you've left the pacific northwest with the crazies and they don't i mean there is no walmart in seattle like there's no walmart in seattle because there's enough space for it but they have done really a phenomenal job of automating a lot like being able to work with very low priced goods and still generate good margins like it once you go in there you see all the processes that they've kind of implemented and it's it's pretty impressive what they're able to do on such a razor thin business all right anyways i agree do you want to talk about rocket lab let's do it ryan So 2024 earnings came out last week.

Starting point is 00:37:15 We can just go through the numbers. I guess let's say what this business is. And I can maybe tease any deep dives we've done on the company. And we've done two, actually. So the business is essentially a startup competing with SpaceX. They've gone with smaller rockets to try to attack in a niche to gain market share. And they're the only other company now besides SpaceX to reliably be launching vehicles as a United States company, I would guess. So they're doing quite well.

Starting point is 00:37:47 And if you want any deep dives into the business, we interviewed Simon Erickson from 7investing on them earlier in 2024. And then we did a deep dive ourselves a while back. So go for those for a full overview of the business. I should say Simon's thoughts on the business hasn't been that long yet, but they seem to be working out. and he seems to be very, very in tune with how this business is doing. Stocks have about 3 or 4X since he came on, just as a little tease there. So it was quite a good pitch, and we'll see how this business is doing. I don't own this company.

Starting point is 00:38:21 I could own this in the future. Who knows? I kind of like the CEO and how they've executed and how they have a good track record of launching. But either way, I'm fascinated to just follow their progress because this is a ambitious company. They're trying to become, you know, the second SpaceX out there

Starting point is 00:38:39 and it'll be awesome to see if they can do it. All right, the numbers, Ryan, 16 launches in 2024. They're expecting more in 2025, I think 20. They had 100% mission success rate in 2024. I think that's probably the first thing you want to look at. You know, you don't want your rockets blowing up and everyone's millions of dollars of equipment blowing up. They have a $1 billion backlog.

Starting point is 00:39:02 the Neutron rocket, which is their larger rocket that'll get much higher revenue per launch, is set for a test flight in 2025. Gross margin went from 21% to 26.6%, and free cash burn is stabilizing even with upfront Neutron investments. So I think that once that, or if that system becomes operational, they should flip to positive free cash flow because right now, one, they're building the systems, they're building the engines, they're building the manufacturing capabilities to make a bunch of these neutron rockets. They're building the launch facilities for that. They're building the landing facilities for that. It's expensive. Right now, they're not earning any revenue from it, but it seems like their income statement and

Starting point is 00:39:46 cash flow statement are not that crazy. Now, the one thing that might be crazy is the $10 billion market cap we sit at today. Revenue, I don't have the exact number, but I think it was only, I think it was $400 million in 2024. So quite an expensive multiple. I'll find it. Yeah, you can get that number right there. Yes, there could be a path once that neutron rocket comes online to hit a billion dollars relatively quickly. But even then, with this gross margin business, $10 billion in market cap, that's not that great. Now, one thing, though, that I thought was interesting, this highlights, I'll just promote here one of our advertising partners, FinChad.

Starting point is 00:40:30 You can go to our link, FinChad.io slash chitchat, get 50% off any paid plan. It's well worth it because you can make now, and I'll share it after this, a custom chart I made here. Yeah, Ryan's showing that, $436 million. I made a custom chart using their new tool, which is taking two of the KPIs they give out, which is revenue per launch and cost per launch. And I just subtracted cost per launch from revenue per launch, which is like kind of how much money they're making per unit per launch. And I came up with, I think it would be gross profit per launch, maybe contribution profit per loss, whatever it is, is how much money they are taking home after each mission. And it was negative for a few years here, but in 2024, it went from zero, basically

Starting point is 00:41:22 0.1 million in 2023 and 2024 is 2.1 million, Ryan, I'll maybe share that quickly. So that's a good sign. they're actually making money on the launches that they get the scale the numbers are moving in the right direction what do you think yeah this is obviously a very high fixed cost business now unfortunately when i see i can't help but look at this and say they generate two million dollars in in earnings every time they launch a rocket that's only on the launch more than half the business is space systems so okay the 10 billion dollar market cap seems a little extreme for what they're earning if they're doing 16 to 20 launches a year space systems obviously also contributes a

Starting point is 00:42:13 lot but it's not uh i don't think the goal is that that is the biggest part of the business in the future um well it's is it kind of growing tandem it should grow in tandem somewhat but they're also selling space systems to third-party providers and they do things like solar manufacture there's a lot i wouldn't guarantee that launch is going to grow in tandem with space systems but yes they do launch their own space systems to try to vertically integrate for their launch customers i mean it seems really impressive both from a like human perspective uh like that seems great for humanity uh and then financially they seem to be heading definitely in the right direction I don't know if I'd be a buyer here.

Starting point is 00:42:58 I probably most certainly would not be a buyer here, at least on the current numbers. But yeah, 2024 was a really good year for them, and it makes sense why the stock re-rated by a ton. I do want to talk about my small cap of the week because we didn't get to them last week. But before I do that, well, I guess, any more thoughts on Rocket Lab? I don't think so. Fascinating company. I wish I bought at $5 when I was considering that. i think i would be interested in making a small position in my portfolio if the valuation come

Starting point is 00:43:29 down came down quite a bit probably at least cut in half if not more from the current market cap because yes i think it is wildly expensive here given that a lot could go wrong and it's the the revenue multiple on a low margin business is very very high it's treated like a microsoft multiple for a manufacturing company. All right, before we move on, I want to talk about Blue Chippers Club. Last week, we had our weekly call and the friend of ours, one of our friends that started Blue Chippers Club, asked the question beforehand for everyone to come prepared with a stock that trades below 13 times earnings that they like. And there was one that a recurring listener recommended called Tricero Group. It's an insurer and it was actually quite a compelling

Starting point is 00:44:25 pitch. I looked into a bit. It's probably outside my circle of competence, but it's an excess and surplus insurer. So kind of more in the niche insurance categories where they can really generate good, profitable policies. So it just goes to show you that you can generate some really good ideas having these tight, more niche communities like what Blue Chippers Club is. So yes, every week you can share, break down your portfolios. You got weekly calls. You can pitch stocks, receive feedback, and it's totally free. It's a network, tight-knit community of stock-focused investors. So if you want to check it out, head on over to bluechippersclub.com and hit apply. Like I said, totally free to join. The link will be in the description.

Starting point is 00:45:12 I also want to mention our friends at Public one more time. If you're serious about investing, you need to know about public.com. That is where you can invest in everything, stocks, options, bonds, crypto. You can even earn some of the highest yields in the industry, like the 6% 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 chitchatstocks and get up to $10,000 when you transfer your old portfolio.

Starting point is 00:45:40 that's public.com slash chit chat stocks paid for by public investing full disclosures in the podcast description i have been monologuing here for a little bit so i'm going to pass it over to you my small cap of the week is boston omaha before i get into revisiting this what are your what is your current thoughts on the business without having relooked at them in a while looks could be cheap on a sum of the parts basis but i don't trust the management team and the investor base is cult-like that's my thoughts i think that about sums up what i'm going to say but yes there has been a ton of noise made about this company over the last few years. For anyone that does not know, Boston, Omaha is kind of a baby Berkshire.

Starting point is 00:46:36 That is maybe how some people would describe them. There's actually ties to Buffett where there was, which made people really latch onto the idea. But lately there was a CEO fallout, or I guess a co-CEO fallout. There was an absurd CEO payment in 2022, which I'll talk about in a and some underperforming results at the actual business that led to one, the stock coming down by a lot, but also a ton of strife among investors. Somehow this really, frankly, inconsequential conglomerate, I mean, it's not a big business, has become one of the most toxic stocks to be involved with either as a bull or a bear. But I think it's starting to calm down a bit. So let's give some insights into what happened. For background on the story, this has

Starting point is 00:47:28 been run by co-managers, Adam Peterson and Alex Rozek. I think they met doing some small cap investment where they took control. I don't really remember the full story. And this initially caught interest because, I think mostly because Alex Rozek is, I think, like a great nephew of Warren Buffett. And that got written up in some magazine and people thought maybe this is Berkshire 2.0. Well, there has been a major falling out. And there was also, he was the only employee at the company that wasn't in Omaha, apparently. So he lived in New Hampshire and everyone else was in Nebraska and they called it Boston Omaha because the two managers were from the Northeast and from nebraska um and in 2021 the stock soared and they had some compensation plan in place

Starting point is 00:48:21 that ended up giving them both seven and a half million dollars which was a ton for the size of the company i mean now it's a decent chunk of the market cap actually or maybe not too much but it was a lot and it was a huge compensation but it wasn't going to be something that continued it was like a one-time thing but it wasn't well communicated and so they It kind of – I think it scared off some investors, including myself. Did they give it back? Did they claw it back? I don't know.

Starting point is 00:48:49 If they didn't, they have the power to do that. So if it wasn't, why not do it? I think it might have been like we'll take it, but we're not going to take anything for the next three years or whatever. All right. I believe you. Sure. Yeah, I'm not – I haven't followed it closely enough. I'm saying I believe – I'm saying that like I'm talking to them.

Starting point is 00:49:10 Yeah. I mean, part of it is just got to – Do I trust that you're not going to take more compensation? Okay. Yeah. Anyway, so the other part is that they – I don't think the managers got along well. And I mean, that's kind of obvious now. But Brett and I went to a shareholder meeting for Boston Omaha, I think four years ago now. and you could kind of tell that they weren't like the best of friends it wasn't it was not charlie munger and warren buffett it was there was kind of some disagreements in areas uh they

Starting point is 00:49:49 also got into a pre-revenue spack which it seems like that business is actually developing all right or progressing okay but it just kind of seemed like not the kind of thing that Berkshire would do. And so it just felt like they were maybe grabbing for money quickly instead of thinking about the long term. And then Peterson and Rosek had a falling out, and they basically had to pay Rosek a bunch of money to leave. And now the existing operating businesses are Link Media, which is the sixth largest US billboard company, Broadband. uh they made it seem like this was the best alex rozak made this seem like it was the best business ever but it's basically a hodgepodge of different broadband fiber companies or fiber to the home

Starting point is 00:50:39 companies that serve mostly the midwest and some of utah and it currently loses money but could have good economics moving forward surety insurance and then a bunch of other stuff asset management a big stake in that pre-revenue SPAC. And some people estimate that the business can do between $30 to $40 million in free cash flow in the coming years. It's a little messy right now, so it's hard to really say. At an enterprise value of call it $300 million, that would be potentially attractive. I think the bigger question here is not on valuation necessarily. But is this now a management team that you trust? And B, are these businesses that you like? The first question, yes, I trust them more. We had a comment here that said that

Starting point is 00:51:29 Peterson's on the board of Nelnet. That's fine. It's not a big deal. Nelnet is 100% controlled by Dunlap. So the board is actually irrelevant, except for any input. It's kind of like a king and his advisors versus a democracy. And we have the same thing here with Peterson now, I believe, where he controls everything. Now, I'm not sure if it's more of a Buffett approach where you let the operators of the subsidiaries kind of do their own thing, or if it's more of top-down management.

Starting point is 00:51:58 I'm not sure. I don't know the business well. But I trust them more now. I'm not sure I trust them as much as I trust a Buffett or a Dunlap at Nelnet. That's for sure. And on the business performance, you mentioned the potential for lots of free cash flow generation. And I can see the thesis working out. I'd be interested to know what their plans are with returning cash to shareholders through buybacks to kind of close the gap to intrinsic value. Because the stock has gone nowhere for a long time.

Starting point is 00:52:32 And if I look at three big metrics here, maybe I'll share the chart here from FinShad. just kind of pull it up quickly. The numbers over the long term, the numbers are what matters. And first up, we have book value per share, which I know is not a perfect metric. But from 2021 to the last 12 months, it's gone nowhere. Now we got earnings per share here, which I'm highlighting. They've also been basically zero. And then free cash flow per share, negative so i'm trying to figure out what's to like here because in 2021 i could have heard the same thesis oh well free cash flow is gonna inflect oh yeah you know it's gonna be great maybe this is the time it is and it looks pretty cheap i think it'll work out from here

Starting point is 00:53:19 but work out from here versus when i was versus two to three years ago i mean you're gonna need to see a stock double, triple, 4X over a couple of years to even catch up to break Keefin. Expectations are low. I think it can work here, but is it

Starting point is 00:53:42 my favorite business? No. Do I trust management fully? No. They have to prove that you can break your reputation as Buffett says in an instant. You have to build it over a 20-year period.

Starting point is 00:53:58 Yeah, it's, you could certainly make the numbers work. Like, you know, if you believe the billboard business, which is very, very profitable, I'm kind of putting in quotes, but it's profitable. And if you think broadband can get or fiber can get profitable as well. There's certainly a way to go some of the parts here, it's cheap. But I think the biggest questions are those two that we laid out. Do you trust management? And do you like the businesses? I think I do trust management more. I liked Adam. I know every investor in Boston, Omaha seems to be saying this now that Alex Rosek is out of the picture, but I did – I never liked that guy. Yeah, that's true. I did like Adam Peterson kind of more when we were shareholders. My concern more is A, the board kind of letting all this happen, letting the compensation plan – obviously, there was a flawed compensation plan. And then, me, I don't really love these businesses. Like, I don't think the statics. Billboards are good.

Starting point is 00:55:03 Billboards are fine. They're good, but they're not. They should spit off cash flow, but broadband is not my favorite. What if fixed wireless and Starlink? These are operating in rural areas. Who knows? I don't love the business. It's a good business, but I don't love it.

Starting point is 00:55:23 I think I heard – I'm stealing this tweet from someone or some saying that the cable cowboy convinced a whole generation of investors that it was actually a good business. It's – yeah, I mean I guess it depends what markets you operate in and what competition looks like. I'm sure you can have nice little local monopolies in certain areas with fiber to the home. and the economics are probably pretty good if you have a lot of customers and they stay on for a long time but yeah it does seem kind of hyper competitive uh so i don't know i don't love the businesses i'm not clamoring to get back into this i could see myself becoming a shareholder again at some point but i need a couple years of like improved business performance before i think about getting back in yeah sky harbor is also interesting that was

Starting point is 00:56:19 that's a tough deal it was it was a pre-revenue spec for a lot quite a bit of a market cap they did find dream finders homes do you follow the uh the what's it called sky harbor i have not i would also be interested to see what their buyback program is like because they have the capacity if the stock is so cheap they have the capacity to return a lot of share you know to buy back a lot of stock and that can help with conglomerates we just mentioned it on our update that came out this morning we just mentioned that a buyback can really help close that gap to the quote-unquote intrinsic value and boss and ohan did not seem to be wanting to do that but who knows maybe it'll change and i i don't know if there are any letters come out yet maybe

Starting point is 00:57:08 it'll come out like this week and we'll get totally um everything will be different than what we were saying here and they're going to change their tune and blah blah blah yeah it hasn't come out yet i think my final words here because i didn't want to get to new bank the stock looks cheap but why is it going to work tell me why it's going to work i just think That's what I would ask shareholders. There's easier bets to make. Yeah. Like Google at mid-teens or a complex sum of the parts on kind of a messy story.

Starting point is 00:57:44 Yeah. You could get higher upside with Boston Omaha, but I think it's more of a sure thing. It is fascinating to me that people really do not like when I get pushback on Boston Omaha. When it's one of the takes I've been – I've been wrong on a lot of stuff. But I've been, like, the numbers, the stock price doesn't lie. It has been a terrible investment, so why are you so confident? This is also one where I actually think going to shareholder meetings in person, this kind of showed the value to me. I came away from that feeling like things were not all there.

Starting point is 00:58:24 Like the shareholders seemed overly passionate and kind of like their vision was clouded or their judgment was clouded by just kind of being a part of like another team, like Berkshire kind of thing. And I got the sense that the managers didn't really like each other that much. And both of those being in person, I would have never got those if we were just reading letters. So I do think kind of getting out there, trying to meet management, if you can, is really helpful. Yeah, it can be helpful. All right. New holdings, Ryan. Not our new holdings, but NU Holdings.

Starting point is 00:59:08 New Bank is what customers or people see it as. Ticker is NU. It is the largest fintech player in Latin America. There are plenty of good charts on FinChad that we can check out on this, so maybe you can pull up some because they are growing extremely quickly. They came out with their earnings, I don't know if it was two weeks ago or last week, and the numbers just continue to impress. They now have 100 million customers in Brazil, not all of them active, but I think close to that as monthly active customers. They are seeing exploding revenue, higher rapid growth in these new countries in Mexico, hitting 10 million users and Colombia hitting two and a half million users.

Starting point is 00:59:52 They said they want to start expanding to new countries over the next 10 years. The risk is that this is a bank doing unsecured lending, growing very quickly with potentially high risk borrowers in Latin America. I mean, that's a lot of combinations there that could get you squeamish trying to underwrite some financials company. The stock looks somewhat cheap on trailing numbers where for a bank, it's expensive because banks don't really trade at 25 times earnings. That's what they're trading at. But it's also growing quite quickly and it could get down to a bank multiple pretty quickly there. Today, Ryan, as I said, the PE is about 25. Now you're looking at some of these numbers,

Starting point is 01:00:40 Obviously, the revenue is growing very, very quickly. I think it's at 50% growth rate, or maybe it's going to slow down a bit, but the customers are growing quickly. What price comes to your mind of when this would be an attractive buy? I don't know the business well enough to really give a price, to be honest. I always have a hard time with these pseudo-bank, pseudo-tech companies. i have a hard time valuing valuing them and maybe that's the opportunity because we've seen this a bit with sofi where it's like they're doing everything right on the technology front but customer acquisition front i worry about the loan originations and whether or not because

Starting point is 01:01:28 it's easy to make loan originations look good and until one day they're not loans it's it's easy to make loans it's hard to make them profitable yeah i mean it's so i don't know i i would want to dig into the what is that the assets side of the balance sheet here is that yeah the loan side yeah that would be the loans i mean like okay i can pull up just on fincheck quickly we'll pull up what their equity is what their book value is because i'm sure if the market has 50 billion i'm sure their book value is maybe, I don't know, a couple billion, maybe, maybe higher. Let's, let's look at it. Total shareholders equity. Oh no. $7.5 billion. Okay. That's a little higher than I thought. But if this loan book that they're growing aggressively performs very,

Starting point is 01:02:21 a lot of this equity can get wiped out quickly if you make bad loans. And there's a, I don't know who came up with it first. I'm sure a lot of people have said this. Fast growing lenders, financials, and banks can actually be more of a red flag than someone that grows slower. So if I was interested in this company, which as a tease, I am going to be researching this from the next stock research episode, I want to be very confident in their lending operations and investigating that the hardest or the most. all right i think that's gonna do it brett you want to give more of a tease on episodes that are coming up yeah we have an interview on mercato libre we have a episode where we're

Starting point is 01:03:08 going to be force ranking our holdings uh essentially when every company in our portfolio or at least almost every company in our respective portfolios have reported the full year numbers we're going to force rank stuff see if it's uh you know what we like dislike whether we're going to be buying or selling stuff. We're going to be doing a stock research episode on, for me, new holdings. Ryan is going to be doing S&P Global. And we have some other ones in there that I'm forgetting about at the moment. Oh, we're going to do an investor overview on someone. We'll see what one, we'll see what investor we pick, but a lot of good stuff upcoming as always. We're going to be doing the power hour every week. And I think that's it. Let's hit the disclosure.

Starting point is 01:03:50 We are not financial advisors. Anything we say on this podcast is not formal advice or a recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for joining the live stream. We do these every Wednesday, or mostly Wednesdays, at 1.30 p.m. Eastern Time, 10.30 a.m. Pacific Time. And you can watch the replays on youtube listen to the replays on youtube music or listen and watch to the recordings on spotify apple podcast or wherever you get your podcasts thank you everyone for tuning in and to our sponsors and we'll see you next time

Chit Chat Stocks - Rocket Lab Review; Nu Holdings + CoreWeave Analysis; Alphabet Is Cheap Again? (RKLB, NU, GOOG)

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