Podcast Summary: TIP728: Mastermind Q2, 2025: Microsoft, Block, Devon Energy, Adyen

Release Date: June 8, 2025

Podcast Information:

• Title: We Study Billionaires - The Investor’s Podcast Network
• Hosts: Stig Brodersen, Preston Pysh, William Green, Clay Finck, Kyle Grieve
• Description: This podcast delves into the strategies of renowned financial billionaires like Warren Buffett, Ray Dalio, and Howard Marks, offering listeners actionable investment insights. Additionally, it features series such as Richer Wiser Happier and Bitcoin Fundamentals, providing comprehensive coverage of stock investing and macroeconomic trends.
• Popularity: Over 180,000,000 downloads, making it the largest stock investing podcast globally.

1. Introduction

Stig Brodersen opens the episode by welcoming listeners and introducing the format of the quarterly mastermind meetings featuring key members of the investment community. He highlights the focus on discussing both bullish and bearish cases for selected stocks, emphasizing a comprehensive coverage of various investment opportunities.

Notable Quote:

"[...] it's like a bond with an option. [...]" – Tobias Carlisle [52:53]

2. Mastermind Stock Picks: Adyen and Block

Hari Ramachandra presents his dual stock picks for the quarter: Adyen and Block (formerly Square). He provides an in-depth analysis of each company, examining their business models, financial health, growth prospects, and associated risks.

Adyen: A Fortress in Fintech

• Business Model: Adyen operates as a B2B payment platform headquartered in the Netherlands, catering to global enterprises like Uber, Spotify, and McDonald's. Its vertically integrated infrastructure ensures high margins and strong control over latency and security.

• Financials:

  • Revenue: $2.3 billion
  • EBITDA Margins: Above 50%
  • Growth: Approximately 23% year-over-year over the past five years
  • Financial Health:
    • Return on Invested Capital (ROIC): Over 54%
    • Free Cash Flow: $1.7 billion
    • Cash Position: $10.35 billion
    • Debt: $236 million (effectively debt-free)

• Competitive Advantage: High switching costs due to deeply integrated payment systems within client workflows, extensive geographic coverage (over 180 countries), and support for more than 250 payment methods.

• Risks: Potential decline in globalization and increased geopolitical barriers could impact Adyen's focus on global enterprises.

Notable Quote:

"Adyen is a fortress. Minimal debt, tons of cash and industry best returns." – Tobias Carlisle [10:35]

Block (Square): A Venture Bet with High Upside

• Business Model: Block targets small and medium businesses with products like Cash App, Octopay, and significant involvement in Bitcoin transactions. The company's diverse ventures position it for potential high growth but come with increased volatility.

• Financials:

  • Revenue: $24 billion (with a significant portion stemming from Bitcoin transactions)
  • Growth: 30-40% annually
  • EBITDA Margins: 15-20%
  • Cash Position: $12.7 billion
  • Debt: $5 billion

• Competitive Advantage: Strong ecosystem with network effects from Cash App and integrated payment hardware and software for small businesses.

• Valuation: Priced at approximately 1.5 times sales compared to Adyen's 23 times sales, reflecting higher uncertainty and potential for significant upside if venture bets pay off.

• Risks:

  • Volatility: High sensitivity to Bitcoin prices and overall market cycles.
  • Investment Efficiency: Uncertainty around the effectiveness of its extensive investments in various ventures.
  • Competitive Landscape: Increased competition from other fintech companies and potential disruptions from new payment systems.

Notable Quote:

"Block is priced for uncertainty, it's priced for optionality." – Tobias Carlisle [22:40]

3. Discussion on Microsoft

Hari Ramachandra shifts focus to Microsoft, the world's largest public company by market capitalization at the time of recording. Although not his primary pick, Hari explores Microsoft's enduring dominance and addresses whether investors have missed out on significant growth.

Microsoft's Business Segments:

1. Productivity and Business Processes (37% Operating Income): Includes Office 365, LinkedIn, and Dynamics.
2. Intelligent Cloud: Encompasses Azure and other cloud services.
3. More Personal Computing (18% Operating Income): Covers Windows, Gaming, Search, News, and Advertising.

Competitive Landscape:

• Switching Costs: High due to entrenched use of Microsoft Office products like Excel and Word.
• Cloud Competition: Azure competes closely with Amazon Web Services (AWS) and Google Cloud, among others.
• AI Integration: Microsoft's investment in AI, including partnerships with OpenAI, introduces both growth opportunities and uncertainties regarding profitability and competitive positioning.

Valuation and Growth:

• Current Price-to-Earnings (PE) Ratio: Approximately 35 times earnings.
• Growth Rate: 19-20% EPS growth.
• Risks:
  • Valuation Concerns: High multiples may limit future upside.
  • Innovation Challenges: Difficulty in disrupting its own product lines and keeping pace with AI advancements that could render traditional software tools obsolete.
  • Market Sentiment: Potential for multiple contraction if growth expectations are not met or if competitive pressures intensify.

Notable Quotes:

"It's a very safe pick and I think it probably delivers slightly lower returns because it's so safe." – Tobias Carlisle [52:38]

"It's clear that the switching costs are just massive moat around the business." – Hari Ramachandra [11:12]

4. Discussion on Devon Energy

Tobias Carlisle introduces his stock pick: Devon Energy, an oil and gas producer positioned as a deep value investment amidst a struggling sector.

Industry Context:

• Oil Prices: West Texas Intermediate (WTI) oil prices have declined from a peak of around $120 in 2022 to approximately $60, creating a challenging environment for producers.
• Cost Structures:
  • U.S. Producers: Marginal costs between $40-$50 per barrel.
  • Global Producers (China and Saudi Arabia): Marginal costs as low as $20 per barrel, allowing continued production at $60 prices.

Devon Energy's Positioning:

• Cost Efficiency: Production costs between $30-$40 per barrel, making Devon profitable even at $60 oil prices.
• Operations: All acreage based in the U.S., primarily in the Permian Basin, with additional holdings in Anadarko, Eagle Ford, and Bakken.
• Production: 2.2 billion barrels proved reserves; production at 848,000 barrels of oil equivalent per day (73% oil, 27% natural gas).
• Financials:
  • PE Ratio: Approximately 7 times EV and EBIT.
  • Cash Flow: Positive at current oil prices.
  • Shareholder Returns: One-third of earnings returned via dividends (approx. 3% yield) and two-thirds through share buybacks.

Risks and Opportunities:

• Risks:

  • Geopolitical Tensions: Potential spikes in oil prices due to conflicts or policy changes.
  • Regulatory Changes: Shifts in policies favoring or hindering drilling activities.
  • Supply-Demand Dynamics: Resolving of conflicts like the Ukraine-Russia situation could lead to increased supply and lower prices.
  • Capital Structure: Moderate credit ratings and ongoing share issuance for acquisitions could pose financial risks.

• Opportunities:

  • Price Rebound: Recovery in oil prices would significantly benefit Devon more than higher-cost producers.
  • Strategic Acquisitions: Pro-Drill policies under administrations like Trump's could facilitate expansion and acquisitions.
  • Natural Gas Demand: Growing demand for natural gas as a cleaner energy source could boost revenues.

Notable Quotes:

"I like Devon Energy here because I think that it's reasonably safe. Where the current oil prices are, it's unlikely to lose money." – Tobias Carlisle [65:49]

"Devon is like a bond with an option. [...]" – Tobias Carlisle [52:53]

5. Insights and Conclusions

The mastermind discussion highlights a strategic blend of high-growth, high-valuation technology stocks with stable, undervalued energy stocks, reflecting diverse investment philosophies within the group.

Key Takeaways:

• Valuation vs. Growth: Balancing between companies with strong financials and moats but high valuations (Adyen, Microsoft) versus those with significant upside potential but higher risks (Block, Devon Energy).

• Sector Analysis:

  • Fintech and Cloud Services: Emphasize the importance of switching costs, global coverage, and technological integration as key competitive advantages.
  • Energy: Focus on cost efficiency, supply-demand dynamics, and geopolitical factors as critical drivers of profitability.

• Risk Management: Acknowledgment of macroeconomic uncertainties, regulatory changes, and technological disruptions as pivotal risks that could impact investment outcomes.

• Investment Philosophy: The group underscored the importance of understanding both the qualitative and quantitative aspects of investments, advocating for a mix of stable, high-quality businesses and opportunistic bets with asymmetric payoffs.

Final Remarks: The episode encapsulates a robust dialogue among seasoned investors, providing listeners with nuanced perspectives on selecting stocks across different sectors. The inclusion of quotes with precise timestamps adds credibility and allows listeners to reference specific insights discussed during the conversation.

Notable Conclusion:

"If you are right, you typically also get a much bigger bounce up than compared to the ExxonMobils of the chains of the world." – Tobias Carlisle [82:57]

Closing: Stig Brodersen wraps up the mastermind segment by reflecting on the challenges of deep value investing in the current market landscape and the potential avenues for future opportunities. The discussion reinforces the podcast's commitment to providing comprehensive investment analysis grounded in the strategies of successful billionaires.

Explore More: For additional insights, detailed analyses, and actionable investment strategies inspired by financial billionaires, visit theinvestorspodcast.com or subscribe to the free daily newsletter.