Motley Fool Hidden Gems Investing - Big Banks and Big Rates

Episode Date: October 13, 2023

The major banks are cashing in on high interest rates, but cracks continue to show in the picture of the consumer.  (00:21) Emily Flippen and Jason Moser discuss: - What big interest rates mean for big banks and the latest insights from Jamie Dimon. - Pepsi’s earnings showing signs that growth might be propped up by price hikes. - Atlassian’s $1B acquisition of Loom, the market reaction to the Birkenstock IPO, and Spotify’s latest audio push.  (19:11) Bloomberg’s Zeke Faux talks about the trial of FTX’s Sam Bankman Fried with Motley Fool Money’s Deidre Woollard. (32:57) Jason and Emily break down two stocks on their radar: Outset Medical and Twilio. Stocks discussed: JPM, WFC, PEP, TEAM, BIRK, SPOT, OM, TWLO Host: Dylan Lewis Guests: Emily Flippen, Jason Moser, Deidre Woollard, Zeke Faux Engineers: Dan Boyd  Learn more about your ad choices. Visit megaphone.fm/adchoices

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everybody needs money that's why they call it money from fool global headquarters this is motley fool money it's the motley fool money radio show i'm dylan lewis joining me in studio motley fool senior analysts emily flippin and jason moser great to have you both here. Hey, hey! Hey! We've got the story from the courthouse at the trial of Sam Bankman Freed, a tepid reception for a new IPO, and a big deal finally coming to a close. But first, we've got earnings, results that will have us checking in on two major stories, interest rates and pricing power. Jason, we're going to start with interest

rates and the big banks. They reported Friday morning getting the earnings party started. What did you see in results from JPMorgan and Wells Fargo? Yeah, it seems like on a day where the market's viewing things from the glass-half-empty perspective, these banks are at least presenting a little green for us. I think the big headline for these banks, of course, it's the higher rate environment. Rates hit banks in a number of different ways, some good, some bad. They get a payout for deposits as consumers shift holdings into higher-yielding instruments. They benefit from higher interest payments on those mortgage loans. By the same token, higher borrowing costs tamps down demand for

those loans. And then the bonds owned by these banks, they start to fall in value as these yields rise. So it hits their capital positions. And I think that beyond the macro stuff, I mean, that's one thing to kind of keep an eye on is the capital requirements as this sort of landscape begins to evolve for these greater capital requirements for these banks. Jamie Dimon's not a big fan, but we'll get to that. Talking about JP Morgan, I mean, solid quarter revenue up 21%, right? Just over $40 billion. They saw net income up 35%. That was actually up 24% if you exclude First Republic. But I think the big story for JPMorgan and Wells Fargo on the profitability side, we just saw net interest income really grow nicely. And that's

thanks to these higher rates, right? We saw net interest income for JPMorgan up 30%, up 21% excluding First Republic. I think probably with JPMorgan, the thing that stands out most was Jamie Dimon's language in the release regarding the great macro. He's talking about U.S. consumers and businesses generally remain healthy, though spending is down, those excess cash buffers are dwindling. Couple that with, what did he say? This may be the most dangerous time that the world has seen in decades. That's an attention-getter. Yeah, I think when America's banker speaks, we all tend to listen. Emily, I look at those comments and think there are a lot of different directions we could take that. But this seems to

be a tough environment. And yet, we're seeing that the consumer seems to be OK. Let's parse that a little bit. Yeah, I think what's happening here is that we're seeing Diamond and banks kind of manage expectations. This is actually a really strong environment with which to be a bank operating. And those heightened regulations, yes, they hamper capital just a little bit. But it creates a more sound financial system. So, all of this put together is, you know, banks are doing well. Consumers seem to be doing well. The economy is not yet crumbling. But then you have Diamond over here who's saying, oh, hold up, hold up. This is really dangerous. Stuff's happening. There's geopolitical tension. There's question marks about debt, not just from the government

side, but from the consumer side. And banks ultimately need a really healthy consumer in order to drive solid business. So I think what they're trying to do is almost, as we've seen, every single quarter, I swear Diamond has some other thing to say about, oh, well, we're not out of the tunnel quite yet. And that is because they don't want to have expectations that are mismanaged. That is going to hurt their stock. Well, I liked what we were talking about pre-production, too. Emily put it so perfectly. We were talking about this Basel III, these regulatory demands, these banks, they're going to have to deal with these higher capital requirements. And yeah, Jamie Dimon's not a big fan. He'll tell you, listen, I know what I'm doing.

I don't need these capital requirements. It's like, yeah, you know what? These requirements aren't for folks who know what they're doing. These requirements are for the people, the bankers, who don't know what they're doing to protect us all, right? Because not everybody's on the same playing field when it comes to these regulatory requirements. Banks, listen, they're dealing with a lot of money, and there are a lot of economic forces that come into play with how those financial models work. We talked about, I promised, pricing power. We have to get to that part of the earnings discussion as well. We get that in Pepsi's results. I think, to some extent, we get a little bit of a look here, Emily, at the health of

the consumer and what's going on with consumer wallets, too. Yeah. Honestly, you can take what's happening with PepsiCo and apply it to basically any consumer goods business that we're seeing reporting earnings, I would say, not just previously, but even coming into earnings season. And PepsiCo, in this case, headline numbers look good. Earnings and revenue both beat expectation. It's weird to see this type of business that's growing in the double-digit rates. That's unusual for a business like PepsiCo. But the flip side is that even though they have raised guidance, 13% earnings per share growth guidance, that's incredible. The majority of their growth is still coming from pricing increases. So if you actually

you look at the volumes of products that Pepsi sells, and it's not just the beverages, but it's also their packaged foods, goods, volumes are largely down across the board, especially in North America. That drives a majority of their revenue. You can only raise prices so much. You can only offset declining demand so much with price increases, especially if the consumer health of the Americans declines over time. Things look good right now. Guidance, admittedly, for the rest of the year looks solid. Organic revenue growth in the high single digits is nothing to dismiss. But I think I'm just a little bit more cautious if I'm this business, because pricing only goes so far. Where do you stand on the Ozempic

conversation here? Seriously, we were talking before. Shrink, we talked about on this show over the last several quarters, shrink being a very popular term that was thrown out there on earnings calls everywhere. It seems like we're starting to hear Ozempic a lot more in relation to a lot of different businesses that cover a lot of different markets. I don't know that I necessarily buy into, I mean, maybe Ozempic is something that hits them on the margin, but I don't know if it's as great a threat as maybe some think. Yeah. Look, I don't know Ozempic personally. So at the risk of being horribly wrong in a decade and we're all super skinny and super healthy and eating carrots, there's one thing I do know across my 30 years of being

an American. I generally don't bet against bad habits by Americans, especially as it applies to drinking Cokes and eating chips. I think those habits stick. I'm with you. I'm with you. I'm right there with you, too. That's my plan for lunch. Taking a step back as we wrap up this earnings talk and looking at the themes that we're seeing from the banks and the themes that we're seeing so far in Pepsi's results, knowing that we're going to be seeing a lot more companies report over the next couple of weeks, Emily, anything that you're particularly paying attention to for the industries?

Yeah, I want to continue to watch consumer discretionary spend here. So, we're coming off the week where Amazon had their prime day, and it kind of passed with very little fanfare, heading into the holiday season as well. And so, consumer spending, I think, is going to be very indicative of the health of the economy moving forward, especially with the resumption of student loan repayments. So, I'm cautious. Jason, what about you? Yeah, it's the consumer, right? It doesn't feel like the consumer should be as healthy as the consumer is today. I feel like that's getting ready to change here. It's slowly and then all at once. One thing to remember with inflation, too, we talk about inflation slowing down a little

bit, but inflation is still rising and it's compounding off a very high base over these last several months. It is getting to a point where you have to look at those words Jamie Dimon offered in regard to the U.S. consumer and wonder if the beginning of 2024, we don't start to see some real pinching of the purse strings, so to say. All right. It's not all about the earnings beat this week. Up next, we've got one software company dropping a billion to add a new piece to its suite, and a fresh debut for a funky sandal company. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis, joined here in studio by Emily Flippen

and Jason Moser. We're going to kick off this segment talking deals. Atlassian announced a $1 billion acquisition of software company Loom this week. Emily, the market shrugged at the acquisition. Shares of Atlassian were down 4% since being announced. Different story at Loom. Co-founder and CTO Vinay Haramath said, we are insanely hyped. Can we talk a little bit about what Loom does and how this fits into the Atlassian software suite? Yeah, sure. Look, if I also sold a company that's probably worth $200 million for a billion dollars, I would also be, quote, insanely hyped. So, you're saying they overpaid. I'm willing to bet that in five years, even, I'll say three years. I bet in three years,

Atlassian has taken a massive write-down on this acquisition. And to answer your question, Dylan, which is, what does Loom do? How does it fit into the Atlassian portfolio? Loom does asynchronous video communications. So, if you imagine sitting in front of your computer, I'm going to record a video of myself talking over, say, like a PowerPoint presentation or the like. I'm then going to send it to my coworker. And Loom has the technology to allow your coworker to, what is this? Watch the video that you recorded and respond to the video that you recorded. And it doesn't fit really into any of Atlassian's existing products. And that's actually the thing that I have the least amount of gripe with. Atlassian has a really robust

portfolio of communication tools that's largely used for asynchronous workflow. So, the video aspect, it's new for them, but I don't hate it as much as I just hate the existence of Loom in the first place. And I apologize, there are 25 million customers. They do have paying customers. But I don't know what this company does that isn't already achieved by the likes of their potential namesake, Zoom. You mentioned their customers. And I think part of the reason this deal even happened was Atlassian was a Loom customer to start. That, I think, is kind of how the relationship got started, and maybe what greased the wheels. We will check back in 2026 and see if this wound up being an acquisition that was worth happening. Loom's CTO did wind up saying

he wanted people to think they got a steal with Loom, which I think a lot of people may feel that way as they're being acquired into a business. One of the questions we generally have as we look at software is, is this a feature of something, or is this a product that is sellable in and of itself? Emily, it sounds like you're in the camp of, this is a feature that can be replicated. This is a feature that is already replicated by the likes of Zoom and others. Now, they might have differences in how they've executed, but the core service here is not something super proprietary. So, for that reason, I think that billion-dollar price tag is pretty crazy. And for exactly that quote that you mentioned, Dylan, which is, Atlassians are

customers of Lumen. We love Lumen. That quote from the co-founder and CTO who clearly is obsessed with Atlassian, which is also a founder-led company, to me, this reeks of pet project. This reeks of two very nice, visionary co-founders and CEOs, or CTOs in this case, getting together and saying, well, we both really like each other. We both have cool companies and cool technology. Why don't we just combine? From the investing perspective, I'm not sure I'm excited about this deal. You know what that feels like? That really honestly feels like Square or Block's recent acquisition of Tidal. Jack Dorsey and Jay-Z are tight, I know. Really, Tidal? Seriously? Come on, man.

What do those businesses have to do with each other? I feel like maybe there was probably more of an NFT angle with that deal than anything else, given Block's pivot. Not pivot, really, but just more laser focus on blockchain and cryptocurrency technology and whatnot. But, yeah, when you're talking about music streaming, there's Apple Music, there's Spotify, and then there's whatever else. It doesn't matter. Apple and Spotify I rule it. It sounds a lot like that title deal. It sounds to me like Atlassian shareholders should mine the goodwill line item on the balance sheet going forward and be paying attention to that. Yeah. I like Atlassian, to be clear. I don't think this is a reason to be

selling your Atlassian shares, but it does worry me a little bit. I just want to hear more from their co-founders and their CEOs, their co-CEOs, I believe, and hear about how they're going to integrate this into their product suite to actually be a creative. The only mention they've had right now is that this is going to hurt operating margins over the relatively near term. And as an Atlassian investor, those are words you never want to hear. This week, we also had a fresh debut. Shares of sandal company Birkenstock down over 10% after the company IPO'd on the New York Stock Exchange. Jason, we talked about this one a few weeks ago when we got a look at the prospectus, and we talked through the footbed technology.

We spent a lot of time on the footbed technology, if I remember correctly, and the company's timeless appeal. What are you thinking about with this company now that it's public and we have a sense of the valuation? I said then, I was a bit surprised going through the F1, as it really did capture my attention. I think a lot of that was really how they're selling the company, Birkenstock. It's a mindset, it's a way of life. I will say, it piqued my interest. I went and looked at the website to see all of the different types of styles and shoes they had. This is not the Birkenstock that existed when I went to college, Dylan. This is a far bigger and more diverse company now. At the end of the day, it is still

footwear, so let's keep our expectations in check. I do think that in regard to the valuation, you've got a shoe company, a lot of positive qualities, but it's still valued at something like 40X trailing earnings, which in this market right now, that sounds very expensive. They do have some growth to back that up. In 2022, $1.24 billion in revenue, recorded a gross margin of 60%. They're direct-to-consumer. I think that's going to be a big key to the story. They can continue with this direct-to-consumer penetration that grew from 30% of revenue in fiscal 2020 to 38% in fiscal 2022. They've grown revenue at a 20% annual growth rate from fiscal 2014 to 2022. There is growth there. But I think you have to keep those

expectations in check when you understand this is a company that does one thing and they do it very well. This is just a difficult market. I think you look at some of these other IPOs, you look at Arm's IPO, for example, that priced at $51. The price today is right around $52 and changing. That's Arm. That thing got a lot of hype. Instacart, $30 IPO. Today, the price is around $25. I think we're just seeing it's a very difficult time for businesses, big and small, to go public. It's going to take a lot to really prove that case. Ultimately, we just need to get to a point where market conditions are a little bit more welcoming of these businesses that are taking that leap. As a testament, Jason, to this not being

the Birkenstock of your college years, this is a business that has expanded into offerings that look an awful lot more like Crocs and is trying to play a little bit on the trend there. Do you think that there's enough there for them to capture a next wave of consumer and continue to be relevant? I think they need to be careful in how far they pursue that. I don't know that I necessarily want to see Birkenstock offering up a Reese's Peanut Butter Cup version of their shoe, or a Taco Bell-sponsored version of a Birkenstock. I think there is a line that they probably want to focus on not crossing. This is a higher price point item, to be sure. Footbed technology does not come cheap.

And I only say that half tongue-in-cheek, Dylan. These are really good shoes, and the footbed technology is a real deal. So, I think that you kind of look at a company like Tiffany, and I'm not comparing them to Tiffany directly, but Tiffany is not going to cave on the pricing side because they've got a rep to protect. And I think Birkenstock ought to be thoughtful about that as well. All right, our last story for the news roundup. Emily, Spotify is continuing its march towards offering all things audio. The company announced plans to offer audiobooks to premium subscribers. What do you make of it? It's a bit of a divisive action, because Spotify, we actually saw it get downgraded by at least one Wall Street analyst as a result of

the launch of their audiobook offering, who believed that this would be gross margin decretive, I should say, or hurt their gross margins. Management actually thinks that their launch of audiobook offerings for all Spotify members can have gross margins somewhere around 40%, which would be bigger than their current business. But really what this is doing is just adding an extra value add. If you're a paying Spotify subscriber, you'll have 15 free hours every month of audiobook listening. If you want more than that, you can pay a little bit extra for it. And there's already plenty of options to have access to audiobooks today. So, people have libraries, obviously, and there's also competitive offerings by Audible from Amazon. But in this

case, Spotify, I think, has the advantage of having it all in one app, easily accessible, all building off the acquisition of audiobook offering Findaway that they made in 2021. So, I like this move by them, and I'm excited to see where that takes them. Emily, this is a company that has had a lot of different ambitions in the audio space, started out really focused on music streaming, over the last couple of years has focused heavily on podcasting, and also gone into some of their own original content. We now see them focused on audiobooks. Are there places where you are more excited or less excited to see them investing and putting resources to work? The three main areas that I'm equally

excited about are their existing business, which is music streaming, has gross margins around 30%. they've already largely achieved that. That's a mature offering. Then you have podcasts, which is largely ad-based. They were about a decade late to the podcasting game, and now they're the largest podcasting platform in the world. That says a lot about their ability to come into an industry and dominate it. The ad market's been soft, though. The podcasting business has been unprofitable for them. That's where a lot of the flack they get from Wall Street analysts is. If audiobook also ends up hurting their margins, then I could see that also dragging them down. But long-term, I think both are, I should say, all three of these

offerings end up being successful. I want to see them bring earnings calls into this platform. I know that's a little nerdy, and maybe they just need to acquire that app. Like Quarter? Quarter's a great app for that. Man, I tell you, there's probably a pretty big audience of listeners out there that love that value add of just earnings calls and earnings investor presentations. It would certainly make preparing for the Friday show just a smidge easier, wouldn't it? Think about how much easier it is just to access all of that information. You have it all in one nice little place. I'm 100% with you, Jason. Let's see if we can make it happen.

All right, Jason, Emily, we're going to see you guys a little bit later in the show. Up next, we've got the story of what's happening on the ground in New York at the trial of former crypto billionaire Sam Bankman Freed. Stay right here. You're listening to Motley Fool Money. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce

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details, and what we've learned so far about the case. I'm Deidre Willard, checking in today with Zeke Fox, the writer of the book, Number Go Up, which is about Sam Bankman Freed and the crypto craze. I interviewed him a couple weeks ago. He's been at the trial a couple days this week and is giving us the latest. So, Zeke, just quickly for people who might not be following the frenzy, what is the trial about and why is it happening? So Sam Beckman-Fried ran the crypto exchange FTX. And back in November, the exchange collapsed. Basically, think of this like an app like E-Trade, where people sent in money to trade crypto, just like you might send money to E-Trade to trade stocks. And back in November, when

customers tried to get their money out. A lot of people at once lost confidence and asked for their money back. And it was revealed the money was gone. There's $8 billion missing. And the U.S. government arrested Sam Bankman Freed and charged him with a giant fraud. They're essentially alleging it boils down to he embezzled this money and allowed a hedge fund that he controlled to gamble it away and spend it on all sorts of stuff like real estate in the Bahamas, political donations, even a private jet to fly Amazon packages from Miami to the Bahamas for employees. Yeah, that detail is pretty stunning. So there's this media hype around this. It reminds me a little bit of the Theranos trial. What's it like being there? What's the scene like?

there's about 50 reporters there every day the court's packed that right around the corner there's a trump has been on trial for fraud himself so there's all sorts of security in the area tons of tv crews you can't quite tell well the first day i arrived i was like are all these like crazy military type security guys here for bankman freed it turns out they were trump but around the corner where the bankman freed trial is happening there's camera crews set up and there's all sorts of paparazzi who chase any witnesses who come in. The main guy himself, Begman-Fried's in jail during the trial. So he comes in through a basement garage, I believe. He can't be photographed, but his parents and the witnesses get chased by paparazzi as soon as they show up.

And reporters camp out starting at 5 or 6 a.m. to get seats in the main courtroom. Wow. Yeah, sounds crazy. So much has been made about his appearance. He cut the crazy hair. He's wearing a suit. Is that all? Do you think that's he's trying to signal that he's taking this seriously? Definitely. I mean, while he rose to power, it was really his thing that he showed no respect for traditional rules. He wouldn't dress up for anybody. Always shorts and a T-shirt, wild hair that he didn't comb. Occasionally for Congress, he would put on a suit, but it always looked like he just bought it at the store on his way in. He didn't even tie his shoes. He testified before Congress with shoes that he just bought at the store,

and the laces were still in that sort of clump that they come in when you buy them from the store. So for a court, yeah, he's signaling respect by dressing up, cutting his hair, and listening attentively. But I don't know how much that's going to help, given the barrage of evidence the government has been presenting. Yeah. And I know that people have talked a lot about how he's, you know, he's not being too demonstrative. He's just staring, staring mostly at his laptop. I'm wondering what has surprised you so far in this? I kind of knew what to expect. We knew that his top lieutenants were all going to testify against him, but it's still very powerful to hear them doing it in person

because you've got this jury there of regular people who, frankly, many of them seem bored. Some have fallen asleep. But if they do snap to attention, what they have in front of them is a series of very nice, trustworthy, seeming young people, you know, nerdy, maybe a little shy, but perfectly well spoken, who are saying, hey, I committed a big fraud. I'm very sorry about it. I did it with that guy, Sam, over there. And if the details are frankly very complicated, and I'm sure the jury is doing their best to understand them, but if they don't catch the details, what they just get is a bunch of fairly trustworthy seeming people saying, yes, it was a fraud. It was not some accident.

The customer's money was stolen, and it was Sam's fault. So much of it right now with the case has been hinging on the testimony of Carolyn Ellison, the head of Alameda Research, and is his sort of on and off girlfriend. What's your impression of her testimony so far? Back in November, just after FTX collapsed, I flew down to the Bahamas to talk with Sam before the cops showed up. We had this long, long talk about what had happened. He made a lot of excuses about how it was all a mistake. and he basically blamed it on Caroline Ellison, who ran his hedge fund. He sort of said, I wasn't paying attention to the money and the people running that hedge fund, they should have

known that there was a problem. And now Caroline, she finally showed up this week to testify. And what she said pretty convincingly was, Sam knew all the numbers. We had regular meetings. I would tell him about the situation, about how much money, how much customer money the hedge fund was using, about how risky it appeared. And Sam, so she pretty much demolished Sam's excuses that he hadn't been aware, he hadn't been directing this. And he had told them to use, according to her, he had told them to delete all their text messages. They used like auto delete on Signal. However, they also used Google Docs, and she presented Google Docs that showed the financial situation of Alameda, the hedge fund, and they even had comments on them from Bankman

Freed right there in the Google Doc. So she can't prove everything that she's saying about her meetings with Sam Bankman Freed, but there's clear evidence that she consulted with Bankman Freed about the hedge fund's financial situation. And his excuses didn't seem very credible before and now just seem like lies. There's a lot of sort of coercive nature that she kind of testifies to of, you know, not wanting to upset him and trying to follow everything he did. One thing I was wondering is the romantic relationship, is that kind of a little bit of a smokescreen around the sort of the business relationship too? Because it's very complicated because they were together,

they weren't together. And it seems like she's painting it very much that he told her to do these things and she had no option because this is her boss and her boyfriend. Well, it's been part of his excuse. He's claimed that because they broke up, they were not talking. And that was part of why he didn't know what was going on. And she said, yes, it was a bad breakup, but we still talked about business. We had regular meetings and he was aware of everything. And she hasn't tried to say, he made me do it. I had no choice. She sobbed in court and said she feels horrible about what happened and what she did. And it's also been interesting to see that she was paid very poorly compared to men at the company. Admittedly, she still got like tens of

billions of dollars. And that she had asked for an ownership stake in the hedge fund, which she was running. Other employees had gotten things like that. And Sam had said it was too complicated. So even when they were dating, it seemed like she was not treated as a equal partner in this business. And she also, she said that he told her to use FTX customer funds for Alameda. And some of that was some of the spending you've talked about with the, you know, the penthouse and things like that. Also venture fund investing. Do you think he somehow thought that he was going to make it back? Yes. So he had always said, I want to make tons of money so I can give it all away and basically save the world. And I think that he really did believe that and that he thought

it was good for him to make money and that that would justify whatever actions he had to take to make that money. And Caroline said, you know, that was kind of seductive. And she came to feel that way, too. And many people at the company fell into this kind of cult of Sam Bankman Freed. And they really thought they were the heroes of this movie and they had to do whatever was necessary. So I think that, yes, Sam did think he would make it all back and that he had taken these crazy gambles because that's what it was going to take to become a trillionaire. And that's what was needed to save the world from things like the next pandemic or evil AI robots, something they really talked about quite a lot. The other thing is they were trying to raise money from various sources, including MBS, to try to get the to, you know, basically to make up that shortfall.

If they had gotten the money, would this be happening now or would this be pushed down the road? Would more people have gotten hurt? Chris Hill So crypto prices have not recovered. So a lot of their investments would still be looking bad. But sure, yeah, if they had raised enough money, they could have covered up this hole and maybe we still wouldn't know about it. One of their investments that they made with this customer money was in an AI company. And it looks like it was a pretty good investment and it might have made them billions of dollars. I'm not sure if that's enough to cover the hole, but it looks like that's going to be part of Bankman Freed's defense that, in fact, the bets would have worked

out and maybe even in some cases have worked out. However, I don't think that's really going to work. If I rob a casino and then I go take the money to another casino, bet it on red, double my money and return the money to the first casino, I think I'm still going to jail. Yeah. Yeah, I think so. And that's that's sort of part of the defense, too, is that his lawyers are arguing he acted in good faith. It does not sound like you believe he acted in good faith. No. I mean, it was so clear that you were not supposed to borrow the customer money and gamble it at other casinos or invested in venture capital or whatever. And the more testimony that comes out, his associates are saying that this started really early on at FTX. Within months

of launching the exchange, they were dipping into the customer money. So each day of testimony looks worse and worse for Sam. To be fair, he hasn't really been able to put on his side yet. And maybe there's some really surprising thing that his lawyers are going to pull out when it's their turn. But in cross-examining these prosecution witnesses, they've been totally ineffective and the judge has scolded them for wasting time. Obviously, this has been widely reported. Is there anything in the public conversation do you think that is either being overblown

or something that people are getting wrong? One thing that interests me, which you brought up a little before, is was this guy just a con man, a scammer, who never intended to do anything good for the world? And I really don't think that's the case. I think he did have this crazy plan, like a bad plan, maybe even an evil plan. But I think that he did have a plan to try to save the world.

And Caroline spoke about this in her testimony. His philosophy, utilitarianism, means that you have to judge your actions based on what will create the greatest good for the greatest number of beings. And she was asked about this, and they said, how would lying or stealing fit into that? And Caroline said, he didn't think rules like don't lie or don't steal fit into that framework. In other words, the ends justify the means. He had to do anything it took to make money because he believed he was doing something good for the world in the end. He just had to get to be a trillionaire first.

Zeke Fox's book on crypto, Number Go Up, is out now, and you can catch his latest coverage on the trial at Zeke Fox on X. Coming up after the break, Emily Flippen and Jason Moser return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money. Dylan Lewis. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Emily Flippen and Jason Moser. We've got stocks on our radar in a second, but first, Microsoft shareholders can rest easy knowing they'll be the proud owners of

some of the biggest video game titles in the world. Their planned $69 billion acquisition of Activision officially closed Friday after some regulatory hoop-jumping. Jason, I have to be honest, I wasn't sure that this deal was actually going to go through. Well, we've been covering this story off and on since its inception here on the show. It's been a while. I'm glad that we can tie a bow on it. It struck me how protracted this had become in the concessions we would see ongoing. It felt to me like they were doing whatever they could to make sure this deal got done. So, I'm not terribly surprised at the end of the day that it got done, given everything that we've seen. And I'm sure that shareholders

that have hung in there, dad, congratulations. My dad's a longtime shareholder of Activision Blizzard. Hey, you made it. Wow. Nice. Yeah. And Emily, you said there was a special dividend. I think that those who kept their patience will get from this as well, right? Yeah. It's a good thing for Activision shareholders who've been holding on. They got that special dividend as a result of the delay that was caused by the U.K. regulatory authorities, but this is a loss for regulators because regulators across the world largely sought to either change this deal or prevent this deal from happening entirely, and it does raise the question of, okay, Activision's

first, now owned by Microsoft, who's next? Yeah, I was going to say, Emily, now that we know that the door might be open for some bigger deals, are there any that we should be either in a very real way or in kind of a fantastical way keeping our eye on? I mean, I don't think it's a coincidence that we've heard rumors this week that the Disney board has apparently been talking to management about potentially acquiring EA, or at least some assets from EA, to push Disney back towards game development, which was historically a lucrative opportunity for them. So, that could be interesting. Now, granted, EA is still much smaller than

Activision, but if you allow Microsoft to acquire Activision, you have a really hard uphill battle trying to explain why Disney can't acquire EA. Jason, anything for you? Anything in terms of deal-making environment that you'd be keeping an eye on? Honestly, I'm keeping an eye on all of the FTC right now, with Amazon and Google. I think that's what I want to keep an eye on. We saw Satya Nadella, CEO of Microsoft, on the stand there last week in regard to the antitrust case against Google. It'll be very interesting to see how those two cases shake out. I think they're fairly weak as well. If they lose one or both of those, boy, oh, boy, talk about compounding your losses.

Alright, let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason, you're up first. What are you looking at this week? What a miserable week for Outset Medical. First, there are headlines that the weight loss drug Ozempic showed surprisingly early effectiveness in a study aimed at combating kidney failure. That sent shares of all dialysis providers down, Outset, DaVita, and others. But then, adding insult to injury, Thursday evening, Outset preannounces earnings. It's not a very good look there. There's the ozempic threat, of course, to the extent that there is one. Granted, that's entirely unknowable at this point. There was an FDA letter that should have been filed

regarding the Tableau cart that they didn't file, but management has noted that they did file it. It's a technicality, it seems, at this point that should be resolved. But I think the bigger picture here is the ratcheting back of guidance, and partly based on this climate of cautious hospital spending that management quoted. I'm not going to hold that against them. One of the main reasons why is because that's totally real. That's not something that's just an outset problem. Intuitive Surgical, for example, just last quarter noted that very same thing in their call. They said, I quote, customers, particularly in the U.S., appear to be cautious in their capital spending given ongoing financial pressures. Customers are talking about the

hospitals. That's something that they're dealing with. A high flyer like Outset Medical is still working its way to profitability. The market just doesn't have any tolerance for that stuff. And unfortunately, we've seen the stock really take a shellacking. Dan, a question about Outset Medical. Now, Jason, you said it was a bad week for Outset Medical, but, man, it's starting to look like it's been a bad three years for Outset Medical. Well, there were some pockets of success in there, Dan. I will say, there were some pockets of success in there.

Focus on the pockets. All right, Emily, what is on your radar this week? Well, I'm worried about how Dan's going to feel about my radar stock now. But Twilio is actually back on my radar. Now, this is a communication as a platform service provider whose services are really integral to the companies that they provide services for, obviously, for their day-to-day functioning. But this is a business that had a growth at any cost mentality, burned a lot of cash as a result, and now has quite a fall from grace. But I think its current valuation could be potentially compelling. They're trading at around

two times enterprise value to sales right now. So, if they're able to really improve their margin profile, which is management's guidance, then this could end up being a bit of a steal at today's prices. Dan, a question about TWLO, Twilio. Twilio sounds like it should be a Halloween candy, probably one that nobody likes. Also, Emily, this stock chart is ridiculous. They're back down to pre-pandemic levels for the stock price. What's going on? Yeah. There are no Twix, right? I'd buy up Twix really quickly. But I do think that Twilio, this is a turnaround story. They lose money or they're a great performer. Dan, which comeback story are you putting on your watch list?

Just because I'm hungry, I'm going to go with Twilio. It sounds like a snack. It's not, but it sounds like one. Dan, thanks for weighing in on our radar stocks. Emily Flippen, Jason Moser, thanks for being here and bringing them to us. Thank you. That's going to do it for this week's Motley Fool Money Radio Show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening! We'll see you next time! We'll be right back.