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Hello and welcome to the Synopsis, a business and investing podcast for professional and maybe not professional investors. My name is Drew Cohen and this is a new sort of format of our podcast. We're calling it Monologue because as you guessed it, it is just going to be me here. And the idea is that as we have kind of a lot of these business updates coming out from Speedwell Research, we wanted to be a little bit more timely on it. But also, you know, we didn't necessarily need Alex here to just sit in the corner while I just went ahead and kind of read through the updates for these businesses. So we're saving him from having to sit through these updates, but we still wanted to do them, give a little bit of insight on the quarter and all that. Of course, Speedwell members will have already received these business updates and recaps emailed to them. They're more thorough, they're written out ahead of time, and the podcast kind of comes out as we are able to do it. So that is what this new format is going to be. We're going to mostly be doing business updates, but who knows what we cover in the monologue format in the future. Now on today's agenda, we have three different businesses to go through. We have LVMH at Folio and Meta. But first, I want to talk about Constellation Software. No new news has actually come out about Constellation Software, except I guess that Anthropic rolled out a legal software AI or something that was pretty impressive and all of software stocks decided to sell off on that. And whether or not the rest of software should or shouldn't sell off on that I have no opinion of. But I do have an opinion on Constellation Software and we've talked a lot about that business, the moats of the business. And none of it stems from the fact that the software they make is hard to make. In fact, it is rudimentary software that is kind of trivial very often for a software engineer to make. And it usually was already made by a team of one, maybe two software engineers in total. So the existence of more software is not something that'll necessarily mean that their customers, of course, switch out. Now, now, I'm not going to go into the full sort of diatribe as to why Constellation Software has the moats they have. Of course, we have our long form. I believe it's a two hour podcast on Constellation Software. I also just released a YouTube video that kind of summarizes a lot of that argument in case that's more current. If you want to Listen to that. We'll link to it in the show notes. But right now, as we speak, Constellation, you know, the US ticker CNSFW is trading at around 17 times free cash flow. And so it's interesting because it's not quite, but almost back to the spot where it was at when we originally wrote about it three years ago. And free cash flow has actually grown over 150% since then. And so I say a lot more on the company. And that YouTube video, it's gone a little bit viral. So that's kind of cool to see. And thank you everyone for your support because there's a lot of people that found the YouTube video that then joined us in the podcast. And so everyone welcome. Just so you know, this podcast originally started as kind of an offshoot of Speedwell Research, which is my research company. And so that's why we are covering, covering a lot of speedwall research company names. And so I wrote the Constellation Software report, that was an in depth report I wrote several years ago. We've been covering it ever since. And the other companies you're going to listen to on this podcast I've also written research reports on A lot of times though the companies I talk about on the YouTube video I haven't written research reports on. These are companies I've spent maybe a
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weekend just researching and then I go ahead and push out the video and really exciting to actually announce that for the first time. One of these businesses I was looking at for the YouTube videos and the 5 Minute Money newsletter is actually gonna become a Speedwell research business that we're researching. And so this is kind of how I was always hoping the idea would
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work, where I'm able to look at
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a lot more names. Maybe I don't like something or I just don't feel like I'm gonna be able to get comfortable with it or it's just not interesting enough. And so I'll make a YouTube video on it, I'll write the 5 Minute Money newsletter on it, but then I'll move on. However, you know, after I've moved on and looked at enough stocks, maybe one will seem interesting. And so Adobe is going to be the company that we will be writing about next on Speedwall Research. But we'll be dropping a video on that first so you can listen to it there to get kind of rudimentary thoughts on it. Then thereafter, Speedwell members will get to see the full sort of report coming out. I don't know, maybe it'll take a month and a half. Or so, because we got to do a lot of, a lot of research on that name to fully understand everything going on there.
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Because it's not just an AI sort of name. That's actually not even the biggest sort of aspect of the business model. It's just there is a good amount of competition and also a business model transition undergoing. So want to understand the history and how they've navigated that in the past. So going to be doing deep research on Adobe. That's going to be the next Speedwell research name. But you will first be able to see Adobe on the YouTube video this weekend if you're subscribed to the YouTube channel. And just because we love our Speedwell members, we will be giving our Speedwell members an advanced copy of the newsletter on Adobe before it's released more broadly. So that is the state of the union. Now, the first company we're looking at today is going to be LVMH. This is a company that is sold off about 20% since its recent highs at the beginning of the year of $150 a share, now down to $124 a share. I'm talking about the USADR LVMUY. And the business is not going through, you know, a great period. Luxury is somewhat cyclical. It's not cyclical, you know, the same way, you know, a car manufacturer is. But there is an aspect of when things are great in the world and people feel like spending a lot of money, they tend to do really well. They famously or maybe infamously had a huge growth boom in the COVID all the consumer sort of spending and all that, and that carried through for the next couple years and it looked really good on their results. They were very kind of supply constrained. They raised a lot of pricing and maybe a little bit too much. And so it kind of took a little while for that to absorb. And so for this full year, 2025 revenues contracted about 5%, you know, because of the currency headwinds, only negative 1%. So there is about a 4% negative headwind from currencies that they're currently facing. And this is, you know, kind of a big change from the beginning of the year where the currency was a positive tailwind of 3% and it ended the year at a negative 6%. And so if this currency tailwind kind of persists, it suggests that sales could have another sort of lackluster headwind that's on the reported growth, not on the organic though. Just for more context though, you know, if you're Looking at overall reported revenue growth, in 2022 they did 23%. In 2023 they did about 9%. Then last year, 2024, they were down minus 2%. This year they're down minus 5%. So there was this kind of period of cooling off after they've taken, you know, a lot of pricing and all that. But if you're looking at it on, you know, a sort of five year CAGR or something, it's still a really strong revenue growth number. You're looking at about a 13% revenue CAGR. And so that's still, you know, pretty positive despite the fact that they've had these two negative years. And so kind of breaking it down by the segments. The most important segment, of course is going to be their fashion and leather goods segment. This is the majority of the business. You're looking at somewhere around, you know, 38 billion euros in revenues. That is down about 3% in this back half of 2025, which is a big improvement from the first half of the year of being down negative 7%. So you are seeing that lift a little bit. Europe and Japan experienced softness at the end of 4Q25. So they were negative 2% and negative 5%. And Asia recovered in the second half of the year. But then growth slipped a little bit too. So this is, you know, the profit center of the business. They're continuing to invest in Louis Vuitton despite the fact that everyone maybe is fear that it's an overstretched brand. They're going through a little bit volatility, but it doesn't mean too much for their, their long term sort of viability of that business. Dior also kind of had some issues over the past couple years. They're still sorting that out. Investing the brand. Nothing that is terminal to anything here.
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Within wine and spirits, their other sort of segment that has been about down
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5% for a year. There are some kind of headwinds in
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this business specifically because they have all
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of the kind of biggest champagne brands.
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And on the call they noted nothing is really growing except ready to Dr. Beverages for €350 a pop. And so there's that segment and then there's, you know, the other ones. Perfumes and cosmetics, watches and jewelry, select retailing. I don't feel a need to go through everything line by line item. But you know, there's some signs that Tiffany's is going pretty well. That's within the watches and jewelry. They're leaning a little bit more into gold. They're still refurbishing a lot of those stores. And then the other thing on the retailing side is they're finally announced the sale. This was a couple days before earnings of DFS China operations. That's for an estimated $400 million. So they still own some of DFS. This is the D free shopping stores has been a lot of headwinds post Covid because a lot of it came from Chinese travelers that aren't traveling quite as much anymore.
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And so this has been a pretty bad business. And so there's been talks of them eventually getting out of that. And so now they finally did. Overall profits were down 9% for the year and about half of that was due to a 4x headwind. And so in total they still generated about 17 and 3 quarters billion dollars in operating profit for a 22% margin. That's down from, you know, a little over 23% last year and you know, even much higher a couple years before. Their peak margins were 27%. And so looking at valuations a little hard because you're going to want to normalize earnings right now they are going through a little bit of a trough. If you're taking, you know, the current earnings, it's a 27 times multiple. If you go back to a backdrop like last year, it's a 23 times multiple. And so you know, that's also though a little bit depressed from the prior year. And so that's going to be something investors have to think about. To be honest, I don't think there really is a great way to say this is what normalized earnings are because there's always going to be a different sort of economic backdrop. But you know, it's somewhere in kind of the low 20s multiple is what you should think about it. And then you're getting, you know, mid to high single digit revenue growth and maybe a little bit more there on the margin expansion side. Plus you know, the fact that these do tend to be pretty durable businesses. Definitely not an AI risk in Louis Vuitton and Tiffany's. So that's probably a nice aspect of the business that investors may be able to appreciate. And so actually, you know, I'm looking at the stock price now. Those multiples I just quoted, they were about 10% higher than where they're currently trading. So you, you could go ahead and make that adjustment. So that's kind of LVMH in a nutshell. Nothing earth shattering going on there. Let us move into Appfolio and then we'll do meta last because appfolio should Be a quick one as well. This is another quarter of revenues re accelerating. They're now at 22% revenue growth. This is the third consecutive quarter of acceleration after a soft first quarter on full year revenue growth though it's still lower than last year in total at 20% versus 28% for 2024. So that's because they've only started to accelerate revenues in kind of the back half of the year. I won't go into too much details on appfolio. The big picture of this business, for those that don't totally remember this, is software that is sold to property managers, focusing mostly on the lower end of the market, the S and P market, and has been moving up. It helps these property managers do all sorts of stuff involving in management of their business including, you know, everything from rent collection to maintenance request to accounting, all sorts of different issues that could go on in a business. And so they were known for kind of being the cleanest, the best ui. They also have a really good sort of engineering, you could say department or also culture. And so they've been really good and quick at rolling out features. They don't have tech debt like their competitors do, like Yardian. So as AI features have come out, they've been very good at incorporating them into the business. Now more lately they've been moving up market with what they're calling their max product. And so right now, in total they have 9.4 million units under management. An interesting quirk in their business model. They charge on a per unit basis rather than a per seat or per business basis. And so that means a bigger property manager, they have more units, they're going to be paying more. But it also means that it encourages everyone within the business to use the software because there's no incremental price to having more users within the business use the software because it's charged on the per unit basis. So you might as well have everyone use it. That's what's kind of created a platform with that folio and it's kind of become the center of some of these property managers businesses. They also have a lot of integrations with external apps. The ability to integrate if there is something they're not building out currently. And so all of that has kind of made them a, a centerboard for a lot of these businesses and so on. AI they mentioned that 98% of customers are using one or more AI capabilities on the platform and 45% said they plan to consolidate software solutions. And so that is an appfolio value prop you don't have to use multiple different software solutions. You could just use AppFolio for all this. There's integrations if there is an app that doesn't fully take it on. But they've been rolling out more and more features and you know, they're very, very AI forward. You know, they have the initiative with Realm X Agentic AI capabilities and that's already been rolled out and used by a lot of property managers. And so they're pretty embedded in the workflows. They're doing all sorts of important things for them. That's kind of it in a nutshell. I'll say like one word on valuation is that right now they're trading at around seven times trailing revenues. And so if you're assuming a 30% mature margin, it's a little bit lower than other SaaS because they do have some payments revenue, which has then a higher cost associated with that. So that would put them at about 29 times steady state earnings or 25 forward earnings. And so you could think about them trading at 25 times forward mature steady state earnings. And so that's them in a nutshell. Speedwell Research members got a little bit more of an update there. You can find it online as well as an update to the reverse DCF. Moving on to Meta, which reported 4Q25 earnings. The stock popped over 7% after hours. That is old news. Now the stock is back down a little bit. It's at about 690 a share. So it's down 6% right after earnings. And so. So generally speaking, it's another kind of continuation of the same story of the business being stellar. Revenues grew 24%. That is a slight deceleration from last quarter, but it's still very impressive. Daily active people are still growing. More people are still using their family of apps. 7% now growth. So up to 3.6 billion. Ad impressions grew 18%. So that's up 800bps from last quarter. So they're increasing the ad load, but then that's also more people using the app and it's also time spent increasing. That all is kind a part of that. Ad pricing increased less, which is actually kind of a positive because it's suggesting that the ad targeting is improving. And so if you're looking at that 24% revenue growth, a good portion of it is coming from the ad impressions, not the ad pricing, which means that the ad targeting is actually working. And as it works more and more, it basically decreases the pricing of an ad because Meta has to show Fewer ads to people in order to get that conversion that they want. That means that the advertiser is paying less. So that's improving the return on ads. But that also means that ad slots can now be saved to shown to other consumers for other ads. And so that's kind of the same thing that's been going on since, you know, basically post att. But this is, you know, kind of new, is just how much cost and expenses are exploding. You heard all these stories about these really expensive AI researchers they've been hiring, but they never flowed through the P and L really. And so they're just starting to. Total costs and expenses are up 40%. And operating income, despite the fact revenues were up 24%, were only up 6%. So now you are losing a lot of the operating leverage we were enjoying earlier on as they're spending more and more on AI to get to super intelligence. Expenses for next year. This is pretty crazy. Are up 41% at the midpoint to 162 to $169 billion. Now, part of this, as readers and listeners to us will remember, is because of the increase in depreciation. What's been happening is as they spend more and more on CapEx, and that number increases very quickly, only a small portion of each year's capex, you know, call it about 20 to 25% of it, gets flowed through to the DNA and then it starts stacking on top of each other. So right now in the year 2026, you're only getting a small portion, maybe 20%, 25% of all that CapEx they spent in 2025. And so if they spent that same amount of CapEx every year, depreciation would just continue to go up. Because that's the idea of depreciation. You are allocating cost over a longer period of time. And within the current depreciation is kind of the older capex paradigm they had that was much lower. And if this is confusing, the simple numbers that show is their DNA to capex ratio. Right now it's at about 3.9 times, which means for every dollar in depreciation and amortization on the P&L, capex is 3.9 times that. That. So if they keep going at the same capex rate, DNA is going to increase 3.9 times. That's basically what that means. Now there's a question. How much of this is maintenance capex? How much is growth capex? This, you'll hear me say this almost every quarter. This is a key question though, because Is this capex they need to spend every year in order to sustain this growth or can they turn it off? If they can turn it off, then they have a free cash flow machine. If they can't turn it off and if they're spending this every year, then a lot of their growth that they have is not quite as profitable as it looks now. I don't believe that's the case. That's at the extreme. I'm sure that the business maintenance capex did increase over the last few years with all of this AI needed to kind of target advertisers and increase the returns and all that on the ad spend. I'm sure the intensity of the compute involved in all that and the data centers needed, I'm sure all that did increase, increase, just not to the extent we're seeing on the capex. So a few quarters ago I tried to put math around on all of that. My rough estimate was that you shouldn't take all the CapEx, but it's roughly a five dollar headwind to EPS. But of course, you know, EPS can continue to grow as revenues grow. And so that's kind of part of that conversation now. It also needs to be tied to what is free cash flow conversion doing because right now as they continue to spend more and more on capex, free cash flow conversion gets worse and worse and worse. And so free cash flow conversion you go way back to, you know, let's have fun with this. 2015 it was 132%, you know, before that it was even higher than 100% in 2017, 86% and then it starts to drop a bit. Last time people really were freaking out about Meta was at the time in 2022 if you remember. And people maybe are forgetting this. Revenues were contracting, earnings were not looking good. They're spending a lot of money on the reality labs. And free cash flow conversion that year was 27% in 2022. And so in 2025 this year it's 38% and it looks like it's going to continue to go down. So a lot of the earnings that you're seeing on the income statement are not actually being converted to free cash flow because of how much more capex is increasing than depreciation and amortization because the depreciation amortization is understated. It's not fully capturing this on the P and L. So that is a little bit more in this discussion. You can go ahead also read a write up. I think from 2Q25 it talked even more about this. Sometimes it's easier if you read it instead of listen to it. And that's just something all meta investors need to be aware of because that's something that's ongoing. It's, by the way, something you're going to see in all of these big tech companies that are spending a lot more in capex than they have been in the past, by the way. I'm not saying that's a bad thing. I'm not saying it can't be a good roi. I'm just saying the accounting numbers you're looking at are not fully reflective of the underlying owner earnings in the business. So if you think that's a normalized earnings figure, you're going to be wrong and you're going to be surprised when there's this big headwind to it. Now they're offsetting that by growing a lot. And I think they're going to continue to grow because almost more so than any other business, they seem to be the biggest beneficiary of AI today and actually turning a lot of these advancements into actual revenue growth. And it's been phenomenal for them. There's all sorts of different things they called out on the call. You know, watch time on Instagram reels is up 30% year over year in the United States. A lot of that's on a better algorithm. Facebook optimizations resulted in a 7% lift in organic feed and video post. Okay, that's again owed to AI. A new ad attribution model, 24% increase in incremental conversion versus the standard model. Okay, that's another sort of advancement that's going on because of again, all the compute. They could throw out this in the new AI. And then they have their GM model. This drove a 3 1/2% lift in ads clicked on Facebook and a 1% gain on Instagram. They have almost more things going on in here than, you know, you could even try to describe. And this is just a small amount of what they've been able to do so far. And it's every, every quarter they have more and more of these updates. And so it doesn't just seem like, you know, all the money they're spending is lead to something. We see it is now again the question is, did they need to spend the 72 billion in capex last year to get these results? Could they have done it with 40 maybe? And I'm not saying they shouldn't have spent the 72 to continue to grow. I just want to know what the normalized earnings of the business is so
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we can get this idea of what
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free cash flow is for the business. And so that's one of the tricky things with Meta.
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I don't mean to say any of this skeptically.
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It's just something that's going on that
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I don't think gets quite enough attention. And on the topic of Capex, it's
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going up again next year to 115
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to 135 billion dollars.
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And so there won't be free cash flow next year or stock buybacks now, you know, what kind of return are they going to get on this capex? Well, they're spending a lot on data centers and chips and they of course want to build this super AI. I get the idea behind it is they don't want anyone else controlling their destiny with what they can and can't do with AI. It seems like even if they don't get, you know, the best sort of model, they're still getting some sort of return on this ad spend. And the data centers can always be used to just throw more compute behind, you know, existing models they have, which is something they kind of talked about how they have these bigger models that can actually optimize the results better, but they don't use them that often because they're too expensive. And so, you know, are you getting cost down by getting, you know, the scale of a massive data center? Maybe. So there's kind of different places they could put all of this resources in, even if it doesn't result in, you know, super intelligence, super AI, AI, God, whatever they're trying to build. And so, you know, exactly what they're trying to do with AI. They talk a lot about kind of the business elements, targeting, measurement, better engagement, you know, better recommendations, you know, using AI and messaging, using meta AI throughout the app to ask questions and all that. So that's all there. But kind of the real goal that Mark Zuckerberg's trying to build towards is this kind of closed ecosystem between his AI and the VR AR hardware that they're creating and using those to create a sort of new compute platform, which of course, you know, Facebook, Instagram, WhatsApp, all that will be a part of it. It. But that's really what they want to be able to do with the AI. And so it's kind of hard to see because they have been so behind in AI. And so we talked about on this call how in, you know, next year he really expects to see a big acceleration of AI, a lot more going on, even if they're not in the leading edge, the sort of gains that they'll be making will be showing up a lot in the distance, will be cut very rapidly. And so that's kind of the overview there. What happens with Reality Labs, AR VR, who really knows? On the bright side, they started to say that next year will be the last year of kind of peak losses and then they'll start to go down thereafter. And so, you know, at this point they probably spent over $100 billion on this project and now that's just, you know, a drop in the bucket relative to how much they're spending on capex. So that is kind of the big overview there with what's going on in the business. Not to lose the trees for the forest. Everything is going really, really well for them. They maybe are making some questionable capital allocation decisions. We won't know until after the that fact fact but the core business is doing really well and kind of supports a lot of these activities too. And so, you know, at this 690 stock price right now, you know, you're looking at around 1.8 trillion valuation. On TTM, they earned 2350 last year trailing for about a 29 times multiple. If you're pulling out the Reality Labs losses then you're getting closer to a 23 times multiple for a company that is growing top line, you know, 20% plus but not operating income because that is being spent right now. And so, so the other kind of aspect of thinking about the capital allocation is that in some sense whether AR VR works and all that, and it's now a similar thing with all this capex spending, this isn't a forever thing for them. It either works and great, you get your return on investment or it doesn't work and they shut it off. So you should think about that when you're putting a multiple on the business because you don't want to put a multiple on a loss because that sort of implies it goes on for forever. And so that was one of the points we made in the past when
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investors were not backing out their Reality
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Labs losses from Meta. Now though, you have this other sort of issue if you're just looking at earnings where it is kind of a more capital intensive business and the current depreciation isn't really fully accounting for that. So really that's going to be an earnings headwind for a while. And then one last comment because sometimes people comment on this because I always use trailing multiples and trailing earnings instead of forward and I, I have a very good reason for this in my opinion, which is that it doesn't really make sense to me for you to mix future forward earnings with a multiple, which is essentially a shorthand for a D.C. eTF, because at that point you're just sort of adding an element of uncertainty to this for really no reason. You could look at trailing multiples, and yes, the multiple, whenever you look at a trailing number is going to be a little bit higher than when you're looking at forward. And you should just account for that. To me, whenever you're looking at forward, you're saying this is something that's going to confidently happen. But there's always uncertainty. And I think this often happens because management will guide to one year out. And so then investors feel comfortable using that. But why not just use the actual numbers? You know, I don't have a problem if someone wants to use forward, but I just always want to look at the actual numbers because I don't want to look at analyst estimates. And you know, management guidance can sometimes be wrong. And so why wouldn't I want to know what the actual earnings of the business were the real numbers? And I'll see what that multiple is. And of course I know it's going to grow more in the future and that's going to bring the multiple down. It's arbitrary too. If I want to only go one year forward out, why not two years, three years? And in fact, when I was on the buy side, a lot of times you would see investors will go further and further out to make the stock look good, to make it look more attractive. You could go five years out and it's a 10 times PE and that's fine. Nothing wrong with that. You should look at what the earnings will be in the future. But to me, it just becomes this arbitrary thing to say that you're only looking one year out. And then it's kind of confusing because, okay, well, how much growth is embedded if you're looking one year out? Is that 10% growth, 15% growth, 20% growth? Why that estimate? Now you're having an estimated future growth kind of baked in to this multiple that I don't may not know what the growth rate is or where that number comes from. I see all the time on Twitter people posting, you know, forward estimates and then applied multiples and all that and they don't know to how. How, you know, garbage. A lot of time those estimates are in start. A lot of times they're averages. They could be averages of old numbers. If one number is too high, it gets excluded from the average. All sorts of different things go on getting that number that I don't know why you would use it to value it. Sorry, how to finish off with one diatribe but Speedwall members also do get an updated reverse DCF on Meta and there is going to be more earnings updates. Let us know if you like this format or if this is too much of me talking then maybe we kill it. But remember, remember, remember. Go ahead and sign up for the YouTube. A link will be below. You can watch the Constellation video there. Also go To Drew Cohen money.com you'll get the new Five Minute Money newsletter. I'm writing up a lot of stock breakdowns there. We've done coreweave, Duolingo, Novo, Nort Disc, going to do Adobe soon. We did Cadence Design System. So a lot of businesses that maybe will take a while before we talk about them on the podcast, if ever. So if you want to get kind of into the full ecosystem system, you get on the YouTube, you get on the 5 Minute Money newsletter, you're listening to the podcast, you follow the Twitter, and you're doing good work. You're doing really good work. So thank you for listening. I really, really do appreciate it. And until next.
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Time,