B (3:10)

Moving on. Shares of Booking holdings are down about 7%, 0.5% as we tape. It beat earnings, it raised its dividend and IT guided for 15% revenue growth for the upcoming quarter. Surely the market isn't responding negatively to the announcement that it plans to split its stock. Right, like what am I missing here?

C (3:31)

That would be a head scratcher on all counts, Tyler, if the stock was selling off because it split its stock. Normally that gets investors excited. These days it's a head scratcher for me. Well, it's a head scratcher that they're splitting their stock because CEO has gone on record before saying that it's not really something he was interested in doing. But announcing a 25 for 1 stock split, the sell off for the stock is a head scratcher for me. Based on the financials, you look at Booking and its growth, really incredibly strong for a business of this size. I thought that guidance was even better than the results that it posted it. And it's growing where it wants to grow. So you look at how the revenue shakes out across the various segments. Agency revenue was down about 7% for the year. So this is basically where it, it kind of kicks out the, the users to its partners and so that they can book their travel over there. Merchant revenue for the year was up 25%. That's what booking really does want. It wants to keep more of that, more of its users right there on its platform. It wants to handle more of the transaction. And so this is exactly the kind of quarter that Booking wants to see. It was good growth. It's a head scratcher that the market didn't like it.

B (4:45)

And then lastly we got Etsy and ebay and I'm bundling these together because in addition to both of the companies reporting earnings earlier, either today or at the end of the close yesterday ebay announced that it was acquiring Etsy's depop business. Now I don't know if the market liked the deal or if the earnings numbers were so good that the Depop handover didn't really matter that much. But both stocks are up considerably as we're taping. So which one do you think it was that is leading to the market rally?

C (5:12)

That's a really good question, Tyler. As I have read the headlines, it seems like everyone is calling this a win win. It's a win for eBay because eBay's thriving and it's going to acquire this higher growth platform in depopulation, whereas Etsy is kind of struggling, but it gets to shed a distraction and get some cash. So it's a win win. Right. But I think that Etsy is the much bigger winner here, and I'll explain why. So eBay is acquiring Depop for a little bit more than it's trailing gross merchandise sales. So this isn't Depop's revenue, rather this is sales on its platform. Depop takes a cut of that. But Depop, around, you know, a billion in gross merchandise sales. EBay's acquiring it for a little more than that. For perspective, both ebay and Etsy trade for less than half of their own merchandise sales. So basically, it's the deal values depop at double the price of ebay and Etsy. If we're valuing it from that perspective right now, to be fair, depop is growing really fast. The adoption numbers are good here. But if you look at ebay, its stock has gone up in recent years in a big part because of all the capital it's returning to shareholders. In fact, it returned more than a billion over what its profit was last year. That's actually unsustainable. It had 2 billion in profits that returned 3 billion to shareholders. Now you add on a $1.2 billion acquisition. I think ebay's gonna have less money to give back to shareholders here for the. For the near future. Etsy, on the other hand, gets this huge cash infusion. So I say it's the bigger winner.

A (6:55)

I agree with most of what John said, but I'm a little more toward the win win idea in most cases. And you guys know this just from following the stock market. 90% of the time, the company doing the acquiring falls their stock price, and the company selling an asset or selling themselves gains. But the market reacting positively for both of these companies tells me that this is a good deal for both. In short, investors are happy that eBay is getting Depop, and they're happy that Etsy is getting rid of it. Ebay has the financial and business strength to, let's say nurture a platform that's growing at 60% year over year like Depop is, but is not yet profitable. Etsy really doesn't. So I do think it is a win win in a lot of ways for both of these platforms.

B (7:39)

Let's see, we got consumer durable spending with Walmart, travel spending, so much more discretionary with booking and we'll call it eclectic spending. Or if you can think of a better way to classify Etsy and ebay spending, go for it. If you guys want to read the tea leaves. Of all the things that we saw in the earnings releases, guidance, things like that, were there any takeaways from these results that said anything to you in terms of the pulse of the consumer or what we can expect in the coming weeks or year when it comes to consumer spending?

C (8:13)

Well, not necessarily on the consumer spending front, but how about on the business priority front? So okay, if you rewind the clock five years, ad tech stocks were something that I was extremely bullish on. I saw the whole thesis being that advertising was transitioning from linear advertising to programmatic. That seemed to favor these pure play ad tech companies and really they've struggled most of them and but you look at digital advertising as a whole and it's absolutely red hot. You just have to know where to look for it. And so look at Walmart's advertising business grew 46% in its fiscal 2026. Now some of that was because it acquired Vizio, but still it's growing fast on in its own right. Ebay ad revenue is now 18% of its total revenue. Booking saw 11% advertising revenue growth in 2025. So these are digital platforms with, with large user bases, they have scale and they are enjoying this advertising revenue boom. Amazon, you could throw this in here as well. I think this trend is something that is going to continue. Businesses have these bases of users that it can sell this advertising slot to.

A (9:28)

I think one key takeaway from all three of these is that consumers are a little under pressure. I already mentioned with Walmart that Walmart's gaining market share not just in the higher income brackets but throughout the spectrum. And that's a little bit concerning that consumers are having to cut back. I know I didn't weigh in with booking, but even with strong guidance they're predicting travel demand to fall a little bit year over year. Which I think that just shows that whether or not it was great guidance for booking, it shows that people are a little squeezed and being a little more discretionary about that kind of spending. And then with Etsy and ebay, the fact that the used closing retail platform is such a desirable asset, it's growing so fast, it shows that consumers are looking for ways to, to maybe save a little money. And I mean both of these, ebay especially is where people go to save some money compared to buying it full retail. So I think that's a big takeaway is that consumers are feeling under pressure right now.

B (10:24)

I think the consumer under pressure is some foreshadowing when we get into the Klarna discussion later. But after the break, we're going to do a deeper dive into Lemonade.

D (10:33)

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B (11:03)

perhaps the most polarizing insurance company to ever be traded on the public market. It reported earnings before the opening bell. And look, I'm not going to hide anything here. I kind of struggle with this company, specifically struggle with the optimistic view of it. I'm probably going a little mask off here and admit that I'm not very bullish on this company to start. So I want maybe one or both of you guys charm into as you see it, walk me through the quarter and convince me why the story is working.

A (11:35)

All right. And I get it, Tyler. And to be fair, I'm going to use words like stock based compensation and adjusted metrics that are probably going to trigger you a little bit. But I'm a shareholder and I struggle with Lemonade's business model from time to time and its long term viability. It does things differently than other insurance companies targeting a specific loss ratio instead of worrying about investment income and things like that. But the numbers are rapidly moving in the right direction. Growth is accelerating in force. Premiums grew by 31% year over year. That's something that legacy insurers would love to have. The company's just shy of 3 million customers and I remember it crossed the 1 million threshold just a few years ago. This was the ninth consecutive quarter of an accelerating growth rate and the ninth consecutive quarter of improving loss ratios. All the major business areas, specifically Lemonade Car, that's the one I was looking at, posted loss ratios well below the company's 75% target. Here's where it gets a little more fun. Lemonade is now profitable on an adjusted free cash flow basis. It's moving towards profitability and some metrics Tyler actually has some faith in it is rolling out some innovative products. I love the idea of 50% lower insurance rates when your car's in full self driving mode. That's just one example. I'd love to see them get their stock based comp under control. 75 million expected in 2026 is high. That's up from 60 million a year ago. There's at least a little bit more justification for it now than when the company was really losing money hand over fist, but it's still a problem.

B (13:12)

Again, I'm not the most optimistic on this company and there's some incongruencies I see with some of the things you're talking about. Top line growth, great in force premium growth, great. Declining loss ratios, meanings that it's doing a better job of underwriting premiums, great. But all of that said, continue. Overhead costs continue to climb. I know it says operating expenses are flat, but that excludes customer acquisition costs. It seems like all this fabulous growth that they're talking about comes, doesn't come from, you know, organic growth or anything like that. It comes because they're spending a boatload of money to acquire their customers. So much of all that is still leading to gap losses and needs to continually sell stock to offset retained losses. Insurance, no matter if it's AI powered or you know, some new digital native platform that, you know, takes out all of the legacy stuff, it's still a balance sheet game. And today it has less equity in the business than it did when it IPO'd. I've yet to see a quarterly earnings report where it showed a sign to GAAP profitability. You know, taking out all those expenses that are adjusted. And how does that correct itself? What am I missing? Why am I wrong here?

A (14:37)

Well, there you go. Using terms like GAAP profitability, Lemonade doesn't like to mention that too much in its earnings report. So you're right, it hasn't really talked about gap profitability yet. Where I would push back a little bit is what you said about acquisition costs. So right now Lemonade has clearly shifted its focus to Lemonade Car, the auto insurance, which is a much higher priced form of insurance than what it's traditionally pushed, which is renters insurance. So higher acquisition costs are natural. The average auto insurance policy is roughly 10 times what the average renter's insurance policy is. And if you're going to acquire a customer, that's 10 times more valuable to you. It makes sense that you would spend a little bit of money. But yes, if you wanted to have a consistently profitable insurance company, Lemonade could get there in two to three years. It could happen. But for the time being, you know, a company like Progressive might be a better fit if that's what you're looking for.

C (15:29)

So when it comes to the debate of the financials of an insurance company, I will trust Matt and Tyler to provide much more important commentary than I. But let me put this out there from a just a layperson's perspective. I think that if you're listening to this and you say, I'm not sure about Lemonade's financials, one thing that I would look at is its Net Promoter score. And I don't know how recent this is, but at one point it was 70. And if you know how the Net Promoter score works, that is incredibly high. The insurance industry as a whole kind of averages in the negative when it comes to Net Promoter Score. And so I, I don't think that this is a company. Maybe you look at it today and you're like, the numbers don't attract me so much. GAAP profits do make a difference to me. I am more interested in Progressive. But I don't think this is a company that you should take off of your watch list entirely because it does seem like its customers really do love it. It has 3 million now almost, and it's growing fast. I think that at the very least, you keep it on the watch list and keep an eye on Lemonade because, yeah, it seems to be doing something that its customers actually love.

B (16:35)

I just may be the grumpy guy in the corner who just complains about Lemonade for the rest of time, but I do appreciate Matt going a little Ronald Reagan on me and being like, there you go with that gap. Profitability again. Speaking of profitability and somewhat lack of it. After the break, we're going to talk about Klarna's earnings.

D (16:53)

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B (17:22)

with so many earnings stories coming out this week, and actually all of these things happen today, we're going to actually forego our normal stocks on our radar. So we can kind of keep going with a lot of the market news today. And we're left with Klarna as the last one because the market did not like what it saw this quarter. Shares are down 26% as we tape. Top line numbers look good, but one thing that can't make 38% revenue growth look good is when transaction costs rise by 53%. And for the full year it ended up posting a 79 cent per share loss after a, you know, profit in 2024. The thing that popped out to me was the rising reserves for credit losses. I'm going to see if there was anything else from you guys in a second here. But just to keep that in perspective, this is not credit losses on its revenue, this is on its gross merchandise volumes, which is considerably higher than total revenue. So it can actually take out a pretty big bite. Aside from that, was there anything else that popped out to you guys that might be contributing to the sell off?

A (18:30)

Yeah, I mean the short version is that the market hates higher risk and there's higher perceived risk with Klarna than there was before. But there were a few concerning items, just to name a couple. Average revenue per customer was flat year over year 30. Despite the company really leaning into deepening relationships and getting repeat customers and engaging its customers more, you would expect that number to be going up. The rising reserves for credit losses are a concern. They come with the shifting loan mix. I'm a Klarna shareholder and the reason I own shares is for Buy Now, Pay Later. I love the business dynamics of that part of the business. But they're shifting more toward a banking product focus. Their long term financing product is called Fair Financing, their debit card product versus traditional Buy Now, Pay Later. So in a way it's a good problem to have. Fair Financing is growing fast, but it does add an element of risk. Their CEO said in their earnings release that banking products, including that Fair Financing and the Karna card will be the key drivers of growth going forward, which might be concerning investors. Buy Now, Pay later has generally better economics. It has much lower loss requirements. So really short term loans and things like that and greater predictability. The Klarna's Fair financing, their gross merchandise volume increased by 165% year over year. In the quarter quarter, their number of banking customers has more than doubled. And it could be that the banking side of the business is simply growing too fast for comfort.

C (19:52)

You know, when it comes to Buy Now Pay Later, I'm not a user myself and it's tempting to just kind of wave my hands at a company like Klarna. But the more I think about it, the more I do think that the world is headed in this direction. I think it is headed in the direction of Klarna's services that it offers. You look at three year revenue is has doubled for Klarna and its operating expenses have dropped by 8% during that time. That is so hard for me to dismiss blindly and just say I don't like this business that is so huge. I can't dismiss a business that has doubled over the last three years even though I do struggle with the financials a little bit. But it reminds me a little bit of the delivery platforms. Just a few years ago there was a time that I just didn't see a path to free cash flow positivity for platforms like Doordash or Lyft. And and yet they were the ones that were building big platforms. The adoption trends were in its favor and then it eventually they eventually did turn the corner with the cash flow and everything else. They flipped a switch one day. If you're a buy now pay later investor, perhaps a Klarna investor, you're feeling the pain a little bit today. But I think that if you're invested in this space you have to be quite encouraged with long term investment trends. The adoption trends, they do appear to be in your favor.

B (21:13)

Yeah, the idea of flooding the zone with a slightly less profitable product so everybody adopts it and then kind of turn on the profitability through changes in fee structures. It is a compelling idea and certainly you look at companies like Doordash, like Uber and things like that and it has worked out so far. So certainly an interesting way to think about this buy now pay later space as we go on. And hopefully they just don't become banks eventually over time. That is all the time we have for today. Matt John, thanks for sharing your thoughts as always. People on the program may have interests in the stocks they talk about and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show Notes. Thanks to producer Dan Boyd and the rest of the Motley fool team For Matt, John and myself, thanks for listening and we'll chat again.