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    Cybersecurity Soars, Cyclical Stocks Cycle

    enJune 07, 2024

    Podcast Summary

    • CrowdStrike's financial performanceCrowdStrike's earnings report shows 33% revenue growth, 63% non-GAAP EPS growth, and a 35% free cash flow margin, despite challenges in new customer acquisition and expanded spend in the as-a-service industry. Remaining performance obligations grew by over 40% year over year.

      CrowdStrike's strong earnings report, with revenue up 33% and non-GAAP earnings per share up 63%, shows the company's dominance in the cybersecurity space. The business is growing through deeper relationships with existing customers, leading to a free cash flow margin of 35%. Despite challenges in new customer acquisition and expanded customer spend in the as-a-service industry, CrowdStrike's remaining performance obligations grew by over 40% year over year. The company's impressive financials, along with over 687,000 job applications in the past five quarters, speak to its growing business and strong company culture.

    • Cybersecurity vs RV IndustryCybersecurity company CrowdStrike thrives amid competition and complexity, while RV manufacturer Thor Industries faces sales decline but holds increasing market share, presenting potential investment opportunity in cyclical RV industry

      The strength of CrowdStrike's business and the mission-critical nature of cybersecurity are driving the company's success, despite competition and market complexity. Meanwhile, Thor Industries, the world's largest manufacturer of RVs, had a tough quarter with a 40% sales decline, but their market share is actually increasing. This cyclical industry may present an opportunity for investors, as the RV market has seen a significant decrease in demand after COVID-19. Lastly, Lulu Lemon had a good quarter with revenue up 11%, but gross margin up 20 basis points and operating margin slightly down. The company's performance was driven by strong international sales, while the Americas region saw a slower growth. Despite some growing pains, Lulu Lemon's impressive track record of growth over the last decade remains noteworthy.

    • Lululemon inventory management, pricing powerDespite signs of effective inventory management and pricing power in Lululemon's latest earnings report, uncertainty surrounds its growth prospects due to slowing sales in the US market, causing its share price to drop significantly this year. Potentially, the Texas Stock Exchange (TXSE) could attract companies seeking a simpler listing process, impacting Lululemon's future listing possibilities.

      Lululemon's latest earnings report showed signs of the company's inventory management and pricing power, but investors are uncertain about its growth prospects due to slowing sales in its core American market. The company's share price has dropped significantly this year, making it attractively priced based on earnings multiples, but some analysts believe it's a wait-and-see situation until the company can demonstrate renewed growth in the US market. Meanwhile, a new potential player in the stock exchange market is emerging, with BlackRock and Citadel Securities backing the Texas Stock Exchange (TXSE). The new exchange aims to compete with the NYSE and NASDAQ by offering simpler listing rules and focusing solely on corporate governance, rather than including ESG and board composition requirements. This could attract companies looking for a more straightforward listing process. Overall, both Lululemon's earnings report and the potential emergence of the Texas Stock Exchange highlight interesting developments in the business world.

    • Market success and regulatory changeThe success of market or regulatory changes depends on the presence of both buyers and sellers and can be influenced by transparency, equal treatment, and the nature of the deals and investors involved. Recent trends indicate a shift towards private funds, but regulatory changes may limit opportunities for smaller funds.

      The success of a new market or regulatory change largely depends on the presence of both buyers and sellers, regardless of physical location. In the case of Tesla moving to Texas for regulatory reasons, starting a new stock exchange, or the SEC's rule on private fund disclosures being struck down, the outcome remains uncertain. While transparency and equal treatment are desirable, the nature of these deals and the investors involved can influence the outcome. The SEC's recent data shows a significant increase in assets under management at private funds, indicating a shift in the industry. The ruling against the SEC's private fund disclosure rule may make it harder for smaller funds to get off the ground by limiting side letters, potentially leading to industry conservatism. Ultimately, the impact of these events will unfold as the involved parties decide their next steps.

    • SEC private funds ruling, Spotify price hikesThe SEC's new ruling on private funds and Spotify's price hikes reflect people's attempts to minimize costs and maximize revenue, respectively. The SEC must balance compliance with industry trends, while Spotify's market dominance allows it to increase prices with minimal customer churn.

      Both the SEC's new ruling on private funds and the price hikes by Spotify highlight people's efforts to avoid compliance costs and increase revenue, respectively. The SEC must tread carefully with the new ruling, as pushing it too far could result in a final decision that may not be favorable. Meanwhile, Spotify, as the market leader, can raise prices due to low churn rates, and the industry trend this year seems to be monetization through price hikes. The DOJ's latest antitrust suit against Live Nation alleges unlawful monopolization, exclusive dealing, and tying, and if successful, could have significant implications for the ticketing giant and its investors.

    • Ticketmaster investigationThe DOJ is investigating Ticketmaster for potential monopolistic practices in the live music industry, including controlling a large percentage of concert promotions and primary ticketing, forcing exclusive contracts, and potentially seeking structural relief such as a company breakup.

      The Department of Justice (DOJ) is currently investigating Ticketmaster, a subsidiary of Live Nation, for potential monopolistic practices in the live music industry. The allegations include controlling over 60% of concert promotions and over 80% of primary ticketing at major venues, forcing exclusive ticketing contracts, and acquiring or partnering with other venues to maintain market control. The DOJ is seeking structural relief, which could result in the company being broken up, but this remedy is extraordinary and has only been awarded in a few cases, such as the AT&T breakup in the 1980s. The case dates back to a 2010 merger between Live Nation and Ticketmaster, which was approved under a consent decree but has been closely monitored since then. The DOJ's arguments against the company include its control of the market and consumer harm, but Live Nation argues that it doesn't have high profits or monopolistic power and that ticket prices are driven by artist costs and production expenses. It remains to be seen if the case will result in significant price reductions or if it's more about getting political points. Regardless, if you attend live events, you're likely interacting with Ticketmaster, making this case particularly relevant to consumers.

    • Ticketmaster's legalityThe government is investigating Ticketmaster's market dominance in ticketing and alleges anti-competitive practices, while Ticketmaster argues its practices benefit venues and customers

      The legality of Ticketmaster's high market share in the ticketing industry depends on whether or not its actions are considered anti-competitive. While Ticketmaster argues that they offer the best services and have been selected for ticketing agreements, the government must prove that their behavior crosses the line from normal competitive behavior into anti-competitive conduct. The government's claims include Ticketmaster's exclusive ticketing arrangements with venues and allegations of high fees. Ticketmaster, on the other hand, argues that these practices benefit both the venues and their customers. The company's significant revenue and income growth over the past five years, despite shareholder returns not keeping pace with the market, adds complexity to the case. Ultimately, the outcome will determine whether Ticketmaster continues to be a cash machine or transforms into a capital return, deleveraging story.

    • Live Nation regulation and restructuring risksInvesting in Live Nation involves regulatory uncertainty and potential restructuring risks due to ongoing lawsuits, but the live events industry is a growth business and Live Nation is the market leader, requiring investors to be comfortable with regulatory overhang and potential industry restructuring for potential cash flow and shareholder returns

      Investing in Live Nation comes with regulatory uncertainty and potential restructuring risks due to ongoing lawsuits. The company, which uses profits from ticketing to subsidize promotion, could face margin compression if broken up. However, the individual pieces of the business would likely retain value. Despite regulatory scrutiny and controversy, the live events industry is a growth business, and Live Nation is the market leader. Investors must be comfortable with the regulatory overhang and potential industry restructuring to profit from the company's significant cash flow and potential shareholder returns.

    • Donut Business ChallengesDespite product popularity, donut businesses like Krispy Kreme have faced mismanagement and counting issues rather than product quality concerns.

      While donuts may not seem like a lucrative business, the struggles for companies like Krispy Kreme have been more about mismanagement and counting issues rather than the product itself. Jason and Bill discussed their favorite donut chains, with Jason being a longtime fan of Krispy Kreme and Bill advocating for diversity with a recommendation of the Italian Bakery in Lewiston, Maine. During the show, they also discussed DocuSign's recent earnings report, which saw encouraging earnings per share growth despite a meh quarter, and noted the company's continued growth in total customers.

    • DocuSign, Casey's General StoresDocuSign's financials and potential acquisition may impact investment potential, while Casey's high gas station margins and minimal competition in small towns make it an intriguing investment opportunity.

      Both DocuSign and Casey's General Stores were discussed during the Money Radio Show. Regarding DocuSign, while it offers a great service, the speaker expressed some doubts about its investment potential due to its financials and the possibility of it being acquired. On the other hand, Casey's General Stores, with its high gas station margins and minimal competition in small towns, was seen as an intriguing investment opportunity. The speaker, Bill, shared his excitement about diving deeper into Casey's and encouraged listeners to keep an eye on it. Overall, the conversation highlighted the importance of considering various factors when making investment decisions.

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