Ryan Henderson (2:40)

Just so humbling. And if they just could avoid reporting earnings, that'd be great. Now I wanna talk about the cloud race. There are. It appears that AWS is falling behind. I'm gonna go through some of the data. Why don't we start there? So Amazon and Microsoft reported earnings last week. Google reported, I believe, the week before. Those are kind of the big three hyperscalers, Big three cloud providers. Meta also has their own cloud that they use internally, but they're not really offering cloud infrastructure compute services to other companies. Brett's sharing a chart here, just showing the growth rates of aws, Microsoft Azure and Google Cloud. Microsoft Azure is growing the quickest, Google Cloud is growing the second quickest, and AWS is growing the slowest. But AWS is also the largest. So there was Google reported first and they, they saw a big acceleration in Google Cloud revenue growth. IT jumped from 28% growth to 32% growth quarter over quarter. And it was one of their biggest. When you look at Google Cloud arrangements like Net growth in Google Cloud ARR, it was the biggest quarter they'd ever seen. Same with Azure. They reported a huge jump, but AWS was a little underwhelming. They reported just like a marginal acceleration relative to last quarter. If you look at it in isolation, you just looked at AWS's numbers, you didn't know anything about Azure. Google Cloud think it was a pretty good quarter. Revenue growth did technically accelerate. It surpassed expectations, but relative to competitors, it wasn't great. And an analyst, I believe that Doug guy from JP Morgan who seems to be on every big tech call.

Brett Schaefer (4:42)

I'm not aware of the Doug guy, but I assume he's probably one of the lead analysts at J.P. morgan.

Ryan Henderson (4:47)

Yeah, he has pretty good questions. Usually. I think it's Doug Anmuth anyway. He's JP Morgan analyst, he's on all the calls. So he asked, basically asked Jassy, like, why are you. Like, it seems like the competitors are growing faster, like why? And Jassy gave sort of this underwhelming response, but really it was like kind of a word salad that was hard to follow. Like at first he talked. He basically said, like, well, it's important to remember that we're bigger. So, yes, on a percentage basis, that makes sense. You know, they're grow. They're growing a little bit slower because they're already so big. But then he kind of went into this, like, abstract answer about, like, how this is just a point in time. Like we're, we're really just at a point in time. It was really hard to follow. And as he was talking, Amazon shaved off $150 billion in market cap from that response.

Brett Schaefer (5:48)

Just a few percentage points for them, but still, that does seem large.

Ryan Henderson (5:53)

It was probably one of the most costly responses in conference call history. But anyway, that was kind of hilarious. But let's. So it's fair. They are the biggest. I think they are almost 50% larger, maybe a little larger than, A little higher than 50% larger than Azure. But when we look at things on a nominal basis, because you can kind of parse this out. Like, Microsoft is a bit opaque in what they say for Azure. So they give revenue growth rates for Azure, but they don't give nominal figures, which this whole thing is just weird to me. I don't know why they don't just break it out. It's annoying, but whatever. And then they'll give, like, commentary on conference calls. So they said they hit $75 billion in Azure revenue for.

Brett Schaefer (6:46)

You are right about Microsoft. For some reason, they want as many people listening to their boring conference calls as possible. They don't do the guide written right and they force you to get the Azure numbers there. Just tell us the numbers, guys. It's so frustrating.

Ryan Henderson (7:00)

Yeah, it is. But we can kind of make out some of the nominal growth. So Google Cloud added $1.4 billion in new revenue this quarter.

Brett Schaefer (7:17)

Quarter over quarter?

Ryan Henderson (7:19)

Yes, quarter over quarter. That was a huge acceleration for them. So 1.4 billion. Google Cloud AWS added 1.6 billion. So technically, AWS is still growing faster than Google Cloud on a nominal basis, but not by a whole lot. And this was certainly a step in the right direction for Google Cloud this quarter. Azure, on the other hand, they do give out. They give out Microsoft Cloud revenue, which is basically just their whole business almost. It includes cloud services like Office products, so Microsoft 365 products, all that stuff. So it's way more than just Azure, but it's about, I believe, roughly 45% of that line item that they report is Azure. So if we assume that the growth was in line and was primarily Azure, you're looking at basically Two and a half billion dollars added in quarterly revenue this quarter for Azure. So just to sum it up, I know I'm going long on numbers, but at Google Cloud, great quarter, step in the right direction. Starting to look a little more competitive in the cloud world. 1.4 billion added. AWS slowing down. 1.6 billion added. Azure had probably the best quarter they've ever had and added two and a half billion dollars. And this is all sequential. The question here is a. So yes, I think AWS is losing share. Why are they losing share? And is it just them falling behind when it comes to AI workloads? Because that to me would be concerning would be if all these AI workloads are just going to Google Cloud and Azure and it's not really falling on aws. But some industry research showed that most of Azure's growth this quarter still just came from legacy cloud migrations and non AI cloud workloads. So they talked about. There's a quote from Satya Nadella in the conference call. He says we continue to lead the AI infrastructure wave and took share every quarter this year, but really the bulk of growth here was still just from legacy cloud migration. So I guess.

Brett Schaefer (9:41)

Wait, you're saying Azure is legacy cloud migrations?

Ryan Henderson (9:44)

That was the bulk of their growth? Yes, Azure. I would have thought it was just AI workloads.

Brett Schaefer (9:50)

I would revise Nadella's quote. We continue to lead the AI infrastructure wave and took share every quarter this year. We to have a relationship with open AI. I think that's their whole revenue acceleration, correct?

Ryan Henderson (10:03)

Probably, yeah.

Brett Schaefer (10:05)

Google Cloud seems to have the startup wins in the AI space. They, from what I've read, have the best AI infrastructure. Amazon doesn't have the OpenAI relationship or the best AI infrastructure for startups. From a cost perspective, Google Cloud seems to be in the lead there at the moment. But one thing that could be their saving grace is anthropic. They have a huge relationship with AWS, that they're the OpenAI's partner and their revenue is growing. I think in June their ARR was $4 billion and now it's at $5 billion. So it's growing at an insane rate. So that could help, you know, be the open AI for aws. But besides that, yeah, you should definitely be concerned if your whole thesis on Amazon is aws, because I see no reason why Google Cloud doesn't keep taking share from them. Microsoft might be a different story because they, I think are reliant on OpenAI. But besides that, yeah, Amazon itself, you know, is a Diversified business. But AWS I have less confidence in at the moment and by would almost want to just have it reliant on the North America e commerce business.

Ryan Henderson (11:24)

I think people are overestimating or overthinking the slowdown here for AWS like this might have just been a quarter where there was some market share taken and now it's been a couple quarters in a row, I think where Azure's grown share. But AWS is still the largest provider and it feels like every business you hear about still runs their core infrastructure on AWS in some way. So yes, competitively it might not be in the same position it was three or four years ago, but it's still a great business and in a good position and I think they're doing wonders on the E commerce business. So I really think Amazon's in a good position. Anyways, we weren't able to talk about that last week. I want to talk about a fun topic, maybe bubble watch. FIGMA ipo. Are you buying?

Brett Schaefer (12:23)

No. I still can't figure out what FIGMA does. They talk about workloads, they just keep saying cloud sharing, design sharing. I still, I still don't know why, what it even is. But good luck to the investors and hey, it seems like any shareholders before the IPO are going to be quite wealthy.

Ryan Henderson (12:45)

Yeah, let's do a little history here for Figma. 2022 I believe was when Adobe announced their acquisition of Figma, which ended up not going through. That was for $20 billion. Figma at the time had like $500 million in revenue. Now it has 850 million, I believe 820 million in sales. So it's grown quite a bit since they were pricing or FIGMA priced its IPO at what would equate to a market cap of $19.8 billion. So basically in line with what Adobe was going to acquire them at on day one, the stock surged, helping them peak at a market cap of 67.6 billion billion.

Brett Schaefer (13:33)

I heard it was a 5% float or something like that. And insanely thinly traded, most of it wasn't available.

Ryan Henderson (13:41)

Yeah, I assume that's right. I mean I'm pretty sure they've shaved off 35 billion already from the high. So.

Brett Schaefer (13:46)

Wow.

Ryan Henderson (13:46)

It's. Yeah, it's not sustained the valuation, but we. You asked me, I think a month ago maybe what I thought FIGMA would trade at and I believe I said 40 billion. Day one it surpassed my estimates and.

Brett Schaefer (14:04)

I, to be clear today, 38 billion. You're right on track.

Ryan Henderson (14:09)

Yeah. To Be clear, I do not think that is a fair valuation. I just think that's how insane the IPO markets are. Let's use that peak valuation for a second $67 billion market cap for Figma. That is a price to sales of 82. That is basically half of Adobe's market cap. Adobe generates 27 times more sales than Figma.

Brett Schaefer (14:35)

Yeah.

Ryan Henderson (14:37)

This is.

Brett Schaefer (14:40)

Compared to Palantir.

Ryan Henderson (14:42)

Sure, everything's cheap.

Brett Schaefer (14:44)

Yeah, true.

Ryan Henderson (14:46)

This is the time if you are a private company to go public. If you've thought about it, if you. If it's on your roadmap or radar for the next three, five years, just make it happen. Because you will get a lot more money today, I'm guessing than in three to five years. But I digress. Anyway, who would you like to see take advantage of this IPO market right now?

Brett Schaefer (15:12)

Huddle, because that would materially affect my wealth. So yeah, that's about it. Who this was, who is the CEO of Huddle, whoever they are, if you are somehow listening to this, please go public. But what I will say on Figma, maybe heading into the lockup period, it could be fun to have long Adobe short Figma. It doesn't seem like this valuation makes sense whatsoever but people say that Figma is a great business. This not a market I know much about. So hey, I'm not buying it at 82 times sales or even today, what 40 times sales. That's probably not going to work unless they 10x the revenue in five years and I doubt it will.

Ryan Henderson (15:59)

I will say I have been buying Adobe shares here. It's becoming one of the largest holdings in my portfolio. 16 times operating income. I think as of today maybe 16 and a half. It. Yeah, obviously relative to Figma, it seems great, seems cheap.

Brett Schaefer (16:18)

Yeah, I'm seeing that the stock is. Keeps falling.

Ryan Henderson (16:21)

Yeah, for some reason software is down today across the board but well, everyone.

Brett Schaefer (16:27)

Every contract will switch to Palantir.

Ryan Henderson (16:31)

I saw that Palantir is worth more than Salesforce and Adobe combined.

Brett Schaefer (16:39)

Yeah, it's worth twice Salesforce and has 10% of the revenue. I actually just did a Motley fool article on that, so they had the numbers in front of me. Yeah, it's great business but pretty insanely valid. And full disclosure, I am short a.

Ryan Henderson (16:53)

Couple shares that I'm going to go out on a limb and say it's the most. We've talked about this before but I think it is the most insane valuation of all time. Purely just I know that I think Yahoo or something hit like 200 times sales or something really high. And maybe I would need to give more credit to the dot com bubble, but I wasn't around or wasn't investing then.

Brett Schaefer (17:20)

It's like old sports arguments. You weren't around for Maradona so you can't appreciate them.

Ryan Henderson (17:26)

But this is for sure in the last 15 years the most absurd valuation. Not. I mean, I guess you can, there's some subjectivity there because you can say like Nikola was absurd because there was no revenue. But in this case, the size of the valuation is the insane part to me.

Brett Schaefer (17:45)

Yep. 22nd largest market cap in the world.

Ryan Henderson (17:50)

We're starting to talk about some real numbers there. Brett.

Brett Schaefer (17:54)

Someone. I think the average price target for like the Wall street price target is 150, which is only less than a 20% drop from here. And I think I heard Dan Ives say that they're going to a trillion. I, I'd like to see it happen. It could be fun, but a lot of people are going to get caught up into it and it's just not going to end well. Don't know how far it's going to go, but it won't end well.

Ryan Henderson (18:24)

Imagine having that bold of a take that this company's going to a trillion dollars and your returns are still like 10% double probably.

Brett Schaefer (18:36)

Yeah.

Ryan Henderson (18:37)

Annually. Yeah. It's like you're going to get a double over five years. Okay. I think there's some lower risk places that you could potentially do that.

Brett Schaefer (18:46)

Yeah, that's true. That's true.

Ryan Henderson (18:48)

What else do we want to talk about here, Brett? Do we.

Brett Schaefer (18:52)

A lot of people wanted to talk Portillo's. Maybe we knocked down the, the bad, the bad news first. And then we had some fun ones that some companies that were doing well that Portillo's quarter wasn't that bad. But a lot of people did want me to discuss it, I guess just to sum up the quarter, I'm going through the updated on the Chit Chat stocks newsletter right now. Essentially they had just under 1% comp sales growth. While they are estimating this year that actually they pinpoint it for us, commodity inflation is going to be 3 to 5% and labor inflation is going to be 3 to 4%. So their comp sales are growing slower than their inflationary input costs and that's going to compress their ability to generate a restaurant level operating profit. They actually didn't reduce their same store restaurant sales target for the full fiscal year. It's still 1% to 3%. I think they said they're probably leaning towards 1%, but they're still within that range. The thing is, and what caused the Stock to drop 20% is the fact that their revenue growth guide went from 10% to 12% down to 5% to 7%. And the majority or really the reason here was that their new locations in Texas are not performing well so far. I don't know if I want to read this full quote from the conference call, but it there's skepticism on the ability to scale the brand nationally. And on the one hand I get it, you know, Texas was their biggest push and it doesn't seem to be going too well so far. Although two years ago when they opened their first one, it had like an 11 million average unit volume. You can have definitely have that concern. But I think what management is saying, and I think I agree with them to a point is that initially they over marketed when they were in Dallas and that caused them to subsequently under market to not try to have the rush at opening. And this is something they can easily fix because if they were under marketing they can just get back to doing normal marketing for the new locations and they can solve the traffic issues. They would also probably argue that and I did talk about this on the conference call, that Portillo's locations have performed well financially in Arizona for a decade and that is a very different market from Chicago. So they have proven that they can work in markets outside of the Midwest. They're also doing well in Florida and other midwestern states and they three out of the four points here that restaurant openings have been delayed more to the back half of this year, which is partly affecting that revenue growth. And then I think lastly they would say that their cash on cash returns and restaurant level EBITDA margins, which I think generally coincide with what restaurant level cash flow is going to be, they remain strong. Well I, I get some of that and I'm still holding shares. I didn't spy or sell any this week. But the flip side is they've worked really hard, especially with the activists, the new board of directors, the new executives that have joined about, you know, adding kiosk ordering, speeding up the drive through. They launched the loyalty program which does have 2 million members now but hasn't moved the needle on comp store sales growth. I look at the valuation here and we're at an EBITDA EBITDA of I think 14. There's a lot of debt on the balance sheet relative to the market cap now. So if comp store sales get to that 1, 2, 3, 4% level, especially because right now A lot of restaurants, Chipotle, Starbucks, I know not all of them. Some of the ones that are more affordable like a McDonald's or Domino's are doing fine. But Chipotle's comp stores sales were much worse than this. Starbucks is still struggling. Others that I'm forgetting right now are still struggling. If Portillo's can get to 1, 2, 3, 4%, I think the stock is still a 10 bagger. So I don't want to get rid of that yet. But I'm feeling a little bit like it's a boy who cried wolf situation with management. They keep saying, all right, the things we're doing, we're going to just do the easy stuff, excuse me. And eventually the comp store sales will show up and we'll improve there. But it hasn't worked yet. And I to sum it up, I think my plan is to give them a couple more quarters. They can turn things around. I'll keep holding, but I'm not talking the stock price, I'm talking the business. But if we still get comp store sales at 0% or well below inflation was wrong about the idea and it'd be time to sell.

Ryan Henderson (23:43)

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Brett Schaefer (26:26)

Stores and capturing the trade down. I read that as well. Right.

Ryan Henderson (26:31)

Whereas that's just not Portillo's market. Really. I wouldn't say that they're seen as like total value.

Brett Schaefer (26:42)

No, it's more of a competition with the Chipotle sweet greens Chick Fil a cavas of the world, I would say. Yeah, it's about that price point. 10 to 15 bucks.

Ryan Henderson (26:55)

Price point, yes. Diet choices, probably not. Not what people are debating in their head, but that's true. No, I, I think you've got probably a good approach there and wait and see.

Brett Schaefer (27:10)

Last thing I'll mention, they do have activists there. They brought a bunch of people onto the board of directors. That could be part of the catalyst here. I wouldn't be surprised if there's a management change. I also wouldn't be surprised if they keep them. It is a tough operating environment. It look, the business is still generating tons of operating cash flow. They can slow down new restaurant openings. If they're worried about cash flow concerns with the expansion, that's fine. I mean it's obviously not great, but they can do that. Like the core business is still highly profitable. And I look at them market cap $500 million EV probably billion ish. PE16 EBITDA, EBITDA lower than that they're doing. They're posting positive comp store sales. On the other hand, and I should mention still under 100 restaurants or you can buy chipotle 4000 restaurants pe of 40 negative comp store sales. I think there is a good risk reward with this stock and just because I think it's down about 40% since I bought it. I don't know if the thesis is entirely broken but I'm not surprised that the stock's reacting as it is and it's why I didn't make it a huge position. It's. It was I think 5, 6, maybe 7% at cost.

Ryan Henderson (28:38)

Let's talk about a stock with a much better quarter remitly. This is my third largest holding.

Brett Schaefer (28:48)

This is the one where I'm actually making money.

Ryan Henderson (28:50)

Let's pat ourselves on the back here. The this might have been I would say probably going into this quarter this was the stock I was most excited to read the earnings report of. It just felt like it was in finally in a situation where it was just had gotten very mispriced and to kind of go through what had happened. There has been sort of a swirl of negative headlines around remitly that have been hurting the stock. So first there has been this, I don't want to say prevalence of stable coins because I don't think it's really being used that much in remittances. But this fascination with. Fascination with. With stable coins from investors in that it's going to. People are going to use stable coins as a form of money transfers and it's going to hurt the remittance providers. We haven't seen that yet.

Brett Schaefer (29:51)

I don't think.

Ryan Henderson (29:51)

There's no data that I've seen that shows that. And you see the digital remittance providers just continue to grow volume year after year. So yeah, it really doesn't seem to be the case. The other thing I'll mention is like right now on remitly, let's say you are a Mexican American citizen and you're sending money back to your family or your grandma or whatever you can send like send money back home for your grandma to pick up in pesos at the Walmex though or the Walmart in Mexico and yeah, whatever. And it's just so easy for the recipient. I think it's a lot harder to be like look, open up your stablecoin wallet. I'm going to send it. I'm going to send you stablecoin usdc. I want you to off ramp it to your bank account, which you probably don't even have, or somehow convert this back to pesos. It's just a lot easier at the moment. So. And maybe there's long term, whatever, maybe you think stable coins are the future, but at the moment Remitly is still thriving on that type of transaction that I just described. The second one here is this quarter we saw a crackdown on from the US Presidential administration and the US is Remitly's biggest send market. And there was some cautiousness and even if you actually looked at the World bank data, remittances from US to Mexico declined year over year and yeah, 16% in June.

Brett Schaefer (31:31)

Yeah.

Ryan Henderson (31:32)

Really? I didn't think it was that stark, but. Oh, just in June. Okay. Yeah. So that had was putting a ton of pressure on the stock. And the concern here was that revenue growth was going to be way less than people expected because sand volumes were going to fall off a cliff and less people were going to send money back home because they were just a lot of people weren't showing up to work. They were afraid of whatever Western Union then reported, I think a week before Remitly and they said, yeah, we're seeing this, like we're seeing this play out. Our volumes are being impacted by this. And then there was also the tax, the remittance tax that was introduced. That doesn't affect Remitly in any way. It's actually definitely a net positive for them because if you were sending money with physical cash now you'll be taxed and if you send it digitally you won't. So just increases more volume to digital remittances. Anyway, all that stuff was going on and Remitly grew send volume 40% this quarter. Basically close to its fastest rate in the last three years.

Brett Schaefer (32:40)

Yeah. Was that an acceleration? I think so.

Ryan Henderson (32:43)

It was 41% last quarter. Okay, they I've got a chart pulled up here. Brett, maybe you can share this. This is a real time example of real world example of the innovator's dilemma in practice. Right now Remitly has just about surpassed Western Union in its North America. So this is North America revenue and keep in mind this is revenue. So Remitly has a lower take rate than Western Union and I believe in most corridors. So send volume, I would imagine Remitley has already surpassed Western Union, but the stock jumped like 15% today. The volumes continue to grow. More people. This is a great example of like the market shrank and Remitly still grew because they're stealing share the send volume from the US to Mexico specifically, I think grew like 34% in a time where send volume across the board was declining from US to the Mexico. So it just goes to show how nice it is to have the market share taker in this case. And I continue to remain extremely optimistic about remitly here. And I was running through some numbers.

Brett Schaefer (34:09)

Yeah, hey, don't get optimistic, Ryan. Yeah, the stock looks cheap.

Ryan Henderson (34:14)

Let me paint a picture. 15% revenue growth for the next five years.

Brett Schaefer (34:21)

That's fair.

Ryan Henderson (34:22)

Which seems very doable. They're growing like 35% right now. Operating margin gets up to 15, which I think is like what their EBITDA margins are at right now.

Brett Schaefer (34:33)

I think that's also fair.

Ryan Henderson (34:35)

Yeah, you'd be looking at, I think they would be generating, I want to get this. They would be trading at six times their 2029 operating income. And I think both those assumptions are very reasonable. That to me is one of the cheapest growth stocks out there today that actually has like a clear path to operating leverage.

Brett Schaefer (35:01)

Right. And I think, I don't know if you're including enterprise value, but they're generating a lot of cash now. I want to say they started to buy back. I'm reading a lot of earnings calls, so it's kind of blending together. But they may have started a buyback EV down to 3 billion still. Yeah, pretty cheap. I mean they up the revenue guy. I think it should have been much higher today. Maybe I can even hit on some of the other things they're they're doing from a technology standpoint. Of course they mentioned AI. That's really just customer support stuff. I, I kind of would ignore that when talking about their agentic AI, although it could be helpful. But the two things, one, they're now allowing stablecoins to be onboarded to Remitly. This is going to be launched officially in September. But they I guess wanted to announce it and talk about it with the quarterly call so analysts could ask questions. You're essentially going to be able to fund your account with stable coins. And again, it doesn't reduce fees to zero because if you want to go to your local currency, you still have to convert from the stable coin, just as it would be like a US dollar to that currency. So I think what's weird is that people said stablecoins are going to kill these platforms and I think they're going to actually help them, especially the digitally native ones such as remitly or Wise or what have you, especially if it can reduce their cost even further. They actually said they're using it for, I think off hours or some sort of ways to manage their balance sheet and manage transfers so they can hold USDC on their balance sheet. It helps with transferring in between different countries. I don't know the exact details, but the second one is they're launching, I think it's called Remitly Flex and Remitly Wallet as a part of this new membership program they're launching for digitally native people that need to send, for example, like a rich deck person that has family back in Asia, something like that. Mintly Wallet will allow you to store money in various currencies. Especially helpful for people that don't want to have foreign currency devaluation risk or stuff like that. They operate in hyperinflation environments. You can hold a variety of different currencies or what have you, and you could earn interest income eventually on this, I think. And they're also doing this thing that I think is interesting called Send Now, Pay later. Not Buy now, Pay later, but Send now, Pay later, where if you're under a cash crunch, I don't know what the fees are going to look like, but you can almost get a little bit of a loan or you pay a fee, an extra fee to, you know, the money arrives to the recipient, but you don't take it from your bank account still until a certain time. I think that's a nice little innovation as well. A lot of products coming down the pipe to especially expand this platform to be a personal finance app and lots to like because I think you can still make money on this core business just taking market share going from probably about 3% today to 5 to 10%. You can make a ton of money in that. But then they also have all this other stuff coming down the pipe that could take them to the next level. I grew on you, Ryan. That 6x number, if they're valued at 20 times earnings, pretty reasonable figure for a company like that. You could see a 3, 4, 5X in the stock price within a couple of years. That's as your upside. That's what you're looking for.

Ryan Henderson (38:18)

Yeah. And this, I think this chart actually shows a lot of volume. So you mentioned the buybacks. You mentioned the buybacks earlier in that little monologue there. And yes, you're right, they did. They repurchased $11 million worth of shares. Now, in the grand scheme of things, that isn't a lot. They have a $3 billion enterprise value. So if you annualize that, it'd be like 1% of their market cap being bought back.

Brett Schaefer (38:49)

In cash, Not Enterprise. Yeah, 3.4 billion market cap. Yeah, wouldn't want to use that enterprise value. But similar, similar.

Ryan Henderson (38:57)

But when you have a platform that is very focused on like they're, they, they say they generate 6, 6x on their, like LTV to customer acquisition cost. So they are attracting users and earning a ton of money when they do. So they are plowing money into marketing, they're plowing money into R and D for these initiatives because they're getting a lot more businesses that are sending money through remitly. They are.

Brett Schaefer (39:26)

I didn't even mention the micro businesses. Made me think of ourselves. Yeah, my micro business, that's, that's, that's how I define our, our podcast. I mean we use wise, but remitly, there's definitely enough for two players here.

Ryan Henderson (39:39)

I think whenever you find a business where they are in full growth mode and then they are still like, okay, we gotta buy back some stock and they have a quarter like this where they just plow $11 million into the buyback out of nowhere. But it's usually a pretty good signal that the people that know the business the best think the stock is quite cheap.

Brett Schaefer (40:03)

Is that the chart you're showing here, Ryan?

Ryan Henderson (40:06)

Yeah. This is quarterly buybacks.

Brett Schaefer (40:09)

Yeah. Okay. It's seen acceleration. I think it's a great use of capital. They're very cash flow positive, especially because they use a lot of stock based compensation for their compensation. That's. Wait, they use a lot of stock for their compensation and that's going to make cash flow a little bit higher. But you're going to have more cash piling up on the balance sheet that you can redeploy into buybacks.

Ryan Henderson (40:30)

Yes. And I'll give a quick shout out to Fiscal AI. You're able to pull those numbers up really quickly. Pulled the comp sales figures up for McDonald's and Taco Bell and KFC as well and basically all the quick service restaurants. It's all there, it's got tons of data. And if you want a discount, which we've had a lot of people sign up and use this as their research terminal, check out fiscal AI slash chit chat. You'll get 15 off. Brett, where do you want to go next? Coupon? How about Airbnb? I think that's a little sexier than Coupang.

Brett Schaefer (41:08)

Yeah. Another one that I do own that the stock's down today, but not too badly, I guess not too disappointed from when I bought it in April. But they had the report, they talked a lot on the call. If you want to read the earnings call? I can sum it up for you. AI experiences and services. And the analysts keep wanting them to add hotels and they say no, that's about it. So, no, we have more. There's more to actually discuss, but I don't know if you'd want to, if you want to skip the call. They're still growing slightly slower than booking holdings, which is something to track. Ryan had a good chart on that from the Fiscal AI account. Earlier this week they saw some solid green shoots in new markets. Brazil and Japan are growing quickly with their new marketing strategy and localization strategies. But right now it's not moving the needle because one of their biggest markets, North America, well, probably their biggest market, is growing at a low single digit rate in nights and seats booked. So that's the amount of just nights booked in North America coupled with just slight ADR growth, which is their average daily rate. So you have kind of the inflation in occupancy costs. This is a headwind to their overall revenue growth. Overall revenue I think grew over 10%, but that would be, you know, for North America, only 6%. That's why the stock's down today. I think. Again, if we look at it holistically though, the business keeps chugging along. They're plowing money into buybacks. They have a really optimal business model to plow money into buybacks. So the stock price, or excuse me, the shares outstanding are going to come down steadily in the years to come. I made a note to myself to look up the valuation, but I need to do that in real time with our friends at Fiscal AI. Platform is working much quicker. I will say I think there was an update this week on Ryan. Maybe that's just my Internet market cap is 80 billion enterprise value $7 billion PE says 31. Although I think the true figure for like Evoke will be a little bit lower. It's not dirt cheap. I don't think I'll be buying here, but nothing to be concerned about. One quote from the call that I thought you could either have a glass half full or glass half empty on is quote we've received significant interest from potential services and experiences host with more than 60,000 applications submitted since launch. While these new offerings will take time to scale or encourage by the early results. So these are the new experiences and services such as tours or stuff you can get at your home on Airbnb like a private chef or massages, photography stuff what have you. Whatever any person wants to do on a vacation. 60,000 applications seems good it's not going to move the needle for a long time, but they're doing the right stuff. They talk a big talk because Cesky's kind of a showman. But I think this thing just keeps steadily growing. I'm not too concerned.

Ryan Henderson (44:24)

Yeah, the quarter seemed fine. It's a fairly predictable business, especially considering that booking, holding reports right before them. So you usually have some sense of how they're going to do in terms of global travel. They are a little more levered to the US And North American markets, like Brett said. And I can't imagine that some of the anti globalization rhetoric from our presidential administration has been super friendly to travel from the US that's just to say.

Brett Schaefer (44:59)

Like, even inbound from like Canada or Europe to.

Ryan Henderson (45:02)

Yeah, I think people have. Maybe if they were debating between a trip to the US and trip to another country, maybe right now they're. They're choosing that other country just because it. I don't know. The presidential hasn't been very friendly.

Brett Schaefer (45:20)

Yeah, no. No one asked about it on the call. But that could definitely be an impact right now because the rest of their markets are growing faster, but North America is more saturated. They still toss out that thing like, oh, one. Only one out of ten people choose Airbnb for a trip in North America. We get to 2 out of 10 instead of a hotel, we will like, double our market share. But they've said that for a few years now, so maybe the TAM in the United States is a little more limited than we think. They have to get more creative. We'll see the.

Ryan Henderson (45:54)

The number one figure to track and they don't explicitly state it is just the active listings. Like active listing solves everything, I guess for them. Where if active listings grow, diversification of places to stay on the platform grows, gives people more options. It makes prices more competitive. It means more people are going to turn to Airbnb instead of the hotels and kind of there's that virtuous cycle. Basically, it helps their network effect. But I don't think very highly of these other offerings, experiences and services. Little anecdotal evidence here. I was looking for an experience.

Brett Schaefer (46:40)

Oh, an experience.

Ryan Henderson (46:41)

Ryan sounded a little weird, but I. Yeah, my girlfriend's birthday's coming up. I was like, I wonder if there's any local experiences we can do on Airbnb. And there was one that was interesting, but it was a couple hours away and it was like the only on the half chance that she listens. I don't want her to hear what the activity was, but the There was no competition for it, there was no other offerings for it. And it's a pretty common, like, experience type of thing here in Texas. So that kind of gets to the root of my problem with this, which is it's like a qualified marketplace, like they're qualifying all these applicants, right? So it's just going to grow, like maybe in three or four years there's going to be a lot more competition for that experience. But I wasn't able to price check against other services or anything like that, and I ultimately just said no. And if there was more, I probably would have chosen one of them.

Brett Schaefer (47:51)

So you can look at that bullish or bearish, though, because the supply, it seems like the supply is going to.

Ryan Henderson (47:56)

Come online, but isn't part of the beauty of Airbnb that anyone can sign up and host now? They've reined it back a little bit. But isn't that kind of what's created so many different places to stay and so much diversification in terms of the type of stay, the price of your stay, so on? Eczema isn't always obvious, but it's real. And so is the relief from EBGLIS. After an initial dosing phase, about 4 in 10 people taking EBGLIS achieved itch.

Brett Schaefer (48:32)

Relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin.

Ryan Henderson (48:36)

That'S still more clear at one year with monthly dosing. EVglisumab LBKZ a 250mg 2ml injection, is a prescription medicine used to treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema, also called atopic dermatitis, that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies. EBGLIS can be used with or without topical corticosteroids. Don't use if you're allergic to Epglis. Allergic reactions can occur that can be.

Brett Schaefer (49:03)

Severe eye problems can occur.

Ryan Henderson (49:04)

Tell your doctor if you have new.

Brett Schaefer (49:05)

Or worsening eye problems.

Ryan Henderson (49:06)

You should not receive a live vaccine when treated with Epglis.

Brett Schaefer (49:09)

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Ryan Henderson (49:48)

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Brett Schaefer (49:49)

See details online. They seem to think they can scale all these applicants. We'll see. One thing they talked about is the homes are average rating is like 4.8 stars versus experiences is 4.93. So they seem to think that since they're betting more, they're going to start out with higher quality and they're not going to have that quality issue that plagued them for years with the kind of playing whack a mole with the host. But I don't know exactly how they're going to scale all these applicants because you have to get vetted, I assume, like individually by a person. So that's a lot of employees. I don't know what the cost is going to be there, but we'll see. It's not. It's not going to move the needle for many years, if it does at all. So you really need to be focused from a financial perspective of making investment over the next couple of years on what their path is for growing supply in the marketplace and growing GBV payment volume through the home sharing platform, which I think they have easy steps to do. Internationally, North America could be slow, but globally there is a ton of room to take market share.

Ryan Henderson (51:04)

Speaking of buybacks, because we. We talked about that for a minutely, Airbnb is turning into a bit of a buyback machine here. I'm pulling this up on fiscal AI. Last 12 months.

Brett Schaefer (51:19)

Nice part of the quarter or nice part of the story?

Ryan Henderson (51:23)

Yeah, last 12 months they have repurchased. I think it's like 4. $4.4 billion.

Brett Schaefer (51:34)

Versus an $80 billion market cap. Yeah, should be able to do that math.

Ryan Henderson (51:39)

I can just pull it up here. Buyback yield is currently at almost 6%.

Brett Schaefer (51:45)

Yeah. Wow. That can add. That can be nice. That can be nice.

Ryan Henderson (51:50)

Could be a chance to add some shares here.

Brett Schaefer (51:53)

Yeah, it's. It's not. I just wanted a little cheaper to add more. I already have a position, so maybe I'm thinking differently. But what are we at price? 120. I think I bought more. 100 to 110 range. Can maybe quibble on that. It's. It's not expensive. I don't think it's dirt cheap here but still a high quality business.

Ryan Henderson (52:19)

All right. Coupang earnings, our favorite Amazon of type company.

Brett Schaefer (52:27)

Yeah, well we just had someone talk about in the chat that they came over here because someone recommended Amit I think was Amit. Yeah Amit, sorry was talking about our episode on Grab. So people seem to enjoy that one that Ryan did for the research episode. I should say. I appreciate all the kind comments as well on the Oscar health one from last week that I think this is the first time we've talked about that post that coming out. So go listen to those two ones if you want more in depth research stock report type episodes. But Ryan, were you surprised that Coupang fell after this quarter?

Ryan Henderson (53:01)

Yeah, a little bit. I think a lot of people just don't want to deal with the capex that's coming as they expand into Taiwan. But I will say Grab, my, my Asian tech stock basket right now would consist of Coupang and Grab. I think those are the two. I don't actually grab right now but I should.

Brett Schaefer (53:23)

Yeah.

Ryan Henderson (53:24)

Is there any other ones that we've covered that we really like?

Brett Schaefer (53:28)

I don't know much. Sea limited I don't know much Asia is in general something I don't know much about as opposed to like Mexico or Chile, Colombia, Argentina stocks, you know at least a little bit. But we know Coupang. Do you want to go through the number Trian product commerce 26% growth in gross profit year over year. Now product Commerce is their Korea E commerce marketplace. So that kind of the core. Think about it like Amazon prime like stuff 26% growth in gross profit I think is quite, quite good. And their product Commerce EBITDA margin was at 9% so they're already close to hitting their long term goal of 10% and I think they can easily surpass this figure if they want to. Taiwan is accelerating rapidly. $32.3 billion in trailing revenue. Here's a quote and then I'll go through some basic valuation work and then Ryan can talk about what he wants about the quarter Quote. After ending last year in Q4 with a quarter over quarter revenue growth of 23% referencing Taiwan this quarter revenues surged 54% quarter over quarter more than double the pace of revenue growth from just two quarters ago. Year over year revenue growth was triple digits in Q2 and we expect that to be even higher in Q3. Now this is Taiwan so it seems that the product and marketplace is catching fire now free cash flow and earnings may come down in the short run. Because they invest so much in Taiwan to catch up with all this demand. But then revenue is going to accelerate and I think the moat can widen further with cross border inventory and having better stuff on your marketplace and eventually free cash flow will recover. Stock seems cheap to me. Still EV enterprise value is about $50 billion. I think there's a path in a couple of years to hitting $5 billion in earnings. Especially if you just consider the way they're growing. They can get to $50 billion in revenue somewhat soon. Soon meaning a couple years and 10% margin on that $5 billion. I think if they keep this pace up, market cap goes to $100 billion in a couple of years.

Ryan Henderson (55:43)

It's one of those stocks for me that's actually just so easy to own where it's yet to get extremely overvalued, which is usually when I end up. Well if, if it ever happens to me that's usually when I end up. Selling a stock is like it gets an uncomfortable valuation for me and I want to find somewhere else to allocate it because coupang reinvests so much. Like you said, there's a path to $5 billion in earnings over the next couple years but we're probably not going to see that. We're not going to see that in the free cash flow figure. If Taiwan's performing well, they're going to continue to invest into it. Capex is going to continue to grow. It's going to hurt free cash flow. But it's like Amazon in basically 2000 through 2010 when they were just ramping CapEx related to fulfillment and it just built like. It obviously expands their moat. But there's never an earnings figure to point to so it always feels expensive. But really if you look at it as like peak through earnings, whatever figure you want to use, it's, it's going to probably continue to be reasonably priced and I think they can generate good returns on all that Capex that they're deploying. They've done this very well in South Korea. They have a huge advantage now in terms of suppliers as they enter Taiwan. So it's not like they're starting from scratch.

Brett Schaefer (57:16)

And they have the playbook.

Ryan Henderson (57:18)

Yeah, they have the playbook as well. And I assume, I guess I don't know Taiwan that well, but I would assume there's a lot more population density which was a big advantage for them in South Korea. When you look at it relative to like Amazon for example, where there's a lot of costs in the fulfillment side of things in South Korea, Coupang I think had was within seven miles of like 95% of the population or something like that. So it reduces all that. A lot of those fulfillment costs where you're traveling instead of actually delivering packages and it just leads to more efficiency. So maybe I'm wrong on some of the population density for Taiwan, but I suspect they've got a similar playbook and they went into that market for a reason.

Brett Schaefer (58:06)

Yeah, I think Amazon spending couple billion dollars to increase their speed of delivery in rural areas in the United States and I bet that it's in Coupang's entire capex spend up to this point in South Korea and they already have faster delivery speeds so it's yes, a lot easier for them. Now it would be technically easier for a competitor to step in, but given the ecosystem they've built of all these products, I'm comfortable with this moat. I think I'm going to still hold on to the shares.

Ryan Henderson (58:38)

Bomb Kim, Bombsuit Kim, the CEO I think is one of my, if I had to go kind of top five young hungry founder CEOs Bon Kim would be up there. Yeah, Brian Chesky might be up there as well.

Brett Schaefer (58:56)

Zucker, Oppenheimer.

Ryan Henderson (59:00)

Yeah, yeah. I mean for, for his business he's done really well. I don't, I think I might put like Zuckerberg and Chesky maybe a tier above, but Oppenheimer has done a good job.

Brett Schaefer (59:12)

Zuckerberg's old. Even though he's young, he's been around too long.

Ryan Henderson (59:16)

I know, but he's, he's younger than Chesky.

Brett Schaefer (59:20)

I know, but he's been around so long that I don't think he counts in that anymore. Do you want to do OpenAI's valuation? There's Nintendo but it's really not much. They sold a lot of Switch Twos. We'll see what the numbers look like in a couple of quarters financially.

Ryan Henderson (59:37)

Sure. I'm seeing the price tag you've got here for OpenAI. Where did you see this?

Brett Schaefer (59:42)

This was a Reuters article. I think it was sourced in couple different areas. I've assume it's from the company. QUOTE OpenAI is an early stage discussions about a stock sale that would allow employees to cash out and could value the company at about $500 billion. A source familiar with the matter said again when someone says a source familiar with the matter that's always like from the people that you're referencing, it's someone from OpenAI. Um, they're doing this ahead of an IPO. I guess I would probably sell at that Valuation if someone wants to buy my shares, according to the article they are on track for $20 billion in annual recurring revenue by the year end. My question for you 1 Ryan, is this a reasonable valuation and do you think they are cash flow positive by year end if they get that number?

Ryan Henderson (60:37)

No, I don't think they're cash flow positive. I don't think they have any incentive to be cash flow positive at the moment. They seem to have sort of an unlimited Runway of liquidity and they're probably in spending wars with the other like Gemini and Anthropic in them. So no, I'm quite confident that they will not be cash flow positive. Not to mention it's capex intensive business. So cash flow for sure. No, right.

Brett Schaefer (61:05)

They're raising a lot of money.

Ryan Henderson (61:08)

Yeah, yeah it's. They gotta buy a lot of GPUs and those aren't, those aren't, those aren't cheap as we saw with pretty much every big tech capex guide this quarter. So now it, I mean good for them. They have built. They are probably I assume the quickest company to ever hit this big of revenue figures. $20 billion since I think they were found in what like 2019, 2016.

Brett Schaefer (61:39)

Came out kind of out of incubation. Yeah, pretty quick. Pretty darn quick. And yeah, it's viral product. They're moving quickly. It's fun to track. But I would, I would never own it. Sorry.

Ryan Henderson (61:56)

Yeah, no, probably not. And if anyone's offering you shares in the private market, ignore those, please ignore those anyone.

Brett Schaefer (62:05)

To our listeners it's probably or us. It's probably a scam unless you're a really big like professional investor. We're getting a lot of Peter lynch lessons from this episode. Juan Portillo's national expansion. You know there's a lot of lessons from lynch in that a second market share gainers with remitley and then third with here. Never invest in the hottest sector. It doesn't end well.

Ryan Henderson (62:32)

It feels to me and there are pot, there are like everything's overvalued but my portfolio, I think that's like the. How everyone approaches markets like this, myself included. But it feels like a lot of the companies I'm looking at are still just like quality is absurdly priced type of thing.

Brett Schaefer (62:54)

Are there any Alphabet except Alphabet.

Ryan Henderson (62:56)

Right. I guess. I mean on a free cash flow basis it's pretty expensive.

Brett Schaefer (63:01)

Deteriorating. Yeah, we got to hope for that ROI.

Ryan Henderson (63:04)

Yeah, you got to hope those GPUs don't appreciate too or depreciate too fast. Are there any pockets of the market that you think are just neglected right now?

Brett Schaefer (63:19)

Oh, that's a tough question. Not tobacco anymore. That stuff's soaring. Congrats.

Ryan Henderson (63:24)

True.

Brett Schaefer (63:25)

Congrats to everyone that's owned that. What am I looking at? Well, small caps, small caps doing well. We didn't get a chance to talk about this week but the real brokerage, I did a research episode on them. They showed good progress again this quarter. The stock looks cheap. It's trading at a really reasonable price I think. Yeah, small caps, small caps.

Ryan Henderson (63:52)

We do have a comment.

Brett Schaefer (63:52)

That's not a sector. It's not a sector, but I'll take it for you.

Ryan Henderson (63:56)

We have a comment here. I was talking about great founders. He says Anthony Noto, one of the best CEOs. Yeah, I don't believe he's a founder but he's very heavily incentivized. I believe he has owns a ton of Stock. He's the CEO of SoFi. And I was looking at some numbers and this kind of reminds me because I think I'm going to sell my Ally position. I own Ally Financial, one of the Lotus, one of the largest automotive lenders. And for a long time they were just the online bank like they were kind of a pioneer in online banking and they were attracting a lot of deposit customers. But in the last year SoFi has added almost an entire Ally bank in deposit customers just in the last year.

Brett Schaefer (64:48)

Not the entire deposits, but starting small, maybe it'll grow over time. Yeah, I agree. Sofi has executed phenomenally well. They're, they're doing, they're doing no complaints. I mean they're, they're doing, they're doing quite well.

Ryan Henderson (65:01)

Yeah, I think SoFi crossed 10 million members and Ally was at like 3 million like customer depositors. And so if I nearly added 3 million this year. And it just, that is just to say there are so many Neo banks right now that are competing on who can provide the highest interest rate, who can, you know, pay a little more for the customer acquisition cost, who can be the most user friendly experience. I just don't like whatever you think of Ally's loan portfolio. I don't think they're going to continue to really be a big market share taker in a world where Neo banks are this competitive.

Brett Schaefer (65:46)

All right, well we'll keep updated on that. We're going a little long so let's get out of here. Ryan, as a disclosure. Well, first off, thank you for the people that join in live. We do these 2pm Pacific Time, 5pm Eastern Time every Thursday. You can watch the replays on YouTube or listen the day after Friday mornings on Spotify Apple Podcast wherever you get your podcast. But as a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guest may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you for the people that joined us once again. We'll see you next time.