Yet Another Value Podcast - Sean Iddings on the bull case for $EXPI

Episode Date: August 6, 2021

Sean Iddings, an entrepreneur and microcap investor, discusses his high conviction position in eXp World Holdings (EXPI). EXPI is a hyper growth company that is attacking the real estate brokerage bus...iness with an interesting model. Sean breaks down the business, the upside he sees in the company, and addresses some of the red flags surrounding the stock.Sean’s EXPI write up: https://www.thewoodshedd.com/posts/2021-07-09-highconviction-copy/#how-to-value-expi Sean's twitter: https://twitter.com/iddings_seanMy notes on EXPI, including some interesting proxy details: https://twitter.com/AndrewRangeley/status/1423081507132936194?s=20 Chapters0:00 Intro1:25 What is EXPI?8:55 How EXPI harnesses the power of incentives10:05 Comparing EXPI to a multi-level marketing company (EXPI)18:00 Why aren't we seeing operating leverage?22:30 EXPI's expansion opportunities26:30 Discussing EXPI's copycats29:20 Is how the employees relate to the stock price concerning?35:45 Veirbela and Success magazine; critical assets or overrated?45:50 Sean's closing thoughts

Transcript
Discussion (0)
Starting point is 00:00:00 All right. Hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have Sean Eddings. Sean is an entrepreneur and microcap investor. Sean, how's it going? Good. How are you doing, Andrew? I'm doing great. Let me start this podcast the way I do every podcast. First, I'm going to remind everyone with the disclaimer. Nothing on this podcast is investing advice, especially with Sean, we might be talking about some microcaps. So everyone should just remember, do your own due diligence, be very cautious. Nothing on here is investing advice. And then second, let me start the podcast. podcast with the pitch for you, my guest. I'm going to link it into the show notes, but I read your write up on the stock we're going to talk about today, ESPI, and it was just unbelievable. As soon as I read it, I was like, I need to reach out to them. I need to have them on. Unfortunately, they reported earnings yesterday and the stock was up like 40%. It would have been great to get it a couple days ago. But the write-up was awesome. It actually brought back some bad memories for me because you wrote up another kind of growthy microcats expel a couple years ago, which has become a 50 or 70 or 80 bagger at this point. And I owned about 2% of them when you wrote them up and told them 50 or 70 or 80
Starting point is 00:01:06 backers ago. So you've obviously got an eye for investing in these really interesting, growthy companies that can really change the world and compound at huge rates for a long time. So excited to have you on. Appreciate the write-up. Appreciate you coming on. That out the way, let's turn to the company you want to talk about. It's E-X-P-World. The ticker is E-X-P-I. And I'll just turn it over to you. What is E-X-P-I? and why are you so interested in them? So, EXPI is an online real estate brokerage company. And for most people, if you don't know, with real estate business, a real estate agent, at least
Starting point is 00:01:41 here in the U.S., they need to get their license and hang their, you know, their license at a brokerage company. And so for past years, a real estate agent would have to go to a brokerage, which would be a brick and mortar place, usually a local business. and they would get their license with them. And then from there, the brokerage would provide the training, the back office administrative support and such and gathering things for the real estate agents
Starting point is 00:02:17 and to help them succeed and perform their duties as real estate agent. And so the setup that has traditionally been common or traditional within the industry would be, you know, the brokerage would take a part or of the commission split. So, you know, I'm sure years ago it would be pretty standard to have like a 50, 50 kind of partnership split between agent and brokerage. Because the brokerage, they have not only brick and water costs to have run their operations, but they have, you know, the owner, they have, you know, administrative support, they have managers to help, you know, answer questions. So there's lots of different needs and costs within a brokerage company. And so now,
Starting point is 00:03:10 nowadays, you think, okay, well, we have the internet and how has that been able to help? So an online cloud kind of brokerage, which EXP would be considered, is that they utilize internet to help communicate and connect the brokerage administrative support, the online training with the real estate agent. And so when you're taking out that brick and water part of that equation, your costs can go down quite significantly. So, EXP, how can they do that? So they found a company called Verbella that had created kind of like an online campus
Starting point is 00:03:51 that allows somebody to virtually connect into a virtual space and meet with other people. So right now we're in a Zoom conversation, so I'm speaking. You can see my face and I see Andrew over here. But in that space, it's 3D models. You're in 3D campus. So it's a little different and a little bit more immersive. It reminds me of like, I haven't used it. I only went to the website and looked, but it reminds me of it kind of looks like the Sims
Starting point is 00:04:21 from the late 90s or early 2000s or there was like I think it was called second life was a big online video yeah it really looks like second life from what I remember of those clips just to give everybody a little bit of extra background right right so it's it's kind of clunky-ish looking uh in terms of you know 3D and what it looks like uh but there there's you know a need and I'll probably talk about that later on and what type of problem and friction that's uh kind of solving between the real estate agent and the brokerage. So anyway, it's the cloud kind of brokerage allows the model allows that, you know, there's less brick and water costs because we don't have, you know, a hundred different buildings that we're trying to pay off, et cetera. And so that's pretty
Starting point is 00:05:08 much what EXP and not only do they have that component of the business, the way that they've been able to grow and take share from the traditional brokerages is because of the way that they're incentivizing, number one, the agents. So the split that I talked about before being like 50-50 or 60-40, you know, quite, quite high. Now, EXP is cut that down. Their portion of the commission split to 20%. So the agent would be getting 80%. The brokerage, EXP, would be getting 20%. And then they're throwing on tons of different incentives. So not only doing that, they have equity issuances in awards to agents who are making in their first transaction they're reaching other different milestones and if say you're a big producer and you've been able to generate enough
Starting point is 00:06:04 commission say to XP, you know if it's 16,000 which is you know like four I don't know how many million in transaction volume but it'd be like three to four million dollars something like that If you can hit that, and then you would be able to get a 100% commission minus a transaction fee per transaction. And then on top of that, you get $16,000 in stock award to you. And in addition to all of the stock rewards, the higher commission split, you're getting a revenue share for attracting other agents into the EXP model. And so if you think there's tons of real estate agents throughout the, at least the U.S. I think it's 1.7 or 1.8 million real estate agents in the U.S. according to the National Association of Realtors. And then on top of that, there's even more who aren't a part of the NAR.
Starting point is 00:07:05 So there's 2.3 or however many million just in the U.S. And, of course, you have outside globally even more. so you have all these people doing business right now working with a traditional brokerage or some other competitor and ex-p has just been able to acquire all of this you know the talent who's doing good business into their model through a revenue share so an agent would be able to go to another agent who is not ex-p and say okay well this company is great not only do you get high commission splits, not only do you get stock equity awards, but you also get revenue share, and they just recently announced yesterday a dividend, too. So there's just so many different
Starting point is 00:07:53 avenues to make money as an agent because if you think as a traditional agent, you only have your, the way to make money is to go out and sell real estate, right? But that's, you know, you're running out a hamster treadmill. You know, if you're not doing any business, you're not making any money. But with EXP, you have, you make money through your commissions, selling real estate. You make money through revenue share, attracting other agents to the business. And whatever transactions they make, so you get a perpetual income stream based on that. You have the stock equity award.
Starting point is 00:08:36 And then you have now a dividend. So there's so many different ways to make money and build a kind of scalable, lasting business by yourself within that model as opposed to elsewhere. So that kind of gives an idea. If I could steal from your write-up, which, by the way, I'm going to include in the show notes, everybody who's interested in the company enjoys this conversation should go and check out, should follow the show notes and go check out his write-up. But if I could steal from your write-up, what they've done is they've really harnessed the power of incentives, right?
Starting point is 00:09:08 So they cut out all the overhead associated with the physical locations that you said. They give their agents better commission splits. And then they give them, hey, if you hit a lot of volume, if you work really hard, we're going to drop our commission completely. So it incentivizes the best agents to come work for them because they can keep more of what they sell. And they actually, once they sell enough, they can keep all of it where I do think other brokerages do have kind of a similar, hey, once you hit a certain cat, you keep a lot of your extra. but the commission splits are better here and the incentives of hey you're an agent you love
Starting point is 00:09:42 working for us you get great money if you know about any other agents lure them in and you're incentivized because if you do you get a key piece of their commission and they're going to be incentivized to come over here because they're going to hear from you how great it is how much more money you're making all this type of stuff so am i kind of summing that up correctly yep yep so it's the superpowers of incentives they're really harnessing well that does bring us perfectly to the first giant red flag. You know, I told you when we were talking before that is I had seen this company a few years ago. And the first red flag that jumps out is, hey, this company is based on we bring, we bring brokers in and then we give them a piece if they bring other brokers into that
Starting point is 00:10:21 commission. And then if those second brokers bring a third broker in, the first broker gets a piece of the third brokers commissions and all this sort of stuff. And when you hear that, the first thing that jumps out in your mind is multi-level marketing scheme. Some people might say pyramid scheme, you know, it brings to me visions of Ackman versus Herbalife, which, by the way, Herbalife ended up winning that battle pretty dramatically. But, you know, there have been plenty of multi-level marketing schemes that have blown up on the stock market. They report huge growth. Eventually, it caps out. They're kind of just shuffling paper back and forth and the whole thing explode. So the first word flag we have to address is, why is EXPI different than a, you know,
Starting point is 00:11:01 it can be a multi-level marketing scheme? That's fine. But why is it different than kind of a pyramid scheme or what's actually happening here that's generating value instead of just everyone recruiting agents in and trying to get a piece of that. So if you think, a lot of people think of like a pyramid scheme, you're like, okay, well, with EXP to become an EXP member, you have to pay a fee.
Starting point is 00:11:21 Okay, so that's, okay, that's the one part of MLM generally is you have to pay a fee to get within the Wolf Garden. And that generally could be like a product or like a business plan or whatever. So if you look at like the FTC, they'd say like a pyramid scheme would, you know, compel an individual to who wishes to join to make a payment. So the XP does. But my kind of first rebuttal for that would be, well, if that by itself would also mean
Starting point is 00:11:54 that Costco would be a, you know, ML or, you know, pyramid scheme. Because for you to be a member of Costco and to utilize their prices, you have to pay a membership fee of $60 or $120 as an executive member. I love that comparison in your write-up. I just want to ask, what is EXP's membership fee up front, their monthly fee? And do I don't think franchise brokers like Keller Williams or anything have anything, but do they have anything similar? So to answer your first question, so the startup fee, I think, $149 to start up with EXP.
Starting point is 00:12:29 And then from there, there's an $85 a month fee. We call it like a technology fee. Is that what that allows the individual to have access to would be the Vrbella platform. It would be KV Core, which is a CRM, quite expensive. I think the payment for an individual to get that would be $3 to $500 a month. So a CRM would be a piece of software that allows somebody to, connect and keep up to date with a growing list of clientele and potential prospects. And then there's other things, you know, like automated call text, email, there's website
Starting point is 00:13:17 development, there's, you know, having the educational content being 24-7 available through the cloud. So that $85 month, you know, funds that to a very, you know, minimal amount and allows the scale of all of these agents to, you know, pay for tons of value for a very, very, very minimal cost. And then with the others, I don't know the exact specifics with the Keller Williams and if there's like an upfront fee, but they're a franchise type model with the revenue share kind of component, but not as nice as an EXP because they do it based on net profit of the franchise.
Starting point is 00:14:02 location, which there's lots of smoke and mirrors that could be involved in that, you know, think of like a movie film accounting. You know, you can do lots of things to make it seem like you're not making money, but you technically are. And that can kind of screw over agents. Whereas in the XP, it's you're getting just a, you know, a percent based on your, your agents under your downlines revenue. And so that means it's very clear. and simple, which I think is a huge component of getting a right-sized, well-developed, incentive model. So that kind of gives you an idea of that. But going back, go ahead. I was just going to hammer home. I think one of the key differentiators for EXPI,
Starting point is 00:14:49 and you can tell me everyone, you know, a lot of the multi-level marketing scheme, you've got tons of agents who only exist in there to bring people in. And a lot of the money is a lot of the money is people buying the product for themselves or like that's a lot where a lot commission. And with ESPI, you actually have to have, like, nobody's going with Herbalife. There was the argument, oh, you know, people only buy the shakes for themselves. With ESPI, you don't have arguments. Oh, people only buy the homes for themselves or something, right? Like, you actually have to have external homes sold, which are huge ticket items in order for this model to work. So just to kind of add on to that. Yep. Yep. So that's getting down to the other
Starting point is 00:15:27 parts of the pyramid scheme kind of debunking that is with, to expand on your point, Andrew is with the normal pyramid scheme or an MLM, you're selling a product to usually somebody within, you're trying to keep them within your kind of walled garden and hope that they sell it out to the public. But it usually doesn't work out that way because you recruit in somebody into your system, paying that whatever startup fee.
Starting point is 00:15:56 And then you try to incentivize them to buy as much product from you as possible. So whereby you can get, you know, a big split of that person's money and that all that inventory usually sits in somebody's garage and is, you know, there's little value that's being created whereby with an EXP, like you say, it's all the transactions are already happening, right, with the real estate agent. You know, they're already doing business with people, you know, externally, publicly. And if you're bringing somebody to EXP, those people are still doing their transactions, and you're getting now a little cut of that. And so as long as it's a pyramid scheme doesn't work or it does not provide value to the external public, whereby with the expe, it's like you have to have transactions to happen to make anything go within this business and to make your money as somebody in an upline. So that I think it really is a huge part.
Starting point is 00:17:05 You immediately see EXP, you hear a revenue share. Immediately red flag comes up because we're so used to hearing the herbal lives, the other companies that, you know, try to create a product. They have no really good value. So what they try to do is try to lure people in with a bait and kind of switch model. Whereas this is, we're giving you more. we're giving you way more than we're giving everybody else just come in with it within our model and you know we'll try to treat you as best as possible because this is really a agent focused
Starting point is 00:17:41 business that's you know and that's the whole reason why they're you know drawing in so many different agents and top reducing ones because they just see the value is so much better within this model and the model allows this to happen it's just because the costs are are so much lower than a brook and mortar model. Let me, so there's a lot of other things I want to talk about, but let me turn to the thing that kind of jumped out to me the most as maybe not a red flag, but a caution point, right? And that's, you just said, I'm going to use this as the transistor, you just said,
Starting point is 00:18:17 ESP says to the agents, we're giving you more, right? Better commission splits. We're giving you stock, all the service off. And that's awesome. But one of the things I'm, I guess I'm surprised by is, you know, I'm just looking at their Q2 revenue, which they just reported, again, the stock was up like 40% of the report. The growth was unbelievable, right? From about 350 million in revenue, I think, to a billion in revenue and a quarter, right? 300% revenue growth. But on 300% revenue growth, you saw
Starting point is 00:18:45 adjusted EBITDA go from 13.5 million in Q2, 2020 to 27 million in Q2, 2021. So revenue grew 300%. EBITDA barely doubled. And by the way, about, you know, 40% of adjusted EBDA is stock compensation because they're giving out, as you said, to agents, they get them equity incentivized. So my question there is, are they giving too much to agents where, yeah, the business, you know, it's not losing money. It's adjusted EBITDA positive, but it's very low margins. And are they giving so much weight to agents that, yes, they can grow huge amounts of revenue, but this is never going to be an actual profitable business because they just have to give everything away to the agents.
Starting point is 00:19:29 Very good question. And another thing that a lot of people they see and they're like, yuck, turns people off pretty quickly. So first thing, I think the business is a little optically weird. And it looks like it's a hugely capital intensive business. And it's really not. The reason is they, the revenue that is booked. is the total commission, right? And then they have, they give out a lot. And so one way to look at
Starting point is 00:20:01 the business that might be a little bit, it shows a bit more would be to look at gross profit as their actual revenue that they're bringing in. And then you start, you start seeing margins a little bit differently. So it goes from being a, you know, 2% margin business to a much better. And you start seeing other operational leverage if you're basing the EBDA based off of gross profits instead of the whole entire gargantuan revenue that they kind of book. But they're giving a ton. Another thing to consider is as they're attracting more top agents, the ones that are going to be capping out, the 16K is their cap and they're getting pretty much just a low transaction fee. over that, that's where you start seeing, okay, you know, their margins are going to be a little
Starting point is 00:20:56 compressed. So there's a few things to also think about in terms of the business and where it could be going. So we're looking, you know, rear view mirror right now. They've been able to grow. They've been able to attract good agents. But what now happens as they take into ancillary services like mortgage lending, you look at some of the title, other stuff like that. Then you start seeing that a lot of, you know, the agent commission being, you know, a pretty high cost and low, low margin. But if EXP agents are able to have a higher than average industry target and percentage of the ancillary services that they're able to transact with each one of these their transactions a lot of that money is going to be going straight to the bottom line so there could be huge operational leverage once we're starting to get into some of the potential future avenues of money so there's there's that so it's optically looks weird looks capital intensive but it's really not and the the potential leverage
Starting point is 00:22:13 that they can start pulling as they start expanding out their offering of services for each one of their agents to offer could be a huge. Just to add on your point, it's something, you know, as I was reading your write-up, I think you hit on it some, but if you've got a business that has, that incentivizes the best real estate agents in the country to come on and do all their transactions through them, you know, it does make sense, right? The agents are locked on. They're getting way better deals. And then you can start pushing them to they, you mentioned they launched their mortgage thing. There's so much involved with real estate that there's so many opportunities once they've got all the transactions and transaction data flowing through that, you know, right, they can start doing
Starting point is 00:23:00 mortgages. They could start doing title insurance. And they don't have to do it themselves necessarily, right? They could do it to third party and get a cut for making the connection, right? So it does, this is why people love subscription businesses once you've got someone locked in and there's lots and lots of money rolling around the space once you get someone locked in you can just keep expanding and expanding and expanding and so one more thing to your point a lot of investors love seeing companies that catered pretty primarily to investors first and foremost they hate seeing companies that focus on say the employee first and I think the companies that cater first for the employee are some of the greatest companies, you know, that being Costco, that being Southwest Airlines,
Starting point is 00:23:47 that being New Corps Steel. Their whole motto is, let me take care of the employee as best as I can, and not only will they, in turn, provide that to the customer, the customer will continue to come back and provide that to the shareholder. And so I think, again, it's kind of an optics thing from the outside being an investor looking in. We want somebody who's touting like the outsiders, you know, book, you know, like, oh, talking like Warren Buffett or talking like, you know, somebody who's, you know, just focused on, you know, investors whereby the really good companies tend to focus on, you know, providing as much
Starting point is 00:24:33 so they can to the agent, and in this case, EXP with agent, and then being able to attract more agents, and then once you hit that scale, and I think this is a huge thing, a lot of people will see EXP and, oh, well, I could just start up a company, a cloud brokerage company, and there's like three copycats now, and I can do the same thing. I can have the same commission split. I can come up with some crappy looking graphics online campus. I can give more equity awards than EXP does. I can do this, that, and another. But I think if we think of it like a YouTuber,
Starting point is 00:25:14 so it's literally zero barriers to entry to be a YouTuber, right? But for you to be massively successful, you need to have scale. And I think that's where EXP is showing that they're heads and shoulders above the competition and they have that first mover advantage is that because they have a fortress-like balance sheet and because they have, they've, you know, first mover in this space, and they have been providing the value that they say they give to agents that they're attracting the best, and they're, you know, just miles apart of the copycats. And the copycats, you know, are debt-ridden.
Starting point is 00:25:58 They don't really probably follow through with all of their, agent-centric philosophy as well as an EXP would. And, you know, they, you know, they're not in this position profitability to, you know, give a dividend now as another income stream to agents. So it's just like EXP continually just, you know, is step ahead and has that scale where it's going to be really hard for somebody to compete against. And the copycats are going to run into two issues, right? The first is if you, Sean, are a great agent and you recruited me and you're also making a piece of my downstream. And now the copycats come to poach you, you're going to have to give up, you know, you're going to have the headache of leaving XPI's platform and everything. And
Starting point is 00:26:46 those headaches are real for a business where the guys, you know, they're trying to go out and sell real estate. But you're also going to have the headache of, hey, I just lost all of that downstream commission I was getting from Andrew, which, you know, hopefully I'm a good real estate agent and that's meaningful. And then I think the second issue they're going to run into is expei is only taking 80 only taking 20% of the commissions up to 16k and then it's and then basically the other people take everything and our last discussion before this fair point was hey why aren't they seeing operating leverage why aren't profits going
Starting point is 00:27:17 higher it's not like they're operating on flat mortgage so if somebody's going to try and if a startup's going to try and undercut them on commission there's not a lot of profit to go around and they're not coming in with the same scale and the same kind of subscription fees that expei has. So, you know, this is one of the reasons Amazon, Amazon, you say your margin is my opportunity, right? Like, if you keep your margins really low and you keep, I think the agents are more the customers than the employees, but if you keep your customers really happy, you keep your margins really low, it's going to be really hard for a startup to come, come in and kind of undercut you. Do you want to add anything there? No, I think you said that well. It's, it's, the,
Starting point is 00:27:52 the margins are low. I think they're, they've been working on their model. It wasn't perfect. It still isn't perfect. But they've been trying to iterate on it to make it to the point where it can be profitable. It won't be hugely profitable, but profitable enough to make a sustainable business and to achieve what they want to achieve, which is to be the biggest real estate brokerage in the world. But as you pointed out, the other companies, they're weaker in terms of balance sheet. that, they have to be able to compete with these guys who are way bigger, lower margins, and you just have to give away. So they're not going to last long. And especially if there's a downturn, you know, what can they do? If they run out of, you know, the cash flow coming in, they can't pay off their debtors. They're screwed. And so if you're thinking now as a real estate agent, okay, who do I want to hang my shingle up on? Well, I can go to this new one who's giving pretty much everything away. But are they going to be here in, you know, a couple of years?
Starting point is 00:29:01 Probably not. But EXP, okay, they're, they've shown that they're a winner. They're attracting the winners. They have, you know, fortress-like balance sheet. Now we're getting dividends. There's so many different, so many good qualities. This looks like a company that can last. So you're going to go there. Let me ask, so you mentioned the dividend a couple of times. And I put up, again, I put some questions and thoughts I had it coming into this. I'll put them in the link to them in the show notes. I put them on Twitter. And one of the things that jumped out to me was there was a quote from, I believe the CEO who said, hey, we've got agents coming on who go on and they celebrate every
Starting point is 00:29:38 time the stock price goes up, you know, and they use it to go to other agents say, we get stock compensation. The stock keeps going up. Think how rich you'll be if you come over here and you get some of the stock and everything. And you've mentioned, hey, now the agents, they get stock and the stock has a dividend, so they get a dividend treatment part of this. And that's all great. It raises two concerns, right? You always worry when everybody is kind of cheering the stock on. I remember, not that this is Enron, but Enron had the stock price when you entered the lobby and people would cheer. And I know people at Lehman Brothers who would say, hey, we'd get in the first thing, first day, a senior partner would come, be like, I'm going to tell you one important thing. Never sell the stock. This is what you're going to retire on. And obviously, but you know, I do worry when you've got a company that is so focused on the
Starting point is 00:30:22 stock and the stock price that does create, and Ron and Lehman aside, it creates issues. And, you know, if EXPI stock, if the market tanked in the XPI stock went from 45 to 20 tomorrow, would that create huge issues with recruiting new agents? Would that create huge issues with agents who came over who got stock and their stocks couldn't half and they go to XPI and say, hey, I thought you were supposed to pay us better. And the stock you have, it's worthless. What's going on here? So I just want to talk about the stock for a second.
Starting point is 00:30:49 That's very, very good points. And, you know, if there is a downturn and the stock cuts in half, that could be, you know, something that could be a little of a hangup for recruiting as many people as they've been able to recruit. But then again, if you think from Q4 last year, it was way higher the stock was. And Q, you know, over the last couple quarters, the stock has tanked, right? And a lot more than 20%, 40%, 50%, I think it's gone down like, I don't know, 50, something like that. It's a lot. but they've still been able to acquire people. And I think you might have heard some people who tout the stock.
Starting point is 00:31:27 And, you know, not all of the recruiters within the EXP model are going to be, you know, the best or they're trying to be, you know, they might be a little seedy. They might be trying to just work up based on recruiting other people instead of doing sales and recruiting people or, you know, so it's the individual agent, you know, can, choose to do whatever they want to do. But I think from what I've seen, what I've heard from a lot of the bigger people who are trying to recruit large teams within the EXP model, they're not saying, okay, our stock's going to go up forever, or that's really the selling point. What the stock really is is just a way for everybody to think as a team. Okay. And that's one of the points that I talked about in creating a good super incentive, okay, is there's six. So it's something that's simple, something that's really significant and it's timely, it's certain where the payer can't game
Starting point is 00:32:32 it, the payee can't game it, and then the share of the wealth. And I think that's the huge component of the equity and the whole reason why EXP did a reverse merger years ago to be a publicly traded company is because the stock component is a huge part of sharing the wealth and how getting everybody to think as an owner, but not only an owner, but an owner of EXPI to work together. Okay. I think that's the huge thing. And as long as we get everybody to think together, then we start seeing some really interesting things happening. And so if you think a traditional brokerage, none of the agents own any of the brokerage company, but the brokerage is, you know, a partner.
Starting point is 00:33:22 So it's a very, if you see any, so my business is working with real estate agents. You know, those are my, you know, big customer base for me. It's kind of a dog-eat-dog world, okay? Each, even with this, in the same brokerage company, each one of these agents is kind of fighting fighting against each other for deals, okay? That's not really the best situation because you have a limited number of supply of deals happening in a certain area.
Starting point is 00:33:50 And if everybody's fighting for it, that kind of sucks. But if you have an EXP model where if you're within the same brokerage company, you're a partner. You're an actual partner with the person you're working next to. And so now we have an opportunity where even though I might not be getting that deal, you know, if they're part of my downstream,
Starting point is 00:34:13 I'm getting part of the revenue share. Or if they're not part of my downstream, I'm still getting, you know, that deal is still a, you know, positive for EXP. I do hear you. I am a little skeptical. Like, if they're part of your downstream, I'm sure you're fine with it. But I am a little skeptical of, hey, I lost this $2 million house where I make, what, a $10,000 commission or I don't know how. how much. It would be more than that, right? It's about 5% as the commission. So you'd probably make about $100,000 of commission if you sold a $2 million house. Well, it's a two and a half. Well, it's usually two and a half percent. Oh, because they split it. Yeah. So let's just call
Starting point is 00:34:50 $50,000. I am a little skeptical that, you know, you're not part of my downstream. You and I work for EXPI. You win the deal and you get that 50,000 commission. I say, oh, that's okay. I own five shares of EXPI stock or something. But I do, especially with downstream, it does align. Right. But to your point, it wouldn't be, you know, if somebody's EXPA, they're not part of my downstream and they get a they win a two million dollar listing and i don't and we're competing against it yeah it's going to suck but it's going to not suck as much as if it was somebody the same brokerage uh traditional brokerage company you don't you're not you don't you don't you don't you don't own any shares of that company so it doesn't really so it's a little less of a
Starting point is 00:35:31 problem but it still it still would hurt right yeah i would just say i'm skeptical you know The share ownership, it's so pales in comparison to that direct hit. But that's fine. Let's, you know, one thing that struck me, you mentioned they came public through a reverse merger. And I told you before this, I looked years ago and the reverse merger, for people who are a little less experience, whenever you see a company come from public through reverse merger, it's generally a pretty big red flag, right? Because a lot of times, especially if you were doing a reverse merger into kind of a cash shell, use that just to get a public listing, you're going to go pump the stock. At this point, I think that's behind us. This is a real company.
Starting point is 00:36:09 We can put that behind us. But the second red flag is, I mentioned earlier, Verbella, the first time I looked at them, I looked and I said, oh, this is 1990s, diographics. Like, it seems a little strange that a company is coming out here and pumping Verbella as, hey, this is unique to us. The CEO at a conference recently said, one day we might spend Verbella, but it's really important for us that we have the exclusive license as a real estate, as a real estate agency to have Verbella.
Starting point is 00:36:33 And then they went and bought, it was Success Magazine recently. And they said, hey, we're mailing this to all of our. our employees. This is a critical piece of our culture that, you know, it was almost the second thing they let a conference with. And I look at Success Magazine, this 90s style graphics for Vervella, it just all seems a little cheesy, cheesy to me, I guess. You know, it seems strange for a company this big to be saying these are critical pieces of us. So I just wanted to talk about that for a second. I don't know where I'm quite going with their point, but there's something a little strange with it that I can't quite put my finger on. Well, think of it like this, Andrew.
Starting point is 00:37:05 Vrbella was a huge component of their business, and EXP was a, by far the largest client of Verbella. And the reason why they took it over was the whole fact of, okay, well, what happens if Verbella isn't able to sustain themselves and then, you know, the company would be screwed because now their cloud place of meeting other individuals within the XPI would be. would be gone. And think of it also as, so it was a big. Isn't that weird, though? Like, it's so critical to XBI, but XBI is their biggest customer to the point where they're worried that Verbella is going to go under if they don't take them over. But the thing is so critical that this hypergrowth platform is growing on it,
Starting point is 00:37:56 but they're kind of the only customer. Do you see why I'm seeing that's a little strange? Yeah. So for them, it's just trying to bring it within their umbrella, not only to, you know, just have a little bit more control over and the sustainability of the company, but to also keep it within their umbrella. But I see it as more of Glenn as an operator that sees something that, you know, huge costs that they have. Okay, that's one of the big costs within EXP was, you know, paying for this software.
Starting point is 00:38:30 Okay. Now they're bringing it in within their, uh, their umbrella. And so now their cost is now, you know, just a part of investment within the business. Success was another big cost of EXP, you know, having the success magazine going to real estate agents. So that cost is now, boom, within the company. So one less thing to have to pay out, you know, each quarter, each month or whatever. And also additionally, If you think of it like, think of like Amazon and Jeff Bezos, he has been able to create, you know, the business of where it's at today because, you know, like AWS, they had a problem. They had something that they needed within their business and they're able to build it to a certain point and have it become a huge, you know, component of the business.
Starting point is 00:39:26 And I think Glenn is doing something kind of similar, taking these, you know, costs, bringing it within the company. cutting those costs down, but also having a little bit more trajectory in creating brands or creating technology funnels that can help create, you know, create sustainable, better relationships with agents. So to go back to your point that Vrbella looks like it's from 1990s or, you know, whatever, it looks a little cheesy. And one, one thing to point out is, The reason why the graphical component is the way it's at is just the component of where technology is at and what the internet and the web can sustain bandwidth-wise to make it smooth, you know, workable and not something that's not useful. So something that's less latent and useful for the individual. So what kind of actual value does the campus, the online clouds place provide?
Starting point is 00:40:39 So take, for instance, a traditional brick and border brokerage company, they will have online, or not online, but they'll have courses and educational content for their agents to, you know, provide to them and so they can get better and better and, you know, make more. more deals and become better agents and, you know, the brokerage makes more money, yad, yeah, yeah. And it, if you're at a traditional brick and mortar place, everybody just has to get in their car at a specific time, drive there, and sit down. And, you know, if it's two hours, it, you know, technically comes out to, you know, more than that, you know, three hours wasted. So it's a huge kind of pain point for agents
Starting point is 00:41:24 to have to go to that brick and mortar location, to have the education, to have the education content. Now, if you're an agent and you can just plop on your computer any time of the day, 24-7, and access educational content or just have a meeting that might have to be scheduled with your brokerage company, it's so much easier just to plop on. And we're doing Zoom right now, and it's face-to-face. But in a situation where it's easier to be around more, individuals and be more interactive in this 3D space. It doesn't really matter what the 3D graphics look like. It's what value is it providing, you know, a little less friction for the agents in terms of getting their educational content, meeting with other brokers, managers, or mentors
Starting point is 00:42:19 to, you know, answer questions. And so that's where the value of the Verbella platform is for for EXP and the agents. So I don't quite buy that. I would just say like, it boggles my mind to believe that Keller Williams or one of these other big brokerages doesn't have like an online learning course where you could just kind of go and online learn versus in person. But what I do buy is that EXPI is focused 100% on digital. And I bet you their digital experiences are better. And as you said, like, I bet you Keller Williams when you go, you just go and log on to an online. portal and kind of watch a video that's just directed as you. Whereas I do believe what you're
Starting point is 00:43:02 saying with with the XPI where their whole thing is we've been online for the whole thing. They have better ways of, hey, you can go watch an online video, but we've got a better system for you can communicate to other agents in your thing and say, hey, I really found this thing interesting or kind of share the learnings or something. Does that make sense? So first point is Keller Williams and pretty much all the competition, there's a brick and mortar component. That's exactly what I meant. Because they were brick and mortar focus, I bet their online learning experience, it's there, but it's significantly worse. It's significant. And the whole reason, if they take out that brick and mortar component, what's really the value? Okay. So, and even here,
Starting point is 00:43:44 like anywhere that I've kind of operated in, like a Keller Williams, they're going to have a brick and mortar location. And they, those managers, whatever franchise owners of those places, they want the people to come in because there's really no other value to that brokerage. Like you say, I think Keller Williams, they've poo-poohed like the Vrbella world with EXPI for a call. I saw a quote where they said exactly my criticism of it. But now, what are they doing? They're trying to catch up.
Starting point is 00:44:15 But they're so far behind, like you say. And they still have that brokerage component, that brick and they still have that brokerage component, where it's just not going to work. And because the people who are already within that system, they're incentivized to keep that brick and mortar there, which the cost is going to be so much higher, it just doesn't work out. So if you think of like any other company
Starting point is 00:44:37 that has gone through a technological change, so like a Polaroid, you know, they can, you know, they were investing in digital cameras before anybody else. But because their previous business, so based on the chemical, whatever, the chemical component of the photography, they didn't go full on with the digital and then they become extinct. And I think that's going to be the same thing with traditional brokers or the Keller Williams out there.
Starting point is 00:45:12 They're so indebted to their previous model. They can't keep up. And they already, and those agents within their model, that's EXP's opportunity. Okay. And the gross profits of Realogy, Keller Williams, you know, it's like a $5,6 billion opportunity. Those are all EXP's, you know, you know, opportunity right there. Well, Sean, I think we've covered a lot. I mean, we hit there, as I said at the beginning, this is a little bit of a battleground stock there,
Starting point is 00:45:45 red flags. And I think we did a great job addressing all of them. You have a hard stop in about three or four minutes. So I just want to flip it over to you. Is there anything on EXPI, you know, any lingering bear cases we didn't address any, I don't even think we talked about. We did talk a little bit about some of the huge kind of expansion opportunities as they get maybe into mortgages and all this or stuff. But is there anything on ESPI you really wish that we had hit that we didn't talk about so far? Well, I think another thing that people would come up with is that EXPI might not have like the full-on like the CFO. He might not be like the perfect.
Starting point is 00:46:20 There might be some like discrepancies and like the ownership filings. You mentioned in one of your posts. You found like a little error with like one of the gifts. I encourage people to look at it. It was the value of their holiday Christmas presents in the filings. And it was very interesting. So it's there's there's hair there. Okay. And hair, hair meaning that there might be mistakes. And a company that's growing, as fast as this company is growing, there's going to be mistakes. And I think you just got to be comfortable with that because it's either them making mistakes on purpose or them making mistakes just because they're growing so freaking quick, they can't really keep up with themselves. And I think it's this bucket rather than this bucket. Because just the way that they're going towards, you know, their value
Starting point is 00:47:11 proposition being for agents and what the value they're actually creating isn't really taking away from anybody. It's just adding more to the pop for everybody within the ecosystem. So I think that this is a company that's got a lot of hair on it. Okay. It's not perfect. And by really any means. But I think if you're looking back from a top-down, more structural lens and seeing what this company is and what it potentially could be and what opportunity that they have in front of it is quite interesting. They're at, what, three to four percent of the real estate agents within the U.S. So, you know, huge runway. And they've shown that they've been able to, you know, execute. You know, they're acquiring more agents. They're treating them all well. And just the way
Starting point is 00:48:10 they're acquiring partnerships with Glenn Stearns, you know, one of the top mortgage industry leaders, you know, since the 80s and, you know, going into that side of the market. I just think that even I stated in the right of it, it's just a superlative company where it just seems to get better and better over time. They had, you know, issues like in their reporting, like many years ago, they've been able to get through that. So like I said, it's even though it's hairy, they're iterating. And it seems like they just keep, you know, increasing the value proposition for agents, which again, like I said, keeps those agents coming back, doing more business, which in turn will, you know, help the shareholders in the long time, in the long term.
Starting point is 00:48:57 I have two quick questions then I'm going to let you go. The first is, you know, Expel. We haven't even talked valuation yet because this is a hyper growth company. Obviously, they haven't fully inflected yet. But right now I think the market cap's about $7 billion. You know, I know you invest for multi, multi-baggers with a long-term view. I think you said in the side of your expel write-up, companies that can change the world and change your financial fortune. So it's a $7 billion company right now. I mean, are you thinking five, seven years from now, this could be a $50 billion company, a $100 billion company? Like how big are we? How big are you kind of playing for here? I like your Freudian slip. It keeps saying expel. No, it's because the start of your expeI write-up referenced your ex-pell write-up and you had a quote from the expel write-up. So it is not a Freudian slip. I know exactly what I am quoting.
Starting point is 00:49:42 But yeah, so what could the company be in, you know, five, ten years? I think it's going to be a lot. I think it's going to be, you know, significant. I think a lot of people look at the company now and, you know, just see the hair and are turned off. They see the margins and they're turned off. see something, you know, they see the revenue share. They're turned off. But I think this company has shown it's been able to acquire quality talent and motivate them. And I think they'll continue
Starting point is 00:50:12 to do that. And, you know, how big can the company be? It could be a lot bigger. Or I'm just, you know, I think it's going to be, you know, it could be 50, it could be 100. Who knows? I just know, it's going to be more than here. Perfect. And then the last question, I think you found Expell in 2014 and the start of your XPI write-up said, hey, it's been a while, but I found another high-conviction once. So, you know, in five or six years, when you find the next high conviction, one, my next question is, A, will you first let me know when you found it and be, will you come on the podcast and talk about it? Well, I wrote about, I think, the XPI, like in the 9th of July. So you could, You could have found it.
Starting point is 00:50:55 But yeah, no, I'll definitely let everybody know, but I'm slow. I'm really slow. And I'm an operator, so I don't spend really too much time investing. I'm more curious on, you know, creating a great business, which, you know, does also help finding great businesses, too. And look, it only takes one, right? If you're running concentrated, it only takes one. So anyway, really appreciate you coming on.
Starting point is 00:51:20 great work. This was a really fun conversation. I'm surprised how many red flags and everything we got through because I think he did a great job explaining them all. But I'm going to include Sean's the link to his right up in the show notes. I'm going to include his Twitter account if you guys want to go and message him and ask him all the questions that we didn't quite get to. Sean, thank you so much for coming on and looking forward to chatting soon. Thank you, Andrew.

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