C (3:09)

Yeah, and Google's to cash cow. So for these purposes we can go ahead and talk. This is Google. And yeah, it isn't status quo. I think the lawyers would argue with me on that. And both sides are going to appeal because that's what they do. But as far as we need to look at it, it is the status quo that the important tenants that have made Alphabet the business they are, that they remain. And you know, I think Travis, the lesson for investors here is yes, it's underperformed. I think a lot of that has been just kind of vague fears, but antitrust, we probably were too clever for our own good trying, you know, kind of beating the stock down, worrying about this stuff. So yes, we're getting a bounce back rally here. We're probably overly worried about it before, but the Alphabet, we know this cash cow generated this money making machine. There's still threats out there, but the government isn't going to break it up. We could just keep on keeping on.

B (4:02)

And one of the reasons they're not breaking it up that I thought was really interesting in the opinion was because of artificial intelligence. And companies like OpenAI, they basically said, you know what, A few years ago this was, I believe the term was a no fly zone for investors. And then said, you know what, there's hundreds of billions of dollars flowing into these AI companies that have explicitly said they're going after Google's business. So Lou, is this one of these cases where disruption or the potential for disruption kind of came out of nowhere? This, this suit was filed long before OpenAI was in ChatGPT was launched. OpenAI existed at that time, but ChatGPT was not sort of the name that it is today. And, and now you do have this vector of competition that has allowed Google to keep these points of strength and you know, maybe give it a little bit of a leg up trying to compete with these companies that everybody think is going to, thinks is going to disrupt the core search business.

C (5:01)

Definitely. And it's a fascinating case and I guess to the court's credit they, they did adapt at, at times because I mean the court wasn't stuck in the past here, which they could have been. But yeah, no, look, disruption is real. You know, as an investor, you always have to be watching all things. We were so focused on the court case. I don't think we've ignored AI, but I do think, you know, AI is, is coming, whether or not that's a threat to Google or an opportunity. Both probably. But yeah, it's funny to think about how the world has changed since this suit was first filed. And yeah, I think the court appropriately reflected that change in their decision. They're not anchored in the past, which, you know, they could have been.

B (5:42)

Rachel, one of the companies that we probably aren't talking enough about today is Apple. Apple is the company that is getting that $20 billion or so check from Alphabet, from Google every single year to be the default on the search engine. That's one of the things that was kept in place in this. They can pay for this. And the logic here was pretty interesting. It wasn't that this wasn't going to help Google maintain its previous monopoly status. It was that it was going to harm the ecosystem. So that check that they write gets the most attention. But if you think about companies like Mozilla, I think it's 80% of Mozilla's revenue comes from a similar deal with Google to be paid to be the default search engine. If that money goes away, Mozilla has a really hard time, you know, building their browser. But this is a big benefit for Apple who's going to continue getting this cash cow for essentially doing nothing but saying, hey, default is Google.

C (6:40)

Right?

A (6:40)

Well, and even though Alphabet can't enter into deals that would prevent other search engines or browsers from being pre installed on different devices, as you noted, it can continue to pay these fees to distributors. Apple being a key entity there to be that go to or default search engine. And so there is a real positive impact for Apple, which interestingly hasn't seemed to really respond in terms of a share price perspective the same way that we've seen Alphabet shares rocket today. But that essentially secures what is something like an annual payment of $20 billion from Google for being the default search engine on iPhone. So there are certainly reverberations from this ruling that go far beyond just the Alphabet ecosystem.

B (7:22)

Final question for both of you. And just to put some numbers on Apple, Apple stock's actually down as we're recording. We're about an hour into trading on Wednesday. So that, that's a shocker to me because I think that was really financially the biggest risk if, if they were deemed not able to pay that fee to Apple to be the default search engine, that could have just been money that, that Google kept rather than, than paying to Apple. But the market is not seeing it that way. The stock, Alphabet stock is up about 8% as we're recording. We now know that this is, at least for now, behind us. Lou said that there are going to be appeals. Rachel, I'll start with you. Do you own shares and does this make you more bullish or does it change your thesis with Alphabet at all?

A (8:04)

Yeah, I, interestingly, I own shares of both Alphabet and Apple because speaking to Alphabet specifically, I think my thesis on the company remains unchanged. I had not been perhaps as alarmed by what we had been seeing in this particular element of the antitrust case in recent months as perhaps the market's broader reflection was I had an inkling that this would be something that would perhaps end in Alphabet's favor based on just the trends we're seeing in the AI space. And I think, as Lou mentioned, the judge's ruling was very, very much the context of the changes we are seeing rapidly amidst the AI revolution. So I think, you know, for Alphabet shareholders like myself, I think this really bolsters the underlying thesis that this is a business that has a really key role to play in the AI space moving forward.

C (8:51)

I don't know neither. I, I am the Mag 7 through all my mutual funds, so I just don't bother. But I will say Alphabet still looks intriguing to me. You know, we were caught up in this antitrust thing. We're still caught up in the AI threat. That could be an opportunity. There's always dramas, there's always something to worry about. Alphabet is a really well run, good company. I think. Buy good companies for the long haul, focus on that long haul. I think it works here. I, I think if I was to buy a Mag 7, Alphabet would be on the top of my list.

B (9:22)

Alphabet is another one that I own as well. I just have not understood why this was so overlooked by the market. But maybe that sentiment is going to be changing. Just for a little bit of perspective, they're still growing their revenue double digits. Alph Apple 3 year growth rate, 1.8% on a compound annual basis. And yet Google is, even after today's move, is trading for about 22 times earnings. Apple's trading for 35 times earnings. So maybe we see an inversion of those in the future. But I think Alphabet is probably much better positioned today knowing that they're going to keep Chrome And Android in house. When we come back, we're going to talk about the re split of Kraft Heinz and Lou is going to explain what dis synergies are. You're listening to Motley Fool Money.

D (10:14)

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B (11:19)

Welcome back to Motley Fool Money. Kraft Heinz has planned to split again into companies that they are currently calling Global Taste, Elevation and American Grocery Company Inspiring names coming out of Kraft Heinz. The other thing that they talked about was the dis synergies of this deal. Lou, this has been I think probably a failure up and down. It's hard to look at this merger, what was it a decade ago and see really any positives. But first of all, what are these dissynergies and what are you taking of this re split of the companies?

C (11:56)

Yeah, those terrible names are probably the icing on the cake, right? They're the perfect final chapter of this Dis synergies seems like the perfect term because there is no way this drives efficiency getting smaller, doubling up back office. Everything we talk about when we talk about the advantage of M and A they are getting rid of. They're using terms like simplicity but for logistics for negotiating just share of in grocery stores scale matters. Bottom line here Travis, like you said, this has been a disaster. This has been a failure of management. The deal made sense. The kind of compelling if you get it right made sense but the execution was wrong. So now it's back to the drawing board. They've already divested some assets Honest to God. I wonder if that isn't just a better, you know, better way to go here, see what they can sell off to others. Because scale does make sense, but it has to be scale in the hands of a management team that knows what to with it.

B (12:54)

This seemed to be, at least when the deal was initially announced, a management team that should have known what they were doing. 3G ran the deal. Buffett was involved. Rachel, how, how does this go so wrong for investors? Because this seemed like one of those kind of slam dunk businesses. Craft and Hines aren't going anywhere. Turns out they, they kind of are.

A (13:17)

Yeah, I mean, look, I mean, the namesake brands aren't going anywhere even if they're under, you know, different entities moving forward. But it's very say that this merger, which, you know, was engineered by Buffett along with 3G Capital back in 2015, it has not performed as expected. And there's been a lot of challenges for the Kraft Heinz business in particular. I mean, that's very much been reflected in the share price of the company. In recent years. There's been a sort of shifting consumer preference towards healthier options and away from a lot of sort of the process products that Kraft Heinz sells. They have as a business had to enact significant asset write downs. All of this has created a picture of difficulty for the business. And it's also been sort of a difficult dynamic for Berkshire Hathaway. This is a company that is the largest shareholder of Kraft Heinz. They hold a 27.5% stake in the business. You know, Buffett has been sort of doing the interview rounds the last few days. He said, you know, he believes this is, quote, a repudiation of the original vision of the 2015 merger. So there's a lot that's gone wrong with the business the last few years. It's really unclear, though, whether trying to, you know, turn the ship around, so to speak, from that decision made a decade ago is actually going to solve the problems that Kraft Heinz is facing.

B (14:32)

Lou, I'm going to put you on the spot. We have two companies. I want to know which one you like better. Global Taste Elevation, $15.4 billion in 2024 sales, $4 billion in adjusted EBITDA. They will have Heinz Philadelphia Cream Cheese, Kraft Mac and Cheese, or you get North American grocery. $10.4 billion in sales, 2.3 billion in adjusted. Get Craft Singles and lunchables. Which one are you taking?

C (15:01)

Probably want to take the first one, but gosh, you can't get enough Craft singles. Right. The world revolves on craft singles.

B (15:08)

Which one do you want, Rachel?

A (15:10)

I gotta say, global taste elevation just sounds more exciting as a business.

B (15:13)

It just rolls off the tongue. It really does.

A (15:15)

It's just so easy to say say it 10 times fast.

B (15:19)

When we come back, we are going to talk about the hot IPO market. You're listening to Motley Fool Money.

E (15:26)

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B (15:54)

Welcome back to Motley fool money. The IPO market has suddenly opened up again with some huge IPOs from Circle, Figma and Chime already this year. And we learned that Klarna Figure Technology Solutions and Gemini Space Solutions are pricing their offerings. Stripe and Databricks seem to be kind of waiting in the wings. Is this a healthy IPO market? Are we entering some sort of 2021 style frenzy? Given some of these stocks, I think Circle was up almost 10x from its IPO price. So what do you think is going on here, Rachel?

A (16:28)

Yeah, I mean I think first it is worth noting in July of this year we saw the most IPOs since November of 2021 and we have seen a lot of recent IPOs really focus on areas around AI crypto. There have been a lot of strong first day or first weeks gains. There's been a lot of focus as well in the IPO space this year on Fintech and other service oriented business. I don't think it's a one to one with what we saw in 2021. I mean we obviously haven't reached those levels yet in terms of companies entering the public markets. But it's also a very different environment for the market for investors. A lot of these companies that are going public are, you know, tech blockchain crypto companies. With the passage of the Genius act, there's been a heightened appetite for those types of businesses and I think that that is very much being reflected in the types of of companies that are now entertaining public offerings. You know, Klarna, we've been waiting for a long time for them to actually formally announce their IPO after they had halted those plans earlier in the year. They're targeting evaluation of up to $14 billion in their US IPO figure is another blockchain lender. That said they're going to go public. They're looking at a valuation about 4 billion. And then notably you have Gemini, that's the crypto exchange that was co founded by the Winklevoss twins and they're looking for a valuation around 2.2 billion. So I think a lot of this is hype around AI and Crypt. Not all of it certainly, but as always, it's so important to take each company on its merits. The opportunities are there, but there's a lot of hype and excitement right now and sometimes differentiating that from a viable business I think can be really tough in this market.

B (18:04)

Lou, IPOs are good. We need to have exits for some of these companies that have been staying private for longer than we have seen historically. Amazon Nvidia came public in the 1990s when they were really small businesses. We don't really see that today, even if even a company like Figure Circle very well established. If Stripe does come public, that's been sort of rumored for what seems like a decade at this point. But how are you thinking about the IPO market that we have today in potentially considering these investments?

C (18:35)

Yeah, so first, some context. Yes, we're. We've had a couple hundred IPOs already this year. That's up from 154 and 23. So we are up, but there are over a thousand in 2021. So we are not anywhere near that level. Travis, I think a lot of the frenzy, and I do think there is some frenzy, but like you say, these are names that we, they're quite mature. We know the names. There is just this demand because there's built in familiarity. We want these companies. But look, the best advice is that, you know, two things can be true at the same time. These can be great companies and there can be a frenzy that makes the IPO dangerous. I think both of those things are tr. If you look at Figma, Figma has lost half of its value since August 1st. I welcome these companies to the public. This is much different than the SPAC boom when it was all pre revenue. I think this is healthy, but if I'm an investor, I'm not diving in on day one. I'm going to let these things play out. I don't know if all of them will do what Figma did, but I think patience is the best bet. Now if these companies are as good as we think they are, you can get in after a couple months and still do fine over Time. Time.

B (19:45)

Yeah. One example with that is Core Weave, their lockup period. And this is something we need to consider as well. There's typically some sort of lockup period for insiders who are not selling during the IPO. Their lockup period just ended. I believe insiders sold 7 million shares of Core Weave. So, Lou, that may just be another reason to kind of wait it out. It's okay to be six months late, not get in on day one. And even some of the best companies in the world, Facebook, traded below its IPO price. That was in, I think, the first few weeks. But eventually, the hype cycle typically kind of wears off. Whether it's, you know, 2022 or 2023 that you jump into those 2021 IPOs, or whether it's just a few months later.

C (20:28)

Yeah, exactly. I mean, look, everybody loves the excitement on day one. You love the pop. You love all that. But real wealth is created over the next 5, 10 years by investing in good companies. You don't have to be in day one.

B (20:40)

Even getting in late on a IPO like Google, a few years late would have been very good for investors. So something to keep in mind that with that long term, as always, people on the program may have interest 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 personnel finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes for Lou Whiteman, Rachel Warren, Dan Boyd, behind the glass, and the entire Motley fool team. I'm Travis Hoyam. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.