Can Tech Recover? With Alex King From Cestrian Capital Research

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Daniel Snyder: Welcome everyone. We’re back. Daniel Snyder here, Austin Hankwitz, hanging out. Thanks for joining us this hour. Man, I guess, I missed them all last week. It feels right to be back, doesn’t it?

Austin Hankwitz: It feels so right to be back. It feels so right. So grateful for the [Technical Difficulty] hang out with us. Shout out to Barry. I’m seeing Danny. I’m seeing Jessica, Larry, Kevin, everyone cool. Stephanie [Cross Talk] We got the whole crew. We got the whole crew.

Daniel Snyder: People that like to come and hang out for the hour. We appreciate it you guys. Obviously, this show is going to be awesome. So, we’re switching things up just a little bit for this show. We’ve got a special guest. Someone that I’ve been wanting to talk to for a long time, someone joining us from across the pond, and runs a little service called Cestrian Capital. So, we’re going to be joined by Alex King here in just a little bit, so stay tuned for that. But housekeeping.

Let’s get it out of the way, shall we? So, first things first, tomorrow here on Seeking Alpha, we have an exclusive webinar with J. Mintzmyer from Value Investor’s Edge. I’m going to go ahead and drop the link for that here in the chat. Everybody come hang out with us. It is from 12 to 1, the same time as this. But it’s tomorrow, Thursday.

If you’re listening to the podcast, obviously, we have the video-on-demand later, so you can always catch a replay. And he’s going to lay out maybe some of his top stock picks for the shipping sector. He likes the containerships and oil tankers, and he really follows what I call the invisible railroad of the seas. Right, so come join and hang out with that.

Hey, Alex. How is it going? Stef? Stef. Stefan. Sorry. Nice to see you back with us as well. What else do we have going on? Well, I got to say a big shout out to everybody that’s been leaving us reviews over on Apple Podcasts. There’s a few of them trickling in. We’re seeing in some nice 5-star reviews as well, watching the charts there. I’m going to go ahead and leave a link for that as well in the chat. So, you can all just, you know, jump over there and tell people…

Austin Hankwitz: And don’t forget, don’t forget. If you’ve been rocking with us for a while now, you know, the podcast is relatively new on Apple. So, if you leave that review, make sure you drop the one hundred emoji, the 100 with double underlines all in red to let us know that you’re a long-term listener. It’s a little inside joke we got going on over here. So, drop that one hundred emoji and let us know.

Daniel Snyder: And it’s happening. I was just pulling up the reviews right here. Allen Webb [ph] actually just left a review at the end of November, saying insightful and entertaining, 5 stars. Weekly market insights and stock analysis done in an informative and in an entertaining way. Excuse me. Thanks for listening and hanging out. So, guys, go check out that on Apple Podcasts as well. The cool thing about this re-brand of the show. So, as you know, we were previously called Stock Market Live, and now we’re Investing Experts Podcast. So, what does that mean?

It means you’re still going to get the same market overview that Austin and I do. We’re still going to be doing stock analysis, but we’re going to be joined more and more by special guests. And I’m talking about industry level guests. We’re talking about not only Seeking Alpha Marketplace authors, we have some great contributors, and we might sprinkle in some outside industry guests as well that we have coming through the Seeking Alpha doors here.

So, make sure you stay tuned for all of that as we go into the end of the year. Are we going to get a Santa Claus rally? Man, we got to touch on that. Right? Obviously, FOMC is coming out here in just a few hours.

Austin Hankwitz: But with that being said to, I want to really encourage our listeners right now. If you know someone, you follow them on Twitter, maybe you watch them on TV, and you want them to be a guest of our show, like, I’m not saying that my 600,000 followers on TikTok has any, like, clout to it. But I might get my DM’s answer. I know Daniel’s got some cool clout too.

So, if you have a cool idea for someone to be a guest on the show, let us know. We’ll try our best to get them on here. We’re trying — we’re here to serve you, in the comment section, in the video ideas. Everything we do is to serve you. So, let us know.

Daniel Snyder: That’s what this show is all about. Let’s bring ideas together. Let’s start the conversation. Let’s bounce off a different opinion — I mean, how many times do we not agree? Right. I mean, all the time.

Austin Hankwitz: All the time.

Daniel Snyder: With Hankwitz sometimes. And then sometimes, I’m fully on board with you. But let’s go ahead and dive in everybody. Let’s get a quick look at the overall markets before we go into initial thoughts. So here we are checking out the volatility index today. Obviously down here at the low 22 levels, we had a massive gap that turned around and filled pretty quickly. So pretty interesting. That’s kind of stabilizing on these last few hours before, you know, the bump in the interest rate, which we’re all expecting.

And we’re going to wait and see what’s going on with [indiscernible] and what he says today. So obviously, Dollar Index as well. Dollar has just had a significant pullback. I mean, this is I was doing some research and it’s kind of like a self-fulfilling prophecy thing. Right? Dollars started increasing in value and all these companies started hedging, but they were late and they were, you know, what’s called the dumb money. Right? So, I think that’s where we saw it kind of, like, is this the blow off top?

It’s looking like it. Getting a nice pullback, of course, emerging markets are loving that right now as well. Let’s go ahead and look into SPY ETF for the S&P 500. Obviously, I went ahead and drew a little price level up here where we’ve got a nice little resistance zone. If we see a pop today, that might be an area of resistance for us as well. We’re right here, battle zone 200-day moving average. Something to very keep an eye on. Above — gap above and a huge massive gap below.

Obviously, 80% of the time, gaps fill. And if we break through this level, I think we might actually go all the way to the gap. Test that little gap bottom, but can we fill that gap? I don’t know.

Austin Hankwitz: What’s that number say? I’m trying to — trying to use my new glasses here to read it, but mine’s aren’t that great. Is that about…

Daniel Snyder: Are we talking about the bottom of the gap?

Austin Hankwitz: Yeah. Bottom of the gap.

Daniel Snyder: Yeah. Bottom of the gap is right around the 420 levels. So, 420 for SPY. But that would be massive. Right? Thinking about where we are right now, what we’ve been going through. And actually, let me bounce back a second. So, you know, we talk about our friends over at DataTrek research every once in a while. I mean, I love the research that they’re putting off.

And actually, just today, I want to highlight this. [Indiscernible] that silver has outperformed gold by 20 percentage points over the last 100-days, well more than one standard deviation to the upside. This typically occurs after recessions and seldom before.

Austin Hankwitz: Interesting. Don’t tell — I don’t — you got me thinking now. What’s going on?

Daniel Snyder: It’s an interesting thought, isn’t it? So, I’m just going to let that drive. I’m going to let you guys think, you know, I’ll let you analyze that. But little negative information that I thought we had to share right now. So, let’s go and look at the keys real quick. Tech sector, of course, obviously, in a downtrend, finding some resistance here at the 100-day moving average. Went ahead and fill — let me remove that for you. 100-day moving average, that’s this level right here, which is 290 and 298.

So, keeping an eye on that. We’ve got some support below the market. But really, I just want to highlight with tech and this is S&P 500 and the overall market as well. We’ve been in this huge balance zone right here. Since what day was that? November 11th. Obviously, once we entered November 10th, whatever that was. But this huge balance zone is just – it’s been consolidating, a consolidating market and we like seeing consolidations because that means a big move is coming. Right? Upside, downside, that’s what we’re all anticipating.

But the consolidation is a good sign. Lastly, let’s look at the IWM Russell, obviously, bouncing against this long term down trend line. Can it break through? You got the 20-day above? You got the 200-day above. You will have a little support from the 100 here and the 50. I mean, all these moving averages are just converging right here on the Russell 2000 index which is the IWM. Anything that comes to mind for you Austin about this when you see this?

Austin Hankwitz: Yeah.And I’m trying to — I’m trying to find it. Right? So, I was recently reading something that was shared by and I should have grabbed this beforehand, so I apologize for those that are — here we go. I was reading something that was shared by Bank of America (BAC) about the Russell, and like, they had this idea where I don’t know if I’ll be able to find it on the fly here. But long story short, they were thinking like, okay, as we look toward next year, what companies are we most excited about? Right?

And thinking about the ones that are able to, you know, from an operating leverage perspective, really begin to lean into that. How those SG&A cost as a percent of revenue decrease while revenue and margins expand. Right? And long story short, that was the company’s that Bank of America in this report, if I can find it, was really, really excited about. Right?

On the long side, we screen for Russell 1000 companies that have expanded earnings before interest and taxes margins year-to-date in contrast with the broad market and where consensus estimates project continued margin expansion in 2023. So, do I know who those companies are? Absolutely not. I don’t have any screens on top of my head, but I think it’s interesting, you know, looking at the Russell Chart to — when we begin to think toward 2023, how kind of – you can begin to pick apart companies that might be those little shining stars that others might be overlooking.

Daniel Snyder: Yeah. And this is why I’m so thankful we have Alex on today, because we’re going to talk to him about his ideas on what’s going on with tech. Right? Tech has been demolished this year as we all know. But is a tech recovery possible? And that’s a sector that I have a couple, you know, names of that he’s done research on recently, that everybody can go read his articles on Seeking Alpha as a premium member or even underneath his author profile.

But we’re going to talk about tech and what’s going on there and is the tech recovery coming with him in here just a moment. Let’s keep it going though. Let’s go ahead and move on to our poll, you know. Lately, everybody. We got a good crowd hanging out with us live here today. We love when you guys join as we record these episodes live. Also, feel free to always ask us questions as we go. So here is our poll question that we ask you week-over-week. Where do you think the market is headed by the end of the year?

Obviously, we got, what, two weeks left, not that many trading days left. And let me just remind everybody, we weren’t here last week, but the week before the answers were overwhelmingly lower. Everybody chose lower. So, we’re going to go ahead and close this off here. And today, as I can show you, everybody believes it’s going higher.

Austin Hankwitz: May I look at that? How does that happen?

Daniel Snyder: Higher into the end of the year with 80% of the people here today with us saying that we are headed higher, 20% lower. So…

Austin Hankwitz: Hey, to give the people credit though — to give them credit, whenever — two weeks ago whenever we were talking about higher and lower and people were saying lower, I mean, we did see kind of little bit of a spudder there with this bear market rally last week. So, I feel like maybe that could have been a little sprinkle of, you know, affirmation there on top of that. But man, everyone’s thinking higher now, so it’s gosh – you know what’s…

Daniel Snyder: I mean, that’s a great point. Right? So, our last episode was November 30th, I believe. And from December 1st until — what day was that December 7th the market had pulled back over 4%. So, applause to everyone. Great job. You definitely got that call. Right? So, moving on though, let’s go ahead and get into initial thoughts. Shall we? Why don’t you kick it off for us?

Austin Hankwitz: Yeah. Happy to. So, we all know Sam Bankman-Fried has been arrested. I know you’re a crypto bear, I get that Daniel. But I think now I want to better understand your perspective on crypto that we’ve been able to bust the fraudsters? Has your perspective changed? Bullish or bearish on this, you know, actual action of him getting arrested. What do you think this might mean for crypto as a whole?

Daniel Snyder: Crypto as a whole. I think he’s a drop in the bucket. Right? I think we all expected this to happen. I mean, they have the new CEO of FTX coming out and speaking in to the government and revealing that they use QuickBooks, which QuickBooks is a great product. I get what they’re saying about you know, as once a company gets big enough, you should probably switch off QuickBooks. Totally get that. It’s made for small businesses that is into its design and everything else.

Overall, you know, I’m still bearish on crypto. I don’t — I need to see more of how the technology is going to produce value and not just be a piece of technology as if it’s the — I don’t know. Whatever you want to call it. I mean the – you can’t even say it’s like a computer because computer adds so much value. It’s a transfer protocol. Right? It makes sense for the financial and data storing structures. But outside of that, like, I can’t physically hold a blockchain. You know?

So, I’m still bearish overall. My question for you is, I just saw the report, Binance (BNB-USD), just had $3 billion of outflows in seven days. Is that worrisome? Shouldn’t be people — they should be paying attention to that?

Austin Hankwitz: Yeah. I think it’s certainly worrisome. And please people in the comments here, let us know if you have any money on exchanges. If you do, please move it off. But are you in crypto? Are you not in crypto? And how does this Sam Bankman-Fried arrest changed your mind on it at all? But yeah. I mean, that’s you know, Binance has been one of those longstanding crypto exchanges. It’s the first exchange I ever made an account with back in 2016. And it’s always been thought about as the gold standard. Right?

CZ has always done. Yeah. No problem, I’d be happy to help. She was thanking us for the Ether wallets call out the other week. myetherwallet.com is where I – where I host my specific or hold my specific holdings rather. But to the idea of Binance and people moving their money off the exchange, right, CZ, the founder and CEO, has always had this kind of mantra of funds are safe. SAFU. It’s like an acronym. I don’t know what the U stands for, but funds are safe. Funds are safe. And he’s held true to it.

Over the last six years. It’s always — I mean, he’s been able to hold that. So, I have much more confidence in one of these, you know, longstanding veterans than I do with overnight success as was SBF. But I think it’s smart that people are taking money off the exchanges. Right? I think, you know, you don’t — if it’s not your key, you know, not your key is not your crypto, right, at the end of the day. So, I think that’s a good move in the right direction.

Next question I have for you, for your initial thought is, kind of saying on this technology trend here, is ChatGPT. Right? ChatGPT has been released. It’s hit 1 million users in, like, five or six days, I think, is what I saw. The fastest platform to ever hit this milestone. Initial thoughts on ChatGPT, bullish, bearish, and what do you think this is going to do for Google? (GOOG, GOOGL) Right? Is — I just don’t understand why people are so scared for this with Google, but I want to hear your thoughts.

Daniel Snyder: Alright. So, I love that you just asked that, because I’ve been playing with this thing nonstop and somehow, I had a feeling that you’re going to ask me about this. So, I’ve got ChatGPT open right here on the computer. And I said, write an intro for the Investing Experts Podcast by Seeking Alpha. Here’s what it just gave me back.

Welcome to the Investing Experts Podcast by Seeking Alpha, where we keep you up to date on the latest news and analysis from the world of finance and investing. Every day — alright, so that’s not true — we bring on expert guests and analysts to discuss the biggest movers and shakers in the stock market and offer in-depth analysis and insight on the trends and developments that matter to you. Whether you’re a casual investor or a professional trader, the Investing Experts Podcast has something for everyone. Tune in now and stay on top of the market.

Austin Hankwitz: Wow. I can’t write something like that. That is unbelievable.

Daniel Snyder: I mean — so I love ChatGPT. I think it’ll revolutionize marketing and copywriting, which is great. Right? Don’t get me wrong. It’s great. What does it mean for Google?

I’m not sure. It’s entirely relatable yet. Google doesn’t create copy for you like this is doing. Google is there as the database of knowledge of the world. Right? And as they are continuing to refine how Google bots work and how they refine their process through searching all these pages of blogs and research articles and everything else, it’s getting better and things are changing where it’s like, how many ads you have on a page you’re looking at?

Can we pull specific clips from a YouTube video, so that you don’t have to watch a 10-minute video, if you’re saying, hey, how do I set up my x y z smart home device? They’re like, oh, well, really only this 50-seconds of YouTube video is what you need to watch and now you know. It’s all about streamlining you answering your questions. ChatGPT could do that as well. But if I — I feel like if I went there and I was trying to look for a video, you can’t have a video tutorial. Right? You can’t have that visualization that helps people’s minds click. And so, I think there’s still a little bit of a divide between the two of them, but I love what is happening here with ChatGPT.

Austin Hankwitz: I’m right there with you, man. And you know I tried to think about this. I was hosting a live stream on Monday. Right? And I was trying to think about this with them and where — I was asking, you know, is Google now going to implode because of ChatGPT search functions. And I was like, I don’t think so. I think they’re very different products. Right?

On one side, you’ve got the ability to scour the worldwide web, and on the other side you have the ability to receive utility and actual subsidence. Right? You just wrote the intro or they just wrote the — what it’s just wrote the intro. What pronoun? I don’t know. It just wrote the intro of, you know, the Stock Market Live, I’m sorry, Investing Experts

Daniel Snyder: Investing Experts Live. Yeah.

Austin Hankwitz: It’s going to — it’s going to take a second. But anyway, just wrote that intro. That’s so cool, but you can’t get that through Google. Right? But just like I can’t find, like, I would imagine, you know, best restaurants in Nashville, Tennessee, I can look that up on Google, but I don’t think ChatGPT is going to kind of give me that, you know, kind of feedback there.

So, it’s much more of a utilitarian kind of — I’m sorry, not utilitarian. I’m off my wave today, Daniel. It’s much more utility and much more actual subsidence and product than it is specific search that I think that people are kind of afraid of, with that overlap with Google, which makes me want to ask the question here to our audience listening.

Have you yet used ChatGPT? And if you have, what are your thoughts on it? What have you asked it? Have you told it to do something for you? And if you’ve not used it, one question is why? And two if that answer is, you’re scared. My dad is also scared, but he’s 78. So, he has reason to be scared. This guy remembers the whole, like, you know, big brother stuff with them. He’s scared of the Internet.

Daniel Snyder: They’re always watching. No. No. I think this thing’s going to be revolutionary. I think it’s kind of goes into the sense though of what products are people going to develop with it as the backbone. Right? Which you’re seeing with, like, lens AI or whatever that app is, that’s, like avataring everybody right now that people are going bonkers for. It runs off dolly too and a little bit of other stuff they have going on.

So, I think it can lead two things that will boost our productivity. I’m sure it’s going to revolutionize the world of marketing by giving you I mean, it just sped up so many — so many people’s productivity hours. Right? If instead of having to sit down and be like, write me a commercial script, somebody going and being like, what words should I use for marketing? Right? I think they’re just going to be like, let me start here and then I’ll refine. And then that’s already so much. Like, that’s a leap ahead, easily leap.

Austin Hankwitz: And before we move on, I just want to mention, like, we talk about the utility of it from like, a copyright perspective, but I did see my name. We just see, you know, here, I’ll call it plagiarism for the win. I just saw someone on TikTok made a video about that. They made an essay inside of ChatGPT, trended in and got a good grade. They didn’t have to write it. But what’s crazy is my friend, Cameron, he is very into Blockchain and smart contracts and Solidity and all that, like, coding the stuff.

And he’s like, write me a Solidity contract for an ERC-20 token that does a, b, c, x, y, z. And it created — it wrote the code in, like, twelve seconds. And then he like, tested it for errors and it was error free and it was this amazing thing. It’s like, that to me blows my mind, that robots are able to create more robot functionality. If that makes sense from scratch. I got to just — I think that’s wild.

Daniel Snyder: So real quick point that Christian just brought up in the chat here. So, I can’t believe that Google, which bought DeepMind a few years ago, doesn’t have something similar, up and sleeve to ChatGPT. We don’t know if that’s true or not, but I will say as I was diving into OpenAI and everything. So, Microsoft (MSFT) — and this is just another reason to like Microsoft. They invested in OpenAI. And OpenAI’s back-end is what helps in the GitHub Copilot product that they offer.

And it goes back to recommending the coding like you’re talking about. Helping programmers complete their code quicker, help them say, you know, the AutoCorrect features like Google has, which might be DeepMind what you’re referring to. Microsoft is very much integrated with OpenAI. So, something to watch there, especially as they continue to roll out products. Let’s keep it going. What’s next?

Austin Hankwitz: Alright. Last one here for you. We saw a laundry list of executives at Slack step down. Right? We saw Bret Taylor, the co-CEO. We saw Stewart Butterfield, their CEO. Tamar — I don’t want to butcher his – the last name, but their Chief Product Officer. Jonathan Prince, SVP of marketing. What are your initial thoughts on this? Why is everyone leaving Slack? And not to mention Salesforce (CRM) executives. Right? We just saw the CEO of Tableau step down, and the Chief Strategy Office from Salesforce step down.

Obviously, Salesforce owns Slack. Why are people leaving? What’s going on here? Does that prick your interest in a good way or a bad way? Like, do you have any thoughts on that?

Daniel Snyder: Alright. So, I’m going to pull a unique card in this scenario because this I think is a great question that we could ask Alex. He’s been watching Salesforce. I think he might have an opinion that’s probably a lot better…

Austin Hankwitz: Okay.

Daniel Snyder: …than mine.So, let’s put a pin in that and bring it over to him in a second. But let’s just run the three with — you look like and then we’ll get Alex on. We can ask him that question because that’s a really good question. First up for you, I have on the docket that Redfin (RDFN) has come out and predicted that home sales next year are set to drop. To the lowest level since 2011. What’s your initial thought on that?

Austin Hankwitz: I unfortunately agree. And I say, unfortunately, because your boy bought a house back in, like, July or August, not saying overpaid, but never will admit that because you never ever pay if you ever plan to sell it, which I don’t. And that’s lie. But anyway, no, I think that’s going to be the harsh reality. Right? I know I’ve got three houses here in my neighborhood. Houses that were being bought up in days, three houses have been sitting on the market now for several weeks. Right?

And I think, you know, a couple of price slashes. I think that’s going to be the case. I think a lot of people are scared of interest rates. I think a lot of people are scared of a recession. I think a lot of people are trying to figure out hey, I just lost my job. I’m not going to qualify for a mortgage or maybe I did qualify, but I just got laid off. Like, I think that’s going to be the case and that’s – yeah, it’s going to be unfortunate for sure.

Daniel Snyder: So, you’re saying you think that even though I mean, we’ve seen recently, the 30-year fixed rate mortgages averaged 6.33% for the week ending December 8th. I mean, it was over 7%. Mortgage rates…

Austin Hankwitz: It was. It was. It was. Yeah. But I just — you know, I can’t tell anybody like, times I’ve seen examples of people that are saying like, and this is me being a 26 year old on TikTok all day where like people like, hey, I had, you know, I was paying rent like this or, you know, this was my budget back and maybe during COVID or when I wanted to buy a house and, you know, I was I could afford $1,900 a month, but I can’t afford $3,200 a month and that that change right there, that $1000 is essentially just the interest rates. Right?

And so like — and I just that’s what I’m seeing, and I think a lot of people got just the short end of the stick from that. And either won’t be buying a house or have to save up longer for a larger down payment like that, the interest rates rising so quickly certainly put a damper on the momentum that they might have had to purchase a house in the first place.

Daniel Snyder: Got you. Alright. Cool. This next one’s a little bit outside of how we normally talk about initial thoughts. My question for you or just your initial thoughts, what is going on with Carvana (CVNA)? Have you been watching this? They’ve been in the news. Time and time again, obviously used car prices are getting crushed. They’re continuing to try to expand. They spend so much money on marketing these tower car things, pillars, whatever you want to call them. Is this company going — is that stock going to zero?

Austin Hankwitz: So, before I answer that question, I want to share a really cool — and I know we got to wrap this up, but I was on the New York Stock Exchange last week on the floor with a guy named Peter Tuchman, really awesome guy at Einstein of Wall Street. Really encourage, everybody go check him out.

But he has a, I don’t know what he does specifically, trading, brokerage, like, I don’t know. But he was — this was the day that Carvana got a, I think, $1 price target from Wedbush. It might have been, like, a Wednesday or something last week. And Carvana stock opened down, like, 35% that day or 40% something crazy. And he was going to try…

Daniel Snyder: …do, because it’s a $5 dime in.

Austin Hankwitz: Yeah. Right, right. But it was just crazy — volatility. He was going to, like, arbitrage the trade somehow, and so he was, like, yelling across the floor which we don’t see a lot, but he was yelling and his analysts were yelling, the market makers are like, hold the trade for, like, thirty seconds. It was really cool.

But, you know, I was looking what that hell is my thought to, like, look more into it and how I understand it is during the pandemic where you couldn’t go out and buy a car and you know, you couldn’t do these things buying a car online and selling a car online in a very simple way was really valuable. Right? And so, Carvana said, wow, all these people want to buy our stuff. Let’s just make sure we own a bunch of cars, give them the best, you know, purchasing experience by having a bunch of inventory. This is great.

And so, as you buy these cars, specifically, Carvana has to go in debt to do that. Right? And the debt that they have on these vehicles, the inventory, as interest rates rise, their interest expense payments rise as well. And so, what I’m seeing is Carvana just completely didn’t understand or think that the momentum, the volume that they’d be doing with inventory would pretty much come to a kind of screeching halt, but it certainly slowed down a lot with interest rates rising.

Now I think I saw 820 credit score is now paying 10% plus in interest for a used car which to me sounds outrageous considering I just bought my used car two years ago at a 2.9% right? And so that’s certainly impacting Carvana. They’re not sitting on all those inventory. They’re paying more and more an interest debt or interest on their debt on the inventory. Is it going bankrupt? Is it going to zero? I don’t know. But, oh my gosh, is it a recipe for disaster?

Absolute, like, terrible timing. I feel bad for the executives. I don’t think that anyone, like, saw this coming. Right now, predicted interest rates were going to fly as quickly as they did. But man, how frustrating could that be? Right? I mean, completely out of their control.

Daniel Snyder: I’m going to give a little bonus right here and just run through the ratings some real quick. So, the Seeking Alpha authors on Carvana have a sell. Wall Street has a hold. Interesting. And the Quant system has a strong sell on Carvana. So alright. Let’s get into this last one. So, a good friend of mine Nick Bunker works over at Indeed. He’s a part of the hiring lab. They do a lot of research. They pull all the data off of nd.com, look at things like wage growth, employment, everything else. So, he recently put out in November 2022 jobs report.

And the title is the labor market keeps running. So, here’s the bullets and let’s get your thoughts on the other side. So, the labor market remains strong with employers adding 263,000 jobs and the unemployment rate remaining low at 3.7 %. Pay rolls continued to grow almost 3 times the pace needed to keep up with the population growth.

Wage growth picked up suggesting that pay gains may have more resilience than expected. Several industries related to the sales and transportation of goods saw notable declines in jobs as in-person services, sticky-ish, such as restaurants and bars power the headline growth. Initial thoughts?

Austin Hankwitz: I think that’s great. I love the idea that people are getting paid and not losing their jobs despite these crazy headlines of you know, this publicly traded company is going to lay off ten thousand people. This publicly traded company is going to lay off half their staff talking about Twitter or I guess not public anymore. But I mean…

Daniel Snyder: …and sellall the furniture out of their office in San Francisco.

Austin Hankwitz: I didn’t see that. That’s so funny, though. But I was just listening to Dave Ramsey earlier this morning and he was talking about how, you know, these small to medium sized businesses that don’t have to report to shareholders and are instead building businesses for the long term are, I guess, and you can agree or disagree with Dave Ramsey, but I think his concept here is correct. Like, he was saying, our profits are down year-over-year, but we don’t care because everything’s still fine.

And I didn’t lay-off anyone because we want people to have jobs. Do you understand, like, the macroeconomic scenarios right now. And it’s like, I feel like on one side, you have these publicly-traded companies who have to do specific things for shareholders, if it’s stock buybacks to increase their earnings per share or increase their profits specifically. And that one costs money and you have to lean down and like, I get that. But on the same token, it’s really cool to hear that all of these people are keeping their jobs and wages are moving the right direction.

But I just – man more and more of this news comes out, I’m like, are we really going to do, like, this elusive, like, soft landing that we’ve all been talking about, but no one really believed in. Right? It’s like — it’s like the boogeyman. Is it really going to happen? Is he really going to come? Like, certainly look at my get, which is kind of wild to me.

Daniel Snyder: I would say, just remember rule number one. Well, rule number one is don’t lose money. Rule number two. Don’t fight the Fed.

Austin Hankwitz: Yep. Yep. Yep.

Daniel Snyder: Alright, man. Let’s keep it going here. I want to get to this part. So, we’re going to — let’s get Alex in. That’s the easiest way to play. Let’s get Alex…

Austin Hankwitz: Fine then. Let’s do it.

Daniel Snyder: So, you guys may know Alex. Some of you might not know Alex. Alex, welcome to the show. Wait one second, just want to make sure you’re unmute. So, for everybody that doesn’t know, Alex, is – runs Growth Investor Pro. Over here he’s at Seeking Alpha marketplace service. You focus on growth at a reasonable price, right, or profitability?

Alex King: We focus on a lot of things. We call it Growth Investor Pro because that’s where we started. But actually, in the service, you’ve got growth stocks, value stocks, ETFs, long-term trading, short-term trading, options, rates, dollar. But the catchy part is the growth part. And it’s also the part that’s been most interesting to do this year because obviously growth all over. It’s all going to zero. It’s never going to go back ever again ever. Everyone hates growth. No one’s interested. You can’t make any money in it. And so, actually, that’s been the most fun part to focus on all [indiscernible].

Daniel Snyder: I love that you said that.

Alex King: My professional background before I took this was in institution vesting, all in tech, VC and the leverage buyouts, all of which are growth companies one way or another.

Daniel Snyder: Yeah. The guys, I can’t communicate this enough. I mean, you’re a legend in this space. So, I’m thankful that you’re here with us and joining us from across the pond. So, I think the best place to start is let’s get your reaction to what’s going on with inflation in the Fed right now? And I’ll let you – I’ll just leave it broad. Let you take it where you think we should go.

Alex King: Yeah. I mean, I’m not sure I’ve got any unique insights on that. I mean, if you read all that Chicago school stuff, from a hundred years ago, you know, it proved to be correct, which is if you increase the money supply, inflation goes up and if you decrease the money supply, inflation goes down and it’s that simple. And I think as is now well known and understood, yeah, the money supplier is increased massively during COVID, probably too much.

I think it’s hard to argue it shouldn’t have been increased at all because people forget, you know, in February, March 2020, it looked like the economy might stop, and it looked like an echo of 2008 when it looked like the economy might stop because of credit issues. So, the risk, the COVID crisis wasn’t really an equity crisis. It was a cash flow crisis. If landlords weren’t getting paid, suppliers weren’t getting paid, if cash doesn’t flow, the economy stops. I think most people would say it was right for the Federal Reserve to step in and free up that liquidity.

Think now most people would say it’s overdone. You know, you wouldn’t — I don’t think the Fed ever intended for, you know household savings to be an all-time high by the end of 2020 or 2021 whatever it was. So too much money came into the economy, and so low and behold, inflation out. As everyone, I think, would agree now they reacted too slowly. It wasn’t just them. Most central banks across the world were the same.

And now they’ve had to slam the brakes on too hard. And so, it’s crazy volatility in every market you can think of. You know, and what’s been particularly nuts this year, I think is that, anything in late 21’, I think it was fairly obvious that the market was going to correct. If you looked at the NASDAQ or the SPY or whatever, it was going to correct. We said that so in our service loud and clear. November 21st, I think we said this is probably a talk, you know, watch out.

But I think what wasn’t obvious was everything was done. Right? So normally you go, well, maybe I’ll rotate out of growth and into value or buy some credit or I’ll buy some commodities or whatever. The only thing, the only sectors that made money all year consistently is energy. That’s it. Everything else lost money. That’s incredible. So, yeah, it’s been crazy. I think what — where we are now, again, most people would agree is, they’ve raised rates too fast. CPI, PC, every measure is coming down. I don’t see any recession anytime soon.

Personally, I’d like anyone to show me any actual data that says there is going to be a recession. Because the jobs market says there isn’t. GDP says there isn’t. It’s just headlines that says there is. So personally think that we are done with the hiking cycle. House view here is, yeah, we might get a little bit of weakness in the next couple of days in the market, but probably that October, November low was live. And probably, security just repriced now off of a higher rate and inflation rate environment. That’s it?

Daniel Snyder: Alex, I like where your heads at. I was kind of curious if you had any thoughts at, you know, what you said about recession. You’re like, there is no recession. I don’t see anything that says recession. Then why do we see people like Kathy would come out and be like, I think we’re in a recession right now. Like is — is that her talking her book in your opinion?

Alex King: Well, I don’t like this, you know, let’s all pile on Kathy Wood thing, but point to a thing she last said that was correct. Right?

Daniel Snyder: I knowwhat.

Alex King: There is no recession. You know, if you look at – okay, jobs market, look at GDP, where’s the recession? The point you just made about silver and gold earlier, you know, I’m sort of remised, which is, well, that’s because there isn’t a recession. So, I mean, obviously, tomorrow, right? GDP will collapse and the jobs market will go to hell and rest of it. But right now, there is no recession. So, it’s just fame hungry, frankly.

And people obviously get scared very easily. If you’ve been investing this year or trading this year, it’s hard you know, to contain the worry. You’ve got to work really hard at that. But people thought it run too deep and now people will be surprised, I think, when the upside comes and no one believe the upside. If you remember the rally coming out of the COVID lows, people shorted that rally all the way from March 2020 up to the end of the year because no one believed it was real. But it was real.

And you knew it was real because it was happening. You know, the evidence was, it was happening. And so, I think when the upside comes now, that’s, you know, this week or next year, nobody will believe it. And people won’t make the money that’s available because they’ll be too busy trying to convince themselves that, you know, this is a fake out and it’s going to collapse and go to zero and blah. So, in the same way that everyone – yeah, just normal psychology. Right? Everyone got too carried away on the upside in 2020, and particularly ‘21, and now everyone is too carried around the downside, just normal.

Daniel Snyder: And we know that the correlation between stocks and bonds is pretty much — they’re extremely correlated right now. More than they have been over the last decade.

Alex King: Right.

Daniel Snyder: And Christian here in the chats also bringing up the point about, you know, the inversion of the yield curves across the border. So, it sounds like we’re just flatting out saying, you know, the bond market’s wrong in this case. And could that be the fuel that we could see into this valid – this next leg that no one actually is expecting?

Alex King: Well, I think they are indicators of what may happen in the future, but it’s not a guarantee. So, you’ll know when we’re in a recession because we’ll be involved, but we’re not in right now. And so, you know, investing been invested. We can all come up with a range of indicators that tell us exactly what’s going to happen tomorrow, except they don’t. And so, all you ever kind of have is look at the actual data, the real time data in front of you, and then work out whether the indicators she was using were any good.

And so right now, again, we could change tomorrow, but right now, where is the recession? I think one argument says, well, there’s all these layoffs, that means less consumer spending, that means recession. I think that’s probably a good argument. And if you look at why the layoffs are happening, my own view is, all companies are perennially overstaffed always, and you can always take a lot of cost out of any business with no harm to the top line, always.

Always. It’s just a people don’t mind to do it for obvious reasons. And right now, you have air cover. You know, if you’re a CEO of a sort of CFO of a business, you know, you can take 20%, 30% of headcount out of your business tomorrow, and nothing bad will happen. Normally, you know, you get dragged to the edge for doing those things.

Now, you know, everyone’s doing it, so why not? But there is I think an argument that says, that if there’s enough of that that could — that could cause a serious slowdown in consumer spending, partly if you’ve actually lost your job and partly if you’re worried about losing your job and the effect that might have on psychology. I mean, that’s probably the strongest argument for me.

Austin Hankwitz: So, let’s pretend that we are going to be in a recession, right? The NBER has said we’re in recessional. It’s happening like –

Alex King: Yeah.

Austin Hankwitz: That’s reality. What specifically from your perspective, Alex, would, like, what are – what would those indicators be? What would the data be to say to you that we are in a recession? Right? Because, you know, 15 years, 20 years ago, you’d say two consecutive quarters of GDP contraction was a recession. We saw that sort of to a very small degree recently, but like, that’s not a recession. Now it’s like, to you like, what would you say is like, okay, these four things are happening? We’re in a recession?

Alex King: Well, I’m old. So, I would still look to GDP. I guess you would look at, you know, overall number of payroll account and GDP. So, I appreciate they aren’t particularly insightful or technical indicators. Yeah. Clearly. And they’re kind of lagging indicators as well. You only find out after the fact. But in the end, those are the indicators is, you know, are people employed? Is consumer spending holding up? You know, consumer savings holding up and is GDP growing. Those are things I would look at.

Now I’m not a macro person, no claim to be, other people on this, you know, watching the show will be much smarter than me on this front, make no claim to expertise on this. All I would say is, right now, I don’t see one happening. I don’t see one that’s actually happening right now. And I don’t see why would there be a recession? Right? Just ask yourself that. Why would there be one? Because rates are up? Well, you know, that affects certain things like, am I going to buy a house tomorrow? Okay.

If I buy a house tomorrow, I’m probably going to buy some furniture. So, you can you can construct an argument like that. To me, the thing to look at is, if the layoff thing really gets hot, I could induce a recession. But I don’t see it yet.

Daniel Snyder: Got it.

Austin Hankwitz: Okay.

Daniel Snyder: I’d like to — I mean, we’re kind of seeing the conversation shift now into what earnings will be next year. Yeah. And it’s going from the layoffs that you’re about it. And it’s all great points. I mean, I’ve thought that as well. I’m like, oh, is this the moment in time where it’s just easy for executives on earnings call to just guide lower and do layoffs and just cut the fat, if you will, that they haven’t had that opportunity. Right. Without having the market react crazy, and be like, oh, you’re cutting jobs, therefore, you’re not profitable. Right? We always want to see them higher. That’s the positive sentiment.

Moving on to earnings of the overall market going into next year, I mean, we’ve seen the big firm — Goldman (GS) came out and said, they’re seeing flat growth next year. We’ve seen a few people say negative. Of course, there’s the ones that say positive. Not much though like, do you have any thoughts of what earnings next year might look at for the overall market?

Alex King: Yeah. Overall market, no. But if I — if I look at, you know, the stuff that we cover, So, if you look at the sectors we cover for single name stocks, we cover tech companies and more of the high growth than the Oracles (ORCL) and IBMs (IBM) and so on. And we cover space and defense. So, you know, if you look at space and defense, defense companies will have higher earnings, you know, those backlogs are rising, and they’re rising because of the increasing tensions in the world. Okay.

So that backlog growth is going to flow into revenue growth. It’s going to flow into earnings. So, earnings are going to get up over the course of the next two or three years. And if you look in tech, tech earnings are going up. And the reason they’re going up is because, you know, in times of free money and I – again I’m old, and I’ve done this for three decades. Right? So, in times of free money, tech companies on purpose go, we’re going to lose money.

We’re going to blow money on product development, marketing, and acquisitions. And we’re just going to chase the top line of expenses and everything else. And it’s rational to do that when money is free. Right? And we’re going to run negative cash flows, negative earnings. And then the better ones go, okay, money now costs something. So, I’m going to slow down revenue growth. I’m going to slow down the rate of acquisitions.

But what I’m going to do is become much more efficient. And for the better tech companies, mainly software businesses where you have high gross margins, you have tunable levels of OpEx and CapEx, you can kind of cut your cloth to suit the environment you’re in. So, if you look at the two big, big earnings reactions just in the last — we put a note out on this recently. MongoDB, that’s MDB, and DocuSign (DOCU), both had huge earnings reactions on pretty awful quarters.

If you looked on the top line, right, the revenue growth slowed for both. [indiscernible] the revenue growth slowed for both. And their guidance is for growth to slow even further. Now if you put those quarters out in 2020 or 2021, your stock would crater because the market would say, well, what’s wrong with you? Why can’t you grow faster? Both companies upped their guide a little bit on the earnings front.

So, MongoDB, for instance, said it was going to be EPS positive, not EPS negative. I mean, so what? Right? EPS isn’t even the thing. And the stock was up 20%, 30%. DocuSign, similar sort of story, stock up about 20% from memory. And they put in terrible quarters to be clear. And both said that growth would decelerate again next quarter. So, earnings in tech are going to go up.

Revenue growth will probably be – be know probably down a bit on this year I would think, because if you look at these flywheel type business models, the subscription business models, that flywheel is slowing. And so, you can see it in the change in the remaining poor performance obligation. That’s the backlog. You can see it in change in deferred revenue. That’s the prepaid, but yet to be recognized revenue, they’re all slowing.

They’re longer-term indicators of what the quarterly revenue growth is going to be. So, growth will slow, but earnings in the better companies will be up. The more mature things, if you know, your Oracles, your IBMs, your AT&Ts (T) who knows, but your growth companies’ earnings will be up for sure.

Austin Hankwitz: So, with those growth companies like, what specific line items get you excited? Is it free cash flow? Is it their actual earnings? Is it actual earnings per share? Like, what if you could, like, create a screen of some sort, to look like a screen of a bunch of stocks too that are doing very specific things to help you predict what this might look like. Or help you choose the stocks to even begin doing more research into? Is there maybe like a line item or two? And like what those line items might be moving toward?

Alex King: Yeah. I mean, bear in mind, this is my whole career, so I can bully you for literally days on this. Right? But just to, just to cut the chase. So, if you look at — the way we do it is, we you know, we cover a lot of stocks, and so we try and get a single lens to which to look at, you know, all the tech stocks through one lens, all the defense stocks through another. And in tech, pretty simple. Revenue growth for the quarter versus the same quarter last year, might give you a snapshot of growth.

Trailing twelve-month revenue growth versus the same period last year. So that’s a slower burn measure. Right? It goes up, slower down, slower. But take no notice whatsoever of earnings per share. Who cares? Not even a thing, right? It’s just an accounting thing. You can manipulate it, left, right, and center. We don’t even measure it. We don’t report on it.

What we look at is, in tech companies we look at unlevered pretax free cash flow, which is basically EBITDA minus CapEx minus changing working capital, which is — if you get paid by your customers faster than you pay your suppliers, you have positive change in working capital. If you get paid slower than you pay out, negative. So, get paid fast, cash goes up relative to earnings. Get paid slow, cash goes down relative to earnings. Simple. And then we look at the net cash or net debt on the balance sheet.

Those are the headline things. The couple of things that we look out that are really informative of the future. Well, in defense you call backlog. In tech people call it, remaining performance obligations. It’s a mouthful, but it’s starting to appear now in most companies 10-Qs and 10-Ks. You have to, you know, [indiscernible] control F for it. It’s on page, you know, 732, but it’s really interesting. So, for any company that has revenue visibility as a subscription model, something like that, or in defense where you have multi-year order book.

Look for remaining performance obligation or backlog. RPO measures the total contracts that the company has signed with its customers, total value of those contracts that’s yet to be invoiced or paid. Right? And then oh, I’m sorry, the total value of the forward contract book and then a subset of that deferred revenue is the subset that they have invoiced. Now, they may have been paid for it, in which case it will encashed. Or they may have yet to be paid for it, in which case it will be accounts receivable.

But look at RPO, or deferred revenue, and that’s a little window into the future. Very simple. If RPO is growing, if it’s a big number relative to last twelve months revenue and it’s growing faster than TTM revenue, probably growth is going to accelerate. And if it’s growing slower than TTM revenue, probably growth is going to decelerate. These aren’t linear relationships. They’re only directional. It’s pretty useful.

And so, we’ve used it a number of times in the Growth Investor Pro service both on the way up. So, in 2020, [indiscernible] to say this thing’s going to accelerate. Look, you can see in the order book, and it did, bigly. And we’ve seen it in things like Datadog, that’s DDOG and Zscaler (ZS) this year. And we said these things are going to slow. And they did. So, nothing’s perfect. It’s a pretty good thing to look at. So those are the things. Revenue growth, cash margins, balance sheet, RPO, those are the things.

Austin Hankwitz: Got it. And quickly before Daniel — I’m sure ask a question, the thing you mentioned too is the net debt. Are you at all like, when you’re thinking about investing into or it wasn’t just analyzing, right, you know, a tech company. Like, are there specific net debt multiples you try and keep in mind that are like the safe zone? Or are you really looking for no debt? I mean, what’s that kind of like, you know, Goldilocks spots?

Alex King: Yeah. So, it depends on, depends on the company. So, if you look at, you know, a mature business, like, you know, an Oracle, let’s take as an example. You know, if Oracle is running at, you know, two, three, even four times debt-to-EBITDA, that’s fine, right. Most of these interest costs are hedged out and fixed. The cash flow in a business well that’s not going to change anytime soon. That’s not going to stress anybody out.

With the growthier companies that either don’t generate much cash or they’ve just started to them you have to look a bit differently and say, well, how much net how much liquid cash is on the balance sheet? Not, you know, marketable securities because you don’t know what they are. There might be see bills or there might be shares in the private crypto firm you don’t look out. So how much actual cash money is on the balance sheet?

How much do they burn on average each quarter after tax? And so how many quarters runway do have? That’s a venture capital toolkit, right? But it’s relevant because so many companies went public at such a young age, if you like, in the last five years, that with a lot of them, you have to look at them as venture capital investment. So, is this thing going to need to raise money anytime soon?

And if you have to raise money in this environment right now, that’s going to hurt the stock because either you have to raise debt, which will, you know, spook shareholders, we have to raise equity at some even further depressed price. So, I think it depends on the company, mature, low growth, 30%, 40% cash flow margin, software business, big leverage, that’s just fine. I mean, don’t forget, there’s a whole LBO industry that makes a living out of 7x, 8x leverage. So, it’s fine. High growth business that doesn’t generate much cash. Look how much liquid cash you’ve got versus the quarterly burn.

Austin Hankwitz: I love this guy. You want to come back like every episode? This is so interesting to me.

Alex King: Sure. Yeah, why not. Yeah.

Daniel Snyder: I told you he’s a legend. Alex or maybe Austin, maybe we should kind of pivot it back to Salesforce. Alex, I know you recently…

Austin Hankwitz: Yeah. Yeah.

Daniel Snyder: …put out some article about Salesforce here. I think it was the end of last month. I was looking through. Austin, you had the question about management. Maybe you want to ask it to Alex and get his thoughts?

Austin Hankwitz: Yeah. For sure. So, I had written down — we’ve seen a laundry list of executives at Slack step down. Right? Bret Taylor, the co-CEO. Stewart Butterfield, the CEO. Tamar Yehoshua, the Chief Product Officer. Jonathan Prince, SVP of Marketing. And not to mention, you know, that was Slack and at Salesforce, they lost their Chief Strategy Officer and the CEO of Tableau. What might be going on behind the scenes here? Why is this happening?

Alex King: Yeah.

Austin Hankwitz: And what may be a person that has no idea, like myself, I don’t own Salesforce. I’m not very keen in the business, but I’m seeing these things and I’ve seen the headlines. How would you kind of break it down for someone like me?

Alex King: Yeah. So, I think you have to – so first of all, again, I’m old. I remember Salesforce’s IPO, back in 2002 or 2003, I forget which. I think you have to separate it into two things. The departure of execs whose companies have been acquired. That’s normal. You should expect that. You know, if you’re a guy like Stewart Butterfield, I mean, if you’re — if you look at Butterfield’s background, really interesting guy. So, he set up two gaming businesses.

You know, Slack was supposed to be a multi-user dungeon for want of a better term. Right? A guy like that is never going to live very long in a corporate structure because he’s going to go insane. Right? If you say you have to arrive x time in the morning and leave at y time at night and use, you know, this business card and wear that and all that. You know, these guys last months. Even if they have to surrender their own ass, they just can’t bear.

So, for — you know, Butterfield from Slack, Tableau guys, that I don’t think should spook anybody. That’s just normal. Right? And they’re both – both of those companies have been owned for long enough now by a serial acquirer like Salesforce, and they’re very good acquisitions. People don’t think they are, but they’re very, very good acquisitions. People have even squealed and overpaid and blah, but they always work out really well. They’ll have sucked out the DNA out of those businesses by now.

And so that the founders leave, why wouldn’t it stress me at all and also Salesforce yet. And Bret Taylor leaving, this is a sort of periodic spasm that Salesforce goes through, and it’s all to do. With the founder, you know, the Founder CEO Benioff’s desire for control. So, you know, in 2015, the company came very close to being sold to Microsoft, very close indeed, didn’t go through on price ultimately. And so, since then, Benioff has sort of flirted with, could he possibly bear to hand over any kind of control whatsoever to another CEO.

And the answer so far has been, no. So, they’ve hired at least two co-CEOs to my memory. And then torched them within the space of 12, 18 months, which just kind of makes me laugh, which is who would take the job to be co-CEO with a Founder that’s been there, you know, what, 21 – 20 years as a public company and 25 years, if we include his private history. It’s just nuts. You’re always going to be road killed. And so, I think the, again, just step back, acquired, execs leaving, non-issue, normal, Benioff grasping back control.

So far, when he’s done that, it’s worked out well. Right? Now everyone has, you know, everybody has their sort of best window of their career and all of us get old and all of us go off the ball as we get older. So, the question is, is Benioff there now. Right? Is he prepared to work hard enough? You know, or does he want to spend more time on Hawaii? Who knows? But that these guys are leaving in and of itself doesn’t stress me out. It comes down to, is Benioff basically going stock prices on the floor.

I’m going to award myself a bunch more stock. You know, what is it? $135 or something, $136. And then I’m going to ramp this thing, which is more than capable of doing to have one final [indiscernible] going by myself to another Hawaiian island and then quit. Right? But he won’t quit by handing over to a CEO. He’ll sell it to some. Right? So that’s the question. My own personal view is, I’ve seen a lot of founders over the years.

And I’ve seen a lot of founders run public companies like this, and they’re usually the ones to back. And Benioff so far, every time he’s throwed a co-CEO or senior manager under the bus, it works out well. So, for us this has you know, me as an individual and us as a firm, I’d say benefit of the doubt there. But he is getting on a bit.

So, at some point, that trick is going to not work. For now, you know, we rate the thing up. Accumulate. Right? I own it. I’m happy to own it. It’s on the floor right now. It should go up over time. It’s the next Oracle. I know it’s mature. It’s just going to be part of plumbing for the next 20, 30 years, so it’ll probably be fine. But he can only do this so many more times.

Daniel Snyder: I love all those thoughts because that’s kind of where my head went. I mean, you made up the good — you brought the good point about, you know, CEOs that are a part of an acquisition. Usually, they have their, what, two to three-year contract where they stay on board and then they’re usually pushed out the door.

But you’re talking about CEO of Salesforce and it’s like the guys, like, I can imagine it’s almost like working with, like, Carl Icahn, where the guy is just like, I don’t want to go. Like, I’m not going to let go. This is my baby I built it x, y, z. But — so I was looking at the Seeking Alpha Assemble page. I’ll just pull it up for everybody real quick. On Salesforce, our Quant system does have a strong buy. I know you mentioned you have an accumulated as well.

Trying to get your thoughts on it though. I mean, the valuation is a little high, but of course, it’s tech. And if you — as you were talking about, you know PE and earnings per share and how they can be manipulated and stuff, but we were also talking about I mean, this company has already experienced massive growth throughout the years that it’s been on the market and all the acquisitions. And I was scrolling down here at the bottom earlier and I was looking at, you know, cash and debt balances and everything else.

And obviously, they have $14 billion in debt. Most of that’s probably from the Slack acquisition, I would guess. And do you have any thoughts on how they’re, you know, financially running the company right now?

Alex King: Yeah. I mean it’s a cash machine this day. And don’t — get most of their cash is paid upfront on a subscription basis. And so, the cash flow does not stress me out, I’m missing. I don’t have the numbers in front of me. If you look at the valuations and multiple of trailing 12-month unlevered free cash flow, it’s not scary, and all support. If you look at — if you look at any conventional debt metrics and that thing, you know, interest cover ratios, anything you care to look at.

There’s no — I don’t see any credit risk with that whatsoever, really not. The company again is, has been a really excellent acquirer. So, if you look over the last let me see 10 years, 13 years of Salesforce to stock history it takes a big dive anytime they do a big acquisition. It fell off a cliff with Tableau, MuleSoft, Slack, obviously. And in each time, they paid big for relatively small companies. And what they’ve done is they bought product innovation.

So MuleSoft gave them in, you know, an integration bus as it used to be called. Slack gave them, obviously, collaboration tools. Tableau analytics. And so rather than develop their own. They’ve acquired it. And they’ve paid with, you know, partly stock, partly debt. And every single time that’s worked out really well. But no one expect it. There’s this sort of general mantra that says, M&A is bad. Well, yeah, it’s bad if you’re not very good at it.

But it’s not bad if you are good at it. If you have a serial process, you can get the integration costs done and you can afford these things. And so, you know – I don’t think there is anything stressful personally about Salesforce now. The big question I will say is, this isn’t the question is, you know, can Benioff deliver, you know, another episode of growth himself? Or is this overconfidence in his own judgment? And so based on history, my view is, yeah, he’ll do it.

But I’ll have to say last time he did it, my view is, yeah, I’m not stressed at all. Now with two, three years on, I forget how old he is, but he’s not young. You know, he doesn’t dislike the fire things in life, and he doesn’t dislike being on vacation. Right? And so, for all that we’ve said about recession, doesn’t mean it’s easy. And you do have to get up for work early in the morning right now if you want to do that. So that that’s the risk I would say, not the balance sheet.

Daniel Snyder: Love that you laid that out. One more — one more thing before we let you go. You’ve been so generous with your time. And actually, Greg, who does Alex King work for you? He works for himself. Cestrian Capital. Go check out his service on Seeking Alpha Market Place. It’s called Growth Investor Pro. Like he says, Alex, you should work for the Fed. That’s a great thought.

Alex King: Why would I want to do that?

Daniel Snyder: No one wants to do that, but just throwing that out there. So, Denise had a question here, asking you, any thoughts on Nvidia? And maybe I mean, you’re talking about how you love tech. You’ve always been in growth investing in tech sector specifically. And I think we know, of course, Nvidia (NVDA) is the semiconductor industry, but they had the cores of their chips in the GPU, which is going to be running AI. And all the data centers and everything else. So just kind of wondering, do you have any thoughts that you might want to share with people about Nvidia or AI or tech?

Alex King: Yeah. I mean – yeah, I mean, it does things for machine. Right? No pun intended. And it’s going to — it’s just going to keep going. I mean, what’s the competition? So, first of all, if you sort of step back, and it’s worth saying by the way that, you know, when you when you do tech for a career and I’ve been in tech, let’s say, three decades now, it always does this. It always, you know, gets destroyed every few years and everyone declares it to be over and the oldest you know, going to zero and you know, blah blah blah. This happens all the time.

And so, you know, that that isn’t true. Right? It’s just very, very, very cyclical. And the up cycles are insane and the down cycles are insane. Right? It just is this volatile. But technology as a whole it’s an incredibly young industry. If you compare it to, you know, railroad or, you know, consumer packaged goods or, you know, any industry you can think of. It’s still an incredibly young industry. You know, the first independently sold software as opposed to bundled with, you know, a piece of IBM kit. Probably isn’t older than, you know, what, 40-ish years ago.

So, the software industry as an industry is maybe in its fourth or fifth decade. That’s an incredibly young industry. And that means that it’s just going to keep growing as an industry. And that it’s volatile and scary just because they’re youths of the industry. So, if you look at semiconductors, you know, semiconductor — software for that matter remain rubbish. Right? You know, most people’s computer remains rubbish. It can’t do things that you wanted to do very easily unless you think like it and, you know, that’s pretty limited.

We’re all amazed about, you know, ChatGPT. But if you ask ChatGPT an actual question, ask it what’s the best stock to buy? Well, I’ve tried that. It can’t tell you. Right? What it can do is pass together bits of language to make it sound like a person when it’s just reassembling words from somebody else’s website. It’s quite good at that. Right? Ask it. I asked it three days ago whether, you know, the FTX thing was really a fraud or not, and I can’t tell the answer. Right?

Technology is really basic and dreadful still. AI is really basic and dreadful still. Computing is really basic and dreadful still. So Nvidia who knows on the cutting edge of what good looks like in compute, but still really basic. Now they have hardly any competition, and that’s because Intel (INTC) were too arrogant to spot the opportunity just as they were with mobile originally. AMD sort of caught up a bit by an acquisition.

But Nvidia is way out there in front. AI, you know, everybody thinks that AI has got a long way to run, and it will be the next substantial compute model. And Nvidia is just going to run with that. The stock’s, you know, been beaten up. It’s been — it’s rebounded really fast. And, yeah, I own the stock. We’re ready to accumulate. We think it’s got a fantastic future. A fantastic future. So, yeah, very, very bullish on that.

Daniel Snyder: Awesome. Alex, thank you so much for your time. Also…

Alex King: Anytime.

Daniel Snyder: Also, just for the record, I asked ChatGBT, what’s the best Seeking Alpha marketplace service? And I’m sorry, Austin, but it says Cestrian Capital.

Alex King: It’s a big lie.

Daniel Snyder: Because you know,Alex, you are a legend. Thank you so much for all the time.

Alex King: Thanks for having me on. Great show. Thanks a lot, guys.

Daniel Snyder: We really appreciate it. You take care. Alright?

Alex King: Okay. Bye.

Daniel Snyder: Alright. Ah men Austin. Well, I mean, come on. Talk about it.

Austin Hankwitz: We got to get him around like monthly cadence if he’s open to it man. This guy is an absolute rock star. I feel like I just learned more from him than I did the four years I spent studying finance in college. Are you kidding me? Jeez.

Daniel Snyder: Absolutely incredible. I mean, Denise over here fabulous. Vida says thanks, Alex. Christian says excellent session. Alex was great. I mean, this is Investing Experts Podcast. I mean, that right there, I think, is like I could have not asked for a better episode to just break down let’s talk about growth, and let’s talk about tech, and let’s talk about I mean, he said no recession. Right. Very firm. Very confident. Very, like, just laid it out. Employment strong.

Obviously, we got about 58 minutes here until the FOMC decision is released. And I think everybody’s going to be watching the future markets after what happened with CPI in that early move yesterday. I don’t know if you saw that. That was wild.

Austin Hankwitz: Yeah, very wild.

Daniel Snyder: Thanks for joining us today, everyone. If you have any questions, thoughts, stock ideas, people you want to see, maybe on the podcast, shoot us over an email at [email protected] If you have questions, concerns, if you want to know where the video replays are, those are on Seeking Alpha under the investment – why are you saying investment — Investing Experts Podcast. It’s going to take me a second, we’re going to get into it.

Of course, Austin Hankwitz, as always joining us for the hour. He is over on Seeking Alpha Marketplace at Cash Flow Freaks. How’s that going by the way? I keep seeing all your articles there. They were…

Austin Hankwitz: It’s fine man. We’re having a blast. We’re hosting live streams on Mondays. We’re posting a little bit here and there. I think I post a little something about Academy Sports and HIMSS in Health the other day. And it was really cool. We’re just — we’re keeping a close eye on a couple of ideas. And yeah, just really fortunate to have so many people rocking with us over there.

And if you have any questions about that, shoot me an email. Ask me something on Twitter. I mean, I am on every social media platform, especially TikTok. So here to serve you guys. Again, thank you all so much for hanging out. Yes. Go check out the chat. Alex just dropped his Seeking Alpha Marketplace. And personally, I’m going to go browse a little bit. I’m now a major Alex King fan. And thanks everyone. This was a lot of fun. We will see you very soon.

Daniel Snyder: If you guys are listening to the podcast, or you’re watching the video replay, we’re going to drop a link down in the description as well or beneath the video so that you guys can find the service as well. I mean or even if you have Seeking Alpha Premium, just go read the articles under his author page. I mean, very enlightening. He’s very on top of it and he publishes very, very frequently. So, guys, go check it out. Thanks for hanging out with us today. You guys enjoy the rest of the day.

Alex, if you’re listening still, we owe you some pints. Next time we see each other in the future, drinks are on us. Thank you so much. Everyone, take care. Have a great rest of the day. Disclaimer, of course. All opinions on this episode are our own. Do not take them as financial advice. Do your own research. Talk to a financial advisor, and we’ll see you guys next week Wednesday, 12 PM Eastern. Myself, Austin Hankwitz, we’ll see you then. Take care everyone. Have a great rest of the week.