Core and satellite podcasters

Speaker 2: [00:00:14] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by our equity body, Ren. How are you. [00:00:30][15.3]

Alec: [00:00:30] I'm very good, Bryce. Great to be here again. [00:00:32][2.1]

Bryce: [00:00:33] Always a pleasure. [00:00:33][0.4]

Speaker 1: [00:00:37] Big episode. [00:00:37][0.2]

Bryce: [00:00:37] Ren Big episode. [00:00:38][0.5]

Alec: [00:00:38] Big episode. The Financial Year and look who's. [00:00:41][3.2]

Alec: [00:00:42] Back into zip and Sezzle best performers. Here we go. [00:00:46][4.4]

Bryce: [00:00:47] Oh, my goodness. I can't believe you still got your eyes on those stocks. Anyway, that's not what we're talking about in this episode, but Ren's obviously got them on his dashboard. Today we're going to be covering off our thoughts on the core aspects of of our portfolios. And then we're going to turn to the satellite part. We think we've found the world's worst investor. We're going to touch on that. Streaming stocks have been punished. Is there an opportunity emerging there? And then, is Australia losing its perfect inflation hedge? And no, it's not gold. [00:01:18][31.1]

Alec: [00:01:19] No. Or Bitcoin. [00:01:20][0.7]

Alec: [00:01:20] Or Bitcoin. [00:01:21][0.2]

Alec: [00:01:22] And no. The world's worst investor is not Gus in our ASX share market league who managed to turn 50 K into 25 K. And no, it's not me picking a stock at the start of the year. [00:01:36][13.2]

Alec: [00:01:36] Absolutely true. [00:01:36][0.7]

Bryce: [00:01:38] So stay tuned to find out who that may be. But let's kick things off with thoughts on the core portfolio. [00:01:44][6.5]

Alec: [00:01:45] Yeah. [00:01:45][0.0]

Bryce: [00:01:46] Those those out there that are indexing away, they've got a strategy, putting money into a broad based portfolio of index funds where whereas you had that with this well. [00:01:55][9.0]

Alec: [00:01:56] You last week you came on the pod and told me that you're sick of the RBA making bad decisions. Yeah, I'm coming on the pod this way to tell you I'm sick of thinking about the RBA. [00:02:07][10.5]

Alec: [00:02:08] Okay. [00:02:08][0.0]

Alec: [00:02:09] I just was reflecting on where I'm spending my thinking time, I guess as an investor. And that's why we've sort of split this into core and satellite, because this is an opportunity where satellite should be dominating. All of our thinking should be dominating my thinking because there's opportunities, so many opportunities at the moment. It's so exciting. But I'm thinking about all these macro stuff and I'm sick of it. Interest rates, inflation, commodity prices. Is a recession coming? When's a recession coming? How deep is it going to be? And I've just stopped and reflected on when when we talk about coal, when we talk about like dollar cost averaging into index funds. Does it ever shit matter? Can I swear on this podcast. [00:02:54][45.3]

Alec: [00:02:56] We've had worse and. [00:02:57][0.9]

Alec: [00:02:58] It's like the thesis around dollar cost averaging into an S&P 500 index fund. Everyone knows that in the decades or years that you had dollar cost averaging into an index fund, there will be recessions, there will be market falls. That is, you go in eyes open about that. So why am I spending so much time thinking about it now? Like core for me when I started investing and when I continued investing is all about setting and forgetting. It's not contingent on if oil is over $100 a barrel. So why am I spending time thinking about the price of oil today? What I'm thinking about when I'm going to invest in. [00:03:39][41.0]

Bryce: [00:03:40] Index funds because we run a media business in finance. No, I totally understand. I get it. And you're right, it's it's probably not it's not worth the brainpower to be sitting there thinking about what does it matter if oil's below from a core portfolio point of view, is that going to change how much you're putting in on a fortnightly basis into you? Exactly. [00:03:59][19.2]

Alec: [00:04:00] You pay 500? Yeah. [00:04:01][1.0]

Bryce: [00:04:02] Probably not. Yeah. I don't know. [00:04:03][1.1]

Alec: [00:04:03] Is it. [00:04:03][0.2]

Alec: [00:04:03] Well, yeah. And you say like because we run a media business but we still have a finite amount of like there's an opportunity cost with what we talk about on the show, we got 40 minutes on this. We generally speak for an hour. We've got, I don't know, three or four Instagram posts the day, but there's an opportunity cost there. Every time we speak about commodity prices were not speaking about an individual stock. [00:04:24][20.2]

Bryce: [00:04:24] Yeah. Yeah I generally agree with you. Will unpack whether or not the same sort of sentiment carries across into your satellite if you're not thinking about the macro stuff from it and then how that translates to a satellite perspective. Does it change at all the capital that you're deploying at the moment? Like do you think about that at all. [00:04:41][17.0]

Alec: [00:04:41] In terms in terms of that like core dollar cost averaging into. [00:04:45][3.2]

Bryce: [00:04:45] Yeah. Yeah. Do you like do you like if you know, if X is happening in the macro space, then I anticipate that that we might not be. [00:04:52][7.2]

Alec: [00:04:53] You know. [00:04:53][0.2]

Alec: [00:04:53] Because I feel like every time we try and time the market, every time. [00:04:58][4.2]

Bryce: [00:04:58] The amount of times you call the bottom in the office. [00:05:00][1.9]

Alec: [00:05:02] On a weekly basis I'm just okay morale up you know it's not helping people quit professional. [00:05:09][6.8]

Alec: [00:05:11] Jobs to come and work with us and I started working in the market. [00:05:14][3.1]

Alec: [00:05:15] Live all. [00:05:15][0.7]

Bryce: [00:05:16] I'm all I've learnt from the last few months is that when you call the bottom and we're not there. [00:05:19][3.6]

Alec: [00:05:21] Well am I calling the bottom now. [00:05:23][2.2]

Alec: [00:05:24] No. Or you can call whatever, you can call whatever you want. [00:05:27][2.8]

Alec: [00:05:29] So look, I am obviously interested in the broader economy for a number of reasons outside of my investing strategy. And it matters. Obviously, interest rates, inflation, all of that stuff is going to have flow on effects throughout the economy. From an investing standpoint, I'm trying to reallocate my thinking time away from trying to forecast these macro predictions because the value of them is pretty low, I think. [00:05:58][29.0]

Bryce: [00:05:59] Yeah, yeah. Well, I also think that the type of investing doesn't relate or sort of have a good crossover with macro investing, if that makes sense. Like you're investing in index funds anyway. It's not like you're Ray Dalio taking out like. [00:06:14][15.4]

Alec: [00:06:15] Yeah, but all Ray Dalio does is invest in index funds as well. Sorry, sorry you got that last week. [00:06:20][4.5]

Bryce: [00:06:20] Does the same approach carry across to your satellite portfolio, you know, commodity prices, that sort of stuff? Does that y a little bit heavier on what you're buying from an individual point of view? [00:06:29][9.2]

Alec: [00:06:30] A little bit, but I'm not exactly running into like I don't own any oil stocks and oil's obviously done really well. But for me, the writing is on the wall. Longer term, like there will always be demand for oil. Oil stocks will always have a place in the economy. But the demand now compared to the demand in 15 years, I think directionally we all know where it's going. So that doesn't really excite me as well. I'm trying to think long term about investment opportunities in the future. So does the price of oil affect a lot of these investments? Not not really. Not like long term faces. And obviously, at this point, there's a lot more opportunity and like some prices are looking pretty juicy. So I've been putting money to work. But again, like not because of macro factors, because of the companies that I like and what they're doing and why I believe in them or have a thesis around them. The macro has just given us a pricing opportunity. [00:07:30][59.7]

Alec: [00:07:31] That's yeah, yeah. Yeah. [00:07:32][0.8]

Bryce: [00:07:32] Do you think the types of companies, though, that are going to be successful over the next few years is a different set than it was. [00:07:38][5.8]

Alec: [00:07:39] No. When to, you know. [00:07:41][2.3]

Bryce: [00:07:42] Well, from a stock market perspective, potentially, but from a from an underlying business, I don't I think in ten years time, no. [00:07:48][6.3]

Alec: [00:07:49] I think like take away the euphoria of the last two years where like we everyone fell into the trap of like stupid business models and things that didn't make a lot of sense. The companies that were the best companies or that had the best long term prospects in 2019 probably aren't that different to the best. The companies have the best long term prospects in 2022. [00:08:11][21.7]

Bryce: [00:08:12] Yeah. Yeah. Long term I think is the key there. [00:08:14][2.1]

Alec: [00:08:14] Yeah. [00:08:14][0.0]

Bryce: [00:08:15] Yeah, it's I think what I've been thinking about, it's just we haven't experienced this before personally. It's inflation rising at the speed it has and you know, fears of recessions and blah, blah, blah. I mean, we've we've had recessions, but what impact that's going to have on some of that sort of discretionary spend companies, even the Spotify is those those companies that people spend a bit of their discretionary income on. Really looking forward to the upcoming earnings seasons to see how it all starts to play out, if there's an impact. Now, will it be in the next six months? So it's those sorts of things. I guess what I'm sort of thinking about. [00:08:49][34.6]

Alec: [00:08:50] Yeah, yeah, yeah. There's merit in macro forecasts, but I think the key thing is it shouldn't be the focus. The focus should be the next step, which is like what are the individual companies that I can profit from in this time? [00:09:05][15.1]

Alec: [00:09:05] Yeah. Yeah. [00:09:06][0.6]

Bryce: [00:09:07] That's your opinion. There could be some people out there. [00:09:09][1.9]

Alec: [00:09:09] Well, unless you're unless you're investing as a if you invest in individual stocks, that should be your opinion. [00:09:14][5.4]

Alec: [00:09:15] Mm hmm. [00:09:15][0.1]

Alec: [00:09:16] Yeah. If you're investing like in macro, if you're a top down investor, investing in macro trends. Yeah. Or you're investing in individual stocks because of top down factors. You know, like you're you're getting broad exposure to oil or gold as a thematic because you think inflation, hedge or energy prices. Sure. But like the majority of people at least don't say that they're top down investors. They say the bottom up. They want to invest in quality. They're looking for long term compounders, like they're the buzzwords that most professional investors talk about. And then most, you know, people like us who are trying to learn about investing do as well. And I like I would say that if we hear a professional investor say they're looking for high quality businesses, long term compounders, and then spend 80% of their time writing letters about inflation outlook and oil prices, I would say, where are you allocating your time as a researcher? [00:10:09][52.9]

Alec: [00:10:10] Yeah. Yeah. You're confused. Yeah. Yeah. [00:10:12][2.2]

Bryce: [00:10:15] Let's move on to another. What? The moment where we think we found the world's worst investor. Yes, it's a tagline that we don't throw out. Light-Heartedly. [00:10:23][7.9]

Alec: [00:10:24] Well, it is. [00:10:24][0.5]

Alec: [00:10:25] Incredibly light hearted. [00:10:25][0.8]

Alec: [00:10:26] Well, yeah. [00:10:26][0.2]

Bryce: [00:10:27] It's not one that we. Yeah, it is. [00:10:28][1.6]

Alec: [00:10:29] Incredibly funny, but it. [00:10:30][1.2]

Bryce: [00:10:31] If you haven't heard of him, his name is Masayoshi Son. He has a net worth of $21.2 billion. [00:10:37][6.0]

Alec: [00:10:39] And the reason we include that is if the world's worst investor can build a $21 billion fortune, then anyone. [00:10:47][8.0]

Alec: [00:10:47] Can. [00:10:47][0.0]

Bryce: [00:10:48] Anyone can. Yes. Masayoshi Son, if you're listening, I would love to have you on the show. Bay, don't take this seriously. [00:10:54][5.8]

Alec: [00:10:54] But and to be clear, he is an incredible entrepreneur. [00:10:56][2.5]

Alec: [00:10:57] Yes. He's a credible. [00:10:58][0.5]

Alec: [00:10:58] Business builder. [00:10:58][0.4]

Bryce: [00:10:59] Runs the telecom over in Japan and global investing giant SoftBank is how he's made his fortune. [00:11:08][8.6]

Alec: [00:11:08] Yeah. [00:11:08][0.0]

Alec: [00:11:09] So he built a great business. He just sucks at investing. [00:11:11][2.5]

Bryce: [00:11:13] He's vain. He's raised billions and billions of dollars to invest. [00:11:18][4.4]

Alec: [00:11:18] The first vision fund was $100 billion. [00:11:20][2.2]

Bryce: [00:11:21] 100 billion. [00:11:21][0.5]

Alec: [00:11:22] The next. The second vision fund is $60 billion. And in both of those funds, there have been some notable investments. But the reason we're talking about him today is because he has been absolutely burned on an investment he made last year. [00:11:38][16.6]

Bryce: [00:11:39] Yes, I came to light that his investment in Klarna a buy now pay later giant over in the states has just raised some cash. So let's have a look at the story this last year, in 2021, SoftBank or Masayoshi Son invested in Kleiner at a $45.6 billion valuation. Incredible valuation for Kleiner this year 2022 Sequoia, another VC firm, led around at $6.5 billion. So that's a down, a drawdown or a drop in value of 86% in 12 months. [00:12:15][36.7]

Alec: [00:12:16] In a year, yeah. [00:12:16][0.5]

Bryce: [00:12:16] Yeah, in 12 months. So SoftBank got in at the 45.6 and they're now worth just 6.5. Bit of a side note on Sequoia there. [00:12:25][9.0]

Alec: [00:12:26] Yeah, a bit of a side note. So Klarna has been backed for a long time by the American VC Fund Sequoia, and I think we talk about being disciplined in prices. The first 10 minutes of this episode has been me ranting about macro and micro and being price focussed and the opportunities. Sequoia in 2014 led around for Kleiner at a $1.4 billion valuation. In 2019, they invested again at a $3.5 billion valuation. Then this is where the discipline came in. They sat out the 22 rounds in 2021 at a $31 billion valuation, and of that $45.6 billion valuation. And then in 2022, they've once again come back in and led the round at a $6.5 billion valuation. So they got in at 1.4, 3.5, 6.5, but they were disciplined enough to not do the 31 and the 45. [00:13:23][57.9]

Bryce: [00:13:25] Incredible. [00:13:25][0.0]

Alec: [00:13:26] And it's easy to say, well, in hindsight, yeah, I'm like, Yeah, that's obvious. But think about what 2020 and 2021 was for buy now, pay later. We all live through it, especially if you're listening in Australia. Afterpay just went. Crazy. Zip went crazy there. All that long tale of other companies that listed the RSLs and the Layby and all of those over in America. A firm was just smashing it listed. It was one of the hottest stocks of the last couple of years. Kleiner was killing it. Buy now, pay later was taking the world by storm. And then right at the peak square acquires Afterpay and everyone thinks that the buy now pay later business model has well and truly arrived. [00:14:08][42.6]

Bryce: [00:14:09] That was the. [00:14:09][0.4]

Alec: [00:14:10] Credit cards were cowering in their boots. American Express was nowhere to be seen. And then all of the big guys, PayPal got in and then. [00:14:19][9.0]

Bryce: [00:14:19] Oh, now. [00:14:20][0.1]

Alec: [00:14:20] Well, yeah, Apple was talking about it. Now they're in it. [00:14:22][2.0]

Alec: [00:14:23] All the banks. [00:14:23][0.2]

Alec: [00:14:24] Think about being Sequoia in that moment, having fostered this company from literally from the ground up. And then in the peak of it all, seeing other venture capitalists like SoftBank take your opportunity and take percentages of the company that you could have had and diluting you the discipline to say no where right and the world is wrong is just incredibly impressive. [00:14:51][26.9]

Alec: [00:14:51] Yeah, yeah. [00:14:52][0.4]

Bryce: [00:14:52] And maybe SoftBank's a leading indicator when. [00:14:54][2.0]

Alec: [00:14:55] Why. [00:14:55][0.0]

Bryce: [00:14:56] Not to get in? [00:14:56][0.7]

Alec: [00:14:57] Yeah. Yeah. [00:14:57][0.5]

Bryce: [00:14:58] So you're right. Incredible, incredible investing discipline and it's paid dividends. Well it at this stage it looks like it's paid dividends. [00:15:04][6.7]

Alec: [00:15:05] Yeah. Yeah. [00:15:05][0.7]

Bryce: [00:15:06] Some other instances where SoftBank have unfortunately been on the wrong side of of the deal so we work is probably their most notable if you haven't seen the WeWork we crashed it's on Amazon Prime I think or one of the streaming services. Check it out. It nods to how this all played out. But in 2009 ten SoftBank invested in WeWork at a $47 billion valuation, and in 2020, that valuation was cut to just 2.9 billion. So they lost 94% in a year. Again, Uber, they invested at a 70 billion valuation. Current market cap is just above 40 billion. So again they're down 40% on that one. And then y. [00:15:53][46.1]

Alec: [00:15:53] Yeah, this is my. [00:15:53][0.4]

Alec: [00:15:54] This is I think the funniest wag if you haven't heard of it is a dog walking up like a two sided marketplace for dog walkers, connecting those with dogs with those that can walk your dog for you. Yeah they SoftBank invested $300 million in this at a $650 million valuation wag announced I think late last year that it's going public via SPAC at a $350 million valuation. So again, down over 40%, almost 50% on that investment. [00:16:24][30.2]

Bryce: [00:16:26] So one, two, three, four, rather large investments all down well and truly above sort of 40, 50%. Poor Masayoshi Son, I'm sure he's got some, some successful ones in there we've just pulled. [00:16:38][12.5]

Alec: [00:16:38] I mean look no there's there's heaps more unsuccessful ones. There was, there's like he tried to invest in a company that made a robot that made your pizza as it was delivering it. But I figured we shouldn't spend the whole episode talking about these companies and maybe talk about some companies where the prospects are a little bit brighter. [00:16:58][19.4]

Bryce: [00:16:59] Yeah, so it's a fascinating story. Definitely look him up and the work of SoftBank if you if you haven't already but yeah a bit of a what the moment for Masayoshi Son to I guess maybe to give him some I guess support trying to deploy over 200 billion in funds very difficult but that's no excuse. [00:17:19][20.0]

Alec: [00:17:20] I could do it. [00:17:20][0.5]

Alec: [00:17:21] You know. [00:17:21][0.1]

Bryce: [00:17:22] We could all do it. [00:17:22][0.7]

Alec: [00:17:23] Yeah, successfully. [00:17:23][0.7]

Alec: [00:17:24] I, I don't feel sorry for him. [00:17:26][2.0]

Alec: [00:17:27] Yeah. Yeah. I mean, you just buy. [00:17:29][2.5]

Alec: [00:17:29] 10% of apple and you call it a day. [00:17:31][1.4]

Alec: [00:17:31] Search. [00:17:31][0.0]

Bryce: [00:17:33] Or. And after the break, we're going to have a look at some of the streaming stocks and then also have a chat about Australia's ultimate inflation hedge and if it's broken. So stay tuned. We'll be right back. Sharon streaming stocks. We've got Disney. We've got Netflix. Things are changing. [00:17:51][18.3]

Alec: [00:17:52] Yeah, well, the. [00:17:53][0.8]

Alec: [00:17:53] The headline is Disney is about to take out its March 2020 COVID lows and in 2020, in March 2020, when the stock market crashed 30% in a month or something like that. Disney hit $86. Since then, it's had a pretty strong couple of years. It reached as high as or basically reached $200, so more than doubled from its COVID lows. But it's given it all back. Market giveth and the market taketh away. It's in the mid nineties now, so it's fallen over 50% and it might be about to break the low in March 2020, which for me is astounding because what's happened since then, Disney Plus has become massive. [00:18:37][43.7]

Alec: [00:18:38] Massive. [00:18:38][0.0]

Bryce: [00:18:40] Parks are open. [00:18:40][0.5]

Alec: [00:18:41] Yeah, well, Disney. So Disney Plus launched in November 2019. It's now got 140 million subscribers and I don't know, probably will cross Netflix in the next year. [00:18:51][10.0]

Bryce: [00:18:52] Really? That's the call. [00:18:52][0.8]

Alec: [00:18:53] Well, what Netflix is to 20 to. [00:18:54][1.6]

Bryce: [00:18:55] 20. [00:18:55][0.0]

Alec: [00:18:55] To. [00:18:55][0.0]

Bryce: [00:18:56] 20, maybe more if they can sort out the whole 100 million households streaming it without an account. [00:19:01][5.1]

Alec: [00:19:02] Well, let's talk about Netflix in. [00:19:03][0.9]

Alec: [00:19:03] A sec because I got some thoughts. Okay. But if they cross Netflix next year or the year after, like still it's an incredible like new asset that they've built in that time. Yeah. As you said, parks reopened. I imagine cruises are back online. Yeah. Yeah. It's just crazy to me that the the value the market is assigning to Disney compared to where the situation it was in in March 2020. Sorry. And the other thing to keep in mind in March 2020 is all the cinemas were shut down as well. And Disney Plus wasn't a thing. Yeah. [00:19:36][32.9]

Bryce: [00:19:36] What's going on? [00:19:37][0.5]

Alec: [00:19:37] Well, I don't have an answer, but I just think, like, this is a this is an example of like, if you believed in Disney in March 2020. Sure. You believe in Disney now? Yeah, I. [00:19:47][10.1]

Bryce: [00:19:47] Agree with you. I used to love Disney. I still do. Magical place. Very magical place. I reckon it's an inflation issue. I reckon if you if you get a bucket, continue. [00:20:00][12.5]

Alec: [00:20:00] Spending low and. [00:20:02][1.2]

Bryce: [00:20:02] You bucket businesses that are going to be impacted by inflation, consumer spending, this is one that you're probably going to say people aren't going to be going to Disney Parks. [00:20:11][9.4]

Alec: [00:20:12] Yeah, yeah. Like Disney World will be the first casualty on the holiday itinerary. Yeah, that was a confusing way of pricing. Yeah. People will substitute for cheaper holidays. Yeah. Yeah. But then you go to the other end of the spectrum and then people don't can't go to Disney Land or World anymore, can't go on the Disney cruise. So they do a cheap holiday. That doesn't change the fact that they're kids. Still loves Disney and they're probably watching the same Disney movies. [00:20:39][27.0]

Bryce: [00:20:39] Well, this goes to the this goes to the the what we spoke about at the top of the show. If you've got that sort of long term conviction. [00:20:45][5.6]

Alec: [00:20:46] Yeah, yeah. [00:20:47][0.6]

Bryce: [00:20:47] Yeah, yeah. It's fascinating. I mean, there's plenty of companies out there. I, I did have a nice chat about Airbnb, but you can argue the same with Airbnb at the moment. They are pumping out results better than pre-COVID levels. [00:20:59][11.6]

Alec: [00:20:59] Really? [00:20:59][0.0]

Bryce: [00:21:00] Yeah. They like their book. They get they're taking on more bookings for the first time ever. They posted 100 million bookings in a quarter. That's more than pre-COVID revenue, though. They're even on track to be profitable this year. [00:21:12][11.8]

Alec: [00:21:12] I think it is so funny, like you just. [00:21:16][3.8]

Alec: [00:21:16] Say that in isolation, just like the admiration, the company is on track to be profitable. [00:21:21][5.3]

Alec: [00:21:22] Like thinking about investing in 2022. Think about. [00:21:25][3.5]

Bryce: [00:21:25] How unprofitable they were. [00:21:27][1.2]

Alec: [00:21:27] Though. Yeah. [00:21:28][0.8]

Bryce: [00:21:28] And like so if you, if you have a look at the fundamentals of Airbnb at the moment. [00:21:31][3.0]

Alec: [00:21:32] That's the challenge I have with Airbnb. Two challenges I have with them. And I know we're just going on a tangent, but let's just go with it. First of all, have you noticed on Twitter the amount of people complaining about Airbnb like poor support, all of that. And in Airbnb's history, it used to be the saying used to be that poor support is a feature, not a bug for Airbnb. Like to deliberately shit out supporting their hosts and start supporting their customers. Okay, but maybe it's just my twitter algorithm. But yeah, a lot of a lot of people complaining. But the other thing is apparently prices now hotels are cheaper than Airbnb's. Yeah. [00:22:07][35.1]

Bryce: [00:22:08] Yeah, yeah. But I think Airbnb a slightly changing the way that they're pitching themselves now. [00:22:14][6.1]

Alec: [00:22:14] Yeah, it's funny, I still would prefer to stay in an Airbnb than a hotel, even if I had to pay more just because I think it's a better experience. But I don't know if I'm the outlier. Like, I don't I don't know what the general customer would do. [00:22:30][15.7]

Bryce: [00:22:31] Yeah, well, they're changing their search function very soon to show you places that you'd never have thought about staying in before. That's going to be like the that's going to be like the lead. [00:22:40][9.4]

Alec: [00:22:41] What like differently is that the whole like I'm flexible thing where it's like. [00:22:44][3.3]

Bryce: [00:22:44] That's what they started. Last year, I think when we were talking about in the summer series, they were going to do this. I'm flexible. No, this is more like where they're changing their search function, an algorithm to show you more opportunity and maybe try and premium ize it a little bit more is where I'm getting what sense I'm getting from not just your classic like I need a to Betty for the weekend vibe but I. [00:23:07][22.3]

Alec: [00:23:07] Okay yeah you're right. I'd be really interested to know what percentage of people are on Airbnb because they're just like, I have a weekend and I would like to go away. And what percentage of people are like, I'm going to Melbourne for the weekend and I need a place. Yeah, yeah. But I guess they can cater to both. [00:23:24][17.0]

Bryce: [00:23:25] They definitely. [00:23:25][0.2]

Alec: [00:23:26] Can. All right, let's let's go back to say Netflix. [00:23:29][3.3]

Alec: [00:23:30] Yeah. So Netflix I want to talk about the whole advertising thing and recount a conversation I had with Rory, my housemate, a previous superstar, Jesse guest. And I want to get your thoughts on it. So for context, Netflix is down 73%. It's lost almost three quarters of its value from November 2021. Brutal. It's back below $100 billion market cap to think it was once the loss. [00:23:57][26.6]

Bryce: [00:23:57] Of the whole thing. [00:23:57][0.2]

Alec: [00:23:59] To think it was once lumped in with all those companies that are trillion dollar companies. [00:24:03][3.5]

Bryce: [00:24:03] Well, to think that. Yeah, yeah, yeah. One of the notable investors we've had on this show said that it'd be $1,000,000,000,000 company. [00:24:10][6.5]

Alec: [00:24:10] Yeah. Anyway, let's take nine. [00:24:12][1.9]

Alec: [00:24:13] So 222 million subscribers as we spoke about before, the whole advertising thing. Have you been following this, how Netflix are going to introduce ads? So Rosie was just saying how terrible it's going to be. And I feel like that's the prevailing feeling at the moment that Netflix putting on ads is just stepping backwards. It's going back ten years. I actually think it's a really positive development and I want to defend Netflix a little bit. I don't own the stock, I don't own the company. And this is I'm not buying it on the back of this. But the starting point, Netflix, 220 million subscribers call it with password sharing with accounts where you have up to, you know, X number of accounts caught, maybe a billion people watching it. Do you think that's a fair assumption? [00:24:58][44.8]

Bryce: [00:24:59] You mean like if you're saying households have multiple. [00:25:01][2.0]

Alec: [00:25:01] People saying that, like, I have a profile on my parent's account and so of my sisters. So, you know, there's like five people to one subscription there. [00:25:09][7.6]

Bryce: [00:25:09] So to yeah, they say there's at least a million an extra 100 million households that are using it without a subscription. Okay. So like 350 call it accounts or households and then within those households, two or three people. [00:25:23][14.1]

Alec: [00:25:24] Okay. [00:25:24][0.0]

Alec: [00:25:24] So yeah, go. [00:25:25][0.9]

Alec: [00:25:26] With my billion. [00:25:26][0.2]

Bryce: [00:25:26] Maybe that's that's probably on the upper end, but yeah. For the purposes of this show. [00:25:30][3.3]

Alec: [00:25:30] Okay. [00:25:30][0.0]

Alec: [00:25:31] And I guess the question is for Netflix, how do they get the next billion? And I think what a lot of these American subscription based companies are realising or European subscription based companies, is that becoming truly global means they need to change their pricing structure. And the example here is Spotify. They have 420 million users and about 180 million paid users. But what they are finding is that in especially in Asia, where there's just such growth opportunity, their pricing just isn't competitive. And so then the free platform is a great option because they make their money from advertising, they get people on the platform and then they can be a lot more global. And for Netflix, like as a percentage of income, even when they reduce the price in a lot of these countries like India and stuff like that, they're struggling to get good subscription numbers and advertisers support a platform, allows them to get into those markets and become truly global. And we think about like they all these global shows that have taken the world by storm, you know, money heist that was made I think for a Spanish or Mexican audience taking the world by storm. Lupin was made for a local French audience, taking the world by storm. Squid games made for Korean audience taking the world by storm. [00:26:58][87.6]

Bryce: [00:26:59] To more seasons. [00:26:59][0.3]

Alec: [00:26:59] Sun Really? Yeah. These are all shows that Netflix made for local markets but became global phenoms. But they weren't really global phenoms because the majority of the world still isn't watching Netflix. No, there's no truly global streaming provider at the moment, and I feel like that's how the Netflix is trying to set themselves up with advertising to get the next billion and to create the shows that have global resonance. Yeah, that's sort of, I guess why I'm pretty sanguine about the whole advertising move. [00:27:33][33.4]

Bryce: [00:27:33] I also don't understand why people are complaining about it. Like you're going to have the choice, as I understand it, to either pay for it and not have ads or not pay for it or have a very reduced subscription fee, I think. [00:27:45][11.5]

Alec: [00:27:46] I think the concern is that Netflix will take the opportunity to say your current subscription, you get everything, but you get some ads and then there's a free version where there's no heaps of ads, but if you want no ads, you've got to pay more. I reckon Netflix will take the opportunity to jack the price up. [00:28:02][16.1]

Bryce: [00:28:02] At the end of the day. My, my, my thing is this. Are you watching it because it doesn't have ads or are you watching it because you have heaps of choice? And like, at the end of the day, I feel like I'd be willing to cop a couple of ads because I can watch whatever I want, whenever I want. Free TV. You don't have a choice of what you get to watch. You just get what's available at that time. And you and you have to watch some ads. Sure. I think the convenience and luxury of still being able to choose what you want to watch when you want to watch it. Copping a couple. [00:28:31][28.9]

Alec: [00:28:31] Yeah. [00:28:31][0.0]

Alec: [00:28:32] Well, I think like YouTube is a classic example of that. I don't pay for YouTube premium, but I pump YouTube. Yeah. And like, the ads are annoying, but it's just like cost doing business. [00:28:42][9.5]

Bryce: [00:28:42] Yeah, I do pay. [00:28:43][1.0]

Alec: [00:28:43] For my time. Isn't that valuable? [00:28:45][1.2]

Alec: [00:28:45] Yeah, yeah, yeah, yeah. [00:28:46][1.0]

Bryce: [00:28:47] Yeah. So what you. [00:28:48][0.7]

Alec: [00:28:48] Do pay for it? [00:28:48][0.7]

Bryce: [00:28:49] Yeah, I was actually saying. [00:28:50][1.0]

Alec: [00:28:50] Doesn't that contradict everything you just said? [00:28:51][1.6]

Bryce: [00:28:52] I guess so. But, like, I don't know, the reason I actually started paying for it was for music because I hated having ads in music. [00:28:59][7.3]

Alec: [00:28:59] True. And also YouTube. Um, you. If you lock your phone. [00:29:04][4.7]

Alec: [00:29:05] Yeah, yeah, it. [00:29:05][0.6]

Alec: [00:29:06] Cuts it off, but if you pay for it, you lost it. Yeah. [00:29:08][2.1]

Bryce: [00:29:09] So, yeah, it was a music led thing. And now what I'm actually finding, I was singing about this other day. It's actually my number one watch time. [00:29:16][7.0]

Alec: [00:29:16] Yeah, YouTube is easily the best. Yeah. [00:29:18][1.5]

Bryce: [00:29:18] It's. It's just like I could just suck everything out. It's like what I'm finding on there, like the platform. It is for creators to just create amazing stuff. And you just like, wow, this is epic anyway. [00:29:31][12.4]

Alec: [00:29:31] Yeah. [00:29:31][0.0]

Alec: [00:29:31] Like the in-built monetisation engine that they've built compared to. Yeah. Like the whole. The business is phenomenal. Yeah. They, they reckon that if YouTube was split out from Google, it would be worth about and this was, I think pre this recent market crash. But I think the number they were throwing around was about $270 billion value. Wow. Probably would have fallen if Disney's fallen 50% and Netflix has fallen 70%, that value will have fallen as well. But it's just incredible that Google bought it for 1 billion. [00:30:02][30.5]

Alec: [00:30:02] Yeah. Yeah. [00:30:02][0.2]

Alec: [00:30:03] And they have just built another unbelievable business. [00:30:07][3.5]

Bryce: [00:30:07] Masayoshi should take a trick or two from the guys over it. Over at Casual. [00:30:12][4.7]

Alec: [00:30:12] Yeah. I think we all could probably do that. [00:30:14][2.0]

Alec: [00:30:15] Right. [00:30:15][0.0]

Alec: [00:30:15] So anyway, I just want to close out the thought on Netflix because I just spent a lot of time giving the positive case. And as I said, I don't have a position and I'm not making an investment case here. This is just me speculating about the business. But I think the other challenge is that they're not the only ones who are trying to be the first truly global streaming service. Disney have an advantage here because people often forget the massive conglomerate of brands that Disney have under them. But Disney have massive presence in India. They I think up until recently, I think they lost the rights, but they owned the rights to Indian cricket, like the IPL and stuff like that, like they are entrenched in Indian content production and that's where a lot of those battle lines are being drawn. So I think if Netflix doesn't do it, Disney is going to have a red hot crack at doing it. You know, when we think about these streaming services, sure, they're going smashed at the moment, but they're probably the two in the driver's seat to be truly global. And we haven't seen that in video content before. Except for a few tricks, I guess. [00:31:23][68.1]

Alec: [00:31:24] Yeah, yeah. [00:31:24][0.3]

Bryce: [00:31:25] But even then, yeah. Watch this space. [00:31:27][2.1]

Alec: [00:31:27] Watch this space. Watch more content. [00:31:29][1.5]

Bryce: [00:31:29] I back Disney do you. No, no, that's not advice or anything. [00:31:33][3.4]

Alec: [00:31:33] That's just you just back in. [00:31:35][1.4]

Bryce: [00:31:35] I just back them at their magical place. [00:31:36][1.6]

Alec: [00:31:37] Should we put. [00:31:37][0.4]

Alec: [00:31:37] A bet on? I'll bet Netflix first to a billion subscribers gets a tattoo. [00:31:42][4.3]

Bryce: [00:31:44] I don't think a billion subscriber. [00:31:45][1.3]

Alec: [00:31:46] Yeah I don't. [00:31:47][1.1]

Bryce: [00:31:49] Is that look that's that's so much that's so much growth. [00:31:52][3.1]

Alec: [00:31:53] Yeah that's it. [00:31:53][0.7]

Alec: [00:31:54] That's why I'm pretty confident making this bet we won't be doing. [00:31:56][2.0]

Alec: [00:31:56] This let's get very. [00:31:57][0.6]

Bryce: [00:31:58] Australia's ultimate inflation hedge has broken. No, it's not gold. No, it's not bitcoin. It is Domino's Pizza. Yeah. [00:32:04][6.7]

Alec: [00:32:05] And the joke really starts in the US here because the ultimate inflation hedge around the world comes out of the US, something that has held its value better than any other asset. A Costco hot dog? [00:32:21][15.5]

Bryce: [00:32:21] Yes. Have you had one? No, I have. They're pretty. [00:32:24][3.1]

Alec: [00:32:24] Good. Oh, that. Yeah. [00:32:25][0.6]

Bryce: [00:32:25] Good onion. Yeah. Pretty good price for a hot dog and drink at Costco is a dollar 50. [00:32:31][5.6]

Alec: [00:32:31] And it has been that way since I think 1988. [00:32:33][2.1]

Alec: [00:32:35] Hasn't changed since the year after year, year. [00:32:37][1.8]

Alec: [00:32:37] After year after year. Input costs rise. Labour costs rise. Electricity costs rise. But Costco have kept. Dollar 50. Hot dog and drink. [00:32:47][10.3]

Alec: [00:32:48] Good on him. [00:32:48][0.4]

Alec: [00:32:49] And we were joking that the closest thing to a Costco hot dog in Australia is a Domino's $5 value pizza. [00:32:57][8.2]

Bryce: [00:32:58] That's it. [00:32:58][0.3]

Alec: [00:32:59] That has held its value for I don't know how long they've had $5 range, but it feels like a long time. [00:33:04][5.8]

Bryce: [00:33:05] Well, since my uni days for me, that's for sure. [00:33:07][2.1]

Alec: [00:33:08] I clearly remember them there. [00:33:09][1.0]

Bryce: [00:33:10] But yeah, the Domino's. [00:33:11][0.6]

Alec: [00:33:11] Who. [00:33:11][0.0]

Alec: [00:33:12] Thought when you were at uni scamming the Domino's for free pizzas that one day you would interview Don May, the CEO and tell him that you used to. [00:33:21][8.9]

Alec: [00:33:21] Stand in for Friday nights. What a journey. [00:33:24][2.8]

Bryce: [00:33:25] But that's right. Domino's are now facing cost pressures around the $5 range under a lot of hate, but so far the $5 value range has stuck where it is. But they've added a 6% delivery surcharge. [00:33:39][13.2]

Alec: [00:33:39] Yes. [00:33:39][0.0]

Alec: [00:33:40] To do with cost pressures. So I think this is just an example that across the economy inflation is hitting everyone's cost lines. And if we go full circle from where I started this episode, this is where it matters when you're thinking about, you know, the value of some of these companies like Domino's profit is going to be squeezed. Yeah. Because of these cost pressures and because they're playing a category where it's hard to raise prices, does that change the ultimate business trajectory of Domino's? Long term arguable? Probably not. Like probably in 2040, Domino's won't be in that much a different position because inflation 6% rather than if inflation had been 2%. But it matters. It matters in the short term. The ultimate inflation hedge has broken. But Domino's is down almost 60%. Yeah. And so my question for you, Bryce, is how is Domino's less worth half as much as it was worth nine months ago? [00:34:41][60.5]

Bryce: [00:34:42] The price has gone down. Was the valuation. It was nine months ago. A true an appropriate valuation. What was it valued at nine months ago? [00:34:52][10.6]

Alec: [00:34:53] So it's about it's about six and a half billion dollars now. So call it 13 then. It trades at a 36 price to earnings now. [00:35:02][9.7]

Alec: [00:35:04] So it was it was expensive. Yeah. [00:35:07][2.8]

Alec: [00:35:07] But it wasn't a unprofitable tech stock. You know, this is a pizza shop. Pizza franchise. [00:35:12][5.2]

Bryce: [00:35:13] Yeah. Discretion. Discretionary spending pizza franchise. [00:35:17][3.4]

Alec: [00:35:18] Yeah. [00:35:18][0.0]

Bryce: [00:35:19] Is it half as valuable as it was nine months ago? There's arguments that you could say it's definitely not as valuable 50% draw down. I mean we're seeing that across the board. So you could ask the same question for a lot of companies. [00:35:31][12.0]

Alec: [00:35:31] Yeah, you could. [00:35:32][0.4]

Alec: [00:35:32] But I think to put a bow in this episode, we're not going to answer that question. No one, we don't know until we can. Yeah. Um. [00:35:38][6.0]

Alec: [00:35:39] Thanks. [00:35:39][0.0]

Alec: [00:35:40] I think to go a bit full circle, this is where I want to spend my time. I want to spend my time as an investor answering that question or answering the Netflix Disney question, or probably not spending a lot of time thinking about Masayoshi. But I think that's what's really exciting me as an investor, and I've got sucked into the map too much macro thinking. Yeah, I. [00:36:03][23.9]

Bryce: [00:36:04] Don't I don't think you need to be down and out about it, though. It's not, it's it's. Well, it's worth understanding. [00:36:08][4.6]

Alec: [00:36:09] No, I don't. You don't want to be down in doubt about it. But think about us in about halfway through 2021, chatting about how we how much opportunity there was in March 2020 and how we wish we had deployed more cash into some of those opportunities in March 2020. Don't be that person again. [00:36:27][18.7]

Alec: [00:36:28] I give you the opportunity. Yeah. [00:36:30][1.3]

Bryce: [00:36:31] Will prices doesn't mean that I'm not investing in anything. [00:36:33][2.2]

Alec: [00:36:34] What do you invested. [00:36:34][0.5]

Alec: [00:36:35] To take this. To take this off line? Yeah. No obvious. You know, it seems like. Yeah. [00:36:39][3.7]

Bryce: [00:36:39] You think it's just it's important to it's definitely important to understand, I think. Yeah. What's going on? Yeah. Yeah. West Texas crude closing at 9950 a barrel, whatever the next question are. And we'll we'll leave it there. It's been great to chat stocks. If you can please rate and review this episode, pass it on to a friend, recommend it to your colleagues. That would be much appreciated. It Advisor. It's always great to get new people on the journey of investing with us. Thank you for the support as always. Don't forget to buy your fin first ticket Equity Mates dot com slash fee invest. [00:37:15][35.6]

Alec: [00:37:15] And if. [00:37:15][0.2]

Alec: [00:37:16] You do care about all this macro stuff, we do have a business news channel and podcast, the dive where we'll be talking about that a little bit more, not in an investing sense, but just in a keeping up to date with what's going on in the world since the dive top business news is the handle on Instagram, the dive podcast and your preferred podcast. [00:37:34][18.4]

Bryce: [00:37:34] Feed. That's it. A lot. [00:37:35][1.0]

Alec: [00:37:36] Of fun. [00:37:36][0.1]

Bryce: [00:37:36] Yeah. Check it out. All right. Well, Ren, great to chat stocks as always. We'll pick it up next week. [00:37:39][3.4]

Alec: [00:37:40] Sounds good. [00:37:40][0.3]

Bryce: [00:37:42] Hey, thanks for listening to this episode of Equity Mates. We love hearing from you, so drop us a line at Contact@equitymates.com. Or even better go to your podcast player and leave a five star review. Also a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group. We're on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. That's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time. [00:38:10][28.9]