The market has been volatile pretty much throughout the entire pandemic. As we start to put the past 15 or so months behind us, will that change? We’ll look at the path to recovery for growth stocks, whether the pandemic has created any permanent behavioral changes, and we’ll discuss what conventional wisdom is getting wrong. 

Companies Mentioned

Fastly (NYSE:FSLY)

Twilio (NYSE:TWLO)

AT&T (NYSE:T)

Palantir Technologies (NYSE:PLTR)

C3.AI (NYSE:AI)

Discovery Communications (NASDAQ:DISCA)

Transcript

Sam Bailey

Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Dan Kline  

Good afternoon 7investors and welcome to the Monday edition of 7investing Now my name of course is Daniel Brooks Klein. I am the host of the program. I’m being joined today by Maxx Chatsko and Steve Symington. As you could tell I went to a water park this weekend. So despite a ton of sunblock, I am redder than usual. Steve which mountain were you climbing or which like elk were you wrestling was going on this weekend?

Steve Symington  

I was on a boat actually. Fishing for walleye. So I have a pretty wicked farmer tan myself like it’s, yeah, so my my whole body feels crispy right now it hurts.

Dan Kline  

I also have a very stark outline where my watches were like, it looks like I’m wearing a watch. And I’m not but yeah, I’ve actually been taking my watch off at the pool trying to tan this area. Maxx Chatsko not as nice in Pittsburgh at the moment. What did you do this weekend?

Maxx Chatsko  

Well, Saturday, I was kind of knocked on my behind here recovering from my second dose. So I kind of laid low this weekend Dan.

Dan Kline  

Second dose is of course code for Maxx drank too much? No, of course it is the vaccine. We’re gonna talk for big questions about the stock market. It’s been a very strange set of conditions. After that. I’m going to talk about the very bizarre merger between AT&T and Discovery. I do not like this one. Just because you’re both media companies. This would be like if you set your two friends up based solely on height, you didn’t look at gender. You didn’t look at preferences. You didn’t look at anything. You’re just like, You’re both five, nine, perfect. You can share clothes like like this doesn’t make any sense at all. I understand why they’re doing it. I’d fire everybody who works at AT&T. If I was Discovery, I would wonder why do I want this none of these assets. You know, it’s not like Guy Fieri, can cross over to Game of Thrones like this makes very, very little sense. And I’ll tell you what, I really think coming up later on. Then I’ve got our own Anirban Mahanti on Twilio and Fastly earning. So it is an action packed show.

And of course, we would love your questions and comments. We’re going pretty broad in the market here. So ask us whatever you like, say good morning. Well say good afternoon, depending where you are. Let’s start with the first question. I will go to Maxx first one will growth stocks recover quickly, it has been a brutal time for growth stocks, and will they recover quickly, Maxx.

Maxx Chatsko  

So Matt and I on the team here tend to think a little bit differently about valuations. And we thought you know, in the last year, hey, these are getting a little crazy. So I think the recent pullback makes sense. And you know, although I’m not gonna say like don’t buy, get out of the market, you know, hoard cans of beans and ammunition. No, I’ve been buying throughout, you know, every month, right? So you can say buy the dip, but I would say set your expectations to be realistic. Don’t expect, you know, if you buy now that you’re going to be sitting on gains in two months, right, I think it’d be realistic about how the market is starting to place a value on growth. I think those premiums are starting to deflate a little bit. And it’s gonna be a little touch and go here in the summer, right? The recoveries already kind of upon us. I think a lot of high expectations are priced in, I can see a lot of sideways movement maybe until the next earnings releases and updates, you know, at the end of July through mid August. So we might not get a whole lot of excitement here in the next couple months.

Dan Kline  

This is also a great time to look at the fundamentals, not us at 7investing. But lots of people in the investing world got caught up in buying the latest tech SPAC of a company they didn’t really understand this is a real time to go through your portfolio, especially when it comes to newer growth stocks. And go, Why did I buy this? And does that reason still make sense? You’re seeing irrational exuberance when it comes to some of these earnings reports. You know, you’ll get you’ll get Disney reporting 9 million new subscribers and the market to be like, Oh, that’s terrible. Like it should have been faster. And then you’ll get Fubo adding 100,000 subscribers, which is irrelevant number and the markets like hurray, this is absolutely awesome. So it is a very, very strange market. But Steve, you own some growth stocks. What are your thoughts here?

Steve Symington  

Right. So the question, will growth stocks recover quickly? I think the responsible answer is nobody knows. Right. But one thing we do need to keep in mind is that while stocks, big pullbacks are more common than you think. But when stocks do pull back or even cohorts of stocks, right, while the rest of the markets, you know, broad indexes are at all time highs, growth stocks are falling hard. They tend to fall a lot harder and faster than they rebound. So, but they they tend to climb over time more than they fall. So that’s sort of the, the point of patience, right is we have to recognize that stocks fall hard and fast. And the rebound is not always quick. But I think, you know, some growth stocks might recover quickly when it becomes evident that the pullback was sort of overblown for certain names. But I think some consolidation, as Maxx was sort of alluding to, would be a healthy thing. If we had some kind of sideways movement and built some bases in order to allow a broader return to growth, or a broader bull market to kind of resume

Dan Kline  

I would also tune out the whole concept of recovery. I’ve said this many times, but we’re not smashing our computers and never use Zoom again. We’re just gonna like go to the mall without a mask. Like, it’s not some like and yeah, maybe we’ll travel a little bit more this summer, but I don’t know but you Steve or Maxx, but when I travel, my phone comes with me like, I’m still gonna check my 7investing Slack. I’m still gonna broadcast from all sorts of places. It’s not like I’m going technology free.

We got a great comment from Daniel Kern, we’re gonna take this one before we move to item, big question number two, “I bought half my portfolio because my buddies at 7 recommended them, and that is still a great thesis”. Yeah. We’re in this for the long term. We don’t, you know, sour on a stock because it had a bad week or because, you know, I hate even using the word analyst, because it’s basically like, like, you know, taking fortune cookie advice, like, you know, these are not people who are really looking at the long term, we’re analyzing companies breaking it down, and thinking about where they’re going to be in three years, five years, 10 years, not where they’re going to be when some, you know, guy goes on CNBC, it says, Oh, it’s gonna be down 4% tomorrow, like, that’s just preposterous. It’s like, it’s like predicting second quarter basketball scores, it makes absolutely no sense.

Question number two, and I’ll start with Steve, on this one. “Is there ever a time you don’t add new money to your portfolio?”

Steve Symington  

I mean, when I don’t have it, I guess that’s it. But, this is a great question because, you know, it sort of touches on something that I’ve kind of tweeted about of the last week, sort of the wealth hack tweet that some of you might have remembered. It’s, it’s what you should do is just continuously add to your portfolio month after month, as your cash flow allows, take any money that you can live without for a couple of years, and put it to work in the stock market every month. No matter what just find some good high quality companies, the rest kind of takes care of itself, you know, and I see too many people that say, Alright, I’ve got $5,000. And they put it all in the stock market all at once. And then they’re mad when all of it pulls back at once like, well, just buy continuously for your entire life. And these dips in these spikes, and all of it just sort of evens itself out. If you’re buying shares of great companies at reasonable valuations. And just continuously.

Dan Kline  

Yeah, I’ll chime in and say that two of my 7investing picks are incredibly solid companies that have had really strong earnings reports. And for market sentiment reasons, the stocks haven’t performed that well, that eventually catches up where at some point, the analysts going like, “well, they’re not gonna be able to do that, well, next quarter”, doesn’t play out, or bad results get interpreted is surprisingly good. And you have the opposite effect, you really can’t look at quarters, you have to look at years, Maxx Chatsko, your thoughts on this one?

Maxx Chatsko  

Same as what Steve said, you know, only time, you know, add is when I don’t have the money. But maybe you know, here, let me pivot this a little bit to like younger investors, right. I’m the youngest on the team. Just rub that in one more time. But like, like, you know, when you’re in your 20’s, or whatever, you don’t always have money, or it feels like so, you know, like a futile uphill climb, like, I’m gonna put $100 bucks in my portfolio every month, or maybe it’s only $50 bucks. But do it, do it. I mean, if you order out food, like, you know, four or five times a month, maybe three times a month, maybe cut back on one time, that’s $40-$50 bucks, you have. And again, it seems like such a small and insignificant amount, but you know, $50 bucks a month, that’s $600 a year, by the time you’re 30, which is what age I am now, just rubbing that in one more time. You know, that adds up, that’s, you know, thousands of dollars and the power of compound interest really plays out there. Plus, you’re forming good habits. Maybe you have more money by the time you’re 30 hopefully, and you’re putting more in every month. So you know, form those habits, and your future self will thank you.

Dan Kline  

If I could go back in time, the number one thing I would do is in my 20’s when I was making no money and living in New York, I would put that $50 a month in. Now it wasn’t as easy to do back then there wasn’t commission free trading. You really kind of had to use a broker, a broker didn’t want to deal with, you know, my $50 investment. But if the conditions were what they are now, I would go back and make those very, very tiny investments. Because now that I’m in my 40’s, you know, I’m more than a Maxx-and-a-half here, there are I don’t have that timetable. I can’t say like, well, when I’m 87, I’ll be able to use some of this money. Well, as much as I hope to work forever and never, quote, “retire”, by 87, you might not be able to make a full income, you might not be in a position, you might just be tired, like, I don’t usually get tired. So, you know, that could change in the next 40 years. So I have to sort of plan on that normal like 67-70 needing some of that money. So you know, the compounding isn’t as long but no matter what age you are, it is always a good time to invest.

We would love your questions and comments, questions about investing questions about whatever you would like questions about our weekend, recipes, whatever it is, we are happy to talk to you.

Question number three, “are investors overthinking when it comes to potential change behavior due to the pandemic?” I fully think they’re overthinking this, like, it’s Yeah, there’s gonna be a little surge in travel. It’s not like we’re all of a sudden gonna be like, Alright, let’s spend the next six months in Vegas. Maxx Chatsko. Your thoughts here?

Maxx Chatsko  

Yeah, I almost think this like is like a narrative in the media, and they write articles about it. Is there any data that that’s actually happening, like are investors, like, I’m selling all my tech stocks to buy restaurants and travel? Like, is that actually, is there data around that, Dan?

Dan Kline  

Yeah, so we’ve seen a little bit of shift in what stocks people are buying, but I would call that, you know, a retail level, not so much an institutional level. And we are seeing some travel trends, if you look at like Disney bookings, they’re way up for the holiday season, obviously, compared to last year where they were, you know, more or less closed, if not closed in that time period. But I would expect this to be the busiest Walt Disney World Christmas, you know, Thanksgiving through Christmas ever if they’re open at full capacity with all the hotels, I expect, it’s going to take a while on say, like the cruise lines to ramp up, you know, or for, you know, all inclusives are going to continue to do really well. I think, yeah, is Chili’s is going to do better, because we can eat out a little more freely now. Sure. But I don’t think any of those are going to be massive trends. Like, yeah, I’m gonna have my whole family over for a party in June. And that’s, that’s not typical. Am I going to do that every month? So might that be good for the grocery store near me, but for the most part, I actually think, you know, this is being wildly overplayed, Steve your thoughts there.

Maxx Chatsko  

Well, one, one quick comment there just again. So I agree with that. And, you know, I think it’s important if we, if we zoom out and take a step back, you know, remember that the the pandemic pulled ahead by several years, the digital transformation of most industries. So that growth is real and sustaining. Just because we’re going to go out to bars this summer, we couldn’t do that last year doesn’t mean, you know, tech companies or growth stocks or are no longer viable businesses, or anything that growth’s gonna vaporize. So, you know, think about digital transformations. And these trends have been accelerated by several years now.

Dan Kline  

Yeah. And that that is also a negative too. So if you look at movie theaters, and I just wrote a piece about this, this accelerated, I don’t want to call it the death of movie theaters. But the change of movie theaters, the need for less movie theaters is probably the way to put it. So you’re gonna see this all over. But again, do I think everyone’s gonna like stop and smell the roses and appreciate life for the long term? No, that’s not particularly American, in how we do things. Steve, your thoughts on this one?

Steve Symington  

Yeah. Maxx, the whipper snappers took the words right out of my mouth. Actually, that was that was really my my thoughts there. I agree with you on the retail side, the consumer side. But there is undeniable progress. And there’s been an undeniable acceleration in enterprise digital transformation. And we’ve seen that with a lot of businesses that basically they got right in the middle of the pandemic. And they said, well, we’re gonna do this eventually, anyway. Now’s the time. And so they they accelerated their digital transformation efforts. So your company’s kind of shifting to a cloud, shifting to recurring product models. And really kind of capitalizing on consumers behavior, however temporary, it might be in order to kind of push for those that spending. So I don’t know how much of that is pulled forward, that will not happen. Going forward. I think a lot of it’s going to prove sustainable because this is once we’ve moved to a cloud based kind of digitized enterprise model, then it’s just continuing spending on that model to basically sustain it. So yeah, that’s the big thing is, is where change to behavior do the pandemic is really reflected the most I think, is in the enterprise, not necessarily with consumers.

Dan Kline  

Yeah, we’re also going to see some other change behavior. I’d be surprised if the suit came back strong. I would think that travel patterns are going to change I’ve talked to you know, I’ve talked a lot about how like the lines at your coffee shop are different because commute patterns are different. I think we’re gonna see some changes to airfare routes, because Maybe like a lot of people who work in Silicon Valley moved to Nevada or Arizona, but they’re still gonna have to regularly go to the office. So we might see routes that weren’t traditionally commuter routes, like you know, you could always find New York to Boston 10 times a day or, or West Palm Beach to Baltimore fifteen times a day, like whatever it is, I think you’re gonna see more of that. But those are going to be sort of like micro trends that happened, because, you know, maybe companies realize like, all right, like it’s good to be in person, but we don’t have to be in person. 7investing audience, you have been awfully quiet. We would love to hear some more questions and comments. We of course, know you’re sitting back and basking in Maxx and Steve’s wisdom here, but you are welcome to participate as well.

Question four, we’re going to finish up with this one. “What’s something that conventional wisdom has wrong?” Mine would be that the Cowboys are going to be good next year. But that’s, that’s not the direction I’m going in Steve Symington your thoughts.

Steve Symington  

Um, so I guess we’ll we’ll give this an investing spin. I mean, there’s a lot of a lot of directions, we could take that right. But something conventional wisdom has wrong, I think the the wisdom that you should always buy low and sell high, right? I think in some, in some cases, that makes a lot of sense, where it’s like, you know, what, this pullback is unmerited, I’m going to take advantage of it. But in a lot of cases, buy high, sell higher, makes sense. Or buy high. And just, you know, just continue adding I guess, and it’s you know, sell when a life event merits it. But buy high sell higher, I think is maybe a better piece of conventional wisdom than buy low, sell high, because that just sort of implies a trading attitude. And we’re long term investors here.

Dan Kline  

Now, don’t take that to mean buy high and sell low. That would be a, that would be a terrible idea. I’m teasing a little bit. But we don’t think in terms of price targets. We don’t think in terms of where you buy, we see some comments rolling in, we will take them after Maxx weighs in on this one.

Maxx Chatsko  

Yeah, just to echo what Steve said. I mean, and that goes back to the first question, right? So like, when we said, Do you expect a quick recovery in some of these growth stocks? I think the answer is necessarily, no. But again, it’s like in three or five years doesn’t matter, right? Like all these good businesses are gonna be bigger. So that’s, that’s what I’m getting at with that. I’m not trying to, you know, time markets or anything.

Conventional wisdom, everyone gets wrong. I think I’m always I always question when companies and businesses chase growth in China, I think this decade is gonna be very different geopolitically, we’re already starting to see that now. And, you know, I see some things like those long tail risk, what if American companies or western companies, are kind of banned from China, or vice versa. And suddenly, all that, you know, the rug gets pulled out from under those businesses, and some of those are very dependent on those growth profiles in the Chinese markets. Maybe even you know, I don’t know what, like Tesla has, like some significant growth prospects there, obviously, like Apple and Starbucks they’ll be fine. But I think that it would be a pretty big shock to the markets. You know, if anything happened there, I don’t think we’re going to have this quite as globally connected economy, as we have now, 10 years from now.

Dan Kline  

I’ll play a little bit, you know, counter on that, and say that I don’t expect China to kick out existing companies, they might not buy from them. In the case of Tesla, they might not be as cooperative, but as a country, they do want foreign investment. So if all of a sudden they’re not playing nice with Tesla, that is a really sort of tough way to go to another company and say, ok, can you put a theme park in here? Could you invest in other ways. So I do think, on the tech side, on the financial services side, geopolitical tensions are going to get very difficult with China, not so much on the goods side, on the on the stuff on the restaurants and that much.

One of the things I’m going to say, with with conventional wisdom, I don’t think business travel is dead. Every time somebody like invents a technology that makes it easy to do what we’re doing. And I’ve lived through this like since like my early career in the early 90’s, when to do a video conference, like I would have to go to like a room in New York and like, it’d be a big deal. And the reality is people don’t travel for business, to have the meeting. They travel for business, largely for all the other things around the meeting, the social part of it, the looking each other in the eye, the ability to get to know each other. So well, some meetings happen via Zoom. Sure, but some meetings happened over the phone, or some meetings weren’t even meetings, you know, they would just happen via an email chain. So I don’t expect any massive shift in business travel. In the long term. In the short term. We’re seeing really weird supply and demand. I have a flight to Charlotte in July, that has been rebooked by Southwest like 15 times. And it’s getting to the point that I might just drive like it’s just not it’s just not a convenient itinerary. And by the way, I’m not going to Charlotte. I’m going to Columbia, South Carolina, which is an hour from Charlotte and rental cars are crazy expensive. So there’s going to be some weird short term things but those things are going to end.

We’re going to take a question from Stock Investor We’re gonna answer it, whoever wants to answer it, it doesn’t have to be a Maxx question. And it’s, “do you own any crypto and if so what are your overall allocations?” So I joined Coinbase. And I bought $100 worth of I don’t remember what, because I wanted to see how Coinbase worked. I have to say the more I learn about crypto, and this is not fair to our partners at CryptoEQ, and people who are, are truly invested here, to me, it’s magic, it’s air, it’s not real. And I understand that there are some people that can understand, it’s gonna make money, it’s gonna go up for me, I want to understand what a business does and why it’s valuable. I can’t do that with Dogecoin or Bitcoin. I don’t even know which ones the scammy ones are and which ones the real ones are. Steve, do you want to weigh in here? You do that podcast regularly with CryptoEQ?

Steve Symington  

Yeah, I don’t personally own any crypto, but I’m certainly not against it. And I understand its potential long term viability for providing sort of a neutral global currency, right? And who knows what’s going to probably be Bitcoin in some form or other but I see the argument and and I recognize kind of the bull case for it. I’m more interested in investing in sort of the underlying infrastructure that supports it like blockchain technologies and such, there’s a lot of ways to play that or businesses that even hold it on their balance sheet, there’s a growing number of those. I don’t own it, but I do think there’s a place for it potentially, in people’s portfolios, and just a way to expose yourself to it without directly purchasing it. But But yeah, I see the bull case.

Dan Kline  

Maxx, you want to weigh in here?

Maxx Chatsko

Yeah, so I have a funny story. I kind of get some flack from it from my fellow lead advisors here. But years ago, I bought this little crypto currency called Cardano. And it was at like 12 cents. And so my older brother has done very well with crypto. He’s been mining it for like over 10 years. Before it was cool. So I bought $100 worth Cardano. And it was that 12 cents. I hate the look at the price anymore. It was over $2 I think like Friday or Saturday, but I lost the credentials for that wallet. So somewhere out there. I do own technically, like $1,000 or more in Cardano. But I have no way to access it. This is before it was on Coinbase or anything like that. So I guess technically I own Cardano but not any more really,

Dan Kline  

I’ve said it on Twitter, I want to get Post to make AlphaBitcoin. I don’t know why this isn’t a thing. It could have digital marshmallows. Like I’m not sure why this isn’t happening.

We’ve got a great question here from Scott Engelberg. Steve, I’ll let you read that one.

Steve Symington  

So I mean, this, this can turn into a really loaded question. I could talk about this for a long time. “But what are your thoughts on Palantir (PLTR is the ticker for that), I’m very intrigued as I hear strong opinions on both sides for this company”. I own Palantir actually, full disclosure. And I do like it, I was actually really impressed with their most recent quarterly report. When was that like last week, and I think I saw it was government revenue was up 83%, commercial revenue was up 72%. They’re sort of opening the doors for commercial users to actually step in. And this was sort of a black box before. And I think they provided guidance for revenue to increase 30% or greater through like 2025. We also saw kind of some operating leverage come into play. So I think operating margin a year ago was like 7%, swung to positive 34% current guidance calls for 23%. Yeah, I’m very interested in Palantir. It’s wildly volatile, though, you know, and we saw some news, I think, actually, this morning, The Wall Street Journal was talking about how Palantir was down because George Soros, his investment firm, rather sold off 18 or 19 million shares because he disapproves of the way management runs it. You’re gonna want to be able to tolerate management who, they’re very unique individuals right.

Dan Kline  

Yeah, I’m with George Soros on this one.

Steve Symington  

Yeah, so so a lot of people don’t like them. But then they have a very unique style, read one of their shareholder letters and you’ll kind of get a feel for what they’re all about Palantir is a really interesting company. I think they’re gonna be a lot bigger 10 years from now, and I think they’re gonna do quite well for investors who kind of buy now and and hang on and have a stomach for volatility and there’s a there’s a lot of, lot of weirdness in some some places with the executives, so I’ll just say that.

Dan Kline  

Yeah, I’ll call it the Washington football team conundrum. Hard to not root for Alex Smith. And then you remember, oh, crud, I’m rooting for the Washington football team. And Dan Snyder, of course, those of you who actually know me know that goes a little bit deeper than just the actions on the field.

Mike Fee has a comment here, which I will share if Sam wants to bring that up. “Well said Steve, invest in crypto picks and shovels companies are a better way to gain exposure in the space”, that that might be true. I’m not I’m not sure If we have any recommendations in that area, but of course, members can check that out if you would like to become a member of 7investing on this Friday, you get access to our members only call. What do we do in the members only call? Well, first of all, Steven and Maxx will wear their members only jackets. And then we will of course, take your questions about our past picks, we’ll also share some best buys. One time only we’re going to share some things we’re buying just because the market has been so volatile. So if you’d like to join us on that call, Steve, we’ll get you out an invite if you join before Friday, that is www.7investing.com/subscribe.

Just gonna take one or two more comments. In fact, they will push those to the end of the show because we’re up a little bit against time here. And I want to talk about the AT&T spin off of Warner Media. So they’re going to merge Warner Media and Discovery. This happened, of course, Sunday night, the news broke, can you please not do this? Like, I wanted to watch Saturday Night Live, I haven’t been home in a couple of days, like I don’t need to stay up to like two in the morning to watch a company I really like in Discovery, merge with a weird group of products in like, if I was an AT&T shareholder, I’d be thrilled to get out of this. They spent $85 billion buying Warner Media. And they’re taking back something like $49 million. It’s a little murky. And this new company, which is going to be owned 70% by AT&T shareholders, and 30%. It’s 71% and 29%, technically, by Discovery shareholders, but is going to be led by Discovery’s CEO. It’s going to start with $55 billion in debt.

That is not great. But here’s what the issue is here. So Warner Media owns HBO, they own TNT, they own TBS, they own CNN. Discovery owns a whole bunch of content that fits together. They own HGTV, they own Food Network, they own Lifetime, the Magnolia Network that Chip and Joanna Gaines. They, they of course have the Discovery+ service. Why do I not like this? Is besides back office functionality, I don’t see this as being two sets of content. I’m not sure you can say okay, HBO Max is $14.99. What if we rolled in, you know, Chip Gaines takes a nap or whatever ridiculous content they’re doing on on Discovery+ , or 90 day Fiance, you know, the ones that broke up or whatever. There’s like 700 spin offs of that. I don’t see how these two assets compliment each other. And I look at the world and I say okay, I’m going to get Netflix. I’m going to get Disney+ , I’m going to have Amazon Prime because aside from Maxx, we all just have Amazon Prime, and then I’m gonna get very picky and choosey and my picky and choosey includes $4.99 for Discovery+ , because we watch Diners, Drive-Ins and Dives and Restaurant Impossible and all sorts of House Hunters all sorts of things in at the moment includes HBO Max, because I did want to watch Zack Snyder’s Justice League that was a mistake. But in normal times, it would not include HBO Max. And nothing about this deal to me accelerates either one if they said, Okay, we’re gonna combine these two services, and they’re $17.99. I might go Yeah, I don’t want $17.99 for Discovery+

So do I think they’ve created a juggernaut that can compete with Netflix and Disney? No, and they spend $20 billion a year on content. Netflix only spend $49 billion but Netflix is a focused product. HBO Max has a chance. I’m not saying that the HBO brand but as cable dies, are you going to see people carry over their subscriptions to a new service? I’m not so sure they will. HBO does not have a big hit show right now. The closest HBO has a hit has to hit is probably Last Week Tonight with John Oliver, which they make available on YouTube. You know, so that is not great. And do they have a Sex in the City sequel coming? Yes, they do. Do they have Game of Thrones spin offs and prequels? And I don’t know dragon singing? I’m not sure yes, they have that. But HBO doesn’t have a Sopranos. It doesn’t have a Sex in the City. It doesn’t have a show that if you’re not watching it, everyone else is talking about it and you can’t. So to me, this is a giant gamble.

These assets don’t go together. It’s not like all of a sudden, you know, there’s a value add like Wolf Blitzer being a judge on Chopped like that, you know, of course, you had the great CNN Anthony Bourdain partnership, and maybe a Bobby Flay or someone like that could be but that’s one show or one tiny little bit of programming. I’m not so sure this is a good deal for anybody except AT&T shareholders. And if there’s anyone on the board still that made the deal to buy Warner Media, they need to be fired like this was a historically terrible deal. I’ve read that this company could be valued at $150 billion, 7investing could be valued at $150 billion. That’s like you know, as I was looking at real estate, everything says steps to the clubhouse and restaurant. Well, anything is steps to unless it’s across an ocean like.

So I think there’s just a lot of sales on this that I am not a fan of, I guess we have to wait to see how it shakes out. I do like the Discovery management. But I thought Discovery had a real chance to be a massive niche hit as just like, you pay the $4.99 and you have a lot of their content, you don’t have to pay that much attention to the volume of content is great, they can produce a ton of shows cheaply, doesn’t cost a lot of money to produce Chopped or Diners, Drive-Ins and Dives or any of the million cooking shows they do. Now they’re moving into a world or they’re lumped in with HBO, HBO is $100 million dollar failures. That is terrifying to me.

Thank you for listening to my rant on that there’ll be more to come on this, we will try to get to some of your comments. But assuming the video works, I taped last week a whole bunch of things without Anirban Mahanti. But he is going to talk about Fastly and Twilio earnings. Sam Bailey if you want to hit the tape, that would be appreciated.

We are back once again with Anirban Mahanti. And you can tell by the fact that you can’t tell cuz I wear the same outfit every show. But you can tell with Anirban that we’ve done these all in one day cause he actually has different outfits, I have a very Fred Flintstone slash Zuckerberg approach, where I don’t want to have to think about clothes, if I could just have the row of printed animal dress that Fred Flintstone wears. And that was acceptable for every occasion. I’m not sure I can pull that one off Fred, Fred. Fred was a bulkier guy than I am. But uh, you know, if I could do the Zuckerberg thing and just wear the same exact thing in every scenario, I would do that. But in your case, different sweaters, different outfits.

But we’re going to talk about Twilio and Fastly earnings. Let’s start with Twilio. This is one where what the stock is doing is not necessarily connected to where the earnings came in. Is that fair to say?

Anirban Mahanti  

I think so. Well, though, you know, the same argument that you just made before that, you know, maybe the stocks were had pulled ahead, apply, like Twilio is a fantastic as soon as basically communications as a service company platform, they have these tools that allow other companies to digitally connect with customers that’s very powerful and doing a few other things in the call center, you know, to help with telehealth and so on that, you know, with the video calling feature, still, I think, make it a very, very interesting company. This is not a small middle, right? So in the first quarter of 2021, it reported just $10 million, less than $600 million. Right? So $600 million of sales up 60%, 62% to be accurate. Right? This is growth at scale, right? If you just take 600 times 4, that’s like $2.4 billion run rate growing at 60%. That’s phenomenal. Right? So it’s phenomenal, just just phenomenal. If you think about the skill,

Dan Kline  

They’re being caught up in general negative market sentiment for this space, are they also being caught up in this ridiculous argument of, well, that’s 62%, this quarter, but they’re not going to have that next quarter?

Anirban Mahanti  

Well, you know, the next quarter guidance, the conservative guidance is very strong. They’re saying they’re going to earn about, let’s say, you know, call it $600 million next quarter again, which is gonna be about $10 million more than the previous quarter. And that’s going to be up somewhere around 47%, 48%, or 50%. They’re basically saying they’re still going to do to repeat that performance again. Remember, these companies all enjoyed a pandemic bump as well. So they actually had acceleration into pandemic pandemic, if you think about the US coming out of the pandemic, large parts of work coming out of the pandemic, still think explosion. So I think this is this digital acceleration is on. And they’re really good at selling the, you know, more to their customers, right. So they have a usage based model, which means as people use more of it, they’re going to, you know, see more billings to it. The dollar base retention rate, which basically measures how much money they’re making from the customers have had a year ago, that are still there this year, in looking at how much they’re spending this year versus last year, they spent 30% more, right, so dollar base retention was 33% more, 133%. That means the platform is sticky, and super viable. And this is a great growth story, right? So

Dan Kline  

Sticky is good at a platform unless it’s a restaurant, that that was always one of my problems. My problems, IHOP, you cannot go into an IHOP and not have every service be sticky, which is just not what you’re looking for. And I’m being a little silly here. But let me let me wrap up with Twilio. Twilio is a prime example of a company where it looks like everything’s going right. So the fact that its stock is trending down, probably means it’s a buying opportunity. Is that a reasonable read on this?

Anirban Mahanti  

So here’s the thing like I personally on Twilio, I have not sold anything. I haven’t added any material possessions that actually hadn’t got had gotten really large. So I think if you can, if you can be patient that $2.5 billion run rate at 60 percent even if this thing grows or 30%, I think what people keep forgetting, just doing some mental maths out, let’s assume the 30% growth is there. 30% growth means you’re doubling every three years, roughly. But let’s go 35%, then you’re actually growing every every two years, roughly, at 35%, you’re doubling every two years this, you know, in next two years, it could be a $5 billion run rate, and then another two years, it could be another three years, it could be a $10 billion run rate. That’s a huge company growing at a pretty phenomenal pace, if it continues, right. And it’s very odd to expect a company growing at 60%, all of a sudden slows down to 20%. That doesn’t generally happen. Right. And you see that in software, a lot of software companies, Salesforce, we have talked about before, has been growing at 20% plus, at $25 billion run rate. There’s a huge opportunity here, this can be a much, much larger company. Again, my favorite is dollar cost average into these companies, if you want to build up your position, great time to build up a position don’t have to go all in. If this is going to be a multi bagger, it’s gonna be multi bagger over time, right? So you have time. And I think that makes it just easier to buy. I just like to buy great companies over time.

Dan Kline  

But just because a company’s price is down doesn’t mean it’s a good buy. You’re not as bullish on Fastly’s results

Anirban Mahanti  

Ah, yeah. So here’s I think, you know, so that the the words that I used for Twilio growth at scale, I wish I could use the same Fastly right, so Fastly problem i think is, so Fastly, is number at a high level actually does not look bad. It’s important, I think 35% earnings growth. But here’s the catch, it’s first quarter revenue was only $85 million. So you grow your 35% at $85 million versus you’re growing at you know Twilio is $600 million and growing at 60%. That’s like, that’s like completely different worlds, right? So Fastly doesn’t seem to be showing me growth at scale, which I really need to justify a high multiple and really justify because as we’ve talked about the sort of companies really bloom at scale. That’s number one. I think the issue I see it’s, it’s too quick a deceleration in my mind. The other thing I think that’s an issue with Fastly right now is if you look at actually organic growth, it’s 23-24% because they bought a company called Signal Sciences. And that’s now built into it.

So they’re growing at 20%. That’s actually a little worrying to me, there’s some execution issues I feel at Fastly, I personally hold the stock I haven’t sold it. Except, you know, I like to just leave companies good companies with an opportunity to run I think Fastly’s a good company its just having execution issues. dollar based attention number, though, was phenomenally strong, again, about 130%, which means that those customers that are using Fastly continue to love the product. But there’s some issues with margin. And I think they’re having some trouble acquiring more customers. I don’t know whether it’s competition, or whether it just they don’t have a properly worked out, go to, you know, go to market model. All of those things matter. But I think I would like to see more observation.

I think there’s another nuance I would like to point out this is getting into nitty gritty detail, but I’ll point this out anyways. So people could say that, you know, Fastly’s cheap, and it is, let’s say well, we look at the cash and balance sheet is like the billion dollars. The problem is, and you were talking about this, is that that billion dollars came from a convertible note that converts at around $100 a share price. Fastly’s share price right now is less than $50 short interest is at 17% and I’ve seen the story and this sort of story happens you know this story plays around quite a bit. Another problem now for Fastly it’s also losing bleeding money because it’s you know, investing for growth and actually bleeding it doesn’t have free cash flow, it’s negative, free cash flow. If nothing changes, and it can’t get back its share price. And that billion dollars that’s what’s gonna convert the shares actually has returned back as billion dollars in cash. Where’s the cash gonna come from? And if it has to raise that cash by a debt that is not going to be probably at a good rate or does raise the cash buyer equity that equity dilution is gonna be significant. If there’s a different dilution that you know, it’s a dilution factor of two, 50 versus 100 right, i think a little bit of that is in play.

All of this could go away if Fastly could just get its go to market strategy to actually work right so if it can increase the pace of growth it can actually diversify its product which I think Signal Sciences allows it to do. Build more modules that they can then do you know upselling things could improve so I think Fastly’s cheap I’m continuing to hold the shares it’s not something that I’m looking to add personally like I would not you know, like what I’ll tell add to Twilio or some other company. I’m not going to add to or or instead add to Simon’s April rec for example, I would not add to Fastly personally but I’m not Selling. It’s a weird, you know, people say, you know, its either a buy or sell. For me, I’m a very slow seller. I just don’t sell very often. But that’s a personal situation for most people.

Dan Kline  

I think we’re all very slow sellers. I’m gonna ask one last question on Fastly. Do you think there’s a possibility that there is pent up demand here and there are companies because of the hit they’ve taken during the pandemic that are just waiting to pull the trigger? This is a it’s not an entirely necessary product. It’s a value add type of product. So could there just be like some crazy blowout quarter like three quarters from now when we’re not living in a pandemic?

Anirban Mahanti  

I don’t think so. So I think this is going to be I don’t think this that’s gonna be the case, unless here’s the thing, right, so one of the things that’s heard that is the Tik Tok, which was a large contributor to the, to the revenue, and actually usage of their product moved away. And that was, you know, some kerfuffle going on between the White House and the Chinese and things like that. There’s a political, geopolitical tension involved in that mix. But put that aside, I mean, basically Tik Tok migrated away from that platform. And they haven’t been, so yes, it is always possible that they go to market strategy lands with one huge customer, which all of a sudden, because their their usage based platform, you get this one huge customer and then all of a sudden, your usage goes up, and then your revenue boom, goes up, I have a feeling this is going to be a little bit, what I would love to see is that acceleration and growth, so their organic growth went from 23% to 35%, and then to 40%. And then it can maintain that 40% rate, I would be very happy. And I think the market would start rewarding them for that. The market right now feels that this company is actually kind of lost its way. And there’s a lot of talk about you know, these things that they’re going to do that it’s probably not happening. So the market is saying, show me the money. Or Show me what you can do.

Dan Kline  

Anirban Mahanti how do we follow you on Tik Tok, no you’re not on Tik Tok. None of us in fact are on Tik Tok. Thank you for doing this. We will do it again soon. I would say you’ve earned a beer but it’s like seven in the morning. So we would probably frowned upon. You can have a mimosa you can you know, I’m gonna have a NasDaiquiri later, a drink I’ve made up in honor of the NASDAQ, which is not a real drink. We will see you soon.

Welcome back. Thank you Anirban. We’re gonna close out before our finisher with a bunch of comments. Three last comments. So, Sam, if you want to bring up the comment from Joey K., we will start there. “What worries me the most about crypto is that in the real world applications, the prevailing use case seems to be crime”. Yeah, we saw that with the colonial pipeline. I don’t know that. That’s the prevailing use case. But Maxx, you’re nodding here. It does make it really easy to hide and launder money. Right?

Maxx Chatsko  

I so I want to frame this. I hate the comparisons between crypto and fiat. Right. Like we saw this recently with Elon Musk talking about the environmental impacts of Bitcoin. The reality is, and then people come out and say, Well, what about the emissions of the banking sector? It’s like, well, yeah, but the banking sector is like the whole world, right? So if you look at like energy emissions, or emissions per transaction, bitcoins off the charts, compared to like, the US dollar, right. So when it comes to like, people pointing out the crime aspect of cryptocurrencies, I mean, there’s plenty of crime that happens with the US dollar, if you’ve watched any shows on Netflix, I don’t know, right, like money laundering and all kinds of things.

Dan Kline  

Yeah, Maxx, I’m older than you. So I prefer my crime to be the sack with the dollar sign on it. But that that’s just my generation. Steve, any thoughts on this one?

Steve Symington  

No, I think Maxx summed that up pretty well. I feel exactly the same way.

Dan Kline  

Steve, I’ll let you field the comment from Sandeep David, you could read that one as well.

Steve Symington  

Sure. “Does C3.ai do the same thing as Palantir?” C3.ai, (their ticker is AI) and Palantir is PLTR again, we mentioned that earlier. They don’t do exactly the same thing. And I guess by reading their sort of high level company descriptions, you know, you’d kind of be forgiven for thinking that. I also own AI as well. For full disclosure, again, but Palantir is, is kind of unique in that it is built. You know, it has two main products Foundry and Gotham where it allows its enterprise clients and you know, big government clients, which is kind of where it got its start, right. And it was founded, I think, six years earlier in 2003, C3.ai was founded in like 2009. But Palantir allows people to integrate like huge datasets and sort of extract actionable insight and it can provide the the input required to train AI algorithms.

So that’s kind of where you are with Palantir where C3.ai is kind of the only enterprise pure play in the artificial intelligence space, right. So they provide the ability for enterprises to implement artificial intelligence platforms to suit their own needs at scale. So not necessarily you know, they do have some data analytics stuff. And C3.ai has a bunch of different products that are sort of, you know, some that are custom built for their clients, some that are sort of out of the box solutions to do certain things. But I don’t know if that convoluted it even more for people who don’t fully understand, you know, the concepts of machine learning and data analysis and big data, they sort of play in the same spaces and they’re going to, to crossover. They’re going to cross swords sometimes and that that is going to happen, but their core businesses aren’t exactly the same thing. And I think the the broader markets that they operate in, there’s room for multiple winners anyway. So I think there’s room in portfolios to own both stocks.

Dan Kline  

My issue with C3.ai is they started their company with C3, and they don’t make protocol droids. I am not sure how you could possibly do that.

Steve Symington  

C3P0.ai?

Dan Kline  

Yeah, if my company’s called R2 something like you’re going to expect a lot of bleeps and bloops. In this case, I want a fuzzy 6000 language speaking protocol droid.

Steve Symington  

You gotta appreciate their their little ingenuity grabbing the “.ai” the internet suffix though for their website, I love that go C3.ai and that brings you right to them.

Dan Kline  

Not bad at all. We’re gonna take Mike Fee’s, comment and then we will move to our finisher. So Mike says, “Dan, what’s the current environment for cruise lines? Are they open for business? Have you book something?” So here’s what I’ll say. And I’m going to be a little bit ginger about this for a variety of reasons, but partially because I have some insider info. The cruise lines, all the US cruise lines are gearing up for a mid July start. This does not include Disney cruises are not relevant to Disney’s bottom line. So they’re going to cancel longer. They’re going to wait especially with with the percentage of kids, but it does look like you’re going to have cruises out of Florida and Galveston at some point in July. There are some holdups those need to be 95% vaccinated passengers. And Florida right now forbids you from adding asking if someone’s been vaccinated. There might be some federal ways around that there might be some lawsuit ways around that. There might be some ways of making it voluntary, but if you don’t do it, you can’t get on. I’m not sure. So I am cautiously optimistic.

Do I have some cruises booked? Yes, Fourth of July week, I will be cruising out of Bermuda. That seemed like a great idea. Now it doesn’t seem like as great an idea because it may be a few weeks later, I could have done out of my home port and not had to fly to Bermuda, which is not all that convenient. And then in August, I have something booked out of out of the Bahamas, which is a much easier flight that’s like a 40 minute flight. So not a big deal.

But I do have friends who work in the industry across multiple lines, or at least people they know go across multiple lines. And some of them have been offered contracts, have been sort of put into a very complicated quarantining procedure. Basically, you have to quarantine, get to the US quarantine in a hotel room for a couple of days, take your tests, then you have to quarantine on board for two weeks, then you get your first shot, then you have to wait your three or four weeks it’s usually three because they’ve been getting Pfizer and then that you have to wait another two weeks. So this process is ongoing. And the timetable says mid July but uh you know, a lot of things could set this back to August, but I do sort of assume somewhat normality by the fall. I mean, look, today is a day where Starbucks, Target, Costco, who knows who else, dropped mask requirements for vaccinated people. So we are seeing, you know, as we call it, a return to normal.

But we are running out of time Sam Bailey has a meeting at the top of the hour. Sam, maybe it’s time we should hit our finisher. “Which service business do you think will be most successful in the long run?” 31.5% say ride sharing, 16% say food delivery, 28% say grocery delivery, 24.5% say none of the above. I lean towards grocery delivery. I think I’ve seen the technology. Where in 10,000 square feet, or regional grocery chain like Publix for not a ton of money can automate order picking and service more than one store from one location. That makes a lot more sense to me. Than like 20 different restaurants or 100 different restaurants being serviced. Now does this all change when there’s autonomous driving? Maybe. But don’t get fooled by those Domino’s commercials that show like, first of all, it’s like a full size car that can that can carry two medium pizzas. Like it doesn’t feel like the Noid needs to sabotage that that feels like self sabotage. Like that can’t possibly be efficient, but that’s not how we’re delivering stuff. Maxx, you have any thoughts on this one?

Maxx Chatsko  

I would agree that was my answer would be grocery delivery. And I look at it from the economics right so i think ride sharing is still kind of niche and maybe will always be niche again, maybe years from now we have autonomous driving that would be different. Food delivery, it’s like the the charge the fees you pay as a percentage of like the bill are pretty high, right? You’re gonna pay like $50 to get a burger like the convenience isn’t really worth it there. But for groceries, I mean, if you’re spending $100-$200 on a grocery trip, you can get that delivered. And that’s only a $10 or $15 fee, or whatever it is like that the economics kind of work out, right, you can justify the convenience of that for an $8 or $15, or whatever dollar fee. So I think the economics work out like the percentage of the fee as a total bill makes the most sense for grocery delivery.

Dan Kline  

I’m the one who ruins that, I ordered five items from Whole Foods yesterday, but one of them was salmon, it was kind of expensive. So I got to the $35. But my five items showed up in three different bags, because they won’t mix like your salmon with your beverage like, you know that that was the rare loser. But I would say most people are actually doing their grocery shopping. Steve, what’s the final word on this one?

Steve Symington  

I voted none of the above, because I’d rather be in other industries, investing. But if I had to choose between the first three options, I’d say grocery delivery as well. And I think for me, it’s the value proposition as a consumer, right? It saves me from walking through the store and picking out all this stuff myself. You know, I can go on, you know, I’ve done it from Costco a few times where I select the items I want to pick and you know, they call me if something’s out of stock, it’s super handy. And I don’t mind paying an extra $15-$20 bucks. So I don’t have to drive all the way across town to Costco, navigate their parking lot, go through their lines and get all the way home like that’s fine by me. But food delivery, I’ve never, save pizza, which is just their own infrastructure and ride sharing maybe over the long term for like a Tesla once they get their robo taxi fleet done in 50 years. But that’s I don’t know about the rest of it. Yeah, I’d rather go with grocery delivery.

Dan Kline  

Yeah, I will point out that this question wasn’t, where will I invest? Because I would argue that I would not invest in any of the pure plays, I’m not investing in Uber Eats, I’m not investing in DoorDash. When Instacart goes public, I’m not investing there. Now, there are a lot of efficiencies they can build in. Instacart has a massive amount of people that they will not have at some point. They can, they can do the order part of it pretty easily from a technical point of view. But I do think as an additive point of view when you’re talking about a Costco or Walmart or a Target, and Target has its own infrastructure here, so that’s helpful. Their ability to say sometimes you’re going to come in, sometimes you’re going to do curbside, sometimes you’re going to do delivery, sometimes you’re just going to like during the pandemic I was ordering 2-day from Target because we couldn’t find the taco shells we like so we have to like make up our order to get to like whatever dollar amount and like I would say the ratio of broken to not broken was roughly 50/50 so it was largely eating like tacos that were like kind of in a shell

Steve Symington  

You were eating nachos?

Dan Kline  

Yeah, it was it was it was a glorified nacho. But with that, we are out of time we’re going to be back Wednesday of course if you’d like to get a hold of us. That is info@7investing.com, that is questions about your membership, questions about the service how it works. You should really join before Friday when we have our new member call our member call and a special 12:30pm edition of 7investing Now which usually has a whole bunch of us. You know maybe there will be some special guests. If you want to follow us on social meeting media. That is @7investing. We are very active. It is always fun to vote in our polls to comment on our stuff. It’s not all financial. @7investing is, our personal ones are not all financial. But we promise they’re all entertaining. For Sam Bailey behind the glass, Maxx Chatsko, Steve Symington, I am Dan Klein, we will see you Wednesday.