The Compound and Friends - Doubt but No Fear, SpaceX Reports, Netflix Cleans House, AI Bond Vigilantes, Bending Spoons

Starting point is 00:00:15 Yeah, look at all the gangsters in the chat, Michael. You see them? I do. Hello, hello. Everybody's here. All the pounders are in the house. Quick shout out. Derek Sip says, it is time.

Starting point is 00:00:26 You're damn right. We got people from Portugal in the chat. Micron Millionaire is here. Jerry Jinma is here speaking French. Okay? Who else? John Mellett says, let's get down to business. Good idea.

Starting point is 00:00:41 We have a lot to get through, and we got to get Michael out of here on time. because he is going to the banner raising at Madison Square Garden. Is this like one of the best days in your life, potentially? Yes. Are you going to cry? I know you. You're going to cry. Oh, yeah.

Starting point is 00:00:58 I saw this. I saw this. I thought it would make you laugh. John? LeBron James squeezes eyes shut to avoid catching glimpse of Philadelphia during commute. So it's pretty perfect, except they show him in the back of a car, when in reality he's commuting via helicopter, as one does, for their home team, for their home city.

Starting point is 00:01:25 What a joke. I was asking you before, do we have a rivalry with Philly? You said not really. I agree with that. But tonight, it's fucking on. Let's go. All right, let's go. All right.

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Starting point is 00:02:34 The fund is distributed by Alps Distributors Inc. DBMF is the world's largest managed futures ETF as of September 30th, 2026 with $5.42 billion in AUM. Well done. Great read. So I have to be honest, last couple of hours I spent in the pool. So I'm just getting caught up on the news. Don't worry. I guess back. I'm wondering if those French school children found their textbooks in the Louis Vuitton store or not. I'm not sure. I also wanted to check in on how Netflix was doing because like an idiot, I have ridden this stock down from 100. I've averaged down. And then today, I had a Mea Culpa on CNBC. I sold half my position at about 70. Just, you know what?

Starting point is 00:03:25 I'm comfortable in the fact that things changed last week, and that was the reason, all right, fine, let me lighten up. I did not have like a real prediction about tonight's earnings report, which we'll get to. I just said, you know what? This company, it's under siege in the stock market. Financially, they're doing great, but they clearly have a problem with key.

Starting point is 00:03:46 keeping the public's attention. You could blame the shows. You could blame competition. Whatever it is, in the end, they fired Bella Bajaria, who's the head of content, fired Daniel Lynn, who's the head of studio. They fired Daniel Lynn's second chair. And then they did a thousand layoffs, and you probably don't do that ahead of a quarter where you have great things to say.

Starting point is 00:04:09 It just seemed unlikely to me. So for better or for worse, I lightened up on Netflix. I see it's down three sticks in the after hours. No big deal. Not down enough for me to want to buy it back, but down enough to make me feel less dumb because I went in a little bit lighter. I'm still wrong.

Starting point is 00:04:29 I still hate myself. Broke all my own rules. It's a bright side. At least for me. I also whacked it off for a 20% loss. But I did it. Higher. Well, whatever.

Starting point is 00:04:38 I take 20% loss in a taxable account. So at least I get it right off. So can I ask you this? before we get into the results, do you think there's actually anything they could have said? On this part, um, well, what they said wasn't good. So do you want to get into it? But, but, but like what could they have said? Well, when they're going to say we're on fire?

Starting point is 00:05:01 No, you're not. We know you're not. Yeah, that's it. That's what it is. Like, like everyone, so the only question going into the quarter for the Bulls was, is this it? Like, is all the bad news in? No, there was no, there was not going to be a saving grace from them coming. coming out and being like wait till you see our next engagement metrics, which by the way,

Starting point is 00:05:20 they now only publish once a year. It used to be twice a year. We have no idea what's going on here. So we have the, but we have the results for the quarter. So let's do it. Walk us through what they said. Let's just start with the top line. So listen, it's a matured company.

Starting point is 00:05:35 We don't expect the growth to be accelerating. This is not like a cloud computing company, but four straight quarters of deceleration, not great on the revenue side. 11.8% year-over-year, the slowest since 2023. I guess on the good news that the margins are pretty healthy, if the margins are fine. But the guidance, you just can't do this. The guidance is 0.2% below the midpoint, okay?

Starting point is 00:06:03 The advertising platform, they currently expect 2026 ad revenue of 2.7 billion down from approximately $3 billion previously. It's just not good enough. They said, we know there's some investor concern about our hours, about our view, hours growth. Yeah, there is. Chart on, please. We've been sharing this chart, not in you and I,

Starting point is 00:06:23 but just the street has been sharing this chart forever. And it just keeps getting worse. Like, YouTube is absolutely eating their lunch. And unfortunately, this says a lot about where we are. It's all short-form stuff. Like, my- I don't even know what, what could, can you imagine what would reverse it? Like, the reason Netflix doesn't want to talk about this metric anymore,

Starting point is 00:06:44 time spent, hours spent, is because they can't win. It's better off to not even talk about it. It's one thing to compete against Paramount and Disney for like streaming content hours on a streaming app. And it's another thing to be. Right. But the problem is the conversation is pivoted away from that. And now it's like, well, let's compare Netflix to TikTok. Let's compare it to Instagram and YouTube.

Starting point is 00:07:13 And what else do people do? Reading books, playing pickleball. They can't win. You cannot win that narrative if you're Netflix. You just, you simply can't. Okay, so the bulk case, and it's not a very convincing one, I sold the stock, you sold half of it. The stock is down 52%. They bought back a record number of shares, obviously at higher prices.

Starting point is 00:07:34 Sentiment cannot possibly be worse. I don't know how it can get worse. Right. Well, they brought in, they brought in. someone with extensive experience in all forms of content streaming and otherwise and sports. And he seems to be very well liked around Hollywood. He's an ex-Disney. He's involved with Fox, has done big sports deals.

Starting point is 00:07:59 And he seems to be there to start bringing in his people to fix this thing. And maybe that's the bull case is that, look, they're probably not going to beat YouTube, but they're still going to make a lot of money. And they do make a lot of money. And the margins are good. It's crazy that people don't care. I shouldn't say they don't care. It's not the thing they're focused on is how profitable Netflix is.

Starting point is 00:08:26 It's growth. What have you done for me lately on growth? And if you don't have a good answer, you could report earnings per share and buy back numbers until the cows come home. I'm a seller of the stock. That's the way people act. Yeah. Will they always? I'm not sure.

Starting point is 00:08:41 No, I mean, listen, they'll be a bottom eventually. I just, is it 64 or 44, who knows? All right, SpaceX, Monster. Yeah, so this is, I mean, this is like a whole new paradigm for the stock market to have a company like this. Let's, let's dive in. Elon says that they see SpaceX annual recovering revenue to land between $500 billion to a trillion by the end of 2027. Not 2037. I don't know if he's going to hit it or not, but by the end of 2027.

Starting point is 00:09:15 He doesn't have to hit it. He just has to get people to believe that it's possible and it's good enough. All right. So what do we do? Revenue of $14.6 billion up 161%. And a lot of it was in the super intelligence category, which is obviously welcome news for what was a pretty shitty week for all these neoclods and all the, uh, compute companies. Yes.

Starting point is 00:09:44 This was one of the things that SpaceX did over the last couple of years that changed the story before it even went public. It basically, it de facto became a data center business when here tofore people were thinking of it for the most part as a combination of Starlink and launching satellites. And this is the thing that I think has driven the Elon bears. or like the knee-jerk short sellers, literally into the mental asylum. He has this ability to do this over and over again. It's not just like he launches a new product.

Starting point is 00:10:23 He launches a new category and executes enough that people can envision the Tam and they just stop caring about the thing that you were bearish on. So like think about Tesla. If you were bearish on auto deliveries in continental Europe, He's like, okay, what if we don't even say the number anymore? What if we start talking about churning out robots? What are you going to do now? And he has done it again and again.

Starting point is 00:10:52 He's done it with SpaceX now. And people that have tried to conventionally compare this to either like an aerospace and defense business or look at the Starling piece and try to come up with an analog to AT&T and Verizon, you're already screwed because that's not. where the story is going. The story is now going to the data center business, which turns out he's pretty good at. Dude, it went from $2.5 billion in revenue last quarter to 7.5 this quarter. Yeah. It's, um, quarter. It's super impressive. Uh, I think this is really important for the market that this stock is not $80. Totally. Because, you know, as we've talked about a million times,

Starting point is 00:11:38 including with Steve Eisman last week. By the way, let us know in the chat what you thought of the Eisman interview. I thought it was really good. Not that we did so good. I just thought Steve was really good. If we don't get the banners flying and the trumpets trumpeting for Anthropic,

Starting point is 00:11:58 either later this month or next month, that's problematic for everybody's earnings estimates. And Anthropics, Anthropics revised, I guess, S-1 came out today. The journal published it. The numbers that they've committed to, like the hundreds of billions of dollars in GPU rentals in data center spend, some of these are guaranteed. Like their contract with AWS is like guaranteed.

Starting point is 00:12:27 We need those numbers to happen market-wide. And so the fact that this stock is not 80, it's 150. I think bodes really well for a year-end rally. especially in tech and all of the related data center sectors. What do you think about that? Let me quote the Wall Street Journal. So you share this with me an hour ago. Anthropic plants to spend $11 billion on Google Cloud computing contracts,

Starting point is 00:12:51 $110 billion with the AWS, and $31 billion on Microsoft, regardless of actual usage. They also agreed to spend up to $86 billion renting Nvidia chips from smaller AI cloud providers, including it's more than a hundred. I mean, it's just the numbers are astounding. So I know we'll get to this later. But their revenue is growing faster than their expenses, which to me, so the big headline that the media leads with, 80 billion in losses for the first half.

Starting point is 00:13:21 The more important number, first of all, that 80 billion, some of that is accounting, like the way they account for their liabilities. Okay, but put that aside. Let's just to say it's a lot of losses. their revenue growth is starting to outpace their growth in their expenses, which is like exactly what they need to show in order to float this thing in a couple of weeks. And they showed it. And I thought that to me, that's the headline.

Starting point is 00:13:50 The thing is, I don't write for clicks. I don't have to come up with a headline that casts it in the most negative light. Also, to your point, Josh, all of the, not all, let's say 80% of the laws was change in fair value of convertible notes and other instruments. Right. So, I mean, is anybody investing on that basis? How the accounting trade? We all understand this company has lost a ton of money, but they lost it on purpose.

Starting point is 00:14:16 They didn't lose it because all of a sudden the thing they make is out of favor. And they're sitting with a warehouse filled with cans of Red Bull. That's not the nature of this loss. This is a spend because the revenue is growing so fast. and they, I think, were able to make that case. Like in this S-1, including all the risk factors that, of course, make up like 90% of the document. And I thought that was really helpful. So SpaceX also helpful.

Starting point is 00:14:46 We, from market-wide perspective, I think we need SpaceX to hold up and we need and we need Anthropics to go public and raise the money that they need to honor these spending commitments. And right now, nothing that we've heard today from either company tells us that that is off track. Is that a good way to sum it up? That's exactly right. One last thing before we move on in much less sexy news, but important read-through on the consumer. Capital One reported after the close and the stock is doing pretty well. So I haven't done to the report, but like to see that because that is a, that is the company that serves everybody.

Starting point is 00:15:19 That's your bread and butter consumer writ large. All right. So I titled this next topic, doubt not fear. It's something that we've been talking about over the last couple of the weeks, that there was a lot of doubt in the market, not in a ton of fear. I felt the fear last week. I thought we got it. You had the SMH falling for nine straight days.

Starting point is 00:15:40 Do you know this? Longest losing streak in 10 years. Yeah, it's wild. And it wasn't quite indiscriminate selling. I mean, mostly everything went down. But the market was separating winners from losers. Next chart, please. So we had, uh, uh,

Starting point is 00:15:58 I had Claude help us with this, break down the returns of different baskets of AI-related stocks. So for example. Look at all the detail in this. So for example, like the software names relatively unscathed, hyper-scalers fell. Not so bad. That's the black line. But the semi-equipment. And I think this was directly related to interest rates.

Starting point is 00:16:21 The supply that is coming to market with interest rates on corporate. We're dead and the shittiest rated bonds going up to 17%. We spoke about this with Isman. You're probably going to see a slowdown in new capital formation. But the demand equation isn't changing at all. Well, that's, I think you and I nailed that idea. Like, regardless of who finances it and at what price, the tailwind here is that the usage is not going to stop.

Starting point is 00:16:55 So Eisman was concerned about a potential price war where the labs start cutting the price that they're charging the consumer of AI which then leads to some sort of spiral and that may yet happen has not really happened yet but nobody is suggesting that the usage like the opposite of the Netflix problem the Netflix problem is people are literally not turning it on or they're not leaving it on the way they used to that's a demand problem there's no demand problem for AI anywhere in sight. Thank God.

Starting point is 00:17:27 Alar 1 in the chat has a question for you. Okay. We're giving Josh credit for the Vick Spike? Oh, it's interesting. Yeah. Can I have it? Yes.

Starting point is 00:17:39 We got to 18. It qualifies. No, I think we got to 21 intraday. Yeah, sure. I'll give you credit for that. I'll give you credit for that. Speaking of fear. All right.

Starting point is 00:17:51 So when we were on with Uri and Timmer, I shared the chart of RSP divided by SPY, and I said, this rubber band can only stretch so far. It's not like we're comparing the 10-year divided by the price of Johnson and Johnson, right? They're completely unrelated. Chart on, please, the ratio of RSP to SPY. And we had a massive rip, just as we got started talking about how terrible breadth was, You had a pretty decent rebound. Ryan tweeted last week.

Starting point is 00:18:28 You had 378 stocks in the S&P 500 that were higher, which was the most since June 12th. And also, today, we had another very strong breath day. 304 stocks were up. And yet, this is sort of to be careful what you wish for. Because the S&P 500, the index, was not even up 30 basis points. So Adam continued to dispel the myth that more breadth is necessarily bullish for the stock market. It's intuitive. It's just not true.

Starting point is 00:19:03 I said on TV today, actually, the high oil and high interest rate thing is like the best thing for the stock market. Because when people get nervous, they sell all the little stocks that don't matter. And they buy Apple, which and Microsoft, which make the market go up. So it's the strangest. it's the most perverse idea in the markets right now. But that's like literally what's gone on this fall, which I think is why the bowls are sort of unsatisfied, but then also the bears are just not getting their satisfaction.

Starting point is 00:19:37 Because rates spike, people dump all these $20 billion market cap companies, and it doesn't fucking matter. Because the big guys are the recipients of those flows, and those stocks hold up. and the S&P is like, it's like fine. So it's a really weird situation right now. It's a very bizarre dynamic. We were waiting, watching the breath continue to deteriorate and waiting.

Starting point is 00:20:01 Like when is the index going to fall? And you got hot inflation on Tuesday, hotter inflation on Wednesday. Rates came in and bad news marks the bottom. I guess that's sort of how it normally works. But with the S&P only off 2.5%. Very strange dynamic. Let's do this Adam thing to finish this topic. So Adam wrote about Adam Parker, Trivariate, friend of the show.

Starting point is 00:20:23 He will be with us on Broadway, which by the way, we sold out. Thank you to everybody who bought a ticket. Unbelievable. We love you and appreciate you. And if you were lucky enough to have snagged one of these tickets, I promise you. We're going to have a great time. Adam said many investors have been lamenting the fact that while the index has remained elevated, market concentration has been high and breadth has been weak.

Starting point is 00:20:45 he says that sounds intelligent, but again, it's demonstrably false that you need good market breadth. So he looks at something called, and I remember people talking about this like 25 years ago when I was a young broker first learning about technicals. And I haven't really heard a lot of people talk about this since. The McClellan Summation Index, it's a what? You agree? Nope. Yeah.

Starting point is 00:21:15 Nobody talks about this. Yeah, no. Okay. It's a market breadth indicator that measures the cumulative direction of market participation over time. So it's, look, there's a million breadth indicators, and they mostly stand in for each other. But he's using this one, and let's put up this first chart. This is like a little bit almost over my head.

Starting point is 00:21:36 Josh, you're a mathematician. Please walk us through this. The general idea here is he's looking at the summation index, and he's doing a rolling 120 month. That's 10-year regression versus the forward returns on the S&P over the next month. So if you followed me on that, he's basically saying there's, he's basically saying it works in the opposite way that you think. It's not actually the thing that matters to the market.

Starting point is 00:22:07 So he says breadth is actually good at predicting volatility, which makes more sense. And so here's the second chart, which I will. also barely be able to explain. This is a, this is a regression between that McClellan summation index and market volatility. And he says this remains statistically significant and negative, meaning low breadth is associated with high volatility and high breadth is associated with low volatility. So if you want to put, so chart off, the point is, and I love that Adam did this work, if you want to use internals in the four, of the McClellan summation, whatever.

Starting point is 00:22:49 Inde gluer. Right. Or any other thing that you want to say, a better use of it rather than predicting forward returns would be to say, oh, if we have this many stocks not participating in an uptrend or dragging the market down, volatility is probably going to be a higher over the next month. There's something there. I don't know what you do with that.

Starting point is 00:23:13 What you don't do. is go out and sell J.P. Morgan, Berkshire Hathaway, and Cisco. That's not what you do with that information. And seen. All right. So, yes, to tie a bow, I would say, in plain English, that good breadth has been good for stock pickers. It has not been great for index owners. And most people want the index to go up.

Starting point is 00:23:39 That's actually a great way to phrase it. bad breadth in the market really sucks if you are underweight the mag seven because you're trying to outperform it does not work in your favor but it does not prophecy some sort of market-wide disruption i'm sorry i know you wish it does it really doesn't and we've made this point in 15 different ways so we'll put a pin in that one for now all right AI bond vigilantes um what was the thing that you learned from steve eisman about the AI trade or what was like your biggest What was your biggest takeaway from the points that he made? To me, I think it was it's either all going to work or none of it's going to work.

Starting point is 00:24:23 Like you better hope this holds up because it's the whole economy. That's what I got. Like, good about the nuance. It's all going to work or none of it's going to work and nobody knows. I like that take. And that does not require core weave stock to go up. That's not the thing that's important. The thing that's important is the labs have to,

Starting point is 00:24:42 to go public and raise money and the hyperscalers have to continue to put up big revenue growth numbers in their cloud division. And that's it. And if those things happen, we should be fine. The nuance is not important until some future date and that date is not right now. Those numbers that I read about anthropic owing money over town like Bunny Lubowski, if it's good, it's good. And if it's not, we're all going down. Jackie Treyhorn treats objects like women, man. All right. What was your takeaway?

Starting point is 00:25:18 Was it different than mine? No, that's it. I like how he cuts through the bullshit because he's a New Yorker. And rather than have like some like, you know, some intricate narrative of cockame, maybe nonsense. He just goes, I can't answer that, which is he's probably the answer. Right. He's just like, look, if the demand holds up and people are spending money on

Starting point is 00:25:42 AI, we're going to be okay. If we're good, we're good. If we're good. It is what it is. All right. Ednauddinney said something that I thought was positive, even though at first blush, it could be taken negatively in talking about what happened with Nebius and Corweave, the debt, the stock prices, the concerns of last week. He's framing this as like, this is healthy because the bond vigilantes whom we normally associate

Starting point is 00:26:11 with sovereign debt like treasury bonds or municipalities are at work in the credits of the AI issuers and they are enforcing market discipline where no one else will in the form of dividing which credits do we want to own do we want to own meta bonds yeah we probably do do we want to own core weave not as much as we used to that's the that's the AI bond market vigilantes taking the pricing into their own hands and delineating

Starting point is 00:26:47 between good and bad risk. And I think it's healthy too. So let me just quote Adam and then I'll get your reaction. Last week's route in AI-related stocks convinced the naysayers that the AI bubble is bursting. Just as they've long predicted,

Starting point is 00:26:59 our happier spin is that the vigilantes are now doing a good job of regulating and allocating capital to AI. Credit quality spreads are widening to reflect the riskiness of the bonds issued, issued by some of the dodgier borrowers like Corleave and Oracle,

Starting point is 00:27:16 the rapidly rise in cost of credit for such borrowers should deflate the AI bubble without bursting it. If some AI-related credits do blow up, the godfathers of the AI mafia, along with their protectors in the government, will clean up the mess. Lastly, meanwhile, the route in the AI corporate bond market has triggered a flight to quality and safety that has stopped the route in the U.S.

Starting point is 00:27:43 treasury bond market. I like that, too. This confirms our thesis and Michael Batnick's thesis that the recent rise in U.S. bond yields mostly reflects better than expected economic growth. That's it. I love it. Clean up in aisle three. John, figure three, please.

Starting point is 00:27:59 Look at this chart. Next one, please. So speculative grade credit spreads in the AI-related basket, in non-A. of similarly rated credit. Look at this. The light blue line blowing out. I think this is such welcome news. The market is sobering up.

Starting point is 00:28:20 The market is pricing risk appropriately. Who is not concerned? The market is telling the investment banks that advise the issuers, chill out. Yeah. Not stop. Relax. I love it.

Starting point is 00:28:36 We don't have to race for, We don't have to race for AGI right now. Rates are at five and change percent. Relax. And that's the discipline that we want to say. We could skip this Mahaney stuff. We'll do it another time. All right.

Starting point is 00:28:52 You know what you said this a while ago about sometimes the market takes out its own junk? How did you phrase it? Like in a bull market? A healthy bull market takes out its own trash. Okay. Well, Exhibit A. Look at the DGend Dow. It's in a 44% drawdown.

Starting point is 00:29:10 Because it's trash! And a lot of the individual names. And we haven't updated this in a while, so I could probably use a facelift, but it's bad. What would you take off this list? I got a few. I don't think Reddit belongs here. Palantir doesn't belong here. Agreed on both.

Starting point is 00:29:27 Rob Hood does not belong here. I mean, this is a very stale list. No, Robin Hood belongs there, not because Robin Hood is junk, but because Robin Hood lives and dies based on the willingness of people to buy and sell junk to each other. Okay, fine. Roblox does not belong. I can't get with you on that. I would pull Palantir off.

Starting point is 00:29:46 I think it was on there because it is degenerates worth trading it, but I think it's graduated. No, it's graduate. By the way, Palantir was on an all-time high last week. So the list looks, it would look even worse. If this was updated, it's down way worse. So let's add some trash to it and pull some of the better things out of it. Okay. We'll do that.

Starting point is 00:30:04 We have to rebalance our index. Yeah. But put the chart back up. Your point is well taken. This is what you want. You don't want to see a market led by this degenerate stuff. No. Why would you want that?

Starting point is 00:30:19 No. You don't want 20. Nobody wants 20-21 again. No. Okay. This is the last thing we're going to do. Berkshire buying the stock of a company called Bending Spoons. So Berkshire was part of this thing pre-IPO.

Starting point is 00:30:35 Or like they were like in on the offering itself and now they're buying in the secondary market. For whatever reason, these millinized teenagers who founded this company, I'm just kidding, they were college buddies but they're older now. These gentlemen from Italy who founded this company got the attention of somebody at Berkshire and they liked the stock. And I thought it was fascinating because of software company. and this is normal not quite software let's say internet company this is thousands and thousands of miles away from anything we've seen berkshire do pretty much ever outside of buying apple and ibn this is a this is a strange story it's getting stranger so i wanted to put it on everyone's radar and get your take on it mike um give me the give me the chart this is the daily closing price

Starting point is 00:31:32 since the IPO and were indicating where the Berkshire purchases are, as you can see, they were involved from the get-go, from the initial public offering. And then they just announced that they added to it in a filing. What does this thing do? Bending spoons buys dead internet companies, fires almost everyone, and then utilizes AI to run them more profitably. You know, like, cigar butt investing was how like Buffer. it started in the 60s.

Starting point is 00:32:04 These are like companies with the last 60 years later. So tell the audience what the company, what companies they own. All right. So they own AOL, like literally fucking America online. Had no idea that was still a thing. They own Vimeo, Eventbright, Evernote, We transfer, meetup, air table.

Starting point is 00:32:25 Meetup. We transfer. Duncan and I used to use We Transfer to send video files. Oh, I, remember that from an SD card yeah yeah yeah yeah Miro so all right so this is let me explain it very quickly they buy declining consumer apps these are companies that don't have enough growth to go public or be their own stock but like venture capitalists don't want to own them either so they're they're getting like a good valuation they restructure it they bring in AI they generate cash flow the cash flow accrues

Starting point is 00:32:57 to the parent company which is bending spoons since early 2023 they've spent six billion dollars on 15 of those acquisitions that we just mentioned. Every deal has to clear a 25% annual return before debt and 65% after debt. Like that's their, that's their model. For example, they bought AirTable for $1.3 billion, which was 90% below its peak value. And then they get rid of the team and they just, they run it for the user, the user base is not looking at the stock price. The user base, for whatever reason, continues to get value out of these platforms. And so they just run it for the benefit of the user base and they become the new equity owners. They do mass layoffs. They increase prices for existing users. They do generate a lot

Starting point is 00:33:48 of anger on social media. The founder's name is Luca Ferrari and Berkshire was a longstanding inspiration of his. He started the business with these guys he went to business school with or college with. Last year, they did $1.3 billion in revenue. That was 100% growth from the prior year. Operating income was $613 million, which was up 100% from the prior year. And adjusted earnings per share last year, up 57%. This is a wacky business, right? It's a wacky business. And it's strange if for nothing else than the signaling that it does to investors. Like, this is one of the first non-Buffet, not for, I mean, he's been sort of hands off

Starting point is 00:34:35 the steering wheel for a while. Well, the IPO, he was still there, but yes, you're right. But it's not a lot of money either. So even if this is a grand slam or Ruski, it doesn't move anybody's needle. It was just strange. Yeah. So I don't have right in front of me how much he bought, but whatever. It's like a billion dollars.

Starting point is 00:34:51 It's not going to change anything for Berkshire Hathaway. There is a very well-established bear case on this company. as you might imagine, it was quickly caught up in the Saspocalypse early this year. I'll just give you the bare case and then we can wrap this topic. But starts with valuation. So the analysts that follow it, the consensus rating is hold, which on Wall Street means sell. One analyst cut their target to 36, which is way below the current price, said organic growth was only 3% in Q2. the headline growth depends on a steady stream of acquisitions.

Starting point is 00:35:30 Yes, we know. That growth is funded with debt. The company carries almost $5 billion of long-term debt, and their interest expense in Q2 was $109 million, which is tripled year over year. That is about 29% of adjusted operating income. So it's a 2.4 times leverage ratio, and the bears are basically looking at it like at a certain point,

Starting point is 00:35:55 You're going to run out of deals or you're going to do so many deals that the interest expense on the debt is going to make this an unattractive way to own internet companies. Yeah, what's next? Tumblr? I mean, look, it's like in some ways it's weird, but in some ways it's sort of classic, right? Like it's like it's nobody else wants these companies. Who are they bidding against? By the way, speaking of modern internet companies, did you notice that meta lost the muse bump

Starting point is 00:36:25 very fast. Do you know why? The churn rate is not good. I'm told that the X-Bot or Grockbot is amazing. I don't, it didn't lose the whole bump, but it lost the momentum.

Starting point is 00:36:43 Oh, no, it did. Yes, it did. The whole thing? Yeah. Not great. The thing with these, the thing with these agentic chatbots

Starting point is 00:36:53 is that a lot of companies are just denying them. Won't let them crawl their sites, won't let them transact. So Amazon very notably said, nope. Our shopping experience works fine as is. We don't need a helper.

Starting point is 00:37:09 The airlines aren't allowing it. The banks and brokerage firms all said no fucking way. And so it's not that they're useless now. It's that now they have to play politics and they have to make deals. Yeah, for sure. They have to make deals. Yeah.

Starting point is 00:37:23 Now they have to do revenue. And they will. Yeah. Notably, I don't know if you saw this, Walmart is going in the other direction from Amazon. How so? Walmart went like this. Oh, smart. Smart, right?

Starting point is 00:37:35 Yeah. Zgging while Amazon zagged. And they'll take all the e-commerce you want to send their way with instinct or muse. They don't give a shit. Bring it. We'll do it. Well, I thought that was interesting. I appreciate the short episode.

Starting point is 00:37:51 I am off to see the world champions. And by the way, the Celtics blew their first game. So there's that too. I'm so happy for you. I'm happy for me. I'm happy for Knicks fans worldwide. Enjoy the raising of the banner. Enjoy the ring ceremony.

Starting point is 00:38:08 And enjoy the beating that we're about to throw at Philly. And we'll talk to you tomorrow. Guys, thank you so much. We appreciate it. Thanks for coming to the live. Remember that tomorrow is an all new animal spirits. And we'll do Ask the Compound. And the Compound and Friends.

Starting point is 00:38:24 Between now and the end of the week, keep it locked. We love you. We'll talk to you soon. In 2002, Ryan Wedding was an Olympic snowboarder at the top of his game. Ryan's style is really gunned and gold. And in less than a minute, it slipped away. But he continued to chase the high. Ryan James Wedding. He controls one of the most violent drug trafficking organizations in this world.

Starting point is 00:39:16 I'm Michelle Shepard and from CBC Podcasts and the Toronto Star, The Most Wanted Olympians. Wanted Olympian, available now on Spotify.

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