TIP767: Mastermind Discussion Q4 2025: Sanofi, Remitly & Crocs w/ Stig Brodersen, Tobias Carlisle, and Hari Ramachandra

25:17Tobias Carlisle:And so they are firing on all cylinders, at least so far in my pitch. Then there are a lot of things I don't like, but that's probably one of the reasons why it looks so appealing, at least at first glance. The founder, Matt Oppenheimer, He's the CEO, owns a bit more than 2 % of the outstanding shares. The biggest investor is Nozibola Process, which is another company that I pitched here earlier in the mastermind discussion. They invested heavily in the private rounds. And then number two and three, the usual suspects, Vanguard and BlackRock. And you can probably imagine why. And so if we talk a bit about competitive advantage competitors, now I'm a little hesitant to say that here on TAP, we use WISE.

26:02Tobias Carlisle:We actually don't use Remitly. And so why is that? I don't think our process is too different from what I presented here. I think it was two quarters ago, whenever I talked about the reason why we use Google Cloud, and then I actually pitched Microsoft. And so typically what happens, or at least in our company, what happens is that we have a certain need, which was in our case, we have people in five different countries and we need to pay everyone. So how do we do that? And I spoke with our CEO and I said, how can we send money reliably at the lowest fees? And she said, why don't you use Wise?

26:40Tobias Carlisle:And there was like, done. And so I can't say that necessarily our process is very, very sophisticated. I would say that there is a level of being sticky to it, even though you can't at all compare it to something like a cloud provider. It's not that difficult to transfer, even though there is an element of inertia there. And so why do I pitch Remitly whenever I would say that we're using WISE? You can also say that Net Promoter Score, which is something some investors look at, people like WISE more than they like Remitly. So why shouldn't we be talking about WISE? Well, I would say that they've started to compete more and more in the same space, but Remitly has historically been the better choice in helping migrant workers send remittances.

27:22Tobias Carlisle:And you can more, at least traditional, think of WISE as the company for small companies, such as TIP, we have 20 people. And so it's a small company, but it's more a business to business. Remittly certainly has a leg up whenever it comes to the unbanked. And one of the things I like whenever I am exploring a new product or service is that I like to speak with engineers. I think that for the lack of better words, I feel like engineers are a bit more, I'm going to say untainted, it sounds terrible whenever I say it out loud, but I come from a background in finance, we're very tainted. So whenever I speak with engineers, they think very much and very well about the product.

28:04Tobias Carlisle:And so they come at this from, hey, the best product wins. And I'm always simplifying as I'm saying this, but I think it's a very healthy way of looking at it. I think they're very good at looking at facts. They're very good at looking at properties. And so whenever I come from this, from my background in finance, we're like, yeah, having a good product, that's pretty good, but it's not always the best product that wins. Finance in itself is notorious for selling complicated, useless products that they can charge high fees for, and then they can put some red tape around it and lobby some politician.

28:37Tobias Carlisle:So it's really difficult to compete in that. And so that's a different game. And I wish that we would play the game of engineers. Apparently, the finance people are not always doing that. And so it goes to my second point here, because some of you are probably, I don't know, perhaps some of you are thinking, what about stablecoins? Isn't stablecoin so much better than remittances? Like all that fiat currencies, that's so last year. We should send stablecoins, it settles automatically, or it settles really, really fast, the fees are really low. Why do we need Remitly? And so I would argue that Remitly is this interesting intersection where it's a much better and cheaper product than the Western unions of the world.

29:18Tobias Carlisle:They don't have the same cost structure. They don't have the physical branches, but then they're also ingrained in the financial system in a different way than stable coins. And so perhaps an engineer would rightfully say, you have this stable coin, it might be tied to the US dollar. It doesn't depreciate the same way as a Filipino peso does. That's a better product. Why wouldn't we just be sending from one phone to another? And I would argue that there are a few reasons why Remitly is very powerful, and this is in 2025. As you probably also said a long time ago, I don't have a position at Remitly because I have a lot of concerns I'll get to later.

30:00Tobias Carlisle:But right now, I'm still in the middle of my bull thesis here. So local legislators want to use Remitly because it's part of the traditional banking system. And the banks wants to have Remitly as a customer because the cheapest way for a bank to get funding, that is through deposits. Plus, banks also tend to lobby politicians quite a bit. And so stablecoins are for the same reason met with a lot of skepticism from local governments on the receiving end. And then I would also say the savings argument is wonderful in theory, and it probably makes a lot of sense. Let's say you're an engineer, you make$200 ,000,$400 ,000 a year, and you're in a high-income country.

30:43Tobias Carlisle:So whenever you look at the data from Remitly, they're saying that roughly 15 % of the sender's paycheck may go to emergencies. But for the recipient, it's very often their main income. and the recipient, they don't really think too much about the M2 money supply expanding. They need the cash, they need it within the next hour, and they need to buy groceries. And by the way, the local government are manding them to use fiat currencies because they have their own incentive to do that. And so because you still need to convert that to the fiat currency, there are a lot of things you can't do with stablecoins, including that.

31:20Tobias Carlisle:And so you still need a service like Wise, Remitly, or PayPal, or Western Union for that matter. And so I'm not saying this because I am pro or con stablecoin, but I'm looking at this from a business case. And I've stayed at an extended period of time in third world countries, and I've met the recipients of remittances. And I think it's important whenever you're sitting in a first world country and thinking about what kind of banking needs that you have, they're just very different. And so let's take the example of the Philippines, which is the third largest market for Remitly after Mexico and India.

31:56Tobias Carlisle:And in the early days of Remitly, they only had the US to the Philippines corridor. And I use the Philippines because we have 11 members of our team there. And so it allowed me to do a bit of scalded-bought research on Remitly specifically. And so if you're a Filipino construction worker in the US and you want to send money back to your family, there is a decent chance that some, if not all of them, don't have a bank account. And even if they do, it's very much used, you either use GCash or Maya. And so if you're not familiar with them, which I don't expect anyone listening to this would necessarily be, they're deeply entrenched in the local payment infrastructure because they're owned by telecommunication providers.

32:37Tobias Carlisle:And you likely bought your smartphone through those companies because that's the most efficient way of doing it. And so that is how the ecosystem works. And so if you're in a country where a lot of people that are unbanked, the app serves as a way for people to pay for their goods and services. And so it's different enough for Wise and Western Union for them to have a competitive advantage, but it's also different enough for something like Stablecoin. And so Remittly right now have roughly a 3 % of the TAM, of the$2 trillion TAM in remittances. And right now they're growing really, really fast.

33:14Tobias Carlisle:Whenever I look at some of the risks, and I've sort of like been quite positive so far. So let's talk about some of the less exciting stuff. So whenever I first learned about the opportunity, I was quite excited. 3%, It's growing really fast. They have a clear cost advantage to the Western unions of the world. So that seemed to be a home run. And then they made the announcement that they're going to expand their tank by 10x. And so they're saying, okay, remittances, that's great, but there's 1.5 billion freelancers in the gig economy, one way or the other, and millions of small businesses. And so the example that they use would be, hey, you might be a US-based company, but you outsource some things, say, in the Philippines.

34:05Tobias Carlisle:So you're already sending, they want to target or they are targeting people who are already using Remitly. And then they're saying, oh, now I also have a team, say, in the Philippines or India, now I will still use Remitly for those payments. And so at face value, who wouldn't want to have a team that's 10x bigger? And whenever I heard it, I was actually less excited about the pick because I like the pitch of saying, hey, we have 3 % of a growing market and we do things better in remittances. We can go where other people can't go. We understand the local market really well. So for example, they wrote out this CIFAR product to the 1.9 millions in the world.

34:47Tobias Carlisle:Think about someone who works on the cruise ship, and they have very specific needs, they're international waters, and they do things a certain way. So they really understand those needs. So I like the idea of being able to understand them better. But then whenever you can't lean into that, whenever you're saying, I actually want to compete with wise of the world, because the time is much bigger. Then the question is, can they do Ys better than Ys can? And I'm sort of using that as a metaphor for a lot of their competitors. And I don't know if they can. So using this terrible example, I'm still talking about the Philippines because I have some local knowledge there.

35:29Tobias Carlisle:And so you go there and it's more than 7 ,000 islands, more than 150 languages spoken. The Spaniards said 460 years ago, hey, let's name all of these islands after King Philip II and call the country the Philippines. And so whenever you go, you really need to understand the importance of why is this different from region to region? And why is it that some people want it to the mobile wallet and some people want it in cash? And why is it okay some places to pick up that cash or why do we need other places to actually have the cash delivered to your door? There are a lot of things you can be very nimble and you can provide a very different service than neobanking.

36:13Tobias Carlisle:But if you try to compete for them on their terms, you might run into different problems. And so that is one thing I'm concerned about. And then the other thing I am concerned about, and I don't know if I read too much into it, but a lot of companies talk about their vision. And they talk about how everyone is very excited about that vision. And I've always been a bit skeptical about whether or not employees are truly that passionate about the company's vision. And I don't know, perhaps it's because I'm cynical. I don't know if I am. Whenever I had my first job as a commodities trader, I don't think any of the commodities traders were passionate about delivering electricity through solar grids.

36:57Tobias Carlisle:I don't think that was why they got up in the morning. If you ever walk into a trading floor, there are lots of other dynamics that people are more passionate about, especially the paycheck, but there was a ton of stuff going on on the trading floor that it's kind of crazy. And so whenever I hear about a company talking about how passionate everyone is about XYZ, I'm thinking, well, perhaps that is true for Remitly, the way that they are empowering micron workers. If they become yet another neobank, how passionate can you really rally people to be. And so anyways, that's another, a bit more self-risk.

37:32Tobias Carlisle:I'm probably just reading too much into it. Jans, I have a section here more about the valuation, but before I get to that, I want to throw it back over to you guys. Hey, Stig, I think this is a very interesting fit for me because I use one of these services to send money back home to India many times. I've been using it for multiple decades now. And I have seen this entire space evolve from the time when it was too cumbersome and we had to wait for a week to now when they promised to have it within hours. And it's almost like what also I observe is when you're bringing up these corridors, whether it's Philippines or to India, to Mexico, it's also it's almost like Uber versus Lyft versus Ola or the Chinese equivalent.

38:25Each corridor has its own pick. So it's not really like a network effect that you see here. Usually they are like a service and a corridor and I can pick and choose. And based on the rates, the switching costs are very low. So that's one thing I have observed as a user. Zoom is another very popular for US to India. It's now acquired by PayPal. And this space is really evolving and there are many players like Square is another one, Wise is another one. So the key questions I have are two. One is, what's their moat? There is no network effect. They're offering a service that others are offering too.

39:13I don't see as say between Zoom and Wise and Remitly, what's the difference? That's probably you might have looked into. For me, I've been using Zoom. So maybe I'll try Remitly next time to see how they charge. And the second question I have is I was looking at their growth. It's definitely one of the highest with like 40 % plus growth almost year over year, but their P ratio. And I was like, is it stock price or P ratio? It's like 249 or 250.

39:45Tobias Carlisle:Is that correct, Stig? I should probably make the disclaimer in the beginning. So it's a bit of an inflection point. So what you see there is probably, yes, it is true, but it's of an amount because they're just unprofitable. Whereas like, hey, if you have$1 in profit, what is your multiple going to be? The reason why I would normalize, let's say, EBIT would be, I would say, for this type of business, what kind of margin, operating margin would you typically have at scale? And then I would say, is that realistic to get to that point? Yeah. So there are two points there. One is, is it at a stage where it's like the early days of car manufacturers in US or railroads in US where there's so many players, it's hard to pick a winner.

40:30That's one. Second is what's their moat? What's their prospects for scaling and actually not only being profitable, but grow into the valuation that they have been offered already? And how do you see the competitive landscape? Are there other players that can actually hinder their growth?

40:49Tobias Carlisle:Yeah, great questions, Hari. And I wish I knew the answers to all of them. I would say if I start with moat, they've been specifically asked about it. It's always interesting to hear what the CEO would say their mode is, and then you can sort of compare it to whether you agree with them. But they would say that they have a flywheel where scale really matters. They say that they create trust by allowing users and remittances fast at fair prices. That gives them scale. And they would then lower their fees because they can. Now they have more scale and on and on and on it goes. And so then you can perhaps make the argument, And is it the race to the bottom in that case?

41:28Tobias Carlisle:Perhaps you're right. And I think you can also say, well, if it's about scale, well, what about PayPal? What is that capacity to suffer? And that's one of the issues I have with Remitly. And one of the concerns I have where I like a company to be very good at one thing. It's great if they're good at other things, but very often you're good at one thing and it comes at the expense of something else if you're good at other things. And so you can perhaps say, and I'm going to use an example of say Spotify, they became really, really good in podcasting because they were only looking at music and podcasting at the time.

42:04Tobias Carlisle:Whereas for Apple Podcasts, I don't know what podcasting is on Tip Cook's list. It's probably 852 on his priority list. So I can see why someone would say, oh, Remitly, they're so much better than a small arm of PayPal. But then that goes to my other point about now they're sort of like shifting strategy. And they're saying, well, we already use the infrastructure we have. Now we just want to send bigger payments and more payments through the pipes that we already set up. Whereas I'm looking at this more like, huh, are you now a new bank? I think their advantage is that they are serving the underbanked.

42:42Tobias Carlisle:And it makes a difference to them whether or not they have 3 % of the somewhat smaller written space, at least if you look at in payments overall, it's a very, very small space. So if they can do that really, really well, and there's one way they can do that in this region of this country, and then if they can be very specific about how the recipient want that money, and they've set up the infrastructure. Now, is that a moat? Probably not. I think you have a point whenever it comes to that. can it be imitated? Probably not. Payments are tricky. You need scale and you need focus. And so if I put on the bull hat, I would say they both have scale and they have that specific focus that they're now turning away from, which I'm not really too happy about.

43:30Tobias Carlisle:Now, what is the process of scaling? Well, they've been asked about that on the earnings calls and they're saying, oh, we just have so many opportunities, not just with more corridors, but there's so much more to gain each corridor. They keep on saying that the marketing dollars that they pay out, less than 12 months for them to get it back, and then there are 6x returns. So if you trust that, there's a lot of growth coming, but then why are there a better product than what you're using? I don't think I have a good response to that. Robert Leonard

44:02Stig Brodersen:Thanks, Duke. I've noticed that Western Union and MoneyGram have been in the value screeners for years and years and years because of their competition. They're losing that competition, I guess. But I just wonder how, and I know this is the next subject you're going to talk about, but how do you think about the valuation? How do you think about the valuation given the comps? That's basically my question.

44:25Tobias Carlisle:If I look at a company like Sanofi, I feel I can, without knowing too much about the company, I feel like I can discount those cash flows. Whenever I'm looking at something like Remedly, I'm all over the place. And so I read a few hundred pages on the company. So the most, the 10K, last six earnings call, a few other sources. So it's kind of like in that spot where you're like, I kind of feel I understand the company, but I don't really understand any of it because every time I read something new, I was like, oh, I didn't know that at all about the company. I'm sure there's going to be a genius out there who knows how to use ChatTBT for this.

45:05Tobias Carlisle:I continuously try to use ChatTBT and I find it somewhat useful. But then you just print out a few hundred pages and you just start with the A's and you're like, okay. And perhaps it's just me that's old fashioned in terms of understanding a company. And so at least for me, probably because I'm a slow learner, I need to go through the earnings calls really to understand the qualitative aspects of the business. And then I need to discount everything the CEO is saying, because everything sounds rosy. It's probably not the case. But let me try and answer your question. Whenever I'm looking at a company that's trading at, call it a bit more than two times revenue, it doesn't look like it has any margins.

45:45Tobias Carlisle:I would say that it has. Whenever you're making that type of return on marketing, for example, you would put as much as you can into marketing. And then And it looks like you just don't make any money, but that's one of the reasons why it's growing like 30 or 40 % a year. So you sort of have to normalize it. And so if you put me on the spot, and again, it really also depends on how long the runway is that you grow. I like to think today, at the time of recording, it's trading at$14 and change. I think that it's probably trading around a 50 % discount and intrinsic value. But whenever you make that, you also, at least for me, I'm doing a bull case, a base case, and then a bear case.

46:25Tobias Carlisle:And then the question is, well, the question is, are those three scenarios realistic? But the more tricky thing is you need to put probabilities on those three scenarios. And that's really tricky. And then another thing that's really annoying to me is the level of stock-based conversation. I kind of feel like I should have started with that, but I always start with how much I dislike stock-based compensation at that level. So I wanted to end here at the end. And so it's sort of like, it is what it is. It's historically been more than 10%. Now it's just below 10 % of revenue. And we're talking about a$3 billion market cap company.

47:01Tobias Carlisle:And so I'd like to think that now it's matured enough. I know today,$3 billion is nothing. But for me,$3 billion is still a lot of money. And I feel like they have matured enough for them not to have that kind of cash and equity mix. The CEO has, to his credit, said no to the last three stock rents because he's been under a lot of scrutiny in terms of the stock dilution. Now they authorized a$200 million stock buyback program to offset that. And we also talked about last time whenever I was pitching Uber, full disclosure, I'm now a long Uber, but then they were saying, oh, then we just offset the stocks that we issue.

47:42Tobias Carlisle:But as you know, the money doesn't come from nowhere. They're real cash that they have to make. And so the way they talk about it and sort of pretend that everything is fantastic, but the way they talk about it is that they're saying, look, now we're starting to generate healthy cash flows. We can pay our people a bit more, or I think they call it the cash equity mix have changed. So now they don't give us much inequity. And added to that, they would say, we're not diluting shareholders as much because now we're buying back stocks. But then you also have to counter that with the fact that apparently they have a ton of growth opportunities.

48:17Tobias Carlisle:And the money that they are spending on buyback stocks could also be used to those growth opportunities. So it sort of depends on how you look at it. I feel like, and like you mentioned, I'm not long remotely, I need to understand the business a bit better. And I think I need to understand the strategy better. They're saying, we are not going to be another neobank. And we are still going to cater to those who are underserved. So we don't have to compete with the bigger players, I still don't know if that's consistent with the strategy that they're pursuing. And I kind of feel like, and I don't know why they're saying this, I would imagine it's probably good for the stock, but it sounds good to go out and say, our time is now 10x.

49:01Tobias Carlisle:In reality, it's typically better to be a big fish in a small pond than a small fish in a big pond. I guess that's my non-response, Toby, to how I think about the valuation. 50 % of intrinsic value, considering a ton of different assumptions.

49:17Stig Brodersen:Good one. Thanks. Thanks, Stig. Ari? No, I think it's a tough one, Stig. I think it can go either way. I think it's almost like a borderlining venture, but I was just thinking when you're talking about stock-based compensation, you should visit Silicon Valley once. And I want to see the expression on your face when you hear about the stock-based compensation and dilution that goes on here.

49:42Tobias Carlisle:Yeah, I don't know if there's a way about it. I mean, perhaps that's just the way it is today. What are you seeing, Hari? I think if you look at companies like Meta and many others, actually, just not to single them out, but many companies, stock-based compensation is the way that employees are incentivized. and many times, your stock component is much higher than your base salary. So I think dilution, when many of these tech companies buy back shares, it's basically they're buying back their stock home. But this has been for decades. I think Buffett had spoken about it a long time back. Nothing changed.

50:24Tobias Carlisle:Yeah. And the other thing, I always like to see how well the CEO understands capital allocation. Of course, we're spoiled because we've all been raised by the church of Buffett and Munger. But they're saying, our team are thinking like owners, and they have equity in the business. And that's why they think like owners. As a business owner, I could not disagree more. And it might be one thing, if you're a business of five people, 10 people, everyone can truly impact the direction of the business. If you're thousands or tens of thousands of people, and by the way, for Remitly, it's not performance-restricted share units.

51:05Tobias Carlisle:It's like, if you don't get fired, if you don't mess up, you get free CS. It's part of your compensation. Does that really make you think like an owner? Sure. I can see why it makes you think more like an owner than not getting anything at all. But what if you got a bonus specifically? Let's say that your responsibility is the corridor between the US and India, shouldn't you have a bonus, cash bonus, perhaps then be forced to buy shares in the open market? But shouldn't you have specifically on what you can change for you and not on the company overall and what the market sentiment is? To me, that is not thinking like an owner.

51:44Tobias Carlisle:Perhaps that is how they think about it. To me, it just seems like, really? Is that really how you think that employees are thinking about their stock-based comp. And I don't know, Hari, perhaps I'm just way too cynical. Does it work in practice? Yeah, I think that's a very good point. But also I think there is the other component of competition for talent. So it's almost like a bidding war. You might have heard about folks with the LLM skillset from OpenEye getting $100 million offers. That's almost like buying a startup of one. So it's basically bidding war, it's supply and demand. That's how I see for great talent.

52:30There is a lot of demand with multiple competitors. So many times it was very popular a few years back, it was called as green mail, which means many companies would pay really talented people high stock options and salaries just to keep them on bench so that they don't go to the competition. So a lot of irrational things happen, but there is a lot of capital flooding around the market. So, and then there is a lot of competition.

53:05Tobias Carlisle:Let's take a quick break and hear from today's sponsors.

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56:42Tobias Carlisle:Yeah, that's a good point, Hari. And especially for the two-sided marketplaces, which is just really, really hard to start. And once you have it, it's wonderful, but building it is really, really difficult. You need a lot of... Spend a lot of money on engineers. You need to spend a lot of money on marketing. And a lot of these startups, they are cash poor, but equity rich. So from their perspective, it does make sense to issue equity and then later find a way to buy back. Because if they don't get there, what does it really matter? And they need to get there, and they don't have the cash to get there.

57:14Tobias Carlisle:So I can also understand the other side. I guess as a stock investor, I'm like, don't dilute with 10 % a year, even with this wonderful growth. I think there's also a question of probabilities where I'm like, one thing is, I think they can grow with 30%. But if I know I'm going to be diluted by 10%, there's something with the probabilities there. And I kind of feel I have a higher conviction of me being diluted 10 % then have conviction in the company continue to grow 30%. No, I think Stig, you have a valid point though, but I think the hope is growth will cure all sins. So if a company is growing at 100%, 200 % revenue, then whatever they're doing, the hope is like, don't worry, our fee might be high, but eventually we'll give you the returns.

58:04Tobias Carlisle:Well said. Well said, Har. All right, Toby, you're up. B B B B B B B B B B B B B B Thanks Stig.

58:11Stig Brodersen:My pick is Crocs. It's the ugly shoemaker. I've got Crocs in my mid-cap value fund. I think my branding is acquirers multiple, so I've always been looking for companies that can get taken out in a private equity transaction. I think this is one of the clear opportunities that I've seen in a long time. Current market cap is$4.3 billion, which is very modest in this market. I'm actually surprised it's the second biggest one we've pitched today, but I thought I was going to have the smallest one we pitched today, but Stig snuck under me with Remitly. Stock price, last I checked, was$79 and change.

58:50Stig Brodersen:Enterprise value is$5.9 billion. So this thing's net debt to the tune of$1.6 billion. On a$4.3 billion market cap, that might sound like a lot, but they had free cash flow last year of more than$900 million, between$900 and$1 billion. So they're a little bit over 1.6 times free cash flow. So I think they cover their debt pretty comfortably. They have a$1.3 billion buyback authorization, which is 25 % of the outstanding stock where it's currently trading, which I hope they're deploying aggressively in this market because the stock is very, very cheap. In 2022, it was$180. So at$79, it's more than halved over that period of time.

59:33Stig Brodersen:If you had a look at the business, you wouldn't know that. The business has done pretty well through that period. I think it was likely that the stock got well ahead of itself at 180, but it's too cheap at 79. So it grew 9 % last year, which is pretty good growth. The international growth is better still. International business grew 16 % first, second quarter of this year. China's growing 64 % a year. sort of surprising because I always thought that Crocs is something you could copy pretty easily in China, but it hasn't been so far. It's performing reasonably well in Western Europe. I think the six times P, 21 % free cashflow yield, growing 9%, it all sounds pretty good.

1:00:17Stig Brodersen:So the natural question is where we are. And the answer is they've made a bad acquisition or the acquisition hasn't really worked out. I don't necessarily say that it's a bad acquisition, but they bought this hey dude which make different kind of ugly shoes you know there's a little bit of fashion in this business that those ugly shoes were very fashionable and attractive for a period of time but they've the sales have declined seven to nine percent this year so for whatever reason that that fashion perhaps moving on a little bit and crocs itself that clog shape that ugly clog shape that everybody knows.

1:00:55Stig Brodersen:The same thing can happen to it. I did a little channel check when I was at jujitsu with my boys because all the boys take their shoes off and they leave them on the ground. And so I counted off how many of them were Crocs and how many of them were other things. And Crocs were one third of the shoes on the floor, which I was kind of surprised about because my boys wear natives. They didn't have the Crocs. My daughter wears the Crocs. So we do have some Crocs in the house. And she collects the little gems that click into the shoes so there is at least for 12 year old girls in los angeles they're still they're still cool enough that they'll wear them and and wear them around so they bought this hey dude thing 2.5 billion dollars it's not really what it hasn't worked out so far maybe they can stabilize it maybe they can turn it around i don't know but i think it's like 2.5 billion dollars is like two and a half times, three times free cash flow.

1:01:49Stig Brodersen:So if it turns out it's a donut, I don't think it's the worst thing in the world because the rest of the business is still throwing off so much cash. The other big problem that they have is the tariffs because they get all of their shoes are made in Vietnam and China and so on. And so they are impacted by the tariffs. So they've also got some competition risk from, so I mentioned natives. Natives are a small competitor, but Birkenstocks are still out there. There's another type of ugly shirt people can wear. So the risks that I think are, hey, dude, is a problem, not working out very well, but I think that's survivable.

1:02:26Stig Brodersen:The tariff impact is going to be bigger and we don't know, I don't think necessarily how that works out, but I do think they solve that problem eventually, but they do have a huge exposure to tariffs. The other possibility is that it's a faddish kind of consumer brand fashionable brand that if the fashion goes away and crocs have been around for a long time in and out of fashion a few times and so when they get cheap they get really really cheap the business gets really really cheap this business has been a net net it was in my net net screens for a long time it's been in my acquirer's multiple screen on and off for the last few years because it did get very expensive and then it got cheap again then it got expensive and now it's got cheap again so in this sort of uh i like it i don't mind stocks that do that get expensive and cheap because I think you can buy and sell them, which is what I have done through the Acquirer's Fund.

1:03:17Stig Brodersen:And we're currently a buyer. Again, we're an owner. We have owned it for a little while now. The other problem that they have is that they're sort of the lower end shoes. So they have some pricing cap, but I still think they're pretty competitively priced and they still get pretty good margins on the pricing where it is. The tariffs may impact that. So I don't really want to rest the whole thesis on that. but I do think they get surprisingly healthy margins on issues. Their gross margins like 58 % even through all of this. I don't know how much of the tariffs have actually impacted yet, but their gross margins are higher this year than they were last year.

1:03:52Stig Brodersen:So I don't know exactly how they're doing it. They're kind of tech margins at like 58%. Big margins on shoes that are easily copied make me nervous because it means that somebody else out there could say, well, I want 60 % margins. I can make plastic-injected shoes in a slightly different style. that's more fashionable and attractive and maybe they can compete that away. But for whatever reason, it hasn't happened so far. I think there's a component of Crocs where they're worn in the healthcare. Lots of nurses and doctors wear them in hospitals for foot protection because they're reasonably comfortable and you can hose them out when you finish using them.

1:04:27Stig Brodersen:So I think the valuation on this is obviously compelling where it is$4.3 billion for a billion dollars in free cash flow, six times earnings,$1.3 billion buyback. All of that stuff tells me that it's very, very cheap. So the question is, is it so risky with all of these other things that are going on that that overwhelms that sort of level of cheapness? I have answered that question myself because I've bought a position and I think that the cheapness here overweighs the risks, but I acknowledge that those risks are out there and somebody else could easily reach a different conclusion to that one.

1:05:03Stig Brodersen:but I think there are some interesting tariffs, some interesting catalysts. The first one is just resolving the tariffs. I don't think that we're going back to a no tariff world but I think that some tariff certainty would be a huge advantage for these companies because once they work out what they have to do, they will resolve the problem. They'll restructure in some way. They might make them at a slightly higher price. It might be a slightly more cumbersome process but they'll figure that out so I'm not too worried about that but the chopping and changing all the time makes it hard and the implementation is going to be a hard period.

1:05:35Stig Brodersen:And so I think that is one of the reasons why it's trading where it is because that remains unclear how they're going to do that. But I do think that all of these things are sort of resolvable in a pretty short period of time if they do. And I think given the cheapness, the buyback, all of these things sort of going wrong at the same time, tariffs and hey dude, and the general cyclical weakness, I think, for stocks that are not MAG7. I think that this is a particularly attractive opportunity for more speculative opportunity. I think if you want certainty, then go with Harry. If you want a little bit more volatility and upside, then my pick is the one for that.

1:06:19But there is some risk in this stock.

1:06:24Stig Brodersen:But I do think there are a lot of ways that you can win and you're going to know along the way whether you're winning or not. And so watching the hated acquisition, watching how the tariffs get resolved, watching what they do with the buyback, I think they're clear parts that if they execute and they get it right, the stock works out. And if it doesn't, then you should have an early warning sign that you can get out. I think the stock is just simply too cheap where it is. I saw that sketches got taken out. Sketches is like a different kind of business model. I get that. but still a footwear company, US-based.

1:06:55Stig Brodersen:They did that acquisition at$13 billion, I think. So it's certainly the size is right if someone wants to take this thing out or if someone else wants to buy it and bolt it onto an existing shoe business. I think at financial crisis, they could pay a pretty big premium to where it's trading. That's not really what I expect to happen, but I think that it's worth pointing out that that's a possibility. So the downside risks are tariffs. hey dude and just the fashion faddishness of the shoes but i think that the the amount of cash they're generating the margin sort of seem to suggest that those aren't issues right now the core brand is still attractive and still still attractive in the u.s still growing internationally growing very fast in china i don't really understand why it makes no sense to me but they are doing that and there's lots of ways that this business can win tariffs get figured out they resolve hey dude they've got sydney sweeney selling hey dude which was their big issue that was something that people were joking about on twitter that once you get sydney sweeney selling something it does really well so american outfit of jeans they got her in those jeans and that did really well and so the memes for a while were like trying to get her to sell intel chips and stuff like that but it turns out she is selling the hey dude shoes so maybe that's maybe that's what that brand needs to sort of turn itself around who knows so that's my pick crocs 79 bucks and i hold it so i'm eating my own cooking if it doesn't work out i'll let you know actually i was looking forward to talking about this pick once i saw what you're going to discuss because my daughter also has a lot of crocs i see when i go to parks a lot of kids wearing crocs but for me this the The kind of surprising point that you brought up is like, they are successful in China, in China, when microchips are being copied and people are complaining about IP theft and all this stuff.

1:08:51How are they able to do it? I think they deserve higher multiple just for that. So great pick, by the way. I think this is one of the lowest P ratio I've heard in the recent picks that we have discussed. And they have been forever though. So yeah, it feels so simple to do, but I don't know why people are not copying it or why there are no copycats who can come up with, I don't know whether, do they have patents Toby that is protecting that?

1:09:22Stig Brodersen:I don't know, but I think they've been around for so long that the patents must have rolled off because I know that those native shoes are the same, almost the same idea, same material like injection molded into a shoe and they don't seem to have any problem. Yeah, I guess the tariff. So would you say tariff is the only factor now that injects some uncertainty? Of course, hey dude, that's baked into the price already. So do you think the uncertainty of tariffs are also baked into the price that we are paying less for uncertainty at this point of time? yeah i think the margin that they're earning maybe the margin is a little illusory at like 58 that's a fat like i said those are tech margins for for a shoe that should be pretty easy to copy so there's a fashion part of this that makes i that people require the crocs band brand clogs but they're so like they're reasonably value they're reasonably priced shoes that they're like sub 50 bucks for the most most part 40 or 50 bucks which we pay for kids shoes because kids last about six months in their shoes before they grow out.

1:10:30Stig Brodersen:So put them in whatever. And then when they grow it, that's what happens. But they keep on, it's re-up for crocs or re-up for natives for the boys. But the fashion part of it, I can't quite get my head around. And I do think that that's the main risk with this thing. Having said that, they are still growing and they are still attractive to kids. So I think that for the most part, for the moment, that is okay. And the fact they've been around for so long, but they have always been cheap. As an investment proposition, they've been cheap most of the time. They occasionally become expensive, but most of the time they've been cheap for the last 10 or 20 years.

1:11:04Trey Lockerbie

1:11:05Tobias Carlisle:Whenever you send it my way, I was like, of course. The numbers are so great. Not lots to complain about there. There were a few things I wanted to highlight. One of them is, hey dude, even though you already talked about it. So 2.5 million to your point. And the deal was made through the highs of COVID, and then the deal closed in 2022. And I think optically, it didn't look too expensive. It's like 4.4 times revenue and 10-ish EBITDA, but it seemed to be a growing brand. And then it turned out that it wasn't. And so they had an impairment test of 700 and change million dollars. So it's roughly a third of the value of the acquisition.

1:11:50Tobias Carlisle:And that's also why if you look at the latest findings, they're doing their adjusted gap number and then their gap number, because otherwise it looks too brutal. And that's all fine and well. You can, of course, ask the question, what is that telling off whenever that happens? Does that mean that the management are not good at acquisitions? Does it mean that the management likes to do acquisitions, even if it doesn't create value, which is something a lot of CEOs like to do because it's fun to make acquisitions. And it's kind of interesting. If you look at the story of Crocs, back in the day, they went from more than$67 to less than a dollar.

1:12:28Tobias Carlisle:Talk about something that's in fashion and then not. But then there were a lot of things that were happening at the time. And so the reason why they could do the turnover was also because they caught it to the very core. So at the time, they were doing a bunch of stuff. They were doing like sandals and brain boots and apparels. So they cut all of that away. They closed a lot of locations, and then they're refocused on the core brand and the core product. And that turned out to be successful. And then come COVID, they started to diversify again, and they failed. So I think that there's a risk there.

1:13:04Tobias Carlisle:And you could say that it's already been priced in, and I would completely agree with you. It's priced in. what is not priced in is, are they going to do it again and destroy value? Then there's the other thing that you already commented on, Toby, about. It's something that's fashionable one way or the other. So whenever you go through the earnings calls, they're very happy about the fact that they're number one in TikTok store in the US. And so whenever I read it, I was like, oh, this is bad. And it was kind of ironic because I can see why the management is excited about being number one. Who doesn't want to sell a product that's number one.

1:13:40Tobias Carlisle:But in there also lies the risk, because right now they're number one TikTok store. And I don't have any stats on this, but I'm quite sure you don't stay number one in TikTok for that long. That's the entire point of TikTok in the first place. And I say that for someone who's never been on TikTok, so I can only speculate. So what happens whenever you're not? And so last week, for example, I was speaking with Toby about railroads. I know I'm making quite a jump here because we're talking about Perks Halloway and BNSF, and they're not cool. You know what I mean? BNSF is not a cool company, but it doesn't really matter.

1:14:18Tobias Carlisle:It's the law of physics that determines why you're using railways. It's not whether or not you're number one on TikTok. And so I don't want to go too hard on Crocs as I'm going through that. Even now we're talking about Buffett. Even the best fail on some of the deals. Kofft-Heinz was written down by more than $15 billion, and only four of them was attributed to Berkshire Hathaway. And of course, that's from a very different baseline, but mistakes happen, and they also happen for Berkshire Hathaway. But I can't help but think about a company like Crocs, where perhaps they're sitting there and they're saying, look, we need to diversify.

1:14:59Tobias Carlisle:We can't rely too much on this one thing that's in fashion. And perhaps you as a stock investor just really want to size your position and get your shareholder return. That's really the play that you want to see them do instead of doing all these other things. And so I did beating up on the management a bit, but then they also took a bit of a debt. Previously, they'd done a really good job paying that back. And so I don't know, I like the numbers for sure. And I would argue much of that is priced in. The last thing I would say, And this is more a personal preference, and this is not necessarily about Crocs per se, but it's more, if I buy that stock, I already have to think about selling it the minute I would buy in.

1:15:43Tobias Carlisle:That's the nature of it. And I would need to follow whether or not it stays cool or it doesn't stay cool. And I think that's a different type of investment where you have to think about, are you looking for some kind of multiple expansion? Is that how you're going to get paid? How much is coming back in buybacks? How would you think about it? If it was dividends, you would get a very attractive yield. And so this is a company that has 23 % operating margin that was negative 10 years ago. And so there was a bit more stress around it, and you need to think about when you sell. But if you know how to solve that, you'd be richly rewarded.

1:16:20Tobias Carlisle:I really like your pick, Toby.

1:16:23Stig Brodersen:Thanks, Stig. Yeah, I think it looks like it's trading like it's in distress but i don't think it's in distress it's throwing off a billion dollars in free cash flow so it's worth if the business is in decline then i think you've got a lot of time to figure that out but it is a stock that's traded cheaply a lot of the time but it's also traded it's traded it's had its booms as well so there's a possibility of like a windfall in this one there's also a possibility of a loss so it's worth i think it's worth taking a look at but as you say you need to monitor it's not one that you can set and forget all right jens as

1:16:55Tobias Carlisle:As always, thank you so much for your time. It's always a lot of fun whenever we have these chats here once a quarter. As always, I would like to give you the opportunity to give a handoff to anything you like. Toby, take it away.

1:17:08Stig Brodersen:I have a new book, Soldier of Fortune. It's about Buffett and Sun Tzu and the ancient art of risk-taking. It's for sale on Amazon, Kindle, hardcover, paperback, audio coming soon. I'm really excited about it. I also have two funds, Zig, which is deep value, mid and large cap, deep, which is small and micro, acquireismultiple.com, and I'm on Twitter at Greenback, G-R-E-E-N-B-A-C-K-D. It's a funny spelling. I might have to change it one day. Stig, thanks so much for having me. Harry, good seeing you again.

1:17:42Tobias Carlisle:You bet. Thank you so much, Toby. Can I just sneak in one question? So you said it's also going to be an audiobook format. Are you going to do the audio?

1:17:49Stig Brodersen:I'm not. No, I have a guy who does NPR Atlanta. He's got a superb voice. It sounds so much better than I do. So are we getting him to, he's recording it right now. Okay, cool, cool, very cool. Hari? Hey, Toby, looking forward to the book and my copy and especially the audible version. So interesting topic and timely one too, I guess, looking at the markets. Well, you can all reach me on my Twitter handle, Hari Rama, or my blog, bitsbusiness.com. Looking forward to continuing the conversation, especially last time there was very interesting comments about my pick and kind of, you know, we had offline conversation, always like it because I want to make sure that any of my blind spots are covered.

1:18:36And I got to connect with someone who actually works in the pharma industry. So it's stunting my case. So great. I'm looking forward to the conversation. Thank you, Toby and Stig for having me.

1:18:47Tobias Carlisle:Thank you, Ari. And Toby and Hari, I look forward to next quarter where we're going to do another round of our mastermind discussion. So thank you once again. Perfect.

1:18:56Stig Brodersen:Thanks, Sig. Thank you.

1:18:58Tobias Carlisle:In this second part of the show, my co-host, Clay Fing, and I wanted to put together a short segment to discuss the live events we host here at TIP. Hey, Clay, what's going on?

1:19:08Stig Brodersen:Not too much, Sig. Always great chatting with you here during these segments, talking about what's happening here at TIP.

1:19:15Tobias Carlisle:Yeah. And Clay, it is one thing to connect online. And of course, with modern technology, it's very convenient. But the relationship and connections that you make whenever it's in person, it's just very, very different. And you just wrapped up the live events we have in Big Sky, Montana for the summit event. And then also you did New York City for our Mastermind community. Since you were in Montana first, why don't we talk about that first? Yeah, of course. It's one thing to plan a couple of events that are two weeks apart,

1:19:46Stig Brodersen:but then it can get a bit traveled out once you've done it and organized everything there. But yeah, we just wrapped up the two live events in the past month or so. First, we hosted our summit event in Big Sky, Montana to hang out in the mountains just with some wonderful people, talk investing, do some fun activities like hiking and fly fishing and pickleball and just enjoy some really amazing meals alongside kindred spirits. It's actually the first time we've hosted such an extensive event. It was actually five days. we were all out in Montana. I definitely learned a lot in putting it together.

1:20:19Stig Brodersen:And we had just a really great group of people. And some of the attendees included some members of our Mastermind community. We had four people from the TIP team. Sean and Daniel made it from the Intrinsic Value podcast, and then several from the audience as well. So the views in Montana are just unbelievable. If anyone is based in the US and hasn't been, I think it's just a wonderful place to visit. The altitude, I'll be honest, was a bit much for me. But other than that, I just really enjoyed my time there. And when I step back and think about the in-person events we host, I hesitate to say what we do is investment conferences.

1:20:55Stig Brodersen:That's sort of what I think some people think of it as. I kind of prefer calling them live events, but in a sense, they are an investment conference. So one of my friends who isn't a TIP listener, he asked me, why were we in Montana? Why was I in the mountains of Montana for work? And I told him that we were hosting a small conference, but instead of getting dressed up in suits and gathering in a conference room at the Marriott, we're going to the mountains to talk stocks, go hiking, go fly fishing, and yeah, just have a lot of fun. But that doesn't really sound exactly like a conference to me.

1:21:30Stig Brodersen:So it's an oversimplified way of putting it, but that really is the goal with all of our live events. We want to try to create just a fantastic experience by making our attendees feel comfortable, give them the opportunity to do some fun things and meet some wonderful people. And then we also hosted a couple of presentations at the house we stayed at in Montana. So my friend, Joseph Shapochnik, who has been a guest a few times on the show, he gave a talk on his investment approach, assessing management teams and how he went about launching his ETF. And then Sean and Daniel from our Intrinsic Value podcast, they also did a presentation.

1:22:03Stig Brodersen:They talked about the portfolio they've built throughout 2025 and pitched Uber stock, which you've talked about here on the show, which helped create a lot of fun discussions throughout the weekend. And there was a running joke. To really get Sean going, you just had to ask him about Lululemon as he's quite passionate about the stock and the brand and the stock's been hammered this year. I'm sure many in our audience have followed along with that one. But anyways, I think we have some great ideas that we'll take from the summit and implement into some of the things we do in the future. Yeah.

1:22:35Tobias Carlisle:And Clay, unfortunately, I did make my way out to Montana, but after watching the event video, I mean, I surely wish I had. They say that a photo is worth a thousand words, and I don't know if I can add that a video is worth a million. We'll link to the video in the show notes if anyone wants to check it out. But Clay, you also just came back from New York City. And I just, I love the energy there. How was it?

1:23:01Stig Brodersen:Yeah, well, Montana is certainly much different than New York. One of our team members from the Philippines actually made the trip to join us. And yeah, we kind of tried to tell her, hey, New York's nothing like Montana. So try to prime her a little bit. But New York was just great as well. For someone that's lived in the Midwest my whole life, one weekend there is probably enough for me, given how different it is. So we did host our Mastermind community events for the third year there. And there are a lot of things that I like about hosting events in New York. One of the things that I think is most important is that it's fairly centrally located.

1:23:37Stig Brodersen:So we have a global community. It can be tough to bring a lot of people together. We have many members who are based in New York and Toronto. So that really helps. And what we did was we hosted a couple of dinners that each had around 30 attendees. The food scene in New York is just unreal. I'm sure you know that. It's probably one of my favorite parts. And there's just so much to do there too. Many of our members will bring their spouse and go to a show or two or connect with other members and go and walk Central Park or grab a coffee with them in the morning. And we had members come from all over Canada and all throughout the US.

1:24:11Stig Brodersen:And one of my goals in putting together each live event is to try and make it better than the previous year. And I feel like we achieved that with New York. We just had some fantastic members make it. The dinners were great. And we're already making plans for next year's trip to make it even better. And members also appreciate that they're able to bring a spouse or a friend to our events. I found that members tend to bring their spouse to New York instead of Omaha, which I certainly don't blame them for. And in addition to the two dinners we hosted, we also hung out at the one Vanderbilt observatory where we went up to the 93rd floor, grabbed a drink and checked out a new view of the city from one of the tallest buildings in New York.

1:24:52Stig Brodersen:And that building was actually completed in 2020. And it's definitely quite an experience as well.

1:24:58Tobias Carlisle:Oh man, Clay, that sounds amazing. I'll be the first to say I love New York City. You and I have a similar background. I grew up in this beautiful rural area and just miles and miles of John Deere Green, let's say as far away from New York City as you can probably imagine. And so similar to you, as much as I love New York, after a weekend or I think I could probably do four or five days, then I'm like, okay, this is great, but I need a breather now. But I married a wonderful city girl. And to your point, I brought her both to Omaha and to New York. And guess what? She likes New York City better.

1:25:36Tobias Carlisle:I don't know why. Clay, talk about the plans we have for 2026? Yeah.

1:25:41Stig Brodersen:So stepping back a bit, when I look back at the history of TIP, we've very much been a podcasting company, right? Most of our revenue historically has been generated through advertising. But in recent years, we've been leaning more and more into the category of live events. One of the reasons for this, as you and I have found, Stig, is that there's just so many interesting people in our audience. Just going down the list of our attendees from New York, for example. One member has acquired half a dozen software companies in the past two years. David Fagan, who we've had on the show before, he runs his own successful accounting practice and has made multiple small business acquisitions himself.

1:26:21Stig Brodersen:One member runs a number of pharmacies. We had a few asset managers attend. The list goes on. But we all have that common interest of value investing. So we're still in the early stages of planning our events for 2026, but we do have a good idea of what we like to do. Montana was a bit difficult for us to get to in 2025. So we're going to focus primarily on Omaha and New York City. Omaha, of course, isn't the most popular tourist destination, but for those who are in the value investing niche, that happens to be where the Berkshire Hathaway meeting is. Buffett's going to be less involved than he historically has been since he stepped down from the CEO role.

1:27:01Stig Brodersen:But this past year, we had more than 50 people at our events and dinners in Omaha. So we expect a pretty good turnout again in 2026. For those who haven't been to Omaha, the Berkshire meeting is scheduled for the first Saturday of May. And we'll be hosting a couple of dinners and socials for our mastermind community. And we also recognize that there are many people in our audience who are interested in going to Omaha or interested in checking out our live events, but they aren't necessarily interested in committing to our community. So we decided to offer six paid seats to the audience for those who would like to have an avenue to connect with a lot of wonderful people in person during their time in Omaha.

1:27:44Stig Brodersen:So our group is getting rather large at this point for being in Omaha and having limited space, which is why we decided to limit the number of seats. But in case anyone's interested in learning more or would like to jump on a call to chat about Omaha, you can shoot me an email at clayattheinvestorspodcast.com to learn more. We'll be vetting each person who attends the events. So we do the same for those who are just interested in meeting with us in person. I've also added a link in the show notes that explains how to attend the Berkshire meeting. Berkshire requires you to own one A or B share to get a credential to attend the event.

1:28:22Stig Brodersen:So we explain all of that on our website. The process really isn't that complicated. And I would also say that what I've said every year, and that's if you plan to go to Omaha, I would recommend booking your flights and hotels as soon as possible. Too often I see people wait until a few weeks before and are frustrated to find what the flight prices are at or find that all the hotels are booked. And then our second event, jumping ahead to later in 2026, that's going to be in New York City. We plan to do some things to make that just a really fun experience as well, carry some of the things over that we did in Montana.

1:28:55Stig Brodersen:It would likely be in September of 2026. And we plan to bring in some speakers at an extra day during the weekend. And similar to Omaha, we'll be opening up a select number of seats for those who are just interested in attending the live event. And finally, for anyone who is just interested in the Mastermind community, maybe it's the first time you've heard about it. This is our paid community of around 120 vetted members. In the community, we collaborate online, host weekly live Zoom discussions, talk stocks, talk markets, and it's a place to network and connect with our other members who are interested in value investing.

1:29:30Stig Brodersen:So you can head to our website at theinvestorspodcast.com slash mastermind to learn more or add your name to the waitlist to apply to join.

1:29:39Tobias Carlisle:All right, Clay. Thanks for joining me. I'll be the first to say that I can't speak highly enough of our mastermind community. And of course, someone sitting out there might be saying that I'm pretty biased. But I guess where I'm coming from is that it's hard to make friends in your 40s, or at least it is for me. And I've met some of the highest quality people you can meet through our community. I mean, what you and Kyle have managed to do and the caliber of people that you have attracted, it's just second to none. So for me, the mastermind community is really this perfect intersection between investing, business, and finding friends who are on this journey they call life.

1:30:18Tobias Carlisle:So thanks everyone for tuning in. This was all that Clay and I had for this week's episode. Awesome. Thank you, Sting.

1:30:25Stig Brodersen:Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.