Clay Finck (02:13):

Looking back at our prior conversation back in November 2021, we are chatting quite a bit about Amazon during that episode. I like to get us kicked off to just ask you if there’s anything noteworthy that’s changed about Amazon since we’ve last spoke.

Jason Moser (02:28):

Yeah. I mean, it feels like there’s always something going on with Amazon, a very big company with a number of different initiatives, I guess. I mean, Andy Jassy, obviously, wrapping up his first year CEO of the business. I think that was probably the biggest story over the last year was just how would he do taking over, right? I mean, he really made his hay within the company in the AWS segment. So then to really expand that purview, so to speak, and take on the retail operations and all of these other ideas that Jeff Bezos has tried to do with his business, I mean, it really was a big question. Did they have the right guy? I feel like, I mean, stock performance not withstanding, to me, it feels like they really do have the right guy here in Jassy, and part of that is because of the importance of the AWS side of the business.

Also, I feel like you’ve got a very mature retail operation there now. I mean, this isn’t the company where they’re still trying to build out a retail operation and prove the case for Prime membership and the value that that can create. So I think a lot of probably the heavier lifting has been done, so to speak, with the business at this point, and it feels like Jassy is doing well there. We obviously saw the stock split, which is, I think, just interesting because it feels like it could make the stock a bit more accessible for the individual investor. Granted we live in the age of fractional shares now, and it makes it a lot easier to buy shares of businesses with those 2,500-3000 share prices, but nevertheless, I mean, I think it is something that does make it a little bit more accessible for the individual investor, and you have to wonder if it’s not something that tends perhaps an entry into the Dow at some point, given that the Dow is a price weighted index. So that’ll be something to keep in mind.

They, of course, at the time of the split, also announced the share repurchase authorization. I think a 10 billion of share repurchase authorization, which is not something we’ve seen from them before. I think that makes a lot of sense given where the business is today, obviously, a very large company. I don’t suspect we would see them paying a dividend anytime soon. So offering up at least a little bit of an olive branch in the form of repurchases. That at least gives us the perception at least that they’re trying to return some value to shareholders, but all in all, it feels like the company made it through a very difficult past couple of years and has come out in a stronger position than it entered granted it has had some bumps along the way, but generally speaking, I think the business is in a very good place right now.

Clay Finck (04:53):

You mentioned the retail business specifically, and I like to tune in to other people’s opinions, what people are saying, and I hear the idea that the retail business is “worthless.” That’s the term that’s thrown around since how could that be possible? It just seems like a ridiculous idea, but maybe people are seeing something completely different than I am.

Jason Moser (05:14):

Yeah. I mean, I’ve never referred to it as being worthless. I think it’s a tremendous business. It’s what they’ve been known for for a really long time. Perhaps that sentiment comes a little bit from the idea that the AWS side of the business has developed so quickly and has become such a driver of actual profitability for the business. I think that really is probably the key there for folks to consider is that, yes, it has this massive retail side of the business, and no, it’s not the most profitable side of the business. I mean, there’s a lot that goes into running that retail operation, but it is part of ultimately a bigger picture, right?

I think that the success of AWS might have folks thinking that, really, that is the breadwinner of the business, and maybe that’s why they focus a little bit less on the retail side, but you got to remember that retail side, it’s consistent, right? It’s going to be reliable. I mean, we’ll go through ebbs and flows as far as economic conditions and consumer spending, I mean, but Amazon, with the retail side of the business, the Prime membership that they’ve been able to develop, the hundreds of millions of members that they have now, the Prime members that they have now, I mean, it’s very Costcoesque, right?

I think for a long time, myself included, we looked at Costco and thought, “How does this business, its razor thin margins, how does it make for such a great investment?” I think it really all goes back to the power of that membership model, right? I mean, it is just something where being a Prime member now for many folks, it’s like a cost of living, it’s a cost of doing business, right? I mean, I have a house with a wife, two kids, three dogs, and a cat. I mean, there’s an Amazon box my doorstep seemingly every day, Clay, and that Prime membership, I honestly couldn’t even tell you exactly what it costs now because I think no matter what it costs, I’ll likely end up paying it anyway. So maybe that’s where part of that comes from, but definitely a powerhouse when it comes to retail, and I don’t think that will stop anytime soon.

Clay Finck (07:11):

Yeah. It looks like it’s 139 bucks a year. I recently had a Buffettologist on the show. His name’s Chris Franco, and he’s invested in Costco, and I can’t help but look at Costco and just think, “Gosh! Dang! This thing’s premium price compared to many other stocks in the market.” I’m much more drawn to a company like Amazon because of the growth runway that’s still ahead for them, at least a higher growth rate and a little bit more optionality, I think as well.

Jason Moser (07:38):

Probably so, yeah, probably so, and I agree with you. I mean, I have always, I’m not a Costco shareholder, that’s been my bad, right? I’ve missed that boat all the way along. I think that one thing I didn’t assign enough value to back in the day, earlier when we were looking at this business, looking at Costco years and years ago, is just the power of that membership model and the power even more so of customer loyalty.

When you have customer-centric businesses, I mean, I would put Costco at the top of the list. They’re one of the most customer-centric businesses out there. I think Amazon too is a very customer-centric business. I mean, that’s their stated purpose, really, is to be one of, if not the most customer-centric businesses on the face of the earth. There just is a lot to that.

I think that the market oftentimes will afford more robust multiple for a business like that because they know the consistency of that vision, the value of being so customer-centric. It costs some money in the near term, right? You see how some of those costs add up along the way in the short run, but if you pan further out there and you look over the longer run, you see the benefits of that, and it truly does outweigh those short-term costs, and that typically ends up working out pretty well for the share price as well overtime.

Clay Finck (08:55):

In terms of Amazon’s stock price, it had a good run after COVID hit, which makes sense. Everyone’s sitting on their phones at home ordering on Amazon and what’s-

Jason Moser (09:06):

Guilty.

Clay Finck (09:07):

So it’s no surprise there, but what surprised me then is just the lackluster performance relative to maybe some of the other big tech companies. It’s got me thinking how they have all these logistics, they probably have some inflation headwinds, especially with higher gas prices, and then I compare it to maybe a company that really doesn’t have that issue at all just like Google. Is that the driver in this recent stock performance over the last couple of years or what are your thoughts on that?

Jason Moser (09:37):

I think partly. I mean, I think over the last couple of years, we saw a lot of businesses that, really, there was a lot of success that was pulled forward due to conditions at the time, right? I mean, COVID had us doing things a lot differently for a couple of years. I mean, while most of us were very used to eCommerce and online shopping, it became a crucial part of our economy over the past couple of years.

So I think you saw businesses from Amazon to Etsy and Wayfair and everywhere in between, and there was a lot of success that was pulled forward, and rightly so. I mean, if you look at the numbers, I mean, in 2020, Amazon’s North America and international consumer revenue grew 39% over the year ago, right? That growth continued on into 2021. That revenue grew 43% year over year in Q1 2021.

I mean, those are big numbers when you consider the size of that business. I mean, Amazon really, really grew a lot just in a couple of years. So the market, I think, along with that growth really, really pulled forward a lot of that success. It could be argued that the share price was a little bit detached maybe from the longer term fundamentals of the business. So we’ve seen a lot of businesses, I think, are going to come back to earth here over the past year for one reason or another.

Now, I think in Amazon’s case, I mean, you have a couple of things that play here, right? If you look at the most recent quarter, and that sales grew just 7%, and that is extremely low historically speaking when you look at this business that’s just been chalking up 20% and 30% revenue growth seemingly quarter in and quarter out.

The other thing that really came into play here too is I think they have suffered from excess capacity, right? Over the last couple of years, they did build out a lot in the way of fulfillment, the way of logistics. I mean, that is the lifeblood of this company, fulfillment and logistics. It’s getting things from point A to point B. In order to handle the demand, they had to build out excess capacity.

Now, they are suffering a little bit in that the capacity is more or less going unused. So that excess capacity is something that I think is a little bit of a headwind on their profitability right now, and the market is digging them a little bit for it. That I think is something that was more or less out of Jassy’s control. So I think it’s something that he’s working to get the company through, and it sounded like in a most recent call that they’re excited about the potential of Prime Day, right? Prime Day is coming up here, and then we’ll learn more about Prime Day numbers in the third quarter, but then also that leads in the holiday season as well.

Granted economic conditions right now, consumer is feeling a little bit strapped, but their hope is here over the next several quarters that that excess capacity will right itself as consumer demand comes back and the business growth reaccelerates a little bit.

Clay Finck (12:22):

You mentioned some of the other growth companies in related industries to Amazon, and what’s really amazed me over the past few years is just how correlated so many of these growth stocks are. I’m really curious how you’re able to dig into these and differentiate between the true innovators and the great businesses versus the average companies with not much runway because it seems just like there’s so much correlation between the two.

Jason Moser (12:52):

Yeah. I think you’re right. It does feel like, for me at least, I look at some of these businesses and I look for the similarities in not only what they’re doing today, but the investments that they’re making for the future, right? I mean, you look at these businesses and you think about their market opportunities. I mean, in a grand scheme of things, whether you’re talking about Wayfair or Etsy, along with Amazon, Shopify, and I own shares on all four of those businesses, actually, but they are all businesses that are playing in a very, very large sandbox, right?

I mean, if you quote the market opportunity, you you could look at the market opportunity in which way you want, but it’s a massive one because it all basically boils down to consumer spending and selling as much stuff as you can, typically online as these retailers do. It is a matter of, for me, looking at these businesses. One of the reasons why I own all four of them, really, it’s looking at these businesses and seeing what are they doing beyond just trying to sell stuff, right? Are they building out more capability to become more or less vertically integrated, so to speak, having more control over that experience, whether it’s in the advertising side or whether it’s in the payment side or the fulfillment and logistics side.

It does strike me that these businesses that have good long-term track records, even though they may be suffering a little bit here in the near term, these businesses that have good long-term track records are making investments in the future by becoming more things for their customers, whether it’s individual merchants or whether it’s individual consumers like you and me or whether it’s their merchant customers or whether it’s perhaps even their suppliers. The companies that are making those investments to become more capable and participate at every point along that value chain, those are the businesses that I tend to be more interested because I feel like they have a longer runway, and ultimately a bigger market opportunity.

Clay Finck (14:42):

We’re going to get back to the eCommerce space and talk about Shopify, but first, I wanted to talk about another high growth, high flyer that was in the headlines from the very start when COVID hit, and that’s Zoom, had heck of a run. I think a lot of people knew it was … Thanks for getting crazy. It was in bubble territory. We just didn’t know what was to come after that. It was this leader in this COVID run of being a beneficiary of work from home and stay at home. Now, it’s back to pre-COVID levels for the stock price. I’m curious what your thoughts are on Zoom because you guys talked about it on your Motley Fool podcast, Motley Fool Money, and I’m curious what your thoughts are on Zoom and if it’s a company that’s investible for you.

Jason Moser (15:29):

Yeah. I like Zoom as an investment idea. Now, I don’t own shares in it personally. It’s a business that I have recommended here in one of my services. Thankfully, I recommended it pre-pandemic so I didn’t catch it at those lofty valuations. So we’re still in positive return at this point, but I do think Zoom is ultimately investible, absolutely. I think, you hit the nail on the head there. It’s one that really benefited early on from the early days of the pandemic for obvious reasons, right?

I mean, we were working differently and Zoom was really facilitating that in a lot of ways. When you look at those early days, Zoom was essentially just that video conferencing app, right? I mean, you have it on your laptop, you have it on your phone. It was just a way to connect with folks at work, right? I mean, it was like, “Well, I mean, isn’t this what Skype was supposed to be?” I mean, even now, I mean, we still have plenty of people that still use Skype and it’s not like Skype has been completely eliminated from the conversation, but I think that Zoom, what they had going for them early on was that it was built for the cloud, right? It was built on modern technology, which gave them a little bit more ability to integrate new functionalities, new capabilities into the experience.

So what was just a video conferencing app now has become so much more. Now, I mean, when you look at Zoom, I mean, yeah, look at the actual market that they’re pursuing. We talk about things like SaaS, for example, Software as a Service, and Zoom is pursuing this market that’s now being referred to as UCaaS, UCaaS, Unified Communications as a Service. I think that really speaks to ultimately what Zoom has become, right? It is more than just this video conferencing app, I mean, are introducing all sorts of new functionalities and capabilities to the Zoom experience that make it ultimately more useful for folks. It’s a more productive work tool.

I think as we live in this, what I think is for the most part going to be a hybrid work environment for many folks, I think that becomes far more attractive proposition not only for users, but for investors as well. If you look at something like Microsoft and what they’ve done in building out Microsoft Teams, very similar, right? I would put Zoom and Microsoft Teams on that same list there. I mean, they really are competing for a lot of the same eyeballs, but I mean, look at what zoom tried to do recently. They did attempt to acquire Five9. That was going to be a big acquisition. Ultimately, it didn’t work out, but that was where you saw Zoom really trying to spread its wings and become something a little bit more.

I liked them wanting to become a little bit more like a Salesforce in being more a part of commerce, not just us individuals connecting and meeting and getting work done, but really becoming more a part of the commerce landscape, so to speak. That didn’t work out, of course, but that didn’t stop them from innovating and continuing to roll out other things like Zoom Contact Center. There’s Zoom Whiteboard, Zoom IQ. They’ve got Zoom Phone.

So now, you can see how that Unified Communications as a Service play is coming about, and the market opportunities is an attractive one. I mean, I think the estimates out there for UCaaS from a global perspective the market opportunity have seen at around $29 billion in 2021. That’s forecast to grow to about $70 billion by 2028. With Zoom bringing in about $4.2 billion in trailing 12-month revenue, guiding for around $4.5 billion in full year revenue this year, that shows there is absolutely still market out there for them to capture. I think with another very customer-centric leader in Eric Yuan, this is not a company to overlook I don’t think.

Clay Finck (19:09):

I think just to push back and pull a trick out of Buffet’s playbook is just to look at the moat, and what kind of moat does Zoom have. I look at Teams and I also think of the switching costs. How much does it really cost for me? How much pain do I have to go through to switch to Microsoft Teams or any other service relative to Zoom? I think that’s my biggest pushback with Zoom is maybe the true competitive advantage they have and the moat. Yeah, I could definitely see them succeeding in the next five, 10 years. I just feel like the range of outcomes is pretty uncertain for Zoom just due to the nature of the business, I think.

Jason Moser (19:49):

Yeah, I don’t disagree, actually. I mean, when you use the word moat, I fully agree. I don’t know that I would say that Zoom necessarily has a moat, I mean, not to the extent that a company like Microsoft does. I mean, Microsoft with Teams, I mean, they have the luxury of essentially being able to roll that product out for free, more or less, because they have such a presence already in the enterprise. I mean, so many businesses out there, small, medium, and large businesses use Microsoft software to get their work done every single day.

So for them, it’s very easy just to roll out that Team’s feature and say, “Hey, this is another thing we’re going to add to our suite to help you get work done.” I’ll tell you, having used Microsoft Teams personally, I find it to be a very good product. It’s very useful. It’s very productive. I like how it integrates all of those Slack features and Zoom features into one consistent interface. It’s something that I think a lot of folks are very familiar with because we’re all very familiar with using Microsoft products.

So I think from perspective, I don’t know that I see Zoom as having a real moat. I agree with you. I don’t think there are heavy switching costs involved. I mean, it basically is going to boil down to what the company prefers to use. If you have a company of 500 employees and 300 of them say they would rather use Microsoft Teams, well, I mean, it sounds like the company is probably going to switch over to Microsoft Teams to maybe save a little money in the process, and you get used to making those switches.

I mean, we have switched communications providers more than once here at The Motley Fool, right? I mean, I can remember back in the day of trying and using instant messenger and even other options that are out there. Cisco option was out there at one point. So it is one of those things where I think Zoom has to continue to innovate and add more value to their platform in order to keep users coming back, right?

So you do have to ask yourself what kind of pricing power would a business like that have because, yeah, I mean, maybe today those switching costs are relatively low. Now, over time, if they can continue to add new features and tools to the interface, maybe those switching costs grow, right. Maybe it becomes more and more useful and you become more enmeshed in that ecosystem, so to speak, and maybe those switching costs do grow over time, but I don’t know that they’re there yet. I think that’s what they’re working for, but I don’t know that they’re there yet.

I think when you look at the numbers though, I mean, clearly something is working. I mean, when you look at these most recent quarterly numbers, yeah, revenue growth has slowed down a little bit. They grew 12% year over year this most recent quarter, but when you look at the numbers of users, they have approximately 198,900 enterprise customers. It was up 24% from the same quarter a year ago. They have a trailing 12-month net dollar expansion rate for enterprise customers of 123%. That means that those folks that they’re bringing in are expanding that relationship and spending more money with them.

If 2,916 customers contributing more than $100,000 in trailing 12-month revenue, that was up 46% from the same quarter a year ago. So you do see numbers that tell us at least that the service that Zoom is providing, customers like it, and that really is ultimately the first step. Get them in the door, wow them with what you’ve got, and then keep building on top of that, and over time, hopefully, that does build a little bit of a moat and those switching costs do grow, and that gives Zoom, hopefully, the opportunity down the road to exercise a little pricing power, which is certainly something we’d like to see as investors.

Clay Finck (23:22):

I think I just caught one of my own biases. It would be pretty easy for me personally to switch from Zoom to some other platform given that everyone at TIP is remote. If I wanted to start conducting interviews on a different platform other than Zoom, it would be extremely easy for me to do so. I could really do it with the snap of a finger, but when I think about a corporation with hundreds or even thousands of employees, it would be such a headache to get everyone moved over from one platform to the other with probably a very incremental improvement and not a huge difference.

Jason Moser (24:00):

Well, it can be very difficult. I mean, I can tell you. I mean, coming from an organization, I mean, I held a few different jobs in my life. I worked at Travelers Insurance for a stretch, and I worked at Bank of America for a time as well. I mean, obviously, two companies that are far larger than where I work now here at the Fool. You’re right. I mean, when you have these really large corporations with tens of thousands of people, it makes a big difference, right? I mean, all of a sudden then when you make a big switch like that, I mean, that becomes a little bit more difficult to implement, and smaller companies are a bit more nimble and can do things like that.

I think that’s where Microsoft has a little bit of an edge, right? I mean, they can roll those features out there because many of those companies are already using that enterprise software. I do think that’s where Microsoft does have a little bit of an edge, but again, I mean, it is a big market opportunity, and it’s not a winner take all space. So I don’t think Zoom needs to focus on winning at all. I just think they need to focus on building out a good platform so that they can capture their share and that hopefully works out well for investors.

Clay Finck (24:55):

I was checking out just your background in preparation for this interview, and I saw on your Twitter profile that you had your portfolio pinned on there. I just love the transparency of just showing the world what you own and just owning up to however that ends up playing out. One name I wanted to chat about today and discuss, and it’s one that stuck out to me, was Shopify, another one of these growth names and been on the rollercoaster ride as far as the stock performance.

It reminds me of Bezos talking about Amazon stock back after the tech crash. The stocks way down, but you look at the fundamentals like I did for Shopify. Everything’s trending up. Has the story or investment thesis changed at all for Shopify since you first bought it?

Jason Moser (25:47):

I don’t think so. I think, for me, I’ve owned Shopify for something like four years or so now. It was always very apparent that, I mean, more and more commerce was going online, and it’s one of the beautiful parts of the internet is it really opens up opportunity for folks that may not have had that opportunity before, right? I mean, it’s easier now than ever before to open up a small business because you don’t necessarily need to have that physical footprint to do it, right? I mean, you need the virtual footprint, you need the digital footprint, and that’s what Shopify specializes in, and ultimately, the thesis of the investment is that they provide all of the tools, really, to let anyone open an online business and get going.

So I think from that perspective, it really hasn’t changed at all. My hope initially in owning the shares was that this would be a business that would continue to pursue. Well, like I was mentioning earlier, adding more and more of the functionality and the tools like an Etsy or like an Amazon to basically let their merchant customers get everything they need to get done, and I think that thus far, Shopify has really done that.

Now, one thing that I think has changed a little bit, but I don’t necessarily, it’s not a bad change, but it’s a risky change, right? It’s this continued investment in this Shopify fulfillment network. I think they certainly realized that taking more control of that fulfillment side of the business while it’s costly and it can be a risky endeavor, it gives them ultimately more control over the experience. If they can give their merchant customers a better experience, if they can help their merchant customers offer their customers a better experience, that ultimately keeps those merchant customers coming back, and re-upping with Shopify, and continuing to keep their business with that Shopify ecosystem.

So I think that they made this acquisition of a company called Deliver a little while back. It was a pretty sizey acquisition, $2.1 billion. Tobi Lütke is known for taking that Bezos mentality longer view, right? He is not one that really focuses on short-term performance necessarily. He’s willing to take the little short-term pain for the longer term gain. I think that’s what they’re going to continue to do. I mean, if you look at a quote that they made in the most recent call, I think this sums it up for this business. They said and I quote, “Our intention to reinvest all of our gross profit dollars back into the business this year remains intact since the pace of change. Independent brands need to get ahead of is not slowing down.”

So I think that that really tells you all you need to know in regard to this business and what they’re trying to do. They recognize that they need to keep going that quick pace that their business environment demands because their merchant customers need to be able to be able to evolve and to iterate as quickly as possible, and they need to be able to rely on Shopify to provide them the tools to do so.

So again, I think that they’re doing the right things focusing on things like Shopify payments. I believe they partnered with Stripe in that capacity in providing their customers the tools to be able to get business done. I think that the fulfillment network investment is a big one, but I am hopeful that it will pay off. I think it certainly makes a big difference in the customer experience, and I understand them wanting more control over it.

Clay Finck (29:00):

One thing I’m really not sure on with Shopify is how to handle them being a Canadian company. Does that change your due diligence at all or add any additional risks?

Jason Moser (29:13):

I don’t believe so. I mean, we were able to access all of the information that we need to in the case of Shopify just as if that we’re a company that were domiciled here in the US. I mean, certain businesses where you might see less transparency or understanding exactly how a country functions, how their regulatory environment works. I think China just stands out as a good example. I mean, it’s a more difficult country to understand from a cultural perspective, as well as a regulatory one. I think that presents its fair share of risks that investors should keep in mind.

In regard to Shopify, I had not found any raw hangups and then being a Canadian domicile company. They still file their filings and it’s all very accessible information. I think Tobi also seems to be, I mean, he’s a great advocate for the business. He’s a great ambassador for the brand. He’s a pretty active guy on Twitter it seems like, and seems like he’s very transparent and open, which is always helpful as well. I think those are good traits to see in a leader.

Clay Finck (30:12):

Looking more at the numbers for Shopify specifically, I see revenue growth is spectacular about 100% growth in 2020 from 1.5 billion to nearly three billion and then 4.6 billion in 2021. Market cap is around 40 billion. Do you have any idea what their runway is or what their total addressable market will end up being?

Jason Moser (30:39):

Yeah. I mean, it is difficult to really get a grip on what kind of market opportunity a business like this has. I mean, you could go a number of different ways with it, I suppose. I mean, you do have a massive opportunity just in eCommerce, right? I mean, if you look at that big picture eCommerce number, I mean, in 2018, it was noted that domestic eCommerce sales here came in at $514 billion, right? That’s just domestic US eCommerce sales with a business here in Shopify that is bringing in, what? Something close to $5 billion in revenue right now.

So I think that with a company like Shopify, you focus first and foremost on the investments that they’re making in the business and the strategy that they’re undertaking in relation to the amount of revenue they’re bringing in today because the market opportunity is so large. I think that’s what the market … The market, traditionally, has given Shopify a little bit of a leeway, let’s say, in regard to the valuation, right? I think the valuation is starting to make a little bit more sense today than it did here recently. I mean, it’s obviously the stock that has, I don’t know how to put this delicately, but I mean, it had a very difficult stretch here, right?

I think shareholders are certainly feeling that, but it was also a business that it felt like the valuation became firmly and fully detached from the fundamentals of the business. I mean, even today, after this selloff, you’ve got a business that’s trading somewhere in the neighborhood of eight-ish times sales in a business that’s really still working toward meaningful and sustainable profitability and cash flow generation, but we also know that they are basically taking a page from that Bezos book and just constantly reinvesting in this business.

It’s not to say that that’s going to work out for every business, and it’s not to say that Shopify is the next Amazon either. It may be, it may not be, but we do know that it is pursuing a very, very large market opportunity in commerce. When you look at the general weight in our economy here domestically that is given towards consumer spending, I mean, that is so much of what our economy is is just consumer spending. I mean, it’s understandable that investors would be very enthusiastic about the market opportunity the business is pursuing.

I think you and I were talking about this earlier. I mean, the company itself, I think, quoted their market opportunity internally. It’s somewhere in the neighborhood of 160 billion, I think, if I’m not mistaken here, and that could be one way to look at it, but that’s total addressable market. I think it’s always good to remember that total addressable market doesn’t mean they’re going to get in there and capture every bit of that, right? It’s not a winner at take all game, but you look at that type of market opportunity. You take it with a grain of salt. You understand the other companies that are playing in that space, so to speak, and that can give you a better idea at least of what they potentially could capture of that large market opportunity.

It feels like with a business like Shopify, still it just somewhere in the neighborhood of $5 billion in revenue, it certainly does feel like there is a lot of opportunities still out there to capture. I think this is one of the reasons why market is so enthusiastic about it, even with the stock pulling back. I mean, listen, the stock, I think, it got well ahead of itself over the past couple of years as many of these stay-at-home stock ideas did, but I think the longer term picture still remains intact.

Clay Finck (33:45):

The elephant in the room that we chatted about earlier is Amazon when it comes to the eCommerce space. On the one hand, I can see the opportunity for small businesses selling on Amazon, but on the other hand, I can see just the limited, I guess, flexibility with selling on Amazon. I mean, you can get access to the many millions of users that get on Amazon. Yet you don’t get to create your own website that’s outside Amazon and get the best of both worlds. So in your eyes, is Shopify addressing a little bit different of a market within eCommerce than Amazon is?

Jason Moser (34:23):

Yeah. I feel like it is. I mean, I feel like they’re competitors to an extent, but I mean, you said it. I mean, Shopify is ultimately catering to a little bit of a different need, and I think that’s ultimately what differentiates them. Amazon has become very successful in large part, thanks in large part to its third party providers, right? That’s always something worth keeping in mind, but like you said, you have somewhat limited control over that experience, and that is something that Shopify is really working hard to address is giving folks who are looking to open up their own online business. They want to give them control over that experience to really help build that brand.

So then you look at businesses like Block, which acquired Weebly not all that long ago, and Weebly, yeah, Weebly I wouldn’t put up there in the same mention as something like a Shopify, but they’re definitely pursuing the same kind of idea. Even Etsy, even Etsy to an extent is doing the same thing that Shopify is doing, but I think, ultimately, that’s where Shopify remains a little bit differentiated in that they are giving their merchant customers the opportunity to really own that experience from the very first step in building that brand and building that presence online that could last for as long as they want it to.

Clay Finck (35:41):

All right. Well, moving along to maybe just chat more about the overall market with the big pullback in many of these companies, many of whom you’re an owner of. Are there any that you’re just really excited to add to at probably more of a bargain price?

Jason Moser (36:00):

Yeah. I’ve been doing more buying over these past several months than I have in probably the past two years combined. I know that’s tough for some folks to stomach in bear markets like these, but it’s like Shelby Davis said, right? You make most of your money during a bear market. You just don’t realize it at the time. So you have to be willing to be opportunistic and you have to be willing to ultimately take that leap of faith that things will get better that does bear repeating that all of these bear markets and stock market corrections and the difficult times. Stock market recovers from that 100% of the time and sets new highs.

So we hope this time won’t be any different, but I have added to some positions of mine and I’ve been focused more on adding to positions I have as opposed to opening new ones because I own I think somewhere in the neighborhood of 30. I feel like it’s something like 32 or so individual positions now, which for me is a lot, and I try to be able to keep up with them, but some of the companies that I’ve added to recently, I’ve added a little bit to Twilio along the way here, a company that is focused on the communications side of the enterprise, right? I feel like that’s a business that has a lot of opportunity in front of it, but it’s one of those businesses that still working its way towards profitability, and they’ve renewed that focus on getting to that profitability and really exploiting that revenue growth that they’ve been witnessing over the past several years.

Another one that I recently added to, and I think this was a bit more of an opportunistic idea, was just Outset Medical, a business that is focused on the dialysis market, and they’ve taken a little bit of a different approach, and that they built technology to enable dialysis in the home. They took a little bit of a detour here recently where they put a pause on shipments for the in-home products as they have some adjustments and some enhancement to their software. They’re just working with the FDA to make sure that they have all of their ducks in a row, so to speak, there, but I actually could see where the FDA ultimately work in their favor, but of course, when you put a pause on something like that and you adjust your guidance downward, and you’re still a small growth company, the market doesn’t receive that news very well and shares really did get hammered recently, but all things considered, it feels like all of the success that it’s gotten them to where they are today, plus the fact that management has been very transparent and open and communicative about what they’re doing, it felt like a good opportunity at the time.

Then a couple of other ones that I’ve added to, I did open a new position. I opened a new position in Home Depot, and that just is one where I’m trying to build out a little bit more of a dividend presence in my retirement portfolio. Home Depot is one to me that, number one, it does feel like the valuation has been an opportunistic one here this year as the company continues to perform very well. You got to love that market opportunity in home improvement and home repair, and Home Depot certainly seems to be fundamentally in just as good a shape as ever. So I’ll continue to build that position out over time just to build up more of that dividend presence. Those are a few of the names that I’ve added to recently.

Clay Finck (39:08):

How about the flip side? Are there any companies you’ve sold? I’m curious on your reasoning and thought process on this as maybe a company you originally liked you found out that it isn’t as good as you maybe have originally thought it was.

Jason Moser (39:25):

Yeah. So I don’t sell a whole heck of a lot. I try to avoid selling if I can, but one that I did sell recently and I think there were a few reasons why I decided to sell. I sold booking.com. Most people would just recognize that as Priceline, but I held shares in booking.com for a while, probably three, four years, maybe I owned shares in the business, and it was never a large position for me. It was a smaller position, but it was an opportunity for me to get some exposure to travel.

It felt like Booking has just always been one of the behemoth in the travel space with a long track record of tremendous network of hotel partners in its network, but it just became clear to me over the past couple of years and really a trip that we made to France over spring break this year that it’s just becoming more and more in Airbnb and Uber style world, right? I mean, it’s a different world in travel than it was before. I was becoming less convicted about that booking.com, that booking holdings position, right? It was one that I was feeling less conviction regarding the idea. I didn’t feel compelled to add to it.

I had recently had a couple of less than stellar customer experiences using their platform. So ultimately, that coupled with this idea, like I mentioned earlier in opening the position with Home Depot, I really getting a little bit older and I want to start building a little bit more of the dividend presence on my portfolio, and so that booking position felt like it was a perfect opportunity to take the money that I had made on that investment. It had done okay, but it felt like a good opportunity to take that capital and reallocate it towards the position where I just had higher conviction, and ultimately, to my mind, a better reason for putting that capital to work with Home Depot, right? I had a longer term strategy in mind with that Home Depot position than I ultimately had with booking holdings.

So I went ahead and just sold the booking position and I put that money to work in the Home Depot position because like they say, I mean, there are a million different reasons to sell and everybody has to come to their own reckoning as to why they’re doing it, but one of the very good reasons is when you feel like you have a better place for that money, and I simply felt like I just had a better use for that money putting it to work with Home Depot as a longer term holding that I plan on owning for many, many years to come.

Clay Finck (41:53):

Yeah, I really like that. I was reading some of Buffet’s writings recently, and I believe it was either him or Munger that said essentially being able to sit on your hands and not do anything is a sign of intelligence, and I just found that so funny. Another thing that’s been on my mind related to these growth companies is all the headlines you’ll see of all the layoffs we’ll get. Some recent ones are Meta, Salesforce, and Netflix. They’ve all announced either hiring freezes or layoffs recently. A lot of these companies are looking to cut costs with higher inflation, higher uncertainty, interest rate hikes.

I’m curious what maybe you think this means for maybe the growth sector overall, if that means maybe more steady growth in the near term as they watch how things play out with these macro forces and what that might mean for these growth companies, I suppose.

Jason Moser (42:48):

Yeah. I mean, I think we’re at a point right now where there is enough uncertainty in the world. I mean, there’s a lot going on right now that the confluence of events where you see certain parts of the world where supply chains remain in flux. I mean, you see what’s going on in China and their COVID response. You look at what’s going on in Ukraine with Russia and Ukraine there. Then you look domestically here and you see what’s happening here in regard to inflation, interest rate policy.

I mean, one thing that’s abundantly clear is the cost of doing business is certainly going up, but it doesn’t look like that’s going to be changing. Now, how ultimately that’s maneuvered, right? I mean, if it’s something where we continue to see these 50 basis point, 75 basis point bumps in the interest rate, whether that continues or whether if fed decides to be a little bit more incremental in its approach, I think one thing is clear. The longer term trend is we’re going to see interest rates continue to go up. We’re going to see inflation continue to be an issue in the near term here, and part of the concern with inflation is that, really, I mean, it’s not just something that can be ultimately addressed by the fed bumping up interest rates.

It goes back to what I was saying. There are a lot of other things going on in the world that are coming into play here that are just out of our control. So I think what that does, it paints one big picture of uncertainty. I think that when you have that a situation, companies are smart to get out in front of that, recognize that perhaps these last several years have been terrific for investors. They’ve been terrific for a lot of these growth companies. Capital has been more or less unlimited, so to speak. So they’ve been able to really hire and invest and spend and just try all of these things.

Times get a little bit tight that you need to take that in consideration, and when times get tight and then you have the level of uncertainty that we have in the world right now, that really can be disastrous for companies that are bloated. So companies that are able to cut back and really whittle down that cost structure even just a little bit, it can make, I think, not only a difference in the financials, but ultimately I think it creates a little bit of a positive mindset for investors too knowing that these companies are looking out for that stuff, right?

They’re not just spending whatever they’re going to spend whenever they’re going to spend it. They just don’t have to worry about uncertainty in tougher economic times. I mean, we’re all subject to that in some capacity or another. So you might see, yeah, a little bit of a slowdown in growth here over the next quarters, years, however long this takes, but I think that, typically, when you come out, it’s situations like these where the strong businesses emerge even strong. I think a sign of a strong business is one that is going to take this stuff seriously, make sure that they’re not wasteful, make sure that they have their cost structure in a good place. So it may be a little bit painful in the moment, but I think ultimately it sets them up for longer term success.

Clay Finck (45:33):

My last question, I should have asked after I was curious what kind of purchases you’ve made recently, is how you approach investing during a bear market? Do you just average into your positions or what factors are you taking in when you’re looking to add to a position?

Jason Moser (45:53):

Yeah. Well, I mean, like I said, a lot of the buying I’ve done has been adding to position that I’ve already owned. I think the only new position I’ve established is the Home Depot position that I mentioned. For me, I think first and foremost, what it really boils down to, and I can’t really overstate this, is to take it slowly. I think that’s something that a lot of folks, if this is the first bear market you’ve been through or if you’re a young investor and you’re just getting started in, social media can certainly I think play a little bit of a part in this because you see everywhere, “Buy the dip, buy the dip. This is going to last forever.”

So then there’s this idea, this notion they really got to get in there and take advantage and strike while the iron’s hot and go all in. I just have learned throughout my life as investor, I mean, I remember very well back in 2008, 2009, 2010, where we saw some tremendous opportunities come up, and I mean, I can remember back then wishing I hadn’t spent all of my money in one place, so to speak, right? I felt like I wish I could have taken it a little bit more slowly.

Part of that was due to the fact that back then you had to deal with commission costs. It’s not like today where now you can essentially buy anything and you’re not paying commission costs I think anywhere. I mean, if you’re paying commission costs with your broker, you have to look at getting a new broker because I think most online brokerages now are commission-free. I think that is ultimately what makes it so easy to be able to take it slowly.

I think that when you look at history and when you look at where we are today in the market and you think, “Okay. Well, it’s been a tough market,” right? I mean, we’ve got the S&P down somewhere around 19% for the year. We’ve got the NASDAQ down 27%. I mean, the S&P just continues to kind of go anywhere in this 19% to 20%. I mean, ultimately, we’re in a bear market, but it’s worth remembering too. You go back to 2008 where the market fell 36.5% that one year, right? So it feels like it’s been pretty bad this year because it has, it’s not been good, but it can definitely get worse.

When you look at what’s going on around the world, it doesn’t look like there is a near term fix for really any of the stuff that’s going on, right? This is stuff that’s going to drag on, I think, for some time to come. So ultimately, I think what we’re going to see is we’re going to see a lot of volatility. We’re going to see economic conditions ebb and flow, and it does feel like if you’ve been paying attention to the markets here this year, it feels like once we get any traction and we string together a few good days, well, the next week it resets, and we saw all of those good days disappear, but it is something worth remembering too.

There’s a data point that I found a little while back from Ned Davis research, and it was looking over the last 20 years of market history and that half of the S&P’s best days, half of the S&P’s best days, the individual best days occur during a bear market. So you think about that. I mean, half of the best days occur during a bear market. That means that you’re going to have all sorts of opportunities, but you’re also going to see a lot of great days that come with it as well.

So I think what it just goes to show is that even while we’re in a tough stretch of bear market, so to speak, it doesn’t mean that it’s just a straight line down and that we’re going to get to the bottom and then things will reset and we go all the way back up, right? It takes a little bit to get there. It ebbs and flows. It’s a bumpy ride both ways. It’s not a straight line up and it’s typically not a straight line down either. So I think the one thing I’ve found is that taking it slowly really does make a big difference.

Then for me, it is back to that old Peter Lynch saying of the best stock to buy is probably is one that you probably already own. I think that’s why I’ve been so focused on adding to positions that I’ve already got established because I’ve been investing for a while. I feel like my portfolio’s in a place where it’s diverse. I know the businesses that I own. I like the businesses that I own. So when I see opportunities to add to them, in good markets and bad, they’re the ones that typically pull the trigger on first.

Clay Finck (49:44):

Very well said. I believe it was Howard Marks that said, “Hope for the best, but prepare for the worst,” and that’s a quote I’ve been repeating in my mind is prepare for things to get worse, but be optimistic throughout your daily life and your interactions. So really good conversation, Jason. I really appreciate you coming back onto the show. This is the third time we’ve had you on, I believe. Where can the audience go to connect with you, learn more about your work, and anything else you’d like to hand off to our audience?

Jason Moser (50:16):

Sure thing. Yeah. I mean, I think the easiest way to find me and anything that I’m doing, you’ll find me on Twitter, and my Twitter handle is @TMFJMO, and you’ll see everything that I’m working on there. Then of course, you can tune into The Motley Fool Money Podcast. It’s a daily show where I’ll be a guest there a couple of days a week usually joining the team to talk about what’s going on in the markets and the economy, but primarily, yeah, you can find me on Twitter at any given point in time.

Clay Finck (50:44):

Good stuff. Thank you so much again, Jason.

Jason Moser (50:47):

Hey, thanks for having me.

Clay Finck (50:49):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on. This will really help us in the search algorithm so others can discover the show as well. If you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios, and with that, we’ll see you again next time.

Outro (51:25):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consultant professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.