Sunday Finds + 3 Thoughts From Last Week

General Dynamics + Copart

Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.

Chit Chat Money Podcasts From Last Week

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1. Is Alphabet ready to dominate the “connected car”?

At Google’s I/O event this week they announced more updates for their automotive services. Most were minor from an investor perspective, except maybe the fact that Android Auto is going to be in 200 million vehicles by the end of the year.

(Here’s a summary of all the event announcements)

It got me thinking though: Is Google/Alphabet more prepared than anyone to win in an electric and autonomous vehicle future?

Here’s my reasoning:

• Waymo is one of the leaders in self-driving cars

• Google Maps is used by billions of people around the globe, giving them an advantage in getting people to try Waymo

• Android Auto is one of the leading operating systems for cars

• Google Cloud (and the Tensor chips) can be the computing backbone for computationally intensive self-driving cars. This is true for the rest of the software services too.

I could see a world where Google dominates everything in the automotive space besides actually building vehicles. How much can that impact its business? I’m not sure. But it is definitely not a bad thing.

That was a bit galaxy-brained. Just thinking out loud here.

2. Is Airbnb the one?

If you’re wondering what “the one” means, I don’t even know if I have an answer for you.

But I just have a feeling in my bones that Airbnb is going to be one of the next technology giants. Chesky (founder/CEO) is so sharp with product design and seems incredibly passionate about building a comprehensive non-zero sum business. He is also clearly not a grifter or someone who likes their CEO gig because they can work for three years, vest their options, and move on to the next company.

The platform is incredibly sticky, is going after a gigantic addressable market (shelter/travel and a little bit of entertainment), and will only increase its moat as it gets bigger.

In recent interviews, Chesky has hinted at building a product for transportation, expanding the Experiences platform, and thinks they can easily double the business just by pushing harder into geographies they don’t have a large presence right now. Add on a loyalty program and baby you got a stew going.

The valuation has a little to be desired right now, but Airbnb seems like one of those companies where you buy at the right price and never sell. I hope that opportunity shows up sometime soon.

3. Should we ban bank short sales?

(we had a fun discussion around this topic on this week’s Power Hour, linked above)

A lot of bankers — most notably Jamie Dimon — think banning short sales against banks is good for the market and the economy.

The rationale is that banks are a bit of a confidence game, and if short sellers can take a low float stock and drive the price down rapidly it could lead to actual business deterioration if depositors get nervous. This is especially worrisome in our internet-connected economy where information distribution is instant and withdrawals can be done from your mobile device.

Short sellers like Jim Chanos think this is a bunch of hogwash and that there is no actual evidence of malicious activity from investors or hedge funds in banking stocks. He is usually spot on with these things, especially since such a large portion of the population has an irrational dislike of short sellers.

My free market principles say that this should be legal, but with banks, part of me thinks banning short sales would be a good thing. A stable banking system is vital, and if people are more confident in banks because they irrationally think banning short sales is good for their health, I say let’s do it.

The only downside is it slightly restricts what stocks a short seller can bet against. An unfair inconvenience? Maybe. But just a minor one that I think they can live with.

See you next week,

Brett

***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***

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3 Good Reads 

• Q1 2023 Hyperscaler Earnings Review - Software Stack Investing

Backing up a little, optimization in this context refers to the process of reviewing a customer’s billing patterns for various cloud infrastructure services and identifying opportunities to reduce costs by making better use of the resources available. All of the hyperscalers offer multiple options for each resource type. Typical variances that can affect cost include instance size, time commitment, access latency (hot or cold storage), software version and many more.

• The Earnings Miss Heard Around the World - HedgeFundGirl

Netflix’s big tumble changed everything for the aspiring players in the streaming industry. Whereas prior to Netflix’s fall from grace, all that mattered was subscriber growth, after that moment, profits and losses took a central role.

• Nintendo Switch Gets Its Swansong - Games Industry

The company's own success makes this a very high pressure environment in which to be trying something left-field, though. This is a very, very different environment to the initial launch of the Switch. Nintendo has never really been in crisis – at least not to the extent that breathless prophets of the company's doom have claimed over the years – but the failure of the Wii U, which came at the point when the 3DS was also running out of steam, was such a low point that the firm's executives even relented to investor demands and started working on smartphone games, something they had resisted for many years.

1 Good Podcast

Smart, Insightful, and Funny Tweets:

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