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Apple Sues OpenAI; Blowout Bank Earnings; Will Stripe Acquire PayPal? $PYPL $ADYEN
01:04:35
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- [00:00]
A
This episode is presented by Interactive Brokers. Interactive Brokers is the best platform for global investors. From their one of a kind market coverage to their best in class pricing, IBKR truly has it all. If you're serious about investing, head on over to ibkr.com welcome to chit chat
- [00:17]
B
Stocks, the podcast that helps you find your next great investment. I'm one of your hosts, Ryan Henderson and I am joined today as always by the one and only Brett Schaefer. This is our weekly Investing Power hour episode where we talk all things financial markets. We do these live Thursdays at 5pm Eastern Time usually, but we're going a day early because I've got a flight. So we've got a whole lot of news to talk. Earning season has officially kicked off. We have a rumored acquisition of Pain Pal, as people have been calling it since. I think it's in like a nearly a 90% drawdown. But we will get to that and more. Before we do, I want to give a reminder that if you enjoy these episodes, please leave us a review. It helps the show grow. A lot of people do it and it, it really helps and it helps us maintain a free show. So thank you, thank you, thank you. If you're able to do that. And check out Brett's newsletter, the emerging Moat stock research service. It's a lot of great write ups and great coverage on his personal portfolio. But without further ado, Brett, where do you want to kick things off?
- [01:23]
A
Well, Ryan, we just started recording after the England Argentina game. So Ryan, if he seems a bit in shock, it's kind of that post game come down. No, I will say congratulations to Argentina but I feel sorry if you are an England fan. That must be a tough life. I know we have some English listeners so yeah, I wouldn't wish that upon my worst enemy.
- [01:51]
B
Yeah, I can't imagine they, they listen to our show live just given that it's probably middle of the night there. But you know what, they're still up. So if you're up in England and, and you're reading about that game, feel free to tune in to chitchats.
- [02:06]
A
Exactly. We'll try, we'll try to distract from that. Apologies if you're listening on Friday morning and you just heard another mention of that tragic match for you guys. But yeah, we're getting into earnings season, have a little bank earnings. They all seem to be doing fine. The economy hasn't collapsed. Let's see, Buffett case study, stripe, going after PayPal and more stuff in general from Bubble Watch as well. As some listener questions, Ryan, maybe ASML earnings. We kind of got everything all over the place this week. Sure.
- [02:38]
B
Yeah. ASML is kind of like one of the first big tech companies to report, I think. And they're always a little boring, I guess in that like, well, I mean you saw some explosive growth from the company this time around. But at the end of the day it's pretty hard for them to ship like a surprisingly high amount of products because that, you know, it takes a while to manufacture these things. So there's usually not any massive surprises with ASML's earnings. If you read the conference call, you can get into some of the technicalities behind what might be driving demand. But the only thing that really stood out to me was memory revenue. Memory revenue jumped 52% year over year for the first half of 2026 compared to a year ago. Let's see if I can find this quote from the management team. I don't think that should come as too much of a surprise given that, you know, these, it's these memory companies are investing for capacity and they've outlined that. So usually the demand is pretty well telegraphed for asml. But the CEO of ASML said we anticipate our memory related net system sales to grow by over 75% this year. Which if you're a memory stock investor, that tells you that all the companies are investing for increased production. So unless demand continues to outpace the supply, you are going to see at least some supply start to pick up. Other than that, not too many surprises. The only thing, service revenue now accounts for 30% which is a decade high. It's historically been in the twenties, but again that was slow on the product side as well. Service revenue grew 32% year over year. They are operating at 54% gross margins during the quarter. I put in parentheses here. Don't you think ASML could hit those 70%, 80% gross margins like the memory chip companies are? If they wanted to, if they wanted to kind of prioritize the short term, that's fair.
- [04:58]
A
Yes.
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B
But obviously with less competition they're able to kind of think longer term and want to maintain these relationships or maintain their customer relationships. Not a ton to report here. I mean it was a good quarter, but the stock's trading near its all time highs on a multiple. I think it's around 60 times earnings at the moment. So I don't know if there's anything too exciting to give investors here. The stock was flat after hours.
- [05:27]
A
Yeah, we have $700 billion market cap according to our friends at fiscal AI P E of 58, with the backlog they're seeing, that's probably a fair number. Nothing too crazy, but I almost go every quarter. Yep. Demand is high. Yep. They got a lot historic backlog. Yep. Their margins look pretty solid. Nothing else much to say.
- [05:52]
B
Yeah, and it's like even if revenue. Because revenue is pretty lumpy for them, even if it's not what analysts are expecting, people kind of shrug their shoulders because it's like, okay, they sold eight EUV machines instead of 12.
- [06:08]
A
Like it's more than that, but weren't
- [06:11]
B
able to deliver them. I mean the EUV side might, might be around those numbers, but it's. There's so much lumpiness to it when you have a product that sells for such a high per unit value. So yeah, I feel like people just end up kind of shrugging their shoulders every single ASML quarterly report. Let me just pull up the exact numbers on system sales. So total EUV system sales this quarter was around 16 duv around 75. So nice.
- [06:49]
A
Well, hopefully one day they'll sell 70 EUV machines and then whatever's next, they'll sell 10 at a billion dollars a piece. Should we do another topic here? Ryan? I have a interesting case study I think is fascinating for earnings season. It's not the Buffett one I mentioned, but I guess it's not necessarily a case study or it's more of a study. Someone did an academic study on this. Essentially what happens is that if you go long, companies whose 10k language or annual report, I assume this applies to quarterly earnings as well. If you go long, companies whose 10K language doesn't change and you short the ones that constantly change it, you earn 22% a year, so double the long term market average. What do you think makes sense intuitively? We kind of see it quantitatively. People talk about like literally changing the text.
- [07:52]
B
Not necessarily. Like the numbers are obviously changing every quarter. So 10k is gonna change or not?
- [07:57]
A
It's the language, not the numbers. Yes.
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B
Yeah, that's interesting. I mean that. I guess I probably would have assumed that just because there's less probably competition for those businesses that aren't changing their 10k language, plus less need to move into new markets and create fluff I guess would be the, the kind term to some of these companies that are changing their 10Ks drastically.
- [08:29]
A
Yeah, I agree. And is there a way to do this on fiscal AI? If not, I'll send in a product request because I think that'd be nice. If not this is a very easy thing to use. One of the AI tools for the broad ones, you just upload the. This year's PDF, last year's PDF of the annual report and just say where are the changes in this document?
- [08:51]
B
Yeah, I mean it depends how far you want to go back, but fiscal AI has all the filings. So if you've got the self serve API, you can just ask Claude or
- [09:02]
A
whatever the connection, integrate it within that. Yeah, that makes sense.
- [09:05]
B
Just say check the last five years of filings. Has the language changed for these companies?
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A
I'm not an enterprise API user though, so unless you can do that, you're.
- [09:14]
B
As an individual, you can. You can't do that as an individual.
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A
Check it out.
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B
Brett, I'll have to put you on the. Yeah, that, that makes sense to me. It must be nice too if you're the IR department and you can just copy and paste last year's 10k and then change the numbers for some of these long running businesses that have had the same competitive threats for 15 or 20 years. So probably saving time and money there too.
- [09:43]
A
But yeah, yeah, definitely. I think it's a nice, not nice, short thing you can do as a part of your investment process. Check if there's any large changes, check if they consistently change and then just put that as part of your checklist like all right, it's not going to be the end of the world if they totally change this every year. But if they do or don't, you know, that's a positive flag for management.
- [10:10]
B
Yeah, it's easy, especially once you've read a lot of SEC filings over the years and you've kind of built up that muscle. It's easy to skip over the K's and Q's, but it's a good. This is a good reminder of why reading the K's and Q's is worthwhile for an investor. Even if. Even if they don't change that much. Catching the smallest changes can have bigger impacts.
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A
But yeah, at least read the important parts.
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B
Yeah, not the risk mine.
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A
Safety disclosures. Yeah, skip over that little section. That's about 100 years out of date. Yeah.
- [10:47]
B
I think the SEC should force companies to fit all of their risk factors into consolidated three pages. Maximum bullet points.
- [11:02]
A
Three pages. We could maybe do ten. Well, depending on font, maybe standardized font. This. Okay, this leads right into another not serious topic of the week, but I've been looking at Adyen. I may have shown you this screenshot or you may have read I told you about it, but they had an annual meeting and they had an open mic for question for any shareholders. And there was some interesting things to say about the recent acquisitions they've made. But I thought there was a hilarious shareholder who I'm guessing is a person from the United States. Think about this. They came all the way. Maybe it's virtual, but they went all the way to this annual meeting to ask this question. I'm about to read here very much. He says I have two questions. One question for pricewaterhouse and one for the board. When I analyze and read the annual report, it has 233 pages. Of those 233 pages, about 114 of those pages are about sustainability and governance, which I think is fine. I imagine him saying like that in quite an interesting tone. And he continues. When I look at the Financial Review page, there's only half a page. My question is, would it be possible next year to expand that a little bit the Financial Review from maybe half a page to two. He went all the way to the annual meeting from that and they basically said yeah, we'll consider it. I would love. This is my ideal European vacation is just going to every annual meeting and asking questions about their IR website not working and why they have a hundred pages on environmental stuff that no one reads. I mean it's absurd sometimes how long that section is. Just keep skimming.
- [12:48]
B
This is. I'll talk about the report in a second. This is maybe one of the things I like the most about fiscally AI is I no longer have to go to European investor relations pages. You can just do the IR content in the terminal. It just makes it so much cleaner because it's standardized. The. I have gone to so many IR websites with just outright broken links pages that. That make it impossible to find the. The latest quarterly report. So yes, please, please Europe. Figure it out.
- [13:24]
A
Maybe that just serves as an ad for fiscal.
- [13:28]
B
Yeah, actually. Yeah, maybe keep it up. It'll help us. We talked about this offline. What's the point for a company like Adyen, 233 pages on sustainability and governance. I guess I just. It makes sense for a company that's like very impactful on the environment like mining companies, stuff like that describing what all they're doing. But company that sells payments processing software. Maybe some hardware seems a little pointless.
- [14:03]
A
But I think it's a whole scheme to get into the sustainability funds. Who also had questions at the annual meeting. I skipped those. But there was some actual meat talking about the change in management and the acquisitions, which is nice. So people should go Read that or read my update coming on Friday.
- [14:26]
B
I'm sure it helps with financing, getting whatever sustainability bonds, stuff like that. But the sustainability premium, I don't even know if there ever really was one. It's gone. Adyen is trading flat over the last five years. The stock's down like 60% if I'm not mistaken, from highs. So, you know, if you're. I don't like it when companies pander to institutions to. Or try not pander, but try to fit within a certain bucket so they can have certain shareholders. Like, you will get the shareholders you deserve over the long run. So just talk about what you think is the most important on, on your annual report.
- [15:13]
A
Yeah, it's 100 pages too. Let's keep it to five and then just toss some other pages for investment analysis. That would be good.
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B
I would also understand it for a company that's trying to hide their financials. You know, they, they don't want to talk about that. Maybe that's not the biggest bright spot for a company, like for certain companies. But Adyen, they, they should be happy to review their financials. They're, they're great.
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A
They're.
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B
They're extremely profitable. They should, you know, brag about that. But anyway, let's see.
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A
We have a comment here that management should only have an ESG policy if they exploit a natural resource. If not, you don't need it. Yeah, I agree with that one. Tyler, second one here. Hey, guys. What is the bear case for adjusting? I get a little scared looking at them. Full disclosure, I am a shareholder at the moment because I can't find a bear case. Maybe the, the capital allocation is poor from a capital returns efficiency standpoint, but besides that, I really, really struggle. Which maybe it makes it a fat pitch, but on the other hand, you always get nervous when you don't understand the bear case. Except for, well, they're in payments and payment stocks are going down. That seems to be what's happening.
- [16:37]
B
Yeah, I think part of it is just the sector that they're in. The other element, they have for a long time been sort of head to head competitors with Stripe. Processing volume for Adyen has not grown at the same clip that Stripe has reported. Now, granted, Stripe can kind of report the figures they want and they can acquire processing volume too. But I would say the two concerns would be Stripe potentially pulling away. Again, I don't know how much they're actually stealing volume from Adan.
- [17:11]
A
And then that's not happening. It's just because Stripe is tailored or concentrated in Silicon Valley and you have a lot of startup revenue kind of flowing through that. I think that's temporary, but again, maybe if it continues, you could be right there.
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B
Sorry, just to follow along the. But isn't startup revenue them, Stripe pulling that in? Isn't that great for Stripe?
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A
Let's just say there's a huge boom in Silicon Valley at the moment, so there's more revenue for Stripe to go after. Adyen has less market share in there in that area. Stripe is going to have the AI startups and 80% of them are going to go bankrupt. Yeah.
- [17:59]
B
The other part here is Aden, for a long time has got sort of pat on the back by the investment community for building everything from the ground up and not wanting to create sort of a patchwork that a lot of payments companies have become. Look at fiserv if you're. If you want to see just a nest of crappy assets. Adyen has been starting to make some splashes in the acquisition world lately, which feels kind of like pulling away from their core strategy. But again, I might be kind of reaching here for bear cases. I'm an Adyen shareholder as well, and I think this is an inflation protected business. They grow with their customers. They have reportedly some of the highest authorization rates in the industry and they have a unified clean payments processing solution, Unified Global too.
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A
Let's get that marketing down.
- [18:57]
B
Unified global streamlined payments processing solution. But no, having it all unified under one roof, having to be clean software that's updated on a regular basis gives you the analytics you need as a business, that stuff makes a big difference. As opposed to feeling like you're working with some sort of legacy payments provider where the software is horrible and the integrations are poor. So I do think that makes a big difference. I like Adyen here. But yeah, the sustainability page could probably be reduced, pages could be reduced, and I think Financial Review could be expanded a little bit. I'm on board with this guy's comment
- [19:35]
A
that whoever that shareholder is, we are with you in your activist campaign against ESG nonsense. And then on those acquisitions. Yeah, I can understand that. They, I think at face value it kind of flies in what they've been saying. Historically, we don't do acquisitions, but they're not acquiring payment volume, they're acquiring capabilities in kind of a different part of the billing and payment supply chain. One of them's in the billing part, which you know, is not necessarily like payments infrastructure, and then the other one is helping companies build loyalty programs. So I understand in that point where you're Kind of acquiring product capabilities, but still, I mean, the company goes, we've never made an acquisition, we never will. And then they acquire two companies out of the blue instead of buying back stock. So they're probably in a little bit of prove it mode. But I, I don't. I kind of like the acquisitions full disclosure. And I'll cover more detail, I guess, on Friday's newsletter.
- [20:39]
B
If you're a regular listener to chit chat stocks, then you've probably heard us talk about Interactive Brokers. Here are two reasons why we think Interactive Brokers is better than any other brokerage platform. One, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 170 markets, 36 countries, 28 currencies, two best in class pricing. They have zero commissions on US listed stocks and ETFs and offer margin rates up to 54% lower than the industry. Head on over to ibkr.com Rate subject to change. Margin evolves, Risk restrictions apply. Interactive Brokers is a member of sipc. Yeah, let's shift gears. Oh, you know what I was going to talk about. I don't know why this came to mind, but do you remember the ibuying phase?
- [21:26]
A
Yes.
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B
I've been going through the home transaction process lately and I've got.
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A
Can we officially congratulate you as a podcast for being a homeowner?
- [21:37]
B
Not yet.
- [21:38]
A
Close.
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B
Which, first of all, that's why a lot of steps. Yeah, there's a lot of steps. There's a lot of things that could go wrong in the process. There's. I mean, these inspections are very thorough. There's a lot of things that can, you know, go wrong with a home over multiple years of living in was such a bad idea out of the gate. Ibuying like you're getting the worst inventory. Like you couldn't even make money in one of the best home buying markets maybe of all time, which I think 2021, 2022 rates were so low they couldn't even make money in that time. It seems like such a horrendous idea looking back at it. So anyway, I just thought about that. That's forever a knock to me on Zillow's management team.
- [22:23]
A
I pulled up open doors stock right now. I guess that probably was a good short. What are they down? Yeah, they were at. Yeah, Way, way higher than they are right now. But their market cap is $4.6 billion. No idea what their financials look like. But Ryan, are you still structurally short psychologically? If they don't change their business model. Hmm.
- [22:51]
B
Yeah. Psychologically I am short the IB business model. I think it's gotta be just extremely challenging and there's so much friction involved. It's not like in theory, yeah, you got all this data, you can earn this tiny spread and make it up in volume, but that's just not how real estate works is kind of what I'm learning. So yes, I would say psychologically short. I think Redfin, they got into it too, didn't they? Am I remembering that right?
- [23:20]
A
Yes, but their actual business model is a little different. I think they're out of it now. Zillow got into it.
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B
I I remember Zillow, Redfin and Open Door.
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A
Maybe some others.
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B
Let me look this up. Who are the ibuying company?
- [23:38]
A
There's probably some others that totally busted without even going public. But let's if we're going to stay within the adyen and payment processing space, maybe we should talk about this giant rumor this week. Stripe going after PayPal. Ryan, do you have the. Do you have the companies? Is it who we thought they were?
- [23:56]
B
Oh yeah. Opendoor, Zillow Redfin and Offer Pad, which I've never heard of.
- [24:03]
A
Subscale. They're still coming. They're going to take over the the $100 trillion TAM. Okay. Stripe is going after PayPal. According to a rumor from possibly Reuters, they are combining with a PE firm Advent to find the capital to acquire or offer PayPal an acquisition of $53 billion. There's $6 billion in the last 12 month operating earnings for PayPal. Pretty stagnant over the last few years. And apparently Block. Ryan's probably going to shake his head here. Is trying to get in on the deal. I don't know why. They can't help themselves. They really need to focus. They're not going to get the stock up, but they haven't. Okay, PayPal. I guess I have the notes here. Maybe you're not looking at them. They once had a market cap of $360 billion. I think it's quite astounding what happens in bubble periods. And really during that time, us included forgot about valuation because I think it was trading at 60 times earnings. Something along those lines. It's tough. And now we're trading. You're going to get acquired at sub 10 times earnings. Leverage. Like for a levered buyout. That is an extremely cheap multiple on gap earnings. I'm sure that's whatever ebitda EV thing they're spinning. It's probably like six or seven times.
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B
Yeah, why block is even being mentioned in here boggles.
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A
But merge Cash App and Venmo.
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B
It's one of those things where it's like if PayPal finds a way to right the ship, get payment volume really growing again faster than inflation, and they can find a way to be resilient to the mobile wallets, this could look like a great acquisition. I do not understand why. What the synergies are between Stripe and PayPal. It's two totally different payment infrastructures. Maybe you can.
- [26:16]
A
Don't forget Braintree. They're acquiring volume there. But that's what I think is beneficial for Adyen is integration is always much harder than you think.
- [26:28]
B
Yes, 100%. PayPal would be the first to tell you that. Look at, look at their business.
- [26:33]
A
They're.
- [26:34]
B
They're a hodgepodge of acquisitions that don't communicate with one another at all. It seems the Braintree, potentially it's just an acquisition of customers here. They could buy PayPal to shut down Braintree, shift all of their customers off to Stripe. But I don't know, in the long run, is it better to just let them come to you? Over time, I guess Braintree is winning a lot of volume. That's been basically propping up the payments volume for. For PayPal lately. It's the erosion of the core PayPal button. It would be way more evident if Braintree wasn't increasing volume. So maybe that part makes sense for Stripe. I guess I hadn't really considered that. The. But the. What do you do about the core PayPal button? You acquire that and you basically just run it for cash, put as little resources as you can onto it and just reinvest that cash elsewhere. I mean, that thing is, it's, it's just dying.
- [27:36]
A
Yeah, it's. It's. We Talked, Aden. If PayPal's worth $53 billion, Adyen trades at, I think in euros. It's 27. Let's just say 30. And stripes at 150. Might be 130. I don't know why Adyen's not worth twice what it is on USD. It's 31. The EV is lower since they seem to just hoard cash on the balance sheet. Yeah, I would like. If you're asking would I invest in a Stripe, PayPal or an Adyen at these prices? 100% Adyen.
- [28:20]
B
Yeah, price. If the prices were equal. I mean, I think Stripe's a really good business. That's why they get so much attention. But
- [28:32]
A
equal on what? Multiple?
- [28:35]
B
Yeah, I'm saying it. Let's say they were both 30 times earnings. I think I'd probably rather own Stripe.
- [28:40]
A
Oh, yeah, no earnings.
- [28:43]
B
Well, yeah, I guess that's similar.
- [28:46]
A
Mart.
- [28:46]
B
All right, let's just. Perfect world. It was a, you're buying the same business, the same price, whatever, and they had mature margins. I think I'd give the edge to Stripe purely just because I'm familiar with that platform and it seems really useful. I'm sure Adyen feels that same way too for customers there. But the PayPal acquisition, it has been a value trap for like five years is what it feels like. It's had a dividend yield of not dividend. Let's go. Buyback yield. Which again, not including not factoring in some of the stock comp here. It has had a buyback yield of higher than 6% for almost five years. But. And today, prior to this, it was. It had a buyback yield of 17%. This. I just don't see them generating significantly more profit as a business on their own. So I think the acquisition like they are potentially I could get behind this acquisition acquisition if I were Stripe investors, which obviously we're not because it's privately traded. But I would say kudos to Stripe if they're able to integrate this and import customers over from Braintree.
- [30:14]
A
I agree. Yeah, it might be a good price, might be a solid price. All right, should we Talk Apple suing OpenAI? It hasn't been a good week for Apple. Maybe a list because we're going to go deeper into this. Apple suing them. There was a tweet from Katie Miller.
- [30:30]
B
Sorry, Katie, you said bad week for Apple. I think you mean OpenAI.
- [30:34]
A
OpenAI. Thank you. Tweet here from Katie Miller. Sorry, Katie, I don't know what you do, but your Tweet went viral. OpenAI's last 24 hours head of safety quits sued by the New York Times. Top executive unexpectedly departs. Shuts down their browser tool after nine months. Sued by Apple and caught selling product to China against sanctions. Not a great week for Altman. You want to take us through what's happening here with Apple? Because that might be the most meaty of the news.
- [31:06]
B
Yeah. So I'll just read a couple headlines from. From the news articles. It says Apple filed a lawsuit in a California Federal Court accusing OpenAI of a coordinated pattern of misconduct involving the theft of sensitive trade secrets. The complaint alleges that former Apple employees Now working at OpenAI took confidential information to assist in the development of OpenAI's hardware products. First of all, did you realize OpenAI had hardware products.
- [31:32]
A
Yes, they're in development. Yeah, they acquired Johnny I's company for 6 billion. Yeah. Okay. Been known for a while.
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B
But they haven't released any, correct?
- [31:44]
A
No, they've just been a lot of rumors of that they're working on things.
- [31:51]
B
Okay, well, I'll go on with the headline, but I think that hardware would fail. Apple is seeking to stop these practices, demanding that OpenAI destroy any proprietary materials and redesign its upcoming products to exclude Apple's technology. Shortly after this sort of unrelated, Elon Musk called Sam Altman a scam artist on X. Side note, totally unrelated, Elon Musk recently lost a very public lawsuit to Sam Altman. Altman responded homeboy, oh, I've got a dog barking here in the background, so apologies homeboy, you are the one selling public market investors on short term space data centers. My question for you, for your own investing do you prefer if your executives just don't have social media at all?
- [32:42]
A
Compared to that, yeah, I'd prefer no social media. I was looking up Andy Jassy's as you were talking. His bio is probably written by a publicist. Lead Amazon. Married, father of two kids, big sports fan, experienced Buffalo wing eater. Go Kraken. He must be an owner of the Kraken or. No, they own Climate Pledge Arena I think in Seattle there. I like that. And then he tweets about great quarter. Nice to meet Prime Minister of India. We are excited about things ahead. That's better than Elon Musk and Altman, who are probably two of the most similar people out there. I don't. I wouldn't love it. What about this other one I saw this week? A company I don't own today, but I've used to own. I love the business model. I think Ryan likes the business model too. Did you see founder of Airbnb, Brian Chesky basically putting on a thread of AI slop about crypto assets and token stuff. I don't even know. I didn't read it because within a few sentences you could tell it was AI slop. He seems to tweet and I'm stealing this from our past guest Buyback Capital. He seems to talk a lot about things, but never about Airbnb's core business.
- [34:09]
B
Yeah, I hate it. I actually it's. It's probably my biggest pet peeve with Airbnb and it's why I am afraid to make it a larger position for my own portfolio. He strikes me as just outright distracted and I know maybe he's doing like great Work behind the scenes, maybe it doesn't even matter. But between his AI stuff that he's working, he should be in founder mode like he should. They are not there yet. This isn't like jump off, jump off board and let the company run on its own and you just go join other companies boards and talk about crypto. This is not.
- [34:49]
A
They're kind of there. They generated tons of cash.
- [34:54]
B
Yeah, but they're still like Expedia's got more volume than them. I mean they've got a chance to win a lot of market. I mean, if they're already there, maybe I should be a little more cautious about my position. I, I, the reason I say they're not already there is because I think they have a massive Runway for renbursing.
- [35:13]
A
There's a ton of potential. I just saying if I don't think it's in a fragile position as a business.
- [35:21]
B
No, I just think you've got this huge Runway. You've got a huge opportunity if you're Airbnb and you've got your CEO founder seemingly a little distracted. Honestly, I didn't even see this tweet
- [35:33]
A
storm, but I'm pretty sure it deleted quickly.
- [35:35]
B
Took it down anyways. Also like funny, you know, if you, if you start talking about crypto and tokens like three years ago, whatever. But we're past that. It seems like we're not seeing those press releases anymore from, from mainstream companies.
- [35:53]
A
Let's toot our own horn. We were calling BS on those the entire time. And people I respected kept saying, well, it might be the future. Like, yeah, these, these little monkey pictures. It's going to be the future. Like you're just doing that to hedge. People simply were doing that to hedge their reputations.
- [36:19]
B
Yes. They didn't want other people who were very into crypto to hate them. The that, that's honestly my belief. The no one ever seemed to figure out the whole off ramp thing. Still haven't. It was the same question every time. It's like you can use this new method for transferring assets in some way and it's like, okay, but I gotta buy groceries. How do I get those assets to buy groceries? It's like, well, we're not there yet. You're gonna, well, you're gonna have to transfer them through the standard banking system and it's gonna cost you in fees. Okay. So it's not worth it.
- [37:02]
A
Yeah. Vlad Tenev, I think is up to no good at Robinhood doing things around this. What is this? Twitter. This is gonna be bad Audio. Okay. Vlad Tenev, he tweets a lot. Yeah. Okay. He says if you're a builder looking to embed stock tokens or rwa. Do you know what that is?
- [37:22]
B
No.
- [37:23]
A
Into your applications. We want to hear from you. So they're trying again with this crypto stuff. This is what Chesky was tweeting about as well. We don't even talk this AI. Sorry. OpenAI Apple lawsuit. Did we get sidetracked?
- [37:41]
B
Yeah, whatever. They're poaching employees and they're taking a whole bunch of the ideas over from Apple. Apple sued them. I mean if there's non competes or there's intellectual property theft here, that's, you know, that sucks for OpenAI. I mean that's going to be I think a pretty clear cut case I would imagine.
- [38:05]
A
But Apple loves lawsuits and they're, they're like Nintendo in that way. You do anything that breaks our rules and we're going to come down with you on you like the fist of
- [38:17]
B
God or whatever that forget capex on data centers. Apple will spend it on IP infringement lawsuits and I'm all for it if you're an Apple shareholder that there's a chance that's more profitable. The OpenAI just seems to take the wrong. Well Sam Altman specifically seems to take the wrong turn every week. A new wrong turn every week. I mean he took six wrong turns in the last 24 hours. The just. I can't help but think OpenAI we won't be talking about them in 10 years. Despite having remarkable technology and pioneering an industry, I just don't think it will be mentioned much in 10 years. It'll either be a part of some other company, maybe it's a part of Microsoft, whatever it somehow becomes a powers copilot or whatever. But they've run the risk side of things. So hot. And there's a general public disdain for ChatGPT across the board. So I think they've lost trust with customers and probably lost trust with investors a lot over the last couple years too.
- [39:36]
A
We have a comment here from Tyler on the CEO. CEOs can only lose by being on social media. My thesis can only be negatively impacted by CEO being on there. You're probably right. Let's see. I was trying to look up on one of those prediction marketplaces the betting ons of an OpenAI bankruptcy. If you're setting 0 cents to $1, whatever the how it's priced 0% to 100% where would you buy like an OpenAI bankruptcy within the next 12 months? Maybe we'll do three years. Three years. Make it a little easier. I would go 50, 50, I think 50% by 50 cents on the dollar. That's not a bad bet.
- [40:18]
B
Yeah. Yeah. I would say it's probably a 50, 50 chance. 12 months, maybe not. I think they get. I just believe they just did a big financing round and they've got the partners to survive. But those partners aren't going to save them over and over.
- [40:36]
A
Amazon's not going to do circular deals forever.
- [40:40]
B
They're not going to sink cash into OpenAI three times. I just don't. I believe management will learn their lesson if it doesn't go well the first time. So.
- [40:58]
A
Ryan's got his dogs barking again. That is loud. What's the dog's name? I don't think I've ever known. It's still going.
- [41:03]
B
He's still going. Murphy is his name. Podcast appearance.
- [41:08]
A
All right. Yeah. He really wants to get on and talk bank earnings, which. That's our next topic. Let's see, big banks this week seemed like they're firing on all cylinders. Ryan has a quote here. Maybe I can just read it for him if the dog's going crazy. Jamie Dimon saying on the conference call, it's getting close to as good as it gets. We just don't know how long it's going to last. He always has those quotes just saying everything at once. And they have a very. All the news. The. The financial media has a. Is kind of him talking and it's a very, very serious look on his face. He's saying something eloquent. He's all. He was also at a shipyard promoting they're lending to a submarine company. It was very funny. He's all over the place. My Shadow President. But JP Morgan earnings per share is booming. $7.70 versus 5.50 a year ago. Wells Fargo up 25%. Citi up 50% to $3.15 a share. Bank of America up 34%. I mean you got the investment banking business, the fees there are phenomenal. The lending business for corporate bonds and things like that. And then it seems like the consumer sorry to the perma bears, everything's still okay. Do you remember the last few years of people said they almost guaranteed we were already in a recession. Like at some points I was. I would say like, maybe, like I can understand those. Those theories but the people that would pound the table on that. Just go back and look at what things people said and once again, I think the economy is in fine shape.
- [42:50]
B
Yeah, I feel like you can anyone can almost. No matter what how the economy's doing, you can almost always convince yourself you're entering a recession. Like, yeah, you're right. You know, some people are down on their luck there. There's a lot of people that are struggling right now and incomes. You know, you can find whatever supporting data you want, but these banks are. Bank earnings would be completely contradictory to that. So.
- [43:18]
A
Yeah, that's a good point. Like the economy is so big you can find some source of data, some survey out there. Remember that Michigan survey, the consumer confidence one that always gets posted. Apparently they change from in person calls or phone calls to an online survey and that psychologically changes the answers and the constituents that do it. So that's why it's way worse than usual. It was just a survey methodology error. Yeah.
- [43:48]
B
Don't trust me.
- [43:48]
A
Selling stocks because of that is ridiculous. As Riot's dog goes again.
- [43:56]
B
Yeah, yeah, it's a few hard rules in investing. Never, never invest in apparel. Don't trust surveys. Don't. Maybe don't invest in restaurants. Maybe that could apply. Be very skeptical of restaurants.
- [44:13]
A
Don't bet that the economy is going to shit every quarter. Sorry for swearing. Yeah, banks seem good.
- [44:21]
B
Yeah. The investment banking side especially. And I got a feeling it's only going to. I mean, this quarter it's probably going to be even better assuming they generate some big IPO fees. The. Yeah. Jamie Dimon, I don't know how he does it. He seems to nail it every quarter. He does a good job.
- [44:42]
A
He's a good leader.
- [44:43]
B
Yeah. I think if. I think he might be on my Mount Rushmore of CEOs potentially. And he has one of the hardest jobs too. I think running a bank is more difficult than running like a consumer facing tech business or something like that. So, yeah, he might be on my Mount Rushmore. Let's talk Warner Brothers and Paramount. Not a whole lot. Well, I think there's a decent amount to discuss here, but 12 US states are suing to block the purchase of Warner Brothers by Paramount. What is it? Paramount Skydance, I think is the full name. Here's a quote. California and 11 other states have initiated legal action to stop the $110 billion acquisition of Warner Brothers Discovery by Paramount Skydance. The lawsuit alleges that the merger would create a media behemoth with the power to raise prices and reduce content quality, harming consumers and industry workers. We'll come back to that in a second. While the U.S. department of justice previously cleared the deal, the states are seeking to prevent the merger from closing until the judicial process concludes. Paramount has characterized the lawsuit as a distortion of antitrust law. News came out shortly after that. Paramount is considering a partial or full corporate exit from the state of California where their main studios and headquarters are.
- [46:05]
A
So
- [46:09]
B
let me, let me put it this way. Do you think Paramount acquiring Warner Brothers will ruin your viewing experience as a consumer for content?
- [46:21]
A
No, I don't watch since I watch neither.
- [46:24]
B
Bingo.
- [46:24]
A
It doesn't matter. Are they considering the competition from small investing podcasts on Spotify, Apple Podcasts and YouTube that a few thousand people listen to?
- [46:35]
B
They should probably look into it.
- [46:37]
A
Yeah, I mean, I say that in Jess, but there's so much competition in media these days. Anyone can become part of it. It's the whole kind of point of the modern world. Or not the point, but yeah, everyone's a competitor. Doesn't really matter. And it just seems like spite from California, right?
- [46:56]
B
Yeah. Yeah. Honestly, I think at this point any merger by certain states will be sued to get blocked. But let's, I mean, let's look at returns for. Just to support my, what I'm about to say. Paramount and Warner Brothers, both these businesses are not thriving, unless I'm mistaken here. Yeah, I don't think so.
- [47:19]
A
No, they're not.
- [47:22]
B
It is one of the most intensely competitive industries and you look at streaming time spent by consumers, there's almost. You should almost be supporting it. If you look at the market share of YouTube and Netflix, you would think you want more formidable competition compared to those two. So whatever. My prediction is that this deal will go through and it would probably be beneficial to consumers if anything. Why would they merge? To reduce content quality. That was a part of the antitrust deal.
- [48:07]
A
This seems like spite because people are leaving the movie media industry. At least the legacy industry is leaving California.
- [48:18]
B
Yeah, probably. Okay, do. What else?
- [48:24]
A
Listener questions.
- [48:25]
B
Yeah, let's go for them.
- [48:26]
A
All right, this one. Personal finance blocking and tackling here. This is a very lame question, but what short term assets do you invest your cash position in within ibkr? You can apply this to other brokerages as well. I have a NAV of less than $100,000, so I do not get a good rate for my idle cash for myself. If I want short term, I usually. And I should honestly, we should be sponsored by BlackRock because I toss out there Treasury ETFs, the iShares 0 to 3 month Treasury Bond ETF is s. Gov. I believe the expense ratio is 0.1%. I like that one. Long term bonds TLT, although that's a little bit of a different investment. That's not idle cash. That's the way I go about it. But I know you can directly buy treasury bonds. I would just do that I think. Sgov the short term Treasury ETF makes it simple but honestly I try to be fully invested for the most part.
- [49:34]
B
Yeah, same. I'm in a bit of a particular like unique situation with the recent home transaction but I would say I either have stocks and sort of fully invested as much as I can be or I just have it in a high yield cash account. I'm not that most of the time I'm fully invested so I usually just leave it in cash. But I think I would if I were looking, if I were bearish or I was looking for an alternative to cash it'd be some sort of short term Treasury ETF question for you I guess. By the way you mentioned BlackRock, they crossed $15 trillion in AUM this, this quarter so kudos to them. Do do you think treasury rates, let's go call it 10 year federal funds rate.
- [50:26]
A
What is the tenure? Let's look. I'll look.
- [50:30]
B
Do you think it will be higher or lower in five years?
- [50:34]
A
It currently yields 4.55% oh God. It feels, it feels just like a solid number to me.
- [50:42]
B
Five years you would say it's the same. Yeah.
- [50:45]
A
That's cheating though. I am going to go with the take that it will be lower because we're going to be on the other side of the massive capex boom and I think AI long term is deflationary and then we have an aging population so outside of the healthcare inflation most other things will go down in price. Then Optimus comes into play as I like to mention every quarter and prices go to zero. But honestly automation and things like that is generally I think deflationary long term. So I would say lower by a smidge. I would be surprised if it's significantly higher.
- [51:24]
B
Yeah, it's always hard to see it in the short term but if you zoom out 30 years the automation has been deflationary and that's probably why rates have been so low and people constantly look at it and they say well that was the last 20 years, the last 10 years was abnormal. And this is, we're not even back to the long run average but I think honestly it's sort of a different era if you will.
- [51:56]
A
Yeah, if you last thing on that. We've never had an inverted population pyramid. Japan is a good example here they have had like the opposite issue of inflation where they had to try to stimulate the economy as they've gotten an aging society. I would take that as a case study as what could happen if the United States starts becoming older. I guess if, if current birth rates continue.
- [52:23]
B
Yeah. I do always find it a little peculiar that people just anytime a population declines, people say this is the beginning of the end. Like it can always, it can't always grow again.
- [52:37]
A
Japan. Oh yeah, true. South Korea has had a rebound. All those day traders getting rich. But ever been to Japan? It's nice. Like they have a population collapse. It's fine. Yeah.
- [52:54]
B
Okay. Another listener question. It feels like appetite for classic blue chips may be at an all time low. Take Intercontinental Exchange. Since the end of 2021 it grew operating cash flow by 65%. Share count is the same. Share price is also the same as the end of 2021.
- [53:14]
A
Now what's the multiple. Multiple compression.
- [53:19]
B
Caution people against comping it. Comping to 2021, that was a time of irrational exuberance in markets. So you could probably find endless charts where revenue and cash flow have doubled over the last five years and the stock hasn't changed. And that doesn't necessarily mean you get good returns from here.
- [53:43]
A
Right?
- [53:44]
B
Yeah. And New York Stock Exchange. Yeah, I think they're going to be just fine. Although watch out for the Texas Stock Exchange just recently started operating apparently.
- [53:54]
A
Yeah. Wow, look at this. Multiple compression EV to EBIT might not be proper. PE is similar. It's 18.5. You have the New York Stock Exchange for the cheap. Maybe, maybe it's one we covered.
- [54:06]
B
Yeah, I do. I, I could see myself owning shares. I like stock exchange business models. They're very insulated, huge network effect and it's not too expensive
- [54:22]
A
but nope, not at the moment.
- [54:24]
B
What do you, I mean what do you think is an appropriate multiple for a business like New York Stock Exchange?
- [54:32]
A
20 to 30 depending on where rates are, depending on how well they're run, depending on how well you like management. This is one that I immediately go go. Another example of this, maybe an Amazon. I, I think well, 30 year. If I was 30 years older I would love this but yeah, I'm looking for more. Maybe it's a false but I'm looking for more growth at the moment instead of yield.
- [55:02]
B
I agree and it's not. You can still get obviously good returns. Maybe we're being a little greedy here but it, I just think there's a lot of invest investment opportunities out there where you can get true, true 10 baggers potentially over 5 to 10 years
- [55:31]
A
similar risk too yeah.
- [55:33]
B
And it doesn't strike me as if you have a lower risk tolerance. NYC, I think at 18 times earnings seems like probably a pretty good investment. Side note, there has been a lot of discussion about them potentially being disrupted by prediction markets. Did you know the parent company of the New York Stock Exchange has committed nearly $2 billion to polymarket?
- [55:58]
A
Yeah, not a bad move. Could be a long term competitor, could be a nice asset to own. That's tough. Yeah, it's not tough. It's potentially disruptive.
- [56:13]
B
Yeah. I just, I feel like going back to the comment though. I think he's right. There are so many businesses that seem to be trading at mid teens, high teens earnings multiples that have been considered very high quality and durable for 15, 20 years out there right now, it's almost like drowning in opportunities.
- [56:40]
A
True. Yeah, I agree. I agree. I find a lot of opportunities at the moment. It's harder to find what for me, what to buy, what to not buy. Yeah. All right, listener question. Do you track Circle or just real
- [56:56]
B
quick, when we did that Fallen Angels or Falling Knives episode, there were 20 companies that we walked through and I could have seen myself, maybe not all of them, but I probably could have seen myself buying 15 out of the 20 and being comfortable with them in my portfolio. And I mean that was only a snippet of the companies that are down. You look at The S&P 500, there's a lot of market darlings in air quotes down 45, 50% year to date.
- [57:28]
A
And make sure to check whether it's trading at 15 times earnings or still at 30 times earnings because there's some things like a Ferrari that are still a little expensive. Okay, we have a question. Do you track Circle stock? I don't. I believe Ryan doesn't. But for the listener here, I would recommend going to our friend Travis Hoyam at Asymmetric Investing. He covers them quite well. I like reading his reports on Circle. Ryan, let's talk bubble watch slash. Just funny news from the week. This is a Mad Libs headline. Fia, the buzzy shopping app co founded by Bill Gates daughter is claiming credit for online sales that didn't actually drive a Bloomberg investigation found had it on still went to fraud. I'm going to share.
- [58:17]
B
Are you talking about 30 under 30 star?
- [58:21]
A
Yeah, that's true.
- [58:22]
B
Yeah.
- [58:24]
A
Did you see the their series A announcement which they raised $35 million. I would think Bill would be able to do that. Dad. Yeah, no, no. This is, this is the looks like a music festival announcement. I'm gonna read off maybe all of these names here. Here's the investors. One, Khloe Kardashian. Two. Alex Earle, Jessica Alba, Priyanka Chopra, Jonas. Sydney Sweeney, Paris Hilton, Mindy Kaling, Ashley Graham. I'm saying this wrong. Probably Halsey, Carly Kloss. I don't know who a lot of these people are going down. But then it gets good. Vlad Tenev, Robin Hood, the chain smokers.
- [59:04]
B
Olivia Culpo, the chain smokers.
- [59:06]
A
I know who the chain smokers are. Let's see. Shaboozi, Sahil Bloom. I know who that is.
- [59:14]
B
Gunna.
- [59:15]
A
Who could have seen the signs of
- [59:16]
B
this gunna on there? Yeah. Oh my gosh. The. Do you know what the business does?
- [59:24]
A
It was supposed. Yeah, it's actually checking. They were. You know. You know what cookies are now, right? They were cookie stuffing. So they were pretending to be attributable to sales for e commerce when it wasn't them.
- [59:44]
B
Yeah. The 30 under 30 doesn't miss. It really does. If you want to be on fraud watch. Check that list every year.
- [59:53]
A
The.
- [59:56]
B
That's a bummer. Did you see the oracle of Omaha? Great uncle Warren had some words about Gates today.
- [60:08]
A
Yeah. He's like I've had some bad friends. Not as bad as that. Yeah, leave it there. I love. Yeah. When they do their. His charity announcements, they make it as a press release for immediate release. I'm giving my shares to my children. Okay, here's the last thing before we get out of here. There was a very fascinating article in the Wall street Journal about blockbuster stock sales threatening to overwhelm the bull market. I have a chart here and it's the. A chart of the annual issuance of US Stock. I'll maybe share it, but you can see a significant bump in 2020 and 2021 coinciding with that other boom and bust cycle. If we look at this last chart here, this is 2026. But remember, this is 2026 year to date. So historically it's been around 200 to $300 billion in the 21st century. 2020, 2021 or 2021, it got up to $540 billion and year to date. 2026. We're already at 345 roughly billion dollars in U. S. Stock issuance.
- [61:16]
B
The quote here to surpass 2021.
- [61:20]
A
2022 on pace. Yes. To surpass. Let's. I mean there was a lot of good data from this. It says overall US companies will issue a net $500 billion of equities including buybacks over the next year. Compared with a net reduction of $1 trillion in recent years. So we're going to. That's a $1.5 trillion swing from capital raise capital returns to capital raising. I think this is interesting. It's probably why the hyperscalers. It's interesting because the hyperscalers interesting kind
- [61:55]
B
word for saying toppy.
- [61:58]
A
It feels toppy. Yeah. There's classic Howard Marks quote in here where he says nothing. He says it's difficult to predict when rising stock sales and selling buybacks might weigh on stocks. Just as important. He says they are unlikely to be enough by themselves to end a bull market. Always ride that fence, Howard.
- [62:18]
B
Yeah, that was really one sided comment. He does a very good job of saying a lot while not taking any sides. The I would I find that chart pretty concerning. But it's not like I don't necessarily find it surprising. You see all the news about IPOs and equity raises and what Google just did, for example.
- [62:45]
A
Anthropic might be about to later this
- [62:47]
B
year usually have some idea that this is happening even if you don't have the hard numbers. So yeah, it's more support that times are good at the moment.
- [62:59]
A
And it's probably I'm guessing why the Mag 7 hasn't. Maybe it's lagging what it used to. They used to be buyback machines outside like Amazon and then you had index fund flows, you had earnings growth. It's kind of hard to bet against that momentum. And now there's some issuance working in the opposite direction.
- [63:20]
B
Yeah. All right. I think that's going to do it. We're in the heart of earnings season, so good luck to all our listeners this Q2 earnings season. I'm going to sign things off here. Thank you everyone for listening. We want to remind you that Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Stocks is not formal advice or recommendation. We may buy, sell or hold any of the securities discussed in this podcast. Thank you again everyone for tuning in. We'll see you next time.