Why Ram Parameswaran Says the World's Biggest Tech Stocks Are Ridiculously Cheap Right Now

an incredible year for huge tech companies in e commerce. Absolutely. It's kind of weird because I'm thinking back to and this was the big story in markets. It was the sort of outperformance of the thing stocks and how everything had just rotated back into these big tech companies. You know, Netflix was doing incredibly well because everyone was sat at

home watching movies. There's all this talk about how the COVID crisis had basically re oriented our lives even more towards tech, and now we've come out the other side of it, and there was some talk about the rotation and too value things like that, but I think in general, the big tech stocks have held up remarkably well. Right, Yeah, they're doing really well. I mean the stocks, you know, they maybe they weren't as hot as they were a year ago at the time, but the companies are still

doing very well. So, you know, I think even with the quote normalization unquote of the economy, it does not seem like there's some sort of like shift away from tech. And I think there's kind of like two things going on. I mean, one is covid Um, you know, obviously forced certain economic behaviors to go more online, and so you think, okay, Zoom Video a company like that that obviously placed a lot of in person activity. We're talking over Zoom right now.

And then the other of thing is, of course this other theme, which is like the sort of great acceleration thesis, which is that all the trends going into the crisis seemed to have just gotten like magnified in five years, got condensed until one year. Yeah, and I think that's probably what we're seeing right now with tech. I mean, this idea that we're all going to go into remote working. Okay, maybe we're not all going to work from home forever,

but there might be some sort of hybrid model. We've all gotten very used to ordering stuff off of Amazon. But that said, even though we talk a lot about the acceleration of trends that may be beneficial to tech, there are some things coming up that could potentially be challenging. So you know, for instance, we talk about the bottlenecks, the shortages, what others actually mean for I don't know a company like Uber, right, is it going to be

able to get enough drivers? Are we going to see that backlash against big tech from d C. There are certain things coming up that could be problematic exactly right, Well, anyway, I'm very excited about speaking with our guests. We're gonna be speaking with an investor in techs uh, very sort of big picture focused, big ideas, concentrated bets in the space, someone who really sort of like thinks deeply about where

it's all going, had some major winners. I'm excited to welcome to odd Lots Ramparts and he is the founder and c i O of Octahedron Capital. Rom thank you so much for joining us. Well, Joe and Tracy, thank you for having me. It's a real pleasure. Yeah, this is super exciting, very excited to talk to you. What do you describe Octahedron because I don't think it's not

like the typical fund. I know you have like very big handful of concentrated bets, but what do you describe exactly what is the structure of the fund and your general approach to investing. Thank you Joe for having me. So let me start with a very big picture of the top down, which is, you know what our shitness. So, our our mission is very simple and we simply want to be the absolute best partner for the world's Internet

scale businesses. So so what does that mean? So I've been obsessed with this idea of inner scale for almost a decade since I started working after business school at Sanford Bernstein, where my boss and I co founded the Internet team there, and we were quite well known on Wall Street for a couple of years because of very distinctive work on Amazon where we where. We kind of discovered through math in a bunch of our other analysis that hiding inside a five or six percent retail margin

business was a thirty percent margin cloud business. We helped defend Google to the transition from desktop to mobile, And what I started realizing was, you know, when when investors started thinking about the traditional offline market, we just have a very narrow definition of TAM, which I have made so many mistakes off in the past, and in fact, one of my biggest mistakes in life is to having

narrow definitions. That's number one. Number two is I've started realizing and learning over the last decade that these companies not only get bigger and better over scale, but then they become these humongous they put these humongous revenue scale numbers that an early investor cannot comprehend. And number three, there are niches that are richest in niches that I

did not expect. If you think about the Internet being thirty years old, if you think about what is what actually flows through the Internet, even think about net income on Internet companies as a percentage of total global net income, or even you think about what's the total market cap excluding Apple across total global market cap by almost always, you know, we size it to be less than ten percent.

And let that sink in for a second. The Internet is ubiquitous, but in almost every way you think about the Internet, less than ten percent of total global value gets accrued to the Internet. So over the next twenty or thirty years, our bet is that whether it's Internet companies so traditional content marketplaces, on demand businesses, or whether it's the stuff that lubricates Internet, which happens to be

payments companies and and certain software companies. You know, we think that this convergence of obviously ubiquitous computing, ubiquitous connectivity, now ubiquitous democratization of knowledge, and now post COVID ubiquitous location, we'll get us from that ten to twelve percent range to fifty to sixty in our lifetimes. So the mission is, let's be the best part note of these Internet scale companies,

and that's what we do. So I have a lot of questions already, but just on this idea of being the best partner to Internet scale company is possible. My impression, I think a lot of people's impressions of the space is that there is a lot of competition to give capital to the next big thing. So, you know, obviously on the West Coast there's a bunch of people in venture capital who are fighting to find companies to up

and coming companies to invest in. How competitive is the space in your mind, and how do you go about differentiating yourself from everyone else? Right, It's it's indeed competitive, and it's just gotten more competitive historically. But this is the way we distinguish ourselves. So number one, you know, Joe mentioned a very important point in the beginning, which is concentration. So as a fund, you know, we believe

in essentialism. We try to constantly rank order the best ideas on our risk reward basis publicly and privately, so that forcing function does not allow us to spray and pray. The impact on the private markets is that on average per year, Octahedron makes between i'd say it in two and four investments totally in the private markets. Right. Number two, we are not vcs. We don't take boat seats. We actually co opt with some of the best vcs in the world, who are all many of them whom are

investors in Octahedred. And the value that both companies see from a firm like us, which is true native crossover, is that one we don't have twenty different companies to look after. We today we have six private companies. We recently just today invested in a company called Fair whose announcement went out today. What that does for us is we can for every company is very important to us.

So what we can do is our emission is to not only help those companies scale into the public markets over the next two to three years, which is kind of our sweet spot. We don't do early state stuff. That's for other vcs and and other board members. But then how do you also stay public or stay successful in the public market. And the average other fund that's competing for capital in the late stage, they are typically

trying to build an index of everything going public. So it's what I would categorize a spray and pray approach. And so I would say that just the craft we create around do a few things, do it really well, go really deep, take care of every management team because it is a really important part of a portfolio. Is I think what distinguishes us from from other capital out there, and there are some fantastic companies that are involved in

the private markets. But again, you know what I've learned over time is this is not a zero sum game. It's so infinitely large, and it's so infinitely big. There's so many opportunities for everybody. So we're in the business of effectively playing non zero sum games. It's not us

worth somebody else, it's us and everybody else. From we talked about this idea of like obviously the last year has been particularly extraordinary, and you put out these presentations of like things you've learned, and you know, I'm curious of what your takeaway for tech is from the last year, Like was last year a period of which our lives temporarily changed? Are their permanent ranges? Like what is what did you think about tech going into the last year,

and sort of like what's you what have you learned? Yeah? What have you learned? Yeah? You know, I think this is probably the most tumultus event we've all faced in our lifetimes. And I don't think anybody you know, I launched this fund in April and it was so confusing and dark and that we don't know we were flying blind. Now, I'll be honest that we did not know what was

going to happen. In fact, the deck you were referencing called a few things we learned came out of that confusion, because when I started this fund with one analyst in ten million in a u M and we're obviously much bigger now, we were completely confused, like what just happened? And what do we make of this? And you know, all the credit card panel data we buy and the tracking we do of absence downloads and scale. It all went, you know, haywire, right, the numbers are all over the place.

We weren't quite sure, and that's how you put it. Put the deck we read, we said, listen, we read a hundred transcripts, so let's put it all together in a format. And the format we just gave it to the world because we figured that if we're facing, if we're so confused, a lot of other people are confused as well. So that's a interesting side note on this. This debt did not happen. It happened completely by by

by mistake. So what do we learned? Number one is fully convinced that the world has changed forever in almost every single way. But within that there are nuances, and it will be interesting to see what happens in the next three months when we normalize very difficult calms from last year. Let's talk about the top, which is digital advertising.

Digital advertising is now the only way by which retailers and businesses can get ahold of consumers, which is why if you think about twenty one, the numbers have been off the charts, whether it's Google or Amazon, or Facebook

or Snapchat or Twitter, or by dance in China. The numbers are just off the charts because how else now people have been quarantined and quiet and staying you know, basically stayed low for an ear, how are you going to acquire and re engage all these buil and some consumers who are not going to be out traveling and partying and eating out and just going about their normal lives and probably having revenged spending over the next you know,

twelve months. Well, an obvious winner is digital advertising, and the scale and engagement and tools and the importance to the economy cannot be should not be underestimated. That's number one. Number two the world of SMBs. You know, for the longest time, we've had a thesis. In fact, when we think about investing in Internet scale software, SMB software is right in the bank, in the middle of our wheelhouse.

And for the longest time, it was just difficult to invest in SMB in the SMB space, mostly because the mortality, you know, over the last year, it's taken a life of its own. And if you basically break up SMBs by services and non services or retailer or people that sell stuff, we've just seen this explosion of one big

picture laws of entrepreneurs and lots of companies being built. Right, the pace of new business formations has been unprecedented, and therefore the use of software, whether it's payment systems like Brecks, or whether it's um you know, supply chain solutions like fair Are, the use of payroll systems like Gusto and Rippling, or you look at software that digitizes retailers like Shopify, has been unprecedented, right because you've got all these companies

turning on and they've all been given the same tools that allows them to compete on the same with the same tools and services and products that the largest retailers

in the world have. And even better, because digital advertising gets you out of billions of consumers, they have a shot at advertising and getting the consumers with the same level playing field the largest companies in the world have had, which means that this COVID crisis has created this sort of weird equalization mechan some for smb s. Now, it doesn't mean the big companies have been left behind in retail.

What we've seen is whether it's Walmart or Target, and there's a really interesting have and have not scenario here.

The Walmart's the targets in the world. The Williams Sonomas, the Nikes in the world have taken this crisis and they now have significant material portions of their revenues being implemented via e commerce and all the investments they made historically nique commerce, including innovations and buy online, pickup at shop, curbside pickup, you know, directly integrating with API s like

door Dash, bringing on Instacot for local delivery. They just turned everything on a scale and it's just worked wonderfully for them. So you see this have and have not behavior and moving down the stack a little bit with an e commerce again because everyone has focused at time online, we've seen this explosion of alternative shopping mechanisms because I

know you mentioned Amazon and the beginning. Amazon is now not the only game in town, and everybody in some ways are gunning for Amazon's market sad now, Amazon itself is doing really well, as you've seen from the numbers, but everyone is gunning for some version of Amazon. So what have we seen. You know, niche vertical marketplaces just scale and do really well and come to a point that Amazon can't really touch them anymore. These are examples

are wayfair for example. EXE is a second example, but if you look at the private companies, two companies have been really I've been really intrigued by and I met the management teams last week. It's a company called Curated, and Curated allows you to go and buy higher value items like skis and camping gear and cycles, the stuff you would go to an r I you spend an hother there you have pressure to go buy a bike

for yourself. You've probably got twenty bikes on on the rack to choose from, and you've got to go pick it up, pack it and go home, which is kind of a difficult experience. Curated brings that online and I actually used in My wife and I used it last week and it was just a wonderful experience. The other product we the other kind of like niche we see is all sorts of video based shopping, And of course this is a trend that started in China and it's

very popular then. But I suspect that lots of video improvements and more more like experiences within apps are going to come to the four and take us away from the boring Amazon experience to a more kind of interactive, fun experience. So a lot of changes happening. And then one last area I want to I want to touch upon is is just on demand and and this is you know, Tracy, you alluded to Uber earlier in the conversation.

Will come to that in a bit between Uber and door Dash and possibly to a lower exit instacrat in the US and almost every single company in other parts of the world. I mean, we've these have now become indispensable for many for many people's lives, right. So if you take door Dash for example, theyme just had an unprecedented kind of explosion in their overall bise this over the last twelve months. And what's funny is we tracked the data every week and shockingly it sees there's no

evidence of slowdown. Now we do see some slowdown in Uber Eats for example, in a bunch of deeper slowdown and Postmates and a pretty drastic slowdown in in instacast for example. And I can explain that away by a few mechanics. But you know, door Dash by layering on products first, delivering you know, food to you, now, delivering convenience products to you, now, bring on a marketplace with groceries and safely coming on board, they've done a really

good job layering on products in the overall ecosystem. But this is a worldwide phenomenon, right whether you see Rappi in Latin America, or Grab in Indonesia and and and Southeast Asia, or Kupang in Korea, on demand systems are

here to stay. And and and the reason I bring up on demand is Amazon built this humongous business still growing at unprecedented rates by price selection and convenience, and all these on demand companies are gunning for that convenience part, and Amazon, I think, over the next two to four years, needs to really figure out how they bring that convenience factor down from one day to a few hours. I want to dig into a lot of these different business models.

But there's one thing that you said it caught my attention, which is that you launched the new fund in April of last year. Given how you're making concentrated bets, I guess I'm just curious what it was like actually launching the fund at that time period and whether or not I'm not sure how to phrase this, but you know, if you're only investing in six companies, it feels like a lot of pressure, particularly at a time when people were talking about how this was an un precedented crisis.

No one really knew what was going to happen. There was a lot of uncertainty about the future. How did you actually go about doing that and deciding on where to place the new money? Yeah, so there were so just to be clear, remember we made six private investments over the last year, So the sixth number was the

number of private investments over the last fourteen months. We you know, on the public side, we typically invest between eight and twelve companies at a point in time, and everything is all it's all about risker moorday, point in time and the specific companies. Our business model, Tracy, is very different compared to the average fund where in the average one I worked in, so the average one I know of, you tend to become what I got an

analyst of the week. So you've got to pitch ideas every couple of weeks and then you pitch it to your PM and hopefully goes to your book. We have a we have taken the opposite business model is something I've learned that ultimate where I lost prior to this. As a firm, we only cover between forty and sixties stocks and I have an analyst team of four or people now and every analyst covers between twelve, let's saving ten and twelve stocks. How do we pick these stocks?

Because that's a collective knowledge of you know, four or five of us who between us have you know, fourty years of thirty years of experience, right, so we kind of know where the world is going to and the expectation per analysts is to become amongst the world's best

analysts in those ten or twelve stocks. And we have a very kind of like common format and the way we we we we think about our driver trees, the way we build our models that we we think about valuation and so as the PM my analyst team makes it really easy for me to pick and choose between companies based on the risk reward at a point in time.

But I'll tell you last year in April was a difficult time, and it was very difficult, mostly because that markets have I remember trufed on March twenty three, and by the time we got dollars in our TB account on April fifteen, the markets had rallied almost thty one if I'm not mistaken. It was just tough, guys, because you know, that my favorite companies were ten by the

time I even got my first dollar. So luckily for us, there was no pressure from our LPs who to go deploy capital immediately, so we could take almost a month to slowly deploy dollars one, you know, one by one by one. There was no reason to go put all our money, you know, at one goal into the market, so we took our time and I think we kind of like led our way in over almost two months, and then by June, when we got so much more clarity about the world, we were able to kind of, um,

you know, be fully invested. Of course, this is not a static game because you know, we we we raised money pretty rapidly through the crisis, and today we're you know, we're getting close to two million dollars in a u M. So the hard part is, you know, how do you keep up? Right? So there were the challenges were Number one, there were three or four moving parts. One is the markets were moving and there was no way any of us could have even anticipated the multiple expression that happened

last year. Right, these companies were just beating numbers by epic proportions, like the world changed so rapidly. Even they were not able to keep up. And you mentioned a little about you know, the you know, the the challenges with acquiring supply for Uber, but all that was true. So Uber had a demand problem first. Now we have a supply problem, but it will all eventually, you know, be good for them. And once once the demand and supply work, Uber is gonna be an explosive stock in

my opinion. But number three, you know, we were raising capital, so each time money came maybe we were like, man, we have all those new capital, what do we do with it? So it wasn't easy. You know, anybody who tells you starting a fund as easy as obviously you know, it's too optimistic in life. But we had it particularly hard. So I'm actually quite grateful that we kind of made

our way through the process. But by June and July and we finally got up footing when we knew what we wanted to own, we kind of realized that the numbers were going to be much bigger than what we originally modeled, you know, three or four months ago when we they were in a free launch phase, we were

able to play the game better. And then of course the hot part last year was I think in the month of November, the month of August, we had, you know, pretty gnarly corrections and the NAZA because that happens in

a bullmarket as well, you know. But you know, nine months in, you know, by the end of the year, I felt like we were we were in a good place and we kind of knew we were seeing the ball big and we were able to take some big bet So, you know, between legging in, being slow, being careful, not being greedy immediately, and frankly just not getting formed out, I think that's how we survived the year one. So from you mentioned high valuations there, and this is the

thing that comes up consistently with tech investments. You know, people like Amazon, people like Uber, but maybe they don't like it at the current multiples. How do you get comfortable with those in the tech world and how are you thinking about them? Yeah, so you know, every quarter we put up we have an Internal Growth Index of Software and Internal Growth Index of of Internet, which we

published a few days ago. So number one, I would actually argue that companies like Uber and Amazon are actually sold really cheap. They're actually very cheap. This is good, I want to hear, yes, So so let me broadly break it up right now, so so ignore the peaks. So so first of all, right, next level set here. Stocks in general are very expensive, right, there's no easy deal available in the market right now. But I think some stocks are incredibly cheap, but not everything is expensive.

So let's just break it because LPs asked me this all the time. So number one, let's talk about software today. Software today, you know high growth software our index and you know trust me on our index, but you know it trades at twenty times revenues, right, and the historical five year mein was was eleven times, and the pre COVID number was like fifteen times. So it's even though we've had a software correction, the reality is that there are great companies like slow Flake out that in great

companies like CrowdStrike. But it's very hard to underwrite companies to fifty times for revenues. You have to take a very very long view. So there are still some companies that's que the average a pretty epic fashion. But it's software is not cheap by any definition. And now we're actually quite nervous on software. We only own two software stocks, but generally software is really expensive. Then second, we have

payments payments, same story there. Payments is a new software and in fact that there's probably even higher kind of like crazy evaluations happening in payments market. I just went out a couple of days ago and that was most bleed, and and the local went out a few days ago and that was expensive. But they're all phenomenal companies, and the Local especially as I think, doing an exceptional job. So those are the two. So again, within software and payments,

we're very careful. We only own Zoom and Twilio in in in software and we can talk a little bit more about that, but in and in payments we own smaller positions. But when it comes to Internet, you know I want to I'm gonna push back on valuation. So first of all, right, you talk about software being valued on a net revenue basis, you know Internet. Our framework is we we for every company we cover, we have a view on what we think long term EBITDA looks like,

and we build an index around it. It turns out that you know, at thirty one times long term EBITDA and our index, it's it's it's expensive compared to the five year medium, but the five year median for that was twenty three, so you're eight or nine terms about what that is. But that is cute by companies like like Airbnb, for example. But if you take internet companies at the very bottom, the megacaps, whether it's Facebook, whether it's Google, whether it's Ali Baba and Amazon, they're not

just cheap. In some cases, they are ridiculously cheap. And all Chinese companies are cheap right now. So China is a big focus for us. We own both shares and buy Dance and shares in Bindodo and shares in ali Baba in size because those stocks have beaten down not on fundamentals but on overall you know, worries on regulation.

You take the next leg up, which is the large and megacap internet companies face a Google, Amazon, Those companies are going to grow, not at twenty percent for a very long time, and this year it's gonna be it's probably the best year for advertising in the history of me covering these stalks. Why because the entire world is coming online again and they have to go and acquire customers on Facebook and Google and Snapchat and Twitter. There's no other choice. Right where else do you go? So

those stalks look extraordinarily cheap and and Google. You know, we own a pretty large position in Google, and the reason for that is because they have multiple ways to win, including search, which is doing really well, turning on ads and maps, YouTube is absolutely killing numbers. And oh, by the way, after Thomas Curran took over Google Cloud two years ago, he's done an a plus job in restructuring

the cloud business and go to market and sales. So we're seeing evidence of real sales, motion, and and wins in the cloud business. So many ways to win at Google, especially the third stack on top of that is you know, single name Internet companies or those are expensive, so we own smaller positions in those like for example, you take a company like Carvana, phenomenal acid slightly expensive, will grow fast this year, probably beat numbers. But within this category

you've got some very cheap companies. And one of our biggest positions is Peloton. Right, So the opportunity in Internet is very simple to me, just like zoom in the public markets in software, where people have basically assume that

once COVID goes away, we'll all return to normal. People have beaten down the stalks of Peloton because hey, you'll all go back to the gym, and people have beaten down the stalks of others because any think the world will recover and nobody's going to go and buy stuff

on Amazon anymore. That does not make sense. And so my point is, as you go up the staff to smaller companies, there are pockets of overvaluation for sure, and some some companies are not cheap, like Airbnb, for example, But in almost every other case, Internet stocks have real value today. So let me stop there. I'm curious like time frame. I mean, you know, you mentioned that there were a few tech draw downs over the last year.

Uh for several months several parts of this year, there did seem to be some sort of compression in some of the tech valuations. Is the reopening happened? What do you do you think about sort of like macro conditions that will cause either people to rotate in or out of tech or is it still just you're focused on tech and you can't do anything about the sort of the broader macro. So listen, I mean, I'm not a macro person, but you know, it's foolish to say that

we are not keenly aware and keenly understand. You know, macro that could hurt our companies, right, So we keep an eye on Macro, but we don't treat other companies on the back of Macro. The reality is that these companies will grow earnings between twenty and twenty five maybe

for the next decade. Right. So on the one hand, we can kind of sleep well by the fact that if we just went on vacation for two years and all this Macro and this long shot term correction went away, we'd come back and these companies would be, you know, two times the size that they were we left them, right, So we can, luckily, you know, when you invest in and the only invest in secular growth businesses, we kind of have that real deep safety net that if we

did nothing and we were just foolish, right and we just invested, you know, you know, two or three years out, these companies are going to be far larger business than than they are today. The only thing we don't we should not do and be careful of, is we should not be greedy and get overly fue mode to chase

momentum and pay any price. But when you pay and and we're very lucky at this point in time thanks to the correction in January, and then the correction in March and the deep correction in May, and I'm sure

our correction is going to happen again sometime soon. All we have to do is make sure that we served the way reasonably well and use these pockets of pain to um you know, start keep collecting our favorite assets, and also make sure that when we have short term euphoric moments like we had got two weeks ago, and then you know, in the month of February, we are appropriately sober. So there are two the worlds of thought here.

The one world of thought is just put money to work and we'll all be fine on the long term. The second worldview is, you know, because we do such few things and we're actually quite good at these stalks, we should be able to do risk management on a purst talk basis better than most people. So our strategy and philosophy is when stocks are getting paid two or three years in advance, we should not be greedy. We should take some risk of the table because the market

we're actually very happy. So I'll tell you a dirty secret. Last year was a phenomenal year for us, and we're very lucky. We launched in despite a difficult start. The reality is, all through last year, I was struggling, and I was struggling because each time I thought something was too expensive, it kept going ahead of me. So we were constantly felt prefer to tase momentum and we did not. But there was always the spain that man, we just

missed it again. This year, while obviously we're still you know, you know, thankfully we're doing quite well for the year, the reality is this feels like more of a normal year, but with more punches in your face, if you know what I mean. So at least this year, we we have shots to take to buy good assets at at the risk prices number one, if you believe it again, all our stocks we have a variant perception on our numbers looking out three years and for the quarter and

for the year. But on the other hand, you know, we have shots to take risk of the table. So this is going to be an ear where I think

we served the wave versus trying to be heroes. So I would say that coming out and I think the next three months Joe and Tracy are going to be particularly hard because we are going into high inflation months with easy calms over the last last year, and we are going into the peak of there's will be a lot of tension about Hey, you know, yes we believe so the world still thinks many of these companies are screwed completely because we're all going to go back to

our normal lives. We have a view that these are far more durable than the market expects. But this is going to be the quarter, maybe the next six months where companies have to prove themselves. And when you have this, uh, this tension, it's going to be tough for growth stocks, and we are very much prepared for it. So you mentioned earlier this idea that one of the things that happened over the past year is a bunch of companies

sort of upped their technological game. I guess you mentioned, you know, the example of Nike and some other retailers who are now much more savvy about the way they're selling on the internet and how they're advertising and things

like that. How do you differentiate between a pure tech company versus a retailer who happens to do tech well, and is there room in your fund for both of those or do you try to identify pure tech companies who are able to leverage off of the way the broader market or the broader business world is actually deploying technology. If that makes sense. You know, we are I would call myself on ourselves, we're very focused on technology, but I wouldn't say that we we don't have this narrow minded,

arrogant view that brands and distribution don't make sense. Like Nike is a phenomenal asset, right and they have been able to pivot into a technologically superior focused way, And companies and and and consumers love buying stuff on Nike dot com. The same thing is through for Williams Sonoma, for example. So you know this is a constantential should be increase our coverage to encompase those companies. So for now, what we're doing is, again we are a young firm.

We keep an eye. But if for example, e commerce becomes thirty or forty percent of total Nike sales or seventy percent of Nike sales over time, once we get to that, you know, high thirties, high forties levels, you can be pretty sure we'll be covering those assets. Because when it comes to e commerce in in particular, there's nothing called an e commerce company anymore. Everything will become

a form of omni channel, right. So who would have thought that Amazon bought Whole Foods and then Whole Foods makes it an omnichannel retailer, right, and so on and so for the wayfarn has opened up stores, Peloton is omnichannel from the get go. Apple is omnichannel from the get go. They've got stores all over the world. And so this idea of a pure play internet commerce company in the in the next decade may not necessarily be true because at the end they're selling to humans and

humans want it from experiences. Now, the trend that is I'm super excited about is the point you alluded to. You have a company like Nike, which is I think best to breed very forward looking, great technology team. They may not be able to compete with Amazon on tech per se, but what we have is a bunch of software companies that are building the intelligence components that enable the real world American international economy to compete with the

tech giants. And one of those companies, for example, is data Bricks right. Data Bricks provides a machine learning components and machine learning intelligence previously the purview only of Facebook and Google and Amazon and Uber and bringing it to the mass market, and so under underneath the surface of these companies, as long as they have the will to become online first or our our online becoming an important component.

There are so many digital tools and software that provide these companies the tool kit and the libraries and the lego building blocks to potentially compete with their online first contemporaries. So this gets to a question, and you know, Tracy said at the beginning, you know there's always um concerns

antitrust regulation. What is your view on setting aside the regulatory concerns per se, Like, how guaranteed is it that the Facebook's amazons and alphabets of the world will still be the most dominant companies in the world, didn't say five or ten years? Or could it be that over time some of the expertise they have does get distributed like you described, and that that mode that they have, however,

it is, starts to meaningfully get eroded. So every company, whether it's big or small, should and thus live in a healthy state of paranoia. Now, so again, there are many ways to answer this question. Number one is, let's take Google. I think Google is you know, it's just inconquerable in many ways. It's impossible. It's it's gonna be very very hard to get a replacement for traditional search. So I think core search and core YouTube has just under the twenty years to go, and I don't see

how there's any replacement for it anytime soon. Okay, and maybe YouTube has replacements with TikTok and Facebook videos and other things, but very hard to replace it. Amazon was never going to be a monopoly anyway, So this idea of monopolies winning to the one true monopoly I think is Google and potentially Facebook, But which so which is

why they are always the cross as of antitrust. Amazon was never a monopoly right even today, if you compare it to the total overall retail market, there's still a small fraction and there are many people attacking their lunch. So I think Amazon it's not vulnerable, But the reality is that everyone will start shipping away at pieces. But again this goes back to my point at the beginning. If you think of the world or the Internet world, I say zero sum game with market share fights, then

of course Amazon on the threat. In fact, I would argue that take any company in the world, the market share dominant company, the market share always goes down. Amazon's market share will go down because Wayfare is growing faster than Amazon, but Amazon itself will keep growing. It's it's fair share because the overall pie is growing, right, So we're just gonna have different people trying to compete different slivers of Amazon because you know, it's a big company,

and that makes sense. Facebook is very different Facebook. It is impossible to have to kind of replicate the impact that it has on small businesses around the world, either Instagram, author Facebook, or blue App. And so again, disrupting Facebook, I think it's going to be very, very hard. And I hear this constant refrain that says, oh, who uses Facebook anymore? Yeah, maybe you don't, but to use Instagram, use WhatsApp, you know, moms use and you know, my

wife and you know, we use Facebook groups. The people have stopped using Facebook for their friends and they're now finding groups for themselves. So my wife and you know, found a a tide pool group for my six year old son, who who loves tipples. Right, Facebook is morphing yourself. And guess what what is Facebook doing? They're taking those dozens of billions of m of R and D spend every year and they're saying, listen, we cannot be completely

dependent on Apple for distribution. We have to build our own platform. Because Apple itself realizes that that services business is a very lucrative business and they want to get a piece of that, and so hiding behind the guys of privacy, they are trying to build an entire at stack. And so you're seeing Apple and Facebook going against each other. There are plenty of self enforced errors that these companies do on themselves versus just competition, and looking ten years up,

I don't think anything. So on a ten year basis, I don't think anything happens to either Facebook or Apple, or Microsoft or Google or Amazon. Nothing happened. So maybe regulatory iybe there's stress on regulatory reap of view, maybe there's antitrust tension. But the reality is that if you break up Facebook or Google, the some of the parts is bigger than the whole, and so it's hard to see in the next five or ten years anything happening

to these companies. Wait, can I just press you on that regulatory point, because you know, I'm over here in Hong Kong and it's kind of striking to me that the only thing that the you know, politicians of the world or the authorities of the world seem to agree on is that they need to be limiting big text power in some ways. So in Europe, the US, and in um China there's this agreement that they need to do something about tech. Why, like, why aren't you more

worried about it? Or how realistic do you think that breakup risk might actually be? So, first of all, the worries and the tension around something bad happening to big tech in quotes, it's all already embedded in their multiples. And that is why Ali Baba rates at fourteen times. And that is why Facebook crates that I think, you know, twenty times or twenty two times. And that's why these multiples by Amazon rates at sixteen times. That is why

their multiples are so cheap. There's a reason why Amazon stock hasn't moved in nine months, right, it's just it's a flat line. Right. There's a lot of tension, right, and that's somewhat embedded in multiple So I'm not intelligent enough to go and predict, you know, the binomial tree of decision making in different governments. But so our framework is simple. The threat of regulation is here to stay, and the threat of regulation is real depending on country.

In Europe it's very real, right, they've been finding American companies for a long time. In China, it's very very real, as we've seen over the last six months, right, and everyone is now in regulatory huddle down mood. In the US, we we hear news of regulation, and we we hear senators you know, you know, talking to these CEOs in these in these meetings, and you know, it's not clear to me what's going to come out of it. There's

there's some there's some tension for sure. And so what we do is we say, let's take a very sober view of this. The only thing we can control in our hands is our view on where the business grows, because we are business analysts first, and therefore where the revenues grow, where is free cash flow grow, whereas ebada

grow over time? And then let us put suitably sober and and low multiples have needed on these stocks and still see if we can make a real return of not which is kind of what we aspire to me and everything else for us is gravy on the cake. It's it's just all gravy. Like pick everything else the upside optionality for us, And so I think we just have to take that very sober view on what happens

to the world. But the real the reality is do you take China as a case study the Chinese government when you October, there's all this news about and Financial So Ali Baba being unfairly targeted. First of all, that is completely wrong. They were targeting everybody. It just so happened that at a point in time, after one of the founders comments, it gave them the reason to go

behind Ali Baba. And as a result of that, it was they cracked on and Financial the I p O, which is the right thing to do, because you cannot have a consumer lending business in a country as big as and Financial correct that creates systematic risk to the Chinese financial system. So I would argue they did the right thing early on by slowing it down completely. So actually, kudos to those regulators. You can't have a lending business

growing as fast as they were growing. Last number one now number two is Ali Baba historically was the propagator of certain anti monopoly practices. But it wasn't that they cracked on Ali Baba alone. First of all, they were cracking on Alibaba for three years task to pressure from Pindo though, which is which is the right thing to do.

But now Pindo though and made Toun themselves are in the regularly crosshairs because they are being quite aggressive in growing a specific form of grocery called community group buying. So what happens to you know, all the you know people in the wet markets in China. I would argue that I think the Chinese regulatory strategy is the right thing, because things in China get incredibly aggressively competitive and then creates a lot of you know, second order effects that

nobody wants. I don't think the regulatory authorities there want to destroy their local champions. So the reason why we're actually quite confident about investing in China is we've been through the Spain a few times in the past. We've seen this post Ali Baba Ipo. We've see this in two thousand and fifteen, in August fifteen. So we've seen these pockets of six months to one year where things

get really bad. But if you look beyond that one, they're and luckily for us, we have you know, three year locked in capital, we have the we're lucky enough to have the place to look out one to two years and then think about what those companies could look like, which is why China is such a great place to invest right now in my opinion. Now let's move to the US. In the US, I hope that we don't

shoot our national champions in the foot. Now, as you know, as an American resident like I, I just find it. I'm stressed out when I when I look at the CEO is being interrogated in the Senate, and for right reasons. I get why they are, but I feel like we are behind the curve in our sophistication and understanding of what these companies do. But my views, okay, the worst case outcome is that these companies get regulated, and what is the ultimate impact regulation they break up these companies.

The way I'm at peace about this is that will create a lot of tension in these companies. And the multiples are low, so maybe they even go low up. And I actually argue that on a longer term basis, if Google got broken up, or Amazon got broken up, or or our Facebook or group broken up, it would actually create a couple of incremental trillion dollars and equity value, because if you think about Amazon today, there's a trillion

dollars embedded today in the cloud business. Out three years, you add international retail, that's a few hundred billion dollars effectively today at Amazon stock at close to three dollars a share, I'm going to argue that you get the entire US business and the ads business for free. And that's the beauty. We did the Anazon Ali Baba in Ali Baba's case and here and this is this is

super interesting. It's such a cheap stock right now that in three years under our estimates, if you strip out the value of Ali Cloud and give it a low multiple, strip out the value of and financials, give it a sober multiple, sober equity value. Give some credit for their on demands. This is in some some value for their

non retailed businesses, sorry that their retail offline businesses. You buy the core business Coal, Bow and Team all which by the way, were the hottest things back in the day in China, still growing gm V between well and seventeen percent for as far as the eye can see. And remember they're still undemonetized, so monetization probably grows eighteen for as long as the eye can see if you do the math there, you get that business growing at high tails to low twenties for four times EBITDA looking

out three years and negative EBADA looking out five years. Negative. You actually get paid to own those businesses. And again when you when you think about all the drivers of what these companies are doing, the same thing with Peloton, right, the company is such an incredible machine of hardware and software well verticalized, and you strip out the hardware business, you get paid to own the entire subscription business, which is the Peloton app and what you pay forty bucks

forty bucks a month for. So there's just so much tremendous value hidden that is not captured in the headline EPs earnings of the headline ebadwarn nest. I guess that real quickly and and just real briefly. I mean, what would you say was the biggest surprise, uh for you? Like what actually was there anything in the last year either in the real economy or market they genuinely sort

of like went against your intuitions or assumption. Honestly, the entire ear last year, Joe went again, I guess that's a pretty good answer. The entire year it was a surprise, and so I would argue that you know, you know, we've been constantly humbled in this business. You get humbled all the time, and last year was a humbling ear. Even though we did well, it was a humbling ear and lots of new learnings and you know, hopefully it

sets us up for a great next many years. Well, good luck and Realm, thank you so much for coming on a lot. I so appreciated, Tracy and Joe, thank you for having me. Thanks. That was really good, Tracy, I really like that one. You know, if they're all like the sort of like lumber and housing and crypto one. It was nice to hear like here's a let's talk some tech stocks talk about tech stocks. Yeah, it was

very comforting. I do think though, I mean I do think directionally, I agree with rom just this idea that the world is going to go back to normal and all these people who have been buying stuff off Amazon or you know, watching things on Netflix and doing meetings on zoom um are all going to stop doing that. Like that seems wrong to me. And you know the fact that we are doing this podcast over zoom um and I'm about to order something off of Amazon like you know, you can see it in your day to

day life. Yeah, no, exactly right, And I kind of got this appression that I mean, the way I was like, we're I think they sort of like go back to normal is like a bad frame. I mean, yes, like we're going outside board. People are going to go back to the offices. But his point was, well, okay, like that's still gonna mean that businesses. It's doesn't mean that businesses aren't going to use Facebook or Instagram for advertising.

And I thought it was that was an interesting point, which is that like, look, a lot of people are gonna do a lot of spending. We're gonna travel more this year than we did last year. We're gonna go to restaurants more than we did last year. Well, that creates a lot of demand for advertising in the place people advertising is online, and so this idea of like a shift offline in some ways it is true, but in some ways it just means more digital business. Yeah.

I think that's right. No, you know, it's just like another thing that I thought about is this, like you know, people for years of like text dogs are expensive, right, Like at any time we could have recorded this podcast in the last decade and someone would have said tech stocks are expensive, but clearly and like in retrospect, they weren't. Right. Like in retrospect, not only did the stocks go up

a lot more, but also like they crushed. You know, if you look at say Amazon's earnings today, I'm certain it's higher than it was. It's higher than what people would have predicted. And so I think, like one way to interpret his thesis is just like all these companies have been underestimated for years, and there's no reason to think that they're not still underestimated even after they've done

so well well. This is the one thing that I was thinking about, which is how much of that success is fundamentals versus how much of it is flow and the idea of you know, if you're Amazon, you're consistently a winner, and you just sort of attract more and more money and eventually it becomes a sort of self fulfilling cycle. And that's one reason why, um, the stock price never comes down and the valuation gets really expensive because there's nothing to sort of break the cycle of

new money flowing into it. But then on the other hand, like you know, as long as Amazon doesn't go bust, which it seems very unlikely to do. Maybe that doesn't matter so much, right, It just becomes a sort of like battle of money that rolls along, collecting more money and getting even bigger. Right and again, to be fair, like they do, these companies do seem to crush earnings estimates year after year after year. So there's there's also

that that also helps helps a little bit, doesn't it. Yeah, alright, shall we leave it there? Let's leave it there. Okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't All. You can follow me on Twitter at the Stalwart. And you can follow our guest Rom Parmi Saran. He's on Twitter at Underscore rom Underscore. Follow our producer Laura Carlson, She's at

Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening to