The Compound and Friends - Good at the Cyber (with Crowdstrike CEO George Kurtz), 3 tech stocks for 2021 (with hedge fund manager Eric Jackson), Impeachment - ANOTHER ONE

Episode Date: January 15, 2021

This week on The Compound Show, Josh talks with George Kurtz, co-founder and CEO of Crowdstrike, one of the fastest growing technology companies in America. Crowdstrike's shares have nearly quadrupled over the past year as Wall Street has fallen in love with the company's growth prospects, business model and expanding TAM. George's official blog is here at Crowdstrike's corporate homepage: https://www.crowdstrike.com/blog/staff-member/george-kurtz/page/1/ Next, Eric Jackson joins the show to discuss his top three stock ideas for 2021. Eric's hedge fund, EMJ Capital Ltd, reportedly gained over 100% last year, having invested in some of the biggest work from home winners. You can learn more about Eric's fund here: https://emjcapital.ltd/ Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

So we had an impeachment this week. Another one. Another one. Another one. Yes. Another one. Another one. That's right.

And another one. Thank you, DJ Khaled. Another one. All right. That's enough of you. So look, many people are saying that this was the greatest impeachment ever. Like even better than George Washington's impeachment. And that one was lit.

So this one was even better than that. Just tremendous. That's what I'm hearing, folks. Many, many people are saying this. Stocks rallied anyway. Again. And do you want to know why? Because investors aren't on the red team.

They're not on the blue team either. Investors are on the green team. My man, Anthony Scaramucci told me that, and I love it because it's so true. On the green team, you can have your political leanings in one direction or the other. That's fine. But in the end, it's about business and success. When you're on the green team, that's why you wake up every day. This moment in political history, as horrific as it is, will pass. It's a fever. Trumpism is a virus. It's a sickness. But we're in the process of sweating it out.

It's not pretty when a fever is breaking, but break it will. Republicans are already distancing themselves. Privately, they're saying they've had enough. Publicly, they're now saying they've had enough. That's a change. And Democrats, they've really been obsessed with this guy and impeaching him. And they are now also going to start refocusing on whatever they want to get accomplished for the next two years, right? They have the House, they have the Senate, they have the White House. They have a two-year runway to actually focus on policy more than personality. So that'll change too. And this guy is going to run away to Florida and spend the rest of his life paying off lawyers,

paying off legal settlements, paying fines, being sued, counter-suing. That's what he's going to do. And the green team knows it. The green team isn't focused on that. The green team is thinking ahead. Where is the opportunity going to be as this insanity gradually comes to an end? And if you're on the green team, you've come to the right place. That's who I do this podcast for, the green team. That's you. Today's show is going to knock you out.

And then we're going to roll you in a rug and we're going to kick you off a cliff. And then we're going to drop dynamite off the cliff and explode the canyon. I told you I wasn't playing this year. I already told you that, right? 2021, forget it. You have no idea. Eric Jackson is the president and the portfolio manager of EMJ Capital Limited, which he founded in 2017. But you know Eric. You probably remember him from his famous activist campaign at Yahoo back in the day, trying to get the folks at Yahoo to listen to Reason as Google ate their lunch. That was fireworks for a long time. Eric was also one of the first US-based investors to have discovered Alibaba and the massive internet opportunities in China. Last year, according to reports I've

seen and heard, Eric's hedge fund did well over 100%, absolutely shooting the lights out in some of the hottest technology trades of 2020. He's going to tell us about his three favorite stocks for 2021. Are we saying 2021? Okay. Eric Jackson's top three stocks for this coming year. I'm excited to hear about that. But first, we're going to be talking with the CEO of one of my favorite stocks right now, CrowdStrike. Many of you have seen and heard me talking about cybersecurity as a secular investment theme for the next decade. I've been talking about CrowdStrike. I own the stock, full disclosure, as my favorite way to play it all year. The stock's up about 300% over the last 12 months. With the new distributed workforce,

which by the way, is a global phenomenon and not going away, endpoint security has never been more critical. All the stuff that you want to do online, virtually, remotely, in the cloud, whatever it is, you can't do it if the provider of that thing can't secure it. And if your device is insecure and if the network is insecure, none of it works. So no matter what online service you're excited about, cybersecurity is a very big part of the mix. Trillions of dollars and the identities of billions of people are at stake. So CrowdStrike is one of the fastest growing companies in America right now in one of the fastest growing trends within technology spending. It is an absolute honor to have George Kurtz, the founder and CEO of CrowdStrike on the show today. I want to thank

my friends at Noble People for making that happen. Greg and Rebecca, good looking out. All right. So we're going to talk to George. Then we're going to talk to Eric Jackson, get some of his investing ideas for next year. It's going to be an amazing show. I told you it would be. So let's get right into it. Duncan, drop that disclaimer and we'll go for it. Welcome to The Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth

Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. All right. So first of all, George, welcome to The Compound Show. Really appreciate you being here this morning. You're on the West Coast, right? I am on the West Coast. Yeah. Always excited to be here and looking forward to it. All right. Cool. So I don't want to spend too much time on the past because there's so much exciting stuff happening in the present and in the future.

But I want to give people a little bit of background. So you've been working in cybersecurity for 26 years, previously at McAfee, before co-founding CrowdStrike in 2011. What was the insight that you had while at McAfee where you said, there's a big opportunity here and I should start my own company to capitalize on it. Well, it was interesting because I was asked, I was running a couple of different business units. I had a company that was acquired and I was asked to be the worldwide CTO. And I turned it down twice. I didn't want to be just a tech guy.

And ultimately, I took the job and was over the McAfee portfolio. And it was eye opening because there were two big revelations that came about. One is people were paying lots of money, not just for McAfee, but Symantec and others, and not getting the outcome I thought they deserved, which is not to be breached. And number two is everything looked like Siebel, and I thought it should look more like Salesforce. So when McAfee sold to Intel, it was a great time for me to execute on my vision of becoming the Salesforce of security. Okay. So I want to talk about your vision and specifically your business model at CrowdStrike, because in my view as an investor, and I'm a shareholder, I think your business model is one of the things that really sets you guys apart. And there are many other aspects of CrowdStrike,

but I think you guys are about 10% of your revenue coming from incident response, I think you guys are about 10% of your revenue coming from incident response, which I've called a SWAT team. So a company or an organization has a major breach or hack, and you guys come in and assess what's going on. But then 90% of your business is annually recurring revenue, which is – that's the magic number on Wall Street. on Wall Street. And I think entities that join your network, corporations, government entities, they want to use Falcon, they want to use all of these other security products that you have, but that 10%, 90% is misleading because both parts are probably equally important. Do I have that right? Yeah, it's directionally, yes. I mean, we're over 90% subscription, but what you have spot on is the fact that we're very strategic to customers. When they have an incident, it's all the way to the board level. We come in,

you know, they're not customers. We basically roll out our software. We have our services team come in, assess what happened. We have a very good understanding of the adversary, how they work and how to recover from it. And essentially, then we leave our software behind because people look at it and go, wow, we've never seen anything like that. So for every dollar of professional services software, it's multiples of subscription software that we actually get back from it. George, professional services is the SWAT team. It is. That's like the...

Correct. Okay, got it. That is the SWAT team. A lot of times we even get called in for companies that get hit with ransomware, not customers. And they say, wow, we're totally encrypted. Can you help us out? We'll go in, help them out. And then they become customers after that. So it's been a great business, but it's very strategic for us. And by the way, we could actually blow that business up if we want it. We limited to basically under 10%, 10% and below of our overall revenue. Right. So this incident response part is genius because it actually acts as lead gen.

In the olden days, if you were a company like Target and somebody stole from you, that either meant that an employee embezzled goods out of a warehouse or literally shoplifting. This is a whole new world. If somebody breaches Target now, they're walking away with millions of names of customers. That's catastrophic. That's not somebody stole a candy bar or put a snow shovel under their coat. So that's the difference between the way we thought about theft prior to the e-commerce era and now. And 2020 was such a watershed year for everyone going online, all these processes becoming digital. So I feel like, George, when you guys come in as the incident response team, there's a breach, something bad happened,

and then you're leaving, people are like, wait, wait, don't leave. Put your software on all of our stuff and we want to pay you forever. So then you end up with this annually recurring revenue contract and hopefully a new customer for as far as the eye can see. That to me looks very intelligent as a way to set up a company and set up the way it's going to get its new customers. Is that something that happened on purpose or did you stumble upon that model? It was actually interesting because I started that model at my first company called Foundstone. And I remember raising money in late 99 in our first series A investors. They were like, so wait a minute, you're going to have professional services

and a technology company that's never going to work. Literally, they told me that this will never work. We've never seen it happen. But what they didn't really understand is that in security, the services element isn't necessarily setting up the software because it pretty much is easy to set up. It's really about the strategic value of coming in and helping a customer in a time of need. And so I kind of perfected that model in my first company. Others kind of copied it, if you will. And then it was going to be part of the next company I did here at CrowdStrike. And it's been very effective. And the one thing though, I want to just reinforce is given where we are today and the sheer volume of customers that we acquire on a quarterly basis, not all of them come from professional services. We have some really big meaty ones,

some strategic ones that come there, but obviously the machinery is set up where we're going to acquire customers, whether a service customer or not. Yeah, the hack is not necessary as a precursor to a relationship. Okay. What is your current market share and what is the total addressable market? Because it's not just one market. Cybersecurity, there are a lot of different lines of business there. I'm just curious.

I know you have a pretty good-sized chunk of the Fortune 1000 already, but how much opportunity do you think is still out there? Well, I look at it in a couple of different ways. If you look at the total addressable market that we focus on, and this is off our investor website, it's like 32 billion going to 34 over the next couple of years. So it's a pretty big TAM. And we'll talk more about how we increase that TAM every time we add a new module to the platform. But it's a massive TAM. And last quarter, we reported around $900 million of annual recurring revenue.

So you can see there's a long way to go just in our addressable market. But the other way to look at it is how many agents we have that are actually protecting all these different workloads that are out there. And we don't give that number out publicly, and it's pretty impressive, but it's still a small fraction of the overall addressable market of systems that can be protected. And one of the things that I don't really think is appreciated is that it isn't just about PCs and servers. It's about all these other cloud workloads that are available in 2021. And you look at cloud workloads, you look at IoT devices, you look at IoT devices,

you look at containers. These are all things that we can protect. And it's a much different market than say 2010. Can you describe containers for my audience? Because this is a topic that I think Snowflake talks a lot about, and you talk a lot about in your conference calls. What do investors need to understand about workloads, containers, and some of the terminology that you just used? I'll get to that answer, but maybe I'll start with the area that we're in, which is a little bit of a misnomer because we get tagged into endpoint security and people may look at it and go, well, that's a better version of Symantec. And it's like, no, no, it's totally different because in endpoint, that's desktops and servers. When we think about

it, we think about workload protection and an endpoint and a server is just a subset of that. But when you look at all the other devices, anything with network, compute, does its workload, and then spins down. And all of those need to be protected. And the reason why they do that is they can maximize their computing resources and associate a specific workload with a container. What's an example of a container? Is this like one company seeking a data set from another company and that transaction happening, and then it goes away because it's fulfilled its function? Yeah, exactly. And serverless is even like one step above that in terms of it's one function and it actually just then terminates. But it's basically,

there's a small number of things that have to happen in the cloud in terms of like programmatically and a temporary, it's almost like a temporary virtual computer that gets spun up. Those things happen, and then they get basically torn down so that you're always keeping an available pool of computing resources there. And just to give you a stat, we protect over 1 billion cloud containers on a daily basis. So those are systems that come up and down over the course of a day a billion times. Right. Okay. So the primary platform that I think people know of CrowdStrike for is Falcon. And then you mentioned customers adopting other modules. So these are essentially other products or services that you will layer onto that or build alongside of that. Talk to us about Falcon. What makes it unique? And why are you winning so much business from the Fortune 1000 as well as government

agencies? I mean, you're a decade old as a company. So why are you all of a sudden seem to be taking so much share? Well, first it works and it's easy to use. That's good. That's a good place to start. You got to start with it works. Well, in security, a lot of things don't work. And that was my point. When I started the company, the entire industry was focusing on stopping malware, right? That was their whole mindset. We're going to stop malware.

I just looked at it and turned the whole model on its head and said, well, why don't you stop the breach? I mean, it's a simple way to look at it, but nobody was doing it. And half of the breaches don't use malware. So we've built a system that certainly identifies and prevents malware using artificial intelligence, but there's a whole bunch of other things that we do to identify and stop breaches that aren't malware related. And those are all part of the Falcon platform. So why do we win? First, it's a simple agent, which is a piece of software that runs on a computer. I'm sure your audience is

familiar with their old PCs booting and taking 20 minutes to go through all these virus scans. We don't have to do any of that because we've basically put some brains on the computer and that small agent, but we also then do a lot of heavy computing in the cloud. So the cloud is basically built for heavy mathematical computing, and we do that in the cloud. But the way the technology works also sets up the business model. So we've got a single agent, we've got a data store, which we call the threat graph, and all that telemetry

from the endpoints comes into that threat graph. And then just like Salesforce, once you have the data, you have a modular framework that goes on top of it. So if you want antivirus, great, we have that. If you want visibilityivirus, great, we have that. If you want visibility with endpoint detection response, we have that. If you want security intelligence, we have that. And the beauty of it is we can take on average 12 agents in an enterprise and reduce that down to a very small number, just a couple, because we can eliminate a lot of the other agents out there. This is a really underappreciated area of why we win because enterprises don't want all these agents. We come in and say, hey, we can reduce the agents. We can basically reduce your cost

and complexity. And we compute a payback in maybe three to six months after they buy our software. And they're happy as a clam. When you say agent, these are the programs that you're coming in and ripping out like SentinelOne and a lot of these outmoded software programs that companies are paying for. They have this stuff embedded on their devices or their network. They don't even know what it does anymore. It was like from an old it regime, you guys come in and rip all this stuff out, replace it with something that actually functions. Correct. Right. So they've got software. Again, you mentioned Sentinel one, Symantec, McAfee, Microsoft, all these players that are out there. We can take all of those agents.

And even now, because we've branched into areas like IT hygiene, there's other agents that are non-security related that we can actually pull out. Okay. That's interesting. Yeah. The cool thing about what we built, it's a little like ServiceNow. ServiceNow built a company that was focused on ITSM, which is basically the management of assets. What they figured out is they built a really scalable cloud workflow. We started the company focusing on a security use case. And what we figured out is we built one of the most scalable agent cloud architectures on the planet. To move the amount of data that we do in the intelligent way and apply the AI algorithms to it is incredibly difficult. It's a huge barrier to entry.

And that's what I would call beachfront real estate. So if we already have that real estate, we can knock out a whole bunch of other old agents and it's a huge win for the customers and we become that much more sticky. Yeah. Generally speaking, when you do that, you can make the IT manager look smart in front of his own CEO or her own CEO because you're able to do that. I wanted to ask you about – you mentioned – you brought up Salesforce before I did. That's the way I think of you guys and Salesforce for me personally was always the one that got away. I knew the stock would work. I just – for whatever reason, I just – now it's in the Dow.

They did okay without me as a shareholder, but your business looks like it has a lot of the classic network effects of a Google or a Facebook in that companies join your threat graph, or they get that threat graph for being customers. And then they almost can't leave it. Like, and the more people who join it, the stronger it is. And we'll talk about that in a minute. But then you've got the Salesforce-esque element where it's really hard for customers to leave. And I run a wealth management firm and I joke around, we'll be paying Salesforce forever, longer than the company is paying me to be the CEO because we can never leave.

All of our data is there. All of our workflows are built based on it. So you seem to have figured that part of it out as well. Is that something that was premeditated or is it just the way things developed as you built the firm and added new users? It was really part of the overall strategy. Obviously things develop over time, but I looked at Salesforce Workday and ServiceNow and said, there is no foundational cloud platform in security. There's no security cloud. And that's really what I wanted to build. And not only from a technology perspective, did we solve some really unique problems,

but it really sets up an amazing business model because once you collect the data, you know, with Salesforce, once you have the data, all the other modules are basically free. Once we pay for the data collection and it's in the threat graph, every time we add a new module, that's pretty much pure gross margin that falls right to the bottom line. You can see that reflected in all of our metrics, right? Can we walk people through what the threat graph is? Yeah. So the threat graph is essentially a fancy way of saying a large database in a large

data store. And it's different than what most people would be maybe familiar with, which is a relational database that's pretty cumbersome and slow. And this is one of the unique pieces of technology that we built is that a graph actually connects individual points together. So these are, these may look like independent points, but are actually related. So if you think about a LinkedIn or a Facebook, when you pop up, they link you with all kinds of people that you know and activities because- That's the social graph, right? It's a social graph, right? So we took that same approach and we applied it to the threat. So

if you look at activities that take place on your computer, they may seem independent, but when you link them all together, they form an attack chain. And we've built that unique technology into our graph. We actually built our own graph technology because we couldn't find anything that scaled. And we added a time element to it because attacks depend on linking things together over time. And we can keep track of stuff over a long period of time, even if this was a low and slow attack. So the graph is really a key element. And then it sets up all of the training for the AI algorithms. So once we have all that unique data set, we continue to train the algorithms to get better output, better efficacy for our customers. This is where that network effects thing comes into play because one of your customers is being attacked, right?

Like pretty much at all times, but one of your customers is being attacked. There are specific attributes of the nature and form of that attack. And your AI can then take what it's learning in real time from how it's responding to that attack and immediately armor up everyone else that's part of this threat graph so that the attacker really has one shot at it and you've protected your whole network. Do I have that right? Yeah, that's correct. And the attack, what's interesting in security is that it's kind of like robbing a bank, right? If somebody robs a physical bank, it doesn't matter what you drive, what you wear, what weapon you have, you got to get in and get the cash and get out. That's pretty much how it works, right? We've built a lot of the algorithms

to cover the activity of what bad people do. And then they can automatically see new attack types, identify it, and then update all of our algorithms for greater visibility and protection across all of our customers. And that happens all in real time. Okay. So you guys came public in the summer of 2019 and not that this was at all on purpose, but it was almost perfect timing to be positioned in investors' mind so that when the pandemic struck and the realization dawned on us all that, okay, we're still going to be working, but now everyone's going to be working in a distributed way, literally sitting in their homes for the most part. And a lot of stuff that used to take place physically in the analog world will now take place digitally. So you were already there and you were already a well-known stock. And you've now gone from a market capitalization

from when you came public to now, 12 billion to about a $50 billion market cap today, depending on how the market's doing at the moment. But that's 12 to 50 in less than two years. I wanted to ask you as a business owner, what does that do in terms of your own lifestyle and mindset, the mindset of your employees, the way the company is structured? Obviously, everybody's done well financially, but does that necessitate organizational change? Are there like added pressures now that you guys are truly playing in the big leagues of publicly traded technology companies? What's that like?

Well, it's a great question. And what we tried to do is run the company like a public company two years before we became public, right? We have a fantastic CFO. Him and I are great partners, Bert Pabere. And so when we became public, we didn't really change a lot because we had the structure in place. Obviously, the market cap grew and you've got to make sure that people are focused. And as I said to the entire company when we went public, it's not the checkered flag. It's the green flag, right? This is just the beginning of a journey.

And the cool thing about CrowdStrike is we're very mission-focused. We have this thing. We have a whole concept called the mission because our mission every day is to protect customers from breaches. That's what we do. We don't do anything else, right? And make sure we have happy customers that are protected. And we have a lot of ex-law enforcement, ex-military folks that they're driven by mission. And yes, people made a bunch of money, but they're still here because they enjoy what

they're doing and we're making a difference. Yeah, that's great. And I wanted to ask you just a follow-up on that. So you guys were able to raise $750 million in the last week at a cost of just 3%, which first of all, 10 years ago, I would have said no way, but forget about the macro part of that. That sounds about as good as it gets for a growth company that does not yet have a AAA rating or anything like that. I think you guys had a record low interest rate on a junk bond or we'll call it a high-yield bond, although it's not quite high-yield these days. I read in Bloomberg that the demand for that issue was over $6 billion for the $750 that you end up taking. I guess my question is why not issue more right now, given how manageable

that rate is and how unique this environment is and may not persist much longer into the future? Well, we did 750 there and we did another 750 credit line. So, you know, it's a pretty big number. You know, we're solely focused on running the company in a way where people look at it and go, wow, that is really well run. Yes, you know, we've got top line growth. But as you have seen over the last number of quarters, you can see the free cash flow generation. You can see, you know, the operating profitability, which is really important to us. So, you know, we're always balancing, you know, the right amount of financial metrics and what we need from cash and how things are going, but we're generating cash. I mean, we already started with a billion before we raised another billion and a half

or up to, right, with the credit line. So we feel really comfortable. And I think, you know, for us, and it was funny as we went through the process, because we had a lot of people scratching their head going, well, wait a minute, you guys are like, we've never seen a, you know, high yield company look like you. So they had to kind of reorient themselves. But I think it's, it gets us in the mode of like, we ultimately want to be, you know, AAA rated company. And this is the first step in the journey. Absolutely. And now you're, now you're well capitalized to do a lot of what you want to do. And it's not really costing you much. So that is a win on the shareholder side. Yeah. The other thing, Josh, too, is, you know, people,

there were a lot of folks that got into the convert trap and we didn't want to fall into that because we didn't want to have any dilution to the shareholders. So we were happy that we really studied the market, waited and got a great deal on that bond offering. Yeah. One of my favorite books, I think it's Dear Chairman, but it's basically looking at different ways of financing businesses and really the CEOs writing letters to shareholders explaining exactly the types of decisions that you're talking about. And I think that the convert is extremely cheap today, but extremely expensive in the future. And that's, but you know, that's, that's a different mindset. So I wanted to ask you as, as kind of a last question here, and I really appreciate your time today. What are you guys

thinking about for the future? What are some of the other things that you've discussed publicly already that you're either excited about or you think are big opportunities? And please don't say naming a football stadium, anything but that. No, no, no. We'll do that. So let's talk a little bit about the modules and where we are with things. We became public with 10. We started with one. We went public with 10. We're now at 16. And- What are some of those modules? What are examples of those just to give people an idea? It could be things like, I just give you the kind of the simple versions of

antivirus is one of them, uh, device control, it hygiene, the ability to make sure the systems are healthy and patched and things of that nature, vulnerability management. Are they vulnerable to anything? How many modules does the average customer adopt within the first year, let's say, of being a customer? Well, so here are the stats right now, which are amazing. So out of all of our customers, 61% of them have four or more modules, 44% have five or more, and 22% have six or more. And companies would kill for these metrics, right? Because really what it tells you is we've built a very friction-free model. We haven't even talked about the sales model where the platform sells itself. Like we have these in-app trials and we're always,

we're basically taking an enterprise experience and consumerizing it so that the platform is selling itself while we sleep, which is why our sales efficiency metrics are so high. And that's a big part of our success. But as we add new modules, we add new total addressable market. So that's what I mentioned earlier. So we come out one or two modules a year, and we bought a company last year. We didn't even talk about that, which is preempt in the identity zero trust space. And if you look at the latest attacks that just happened, it's all identity based, right? This is, you basically have to understand what people are doing. Are they really Josh and George? And where

do they want to go and how are they going to get there and be able to put guardrails around them using AI? Preempt is like, it's not a totally different market. It's a side of the market that's becoming increasingly fraught with danger, people's personal identifying information, information about what they do, how they spend money, where they go on the web. So you've now got a new module to address that via that acquisition. Yeah, it's slightly different. It's, you know, Josh, you're logged into your computer. Are you really Josh, right? Where do you want to go on the network? What applications you want to use? And we have a really good view of the system health of your computer, because that's what we

do. Now with preempt, we have a view, is it really Josh? And should he be going to certain places, you know, on your network or outside of your network? Okay. Roll that, right? And those are two legs of a three-legged stool. The third leg is data, data protection. That's an area we're rapidly working on. So they're all related to security, but you know, the thing, and you might even get some questions around companies like Okta. We love Okta. And we partnered with them where we can take our information and say, Hey, Josh is really Josh and pass it along to Okta. And then they can also make better decisions in brokering the applications that you want to have access to. This has never been more important because, so I have 34 employees all remote. That won't be the case forever, but my employees need access to things like our Salesforce trading software. We're buying and selling securities for client, but not every employee needs access at the same

level. And they're all working in locations that are not official Ritholtz Wealth locations. So this stuff has never been more important. So that's going to be another big growth area for you. So talk to me about zero trust or trustless. I think that's a term that you guys use it as a second nature in the technology world. But I think for civilians, they're not 100% sure what you mean by that. It sounds bad. What do you mean zero trust? Well, what it means, let's start from the top a bit and that most people are familiar, heard the term firewalls. And for me, firewalls are nothing more than a policy enforcement device. And the reality is every breach you've ever read about had a firewall and they had traditional antivirus and they still got breach, right? So they're not

stopping a lot of things. So in a zero trust world, you're outside of the corporate network, right? You could be even inside, but the perimeter of the network really disappears and your endpoint, which is where we live, becomes the new firewall, right? You're at home. Your system has to stand on its own. It doesn't have all the protections of a corporate network. So zero trust means if you want to get access to a corporate resource like Salesforce, right? That's a resource that you guys pay for. Then you essentially, what we're saying is you're not going to trust the computer and we're not going to trust the user until we can identify that they're both who they are and they're both, they both meet specifications to get access to that resource. And we understand the health of the system because

that's where we live. And with Preempt, now that we can, using AI, they got a great model, we understand, is it really Josh? And when you put those two together, we can say, and we can remove friction to say, okay, you want to get to Salesforce, you can get there. We don't even have to authenticate you. You authenticate once, but if you wanted to move into that device, we know it's you, we know your computer's clean, go ahead and go there. So not only is it a security feature, but it also makes the users more efficient because you don't have all of these, you know, various things popping up every time you want to do something because we know it's you and we can now trust you. Yeah. You don't, you don't need a human network admin getting a phone call

at 6 PM on a Friday night. Hey, I'm trying to log into my whatever. So you've set this up so that people can truly be as autonomous as they need to be when they're working remotely. All right. And so you're going to be focusing on adding new modules, expanding the TAM as a result of having done that. And what are you excited about in technology? as a result of having done that. And what are you excited about in technology? I mean, there are a lot of technologies where I could see CrowdStrike playing an important role,

having cars that drive themselves and having quantum computing and all these different things. You can't really do any of it if the systems where people are developing and utilizing this stuff are not secure. So like, are you focused on any of these markets in particular where you think CrowdStrike might have important role to play? Sure. Another good question. And I think what's important for people to realize is it's as important to focus on a certain area as it is to not focus on a certain area. And what I've seen too many companies do is they try to get into things like endpoint and network and gateway and all these various technologies. And they try to be a one stop shop and they do none of them really well. So we've been super focused on endpoints and

workloads, right? We're like a broken record on that. The data we have and what we can do with that data, right? Because that Salesforce element. And then, you know, you have to look at the devices in the areas. Obviously, we covered desktops and PCs and clouds workloads, but I think an area that's really emerging is the IoT devices. You look at all the medical devices, you look at cars, you look at consumer electronics. I mean, these are all available and need some level of security. And you can't have traditional security. It all has to be cloud-based because they're IoT devices. So we've focused some more. We've got a specific group now that we formed around that.

And you can't do every IoT device. It's a pretty broad area. But there's certain ones that I think would be fantastic for us. And I think when you look at the market of IoT devices, it's exploding. Yeah, it's like a trillion devices. So you don't have to be able to address them all. There's plenty of space to stretch it out. All right.

I think we would leave it on that note. It's just so fascinating, everything that you guys are working on. I so appreciate you coming on and talking with me and my listeners about cybersecurity. I truly believe that your space is like one of the undeniable secular growth spaces within software because you could be excited about every technology under the sun. But if you can't secure it, there's nothing there. I would agree. Maybe one last comment before we leave here. And that is I think you have been spot on in CrowdStrike.

And it's not a work from home stock. It's work from anywhere and really digital transformation. And I think people, investors, it's a little bit of a short sight in this. If you think that the attacks are going to subside once there's a vaccine, right?

We know we're not going to go back working the same way. And we know with digital transformation, the need for security is only going to be more so that work from anywhere approach and digital transformation is really the wind behind the sails. And it's not just kind of a work. How many attacks a month on your network are you seeing? It's a big number, right? It's a big number. I mean, in general, just to give you the stat, we handle about 4 trillion events per week. So in a day, we handle more events into our cloud. Some of them are attacks, some of them are not, but then Twitter has tweets an entire year. Each day? Each day,

yeah. The telemetry, the signals from all of these endpoints that go into our cloud, on a single day, we handle more events into our cloud than Twitter has tweets in an entire year. It's ridiculous. And the amount of those that are breaches or attacks, it's not all of them, but they're going to come along with that size. Exactly. So you're talking about millions and millions, billions of attacks really per day. But they'll probably go away, right? Not going away anytime soon. Not going away, unfortunately. George, you're the man. Thanks so much for doing this. And I want to wish you a happy new year. And thanks for coming on and talking with my listeners.

I know we all got a lot out of it. Anytime. All right. We're here with Eric Jackson. And Eric Jackson is making me nuts on Instagram because every picture is a beach or a rainbow or sunset cocktails. Are you retired? You just had a great year. You're done. What's going on? Well, I work from anywhere. It's a pandemic, Josh. I don't know if you've heard. So I took the family south and found out while we were here that the schools where I'm from are shut right now.

So we figured, do we want to work from online in a snowbank or somewhere where it's above 60 degrees? You know what? This is like the kids are going to remember this for the rest of their lives. So will you. This is like the silver lining is that you were able to pick up and do something like this because you're from the North Pole. So ordinarily this time, this time of year, you would be shoveling and scraping ice off windshields, right? Yeah. Yeah. Yeah. All right. All right. All we do is shovel. We drink maple syrup. Right. So your home base though is Toronto and you've been there pretty much your whole life. Yes. Yeah. I did a stint in New York. I went to Columbia 20 years

ago. So I got to live on the, not like 119th and Amsterdam and all those good places. All right. You did it right. As a, as a young man, you did it right. All right. So first of all, I know you, I think I know you like 11 years or 10 years. I was thinking about it just now, um, as I was setting up. So I don't think that you ever had a blog, but I think that you were very heavily online in the early days of financial Twitter and financial blogs. And I guess we've crossed paths on CNBC over the years, but you have always been someone that I thought your commentary and the types of investments that you were making, you've always been very forward thinking and you've always been someone that I thought your commentary and the types of investments that you were making, you've always been very forward thinking and you've always been very technology

and media centric. And we'll talk about the funds in a moment, but how did you get your start in technology? And do you agree with me that what you were prepared for in 2020 from just the basis of your whole career, like ended up becoming so important. Like the knowledge base that you had about these different spaces that we're talking about, um, you couldn't have been prepared better for that environment. Yeah, for sure. It was like a 20 year overnight success, uh, for me. Cause like, you know, I was at Columbia, like I said. I was doing a PhD there. And actually, everybody with me was going to become a business school professor. I kind of knew three years into it that that wasn't for me. That was a time of the dot-com era. So I think

it's the only time in Columbia at the business school, going, you know, going to banking or consulting or, you know, for a brief, like six months there, everybody wanted to be a dot-com millionaire. And I got introduced to a startup up in Toronto through my father-in-law, actually, that was doing early Siri and Alexa type stuff. And back then they were saying, oh, voice is the next big thing. And it's been 20 years in the making, but we're finally going to make it. And it only took like another 20 years before it finally came to pass. Yeah, so voice is finally here. It's pretty good.

But I feel like it's been something people have been talking about really since I've been in the business. Yeah. So I worked for them for four years. Luckily, it was a real company. Yeah. So I worked for them for four years. It was luckily it was a real company. That was my first like dip my toe in tech, but made a lot of great contacts that I've stayed in touch with. But it was really like what I guess what propelled me forward in the whole tech area and where we were, I think you and I met was that in 07, I did start a blog. It's still around. It's on blogger. I think you can probably find it um my bad you're not

checking blogger um but uh no i i had this idea like i got introduced at columbia to the idea of activist investment like some professor i was studying like corporate governance in a wonky way and like some professors like did you know like there's this type of investing where they actually pay attention to corporate governance it's might know Carl Icahn. He does it one way. But there's this other guy who does it in a very friendly way. You should go talk to him. So I kind of knew about this approach to activism.

And in 2007, I'm just reading the Wall Street Journal or something. And I was reading about Yahoo. And they were floundering, as was their modus operandi for a while. And I got this idea like, hey, they would be a great target for some activist fund to go after. And I obviously didn't have an activist fund. I knew some people at activist funds. In fact, I called up someone at Carl Icahn's firm,

and I pitched them on taking a run at Yahoo. And they were very polite, and they said, well, we don't do technology. We only do activism, like garbage truck companies or like hard asset companies. Oil, jetliners. Yeah, yeah, yeah. So I had this idea, like, what if I, as like Joe Schmo, started an activist campaign aimed at Yahoo. And this was the time when like Facebook was taking off and YouTube was just starting to take off and blogger. And so I, like I wrote a blog, I went to office Depot. I bought, I was living in Naples, Florida at the time. I bought a $15

webcam that I liked stuck on to my laptop. Uh, I snuck into our guest bedroom when my wife was sleeping on Sunday morning. Cause I was too embarrassed. She might overhear me and like put the laptop on my, on a bed and like recorded myself like for five minutes making this screed talking about like why yahoo needed to change its ways and so forth and saying like hey if you're a frustrated retail shareholder like me why don't you pool your shares with mine and i'll be like the mouthpiece for this group and you know we'll take on yahoo and basically have the effect of being like a true activist fund. So is this pre or post Yahoo turning down the Microsoft acquisition bid?

It was about six months before. And I think like a week after I did my blog post, like the peanut butter memo came out. I don't know if you remember that. Yeah, yeah, yeah. Internal Yahoo guy was saying how screwed up things were internally. And like it was amazing. Like within five days of my doing the YouTube video, like the New York times wrote a story about me. And so, and then other press started to follow and it was sort of like a man

fights dog story. And so, uh, so then I got on Twitter and I was doing my thing. I went to like the Yahoo shareholder meeting that year and like live tweeted it. And like people at CNBC were like talking about it on TV because nobody was running. Was that still Yang or was that somebody else running? It was. Terry Semel was the CEO back then. He was like this Hollywood guy come from Warner Brothers and he was going to like Hollywoodify Yahoo. But Jerry was still there. So I got to meet Jerry and I got to meet the other co-founder, David Filo. I was hoping like, you know, I had like a seven point plan. I was hoping like the CFO would like give on one of my points and I could like declare a victory and like go home. But you know, they basically stonewalled me. And then the

whole Microsoft thing happened and I was banging the drum saying, you know, they should take the offer and they didn't. You basically became the face of activism. You had like a moment where you were like just this guy that knew that the company needed change and you were not afraid to say anything. You came out and said what you thought and people were into it. The biggest upshot of it for me was that I started to make a lot of friends within people that worked at Yahoo, like mid-level manager types. And because they liked me, they thought I was, okay, here's a semi-coherent guy. He's making some good points. They couldn't say any of this stuff that I was saying on the outside because they were worried for their own career paths.

And so, but they would, but they sort of took me under their wing and they would like try to better educate me. Like, Eric, you know, instead of saying this and emphasizing that, you should really say it this way because Terry will take it better and the board, you know, will probably. So I made Connections for Life out of that whole thing, which, you know, really I still call on today. And like in my current fund, I'll call up some of these people because they've gone on to great things like Stuart Butterfield. He was just like a middle level guy at Yahoo at the time. Founder of Slack. He started Slack and stuff. Jeff Wiener was there at the time. Now he's running LinkedIn. This guy, Bradley Horowitz, is a friend of mine. He left Yahoo. He started Google Photos. He's still at Google, but he's one of the most plugged in prolific angel investors in Silicon Valley and stuff. And then in 2010, I was over in Hong Kong and I knew about Alibaba

because Yahoo had made this like investment in Alibaba. So in 2010, I like sent a cold email. I was just like traveling through it. Like I had another, you know, a day or so before I went home. So I sent an email to Joe Tsai, who was the CFO at the time. And, you know, one of the co-founders.

And I was like, hey, I'm Eric Jackson. I write on thestreet.com. And I don't know if you've ever heard of me, but I'd love to come by and meet you in the next couple of days. And to my surprise, he emailed me back within 30 minutes. He's like, yeah, come on over. And so- That's insane.

This is now one of the wealthiest people in the world, I think, right? Joe Tsai? Yeah. Is he on the Nets? He owns the Nets. He owns the Nets. Yeah, Brooklyn Nets. But back then – You're just like, hey, I'm in town and I ride for the street.com.

And he's like, yeah, all right. Let's kick it. Well, the amazing thing – this was like late 2010. So they were valued privately back then at $10 billion, if you can believe it. Yeah, I can. And I'd heard of them because in 05, Jerry Yang invested a billion dollars to buy 40% of Alibaba. It's like one of the greatest investments of all time. But I think if Twitter had existed back then, he would have been fried because it was basically

80% of their cash on their balance sheet that they disgorged to buy this 40% stake in the Chinese company. I'm sure everyone would be like, what are you doing? And all the Wall Street investors would have given them a hard time. But I guess they got a pass at the time. Let me jump in there. This is maybe the worst of all the bad ideas that exist. Like, for example, eating a fistful of glass every morning, rolling in roofing tar. of glass every morning, rolling in roofing tar. Of all the stupid, horrible things you could do,

putting your early investment ideas out on social media for all the geniuses to weigh in on is maybe the worst thing you could possibly do. Trading idea is different, but having a big idea that's non-consensus and then looking for approval from people, I highly recommend you don't worry about doing that. Not that you need my advice. But anyway, all right. Just an aside. So just to finish the Joe Tsai story. So I go to this meeting.

It's like, I knew Alibaba was big. I'd heard it was like the Amazon, eBay, and PayPal of China all rolled into one. But you came out of the meeting and you were like, wow, this is really big. It's going to be really big. And so I went back to, came back over here in North America, and I was trying to do research on it. And you could figure out, because Yahoo had to disclose some high-level financials about it because it was a major investment.

And you started to see that based, you know, based on what consulting firms were like putting out about how big the company was and how quickly it was growing that within a few years, just making some very basic assumptions, like this was going to be a massive, you know, company if it ever IPO. And really, the only question in my mind is, is it going to get an Amazon American style multiple? Or is they going to be discounted? Because that's China or it's emerging markets? And therefore, like it's a more conservative multiple. to get an Amazon American style multiple or is they going to be discounted because that's just China or it's emerging markets and therefore like it's a more conservative multiple. So I picked something in the middle. I wrote up this article laying out my case in the street.com in like

February 11, where I predicted that by 2014, Alibaba was going to be a $75 billion company. I picked this sort of number in the middle. And it was funny because I knew some of the big Yahoo shareholders at the time because I'd been railing against management and all this. So the one guy who's like the largest shareholder in Yahoo at the time, he called me up, Gordy Crawford. And he said, Eric, I read your article, but come on, $75 billion? No Chinese company is ever going to be worth $75 billion. Right. When did it come public, Alibaba 15?

Came in November 14. And when it started trading, I don't know. I forget what the valuation was. It was $100 at least, right? It was over $200. Over $200. Over $200. Yeah.

I think it was the biggest IPO ever up until that moment. So that was kind of like a feather in my cap for a while. All right. So you've really put yourself in a position now where you know all these people. You have this great network. And what the network I think probably does for you is when you do have an idea or you are thinking about a space within media or tech or telecom, these are people that you can bounce these ideas off of one-on-one, not on Twitter, but these are people you could say, hey, I have this really big idea. I think this is going to work.

I think this is going to be an important sector or technology. And you're getting feedback from folks that are very deep within this stuff. And maybe they could tell you some risks that you're not considering, et cetera. All right. So that's where you are today is you launched a firm in 17 EMJ Capital. Those are your initials? Yeah. So look, I haven't independently ordered in anyone's returns, but you had an appearance on CNBC the other day with my friend Sarah and Wilfred at a closing Bell. And I guess they said sources close to the firm reported on you doing 145% last year. So you don't have to confirm or deny that. I don't really know what the compliance rules are in hedge funds, but broadly speaking,

you were in a lot of the right sectors and you shot the lights out. Is that fair? Yeah, for sure. Okay. All right. Good enough. All right. I want to talk about those right sectors because I have this big idea and I'm not going to say it's controversial, but I think that we're all using this work from home nomenclature to describe a group of stocks that have gone up by orders of magnitude over the last year. And a lot of people call them pandemic stocks. And what I actually think is happening is that they are work from anywhere stocks, and they don't require a pandemic to continue to do extremely well. The pandemic just pulled forward a lot of adoption. Now,

I want to have you weigh in on this. The difference between pulling forward, I want to have you weigh in on this. The difference between pulling forward, let's say, with autos versus software, right, or networking or a platform. If you pull forward auto sales because all of a sudden there's a change in the tax code where you get a write off keep buying cars every year afterward. But if you pull forward adoption of technology and then the condition that arose, in this case, the pandemic goes away, that adoption stays. Once somebody gets accustomed to buying groceries online, they're not like, oh, I wish I could go to a grocery store. So once we realize that we can do education via Zoom, it's not that we always will do it education via Zoom forever, but it's another option. It's an option for snow days. It's an option for remote learning. It's an option for universities that aren't going to build new housing, but want to take on 500,000 students in a year.

This is what I think pull forward means in the realm of technology versus any other space where you could pull forward demand. What do you think about that? Yeah, I totally agree. In fact, like I guess I knew early on in March when the night that they canceled the NBA, I think that's when it kind of crystallized for everything, for everybody that this was going to be not just a moment in time and a blip. And by the end of the month, we'd be back to normal. And so I wrote this article, I moved from blogger to medium over the years and around that time where I Cool kids on medium. Now, when are you going to be on sub stack?

That's next. You know that, right? Okay. Go on. I said, you know, this is going to be a long-term behavior change. This, this event, this is not just, and basically we are going to start to learn how to-term behavior change, this event. This is not just, and basically, we are going to start to learn how to do things and change our behaviors. And I'm not sure we're ever going to go back. This is probably going to go on for months, this pandemic. And basically, the longer we live it and breathe it

and kind of work and figure out how to get along, the longer it goes on, the harder it becomes to go back, or the less likely it is to go back. So I completely agree that I think that anybody who says, oh, it was pulled forward, you know, we're just going to drop Zoom. I mean, people are still saying that, you know, they were saying in May, okay, well, now we got to get out of these pandemic stops. You know, and then like, well september came uh now it's time for the shift back to value actually things are getting worse again let's go back to the the pandemic stocks right right so yeah i i think there's a set of stocks that are just they're they're never going to look back there'll probably be some

you know modification when when things do finally get back to normal, whether it's using Carvana, whether it's like ordering, like I have a position in HelloFresh, the meal kit company, like, uh, you know, in addition to Zoom using delivery, I'm, I'm long delivery hero, which is, uh, over, you know, more in the emerging markets, but it's like one of these, you know, delivery services over here. I just, I think all of those firms, the Zooms, the different SaaS stocks that have benefited, they're going to be part of like, okay, well, this is how we do it now. Reopening or not. Reopening or not. So now the question is like, will they keep the multiples they have? And will they keep the growth rate? That's a different conversation. But it's hard

for me to understand the idea that all of a sudden the economy reopens and we stop using these new tools that we've realized are superior in many ways to the way we were living our lives prior. So now, Eric, now you have this dispersion happening where the work from home stocks don't all go up and down together. There was probably a six-month stretch where if you told me that Moderna is up on the day, then I could tell you which software stocks were also up because those were the quote-unquote virus days. Those were the days where Wall Street was in the mood to bet that the virus would get worse again, right again and vice versa. But it's not quite like that. And as a – for instance, Zoom hit a high of 588. It's about 350 right now.

It's about 40% off its high, and it is not moving in lockstep with Teladoc, and it is not moving in lockstep with PayPal. So like now we have some dispersion where like Peloton and another work from Homestock maybe aren't one-to-one correlated and they're starting to go up and down on their own fundamental reasons. I think that's how things should be. We shouldn't have this risk on risk off thing with all of these technology companies. So how do you sort out which ones in 2021 are going to have the right ingredients of good fundamentals, a reason for a multiple to stay high, and continued support by investors? Where do you begin with that? Well, I told you that Alibaba story from whatever, 10 years ago. I kind of do the same thing with all of these stocks ever since I've started my own firm where I basically, okay, what is it today? What's its growth rate today? What's the growth rate likely to continue to be over the next three years? And what's, they're bound to go up three years from now,

therefore multiples have to contract, which I agree with. But, you know, even today, Peloton is just getting started in terms of its, you know, its addressable market. And it's the category leader. And, you know, I think if we've seen one thing over these last three years. It's that it doesn't matter if it's Peloton or it's like a Twilio or an Okta or Roku would be another good example. If you're a category leader in some niche, the market just loves to fall in line behind those leaders. It's like a magnet for money. You buy the leader, even if the secondary or tertiary play in the space is cheaper, quote unquote cheaper. You buy the leader and you usually win that way. I agree with you on that. So Peloton, there was one day we woke up and Peloton was down like 8% because Echelon said

Amazon was going to sell it at some bike or something. And then about 24 hours later, Amazon debunked it. So, I mean, you're always going to get these days where some reason it's dropping. Are you in Peloton now? Yes. Do you worry about Apple Fitness' intentions and war chest of cash or not really? Not at all. Because what am I going to do? Take my phone, stick it on my Schwinn spinning bike at home.

Did Peloton buy the company that makes all the treadmills for hotels and gyms? What is that called? Yeah. It starts with an E. I forgot. Okay. The big one though. Yeah.

All right. So couldn't Apple Fitness just decide they want to own NordicTrack or one of these other workout equipment companies? they want to own NordicTrack or one of these other workout equipment companies. Do people overestimate the ability of the FANG companies to just jump into a business and disrupt whatever's working there? Oh, yeah, all the time. It's usually a great buying signal. Whenever you see Amazon's going to kill X company, usually my advice would be buy X that day. I just did this a couple of months ago with GoodRx. Do you remember? Amazon's going to kill GoodRx

because they're really serious this time. It's not just like PillPath or whatever they announced two years ago. They're really going to jump into it this time. And GoodRx went from like, I don't know, mid-50s to like 37 or something. It was soon after they came public. Yeah. So.

They didn't have much of a honeymoon before the Amazon's going to kill them stuff started. So I think I bought it, I bought it that day and I think I bought some the next day. So like mid thirties and stuff. And, you know,

but I've seen that movie before. Like this always seems to happen with the fang stocks that they, they announce they're getting into some niche. Here's what's interesting about how you're investing. People would assume if I said Eric is a tech and media investor, they would assume that your portfolio is the FAANGs. You only have 4.2% of your fund's assets in the $50 to $100 billion category. And then you have about 57% of your assets in the five to $50 billion category, at least according to what I've just seen. I mean, that's where I

find to be the most fascinating ideas is that five to 50. So they're not micro caps that you're hoping turn into something. They're already great businesses. And then the question is like, does this thing have what it takes to be a NASDAQ 100 stock or not? For sure. Yeah, I say like I'm going after the next gen fangs. Like I think the fangs are great. I own some in my retirement accounts

and my kids' retirement accounts. I mean, I think there's a reason why they're the winners and they're going to be the winners for a long time to come. I'm just, I want to find companies that are going to 2 or 3X over the next few years. And as big as those guys are, they're just not going to be the winners for a long time to come. I want to find companies that are going to have two or three X over the next few years. And as big as those guys are, they're just not going to get there. So Twilio, I got into in February of 2018 when it was like $23. And it was seen as a failed IPO because their two big customers at the time were WhatsApp and Uber.

They lost Uber as a customer. And Wall Street said, oh, well, Uber must know something that we don't. You know, if they don't like Twilio's technology, this must be a terrible company. And it turned out that Uber was just, you know, stupid. And so they had like a not- You're not in Uber, are you?

No, I'm not. Okay. All right. They have a lot of the characteristics of the types of stocks that you're looking for. They have the new behavior kind of thing, and they seem to have navigated through the work from home slash work from anywhere period with delivery while they're waiting for the taxi service to come back. The taxi service will be roaring this summer, my personal opinion, but you don't like it. How come?

Uh, I, I mean, I like delivery hero, like, you know, because they're focused. They only do delivery.

They're, they're focused on emerging markets. Okay. Uber's doing many things. I think the stock will work this year for sure. It's just like, you know, can't be an enemy,

everything. So you can't, well, that's the other thing. You're fairly concentrated. When you want to make a bet, you're not buying the triple Qs. You're buying stocks and you're making big bets. I mean, I think that's what sets you apart.

You're not trying to own the 500 best tech stocks. No. So how do you think about position sizing? Because these are high beta stocks that if they miss an innovation cycle, these stocks can get cooked. We haven't seen that recently, but it is possible. And you know that because you've been doing this for 20 years. No, it's always a tough call because I fall in love with every stock I get into. They're my babies. And I often find it really hard to sell them down.

You know, I want to stick with them. I want to see the bright side. I want to see the positives. I want to see the blue sky scenario, the most optimistic scenario. What I find with a lot of these stocks, and Roku is an example of this, Shopify would have been an example, Twilio is an example. I often underestimate even my rosiest scenario for how well the stock is going to do you know it'll often overshoot those you know so twilio got in at 23 i thought like you know maybe

in a couple of years if everything goes right you know this is an 180 stock for the audience what does twilio do like in a nutshell when you get a text alert that oh josh you know we got your reservation tomorrow night at such and such restaurant. Like it's likely that Twilio is powering that text alert app. So they're sort of basically next generation customer care for a lot of small. They're being hired by companies that want to be able to, so like the Uber example is, I think, obvious for most people, your driver's on the way. Okay.

So they're now $350 stock, you yeah whatever what do we know two plus years so um roku i got in at like 30 and and then i got out of it like that was one of my mistakes when uh q4 of 18 when jay powell was saying he was going to raise high you know interest rates forever and the stock went from like, I got in at 30, it went to 80, went back to 27 by the end of the year. And today it's like 400. I don't get, I really don't get Roku. Like I know, I understand what it is, an operating system for smart TVs. And it's the access point for all these apps. I just don't understand why it's necessary. Like why does anyone need it? Why can't we just have the apps on the TV? What am I missing about that story? I've never owned the stock. I think the brilliant move that they had was their CEO said, let's embed our software

into all these cheap, cheap HD TVs that- Price Club. I call them Costco TVs. Yeah. Costco, Walmart. Those TVs need some software to say that you can stream whatever. Roku put up its hand and said, hey, we can do that. You want to have your version of Apple TV, Mr. Korean TV or whatever? Let us do that. They got a stranglehold on that market and suddenly they were in all these TVs embedded. Now, the buyer of those TVs are not the customer paying Comcast $300 a month. The buyer of that TV with, with Roku is good. Like they're just like, okay, great. I have Netflix. I have Disney plus

I'm done. Yeah. So that's why that's so smart. For sure. And, uh, and then people started using it and then there was just basically, you know, Apple TV had an offering, but it's, you know, it's not really taken off that much. So there just wasn't a lot of other, you know, alternatives out there. Nobody could explain to me what Apple's trying to do with television. No, like, you cannot explain it to me. I absolutely, I cannot be made to understand what their 10 year in the making television strategy is. It's literally the worst thing they've ever done. As long as they keep churning out Ted Lasso, I'll stick with it. I mean, I just, I can't understand how they didn't own this whole thing. All right. Different, different story. All right. So I want to talk about what you're doing for 2021. And it sounds like it's an extension of what you've done in 2020. I know you have some new names, but like me, you believe that human behavior has permanently been altered by this year. So the way that I'm thinking about that is cybersecurity and payments. So like I'm in PayPal,

I'm in CrowdStrike. Like I think that that stuff really just has a runway that yes, we've had acceleration of adoption, but it's like the second inning, like just my opinion. I could be wrong. And those might not end up being the right stocks to play it, but that's how I feel about the 2020s decade. What are you doing? What are the names? And what are you really excited about? I, you know, I think you're right. I think those two areas are right. I think CrowdStrike is a great company. I got into Zscaler at the same time, at the same time I was considering CrowdStrike and I was like,

okay, you know, where am I going to go? And they both worked. Yeah. And they've, they've both been amazing. Uh,

and I think they both can continue to, to do well. I think, you know, it's like, like what I said before, just like, you know,

this trend can go on for years. Potentially. If you get the tailwind, right? Like you might not end up owning the right name, like the optimal name that worked out the most, but like to a large extent, it does a lot of the work for you. Just like putting yourself in front of the wave and paddling, you know, may not have the best surfboard, but you're there. You're where you have to be. So another way that, you know, this work from anywhere thing, I think plays out is Zillow. I've been long Zillow for basically since Rich Barton came back as CEO.

I think that was spring of 2019. He was with a co-founder there. He was on the board of Netflix from like, you know, basically its whole rise up. He started Expedia-founder there. He was on the board of Netflix from basically its whole rise up. He started Expedia 20 years ago. And so Zillow is- I'm pulling these things up while you're talking. I may or may not be trading them too. I'm not sure. More people Google Zillow than they Google real estate is a fun fact. Is that right? Yeah.

Wait, Zillow is a bigger search term than real estate? Yeah. The word real estate? Yes. Okay. Yes. So everyone used to go on it to check, you know, how much is my house or how much is Josh's house compared to my house

and be envious of Josh and stuff. But, you know, what they got into like a year and a half ago, they got into this thing called iBuying, where basically the idea is that, hey, I can go to Zillow, I can type in my house, and Zillow will actually make an offer, a cash offer for my house right there. They'll buy it, and then they'll worry about what they can resell it for. Right. And for some people, especially in the middle of the country, is where they're focusing their initial efforts on. So they don't

think it'll be as prone to price fluctuations and stuff. Some people want that certainty. They don't want to have to go through a three-month selling your house process. And even though it's maybe a little bit less than what they think it's worth, the cash in their hands right away is worth a lot to them. How many houses can Zillow buy a year? How well capitalized are they to really do that at scale sounds like an insane insanely cash intensive uh situation well that was the bear case for a while so then you had people like uh i remember eisman from like the big short he was like uh yeah you know he was very bearish on silver for a while. Steve Carell. Yeah. And so he was making the case for like, this is a sign of a top.

If companies are going into this, the housing market must be ready to bust and so forth. Oops. But I think Rich is like one of the smartest tech CEOs out there. Obviously, you've got to build in that muscle memory to like buy these houses and offload them off your balance sheet as quick as possible. So you almost have to have a SWAT team go in, clean up the house, get it ready to sell as quickly as possible. So Zillow did 45% return in 2019, and that's pre-pandemic. And then last year, it was up 182%. Right. And it already started this year up 11%.

Why not? How do you stay long a stock? This is like very hard to do, right? How do you stay long a stock like Zillow that effectively almost tripled in 2020 and every great thing that you can say about their business model, their roadmap, their management, like obviously the market appreciates these things already. Is the case that you would make, it doesn't appreciate them quite enough yet? It's really hard to stay long. I guess that's why you get paid for it. Right.

For sure. But I would say like, it's a second inning. The comment that you made before definitely applies to Zillow here. People are not yet, you know, they've heard of the iBuine concept, but how many people do you know that have actually done it? Until I started hearing like from neighbors and taxi drivers that they've started to do it, you know, maybe then I think would be the time to get out of it. But I think they're still in the very beginning stages of rolling out this concept. What makes me excited is that I mentioned Carvana before, which is a stock I'm not in now.

But if you look at how they've been valued, they're basically doing the same kind of online, you know, Zillow model for cars. They sort of pioneered that where like go online, order a car, we'll ship it to you or you go pick it up or something. Never been done before. The car dealer said, oh, this is never going to work

and you need us and all this and that. And it turns out, you know, a lot of people love that concept. You look at how they were valued in sort of the pre pandemic days, their multiple got a lot higher than what Zillow's has to this point. So I think at some point, that's going to switch and people are going to, you know, some Wall Street analyst is going to wake up one morning and publish that, okay, you know, you know what I think? I think that, you know, Zillow is actually undervalued and it should be valued more like Carvana. And here's why. My dad just got a car from Carvana. Like he doesn't really drive, but like, I guess they just, they wanted them, they wanted to have a car. And he's like, I've never seen anything

easier to use in my life. He's just like, I would never deal with a dealership ever again. And that's what we've been saying this whole podcast, right? All these work from anywhere things. It's like, why would I ever go back? I very much agree. Zillow's only worth $33 billion for the size of its... So I'm in Shake Shack, which is not technology, although they're probably telling people their technology these days, like everyone else.

But when I started buying, it was a billion and a half dollar market cap. And if you know absolutely nothing about how to read a balance sheet, how to read an income statement or any of that shit, you just say the size of this company's brand awareness versus the size of its market cap is a joke. This should be a double. And of course, it was probably been a triple since the lows. When I think about Zillow, like a $33 billion market cap, and this isn't science, but I just say, that sounds pretty low if this is how America shops for homes from now on. Is Zillow primarily still advertising revenue and then the iBuy hopefully overtakes that? Or does it deserve kind of like an advertising

multiple and it's overvalued? What's the right way to think about $33 billion and could it be $50 billion? Could it be $100 billion? I think it could be $250 billion one day. The way it is now or a year ago, it was primarily valued from that advertising-based business or the real estate agent referral business, basically. Lead gen for realtors. Yeah. And there were a lot of people saying, oh, they're getting into e-buying, so they're going to piss off the real estate agents and they're going to stop using it. And what happened is the pandemic came and it turned out these real estate agents got to eat too. And it turned out that they went crazy

using Zillow and they're still using it. So I think eventually though, the business will get valued 90% off of the iBuying business. Could Zillow itself just take the place of human realtors or that's not in their ambition right now? No, for sure. That's another business I don't understand. The 6% commission or the 3% on the sale and on the buy seems impervious to all of the financial disruption everywhere else. That seems like it's, for some reason, sacrosanct. And I understand why, because if you're a realtor, you have to show so many homes just to sell one. So it's almost like it's not that much money if you spread that out across all of the different potential transactions that fell through. But that's an area I still don't understand. Maybe the solution will be Zillow. Anytime you see a company that has a chance to become a verb in technology.

I was in Slack for that reason. We would have conversations every minute of the day. I'll Slack you this. I'll Slack you this, I'll slack you that. But having that verb-like quality to the service, I guess wasn't enough to fight the team's onslaught. So now Salesforce bought it and I'm sure it'll do well within the Salesforce. But I was kind of disappointed in that as an investor. I thought that stock should have worked much better in 2020 than it did, right? I was there with you. That Medium post that I

wrote in early March, I said the two buys, if our behavior is permanently changing, I said the two buys are Zoom and Slack. And dude, Slack was a category killer. It had all of those qualities that you would... I was disappointed that that one didn't work. I would have thought that would have been a better year. I think it'll be a great buy for Salesforce. And I think it's going to be fun watching Salesforce compete with Microsoft. But back to what we were saying before, that is an example of where a big fang is going to compete them out of business. And the street bought it. The street agreed.

Just looking at buying and selling in the stock, that's all you needed to say. All right. With the time we have left, I want to do two more. at buying and selling in the stock. That's all you needed to say. All right. With the time we have left, I want to do two more. You're very excited about Match, which is online dating. And is Tinder part of that? I don't know this name at all. Tinder is primarily Match. Match owns a bunch of brands all around the world. But that's the hottest thing they do. Pretty much. They own everything except Bumble, pretty much.

This was part of Barry Diller and then it spun off as its own company? Yeah. Okay. Is it the biggest online dating company in the world? Yeah, by far. It IPO'd, I think, in like 17. It was for like around 15 bucks, and it's basically 10X since then. $150 market cap, $40 billion. Holy shit. $40 billion on $6 billion in revenue. All right. So here's another one. They're giving this thing the benefit of the doubt that there's growth as far as the eye can see. Do you see it that way? Yeah, I like it. It fits that category leader theme that we were

talking about before with Roku and all these other names. Tinder is the dominant brand in the space. And I think they still have growth to go. But one of the reasons why I really like Tinder is the dominant brand in the space. And I think they still have growth to go. But one of the reasons why I really like it is that they hired a guy named Jim Lanzone last year to run Tinder. And he was most recently running the streaming business for CBS. And before that, he worked in Silicon Valley for it was benchmark capital. And he started the old Ask Jeeves search engine, if you remember that one. Oh, yeah. But I've known Jim a long time.

He's an amazing product-oriented manager. He builds great products. He makes products consistently better over time, and he builds great teams. And so I just know from that, just from my network and knowing Jim, that he is going to look under every stone that exists at Tinder and find further ways to grow. So that makes me bullish for one reason. But they also have gotten a big runway ahead of them internationally, especially in India and Japan. They really haven't done a lot there yet if they figure out how to crack that. Are there players in those markets that could fend them off or he'll figure out how to do it?

There are, but nothing has the brand of Tinder. So Eric, the bars are going to reopen and the nightclubs and other places where young men and women can have a first date or meet each other or whatever. You don't think that that could keep a lid on the valuation of the stock, at least for the next year? Or you're not really concerned about that? No, it becomes an add-on to the real life data. They just consistently figure out more and more things to upsell you when you're a Tinder user. And first they want you to have Tinder Gold, now they're launching Tinder Platinum. So if you pay extra per month, you get all these additional features. If you're Tinder Platinum,

you really are having trouble finding that special someone. I just think people are just going to, this is what I have to do. This is part of my, If you're Tinder platinum, you really are having trouble finding that special someone. I just think people are just going to – this is what I have to do. This is part of my game plan on the dating scene here. So you're doing some due diligence while your wife's sleeping in the other room. You're on Tinder scrolling around. I'm like you. I got married a long time ago.

I didn't have to deal with any of the crap. Thank God. I would not have been good at that stuff. I have a face made for podcasts. Last one I wanted to do. I heard you say that you think that Upstart is the IPO that probably people pay the least amount of attention to,

but it's your favorite IPO of 2020. Yeah. So this came public in when? Around Thanksgiving? No, it was like December. It was like a week in December or something like that. All right. So nobody cared anymore by that point. It wasn't Airbnb.

It wasn't. It wasn't Airbnb. So it was like, all right, there's another one. It wasn't DoorDash. It wasn't DoorDash. What is Upstart and why should we all go out and do some due diligence on it? Okay. So it's basically Google engineers building artificial intelligence model to come

up with a better FICO score to match people looking for personal loans with banks wanting to lend to them. So it's a FinTech, but it's matching up financial lenders with people. It's not doing its own loans? It's not doing the loans. It has customers come to its website, looking for better rates on like credit card consolidation, all this kind of thing. And then it figures out, according to their modeling, their AI modeling, who are most likely to default and which ones are the best. And then it takes that to the banks, matches them up to the banks wanting to lend to them.

And it finds it's consistently outperformed FICO scores at predicting who's going to be better at paying things back. So it ends up costing the consumers less, costing the banks less in terms of charge-offs. So, okay. So it's using some non-traditional data to be able to tell the lender, this customer is a good risk because A, B, and C. So they, so they, what's like algorithmically driven based on things that you provide them? Yeah, basically. Yeah. Started by a guy named Dave Sherrard who used to run Google enterprise. So basically all the Google G suite apps, the, you know, basically he was ahead of that. He left the company, started it in 2012.

And so eight years they've been building these models. And right now they're only at a 5% market share just in the personal loan market. What banks do they work with now? Like who are they selling these loans to? It's primarily like, you know, lesser known kind of, you know, regional banks that they've done a lot of work with. And some, you know, some people say, oh, they're too concentrated on these lesser known banks. Are they going to be able to crack into some of that? You got to start somewhere. Right. I mean, there's only like, I think even now it's like $3 billion market cap. It's tiny for a tech stock.

And they haven't, they're just starting to get into auto loans, which is a much bigger TAM, total addressable market than personal loans. And then of course, in a few years from now, their ambition is to get into mortgages. So matching you for your mortgage to the, to the right bank. So if they crack all of that. Yeah. When you look at this, you must be reminded of Zillow. It sounds like. And, uh, I, I have known the CEO for a while. I also got to meet him through the whole Yahoo. He was never a Yahoo, but he was a buddies with a friend who was at Yahoo, Dave, and he's like a super guy. He's built a great company.

And very understated, just like their IPO. They got penalized, I think, because you remember Lending Club from a few years ago? You know, lending. Yeah, lending. So I think some people were worried, oh, are investors going to think it's another lending club? There was another company out of Atlanta called Green Sky that didn't do well after its IPO a couple of years ago.

And so I think the underwriters like Goldman, they deliberately priced it low. They were worried like it's not going to do well. But my thought was is that this thing's actually growing. Those companies were shrinking. These guys have Google engineers building these models. Green Sky down in Atlanta did not have Google engineers building these models. Green Sky down in Atlanta did not have Google engineers building models for them. So this is a completely different company. Eventually, the market will figure it out. And when they do, it's going to get a square

like multiple. It's not going to get this sort of discount multiple. So it's already done really, really well out of the gates. $3 billion is still a very small market cap. I'm looking at the news from the other day. I guess they passed that threshold after an IPO where all the investment banks that brought it public weigh in on it. They're all at market weight, equal weight, neutral, Bank of America neutral, Goldman Sachs neutral. All right. So nobody's excited about this yet, but you are. So, okay. You're adopting it early. I mean, it's, it's two and a half X since, uh, mid-December. So, you know, we're off to a good start, but, uh, I think, I think it'll continue to surprise people. They're doing something right. All right. Uh, well, I want to wish you all the

best of luck in 2021. Definitely want to have you come back at some point this year. Let us know how, uh, these ideas are doing and we'll be, uh, we'll be following them for sure. And, uh, i don't know when are we gonna hang out again me and you went to dinner right before this all started was that last last fall i was in toronto i think i dm'd you i'm like hey i'm here let's meet we we ate some venison some canadian reindeer what was that restaurant called canoe canoe holy shit that was good what building is that in it's in like one of the tallest buildings in toronto the td uh td building they call it the td building so this is

the top floor of the td building is a restaurant with panoramic views of toronto and outstanding canadian i guess you'd call it canadian cuisine yeah that was phenomenal all right post reopening we won't do that on Zoom. We'll do that in person. We'll do that for real. Eric, thanks so much, man. Congratulations on your big year last year. Keep shooting the lights out and we'll talk to you soon. Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash the compound RWM. Talk to you next week.