WEBVTT - Bloomberg Intelligence: Lyft Margin Error, Uber Buyback Plan (Podcast) 0:00:02.960 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.880 --> 0:00:15.040 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:15.080 --> 0:00:18.040 Eastern on Apple Car playing Android Auto with the Bloomberg 0:00:18.120 --> 0:00:21.440 Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.520 or watch us live on YouTube. 0:00:25.280 --> 0:00:27.560 Even with today's thirty seven percent increase and lift, the 0:00:27.600 --> 0:00:30.000 stock still has a market cap, you know, six seven 0:00:30.000 --> 0:00:30.880 billion dollars worth. 0:00:31.360 --> 0:00:32.519 Uber's got you know. 0:00:32.600 --> 0:00:36.440 Multiples of that's skyrocket and such a huge divergence. So 0:00:37.120 --> 0:00:39.199 let's break down both of those numbers. We can do 0:00:39.240 --> 0:00:42.519 that with men Deep Singh. He follows some of the 0:00:42.560 --> 0:00:45.760 technical sectors of this market, follows pretty much everything in 0:00:45.800 --> 0:00:48.639 ten Yeah, so he's a technist for Bloomberg Intelligence. 0:00:48.680 --> 0:00:50.040 So let's start with Lyft. 0:00:51.320 --> 0:00:52.200 I took getting fired. 0:00:52.280 --> 0:00:55.400 I took a Lyft home last night because why because 0:00:55.440 --> 0:00:56.800 it was cheaper than. 0:00:56.800 --> 0:00:58.080 Uber by how much? 0:00:58.200 --> 0:01:02.320 By like twenty Yeah, and that's typical one one or 0:01:02.360 --> 0:01:05.040 the other not. I just arbitraged the too. Matt Miller 0:01:05.080 --> 0:01:07.680 does not do that. I arbitraged the too. I thought 0:01:07.720 --> 0:01:10.520 everybody did that. So anyway, what happened to Lyft with 0:01:10.560 --> 0:01:11.400 their earnings last night? 0:01:11.640 --> 0:01:16.200 Well, last night was bizarre because you know, you don't 0:01:16.280 --> 0:01:18.200 often see that in press releases. 0:01:18.360 --> 0:01:22.800 You there, but you know, at the end of the. 0:01:22.800 --> 0:01:27.240 Day, it was I think just a mistake that happened. 0:01:27.240 --> 0:01:30.240 It wasn't intentional in any way. And the stock move 0:01:30.440 --> 0:01:34.520 was pronounced because of you know, the short interest and uh, 0:01:34.800 --> 0:01:39.600 the fact that obviously people were not very optimistic going 0:01:39.640 --> 0:01:43.560 into the print. And look, I think in the case 0:01:43.560 --> 0:01:47.119 of Lyft, not much has changed in terms of execution. 0:01:47.319 --> 0:01:50.720 There's still kind of a distant number two. And you 0:01:50.800 --> 0:01:53.600 talked about taking a lift, but there are certain zip 0:01:53.640 --> 0:01:57.160 codes where they are able to meet the ETAs that 0:01:57.600 --> 0:02:01.000 Uber has, but in other zip codes they have no supply. 0:02:01.480 --> 0:02:03.480 So even if you want to take a lift, there 0:02:03.520 --> 0:02:04.400 is no availability. 0:02:04.640 --> 0:02:07.120 But my dude last night, like most markets I go to, 0:02:07.440 --> 0:02:09.400 he's got a n Uber sticker and he's got a 0:02:09.800 --> 0:02:13.960 Lift sticker, and he's got both apps open and they'll 0:02:14.040 --> 0:02:14.680 drive each other. 0:02:14.840 --> 0:02:17.160 Yeah, there is a huge amount. 0:02:16.840 --> 0:02:19.480 Of owner that and so literally it's apparently. 0:02:19.160 --> 0:02:22.079 It's just here's my reading and you're the effort. It's 0:02:22.120 --> 0:02:27.760 just Uber algorithm, Lift algorithm. They're different. They're going to 0:02:27.800 --> 0:02:31.880 give you different prices and things like that. But but from. 0:02:31.760 --> 0:02:35.160 A driver perspective, what Lift is doing is they are 0:02:35.360 --> 0:02:39.000 paying out more to lower drivers. So if it was 0:02:39.040 --> 0:02:42.880 a ten dollars ride, the driver is getting seven dollars 0:02:42.960 --> 0:02:46.040 or eight dollars from Lift, whereas from Uber they're getting 0:02:46.040 --> 0:02:46.720 six dollars. 0:02:46.840 --> 0:02:47.720 It's just an example. 0:02:47.800 --> 0:02:50.480 Yes, So that's where you know, the take rate matters 0:02:50.560 --> 0:02:52.800 what these companies keep versus. 0:02:52.360 --> 0:02:55.800 What the driver is getting. And that's the I think tactic. 0:02:55.840 --> 0:02:58.600 Lift is using to really pay more to the driver 0:02:58.760 --> 0:02:59.880 to bring on more supplies. 0:03:00.080 --> 0:03:02.280 So then how does that then play out? So at 0:03:02.320 --> 0:03:05.360 some point they get enough supply and then they can 0:03:05.560 --> 0:03:08.680 sort of make more money per ride and increase the shares. 0:03:08.840 --> 0:03:10.720 When does that moment happen? 0:03:10.880 --> 0:03:13.680 I mean scale is the only mote you can have 0:03:13.800 --> 0:03:16.639 in this business, scale and operating efficiency. And so what 0:03:16.760 --> 0:03:19.360 Uber has done is obviously they have the scale. They 0:03:19.400 --> 0:03:23.280 are six times bigger than Lift in just the mobility segment, 0:03:23.840 --> 0:03:27.519 and like think of the gross margin. The reason why 0:03:27.560 --> 0:03:30.320 this is a sixty percent gross margin business is because 0:03:30.400 --> 0:03:32.079 insurance costs is. 0:03:32.040 --> 0:03:35.360 Pretty high for right sharing, So how do you bring down. 0:03:35.200 --> 0:03:38.960 Insurance costs through scale? And that's what Uber has because 0:03:39.000 --> 0:03:42.520 it does, you know, six times more rides, then lift, 0:03:42.560 --> 0:03:44.880 and in the case of Lift, if they don't maintain 0:03:44.920 --> 0:03:47.800 the supply, then they're just going to keep losing share, 0:03:47.840 --> 0:03:48.840 which is what was happening. 0:03:48.880 --> 0:03:50.600 So they have to compete on price. 0:03:51.000 --> 0:03:54.320 The only way they can maintain their share is they 0:03:54.360 --> 0:03:56.360 if they offer a lower price, as they did with 0:03:56.440 --> 0:03:57.200 Paul last night. 0:03:57.240 --> 0:04:00.560 So that's that's the tactic. And I don't think. 0:04:00.480 --> 0:04:02.200 It's going to be term modeled. 0:04:02.320 --> 0:04:06.120 Yeah, so think of what happened with food delivery. There 0:04:06.160 --> 0:04:09.760 were so many players. Now you're down to two or three, 0:04:10.200 --> 0:04:12.040 you know, remaining it's Uber Door. 0:04:12.320 --> 0:04:15.080 I still will not pay for for my youngest in college. 0:04:15.400 --> 0:04:16.600 I have a hard time paying, but I'm. 0:04:16.480 --> 0:04:16.720 Not going to. 0:04:17.640 --> 0:04:19.000 We've established that firmly. 0:04:19.160 --> 0:04:20.080 I support this. 0:04:20.240 --> 0:04:22.280 Yeah, so there will be consolidation. 0:04:22.400 --> 0:04:25.159 But if uber is announcing a seven billion dollar buy back, 0:04:25.240 --> 0:04:28.120 you know they're not buying Instacart now, So that's and 0:04:28.160 --> 0:04:29.400 are they are buying left? Okay? 0:04:29.480 --> 0:04:31.159 Talk about that that buy back? 0:04:31.560 --> 0:04:33.800 What does that tell us like when you buy backstock, 0:04:33.839 --> 0:04:35.600 isn't that because you're no longer a growth company? 0:04:35.640 --> 0:04:36.320 Like? Is that the thing? 0:04:37.240 --> 0:04:39.239 Yes? I think there is that element. 0:04:39.360 --> 0:04:43.360 And also they're going to be prudent in terms of returning. 0:04:42.920 --> 0:04:44.160 Cash to the shareholders. 0:04:44.240 --> 0:04:48.359 So remember they acquired the freight business, that is a 0:04:48.360 --> 0:04:52.320 big drag on profitability. Uber didn't build freight business organically. 0:04:52.680 --> 0:04:55.360 They bought a company that didn't work out well. They 0:04:55.400 --> 0:04:58.320 bought Postmates for food delivery that didn't work out well. 0:04:58.360 --> 0:05:02.240 So their track record with Aquas isn't great. And so 0:05:02.360 --> 0:05:05.240 now they're saying is we are going to generate about 0:05:05.320 --> 0:05:07.920 seven to eight billion dollars in free cash flow. Well, 0:05:07.920 --> 0:05:10.720 guess what we are using seven billion out of that 0:05:10.920 --> 0:05:13.880 for buying back er stock. I mean, obviously it's going 0:05:13.960 --> 0:05:16.480 to be over a period of time, not in the 0:05:16.480 --> 0:05:21.640 next twelve months. But I think that's good sound capital allocation, stuality, 0:05:21.720 --> 0:05:23.839 And look, this company is generating. 0:05:23.920 --> 0:05:26.039 The mobility side is very healthy. 0:05:26.600 --> 0:05:29.960 They've got you know, mid twenty percent ebit dumb margins 0:05:30.000 --> 0:05:33.240 compared that to lift, which what got people excited is 0:05:33.279 --> 0:05:35.280 they could get to twenty percent ebit dumb margins. 0:05:35.279 --> 0:05:37.560 Well, not so fast. I guess that was the typo. 0:05:37.800 --> 0:05:42.040 So I say, all right, how about the Uber each business. Again, 0:05:42.080 --> 0:05:43.840 I don't support this. I mean, I know it's a 0:05:43.880 --> 0:05:46.040 great people love it, but not on my credit card. 0:05:46.720 --> 0:05:48.440 So talks about the each business. 0:05:48.520 --> 0:05:51.840 This is just to drive frequency, ok, just so that 0:05:52.120 --> 0:05:54.920 Paul has more transactions. 0:05:54.200 --> 0:05:55.360 Which is advertising. 0:05:55.360 --> 0:05:58.760 Then basically exactly and the only profit they're going to 0:05:58.839 --> 0:06:02.000 generate right now is through advertising. So the good thing 0:06:02.200 --> 0:06:05.080 working out for Uber is they have a membership's business, 0:06:05.080 --> 0:06:07.960 So that's your recurring subscription. You're going to buy an 0:06:08.000 --> 0:06:12.000 Uber membership that works for both mobility and delivery, and 0:06:12.120 --> 0:06:15.240 also they're going to show ads. So ads is a 0:06:15.279 --> 0:06:18.680 billion dollar rundread business now primarily driven by delivery and 0:06:18.720 --> 0:06:22.160 it's almost ninety percent gross market, so that's what's going 0:06:22.240 --> 0:06:26.320 to drive the delivery profitability. But on a transaction basis, 0:06:26.360 --> 0:06:27.080 this is zero. 0:06:27.279 --> 0:06:30.520 So this is sort of like Amazon Prime VIDDEO. Like 0:06:30.560 --> 0:06:34.720 it's just basically sell more subscriptions Amazon Prime up the 0:06:34.760 --> 0:06:37.159 price a little bit and then you get more viewers 0:06:37.200 --> 0:06:38.919 who were just into it and they buy more stuff 0:06:38.920 --> 0:06:40.280 on Amazon's Coming. 0:06:40.920 --> 0:06:41.440 Is the way. 0:06:41.520 --> 0:06:45.240 So they like Uber talked about this concept of being 0:06:45.279 --> 0:06:49.000 a super app almost three four years ago and they 0:06:49.080 --> 0:06:52.080 have been working towards it. Now they have integrated taxi. 0:06:52.200 --> 0:06:55.520 Remember when Uber came to the scene, they were supposed 0:06:55.600 --> 0:06:59.479 to or they actually disrupted taxis. Now they have onboarded 0:06:59.520 --> 0:07:02.680 Taxis on the platform to boost supply, and Taxis is 0:07:02.720 --> 0:07:05.880 about five percent of their business, So clearly, you know. 0:07:05.880 --> 0:07:07.279 You come a full circle there. 0:07:07.320 --> 0:07:10.640 You have integrated Taxis and their thing is will bring 0:07:11.000 --> 0:07:14.800 everything related to transportation on one app and you can 0:07:14.880 --> 0:07:16.200 find any and everything. 0:07:16.480 --> 0:07:21.200 Neahi, I mean, he's done an amazing job turning that 0:07:21.360 --> 0:07:22.360 company around. 0:07:22.400 --> 0:07:24.960 Minus the acquisitions. 0:07:23.880 --> 0:07:28.360 If it was buying stuff, and that's. 0:07:28.200 --> 0:07:31.520 What he did at Expedia. Expedia was built around acquisitions. 0:07:31.600 --> 0:07:31.840 There. 0:07:32.040 --> 0:07:36.280 I think acquisitions worked out probably better than they did 0:07:36.280 --> 0:07:39.960 in Uber, but clearly acquisitions wasn't and. 0:07:39.920 --> 0:07:42.960 So one of the potential acquisitions I was out there 0:07:43.000 --> 0:07:45.960 was Instacart to ramp up the Uber eats. But you're 0:07:45.960 --> 0:07:48.280 now saying the stock buybacked signals that un likely to do. 0:07:48.360 --> 0:07:49.920 That's completely out of question. 0:07:50.040 --> 0:07:52.560 I mean, the question is can door Dash buy something 0:07:52.640 --> 0:07:55.920 given Like the reason why Lift's stock moved this much 0:07:55.960 --> 0:07:58.840 is because the valuation is like one time CB to sales. 0:07:59.120 --> 0:07:59.840 Compare that to. 0:08:00.440 --> 0:08:03.360 Five times ZV do sales or Airbnb ten times ZV 0:08:03.480 --> 0:08:04.000 do sales. 0:08:04.240 --> 0:08:05.840 So clearly a. 0:08:05.760 --> 0:08:09.080 Lot of the growth prospects are reflected in the lifts valuation. 0:08:09.400 --> 0:08:12.679 Yeah, Airbnb will do that next time. I'm just I'm 0:08:12.720 --> 0:08:15.520 just not comfortable that concept. But I know a ton 0:08:15.560 --> 0:08:17.160 of people are around the world and they love it. 0:08:17.200 --> 0:08:18.400 So we'll get to that next time. 0:08:18.440 --> 0:08:20.240 Staying or renting out your renting out your house or 0:08:20.280 --> 0:08:21.360 staying at someone else's. 0:08:21.040 --> 0:08:24.360 House, both both, you know, I don't know, but I 0:08:25.040 --> 0:08:28.240 might not that weird. Yeah, coming into somebody else's It's more. 0:08:28.160 --> 0:08:29.600 Like an investment property lot at the time. 0:08:29.640 --> 0:08:32.280 All right, man, Deep Seeing Senior Tech anais Bloomberg Intelligence. 0:08:32.400 --> 0:08:33.959 We appreciate you stopping buy. 0:08:35.400 --> 0:08:39.280 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:39.360 --> 0:08:42.400 weekdays at ten am Eastern on Apple card Play and 0:08:42.400 --> 0:08:45.320 Android Auto with the Bloomberg Business app. You can also 0:08:45.400 --> 0:08:48.880 listen live on Amazon Alexa from our flagship New York station, 0:08:49.280 --> 0:08:52.040 Just say Alexa Play Bloomberg eleven thirty. 0:08:53.080 --> 0:08:54.800 I want to take a little deeper into the small 0:08:54.880 --> 0:08:56.800 cap world because the rust of two thousands up one 0:08:56.840 --> 0:08:59.640 point six percent of the narrative, if you just rewind 0:08:59.679 --> 0:09:02.079 the money, was that we were broadening out this rally 0:09:02.080 --> 0:09:03.880 in the S and P, that it wasn't just big tech. 0:09:03.920 --> 0:09:06.360 We were finally seeing small caps get a little bit 0:09:06.400 --> 0:09:08.880 of a bit. Well, let's talk to Brian Smoluck. He's 0:09:08.920 --> 0:09:11.960 principal and portfolio manager of the Hood River Small Cap 0:09:12.120 --> 0:09:15.920 Growth Fund. He joins us from Palm Beach, Florida, much 0:09:16.520 --> 0:09:19.000 to Paul Kane as he looks at the palm trees 0:09:19.000 --> 0:09:19.760 in the background. 0:09:19.840 --> 0:09:22.600 Hey, Brian, kill me. Do you buy small caps here? 0:09:22.679 --> 0:09:22.760 Like? 0:09:23.400 --> 0:09:26.760 Are they actually going to finally make a good comeback? 0:09:28.240 --> 0:09:28.800 I think so. 0:09:29.160 --> 0:09:33.800 The CPI print yesterday clearly didn't help things near term, 0:09:33.960 --> 0:09:35.839 given the FED was a little bit too aggressive in 0:09:35.880 --> 0:09:39.840 December when they talked about aggressive cuts this year. But 0:09:39.880 --> 0:09:42.760 I think once the CPI does settle down to a 0:09:42.840 --> 0:09:44.719 level of people are comfortable with where the Fed's going 0:09:44.760 --> 0:09:47.360 to cut, it's a matter of when, not if, then 0:09:47.440 --> 0:09:51.160 small caps will outperform. You see that when people want 0:09:51.200 --> 0:09:54.120 to put on risk, small cap, particularly small cap growth, 0:09:54.120 --> 0:09:55.800 tends to put on a really big move, and then 0:09:55.800 --> 0:09:59.200 in Q four last year when that happened, the space 0:09:59.280 --> 0:10:03.000 really ripped. And it's been a fairly protracted period of 0:10:03.120 --> 0:10:06.640 big underperformance for the last several years. So the setup 0:10:07.080 --> 0:10:12.640 is good given valuations, earnings revisions are trending. Positive spreads, 0:10:12.640 --> 0:10:16.160 which are a great leading indicator for small cap stocks, 0:10:16.559 --> 0:10:18.760 have tightened significantly to just a little over one hundred 0:10:18.760 --> 0:10:24.200 basis points, So the odds are highly in the space's 0:10:24.240 --> 0:10:26.360 favor for it to app perform over the next twelve months. 0:10:26.480 --> 0:10:28.880 Hey Brian, Am I going to get an evaluation break 0:10:29.000 --> 0:10:32.360 if I go down into smaller mid MidCap territory relative 0:10:32.400 --> 0:10:33.440 to the S and P five hundred? 0:10:34.600 --> 0:10:37.480 Yeah. So if you look at small cap growth versus 0:10:37.559 --> 0:10:40.480 the SMP, it usually trades at a premium. Right now, 0:10:40.520 --> 0:10:44.480 it's trading around eighteen times twenty twenty five earnings versus 0:10:44.520 --> 0:10:46.960 the SMP at twenty times, so you do get a 0:10:47.000 --> 0:10:48.720 discount there, And that's part of what I was saying 0:10:48.720 --> 0:10:51.520 why the setup is good because you get a relative 0:10:51.600 --> 0:10:55.320 valuation break. Usually the growth is faster and small cap names. 0:10:55.320 --> 0:10:58.280 I wouldn't expect this upcoming cycle to be any different. 0:10:58.760 --> 0:11:01.240 So that's why you'll get probably some multiple expansion and 0:11:01.320 --> 0:11:03.440 positive ring servision which would lead to our performance over 0:11:03.480 --> 0:11:04.240 the next twelve months. 0:11:04.360 --> 0:11:06.440 Hey Brian, would you have made a different argument six 0:11:06.480 --> 0:11:08.559 months ago because small caps did have a moment last 0:11:08.640 --> 0:11:11.040 year in that moment was short lived? Is the argument 0:11:11.080 --> 0:11:11.600 different now? 0:11:13.080 --> 0:11:16.800 I would say it's honestly pretty similar. You know, we're 0:11:16.880 --> 0:11:19.600 bombs up stock pickers trying to find companies with a 0:11:19.600 --> 0:11:23.959 dislocation of fundamentals valuation. It's been a constructive setup, and 0:11:25.080 --> 0:11:27.200 six months ago it actually was good when you look 0:11:27.200 --> 0:11:30.040 into Q four and small capt putting up playing a 0:11:30.040 --> 0:11:32.120 move on to being up around nineteen percent for the 0:11:32.160 --> 0:11:36.559 year last year, so it was solid. But it has 0:11:36.640 --> 0:11:39.000 been a waiting game for small cap and you need 0:11:39.080 --> 0:11:44.280 race to cooperate with spreads for the sector to work. 0:11:45.520 --> 0:11:49.000 Fortress Aviation FTAI is the ticker. 0:11:49.360 --> 0:11:50.400 What's the call there, Brian. 0:11:52.120 --> 0:11:55.280 We like the stock, it's one of our bigger positions. 0:11:56.440 --> 0:11:59.520 It's been really huge over the last eighteen months. We 0:11:59.520 --> 0:12:03.360 think there's some significant legs left in the story for 0:12:03.400 --> 0:12:07.199 it to really work. It trades it around twenty times earnings. 0:12:07.559 --> 0:12:12.120 They have a new module repair business for engines that's 0:12:12.160 --> 0:12:14.960 growing around one hundred percent, and we think there's upside 0:12:15.000 --> 0:12:17.360 in that area, particularly when you look at all the 0:12:17.400 --> 0:12:20.040 news in the supply chain and airlines across the world 0:12:20.120 --> 0:12:23.280 really need to optimize how well their current engines were 0:12:23.360 --> 0:12:26.280 given that they can't get new engines or new planes 0:12:26.400 --> 0:12:30.280 when Boeing's having all these problems. Meanwhile, the asset value 0:12:30.320 --> 0:12:34.719 on their current their current engines has been moving up 0:12:35.160 --> 0:12:37.800 because of the supply to demand and balance created by 0:12:37.840 --> 0:12:40.280 the fact that new planes really can't make it out 0:12:40.320 --> 0:12:42.600 the door, and you have rising demand around the world 0:12:42.679 --> 0:12:45.960 continuing for passenger travel. 0:12:46.720 --> 0:12:49.800 You also have Celsius, which is it's like a Red 0:12:49.800 --> 0:12:52.000 Bull energy drink, right, I know it's different, but it's 0:12:52.040 --> 0:12:54.160 the same kind of idea. 0:12:54.520 --> 0:12:55.800 You like this company, how come? 0:12:57.360 --> 0:12:58.560 Yeah, we've owned it for a while. 0:12:59.040 --> 0:13:01.040 It's a secular market share gainer. We think in the 0:13:01.080 --> 0:13:05.280 category it's gone from around two percent share to ten 0:13:05.320 --> 0:13:07.760 percent share. We think they can reasonably get to twenty 0:13:07.800 --> 0:13:13.319 percent share. They have a partnership with Pepsi that's ramped 0:13:13.360 --> 0:13:16.640 up over the last twelve months. Pepsi's the largest distributor 0:13:17.880 --> 0:13:21.880 in the world. And fortuitously they left Budweiser, which obviously 0:13:21.960 --> 0:13:25.440 wasn't great with all the bud light issues that they 0:13:25.480 --> 0:13:29.040 were having. And we think the streets at about forty percent, 0:13:29.040 --> 0:13:31.840 they could easily grow fifty this year and the stocks 0:13:31.880 --> 0:13:34.679 has can around thirteen percent share, and as I said earlier, 0:13:34.679 --> 0:13:36.520 we think they can get to twenty And have. 0:13:36.440 --> 0:13:38.200 You ever had them on those energy drinks? No, I'm 0:13:38.280 --> 0:13:38.880 scared of them. 0:13:39.520 --> 0:13:42.040 Yeah, a little bit bitlius. 0:13:42.720 --> 0:13:45.400 Yeah, Celsius is a little bit healthier. It's all natural ingredients. 0:13:45.440 --> 0:13:48.120 You still get the boost from caffeine. It's two hundred 0:13:48.160 --> 0:13:50.640 milligrams of caffeine. So I definitely wouldn't take it for 0:13:50.720 --> 0:13:52.400 you to go to bed, but it tastes better, it's 0:13:52.400 --> 0:13:54.200 healthier than some of the other drinks out there. 0:13:54.600 --> 0:13:55.640 Yeah, I don't know. 0:13:55.760 --> 0:13:58.880 Hey, Brian, what's a what's a how do you divine 0:13:59.000 --> 0:14:01.840 kind of like the market cap? Like what's a small cap, 0:14:02.000 --> 0:14:02.720 what's a MidCap? 0:14:02.800 --> 0:14:03.000 Few? 0:14:03.000 --> 0:14:06.760 And what happens when they maybe grow out of those levels. 0:14:07.559 --> 0:14:12.479 So the last the last six months has been abnormal 0:14:12.880 --> 0:14:15.719 for the sector, and that there's been a huge bifurcation. 0:14:15.960 --> 0:14:18.640 So within the Russell two thousand growth, for example, super 0:14:18.679 --> 0:14:21.640 Micro is actually in the benchmark and it's over a 0:14:21.680 --> 0:14:24.880 thirty billion market cap. So normally I would say the 0:14:24.960 --> 0:14:28.000 range is between call it one hundred million up to 0:14:28.080 --> 0:14:31.240 six or seven billion, but it has expanded over time. 0:14:31.320 --> 0:14:34.440 The sweet spot really is in that two to five 0:14:35.000 --> 0:14:37.600 billion dollar range, and those stocks tend to be a 0:14:37.600 --> 0:14:40.960 little bit more inefficient, and we don't typically sell stock 0:14:40.960 --> 0:14:42.600 when it gets too big. It's really when we think 0:14:42.960 --> 0:14:45.600 it's efficiently priced based on the fundamentals, or we think 0:14:45.640 --> 0:14:47.720 something bad is going to happen, we'll step aside. 0:14:47.880 --> 0:14:50.160 It is a leading question because we're talking about you 0:14:50.200 --> 0:14:54.280 manage a small cap growth fund, but growth versus value 0:14:54.280 --> 0:14:56.040 in the rustle? Is it the same kind of thing 0:14:56.080 --> 0:14:59.080 as what we see in the general market growth, tech, 0:14:59.240 --> 0:14:59.800 everything else. 0:15:02.160 --> 0:15:05.840 Well, in small cap growth you do have a larger 0:15:05.880 --> 0:15:11.520 percentage of software companies, semiconductor companies, biotech, and a little 0:15:11.560 --> 0:15:15.360 bit less financials and then some of the higher growth consumers. 0:15:15.400 --> 0:15:18.680 But small cap growth and small cap value are relatively 0:15:19.320 --> 0:15:22.440 highly correlated. But in different area there can be biggest versions, 0:15:22.440 --> 0:15:26.400 Like in twenty twenty you saw growth massively outperformed value 0:15:26.440 --> 0:15:29.560 and then it completely inverted the prior year. We frankly 0:15:29.560 --> 0:15:32.960 try to be agnostic and try to find companies that 0:15:33.000 --> 0:15:36.960 are growing reasonably quickly called fifteen percent, but are inefficiently priced, 0:15:37.160 --> 0:15:38.760 So we kind of thread the needle there. 0:15:39.000 --> 0:15:41.680 There's a good article in the Bloomberg Terminal today Florida 0:15:41.720 --> 0:15:46.200 boom cools an area where home insurance costs tripled Hurricane 0:15:46.240 --> 0:15:48.640 Ian worsened already rising homeowners rates, and they call that 0:15:48.680 --> 0:15:50.240 like Naples Sarasota Cape Coral. 0:15:50.680 --> 0:15:53.160 I noticed you guys own some exposure here. 0:15:53.400 --> 0:15:57.520 HCI Group is a homeowner's insurance company based in Florida. 0:15:58.440 --> 0:15:59.800 Uhh yes, what's that? 0:16:01.360 --> 0:16:04.920 Yeah, So it's been a great stock because of the 0:16:04.960 --> 0:16:10.080 dislocation in this particular geography. And what's happened is the 0:16:10.160 --> 0:16:12.960 lawyers had the upper hand, not a big surprise for 0:16:12.960 --> 0:16:16.320 an extended period here. A lot of insurers pulled out 0:16:16.360 --> 0:16:19.120 because of that because they were having massive losses. The 0:16:19.200 --> 0:16:22.160 state legislature came in made it so that it was 0:16:22.200 --> 0:16:25.960 more reasonable and favorable to insurers. Each CI was set 0:16:26.040 --> 0:16:29.440 up well to write new premiums profitably, as well as 0:16:29.480 --> 0:16:33.240 takeover existing premiums from the state entity, which is called citizens, 0:16:33.680 --> 0:16:37.800 which allowed them to dramatically apperform expectations and earnings. Growth 0:16:37.800 --> 0:16:39.960 is significant. So it's trading eleven times zarniings. We have 0:16:39.960 --> 0:16:42.520 to think there's upside of that number. And they're just 0:16:42.560 --> 0:16:44.480 set up well because the supply demand in the area, 0:16:44.480 --> 0:16:46.760 and as you know, the area is really growing, so 0:16:46.880 --> 0:16:48.720 you have a lot of people moving here, so demand 0:16:48.760 --> 0:16:49.160 is strong. 0:16:49.400 --> 0:16:51.680 As Paul talks about all the time, you do want 0:16:51.720 --> 0:16:52.160 to move here? 0:16:52.680 --> 0:16:54.360 No, no, he doesn't that's a hard note. 0:16:54.400 --> 0:16:55.880 Okay, it's a hard no, but it does get jealous 0:16:55.880 --> 0:16:56.440 of the pond trees. 0:16:56.600 --> 0:16:56.760 Yes. 0:16:57.160 --> 0:16:59.440 What I find interesting though, when you talk about insures 0:16:59.680 --> 0:17:01.440 is that you know Florida is going to get hit 0:17:01.480 --> 0:17:03.720 with storm after storm, and it is a bit worse now, 0:17:03.760 --> 0:17:05.639 and I just wonder how the risk premium got to 0:17:05.640 --> 0:17:06.560 bake into these docks. 0:17:08.240 --> 0:17:13.719 So whether it's a big issue obviously during hurricane season, 0:17:14.800 --> 0:17:16.560 HCI has been here forever and they did a good 0:17:16.640 --> 0:17:20.280 job pricing for that risk. So you just got to 0:17:20.320 --> 0:17:22.840 assume over extended period of time that when you take 0:17:22.880 --> 0:17:24.760 your lumps, you're going to more than make up for 0:17:24.840 --> 0:17:27.679 it based on pricing, And as you've noted from that article, 0:17:27.680 --> 0:17:28.920 pricing is up huge and there are a lot of 0:17:28.920 --> 0:17:32.480 different reasons for that. In condos, for example, there was 0:17:32.480 --> 0:17:36.160 that condo that went down in Miami and that jacked 0:17:36.240 --> 0:17:40.760 up premiums all over the area, and an insurance companies 0:17:40.760 --> 0:17:45.000 were able to capitalize because now condos realized they just 0:17:45.000 --> 0:17:51.000 had to become conforming with state codes. So to me, 0:17:51.400 --> 0:17:54.600 hurricanes are a manageable risk here. There's actually been less 0:17:54.600 --> 0:17:58.360 direct hurricane impacts on Southeast Florida than in the up 0:17:58.320 --> 0:18:00.840 to the northeast where you guys are so but you 0:18:00.880 --> 0:18:03.000 do have a fair amount happening happening in the golf, 0:18:03.040 --> 0:18:05.879 but there's less population in Florida and the golf and 0:18:05.960 --> 0:18:07.000 on the southeast side. 0:18:07.280 --> 0:18:09.680 Hi, Rian, thank you so much for joining us. As always, 0:18:09.680 --> 0:18:13.080 Brian Smallock. He's a principal and portfolio manager of the 0:18:13.119 --> 0:18:16.639 Hood River Small Cap Growth Fund. Not in Bend, Oregon, 0:18:16.760 --> 0:18:20.680 but in Palm Beach Gardens, Florida. 0:18:21.000 --> 0:18:24.879 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:24.960 --> 0:18:27.600 weekdays at ten am Eastern on Apple car Play and 0:18:27.600 --> 0:18:30.240 then broud Otto with the Bloomberg Business app. Listen on 0:18:30.320 --> 0:18:33.600 demand wherever you get your podcasts, or watch us live 0:18:33.680 --> 0:18:35.040 on YouTube. 0:18:35.760 --> 0:18:37.080 I want to know what's up with Craft? 0:18:37.320 --> 0:18:40.000 So that' stock is moving a wopping six percent, it's 0:18:40.040 --> 0:18:44.240 down six percent. Organic sales decline wasn't so great. It 0:18:44.359 --> 0:18:46.440 was a lackluster end of the year and that's really 0:18:46.520 --> 0:18:47.359 dragging on sales. 0:18:47.400 --> 0:18:48.159 So what's up with that? 0:18:48.280 --> 0:18:51.639 Let's go to Jim Bartash's she has Boomberg Intelligence Senior analyst, 0:18:51.720 --> 0:18:55.760 retail Staples and packaged foods. Jen what was just so 0:18:55.880 --> 0:18:57.280 bad about Craft? 0:18:58.000 --> 0:19:01.800 Well, the big surprise for Craft that volume was down, 0:19:01.840 --> 0:19:04.440 which was not a surprise, but it was down more 0:19:04.520 --> 0:19:07.919 than prices rose, and that really put pressure on the 0:19:07.920 --> 0:19:12.040 ability to generate sales growth, and so organic sales were 0:19:12.200 --> 0:19:17.280 negative for the first time since twenty twenty. And although 0:19:17.280 --> 0:19:20.200 there's some momentum in the business, it's got people concerned. 0:19:20.760 --> 0:19:23.120 So, Jen, as I understand the package food business from 0:19:23.160 --> 0:19:25.760