#288: An International Multibagger Stock to Buy Right Now

0:00Emmet:It's boring. It's doing boring stuff in a country, literally boring. It's boring holes into the ground. But when you started to give out the numbers, it went from a loose analogy to a very tight alignment with Peter Lynch's Dream Stock Brigade. The fact that revenues increased 37 % year over year. And then a point you made, which you, I think, just brushed past what is vitally important. You said return on equity has hit something like 33%. And for those astute listeners who recall the interview I had with Chris Mayer, author of 100 Baggers and Where to Find Them, and those people who've read one up on Wall Street, a business with a return on equity of 20 % or greater pushes that business into quite an elite category.

0:52Emmet:Hey, how are we getting on? We're back, Mike. where are the weeks going i know it's christmas soon oh unbelievable that year just felt like a hiccup it was just so fast i think i should have just left christmas decorations up yeah yeah there's a bit of that in it i have a fight's booked home and it's kind of here once you get close to christmas it's kind of the top of mind you know especially if you're living away from home i think as well it's that big pilgrimage so many people especially my age make every year and And, you know, it kind of almost gets sweeter with age in a small sense because you start building these random traditions and there's the exact people you see only once a year.

1:32And it's great. So, yeah. It is. It's lovely.

1:34Emmet:It is lovely. Actually, my local sandwich place where I went up to meet our CMO, Frank, for lunch today, plugging another local business, as I did last week, is called Greenville. And it does the best Christmas sandwich in the world. if you ate it a little like hush on the side of the road it's around about kind of it's either roundabout for sure but it's not a hut it's not a hush but it's probably a proper premises but they're they have a christmas sandwich which is basically a christmas dinner between two pieces of bread and um i had the first one today but if you ate it every day it would be the fast track to gaining a kilo a week so does that uh there's that thing in is like an enzyme in turkey or something that makes you sleepy have you heard about that wow yeah i'll tell you what like the food the food coma like is scientific but it's in turkey butcher turkey was like this fat-free high protein super food and now suddenly it's putting us to sleep i don't know it's one of those i think one of those headlines you read on social media that you're like yeah that's fact that'll be forever enshrined in my brain yeah 10 biscuits your man would never buy you i remember i remember some of the world world's biggest events i remember um a super big event i won't even say what it is less people think i'm insensitive one of the biggest events of my life was unfurling and my colleagues and i were all watching it on the internet and one of the lads said look at that article 10 biscuits your ma would never buy a click on that and we all took a break from the world news to read the list of 10 bickies that your mammy would never buy uh to score them but anyway whenever i think of internet trivia i always think 10 biscuits your ma would never buy ma by the way to our american listeners is i think is it particularly dublin way of referring to your mother me ma my mother yeah i'm sure it's across the country but especially dublin yeah i would definitely go mammy as you get very country oh there's 10 there's 10 words for mother in Ireland.

3:40Emmet:Mam, mam, mam, mammy, all this kind of stuff. But anyway, that's another podcast. Yeah. So this podcast, again, we're still, we're in the middle of Nexus 3. We haven't forgot about it. We did a great episode last week. We discussed two stocks. Be very impressed if anyone has ever heard of them before that episode, but it just goes to show that there are hidden gems out there and that's what Nexus is out to prove. So we're getting into it a small bit again today. We're not giving anything away. We're not going to be as generous as last week. Yeah. Well, that Let me intervene and just say to everyone, we have an ask.

4:12Emmet:Subscribe to the podcast. I mean, come on. What do we ask from you people? We ask you to open your podcast thing, Spotify or Apple Podcast and subscribe. It doesn't cost a penny. It costs three seconds. Come on, folks. Don't just listen. Give us a score on the scoreboard. And as you said, last week, Mike, we both picked two former Nexus selections, pitched them to each other and decided how we'd split 10 grand across them. And I think we both apportioned the lion's share to the one that you pitched, which was a serial acquirer. And last night we figured it would be fun for you to tease one of the first five that just went live in Nexus 3 on Monday.

5:00Emmet:And then separately, I'm going to talk about a fascinating story of a boardroom battle happening over in Hollywood, no less. I had read all of the Nexus 3 stocks, the first five, last week, needless to say. And I was just reading before I went live. And I have to say, they are unbelievable. But not just because I'd never heard of them before. but because two of the five nexus 3 stocks have the highest score in the 35 stock history of nexus that's 15 stock stocks that came from nexus 1 15 stocks came in nexus 2 and now five in nexus 3 and we also have several dozen more in the my wall street labs as we call it and they will emerge as 10 more selections for nexus 3 in the months ahead uh but but but but but but wait hold uh one of the five i lie one of the five i had heard of because it was called out as a favorite investment by one of the guests at investicon in august just gone um and completely coincidentally it was isolated by nexus so before i hand over to you mike i'd like to remind our listeners that for a few more days, you can get Nexus 3 for half price.

6:24Emmet:That's$1 ,000 off. You only pay$9 ,99. And that includes Nexus 1, which was$2 ,000, and Nexus 2, which was$2 ,000, free of charge. And all you need to do is email frank at mywallstreet.com. It's all you need for a great Christmas, folks. And I mean Christmas 2035, because in the next 10 years, I think we'll have found some life changing stocks in Nexus 3. So grab that discount right now today. While it's there, folks, you get Nexus 1 and 2 free of charge for half price on Nexus 3. Email frank at mywallstreet.com to guarantee and lock in that discount. And apart from us providing an outstanding service at a fraction of a cost of what some of the giant businesses in the US would charge, you're also helping an Irish enterprise and you are getting something of face melting value.

7:22Emmet:So sign up today, frank at mywallst.com. Okay, so we're getting into it, as you're saying, we're not going to give it away this time. We gave away one from one and two. I don't think we can give away one for three, especially because it's out. It's about a day old as we're recording this episode. But we are going to discuss the company and why it's kind of why we discovered it with Nexus, what attributes it has, and give that teaser that kind of shows the thinking behind the selection process and shows the thinking behind these are the kind of businesses that are out there. If you look hard enough, if you have the right screening process, if you have the kind of technology we've been able to use to uncover these stocks.

8:00So the company in question is an Aussie company and it's kind of quietly powering some of the biggest names in mining energy and infrastructure down there. So now remember, mining alone is worth more than 300 billion Aussie dollars every year. You throw in other key infrastructure like energy and utilities and you kind of got the entire engine of the nation there.

8:19Emmet:But that's it. It is the engine of the nation. like i i not sorry i don't mean to interrupt your flow but when you think of there there is generally an industry that defines a nation of course there are many industries there's as many industries as you can imagine to define every country but there's one that seems to be core to the heritage of every country uh if we talk about america or sweden or ireland when you go to australia i think nine out of ten people would say mining is uh in the dna of that that country and the economic output absolutely and i think seeing a company of this size it's small company i think it's below 1 billion market cap in u.s dollars uh or no 2 billion right and um seeing a company of this size with this potential growth trajectory in such a valuable industry um supporting it you know it isn't like rio tinto it isn't like one of the massive giants in it but it is their supplier in a sense you know it is a service service player in that industry for them and it becomes very very very important um when you kind of break it down what the business does so it's a holding company of 26 subsidiaries service as i said the blue chip client base each company has a very specific niche um whether it is you know under kind of maintenance, shutdown, breakdown, brownfield upgrade services for critical fixed plant assets.

9:48But each one falls under kind of the similar classification of highly skilled, specialized workforce with focus on basically the maintenance of assets. So, you know, you have these huge, if you've ever seen any kind of footage or social media clips, I'd say a lot of people around my agency, these FIFO kind of trying to sell you a dream clips. And just the scale of some of the mining operations down there, and you look at the size of these machines, and the industry that's built around keeping them on track is where this business thrives. So it's critical nature, obviously. And like, if we're talking about, say, an excavator breaking down in the outback, a company like Rio Tinto, which is one of this company's key clients, it has no choice but to fix it as fast as you can possibly because the money it loses while a key asset like that is offline far outweighs the repair costs so in that sense there is a bit of pricing power even though it's a very small supplier to a much larger company there's a bit of pricing power in the sense of if you are reliable that's all the customer cares about the price is not as important because you know the opportunity cost if something like exactly an excavator in the outback is offline is huge to a company like rio tinto so um we're just going to go through quickly how it popped up for selection for nexus so it's founder-led and between the company director and his co-founders we're both still executive directors they own about 60 of the company now not only that but they have actually bought more shares since last year's ipo and i just i feel like this is throughout nexus this is one of the core themes you just can't beat skin in the game.

11:29And we've seen it. It's one of the key, I suppose, attributes of successful businesses in the stock market. Not that every business with high insider ownership will do well, but it is a proven fact that businesses with high insider ownership do better than businesses without. So you just can't beat skin in the game. And it's also got a very strong owner operator culture among top management, especially acquired management. So if this company acquires a new business they will really try to incentivize that ex-owner manager with uh share options so they stay kind of aligned with shareholders and with that business and it really helps with the culture and motivation and everything like that so since 2021 it's tripled revenue while a boost in profitability return on equity went from 25 in 2021 to 34 last year fiscal 2025 which is just over from uh last year fiscal 25 they posted 37 revenue jump profits and cash flow grew even faster so some operating leverage operating leverage there at play as well they have a huge order backlog so their order backlog for 2026 and beyond is greater than their revenue from 2025 which kind of goes a lot of transparency towards uh future revenues which is something as investors really need to see and then it's also got growth fuel by acquisitions in especially civil and electrical services so there's some trends there in australia with electrification decarbonization that it's really riding at the minute so that all adds to up to a nexus score of 90 out of 100 which as you mentioned in the preview it's as good as it get really i'm not sure how many companies we found over the over the last three years with the score of 90 or higher i think we can count them on one hand anyways i think there was only three one was last year two is this year yeah i mean there might have been a nexus one but um whatever it is and it was on a quantitative basis it's like truly elite and the numbers are singing off the page for us um acquisitions are a major growth pillar for the business they like buying well-priced mid-size specialists between kind of 10 to 50 million aussie dollars in sales they want to keep existing management in place to maintain focus and continuity.

13:43And then because these businesses are in similar fields, there's major cross-selling opportunities once they're acquired. So the acquired business can also avail of, say, shared resources, the company's customer logbook, other synergies like that. So it becomes much more efficient once it becomes under the one umbrella. Very good balance sheet management net debt is roughly equal to a year's worth of EBITDA, meaning the company has its borrowings covered very comfortably. Going cash flow at about 50 % a year also helps matters quite a bit there. So there's a lot to like. There's trends in the mining and excavation industry that are playing into its hands.

14:21Stuff like increasing extreme weather conditions are driving more resilience upgrades and rapid response programs. The company's bread and butter essentially. And so clients are actually relying on aging assets more and more as well, which again, require more ongoing maintenance, emergency repairs, life extensions, stuff like that. There's, I mentioned decarbonization efforts, automation efforts, a lot of higher demand here, especially in kind of electrical upgrades and ongoing maintenance there too. So lots of stuff is falling into its hands at the minute. There's obviously some risks as well.

14:54This is a cyclical industry. So we are seeing trends on the way up for it at the minute. that doesn't always last um because of being a big chunk of revenue comes from maintenance contracts this won't be as kind of exposed as say its actual you know clients uh but it is definitely a risk there um a big chunk of revenues comes from iron iron iron ore so that is an exposure for sure uh but again strong long-term contracts reliable customers they help cushion the blow here And the last thing I'll say on risk is that they like to fund acquisitions with equity, which means that we are seeing dilutive events occur.

15:39But cash remaining strong and the business keeping debt low. Absolutely. Yes. So like it's kind of one or the other, basically, and that's how they're deciding to do it. But all in all, it looks like seriously well-oiled machine. It's got all the components of a long-term compounder in my eyes, strong leadership, diversified service portfolio, and really firm grip on cash flow and margin. So in terms of the kind of boring industrial player, I really like everything it's doing. I like its size. I like management's positioning. I like the ownership. I just think this is a really, really strong stock.

16:15You would never have heard of it. No, definitely.

16:19Emmet:I had never heard of it. And, you know, Mike, that's a reasonable segue into something we haven't discussed on this podcast for a very long time, which is probably what I believe is the only book every stock investor should read. And it kind of it's a perfect dovetail into this point because my son asked me during the week for some more investing books to read. And I said, have you read One Up on Wall Street by Peter Lynch? He said no. and I couldn't believe it because he is he's a great investor my kid and um uh I said oh you have to read that so and I didn't read it till I was on my honeymoon and that's like 22 years ago so I was late reading it um and he's got such an advantage reading at age 19 but it was um the book was written as far as I recall in 1987 by Peter Lynch who's a a famous legendary I dare say a fund manager who worked for fidelity in new york in from i reckon from the late seven early 70s mid mid early 70s to mid to late 80s i reckon i'm not too sure um you'll know all about it as soon as you start to read the book but the reason the book is so compelling is that it's written for every person and then title one up on wall street is meant to impute that the average person going about their lives no matter where they live will see things that some high-paid analyst sitting on wall street will never see and they'll spot trends that that analyst in new york city is unaware of and the book goes into the attributes of what makes a great investment and as you were describing that company which name whose name i will not say um it was green light green light green light green light like peter lynch says buy a boring unloved business like for example i think in the book he uses a company that he bought shares in called crown cork and seal if i recall correctly and he describes that there was a business that when you took the lid off coca-cola at least back in those days and looked inside the lid there was a small o-ring a rubber ring which stopped the the fluid spill out of the bottle and there was a company with a monopoly in those little o-rings and he said crown cork and seal was one of the greatest investments of his life because it was boring it was unglamorous and it was unloved and it was unspotted which is exactly how i would kind of reflect back what you said to me about this company which got the jaw-dropping nexus score it's it's boring it's doing boring stuff in a country literally boring it's boring holes into the ground but it is an uninteresting business servicing a country that's not synonymous with high tech i mean they've done it of course but their core industry as we said is all things to do with mining so um so that was when you were describing the business i was thinking this is one up on wall street boring stuff but when you started to give out the numbers it went from a a loose analogy to a very tight alignment with peter lynch's dream stock brigade the fact that revenues increased 37 % year over year.

19:33Emmet:The fact that net profit was up 74%, free cash flow was up, gross margins improving, I think you said from like some like 30%, is that right? Gross margins around 30%. Operating margins up, up, up, everything is up. And then a point you made, which you I think just brushed past but is vitally important. You said return on equity has hit something like 33%, 34 % up from around 30 % a year ago. And for those astute listeners who recall the interview I had with Chris Mayer, author of 100 Baggers and Where to Find Them, and those people who've read one up on Wall Street, a business with a return on equity of 20 % or greater pushes that business into a quite an elite category when you combine it with the fact that it's founder led and that found those founders are buying shares there is an explosive signal which suggests with history and the weight of all the data behind it that we are looking at a rare investment opportunity and i almost certainly will pitch this in horizon in the year ahead and i have a question for you mike are you going to invest in it uh yes i think so i think i've outlined two stocks from the original five i'd like to buy off i really but two stocks from the original five then very bullish and plan to invest on um and if i invest in which i'd like to do a people who are subscribed to horizon will know all about it i just would prefer if it has an adr and i doubt it does if it only listed on the ax a year ago asx yeah no uh i've looked it up it's in on into interactive brokers so everything is everything is i be and oh you can and we'll find it if you're looking for it um but yeah no and it's i'm glad you brought up the peter lynch thing because it kind of feeds into what we're saying about uncovering these hidden gems and finding the stocks that aren't being covered by wall street and i think with the stock with those kind of um credentials and numbers that jump off the page like that it's tougher and tougher to find them on the u.s markets It's not impossible, but it is rare and rare.

21:52It's way harder.

21:53Emmet:Oh, look, I've been at this game for, well, in my private life, I've been at this game for 30 years. And I've been professionally at this game for 12 years. And it is getting harder. There's no question about it. I think it was in last week's podcast or the one before. That's all a blur. We were talking about how companies are IPO-ing way later in America. But at least the rest of the world, that kind of infinite capital off the IPO market effect is less prevalent. So if you're running a small or medium upward bound business that needs to unlock cash quick IPO is still the game that you should play.

22:34Emmet:Very much so. and that's a good segue into what we're doing next because we're going to discuss a company that you managed to buy that would never in any way time or sense or any matter of the word be public no that's trying you bought it uh yeah if it came around if it came around now so well yeah they're a player they're a player in the store yeah yeah there is a very big story in tinseltown that if all things are equal mike and marie our resident hollywood and movie industry genius would cover but as it's you and me uh i thought i'd dig into a hot story because seemingly the ground is shifting beneath hollywood i will say once again but it really feels like this is a big one because one of the biggest media consolidation stories in decades i might say are possibly ever is decisively entering a next phase and it feels like a final phase and specifically what i'm referring to is warner brothers everyone knows warner brothers they've seen the brand at the front of movies since they were children warner brothers discovery is their now known discovery channel and warner brothers merged a few years ago so warner brothers discovery the owner of warner brothers studios hbo uh hbo max cnn uh the turner networks dc comics dc comics is owned by warner brothers discovery and so they own superman uh and of course the discovery channel and a sprawling catalog that stretches across the entire um media zeitgeist is that is that a bullshitty things it's it is absolutely known it's everywhere it's interesting as well because the warner brothers discovery kind of are two sides of it you know warner brothers is the studio and then hbo is kind of the tv side and then you have discovery which is the cable news network correct correct and it's kind of important distinction when it comes down to what we're talking about as well correct there's nobody listening to this podcast who doesn't acutely know who harry potter is while warner brothers discovery owns the harry potter movie franchise there's nobody listening to this who hasn't heard of game of thrones ditto it owns so many hot assets it's just unbelievable i was going to run a quiz with you but actually it was the estate is so vast i couldn't make sense of it but it is all officially up for sale and there is a 0.0 chance that if you listen to this podcast that you've not interacted with hundreds or thousands of warner brother's discovery assets in your life so the first uh round of bids is now in to buy the whole kit and caboodle or maybe nearly i'll tell you a little more about that and the early contenders uh are what you'd expect and it's a it's a trio of bidders paramount who we all i think all know comcast and netflix which is what you were alluding to at the start of the piece and each has submitted a non-binding offer which kicked off competitive process which is really going to reshape film and tv and the streaming world for years to come that's not too small thing to say because like we discussed on this podcast at length when amazon via prime bought mgm metro golden mare in uh 2022 and they paid 8.45 billion dollars for the mgm studios and all the franchises meaning that as everyone knows at this stage prime now owns the james bond franchise uh which is shared with the broccoli family and the backstory that's quite interesting but not for now um prime owns rocky and creed and the co-production rights to the handmaid's tale and other kind of i suppose iconic media properties like Legally Blonde and Robocop and Stargate and the Pink Panther and Silence of the Lambs.

26:41Emmet:Like they also have a big deep well of assets. But honestly, the MGM title board still feels very kind of inane when you put it shoulder to shoulder with what's up for sale now. So this is an auction lot that's way, way bigger than the MGM purchased by Prime. And to understand how we arrived here, it's really worth rewinding to the formation of Warner Brothers Discovery, which was also in 2022. So the merger between Warner Brothers and Discovery created this, as I said, giant content empire. But it was also mega indebted company at the time. And the economics of streaming were really changing fast.

27:29And I do recall Anne-Marie sitting with us explaining in depth the mire of debt that Warner Brothers and Discovery were sitting in.

27:40Emmet:And it seemed like the only business unencumbered by an iceberg of debt was Netflix. So the streaming boom of the 2010s had conditioned investors to kind of think, oh, yeah, we accept losses in exchange for mega growth. And as a shareholder in Netflix over the years, we ignored, we politely ignored that little thing called revenue because every number, Reed Hastings, the founder of Netflix, and Ted Santos and the crew would come out and talk about the number of subscribers, which was always eye-watering. They would jump the number of subscribers quarter by quarter, and an onlooker, an investor, and a shareholder would know that this was a proxy for future revenue.

28:23Emmet:But by 2022 and 2023, as interest rates started to rise and markets got a lot tighter, the tolerance for kind of non-revenue stories really disappeared almost overnight, you could say. And suddenly investors wanted profitability. that if you don't talk to us about the number of customers, tell us how much cash came in the till and tell us how much cash was left in the till after you paid everyone on the studio lot, so to speak. And companies like Disney was laying off tens of thousands of employees and slashed content budgets. And Warner Brothers Discovery found itself particularly exposed. It had inherited this vast expanse of HBO Max platform, an aging suite of linear cable networks, which I think an awful lot of gen whatever it is, gen young people, gen Y, is gen Y the young one?

29:16Gen Z. A whole bunch of Gen Z would not have any cultural affiliation with a cable network.

29:23Emmet:They're like, what is that? I don't even know what it is. But basically HBO, I mean, say Warner Brothers Discovery had a multi-billion dollar debt loading. So throughout 2023 and 2024, um while you and i were watching uh warner brothers discoveries the last of us which is one of their shows they were backstage cutting costs aggressively i mean just imagine in the last of us studio mike picture disc picture this the sandwich guy comes in with his trolley um with his trolley of sambos and he says to the director do you want your sandwich sir and the director goes yeah i'll have a pastrami and by the way you're fired and so is your assistant and so is your runner and so am i that's kind of what happened that's what was happening backstage but we were sitting there watching the last of us going that's great now great production values meanwhile there's a sandwich guy driving home sad in hollywood they were laying off everyone but some of the more concrete decisions um where like they shelved films that were nearly done that were kind of just they just needed yeah this is the famous batgirl movie isn't it one of many they they there was just i mean it was 90 complete but the opportunity cost or sunk cost fallacy i should say they looked at it and said doesn't matter we're not spending that money to get it out the door they pulled titles off hbo max uh they were cancelling all types of projects mid-production and as a consequence i remember at the time they're getting criticized left right and center by the hollywood observer and uh what is the screenwriters guild is we've just got the acting i think that's it screenwriters guild yeah yeah is the actors that's that's the one yeah where there was a lot of discontent at the time because they seemed like they had just basically started to act in a very unpredictable erratic and non-sensible way but um others like sandwich guy and his helper were just simply a sign of the company scrambling to refinance its balance sheet um but another reality was emerging backstage as it were uh wbd as i'm going to call them now warner brothers discovery wbd could no longer compete on equal footing with companies like netflix and amazon and apple like i think when you talk about um tv shows certainly in this part of the world and i think in most parts of the developed world everyone is subscribed to one of those three and usually more than one of them.

31:56Emmet:Netflix, Prime and Apple are the ones that people put in the bedrock of their entertainment stack and other stuff is discretionary and their cash reserves dwarves everything else. Like I mean seriously, Netflix, Amazon and Apple, like who wants to go to a cash war with those lads? So a couple of months ago, the writing was on the wall and WBD, Warner Brothers Discovery, announced it was exploring strategic alternatives, which we all know is code language for trying to figure it all out. And internally, discussions were going on about splitting the company into two pieces, one containing the streaming and the studio assets and the other, the declining cable channels.

32:38And the logic was that any buyer or a lot of buyers,

32:43Emmet:the majority of buyers would only want the good assets, HBO, Warner Brothers Studios, the streaming business, the kind of more contemporary first world or i should say latest tech products and they'd want nothing to do with the old cable bundles and that is why both netflix and comcast have bid for only the studio and streaming divisions because those two netflix and comcast it's it's aligned with their uh their distribution model if you like so they want hbo they want harry potter they want dc they want the looney tunes and friends and succession and this vast vast catalog of of entertainment that we all use but they do not want cnn they don't want tnt they don't want tbs or hgtv and paramount on the other hand the third bidder has submitted an offer for the entire company And that offer reportedly has valued WBD at just under$60 billion, which represents its fourth attempt to buy the company.

33:54Emmet:And those are, yeah, exactly. And remember, Anne-Marie? It's worth discussing Paramount as well. Paramount Skydance is the new company. Correct. Yes. Completely spearheaded by this fellow, David Ellison, who is Larry Ellison's son. Correct. So we're talking about mega wealth. I mean, Larry Ellison is always in the top five wealthiest people in the world, and it's their determination to acquire Warner. And it's become one of the most interesting subplots in Hollywood today. It's like its own movie itself. It is. And you're looking at the whole thing and the consolidation of it. So like as in Skydance would say David Ellison's original vehicle, and he used it to acquire Paramount.

34:36He's kind of the next step is to acquire Warner Brothers Discovery. in their eyes, their best kind of way of acquiring the assets is to acquire the company entirely, which would match much better than, say, Comcast or Netflix in terms of what they want, which is just Warner Brothers. Maybe if they find out, if Warner Brothers Discovery finds out that they're going to get a better deal with, say, selling off the studio, Warner Brothers Studio, selling off HBO, all the rest, and then maybe keeping Discovery, keeping the cable channels and trying to run that as a business itself. um but however it looks it looks like there's going to be serious consolidation in the studio space in hollywood in movies whether that's a good thing or a bad thing like it's really interesting so like from you a very unique perspective from a long-term netflix shareholder in the sense of what does this mean for the company either if it wins the bid or if it doesn't win the bid.

35:33Because if it doesn't win the bid, you have introduced a new kind of rival with huge content library, huge expansive network that is putting together. I know Paramount streaming efforts aren't really up to much at the minute. Now, if Paramount Skydance win out that and they have the whole HBO library, what does that look like then? Same with Comcast and Peacock. what does that look like if you add hbo to peacock and all the rest so it seems that the bid from netflix is almost like well wait we kind of have to do this almost as a defensive action to stop kind of you know they were really benefiting from the streaming landscape being so fragmented yeah all these companies not really being able to figure it out and not spend enough money and kind of losing money and subscribers and then the price went up and just didn't have enough content in the sense of this one of the other two bidders comes out on top in this

36:37Emmet:does that bring in a real threat to netflix well this is true i mean like the the motivations here on all sides are gargantuan and i think there's a plus a giant plus and a giant minus and i'm sure the bidders all the bidders realize well i think the alice the ellison dad and son team are are an exception they're very clear on what they want but for netflix and like sorry i'm coming across you're here but like is in the political implications of that as well are huge because we've seen basically the trump administration step into to allow the acquisition going through a paramount quite easily you know that's in their back pocket as well because larry allison is very friendly with trump and he's oh he is owner and all the rest and that's huge that's huge i mean that's not a nothing thing and that's almost that's a very good example of where the human brain can assess something that i can't say ai won't or doesn't but it's a very important input to consideration of of something that is has very gray boundaries but very very distinct information within um like so for netflix if i will come on to that if we may in a minute but for netflix acquiring warner's films and hbo's legendary slate would of course bolster that shelf of titles when we open netflix most of us go rooting for something that looks interesting and unwatched and generally there are movies and like my perception of netflix is it has an absolute stack of great quality stuff but a lot of it is uh netflix produced but if as i said that you open it up and you're looking at uh well friends is already in there but you look at all these titles hundreds of titles like i've measured it you can see the immediate benefit for netflix and acquisition retention um now it already dominates subscriber counts uh but owning this catalog would really i think it would elevate it further and i think their their acquisition machine would just suddenly get even bigger and would also give them the leverage to accelerate a new strategy which was releasing its films theatrically like in a more in a more like systemic way if you know what i mean i'm glad you brought that up because there is the thought of the strategy change if this if this acquisition goes through and netflix's favor is that does that turn netflix into a you know theater release company all of a sudden which it wasn't before like it is it does um it does in a sense like he doesn't you know it releases uh certain big picture films it does yeah the irishman was one that i remember they you know we're all dying to see in the cinemas but it was a netflix but it also you know like it might be in the cinema for a couple of weeks and then it's that's right and like that's the difference i guess and it's not it's core goal for those cinema releases are as much for award season rather than yeah actually this is the commercial vehicle we want to take with this film whereas i don't know if they release a new batman um which is within the warner brothers discovery catalog yeah that can't go on netflix first can oh you're absolutely no no they they've actually said i mean netflix has already said that it will start putting warner films into the cinemas or i suppose continue putting warner films in cinemas which is a major philosophical shift for a company that's always prioritized streaming yeah and it's really very retro like it's all it's like i wonder if they're going to go into posting dvds after that do you know it's going back to it hold on you're putting cinemas and our movies into the cinema and now you're gonna post dvds and they're gonna but wait we have an innovation it's called beta max and everyone is like hold on a minute you can't but anyway yeah so but it does face real hurdles the company has never made a major acquisition like it's it's amazing how organic and pure netflix has been everything it's done it's built in house built it out steadily and done a beautiful job and at acquisitions every mba student will know you know there's the mba case study of what diversification but actually a word coined by peter lynch in one up on mall street that diversification is a word that's paraded around is a good thing and acquisition can be a diversification strand of diversification but it is actually a huge risk and buying businesses is notoriously gnarly and sticky and I mean it did buy, actually I'm lying, it did buy something ages ago, I bought something for like 700 million dollars a few years ago, half that number stuck in my head but I don't remember even what it was but it's nothing compared to nothing, because in the 400 Brothers Discovery is close to 60, but I think 20 through 50 was the most recent uh paramount skydance offer which correct puts it at 58 59 billion and now netflix's offer is going to be less than that because they're just going after warner brothers correct the the streaming bit but i mean even still a billion is a giant 30 40 billion i'm not sure well it's a ginormous acquisition and by any company metric irrespective of their pedigree we talk on this podcast about serial acquirers like you never see a 60 billion acquisition by serial acquirer business that has made its business in acquiring companies just doesn't buy 60 that is a giant giant acquisition and we can see why i've listed off excuse me some of the titles here and they are all in their own right absolute monsters and and it would be transform transform transformational as i said but it would also be financially risky um netflix has the cash to go for the deal um but they are a very very disciplined capital um uh um appropriation or what's the right word they they thank you they're a very disciplined uh capital allocator and and i was reading some analysts last night that believe netflix bid is simply an exercise in due diligence and they will not do it that it's really a sign of of uh it's it's not a sign of intent um and it could indeed escalate a bidding war that they don't intend closing out so you can see backstage to be a ton of deeper strategic thinking you know like why would they not indicate interest until they're not interested and then like we'll go so we kind of discuss what would happen if netflix would win that bid and there's downstream effects we haven't even talked about yet like you're looking at cinema stocks like amc and regal and what happens to them you know and yes yeah imax would be a bit different because i think the the scale of an imax movie will always be the will always be the attraction but not so much just going to the cinema for cinema's sake but yeah we'll say if paramount or comcast come in yeah what's the implications then is this creating this new content giant that netflix all of a sudden has a true competitor there oh totally well oh is paramount plus the new streaming that is that is true well let's let's do paramount in one minute but let's just just take off the comcast strategy and it owns nbc universal studios and it's also a very interesting one and it has very clear strategic benefits in in acquiring warner's studio and streaming assets um but comcast faces a lot of political challenges and there's no two ways to say it because they own msnbc msnbc how do you say it msnbc or msnbc how do you say it msnbc i guess yeah okay right it's uh okay msnbc and it creates complications because it has a long tense history uh with president trump that's that's the basic bottom line and uh and regulatory approval is less of an issue i i'm sure it's no more or less an issue it was in previous decades and but any deal involving cnn inherently becomes a political football i i have a friend in america who is a total uh um republican supporter and he calls CNN the communist news network which very cynical but it kind of always reminds me when I try and remember which one is the friend of of the Republican Party is it CNN or Fox I always remember him saying communist news network and I realize Fox is the one shows you how little I watch American TV but like it's a good point because if you're putting in uh uh well I I don't know anything about David Ellison really but like as in the son of Larry Ellison who's the confirmed Trump buddy if you're putting them in as the new owner of CNN what happens then like there's so much implications to this deal like in terms of we're just talking about the content we're talking about say streaming and cinema but like talk about news now do you know there's that kind of yeah kind of equilibrium of sorts of right-wing media and left-wing media and then you're bringing in maybe an a right-wing influence owner of a left-wing traditional media and news network what happens then, you know?

45:51So it's really up in the air and you don't really know what's going to happen.

45:56Emmet:Now, industry, you don't, but industry observers who know are familiar with the matter do think the most likely winner of the bid is Paramount Skydance. That's kind of what those who understand the smaller moving parts in the watch far better than us are saying. And Paramount has spent years trying to scale its studio and streaming operations. They're way behind Disney, clearly. They're way behind Universal and Warner at the box office. And Paramount +, which we're a subscriber to because in this house, we subscribe to everything. And if I dare suggest we kill a subscription, it's like I've suggested we go move to the jungles of Borneo.

46:37Emmet:But anyway, like Paramount +, trails all the major streamers in global subscribers. and uh the company's so the company's future depends on on gaining scale like this paramount plus feels like if you live in an average home with an average subscription to the mall paramount plus is the thing you've looked you look at when you're clean out of ideas because their library is quite shallow and that doesn't that will not hold customers wallets through thick and thin it's it's a almost infinite library is what keeps people there um so they they really i would say they need to to win this bidding war um and when you think of franchises like mission impossible and top gun sitting alongside harry potter and batman and the matrix you certainly it feels like you've got yourself what's not a field it's a it's a matter of giving fact that you're you're looking at something that's far far more competitive against the others but the proverbial movie plot thickens there as you've already said are some political dynamics at play and as you already said larry ellison it has long had very close ties to to president trump and i was reading this thing in uh the new york post i think it was last night i was reading all around me on this specific subject like allison ellison has been involved in uh informal discussions with probably trump himself about the warner deal including topics like cnn's programming and while none of this is official policy and none of this is formal negotiation as we've already said you got to admit it really gives paramount an edge and and a smooth regulatory path i you you know, if you were a betting person, I think you'd say, right, the one that would be most favored by all at the table is Larry Ellison.

48:37It kind of reminds me of after President Trump was