B (6:38)

Okay, first I see my videos a little bit off, but is the audio okay? Ryan, give me a thumbs up. Bad. Is it all right? I know the video doesn't look great, but people aren't listening to this to see my face. So to answer your question, I don't know if there's any winner here investing wise. Netflix seems to have to if they want these assets which you ask the question who owns or what do they own? They have Casablanca, the Dark Knight, so some of the Christopher Nolan stuff, Harry Potter, Lord of the Rings, Joker, Barbie, plenty of other stuff. I mean, it's a long standing organization, but when you look at the, the price that Netflix is trying to pay here, and I'll shout out the TSOH investing research service, Alex Morris, who covered this, and I'm kind of stealing what he wrote for his subscribers this morning, they're going to be forced to overpay and a lot of the value that's going to be accrued here is probably going to go to existing Warner Brothers Discovery shareholders. Warner Brothers Discovery is seeing decreasing percentages of time spent on TV and stuff like that, and time spent watching on TV in the United States, I think it's like 1% versus Netflix at 8 or 9%. So they're only going to add a tiny bit of time watched. But if you're paramount and you have to come in over the top with an even higher bid, laden wand with debt, all these complications, not to mention the political complications which could toss things all over the place here. I feel like there's no winner here except the existing Warner Brothers Discovery shareholders, which I've been a doubter on this business, and anyone that bought the dip, I guess you're sitting nice and happy right now. I kind of want to look at where they spun off though, because the stock is at $30. And if I'm correct in looking at when they spun off in late 2020, if that is okay here or it might have been before, I can't I can't honestly remember. It doesn't seem like the stock is kind of back to break even if you bought right after the spin. Now if you bought under $10 in 2024, I mean you're making out great here, but I think that's the only winner.

A (9:06)

Yeah, I could see this being good for Netflix, honestly, which is, I mean this is. The difficult balance with huge acquisitions is most the time they don't work out. But every time it's. You can come up with a convincing case for why it would work out, which is why the deals get done. They are buying Warner Brothers at or the studio business like Netflix would be. Assuming the deal goes through, they'd be paying 25 times pre Synergy EBITDA, which is expensive. They're saying it would be post synergy EBITDA 14 times. We'll see. Oftentimes those synergies don't always actually materialize.

B (9:54)

TBD on those on all synergies.

A (9:59)

And I'd be curious to know what those synergies are. But there is, there's certainly a case to be made of if you just integrated HBO and Warner Brothers IP into the Netflix service, it improves the value of Netflix. There's probably some price to be taken there. They've said that they'll leave HBO alone as a standalone app. And it's funny, all the people that are like this is anti competitive and it's not. I'm not saying it isn't, but you have so many people making that case that this is terrible. Like it's, you know, it's bad for competition. And I, I told my girlfriend about this deal and she's like, oh, that's great. I won't have to pay for two services now. It's like, oh yeah, I guess that's.

B (10:47)

Yeah, but what if it cost $40 in five years? That's I think what made it cost 40.

A (10:57)

Here, here's what I would say. If it costs $40 in five years, you don't have to pay for Netflix.

B (11:03)

That's true.

A (11:04)

You can watch anything. It's. It is one of the most competitive industries out there. Really.

B (11:09)

That's fair entertainment, time spent at home. Yeah, you're fair. You're right.

A (11:13)

And I love the idea. I. Everyone's talking about. Well, when I say everyone, I just basically mean a lot of the politicians that don't like acquisitions. They're saying YouTube doesn't count. How does YouTube not count? It's number one. You see the US streaming TV market share and it's not only number one, but growing. It's super competitive. Let's say this would take Netflix's TV time spent from 8% to 9%. Are we really considering blocking deals for that? Are you kidding me? It seems ridiculous, but I think you could make a case. I think as a customer of both services, I would not mind Netflix acquiring this. As a shareholder, I worry that things could go wrong. But there's definitely an upside case for pricing power plus any synergies as well, cost synergies, stuff like that.

B (12:27)

But they can't mention those because if they mention pricing power, that's going to get quite anti competitive. It's probably consumer now. We have a comment here from Tyler in the chat saying Netflix should take the 2.8 billion dollar breakup fee and let Paramount suffer under the $80 billion of debt it could net Netflix license content for cheap a la Warner Brothers discovery over the past year. My conspiracy slash galaxy brain take is that Netflix is not in it to acquire Warner Brothers. They understand the entire situation here and all they're doing is like you might in a fantasy football auction draft tried to bid up the price to to a higher one. You're not actually serious about acquiring these assets, but you would like the other person to pay more. And if they do, the corporate structure might leave Netflix in a much more competitive space to use their healthier balance sheet. It's quite ironic that they used to be called debt flicks when the rest of the industry is in much worse shape today. But they're using that positive free cash flow to take advantage of their position, maybe take on some sports rights when there's not that much competition out there anymore. Whatever they've been trying to do to expand, live stuff, all that good stuff, and that can get them in a better position and you get $3 billion. Maybe that's what they're after. But if I was a Netflix shareholder, yeah, this is not great. And I think it's the reality of the growing YouTube competition, which should be the number one fear you have as an investor. That would be the one thing that it keeps Netflix from not being a monopoly, but the true dominant player in TV watching globally.

A (14:12)

Yeah, Stratetary had some good write ups on this whole ordeal and it's some of the stuff that would really excite me is that like with the distribution advantage that Netflix has, all this content gets watched far more. Like you've seen situations where shows are not watched at all and then they license it to Netflix and all of a sudden it becomes one of the most popular shows. In the world.

B (14:39)

Tsoh had some great data on that as well. Pretty much did the exact same thing. He talked about how they put on Warner Brothers stuff, Sex and the City and well, maybe Suit isn't is Warner Brothers, but they put them on basically 10x100x their watch hours. That is quite the advantage over the competition. Yeah.

A (15:03)

And there is also something to be said for when you look at YouTube versus Netflix, just longer shelf life content existing on Netflix. YouTube's much more. We experience it. Not a lot of people are watching our YouTube videos from two years ago. Whereas I, I'll gladly rewatch an HBO show or a Netflix show.

B (15:24)

Yeah, but they have to pay for the content. YouTube. We're talking business model. They might still be superior.

A (15:33)

Yeah, it's. Here's my take. Oracle stock dropped, I think like 10% today off bad earnings yesterday. Maybe not bad earnings, but just a extreme capex situation. I think David Ellison's going to have to randomly pull his bid for some weird reason because dad's not going to give him as much money.

B (16:00)

Yeah, this stuff is not public. But what I will say is people should watch out for the debt levels across the entire Ellison family empire. Oracle is laden with debt. Paramount is laden with debt. They're in the debt. I think they're within the Twitter ownership group. There's other stuff out there where if Oracle stock does not perform well, you could get into a situation where there's a lot of related parties here that may not have the firepower that they think. But who knows, it might not be even close to that. And maybe that's why the credit default swaps on Oracle are rising. Who knows, People are kind of wondering why, why that's occurring. It's kind of outside of or purview. But I think it's a fascinating story. Are there any things that I want to invest in this space? No. I mean Netflix is expensive. Nothing else I'd want to touch. Feels like a fun story. It's succession in real life. But. But are these good stocks to buy at this moment? No, I don't think so.

A (17:10)

If Netflix continues to drop because of this, I could be interested because I don't, I don't hate the acquisition if it goes through. But if the stock drops and the acquisition doesn't go through, they're getting a breakup fee and it's still just disadvantaged of a Paramount. Owning this business does not impact Netflix's advantage at all. Like they, they will still be just as competitive, have just as good of a distribution advantage just as much Great content that they currently have. So I, I will probably continue to keep an eye on Netflix shares. And where are we at now?

B (17:55)

What kind of earnings ratio? I'll pull up on our friends at Fiscal AI. Do you know what that earnings ratio is looking like?

A (18:04)

I would guess 30s, mid-30s.

B (18:08)

You're going to be disappointed. 39, trailing 12 month price to earnings. If we want to look at price to free cash flow on trailing is 47. Although they do have, you know, slight capital intensity as they grow and invest into content. That still does not excite me with the YouTube competition.

A (18:34)

No, I mean, YouTube's a beast of its own, but no, I'm gonna need it a lot cheaper before I probably get interested there. But we'll see where this goes. I assume we're gonna have more news to talk about next week when we record again, so.

B (18:51)

That's true. We'll have to do an update. We'll have to do an update on that.

A (18:55)

If you. One last question. If you're a Warner Brothers shareholder, which offer would you prefer?

B (19:03)

Hire one. All cash. I guess I forget the details. Get me out. These are, these are dying businesses. Get me out.

A (19:11)

I mean, you can either get $28 a share roughly with Netflix, and then you're left with whatever the linear networks are worth. Then you can $3 a share or you could take $30, all cash from Paramount. But you get rid of the whole thing.

B (19:30)

Yeah, I think I just get rid.

A (19:31)

Of the whole thing.

B (19:32)

Just get rid of the whole thing. But you can also sell right away, right? The. The stub of the streaming. Either way, I mean, no big deal. Just get me out of this thing. I don't want to call it a bailout because the people that got into this when it was discounted versus the IP value, congratulations, you were correct. But I still think over the long term, this is a business that's treading water, running on the treadmill to go nowhere. And you got rescued from the lifeboat. Agree or disagree? Okay.

A (20:06)

No, I think it's a save. But there is. I mean, yeah, the IP is worth something. IP has value. And it's a good lesson for Nintendo shareholders for.

B (20:20)

That's right. You're speaking my language.

A (20:23)

Like it's. So many of those things don't get accounted for in like if it's just publicly traded on its own, but if it is a potential acquisition candidate, all those, all of a sudden those things have a ton of value. The, the intangible assets.

B (20:44)

And I will say we're not going to talk full Nintendo yet. We might not get to it this episode. The current enterprise value for Nintendo is below this offer. If you wanted to be intrigued and you think those assets are worth more and maybe take a look at that business.

A (21:00)

If you're a regular listener to chitchat stocks, then you've probably heard us talk about Interactive Brokers. Here are three reasons that Interactive Brokers is better than any other brokerage platform. One, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 160 markets, 36 countries, 28 currencies. They are the absolute best platform for global investors. Two, best in class pricing. They have zero commissions on U.S. listed stocks and ETFs and offer margin rates up to 54% lower than the industry. And three, you can ditch the separate High Yield Cash account. Interactive Brokers offers up to 3.37% interest on cash held in your investment account. Head on over to ibkr.com, restrictions apply. Interactive Brokers is a member of SIPC.

B (21:47)

Well, let's go to a fantastic listener question we had. I would say join the substack chat. It's the free newsletter. It's all part of the podcast. You can ask questions I basically every week ask what should we talk about at the Investing Power Hour. People commit comment. I think we had a probably like a record number of comments this week. We had probably 50 messages back and forth. So it's going to you know if you want to ask us for things to talk about if you want to give us anything that suggestions for the show let us know the you can sign up for free for that in the show notes But a listener named JF had a fantastic question. I'm just going to read what he wrote podcast idea. He made episodes about David Garner and it left quite an impression on me. I have a core portfolio that'll quote unquote do the job but I'm considering from now on to put every new I'm going to say the amount of money said a small amount of money for his account added to my account into new high potential ideas. Asymmetrical bets if it works equals multi baggers. These are for companies that are harder for to value right now, maybe aren't profitable but the idea is if you already have a core portfolio set up and you could allocate a few small positions for potential multi multi baggers what would you pick? Not topping talking about established blue chippers that could return 12% to 16% but the idea is they go 2550, 100 baggers if they pan out. You made a note here, Ryan, that 16% a year over 30 years does get you to a hundred baggers. So if you're patient enough and that's your hurdle rate, that might not make a difference. But I think it was a fantastic idea. Essentially the rule for this, and maybe just pick three each. I have a couple, I have four listed that I wrote down as stocks. You would allocate a small position in your portfolio relative to the size, maybe less than a 1% position with high risk, high reward, Motley fool, rule breaker style. Ryan, before we get into it, any thoughts, any questions? Do you have companies in mind and do you own any type of these in your own portfolio?

A (23:51)

I think so. Yeah. I think I do own some. I love the question. And even though I shouldn't maybe think this way, I kind of group them similarly. Like, what's going. It's just basically like margin of safety. Like, you don't. I don't want an entire portfolio full of what I think could be 10, 20 times larger because there's, there's just more risk generally with those business models. The thing I was probably looking at here, like what. How do I qualify a company as something that could be a just moonshot 50 bagger versus an established company? To me, it's how big you start to care about addressable market. That, that's something that comes to mind for me is like, even though they might have a 10% shot of capturing a good chunk of their market if the market is big enough, that's kind of what I end up focusing on. And I think that's sort of the gist of what he was trying to look at too. How do you want to do this? You want to compare contrast names, draft. How do we want to.

B (25:03)

I guess we can just go back and forth. I don't think we're going to have the same ones, but I'll go first. And the way I looked at it is just super high opportunity, super high upside, smaller company, one that I think I have, some of them I do own have in my portfolio has a huge potential upside. But obviously there's a lot of downside downside as well. And the first one, and it's one I've covered recently, I have it on the watch list and I really hope I have my notes written down and writing here. I hope that it falls 50, 60. It has a big drawdown because I think the Runway for growth for its niche sector is super undervalued. And that is Kraken Robotics Company has a market cap of I think a billion plus dollars. Now I haven't followed them too closely. I just kind of briefly look at their earnings reports because I'm very confident in their growth traject but I just don't like the valuation. I think they're trading in something like 10 times sales, something like that. But I believe they can 10x revenue. They have a huge opportunity here and they're pretty much a monopoly. So if you want full details on that I did a full podcast research into them. About an hour long episode also did and it's fully complimentary on the Emerging Notes website a research report on that which you can find the link of in the show Notes. Ryan does that. Do you think that fits the criteria?

A (26:30)

Yeah, I think that is basically the type of company that he would be talking about for me. Company that I of all the companies I own, what do I think has the most multi bagger type potential? It's probably remitly talked about that that company a number of times. It's. I think it could be a really big remittance provider and it's kind of priced like a really struggling company and it just doesn't seem to be the case. Although in the last week things have changed a little bit. I think it's up 15%.

B (27:06)

Yeah, yeah. Nothing like a good investor day pump which are almost. You have to spoon feed it to Wall street sometimes. But yeah, yeah that's how it goes. Someone in the comments mentioned hims. Don't know if you picked this as well Ryan. It makes sense. Gigantic addressable market, great growth, great gross margins but a lot of uncertainty. I, I didn't put remitly on this list. I guess maybe I have some riskier ones than Ryan's portfolio but I'll go with my second one. It is, this is one I do own. I think it has a huge potential addressable market. It's growing incredibly quickly but there is some competitive risks out there. They I don't believe are profitable on a gap basis although they're free cash flow positive and their margins are not that great right now as they try to build out all these new products. It is the real brokerage, the cloud based brokerage that's growing a ton. It's taking a lot of market share but I think the market cap today is below a billion dollars and if they hit and dominate this industry I think it could easily be in the tens, twenty, thirty billion dollars market cap range. It's one I have a small position on but yeah, if it Works out it's probably going to be a 10 bagger. If it doesn't, there's probably some downside from here.

A (28:32)

Yeah, I think I like that one. I like the Hims call. It's not, I have some, I don't know, red flags, yellow flags with the him's management team a bit. I think he cares maybe a little bit.

B (28:46)

Sometimes you get that with disruptive businesses though David Garner would say you got to take it with the, the fits and starts. If I'm saying that right.

A (28:55)

Yeah, it's. I mean it's a good example of huge addressable market, controversial, potentially misunderstood business model today. So I would agree there. The one that comes to mind for me is, and it's already a fairly large business is actually Grab. This is one where they already dominate kind of the Uber of Southeast Asia. But if they are, if they do continue to win in their other markets like financial services, banking, grocery, food delivery and continue to grow their market share even with rides as well, it's hard to see them not being in much, much bigger business. And I do think, I think there's sort of some ancillary businesses that they can enter as they get as they continue to grow. Like if they dominate the industry, it gives them a lot of chances to strive for other business models. I mean this is like Amazon, right? Where I'm not comparing Grab to Amazon. That's not the intention. But if you looked at Amazon in 2000, I don't know, 2008, you probably would have said it's already the largest e commerce provider. I guess like it feels like there's maybe some saturation or it's close to like its addressable market. But there, there was a good quote from, I think it was Brad Gerstner, who I don't love, but it was a good quote. He said great management teams always find a way to expand their tam. And when you're a really good, when you already have a great business and you've got a innovative management team, I think you tend to find new industries that you have success in. And I could see Grab being one of those.

B (30:53)

Yeah, the only I looked up market cap $21 billion that maybe won't be a hundred beggar from here, but it's still this hat, you know, not, not everything has to be a hundred bagger. And that also gets back to what is Perhaps underrated for 100 baggers is capital returns. A lot of the hundred baggers. Think of the number 100 beggar stocks from the 20th century, all tobacco, pretty much tobacco and CPG. They're the top of every list. I think five of the top 20 of 20th century stock market returns are all companies that are a part of Philip Morris International at one point or RJR Reynolds. It's, it's, it's pretty funny but they weren't all just hyper growth. I mean they stopped growing in the late 60s. It's capital returns, buybacks, good capital allocation. That's how you go from, I mean this kind, you know, oh, AutoZone year 2000, this market cap sizable. Is it really going to be a hunter bagger? Well yes, if it's parentally undervalued and they just pound the buyback, sure it can on a long enough time horizon.

A (32:02)

Yeah, yeah, it's true. I think people underestimate. There's a lot of hundred baggers or multi baggers I should say where it already felt like a mature business but they could grow 7 to 10% on the top line and continue to improve margins for longer than people thought as opposed to having whatever tripling revenue in the next year kind of thing. One more that I'd call out, I'd like some of the Latin American companies. Nubank is probably one, I'm not sure on the size. I actually don't.

B (32:39)

Pretty big. Yeah, it's kind of sneaky big, Ryan. Yeah, but I agree with you, it's got a lot of hypergrowth potential. Here's one that you actually covered I think on a small cap of the week one time which people want, they, they ask for the small cap of the week, they want it back Ryan, and this is one that you covered that has pretty nice growth. It's actually had a bit of a rough patch on the growth trajectory. Maybe when we, we jinxed them a little bit. Do you remember Raspberry PI? The Little computers revenues?

A (33:11)

Yeah.

B (33:12)

8% CAGR since 201512 million British pound no USD to 250 million. I'll read the overview on fiscal AI because I totally forgot what they are but I actually use them in college a little bit. Raspberry PI designs and develops single board computers and compute modules worldwide. It offers computers and microcontrollers, cameras and displays, add on boards, power supplies, blah blah blah. So it's kind of for DIY people or people in labs building things, people in testing facilities, engineering, product design teams, stuff like that. I mean 3 year revenue CAGR 23% PE right now is 90. But I assume that they're over or under earning because the EVD sales is 3 EV to gross profit 12.9 market caps below a billion dollars. So you know, seems fascinating, maybe the right price.

A (34:05)

I actually, I still have the small cap of the weeks list of companies that I did. What do you think of all the small cap of the weeks is the highest or the best performing over the last three years?

B (34:20)

Dave, Is it Dave?

A (34:21)

Dave is correct. Dave.

B (34:23)

Yeah.

A (34:23)

Can you guess number two, Not Raspberry PI.

B (34:27)

Because I'm looking at this stock chart and it is not pretty turning point brands. Maybe you never covered them. No, no.

A (34:39)

Kraken Robotics.

B (34:43)

That is a good. Well, yeah, we covered them.

A (34:45)

I, I, I covered them a long time ago and I just was like, ah, it's outside my circle of competence.

B (34:51)

Well, here's one that I have as my honorable mention. It's one that if I wasn't, it would probably be 10% of my portfolio. If I made that 1% position back in May of 2024. I think Ryan might know what I'm talking about. Someone. We've had Simon Erickson on the show before and I don't, I know you probably don't follow the company closely, but it hit $65 a share. It's vastly overvalued today, so I wouldn't put it on this list right now, but it's Rocket Lab. I was looking at it at four or five dollars. Ah, that's a good risk reward. I mentioned this before. Now it's at 65. I think the price to sales is like 50. There's a ton of risk with that business. But back then that was a good example of something like that.

A (35:34)

Yeah, yeah, that is a good example. The look, I'm looking through the rest of this list and there are a lot of major drawdowns. Wag Group was like the dog walking platform. That's down 99%.

B (35:53)

It's kind of. You hit a couple home runs and a lot of losers.

A (35:58)

Yeah, but exactly. If you invested in all of these, I assume the home runs would account for more than, more than offset your losses. But the third best performer, soundhound AI, I honestly don't even remember what they do.

B (36:13)

They do like, yeah, they do drive through basically automations. I read about them with A Motley fool because AI gets clicks right now. It's growing quickly, but it's unprofitable.

A (36:27)

Okay. And then number four is Hape Group.

B (36:30)

Nice. Oh, that's another one that we should have, we should have looked at. Probably a little too worried about the margin of safety. Seemed like a pretty good business. Yeah, got all the Swedes. One of Our top audiences, I should say shout out to our wrapped. I think we had over 2 million minutes listened to this year. So thank you to the listeners and I think that's just on Spotify. So across the board even more. And our top countries obviously us, Canada and United Kingdom, but four in five Sweden and Ireland. So punching above your weight if you're Irish or Swedish. So thank you guys. All right, any other ones, Ryan?

A (37:12)

All right folks, before we move on, we need to tell you where we get our data. Fiscal AI Fiscal AI is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts in our podcast, you'll see it in our newsletter letter. This is our one stop shop for stock research. They've got up to 20 years of financial data on all companies globally, including the largest company specific segment and KPI data set on the Internet. That includes metrics like Du Lingo's daily active users, Oracle's backlog, Rocket Lab's revenue per launch and literally millions more data points. They've also got earnings call transcripts, ownership data, equity research reports and much, much more. If you want complete financial data at your fingertips, you need to check out financial Fiscal AI. And if you use our link Fiscal AI chitchat, you will automatically get two weeks of Fiscal Pro for free, no card required. If you want to upgrade, our link will also get you 15 off. Again, that's fiscal AI chitchat. The link will be in our show notes. Well one that's going to come out next week. A deep dive on I'm a little teasier. I think money.com could fit into this bucket. I think there's software's crowded so it's a little hard to assume like a really strong growth rate for a long time. But it's 6, $7 billion enterprise value today. You could see a world where this is a much bigger company in the future. I would even say the same capital allocation. Yeah. And you got to zoom out like I'm think I'm looking at Figma here as well. Figma valuation doesn't make any sense. I could see a world 20, 30 years from now where Figma is 50 times larger revenue wise. But if you're paying 50 times revenue, obviously it makes it harder for the value for, for you as a shareholder generate those 50 bagger returns.

B (39:20)

Yeah, exactly. I'm pulling up for the quintessential SaaS company Salesforce. They went public in 2004. Maybe something like that. Either way, this is as far back as the chart goes on fiscal AI it has compounded at total return which I don't think they pay a dividend so it doesn't matter 21% over 20 years you can get that at the right price for a perennial market share taker, pricing power wide moat SaaS business that becomes the leader in their space. So yeah, I think that could make the list.

A (40:00)

Yeah.

B (40:00)

And it's.

A (40:01)

I would have if I were a Salesforce shareholder for the last 20 years I would have complained about capital allocation.

B (40:06)

The whole way but well they could have 30% CAGR if they're a little bit cleaner on some of the stuff, maybe. Who knows.

A (40:17)

Yeah. All right, let's shift gears a little bit. Unless you have any more companies.

B (40:23)

Portillos maybe that just came to mind. That's an ugly one. Come on. They they're going to get a thousand locations Ryan.

A (40:31)

Is that good for the business though.

B (40:33)

If they do hit that? Yeah, yeah. Thousand locations, really high AUVs I it's pretty cheap today. I think in the if the optimistic scenario that could happen but it is high risk, high reward.

A (40:50)

Someone says here PayPal is a potential share cannibal. I don't think PayPal will have the top line growth to be a true, true multi bagger.

B (41:01)

They need those doubters because they want us to doubt them because if it's true they just keep buying back.

A (41:09)

There's so many headwinds facing that business. Like okay, even if you look at the share cannibals that did well, the Autozone's O'Reilly's.

B (41:18)

There was no Apple Pay for Autozone.

A (41:20)

Yeah yeah. It was a boring simple business with a huge reinvestment Runway and not not very formidable competitors like you had your mom and pop auto parts shops but you didn't have like competent operators other than O'Reilly and Autozone trying to do the same thing, scale the business. Autozone had major cost advantages. It I do not think it's apples to apples here.

B (41:51)

It's an example of the super investor we just studied, Chris Hone, which people seem to enjoy that episode. So thank you guys. We did a lot of research on that one. He talks about dividing up not just your competitive edge today but your risk of disruption within your sector. Now if you look at AutoZone, whatever technological stuff people are working on, whatever the VCs are working on, whatever all the smartest researchers, science labs, what have you, all the smartest young people are working on, it's not auto repair shops and not auto repair shops, auto parts stores. It's not that. So your risk of disruption is quite low. PayPal, on the other hand, there's fintech disruption every week that comes out. So that would be the difference, I'd say, between an autozone risk of low, risk of disruption, PayPal, high risk of disruption, or replacement from some novel new idea that totally changes your industry.

A (42:53)

Yeah, yeah, it's a good point. Did you hear about this news? I assume you did. Todd Combs is leaving Berkshire Hathaway for J.P. morgan. There wasn't a ton of really concrete information on this, but Combs, who is, for anyone that's unfamiliar, the investment manager who Buffett hired in 2010, a lot of people saw him as sort of his protege. Going to become one of the biggest, like capital allocators, essentially investment managers for Berkshire, I think, is what a lot of people thought he'd be. Along with Ted Weschler, he is taking a new job to head up a new Investment Unit at J.P. morgan and be a special advisor to Jamie Dimon.

B (43:37)

The new infrastructure investment fund. Right. Direct investments they're making. Do you remember this? The national security one? Yeah. I think it's something. Regarding that. Some. Something. Something along those lines.

A (43:55)

What do you make of this? Like, do you think there was a falling out at all? Like, do you think there's any chance that returns.

B (44:04)

Maybe.

A (44:05)

Well, yeah, I mean, he's been running Geico for the last five years, so not great. Maybe he was just tired of it, I guess, or felt like he had done all that he could. Maybe there's some risk that he doesn't get on very well with the new CEO to be.

B (44:25)

Well, the new CEO to be is probably looking at GEICO and going, I mean, this is our worst asset. Like they're losing so much market share to progressive.

A (44:40)

Greg Abel.

B (44:41)

Yeah.

A (44:44)

Yeah. I mean they have lost market share, but in Todd Combs defense, they were losing quite a lot of market share prior to him taking the reins. And he, if I remember correctly, he was like the guy in the air saying, we gotta get into telematics, we gotta be early to this.

B (45:06)

Like, that's fair.

A (45:07)

And Geico was way too late. And that's, I think that's why they put Combs in charge. But is there any investment takeaway for you here? Like, is there any worry in your mind that like, do you think Berkshire is losing an asset in Tod Combs?

B (45:25)

I'd be more bullish, I think. Using sports headline, Todd Combs overrated. We're going to debate it for an hour. I kind of think he's overrated. You look at his returns weren't that great and not that line of track record. Do we know how well they've done him and Ted under Berkshire? No, we don't have the exact figures, but looking at the 13 Fs, there have been some real stinkers. You have SiriusXM. Ally Financial hasn't been great, especially where they bought amount.

A (46:02)

Do we know who?

B (46:04)

It's likely one of them. So flip a coin. Could be Todd, could be Ted. Todd is probably Ally Financial since he's a financials expert. Yeah, I think he might be overrated. There's a lot of.

A (46:22)

We bought Ally too.

B (46:25)

That does not at his price. They bought it like 50.

A (46:29)

I don't know why he bought it at.

B (46:32)

Yeah. Hey, I'm not the one that says I should be working for Buffett. So I think compared to Ted, his track record audited is not nearly as good. Ted is the one with that Roth IRA that'll make you go, all right. This guy's legit. He's done it for 20 plus years. Phenomenal stuff. Todd, what's the track record? Buffett did say at one point that one they were slight, that one was overperforming the market. One was underperforming the market. Maybe Todd was underperforming. He saw that Buffett likes him but he hasn't done well at geico. The returns might not have been that great. Maybe when Buffett leaves and is leaving, it's quite the coincidental timing. He goes, abel maybe not be a big fan of me. Jane might not be a big fan of me. Maybe it's time for me to get out of here.

A (47:30)

And to be clear, this is all speculation. They may have phenomenal relationships. But yeah, it is. The timing syncs up. Obviously, David Wilson in the chat says never understood why Berkshire didn't use their cash in 2022. What are they waiting for? Yeah. And now they have their highest cash as a percentage of total assets that they've ever had. Maybe not ever because they've got a long history. But in the last 20 years, I think it's at. Let's see if I can find it here.

B (48:02)

But yeah, you had a good tweet on was like 30. I think I saw your number. It was like 30, something like that. Of assets.

A (48:11)

Yeah, I'm pulling it up now.

B (48:14)

Was $400 billion.

A (48:16)

It's quite 400 billion in cash. It's like yeah. 31% of total assets, which is the highest in 20 years.

B (48:25)

That's crazy. They have the most assets in the world.

A (48:30)

What could they do with that money? Honestly, it's.

B (48:34)

We got a comment here.

A (48:35)

What would you do in their situation? Just own Treasuries for the time being.

B (48:40)

Yeah, and those are coming down. Interest rates keep falling. Tyler in the chat says, if you were able, would you special dividend out the cash and securities to shareholders? I think that's a reasonable idea. Maybe 100 billion. Nice little smooth 100 billion out to shareholders.

A (49:00)

There was a time and place when I would have said dividending out the cash doesn't make sense because I'd rather Buffet invest it than myself. But when your investable universe shrinks as much as it has for Berkshire because they have a much smaller pool of companies that they can invest in. When you have $400 billion, you can't go digging in micro caps. I mean, you can, but it's not worth your time.

B (49:32)

100 billion in Amazon or 100 billion in special dividends.

A (49:37)

Well, I'm an Amazon shareholder here, so I might take 100 billion in Amazon.

B (49:42)

They can buy stuff. They own a little Amazon. Why not 100 billion?

A (49:52)

Yeah. I mean, that's fair. They do move the price of things, though.

B (49:59)

All right. Yeah. It would take a long time to get into that position and unfortunately, if they bought up a big position, it would go up a ton. So you're right on that. They couldn't buy a hundred billion worth overnight.

A (50:12)

It does become an issue. Like size has become probably one of their biggest issues. Like they cannot get. They could not put a hundred billion dollars into Amazon, I'm guessing, at the price they would like, even at today's price, because as soon as people figure out what's going on, it's going to get bit up.

B (50:33)

Yeah, that is fair. Yeah. It's a good problem to have and not really something that fascinates me. I, I don't, I don't care for owning Berkshire at this size. If you are right, though, why not just special dividend it out? Got a bunch of value investors out there. Maybe it'll help some of my bag holdings get some cash out there. People can buy some dirt cheap stuff. Yeah, we have a comment here that says they should be like the Norwegian wealth fund and own about 1 to 2% of all companies. World of the biggest companies in the world. That's just like an investment fund or index fund though. And people. That's not what Berkshire wants to be, but I get the sentiment. All right, let's go a lot. Do we want to do another topic?

A (51:23)

Right, yeah. What do we go? How about we Go rapid fire on some of these earnings. We got Adobe we can call Remitly's earnings. Even though it's investor day. You want to kickstart with Remitly?

B (51:37)

Sure. So they had their IR day. Stock's been surging a little bit. I'd maybe call it a light surge. That might be a bit over exaggeration there. I think it's up about 10 to 15% this week. Listeners were asking what we think about it. I, I watched part of the presentation. I will say I like listening sometimes or watching because I want to see. I know this is just vibes, anecdotal stuff, but I want to see what the executive team is made of. Like are they just kind of scared all over the place or are they professionals? Do they know what they're talking about? Are they. Do I think they're the right person for that role? And Oppenheimer who was the founder, he seemed like a founder. He's kind of a bit eccentric, you know, someone that definitely didn't rise through executive branch. He started this business, you know, he said he had all the international travel that inspired his to start this business. But I thought he had a pretty clear vision of what they want to do. Grow the remittance business and expand to new services for international money transfer customers. Basically financial services. And there's still a lot of Runway and they gave a lot of data on that. But when I look at, I haven't gotten the CFO yet but their chief, I think it's either business officer or chief operating officer was highly impressive. I just, he was just sharp talking about all the numbers they care about, all the corridors. They're talking about how they market specifically to customers. For example, like, oh, we're gonna market in Los Angeles to Hispanic customers and we're gonna do all these specific things that you know, either billboards in certain areas, TV shows that you know are very basically anywhere where Hispanic people have a high market share. We are, you know, our large percentage of the demographic of the customers. We're going to be there and we're going to have specific advertising with people that look like our customer base. So I just thought it was very smart. Way blows what anything anyone else is doing out of the water. And besides that, I don't think my thesis has changed at all. It kind of unveiled a lot of things I was speculating about, which that was quite nice. So they give a lot more granular data there as Ryan sharing, which I'm having trouble seeing. But it's the long term guidance what are the numbers that they're showing there, Ryan?

A (54:05)

Yeah, sorry if it's a little fuzzy. The they are expecting, this is their 2028 outlook. 2.6 to $3 billion in revenue, which, that's great growth if, if that's the case. And I, I would guess by the way, that that that single figure 2.6 to 3 billion range is probably what drove the majority of the gains over the last day.

B (54:33)

That's fair, yeah.

A (54:35)

22% to 20% adjusted EBITDA margin. So they're guiding for 575 to $600 million in adjusted EBITDA by 2028. So was this two, three years out? Six if they get to $600 million in adjusted Ebitda. I don't think the current, what is it, $2 billion enterprise value makes a whole lot of sense.

B (55:01)

Let's look market cap. What is the market cap or enterprise value Market. They do have a lot of cash on the balance sheet. They are pretty bad on the sbc, so take that adjusted EBITDA to knock it down a peg. But three billion dollar market gap, two and a half billion ev. Yeah, pretty, pretty dang cheap if you ask me. Pretty dang cheap. All right, we said rapid fire. Ryan, you go, you do one.

A (55:27)

Okay, let's talk Adobe real quick. Earnings were good. So Adobe reported earnings yesterday as of this recording Wednesday. They beat on the top line, beat on the bottom line. The thing that stood out to me and sort of the thing I track probably the most to get a sense.

B (55:46)

Of.

A (55:48)

Well, there's other leading indicators. But to get a sense of are they being disrupted on the digital media side? Because that's kind of where they're being called into question the most is can AI and some of these other tools like figma and canva put a dent in Adobe's digital media business. So I look at a digital media ARR added. So how much ARR did they add to the digital media segment each quarter? This quarter they added $610 million in ARR to the digital media business. That's the best sequential increase they've seen in two years. Roughly here I'll share my screen. Like that is almost. They almost added an entire FIGMA in ARR growth this quarter. Now obviously revenue, a lot of that can come from price increases. It might not be exactly usage per se, which is where I think people are questioning their moat. But they also mentioned, and this is a quote that stood out to me from the conference call, it says we are growing our base of creative users across Fireflix Press, Premier Mobile and other freemium offerings. Maus for these offerings surpassed 70 million in Q4 growing over 35% year over year. They talked a lot about the freemium business which is where I think people, people don't really question that they have a good enterprise business that's the majority of their customers majority revenue. But they think some of the lower end solutions are eating market share like Canva because they cater to kind of that freemium audience. And I think you saw Adobe focus a bit on it this, this quarter. So I like where they're at. They're still buying back a ton of stock, two and a half billion dollars this quarter. They've spent 11.3 billion on buybacks over the last 12 months versus $9.9 billion in free cash flow. So still spending basically all of their cash flow on buybacks although they made the acquisition as well. It seems like the thesis is still intact here. If they continue to grow 10% of the top line quarter after quarter, eventually I think the sort of skeptics will just subside maybe.

B (58:07)

We've almost got a 10% free cash flow yield before. Including stock.

A (58:13)

Including stock now. No, let me double check. I'll get there.

B (58:19)

All right, let's go. You, you look up that number and I will talk Nintendo briefly. People wanted to mention this stock drop the bet as a preview for our predictions for 2025. It looked like I was going to get there to Nintendo getting to $30 for their ADR but we've had a rough couple months. It's back down to $18. Ryan, do you have the number for Adobe? Before we get into it.

A (58:48)

I got a custom metrics this so give me a second formula.

B (58:51)

All right. All right. Well this is going to prove how good fiscal AI is but that lets me go into my Nintendo notes. So the stock is dropping because they're heading into the holiday season and there's rising chip costs for whatever they need. I think it's, it's DRAM nand, some sort of semiconductor that they need for the Nintendo Switch 2 and the costs are soaring for that. People are saying ah, their earnings are going to drop, blah blah, blah blah blah. And that's brought the stock down I think 10, 20% now. The enterprise value today is down to 70 ish billion dollars. And this is a business that can reach, I think on that figure, 10% earnings yield. I think I'm going to be increasing my position here. We're seeing a huge, they're raising their guidance on the number of Switch to units they're going to sell through. They putting out a movie pretty much every year. They have the theme parks that are going to be basically fully open globally here shortly. And when you have that you have the reinvigorated basically family friendly gaming content. Seems like the popularity of Mario, Pokemon, Zelda, everything is not slowing down whatsoever and you're at a 10% earnings yield with that look at Warner's brothers apparently is worth $80 billion plus. What is Nintendo worth? Probably $200 billion. These are significantly more valuable. I'm not selling my position and in fact I probably will buy some more.

A (60:30)

I agree with the thoughts that I captured there. Although I've been a little busy here putting together a formula. So just here's a quick shout out to fiscally I They've got free cash flow, they've got stock based comp, they've got market cap, they've got all the fundamentals you need and then the custom metrics allows you to just build basically any formula using their data. Free cash flow minus stock based compensation yield is 5.4%. So it's no, it's not close to the 10% figure but you've got basically call it 18, 19 times free cash flow including SBC for a business that should be able to grow in the top line around 10% and hopefully 15% at least EPS CAGR given the buyback pace at the moment. Sorry I interrupted you on the thoughts.

B (61:26)

There but I finished. That's it. That's it, yeah. Nintendo's cheap. That's. That's all I gotta say.

A (61:36)

That's been every podcast for the last year. Nintendo's cheap.

B (61:40)

Not the middle of the summer. I don't think it was. It was. It got up to like $100 billion market cap at that point but beginning of this year and now I think it is cheap. There was kind of the surge when the Switch 2 came out that's fallen off the yen. Depreciating is also not helpful but I can't control that. Have you heard this? I'll put this to end here. Maybe for the bubble watch. Are you ready for a SpaceX IPO and the Space and satellite and literal moonshot bubble that is going to happen if this actually comes down the pipe. Did you see the news here or should I read the quote?

A (62:19)

Read it. I did see it, but go ahead and read it.

B (62:22)

All right listeners, you probably saw this is quite viral quote. SpaceX is planning to go public in mid to late 2026 and is looking to raise $30 billion at a valuation of around 1.5 trillion, according to Bloomberg News. That would make it the largest IPO of all time, edging out Saudi Aramco's public listing in 2019, which brought in $29 billion. It would be a reversal for SpaceX was previously considered spinning off its Starlink division for an IPO while keeping the main company private. I think they're only supposed to be doing about 20 billion in revenue this year or less. Maybe 15. This would be quite the expensive sales multiple for a capital intensive business. Let me just put it that way. It could spark.

A (63:12)

I like the Starlink business, but that's an insane number. And it's not like I would guess they are burning a lot of cash.

B (63:24)

Why do you think they want to raise 30 billion?

A (63:28)

Wait, it's 30 billion at a $1.5 trillion? Like they're. They're offering so few shares at that valuation.

B (63:38)

Yeah, I think for a reason. They're already worth, I think, over 500 billion. I. I have a feeling. And Elon Musk is very, very good at timing the capital markets. I have a feeling he sees that the ducks are quacking using algae and he's got, he wants to feed them. They're gonna. The market could eat this up. He could raise $30 billion. It would. Yeah. Maybe he's also highballing it to then come back down to Earth. No pun intended, but yeah, we'll see. That sounds wild.

A (64:19)

Tyler's got a good comment in the chats here before we wrap up. Says Alphabet's going to end up with a $100 billion unrealized capital gain on their SpaceX investment. They own a stake in SpaceX. If you were Alphabet and SpaceX went public and actually got more than a trillion dollar valuation, would you begin selling your Shares?

B (64:41)

Alphabet or SpaceX? Sorry? If you're Alphabet, you would sell your SpaceX shares?

A (64:46)

Yeah, yeah.

B (64:47)

Wild. It's a wild valuation. You have to make some crazy assumption. I mean, people have been hyping up space data centers. This sounds. I feel like an old man. Space data centers? You can barely get a couple satellites into space. What are we, what are we going to build data centers up there? Man, it's an exciting time, isn't it, Ryan?

A (65:12)

Yeah, I think that's going to do it. Unless you've got anything else here, Brett.

B (65:16)

I do not. Fun episode. Thank you everyone for listening. I felt like we had not even that many topics, but we couldn't get all of them. Apologies for not getting to turning Point brands. Apologies for not getting to Ferrari. Apologies for not getting to Lululemon. We'll maybe cover them next time, but as a disclosure, we are not financial advisors. Anything we say on this 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 everyone for tuning in and we'll see you next time.

A (66:04)

And Doug, here we have the Limu.

B (66:06)

Emu in its natural habitat, helping people.

A (66:09)

Customize their car insurance and save hundreds with Liberty Mutual.

B (66:15)

Fascinating. It's accompanied by his natural ally, Doug.

A (66:19)

Limu is that guy with the binoculars watching us.

B (66:22)

Cut the camera. They see us.

A (66:24)

Only pay for what you need@liberty mutual.com Liberty Liberty Liberty Liberty Savings vary Underwritten by Liberty Mutual Insurance Company and affiliates.

B (66:31)

Excludes Massachusetts Starting a business can seem like a daunting task unless you have a partner like Shopify. They have the tools you need to start and grow your business. From designing a website to marketing to selling and beyond, Shopify can help with everything you need. There's a reason millions of companies like Mattel, Heinz and Allbirds continue to trust and use them. With Shopify on your side, turn your big business idea into Sign up for your $1 per month trial@shopify.com specialoffer.