Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Hallaway, so tricy. You know,
Speaker 1: we talk a lot about some of the big trends
Speaker 1: of the last year, talk about housing, talk about various
Speaker 1: commodities there that are a short supply. We've talked a
Speaker 1: lot lately about cryptocurrencies. But the other big theme of
Speaker 1: the last year was just like the incredible power performance
Speaker 1: of big tech and defined broadly, I mean, it's just
Speaker 1: an incredible year for huge tech companies in e commerce. Absolutely.
Speaker 1: It's kind of weird because I'm thinking back to and
Speaker 1: this was the big story in markets. It was the
Speaker 1: sort of outperformance of the thing stocks and how everything
Speaker 1: had just rotated back into these big tech companies. You know,
Speaker 1: Netflix was doing incredibly well because everyone was sat at
Speaker 1: home watching movies. There's all this talk about how the
Speaker 1: COVID crisis had basically re oriented our lives even more
Speaker 1: towards tech, and now we've come out the other side
Speaker 1: of it, and there was some talk about the rotation
Speaker 1: and too value things like that, but I think in general,
Speaker 1: the big tech stocks have held up remarkably well. Right, Yeah,
Speaker 1: they're doing really well. I mean the stocks, you know,
Speaker 1: they maybe they weren't as hot as they were a
Speaker 1: year ago at the time, but the companies are still
Speaker 1: doing very well. So, you know, I think even with
Speaker 1: the quote normalization unquote of the economy, it does not
Speaker 1: seem like there's some sort of like shift away from tech.
Speaker 1: And I think there's kind of like two things going on.
Speaker 1: I mean, one is covid Um, you know, obviously forced
Speaker 1: certain economic behaviors to go more online, and so you think, okay,
Speaker 1: Zoom Video a company like that that obviously placed a
Speaker 1: lot of in person activity. We're talking over Zoom right now.
Speaker 1: And then the other of thing is, of course this
Speaker 1: other theme, which is like the sort of great acceleration thesis,
Speaker 1: which is that all the trends going into the crisis
Speaker 1: seemed to have just gotten like magnified in five years,
Speaker 1: got condensed until one year. Yeah, and I think that's
Speaker 1: probably what we're seeing right now with tech. I mean,
Speaker 1: this idea that we're all going to go into remote working. Okay,
Speaker 1: maybe we're not all going to work from home forever,
Speaker 1: but there might be some sort of hybrid model. We've
Speaker 1: all gotten very used to ordering stuff off of Amazon.
Speaker 1: But that said, even though we talk a lot about
Speaker 1: the acceleration of trends that may be beneficial to tech,
Speaker 1: there are some things coming up that could potentially be challenging.
Speaker 1: So you know, for instance, we talk about the bottlenecks,
Speaker 1: the shortages, what others actually mean for I don't know
Speaker 1: a company like Uber, right, is it going to be
Speaker 1: able to get enough drivers? Are we going to see
Speaker 1: that backlash against big tech from d C. There are
Speaker 1: certain things coming up that could be problematic exactly right, Well, anyway,
Speaker 1: I'm very excited about speaking with our guests. We're gonna
Speaker 1: be speaking with an investor in techs uh, very sort
Speaker 1: of big picture focused, big ideas, concentrated bets in the space,
Speaker 1: someone who really sort of like thinks deeply about where
Speaker 1: it's all going, had some major winners. I'm excited to
Speaker 1: welcome to odd Lots Ramparts and he is the founder
Speaker 1: and c i O of Octahedron Capital. Rom thank you
Speaker 1: so much for joining us. Well, Joe and Tracy, thank
Speaker 1: you for having me. It's a real pleasure. Yeah, this
Speaker 1: is super exciting, very excited to talk to you. What
Speaker 1: do you describe Octahedron because I don't think it's not
Speaker 1: like the typical fund. I know you have like very
Speaker 1: big handful of concentrated bets, but what do you describe
Speaker 1: exactly what is the structure of the fund and your
Speaker 1: general approach to investing. Thank you Joe for having me.
Speaker 1: So let me start with a very big picture of
Speaker 1: the top down, which is, you know what our shitness. So,
Speaker 1: our our mission is very simple and we simply want
Speaker 1: to be the absolute best partner for the world's Internet
Speaker 1: scale businesses. So so what does that mean? So I've
Speaker 1: been obsessed with this idea of inner scale for almost
Speaker 1: a decade since I started working after business school at
Speaker 1: Sanford Bernstein, where my boss and I co founded the
Speaker 1: Internet team there, and we were quite well known on
Speaker 1: Wall Street for a couple of years because of very
Speaker 1: distinctive work on Amazon where we where. We kind of
Speaker 1: discovered through math in a bunch of our other analysis
Speaker 1: that hiding inside a five or six percent retail margin
Speaker 1: business was a thirty percent margin cloud business. We helped
Speaker 1: defend Google to the transition from desktop to mobile, And
Speaker 1: what I started realizing was, you know, when when investors
Speaker 1: started thinking about the traditional offline market, we just have
Speaker 1: a very narrow definition of TAM, which I have made
Speaker 1: so many mistakes off in the past, and in fact,
Speaker 1: one of my biggest mistakes in life is to having
Speaker 1: narrow definitions. That's number one. Number two is I've started
Speaker 1: realizing and learning over the last decade that these companies
Speaker 1: not only get bigger and better over scale, but then
Speaker 1: they become these humongous they put these humongous revenue scale
Speaker 1: numbers that an early investor cannot comprehend. And number three,
Speaker 1: there are niches that are richest in niches that I
Speaker 1: did not expect. If you think about the Internet being
Speaker 1: thirty years old, if you think about what is what
Speaker 1: actually flows through the Internet, even think about net income
Speaker 1: on Internet companies as a percentage of total global net income,
Speaker 1: or even you think about what's the total market cap
Speaker 1: excluding Apple across total global market cap by almost always,
Speaker 1: you know, we size it to be less than ten percent.
Speaker 1: And let that sink in for a second. The Internet
Speaker 1: is ubiquitous, but in almost every way you think about
Speaker 1: the Internet, less than ten percent of total global value
Speaker 1: gets accrued to the Internet. So over the next twenty
Speaker 1: or thirty years, our bet is that whether it's Internet
Speaker 1: companies so traditional content marketplaces, on demand businesses, or whether
Speaker 1: it's the stuff that lubricates Internet, which happens to be
Speaker 1: payments companies and and certain software companies. You know, we
Speaker 1: think that this convergence of obviously ubiquitous computing, ubiquitous connectivity,
Speaker 1: now ubiquitous democratization of knowledge, and now post COVID ubiquitous location,
Speaker 1: we'll get us from that ten to twelve percent range
Speaker 1: to fifty to sixty in our lifetimes. So the mission is,
Speaker 1: let's be the best part note of these Internet scale companies,
Speaker 1: and that's what we do. So I have a lot
Speaker 1: of questions already, but just on this idea of being
Speaker 1: the best partner to Internet scale company is possible. My impression,
Speaker 1: I think a lot of people's impressions of the space
Speaker 1: is that there is a lot of competition to give
Speaker 1: capital to the next big thing. So, you know, obviously
Speaker 1: on the West Coast there's a bunch of people in
Speaker 1: venture capital who are fighting to find companies to up
Speaker 1: and coming companies to invest in. How competitive is the
Speaker 1: space in your mind, and how do you go about
Speaker 1: differentiating yourself from everyone else? Right, It's it's indeed competitive,
Speaker 1: and it's just gotten more competitive historically. But this is
Speaker 1: the way we distinguish ourselves. So number one, you know,
Speaker 1: Joe mentioned a very important point in the beginning, which
Speaker 1: is concentration. So as a fund, you know, we believe
Speaker 1: in essentialism. We try to constantly rank order the best
Speaker 1: ideas on our risk reward basis publicly and privately, so
Speaker 1: that forcing function does not allow us to spray and pray.
Speaker 1: The impact on the private markets is that on average
Speaker 1: per year, Octahedron makes between i'd say it in two
Speaker 1: and four investments totally in the private markets. Right. Number two,
Speaker 1: we are not vcs. We don't take boat seats. We
Speaker 1: actually co opt with some of the best vcs in
Speaker 1: the world, who are all many of them whom are
Speaker 1: investors in Octahedred. And the value that both companies see
Speaker 1: from a firm like us, which is true native crossover,
Speaker 1: is that one we don't have twenty different companies to
Speaker 1: look after. We today we have six private companies. We
Speaker 1: recently just today invested in a company called Fair whose
Speaker 1: announcement went out today. What that does for us is
Speaker 1: we can for every company is very important to us.
Speaker 1: So what we can do is our emission is to
Speaker 1: not only help those companies scale into the public markets
Speaker 1: over the next two to three years, which is kind
Speaker 1: of our sweet spot. We don't do early state stuff.
Speaker 1: That's for other vcs and and other board members. But
Speaker 1: then how do you also stay public or stay successful
Speaker 1: in the public market. And the average other fund that's
Speaker 1: competing for capital in the late stage, they are typically
Speaker 1: trying to build an index of everything going public. So
Speaker 1: it's what I would categorize a spray and pray approach.
Speaker 1: And so I would say that just the craft we
Speaker 1: create around do a few things, do it really well,
Speaker 1: go really deep, take care of every management team because
Speaker 1: it is a really important part of a portfolio. Is
Speaker 1: I think what distinguishes us from from other capital out there,
Speaker 1: and there are some fantastic companies that are involved in
Speaker 1: the private markets. But again, you know what I've learned
Speaker 1: over time is this is not a zero sum game.
Speaker 1: It's so infinitely large, and it's so infinitely big. There's
Speaker 1: so many opportunities for everybody. So we're in the business
Speaker 1: of effectively playing non zero sum games. It's not us
Speaker 1: worth somebody else, it's us and everybody else. From we
Speaker 1: talked about this idea of like obviously the last year
Speaker 1: has been particularly extraordinary, and you put out these presentations
Speaker 1: of like things you've learned, and you know, I'm curious
Speaker 1: of what your takeaway for tech is from the last year,
Speaker 1: Like was last year a period of which our lives
Speaker 1: temporarily changed? Are their permanent ranges? Like what is what
Speaker 1: did you think about tech going into the last year,
Speaker 1: and sort of like what's you what have you learned? Yeah?
Speaker 1: What have you learned? Yeah? You know, I think this
Speaker 1: is probably the most tumultus event we've all faced in
Speaker 1: our lifetimes. And I don't think anybody you know, I
Speaker 1: launched this fund in April and it was so confusing
Speaker 1: and dark and that we don't know we were flying blind. Now,
Speaker 1: I'll be honest that we did not know what was
Speaker 1: going to happen. In fact, the deck you were referencing
Speaker 1: called a few things we learned came out of that confusion,
Speaker 1: because when I started this fund with one analyst in
Speaker 1: ten million in a u M and we're obviously much
Speaker 1: bigger now, we were completely confused, like what just happened?
Speaker 1: And what do we make of this? And you know,
Speaker 1: all the credit card panel data we buy and the
Speaker 1: tracking we do of absence downloads and scale. It all went,
Speaker 1: you know, haywire, right, the numbers are all over the place.
Speaker 1: We weren't quite sure, and that's how you put it.
Speaker 1: Put the deck we read, we said, listen, we read
Speaker 1: a hundred transcripts, so let's put it all together in
Speaker 1: a format. And the format we just gave it to
Speaker 1: the world because we figured that if we're facing, if
Speaker 1: we're so confused, a lot of other people are confused
Speaker 1: as well. So that's a interesting side note on this.
Speaker 1: This debt did not happen. It happened completely by by
Speaker 1: by mistake. So what do we learned? Number one is
Speaker 1: fully convinced that the world has changed forever in almost
Speaker 1: every single way. But within that there are nuances, and
Speaker 1: it will be interesting to see what happens in the
Speaker 1: next three months when we normalize very difficult calms from
Speaker 1: last year. Let's talk about the top, which is digital advertising.
Speaker 1: Digital advertising is now the only way by which retailers
Speaker 1: and businesses can get ahold of consumers, which is why
Speaker 1: if you think about twenty one, the numbers have been
Speaker 1: off the charts, whether it's Google or Amazon, or Facebook
Speaker 1: or Snapchat or Twitter, or by dance in China. The
Speaker 1: numbers are just off the charts because how else now
Speaker 1: people have been quarantined and quiet and staying you know,
Speaker 1: basically stayed low for an ear, how are you going
Speaker 1: to acquire and re engage all these buil and some
Speaker 1: consumers who are not going to be out traveling and
Speaker 1: partying and eating out and just going about their normal
Speaker 1: lives and probably having revenged spending over the next you know,
Speaker 1: twelve months. Well, an obvious winner is digital advertising, and
Speaker 1: the scale and engagement and tools and the importance to
Speaker 1: the economy cannot be should not be underestimated. That's number one.
Speaker 1: Number two the world of SMBs. You know, for the
Speaker 1: longest time, we've had a thesis. In fact, when we
Speaker 1: think about investing in Internet scale software, SMB software is
Speaker 1: right in the bank, in the middle of our wheelhouse.
Speaker 1: And for the longest time, it was just difficult to
Speaker 1: invest in SMB in the SMB space, mostly because the mortality,
Speaker 1: you know, over the last year, it's taken a life
Speaker 1: of its own. And if you basically break up SMBs
Speaker 1: by services and non services or retailer or people that
Speaker 1: sell stuff, we've just seen this explosion of one big
Speaker 1: picture laws of entrepreneurs and lots of companies being built. Right,
Speaker 1: the pace of new business formations has been unprecedented, and
Speaker 1: therefore the use of software, whether it's payment systems like Brecks,
Speaker 1: or whether it's um you know, supply chain solutions like
Speaker 1: fair Are, the use of payroll systems like Gusto and Rippling,
Speaker 1: or you look at software that digitizes retailers like Shopify,
Speaker 1: has been unprecedented, right because you've got all these companies
Speaker 1: turning on and they've all been given the same tools
Speaker 1: that allows them to compete on the same with the
Speaker 1: same tools and services and products that the largest retailers
Speaker 1: in the world have. And even better, because digital advertising
Speaker 1: gets you out of billions of consumers, they have a
Speaker 1: shot at advertising and getting the consumers with the same
Speaker 1: level playing field the largest companies in the world have had,
Speaker 1: which means that this COVID crisis has created this sort
Speaker 1: of weird equalization mechan some for smb s. Now, it
Speaker 1: doesn't mean the big companies have been left behind in retail.
Speaker 1: What we've seen is whether it's Walmart or Target, and
Speaker 1: there's a really interesting have and have not scenario here.
Speaker 1: The Walmart's the targets in the world. The Williams Sonomas,
Speaker 1: the Nikes in the world have taken this crisis and
Speaker 1: they now have significant material portions of their revenues being
Speaker 1: implemented via e commerce and all the investments they made
Speaker 1: historically nique commerce, including innovations and buy online, pickup at shop,
Speaker 1: curbside pickup, you know, directly integrating with API s like
Speaker 1: door Dash, bringing on Instacot for local delivery. They just
Speaker 1: turned everything on a scale and it's just worked wonderfully
Speaker 1: for them. So you see this have and have not
Speaker 1: behavior and moving down the stack a little bit with
Speaker 1: an e commerce again because everyone has focused at time online,
Speaker 1: we've seen this explosion of alternative shopping mechanisms because I
Speaker 1: know you mentioned Amazon and the beginning. Amazon is now
Speaker 1: not the only game in town, and everybody in some
Speaker 1: ways are gunning for Amazon's market sad now, Amazon itself
Speaker 1: is doing really well, as you've seen from the numbers,
Speaker 1: but everyone is gunning for some version of Amazon. So
Speaker 1: what have we seen. You know, niche vertical marketplaces just
Speaker 1: scale and do really well and come to a point
Speaker 1: that Amazon can't really touch them anymore. These are examples
Speaker 1: are wayfair for example. EXE is a second example, but
Speaker 1: if you look at the private companies, two companies have
Speaker 1: been really I've been really intrigued by and I met
Speaker 1: the management teams last week. It's a company called Curated,
Speaker 1: and Curated allows you to go and buy higher value
Speaker 1: items like skis and camping gear and cycles, the stuff
Speaker 1: you would go to an r I you spend an
Speaker 1: hother there you have pressure to go buy a bike
Speaker 1: for yourself. You've probably got twenty bikes on on the
Speaker 1: rack to choose from, and you've got to go pick
Speaker 1: it up, pack it and go home, which is kind
Speaker 1: of a difficult experience. Curated brings that online and I
Speaker 1: actually used in My wife and I used it last
Speaker 1: week and it was just a wonderful experience. The other
Speaker 1: product we the other kind of like niche we see
Speaker 1: is all sorts of video based shopping, And of course
Speaker 1: this is a trend that started in China and it's
Speaker 1: very popular then. But I suspect that lots of video
Speaker 1: improvements and more more like experiences within apps are going
Speaker 1: to come to the four and take us away from
Speaker 1: the boring Amazon experience to a more kind of interactive,
Speaker 1: fun experience. So a lot of changes happening. And then
Speaker 1: one last area I want to I want to touch
Speaker 1: upon is is just on demand and and this is
Speaker 1: you know, Tracy, you alluded to Uber earlier in the conversation.
Speaker 1: Will come to that in a bit between Uber and
Speaker 1: door Dash and possibly to a lower exit instacrat in
Speaker 1: the US and almost every single company in other parts
Speaker 1: of the world. I mean, we've these have now become
Speaker 1: indispensable for many for many people's lives, right. So if
Speaker 1: you take door Dash for example, theyme just had an
Speaker 1: unprecedented kind of explosion in their overall bise this over
Speaker 1: the last twelve months. And what's funny is we tracked
Speaker 1: the data every week and shockingly it sees there's no
Speaker 1: evidence of slowdown. Now we do see some slowdown in
Speaker 1: Uber Eats for example, in a bunch of deeper slowdown
Speaker 1: and Postmates and a pretty drastic slowdown in in instacast
Speaker 1: for example. And I can explain that away by a
Speaker 1: few mechanics. But you know, door Dash by layering on
Speaker 1: products first, delivering you know, food to you, now, delivering
Speaker 1: convenience products to you, now, bring on a marketplace with
Speaker 1: groceries and safely coming on board, they've done a really
Speaker 1: good job layering on products in the overall ecosystem. But
Speaker 1: this is a worldwide phenomenon, right whether you see Rappi
Speaker 1: in Latin America, or Grab in Indonesia and and and
Speaker 1: Southeast Asia, or Kupang in Korea, on demand systems are
Speaker 1: here to stay. And and and the reason I bring up
Speaker 1: on demand is Amazon built this humongous business still growing
Speaker 1: at unprecedented rates by price selection and convenience, and all
Speaker 1: these on demand companies are gunning for that convenience part,
Speaker 1: and Amazon, I think, over the next two to four years,
Speaker 1: needs to really figure out how they bring that convenience
Speaker 1: factor down from one day to a few hours. I
Speaker 1: want to dig into a lot of these different business models.
Speaker 1: But there's one thing that you said it caught my attention,
Speaker 1: which is that you launched the new fund in April
Speaker 1: of last year. Given how you're making concentrated bets, I
Speaker 1: guess I'm just curious what it was like actually launching
Speaker 1: the fund at that time period and whether or not
Speaker 1: I'm not sure how to phrase this, but you know,
Speaker 1: if you're only investing in six companies, it feels like
Speaker 1: a lot of pressure, particularly at a time when people
Speaker 1: were talking about how this was an un precedented crisis.
Speaker 1: No one really knew what was going to happen. There
Speaker 1: was a lot of uncertainty about the future. How did
Speaker 1: you actually go about doing that and deciding on where
Speaker 1: to place the new money? Yeah, so there were so
Speaker 1: just to be clear, remember we made six private investments
Speaker 1: over the last year, So the sixth number was the
Speaker 1: number of private investments over the last fourteen months. We
Speaker 1: you know, on the public side, we typically invest between
Speaker 1: eight and twelve companies at a point in time, and
Speaker 1: everything is all it's all about risker moorday, point in
Speaker 1: time and the specific companies. Our business model, Tracy, is
Speaker 1: very different compared to the average fund where in the
Speaker 1: average one I worked in, so the average one I
Speaker 1: know of, you tend to become what I got an
Speaker 1: analyst of the week. So you've got to pitch ideas
Speaker 1: every couple of weeks and then you pitch it to
Speaker 1: your PM and hopefully goes to your book. We have
Speaker 1: a we have taken the opposite business model is something
Speaker 1: I've learned that ultimate where I lost prior to this.
Speaker 1: As a firm, we only cover between forty and sixties
Speaker 1: stocks and I have an analyst team of four or
Speaker 1: people now and every analyst covers between twelve, let's saving
Speaker 1: ten and twelve stocks. How do we pick these stocks?
Speaker 1: Because that's a collective knowledge of you know, four or
Speaker 1: five of us who between us have you know, fourty
Speaker 1: years of thirty years of experience, right, so we kind
Speaker 1: of know where the world is going to and the
Speaker 1: expectation per analysts is to become amongst the world's best
Speaker 1: analysts in those ten or twelve stocks. And we have
Speaker 1: a very kind of like common format and the way
Speaker 1: we we we we think about our driver trees, the
Speaker 1: way we build our models that we we think about
Speaker 1: valuation and so as the PM my analyst team makes
Speaker 1: it really easy for me to pick and choose between
Speaker 1: companies based on the risk reward at a point in time.
Speaker 1: But I'll tell you last year in April was a
Speaker 1: difficult time, and it was very difficult, mostly because that
Speaker 1: markets have I remember trufed on March twenty three, and
Speaker 1: by the time we got dollars in our TB account
Speaker 1: on April fifteen, the markets had rallied almost thty one
Speaker 1: if I'm not mistaken. It was just tough, guys, because
Speaker 1: you know, that my favorite companies were ten by the
Speaker 1: time I even got my first dollar. So luckily for us,
Speaker 1: there was no pressure from our LPs who to go
Speaker 1: deploy capital immediately, so we could take almost a month
Speaker 1: to slowly deploy dollars one, you know, one by one
Speaker 1: by one. There was no reason to go put all
Speaker 1: our money, you know, at one goal into the market,
Speaker 1: so we took our time and I think we kind
Speaker 1: of like led our way in over almost two months,
Speaker 1: and then by June, when we got so much more
Speaker 1: clarity about the world, we were able to kind of, um,
Speaker 1: you know, be fully invested. Of course, this is not
Speaker 1: a static game because you know, we we we raised
Speaker 1: money pretty rapidly through the crisis, and today we're you know,
Speaker 1: we're getting close to two million dollars in a u M.
Speaker 1: So the hard part is, you know, how do you
Speaker 1: keep up? Right? So there were the challenges were Number one,
Speaker 1: there were three or four moving parts. One is the
Speaker 1: markets were moving and there was no way any of
Speaker 1: us could have even anticipated the multiple expression that happened
Speaker 1: last year. Right, these companies were just beating numbers by
Speaker 1: epic proportions, like the world changed so rapidly. Even they
Speaker 1: were not able to keep up. And you mentioned a
Speaker 1: little about you know, the you know, the the challenges
Speaker 1: with acquiring supply for Uber, but all that was true.
Speaker 1: So Uber had a demand problem first. Now we have
Speaker 1: a supply problem, but it will all eventually, you know,
Speaker 1: be good for them. And once once the demand and
Speaker 1: supply work, Uber is gonna be an explosive stock in
Speaker 1: my opinion. But number three, you know, we were raising capital,
Speaker 1: so each time money came maybe we were like, man,
Speaker 1: we have all those new capital, what do we do
Speaker 1: with it? So it wasn't easy. You know, anybody who
Speaker 1: tells you starting a fund as easy as obviously you know,
Speaker 1: it's too optimistic in life. But we had it particularly hard.
Speaker 1: So I'm actually quite grateful that we kind of made
Speaker 1: our way through the process. But by June and July
Speaker 1: and we finally got up footing when we knew what
Speaker 1: we wanted to own, we kind of realized that the
Speaker 1: numbers were going to be much bigger than what we
Speaker 1: originally modeled, you know, three or four months ago when
Speaker 1: we they were in a free launch phase, we were
Speaker 1: able to play the game better. And then of course
Speaker 1: the hot part last year was I think in the
Speaker 1: month of November, the month of August, we had, you know,
Speaker 1: pretty gnarly corrections and the NAZA because that happens in
Speaker 1: a bullmarket as well, you know. But you know, nine
Speaker 1: months in, you know, by the end of the year,
Speaker 1: I felt like we were we were in a good
Speaker 1: place and we kind of knew we were seeing the
Speaker 1: ball big and we were able to take some big
Speaker 1: bet So, you know, between legging in, being slow, being careful,
Speaker 1: not being greedy immediately, and frankly just not getting formed out,
Speaker 1: I think that's how we survived the year one. So
Speaker 1: from you mentioned high valuations there, and this is the
Speaker 1: thing that comes up consistently with tech investments. You know,
Speaker 1: people like Amazon, people like Uber, but maybe they don't
Speaker 1: like it at the current multiples. How do you get
Speaker 1: comfortable with those in the tech world and how are
Speaker 1: you thinking about them? Yeah, so you know, every quarter
Speaker 1: we put up we have an Internal Growth Index of
Speaker 1: Software and Internal Growth Index of of Internet, which we
Speaker 1: published a few days ago. So number one, I would
Speaker 1: actually argue that companies like Uber and Amazon are actually
Speaker 1: sold really cheap. They're actually very cheap. This is good,
Speaker 1: I want to hear, yes, So so let me broadly
Speaker 1: break it up right now, so so ignore the peaks.
Speaker 1: So so first of all, right, next level set here.
Speaker 1: Stocks in general are very expensive, right, there's no easy
Speaker 1: deal available in the market right now. But I think
Speaker 1: some stocks are incredibly cheap, but not everything is expensive.
Speaker 1: So let's just break it because LPs asked me this
Speaker 1: all the time. So number one, let's talk about software today.
Speaker 1: Software today, you know high growth software our index and
Speaker 1: you know trust me on our index, but you know
Speaker 1: it trades at twenty times revenues, right, and the historical
Speaker 1: five year mein was was eleven times, and the pre
Speaker 1: COVID number was like fifteen times. So it's even though
Speaker 1: we've had a software correction, the reality is that there
Speaker 1: are great companies like slow Flake out that in great
Speaker 1: companies like CrowdStrike. But it's very hard to underwrite companies
Speaker 1: to fifty times for revenues. You have to take a
Speaker 1: very very long view. So there are still some companies
Speaker 1: that's que the average a pretty epic fashion. But it's
Speaker 1: software is not cheap by any definition. And now we're
Speaker 1: actually quite nervous on software. We only own two software stocks,
Speaker 1: but generally software is really expensive. Then second, we have
Speaker 1: payments payments, same story there. Payments is a new software
Speaker 1: and in fact that there's probably even higher kind of
Speaker 1: like crazy evaluations happening in payments market. I just went
Speaker 1: out a couple of days ago and that was most bleed,
Speaker 1: and and the local went out a few days ago
Speaker 1: and that was expensive. But they're all phenomenal companies, and
Speaker 1: the Local especially as I think, doing an exceptional job.
Speaker 1: So those are the two. So again, within software and payments,
Speaker 1: we're very careful. We only own Zoom and Twilio in
Speaker 1: in in software and we can talk a little bit
Speaker 1: more about that, but in and in payments we own
Speaker 1: smaller positions. But when it comes to Internet, you know
Speaker 1: I want to I'm gonna push back on valuation. So
Speaker 1: first of all, right, you talk about software being valued
Speaker 1: on a net revenue basis, you know Internet. Our framework
Speaker 1: is we we for every company we cover, we have
Speaker 1: a view on what we think long term EBITDA looks like,
Speaker 1: and we build an index around it. It turns out
Speaker 1: that you know, at thirty one times long term EBITDA
Speaker 1: and our index, it's it's it's expensive compared to the
Speaker 1: five year medium, but the five year median for that
Speaker 1: was twenty three, so you're eight or nine terms about
Speaker 1: what that is. But that is cute by companies like
Speaker 1: like Airbnb, for example. But if you take internet companies
Speaker 1: at the very bottom, the megacaps, whether it's Facebook, whether
Speaker 1: it's Google, whether it's Ali Baba and Amazon, they're not
Speaker 1: just cheap. In some cases, they are ridiculously cheap. And
Speaker 1: all Chinese companies are cheap right now. So China is
Speaker 1: a big focus for us. We own both shares and
Speaker 1: buy Dance and shares in Bindodo and shares in ali
Speaker 1: Baba in size because those stocks have beaten down not
Speaker 1: on fundamentals but on overall you know, worries on regulation.
Speaker 1: You take the next leg up, which is the large
Speaker 1: and megacap internet companies face a Google, Amazon, Those companies
Speaker 1: are going to grow, not at twenty percent for a
Speaker 1: very long time, and this year it's gonna be it's
Speaker 1: probably the best year for advertising in the history of
Speaker 1: me covering these stalks. Why because the entire world is
Speaker 1: coming online again and they have to go and acquire
Speaker 1: customers on Facebook and Google and Snapchat and Twitter. There's
Speaker 1: no other choice. Right where else do you go? So
Speaker 1: those stalks look extraordinarily cheap and and Google. You know,
Speaker 1: we own a pretty large position in Google, and the
Speaker 1: reason for that is because they have multiple ways to win,
Speaker 1: including search, which is doing really well, turning on ads
Speaker 1: and maps, YouTube is absolutely killing numbers. And oh, by
Speaker 1: the way, after Thomas Curran took over Google Cloud two
Speaker 1: years ago, he's done an a plus job in restructuring
Speaker 1: the cloud business and go to market and sales. So
Speaker 1: we're seeing evidence of real sales, motion, and and wins
Speaker 1: in the cloud business. So many ways to win at Google,
Speaker 1: especially the third stack on top of that is you know,
Speaker 1: single name Internet companies or those are expensive, so we
Speaker 1: own smaller positions in those like for example, you take
Speaker 1: a company like Carvana, phenomenal acid slightly expensive, will grow
Speaker 1: fast this year, probably beat numbers. But within this category
Speaker 1: you've got some very cheap companies. And one of our
Speaker 1: biggest positions is Peloton. Right, So the opportunity in Internet
Speaker 1: is very simple to me, just like zoom in the
Speaker 1: public markets in software, where people have basically assume that
Speaker 1: once COVID goes away, we'll all return to normal. People
Speaker 1: have beaten down the stalks of Peloton because hey, you'll
Speaker 1: all go back to the gym, and people have beaten
Speaker 1: down the stalks of others because any think the world
Speaker 1: will recover and nobody's going to go and buy stuff
Speaker 1: on Amazon anymore. That does not make sense. And so
Speaker 1: my point is, as you go up the staff to
Speaker 1: smaller companies, there are pockets of overvaluation for sure, and
Speaker 1: some some companies are not cheap, like Airbnb, for example,
Speaker 1: But in almost every other case, Internet stocks have real
Speaker 1: value today. So let me stop there. I'm curious like
Speaker 1: time frame. I mean, you know, you mentioned that there
Speaker 1: were a few tech draw downs over the last year.
Speaker 1: Uh for several months several parts of this year, there
Speaker 1: did seem to be some sort of compression in some
Speaker 1: of the tech valuations. Is the reopening happened? What do
Speaker 1: you do you think about sort of like macro conditions
Speaker 1: that will cause either people to rotate in or out
Speaker 1: of tech or is it still just you're focused on
Speaker 1: tech and you can't do anything about the sort of
Speaker 1: the broader macro. So listen, I mean, I'm not a
Speaker 1: macro person, but you know, it's foolish to say that
Speaker 1: we are not keenly aware and keenly understand. You know,
Speaker 1: macro that could hurt our companies, right, So we keep
Speaker 1: an eye on Macro, but we don't treat other companies
Speaker 1: on the back of Macro. The reality is that these
Speaker 1: companies will grow earnings between twenty and twenty five maybe
Speaker 1: for the next decade. Right. So on the one hand,
Speaker 1: we can kind of sleep well by the fact that
Speaker 1: if we just went on vacation for two years and
Speaker 1: all this Macro and this long shot term correction went away,
Speaker 1: we'd come back and these companies would be, you know,
Speaker 1: two times the size that they were we left them, right,
Speaker 1: So we can, luckily, you know, when you invest in
Speaker 1: and the only invest in secular growth businesses, we kind
Speaker 1: of have that real deep safety net that if we
Speaker 1: did nothing and we were just foolish, right and we
Speaker 1: just invested, you know, you know, two or three years out,
Speaker 1: these companies are going to be far larger business than
Speaker 1: than they are today. The only thing we don't we
Speaker 1: should not do and be careful of, is we should
Speaker 1: not be greedy and get overly fue mode to chase
Speaker 1: momentum and pay any price. But when you pay and
Speaker 1: and we're very lucky at this point in time thanks
Speaker 1: to the correction in January, and then the correction in
Speaker 1: March and the deep correction in May, and I'm sure
Speaker 1: our correction is going to happen again sometime soon. All
Speaker 1: we have to do is make sure that we served
Speaker 1: the way reasonably well and use these pockets of pain
Speaker 1: to um you know, start keep collecting our favorite assets,
Speaker 1: and also make sure that when we have short term
Speaker 1: euphoric moments like we had got two weeks ago, and
Speaker 1: then you know, in the month of February, we are
Speaker 1: appropriately sober. So there are two the worlds of thought here.
Speaker 1: The one world of thought is just put money to
Speaker 1: work and we'll all be fine on the long term.
Speaker 1: The second worldview is, you know, because we do such
Speaker 1: few things and we're actually quite good at these stalks,
Speaker 1: we should be able to do risk management on a
Speaker 1: purst talk basis better than most people. So our strategy
Speaker 1: and philosophy is when stocks are getting paid two or
Speaker 1: three years in advance, we should not be greedy. We
Speaker 1: should take some risk of the table because the market
Speaker 1: we're actually very happy. So I'll tell you a dirty secret.
Speaker 1: Last year was a phenomenal year for us, and we're
Speaker 1: very lucky. We launched in despite a difficult start. The
Speaker 1: reality is, all through last year, I was struggling, and
Speaker 1: I was struggling because each time I thought something was
Speaker 1: too expensive, it kept going ahead of me. So we
Speaker 1: were constantly felt prefer to tase momentum and we did not.
Speaker 1: But there was always the spain that man, we just
Speaker 1: missed it again. This year, while obviously we're still you know,
Speaker 1: you know, thankfully we're doing quite well for the year,
Speaker 1: the reality is this feels like more of a normal year,
Speaker 1: but with more punches in your face, if you know
Speaker 1: what I mean. So at least this year, we we
Speaker 1: have shots to take to buy good assets at at
Speaker 1: the risk prices number one, if you believe it again,
Speaker 1: all our stocks we have a variant perception on our
Speaker 1: numbers looking out three years and for the quarter and
Speaker 1: for the year. But on the other hand, you know,
Speaker 1: we have shots to take risk of the table. So
Speaker 1: this is going to be an ear where I think
Speaker 1: we served the wave versus trying to be heroes. So
Speaker 1: I would say that coming out and I think the
Speaker 1: next three months Joe and Tracy are going to be
Speaker 1: particularly hard because we are going into high inflation months
Speaker 1: with easy calms over the last last year, and we
Speaker 1: are going into the peak of there's will be a
Speaker 1: lot of tension about Hey, you know, yes we believe
Speaker 1: so the world still thinks many of these companies are
Speaker 1: screwed completely because we're all going to go back to
Speaker 1: our normal lives. We have a view that these are
Speaker 1: far more durable than the market expects. But this is
Speaker 1: going to be the quarter, maybe the next six months
Speaker 1: where companies have to prove themselves. And when you have this, uh,
Speaker 1: this tension, it's going to be tough for growth stocks,
Speaker 1: and we are very much prepared for it. So you
Speaker 1: mentioned earlier this idea that one of the things that
Speaker 1: happened over the past year is a bunch of companies
Speaker 1: sort of upped their technological game. I guess you mentioned,
Speaker 1: you know, the example of Nike and some other retailers
Speaker 1: who are now much more savvy about the way they're
Speaker 1: selling on the internet and how they're advertising and things
Speaker 1: like that. How do you differentiate between a pure tech
Speaker 1: company versus a retailer who happens to do tech well,
Speaker 1: and is there room in your fund for both of
Speaker 1: those or do you try to identify pure tech companies
Speaker 1: who are able to leverage off of the way the
Speaker 1: broader market or the broader business world is actually deploying technology.
Speaker 1: If that makes sense. You know, we are I would
Speaker 1: call myself on ourselves, we're very focused on technology, but
Speaker 1: I wouldn't say that we we don't have this narrow minded,
Speaker 1: arrogant view that brands and distribution don't make sense. Like
Speaker 1: Nike is a phenomenal asset, right and they have been
Speaker 1: able to pivot into a technologically superior focused way, And
Speaker 1: companies and and and consumers love buying stuff on Nike
Speaker 1: dot com. The same thing is through for Williams Sonoma,
Speaker 1: for example. So you know this is a constantential should
Speaker 1: be increase our coverage to encompase those companies. So for now,
Speaker 1: what we're doing is, again we are a young firm.
Speaker 1: We keep an eye. But if for example, e commerce
Speaker 1: becomes thirty or forty percent of total Nike sales or
Speaker 1: seventy percent of Nike sales over time, once we get
Speaker 1: to that, you know, high thirties, high forties levels, you
Speaker 1: can be pretty sure we'll be covering those assets. Because
Speaker 1: when it comes to e commerce in in particular, there's
Speaker 1: nothing called an e commerce company anymore. Everything will become
Speaker 1: a form of omni channel, right. So who would have
Speaker 1: thought that Amazon bought Whole Foods and then Whole Foods
Speaker 1: makes it an omnichannel retailer, right, and so on and
Speaker 1: so for the wayfarn has opened up stores, Peloton is
Speaker 1: omnichannel from the get go. Apple is omnichannel from the
Speaker 1: get go. They've got stores all over the world. And
Speaker 1: so this idea of a pure play internet commerce company
Speaker 1: in the in the next decade may not necessarily be
Speaker 1: true because at the end they're selling to humans and
Speaker 1: humans want it from experiences. Now, the trend that is
Speaker 1: I'm super excited about is the point you alluded to.
Speaker 1: You have a company like Nike, which is I think
Speaker 1: best to breed very forward looking, great technology team. They
Speaker 1: may not be able to compete with Amazon on tech
Speaker 1: per se, but what we have is a bunch of
Speaker 1: software companies that are building the intelligence components that enable
Speaker 1: the real world American international economy to compete with the
Speaker 1: tech giants. And one of those companies, for example, is
Speaker 1: data Bricks right. Data Bricks provides a machine learning components
Speaker 1: and machine learning intelligence previously the purview only of Facebook
Speaker 1: and Google and Amazon and Uber and bringing it to
Speaker 1: the mass market, and so under underneath the surface of
Speaker 1: these companies, as long as they have the will to
Speaker 1: become online first or our our online becoming an important component.
Speaker 1: There are so many digital tools and software that provide
Speaker 1: these companies the tool kit and the libraries and the
Speaker 1: lego building blocks to potentially compete with their online first contemporaries.
Speaker 1: So this gets to a question, and you know, Tracy
Speaker 1: said at the beginning, you know there's always um concerns
Speaker 1: antitrust regulation. What is your view on setting aside the
Speaker 1: regulatory concerns per se, Like, how guaranteed is it that
Speaker 1: the Facebook's amazons and alphabets of the world will still
Speaker 1: be the most dominant companies in the world, didn't say
Speaker 1: five or ten years? Or could it be that over
Speaker 1: time some of the expertise they have does get distributed
Speaker 1: like you described, and that that mode that they have, however,
Speaker 1: it is, starts to meaningfully get eroded. So every company,
Speaker 1: whether it's big or small, should and thus live in
Speaker 1: a healthy state of paranoia. Now, so again, there are
Speaker 1: many ways to answer this question. Number one is, let's
Speaker 1: take Google. I think Google is you know, it's just
Speaker 1: inconquerable in many ways. It's impossible. It's it's gonna be
Speaker 1: very very hard to get a replacement for traditional search.
Speaker 1: So I think core search and core YouTube has just
Speaker 1: under the twenty years to go, and I don't see
Speaker 1: how there's any replacement for it anytime soon. Okay, and
Speaker 1: maybe YouTube has replacements with TikTok and Facebook videos and
Speaker 1: other things, but very hard to replace it. Amazon was
Speaker 1: never going to be a monopoly anyway, So this idea
Speaker 1: of monopolies winning to the one true monopoly I think
Speaker 1: is Google and potentially Facebook, But which so which is
Speaker 1: why they are always the cross as of antitrust. Amazon
Speaker 1: was never a monopoly right even today, if you compare
Speaker 1: it to the total overall retail market, there's still a
Speaker 1: small fraction and there are many people attacking their lunch.
Speaker 1: So I think Amazon it's not vulnerable, But the reality
Speaker 1: is that everyone will start shipping away at pieces. But
Speaker 1: again this goes back to my point at the beginning.
Speaker 1: If you think of the world or the Internet world,
Speaker 1: I say zero sum game with market share fights, then
Speaker 1: of course Amazon on the threat. In fact, I would
Speaker 1: argue that take any company in the world, the market
Speaker 1: share dominant company, the market share always goes down. Amazon's
Speaker 1: market share will go down because Wayfare is growing faster
Speaker 1: than Amazon, but Amazon itself will keep growing. It's it's
Speaker 1: fair share because the overall pie is growing, right, So
Speaker 1: we're just gonna have different people trying to compete different
Speaker 1: slivers of Amazon because you know, it's a big company,
Speaker 1: and that makes sense. Facebook is very different Facebook. It
Speaker 1: is impossible to have to kind of replicate the impact
Speaker 1: that it has on small businesses around the world, either Instagram,
Speaker 1: author Facebook, or blue App. And so again, disrupting Facebook,
Speaker 1: I think it's going to be very, very hard. And
Speaker 1: I hear this constant refrain that says, oh, who uses
Speaker 1: Facebook anymore? Yeah, maybe you don't, but to use Instagram,
Speaker 1: use WhatsApp, you know, moms use and you know, my
Speaker 1: wife and you know, we use Facebook groups. The people
Speaker 1: have stopped using Facebook for their friends and they're now
Speaker 1: finding groups for themselves. So my wife and you know,
Speaker 1: found a a tide pool group for my six year
Speaker 1: old son, who who loves tipples. Right, Facebook is morphing yourself.
Speaker 1: And guess what what is Facebook doing? They're taking those
Speaker 1: dozens of billions of m of R and D spend
Speaker 1: every year and they're saying, listen, we cannot be completely
Speaker 1: dependent on Apple for distribution. We have to build our
Speaker 1: own platform. Because Apple itself realizes that that services business
Speaker 1: is a very lucrative business and they want to get
Speaker 1: a piece of that, and so hiding behind the guys
Speaker 1: of privacy, they are trying to build an entire at stack.
Speaker 1: And so you're seeing Apple and Facebook going against each other.
Speaker 1: There are plenty of self enforced errors that these companies
Speaker 1: do on themselves versus just competition, and looking ten years up,
Speaker 1: I don't think anything. So on a ten year basis,
Speaker 1: I don't think anything happens to either Facebook or Apple,
Speaker 1: or Microsoft or Google or Amazon. Nothing happened. So maybe
Speaker 1: regulatory iybe there's stress on regulatory reap of view, maybe
Speaker 1: there's antitrust tension. But the reality is that if you
Speaker 1: break up Facebook or Google, the some of the parts
Speaker 1: is bigger than the whole, and so it's hard to
Speaker 1: see in the next five or ten years anything happening
Speaker 1: to these companies. Wait, can I just press you on
Speaker 1: that regulatory point, because you know, I'm over here in
Speaker 1: Hong Kong and it's kind of striking to me that
Speaker 1: the only thing that the you know, politicians of the
Speaker 1: world or the authorities of the world seem to agree
Speaker 1: on is that they need to be limiting big text
Speaker 1: power in some ways. So in Europe, the US, and
Speaker 1: in um China there's this agreement that they need to
Speaker 1: do something about tech. Why, like, why aren't you more
Speaker 1: worried about it? Or how realistic do you think that
Speaker 1: breakup risk might actually be? So, first of all, the
Speaker 1: worries and the tension around something bad happening to big
Speaker 1: tech in quotes, it's all already embedded in their multiples.
Speaker 1: And that is why Ali Baba rates at fourteen times.
Speaker 1: And that is why Facebook crates that I think, you know,
Speaker 1: twenty times or twenty two times. And that's why these
Speaker 1: multiples by Amazon rates at sixteen times. That is why
Speaker 1: their multiples are so cheap. There's a reason why Amazon
Speaker 1: stock hasn't moved in nine months, right, it's just it's
Speaker 1: a flat line. Right. There's a lot of tension, right,
Speaker 1: and that's somewhat embedded in multiple So I'm not intelligent
Speaker 1: enough to go and predict, you know, the binomial tree
Speaker 1: of decision making in different governments. But so our framework
Speaker 1: is simple. The threat of regulation is here to stay,
Speaker 1: and the threat of regulation is real depending on country.
Speaker 1: In Europe it's very real, right, they've been finding American
Speaker 1: companies for a long time. In China, it's very very real,
Speaker 1: as we've seen over the last six months, right, and
Speaker 1: everyone is now in regulatory huddle down mood. In the US,
Speaker 1: we we hear news of regulation, and we we hear
Speaker 1: senators you know, you know, talking to these CEOs in
Speaker 1: these in these meetings, and you know, it's not clear
Speaker 1: to me what's going to come out of it. There's
Speaker 1: there's some there's some tension for sure. And so what
Speaker 1: we do is we say, let's take a very sober
Speaker 1: view of this. The only thing we can control in
Speaker 1: our hands is our view on where the business grows,
Speaker 1: because we are business analysts first, and therefore where the
Speaker 1: revenues grow, where is free cash flow grow, whereas ebada
Speaker 1: grow over time? And then let us put suitably sober
Speaker 1: and and low multiples have needed on these stocks and
Speaker 1: still see if we can make a real return of
Speaker 1: not which is kind of what we aspire to me
Speaker 1: and everything else for us is gravy on the cake.
Speaker 1: It's it's just all gravy. Like pick everything else the
Speaker 1: upside optionality for us, And so I think we just
Speaker 1: have to take that very sober view on what happens
Speaker 1: to the world. But the real the reality is do
Speaker 1: you take China as a case study the Chinese government
Speaker 1: when you October, there's all this news about and Financial
Speaker 1: So Ali Baba being unfairly targeted. First of all, that
Speaker 1: is completely wrong. They were targeting everybody. It just so
Speaker 1: happened that at a point in time, after one of
Speaker 1: the founders comments, it gave them the reason to go
Speaker 1: behind Ali Baba. And as a result of that, it
Speaker 1: was they cracked on and Financial the I p O,
Speaker 1: which is the right thing to do, because you cannot
Speaker 1: have a consumer lending business in a country as big
Speaker 1: as and Financial correct that creates systematic risk to the
Speaker 1: Chinese financial system. So I would argue they did the
Speaker 1: right thing early on by slowing it down completely. So actually,
Speaker 1: kudos to those regulators. You can't have a lending business
Speaker 1: growing as fast as they were growing. Last number one
Speaker 1: now number two is Ali Baba historically was the propagator
Speaker 1: of certain anti monopoly practices. But it wasn't that they
Speaker 1: cracked on Ali Baba alone. First of all, they were
Speaker 1: cracking on Alibaba for three years task to pressure from
Speaker 1: Pindo though, which is which is the right thing to do.
Speaker 1: But now Pindo though and made Toun themselves are in
Speaker 1: the regularly crosshairs because they are being quite aggressive in
Speaker 1: growing a specific form of grocery called community group buying.
Speaker 1: So what happens to you know, all the you know
Speaker 1: people in the wet markets in China. I would argue
Speaker 1: that I think the Chinese regulatory strategy is the right thing,
Speaker 1: because things in China get incredibly aggressively competitive and then
Speaker 1: creates a lot of you know, second order effects that
Speaker 1: nobody wants. I don't think the regulatory authorities there want
Speaker 1: to destroy their local champions. So the reason why we're
Speaker 1: actually quite confident about investing in China is we've been
Speaker 1: through the Spain a few times in the past. We've
Speaker 1: seen this post Ali Baba Ipo. We've see this in
Speaker 1: two thousand and fifteen, in August fifteen. So we've seen
Speaker 1: these pockets of six months to one year where things
Speaker 1: get really bad. But if you look beyond that one,
Speaker 1: they're and luckily for us, we have you know, three
Speaker 1: year locked in capital, we have the we're lucky enough
Speaker 1: to have the place to look out one to two
Speaker 1: years and then think about what those companies could look like,
Speaker 1: which is why China is such a great place to
Speaker 1: invest right now in my opinion. Now let's move to
Speaker 1: the US. In the US, I hope that we don't
Speaker 1: shoot our national champions in the foot. Now, as you know,
Speaker 1: as an American resident like I, I just find it.
Speaker 1: I'm stressed out when I when I look at the
Speaker 1: CEO is being interrogated in the Senate, and for right reasons.
Speaker 1: I get why they are, but I feel like we
Speaker 1: are behind the curve in our sophistication and understanding of
Speaker 1: what these companies do. But my views, okay, the worst
Speaker 1: case outcome is that these companies get regulated, and what
Speaker 1: is the ultimate impact regulation they break up these companies.
Speaker 1: The way I'm at peace about this is that will
Speaker 1: create a lot of tension in these companies. And the
Speaker 1: multiples are low, so maybe they even go low up.
Speaker 1: And I actually argue that on a longer term basis,
Speaker 1: if Google got broken up, or Amazon got broken up,
Speaker 1: or or our Facebook or group broken up, it would
Speaker 1: actually create a couple of incremental trillion dollars and equity value,
Speaker 1: because if you think about Amazon today, there's a trillion
Speaker 1: dollars embedded today in the cloud business. Out three years,
Speaker 1: you add international retail, that's a few hundred billion dollars
Speaker 1: effectively today at Amazon stock at close to three dollars
Speaker 1: a share, I'm going to argue that you get the
Speaker 1: entire US business and the ads business for free. And
Speaker 1: that's the beauty. We did the Anazon Ali Baba in
Speaker 1: Ali Baba's case and here and this is this is
Speaker 1: super interesting. It's such a cheap stock right now that
Speaker 1: in three years under our estimates, if you strip out
Speaker 1: the value of Ali Cloud and give it a low multiple,
Speaker 1: strip out the value of and financials, give it a
Speaker 1: sober multiple, sober equity value. Give some credit for their
Speaker 1: on demands. This is in some some value for their
Speaker 1: non retailed businesses, sorry that their retail offline businesses. You
Speaker 1: buy the core business Coal, Bow and Team all which
Speaker 1: by the way, were the hottest things back in the
Speaker 1: day in China, still growing gm V between well and
Speaker 1: seventeen percent for as far as the eye can see.
Speaker 1: And remember they're still undemonetized, so monetization probably grows eighteen
Speaker 1: for as long as the eye can see if you
Speaker 1: do the math there, you get that business growing at
Speaker 1: high tails to low twenties for four times EBITDA looking
Speaker 1: out three years and negative EBADA looking out five years. Negative.
Speaker 1: You actually get paid to own those businesses. And again
Speaker 1: when you when you think about all the drivers of
Speaker 1: what these companies are doing, the same thing with Peloton, right,
Speaker 1: the company is such an incredible machine of hardware and
Speaker 1: software well verticalized, and you strip out the hardware business,
Speaker 1: you get paid to own the entire subscription business, which
Speaker 1: is the Peloton app and what you pay forty bucks
Speaker 1: forty bucks a month for. So there's just so much
Speaker 1: tremendous value hidden that is not captured in the headline
Speaker 1: EPs earnings of the headline ebadwarn nest. I guess that
Speaker 1: real quickly and and just real briefly. I mean, what
Speaker 1: would you say was the biggest surprise, uh for you?
Speaker 1: Like what actually was there anything in the last year
Speaker 1: either in the real economy or market they genuinely sort
Speaker 1: of like went against your intuitions or assumption. Honestly, the
Speaker 1: entire ear last year, Joe went again, I guess that's
Speaker 1: a pretty good answer. The entire year it was a surprise,
Speaker 1: and so I would argue that you know, you know,
Speaker 1: we've been constantly humbled in this business. You get humbled
Speaker 1: all the time, and last year was a humbling ear.
Speaker 1: Even though we did well, it was a humbling ear
Speaker 1: and lots of new learnings and you know, hopefully it
Speaker 1: sets us up for a great next many years. Well,
Speaker 1: good luck and Realm, thank you so much for coming
Speaker 1: on a lot. I so appreciated, Tracy and Joe, thank
Speaker 1: you for having me. Thanks. That was really good, Tracy,
Speaker 1: I really like that one. You know, if they're all
Speaker 1: like the sort of like lumber and housing and crypto one.
Speaker 1: It was nice to hear like here's a let's talk
Speaker 1: some tech stocks talk about tech stocks. Yeah, it was
Speaker 1: very comforting. I do think though, I mean I do
Speaker 1: think directionally, I agree with rom just this idea that
Speaker 1: the world is going to go back to normal and
Speaker 1: all these people who have been buying stuff off Amazon
Speaker 1: or you know, watching things on Netflix and doing meetings
Speaker 1: on zoom um are all going to stop doing that.
Speaker 1: Like that seems wrong to me. And you know the
Speaker 1: fact that we are doing this podcast over zoom um
Speaker 1: and I'm about to order something off of Amazon like
Speaker 1: you know, you can see it in your day to
Speaker 1: day life. Yeah, no, exactly right, And I kind of
Speaker 1: got this appression that I mean, the way I was like,
Speaker 1: we're I think they sort of like go back to
Speaker 1: normal is like a bad frame. I mean, yes, like
Speaker 1: we're going outside board. People are going to go back
Speaker 1: to the offices. But his point was, well, okay, like
Speaker 1: that's still gonna mean that businesses. It's doesn't mean that
Speaker 1: businesses aren't going to use Facebook or Instagram for advertising.
Speaker 1: And I thought it was that was an interesting point,
Speaker 1: which is that like, look, a lot of people are
Speaker 1: gonna do a lot of spending. We're gonna travel more
Speaker 1: this year than we did last year. We're gonna go
Speaker 1: to restaurants more than we did last year. Well, that
Speaker 1: creates a lot of demand for advertising in the place
Speaker 1: people advertising is online, and so this idea of like
Speaker 1: a shift offline in some ways it is true, but
Speaker 1: in some ways it just means more digital business. Yeah.
Speaker 1: I think that's right. No, you know, it's just like
Speaker 1: another thing that I thought about is this, like you know,
Speaker 1: people for years of like text dogs are expensive, right,
Speaker 1: Like at any time we could have recorded this podcast
Speaker 1: in the last decade and someone would have said tech
Speaker 1: stocks are expensive, but clearly and like in retrospect, they weren't. Right.
Speaker 1: Like in retrospect, not only did the stocks go up
Speaker 1: a lot more, but also like they crushed. You know,
Speaker 1: if you look at say Amazon's earnings today, I'm certain
Speaker 1: it's higher than it was. It's higher than what people
Speaker 1: would have predicted. And so I think, like one way
Speaker 1: to interpret his thesis is just like all these companies
Speaker 1: have been underestimated for years, and there's no reason to
Speaker 1: think that they're not still underestimated even after they've done
Speaker 1: so well well. This is the one thing that I
Speaker 1: was thinking about, which is how much of that success
Speaker 1: is fundamentals versus how much of it is flow and
Speaker 1: the idea of you know, if you're Amazon, you're consistently
Speaker 1: a winner, and you just sort of attract more and
Speaker 1: more money and eventually it becomes a sort of self
Speaker 1: fulfilling cycle. And that's one reason why, um, the stock
Speaker 1: price never comes down and the valuation gets really expensive
Speaker 1: because there's nothing to sort of break the cycle of
Speaker 1: new money flowing into it. But then on the other hand,
Speaker 1: like you know, as long as Amazon doesn't go bust,
Speaker 1: which it seems very unlikely to do. Maybe that doesn't
Speaker 1: matter so much, right, It just becomes a sort of
Speaker 1: like battle of money that rolls along, collecting more money
Speaker 1: and getting even bigger. Right and again, to be fair,
Speaker 1: like they do, these companies do seem to crush earnings
Speaker 1: estimates year after year after year. So there's there's also
Speaker 1: that that also helps helps a little bit, doesn't it. Yeah, alright,
Speaker 1: shall we leave it there? Let's leave it there. Okay,
Speaker 1: this has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe wi Isn't All. You can
Speaker 1: follow me on Twitter at the Stalwart. And you can
Speaker 1: follow our guest Rom Parmi Saran. He's on Twitter at
Speaker 1: Underscore rom Underscore. Follow our producer Laura Carlson, She's at
Speaker 1: Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca
Speaker 1: Levi at Francesca Today, and check out all of our
Speaker 1: podcasts at Bloomberg under the handle at podcasts. Thanks for
Speaker 1: listening to