Michael O’Mahony: 0:00
Everything you'd look for if you're a checkpoint investor is certainly looking good, with the probable exception of the competitive marketplace, it's not surprising that Klaviyo has just turned a profit in the last year and now it's like well, now we can IPO, because I think that's what investors expect. Now I don't think the excitement would be there for an unprofitable company coming to the markets when I realised or I'm told that something was generated with AI.
Emmet Savage : 0:27
no matter how impressive it is as a product, I'd devalue it.
Michael O’Mahony: 0:36
Hey there and welcome to the Stock Club podcast brought to you by my Wall Street. I'm Mike and join me. Today's episode is Emmett Savage, from my Wall Street analyst team. Quick word from my friends and sponsors at Vodafone Business before we get out on the show. Vodafone have recently launched their V Hub Digital Advisory Service, offering Irish businesses 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. Quick word from V Hub to book a car with one of V Hub digital experts and we will leave a link in the show notes for today's episode. Emmett, how are you? Welcome to another episode of Stock Club. Thanks, Mike, good to see you. How are things in France? Things are mighty in France. Do you want to start the episode with a fun fact of the day, me?
Emmet Savage : 1:17
A fun fact no.
Michael O’Mahony: 1:17
I'm not putting you on the spot. Would you like to hear one?
Emmet Savage : 1:21
I'd love to hear one. I was going whoa, that's a real Pull the Gun Dance. I'm like, oh, it takes 150 million Smarties to fill the bus Go on.
Michael O’Mahony: 1:32
So I'm not sure if this has ever been discussed on Stock Club, but I think we discussed it on my Wall Street at one point. The founder of Duolingo invented the CAPTCHA, the. I'm Not a Robot. Here are three photos with the motorbike in it.
Emmet Savage : 1:48
I mean seriously, humanity owes this man a favour for Duolingo and we owe him revenge for that. We really do, and actually I did know that fact because we did Stock Club. We spent some time talking about Duolingo and Stock Club. A couple of years ago you weren't on this particular show and it turned into a conversation about how impossible it is to actually get those CAPTCHAs first shot. I mean, it's not an easy undertaking. It's like having all the pictures with a staircase and they're blurred. You're like I can't see. I can't see anything.
Michael O’Mahony: 2:21
Well, it starts getting existential. You're like, you know, is the base of the staircase or is it just the stairs?
Emmet Savage : 2:27
Yes, exactly. Or I see the handle of a bike. Does that constitute a bike? At what point are we fully talking about a bike? I have to say the cap. But are they still around? Do we still Do you?
Michael O’Mahony: 2:37
I want to see the cap. You know you don't hear mine because I was signing into Stream here today and it popped up.
Emmet Savage : 2:44
Yeah, it was on again. I'm sorry to hear that. I thought the latest version was. You just clicked on a field, a little button, that says I'm not a human and because it knows from the motion of the mouse, it kind of puts it doesn't. The safety of misery, of having to choose, you know, an elephant out of your matrix?
Michael O’Mahony: 3:02
Yeah, so maybe Duolingo was his gift after giving everyone the horrors of the capture.
Emmet Savage : 3:09
He owes us one. I did my 800 days streak on French today, so I'm really glad you raised Duolingo. It allows me to just kind of mention a casual flex there. I've done 800 days. I mean, I haven't done 800 days of anything in a row, except maybe breeding.
Michael O’Mahony: 3:24
I'm so bad at it. Is that now a true streak, or is that what you got? It's a true streak.
Emmet Savage : 3:32
True streak every day, every single day, you name it, and I've had some narrow escapes.
Michael O’Mahony: 3:37
But yeah, I was about to say, do you ever wake up and call sweats at 11.58 PM and be like I have to go on Duolingo right now? Yes, okay, let's get into the show. So IPO season is kind of kicking off really. This September we talked at length about ARMS, blockbuster IPO, and we have come, and since then have come to public debuts of the grocery delivery app, instacart, and marketing company Klaviyo, which you're going to discuss on today's show. So they were both I think they were Tuesday and Wednesday of last week when I had to do the other, when I kicked us off with Klaviyo, a company I know very little about. So what does it do?
Emmet Savage : 4:17
first of all, yeah, I have to admit I hadn't heard of the business until I saw it was lined up for IPO and watched it on the day, but basically it's a marketing automation platform that helps businesses acquire and retain and grow their customers through things we're all used to like as a marketing, and they have this big toolbox of features to help businesses to effectively create and send emails that are more effective well, they say than other platforms. So they do things like email segmentation, email automation so you can lock and load an email to send it at prescribed time, or SMS marketing, which I think certainly is my part of the world and our part of the world, I think, is in SMS marketing. I've barely been hit with SMS marketing a handful of years a year, thankfully and then all the reporting and analytics that goes with it, and they do a lot of other stuff like CRM, customer relationship management tools, education. They just have a toolbox for digital businesses and apparently and this is what really surprised me it's one of the more popular platforms for e-commerce, which is a very old world term, and it has 130,000 paying customers, and I can't believe it's grown the way it has because it has a load of competitors like MailChimp, omnisen, hubspot, intercom.
Michael O’Mahony: 5:42
I was about to say sure, we know it ourselves. How many email clients have we gone through?
Emmet Savage : 5:46
Yeah, there's Adobe and Marketo. We've gone through so many of them and so for me it seems like a very, very crowded marketplace. Only about nine years ago, when my Wall Street career had just started, I remember looking up urban airships, which was a business at the time for doing exactly what I just described. And then John, my co-founder, and I were in New York and there was this giant billboard like one of these multi-story, multi-building billboards for urban airships, which up until that moment I thought was a bit of a niche business, and the business is now called AirShop. So there's AirShop, I mean, and there you go, it's another competitor. My point is that this is not a new industry and Clivo is not in a monopoly. They're not even in a duopoly or triopoly or quadopoly or quintuple Like this. To me it is like I was quite surprised that this business suddenly had its moment in the spotlight, and it has some very nice numbers too. Yeah.
Michael O’Mahony: 6:53
So talking me into the IPO first. How did it go for them?
Emmet Savage : 6:57
Yeah, well, they priced their shares at 30 bucks a share and they released just over 19 million shares into the wild for normal folks like you and me to buy, which basically valued the company at just over $9 billion on a fully diluted basis, and it raised about $345 million in cash for the company's bank account. So that's the kind of top line figures, and I think what's particularly interesting is that Shopify owns about 11% of Clivo shares. It invested $100 million last time.
Michael O’Mahony: 7:31
This is actually where I first heard about it was Shopify. Is it Shopify Ventures? They call it their private market.
Emmet Savage : 7:38
Yeah, I mean, this is really that $100 million investment is a testament to their, I suppose, intertwined business models as anything else. And apparently 78% of Clivo's annualised recurring revenue by the end of last year was generated by Shopify clients. So there's no doubt. So Shopify really is, if you like, the parent. And if we were doing a strategic analysis of Clivo and we've been doing a lot to talk about this in recent times as we tune our Nexus model, it's having a single, like Porter's Five Forces, where you have the bargaining pair of a single customer Well, you know, shopify is an ally. It owns $100 million, as it was in the business, 11% of the business. So you have to suspect that Shopify's relationship has absolutely driven interest in the business and its IPO. And in fact, I'm quite surprised that Shopify didn't just fully acquire it, because this seems to be, I wouldn't say indispensable part of Shopify's offering, but certainly a well integrated part. So they were interested enough to buy 11% a year ago, but they allowed it. Go IPO, if you will. Or the strategic direction they took was IPO. So we've seen this kind of behaviour before.
Michael O’Mahony: 8:59
Yeah, it reminds me of a business we talked about a while back, global e. Do you remember that? I think, yes, I remember Shopify was a big investor there as well. So it's clearly a tactic from them. When they get there, they get their hooks in across the industry and, I think, with Providers or people they work closely with. So, clearly, and if you think about it, if you're saying Shopify is driving that much business too, is it Klaviyo or Klaviyo?
Emmet Savage : 9:25
Well, the way I've pronounced it is Klaviyo, but I'd have to speak to the founder to get that kind of test.
Michael O’Mahony: 9:31
Yeah, it probably brings them a bit of solace too in the fact that you're relying so much on a customer. But now it's not just a customer, it's a part owner as well, so its interests are tied to yours, instead of them going off Investing in competitors, maybe ditching you, or even producing your own, producing something similar in-house, which they have the scale and resources to do. So I think the fact that they own a piece of Musculative Klaviyo is a great piece of mind, but also means that Shopify are kind of in tandem with them instead of potentially Conflicting. So I think that's very good. Yeah, that's a good point. All right, so you mentioned the numbers.
Emmet Savage : 10:10
Talk to me there well, I was really surprised because revenue has just Grown in the face of the competition it has over and over, quarter after quarter. There isn't a single quarter per revenue that hasn't just smashed the last quarter, not just the same quarter a year ago. So Q2 we gendered in, Jennifer about triple, made June, thank you ended in June. They brought in 585 million dollars in revenue, which was 56.5% growth on the same quarter a year ago and, as I mentioned, 130,000 customers at the end of June. So this is a business that has the momentum we like to see in a business and clearly, when you take that momentum, when you take the fact that it's profitable, we're now talking about a digital business that has swung from being a lassie. Quarter after quarter after quarter, it came in with a net income of just nearly 11 million dollars, which is a really nice turnaround from a loss of just over a million dollars 11 million dollars, I mean, say, in the preceding year. So everything you'd look for if you were a checkpoint investor is certainly looking good, with the probable exception of the competitive Marketplace. But again back to your point, mike sat. Spotify Is the parent there and, if you like or I don't want to say the sponsor. They don't see themselves as the sponsor or the parent, but they're certainly the big sister, the big brother they're looking out for, for this business and clearly have chosen this as the preferred partner, if you like, of all things, email and text and all the everything in between.
Michael O’Mahony: 11:46
Yeah, it's interesting you talk about profitability there, because we're gonna get into instacart too and I say it's a prerequisite now if you want to go public for those five companies. And it's not surprising that you know Klaviyo has just Turned a profit in the last year and now it's like ours. Well, now we can IPO, because I think that's what investors expect now and I don't think they'll be, I don't think they will. The excitement there would be there for an unprofitable company comSSing to the markets completely.
Emmet Savage : 12:13
It's unbelievable that instacart and Klaviyo Listed within a couple of days of each other. The kind of dynamics of their business are very similar. They both came into the market at more or less the same market cap, the same size. It's not like I'm in different businesses with the same share price.
Michael O’Mahony: 12:30
They both listed at 30 bucks really 30 bucks around around 9 billion, just turned a profit last year. It's mad actually, the similarities and I don't think that's. I don't think that's by accident. I think it's the same reasoning that, right, if you want to go public now, you need to tick these boxes.
Emmet Savage : 12:50
Yeah, you know what that reminds me of, mike. About 20 years ago, Cisco, the Rooters and Gooters guys from San Francisco. They had a market cap. I don't recall what it was, but let's just call it 20 billion dollars and the food delivery logistics company Cisco spelt s. Why sysco? I think yeah it was a similar spelling and they're the guys who make sure that a lettuce that's grown in Iowa is on a restaurant Table in New York the same day. It was also on one day, the exact same market cap. Both of them had a CEO called John Chambers. Both of them had increased revenue by 11 percent quarter-on-quarter. Both of them bumped into each other to do John John Chambers at a convention and it was an unfortunate magazine I'm. I say I'm going back at least 20 years. Did it do a piece on this unbelievable coincidence to see this?
Michael O’Mahony: 13:49
Yeah, that was probably when the rapper Cisco. Was that his prime as well, you know?
Emmet Savage : 13:55
Have you ever heard of this song? Oh, I do. Is that his name? Is that Cisco?
Michael O’Mahony: 14:00
Yeah, there's the triumvirate there. All right, I'm gonna get into Instacart now, and we just mentioned the similarities, yeah, so yeah, I think it's interesting to talk about this because Instacart Probably gets a lot more attention than something like Lavio, like me and you had never really heard about before it went public and we started talking about it, whereas in secret, I think a lot of our listeners will be familiar with the product that they're in the States, but even not. So, even just hearing the name thrown around, I think it was kind of meant to go public for a very long time and it was humming back and forth and probably waiting to go profitable, as we mentioned. So, to give a quick recap of it, it was formed back in 2012 and just think about it as Uber eats, but for groceries, essentially doing the weekly shop. We're picking up a few bits. So it's a grocery delivery chain. It's a gig economy based app that essentially works with major chains like crow, Costco, and, and, depending on where you live, I think this service Can seem very unnecessary. Do you know, if you live in a small place and you have a car or whatever it's like, why would I need that? But it's funny if you're from a big city. High-rise apartments with no lift, that kind of stuff, it comes a lot more necessary. And then obviously For older people are people with disabilities. This is pretty much a lifesaver. We've seen Groceries deliveries happen all over the world. But Instacart is kind of building out the platform, we'll say yeah, yeah.
Emmet Savage : 15:37
Yeah it has echoed my cover of a local business here that was acquired recently by an Irish supermarket chain called Don stores and who you of course are familiar with, and and by me, by yeah, yeah, I remember that.
Michael O’Mahony: 15:52
I think I will use it once.
Emmet Savage : 15:54
Oh, so it had a massive tailwind during coronavirus like and it's a lot yeah, it's somewhat masked let's say normal market conditions. It's very hard to read. How good is our business doing when everybody has to stay indoors? How did the coronavirus surge affect Instacart's business and how has it settled back down?
Michael O’Mahony: 16:16
So this is the interesting part I think about Instacart is that I think at one point there was a quarter. It was going 600% year-over year over COVID. Wow yeah, and I think the whole story around Instacart, this it's a very important IPO because this is the first venture backed American IPO since December 2021, I think. Oh, really right this is very important for the private markets and for venture capitalists and private companies alike, because they're watching to see the reaction on the public markets, how investors are basically treating Instacart, to see, well, is it worth it for us to IPO? And the story goes so you're mentioning from COVID and beyond. So Instacart raised money in early 2021 at a 39 billion dollar valuation. Oh, it's trading just around nine, I think a little below nine now. Right so that kind of gives a bit of context into how it's gone. Yes, and it wasn't like any jumps that got in at 39 billion dollars either. They were big names. So Sequoia capital and recent harrow, its fidelity T roll price like.
Emmet Savage : 17:20
Michael O’Mahony: 17:22
And you can imagine why you know it isn't? It was at the peak of the pandemic. Money was very cheap at the time. Anyways, you're getting a company that's going 600%. Nothing can go wrong. So it was very short termism, I think, but I also like to forgive them.
Emmet Savage : 17:39
Yeah, but yeah, just sorry, go ahead. But logistically, if I can just picture the business, do they simply collect the stuff and deliver it, or do they go into the supermarket? Do they go into Walmart and walk down the aisles and put stuff in the basket and make sure you got the green bananas as opposed to the specularly ones? Like, how deep into the process are they involved?
Michael O’Mahony: 18:03
Yeah, they're the shoppers, you know.
Emmet Savage : 18:05
So they are the shoppers as well. So that's the game workers you know, Mm-hmm.
Michael O’Mahony: 18:11
So yeah, so like seeing that kind of cut from its previous valuation to now is indicative, I think, of a lot of private market valuations, and I don't think that Going from 39 to 9 should put off a lot of investors Because, most of all and this is happening with the instacart as well as employees are mad to get an exit. So this is actually what happened with this IPO, in the sense that only 8% of outstanding shares were floated and of that 8%, 36% were employees selling off, and a lot of that was in the two founders who aren't leading the company anymore. So it was more of a fundraising outing. It wasn't really a fundraising exercise at all.
Emmet Savage : 18:55
Yeah right, it's just I think that allow employees get some liquidity and ensure the employees would prefer to get some liquidity at 39 billion and selling in a private round, but that's just not how it works, I'm afraid but that's interesting because when you look at the Klaviyo or Klaviyo IPO and instacart, I think one of the issues we have as retail investors is that after the company IPOs, there's an information lockup period, which is usually between 90 and 180 days, where insiders, such as the founders and executives and early investors, are Prohibited from selling their shares. And the purpose of the information Lockup period is prevent insiders from flooding the market which shares after the IPO, which could of course, hurt the share price. And the real Challenge for you and me and any investor who looks at a business post IPO is that there's not a lot of new information Forthcoming. You go to their investor relation website. You go to instacart I or investor relation web and it's, it's, it's empty. There's nothing for us to grab on to. If you want to find out story, you go to the SEC website and there's incomplete data in FAC set or Yahoo finance or whatever. Truly used to go and inspect a business and then you kind of, when you get under the Hood of the story, you find facts like the one you just made there. My quitch is really, this was Primarily motivated so those who were our founders, early investors can get out and that kind of raises other questions which you have to wait to see kind of trends and see how in fact the business is playing out as a public business.
Michael O’Mahony: 20:32
Yeah, but that employee exit in particular, is very important and he stripped a lot of issues with that. Where they would, they, they stripped essentially screw the pooch and they missed their opportunities to go public at the right time and they've gotten cut in half in the private market since. But a lot of their fundraising events and funding rounds were to give employees Liquidity now, because I think the employees have been there for so long and they just want their payout like it's the reality of it. You were employee number nine and stripe. You're sitting on millions of hands and millions of share options. Oh, and it's great that. It's great to have that. But you're also, you know, still a salary employee. You're worth X amount but you're not able to spend. You're not able to spend that on it. I know you can get loans out against it and stuff. That's for yeah. That's for the billionaires, not for, you know, the lonely millionaires. Yeah right, yeah, yeah that's true.
Emmet Savage : 21:29
So what if you were handed a thousand books tomorrow by your great auntie and said here, invest that for me what you would? You buy shares and Instacart.
Michael O’Mahony: 21:39
First I'd be shocked and you bad came back, but I it's an interesting conversation because I think immediately you see the valuation go from 39 billion to 90. Yeah, I think it's a company and decline and I actually don't really think that's the case. Obviously it's not growing as fast but there's, yeah, a lot more now I compared to two years ago within the business and a lot of it has come from. Well, there's two factors. One is that it's actually held on to the market share acclaimed during the pandemic. So, like you assume that it would be a big, perfect parabola here. I am describing a graph. Now, evan, I know that's your thing, but the dip would come after. But it's actually kept a lot of those gains and maintain them. So 74% of sales greater than $75 on a third party grocery delivery app are still in stockage and 56% of sales less than 75. And it's done this while turning a profit, which is the important thing. It's what we mentioned. So I think it's five consecutive quarters of profitability, which I wouldn't really see. I came into this with kind of an open mind because I do not like gig economy companies. I don't like their business models per se, but what it's done is brought in the CEO, Fidji Simo. She came from Mehta and basically what she did was she built out the advertising platform, and this was always a tactic from the founder where they said once we reach a level of scale, we can build an advertising platform on this, and we've seen this when Amazon is a perfect idea. Amazon is one of the third or fourth biggest advertisers now, just because the marketplace is there and it's so scalable and it works, and Instacart has actually achieved this. So I think she came in in 2021 and the advertising is making up a third of revenue now and almost the majority of profits. So to kind of tack on this high margin revenue stream has really transformed the business. I'd say, and I think that's why they kind of went public because, well, no, we're not just another DoorDash or UberEats. We actually have a very functioning business here and we're profitable and we're able to bring in that high margin revenue that people are looking for, instead of just the growth that was there for gig economies and probably isn't there anymore. So would you drop a ground on it? No, not at all. So that was going to say that's the good part, but the not so good part. I think in general there's a reason why I don't like gig economy workers and I just think there's no more there at all. Yes, oh, there's none.
Emmet Savage : 24:37
Who's the lift to their Uber, as it were? Who's the second biggest name, because Instacart is one of the most widely known. Is there a B player?
Michael O’Mahony: 24:46
Yeah, well, doordash and Uber Eats both. Oh yeah, doordash and Uber Eats both do groceries as well. But again, to remember, I said, you know the big shop and the small bits. There's the difference between the orders of over 75. Instacarts still has 74% of market share and it's 56% of the under 75. So the lower bits, but the big question here. So, first of all, instacarts, customer concentration. They have 43% of its volume coming from just three retailers. Oh right, and that happens. If one of these businesses decides, maybe we launch our own delivery service or at the very least, you know what. We contribute 20% of sales to this company. We can really lean on them and get a discount and all the rest. And like launching their own delivery service isn't out there at all. It owns its own. I think it's called shipped. Amazon has it with Whole Foods. Walmart has its own delivery as well. Kroger has its own delivery service as well. So you're almost and this is kind of the inverse of what we talked about with Shopify where which? Shopify? It's great that their biggest customer became an investor because they're not competing against them anymore, whereas now the potential for Instacart's customers to turn into competitors in a second is very, very quick and in a market or an industry with razor-thin margins, like groceries and stuff, it just does not. It doesn't seem too tenable for me long-term. I think every kind of management structure will come in and say, all right, well, how do we cut margins? Where are we spending money? Why are we giving Instacart X amount? Instacart's take rate is like 7%. Let's get it to 4% for us. Or we go with another company or we do it ourselves. And if Kroger or Costco or whoever decides to do it themselves, they could charge no delivery fees because they don't need to make money off the delivery fees. They make money off the products. So yeah that would be my big, big kind of red flag there, where I just I'd share that concern.
Emmet Savage : 26:56
I mean, I think most people would say whether they get in an Uber or a Lyft or a Freenow if you're in Europe is of little consequence to them once they get there safely and the car is clean and the price is broadly acceptable. And it's the same for when you get a delivery you don't care who does it, you don't care what company did it. And I think when you think of that, there's no end point customer loyalty unless they have just a magnificent technology platform that nobody else can replicate, which of course we both know is not the case. So I'd be with you too. I wouldn't be overly keen on it. If I had to choose between the two businesses we just discussed, I would go with Klaviyo.
Michael O’Mahony: 27:35
Yeah, me too, for sure it reminds me of. This was way back in the prime Uber and Lyft venture capital days, where you'd have both on your phone. You'd use Uber for a couple of weeks and then Lyft would realise you haven't used it for a couple of weeks. They'd send you an email. You've got a discount for however long You'd use Lyft and then Uber would realise you wouldn't have used it for a while and they'd email you the discount. It was nuts. We were driving around with the personal chauffeur on San Francisco's venture capitalists money.
Emmet Savage : 28:13
Interesting. The war between those two companies is something I'm sure that's been well documented. There were some very dirty tactics at the time. You might remember where if you cancelled Lyft right up until they arrived at your door, there was no fee. As far as I know, Uber got up to some dirty tactics on that front to fatigue the other player. Anyway, we're drifting. Instacart is a Tom. Sideways to Tom's down Is that right, Tom's pretty down.
Michael O’Mahony: 28:44
I think it's done a lot. I think the CEO seems interesting with the advertising and stuff, but it wouldn't be for me as well. They're saying for the first six months of 2023, or maybe the most recent quarter volume is flash year over year it's also slowing down on top of all of that. Apart from the kind of systemic risks and the no-more we mentioned, there's also operational risks happening as we see it. I wouldn't touch Instacart personally. Klaviyo does seem interesting. Again a lot of competitors, but it seems to be doing something right.
Emmet Savage : 29:22
True. I would share your worries, though, because all those competitors they're going to put their best foot forward as they get ready for IPO, hence swinging from a lossy position to a profitable position, but I would certainly give it a few more quarters before I get too excited about it being a partner of Shopify and it having grown revenue at a very impressive rate. I'd like to see it just continue for four more quarters while they exist in the post-IPO world.
Michael O’Mahony: 29:48
Neither of us, with raging, buys from those two, but that's okay. That's how it goes sometimes. If you like listening to us, you're going to love reading from us. We are delivering to your inbox one of the most unique products on the market and it's completely free. No one else is covering the markets we cover with Charity Firsts, where we deliver to you a new weekly stock pitch that could be from Amsterdam, Tokyo, Paris or somewhere in between. That's a completely free stock pitch Every week. You'll have a read in about 30 seconds flat and we can almost guarantee most of these companies are going to be brand new to you, which is where you get an edge. Sign up now. In the show notes for this episode, Emmet was this week's company new to you.
Emmet Savage : 30:25
It was new to me and in fact, as you were talking there, charging and fearless, I believe, delivers the highest level of free value for stock investors that I've ever seen. Now I am biassed, of course I am, but I think it is an amazing publication. It asks nothing of you except just to sign up. So, yeah, well done. It was a brand new company. Was it new to you as well?
Michael O’Mahony: 30:48
I was very, very familiar with its output anyways, I didn't know it was a public company, but Okay right yeah, saying no more.
Emmet Savage : 30:56
Let the listeners get intrigued enough to sign up.
Michael O’Mahony: 31:00
All right, let's finish off with some big deal or no big deal. Now. Crowdstrike was very busy this week. It had a new acquisition. I think it did another one of its research reports where it got 100% and everything and beat all the competition and everyone decided it was the best cybersecurity dude in the world. But I want to talk about its investor event so I think it's called falcon investor brief and whatever it is, but basically it's just Everyone's delight. Updated short and medium term targets. So it's committed to gap profitability. This year it's upping its EBITDA margin target and its gross margin target and it also set a long term goal of 10 billion in ARR over the next five to seven years. Big deal or no big deal, Emmet.
Emmet Savage : 31:53
It's a big deal, mike. Definitely it's a big deal. I mean, as you said, it's going to achieve gap profitability this year, increase EBITDA margin from 21% to 30% that's massive Increase subscription gross margin target from 79.5% to 83.5% and, as you said, achieve 10 billion in annual recurring revenue in the next five to seven years. I mean this is an announcement from a business that has such confidence and strength from the quality of their product. It's effectively to my ears it's saying that they expect to be the Microsoft of endpoint security and all things cybersecurity. This business has really, really got it right and I think it's a wonderful business and like an EBITDA margin of 30% would be very high for cybersecurity company and it basically says to me that CrowdStrike is an extremely efficient business and in a world now where every type of business is vulnerable to some kind of crypto attack casinos in Vegas and TV studios, like in the morning show, apple's latest show you know, when you have a big business that has been utterly hijacked, like was it the MGM MGM, yeah, even the doors of the rooms weren't open.
Michael O’Mahony: 33:14
It sounded like complete chaos. Can you imagine and if?
Emmet Savage : 33:18
you have an exec committee and every member staff or their personal communications have been compromised and you bring in that human element, so not only the business element, where you have thousands of irate regular customers. Your casino floor has sat down and your private messages are now in the hands of someone. They say pay us to pick a number of $50 million. When cyber I mean say when CrowdStrike walks in and goes, hey, we can protect you for $5 million a year, I mean it's like selling, you know, candy to kids. It's just gonna happen. They're gonna sell it, especially when their product is proven, and I'm taking their good word for this as the best. So I think it's a big deal. What do you think?
Michael O’Mahony: 34:03
Yeah, I'm actually really impressed by the gross margin targets. So they're basically cutting costs, the revenue by about 20%, yeah, which you know, it's not that it's not in your control, but it's it's more. It's almost more impressive to me than any of the other stats there, because it just seems the confidence to say that first of all, they obviously have a fair idea that it's achievable. But then imagine, if we're talking about grocery stores there, like as in imagine, if Kroger was like, yeah, we're going to cut, it could have cost the revenue by 20% in the next two, three years. People go nuts and I know it's a different animal altogether. We're talking software and everything else, but yeah, and so I've always been impressed by this business and I think the need is there, obviously, as you mentioned. But how it operates, I really like to see. Oh, george Kurtz, yeah, I love, I love when businesses do those kinds of long term North Star targets. Yeah, 10 billion in seven years will probably get there earlier. But you know everyone is kind of attached to that now. So, yeah, I'm very impressed by Kroger's.
Emmet Savage : 35:09
I mean you think of not to over-elaborate the point, but when you think of the gross margin target of 83.5%, that is so elite. You really only see it in software businesses that have developed something that just isn't available elsewhere, or breakthrough drugs and pharma companies that have basically smashed through and developed something new to cure something horrible, but those types of gross margins are just unbelievable. So yeah, big fan, Right, Mike? I have one for you. The writer's strike that brought Hollywood to a standstill looks to be up. Big deal or no big deal.
Michael O’Mahony: 35:46
Yeah, big deal if it goes through. And it's a funny story to research because almost every headline has the word tentative in air quotes and I just I'm reading it as they come to a tentative deal, don't get too excited, it's tentative so far we're nearly friends. But we're nearly friends exactly, so I'm not sure how much confidence it inspires, but it should be good news for the studios, of course, but us the viewers as well. We haven't really felt it yet, but the downstream effects of this are kind of you know. Will you remember? It was a long time ago and now it was maybe 15 years ago, and there's like a list of movies and TV shows that were made awful basically by the last writer's strike, so it was. There was a Daniel Craig James Bond movie which is like one of the worst James Bond's, that was written during the writer's strike or wasn't edited because of the writer's strike. Do you remember that? Oh, really.
Emmet Savage : 36:48
Oh yeah, actually I didn't, I wasn't aware of that fact.
Michael O’Mahony: 36:52
So it's just only a really bad one, or do you remember that TV show Heroes? I'm aware of it, yeah, yeah. So apparently that completely fell off a cliff from like season one to two or two to three or something, and that was because the writer's strike as well, so they basically made it interesting, while writers are striking and I think they couldn't go back and do edits are very constricted and they put out terrible products, basically. But to the current writer strike, so it was almost five months, 146 days. I think they were striking and the deal there's no real details that have come out yet. I fear they might come out between recording and publishing this podcast, which usually happens on Stocklobe, but for now they haven't come out. So the deal needs to be kind of voted on, ratified by its members, but I think there would need to be some serious kind of coup for it to be turned down and we don't know the details. But the three main tenets of the deal were based on protections against AI in writing, which you can imagine. Writers would be vehemently against it. Residual payments on streaming platforms and then staffing minimums for writer's room. So what was happening a lot with streaming was that, say, a writer's room would go from 10 to four and they would only need a. They just cut costs basically by not hiring enough people, essentially, and that would obviously affect everyone in the industry. And so the representatives from the writer's guild said that and this sounds a bit like Donald Trump. This deal is an exceptional, meaningful gain. Protection for writers in every sector of the membership.
Emmet Savage : 38:32
So we have just lost listeners. Would want to press. We've lost listeners, I mean paying a few, so that's OK.
Michael O’Mahony: 38:37
So you can imagine that they've kind of touched on all those three. I've heard that the AI point in particular was their last obstacle. So I'm not sure I'd say, imagine there's a big compromise there for what actually happens. But yeah, that's kind of the gist of it. Now, do you remember this was a couple of weeks ago Aaron Paul, a sub Jesse from Breaking Bad, oh yeah, he came out and said that he doesn't receive any residuals from Breaking Bad on Netflix. That kind of took me, took me for a shock. So I was thinking about it, especially through the guys of the streamers. Maybe everyone but Netflix, because Netflix are very profitable, but all the rest of them are haemorrhaging money and trying to cut down costs and turn their streaming services profitable. So I wonder how much this will, this agreement will, eat into their bottom lines, and will it be enough to even raise the question whether they should keep doing it or not? Do you know what I mean? Like Apple TV or Amazon Prime, who are burning cash, disney Plus is burning cash and they're like well, now we've got all these additional costs as well. So how does that affect things? So I'm just curious what the long term effects will be for this and Netflix too. You know this has to affect profitability in some way, because they've just added, basically, a new line item of costs.
Emmet Savage : 40:04
So yeah, yeah, and it's funny when you think about the like, the inevitability of the application of AI into any thought led profession. You, you have to wonder, are those writers committed to not using AI on the QT at home while writing a script? I don't believe for a minute or not. So you know, you're kind of opposed to a technology disrupting you or moving your cheese when in fact there's probably a high degree of certainty they're using it on the burner.
Michael O’Mahony: 40:40
There's a lack of understanding is what I remember. The actors are still striking, so I know they went in, they went, they started striking in sympathy with the writers. But they haven't come to an agreement yet. I think a lot of the stuff was very similar, so I imagine they'll follow suit, but I think actors were very wary about AI being used to recreate likenesses and stuff. Yeah whether they would own the rights to their own face nearly in certain situations and like it's, it's weird to think about. They're striking against something that no one really knows how it's going to be applied yet they just know it's the kind of boogeyman in the room a bit yeah.
Emmet Savage : 41:24
Yeah, I was with Bruce Willis, who recently was the first actor to sign a deal, to say that his face is going to be used in a movie and his likeness and it's going to be generated with AI. So it's kind of showing, oh yeah. So I think there's the tin end of the wedge, is there already. But for me, as a human being, when I realise or I'm told that something was generated with AI, no matter how impressive it is as a product, I'd devalue it 100%. So someone said this piece of art was done by artificial, generative AI, I go, okay, fine. Well, what is the purpose of art? Well, as far as I know, it's to show you something that otherwise you wouldn't have seen, or to show you something in a light that otherwise you wouldn't have seen in that light. So that's its purpose. But the fact that it's human created brings a far, far deeper meaning. And when you apply that to writing or you apply that to anything that the human brain leads you kind of. For me, ai, as much as it bolsters it, if it's something to be admired and absorbed, it is devalued when you realise it's AI, and that's just my kind of feeling on the subject. But that doesn't mean it's going to stop it.
Michael O’Mahony: 42:42
Oh, that's a fact for sure. Like is there ever reading something you can tell? You can tell when it's not human written, or if that feeling even creeps up on you, you look out for it then as well, and it completely, completely devalues it.
Emmet Savage : 42:58
I'm a huge Queen fan, as you well know, and TikTok identified this and started to give me songs by the Beatles sung by Freddie Mercury. And it gave me a version of Imagine sung by an AI Freddie Mercury, a magnificent song sung by a magnificent singer. But it was all wrong. It didn't work for me. The fact that it wasn't Freddie Mercury and the fact that it wasn't John Lennon it just was broken. It was interesting. I looked at it and it was interesting, but it didn't have that deep emotional root. That goes back to four people standing in studio recording either Imagine or Don't Stop Me Now, and that kind of is for me like where AI just kind of breaks the magic.
Michael O’Mahony: 43:39
Yeah. Yeah, it's scary what's on the horizon, I think, when it comes to entertainment and stuff. I really don't know what will happen, but we will see. Okay, before we finish up the show, I just want to give a quick word to our friends and sponsors of Vodafone Business. They recently launched 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. Just search Vodafone V Hub to book a call with one of their digital experts and we will leave a link in the show notes for today's episode. All right, that's it for today's show. Emma, thank you for joining me and thanks everyone for listening in. If you have any questions you'd like answered or elevator pitches you'd like us to tackle, make sure to get in touch. You can find us on Twitter, at mywallstreet.com, on TikTok at my wall street, or simply just email us at pod wall street com. If you're enjoying the show, leave a review or send it to some of your friends. Thanks for joining us and we will talk to you next week.
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