WEBVTT - Understanding The Big Tech Stocks 0:00:11.680 --> 0:00:15.000 Hello, and welcome to another episode of the odd Lot Podcast. 0:00:15.000 --> 0:00:19.280 I'm Joe Watson Ball and I'm Tracy ellowit Tracy. You know, 0:00:19.520 --> 0:00:21.760 we're right in the middle of one of my favorite 0:00:21.760 --> 0:00:25.200 times of the year. Do you know what that is? Uh? 0:00:25.960 --> 0:00:29.960 Super Bowl? I don't know. It's not the super Bowl, 0:00:30.000 --> 0:00:32.839 and it was the super Bowl last night for those listening, 0:00:32.880 --> 0:00:34.600 we're recording this the day after the super Bowl. I 0:00:34.600 --> 0:00:36.320 didn't even watch it, and from what I understand, it 0:00:36.400 --> 0:00:38.559 was really boring, So I guess I didn't miss out 0:00:38.560 --> 0:00:41.320 in anything. I mean, it is February, but February is 0:00:41.320 --> 0:00:43.080 not one of my favorite times of the year because 0:00:43.080 --> 0:00:45.560 the weather is pretty miserable. No, we are in uh, 0:00:45.840 --> 0:00:48.440 the middle or maybe slightly later part of the middle 0:00:48.479 --> 0:00:51.880 of earning season. What makes you like earning season so much? 0:00:52.440 --> 0:00:54.880 Well so, for those who don't know, and probably everyone does, 0:00:56.040 --> 0:00:59.600 most companies report their earnings uh four times a year, 0:00:59.640 --> 0:01:01.480 and they tend to cluster over the span of a 0:01:01.520 --> 0:01:05.360 few weeks. And so much of the time we talk macro, 0:01:06.120 --> 0:01:09.280 we talk about the FED, we'll talk about trade, inflation, 0:01:09.440 --> 0:01:12.240 economic data or whatever. And then every once in a 0:01:12.280 --> 0:01:14.640 while we get to pause and actually hear from the 0:01:14.680 --> 0:01:17.920 companies themselves and really get a sort of a corporate 0:01:17.959 --> 0:01:20.920 perspective on how things are going. And of course, from 0:01:20.920 --> 0:01:24.080 an investor perspective, this is what really matters, because you 0:01:24.120 --> 0:01:26.200 can sort of have these broad movements and other times 0:01:26.200 --> 0:01:27.959 of the year, but if you want to know how 0:01:27.959 --> 0:01:31.679 a sort of specific investment in companies are doing, this 0:01:31.760 --> 0:01:35.000 is when you glean the most as sort of raw information. 0:01:35.600 --> 0:01:37.360 So I'm going to take the other side of this 0:01:37.440 --> 0:01:40.919 and say that I normally don't get that excited about 0:01:40.959 --> 0:01:44.800 earning season. However, I'm willing to admit that this time 0:01:44.840 --> 0:01:48.639 around it is slightly more interesting than usual. But because 0:01:48.680 --> 0:01:52.000 we have a lot of really broad sort of macro 0:01:52.400 --> 0:01:56.720 economic themes that everyone is currently talking about. So a 0:01:56.720 --> 0:01:58.440 couple that spring to mind. You know, we have to 0:01:58.480 --> 0:02:01.960 slow down in China, whether or not that's actually affecting 0:02:02.120 --> 0:02:05.520 US companies earnings, and we've seen some really heavy hitters, 0:02:05.560 --> 0:02:09.360 including Caterpillar and Apple sort of blame things on a 0:02:09.400 --> 0:02:13.200 slowdown in China. We have the retail apocalypse in the 0:02:13.320 --> 0:02:16.440 US as well, this idea that bricks and mortars stores 0:02:16.480 --> 0:02:19.880 are doing worse than other types of stores. So some big, 0:02:19.919 --> 0:02:25.400 big thematic issues and questions currently running through earning season. Yeah, absolutely, 0:02:25.440 --> 0:02:28.560 and especially the violence sell off that we saw at 0:02:28.600 --> 0:02:32.639 the end of a lot of people. You know, people 0:02:33.040 --> 0:02:36.040 adjust their future expectations based on what just happened. We 0:02:36.080 --> 0:02:38.800 saw earnings estimates comes down for a lot of companies, 0:02:38.919 --> 0:02:42.600 and everybody wanted to know because in the end fundamentals 0:02:42.720 --> 0:02:45.240 in theory or with drive markets, was that just a 0:02:45.240 --> 0:02:49.720 blip or companies really seeing a decline in profits? And 0:02:49.760 --> 0:02:52.320 the other thing that I think is interesting from a 0:02:52.360 --> 0:02:54.960 sort of sectoral perspective is that for the last couple 0:02:55.000 --> 0:02:59.000 of years, especially a handful of really red hot tech 0:02:59.040 --> 0:03:03.400 stocks that everyone was about have just dominated markets. If 0:03:03.440 --> 0:03:05.400 you own them, you've done really well. Of course, I'm 0:03:05.440 --> 0:03:10.080 talking about companies like Amazon and Facebook and Netflix and 0:03:10.120 --> 0:03:13.160 so on, Apple of course, and each one of them 0:03:13.440 --> 0:03:16.399 has sort of stumbled a little bit for different reasons, 0:03:16.440 --> 0:03:18.760 and they've come well off their highs from last summer, 0:03:19.280 --> 0:03:21.760 and I think going forward there's still this big question 0:03:21.840 --> 0:03:24.920 like are they just gonna go back to dominating their 0:03:24.960 --> 0:03:31.160 respective industries like they did in or did the sharp 0:03:31.240 --> 0:03:35.160 rewriting of these stocks sort of represent something fundamental where 0:03:35.240 --> 0:03:38.160 they're just not going to be able to put up 0:03:38.240 --> 0:03:42.120 numbers like they did in the past, right, the famous 0:03:42.120 --> 0:03:45.560 fang stocks which led the market higher basically for the 0:03:45.600 --> 0:03:49.840 past few years and then suddenly let it very, very 0:03:49.840 --> 0:03:52.680 sharply lower in the latter half of last year. And 0:03:52.680 --> 0:03:55.200 to your point about a sharp rerating, you kind of 0:03:55.240 --> 0:03:59.120 have to wonder what happened to make everyone sort of 0:03:59.160 --> 0:04:02.960 collectively wake up and realize that their expectations for all 0:04:03.000 --> 0:04:06.400 these companies were sort of out of lack of the fundamentals. Like, 0:04:06.480 --> 0:04:08.240 it's a bit chicken and egg, isn't it. Is it 0:04:08.360 --> 0:04:11.320 the market or is it actually that the fundamental picture 0:04:11.560 --> 0:04:15.280 has changed? Well, Uh, that's very well put. And today's 0:04:15.320 --> 0:04:18.119 guest on the out Lots podcast, I think is someone 0:04:18.279 --> 0:04:20.800 very well positioned to talk about it. We talked to 0:04:20.880 --> 0:04:25.040 him a lot on TV around earnings time, and I thought, Okay, 0:04:25.080 --> 0:04:27.800 I want to have a longer discussion about some of 0:04:27.800 --> 0:04:30.120 these companies. So today we're going to be talking to 0:04:30.279 --> 0:04:33.560 Lead Rogan. He is the founder and CEO of Estimized, 0:04:34.000 --> 0:04:39.599 which is a company that collects by side estimates for earnings. 0:04:39.640 --> 0:04:44.000 But he's also incredibly knowledgeable about the market overall, about 0:04:44.000 --> 0:04:47.560 the business models of these big tech companies, about why 0:04:47.720 --> 0:04:51.719 investors either get excited or lose excitement towards these companies, 0:04:51.720 --> 0:04:56.120 and so just a great perspective hopefully to answer some 0:04:56.240 --> 0:04:59.480 of the questions that we've posed right now. I've been 0:05:00.040 --> 0:05:02.799 you follow him on Twitter. He's been covering the trend 0:05:02.920 --> 0:05:06.160 we're seeing for years and years, and I think we'll 0:05:06.200 --> 0:05:08.240 have a lot to say about this topic. So Lee, 0:05:08.360 --> 0:05:10.840 thank you very much for joining us. That's that's way 0:05:10.839 --> 0:05:14.599 too kind and introduction. No, but I'm serious because often, 0:05:14.760 --> 0:05:17.840 like well, I think we tend to speak about these 0:05:17.880 --> 0:05:21.680 companies and sort of we abstract them. And so Facebook 0:05:21.760 --> 0:05:24.839 is online advertising and social media, or Apple they have 0:05:24.920 --> 0:05:26.839 to sell a lot of iPhones. And one of the 0:05:26.880 --> 0:05:29.240 things that I really enjoy talking to you about is 0:05:29.279 --> 0:05:31.279 you really seem to have a very good understanding of 0:05:31.360 --> 0:05:34.720 sort of where the where the levers are and where 0:05:34.720 --> 0:05:38.160 the hinges are and these companies that make them tick 0:05:38.240 --> 0:05:40.640 and get investors excited, and what is it about one 0:05:40.760 --> 0:05:43.240 that is more exciting and appealing to investors that have 0:05:43.320 --> 0:05:47.080 given time? And uh, I feel like we you can 0:05:47.200 --> 0:05:50.360 drill in to a level on on some of these 0:05:50.360 --> 0:05:52.480 companies in a way that most people I talk to 0:05:52.480 --> 0:05:56.880 you can't. I Admittedly, personally, I think live maybe five 0:05:56.960 --> 0:05:59.919 years in the future with like my interest in technology, 0:06:00.640 --> 0:06:04.000 but my experience as a PM and an analyst on 0:06:04.040 --> 0:06:06.200 the equity hedge fund side kind of draws me back 0:06:06.200 --> 0:06:09.200 into like, what is the rational expectation for the next 0:06:09.279 --> 0:06:12.520 you know, quarter year, two years in these stocks? So 0:06:12.560 --> 0:06:16.120 it kind of converges at some point there. But uh, yeah, 0:06:16.360 --> 0:06:18.599 we live in a time now when there's so much 0:06:18.680 --> 0:06:22.880 creative destruction in tech, and the kind of destruction disruption 0:06:23.000 --> 0:06:27.440 multiple has increased so much for both new technology companies 0:06:27.440 --> 0:06:30.120 that get disrupted by other new technology companies as well 0:06:30.120 --> 0:06:33.560 as old industrial companies and healthcare companies that get disrupted too. 0:06:33.640 --> 0:06:37.320 So yeah, it's it's interesting all around. Okay, So here's 0:06:37.360 --> 0:06:41.120 my first question, based on the interaction that you and 0:06:41.240 --> 0:06:44.320 Joe has had. Joe said, you're very very good at 0:06:44.440 --> 0:06:48.719 pulling out the different parts of different tech companies. Should 0:06:48.760 --> 0:06:54.040 we be lumping all these different companies under the umbrella 0:06:54.240 --> 0:06:57.400 term tech? Like for instance, we talked about the Fang stocks, 0:06:57.440 --> 0:07:00.800 which is a particular subset of tech it do they 0:07:00.880 --> 0:07:04.599 actually share much in common? What do we mean when 0:07:04.640 --> 0:07:07.520 we say tech or thing? So the biggest thing that 0:07:07.600 --> 0:07:10.480 I think is going on in a macro sense. And uh, 0:07:10.640 --> 0:07:15.600 we saw it when Schumer and um Um and Sanders 0:07:15.680 --> 0:07:18.840 came out and said, basically, we don't want you know, 0:07:18.920 --> 0:07:21.560 companies doing buy backs. You need to provide you know 0:07:21.640 --> 0:07:26.080 a certain amount of uh you know, uh upward revision 0:07:26.120 --> 0:07:29.080 to your labor kind of cost. And what's going on 0:07:29.240 --> 0:07:33.720 is that technology throughout the entire ecosystem is driving gross 0:07:33.760 --> 0:07:36.880 margins because you need less people to generate that same 0:07:36.920 --> 0:07:40.520 revenue dollar. So I think that there actually is a 0:07:40.880 --> 0:07:44.920 general thing across the entire spectrum that goes on. Now. 0:07:44.960 --> 0:07:48.400 Of course, you know, the business models are different, but overall, 0:07:48.520 --> 0:07:52.160 the leverage that capital has on labor at this point 0:07:52.320 --> 0:07:55.920 is just it's expanding so quickly. I have a friend 0:07:56.040 --> 0:07:59.800 who used to be a a PM and energy PM 0:07:59.800 --> 0:08:02.840 at a hedge fund here New York moved home to Austin, 0:08:02.880 --> 0:08:09.040 Texas to build a energy services technology company, right because 0:08:09.080 --> 0:08:12.200 he recognized that it's just so inefficient at this point, 0:08:12.200 --> 0:08:16.160 even in that industry. Um and I think that's happening 0:08:16.200 --> 0:08:18.880 across the board with you know, large companies and small companies. 0:08:19.400 --> 0:08:23.520 So then when we talk about the facebooks and the 0:08:23.560 --> 0:08:26.760 Amazons and the Netflix of the world. Where do they 0:08:26.800 --> 0:08:30.840 fit into this trend? Is it that they are essentially 0:08:31.480 --> 0:08:35.760 the most leveraged in terms of capital to labor or 0:08:35.800 --> 0:08:40.920 are they facilitating other entities in their drive to be 0:08:41.480 --> 0:08:46.240 uh more efficient? Honestly, I think it's the former. UM. 0:08:46.760 --> 0:08:48.520 I believe I could be wrong with this, but I 0:08:48.559 --> 0:08:53.439 believe Facebook is the company that has the highest revenue 0:08:53.520 --> 0:08:58.120 dollars per employee in history. Now they've increased headcount over 0:08:58.120 --> 0:09:00.640 the last year pretty substantially. I don't know if that's 0:09:00.640 --> 0:09:04.200 true anymore, but it definitely used to be uh. And 0:09:04.640 --> 0:09:08.600 you see that across the board. UM, it's pretty amazing 0:09:08.679 --> 0:09:12.160 what's going on, honestly, UH. And then you get things 0:09:12.240 --> 0:09:16.600 like Tinder, right which have just exploded in an entire 0:09:16.760 --> 0:09:20.040 industry of what people care about, right, Like, what is 0:09:20.160 --> 0:09:22.240 one of the most fundamental things that you have to 0:09:22.240 --> 0:09:24.280 do is you find somebody to fall in love with 0:09:24.320 --> 0:09:27.160 and marry and and be with. And these platforms have 0:09:27.240 --> 0:09:30.240 just made life so much more efficient for people. And 0:09:30.280 --> 0:09:32.960 the leverage that they have on people's dollars and time. 0:09:33.320 --> 0:09:36.600 I think the other thing that people haven't quite graphed yet, 0:09:36.840 --> 0:09:39.520 and it started with kind of the online games and 0:09:39.679 --> 0:09:41.560 remember it from like Zinga and stuff, but it was 0:09:41.600 --> 0:09:45.280 just such the like the front end of this massive 0:09:45.320 --> 0:09:49.120 trend is people are generally bored. People need to find 0:09:49.160 --> 0:09:54.000 things to do with their time. And the algorithms that 0:09:54.040 --> 0:09:56.920 we've developed that started as linear models and now our 0:09:57.000 --> 0:09:59.960 machine learning models, and the massive amounts of data that 0:10:00.040 --> 0:10:02.920 we collect on people and their behavior inside of these platforms, 0:10:02.920 --> 0:10:05.959 whether it's Amazon with their shopping habits, or Facebook with 0:10:06.000 --> 0:10:09.280 their reading habits, or or Tinder with their you know, 0:10:09.360 --> 0:10:14.080 swiping habits. It's it's on one hand, amazing and the 0:10:14.080 --> 0:10:18.800 other hand, I find incredibly dangerous that these models are 0:10:19.480 --> 0:10:23.400 managing people's behavior so well at this point that I'm 0:10:23.440 --> 0:10:27.160 not quite sure people really understand are they getting something 0:10:27.160 --> 0:10:28.800 good out of these platforms? Are they getting something but 0:10:28.840 --> 0:10:31.920 out of these platforms with the platforms are are are 0:10:31.960 --> 0:10:36.000 massaging their behavior so much And that's obviously flowing through 0:10:36.040 --> 0:10:38.680 to their you know, are poo their average revenue per user, 0:10:38.679 --> 0:10:42.720 which Facebook was up another like sevent this quarter. Um, 0:10:42.840 --> 0:10:45.520 So they have so much leverage with the technology and 0:10:45.559 --> 0:10:49.160 the data on our behavior now that that's only going 0:10:49.200 --> 0:10:52.560 to increase that these models get better. So aside from 0:10:52.679 --> 0:10:56.040 the potential societal damage. I mean, I think you just 0:10:56.200 --> 0:11:00.560 enunciated the goal case. Sorry, yeah, it is of bol case. 0:11:00.559 --> 0:11:04.120 It's also the like, yeah, it's fearful societally, but it 0:11:04.200 --> 0:11:07.040 is the bool case, right. So the bool case is 0:11:07.120 --> 0:11:10.480 sort of this, um, you know, technology and the capital 0:11:10.600 --> 0:11:13.720 that tech has basically has this huge amount of leverage 0:11:13.760 --> 0:11:17.680 on labor costs and that's a big advantage in today's market, 0:11:17.840 --> 0:11:21.280 and so they're sort of accruing all these various benefits 0:11:21.320 --> 0:11:26.720 through that. I'm curious what you think happened in the 0:11:26.840 --> 0:11:30.440 fourth quarter and sort of late third quarter of last 0:11:30.520 --> 0:11:34.600 year when we did have that big sort of sudden 0:11:34.720 --> 0:11:39.680 disappointment or disbelief in the tech companies that had previously 0:11:39.840 --> 0:11:43.520 been leaders of the market. I honestly think, you know, 0:11:43.559 --> 0:11:48.160 looking at our entire data set UM, we collect estimates 0:11:48.400 --> 0:11:51.240 on on everything in the US public markets as well 0:11:51.240 --> 0:11:55.560 as the economic estimate data, and I think the number 0:11:55.600 --> 0:11:58.240 one thing that we saw was that financial has actually 0:11:58.280 --> 0:12:02.000 led to the downside, not technology. And what that said 0:12:02.040 --> 0:12:04.080 to me, along with the fact that the credit markets 0:12:04.120 --> 0:12:08.480 were literally frozen, the corporate credit markets stopped everything for 0:12:08.559 --> 0:12:11.160 like a month and a half, that it was actually 0:12:11.160 --> 0:12:14.040 more of a macro thing than it was a technology thing. 0:12:14.480 --> 0:12:17.120 And the second those credit markets on froze, we got 0:12:17.120 --> 0:12:22.360 this huge rebound in everything. So as things freeze up, 0:12:23.120 --> 0:12:27.080 the higher beta names obviously get hit harder, and those were, 0:12:27.200 --> 0:12:30.160 you know, the tech names, and portfolio managers that you 0:12:30.200 --> 0:12:32.600 know have to liquidate things tend to liquidate the things 0:12:32.640 --> 0:12:34.640 that have been performing best, which is not a good 0:12:34.640 --> 0:12:37.120 strategy because you're supposed to hold your winners and sell 0:12:37.120 --> 0:12:40.440 your losers. But that's just what happens in hedge fund 0:12:40.440 --> 0:12:44.080 and asset management world. Um So the rerating of the 0:12:44.160 --> 0:12:47.120 multiple for these names, I don't think it was a 0:12:47.120 --> 0:12:51.720 fundamental thing. Yes, growth is slowing, obviously we are probably 0:12:51.720 --> 0:12:54.600 going to have an earnings recession in f y nineteen, 0:12:55.200 --> 0:12:58.120 But I don't think this was a technology specific thing. 0:12:58.200 --> 0:12:59.599 I think it was just when you look at the 0:12:59.640 --> 0:13:02.720 beta of some of these names, when people sold everything 0:13:02.760 --> 0:13:05.000 across the board and what was kind of a slow 0:13:05.000 --> 0:13:08.120 motion panic because of the credit markets. Yeah, these things 0:13:08.160 --> 0:13:11.880 got hit the hardest. Nonetheless, we have seen some of 0:13:11.920 --> 0:13:17.200 these big companies clearly run into some idiosyncratic stumbles and 0:13:17.320 --> 0:13:20.120 it started actually not at the end of last year, 0:13:20.160 --> 0:13:21.960 but in the middle of last year. The first bomb 0:13:22.160 --> 0:13:25.160 was Facebook. I think it was one of the biggest 0:13:25.400 --> 0:13:28.440 single day market cap losses any day, and they're like, yes, 0:13:28.480 --> 0:13:30.640 we're going to have to spend a lot more money 0:13:30.679 --> 0:13:33.439 than we thought. What is going on, Let's start with them. 0:13:33.480 --> 0:13:36.040 So what is going on with Facebook right now? Because obviously, 0:13:36.040 --> 0:13:39.440 as you said, if not currently at some point, the 0:13:39.520 --> 0:13:44.080 greatest revenue in history per employee. But we also know 0:13:44.160 --> 0:13:47.840 that there's numerous scandals. It's unclear the degree to which 0:13:47.840 --> 0:13:49.760 they're really hitting the business model or if it's just 0:13:49.800 --> 0:13:52.960 a thing that media people like to talk about. But 0:13:53.280 --> 0:13:55.600 what is going on with Facebook's business model right now? 0:13:56.320 --> 0:13:59.640 So as it is with the other kind of social 0:13:59.679 --> 0:14:04.040 media companies, I think the market still has some PTSD 0:14:04.280 --> 0:14:07.760 from the tech boom or the tech bubble, because in 0:14:07.800 --> 0:14:11.400 the tech bubble you're talking about the one. Yeah, I don't, 0:14:11.400 --> 0:14:16.600 I don't consider this last round. Um. I think people 0:14:16.640 --> 0:14:20.120 are worried that as the user growth trails off, that 0:14:20.280 --> 0:14:23.680 as it was in the tech bubble, that the business 0:14:23.720 --> 0:14:26.200 will trail off as well, and the growth will trail off. 0:14:27.040 --> 0:14:30.760 I think that is PTSD because it doesn't seem like 0:14:30.840 --> 0:14:34.480 that's actually going to happen this time. Largely because we've 0:14:34.560 --> 0:14:37.720 learned a lot, or they've learned a lot that by 0:14:37.720 --> 0:14:42.040 buying and bundling these other platforms like WhatsApp and and 0:14:42.080 --> 0:14:45.920 the rest, that they've kind of locked people into this ecosystem, 0:14:46.200 --> 0:14:49.520 especially on the social side, brilliant model using oh off 0:14:49.680 --> 0:14:52.680 to have people log into all their other stuff for 0:14:52.680 --> 0:14:55.680 for almost forever, you couldn't do Tinder without logging in 0:14:55.800 --> 0:14:58.440 via Facebook, right, they became the social graph instead of 0:14:58.480 --> 0:15:02.920 just another social platform. So I think people were and 0:15:03.000 --> 0:15:05.880 still are, in a sense worried that as the growth 0:15:05.880 --> 0:15:08.560 trails off to sub ten percent, you over your kind 0:15:08.600 --> 0:15:13.040 of user growth rates, um that they're kind of leverage 0:15:13.080 --> 0:15:15.360 on that revenue stream kind of goes away. But the 0:15:15.440 --> 0:15:18.400 r POO numbers keep growing so quickly that they keep 0:15:18.440 --> 0:15:21.120 showing that they can just turn the dial on you 0:15:21.120 --> 0:15:23.680 know what, people, what they get out of people. The 0:15:23.800 --> 0:15:27.600 regulatory side, I think is serious and that's probably what 0:15:27.720 --> 0:15:31.040 re rated the multiple because the growth hasn't slowed too much, 0:15:31.960 --> 0:15:34.840 and I think that that's, uh, it's fair. Do I 0:15:34.960 --> 0:15:37.280 really think that the government is going to clamp down 0:15:37.280 --> 0:15:40.600 too much on this, No, probably not. We probably don't 0:15:40.640 --> 0:15:44.400 have the you know, the gumption to do that politically 0:15:45.200 --> 0:15:48.560 we should, but we don't. There's too many other you know, 0:15:48.600 --> 0:15:52.720 cross currents going on there um. But I do think 0:15:52.800 --> 0:15:58.040 that people on the BYE side assume that there is 0:15:58.200 --> 0:16:01.600 more risk than upside at this point given the growth rate, 0:16:02.280 --> 0:16:05.040 because there are so many other companies that are growing 0:16:05.120 --> 0:16:07.760 so quickly, especially in the enterprise tech space, that they 0:16:07.800 --> 0:16:10.840 could just rotate into. If we were in a situation 0:16:10.920 --> 0:16:14.600 where we weren't in this big kind of enterprise technology 0:16:14.640 --> 0:16:19.080 CAPEC supercycle, maybe Facebook would have held its multiple a 0:16:19.080 --> 0:16:22.080 little bit better. But at this point, uh, you know, 0:16:22.360 --> 0:16:41.400 you can rotate into a lot of other things. So 0:16:41.600 --> 0:16:45.880 before we get into specific companies, um too much for 0:16:45.880 --> 0:16:49.160 for Facebook or for any other tech stock, or I 0:16:49.160 --> 0:16:51.200 should say, for any of the big tech stalks like 0:16:51.600 --> 0:16:55.760 the Fang stocks. Do you think the share prices that 0:16:55.800 --> 0:16:59.720 we saw before, say the middle of last year were 0:17:00.400 --> 0:17:05.920 justified by the earnings outlook or were they overly optimistic? Yeah? 0:17:05.960 --> 0:17:08.399 I mean, I think given the growth rates in the 0:17:08.920 --> 0:17:11.920 you know, thirties, forties fift for some of these big 0:17:11.920 --> 0:17:16.680 companies on the revenue side, the multiples are certainly not outlandish, 0:17:16.880 --> 0:17:20.159 and given their ability to use their balance sheets and 0:17:20.280 --> 0:17:24.040 stock to buy other high growth names. I don't see 0:17:24.040 --> 0:17:28.080 why those multiples are not sustainable. UM Now when you 0:17:28.200 --> 0:17:30.959 take a look at something like Apple, which relies on 0:17:31.000 --> 0:17:33.439 a whole different kind of set of things that is 0:17:33.480 --> 0:17:38.800 more um you know, sale of iPhones based the you 0:17:38.840 --> 0:17:42.640 know when they got over a trillion dollars in market cap. Yeah, 0:17:42.640 --> 0:17:44.560 there's some law of large numbers coming in there with 0:17:44.720 --> 0:17:47.480 just literally how many of these widgets can you sell 0:17:47.680 --> 0:17:50.320 every quarter every year? And what is the growth rate 0:17:50.359 --> 0:17:53.520 for them? And where are you in terms of UH 0:17:53.680 --> 0:17:57.560 saturation of the market. But Facebook isn't Facebook is not 0:17:57.600 --> 0:18:00.600 really growing their user base anymore. It's us How good 0:18:00.640 --> 0:18:02.679 can the platform get? How much leverage they have on 0:18:02.720 --> 0:18:05.800 the people there already? And I don't see that going 0:18:05.840 --> 0:18:09.399 away if and he's done an incredible job of just 0:18:09.560 --> 0:18:13.840 creating this universe of things that you're locked into. I 0:18:13.880 --> 0:18:16.120 want to get to Apple in a second, but before 0:18:16.160 --> 0:18:17.560 I want to go back to what you said about 0:18:17.560 --> 0:18:22.160 the sort of enterprise software upgrade supercycle in these UH 0:18:22.440 --> 0:18:27.200 enterprise software cloud names, because actually in Q four, while 0:18:27.240 --> 0:18:29.160 we saw this big sell off, there were a handful 0:18:29.160 --> 0:18:32.719 of tech companies that almost seemed completely unaffected by it. 0:18:33.400 --> 0:18:36.480 UM you know companies like work Day, which probably not 0:18:36.560 --> 0:18:38.199 a lot I think not a lot of people are 0:18:38.200 --> 0:18:39.720 probably that familiar with. But I think they're kind of 0:18:39.760 --> 0:18:43.439 like a salesforce type company. What is this class of 0:18:43.520 --> 0:18:46.639 companies that people got really excited about and why didn't 0:18:46.680 --> 0:18:48.520 they get caught up in the down draft to the 0:18:48.560 --> 0:18:53.400 same degree they did? Uh, they weren't down, they were 0:18:53.440 --> 0:18:59.000 down again high beata names. If you listen to Mark 0:18:59.040 --> 0:19:02.240 being off sale for CEO on his earnings calls the 0:19:02.320 --> 0:19:05.920 last two years, basically he has been dead on right 0:19:06.560 --> 0:19:09.200 about the fact that he believes there is a supercycle 0:19:09.240 --> 0:19:13.920 going on in capex for enterprise technology. Basically, we got 0:19:14.040 --> 0:19:17.720 the tax legislation and that freed up a lot of 0:19:17.920 --> 0:19:21.760 money for investment, supposedly right now for really large companies. 0:19:21.840 --> 0:19:24.080 We kind of saw them do share buy backs. But 0:19:24.440 --> 0:19:27.439 also when you look at the financial sector, they hadn't 0:19:27.480 --> 0:19:30.000 gone through a huge CAPEX cycle in a long time, 0:19:30.240 --> 0:19:33.120 a lot of legacy technology sitting around there. They did 0:19:33.240 --> 0:19:36.720 take the money and invest a lot in software. I 0:19:36.720 --> 0:19:39.479 think one of the reasons why people may not see 0:19:39.640 --> 0:19:44.040 as much CAPEX that they thought they would or should 0:19:44.080 --> 0:19:47.600 have happened because of those tax cuts. UM is because 0:19:47.640 --> 0:19:49.840 it doesn't cost as much money anymore to do the 0:19:50.359 --> 0:19:52.440 cap expending because a lot of it's not it's it's 0:19:52.440 --> 0:19:56.200 not physical things, right, it's it's software driving your business. Um, 0:19:56.240 --> 0:19:59.359 it's not hiring a hundred thousand people, right, it's hiring 0:19:59.359 --> 0:20:01.920 a couple of people to manage the software. And so 0:20:02.000 --> 0:20:05.440 we are seeing this massive investment in new software products 0:20:05.440 --> 0:20:09.119 sas products right that you don't have to software software 0:20:09.119 --> 0:20:10.639 is a service that you don't have to spend a 0:20:10.680 --> 0:20:14.879 ton of money to simply buy and install your you know, 0:20:14.920 --> 0:20:18.120 you're spending money every every month, every every year, right, 0:20:18.320 --> 0:20:21.520 it's not this massive investment up front and being off 0:20:21.520 --> 0:20:25.640 has been right, and it is driving everything from uh, 0:20:25.760 --> 0:20:27.960 you know HR which is kind of the workday thing, 0:20:28.040 --> 0:20:31.159 and updating how you manage your people to how you 0:20:31.200 --> 0:20:34.920 manage your you know, internal systems, how you manage your logistics, 0:20:35.480 --> 0:20:38.600 how you manage your payment network. Square is on fire 0:20:38.720 --> 0:20:42.040 right now because every you know, every store that you 0:20:42.080 --> 0:20:45.280 go to, every juice bar is now running a Square machine. Right. 0:20:45.359 --> 0:20:47.520 And and then on top of that, it's amazing that 0:20:47.640 --> 0:20:49.919 companies like this now they have all the data and 0:20:49.960 --> 0:20:53.560 they can offer that juice bar owner debt right and 0:20:53.600 --> 0:20:56.199 to you know, invest in their company and you know, 0:20:56.280 --> 0:21:00.800 kind of sidestep the whole regular financial system. So it's 0:21:00.800 --> 0:21:03.360 all adding up to a lot of leverage for these 0:21:03.400 --> 0:21:06.720 companies that are small and makecap companies mostly, but their 0:21:06.760 --> 0:21:10.520 growth rates are incredible and there's really no reason those 0:21:10.520 --> 0:21:14.000 growth rates should slow significantly unless we get a real 0:21:14.080 --> 0:21:18.760 economic downturn. Okay, I'm gonna jump in and steal Joe's 0:21:18.800 --> 0:21:24.479 idea for the next question. Uh, much like any tech entrepreneur, really, um, Apple, 0:21:24.600 --> 0:21:29.160 We're going to talk about Apple. Lots of concerns around 0:21:29.200 --> 0:21:32.080 Apple at the moment. Is it going to be able 0:21:32.119 --> 0:21:35.120 to sell as many phones in the future. Are its 0:21:35.119 --> 0:21:38.520 current phones too expensive or not innovative enough to make 0:21:38.560 --> 0:21:41.359 people buy new models? Plus you have the sort of 0:21:41.400 --> 0:21:46.520 glaring um issues around China and this notion that maybe 0:21:46.640 --> 0:21:50.639 Chinese nationals just aren't buying as many phones as they 0:21:50.720 --> 0:21:54.760 used to. Maybe they're buying from um, non Apple competitors, 0:21:54.800 --> 0:21:58.359 like you know, domestic manufacturers. Where do you stand on 0:21:58.400 --> 0:22:01.199 Apple and which concerns do you think are sort of 0:22:01.240 --> 0:22:03.880 justified at the moment. I think there's some near term 0:22:03.920 --> 0:22:07.840 concerns and some long term concerns that are much bigger. Um. 0:22:07.880 --> 0:22:11.679 I think near term the risks aren't that high. The 0:22:11.720 --> 0:22:16.280 Apple multiple is already pretty low. The installed user base, 0:22:16.560 --> 0:22:19.199 you know, for the phones isn't going away tomorrow. It's 0:22:19.240 --> 0:22:22.560 gonna take at least at least two to three years 0:22:22.920 --> 0:22:26.480 to really turn over that installed base if something else 0:22:26.520 --> 0:22:30.440 were to come out to kind of subsume the market. Um. 0:22:30.720 --> 0:22:33.719 Near term though, the risk is China really, which has 0:22:33.760 --> 0:22:35.320 been driving a lot of the growth. They were down 0:22:35.359 --> 0:22:38.960 twenty year over year and revenue this quarter this past quarter, 0:22:39.640 --> 0:22:41.680 and I think Tim Cook has a little bit less 0:22:41.760 --> 0:22:44.639 visibility than he used to on his revenue because of 0:22:44.680 --> 0:22:47.720 the fact that China is is such a question mark. UM. 0:22:47.840 --> 0:22:49.639 So I think investors have to look at that. But 0:22:49.680 --> 0:22:52.960 it's very hard to believe that they're going to be 0:22:52.960 --> 0:22:55.520 able to push the multiple for Apple down too much further. 0:22:55.520 --> 0:22:58.720 It's already a pretty cheap stock as it goes. I think, 0:22:59.080 --> 0:23:01.760 you know, people look at the services side of the company, 0:23:01.760 --> 0:23:04.479 which is growing very quickly, which has a higher margin, 0:23:04.640 --> 0:23:07.080 and say, hey, you know, this company should have a 0:23:07.119 --> 0:23:09.919 higher multiple. I don't necessarily believe that's the case, and 0:23:09.960 --> 0:23:12.119 I think the market agrees as it hasn't given the 0:23:12.160 --> 0:23:15.760 company that higher multiple. I think that that services revenue 0:23:15.760 --> 0:23:18.919