We Study Billionaires – TIP751: Mastermind Q3, 2025: Uber, Merck, and Bath & Body Works

Date: September 7, 2025
Hosts: Stig Brodersen, Tobias (Toby) Carlisle, Hari Ramachandra
Main Theme:
In this quarterly Mastermind episode, the panel dives into deep bull and bear analyses of three distinct stocks: Uber, Merck, and Bath & Body Works. Each host pitches a company, outlines investment theses and risks, and engages in a candid, challenging discussion about business models, competition, valuation, and long-term prospects. The conversation offers perspectives on technology disruption, regulation, consumer behavior, and portfolio management in a richly collaborative, skeptical spirit.

Episode Overview

Purpose:

• Each quarter, the Mastermind panelists select one company to pitch to the group, engaging in honest explorations of their own arguments, exposing flaws, and testing investment ideas for robustness.
• This episode covers:
  • Uber (pitched by Stig Brodersen): The global ride-hailing and delivery giant’s potential and pitfalls amid the rise of automated vehicles and platform economics.
  • Merck (pitched by Hari Ramachandra): Pharma behemoth facing patent cliffs, policy uncertainty, and a high-margin oncology business with looming headwinds.
  • Bath & Body Works (pitched by Toby Carlisle): Specialty fragrance retail, customer loyalty, value, and resilience in a challenged retail environment.

[00:03–16:52] Segment 1: Uber (Stig Brodersen)

Introduction to Uber

• Stig’s Approach: Uber is a $190B market cap company he is considering for a 1% portfolio position—a rare occasion for a value investor deeply molded by Buffett and Munger philosophy.
  • Stig refrains from investing until after his blackout period (Sept 22) and wants the group to challenge his analysis.
  • “It's never about just chilling a company we like. It's really about testing our ideas, asking the hard questions, and seeing where we might be wrong.” – Stig [00:06]
• Uber’s Business Segments:
  • Mobility — 58% of revenue, 69% of adjusted EBITDA.
  • Delivery (mainly Uber Eats)—32% of revenue.
  • Freight — 10% (not a material contributor, potentially up for sale).
• Thesis: Uber’s robust network effects, scale, and dual-side marketplace dynamics create barriers and opportunities, especially with new fronts in targeted advertising (3% of revenue, high margin).

Key Bull Arguments

• Strong Network Effects:
  • "It's a supply-driven networking effect and it's a two-sided marketplace...it's just a really, really difficult business to disrupt. Once you have scale, you need to burn a lot of cash to get to that spot." – Stig [09:40]
• Logistics Mastery:
  • Like Amazon, Uber’s real, hard-to-replicate asset is its logistics and matching technology.
• Brand Power: Ubiquitous, trusted, "Starbucks and McDonald’s but for ride-hailing".
• Platform Leverage:
  • Uber’s vast transaction data is a high-value asset for advertisers in an AI-driven era; "the value of that data is really valuable for advertisers too." – Stig [08:45]
• Operating Leverage:
  • Margins under pressure now but likely to widen as scale grows and operational leverage kicks in.
• Tailwinds in Gig Economy & Behavior:
  • A generational shift: more are forgoing car ownership, reliance on “on-demand” services is growing [40:00+]
• Advertising Segment:
  • High CPM ($45) and 3% click-through rates are "amazing" for advertisers [35:54].

Bear Arguments & Risks

• AV/Robotaxi Disruption:
  • The big “elephant in the room.” Companies like Waymo (Alphabet) and Tesla are iterating toward full self-driving fleets that could upend the business model or compress margins.
  • "If Tesla also tries this… and if they're successful, the latest FSD in Tesla is really good. I tried it. It can even park itself... When these companies are coming in, they have the resources to build that brand presence as well." – Hari [26:15]
• Switching Costs & City-by-City Network Effects:
  • Loyalty is local. Competing apps (Ola, Lyft, Waymo) can thrive in different geographies. Network effects do not transfer across cities. [29:00]
• Regulation:
  • Varies by geography; potential for labor, insurance, and gig-worker laws to impact margins or scalability. [23:00+]
• Take Rate & Share-Based Compensation:
  • Take rates set city-by-city, more mature markets see higher rates (~30% in mobility). Dilution from stock-based comp (3–4% per year), which is only partially offset by buybacks.
  • "That money could be used to grow the company… I would argue with a company as mature as Uber, you wouldn’t need to structure that way." – Stig [53:37]
• Unclear Timeline & Feasibility for AVs:
  • “There's this joke that fusion energy is 30 years out and it always will be. I kind of feel like if you're listening to some people in the AV space, they're always like, next year the world is going to be on it. It's probably not going to happen next year.” – Stig [35:35]
• Management/Board Weakness:
  • Low insider ownership, "vanilla" compensation package, S&P500-style average board [53:52].

Competitive Threats Debate

• Toby highlights the "50% problem": Uber owns the demand/network, Tesla or Waymo may own the AV supply; "Uber’s at least 50% of this fight, right? It's halfway there." [41:54]
• Hari: If AVs break through, drive costs lower, and big tech vertically integrates, Uber’s role as intermediary could be squeezed out or commoditized [27:39, 44:14].
• Toby: “Lyft might get taken out. I’m surprised Lyft hasn’t been taken out yet. It’s going to be interesting.” [58:32]

Valuation (52:17–57:55)

• Stig models a 15% IRR over the next five years, assuming 15–20% gross bookings growth, dynamic take rates, and expanding margins.
• Expresses skepticism over reliance on adjusted EBITDA and heavy share buybacks to offset stock-based comp dilution.
  • “I’m looking at something like a 15% return here over the next five years… you start 3 or 4% in the hole every year [due to dilution].” – Stig [54:34]
• Concern about management incentives being tied to non-transparent metrics. [53:37]

[62:33–77:21] Segment 2: Merck (Hari Ramachandra)

Introduction

• Merck at a Glance:
  • Top 5 global pharma, $60B+ revenue. Dominates oncology via Keytruda (blockbuster drug: $29.5B sales).
  • Trading at deep value: PE of 12, forward PE of 11; major peers (Johnson & Johnson, Pfizer) at 18+. [63:50]

Investment Thesis

• Oncology TAM (total addressable market) projected at $500B by 2032 (11.3% CAGR). [63:17]
• Pharma stocks cyclically fall into disfavor post-blockbuster patent expiry, then recover with new pipeline.
  • "This is pretty much a feature in pharma industry, not a bug… all these pharma companies go through these cycles of patent cliffs, revenue decline, then they develop new drugs." – Hari [64:58]

Key Bear Points / Risks

• Patent Cliff:
  • Keytruda’s patent expires 2028. Biosimilars will erode revenue: “In this case of biosimilar drugs, it's more like a hill, not a cliff… like a 3 to 5% decline every year.” – Hari [66:30]
• Government Policy:
  • "Most favored nations" pricing may cap U.S. prices, reducing profits.
• Pipeline Uncertainty:
  • Difficult to predict which new drugs will offset Keytruda loss.
  • "If they’re not able to come up with any drug, nothing pans out, their acquisitions don't work out… those are some of the tail risks.” – Hari [71:38]
• Market Sentiment:
  • Healthcare trading at low relative multiples—a contrarian case, but could remain out of favor longer.
• Low Insider Ownership, Unclear R&D Moat:
  • Stig: “It’s incredibly difficult for me to look at a company like Merck… I don’t like the lack of insider ownership, I don’t like the big unknown whenever it comes to regulation.” [75:00]

Key Bull Points

• Subcutaneous Keytruda (shot, not IV) extends patent life and patient appeal.
• Recent acquisition (Verona) expands into pulmonary hypertension, diversifies pipeline.
• High operating margins (31.5%—best in industry); consistent share buybacks.
  • "Their operating margin today is 31.5% which is the highest in the pharma industry." – Hari [73:06]
• Defensive, cash-generative characteristics: 4%+ dividend while awaiting pipeline development.
• Toby: “I think this is one of those good contrarian, good undervalued contrarian picks that probably works out over a three to five year period.” [72:06]

Summary Critique

• Stig: Too hard pile for concentrated conviction, but may belong in a diversified pharma basket. [75:00]
• Hari: “I just couldn't resist the PE so I had to pitch it.” [77:21]

[77:37–95:48] Segment 3: Bath & Body Works (Toby Carlisle)

Introduction

• Specialty home and personal fragrance retailer, spun out from L Brands (not Bed Bath & Beyond).
• Still largely store-based, just now developing digital/e-comm strategy.
• Peak COVID stock price $80 during “stay home” boom, now ~$28 ($5.9B market cap, $10.4B EV, $5B+ debt).
• “If you’re not familiar particularly with these things, which, which I was not… but there were people in this store and the rest of the mall was pretty quiet.” – Toby [77:37]

Investment Thesis

• Valuation:
  • Cheap on every metric: PE 7.5, EV/EBIT 7.7, Price/CF 6.3; yielding 12%+ on free cash flow.
  • Aggressive share buybacks since the peak (from 280M to 212M shares).
• Brand Loyalty:
  • Highly loyal customer base; 80% of sales from members.
  • "They're quite loyal to this brand, and it kind of amazes me. But it has continued to grow…" – Toby [77:58]
• Operational Excellence:
  • Small store formats = low capex.
  • Swift inventory management: lead time for new products (e.g., COVID hand sanitizer) is just weeks.
  • Rapid adaptation to what’s working or not.
• Defensive Against Tech Disruption:
  • "This is one business where… it's kind of AI-proof… can't be disrupted by AI." – Hari [84:29]

Key Risks

• Retail Headwinds:
  • Ongoing risk of consumer recession; category is discretionary, potentially cyclical.
  • "If there is a recession, candles and other things, that people will try to avoid..." – Hari [83:27]
• Debt Load:
  • ~$5B in debt, but maturities are staggered and covered by cash flows.
  • Preference by some to pay down debt instead of aggressive buybacks.
    • "There's just a part of me who would probably prefer that they just pay out some of that debt..." – Stig [90:13]
• Niche / Not Fully Understood Demographic:
  • Not the panel's own target group, but empirical checks (mall traffic) and spousal anecdata suggest enduring popularity.
• Mall Exposure:
  • 43% of stores are still mall-based; company goal is to move to 25% as malls decline.
• Value Trap Possibility:
  • Should not be compared to failed concepts like Bed Bath & Beyond; margins and customer loyalty much stronger.
  • "I tried comparing it to Bed Bath and Beyond… but there are a lot of things that are much, much better with Bath and Body Works." – Stig [87:18]

Notable Quotes

• “With $750 million of free cash flow, it's probably about half price. And so with a market cap closer to $12 billion, the debt looks less frightening.” – Toby [93:10]
• “I think it's quite asymmetric. I think it's got limited downside and pretty good upside for the risk that you're taking. And it's just a little undiscovered stock. Not necessarily an undiscovered brand, just an undiscovered stock.” – Toby [94:27]

[95:48–End] Wrap-Up & Takeaways

Contrasts in Investment Approaches

• Stig: Focused, high conviction positions, struggles to underwrite pharma risk.
• Toby: Diversified, quant-leaning, basket approach; values cash flow and contrarian setup.
• Hari: Looks for value, margin of safety, playing cyclical rotation, comfortable with temporary headwinds in defensive sectors.

Key Cross-Learning/Theme

• Intelligent debate, not stock promotion—testing assumptions and biases in a friendly but rigorous way.
• All picks reflect current macroeconomic and sectoral uncertainty: tech disruption (Uber), regulation (Merck), changing consumer landscapes (Bath & Body Works).
• Portfolio construction: it's not just about picking the “winner,” but fitting stocks into the broader risk, return, and diversification context.

Timestamps of Notable Segments

| Timestamp | Segment/Quote | |---------------|---------------------------------------------------------------------------------------------------------| | 00:06 | “It's never about just chilling a company we like. It's really about testing our ideas…” (Stig) | | 09:40 | Uber’s network effects and supply-driven marketplace discussion (Stig) | | 23:00–27:00 | Regulatory risks and AV/Waymo competition discussion (Stig, Hari) | | 35:54 | Uber’s advertising performance—CPM and click-through stats (Stig) | | 41:54 | “Uber’s at least 50% of this fight, right? It's halfway there…” (Toby) | | 53:37 | Management compensation, stock-based comp, and transparency issues (Stig) | | 63:17 | Merck: $500B oncology TAM and patent cliff (Hari) | | 72:06 | “I think this is one of those good contrarian, undervalued picks that works over 3–5 years.” (Toby) | | 77:37 | Bath & Body Works pitch—mall check, business model intuition (Toby) | | 83:27 | “I always saw this store had more people than the rest of the stores…” (Hari on Bath & Body Works) | | 87:18 | “I tried comparing it to Bed Bath & Beyond..." (Stig on differentiation) | | 93:10 | Valuation upside, debt perspective on BBWI (Toby) | | 94:27 | “Limited downside and pretty good upside for the risk that you're taking…” (Toby) | | 95:48 | BBWI inventory management and agility in new product launches (Toby) |

Memorable Moments & Quotes

• On Uber’s complexity:
  • “I run this risk of being stuck in this TIP echo chamber. And so I really hope that you will tell me why Uber is a terrible investment.” – Stig [04:17]
• On the challenge of AV disruption:
  • “Why would Google or Tesla be subservient to Uber? Waymo is already launched, they have their own app. Tesla has such a big brand presence, they can easily command a big market…” – Hari [29:00]
• On healthcare as a sector:
  • “Healthcare's as cheap as it's been against the market in 25 years…” – Toby [72:06]
• On retail resilience:
  • “Not necessarily an undiscovered brand, just an undiscovered stock.” – Toby [94:27]

Final Thoughts

This Mastermind episode is a masterclass in rigorous investment thinking, exploring not just the bull case but the cracks in each thesis. Whether it’s Uber’s struggle between innovation and disruption, Merck’s patent and pipeline lottery, or Bath & Body Works’ surprisingly sturdy niche, the panel exposes the complex interplay of competitive positioning, valuation, macro trends, and strategy—all with humility and candor that brings refreshing clarity to hotly debated stocks.

Panelist Socials and Resources:

• Toby Carlisle: @greenbackd, acquirersmultiple.com, Zig/Deep ETFs
• Hari Ramachandra: @harirama

For more: visit theinvestorspodcast.com, subscribe for deep dives and rich show notes.