TIVP026: The Intrinsic Value Portfolio: Mid-Year Review w/ Daniel Mahncke & Shawn O’Malley

27:17But I'm not convinced when we zoom out and we look at billions of people across the planet that these things are cannibalizing core search yet. The media in person globally is just probably not tech savvy enough to really truly abandon Google or at least be as curious about experimenting with AI as you and I, Daniel. So it's just something for us to keep in mind before we get too far ahead of ourselves about this narrative that Google is being displaced. I'll believe it when I see it. You know, a bit caution about all of the AI news is I think what everybody would benefit from a bit. Although I'm far away from calling myself an early adapter in terms of, you know, using AI and new technology.

28:03Of course, it's anecdotal, but as you know, I'm just in the process of booking a trip for my summer vacation and we're not yet entirely sure where to go. But when we looked for destinations, we almost exclusively used ChatGPT for everything from how the weather will be, what you can do there, how to get there, pretty much everything. And when we wanted to look for potential places to stay, then we just went over to Airbnb. And when you mentioned checking for, you know, the nearest pizza place, the gym or anything like that, I thought this sounds exactly like what Airbnb is now trying to do with experiences.

28:37and that's basically a new service that we will talk about when we get to Airbnb. But it's still impacting, at least it could impact Google in a couple of years. It's not like I'm less bullish on Google now than I was a couple of months ago. I just like the valuation for that way too much. And honestly, just today, I probably spent about five hours in aggregate on Google's ecosystem. But I can say that I don't see strong competition in search just right now and probably also in the years ahead. Google has to be on top of its game to remain as unchallenged as they have been for a long time. But as you said, with Gemini and these search overviews, they did a huge step in the right direction.

29:18And I already said that in one of the last episodes, since AI overviews, I use Google search way more often again. I just love this mix between the overview plus website results because it's just so powerful. So totally, totally. And as we discussed already, when the Apple news came out, this actually might have been a negotiation tactic to get a better deal from Google or could also have something to do with the case against Google and their monopolistic behavior. And what I mean is Eddie Q, Apple's senior vice president and the person who made these comments mentioned it while testifying on the case against Google and their monopolistic behavior.

30:00And by linking the dip to users testing chat GPT or perplexity instead of typing into Google, Q is effectively arguing that Google's dominance is already eroding on its own. And that helps Apple on several fronts at once. It undercuts the Justice Department's narrative that the default search deal smothers competition protects the roughly$20 billion that Apple earns annually from Google by suggesting no dramatic remedy is needed to address that deal they have in place. And it kind of lays the groundwork for adding AI engines to Safari without there being this feeling that there's an abrupt breakup.

30:40And it also gives Apple extra leverage in renewing the Google deal and negotiating it. So who knows? That's just a little bit of conspiratorial speculation about the real intentions behind those comments. But we also shouldn't forget that Alphabet is much more than searcher. Anyone who listened to that podcast I did solo on Alphabet, I mean, there is a lot going on behind the scenes. A lot. I mean, buying Alphabet today is almost more of a bet on the future of YouTube and its cloud business, while also just assuming that search won't totally fade away as imminently as people fear, with some call options on some really exciting, cutting -edge technologies that Alphabet is kind of uniquely positioned to develop and invest in.

31:28So yes, we need to keep everything in perspective. And even with Eddie Q's comments, I wouldn't be surprised in hindsight if these looked more like noise than true signal. For every listener out there, I really can just recommend listening to the Alphabet episode because just talking about search is not doing that business justice. It's just so huge. But we need to focus on search here because, you know, we're just giving a quick update and this is what the market is focusing on. Having said that, in the EU, the Digital Markets Act actually made it much easier for users to switch their search engine already for a couple of years.

32:04And while there are reports that, you know, this caused some smaller search engines to see more traffic, that's more of a rounding error for a company like Google. And I've yet to see anyone who is not using Google Chrome. So I guess you're onto something there. I don't think search will go away anytime soon. All right. But enough of that topic. before we close the Google chapter, how about we discuss the latest results and then quickly talk about another topic that has gotten quite a lot of attention recently, and that's Waymo. Waymo has recently reached the 10 million mark of paid RoboTaxi trips.

32:38That's a doubling in just five months time. And yes, all of those trips have been across Austin, LA and San Francisco. So it's far from being nationwide yet, but it's still a huge number considering that Tesla has yet to start with any rates. And it's fascinating to see how many people ignore the huge achievement that Waymo has done here by saying that it'll be harder to expand to other cities or other countries. But right now, Waymo is really far ahead and there have been no major crashes yet. After 10 million rides, there's only been one crash with a fatality that I know of. And in that case, Waymo was actually not the one making mistakes.

33:20like it was the other driver that crashed into a line of cars with one of them being a Waymo. So I don't know who the winner will be in this space, but Waymo's growth chart is as exponential as it gets. And combined with that Uber partnership, another one of our portfolio companies, I think we're talking about a serious advantage here. Every mile that a Waymo car drives is a mile of data that it gathers. That compounds when you're doing 250 ,000 rides per week. And the self-driving system you see in your average Tesla is more of what you might call a level two system. Whereas Waymo is arguably operating at level four.

34:02With the difference being that level two is a supervised system. There needs to still be a driver at the wheel. While Waymo's level four system allows it to have no driver at all. That's the difference in sophistication here. Waymo's cars have all sorts of different sensors, but most notably the so-called LiDAR technology. That's basically just a form of laser, which is used to locate objects and assess their range. And Tesla only uses cameras. So that's a lot cheaper and it's easier to integrate when you focus on, you know, selling as many cars as possible. But it's a very different game from what Waymo is playing.

34:38But of course, Waymo, with all its sensors, cameras, and lasers, should work better than Tesla's only using cameras. But I guess the big question is not whether Waymo works better than Tesla, but whether Tesla works well enough. Because if it's good enough and Tesla reaches level 4 of self-driving capabilities, then it can obviously expand rapidly, much faster than Waymo, since LiDAR just takes much longer to be trained on Nutra. and Tesla is already operating millions of cars on the streets around the globe and run over the update and millions of those cars turn into a fleet of self-driving cars.

35:15That's true, but Tesla has promised to be at that stage for like a decade now and they still aren't. Waymo is there though. Tesla will soon start to own their own robo-taxis in Austin, at least that's the plan And it'll just be really interesting to see how that plays out. Generally, Waymo and Tesla are almost fundamentally different in their objectives. Musk has said that Tesla's full self-driving should be as good as humans. While Waymo's CEO has said that it needs to be significantly better than humans. And that is actually a big difference in terms of safety and reliability. And I consider Waymo's approach to be smarter.

35:57if robo taxis are not materially safer than human drivers i do think it'll be much more difficult to obtain the regulatory approvals to operate them on a large scale and waymo for what it's worth has basically already proven that it can operate much more safely than the average human driver tesla on the other end has a lot of other things going on i mean most attention is divided between I mean, a number of different companies and politics and Tesla is building robots, for goodness sake. So again, I tend to think the company with the pure play focus will end up winning. That's my oversimplified framework that we bring to a lot of companies.

36:38And it's just that specialization wins. It's why I like Spotify. It's why I like Ulta and beauty retail. And it's kind of why I like Waymo here with self-driving vehicles. That's a powerful concept. I mean, you've seen Tesla going all different sorts of routes and Elon Musk even more so. Waymo has done what Musk promised for years. I mean, who knows if that will change in the coming months. But we could spend a whole nother episode on covering Google and everything they do. But before we get lost here, let's just briefly talk about the Q1 results and whether they support our more bullish outlook.

37:12And I think the market's more bearish outlook, without being too biased, I think you almost have to read the latest results positively. Revenue was up 12%, reaching over$90 billion. Net income jumped 46 % to almost$35 billion. And margins expanded despite record AI investments. And on top of all of that, an announcement to increase the dividend by about 5 % and$70 billion worth of stock repurchases. But most important, at least in my mind, is that we saw a surge not only growing 10%, but that these new AI-generated search overviews that we've already talked about, those summaries Google places at the top of search results, are really reaching 1.5 billion users per month.

37:57And that's not too surprising since Google's reach. But according to management, they are also monetized at roughly the same rate as regular search ads. And the cloud segment also did very well, right? Revenue jumped 28%. And the operating margin, which is really what I saw as the most important thing to track, almost doubled compared to a year ago, hitting 18%. And if we compare that to AWS or Azure, there is a reasonable argument to make that the margins could double again before they stabilize. and if so in the coming years the cloud business could easily be worth as much or much more given how much faster it's growing than the search business and as you pointed out in your amazon episode daniel aws operates on margins of nearly 40 and while the three services are not identical and their customers can differ it does seem likely that the margins of the big three will be in the same ballpark long term in the cloud business.

39:01So I think it's safe to say we remain pretty bullish on Alphabet. And despite a 20 % rally since the April lows, we still find it to be the cheapest of the Mag 7, which is the highest quality group of companies in the world, and very reasonably, if not cheaply priced. Yeah, I totally agree. It's our biggest position. And I definitely do not lose sleep over that. Now, let's get to a position that we have already talked about a bit thanks to Waymo and that position is Uber. Uber is currently only 2 % of our portfolio and has been the best performer, returning about 40 % on an average buy-in price of about$62.

39:42The partnership between Waymo and Uber enables Uber basically to use and order Waymos and their services in cities such as Austin, Phoenix, or Atlanta. And among investors, there are still mixed feelings about this partnership as Waymo was originally seen as a competitor to Uber. And in the end, why would anyone need an Uber if Waymo exists? We already covered that in our Uber episode, but how about you quickly shed some light about why Uber and Waymo can actually coexist and perhaps even work better together? Okay, so for anyone who has known me personally for a while, I would say they would know that I was not a big believer in Uber for the longest time.

40:27I was the person who was like, this is a terrible business. I don't understand how they make money long-term. These margins aren't sustainable. People aren't going to pay$20 for a 10-minute ride. All of these things. I asked myself that same initial question too. Isn't Waymo an existential threat to Uber? And so I came into the Uber episode thinking that I was going to really dislike the company and there was no chance I was going to own it. And maybe that's a testament to just trying to be open-minded and allowing your thinking to change because the more you study the autonomous vehicle space, the more at least I realized that Uber and Waymo need each other much more than it first appears.

41:10And once you realize that autonomous vehicles don't seem like a major risk to Uber, but actually a significant opportunity as management, I think genuinely believes, then the partnership just makes even more sense. And Waymo and Uber each solve each other's biggest headaches. Waymo has this world-class self-driving tech, but it needs access to dense, reliable demand for robo-taxis worldwide. And Uber already funnels ride requests from 170 plus million monthly users. And by plugging Waymo's fleet straight into the Uber app, Waymo gets this near instant high utilization rates for demand and avoids the cost of building its own consumer marketplace from scratch, which is just incredibly, incredibly hard to do at scale.

42:05And at the same time, Uber brings a supply of fully autonomous cars that shorten wait times and bring in higher commissions since there's no drivers involved and may have lower insurance costs in the future. And it just future-proofs its business model by turning competitors into suppliers. And so AVs are already busier per vehicle than 99 % of human drivers in the areas they operate in. The latest expansion to Austin and Atlanta will put hundreds of Waymo's under Uber's dispatch by early next year. And for Waymo, as well as other AV companies, building your own fleet of cars large enough to meet the demand of basically Uber's network would require just unfathomable CapEx investments Because what Uber is doing with variable human driver costs, you would be trying to do with these CapEx heavy fleet of autonomous vehicles that just have a ton of physical hardware and technology embedded into them.

43:12And that's just a totally different cost structure. It's a very, very capital intensive venture. And that problem doesn't exist with Uber. Uber's drivers are much more flexible in responding to demand and autonomous vehicles can fill the gap and offer unique experiences for customers at the same time. And so for the foreseeable future, I actually think Uber's core network of human drivers will almost be like the baseload of power for an energy grid or for their network. While Waymo's kind of take on the role that we see renewable energy sources take on, which is adding capacity on the margins.

43:47but it's not fundamentally replacing the baseload power in most cases, which is typically like on an energy grid perspective, things like coal, natural gas, and nuclear. So I don't know. That's my energy metaphor. It makes sense in my brain. I don't know if that makes sense to anyone else. I love that metaphor. I think it's great. And this is the heart of the thesis, right? It makes much more sense for AV companies to just partner with Uber instead of competing with it. And since operating a massive fleet of AVs just doesn't fit the volatile and non-linear nature of the ride-hailing demand and business.

44:22I suppose one of the biggest problems is actually just where to park all these excess cars during periods of low demand. I mean, with all the available data, I think it shouldn't be that hard to, you know, build an algorithm that predicts how many cars will be needed at a certain part of the city and at a certain time. But where do you store cars during periods of low demand? I wonder though if one day we will see many more car companies going the route of self-driving cars. I might be missing something here, but where's Uber's value proposition when your own car drives fully automatic? Tesla even thought about a service where you can offer your own car or your own Tesla as a RoboTaxi to other people when you don't need it.

45:01And I know this is all many, many years ahead and there are many things that, you know, just couldn't work out in that thesis. The most likely outcome is that Uber just dominates the space for years to come. But from my Mercedes episode, I looked into the driver assisting systems of many car companies. And sure, they are far from Waymo and also way behind Tesla. But since it's becoming clearer than ever that this is the future of driving, I wouldn't be surprised if we do see significant improvements on that front. and especially from Chinese car companies, which are probably the bigger competitive threat here than European or US brands.

45:40Do you see that as a risk at all or would you say Uber is way too dominant and their specialization is just too big of a factor? Thinking about the terminal value is the biggest uncertainty with Uber. And my thinking could certainly evolve and I could easily change my mind as this all unfolds. But the kind of theme for this episode that I keep coming back to is a very simplistic idea that specialization matters. What you focus on matters, in other words, to suggest that car companies can create their own ride-hailing networks, in my opinion, dramatically understates the difficulty in actually running a global ride-hailing network and the flywheel effects associated with it for managing the logistics of tens of millions of people and vehicles, effectively utilizing all that data, and then simply having the network effect in place where supply and demand are uniformly aggregated in one place and are balanced and all the economies of scale that go with that.

46:40I just think building self-driving cars and building a global ride hailing network are totally different aims. And if some company like Tesla or even Waymo is approaching ride hailing as an afterthought, as maybe a bonus feature for how your car can be monetized when you're not using it, my feeling is that it's just going to be much easier said than done. And the competition here, I think actually helps the thesis because if there was only one car brand in the world and everybody owned a Waymo, then I would say, yeah, they could probably, you know, flip a switch and turn that into a ride hailing network, but that's just not the reality.

47:16And so the question I ask myself is what is most likely that they recreate some car company recreates Uber's network effect that took 15 years to develop and then they fully displace Uber? Or more likely, do they just concede that Uber is the biggest aggregator of supply and demand that's agnostic about whether they're working with Tesla, Waymo, or Mercedes or any other autonomous vehicle manufacturer? And all of these different companies kind of going with the game theory of it decide that it makes sense for them to tap into the neutral network effect that is Uber that sits in the middle of all these different vehicle manufacturers.

47:53And if anything, as more of these companies enter the self-driving arena and flirt with the idea of making their vehicles available for ride hailing, I think that makes Uber's role even more important as a third-party exchange that can bring together supply and demand without bias. And right now we are seeing Uber make a ton of partnerships supporting this vision. Besides the mini AV partnerships with startups and tech companies they have, they've also started to onboard these big legacy car makers in different ways. And so they've just signed a deal with Volkswagen to bring thousands of autonomous electric fans onto the Uber app starting in Los Angeles in 2028.

48:30And then you see other car companies give up on their ambitions to create their own robo taxi fleets, right? GM retreated from its cruise robo taxi rollout and refocused on driver assistance subscriptions now because it was just too difficult to build the hardware and the consumer marketplace at scale at the same time. So I could be wrong, but I see these companies as ultimately decided that it's more advantageous to partner with Uber for ride-hailing as sort of the mirror of Uber's decision to abandon its project to build a self-driving car and just focus on being an aggregator of supply and demand.

49:06So we should also mention that roughly half of Uber's business comes from its food delivery business, which is even harder to automate entirely than self-driving unless we expect there to be armies of thousands of drones in our airspace across the country and across the world that exists just to deliver our takeout orders. Maybe that's one day in the future. But again, I think that's pretty far off. What you describe is by far the most likely outcome. My concerns with Uber are probably inconsistent with my usual reasoning because I tend to rely on today's facts instead of a vision that is 10 years out.

49:41And today's facts would just state that Uber is the dominant player in that market. And as you mentioned, the more car companies offer self-driving cars, the more it would actually benefit Uber as you know, the platform enabling all of that. Before we move on, Uber also released earnings recently and the stock didn't jump as much as Ulta, but I felt like the numbers were pretty good and they still looked promising. So what do you think about the numbers? last quarter uber booked three billion rides up 18 year over year while monthly active users grew 14 at the same time so most of the growth comes from new users but also partially from an increase in booking frequency from existing customers which is a great illustration of the flywheel in effect people use uber services more over time after that first initial touch point that they have with Uber.

50:37And so gross bookings rose 14%. But if you strip out the currency headwind, it's actually 18%. And you see that scale hitting the P &L now. Operating income jumped by$1 billion to 1.2 billion total. And active drivers grew 20%, reducing wait times and reinforcing the flywheel that makes Uber services increasingly valuable. So we are seeing the full effects of operating leverage and really the vision that Uber has been painting for a decade now coming to fruition. And one of the statistics that makes me most bullish on Uber is that Uber's active customers only represent about 5 % of the adult population in the markets they operate in.

51:21And about half of Uber's customers use their apps just one to two times per month versus a global average of six. So there is a lot of room to drive existing customers to use Eats and Uber Mobility, so ordering rides more frequently. And speaking of that cross-selling, that cross-selling was continuing to improve. One third of new Uber Eats users now come directly from their rides app, the mobility app. And the Uber One subscription is combining that cross-selling ability and And further driving low-cost stickiness across Mobility and Eats, the two different core business units at Uber. Delivery has turned profitable.

52:03And there's still, in my opinion, a ridiculously huge runway left. I mean, this thing is not even close to being done growing in its most mature markets. And just think about all the things that could be delivered besides food, right? They have already signed up partnerships with Home Depot, for example. So if you have any plywood you need delivered, Daniel, do it on Uber next time. Fortunately, I don't. I don't like building stuff. But, you know, I think it's important to just be able to have different opinions in your head at the same time. And for me, it's a bit like that with Uber because I might see some concerns a long time in the future.

52:40But looking at those numbers and all of the different business segments that they have just has to make you bullish. And I mean, you didn't even talk about the ads business yet, right? That was one of the business opportunities that surprised me the most in your pitch. And it seems like there is huge potential there. Ads grew 60 % year on year, and it's by far the highest margin business that Uber has. And right now it's still small with about$1.5 billion in revenue, but there's a lot of runway left. And according to management, the mobility ads business is even significantly outpacing the overall advertising growth in the Uber business.

53:14And last but not least, we also have a new acquisition. You mentioned Uber's big investment portfolio when you pitched the company. And a couple of weeks ago, it entered the Turkish delivery company Trendyol Go, which was actually backed by Alibaba. By the way, I didn't know if you were aware of that. They bought it for a price of$700 million. In my opinion, that's a great deal. They buy 85 % of the company, which generated$2 billion in gross bookings last year, going 50 % year over year. And like I said, they only paid$700 million. Yeah, yeah. Well, just to quickly touch on advertising too, Daniel, I think we both, or at least I personally speaking for myself, I love to use these simple frameworks.

53:55And for me, like this is not rocket science thinking that I'm doing. I'm thinking very intuitively. Uber knows where everybody is going. And that is probably pretty valuable to advertisers to know real time where people are in a city, what their destination is, what they're doing, learning about people's habits throughout the day. To me, just again, that is obviously a very valuable advertising business when you can hit people with ads based on where they actually are in the world at a specific time of day and based on those patterns. And to go back to the move into Turkey, I would also say, yeah, this is their typical playbook.

54:34They expand by either acquiring a company that used the Uber playbook themselves in a foreign market, or at least building some sort of minority stake in these companies. So they have some upside exposure to companies that have kind of beaten them to running the Uber playbook locally. And this time it's not on the mobility side, but it's on the delivery side of the business. Yes. And I think we can summarize that we both are excited about the Uber position and that we like this position in our portfolio. Having said that, I would say it's time for the next one. Let's move on. And when I look at it, it just shows me how big Google's influence really is.

55:12I mean, we talked about Google quite a lot today. And every second company that we bring up today is somehow linked to Google. The one I'm talking about now is Airbnb. It's a 5 % position in our portfolio, up 6 % since we bought it at an average price of about$130. And there have been quite some updates since our pitch. It's a public company that is pretty young. It only IPO'd in December of 2020. And as it often happens at IPOs, the stock skyrocketed immediately after. But since then, the stock hasn't gone anywhere. It's up 1 % over the last four and a half years. But fortunately, that's not the case with Airbnb's financials.

55:50The company has grown into its valuation and what seemed to be overpriced in 2020 is now a company with a profitable business, numerous opportunities for growth and a very reasonable price. You can currently buy Airbnb at an enterprise value to operating cash flow of 16. and the enterprise value represents the total market value of a company. You get there by adding the market cap to total debt and then subtract cash. For a company growing its top line in the double digits and had a 25 % CAGR for free cash flow since 2020, that valuation sounds like a pretty good deal. Well, thank you for saying that, Daniel, because I agree.

56:27I think Airbnb has a lot going for it. I mean, we discussed it all in the deep dive, but Airbnb benefits from a very powerful, positive network effect where more guests attract more hosts, which in turn provides more diverse options that attract even more guests, making the entire platform incrementally more valuable. They continue to eat into hotels market share as well. Travel has evolved to more than just the usual hotel experience, and Airbnb is number one in that special accommodations business, at least in North America, but increasingly across the whole globe. they appeal to travelers seeking unique experiences benefiting from the tailwind of remote work trends and have become the dominant player in the growing market of long-term stays a niche where competitors like verbo and booking.com are really nowhere close by by some measures and for example you take exclusive property listings although there's nothing that would stop hosts from listing their properties on other sites as well, roughly 70 % of properties on Airbnb are exclusive to the platform.

57:37And that's partly because Airbnb is just very easy to use. Something the CEO, Brian Chesky, has also been talking about repeatedly, but also because most hosts only rent out one property. They're doing this as a side hustle, not a professional business. And Airbnb charges hosts a much lower fee than competitors do. So it's just much more profitable for hosts to add their supply to the Airbnb network and then primarily handle their bookings through them. And Airbnb booking is more profitable for hosts. And that, to me, is the backbone behind their flywheel and network effect. And on top of that, many hosts simply don't want to spend the time cross-listing their property and replying to people on five different platforms or paying for some sort of enterprise management software that synchronizes their listings up across platforms.

58:30Very understandable, if you ask me. But you know, the share of professional hosts kept growing in recent years, right? I think during my research, I came across a report from the EU saying that the share of professional hosts has more than doubled from 2014 to 2020. And while it's still only about 13 % of all hosts, professional hosts now own disproportionately more offerings on Airbnb, more than 45%. And professional hosts, at least in my opinion, could come with two problems. For one, commercial hosts are more likely to cross-list their properties than personal or so-called peer hosts. And second, peer hosting comes with significantly less risk of regulation.

59:10When professional hosts buy properties in cities and then list them on Airbnb instead of renting them out to citizens, that leads to more and more dissatisfaction with locals. Just a couple of weeks ago, Spain has actually decided to remove 65 ,000 listings from Airbnb due to violations of housing laws. And Spain has long been a country where tourism fueled the local housing crisis. And it felt like a matter of time until, you know, something like this happened. Airbnb has stated that this ruling is in conflict with EU and Spanish law and that they will appeal. I don't know how it looks on the legal front, but I think this might just be the beginning of increased regulation against Airbnb in the EU.

59:52And especially as professional Airbnb hosts continue to grow. So how do you see that affecting Airbnb's growth in the future? And where do you see the impact on that? You're probably right that it could become a bigger problem than it currently is. And the EU is sort of known for its very tough regulations compared to other markets. We've seen that with Uber as well. The EU is an important market for Airbnb, but about 37 % of revenues come from the EMEA region. And in 2023, the EU was home to over 1.4 million hosts. more than any other region in the world. So if this verdict stands and other European countries follow suit, that might turn into a larger problem.

1:00:37And on the other hand, Airbnb boosts tourism, which significantly increases tax revenue for states and is vital to large parts of the population in countries like Spain, which are these really popular travel destinations. And it's not the first time countries or cities have cracked down on Airbnb. we have seen the same happening here in New York City in 2020. And back then it was about unlicensed experiences. And in the past, these regulatory hurdles have tended to pause rather than kill Airbnb's business. And I would be surprised if that changes in the future. At this point, the cat is sort of out of the bag and I'm not sure there's any more putting it back in.

1:01:19And to me, the bigger problem seems to be with affordable housing, rather than tourism or Airbnb. And that's something governments need to figure out. And as you said, tourism is a huge beneficiary for countries like Spain, not only the government, but also the millions of people that are either directly or indirectly employed in that sector. And delisting Airbnbs cannot be the answer to more affordable housing. And other forms of regulation might even be positive for Airbnb in the long run, since it would reduce the worst case scenario of, you know, a more severe crackdown. I wouldn't say that risk is what held back Airbnb stock in the last few years, but it might be one of the reasons why the stock couldn't grow in line with the underlying financials.

1:02:03One other thing I found interesting and wanted to mention here is a comment by Brian Chesky, the CEO of Airbnb, who said he's now seeing more group travel. And as a reason, he said that many people who started using Airbnb when they were in their mid-20s are now in their 30s and have families, but they still use Airbnb instead of transitioning to hotels. And there's this famous Airbnb ad that I've seen about 100 times that now addresses just this audience. I think it's safe to say that Airbnb is not just a site for young people, but actually offers a different and in many ways improved value proposition compared to regular hotels, even more so with the recent push into services and experiences.

1:02:50If I want to book a trip with four friends, we are almost certainly going to look at Airbnbs together. So we're all in the same place for one, but also because it's probably more affordable than booking multiple hotel rooms or now that some of my friends are getting a little older, we're not in college anymore. We're not all trying to split the same room. We kind of want to have our own beds and own space, hence the multiple hotel rooms, which just gets really expensive. But going back to the new experiences offerings, it's not the first time Airbnb has tried expanding its business through this offering.

1:03:24The idea was first introduced in 2016, but it was halted during the pandemic and Airbnb had never really fully revisited the idea until now. And Airbnb's services offering has a range of hotel-style in-home services, as I would call it. So this includes chefs, massages, personal trainers, hairstylists, and so much more. And that is launching in 260 cities with vetting of these professionals to ensure their credentials and ensure that everything is high quality. And then on the experiences offer, Airbnb is debuting this across 650 cities. And what this is, is that it features everything from museum tours to ramen masterclasses.

1:04:08So both products are integrated into this redesigned Airbnb app really seamlessly. If you haven't opened the Airbnb app in a while, I would say go download it and go try it. It's pretty cool. The goal is to turn Airbnb into an app that you not only open when you book your stay, but also when you're not traveling. Why not book an experience in your hometown as well? And all in all, this is a logical step for Airbnb. Just like you look for food on Uber Eats, you could look for experiences on Airbnb. That is the vision. Whenever I want to do anything in my hometown, I never know where to go. So I could definitely need Airbnb to help me with that, even when I'm not traveling.

1:04:48it. Airbnb is in a much different position than it was in 2016. You know, the core business is much stronger and this should be a tailwind when they now try to, you know, establish this new segment. And as I said before, when booking my vacation, I went to Airbnb immediately to look for a place to stay. And then I began searching for things to visit and do while I'm there. Instead of going back to Google or ChatGPT for doing that, it would be much easier to do all of the above on Airbnb. And even beyond that, there are so many more growth opportunities. Airbnb is one of the few tech businesses that does not yet run a subscription model, for example.

1:05:25With the introduction of experiences, there are a lot more opportunities for that as well. To steal an idea that was mentioned in Prof Galloway's podcast with Brian Chesky, there could be something like Airbnb Plus, you know, a subscription model that connects people locally. So instead of spending your evening alone at your Airbnb, you can meet people with similar interests or jobs in this city that you're currently in. And whatever the details are, the point being is that there are a ton of options to expand Airbnb's core business. And I guess combined with the reasonable valuation that this is why we are bullish on the company.

1:06:02Exactly. Exactly. Airbnb has a lot of runway left ahead of it. And even better, they keep reinventing themselves, which I always love to see in any company that we invest in. And I think it's a really great long-term bet at the right price. And of course, as part of a diversified portfolio like the one we're building. And now let's discuss a company that compared to Uber and Airbnb almost seems old. And I'm talking about Adobe. Adobe is another 5 % position in our portfolio. And since we purchased it at an average price of$380, it has increased by about 10%. The investment thesis is similar to Alphabet's.

1:06:39The business is a cash flow machine and it's operating a near monopoly, I would say. Adobe has by far the biggest range of creative products in its ecosystem. And with 95 % of the over$20 billion in revenue being recurring, you have very little volatility in the business. However, this is not the case for the stock. In the last 12 months, Adobe stock lost about 10 % and it's now again flat over a five-year time horizon. The question of why that is can be answered pretty quickly. It's AI threats. You can see very similar to Alphabet, but just as with Alphabet, we would argue that those fears are likely overblown.

1:07:18And even more so in this case, perhaps since Google really has some catching up to do, while Adobe has a significant advantage that it could leverage when integrating AI itself, Adobe could guarantee its customers that everything they do with their AI was trained exclusively on licensed content. And this has made it 100 % legal for their clients to use that AI generated content. This was not the case with any other AI models, especially in the beginning. And combined with Adobe's huge ecosystem and the existing clients that they already had, this just gave them a very good position in the AI race.

1:07:57Totally. And Adobe benefited from that and the fact that they only needed to be as good as their competitors. And perhaps not even that. They only need to be good enough for clients not to end their subscription and change services and all the frictions that come along with that. And since no other service can provide the same ecosystem as Adobe, I think that's unlikely for a lot of the institutional clients. So their advantage has been a mix of switching costs with their unrivaled ecosystem and the content to train their models. And that gave them enough time to build out and integrate their own AI tools.

1:08:33And then you have to combine those qualitative factors with the valuation. Adobe trades at a free cash flow yield of 4 % and a 20 times forward PE. and you buying a company that is likely to keep growing in the high single digits to low double digits across its different segments. And the margins are phenomenal. And the return on invested capital is in the mid-20s. And due to its asset-light business model, the need to reinvest into the business is rather low. And things are just changing very quickly in AI content generation though. So it's an investment we need to watch closely, but we also shouldn't forget that they have their Acrobat and PDF services, as well as marketing analytics, which are also a big part of what they do beyond just offering subscriptions to software like Photoshop and Lightroom that some people think are at risk of being disrupted by AI-driven content generation tools.

1:09:31So it's actually a reasonably diversified business that works across a wide range of customers, from advertising agencies to actual, you know, Hollywood studios. And once again, I would just recommend listening to the episode because now we go a bit faster through the companies because, you know, the pitches are not as old anymore and you probably have listened to them. So Adobe is a huge business, but we only cover, you know, the most important part now. And in my opinion, Adobe looks really compelling. And I think both of us have the same conviction that we had when establishing the position.

1:10:05And on the earnings side, there have been no updates yet that we could discuss today because actually they will report earnings later today. And we will of course cover that for one in our intrinsic value community and also in our free newsletter that we send out every Sunday. Getting to the next company, we have Reddit. Reddit accounts for 3 % of our portfolio, making it one of these smaller positions. And it increased about 15 % from our average buy-in price of$87. After your pitch, I wanted to give Reddit another chance as a user and I kept up with the company news even more so than I did before because your pitch really got me interested and excited about the opportunities Reddit could offer in the future but from a user perspective it just is not my app.

1:10:51I see myself closing it after a few minutes and I don't really come across content that I personally find interesting although I must say that in Reddit's defense I barely consume any social media. I also don't know anyone who does regularly use it, which is not too surprising since the US is still by far at its biggest market. But that is changing slowly or actually rather quickly. In Q1, we saw international traffic really take off, going 41 % year over year and actually outpacing US growth, showing that the efforts of translating content through AI, which you mentioned in your pitch, is actually paying off.

1:11:30And it's only natural that international expansion will also take more time than, you know, with other social media apps, because the community structure that is at the heart of Reddit just takes longer to build than an Instagram feed. But the international growth also comes at a cost because American users are monetized at much higher rates than international users, especially those outside of the EU. And the international RPU is only about $1.30, and that's the average revenue per user, while the US RPU is significantly higher at over $6. Is that something that worries you longer term, or would you just say that's a short-term price that as a Reddit shareholder, you got to pay for longer term success?

1:12:14In the short term, that might be a drag on earnings growth, but if you want to invest in Reddit, you need to believe in the premise that international RPUs will over time converge. And of course, RPUs in South America might not reach the level of the US, but they can get closer. And the Western European market probably has the potential to become as profitable for Reddit as the US one day. And it will all come down to the effectiveness of their advertising ecosystem. Reddit is already significantly expanding. It's advertiser based. We see revenue growth outpacing daily active unique visitors, which suggests that more advertisers are joining the platform and the ad spaces are becoming more valuable.

1:12:58I can certainly say the ads have become a lot better on the US app. They're targeted to the niche and the topic of the subreddits I visit, and I can see why their effectiveness has just gone up tremendously. Has your experience with that changed at all, Daniel? I think the last time you said the ads maybe felt pretty random and untargeted? It depends. It depends. When I'm just going through the feed, I get all kinds of advertising, ranging from, you know, Amazon Prime or well-known fashion brands to scammy-looking mobile games or dating sites. But in a specific subreddit, the ads do actually get more targeted.

1:13:39I'm still struggling a bit with the idea of Reddit reaching anything close to matters up you. But in your pitch, you pointed out that Reddit has a special culture where paywall or sponsored content and even advertisements or really just anything that looks quote-unquote capitalistic is disliked. And of course, that's not true for every subreddit, but it does make me wonder whether this app can ever become as profitable as, for example, Instagram, where selling ads for makeup or clothes just feels like the most logical thing to do. It probably doesn't help that Reddit is still also a bit known for its explicit content.

1:14:17and there is still the dependency on traffic from Google search, which we also discussed in the pitch. And our listeners can probably imagine we don't see that as a big problem, but I'll still ask you whether you see any scenario where a drop in traditional Google search and even more AI tools could hurt Reddit. You know, I use Reddit pretty frequently and I have not yet once thought, oh chat gbt is going to give me a better answer than than this reddit searches are much different than the ones you would go to chat gbt for and i feel like that has been a recurring topic in this episode of the different ways that we search for information and how it is likely to stay different of the way you search on google the way you search on chat gbt and the way you search on reddit are all distinctly different ways to consume information that have kind of a niche over people's habits.

1:15:14And so the reason you go to Reddit is you want to get feedback from real individuals. That's the whole idea. And AI could summarize what they're saying, but it loses the core of what makes Reddit's content unique. And if anything, I can imagine that instead of just adding Reddit to the end of Google search, you'll now more often land on Reddit through these AI tools like Perplexity and ChatGPT that use Reddit as a source because I mean they're like very heavily trained on Reddit and that's actually part of the thesis for Reddit is that they're going to keep earning money from licensing out their content as this continuous stream of real world up-to-date human-generated content to feed these models with and maybe it'll be Gemini too.

1:16:00So yeah since the whole idea of the platform is to create a network for discussion and real interaction with people, despite its anonymity, I don't see AI taking that place. A bet on Reddit is a bet that digital communities and the need for human connection and feedback will persist in an age of AI. And I actually think in an age of AI, actually genuine human interaction, if only on a digital platform, will be more valuable. I think so too. I think that's one of things where people just want to participate or keep participating despite AI. I still could see traffic from Google or AI's decrease though, since people like me, for example, who land on Reddit through a Google search, do not really look for that social aspect of the platform.

1:16:50I just want an answer to my question and Google's AI overview will probably give me that. Having said that, those queries are not valuable interaction for Reddit anyway. Monetizing one-time visitors from Google is more difficult because you don't have the data, they are not locked in. But despite me not being a user, I do see the need for social interaction and a community feeling that Reddit offers. And I don't think AI is a threat. And as you said, it's kind of a repeating theme today discussing, you know, what queries are easy to monetize and whatnot. Yeah, I think the biggest start with AI is just managing spam from chatbots that are kind of can undermine the human content that is created on the platform.

1:17:29That is something I'm watching. But looking at Reddit's latest results, the numbers just look really good. And the stock jumped 17%. So for what it's worth, the market agrees with us as well. Revenue is up over 60 % year over year and active users increased by 30%. And no matter what set of numbers you look at, Reddit surprised to the upside on all fronts. Reddit CEO said that after 20 years, he's never been as excited about the company's future as he is today. And I actually understand why. A couple of years ago, I couldn't see this company becoming profitable. It was kind of like what I thought of Uber.

1:18:05So obviously I don't have the best foresight in the world, but now I can see it on a path to become one of those profitable social media companies out there. I believe their earnings power will only continue to increase from here. And Reddit hosts roughly 100 million daily users who generate uniquely searchable topic-centered content. And yet, as you mentioned, its average revenue per user, ARPU, remains a fraction of metas. And so monetization levers are just beginning to scale. Contextual ad revenue grew about 60 % in 2024. And those high margin data licensing deals with AI developers are contributing to about 10 % of sales.

1:18:47And so pilot programs for paid subreddits, marketplace fees, and multilingual expansion could bring further ARPU upside. And because there's this base of unpaid moderators that are handle content policing, operating costs can rise much more slowly than revenue, giving management a clear path to dramatically expand margins. If ARPU even approaches half of Facebook's and international user growth continues, earnings power could plausibly triple within the next five years, leaving today's post-pullback valuation at really a mid-teens multiple of future cash flow, which I think is not too bad for this type of business.

1:19:29Looking at those numbers, the growth potential is just undeniable. Those numbers were fantastic when I looked at them the first time after seeing the earnings report. And you cannot even argue that the numbers are looking good because the base is low. As you said, they already have 100 million users. Growing at that rate is astonishing considering that. And the contrast to our other positions is probably that Reddit is not necessarily cheap. Reddit is trading at 15 times sales and a forward PE of 82. So the market definitely is seeing these growth opportunities as well. Actually, right now, Reddit is trading at your exact fair value target from your model, which is$117.

1:20:06that's based on sales growth of about 26 % and 5 % operating margin expansion every year driven by double digit growth in the US RPU and even faster in the international RPU. That might sound optimistic but I think for everyone who listened to the episode and looking at the latest results this is in line with how things are currently playing out. Still the position is not 3 % for no reason there's a lot more uncertainty than in the other positions that we hold and this investment case expects reddit to succeed with its plan no hiccups in monetization or growth i'll be very interested to see what path reddit will actually take in the years to come a lot has got to go the right way with reddit but currently things are looking great so that's something we can't say about another portfolio company which is uh nike that that's why this business is only a 2 % position.

1:21:03Fortunately, at your guidance, Daniel, we paid a lot of close attention to price. And so Nike is up about 10 % since we bought it. So we've done well there. And maybe I'll just give a quick summary of the Nike investment case, since you've done such a great job breaking out some of the other portfolio companies. Nike's recent struggles trace back to a strategic mistake, as you know, under CEO John Donahoe, who doubled down on the direct-to-consumer model. And the idea was to boost margins and control the brand experience. But in the process, Nike pulled back from wholesale partners, scaled DTC too aggressively, and flooded the market with these high-volume, less popular releases that really just diluted the status of its more classic designs and at the same time innovation stalled out signature lines were not stale and performance categories like running lost market share to upstarts like on and hoka and all of this resulted in a weaker brand excess inventory and a wholesale reversal in strategy as nike now tries to win back those lost partners and just win back consumer loyalty.

1:22:19Since Nike didn't report any new earnings since we last covered it, there's maybe not too much to add, right? Or did I miss anything in the summary here? No, you did a great job. You know, it was short and sweet and we do have no earnings for Nike now, but we've got some news related to the business. And that's actually about Amazon Because after exiting Amazon's marketplace in 2019, Nike has now announced that it will return and once again sell directly through Amazon. And that's pretty much a 180 to the Donahoe era and plan, which was defined by a major push toward, as you said, direct-to-consumer channels.

1:22:59Positioning Nike as more of a premium or even kind of a luxury brand. But rejoining Amazon now represents as sharp of a pivot as possible. But let's face it, Nike received pretty clear feedback that if consumers can't find Nike at their local retailers, they will just buy other brands. I still believe Nike, at least long term, will be the brand of choice for most people. But the DTC attempt has apparently been a wake up call for Nike. Nike is back to its old motto, serve consumers wherever and however they choose to shop. And Amazon, for its part, has been actively trying to improve its image with higher end brands.

1:23:37It just recently launched SACS on Amazon, a new initiative that is featuring labels like Dolce and Gabbana. Next return fits well into that broader strategy, I would say. And if executed carefully, this could be a mutual brand benefit. Amazon boosts its credibility with premium consumers. And Nike really gains reach without completely sacrificing control. I like the strategic shift. I don't know if it will bring Nike back on its feet, but Nike just isn't a luxury brand either. They should serve customers where they are. And you just don't go the extra mile to choose Nike shoes instead of a dozen other brands.

1:24:15And maybe that was true 30 years ago when Jordan was dominating the NBA, but I just don't, that's not the world we live in now. I personally feel pretty indifferent toward a lot of the shoe brands that I see. And part of it is just retail is such a tough business. And if it weren't for the immense size and the global brand that Nike has, I don't think we'd be investing in a retail brand with as many problems as Nike. And another problem, of course, has been tariffs. And on that front, the market seems a little bit more tranquil now since we recorded that Nike episode. And when we recorded, that was like a really turbulent moment in markets.

1:24:56And so it seems like the worst case scenarios won't materialize, hopefully. I still remember when we talked about Nike, I think it was the exact day of when the whole tariff disaster happened and it was pretty terrible in times, but at least right now it looks like the worst is not to come. And I don't know though, if that will help Nike's next set of earnings because they will still look pretty bad. They still have inventory problems weighing on the gross margins and revenue is expected to see significantly declines, likely in the mid-teen range. And all of those guidances were given before all of that terrorist stuff happened.

1:25:32So there's still a lot of work to do. But what I like to see is that when I talk to people, especially from our community, who are not US Americans, all of them look at me with these big eyes when I tell them that Nike is supposed to not be a big brand anymore, because the brand image, especially outside of the US, is still very much intact. And you know, if I can see that and hopefully a significant reduction of inventory in the next earnings release well then i can see fewer discounts going forward which in turn should help recover the brand image perhaps even in the us as well and combined so the thesis this should get nike back to past revenue and margin levels and that would be very bullish for the stock at its current levels i do believe nike will get there they still have the most talent working for them it's a global brand as i said and they do still have the most prominent athlete portfolio in the world.

1:26:24Sometimes I hear that they lack these all-time greats right now, but I mean, I'm a Messi fan, but I will still say Nike has the most famous athlete and arguably the most famous person in the world under contract right now. And that's Cristiano Ronaldo. And if I'm not mistaken, Sean, recently you had the chance to speak to an industry expert who affirmed that Nike should reclaim their sport in the long run. Their scale, opportunities to invest, and their brand strength is simply peerless. I have a friend who does actually work at the cutting edge of shoe design doing research on how different shoe designs perform and how cool is that?

1:27:04That's a cool job. I walked away though after talking with him with a better appreciation for just how badly Nike has messed up in recent years, but also a better idea of how despite that the company has the brand and the talent to bounce back. It won't be easy, but the feeling was that Nike should have never found itself in this situation of even losing in the first place. Yet that doesn't mean it will continue to flounder. Now that everyone is on the same page about the mistakes that have been made, there's a pretty good reason to think that they can turn the ship around. Well, let's hope so.

1:27:43And by now we already have a long episode, but I knew this one, you know, reflecting on all the companies that we own will be quite a long one and we have one left. For the sake of completeness, we need to also quickly mention that we added NewBank to our portfolio just recently. This has been our most recent edition and I could imagine most of you will probably have listened to that episode, so we'll keep it short. But still, how about you give us a quick overview of the investment thesis and explain why we initiated a 2 % position at a cost slightly below $12. Well, NewBank is not necessarily in our circle of confidence, which I think we can both confidently admit, but we decided it was worth taking a calculated risk on this company because the numbers and economics of this business are just incredible.

1:28:29And the reason I say that is if it ages poorly, we can point to this moment and say, you should have known better. You said this was outside of your circle of confidence. And this is a great illustration of why not to go outside your circle of confidence. Very nice. But Nubank, but yeah, it really makes you bullish, right? But Nubank was only founded in 2013. And so despite being such a young company, nearly 60 % of Brazil's adult population banks with Nubank by now. And over 80 % of those customers acquired through word of mouth referrals. That just speaks volumes to the quality of the product.

1:29:10And NewBank began with just these simple credit cards that charge no fees and has since expanded into other banking services, including debit cards, insurance products, and more. And NewBank has consistently grown its revenue per customer as they have become more reliant on its services. It has also been a great example of the model of shared economies of scale, right? I mean, NewBank operates with significantly lower operating costs and all those legacy banks in Brazil just due to its digital-only model. And these cost advantages can then be passed on to consumers by offering credit cards with either no or lower interest rates or generally just cheaper products.

1:29:51And that value proposition attracts new customers. And I guess that's why 80%, which is an insane number, 80 % of customers were acquired without any paid advertising. And then the fly will just keep spinning because if a new bank can acquire new customers, at almost no cost. The unit economics just look out of this world. I think you mentioned in your pitch that NewBank's average lifetime customer value relative to their acquisition costs is something like 20 to 30 times higher. That's right. And of course, all of that does not come without risk. And without going too much into the detail here to be repetitive, the main risks revolve around currency volatility or devaluation and the quality of the loan book too.

1:30:33Whenever a financial institution grows as rapidly as NewBank, there is a risk that it's taking on riskier loans than it should. And the concentration of retail clients and that retail loan book as a percentage of its total assets. And all of this wouldn't be visible in good economic times. But when the tide turns and the economy loses momentum, which can especially happen frequently in Latin America, we could see that NewBank has taken on too much risk. That's the big concern. And when I valued Nubank, I tried to account for the higher risk and uncertainty of its earnings by using a much higher discount rate than usual.

1:31:11And so my growth assumptions were also slightly below estimates. And I tried to consider in a significant multiple compression from 40 times earnings to really only 22 times earnings in a couple of years if we were to exit the position in my model. And despite all that, when you buy the shares at a price around$11, the expected return, and that return is by no means guaranteed, is about 16 % per year as a rough ballpark way for us to think through what we're getting into. And that's an insane potential upside because if you take a multiple and just cut it in half, still getting potentially a 16 % per year return is just out of this world.

1:31:52And as you said, Newbank is not necessarily in our circle of competency, but looking at the numbers, the growth opportunities ahead and the incredibly strong value proposition that it seems to have with its customers. I believe it's worth taking the risk that an economic downturn might bring with Newbank. And again, it's only a 2 % position right now. Well, we're used to covering a lot of companies, but going through all of them in just one session is something we haven't yet done. and I think it takes a while, but at least to me, it felt like a very good conversation and we both hopefully learned a lot just as well as the people who listen.

1:32:27And I hope we are able to, you know, not only give a good overview of the companies we own, but also give you some insight how we think about why they are attractive right now. But before we close it for today, let's briefly, and let's really keep it brief, discuss our general thoughts about how we structure the portfolio, how we think about position sizing, although we already talked about it. in the episode, and also what companies we look for. We often get the question of why we build relatively small positions despite still having such a large cash position. And my first answer would be that this makes it a lot easier for us to communicate our different levels of conviction.

1:33:05Our goal is to own approximately 20 positions, and that would mean equally weighted about 5 % per position. These 5 % serve as somewhat of a yardstick when we feel very good about an investment, we invest more than 5%. And when we feel like there's more risk in that position, or just more uncertainty about the potential payoff, then we tend to invest less than 5%. And on this show, right, we want to show the process of building a portfolio from week to week. It's a journey that we want people to be on alongside with us, whether they agree or disagree with some of the decisions. And if we were just to go ahead and buy all the companies we find attractive, then we just wouldn't be offering much value.

1:33:48You can look at plenty of portfolios of investors online who have these finished products. But what we're trying to do that we think is interesting is allowing people to watch the process of building a portfolio in real time. Granted, we're not actually having the pressure of managing a hedge fund and having investors who want certain performance benchmarks. So we can be much, much more patient and deliberate about how we do it, but really that is how investing should be done anyways. And so what are the considerations when entering your position and why is a position only valued at 3 % while another is valued at 8 %?

1:34:23And just like we want to teach the process of valuing a company, we want to teach the process of building a portfolio. And we are by no means flawless at doing this. I'm certain you have all seen us making mistakes in this process and we're being transparent about it. And that is really all you can do. It's just about the learning process, right? For the listener and also for you and I. And let me maybe add to that, that we do not have to own 20 companies. We have those 20 companies in mind, but when we do not find enough good opportunities and we are really trying to, I mean, we pitch a new stock every single week, then we don't necessarily need to own 20 companies.

1:35:01We can just, you know, own less and then ramp up the positioning of each stock. And also, if we would already know 20 great positions, then of course we could add them. But I don't know about you. I do not have 20 companies in my mind that seem to be perfect and profitable investments. And that's why we go into Newstalk every week to just find those companies. And that's a work in progress, right? It is absolutely a work in progress. It sure is. I can attest that to every listener. You know, behind the scenes, we're doing a lot of work for these deep dives and figuring out what companies worth we're visiting or, you know, even just looking at for a first time.

1:35:40And, you know, another question that I often get is about the type of companies we look at for our portfolio. I think we were asked that on several occasions. I think long-term listeners know that we cover pretty much everything, you know, different geographies, industries, market capitalizations, some fast growers, some slow growers. There's really not a boundary, although we are a bit limited when it comes to covering smaller companies, you know, micro and small caps. Unfortunately for me, since I like to invest in those companies, but that's just something we cannot cover on the show. We can do so in the intrinsic value community.

1:36:13But here on the show, we have a bit of a problem due to, you know, the size of our audience. We want to avoid any stock that could be influenced by what we say here on the show. And of course, these companies just generally come with a lot more risk and you need to be more up to date on their news. And this format, this podcast is just not, you know, able to do that to the extent that you would need to do it if you want to invest in micro or small caps. However, despite covering so many different styles of companies, when looking at our portfolio, there is a bias towards large cap, mostly US based and most importantly tech or platform based companies.

1:36:52There's some reasons for that. And for one, you know, these are inherently strong business models. They're asset light, they're easy to scale and with ample room for expansion. And another reason is that the ones we own have come down in price and valuation a lot due to concerns about the possible disruption of their business model. And that's why I see the next big narrative in our portfolio, Alphabet, Adobe and Uber. All those are companies that trade at low or reasonable prices because of megatrends like AI or AVs and they are supposed to hurt their business model. And for all three companies, we argue, as you've heard in this episode, that in fact, they are beneficiaries of these megatrends, or in Alphabet's case, at least not in as much danger as the market currently believes or thinks.

1:37:39It's funny, I didn't think, honestly, that we'd have such a tech-heavy portfolio. I started out hosting the show solo, and my first idea to explore was Madison Square Garden Sports. And then I passed on couping the quote unquote Amazon of South Korea before adding Ulta. So we definitely did not start with this big tech focus, but we've certainly found these to be some of the best businesses we've ever studied. And not always at as unreasonable valuations as you might think. We found Amazon to be kind of richly priced at the moment, or at least I did. But it's a company we'll also probably want to add if we get some volatility that we can take advantage of.

1:38:21So we really have become a bit of a tech centric portfolio. Maybe that will come back to bite us. But I think we still feel pretty good about the quality of these companies and the valuations where you are able to purchase them at, which is not to say that these companies are necessarily as attractive at current prices for the ones that have have risen substantially. So personally, I'm not loading up on Reddit, Airbnb or Uber right now based on where they're currently trading. but I definitely would love to in another big drawdown and increase those positions in the portfolio so we can put that cash to work as a percentage of the portfolio and shrink it down a bit.

1:38:56But price really matters, folks. That's the theme of the show because many of the companies we cover are very, very impressive businesses that we'd want to own in theory. And so really, these episodes are more of a discussion about, okay, can we get them at reasonable prices, which isn't always the case, as we've seen with Coupang and Shopify and to a different extent with Amazon. Well said, well said. And you know, the episode has been quite long. So with that, why don't you just give us the hints for the upcoming episode, which will be one of our usual company deep dives or pitches again. All right, let me start by saying that this company actually has a very similar story to Berkshire Hathaway in many ways.

1:39:37and actually the results have been more impressive in some ways and i'll also mention that of course this company is a conglomerate too but a conglomerate focused on a more specific industry than berkshire is which owns a pretty wide variety of companies and as a last hint i'll say that this company's products are not priced for the frugal they uh they command a pretty high price I think I know what company is up next and I think those are some very tough hints I don't think I would get this one but our audience is way smarter than I am so let us know your guesses in the comments and with that let's close it for today's episode with a quote by Peter Lynch that might fit a portfolio review quite well know what you own and know why you own it and having said that have a great day and see you next Sunday

1:40:35Thank you.