Can Moderna Grow Its $100 Billion Valuation? What Does Zoom’s Big Deal Mean?
July 19, 2021
Hitting a $100 billion valuation marks a major milestone for a drug company, but it has also been a mark that tends to be hard to grow beyond. For many drug makers, it has been sort of a hard wall, but there are reasons that may or may not be true for Moderna, according to Maxx Chatsko. In addition, Zoom spent $14.7 billion to buy Five9, an intelligent cloud contact center company. Steve Symington joins Maxx and Dan Kline to break down what the deal means.
Zoom (NASDAQ: $ZM)
Five9 Inc. (NASDAQ: $FIVN)
Moderna Inc. (NASDAQ: $MRNA)
Johnson & Johnson (NYSE: $JNJ)
Roche Holding AG (OTCMKTS: $RHHBY)
Salesforce (NYSE: $CRM)
Sam Bailey 0:13
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 0:23
Good afternoon 7investors and welcome to the Monday edition of 7investing Now as you can tell, I am back at home in West Palm Beach, Florida, but it has been an odyssey we will talk about that in a minute. My name of course is Daniel Brooks Kline. I’m the host of the program. I am being joined today by marvelous Maxx Chatsko and stunning Steve Symington. Maxx, do you know the origination of the marvelous nickname?
Maxx Chatsko 0:49
Dan Kline 0:50
So that comes from marvelous Marvin Hagler, the rare boxer who made his money was a great champion, lost a fight and then stopped boxing, which is really the way to do it. Like, like if you can get hit in the head, make but legally he went and changed his first name to marvelous so he could so he could actually own this very similar to how the former Ultimate Warrior changed his legal name to warrior and his family actually goes by the last name Warrior, which are all things to get around copyright and I am sure Steve, you know where the stunning nickname comes from?
Steve Symington 1:25
I thought we were just going anagrams.
Dan Kline 1:27
No that would be the original nickname of stunning Steve Austin back when he was a young wrestler with with stringy blond hair. But we’re not going to talk wrestling. We’re not going to talk nicknames. We’re not even going to talk boxing. Now. I’m hyped up here. I’m excited to be here. We had a great week last week, we got a busy week planned this week. But as many of you know, I was in Birmingham, Alabama after being in Cherokee, North Carolina, all of which I had to do by car. Because Delta Airlines is the Comcast of airlines. They don’t care if you get there, they still have my money. They didn’t actually fly me anyplace. And that is somehow my fault and not theirs. And if I want to wait on customer service hold for six plus hours, I can wait to be confirmed that they’re not going to give me my money back.
But that said if I look a little tired, it’s because yesterday I got up at 3am whenever the time that isn’t Eastern and isn’t what you guys have in Houston. Is that central is that mountain? I have no idea. I’m an East Coast West Coast snob here. So I got up at three in the morning, and then drove and got home at about four in the afternoon. So when you factor in the hour change that is about a 12 hour drive. And why do I tell you this is because normally, we plan a lot of this show on Sunday. But I took a look at the news. And I messaged you guys, and I got a quick response back from Maxx. So I’ll be honest, I went to bed at about 10 o’clock last night going hey, at least I know someone’s on the show doesn’t look like there’s any big news anyways Maxx will pick some biotech thing we will get through the show.
And then of course, I wake up to Steve saying he wants to be on the show. And of course, some pretty massive news. Now this is a news tactic that they usually do to hide something. And in this case, they don’t want it to be hidden. But Zoom (NASDAQ: $ZM) is paying $14.7 billion to buy a company called Five9 Inc. (NASDAQ: $FIVN). This is the second segment of the show. I never heard of this company. I literally in the description wrote privately held company before googling them and learning that they were a publicly traded company. So to say that Five9, which is an inch taller than me five9 is a below the radar public company, they do back end call service. So we’re going to talk about that later. But we’re going to open up the show with a bit of a milestone we’ve talked vaccines. We’ve talked Moderna Inc. (NASDAQ: $MRNA) . We’ve talked a lot of biotech. But Maxx, Moderna has become $100 billion market cap. Historically, that has generally been a bit of a bit of a brick wall, right?
Maxx Chatsko 3:51
Yeah, so it’s only the 16th drug developer that’s ever hit a $100 billion market valuation. And in drug development, there’s this like natural limit to how big a company can get. It’s not like a tech company, right? There’s never been a $1 trillion drug developer. There’s actually ever been one $500 billion drug developer. And that’s Johnson & Johnson (NYSE: $JNJ), everyone else is below that. Some companies that reach $100 billion valuation fall and they’re not $100 billion company anymore. So it’s very, very difficult to grow beyond that, that limit or that milestone, and in fact, only two companies ever that have reached the $100 billion mark have then outperformed the s&p 500 and some of the returns are actually pretty ridiculously bad. We actually have a graphic if the great amazing Sam Bailey could pull up graphic number one.
Dan Kline 4:39
Yeah, this graphic is fairly graphic if you don’t like negative percentages.
Maxx Chatsko 4:42
Oh, look at this minus 400 minus three like really what Yikes. This is total returns too so we’re accounting for share buybacks and dividends for all of these companies. This is from the day they reached a $100 billion market cap and then the returns against the s&p 500. So only two companies have actually outperformed from that date. So Moderna has a pretty tall task ahead of it.
Dan Kline 5:02
I’m predicting Johnson and Johnson, which will soon become Johnson and Johnson and GameStop will of course become the first trillion – now that is an absolute joke. Maxx. That’s the history. And it’s all well and good. Tomorrow night is Game 6 of the NBA Finals. And I spent the whole morning watching ESPN. And they basically said only a couple of teams have ever come back from that. And that seems like it’s projectable. But the reality is, it isn’t because nobody had come back from three one and then LeBron James did it a few years ago. So this isn’t necessarily the trajectory for Moderna, right?
Maxx Chatsko 5:35
Yeah, so the reason that it’s so tough to grow at a certain level is because to get to that valuation, a very high valuation for a drug developer, well, after a certain point, you know, those drugs have declining revenue, so then every new product you get to bring to the market is just replacing revenue that’s declining elsewhere. So it’s really difficult to grow beyond a certain level, right, usually around like the $30B, $40 billion in annual revenue mark, really tough to get much higher than that for a drug developer.
For Moderna, specifically, it’s the first company to reach this mark. It’s a platform company. So it’s obviously working on mRNA tools and therapeutics, and it’s gonna have about $20 billion in revenue from the COVID-19 vaccines develop EPS this year. Anyway, the expected revenue total this year, maybe you can, you know, hang out around that mark for the next couple of years. But it does have a broad tool they can use in a lot of different therapeutic areas, potentially, right, it’s already exploring the use of mRNA, maybe a flu vaccine in HIV. So that looks a lot similar to kind of what the COVID-19 vaccine looked like. And then it’s also looking at other uses of the mRNA technology, maybe in cancer, maybe in genetic diseases for gene replacement, and so forth. So it has the potential to expand much more broadly than any other company that’s come before it to hit this valuation mark.
Dan Kline 6:58
Maxx, you have another graphic here, which we should probably introduce as we move on here. And you’re going to explain how genetics work, which gives you a generic medicines work, which gives you a little bit of an insight as to why this platform could really be so versatile, but even then, I’d be a little bit wary, we could talk about that as you bring up the graphic here.
Maxx Chatsko 7:18
Yes, Okay, perfect. So how do generic medicines work? So we see here for the first time, all these tools that we have come in our schools, right, gene editing, based editing, RNAI mRNA, specifically would be for replacement, and even maybe activation to so we see here, it’s the first time that we’ve had the ability to act on DNA, and RNA to affect protein function, or levels. So this is why they’re so valuable, right?
And I think companies broadly would have genetic medicine platforms, could potentially buck this trend and become much larger, you know, then the large companies today, the Johnson and Johnson’s and the Roche Holding AG (OTCMKTS: $RHHBY) and the Merck’s, and so forth, right, they kind of more have like, individual drugs in certain indications. But if you have like a mRNA platform, and maybe a gene editing platform, you can potentially use that in many, many diseases.
Dan Kline 8:07
So Maxx, if I create a drug, let’s pretend Steve and I pioneer a drug in it, it lets anyone who take it once grow three inches, that would be an incredibly everyone wants to be taller, except Steve, that would be an incredibly valuable drug. I will point out to the world three inches taller, that changes nothing, I still can’t see the concert, but let’s pretend this drug exists. Now the negative is we only have exclusive rights to that drug for a certain period of time, right? And then eventually, there are things I can do to prolong that. But eventually it becomes a generic, the price goes down, you still make money as the brand name holder, but obviously your pricing power goes down. Is something like an mRNA platform, is that something you can own and control for a longer period of time?
Maxx Chatsko 8:51
Yeah, I mean, there’s other companies exploring mRNA. So there’s nothing really exclusive to it. And that’s kind of true of a lot of genetic medicine platforms, right. Like, we see dozens of companies in gene therapy, for example, right? There is like IP, around like CRISPR, specifically, or uses of it or RNAI. But in general, there’s like broad access to those tools. So in a way, there is going to be a lot of competition, like you said, there’s constant innovation, the competitive landscape, and yeah, eventually drugs lose exclusivity. So actually, I have notes here, forgot how well prepared I was for the show last night, and then I kind of forgot about it.
So only nine drug developers have annual revenue of at least $40 billion, only three have annual revenue of over $50 billion. So for comparison, just so that this is not, you know, drug developers, not tech companies, Apple AirPods, that one single product generated $23 billion in revenue last year, right now, that’s an extreme example, perhaps, right? That’s more than most companies generate, but it shows you like, even though scale gives you advantages as a drug developer, it does have limited Because eventually, you know that revenue is declining.
Dan Kline 10:04
So Maxx as an investor, do you think Moderna could could break this trend? Or is it the reality when a company hits 100 billion, maybe that’s time to sell? Is that like, you know, maybe not a full on brick wall, but you got to be like Mr. kool aid to get through it. And there’s just not that many Mr. Kool-Aids?
Maxx Chatsko 10:20
I think it’s possible that Moderna can outperform the S&P 500 from here, right, it actually just got added to the S&P 500 index. So that’s nice, a lot of funds will have to go and change their positions and their holdings to include Moderna now, if they didn’t already own it. So that’s a positive that kind of creates a floor almost right for the share price. So it’s certainly possible that the company can outperform the S&P 500 from here, but when people give examples of how broadly we can use mRNA technology, right, there is a lot of nuance to consider. So first, you know, in the in the near term, the next several years, it is gonna be really difficult for Moderna to keep up its revenue levels at the $20 billion mark. Right? Sure. Maybe you can sell internationally is talking about boosters –
Dan Kline 11:05
You’re talking specifically here that the vast majority of their revenue comes from the COVID-19 vaccine?
Maxx Chatsko 11:11
100% of their revenue.
Dan Kline 11:13
Oh, geez, that’s a lot that is clearly. So if we do not need, if we need a booster, theoretically, their revenue could be somewhere in the 50% ballpark. If we don’t need a booster, which you don’t believe we will, and many doctors don’t believe we will, their revenue, it won’t go to zero, because there will always be unvaccinated people taking the vaccine, but it could go to not very, it can go to the box office for Black Widow, it’s second week, you know, where there’s just much, much less interest.
Maxx Chatsko 11:41
Right. So they’re generating a ton of revenue now. And that’s good. And that, you know, they’re, they’re monetizing their success from helping the world in the pandemic. So that’s good, right. And maybe they deserve to do that. We can argue about profits and all that. But that’s another discussion. So that’s good, that provides a lot of funding to advance other programs within its pipeline. But those are such, you know, in the earliest stages of development, where, you know, there’s gonna be years away from generating any meaningful revenue, they have to go through traditional clinical trials, they’re not going to get emergency use authorizations, and we don’t need any of those and 12 months, right, so it’s going to be much longer development timeline.
And it’s important to point out too, you see in the mass media, right, you’ll see examples of like, you know, mRNA technologies moving into cancer now. Well, that’s a much different use of mRNA. Right. So when I give you a vaccine for COVID, I just need to inject a part of the, you know, the spike protein, for the Coronavirus, and to use your immune system, you know, sees it and starts to develop defenses against it. For cancers or genetic diseases, it’s a lot different, I don’t just need to put that mRNA into your body necessarily, I need to put it in the correct cells. So now there’s a delivery challenge, it doesn’t have to just have to get in your bloodstream, you know, it has to get specifically to your liver, specifically to your lungs. So that’s orders of magnitude more challenging. So don’t be diluted and thinking like, oh, it worked in COVID. It’s gonna work in cancer and HIV and all these other things, much more challenging development ahead for this company,
Dan Kline 13:13
Let’s go back to the the comparison to technology here, I’d argue it’s also comparison to say fast food or really any branded thing. So if I’m Apple, and I say, I’m going to launch an apple car, or an apple hoverboard, or an apple doorbell, or whatever it is, there’s a certain amount of Apple enthusiasts that are at least going to consider that product. Now if I’ve had the Moderna vaccine, and it went, well, there might be a very tiny part of me that if they had another drug went, hey, I kind of trust Moderna. But that’s not really how it works, right? There’s no brand loyalty. Nobody’s like, I had the Moderna vaccine, like what else you’ve got, like, so they’re, they’re kind of hurting from every time you launch a product. It’s on a completely blank playing field aside from whatever marketing or salesperson advantage you have right?
Maxx Chatsko 13:59
Yeah, there’s really no ecosystem advantage right in drug development. Now I mean, mRNA makes a lot of sense for flu vaccines, and we can’t make a flu vaccine that would work broadly for many years, necessarily, right? Even if it’s mRNA. mRNA just means it would be easier to manufacture, we could do it more quickly, maybe would be a little bit more effective. But the genetic differences between influenza and Coronavirus, also suggests can be much more. It’s way more complicated. So, you do have to acknowledge that when you’re thinking about oh, we’re just gonna use mRNA for the flu. That’s a little different.
Dan Kline 14:36
Yeah, I’ll throw out another quick example here and we would love your questions and comments. Darson Rene, we appreciate you saying, ‘delta Oh, hell no, never, ever in years.’ Yes, that’s how I feel. It is tricky to get places. Now. I will say I will never fly Delta again for a quick window flight. The customer service simply wasn’t there. I understand things happen. I once missed a concert I was really excited to go to due to weather and it but some airlines southwest and JetBlue actually care that you missed the concert and they’ll do their best. I did not feel that way.
But in this case, Max, so I’ll bring this home a little bit more. Our marketing director Sam Bailey is wearing a peloton t shirt today, I think it’s not unfair for me to say that. If you don’t work at Moderna, you’re not wearing a Moderna tshirt. So is it possible that many of the companies you’ve recommended, and we’ll talk about our pitch a little bit not specifically, but how they work later on, that you’re picking these pre revenue biotech companies? That’s kind of your specialty, it’s not all your picks, but it’s a lot of them. And I own every one of them, that when they get to a certain level, maybe it’s 50 billion, maybe it’s $75B, maybe it’s that 100 billion wall? Is that kind of the sell signal because it looks like 99 times out of 100 that and I’ll put out Johnson and Johnson a pretty broad company beyond just drug development like so, you know, to me, that actually seems obvious that there’s a certain point where your upside is just not there anymore. And maybe with Moderna , maybe there’s no upside anymore.
Maxx Chatsko 16:05
Generally that is true, right? So most of the companies I recommend, even if they have recurring revenue, they are smaller right. And that’s because of that natural limit, you know. When drug developers get into like the 10s of billions of dollar valuations. Very rarely do they tend to outperform from there, right, you almost have to be early on, and then just be a long term investor, in order to really have success within drug developers. As you mentioned, Johnson and Johnson and Roche, those are the one and two largest drug developers in the world, they generate a lot of revenue from other things, you know, Johnson and Johnson from personal care products. Roche has a giant diagnostics, business as well. So those have diversified in other areas of health care, personal care, as a way to offset their declining, you know, drug revenue, that’s just like one of the limits of being in this space.
Yes, you’re right, there is like a natural limit, somewhere in the 10s of billions of dollars tends to be tied to specifically you know, annual revenue you generate. So Moderna has, it’s gonna be a tough act to follow, you know, it’s gonna be a while, I think before it really gets to multiple products capable of generating $20 billion a year in annual revenue. So there is gonna be a big dip in the next few years, I think, if the COVID-19 vaccines, you know, wane in terms of their importance, or how many they can sell. And again, there’s international orders and supplies, I’m sure, but we are gonna see a big dip in revenue. And then it’s up to all those other products in development, which are still years away to really kind of, you know, live up to this, these high expectations. So I would definitely not expect Moderna to perform very well, in the next few years. Right now, there’s still a lot of hype as well. So I don’t know, I would not be going I’m not going anywhere near this.
Dan Kline 17:46
So we talk a lot about sell a stock when your thesis has played out. And with tech companies, that almost never happens. There’s always sort of a rolling basis with the thesis goes on. It’s possible, maybe even probable, that in the biotech space that there is kind of a hard wall at 100 billion, where you’re just not going to make sense to own there will be exceptions to that. But in this case, there are better opportunities. How do you get those opportunities? Maxx, how does someone what do we do at 7Investing? How do they get your picks? What is your pick? Is your pick like a favorite restaurant to go to? What do members of 7Investing get each month? This is where we segue into the slight commercial part of the program if you have not noticed,
Maxx Chatsko 18:27
Yes, on the first of every month, the seven lead advisors here at 7Investing. That’s why we’re called 7Investing. Each recommends their best stock market opportunity that month, at that time, right. So you get those recommendation reports, the first of every month, and then from there, we provide continuous coverage as long as that pick is on our scorecard. And spoiler alert, we’re long term investors, we’ve never recommended a sell yet. All of our picks are at least three year picks is the timeframe we provide and some are much longer. So if you want to get access to our picks, you can email Dan. Dan, you’re going to give out your personal email address right now.
Dan Kline 19:04
No, no, you should give up my home address they should drive to the house. No, you should join us at 7investing.com/subscribe. What does it cost? That is a good question I just asked myself, it is $49 a month or $399 a year that is an incredible value. So Maxx mentioned company updates. Now if you pick an early stage biotech company, you might have multiple de risking events or interesting news events in a quarter. Most of my picks tend to be mid stage or even higher than that retailers. But I have a couple of companies in there that are pretty high risk pretty early in their development stage. So sort of the earlier it is the more likely it’s to be updated. This is not one of my picks, but let’s pretend I picked Walmart I’m just picking the biggest retailer I can think of.
Well, not a lot can happen to Walmart even if like a person dies at a Walmart on black Friday, because they got trampled, that’s actually probably not going to make a material long term difference. Or if there’s like a, you know, E. coli recall at Sam’s Club, which has happened periodically, that is not really going to change Walmart trajectory. Whereas if I pick some retailer that has 75 locations, you know, much more likely for small news to have a big ripple effect. So it’s not always like that. But some of these companies are going to update once or twice a year. Some of them are going to get updated multiple times in a month. And of course, our members get access to our members call. So let’s say I’ve made a pick and I haven’t updated it. And you wonder if I’ve lost interest in it, you could ask it on our members call. And I will literally just say, Oh, no, hey, I still love that one. And here’s the next thing I’m watching for. Here’s the next milestone.
We’ve seen a phenomenon in retail. And again, we’d love to take your questions and comments, we’re going to talk about the Zoom purchase in a second. Stock investor, I see your question, we’re going to take that at the end of the Zoom segment. But we’ve seen a phenomenon in retail, my space, and a little bit in tech, with the mature companies with your Microsoft and your Apple’s, where they put out a great earnings report. And then the market goes yeah, but they won’t equal that next year, and the stock goes down. That is like being the worst kind of parent. That’s like Steve, your kid comes home, he’s like, Look, I got an A, and you go, you’re probably not gonna get an A in the next test. Like that’s abusive, that is not great. And that’s what we’re having happening.
We’re having these short term stock analysts that don’t understand that there are metrics beyond same store sales that you’re right, maybe some of these companies won’t equal Apple has an every other year cycle with with the new iPhone, they have a soft update, and then a hard update with a model number changes, they do better in the model number of years. But if in the off year, they’re adding to their service revenues and other things are going well, that doesn’t mean Apple stock won’t appreciate. And I believe Apple just hit one and a half trillion. So you know, we are really in a case here where short term doesn’t matter. And that’s what we do at 7Investing. We are long term investors, we are stay the course,we don’t care that the market is down whatever crazy about it is down today, five 600 points last I looked
Because here’s the reality, nothing changed about any of the stocks we bought, because there’s a little bit of fear over the Delta variant. You’re right. There might be some mass mandates, there might be some closures that that might create some hiccups – doesn’t change anything for good companies. Look could be a death knell for some struggling ones. But in general, we’re picking really, really good companies. Let us move into the next segment here. Steve, as I mentioned, went to bed last night, a little cursory check of of the news channels, didn’t see anything. Sunday Night is often where like you, you drop a bad story that can happen on a Friday night too, because of the news cycle. It’s like oh, like our CEO was doing improper things with his babysitter like, let’s let’s drop that one on a Friday or a Sunday night where that news cycle might not capture it. That’s not what happened here.
So this suggests to me that this is actually honest news that the deal closed, and they just released it as soon as they’re obligated to but I’ll let you give us the 10,000 foot takeaway. But let me just explain what happens. We all know Zoom, Zoom from video conferencing, Zoom from very uncomfortable family get togethers when there’s always someone who doesn’t know how to get in, and an aunt or uncle who is on mute or one who has some really weird angle. That’s not great. We all know what Zoom is. It’s become an important part of our lives during the pandemic zoom has bought a company called Five9 for $14.7 billion. That’s the second biggest tech acquisition this year. The first was by Microsoft. Steve, what did they buy? And what what does this mean?
Steve Symington 23:37
So Five9 ticker $FIVN and Zoom’s ticker $ZM if you’re wondering and its funny, because Five9 shares are only up like 5%, because Zoom fell on the deal. In part because a, you know, broader markets pulling back pretty hard, but b that all stock transaction. So it will be a diluted transaction valued Five9 at about 200 bucks a share, based on Friday’s closing price. So a little bit lower now because of the all stock transaction part but about a $14.7 billion purchase by Zoom.
So Five9 is a contact center as a service company. They’re basically it’s a cloud based context, contact center for customer service, right. And it’s been interesting because Five9’s kind of been enjoying some some nice momentum in recent quarters. And the CEOs basically said, it’s been a lot easier to close deals because you no longer have to convince companies that, you know, transitioning from a legacy contact center. platform to a cloud one is a good idea. It’s pretty easy. Now they just kind of step right in.
Dan Kline 24:45
Does this just mean that like, instead of all the people sitting in a room, they’re just using distributed services across the cloud and the actual people I know there’s an AI level to this as well. But when you actually get to a person, that person just doesn’t have to be sitting in a warehouse, whether that be in The cheapest part of Texas or the cheapest part of India, like, yeah, this isn’t that revolutionary?
Steve Symington 25:06
That’s a big oversimplification. But, but yeah I guess Five9 they they do incorporate a fair bit of artificial intelligence into their solutions and supplementing with chatbots and such. So it’s a nice streamlined cloud based solution for contact center service. So yeah, that’s kind of where Zoom stands. And and it’s interesting, because you think, Well, you know, how does that, you know, I think that’s maybe might have been one of your first questions is like what’s the point? Why, how does this complement?
Dan Kline 25:39
Yeah they don’t seem to complement each other. I understand that there’s some back office compliments, you can sell more products, but this seems to me like, it’s not like zoom went and bought something that you go, Oh, that’s a zoom customer. Like, I’d love to have access to this service, or whatever it is. This feels like it’s kind of they’re missing, like another piece of the puzzle.
Steve Symington 26:02
Yeah. And, you know, there’s gonna be some inevitable comparisons to Salesforce (NYSE: $CRM) and their acquisition of slack, right. And slack is kind of the the messaging directly. Why
Dan Kline 26:11
Steve why don’t you bring up stock investors question?
Steve Symington 26:12
Stock investor said with acquisitions being made by both parties, assuming Salesforce now going head to head? I mean, they’re crossing paths in a few places now, you know, Salesforce does have a contact center solution. And Zoom made a big point to mention that this is a $24 billion annual market, that they’re basically tacking on to their existing ones. And Eric Yuan CEO of Zoom in the blog post announcement this morning, he called it a natural fit, and said he’d be able to deliver more value to customers enable them to create the customer engagement platform of the future, right. So this is a very enterprise centric acquisition, this isn’t something like consumer facing, calling your grandkids on zoom kind of thing. enterprise clients are going to enjoy this.
But zoom also has their zoom phone product that basically replaces traditional hardline phones. And yeah, that’s still a thing. And a lot of enterprise customers. And if they’re looking for a better cloud based solution, that will be superior to their legacy kind of phone line systems and to be able to integrate those phone line systems into like a call center model. That’s, that’s basically cloud based. So you can get people to the right places and move them around that way. And I think that’s the most important point, actually, that Eric Yuan, in his blog post this morning, really noted that they’ve seen very strong demand for zoom phone, which is their cloud based kind of phone system acting as a digital alternative to those legacy systems.
And again, this is focused on enterprise customers, not consumers. And that’s where Five9 is really complimentary to what Zoom is trying to accomplish. It’s it’s complimentary technology, but also it gives them crossing selling opportunities between their customer bases. And, you know, if you look back at it Zooms last customer, the earnings transcript, read their their call transcript, management noted that at the end of last year, zoom phone, just a couple years after release, had reached a million paid seats at the end of 2020. And five months later, they’re at 1.5 million. So as I think the end of May, and they said they had like 21 customers with over 10,000, zoom phone seats. So growing pretty quickly. And it’s something that, that that is definitely complimentary, and noting they’ve been partners for several years as well. So it’s sort of like, Well, why don’t we own you?
Dan Kline 28:48
I’m gonna argue that the zoom phone thing is very pandemic driven. I will also point out, if you have any broader market conditions, I don’t want to minimize that the market is not doing great today. So if you’re watching the show, and you have questions about what’s happening in the stock market today, you want us to hold your hand up, feel free to put questions in, we appreciate you watching. But of course, we’re always happy when it’s interactive. But Steve, back when I worked at Microsoft, which was the launch of Windows 8, so we’re talking almost a decade ago, if not longer than that, at this point. We had what was called Microsoft Lync, which is now Microsoft Teams. And that was our phone system, because we were largely a distributed workforce. Slack offers exactly that functionality. And I understand that there is a layer you can add to that with with answering systems and when you literally don’t have a legacy system, but a lot of companies when they move to an out of office model, I assume they’re using that to just get rid of this like, I don’t know, like, is the growth of Zoom phones something you’re like excited about?
Steve Symington 29:52
I think it’s a natural extension of their existing platform and you know make no mistake, this acquisition is going to kind of put the onus on Zoom to prove that it was a good move, you know, it adds some integration risk. And I think it really was maybe a best case scenario for Five9 investors look at this, it’s it’s a decently fast growing addressable market that Five9 was addressing, but it is narrow, and I think they were better served to be part of a broader platform like zoom. So maybe a better move for Five9 to be acquired than zoom to be acquiring it. But you know, zooms, good, try their best to prove everyone wrong. So
Dan Kline 30:36
I agree, I agree with that fully, we’re gonna get to Maxx in a second here. Maxx has a question for Steve. But I want to throw out that sort of the Salesforce model is we buy things that we can then sell to our customers. And I sort of like that from a zoom point of view, because we might be at an inflection point, where and I’ll give an example, the place we used to work, has a big Customer Service Group. And that group used to sit on the same room. And obviously, they don’t all sit in the same room anymore. Maybe they were distributed between a couple of offices, but for the most part, they were all in the same place. And I think that’s true of a lot of companies, your your T mobile’s of the world, even your Comcast, your companies were terrible customer service, your airlines, they’ve had these physical things. And the pandemic has forced that externally. So I think what zoom is banking on and, Steve, I’ll let you comment before Maxx asks his question. I feel zoom is literally looking at its customer base of going I bet these people that are big zoom customers are figuring out with this transition. And if we call them, why wouldn’t they use ours? I have to assume, and I don’t know anything about this space or Five9, I have to assume that there are other players that have solutions here. And then frankly, you could do a lot of this through Google tools or tools if you’re not a giant company. But is that the idea here? Steve? Just like Yep, we got a Salesforce, we got a customer base. Here’s something else we can sell ya?
Steve Symington 31:55
Yeah, I think that’s that’s part of the idea. Right? And it’s kind of hard to blame zoom. Because they they have kind of a nice currency, so to speak with their soaring stock. And for perspective, you know, let’s zoom out a little bit. And you know, look at Zoom just, I think Zoom was about Five9 sighs the valuation right, just a few years ago, and But even after pulling back, I think it’s like 35 37%, from its peak last fall, shares of Zoom have still quintupled since the start of ’21. So again, hard to blame them for going shopping with with this stock, because it dilutes their existing shareholders a lot less than it would have a couple of years ago to really accomplish the same thing that they might have considered doing back then. But it would have been a heck of a lot harder to pull off. But it makes sense, I think, relative to using its cash on hand, to make the same acquisition, and it’s much harder to do these kinds of things organically than it is to custom engineer a solution for a business that already has it when there’s a perfectly good $15B business up for grabs. Right.
Dan Kline 33:05
That was a billion dollar business, of course. Yeah, and I would argue and Maxx again, I’ll let you jump in after I say this, I would argue that Zoom has to buy stuff, because the reality is Zooms customer acquisition going forward, has to slow down. Most people who have Zoom, have Zoom, and they might actually use it Yes. And some might downgrade plans, I would have preferred to see Zoom buy Slack back before Salesforce did, I actually thought that was a very smart integration, I wouldn’t be against seeing Zoom by a hardware company, you know, they put out you remember, they put out the Zoom standalone device. And maybe you didn’t even miss that, but I looked into it. And it didn’t even have a headphone jack. Like it was really a device that was only going to work the way like Facebook portal does, which is like a very limited audience, as opposed to like, I thought, like, wow, would be great to have a broadcast device back when I was broadcast, I got zoom. That’s not what we’re using for this show. I think there’s a lot of opportunity in that space. Obviously, we’ve seen that acquiring is better than creating what even like Microsoft has struggled to get traction for any of its devices. But Maxx, you had a question for Steve, I will let you close this topic out here.
Maxx Chatsko 34:11
Yeah, Steve, how should Five9 shareholders feel about this deal? Because a $15 billion valuation is not actually that big of a premium to where it is now. Shares have tripled since the beginning of 2020. You can’t can’t complain about that. But this is so important to Zoom. Why didn’t Five9 try to you know finagle a higher valuation?
Steve Symington 34:35
Maybe maybe like a 30 35% bump like would have been nice for them like if I was a Five9 investor, I’d be kind of disappointed right now. You know, because this is valuing the company based on Friday’s closing price and zooms pulled back a little bit so you know, Five9’s pop today wasn’t as pronounced as maybe they thought it might be but that would have been a $200 per share evaluation for Five9 and I think shares right now are trading at about $189 after like a five and a half percent pop today. So pop. But yeah, I’d be mildly disappointed, but maybe, you know, it is the best thing for the company itself. And its rallied pretty hard, but I think, you know, maybe get a little bit of shareholder pushback that they maybe should have should have fought for a higher premium.
Dan Kline 35:16
I have to wonder how many suitors there were. Because if you’re a company that wants to bring this inside to run your own platform and not necessarily double down on new customers, well, you could build it for much less than what this cost or license it like, there’s a million ways to do this. In customer acquisition, if you’re a standalone company, and you’re competing against the Microsoft, Google Salesforce again, I don’t know who has exactly analogues to this, but there’s definitely other people in this space. Yeah, I wonder if at some point, your cost to acquire a customer is very daunting. And that what we’re seeing here is, this is the fourth part of the story. And the second third part haven’t happened yet. Like, I wonder if there are smaller acquisitions that are going to be connective tissue that make this make a lot more sense. I could see some back end, I could see some fulfillment, I’m not sure what that would look like. Roll this all together and sell it to somebody bigger, I’ve often thought Zoom would make a lot of sense as part of something bigger.
God knows Google has not been able to do a good job with video meetings, though, the history obviously, Microsoft bought Skype, and then still developed its own thing, because they did a bad job of integration. So Steve, do you think that’s possible that we’re sort of, you know, we’re getting a little sneak peek of an advanced chapter, but we actually haven’t seen, you know, all the other moves that are going to unfold here?
Steve Symington 36:41
I think it’s more likely that Zoom has broader aspirations. And they might make some smaller acquisitions to complement this one to build up their own business. But for another company to step in and make an acquisition Zoom as a whole, after it absorbs Five9 and whatever other smaller companies to make sense, that would be very difficult. Considering Zooms, you know, current market cap stands around 100 billion today. And there are very few companies that could pull that off. But I guess when you consider, you know, your big your, your Apples, and your Amazons and your Googles, and, and all of those that are, you know, trillion dollar trillion and a half dollar market capitalizations, and, you know, some cases more than 100 billion in cash on their balance sheets. It’s possible. But yeah, I think Zoom is gonna try and try and go and go it alone. And, and I think they’ve, they’ve long wanted to be a lot more than just a video conferencing platform. And I think that’s what we’re seeing right now.
Dan Kline 37:38
And I will say, it’s hard to bet against Eric Yuan, he’s really been an excellent CEO. During all this, there was, you know, he had to deal with things that you’d never deal with going from like 10 million customers to 100 million customers in like a bat of an eye. That would break an awful lot of companies. We’ve seen internet problems and outages and other things. And basically, we saw Zoom, have a press conference where they said, Yeah, we’re gonna stop adding new features for 90 days and just focus on growth. And that’s almost the last you’ve heard of it. You don’t even hear about Zoom bombs and other security issues anymore. So I really think nobody could plan for that,
We appreciate so many of you watching, you’re all being quiet on this show. But we can certainly deal with the occasional it’s very strange. We have sometimes it’s like 8000 comments, and sometimes there’s four so that’s all right. But we love to be interactive. On Wednesday’s show I’m gonna have Simon Erickson on and one of our topics we are going to talk about the best advice we’ve gotten from family and it isn’t necessarily someone sits down and says, well, Maxx, you need to be investing in plastics. It might just be lead by example. I shared this on my Twitter @worstideas7. We retweeted it from the @7investing tweeter. And the the example I gave is when I was a kid, I saw my father leave the house at six in the morning every day, five days a week and a seven in the morning on Saturdays to go to work and he didn’t come home till 5:30-6:00 o’clock at night nearly worked a couple of miles away.
And on Saturday he didn’t come home till 330 in the afternoon and my grandfather who owned the company and was extensively wealthy, same example. You know was always working and always pushing ahead and always growing. And no matter how bad I was a student or how sort of like other mistakes I made, I sort of felt like oh, when you go to work, you’ll work, you figure it out, you can push through. So feel free to jump on to it to our to our Twitter, and Maxx & Steve can retweet those and share the lessons you learn from family that don’t have to be good lessons too. I’ve also seen the impact of not being the hardest worker from some of my relatives who will go not named. So that’s going to be part of Wednesday’s show. On Friday’s show, Matt Cochrane is going to join us and we are probably going to check in on some of the streaming companies maybe take a look at the very, very bizarre box office patterns we have going on. Now. Why don’t we jump in with one last comment from Scott Eidberg. Steve, if you want to read that out loud, that would be great.
Steve Symington 40:50
He says, when you look at the totality of your portfolio, five years down the line, what percentage of your stocks you expect to one outperform track with the market underperform or bomb slash tank?
Dan Kline 41:02
I think that’s very different depending on your portfolio. So I would argue that in my non Maxx and Dana part of my portfolio, every stock I buy, I expect to in five years outperform the market. Maybe not everyone, there’s one or two I’ve picked that that have that have some risk. But I am generally picking companies where enough of the story is unfolded, that there might be short term negatives, but that’s very not true for Maxx. But Steve, why don’t you weigh in first, and then we’ll let max weigh in.
Steve Symington 41:29
Right? Yeah, I’ve heard it said and in your written all over the place that if you’re, if you’re right, more than half the time, when you’re trying to pick stocks to at least outperform the broader market and by the broader market. We’re talking about the S&P 500 in most cases, that if you’re right, more than half the time, you’re pretty darn good at this. And what you find with portfolio selection and portfolio outperformance is that a few really big winners can offset a whole lot of losers, right. And if you if you have several really large winners, then you’ll see your returns pretty markedly outperform. So I mean, I’d say if I’m right 60 70% of the time, I’m doing pretty darn good. And you’re gonna have some that will underperform the market, I should hope that you have very few that totally bomb or tank. And if you’ve done your homework, you can really minimize the chances of that happening. But I’m not too concerned with a few underperformers in these early stages, as long as my outperformers significantly outpaced them. And that’s how investing works.
Dan Kline 42:38
Yeah, but I’ll jump in and say like, if you’re investing in earlier stage companies and Maxx, I’ll let you weigh in here, then you’re accepting that some of them are going to fail or combine or get bought out, you know, at way before the story is told. So, Max, I’m gonna guess if you have like a good average for a baseball player, you’re probably doing really, really well. Not a pirate, a good average for a pirate would be like .184, based on that game the other day up 6-0, lost seven to six to the Mets which is just embarrassing. We will take your question next. And if anyone else wants to sneak in before the end, we do have a couple of minutes here. But Maxx, if you’re hitting like What .320? Like, you’re probably doing pretty well in your space.
Maxx Chatsko 42:41
Yeah, so to bring it back to the top for this question, it depends on how many stocks are in your portfolio, right? Some people have very large portfolios with dozens of companies, I tend to have a much more concentrated portfolio with I have under 20 companies total in my portfolio. So I have bigger bets on a smaller number of companies now and most of those companies are drug developers. So the areas that those companies are playing around in the industries they’re in also affects how to answer this question.
In drug development. Yes, for early stage companies, I mean, you’re gonna have some of your winners are just gonna really make up most of the gains for your portfolio, and you’re gonna have some maybe that just don’t work out, right, the thesis completely breaks down. And you know, it’s going to be really sad to own those, there’s really almost no middle ground, I don’t think there’s a whole lot of drug developers I’ve ever owned that like just track with the market, because that’s not how they are valued at all. Right? They’re valued based on these de risking events.
So I think in five years, I, you know, there’s going to be like big, big winners that make up for any of the losers on my scorecard. I don’t think there’ll be much middle ground. And hopefully, I can avoid as many of those big losers as possible, but definitely is going to take some time, maybe next month is my 12th pick. So it’s my one year anniversary really of like being at 7Investing, and none of my companies yet have crossed the de risking if there’s one that supposed to be any day now. So like, you know, it takes time for these companies and same with with early stage companies, and you just have to accept much higher risk and some of those might not pan out.
Dan Kline 44:45
So I also do something that’s a little bit different. I know we track against the S&P 500, which is sort of the industry standard. And that’s largely because you could buy shares of the S&P 500 but I don’t look at it that way because I was never gonna buy shares of the S&P 500. So and I will put out I have a stock on our scorecard. And if you are a member, you can see what it is. That is worth significantly more money than since we bought it. It’s double digits higher in the handful of months, we’ve owned it, but it is dramatically underperforming the S&P500 excuse me in that weird snapshot of time.
That’s why I don’t worry about it, because my stocks aren’t necessarily connected to what the overall S&P 500 was during that time period. So if I said to you, Maxx, you could spend $100 on a stock and have $130 A year later, I’d be happy with that, even if some Phantom investment, I didn’t make it an index fund might have returned better than that. So I actually think it’s really way more important to look into total returns, unless your consideration is I’m going to buy individual stocks, or I’m going to buy an S&P 500 fund. And even then, there are expenses, there are tax things. It’s not an apples to apples comparison. I understand we have to use the metrics that the rest of the industry, but I would argue that if I tell you to buy a stock, and that stock at the end of the year has made you 15-20% that’s pretty good. No matter what the S&P 500 has done.
We’ve got a lot of questions here. We’re gonna try to get through these. We appreciate you guys waking up towards the end of the show. SD and I assume this is pro wrestler SD Special Delivery Jones actually I think he passed away a few years ago, which is a good guess for any professional wrestler. I remember from the 80s off topic question, do you usually wait until the lockup is over to invest in a company? I do not buy early stage companies unless I’ve been following the company as a private company. So not one I can answer. But Steve, I’ll let you go and then Maxx, you can finish this one up.
Steve Symington 46:38
Yeah. And those of you who followed my official recommendations at 7Investing know that I’ve recommended several companies before their lockup periods have even expired. So lockup period. A lockup expiration is a period, after you know, basically a set period after the IPO, or after a prospectus is filed to actually go public after which insiders and certain executives are legally allowed to sell their shares. That’s what they mean by lockup periods. So usually, there’s a lockup period of anywhere from 90 to 180 days. Simon and I were talking about this on our last podcast, sometimes it’s up to a year. And sometimes there’s no lockup period for certain investors. So you kind of have to dig into those details. But I don’t particularly worry myself too much. And in some cases, I’ll use any weakness surrounding lockup periods as an opportunity to open or add to positions and companies, but it’s not a primary consideration for me. And it’s, in some cases, this lockup period, expiration weakness just never materializes, so much ado about nothing in a lot of cases. So I’m not too concerned. But it is something to watch
Dan Kline 47:54
Steve, it’s also important to look at percentages here. There are lockups that could be a relatively irrelevant part of the floats, where there might be life changing amounts of money to those people. And look, I would expect if I have stock in a company that I work at, when that stock ends the lockup, I should sell enough. So if things don’t go well, long term, I’ve made some money. So maybe I sell 5-10 percent of my holdings. It is also a telling sign if all the insiders sell off all of their holdings. Now, if those insiders are, say, hedge funds, or people that this was the liquidity event for them, I get it. But if like the CEO doesn’t hold any stock after it, that is a red flag. Maxx, this can be very different. You can be a very stock, there can be a lot of stock locked up during a biotech run up here.
Maxx Chatsko 48:42
Actually, it’s the opposite. Once again, drug developers are different. There’s usually not a big issue with lockup periods. insiders, like executives and so forth, don’t usually own a whole lot of a drug developer companies usually like in the low single digit percentages, maybe.
Dan Kline 48:58
Is that because they need so much cash before they can go public.
Maxx Chatsko 49:01
Yeah, so the liquidity event usually a venture capital fund will be cashing out and there’s really no, there’s a different lockup period, right. So they don’t cash out at the IPO. Like you said, that’s the liquidity event. So not usually a big issue for early stage drug developers.
Dan Kline 49:15
We appreciate your questions here. Again, you’re all late to the party, but it is still a party. Roman, we are going to take that question. Next here. What rate of return? Are you aiming for over a five or year timeframe? I don’t think of it at all. I pick winners and I hope they win. And unless something changed, you know, I gave a little bit of rant earlier that that retailers have not been tracking based on results that you get amazing results. If somebody goes, I don’t know that they’ll do well next year, and then it’s down 10%. That to me, doesn’t matter. So my horizon is way longer than five to 10 years. I don’t put a number on it. Steve, is there some number in your head where you’re happy?Or is it just good companies? Hope they do well.
Steve Symington 49:57
No, I do obviously hoped outpaced the broader indexes, of course, because why are we stock picking if someone could otherwise just buy a low cost index fund? But I’d like to beat the market, but again, not that big of a deal. If we’re making money, and over a five or 10 year timeframe, it’s kind of tough to predict your exact returns. But for historical perspective, the S&P 500, for the last 100-115 years is averaged at roughly 9.8 or 9.9% return. Which is pretty strong. You know, if I, if I were to achieve a 20% annualized return over the next five or ten years, I’d be pretty happy with that. But I do hope to significantly outpace it. I’m not gonna say like, 30%, or I’m upset.
Maxx Chatsko 50:51
I like how every time you think Steve’s done talking, he adds another paragraph together. Just keep going.
Dan Kline 50:59
I just want to weigh in with one thing here. Steve, if I remember correctly from when Tesla got involved here, the S&P500 is a weighted index, right? Meaning, the bigger you are market cap, the more they have to buy? That can be skewed. This might be a case where if you take one top performing stock out of the sS&P 500, you’re actually way outperforming. So again, if that’s something worth looking at, because Tesla would have skewed, you know, at various periods, had it been a member, Apple could so you might own some of that company, and own a lot of better ones and go Okay, S&P 500 minus apple and Tesla, my companies are outperforming that that’s a very tricky calculate, I don’t even think you could actually do that calculation. Maybe robot could do it.
Steve Symington 51:52
You can calculate it. And I’ve been kind of noticing that, actually, incidentally, in recent months, there’s been a fair disconnect between the performance of the broader indices, and the majority of the companies underlying them, it’s been a few big outperformers, that have really resulted in the significant chunk of the broader indexes gains. And so there is there’s a strange disconnect thing where you see, it’s something like three quarters of the companies in this index have actually declined. But a quarter of the companies are making up the all of its gains. And so I think that’s a little bit of what we’ve seen in the kind of recent pullback, you know, and then it seems silly to you know, that I see so many people panicking on social media over 2%, like into a decline in the index, but I think it’s healthy, to see these indexes kind of consolidate a bit.
Dan Kline 52:48
People lack perspective, somebody might own something like Zoom, which obviously, we covered earlier in the show, and maybe it’s up was up 600%, since they bought it, and then it pulls back 30%. So it’s still up some fabulous number. It’s just not and I get it financially, I understand that it’s money you felt you had, that you lost. But that ties into the last question we’re going to take here, and this is from stock investor. Maxx, you’re welcome to read this one out loud and give the first answer here.
Maxx Chatsko 53:15
At what point would you trim a big winner 10% 20% of your portfolio overall portfolio a bit? I’ll go first, I actually don’t usually trim winners at all, I just pick more winners, stock investor, you know, that will dilute your top holding smaller allocation of your total portfolio. This is a personal question depends on how you allocate, I tend to if you trim windows, that’s usually one of your biggest regrets as an investor.
Dan Kline 53:43
I’ll give an answer we’ve given a lot. I don’t trim winners, either, I may stop putting new money in them. But I may not because I might still see it as an opportunity. That being said, if something and this can be a bigger thing for newer investors, is something is so much of your portfolio that you feel you have to check it three times a day, and it impacts you sleeping at night, losing some upside might be worth trimming that position, you have to think of your overall mental health. And we’ve seen your really solid companies, you know, the one I always bring up is Microsoft, Microsoft has dropped more than 50% in the last 10 years at one point, and has since recovered, and probably more than 30% at least a few times and recovered. If that’s going to send you into a tailspin or a depression, then you might not want to have 50% of your portfolio in that because you bought it at the right type. That is a very personal question.
And I think we probably have a higher risk tolerance than most in terms of not trimming. But again, the other one I talked about, and this is uniquely true for retail, and we sort of talked about it with Moderna earlier. If I have a retailer that the reason it’s grown so much is it’s executed really well and it’s sort of reaching the end of its strategy and anything new they do would just be starting from zero and then have to have a new concept. In theory that might be when I start to trim or sell, I bring that up but it’s never happened. I have not seen a really good company saturate the market and not come up with some other new concept. You know, as soon as they finish building out all the Starbucks and focusing on the grocery stores, well they’ll figure out premium or the Starbucks blimp or the Starbucks amusement park or whatever it might be. I haven’t thought of it. Starbucks amusement park sounds like a great idea. That would be one amped amusement park. Steve, your thoughts here. I did put out earlier today on Twitter that I would rather see Starbucks the line than the Jungle Cruise movie and that of course, Starbucks, the line would be a movie based on the 45 minutes I spent in line at Disney, watching people who apparently had never been to a Starbucks order coffee and asked questions like what’s a cappuccino? So that being said, Steve, is there a point where you trim a winner?
Steve Symington 55:50
I’m not too concerned, I’ll kind of reevaluate if I have something that runs up huge, and all of a sudden, it’s 80% of my portfolio. I’ll tilt my head out and say should it be? But actually, for those of you who go to 7investing.com, if you search ‘how should I allocate my portfolio,’ there’s a great FAQ article that will pop up and I link several articles that each member of our team wrote on the topic of portfolio allocation and how we think about trimming winners and how we allocate to begin with, and there’s some good articles in there, in that FAQ, how should I allocate my portfolio, find that article on 7investing.com, and just take a peek, and you can get a much more detailed idea of how we each think about it.
Dan Kline 56:45
There is an amazing amount of content both member focused and free on 7Investing.com. We are working on making it easier to discover it we of course, have searched through Yext that is a work in progress. But it helps you find some things if there’s something you think we have, and you don’t know where it is, you can email us at firstname.lastname@example.org, especially if you’re a member. If we’ve talked about something on air and you can’t find it, we will help you chase that down because we are usually more likely to know where it is. And I apologize, Steve, that I just created more work for you. But again, if you want to let me into the email, I’m more than happy to do that. That tends to be Steve and a little bit of Maxx’s domain there.
We are rapidly running out of time because we had a flurry of last minute questions. So Sam Bailey, it’s a bit of a loaded finisher. Let us hit our finisher here. Which industry, will get back to pre pandemic levels fastest about 80 per 6.6%. And airlines 13.6% said hotels 59.3% said restaurants 8.4% said ride sharing. One of our friends pointed out that there have been points during this where the airline industry has quote, gotten back to normal, but those were actually like holiday weekends. That just sort of were very abnormal pent up demand. I would argue here that airlines are actually going to be last. And that’s because my version of normal is you run all your routes. I don’t have to take 16 connecting flights. My flight doesn’t change 15 times
I was supposed to go on a cruise in Bermuda, the cruise was canceled months ago. At some point my airline fare got refunded. But for like a month, I got every day like two notices about how and like sometimes it’d be great like, Oh, you get there an hour earlier and I was cutting it really close it. So and then sometimes it was like you get there two hours later, I’m like, well, that’s not gonna work, the ships not gonna be there anymore. And that made less sense even after the trip was canceled. And they kept sending me that I think airlines except Southwest, which is having its own growing pains and JetBlue. And maybe you know, there’s a few other little ones out there. They have really put themselves in a bad position. And I saw some people questioning. What did you do with all the billions of dollars we gave you? Why do you not have enough workers ready to go when airlines collected something like $54 billion? Why? Why are only southwest and JetBlue in reasonably strong personnel and aircraft positions. I think that’s something we should ask.
Restaurants are struggling. And Maxx, I’ll let you weigh in a little bit here, Steve, restaurants are struggling. And there’s one misconception I want I want cleared up, it is a political line to say well until we get rid of the added unemployment. Nobody wants to go back to work. Here in Florida, we got rid of the added unemployment. And a lot of people have either just decided I don’t want to go back to the restaurant business. This is a difficult business, I’m going to look for something else or they don’t have childcare. And that is a real problem right now. So I hate to get into the politics of anything. But be really careful when you’re not trying to be political and you sort of parrot a political line. I’m not saying that in Massachusetts or places that have still haven’t had some employment that there are some small percentage of people that like Haha, I’m taking advantage of the system. But for the most part, I’ve talked to a lot of bartenders and a lot of waiters over the last few months. People want to get back to work, Steve, any thoughts on this one?
Steve Symington 59:57
Yeah, yeah, I’m tempted to vote restaurants but I also I think there’s some, some nuance there and perspective in order in that record number of restaurants close their doors permanently during the pandemic, right? So normal might be a relative term for the restaurants that survived. And have actually come back and maybe they will rebound strongly. But you know, I’ve seen you know, articles about the restaurant industry in California saying we expect it’s going to take years to get back to to normal quote, unquote. So maybe something like airlines will surprise you and beat everybody to the punch. I’ve never really been bullish on the ride sharing industry anyway. And hotels, I think are co related to airlines and traveling in general. So it’s kind of hard to say I don’t know how to
Dan Kline 1:00:44
I think hotels are more nuanced. so resort and tourism, hotels, especially regional and local ones. My you know, the property my wife and I own which is in a resort in the greater sort of Disney area, we’re sold out every day that we’re not staying there for July with mostly local tourists because rental cars make people that aren’t local have to stay on property because Disney property because it’s easier to get around. As those things lesson I fully expect, we are not gonna have any trouble. August, September, like for the next eight months, maybe renting out our place, we already have it booked for like full months coming in the fall And again, we stay there sometimes.
So I think those hotels will do well. I worry a lot about my favorite Hotel in Alexandria, Virginia, the West End, home of the trademark, which is a very lovely bar that I spent an enormous amount of time meeting with people at or hanging out with, with many of our mutual friends. That is a hotel that has some tourism parts of the year fills, sometimes with political things, because it is very close to DC. But it’s generally dependent on the business in that area. Because it is not on the downtown street where there’s lots of other hotels where all the restaurants are. So I do think we’re gonna see business hotels that are not in a location to pivot to non business may really, really struggle because that the offices that are in that area, some of them or government, those people are back at work, many of them are not fully coming back to work, and things like hey, come in for a meeting. I think most business travel is still going to happen. But there’s a lot of office visits that aren’t going to happen. Because the people you would have visited aren’t in the office any more. Maxx, you have anything you want to add it here.
Maxx Chatsko 1:02:26
You guys did a great job with all the nuance for each of those. I don’t think I can add much I think ride sharing actually might return faster. Because one of those habits that people would just feel more comfortable if they’re vaccinated, just getting in some stranger’s car and you know, for the convenience of it. But yeah, I can’t really add anything to that.
Dan Kline 1:02:42
I wonder about that. Because there’s a dual problem right now with rideshare. As more companies are paying $15 an hour or higher, rideshare becomes less attractive. So someone who’s just doing it for income purposes, still attractive for the person who’s doing it for flexible hours, or, or as a way to make extra side money. But if I can go work at really good companies and have an upward career trajectory. There’s less drivers, how do I know this? before my cancelled Delta flight, I was supposed to take a planned Uber and the planned ones do cost a little more from my house to the Palm Beach International Airport, because I was going to be gone for six days and parking my car for $28 a day didn’t make sense. And parking an offsite place that would be farther than my house didn’t make a lot of sense. So for the two mile trip, Uber wanted $35.
And I booked it and then when delta cancelled me or did whatever they did with my flight, I had to cancel it. And guess what, $25 cancellation fee, which is fair, because that driver had to plan to work it at you know, 2:45 in the morning or whatever ridiculous time 3:45 in the morning, whatever time it was, I actually think rideshare and food delivery is going to collapse and become something new. It will exist. We want to get food from every restaurant delivered. We went through this in the 80s where for a while there were all these phone numbers you could call were like they would cobble together your order from like 10 different places that it would show up like like, I don’t know, like three years later, like it was a terrible system. We have a terrible system right now it’s not viable for restaurants is not viable for rideshare. I do think we’ll figure it out before we have autonomous driving. But I don’t think it works.
We’ve gone too long. This was gonna be a short show. This is now probably our longest show ever. I will say thank you to Sam Bailey, who I’m probably keeping from something more important. If you’d like to get in touch with us. That is email@example.com that has questions about your membership. Questions about our service. If you want to reach out to us on Twitter, that is @7investing. I will not take any more time for Maxx, for Steve, for my mom who was watching upstairs on an iPad, for Sam Bailey. We will see you on Wednesday. Thank you!
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