7investing Now #50: Walt Disney Earnings and the MIT Conference
February 12, 2021
It has been a mixed pandemic for the Walt Disney Company. The Mouse House has seen its theatrical business go away and its theme parks operate at limited capacities or not be able to open at all. On the positive side, the company’s streaming platforms have shown explosive growth which led to some surprising first quarter results. In addition, Simon Erickson will update us on the MIT Conference and Matt Cochrane will tell everyone about the $75 billion company you may never have heard of.
Dan Kline 0:24
Good afternoon seven investors and welcome to the Friday edition of 7investing Now. If I sound excited, it’s because I am excited. We’ve got a ton of stuff on the show. We’re going to talk Disney earnings. We are going to take your questions. We’re going to talk about the biggest company you’ve probably never heard of. We’re going to talk the MIT conference. My name, of course, is Daniel Brooks Klein. I’m the host of the program. I’m being joined today by Simon Erickson and Matt Cochrane. I’m going to start with Simon first. We are two days away from Valentine’s Day and I hope my wife isn’t watching. There’s no chance she’s watching, but we’re in the same house. She could hear it. I’ve made no plans. I have a card and a Goofy card. And I guess I’m going to go walk to Target later and try to come up with a gift card or something. But Simon, have you done anything for Valentine’s Day? Or is it just the shapeless void we’re all living in that it doesn’t matter?
Simon Erickson 1:14
No. It’s the heart shaped pizza we get from Pizza Hut. Completely serious. That’s our that’s our go to.
Dan Kline 1:23
Wow. That would be a former colleague of ours, a friend of ours, Mr. Jim Gillies, him and his wife have a tradition on Valentine’s day that they do the least romantic thing possible. And my favorite story ever is, one year his wife took him to Hulk Hogan’s restaurant, which I agree would be the least romantic thing ever. Man, if I got my wife a Pizza Hut pizza, I would be spending a very lonely Valentines Day. Matt, are you are you doing anything special?
Matt Cochrane 1:50
No, we’re not really a big Valentine’s Day couple. Thankfully, my wife is actually more frugal than I am. So we’re kind of avoid the crowds like this weekend and just kind of stay at home. And with four kids, it’s kind of just business as usual for us.
Dan Kline 2:07
We certainly won’t go out. It’s a pandemic. I’m sure we’ll get nicer than usual takeout. Or maybe I’ll cook something nicer than usual. But normally we’re practical too. We’d go the gift card route. I know my wife needs some work clothes. So how about a Macy’s gift card? Now nobody needs anything except t shirts and sweatpants. Like it’s been – I’ve worn like, I have six of these. I’ve worn one of this shirt four days a week for like nine months now. I haven’t been here that long. But five months now like it is. It is a bizarre Valentine’s Day. You can’t do anything all that romantic. I guess you could have a secluded dinner, but we’re going to talk the least romantic place on Earth, Walt Disney World in the next. I know people get married there, but that never made any sense to me. But we’re gonna talk Disney earnings before we do that. Matt, Simon, Disney earnings were, in my opinion, spectacular. They turned a surprise profit. They showed incredible numbers on Disney +. Matt Cochrane is going to have those numbers in a second. But what happened with their stock? And this tells you everything you need to know about short term investing.
Simon Erickson 3:06
Underwhelming, right? I mean, like there’s a great a lot of potential with this company. We’re going to talk about several of the numbers and several of the current performance. I’m really excited about some stuff that I think is not being factored into the market right now in the valuation but again, market doesn’t always behave completely rationally. We see a lot of things we like stock price, pretty underwhelming to me.
Dan Kline 3:27
Nobody could look at these numbers and not be happy about them. Stock was up in after hours trading and it’s down about a percent last I look. Now, I only point this out because it’s meaningless. Good companies after a good report might go down because some random meaningless analysts said Oh, like I thought it was going to be 100 million subscribers. It means nothing. That’s what we’re going to dig into the long term fundamentals. That’s what being a long term investor is. It’s tuning out the short term noise. I’m a Disney shareholder, massive Disney shareholder. Simon, you might be a Disney shareholder. I don’t know if he is. Literally nothing changes based on a single earnings report. Other than this report validates the thesis we’ve been talking about all along. Matt Cochrane, let’s dig into some of the top line numbers.
Matt Cochrane 4:10
Yeah, so actually, you kind of stole my thunder but they are earning -, earnings per share. adjusted earnings per share was 32 cents, and they were expected to lose money on the bottom line, but then they did turn a profit this quarter. Even with a lot of theme parks closed and things like that. Revenue – they turned in $16.25 billion. They were only expected to clear $15.9 billion, so it’s like being on the top line. But like you know who the star of the show Dan really is? Disney +. Still you know now they have 95 billion paid subscribers. I think that’s what you know, is a right now that’s the big driver for Disney.
Dan Kline 4:45
And as a company, they have 126 million streaming subscribers. They have about 12.5 million at ESPN +, which in my opinion, is a collection of garbage. I have it, and I never ever use it, except for the the insider text content on on espn.com. So let’s talk about that 95 million numbers, they added 20 million plus customers, but their average revenue per user went down. Why did that happen? Because they’ve expanded in India. It’s tied to another streaming product they have in India, Hotstar. And just the pricing is a little bit lower. But Matt, almost 100 million customers for Disney +, how stunning is this? Like I thought they’d add 3 or 4 million. They don’t have a, you know, Wandavision is a nice show, but these are C list Avengers. This is not another season of Mandalorian. Are you blown away by this?
Matt Cochrane 5:33
Yeah. That being said, I mean, since Disney + was released, I think they just continue to raise that bar about what to expect from the streaming service. Now, I think, Dan, and I, you know, we’ve talked about this Dan in the past, and we expected this would be what would happen eventually. They’re just doing it quicker than what we thought and the slate of releases on Disney + and what’s coming down the pipe, they’re not going to be losing subscribers anytime soon. They’re gonna have a cadence of Star Wars shows and Marvel shows and movies that are just always going to be something on there for the fans of these franchises, these very popular franchises.
Dan Kline 6:17
We’re going to take your questions. I see some piling up in the queue, so we will get to those towards the end of the segment. Simon Erickson, so you have a family? Do you have Disney + yet?
Simon Erickson 6:29
We do. We are huge fans.
Dan Kline 6:31
I’m being as vague as I can, because I’m not sure how much you publicly disclose about what the makeup of your of your family. It is not not to be mysterious, and just something we’re supposed to ask permission on beforehand.
Simon Erickson 6:41
I’ve watched frozen about 43 million times to give some context.
Dan Kline 6:46
You have a child, or are very strange. But could you imagine the scenario where you could get rid of Disney +? Because I can’t. Like even my 17 year old will just watch like a season of The Simpsons when he’s bored. I cannot see any scenario where I could get rid of this. I could probably get rid of Netflix first.
Simon Erickson 7:07
I think that’s the key is you know, we talked about Disney + and what a big deal this is. But when we look about what this means for an investor, it’s a huge deal. Not only the retention, like you said, Dan, nobody wants to get rid of Disney +, not only the growth, the spectacular growth that it has that Matt mentioned 95 million subscribers now. I mean, remember when we were talking about ESPN getting 90 million viewers through local cable stations, and they get the affiliate payments from local cable providers. But now Disney has really cracked away to go directly to the home. And to me, the most interesting piece is exactly what you used to have alluded to as well, which is that Disney thinks that it’s going to have 260 million Disney + subscribers by the end of 2024. And when you do the math on it, you know, $8, roughly $8 a month, 12 months a year people are staying. I mean, that’s all of a sudden talking about $25 billion in top line revenue from something that just launched in the US. And in November of 2019. It’s been less than a year and a half basically, that Disney + has been out there. And so Disney as a whole Dan is doing, what? $65 billion today ish? On the top line. I mean, this is a this is a 50% bump to the top line that we might see within three years of Disney. That’s what makes me excited as a shareholder of the stock.
Dan Kline 8:22
And that’s without a price increase. So let’s say they get to that number, basically every quarter or every four months, they would add a billion dollars if they raise the price by $1. I honestly think there is no price resistance between $6.99 and $9.99. I think the bundle at $12.99 with Hulu and ESPN plus, those numbers are astounding. There is very little incremental costs they make when you factor out India, they make about $5.37 in profit. Those numbers will actually increase as they get bigger. There’s some local content in some markets, but not nearly the level that Netflix has to do. Because Disney has these timeless iconic characters that sort of resonate globally. Mickey Mouse or Frozen, or Star Wars, wherever you are. Star Wars is a an epic tale that works no matter where you are. So you’re actually gonna see that average revenue per user number tick up. As they spread the cost out over more people. It does not cost a ton more to deliver the service to create the service for 240 million people versus 80 million or 95 million. I actually think they’ve already exceeded their original like 2030 projections or like something crazy like that. So these numbers keep going up, and I just think it’s exciting. But one thing they said during the earnings call that was really quiet is they finally use the word direct to consumer with ESPN. Well what does that mean? ESPN + right now isn’t ESPN. It doesn’t have NFL rights. It doesn’t have all the other live sports they have. And we’re in a right season for the NFL. It would not shock me if that’s what one of the major barriers to Disney launching a standalone ESPN. The other one is, of course, the cable companies because if you’re Comcast, you don’t want Disney competing against you. They allowed them to do that on a limited basis with Sling and some other places. But there are caps for that. But the fact that they talked about it publicly, Matt, that to me suggests we’re gonna get your standalone $9.99 ESPN and I think any sports fan would pay that. Am I wrong?
Matt Cochrane 10:25
No, you’re not wrong. It’s definitely something they’re thinking about. And they do have to weigh it carefully with like cannibalizing their their cable bundle business that they make with ESPN, if they’re in a, they’re still in that delicate time period with ESPN plus, where, you know, they just have to weigh the pros and cons of it. Now that being says, it’s definitely something they’re exploring and you know, Dan, like something like we were just talking about before the show, but another thing they have with ESPN Plus, I think that can be really big. It’s like, tie ins with sports betting. You know, they already have partnerships with DraftKings and Caesars they’re working on a studio and Caesars in Las Vegas. You know, and this is something they talked about. They don’t want to branded with Disney or ESPN, but it’s obviously something they’re pursuing very heavily with partnerships. And when you think about the synergies, like something like an app like ESPN plus could bring to a sports betting partner I mean, you know, that’s it. You know, this is like a sports betting could be huge for ESPN. I think.
Dan Kline 11:26
I’m pretty exciting to see the show where goofy is giving you a stock pic is his sports picks, like goofy says better than the jets to win the Super Bowl? No, it’s a huge opportunity. But let me temper that a little bit. Because I do think sports betting is going to be ubiquitous fox is a little bit farther ahead in embracing sports betting, you already see the the old regional sports networks are being branded to Bally’s. You’re gonna see sports betting wherever you see sports. The other. The problem with that is until we get wider national legalization. It’s really really tricky. As you’re seeing what DraftKings is you’re seeing with Penn national, that there’s only every market you’re in, you have to really do things differently. That’s very expensive. And that’s why the bigger companies have avoided it. I actually think you’re gonna see a bigger opportunity and fantasy sports and daily sports on ESPN before you see the sports betting because they’re more clearly legal. You remember how quickly ESPN embraced poker when there was a poker betting phase. So it is a big opportunity. But Matt, let’s talk theme parks a little bit. So I have been to multiple Disney theme parks. I’m an annual pass holder here in in Florida. And it’s been weird. They’re 35% capacity. But it still feels crowded because a lot of the indoor spaces are closed or limited capacity. So all the people sucked into gift shops or restaurants. They’re they’re outside that said it’s wide open and they make you wear a mask. I felt very safe there. The numbers were bad map, but they weren’t awful. Is that fair to say?
Matt Cochrane 12:56
Yeah, I think that is fair to say and like, you know, they said like they they were managed even with all the shutdowns. And you did have a lot of shutdowns, like Walt Disney World was open at capacity, like you said. So same with Shanghai, Disney, disneyland was closed the entire quarter, Disneyland Paris was open and only a small bit of the quarter. Hong Kong Disneyland, they said was open about two thirds of the quarter. So they had all these reduced capacities and and closings during the quarter and yet all achieved a net incremental positive contribution for the periods during which the parks were open. So that you know revenue exceeded the variable costs associated with opening. And that’s big. And you know, they really just said they just came out and said like vaccinations, like how fast people get vaccinations is going to be the big driver here. He even said I’m the CEO even said that, you know, when Dr. Fauci said earlier, the same day that he opened his vaccines for everyone who wants him by April he said that he said quote unquote, that’s a game changer for for the parks.
Dan Kline 13:58
I think you’re going to see a summer Park season that we’ve also talked about this here in Florida. Local passholders are a massive part of the business because there’s four parks, there’s two water parks, if they didn’t have that business, even at the height of tourism season, the park wouldn’t be all that crowded. But in California where the parks are very physically small compared to the Florida parks, they’ve actually cut their annual passholder program. Do you do you think this is going to be an opportunity to change pricing? I’ll give a quick example. I think Disney has learned that for the most part less people paying more is a better experience so I’ve done that with like the Mickey’s not so scary Halloween where it’s a limited capacity separate ticket event. Do you think they’re gonna figure out how to charge more and more often?
Matt Cochrane 14:44
Uh, yeah, I mean they basically just came out in all but said that they’re raising ticket prices right I mean, he did it like he tried to skirt around that issue so much like saying like, like trying to lessen the blow as much as possible. But yeah, they’re definitely like they’re experimenting with dynamic pricing. So in other words, like tickets are going to be more expensive, like at certain times more crowded times during the year than less crowded times. They said they’re, they’re, they’re looking a lot at their annual pass pricing, what they’re doing there. And like he said, You know, we’ve learned a lot during the pandemic, about as far as like, margin growth in the parks, it doesn’t have to be about the number of people who get through the gates, but it can be about, like, how much you charge. And I think with that, like, as much as I hate to see that as a customer with four kids who live in Florida, like, there’s no doubt, like increased ticket prices, they’re coming, they’re coming, and people will pay that’s the problem. As a customer, people are gonna pay it.
Dan Kline 15:44
I think they’re gonna use price to manage the crowd more. So people used to ask, what’s the slow time there kind of is no slow time. But they block out for most passes, not mine, I have a platinum pass because I want to go when people are traveling, and that’s when they black people out, I think there’s going to be much a much higher cost for passes where you can go any day. And a much lower cost for passes. When you go on a Wednesday during a non vacation week, they’ve already started to do that they have a level of pass here that gives you access to what at least one of the parks like 300 and something days a year, meaning like on a really busy day, you can still go to Epcot. But on a less busy day, maybe you can go to the Magic Kingdom or Hollywood studios, I think they’re really going to manage crowds. Because I will tell you, it’s wonderful to be a Disney right now where the lines are a third what they normally would be, you feel like in your one day, you’re getting the experience of two days. And that’s, that’s better. Now, obviously, those capacities can go up once they’ve opened more restaurants and shows, there’s a lot of things that are time eaters like parades that they’re not doing right now. There’s no fireworks at night. So they’re putting a lot of pressure on certain things. So it does feel busier at 35%. But it wouldn’t shock me if the new normal is maybe 70%. And they make that up with you know, 20% price increases and figure out how to get 10% more out of you. I don’t I think they’re a little bit conscious of how bad and experience it is to go to a Walt Disney park Christmas week and have to wait 19 hours to ride you know, the Mad Mad tea party or whatever it is. Simon, I’m gonna throw one last question to you here as a parent, so we’re, obviously there’s a lot of turmoil for Disney right now. The box office doesn’t exist. Do you think your long term take your child or take your wife to the movies habits have changed? Because I think mine has I think I’m gonna be less likely to go to the movies, unless it’s a blockbuster.
Simon Erickson 17:42
Yes, I think it has. But I think that the parks comment is is quite important. I mean, I’d like to share the joke that Matt shared with us before the call, which is how ironic it is that Disney World is a human trap designed by a mouse, and we’re still going to want to go to the parks and we’re still going to be just fine with that side of the business. I think that Disney has done a good job of kind of changing how they approach the direct to consumer opportunity. You see them launching stuff directly through their streaming service rather than going through theaters and the traditional ways of doing things. And then the really interesting thing like you touched on Dan is the sports. I mean, sports is like the real time audience, the last remaining real time audience and I think that real time advertising is going to follow that people aren’t just going to be buying pizzas from Pizza Hut during the game anymore. There’s going to be a lot more people that want to tap into Disney figuring out the sports side of this. We’re going to take some of your questions before we get to what we’re watching.
Dan Kline 18:33
Let’s take a question from Chris Morley, which I’m hoping is my good friend. I’ve known him since high school. But I can’t see the picture because I’m – yes, I believe that is him. I would expect that the first year post vaccination that the service sector as a whole is going to boom, people will pay a premium just to get out. Disney will be an even bigger target destination. I fully agree with that. Matt, your thoughts?
Matt Cochrane 18:57
Yeah, well, they 100%. Yes. You know, they talked about in the call just how like in the parks, the problem they have is demand outstrips supply. They only have so much room in the park. Dan, let me throw this to you. Is there a possibility in the next five years we see a new Disney park in the US?
Dan Kline 19:16
No. And let’s segue this into a question we have from Nick because this relates because there were plans for Universal to open a new park, and they’ve put those plans on hold. It is very possible that Universal takes the already announced Nintendo World that would have been part of their third theme park, they say fourth but I don’t count the waterpark, their their third gate in Florida. I think it’s possible that that actually just becomes part of one of their existing parks. I don’t think while companies are making up the massive losses, you’re actually seeing a lot of projects get canceled or slowed down. They’re finishing things that are already in the works. So the Tron rollercoaster is going to get finished. The Guardians of the Galaxy roller coaster, Ratatouille and the France pavilion in Epcot. Is about to open the space restaurant and Epcot will open. But a lot of things that they had previously announced at D 23. Events are on hold. So I do think another park is possible. But I think we’re 10 years out. And I do think it would be in Orlando area park to keep up with what’s going on. I also think it’s like not crazy that they buy SeaWorld and just totally reuse that that property because SeaWorld is in real real trouble.
Matt Cochrane 20:24
They still have a lot of unused land in Orlando. Obviously a lot of that’s going to be hotels and things like that, but there is room for for more parks and attractions in that area.
Dan Kline 20:39
They are still planning to build and this is getting really in the weeds. So we’ll get to your questions in a second. A massive shopping plaza. Right now they have Disney Springs. That’s kind of upscale and nice restaurants. They’re building more of a like giant Plaza that has like a Target like that, that type of more practical and it probably have outlets and things like that. So some of those things will happen. But I do think the timetable will slow down. Nick asks, do you think Nintendo can monetize its characters as well as Disney has, especially with its upcoming theme parks. So they’re opening as part of Universal Studios in Japan or have already opened some of the walkthroughs and the rides are awesome. They have not broken ground in Florida. I don’t think Nintendo can monetize its characters. Well, I think there – Simon, jump in here if I’m wrong, I just think that those are going to be great video game characters that will translate well to a theme park. But I’m not so sure if like Super Mario the television show which has failed a bunch of times is really as compelling as any of the IP Disney has.
Simon Erickson 21:38
Yeah, it doesn’t transcend. I mean, people that grew up with Nintendo game consoles in the 80’s are now approaching the mid 30s, late 30s and 40s. I mean, do they bring their kids to go see a Super Mario Brothers movie or the Super Mario theme park? Maybe? I don’t know yet that transcends, but perhaps they do. I think that remains to be seen.
Matt Cochrane 21:57
Look, I would say if done well, something like a Zelda movie could do could do very well. Like there, there are some valuable Nintendo franchises that that I think could translate to maybe not a theme park as much. I mean, you could always make a Super Mario Kart themed roller coaster.
Dan Kline 22:16
Matt, have you saw what the Super Mario Kart ride looks like? It’s already built in, in Japan. So there’s already you know, instances that you can watch video of it. It looks like the most fun thing ever. So you know, upcoming theme park rides will work. I’d love to see the fourth gate at Universal Studios because I’m a pass holder and that’d be cool. I think it’s more likely that they take the underused children’s area of the park, which has really some outdated attractions. And they put it there because I’m not sure anybody’s building a new US theme park. That’s a massive investment. And look, Disney and Comcast have both taken some hits in terms of revenue in these businesses sure.
Matt Cochrane 22:54
But like I would say Dan like just a we actually Simon I just talked to the chitchat money guys about this the other day, they’re they’re very bullish on Nintendo a Brett Schaefer and Ryan Henderson. And, you know, Nintendo just has a lot of valuable IP. And I don’t know if they’re going to unlock that potential because they’re very traditionally they’ve been very guarded about letting like third parties come in and licensing that content out. But I think the possibility exists, and I think Nintendo is interesting because of that.
Dan Kline 23:23
I’m very nervous on Nintendo because if you remember the Wii U, the Wii U could have killed them, the switch was a massive comeback. But eventually the cycle will be over for the switch. They’re always under enormous pressure to have an alternative, an alternative video game console. So basically, most people who buy a switch are people who will also own an Xbox or a PS five. So our ps4 depending on on where you are in the cycle. That’s a lot of pressure because they do not distribute their games aside from mobile phones. And that’s even very limited.
Matt Cochrane 23:55
I do wish they had a I do wish they had a better mobile like platform like releasing those games. However, like one of the things and if you’re more interested in Nintendo, you should watch that podcast or watch it on YouTube or listen to it. But I’m with a chitchat money guy that was just this week he came out but like, what one thing they mentioned was like to switch now. They’re just trying to release new iterations of the switch more like an iPhone type model where like, okay, it’s a new iPhone models out, but like, all those stuff will work with the switch. And it’s kind of like, for lack of a better term. It’s kind of like de Cicco. It’s taken. It’s a decentralized like Nintendo’s like, big hardware like booms and bust cycles. You know, it’s taking like the cyclical nature out of Nintendo. I don’t know Dan, I think I think Nintendo is like very interesting right now.
Dan Kline 24:41
I love the switch. It’s really fun. And it’s like a Pied Piper if you bring it someplace obviously right now you can’t interact with people, but my son and I used to bring his on cruises and set it up in the in the game room like we’re, you know, people playing cards or checkers or whatnot. And you know, kids would flock wanting to play along. So it is a really good thing. We’re taking one more questions, sort of on this topic, I’m gonna give it to Simon because I really want to talk about more the technical angle here. Already a shareholder, this is from Jay, thinking about putting a synthetic long on Disney, I don’t even know what that means to get more exposure I wish I had bought when it was under $100. Simon, I’m going to go on a limb here and say we all wish we had bought with something lower. Long term, Disney is just powerhouse like I don’t even think you need to play games with with how you buy it just steadily buy more would be my thought.
Simon Erickson 25:31
Yeah, and Jay Z is synthetic long for anyone also wondering what that means. That’s that’s the equivalent of buying the stock without putting the capital upfront, you’re buying a call and selling a put concurrently. Typically, you do that at the same strike price. And then if the stock goes above that price in the future, you actually exercise your your long call that you have in place. But you know, this is this is a long strategy for Disney. I mean, it’s exactly what you just said, Dan, if you think the stock is going to go up, it’s a great long term holding, I don’t personally think that Disney is one of those you have to play any short term trading games with or deal with options, because in my opinion, this is a buy and hold company that finds new ways always every year to unlock value for shareholders, Disney plus key example of that right now.
Matt Cochrane 26:15
think it doesn’t show like to like a, like, it shows the power of patience. Like I think I I first bought Disney shares in 2015. And for several years, it was flatlined. It didn’t do anything. It was having problems with ESPN. But just another example of like great companies will always like like, you know, they’ll always come out with like new products like Disney plus new platforms and things like that, they will they will change with the times. And you know, even now, like after all those years of flatlining, it’s it’s beating the market because of what is done in the past year. You know, it’s hard to time the market. But like time in the market with great companies are almost always comes out better for shareholders.
Dan Kline 26:51
I’m of course fond of Disney, because when I met Matt, he was a magical snowman. And he’s moved on from that. I’ve actually never watched Frozen, Simon so so I have actually very little idea what the storyline is there. Before we get to watching, we’re gonna talk about the MIT conference that Simon just went to virtually, and the only $75 billion company I’ve never heard of, I’m guessing you’ve never heard of it. Before we do that. Simon, we are long term investors that can be tricky for people. It’s, it’s not as exciting. That’s why we try to make it a lot of fun here in this show. To tell people yeah, buy Disney and hold on to it for 20 years. Like that’s, that’s our strategy. Like it’s not, we’re not buying puts and options. And I don’t know what any of these words are because we’re making it hard. But if you join us, if you become part of the seven investing family, what’s the core of our service? What are we what are we giving people?
Simon Erickson 27:42
We are we’re buying and holding seven stock recommendations every month. And so what we do is we have a team of advisors on seven investing, I give all of you the same question every single month, which is what’s your best idea. And we all come back together, and we discuss those as a team. And we write reports on those. And we issue reports to our subscribers to get access to see not only the names of the tickers and the companies themselves, but why we actually are considering these our highest conviction ideas. And then the really fun part, Dan is getting to chat with subscribers behind the scenes about why we liked them so much. We have subscriber calls, we can interact and ask his direct questions about that. We have behind the scenes team conversations where you actually see us try to punch holes in each other’s thesis. And I think that that’s probably one of the differentiating factors about seven investing is that it’s not just a hey, here’s our ideas, you read the report, and then it and then we disappear. We’re actually there continually because we think that investing is one a very personal thing. Everybody shouldn’t be buying the exact same stocks, you probably have different goals that you want those to accomplish, and two different risk factors. And so we try to appeal to that over time. And so yeah, we’re having a lot of fun with this.
Dan Kline 28:52
Yeah, we are. I think of it as we democratize the investing process. We’ve heard a lot in the past few weeks, the big guy has an advantage. And he does when it comes to high frequency trading. When it comes to being a long term investor. He doesn’t. So what are we, we’re your friends who do all the homework, we sit there for hours. And I know that there are companies that are on my list as potential picks that I’ve been looking at for five, six years that I’ve dug into that I’ve experienced that I’ve taken trips to go see what they’re doing. And I’ve talked to the CEOs, the average person who has a job probably isn’t doing that and probably shouldn’t do that because they have a job and other things. This is our job. So if you want to subscribe, it is $17 a month or the best deal ever. $170 a year. I had math guys, I have friends who do math, that’s two months free. So if you want to subscribe, it is seven investing.com slash subscribe. We appreciate so many of you asking questions. You know, Nick asks, couldn’t a cell phone just replace the switch? like yeah, that’s absolutely a risk, but it’s been a long time. and cell phones are really good. And they’re still not anywhere near as good as the dedicated gaming platform. And the fact that you can hook most of your switches to a big TV, we might see the whole world move to your cell phone, your gaming platform, everything is one device. We’re not there yet. So there’s always risk. But we appreciate the great questions. Max Lucas, I saw your question, we will get to it in the in the homestretch of the show. But Simon, you went to a virtual conference, I hate virtual conferences, but you seem to have a good time. Tell us what went on at the MIT virtual conference, even what it was for?
Simon Erickson 30:32
Yeah, conferences is something I’ve loved my entire career I shoot for four years, it was a four year stint that for every single month, I went to a conference, if you can believe that racked up a lot of frequent flyer miles miles over those four years. But you know, this is kind of our chats, in my opinion to nerd out and really see what is what is what’s going on out there. How are these markets changing? We talked about being innovative, to be innovative, you have to see PhDs and postdocs, and CIOs and people in their organizations, and what’s going on and what’s changing. And so this was all about computing. You know, we hear a lot about cloud computing, we hear a lot about artificial intelligence. But this is kind of a real glimpse into how that entire movement is changing. And so you know, as everyday, everyday examples of this, I mean, when you ask Alexa, a question, how is it that she can respond within a couple of seconds and know exactly what you’re asking? If you’re in a autopilot mode?
Dan Kline 31:28
Sometimes, I just want to play outside with the that artificial intelligence of Alexa and digital assistants are awesome. But there’s a lot of work to be done, which I’m guessing they covered a little bit at the conference,
Simon Erickson 31:39
one of the themes, yeah, there’s a lot of progress being made. But I mean, imagine where we were even just a couple of years ago, and the capabilities that Alexa can do now, that’s all computing going on behind the scenes, because Amazon designed a custom chip to do that. Tesla, you know, if you’re on autopilot of a Tesla, how do you know that the car is not going to veer into the car next to you? Because there’s sensors that are picking that up and processing and driving the car. I mean, that’s behind the scenes, a neural network deep designed, if you’re a big enterprise, you’re probably moving a lot of your own designed data storage to the cloud. Now, you’re probably working with Amazon or Google or Microsoft, what does that mean? And then I mean, there’s also some really fun futuristic stuff that people have been talking about, like quantum computers, like how do you build a quantum computer? And what are the real challenges for something like that. And so going to MIT’s future computer is really, really enjoyable for me, I got to talk in person with a lot not in person, in conversations on the phone with people that I would have loved to talk to in person. But it’s really, it’s really insightful. We bring a lot of this into our own recommendations of seven investing, it’s definitely given me a lot of insight that I’m going to pull into my own pick for for the upcoming month.
Dan Kline 32:48
So Simon, one quick question. Here, we talk about Nvidia a lot behind the scenes, it has been a really, really blockbuster stock. Is there still room to grow?
Simon Erickson 32:58
Yeah, Nvidia has been one of the best performers of the past decade. I mean, how many people in the world are probably saying the word Nvidia right now in context of a performing stock or great company. And that’s because their GPUs or graphics processing units, people realized weren’t just good for rendering video for video games, it could be actually powering a lot of these neural networks that are that are doing AI workloads. Companies are finding new ways to learn information and insight about the data that they have. But that requires a lot of power and a lot of processing. And Nvidia has been the first wave of doing that through GPUs. But the insight on this one, and my takeaway is that it’s not just about GPUs anymore. There’s a whole bunch of different processors, you’ve heard of Google’s GPUs, you’ve heard of ipus. You know, there’s a variety of different types of processors that are now working together to handle different parts of how programmers are programming the logic to go to different systems. And again, the goal in this is to do things you couldn’t do before, but also get the power costs down, because processing takes a lot of power. And this is something that’s being actively looked into. And I think that’s why you see a lot of the consolidation that we’ve seen in the chipmaker industry of this past year, huge deals 30 $40 billion taking place, because they want to be a buffet of options. Rather than just kind of focusing on one discrete type of unit.
Dan Kline 34:26
At least there’s a kind of buffet that can still exist in a pandemic world. Simon, I’m going to ask you in a second about far out options, but uh, my friend Chris Morley asked a question that’s going to let you promote your upcoming podcast. So let me let me read the question. super curious about what they spoke about at this conference. re Alexa can’t speak about it, but I work for Amazon in the Alexa group. Simon, you’re doing a podcast, deep dive into this conference. Is that going to come up?
Simon Erickson 34:53
Yes, we are. In fact, I’m going to providing be providing a full recap of the entire conference on Monday for subscribers. It’ll be advisor update, but it is something I’m going to share all of my notes and this will be included in that. The the quick flyby the takeaway, I think on what’s being talked about influencia, which is the chip that Amazon custom designed, is that it’s really hard to do that, you know, you got to do a lot of design work, it probably cost $40 million. Maybe more than that, to design this yourself. But But Amazon found a real reason to do that. And Tesla found a real reason to do that with its own self driving cars. But if you’re not willing to put all the manpower and the time and the money into designing your own chip, you’re going to be working with other chip makers to find the best fit, and maybe custom design some stuff on their r&d tab instead of your own. But I think that Amazon is still kind of considered one of those innovators in the field, Chris, that a lot of people look up to, because they were willing to, to take this step and do something really neat.
Dan Kline 35:51
My efforts to design a 7investing chip have not gone well. I mean, I figured the potato part out, but the whole rest of it, the computing part is not going well. We’re going to talk about the biggest company you’ve probably never heard of, as soon as Simon answers one more question, Simon, what was the most far out conversation like the the thing that came up with this conference that just like blew your mind, because I don’t want to tip people off. But there are some really smart people at MIT.
Simon Erickson 36:19
There’s also a lot of adjectives before the word computing that are being thrown out there no neuromorphic computing, you know, and and one that keeps coming up, that’s far out is quantum computing. And this is something that everyone’s kind of asking, you know, when is there going to be a computer, the killer applications for this? Kind of like, we keep seeing the same kind of questions. But man, it’s really neat to see the people that have devoted their life’s research to a quantum computer, get out there and talk about this. And the different types of you know, ion trap quantum computers, the supercomputing quantum quantum computers, super cool, excuse me, a quantum computers that are out there, the kneelers that are D wave systems. So we’re gonna be there’s all sorts of different quantum computers even within that same word. And so I mean, this is something that is going to be solving the most challenging problems that that companies are trying to address, we’re not going to be checking our email, then that’s powered by a quantum computer, right? We’re doing just fine with that. But if you’re trying to model climate changes, if you’re trying to model protein structures of new drugs you’re developing. There’s some stuff right now that simulations are breaking. The CPUs that we’re working on right now. And even GPUs are having trouble keeping up with some of these things. And so you really need like this super high powered quantum machine that can operate it several times several orders of magnitude faster than just traditional computers can’t do. And so my takeaway for investors is this. Yeah, there’s a really neat research, it gives some people some, some exciting things to talk about. But typically, when you see innovation, it starts at the very high end of the market, which is where we are quantum computing, and then it bleeds into the more of the mass market. And so when we start talking about things like cloud computing, plus, plus, plus quantum computing in the same sentence, you might be able to get access to these, if you’re paying by use, you know, by minute by hour, wherever often you’re using these, that might not be more than five years away, that this starts getting to be more of a mass market adoption. And so quantum computing, I guess, to wrap all of that together, really neat technology, it seems like it’s always been a pipe dream, but it’s starting to get some commercial applications. And Dan, that really has my interest as an investor.
Dan Kline 38:24
Simon, let me give you a little bit of perspective here. But But my friend Chris, he’s been asking some questions here. My first use of a computer was with him. His dad had a trs a radio shack computer, and had a three lines screen, you had to hook it up to your phone, and you could dial it into bulletin boards, which are sort of like very primitive chat groups. I believe I then got a Commodore 64. And it grew from there. So we’re going from computers that didn’t even have images, to like, basically, the stuff of bond villains like this is it’s not that many years. I mean, this is only 20 something years. So it is really, really exciting. Our subscribers are gonna get all sorts of access to this. Of course, if you want to send Simon questions about the about the show, you can send those to info at seven investing.com. Because we try to answer in ways where the most people can see it. That’s one of our goals with our members is you know, to not write you an email back personally that we will do that sometimes really to take your question, either answer it here live on seven investing now, or if it’s members only answer it. In one of our advisor updates. One of our company updates, Matt, not to make you this the second fiddle here. So you’re not gonna talk about quantum computing and
Matt Cochrane 39:38
Definitely not. You do not want me to talk about quantum computing.
Dan Kline 39:43
We’re gonna take your question, some from the live queue, some from Twitter, which is something we’re trying to do every show. But Matt, tell us about this little $72 billion company that I never heard of until we got an email about it a couple of days ago.
Matt Cochrane 39:58
Sure. So Pfizer It’s actually like a very large leading provider of core processing and complimentary services, such as electronic funds transfer, payment processing and loan processing for us banks and credit unions with more of a focus on the small and mid sized banks, and operates the third largest debit card network in the US outside of the MasterCard visa duopoly. And that’s growing, and through its merger with first data in 2019, with Pfizer now provides payment processing services for merchants.
Dan Kline 40:31
That so so now, what’s the opportunity here? Is this still a growing company? Or is it being hurt by some of the you know, the current changes and how all of this stuff is happening?
Matt Cochrane 40:42
Well, it’s a little bit of both. So let’s just start with here. It just Pfizer just reported its full year earnings earlier this week, which marked its 35th straight year of double digit APS growth, that’s pretty impressive. Um, it’s, you know, in in that time, it’s up approximately a gazillion percent. So I’ve been a shareholder for Pfizer, since it went public in the late 80s. You’ve done very, very well, a 35 years of, you know, double GDP growth is almost unprecedented. Now, that being said, like it’s a, it’s a legacy provider of a lot of these services, and this quarter revenue declined 5%. It grew 46% for the full year. But that’s, that’s very wonky number because it still had its, its its merger with first data, which was in 2019, extended into the first half of this year. So that’s a little wonky. But APS this quarter was up 22%. So even though revenue declining, APS was up, and of course, the revenue was severely impacted by COVID. You know, but adjusted DPS was up 16%, this quarter, up 12% this year, and it’s projecting revenue growth of eight to 12%. This year, and adjusted earnings per share growth of about about the same matter, they
Dan Kline 41:56
just so embedded in the merchant payment space, that it’s very, very hard for anyone to compete.
Matt Cochrane 42:02
The scale of its merchant segment is basically unmatched. It processes 40% of all in person purchases in the US that covers 80% of all US zip codes and accounts for about 10% of US GDP. Its book of business in that industry is probably the most balanced. And there’s two primary growth drivers they have inside that merchant segment, Dan, Clover and carrot, what would you like to talk about first,
Dan Kline 42:27
go with clover, because I don’t remember what you said. The other one was
Matt Cochrane 42:31
clover and carrot. So clover, it’s a payment processing solution for small and medium sized businesses. clovers, gross payment volume grew 25% to $34 billion in the quarter, that’s about $135 billion analyzed, which is even more impressive, because again, of the impact from COVID. You know, so this company, it continues to extend the breadth of these services to clover merchants with solutions that enhance convenience. So, for example, this quarter, they introduced invoicing capabilities that allow clover merchants, especially those in the services vertical to build and collect payments from consumers electronically. And it’s a it’s great, this would be considered a competitor to square and it’s very similar.
Dan Kline 43:14
The reason we’re talking about Pfizer is because Nicholas, one of our members, wrote us an email so we hope Nicholas we’re covering everything you asked for. map now what about carat? First of all, I would have called it crimson. If you’re gonna have clover, the other one should be crimson. But that said, they’re going with carat. What’s that business look like?
Matt Cochrane 43:33
So clover, that’s the new brand for its global e commerce and Omni commerce platform. It’s uh, you know, it’s a culmination of three years of investment by Pfizer, when it replac formed its multi currency and multi country technology. And so but while the carrot name is new, its market presence is not, you know, Clover is already used by a number of leading brands for omni channel commerce. That includes things like Starbucks and Dunkin. This quarter, it acquired the digital business for overstock.com and wingstop. In North America, and global e commerce transactions were up 25% this quarter. So again, it’s growing you know, it’s all omni channel transaction such as, like order ahead and pickup in the store grow more than 125% year over year. So it’s it’s it’s winning market share, and it’s it right now it has a it has 46 this quarter cutter 46 new enterprise level ecommerce climates in the fourth quarter. So it’s it’s it’s doing very well. It’s a very capable omni channel platform. Again, you have things like Starbucks and Dunkin using it like you think about like, you know, the payments behind their apps. It’s very robust. You know, and it so Kara is again at one of these growing segments within its merchant segments business that is just doing very well.
Dan Kline 44:49
So Matt is the big takeaway here that despite that, there’s a lot of increased competition, fi service still doing well and the prospects look good.
Matt Cochrane 44:57
Well, Dan, at the end of the day, and you know this from your work retail experience, but like, once you have a payment processing service as a merchant, you’re not switching, switching to a new provider of those services. It’s not like a decision you make lightly. So even if there’s something a little bit better, that’s out there. Like it’s very hard to switch. And like, especially if it works and Pfizer solutions work, its valuation is very reasonable based on its like, ETS projections for this coming year. It’s at a P e ratio of about 20. So you know, in today’s market, that’s, that’s almost, you know, that’s almost downright deep value. So, you know, this is a company, it’s a legacy company, for sure. And there’s a lot of competition. I don’t want to like, undermine that at all. And I would be like, but over the medium term, the next couple years, I think this is, this is not a bad. This is not a bad company at all, as far as being a shareholder goes over the longer term, like if only 10 years out. I have more doubts, but like this is a good company at a decent valuation right now.
Dan Kline 46:04
Thank you, Matt. Simon Erickson. I know you have a meeting at 1250. So I’m going to quickly field one more question. And then I’d like you to take Maxx Lucas’s question on SPACs. That was way in the beginning of the time. So I’m going to very quickly respond to one of our members, and I apologize that I didn’t copy the name over, asked me about the prospects for discovery plus as a streaming service. And I’ll say I am really bullish on Discovery. Plus, I have not dug into the financials of discovery as a business. But I do think they have the 90 day universe, which sounds bizarre, but 90 day fiance, it’s just all these spin off shows. They also have the Food Network, the cooking network, what I don’t like that they have the Magnolia network, which you know, which chip and Joanna Gaines have a massive following. I do think a lot of people are going to pay 499 for this service. They don’t have the rights to show the linear networks. And I do sort of like just having those channels on in the background. I think they’ll get there eventually. And this is one of the few groups of content. I would not be surprised if discovery was an acquisition target because it is a mover. And if I was somebody like NBC or even Time Warner with HBO that had these sort of struggling mid level services. Discovery plus is a difference maker. So I am bullish, but I haven’t really looked at the business and what they’re spending and how much money they’re paying chip and Joanna Gaines, which is probably a lot Simon, would you like to take Maxx Lucas’s question on SPACs?
Simon Erickson 47:24
Yes, and let me see. Okay. Well, thank you, Sam. So what is the best way to find information on a company coming public via SPAC or their SEC filings once the company is announced? Yes. Okay, great question. Maxx. Thanks for asking this one. Yes, there are all SPACs just like every other publicly traded company has to have a prospectus, which is where you can find a lot of the information, especially prospects about the offering itself. A SPAC is a little different than an IPO because companies that are coming public, through a special purpose acquisition Corporation are actually issuing units that are upfront, putting a piggy bank of money to work, and then they later merge with an existing privately held company. And so in the SPACs perspectives, you’ll typically see a number of units that is being offered for a total amount. Typically, there are around $10 per unit. And then over time, the sponsor of that SPAC has a set amount of time, typically two years to actually go out and find a target company they’re going to acquire, they’re going to merge the two of those together, and then that will be one single, publicly traded company with a different ticker going forward. But yes, there’s plenty of sec documentation to answer your question Maxx,
Dan Kline 48:31
I actually think it’s a little bit thin. And you know, my feeling Simon, that I’m not a big investor in SPACs are IPOs unless I truly believe in the management, because I do think a lot of what you’re looking at is less robust than an s one. And even that’s not that great. That’s a very polished shiny, I like to see a couple of quarters of earnings. Simon, we’re gonna let you go. We’re not kicking you out. You have a meeting, to be here, Simon’s the boss and kick us out. You have a meeting, we will see you at two o’clock when we have a meeting.
Simon Erickson 48:59
Before I do go though, I would like to say a huge thank you for everyone watching this show. Also a huge thank you to you, Dan Kline, I see this is our 50th seven investing now episode. So that’s kind of a landmark. Congratulations, Dan, on an incredible live stream. This is a great way to meet people and have them ask questions on their terms, and put us on the spot with answers. I’m really enjoying it.
Dan Kline 49:21
And we saw how it works. So you know, my childhood friend, watch the show. And I really appreciate when anyone who knows me watches. And then during the show became a subscriber because I think we showed the depth and breadth of what we can do and how we’re bringing the ability to long term invest to anyone if you’re putting $20 a month in your account, we can talk to you about fractional shares and how to buy good companies and how to hold them. And we are passionate about this, and knowledgeable and excited. Simon go to your meeting. We could talk about this forever. I really appreciate that. We are also of course coming up on an anniversary as a company and we’re going to celebrate Right that at some point next month, with a massive show with, with all of us with everybody on the team where we’re going to sort of look back at the year we’re going to, I don’t know, there’ll be champagne, there’ll be cake that’s gonna be a lot of individual champagne,
Simon Erickson 50:13
virtual champagne zoom.
Dan Kline 50:15
We’ll have we’ll all have to buy our own but with that, I’ll
Simon Erickson 50:18
send it to you. Thank you everyone for tuning in. And you know, like, like Dan says, our one year anniversary is coming up on March 1. So thank you, everyone for the support of seven investing so far.
Dan Kline 50:29
So Matt, you and I are going to stick around for a few minutes. Take a few more questions. So Rob Aurora wrote, how do you compare existing FinTech players like PayPal with new listed players like Payoneer, ajin, which are better businesses, and which presents better investing opportunity and then ship of fools God said, what was most impressive about add? Yea, that that’s add yen’s results, and he also wants to know thoughts on pannier. Matt? I’ve never heard of Payoneer before, but can I just hope that their their product is called pay? And as like I’m really, really hoping,
Matt Cochrane 51:01
though, it’s actually it’s coming public via us SPAC, Dan. So like what Simon was just talking about, like, so I’m not super familiar with his business model. It’s kind of like the digital wallet that’s used, used in certain industries more than others, like what I would say about Payoneer is like, you know, its revenue, top line growth is projected to be 25%, and PayPal, you know, five year revenue, projection growth is supposed to be 20%. And Palantir is coming off at a much smaller base, you know, network effects are at play in the payments business, where like each user brings like more value for the overall network. So like, for instance, like every user of PayPal, which now has almost it’s approaching 400 million active accounts on PayPal, each additional user now that’s someone else that everybody can send money through through p2p like person to person payments, it’s uh, it makes it more attractive for more merchants to accept PayPal as a method of payment. So if PayPal is growing at 20%, and Payoneer was a much much smaller base is only going to projected to grow at 25%. Like to me are just watch rather like stick with a company like PayPal. Now as far as add in. Okay, we’re just talking about Pfizer, and it being a legacy payments company. And like there’s disruptors coming into the space out Ian is a perfect example of the disruptor coming into the space. Um, you know, it’s it’s what was impressive about his most recent earnings show was not only its top line growth, but also his projections for its long term margins. Like I think that caught maybe everyone a little off guard that it’s gonna be that they think and probably will be able to achieve these margins over the long term. You know, it’s just a very overall impressive company. You audience strategy is very different than almost any other company in the payments business. I’m not gonna try to get too much into the weeds. But there’s like some legacy players that have gotten very large through acquisitions. And they kind of like cobbled together all these different pieces. And it it works. But addin has intentionally not made any acquisitions. It wants to build a platform from the ground up its name literally means to start over or to build again, something like that. And like when they did it, they were very intentional. They, they they, they missed out on a lot of growth opportunities that a lot of companies could get in by acquiring companies by just slowly building up and right now it has a very elegant solution. It is a very impressive company. However, again, the valuations reflect that Pfizer’s valuation we talked about is about like a 20 p e ratio, based on an EP s projections for this coming year, and it is about a 20 price to sales ratio, you know, it’s so the valuations reflect their, their their positions in the industry.
Dan Kline 53:51
We’re gonna take two more questions quickly. That being said, Ravi Shah is peyo near pa y o n e r, I don’t know off the top of my head when they’re going public. I also don’t think it matters if they’re a good company in the long term. Buy it six months from now, after you’ve seen a couple of quarterly earnings. We’ve seen prices get very wacky when companies debut there’s a lot of fear of missing out, you’re often better off just waiting. Roman Michael, why don’t you hit us up with that one on Organa Graham on Twitter because I know I am working on a guest whether it’s a podcast or a show, or we’re gonna do a cannabis one. I haven’t looked at Organa Graham in a while so I don’t feel super confident talking about it. But Matt chiasm says, Hey, Dan, always enjoy your work. Nobody facilitates the discussion better. Thank you. My question is about when to add to a position I’ve added to my winners forever, but it’s gut feels not systematic add when stock prices 50% accurate doubles when Simon matter you say so so here’s how I do it. And Matt, you can I add to positions when I don’t have a new idea I want to buy so if there’s money sitting in my account, and I’m not super excited about something new, or I’ve already made my new purchase for the month based on, you know, whatever, I’ve picked it at seven investing. That’s when I say, okay, what’s my favorite thing that I own? I’ll throw a little bit more money there, it’s not systematic at all, do you have a better program than that?
Matt Cochrane 55:18
No, so much of it depends on the company, you know, I do believe in adding to your windows. Winners, like Peter Lynch said, like, cut your weeds and grow your flowers, you know, don’t do the opposite of that. What I personally just like to add a little over time, like I start positions kind of small. And as my conviction grows, and as I learn more about the company, and as the thesis that I believed play would play out, does start to play out. Like I just add, almost, I almost like ad on a on a time basis, then rather anything else like so every year I like to add to like great companies, we talked about Disney. It’s a company I like to add to a little bit every year, you know, other companies that like fit that bill, to me, that’s just a great company that I believe is a forever hold stock, I’d like to add to it, you know, a little bit out of time. I also
Dan Kline 56:07
try to be a little bit opportunistic, if you see a great company that like some dumb thing came out like remember a few years ago with Chipotle, they said they might run out of guacamole in a couple of locations because of supply. And the stock went down a whole bunch, nothing fundamentally changed about their business because of that. And it was actually in the section of your annual report, we have to like lay out like, Well, our CEO might be eaten by a dragon like there could be an end of all meat like it really was over bit played. So that was an opportunity for people to buy. We’re going to take one more question, then we’re going to wrap up the show Sam Bailey, we’re going to skip the finisher. There’s a little bit of a problem with the graphic there. I’d rather get this one more question in this is from Han. And he wrote, and he wrote to info at seven investing.com. With the current broad market heading higher and making new highs, a lot of the companies seem to be overvalued by traditional metrics, do you think that there’s a fundamental shift in terms of how investors are evaluating a company who don’t mind paying a higher premium, as long as the growth of the company is intact? We’d like to get your advice on how to better position ourselves in this fast moving market. Matt, I’ll let you have the first word here.
Matt Cochrane 57:17
Well, that’s we could do a whole shows on that topic, about valuation of companies, every company, I would say this, like Don’t, don’t put too much stock into traditional valuation metrics. I believe a lot of almost all the time, you have to go a little bit deeper than that. And it’s a good shortcut to kind of like underlining the valuation, but like, there’s a lot more at play than just traditional financial metrics. So for instance, just think like a lot of SaaS companies, like right now, like the valuations might look ridiculous. And for some of them, they probably are, however, given their margins, and However, given their growth rates, like, you know, I think a lot of them are, are not only like reasonable, you know, they, I don’t want to say cheap, but you know, I don’t think they’re expensive as they are when you first look at them.
Dan Kline 58:06
So I do it sort of organically, I look at a company and I go, what is the growth path? Because this company get 100 times bigger, can I get, you know, we talked Disney earlier, and I would argue that Disney plus will get three or four times bigger, and it probably can double in price over the next decade without doubling in cost. So that, to me is more the story of you know, one of the ones people talk about a lot of zoom, like zoom had a ton of growth due to the pandemic. And I do think there might be a post pandemic period where growth is very sluggish as the market sort of catches up to where it is now. But so that’s a company that I’d like to see some other area of growth for them. Besides just adding video conferencing customers. I don’t know what that would look like. I don’t think it’s hardware. So there’s no one answer to this. And I do think though, I don’t place a lot of stock in traditional metrics, Matt, we’ve done it. We’ve done an hour and I keep teasing people. We are doing this for an hour for a reason. There is something big and exciting coming up in the world of seven investing. Now if people want to get a hold of us, they can either drive to Florida and look for us out on the street, or they can email info at 7investing.com that that goes to all of us. I Steve Symington is usually the one fielding it. That’s where you ask questions you’d love us to field in the show questions you’d love us to take on members calls. If you have a technical question about subscribing or how things work that can work there. And if you have a public question or just want to interact with us, we are at 7investing on a Twitter we are very, very active on Twitter. But that brings us to the end of the Friday show for Matt Cochrane. I am Dan Kline, we thank so many of you for watching and we will see you Monday special show even though it is a market holiday. Bye
Costco Earnings and Why the Market Is Punishing Great Companies
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