B (3:02)

Yeah, I'd love I wish I could just point to the Saspocalypse or the software mageddon that's happening right now and say everyone's wrong, I'm right. Monday.com's earnings weren't that bad, but that is not the case. Monday.com reported earnings on Monday as they do every quarter. I it'd be a lot cooler if they beat earnings and did it on every Monday. But to wake up, what do you.

A (3:28)

Think about that as the branding, do they do it Monday morning?

B (3:31)

Yes.

A (3:32)

And it's that's not bad branding. I like it. I like it.

B (3:35)

Yeah. I mean that'd be great if I didn't have to wake up to a company down 20% on my Monday morning. But yeah, spoiler alert, bad report. The I told Brett this is the quickest stock I've ever owned to drop 50%. It's not a huge chunk of my portfolio, but it has dropped. It's been the first shares I purchased were cut in half and so far I've made the mistake of doubling down. But they reported earnings on Monday. Revenue was up 25%. Operating margins contracted. So this was basically the concern for me. And they've kind of been on this, what looked like a wonderful trajectory of growing revenue, growing revenue from existing customers, adding new customers and scaling profit margins as they've, as they've grown. And it's gone from I think like negative 30% operating margins to what was positive 4% this quarter last year. Now they've contracted. Non GAAP operating margins also contracted. So it wasn't just some gap, one time thing. And then free cash flow dropped. And that's probably the most concerning thing of all was not just that free cash flow margins have gone from 31% in 2024 to 25% in 2025. But their guidance for next year is 20% free cash flow margins. So I guess what's happening here it seems to be I wanted to point my finger and say, well, they're just, they can't stop spending. It's out of control expenses. But I don't know if this is necessarily out of control expenses or more of what they have to do do as a business to improve. They are trying to move up market in their customer base which is it's more competitive. There's other task management solutions that have carved out strong share in the enterprise market but the customer acquisition costs are much higher. Seems to be the case here. And then on top of that for a long time they benefited from product led growth where their customers it'd be a small medium sized business that would adopt money.com either the business would grow or they'd add more seats within an organization and it seems like a lot of that has tapped out and churn was apparently has I think has ticked up for they haven't. I don't think they've explicitly said that but among the small and medium sized business customers Churn is higher. So customer acquisition costs are rising, margins are compressing, revenue is growing but it's growing at a slower pace. Sort of the perfect combination of terrible things to happen for a software company. Now here's the hard part. The enterprise value to gross profit is at 2 now and I found myself like well those results sucked but hey, it's cheaper now that it's down another 20%. Anytime I start thinking like that I usually end up in a worse position six months from now. So I'm wondering, I'm kind of thinking it might be time to not own this company. I was willing to look past sort of their lack of a moat early on but now it's hard to do.

A (7:15)

So well Ryan, what about yeah, I do agree that there may be less switching costs than other software providers. That's probably the biggest concern for them as opposed to some of those really I don't know if I'd call it robust but just products that people use for many many hours a day. An Excel and Adobe, an Autodesk type product. But I maybe would ask you Brad, don't you have your own rule now of holding something for three years, letting it prove out? Maybe this is one where and I don't know if it's non taxable or taxable I guess I don't have access to your own brokerage account but if things keep going poorly it could be the tax loss write off for the year, you even get back in at a cheaper price. And maybe I can also add you remember our journey with Wix from early 2021 through I believe the end of 2022, averaging down about seven times, taking a nice tax loss harvest and then getting back in at the lows honestly and writing it to about 100% gain. This maybe is a lesson. We don't need to do that story with money.com even if the outcome would be all right.

B (8:27)

Yeah, you made it sound a little better.

A (8:34)

What happens over a two year period? It's a lot. It's easier to say that over in 10 seconds than when you experience an 80% drawdown over a two year period.

B (8:44)

Yeah, this is in my Roth, so there's no tax law. Sorbestein the. I think you're right. I, I should hold myself to the. Anything I buy, I gotta hold for three years. I'm probably not gonna add to it. I will. Unless something drastically changes. I, I don't see myself adding but it's, it is a good point and will hopefully prevent me from overreacting to a single bad quarter.

A (9:17)

If they can repurchase a lot of stock and clean up that balance sheet or not clean up the balance sheet. Excuse me. Clean up the. I believe they also have kind of the SBC bug. Hey, falling stock price is going to benefit you over the long term. That's what you just have to say. But the problem is where people run into trouble. And I'm thinking of companies. For example, we didn't even put this on the docket. Maybe we should include this hims and hers update. When you have a company like that, Risky business maybe hasn't proven profitability, it's in a little bit of a dynamic period. If you keep doubling down, that can be where you run into some real portfolio concerns. And I think as you mature as an investor, I'm saying this not to you, Ryan, but everyone. I'm saying this to myself as well. We all kind of go through this. You learn that, all right, you made your bet, maybe double down once, maybe another time. If you haven't made it a large initial position. But if you thought it was cheap when you bought, you kind of let it play out. And if you have to experience a 50% drawdown, so be it.

B (10:26)

Yeah, that's probably the way to go here. Businesses, Businesses have slower quarters too. Like it's, it's an important reminder. Even in a world where like software, I think a lot of people want linear growth. It you don't close as many deals in a certain month, all of a sudden, especially when, when you're moving more towards enterprise, things can take a little longer. There can be lumpiness, there can be down months, whatever. So yeah, I think that three year rule, I'm going to stick to it. Do we want to shift gears to Any other earnings reports or do we want to talk 100 year bonds?

A (11:05)

Oh, I guess we can talk the Alphabet. This will lead into maybe the weekly AI slash big tech update because it seems like there's something new on the docket every week with this. Alphabet did have. And this was the, I mean it's a classic clickbait headline. The Motley Fool. My. I wouldn't say employer. The company I work for would be all over this. You know, everyone, cnbc, Wall Street Journal, everything they did. Yes, proposed issue. I don't know if it closed a hundred year bond, but that was only a small amount for their size. It was about a billion dollars. Now the real news, I would say is that here's a quote from cnbc. Alphabet is close to finalizing a global bond issuance in excess of $30 billion. According to two people familiar with the deal, an increase in the $20 billion it raised on Monday seems like there was I think $100 billion in potential demand for this debt. So there's no, and this shouldn't be surprising because Oracle was able to raise debt recently and their balance sheet and their position within the AI infrastructure race and cloud computing is much, much more precarious than Alphabet's. So when you look at that, it's just worse. Yeah, like it's not surprised that Alphabet's able to raise money now. Amazon is also looking to raise money, but what I think was most interesting is why is Alphabet raising money right now? Because Alphabet has $127 billion in short term cash on its balance sheet or market short term marketable securities. They have $165 billion in operating cash flow and that should really cover all of their 2026 capex needs, I think 180 to $190 billion in their guide. So what does this mean to me is think that they will likely need to overspend or outspend operating cash flow for a long time here. I think it also shows how well positioned they are to crowd out startups such as OpenAI which is struggling to raise funding that it's been reported for at least all of 2026 I think and it hasn't happened. From what I'm aware they, Alabet's able to raise what, 30 to 50 billion dollars whenever they want. And sorry for the, the motorcycle in the background, if anyone can hear that the, the thing raised 30 to 50 billion dollars whatever they want and OpenAI is going to kind of have to struggle there. And what I'm kind of, I don't know this isn't a conspiracy theory, but I think this is maybe a theory I have for some of the AI build out is that for OpenAI, the longer these funders make them wait, the better deal they're going to get because they go well your only option, Amazon, Nvidia, SoftBank, I mean there's a few players out there but if they keep making OpenAI wait they can get better terms. And I think that's maybe what's happening here. And you just compare that what Alphabet's been able to do. It pays to have that conservative balance sheet for many, many years and now in a period where they need to get aggressive, Alphabet can kind of turn that on. And I feel like again I know we toot their horn all the time but compared to all the other companies in big tech they just time even this type of stuff much, much better than the competition.

B (14:31)

Yeah, I wouldn't be surprised if we saw a lot of other big tech companies do this as well. It sounds like Amazon already is looking for it, but Microsoft may be too. I'm not that familiar with Microsoft's balance sheet but you've got a, it's a decent time to raise interest rate wise like I mean they're getting fairly attractive rates relative to what they would have gotten a year ago but on top of it it's kind of, I got a feeling everyone's going to raise their capex guides even further. I think it is sort of a capex arms race at the moment which to me why not have the extra $30 billion in the balance sheet especially if it can raise 100 year bonds and that long of duration. So I like the move. Makes sense. I suspect Microsoft will be following suit. The other part here is if they are making more and more venture bets, venture type bets, that kind of stuff which we have seen like these equity investments, it's not just their capex that you want to look at relative to their cash flow. Right. There could be other forms of cash outflow. So yeah, I, I, I think it's a, a good move on Google's part and I would not be surprised if other big tech companies were following suit here.

A (16:00)

Yep, I'd say Nothing else to add. You had a little thought about capex guidance? Any anything after digesting it? We kind of did a live last week. Any other final thoughts though Ryan?

B (16:13)

Well, it just feels like the market's souring on the CapEx guidance a little bit obviously because the companies reported really good results and sort of the only flaw you could point to was the CapEx guidance and the stock sold off. So that kind of tells you investors have soured on some of the CapEx plans. But I, I just feel like there's a big disconnect right now between Wall street and big Tech. And like the people running these big tech companies, the people in these finance departments are not dumb. In fact, lot of the brightest finance people in the world, they, I think they know why they're spending it now. Maybe there could be demand changes that surprise them and might not hit their forecasts. But my gut tells me that if they are clamoring to spend as much as they can on compute, they know the returns they're generating. So now it is a lot of money being spent. But I, I do think Wall street, it's kind of weird how they changed their mind on this. Like it felt like they were sort of excited about it for about a year. And then Big Tech's like, yeah, we are too, let's double down. Wall Street's like, well, we're not, we're not quite that excited.

A (17:45)

Yeah, I mean look the, and again, we can't, we're not going to spend a ton of time on this because we talk about it all the time. But the problem would be Amazon is at negative cash flow, right? Or it's going to be in 2026. They're spending $200 billion in capex. And if the customers and anthropic OpenAI what have you don't show up, well then you have overbuilt and that's what people are starting to get concerned about. I don't know what's going to happen, but this could be the time where they start overbuilding. Who knows? It also could be 2027 or 2028. I'm not sure.

B (18:22)

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A (19:31)

E commerce business but oh yeah, that's fair, that's fair. But if they do overbuild it will look ugly for a few years. I know there's still a long term cloud growth. Yeah. And each business is different. I mean you could say that Google Cloud's in a much better position but you're probably right. But here's the thing, the uncertainty, especially where these stocks trade. Well if you have a couple of down years where revenue growth just falls off a cliff. Yeah. I mean they're overvalued today. So that's probably what a lot of people are digesting.

B (20:02)

Amazon, of all the big tech companies seems to keep investors the most irritated. Like they tend to seem the most uncertain. It feels like, like whenever they start earning they're like whoa, you know, let's, let's pull back and start investing more. We can't, we can't show too nice of margins.

A (20:20)

Yeah, the. Well their operating earnings are at record highs but free cash flow. Yes, the interest. I think the most frustrating thing has to be the fact that there's still, let's say AI is just the total future. And first off, Alexa was supposed to be the future of AI 10 years ago. Total bust. You're still spending money on that. You're spending money on Project Kuiper, you're spending money on God's no God knows what. And what are you like you're risking not having the funds to compete truly with Alphabet. I just think that would be frustrating when you could have a lot more ways to self fund.

B (21:03)

I do own some shares of Amazon. I own shares of Google as well. They're not massive positions but I'm comfortable owning them here. I think the one thing that kind of keeps me not so worried is that their core businesses are some of the widest moats on earth and should continue to grow. Both for Google Search, both for Amazon E Commerce, aws, Google Cloud, you name it. But let's shift gears here. I want to play a game. Is now an okay time to play.

A (21:43)

Value Player Value Value Player Value Drop. This is a game designed to make me look stupid in a year. But I, I will be willing to play. You haven't shown me the names, but I guess, I guess you have them maybe on your own. On your own little screen there.

B (21:56)

I do.

A (21:56)

Yeah. Let's do it. Basically I just have to say value player, value trap. No explanation, just gut check.

B (22:02)

A little context might be nice. The.

A (22:04)

Well. Okay. Okay, that's fine.

B (22:06)

Okay, I'm going to name a company and you have to guess whether or not that company outperforms the S&P 500 over the next five years. These are all companies with low face multiples. Okay. And we can talk through some of the valuations if we want as well. But the number one here, first one for me, PayPal.

A (22:31)

Value trap underperforms. What do you think?

B (22:36)

What? I probably agree. And this has been hotly debated for the last, I'd call it three or four years. Basically the entire drawdown, it's felt like a value play. When there seems to just be continuous deterioration under the hood and the CEO departure, you can't, you cannot overlook that stuff. Like a CEO tends to leave for a reason and it's not just because the board thinks his performance isn't good. Like typically, I think the CEO wants out as well. He was there for what, six months?

A (23:23)

I'm not sure. I don't follow the business that closely. Here's what I know, and I've known for a few years now, is there's no reason the, the legacy PayPal company needs to exist. There's no reason. Or they've had an advantage with Venmo. They seem to be doing okay with it now by actually adding features that can monetize their customer base. But they totally dropped the ball on that. Even if GMV is growing, it doesn't matter if I'm sending money to my parents, it's not monetizable. And they can claim they have high volume growth with GMV on Braintree, but they're just trying to severely underprice competitors like Aden or Stripe when they can't get process volume or what's that like the. What's that figure? The percentage of transactions that actually close. I forget what that is, but approval rate, yeah, whatever that is. It's just they're not as good as Adyen or Stripe. So where were they going to win? And then the core business is just going to get eaten by Apple paying credit cards and there's just no reason for that to exist. Cross border transactions, you're getting eaten by Wise, remitly, even other solutions out There. So yeah, total value trap. To me it's been a value trap. It looks cheap. I just don't see why this company needs to exist.

B (24:37)

It's actually. Yeah, so I misspoke too. The PayPal CEO was there for two years before stepping down. The and you see this a lot with value cheap looking companies is where it's good company, bad company and you've got like a real cash generative company that used to be great and now it's kind of in free fall and then you've got other good looking companies under the hood where like I'm thinking like the core PayPal checkout button, that was a great business but now it's being eroded by competition. When you have a good company, bad company scenario, I used to like those setups and then I realized cash flow deteriorates really quickly because the emerging companies don't replace that cash flow for a long time. So you get these persistent earnings headwinds year after year and there's actually no certainty that a Venmo or a Braintree is ever going to replace that cash cow and you got to invest into it. So it's, I've, I've made this mistake a number of times. But yeah, I would say PayPal for me goes in the value trap camp. I could be wrong on that second one here. Maybe we won't spend quite as much time on this one. Adobe.

A (26:04)

Value Play, it's cheap now. I actually just looked at them today for Motley fool, so 12 times EBIT, give or take. I think with the way the business is, you know, even if they face a little bit of competitive risk from figma, Canva and some potential boogeyman and AI, there's still the potential for them to add more AI features for their customers, raise prices. And I think even if like unlike PayPal where you say who needs this business in the modern day, you still need an Adobe type product, but you're just worried that a cloud based solution or a point solution is going to come after them. And unlike PayPal, I think they have a much wider moat and if that moat's attacked, that's, you know, they're going through a moat test right now. It hasn't shown up in the numbers yet. But for a company that's quote unquote under threat looking to buy back stock, their financials look better. It's trading at a very similar price and I think they can buy back a lot of shares. PayPal might look a little cheaper, but I, I, I just like Adobe. I don't I don't own it though. So I don't love it. But I, I would Lean value play. And I know what you're going to say, Ryan, because you own it, right?

B (27:25)

Yeah, I do. And I've been just going over, going back over some of the numbers and if you just if. If there was no narrative out there and you only judged a company based on financial performance like trailing would have a very different multiple. But obviously you value a company for the future. I was looking. Since the cloud transition, I think return on invested capital has averaged around 30 to 40% on an annual basis. The numbers look pretty good but obviously things would change if AI started to steal their customers. Move on to the third one here, Lululemon.

A (28:14)

Oh, this has been a psychological long. Yeah, you picked some good ones. I'm going to say value play, but I still haven't owned it. I honestly I. I like something like Crocs more. I don't know, it's hard to articulate but Lululemon, the management team is just off and yes, then you know they're getting a shake up here. They're going to buy back a lot of stock but that competitive market, it's tough. Lean value play. I think the Stock could be up 3 or 4x in a couple years or it could be down 50 if they turn into a total. Just can't get that brand back. Yeah.

B (29:03)

Yeah. I really don't know. I'm totally on the fence here. Like anecdotally it doesn't seem to have the same sort of consumer mind share as it used to. I think those other athleisure type brands, Aloe etc have certainly gained popularity with at least people I know.

A (29:28)

It looks like to paint some positive for Lululemon. It seems like from what I've seen and I'm not one shopping for this stuff all the time that the Lululemon's voice of the or sorry the Aloes and the Voris of the world are more heavily discounting than Lululemon. So they're trying to just win customers. But I feel like the gross margins or the. The operating margins on some of these products on these purchases are probably not great and is not something. It's not sustainable. Curious if. If you think the same.

B (30:03)

Yes. But even a purchase, even a discounted purchase at Fiori is a purchase not going to Lululemon.

A (30:09)

Yeah. That's what makes the industry tough.

B (30:11)

Yeah, for sure. Retail, I just my.

A (30:16)

I find it so hard on retail outlets. Yeah.

B (30:19)

Apparel can't be better. Yeah. Okay. Next One. This is sort of a two companies in one, but it's sort of a pear trade. Molson Coors and Constellation Brands, the, the beer, the popular beer companies in America.

A (30:36)

I think value play. People drink beer. They're going to. Our Seahawks are having a Super bowl parade right now. It seems to be sponsored by beer as it always is. People are going crazy. Maybe they'll get an uplift there. No, that's, that's not important enough. And the stocks are trading. At least I can check live here on our friends at Fiscal AI. I believe at least Molson Coors is trading at a fairly cheap price and I would be much more given market share. You know, it doesn't change that much. It's not as stable as cigarettes but. Or soda. But market share seems to be fairly stable in beer. And even if usage is declining slightly, you should be able to outpace inflation a little bit. It says Molson Coors EV to EBIT is negative 6. So they must have done a write down. Let's look at maybe cash flow, free cash flow 14. That's not terrible.

B (31:35)

It looks cheaper. Constellation brands. I'm doing a research report on them now for an episode upcoming. Yeah, tease here. Value play in my opinion. And there are some advantages. It's not quite as insulated like you said, as like the cigarette business where you couldn't really market products so there wasn't as much competition. But with beers, there are production advantages to being the large scale producer. You can produce at a much lower cost if you've got distribution.

A (32:07)

Distribution? Yeah, like you go to a random bar. Most of the time someone's gonna go, all right, what are you drinking? And you go, ah, give me a Coors Light. Give me a Corona. Right. It's something. I know something you know. Yeah, it's comfortable. You might try something new at the store or something if something gives it to you. But yeah, it's familiarity I think should help these companies and make them value. Place.

B (32:35)

Yeah. And there's a big misnomer around volume growth for these businesses like Constellations grow in volume every year for a decade until this last year. So yeah, we'll get to that in my research report. All right, let's go. Maybe two more here. Match group.

A (32:56)

Now there was just like a random tweet from a guy that, that seemed to bring down the stock, which I thought was kind of funny, but I don't think it's actually affected the business. I haven't looked at their earnings closely, but it seemed to be much of the same Tinder is still declining. Hinge is still ascendant. Cash flow is okay, but consolidated figures, it's not going much of anywhere. And none of the emerging bets are working. Their international business isn't working, although it's probably benefiting from the declining US dollar. So I will say Val. I'm going to say Value Trap. It feels like the, it almost feels like the Dropbox situation we were in a couple of years ago, where you kind of go, eh, they're buying back a lot of stock, they're levered up, you know, the cash flow should be durable. But if there are user subscription and revenue headwinds, you just, you want to look somewhere else. You're just going to be. Unless you have just a superb capital allocator at them, it's going to be an uphill battle and you'd rather own something else. I mean, for example, this is a company I just did a research report on, but you look at someone like Match Group, compared to wix, they have grown revenue pretty much every year for a decade. And there was a little bit of a bullwhip effect during the COVID pandemic. But why would you go from something that looks like a secular grower, market share taker, consistent revenue growth, to something that you go, I mean, are they going to grow revenue? Okay, it's seven times cash flow. All right, they're buying back a lot of stock. But it's just, why play a hard game like that? It's kind of a picking up pennies in front of the steamroller. However, eventually, if Hinge keeps growing and they keep buying back stock, it'll work at least for a little bit.

B (34:46)

Yeah. This is a perfect example of one of the companies I got burned on that was a good company, bad company situation where Tinder was shrinking every year in terms of users and Hinge was growing. And it's easy to point to Hinge and say, well, once Hinge is a bigger business, people are going to be underestimating what it can earn. Yeah. But for the next five years, cash flow is going to go nowhere because the Tinder declines are not more than offset by the Hinge increases.

A (35:17)

It's interesting. And we're finally seeing, I think this is something you don't know as just like an individual user or something, or even as an investor. We're finally seeing the full crazy dynamic of how, like lopsided or the winner takes all, if I can put it that way. These marketplaces can be. Which makes it very, very difficult to have durable users because one side of the aisle, the men, like 80% of your users, just get really upset and leave. Which if those are supposed to be your paying customers, it's very, very hard to keep them around.

B (35:53)

Okay, the last two here again, sort of a pair trade, although they're not technically the same, but whatever. Gartner and Accenture.

A (36:03)

Oh, no, I don't know. I have no clue about these businesses. I, I don't know why Gartner needs to exist. I'm going to go Value Trap. I think a, maybe it's my bias because I'm not a fan of the consulting businesses. I think they waste a lot of shareholder money and just line the employees pockets and the partner's pockets. But I feel like AI is at risk of disrupting these businesses more than a lot of other software services out there. Because when I think of what I use AI for, it is a consultant. I was doing research for Philip Morris International and I was thinking, oh well, what is. I wanted to use like a little anecdote for the newsletter on emerging modes, a little marketing. Philip Morris International quarterly update will be out Friday morning for people listening on the podcast that will be out as you're listening to this. But I was thinking, okay, well I want an anecdote in this story about how, you know, their market share has developed within, say, an emerging market. So I just asked Gemini, hey, can you tell me what Marlboro's market share has developed within India over the last few decades? And it can give me a lot of sources on that. And that's something that traditionally like going through Google Search or going through all these websites would be difficult to find. It can do that for me quickly. And this is what, if you were a business you would pay consultants to do. Am I, am I, am I wrong about that?

B (37:40)

No, I think you're right. And it is kind of a funny anecdote this week where KPMG was apparently publicly, they were demanding that their auditor, Grant Thornton slash fees because AI was making their auditing work faster and cheaper. And it's kind of like people were sending the memes of like the same guy, like stabbing himself in the back, basically. Yeah, yeah. Because kpmg, if you think about a lot of what their, some of their consultant work is like, whether it's creating slide decks, creating spreadsheets, whatever it is for the company that you're contracted with. We've seen it with Claude, I guess, with all these cloud demos where you can ask Claude's copilot to create the deck that you want and have it done quickly if it's way cheaper for you. If you think it's cheaper at apmg for the auditor, it's. You're. You are inviting your customers to ask for contract reductions as well from these consulting firms.

A (38:50)

I'd say start, if you work there, start making contingency plans. I'm not someone that is. I'm in a job that. Well, part of my job. The other job, writing is definitely a risk of AI disruption, especially because as people are probably well known, the Motley fool is one of the biggest SEO players out there. So like that, that is definitely affecting their business. This is not saying that consulting is the only business affected, but that feels like if you work at one of these companies, I would be worried. Sorry. All right. If anyone works there, I'm sorry, but that's just my honest truth. I don't know. Break the bad news to you, but all right. Value Play, Value Trap. I can't even remember what I said, but Lululemon, I think it's a trap. Well, ones are value plays. Adobe, Molson, Coors and Lululemon. You're going to have your tight leggings, your beer for the tailgate, and you're going to have your video generation. Right. Or marketing. I can't even remember what Adobe does sometimes.

B (39:54)

Yeah, and then you called Match group, Gartner and PayPal the value trap bucket. Yeah, there were some other ones on this list, but you're going to outsource.

A (40:07)

Your consulting to AI. You're going to meet the love of your life in person and you are going to pay with Apple. Pay.

B (40:16)

All right folks, before we move on, let's talk about our home for investment research, Fiscal AI. Fiscal AI is the complete stock research platform for fundamental investors. We use it as every single day here at Chit Chat Stocks. It has everything you need to research individual companies from 20 years of financial data to company specific segments and KPIs earnings call transcripts, Morningstar reports and insider ownership data, and much, much more. And they just lowered the price of their Highest tier by 60%. If you want a complete enterprise grade financial data terminal, check out Fiscal AI. If you use our link Fiscal AI chitchat, you will automatically get two weeks of Fiscal Pro for free. No card required. And if you want to upgrade, our link will get you 15% off any paid plan. Again, that's fiscal AI chitchat. The link will be in the show notes.

A (41:05)

You know that's the future we're living in.

B (41:08)

I don't know about the Match Group case there, but the other ones could be. There could be some reality there.

A (41:14)

I do want to talk Spotify and Oscar earnings and then we can do some fun stories and maybe list some questions at the end if we have time. Well, when you want it first, let's do Oscar since I guess you were talking a lot on that one. People are asking about this. It's a company I've covered. I do have a free introductory research research report when emerging much was was not paywalled back from the summer. I say it still would be relevant, although some of the numbers have changed and I will be covering this company in depth throughout the next few years or at least as long as I own it. I should say disclosure. I haven't read the conference call yet. It came out, I think yesterday morning. Let's go through some of the numbers. Their medical loss ratio is elevated to 95% in Q4. It's pretty ugly, but expected again when they're on the Affordable Care Act Marketplace. You can't replace price plans until the following calendar year. But if your medical cost as an insurer are skyrocketing unexpectedly has happened to all of these companies in 2025, well, your medical loss ratio is going to get worse. And this led to a $330 million operating loss, something they can manage and hopefully it turns around in 2026. And I do expect that to turn around. But you know, you never, you never want that. However, on a positive note, their SG&A expense ratio keeps falling. And for any listener that doesn't know the basics of what leads to profitability for insurance company, you have your revenue which is, let's say 100% or $1 on the dollar and that's your premiums coming in. Your medical loss ratio is going to be what you are giving out as claims each time period. And then you have your operating expenses, which is your SGA expense ratio. So if your operating expense ratio plus your medical loss ratio is below 100%, you're generating positive earnings. Now their SGA ratio keeps declining, which is good because as they scale and hopefully their medical loss ratio gets better in 2026 as they reprice, that will lead to more operating leverage and operating margin expansion. So what are they Guy For? For 2026? $19 billion in 2026 Revenue at the high end, which is much higher than I thought I should say. There was, there's wild. It was pretty uncertain what was going to occur here. We didn't really know. I'm sure someone could have gone into a really deep Dive and tried to find info on. But I was pleasantly surprised. I thought that the fact that the subsidies were going away was going to lead to customer declines and then they could reprice to kind of maintain revenue. But it seems like things are much better on the revenue perspective than I thought because they're growing pricing by average by about 30%. And it seems like at the same time, even though subsidies are going away, they might be expecting customer count to grow or at least be stable, which is be much better than I thought. And on that $19 billion in revenue, which as an insurer is not really that important, they are expecting $450 million in earnings from operations at the high end. Now this is about a 2% operating margin. And if margins can keep expanding over the next few years, I mean as an insurer they should probably be able to get a 5% operating margin at better scale. You add in some interest income because remember they have float. We likely get to one, I think pretty easily $1 billion in operating in net income. The current market is $3.6 billion. Now. Is there, are there risks? Sure. Is this guaranteed to happen? No, but that feels like a good setup to me. And I like the quarter mainly from the guide and I think the stock remains cheap.

B (44:52)

Yeah, I like the earnings figures there. If you're right, it seems like, seems like a lot of value here. I mean market cap of 3.6 billion, potentially $450 million in earnings this year. What do you see? Like this isn't an industry I'm super familiar with. How do they grow customers from here? Just be the low cost provider in their states.

A (45:20)

They don't need to be low cost provider. I think the cost in the ACA marketplace is a little bit, bit of a commodity. Now they are expanding to new states. They're not in every state yet. They're going to slowly expand to new states and counties kind of. It's not maybe just a state level. It can be a little more granular. But really the reason they can get more customers is they just have a product that is easy to use. It's not legacy, it's not. Oh, I mean it's just easy to deal with. They have all these tools. For example, they have for all their customers free telehealth. You can consult a doctor if you need to immediately call someone. This is included. You don't have some stupid Teladoc partnership that doesn't work. You have to create an account. You don't even know how things are reimbursed. It's just easy. It makes sense. They're building out all these other things. It may seem like, oh, the ACA Marketplace is a commodity. You have limited profitability, you have all these plans, but once you understand the rest of these other companies just have such high levels of tech debt. Oscar seems to be in a good position and they have proven they can keep gaining market share and they're only at a couple million customers. As the ACA Marketplace keeps growing and as they move into these as well as these, it's called Ichra, Ichra plans, which is individual contributions from your employer. So instead of the employer saying we're paying for your health insurance, you have this plan, they give you money in a health savings account and you basically act like you're on the ACA Marketplace or something barely similar. So that gives more flexibility to the individual. Instead of paying for this very restricted plan within the employer space, you can actually pay for what you need. For example, if you need I stuff, if you need whatever, whatever individual healthcare stuff you might need, it just makes everything better. So yeah, there's a lot of reasons and I think you kind of look at some of these companies and you go, well, they just kept gaining market share. This is Wix as another example. They keep getting market share. They have a decade of gaining market share. They don't have that high of market share. So why would we not expect market share gains to continue? That's about it.

B (47:46)

Yeah, I think WIX is a great example of that. Let's talk Spotify real quick and then I want to talk about the latest in the world of Ponzi schemes, but Spotify, old flame of ours. I don't know if you still own shares. I do not. I do, but okay, numbers looked all right. So revenue grew 7% in constant currency, which isn't great, but. Or, sorry, revenue grew 7% in reported currency. It actually grew 13% on a constant currency basis, which, well, they report in euro.

A (48:27)

Right. Euros appreciated a lot rent.

B (48:31)

Yeah, it was quite the swing. So it's kind of been a headwind. GROSS Profit up 10%. They actually reported their highest gross margins ever. Has there been a repricing with the labels, do you know?

A (48:50)

Yeah, they said on the call, actually, funny enough, read the conference call last night and they said that with basically they expected with their latest round of price increases that revenue would outpace variable costs. So that I think implies they're able to get a little more margin out of the latest negotiations with the price increases, which is nice. And also ad supported margins are back to positive. They're like 20% now as they've gone to self serve and I will say anecdotally, their self serve has improved quite a bit. Might not be a big business, but.

B (49:28)

What do you mean?

A (49:28)

It's probably more probably like what we use, you know, like allowing podcasts or musicians to earn. It's just they, they built it from the ground up instead of a, how should I say it, like usually utilizing all these partners. They built the self serve advertising from the ground up. Two years ago it kind of killed their advertising business for a little bit, but now it has much better margins and it's going to develop, I think much more sustainable growth as they make it easy for someone like us to go, hey, you just click a button, you have two ads embedded at the 52 minute mark and we're going to take a cut of it. You're going to take a larger cut. It's going to be just like they essentially finally ripped the cord off and built something equivalent to YouTube, which I think will be nice, but it's still really not that relevant to the business today.

B (50:16)

Yeah, I was going to say, looking back, I drastically overestimated what they were going to be able to earn in advertising revenue relative to their subscription business.

A (50:24)

Alphabet and Meta are just so much better. That's where the dollars go. It's the truth.

B (50:30)

Yeah. The operating income grew 47% year over year. They actually we've seen just pure operating margin expansion over the last two years. And then subscribers growing 10% monthly active users in total up 11%. This is a fine quarter, but I'm just not drawn to this business at the current prices. It seems expensive for me. And this I feel like people are under. Maybe I'm wrong here, but I think Spotify is more of a mature business than people give credit for. I mean, 700 million monthly active users. I don't think they're going to be reaching Facebook level usage. So maybe, maybe there's more pricing power than I'm thinking.

A (51:21)

But yeah, I mean, look, if they execute on the audiobooks and they execute on maybe some more podcast stuff, they maybe will be able to raise prices even more, make it a bundle. They've talked about the super tier. I don't know if that's worked with the labels because they kept delaying that. Maybe negotiations are going poorly with that. But hey, on the conference call, Ryan, they said we're at 3% of the globe something I think 3% of the globe is a paying subscriber. And they go, why not 10%. That's kind of what they said. That's fair if you price it correctly. I don't know if 100% of the Internet using world is going to be paying for a music streaming service, but Even if it's 50% or 40% and you say within that there's going to be Spotify, YouTube Music, Apple Music, and maybe a couple of others in international markets, could they get to 10% of the global population? Sure, sure. That feels like a bit of a reach, but there's probably still room to grow. I'd say they got to execute, though, because YouTube is. They're smart, they discount, they bundle and they're gonna have to execute, that's for sure.

B (52:38)

Yeah, I mean it, like, let's say it does go well. They execute, they triple their users, which would be pretty incredible. It's at a price to sales today of like six. I think the likelihood that you see material margin expansion from here, like, I find it pretty unlikely that they're going to double operating margins over the next five to 10 years. It seems like that would be pretty hard to do.

A (53:06)

Yeah, it's not a great price, especially when it's not a wide moat business. I'd maybe, you know, given my framework, considered emerging mode potentially, but it's not. There is executioners. I love their management team. I think it's fantastic. But yeah, the stock's not dirt cheap.

B (53:25)

All right, let's talk Ponzi schemes. What is your bubble watch for this week?

A (53:31)

As people who spend time on Twitter? Have you heard of this guy, Tai Lopez? He's been. Apparently he's big on Twitter. Slash X. You've seen this? You've seen this guy? I have not.

B (53:41)

Like five to 10 years ago, he used to run a ton of these, like, YouTube ads for like, I'm gonna teach you how to get rich in five days. And it's like he would just be. It would just be him, like, walking around his mansion. This was. He was like a very. He was one of the, like, first. Maybe not the first, but felt like one of the big YouTube, like, get rich quick influencers out there. All right, well, it seemed like a terrible guy, by the way. Sorry, I'll say it now. Spoiler alert. He seemed like a scam artist from.

A (54:17)

The beginning, and unfortunately, he scammed a lot of people. Okay, here's the headline from the Wall Street Journal. He vowed to revive Radio shack and Pier 1 Imports. Investors say they were swindles. His name is Tai Lopez. Here's a quote. The college dropout had Made a name for himself on social media by offering get rich quick advice and self help courses. As Ryan mentioned, he urged his followers to invest in a new company he had started that was scooping up distressed retailers on the cheap. Radio shack, Pier 1 Imports, Dress Barn Sporting Goods, linen and things for the promise to turn them into E commerce winners. I gotta say, even if this wasn't a scam, why are you investing in this?

B (54:56)

What a.

A (54:57)

He used a lot of social media marketing. Lopez was able to convince investors gave him a total of $230 million. I will say some people are just good at raising money. You gotta give props to the guy that is difficult to do. Some people are good at raising money. Now don't be a scam artist. Golden age of fraud. Let's not do that. Be a legitimate person. But man, that's a good skill.

B (55:19)

Yeah. Not only did he raise $230 million, he raised it for a bad idea.

A (55:24)

That.

B (55:24)

I mean that really is quite the promotional activity. Yeah.

A (55:29)

Here's another quote on his podcast the Tai Lopez show and in a social media post. Lopez, who was 48, hasn't addressed the company's collapse and the heavy losses incurred by his investors. The day after the SEC filed a suit, Lopez posted on X Never Doom. No matter how horrible the situation, don't ever think you're doomed unless you are dead. All defeat is psychological. When he's in the Southern district of New York prison, I wonder what he's going to be thinking that now. It was really a sad story because the marketing materials they provided investors with lacking any detailed financial information, that's red flag number one. And they promised a 20% return. There's red flag number two. That is classic scam artist behavior is promising a specific return number because that's how with their Ponzi scheme, they say, all right, well this is what I need to allocate and then this is what I need to bring in to pay out these existing investors. There's some very sad quotes from the article. Some of. Here's a quote. Some of Lopez's investors said in interviews that they believed in the brands he was buying in his message and was reassured by the monthly payments they were collecting. Nelson Rowe of New Iberia, Louisiana, an 82 year old retired real estate broker who invested $300,000, said Lopez seemed credible. The story sounded so good. They had all these brands. Well, that's tough. There was another screenshot here which was from an investor and for anyone that's. I know we made a lot of dating references this episode. Anyone that's dated in the modern world now, these old dudes might not be dating these days. You should have known it was over when he seen these text messages. Because if you see the screenshot here, his Investor said on December 27, why can't you respond to my question? Not cool. Lopez said, hey, this week later, we'll have more updates. The guy responded, okay, but is my $500,000 safe? Lopez didn't respond. Then on February 6, the guy sends him a question mark. No response. February, double question mark. And then I think a couple days later, exclamation point, question mark. Look, this is like when the woman says, after the third date, had a great time. And then, you know, you follow up the next day later or something. Hey, I'd like to see you again. And then if you don't get a response for a day, you just know, like, in this situation, things are not going well for you.

B (57:59)

Yeah, it feels like this. This seems like a guy who has taken advantage of a lot of people for, like, 10 years. He's kind of built a business off of it. But maybe this will be hopefully the cautionary tale that gets published for people to stop falling for these kind of things. The other one, no.

A (58:21)

Brian Ryan. It's the golden age. The thing I find happens all the time. This happens all the time. It does. Daily.

B (58:26)

It does. Yeah.

A (58:28)

Chow ZZ was just talking with Chamath on a viral podcast.

B (58:38)

I think my favorite thing is when something like this is going on and people just go about their. The. Whoever the scam artist is just goes about their day like it's not happening. Like this guy, the Tai Lopez Show. He recorded his latest episode and just had nothing to do with the allegations.

A (59:01)

So here's the funniest thing. This is what they said. The last episode was on January 13th, and it was about why 90% of businesses fail. Ironic. Is he trying to tell us something?

B (59:13)

Poetic justice.

A (59:15)

All right, any.

B (59:17)

Let's take some listener questions here.

A (59:19)

Rapid fire.

B (59:21)

Sofi, are you buying the dip?

A (59:24)

Let's check the price. I haven't checked. I haven't checked. I kind of know the business roughly. So we can look at what the share price is trading at. I will say these questions come. I usually do one of these, plus some other conversations within the substack chat. It's called the Emerging Mode Substack. But if you subscribe for free, you can just join the chat room on Substack. It's pretty fun. We have a lot of fun conversations and people tossing out a Lot of ideas actually one clbpt that I wanted to talk about this episode but we'll save for a small cap of the week in the future. Sofi is at 20 a share. It's down a bit. I'm interested but not. Definitely not buying. I would. I don't know why it's falling and it's trading at 2.6 times book value. ROE is very, very good. Well, I think it will be very, very good and it's going to show up very, very strongly. But yeah, I'd say a little lower, I'd be interested in buying. Yeah.

B (60:27)

I like SoFi. I like Anthony Noto as well. It seems like kind of the best run NEO bank out there at the moment. The last time I visited it, I remember having some questions about them sort of getting into a new lending category. I believe the like just not having that much time under their belt in personal lending which is like the bulk of their new volume. So.

A (60:53)

Right. Give a little discount to the.

B (60:56)

There could potentially be some stuff. Yeah. But as far as like a consumer app goes, I think it's exceptionally well run. How about this one? Lyft? This I have heard is actually potentially a value play.

A (61:16)

I got one more.

B (61:17)

I think they're buying back like 10% of their shares. Why. Why would do you think Waymo is going to kill Uber?

A (61:29)

I think Uber has a better ecosystem. You kind of get what I mean?

B (61:37)

I. If. If Waymo won't kill. I think Lyft could have problems for other reasons. But I don't think Waymo is going to kill Uber. And if it doesn't kill Uber, I don't think Waymo would kill Lyft.

A (62:00)

Maybe. Maybe. Maybe that's a longer discussion to have. I'd be a little more concerned. But yeah, the stock looks cheap. That's true. All right. We have another one, Team Atlassian. Basically they said team is battered down more than the rest of software anecdotally. Look, let me. The Motley fool uses Atlassian software. Do I get frustrated that I have to learn about it all the time? Sure. But there's a lot of switching costs with that and EV to free cash flow right now probably about SPC is 17. EV to gross profit is 4.7. Pretty cheap. Yeah. They buy back a lot of stock. Things could work.

B (62:44)

They are the biggest abusers of stock based compensation of the big software stocks out there. Theirs is insane. There's a lot of companies that issue stock based compensation and use it as a tool for talent retention. I don't know If I've seen anyone at the scale of Atlassian have issues so much in stock and then I suck. They came out this quarter and were like, our stocks way too cheap. Get ready for us to get aggressive on the buyback, basically. And I think they're still net diluters. And they bought back. They've. They've spent a lot of their cash flow on buybacks. Yeah, let me. Let me double check and make sure. I'm checking shares outstanding right now. Total shares outstanding, quarterly. One second.

A (63:48)

I can. I can race.

B (63:49)

Grew.

A (63:51)

It grew. Yeah, well, yeah, they. I think they banned it has grown. Yeah. Didn't they say they banned executives from selling shares? Something like that. We're halting it. Oh, yeah, well, your stock's cheap, I guess. Let's. Let's just stop. Look, this is a good follow up someone had on the Constellation software episode too, where you have people, even Constellation, they're not diluting, but you have people say, take your bonus and buy stock. Well, if someone bought 50 higher or God forbid, 80% higher, and then your stock goes down, they're gonna say, look, you want me around? I need a lot more stock so it can get really tough. What do you get on that SBC treadmill?

B (64:35)

All right, I think that's going to do it. Thank you, everyone, for tuning into this episode. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on this podcast is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. Once again, thank you for tuning in and we will see you next time.

C (65:13)

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A (65:41)

Experian.