Key Highlights:

Transcript:

Mike: 0:04

How are you, hi Mike? How are you today? I'm good, I'm good, I know. Yeah, it's taken a while to hit up the house this chilly Wednesday morning. I think Storm Kearon is outside beating down the door as well.

Emmet: 0:16

So West of Ireland is getting a slam on from the from Storm Kearon. What's it like over there at the minute? That's a bit.

Mike: 0:23

It's like gray rain and sideways wind hitting the door. Not amazing. It's nice and dumb, isn't it?

Emmet: 0:30

Look, you're just getting a normal go away day. It's actually okay. I played tennis at the break of dawn this morning, so it wasn't too bad. We got rained on, but you know, at least we could get out there.

Mike: 0:40

Yeah, okay. Well, it's been a while since it was just myself and yourself. We've had a bunch of interviews recently, so we're going back to kind of a normal cadence. We'll say for this week, the.

Emmet: 0:48

OGs. This is where it sat, Mike. The real conversations happen here. I am so unprepared, so literally just as gone in hoster as it gets.

Mike: 0:59

That's good. It's good because it's kind of a riffing enough podcast for team, I suppose, for this week. Anyways, it's basically my idea was I took three companies and I'm trying to figure are they value traps or deep value place? So three companies that the market has just chewed up and spit out over the last year and a half two years. We'll say I'll say it all time highs in 2021 and I've all been absolutely bet up since. Basically. So three companies are Disney, nike and PayPal. So let me know where you want to start and we can dive in.

Emmet: 1:34

How about I start with a little story about Nike?

Mike: 1:37

Yeah, absolutely, this is a good one.

Emmet: 1:39

So we're recording the day after Halloween. So I'm going to tell you a story that's exactly 51 and a half weeks too early for Halloween, because it's a bit of a spooky story and, as I think we mentioned on the podcast before, I definitely have a soft spot for my heart in my heart for Nike, because when I read Shoe Dog, as we discussed on this show before, I just really liked Phil Knight, its founder, like he is the warm buffet or the Bill Gates of the sneaker world, and the book gives a really personal account of his journey to build Nike and it starts with him regaling this post college trip around the world, during which he can seize of an idea of importing high quality running shoes from Japan. So I think in the book he said he started with a $50 loan from his dad and he created blue ribbon sports, which, of course, went on to become Nike, and it's a very beautiful and relatable story, I think. But here's the spooky. Here's a spooky, not fun, fact about Nike which is, as I said, a little bit early for Halloween or just a tiny bit late. So Nike's slogan is just do it, as the whole world knows. But did you know that that strap line was inspired by a convicted kidder called Gary Gilmore, who was executed for two murders in 1977. And Gilmore uttered the words let's do it. Just before he was executed. And Dan Whedon, who's the founder of Whedon and Kennedy, which is this huge, big American global advertising agency and I think we're made famous because our relationship with Nike was inspired by Gilmore's words and he created the just do it campaign in 1988. Isn't that pretty spooky? It's awful.

Mike: 3:29

Why did they advertise it, especially if he's an advertising guy?

Emmet: 3:31

Yeah, so I don't think that at the time when they went to the just do it strap line that they would have said, hey, guess what a guy in that little center.

Mike: 3:41

Guess who inspired. This.

Emmet: 3:43

And didn't even make film nights out of biography. And I'd heard that rumor and had to go digging on the internet to actually substantiated. So you can understand why film night decided to sidestep that part of the story. But I just want to. I was double checking on it. I thought oh yeah, that's very Halloweeny and it's a good opener for a show that's going to air after Halloween.

Mike: 4:05

That's gas. Because didn't he pay like an art student who made the swoosh like $2 and change or something as well? Yeah, somebody paid absolute peanuts for the most iconic you know emblem in sports and then a convicted murder coming up with the slogan. But that reminds me of origins.

Emmet: 4:25

Yeah, like the rebrand of Twitter did. The guy who did the X wrote on Twitter thought it was for our next. He wrote an X. I spent 10 days working on X and here are 10 lessons I learned, which I thought was beautifully ironic. And when he literally came in he drew an X and he was fired. So I did to regale the world. But his is 10 number 10 takeaways from working at X.

Mike: 4:50

All right, well, let's get into Nike the stock and don't want to call it Nike either. Call it Nike in Ireland.

Emmet: 4:56

but all the.

Mike: 4:56

Americans will be on the line calling it Nike. So let's get into Nike. The stock now so down about 40% to a bit more from all time high set in November 2021, currently trading at a price to earnings ratio of just over 30. Five year average price earnings ratio is about 45. So we can see it's definitely trading at a discount. And then the shares are still above their COVID low. So it isn't really seen the same downturn as Disney or paper, which we'll get to later in the show. So I think the struggles and why it's fallen has come basically from an excess inventory issue. So post pandemic, so I think it had a not enough inventory over the pandemic. It got exposed, especially for its supply chain in China. Since then it's overbought and overproduced and that is always a concern, especially with the parallel companies. We saw that really affect under armor over the last, we'll say, five, 10 years in terms of flooding the markets and then becoming discounts and all the rest, and obviously that pays. We have it to a company's brand, something that's so important to Nike, but I think in terms of the inventory it's kind of a baiting. We've seen some very positive earnings reports in more recent times, but there's still the lingering effects on costs, pressure on margins and then the multiple compression which we've seen. The other concern we mentioned is the strength of the consumer, especially in China. So China is responsible for about 14% of total revenues last year, in fiscal 2023. And this is the region that's kind of come under pressure, we'll say, in terms of strength to the consumer. And we obviously know apparel and footwear is 100% a discretionary expense. Even in America we've seen this as well. Footlocker and Dick's Sporting Goods had two awful earnings reports and brought Nike down with it during the summer. So that's kind of, we'll say, the bear case. Now we're going to discuss Disney and PayPal after this and their issues could be considered a lot more systemic than what Nike is facing now. I think, in my opinion anyways, this feels much more like a short-term blip, we'll say, than anything like inherently wrong with the business or that could say, break an investment thesis. What's your, what's your opinions on that?

Emmet: 7:07

Yeah, I completely agree. I mean, as you know, mike, I generally avoid fashion and Nike, you could say, is on the periphery of fashion, it almost transcends fashion. It is, of course, produces high performance sports where that needs to be fashionable, but it feels like an everlasting brand. What you described there, which is effectively the inventory struggles that every apparel and fashion maker goes through, is just a roadmap. That's just the gig they're in and you can imagine that they are far, far better at it than the next, because you can just think of the resources and the learnings that Nike has had over the last whatever it is 30 years. So, yeah, I think for me, when we kind of put a spotlight on an industry or sector specific problem, part of your thinking needs to be well, they have armies of MBA students thinking about this problem, way harder than me to sort it out, and I it's funny, like you're right, I think, For Nike and the other two brands you said Disney and mustard. We're gonna talk about paypal, right. So certainly Nike and Disney are these kind of American icon brands. They are resourced and pace, but the fact that three of them are American icons and will die of some stories about paypal, hope I get them right because I said I'm treating from the hip here, but the, but the. They are three mega brands in entirely different areas and I think they are just what you've described. There is just a oh yeah, another day at the office for Nike. So when you said, as you're describing your inventory problem, the whole story about under armor flooded to mine. And it's really, what do they do with excess inventory? Because luxury brands usually destroy excess inventory rather than discounted, and I think that that's not something that you would do in the sports world. I just did just to me. It doesn't make any sense because you're not trying to uphold the brand value. But I certainly my natural inclination is to ignore the ads and flows of the inventory story for a business like Nike.

Mike: 9:17

Yeah, I'm just touching on that like kind of protecting the brand. Equity will say so forms. Calculated nice brand equity at Is around forty billion dollars, so I think you put it at the 13th most valuable brand in the world, up alongside, you know, trillion dollar businesses and that's actually in what's really impressive. As a piper sounder just did a, they do an annual teen survey basically where they ask teens what they like, what they don't like. Like was the number one brand in both footwear and in a parallel. So not only is it Built, this massive brand, but it's protecting it as well in terms of the younger generations. It's not slowing down whatsoever and I think that was the problem with under armor especially. We always go back to it because Under armor shows what not to do with the brand, especially in this space, whereas Nike has done it for so long and exemplary, will say that even now, like you know, it's not going after maximum revenue, will say it took its products off Amazon, it's not selling at certain stores, reorganized its relationship with Footlocker, with other wholesalers, all to protect its cool, I suppose, and that's and that's the one thing I think that we always come back to with like is that it has this brand value and it protects it so well that it's the real economic mode there that Other competitors can't create, and I think that's why that's why I'm putting like maybe aside from the other two which will discuss now. I think so. So yeah, I'm which is definitely feels like much more part, for the course was, and maybe maybe a good opportunity in terms of buying what doesn't. It doesn't trade at 30 times earnings. Very often, I think it's since 2017 it hasn't been this cheap, so yeah, and, as you know, only two.

Emmet: 11:08

Well at the moment, mike, where we are busy just readying a new service for launch called Nexus, which combines a I screening in human intelligence. See, I can't miss the opportunity to plug it and I think it's going to be the greatest service of its type ever launched. But anyway, I continue to plug. But I looked at Nike In Nexus and what I found was that it has, like this really incredible sustained return on equity, which is very unusual in the industry. It's return on equity at the moment is around 34%. It's return on invested capital has remained more or less At her above 20% for years and years and years, and it's sales are growing. And when you take those three Quantitative factors and combined, which is growing sales and a high capital efficient business, you are ultimately looking at a business that will regress. I rather reverse to the mean, and it's mean at the moment, which is it's share prices down, is feels to me like a very temporary, temporary problem, if you like, on a business that's of the highest quality and you don't need to dive into numbers to know that. I think your average bystander will just look at Nike and again compare to under armor. I remember. I remember when I invested in under in, under armor, I would say maybe 15 or 20 years ago. The logic out, my logic at the time, is this is a challenger brand. This, like Nike, is the brand your dad wears and young people wanna wear this new open coming brand. It stands for something different and, as time has gone by, initially under armor, delivered against that, where the cool brand and your dad leave the nikes for your dad, where is it's actually done? A complete 180 degree turn, whereas Nike is now, from my perception, the cooler brand and under armor is that discounted thing and big shopping, you know, just can't place is like what break home and whatever they're called.

Mike: 13:10

Yeah, absolutely. And just on that last point as well, management is recognized basically that shares are on discount, so it's accelerated buyback problem at the moment. Positive to see okay let's move on. Then we have Disney or paper. Where do you wanna go on? Amazing good let's start with.

Emmet: 13:29

Okay, well, I mean, who doesn't hold a place in their heart for Disney? Like it's like, when I hear Disney, I'm just hit with nostalgia. And do you have a whole pile of facts before I base that you start rambling.

Mike: 13:43

Yeah, let me, let me go through the stocks now and then, do you can? get into your own bit. So down roughly 60% from all time high set in March of 2021. Currently trading this is interesting currently trying to price the earnings of 65, so five year average is 60 there. So it's actually becoming more expensive, and this is because it's earnings are going down, because it's spending so much money on Disney plus and all the rest. Interestingly though, it's price cash flow is at 19 times it's five year average, 35, so it is still bringing in money, but it's not turning into profits. Shares are now sitting at a roughly nine year low, so we'll get into why in a minute, but you take the lead there.

Emmet: 14:27

Well as a business, it really is just on real. So excuse me, sorry, I'll start it again. Sorry, mike, can you take that? Well as a business? It's really just unreal. Like the vastness and the complexity of the Disney organization is just mind-boggling. And we generally assess a business from what we can see. We spoke about Nike and we all interact with the brand. We might see it on our favorite sports town TV or wear Nike sneakers or their stuff to the gym or whatever, and we interact with a brand with very, very small touch points and I don't think there's a business where those touch points are small. You don't realize how small they are compared to the organization size. It's like an ice cube sticking out of the water with the biggest ice perg ever under it, and so it operates through several business units, and really I don't have this written down in front of me, so listeners will have to forgive me if I miss any. So I know they have media networks, which is all about broadcasting and radio publishing, and all these digital businesses DABC, television group, espen they still own ESPN, do they, mike? Yeah, yeah. Then they have parks, experiences and products, and that's the team parks, resorts, consumer products, cruise liners. I mean, mike, when you think of you take a cruise, a Disney branded cruise. That's just one element of one division of the business. Then they have studio entertainment, which is Pixar, marvel, 20th Century Fox, 20th Century, lucas Films just that they own Star Wars alone. That's an empire. Then they have direct consumer and, as you said already, mike, they have Disney Plus, hulu, espn, espn Plus, I think. Then they have all these overseas Disney channels. They also have a division called Consumer Products, which sells merch and publishing and games, and many years ago I saw this really nice map of the entire Disney business and it was shaped like Mickey Mouse's head and I had all these different studios all over the world that are all concerned with one particular element of their business. And honestly, I just don't think Nvidia is even one tenth as complex as Disney. It's like the most mind-boggling complex, far-reaching, multifaceted business you could ever imagine. And again, a bit like Nike, it's one of these everlasting brands that you could decide. I'm just going to buy a handful of shares and leave them to my grandkids and my will.

Mike: 17:17

Yeah, unless you bought them nine years ago and died today.

Emmet: 17:23

Wow, it's been a couple of rough few years, even for Disney.

Mike: 17:26

Well, let's talk about the downturn so, and it's tough to know where to start really because there's so much going on. But I think let's start at the top and we'll go through the succession plan, the botched succession plan, where Bob J Peck came in as Iger's successor. No one basically liked him or his ideas. He got the boot. Bob Iger had to put the golf clothes back in the shed for a few years. He came back. Obviously, one of the greatest business leaders of the last 50 years was Bob Iger and what he did for Disney was huge Bush. Since he's come back, he's only really been putting out fires. One of those fires the most consternation, I'll say for his sake is probably Disney Plus and the money pit that that's become. And I think this is evident across all of streaming, where so many companies have come in, decided to streaming, pumped millions and billions, I'd say in Disney Plus's case into the content side of things and aren't seeing the return on the consumer side. When you charge people $5 and change for a month, that's not surprising and obviously that was the growth strategy behind Chepek was exponential growth and then worry about the numbers later. But now the numbers are coming home to roost and it's not looking good. So Iger's main initiative now is to make Disney Plus profitable. He's put the price up a couple of times this year and it's just. I don't know what that have been a strategy from the start. Do you know? What I mean and I think that's one of the main concerns here is that Disney is still hemorrhaging money. It's happened to look to sell off the visions I saw recently. It's considering selling off its Indian operations. It's still floating in a sale of ABC. A lot of investors wanted to sell ESPN. I don't think it's going to, but there's so much going on here and all of this time as well, it's going to have to spend about $8 billion, I think, to buy the rest of Hulu off Comcast. So it's pumping more and more cash into the streaming side of things. So it's kind of locked in there. It doesn't have a choice. It has to make streaming work and I still I don't know if that would have been the most efficient use of its capital. And then that's very hindsight is 2020. But I don't know if Bob Iger could go back to 2018. What do you say? We'll spend all this money on streaming. We're going to have to cancel our dividend over COVID. We still haven't brought it back. There's so many things going on there that aren't really helping investors, especially in this mindset where everyone is looking to cash roll and balance sheets come under more scrutiny. So just that money sink of the streaming really, really is holding the business back at the minute.

Emmet: 20:07

I'd say Bob Iger is sick to the core because he handed over this near perfect multimedia entertainment consumer experience business. It was perfect. He wrote his autobiography, which my son read and told me it was brilliant. And then we went to find it and we lost it somewhere. I went to buy it again and it was gone and I'm sure I'm not sure. I wonder if Bob Iger is like damn, I wish I hadn't written that autobiography. There's another three chapters to go. But you're right, I don't know if the whole and both of Disney is entirely down to Disney plus, because I am too clear on the financials of it, but certainly anecdotally, based on what I'm hearing and reading, it is the problem, child, and even if you speak again about a consumer experience of just one. So we here in my family home are subscribed to everything. We don't have a dodgy box, we pay for everything. So we're subscribed to Netflix and Prime and Paramount and Sky and Disney plus and Sky Sports and everything. So, whatever, we've stacked them all up, which is a source of frustration digital frustration, because when you go to look for a show, you know, unless you've a Roku stick and other subscription, you kind of have to kind of troll all the. Is it troll the right words, troll, rather troll all these different services and I find Disney plus to be the one of lowest value. I don't find the content to be aligned with my family's interests anymore. My kids are too big for the Pixar stuff. My wife and I aren't too interested in the other programming they've got. It seems that Netflix keeps the content current. You know, does all these moon shots. Prime is kind of positioned itself around the vast movie content it bought when I bought the studio in Hollywood, and all the others have kind of got a stronger value proposition as far as I'm concerned. So, from an opinion of just one from billions, I just think that Disney plus is not a very good service and it would be the first that I'd kill if I had to make a choice. Is that reflected across the, you know, digital service buying world? I'd say it is, to be honest. What do you think?

Mike: 22:30

Yeah, I'd agree, and I think even more problematic issue right now is that in the cinemas I think this is coming through as well the Marvel stranglehold that's been on box offers for the last what. When did Iron man come out like? Late 2000s, so the last 15 years? We'll say it was the. It was the only blockbuster in town. I think that influence is kind of weaning. Now the post will say the Avengers era of Marvel isn't connecting the same way it has with audiences before and that's a major concern because these were all billion dollar outlays, basically their last three big movies, I think the Avengers movies and that Spider-Man one we're all three of the top seven movies to ever come out. And I don't know if that cash spigot is being once they turned off, but definitely turned down. And obviously this is being affected by short term issues like the writer strike and the actor strike as well. But I genuinely think it's a cultural issue where people are looking for real movies. Now They've been criticized for so long, you know, and amongst actors and directors obviously, because it's eaten into their profits. There's, you know, the kind of criticism of oh, it's just another superhero movie. I think people are kind of losing their touch on that, and I'm not surprised, and I don't think it's a bad thing either, as someone who enjoys film and TV.

Emmet: 23:55

Yeah, it's true. I mean, when you look at the way they've extracted value from some of their assets like the Lucasfilm, the Star Wars franchise, like they've trashed that to bits I don't think there's a story left to be told or a character left to be highlighted and there's going to be a long lifetime value in the Star Wars franchise. It's going to deliver multiple fold of whatever they paid over the next 40, 50 years. But I don't see there being much left for them to do in the short term with that family of assets. I think of all the, let's say, film producing assets that they've got. I'd imagine Pixar as the moment that long was shelf life, because it can produce something truly original as fast as I suppose their studios can deliver it.

Mike: 24:43

Yeah, one struggle with Pixar, especially when it comes to box office, is that they've created this cadence where people basically know that it's going to come out on Disney Plus in the next few months anyway, so why would we go to the cinema? Yeah, so it's kind of shooting itself in the foot there as well In terms of we'll wrap up Disney now, but again we're going to this problem of like systemic issues or investment thesis breaking issues. I think Disney has so much more to fall back on that I don't think I could put it into that bracket. I think the sell off is probably maybe not exaggerated but maybe has momentum in terms of you see a headline every couple of months Disney at six year low, seven year low, eight year low, now at nine year low, and that sell off is kind of feeding into it. Activist investors who got on board Nicholas Pelz is there, he's looking for board seats and they can Bob Iger's job even more draining, we'll say, and it definitely needs a turnaround and we're going to see a lot of assets being sold off. But I have a lot more faith, we'll say, in Disney doing that. I think the IP there, the parks and cruises and entertainment, that backbone the cash cow it's always been called. So it's almost an insurance policy and then it can figure out the rest and it's going to rejig. It's going to rejig its consumer facing side and maybe layoff ABC layoff. Its Indian operations probably invest heavily into Hula, because it has to be, because I think it's on the hook for about a billion for Comcast. But I have a bit of faith that it's capable of all that and it won't be a short term turnaround. It's going to take a good few years but it's there to be done.

Emmet: 26:32

Does that make sense Big time. I mean, you're right, this is the most diversified media company you could ever imagine. So you're right, there are problem children, if you like, and whether it's Disney Plus or the cruise liners or team parks need a facelift Again, just as we discussed with Nike's inventory. These just go with the industry. They're in. There's consumer taste cycles. They have at the moment Disney their capital efficiency is quite low compared to historic data, like once upon a time they had a return on equity that was constantly above 20% all the way up until 2018. Then it started to fall, fall, fall and it's now in the low single digits. It's around 3%. So the business is not capital efficient at the moment. However, you can again. We've Bob Iger at the helm. We have a team of MBAs there to figure it all out and they will figure it out, because there's no one part of that business that can drag it down and ultimately, it has the ability to divest the underperforming parts of its business. We just have to see how and when that happens.

Mike: 27:37

Yeah, hannah can always fall back in the parks and cruises for that cash injection when it needs to too. Yeah, okay, every day. All right, so if you're going to find the next Disney or Nike, you're going to love reading our newsletter. So we're delivering to your inbox one of the most unique products on the market. It's completely free and no one else is covering the markets we're covering, so charging and fairness. We'll be delivering you to a new weekly stock pitch that could be from Amsterdam, tokyo, paris or somewhere in between. So, a completely free stock pitch. Every week You'll have a red and about a minute flat. I mean you can almost guarantee most of these companies are going to be brand new to you, which is where you get an edge. So sign up now in the show notes for this episode. All right, emmett. We're going to finish off with PayPal, and I brought up this systemic issue concept a few times, and I think this is probably the company that may be facing that the most. So quick run through down more than 80% from all time high, set in July of 2021, currently trading at a price to earnings of 14 and a price to sales of two. It's five year average price to earnings is 54 and its price to sales is eight. So that kind of gives an example of the multiple compression and how far down it's come. We're sitting at around 2017 levels, when the company was about a quarter of the size will say so. Paypal, like most attack, was flying over the pandemic, as you can see. Obviously it's an e-commerce payments processor that's going to work when no one can leave their house and everyone's ordering online, but it's hangover seems to be a lot worse than most. So obviously, kind of Nearly every company went through this boom bust cycle of rapid growth to slowing growth, outside costs, pullback, job losses, you know, cost-cutting, whatever else, but that doesn't really tell the full story here with PayPal. So I think Increased competition is a big one here, especially on the consumer face inside of the business, and it's led to Active accounts falling and it looks like the business might even be paving a bit more to the merchant side of things with its Brainty product, which is kind of a competitor to Stripe and Agen, because we can talk about this anecdotally here and we look at the Peter Lynch style of investing. When's the last time you checked out with PayPal?

Emmet: 29:49

It's. It's hooked up to the Sony PlayStation 5, so when something is purchased on it, that's when I'm, when my household uses it, but other than that, I don't see it integrated into my everyday life. What about you?

Mike: 30:03

same and I think it's tough to look at this Because it's very Anecdotal and it's my experiences, but I've seen Check out with Apple and Google pay 10 times as much as I see with PayPal now and it's so much easier as well. It really has Been caught up, will say, with the other competition and it, and it feeds into this concept that Payments processing especially has become a bit commoditized, yeah, as an industry. So we're seeing this across a lot of the businesses in this industry where multiples have fallen off a cliff, competitors are flooding the market and then take rates and Basically, your piece of the pie gets smaller and smaller. So had Jen was a big one there's cut in half. When it released the poor earnings report for Q2, the Europeans payments company whirl line last week fell by as much as 60% in one day. It was playing in macro conditions Significantly slow down its business and it's basically sight and fear amongst other payment companies as we go back tonight there when we're talking about discretionary spending, e-commerce spending is 100% discretionary spending for most people. So if we see a pullback in spending and a weaker consumer, paypal is definitely going to suffer there, and then just this is more conceptual, but the need for something like PayPal seems a lot less pronounced than, say, 10 years ago. Oh yeah, the thread of fraud and the ability, just the general ability, to pay online wasn't as common. And I'm not sure I don't want to be too harsh because I think the numbers are Underlying numbers aren't as bad as, would say, the conceptual side of things, but is there a valid question? That is PayPal's business model in peril.

Emmet: 31:56

Yeah, it's very valid. And when you look at whether it's Paul Allen in my combinator or when you look at them, where the money is going from venture capital firms which is the next step up from my combinator and when you look at the stream of businesses that are now floated on the stock exchange, which is downriver, there are more payment providers, payment solutions, payment processors, the plumbing of payment than ever before. It's absolutely such a crowded space and and even when you look at the seed investment sites in the UK and and the US, like Republican Crowdcube and cedars, there's always some kind of payment solutions provider on a raise. So definitely it's a highly competitive market. But what I think an awful lot of listeners and again getting up on going up 40,000 feet, but I think a lot of our listeners probably don't realize is the there's probably no business in the history of business that's seeing I had the greater impact on the world's. How would we say digital zeitgeist or its online zeitgeist, like the impact of PayPal on the entire world of come overseas, you're gonna tell me. PayPal mafia is it? Yeah, exactly, I mean, that's one of the angles I mean and these Silicon Valley luminaries known as the PayPal mafia. They set up companies after working in PayPal or after being a founder of PayPal, such as Tesla guess who? Linkedin, palantir, spacex, yelp, yammer, slide, a firm like the number of Facebook.

Mike: 33:32

A bit of credit there as well, because, like wasn't Peter Thiel, I know he didn't even see us. Yeah, he was right in that, the start, you know, you bet.

Emmet: 33:40

I mean you could also give like. In 2005, two guys who are not part of the PayPal Mafia, chad Hurley and Steve Chan, founded YouTube. I mean, come on, why can't they be in on the PayPal mafia crew? They should be allowed. I think there's 14 in the PayPal mafia, yeah, and those 14 people, plus the two lads who founded YouTube, effectively Launched, I would say, at least half of the top 20 largest Digital slash new age businesses that the world has ever seen. And just so many chapters to the story and we all know about, to Twitter rebrand and I was talking about the guy who, who did the X logo. But originally PayPal was a money transfer service offered by a company called Was it confinity I think was confinity, and it was acquired by xcom in 1999, which, if that sounds familiar, is obviously something that Elon Musk Nurtured and kept in his heart right through to today.

Mike: 34:40

That's why. That's why I pay back. I kicked them out. You know he wants to change. No, I didn't know he wants to change the name to xcom. He's been trying to make xcom for 25 years.

Emmet: 34:53

Yeah, I'd heard that somewhere along the way, but you know, there's so many stories about Elon you just kind of end up. It's just this constant stream of stories. That's amazing how quick. But yeah, so to your point anyway. Paypal today is is sitting in the most competitive battlefield, I think imaginable. But it's a very profitable competitive battlefield and even now today. We were talking earlier about Return on equity and returning capital for the other two businesses, but PayPal is. Its return on equity is 20%. It's a really capital efficient business. It's just that it's price, the cash in the register, its sales is Pretty flat and you can see why yeah.

Mike: 35:35

Well, stock market's a forward-looking entity, so it's not really Taking into account the current balance sheet, but maybe what it's gonna look like in five years and with these competition concerns it's it's hard to ignore, but I do think we have to check in on the numbers of small bits. It's sitting on 10 billion cash and it's taking in about 5 billion free cash flow here, so it has the opportunity to maybe relinquish its status as a growth stock become, but become a very shareholder friendly business buyback stocks, you know Up its dividend, be savvy, reduce costs and and I have the shareholder at the forefront of its thinking and I think that would definitely boost at least its valuation in the short term. I'm not sure if it's maybe the best long-term strategy, but I think it's got a bunch of activist investors on the board, so there'll probably be pressure there to be shareholder friendly in the short term, especially considering just how far it's fallen, and I don't think it hasn't been this priced in its history.

Emmet: 36:41

Yeah, that's right. It's amazing a brand that was once the challenger brand that created a solution for a problem most people were facing, which was this new thing called the internet, where you needed to exchange money, has become an old world digital brand and it's now looking it has like a Pee-ee, like a real old world Pee of something like 14. And you're right that when you look at the numbers, you realize this is just a mature business that needs to, I think, protect what it's got for a start and try and grow into new areas. And I don't know whether there, I think, when you go to purchase, you don't get too high and mighty about what brand you're using. If you go to a register and you see pay with stripe, I think you feel no different to if it said pay with PayPal, you just, it's a utility, you just do it. So I think when they went and acquired Venmo and then all these other companies they acquired, they're really trying to just, I suppose, broaden their reach as opposed to acquire a cool brand.

Mike: 37:45

Yeah, venmo is an interesting point as well, because we were talking about a mature business. I think it really fumbled the bag there in terms of Venmo was their first. It had the obviously the P2P payments, so that was a huge opportunity to be the first digital wallet, because you're already there in people's minds, on people's phones. I think if Venmo, if they were on the ball with Venmo, it would look like Revolute today, or even Google Pay and Apple Pay. Like Google Pay and Apple Pay wouldn't have had an easier as easier run as they did If Venmo was doing what it should have been back in 2016, 2017, when it had that critical mass. So, yeah, as a new CEO came in from Intuit in August, so it's very early doors to be talking about it now and I think maybe we give them that potential to have the opportunity to turn it around. I think earnings are coming out this evening, which is probably the day before this podcast comes out, so we might be looking quite foolish in the space of two days. But yeah, there's an awful lot to work with PayPal and I would be very wary before I would start looking at the value there that has to be unlocked, because there's an awful lot to do. Maybe a short-term play, maybe if the new CEO, as we said, gets very shareholder friendly, but yeah, I'd be very wary about its long-term prospects. I think it's so competitive and I think it missed the boat on some key aspects, venmo being one of them that digital wallet space.

Emmet: 39:19

So let's stack rank the three companies. We discussed PayPal, like in Disney, and the question that I'm gonna ask you, and then I'm gonna answer for you, is if you had to invest $5,000, no, if you had to distribute $10,000 amongst those three stocks and hold it for 10 years, how would you distribute it?

Mike: 39:41

That's a good question. I'd rest I'd sleep easiest with my money in Nike. From these levels, I think I would go. I'd go five grand in Nike. No, I'd go, six grand in Nike, I'd go. I think I'd go two and two. Then I think PayPal probably has the most potential but also has the most work to do, and I think there's a relative safety, like we said with Disney, in terms of the fallback in the IP and just how deep a business it is. But yeah, six to two sounds good to me, I think. What about you?

Emmet: 40:27

Yeah, I would go half into Nike. Five came to Nike and then split to two and a half grand into PayPal and two and a half grand into Disney.

Mike: 40:37

Yeah, and the PayPal investment is probably the most risky and dangerous one there but also the highest potential, because I think if it does manage a significant turnaround I'm not sure where that would come from, possibly focusing on the merchant side and the brain-try out side of the operations but if it does do that and even reaches like a P of 22 or something, that's already a 50% gain if everything else is the same. So there's probably the most potential for a quick turnaround there.

Emmet: 41:11

Yeah, I find, do you know? Just a point of interest, disney and Nike, from a market cap perspective, are almost the exact same size. They're both $150 billion businesses, which I don't know why. I find that interesting, but I do.

Mike: 41:26

Yeah, that's what PayPal used to be before this is true, and now it's a $56 billion business.

Emmet: 41:31

So, roughly speaking, paypal is about one third the size of either Nike or Disney, which has no bearing on anything really other than just it is still a mega brand and, as you said, it used to be as big as Disney.

Mike: 41:46

Yeah, absolutely All right. That was a good show. I enjoyed that. It kind of off the cuff riffing.

Emmet: 41:52

We should never prepare again.

Mike: 41:57

I don't think anyone wants to hear that from us. What are we talking about today? I don't know. What are you? Nuclear, nuclear?

Emmet: 42:05

Okay, well, I'll tell you that's our new formula and it's great to be back with the OG. This is it. There was an organic show. We managed to talk about stuff when having to think about what are we gonna talk about with an intelligent person.

Mike: 42:17

Yeah, no, I enjoyed it too. All right, we'll finish up there. So before we do, though, I just wanna give a quick word from our friends at Vodafone Business. Vodafone recently noticed their V-Hub Digital Advisor service, offering Irish business of all sizes free one-to-one digital support and advice. You don't even have to be a Vodafone Business customer to avail of this service. So search Vodafone V-Hub to book a call with one of the V-Hub digital experts and we will leave a link in the show notes for today's episode. Amish. Thanks for joining me and thanks everyone for listening in. Remember, if you have any questions you like answered or elevated pitches you'd like us to tackle, make sure to get in touch. You can find us on Twitter, at mywallstreetcom, on TicLock at mywallstreet, or simply just email us at pod. If you're enjoying the show, leave us a review and share us with your friends, and that's it. Thanks for joining us and we'll talk to you next week.