The Transcript Podcast Ep. 8
In this episode of The Transcript Podcast, we cover the latest from the travel and leisure industry, the economics of the food delivery market, and musings from the latest Berkshire Hathaway Annual Report. The Podcast is now available on Apple Podcast, Google Podcast, and Spotify among other platforms and channels.
You can read this week’s newsletter here.
00:00 – Introduction
00:33 – High pent-up demand for travel vs limited supply
02:42 – People are enjoying living and working nomadically
04:17 – Views on office space demand post-pandemic
04:37 – Domino’s pizza delivery vs aggregator services
08:31 – Supply chain bottlenecks may be starting to ease
09:55 – Nuggets from Buffett and Munger
Scott 00:00 – Welcome everybody to another episode of the transcript podcast. Thanks, everybody for tuning in. You’ve got me Scott Krisiloff, editor of The Transcript along with Mokaya, who is our lead author. We sent out a fresh newsletter yesterday and today we’ll be discussing some of the quotes that we picked up from our earnings calls last week. It was a relatively light week for earnings calls last week but there were some good calls especially in the travel and leisure space. Really throughout the leisure space, you are seeing that.
Travel and Leisure
The COVID fatigue that people are feeling across the world is starting to turn and people are really dreaming about living their lives again. And travel is the number one thing that people miss most about their lives in the COVID era. And that was something that Airbnb talked about on their earnings call that they had actually done polling and that people missed travel above anything else, including going to restaurants, sports, live music, any other activities, travel was the number one thing that that people were missing. And so there’s a lot of pent up for demand for travel. Even within the cruise industry you’re seeing people booking out cruises at the end of this year into 2022. And you’re seeing pricing power within the cruising industry to the extent that I think Norwegian cruise lines, CEO, Frank Del Rio said that we’ve got a boom time coming for the cruise industry.
So I think thematically, the important thing about this is, again, that economies around the world are starting to open lives, are starting to normalize and people want to get right back to doing the things that they’ve missed. So any thoughts on that, Eric? Yeah, I
Erick 01:42 – I think it was really interesting, to read some of the quotes about travel and what is in store for us as we go ahead into 2022, especially, consumers, as you said, are really flush with cash. I think some of the quotes that we’ve been seeing the past couple of weeks is that I think from Square also that a lot of the money that is coming in is going directly into savings. So people have been saving up holding the money more for the vacations that are coming up in the future.
So I think they are interesting quotes, the one you picked up was about Airbnb and how life looks after COVID, how it may look like people spending a lot of time in Airbnb and working from there. And they are spending quite an elongated period of time with these spaces and working from there. So it’s like the office may not be the place where they’d be working from. They may be somewhere in the woods and still working and still enjoying being away from home. I think those are the key things I kind of picked up for me that stood out in that regard in terms of life after COVID.
Scott 02:42 – The word that Brian Chesky used in that quote that really stood out to me is nomadically that people are living their lives nomadically. We’ve really all gotten to see what it could be like working in a Zoom economy and there are a lot of benefits to it in terms of flexibility of being able to be at home, spending time with your family. And then also being able to travel wherever you want. So you wanna snowboard, during the winter go, you know, live in the mountains and then you want some beach time go, go live at the beach. And you’re seeing people do that. And it’ll be interesting to see how the world reverts to a new normal once COVID is done, especially with respect to locations.
Erick 03:24 – Definitely. I think that’s something to check out and I think it’s pretty interesting that something that the Norwegian Cruise Line say that the load factors are currently ahead of the pandemic levels. That means that as you say it again, demand is pretty high. People want to be on vacations and still enjoy life even after the COVID is over.
Scott 03:43 – I wanted to add one more thing that you picked up from Pebblebrook, a hotel company that was talking about in this new world, this new economy where people may be living more flexibly and not going into offices every day you may actually see some uptick in business travel thanks to things like group gatherings potentially once a quarter or something like that. And those will tend to happen at hotels. So I don’t think I necessarily agree with that sentiment, but it is something worth putting out there because it’s an interesting thesis.
Erick 04:17 – Yeah. And also like Intercontinental Hotel, their polling of CEOs indicate that they want to reduce office space footprint, which is very interesting. I mean, office may not go away fully, or at least reduced to such great extent, but you get the feeling that there will be slightly decreased need for office space going forward.
Domino’s pizza delivery vs aggregator services
Yeah, so I think the other quarter, we discussed before we started recording was about Domino’s pizza and their delivery system.
Scott 04:44 – This was an interesting discussion that Mokaya and I just had offline. Because obviously, as you guys know, Mokaya is based in Stockholm and I’m based in LA. So Mokaya hasn’t had the pleasure of eating a Domino’s pizza yet, but he’s been following along the company through earnings calls for a long time. So we were talking a little bit about the quality of Domino’s within the pizza delivery market. But the quote that Mokaya pulled out that was really interesting was that Domino’s said in 60 years, we’ve never made a dollar delivering pizza. And this was in reference to, you know, the delivery services that are popping up and Domino’s scratching his head as to how any of these delivery services are really gonna make money in the long-term. Interesting quote for a lot of reasons. Do you have any comments on it?
Erick 05:29 – Yeah, I think I did a little digging on Domino’s pizza versus the rest. I think pizza is a product that meant itself very well to delivery. They are the delivery guys. They have been doing this, their whole model is built upon quick delivery of pizza. And I think because of that, then they have, as, as you saw on the quote that they make money on the product, the pizza, and use that kind of to subsidize their delivery fees and all. So I think the quote also raises a bit of concern. Like how will these kinds of delivery companies in the end make money? Let’s say like Uber eats and Doordash, like, how will they make money on the products itself on delivering some of these products unless they cut the chip into the restaurants’ margins and all. So I think Domino’s pizza are very intent on holding the data themselves. They don’t want to share it with the aggregators. That’s why they don’t want any of their pizzas to be on any of the aggregates out there. So that’s in contrast to at least their earnings call that I read, which was a Papa John’s who are more excited and the view that those transactions that they get from these aggregators are more incremental and more profitable. And they actually, I think for them, they feel like the aggregators give them customers who’ve never tried their pizza before. So it’s a bit of a contrast. And I think you have a bit more insight in how these two pizza businesses operate.
Scott 06:53 – Yeah. I think of Domino’s as being a, you know, they’ve been in delivery forever, so it’s really a very strong data point when they say that they haven’t made any money in delivery. And the reason I think this quote is bigger than just Domino’s is because it reflects the trend in venture-backed startups that’s been going on for over a decade now of capital going into venture backed startups towards business models that public markets have historically been skeptical that the economics will work out into the longterm, but if you’re making losses and growing in the near term, the thesis has been that the money-making will come in the longterm. And you know, a lot of these companies, they’re starting to come public more and more starting to come public that have had this venture backed culture. And at some point, maybe not now, maybe not in three years, but probably in somewhere five to 10 years from now companies are going to have to make money and show that their business models work truly on an economic basis.
Erick 08:00 – It’s a very strong point because they have 60 years of data. So I think they’re speaking from experience. Of course, they are very, a bit more, you can take it with a little pinch of salt because they’re very much against the model of the aggregators, I think could be because it threatens their core business, which is delivery, which has been there kind of the brand that they’re known for quick delivery of pizza. So, but it’s kind of does give you some food for thought, at least in regards to the long-term prospects of that, some of these delivery businesses out there. Any other quote that stood out for you this week?
Supply chain bottlenecks starting to ease
Scott 08:31 – I think there’s one other quote that’s worth highlighting here where, you know, we’ve talked in the past few weeks, a lot about supply chain bottlenecks and inventory shortages and over the medium term, probably by the second half of year, you would expect the supply chain shortages to be recovering, especially as the world emerges from COVID. And there was one quote that you picked up Erick from Nautilus which is a fitness supplier, a fitness product supplier which was talking about how there was a severe container shortage. And they have been able to mitigate that at this point. And so they don’t have to send purchase orders two or three quarters into the future anymore that they can get back to closer to normal lead times. And so that was one of the first quotes that I’ve read, suggesting that some of these supply chain bottlenecks may be getting a little bit better. So that’s worth noting.
Some of these supply chain bottlenecks may be getting a little bit better. So that’s worth noting.
Erick 09:25 – And it gives you a bit of optimism about the kind of supply chain bottlenecks that we have still in the semiconductor industry and these other industries are still experiencing issues I think we picked up from Best Buy and SPX who are also saying the same, that there’s still a lot of pressure in the supply chain and I mean, the hope is that in, within the next two or three quarters, there will be a little bit of mitigation of that. Anything else that you wanted to pick up on?
Nuggets from Buffett and Munger
Scott 09:55 – Yeah, I mean, I think it’s always fun for public markets to hear Warren buffet and Charlie Munger speak. And so Munger was speaking last week at the daily journal meeting and you picked up a quote that he had about Bitcoin which, you know, it’s not surprising that Charlie Munger is going to be pretty skeptical of Bitcoin. You know, I think these guys have an incredible track record and they’re kind of, they’re kind of gods for the value investment community. They’ve had some pretty significant misses in terms of technology. It’s actually pretty amazing that they were able to generate this track record over the last 30 years while not really investing in many technology companies. I tend to agree with Charlie though. Bitcoin is probably worthless, but it could go up a lot longer.
Erick 10:41 – I think it’s the imagery that he uses that are…actually another imagery of Fox hunting. You know, it’s the pursuit of the unspeakable. But that was pretty interesting, but I think also Warren Buffett, as you say it, like, they’ve not invested in tech companies a lot, except maybe Snowflake I mean, I think the quote that he has there was very interesting. He says that the fact that they lead on the fixed asset ownership side does not mean that their investment has been a triumph. I think they would actually prefer to own companies with minimal assets, asset-light businesses, which have high margin businesses, so asset-light and high margin.
So I would tend to think that if they are to do things all over again, they would actually go for some of these big tech companies at the beginning. Like I think one of the discussions that was pretty heavy on Saturday night on Twitter was about why they never owned Google. So I think, and it’s a company they’ve admired throughout the ages, like which fits this kind of modern asset light and high margin. So I mean, I would bet they would do things differently if they had the chance again.
Scott 11:52 – Yeah. I mean, there’s been this very long-term trend in American capitalism towards high return on invested capital. And that leads to asset light businesses and software, especially is one of those that has extremely high returns on invested capital. But I think one thing that goes missing in that is if you have a monopoly on the hard assets, you can turn that into a high return on invested capital company as well. I guess elements of the low capital intensity businesses is that they’re heavily usually based on intellectual property. And so they depend on a strong legal system in order to protect their intellectual property. And so the barriers to entry are somewhat government related for a lot of these companies.
Erick 12:40 – Yeah, that’s pretty true actually come to think of it. But I mean, as you say it like fixed asset ownership also is an edge and he’s a moat in certain kind of businesses. And one of them, I can’t remember the name of the company, but they own huge tracks of land in the US and I think, they own such strategic land base pieces that they actually charge it’s become a premium for them like to charge someone else who wants to transport businesses and use their space to store these kind of containers and all. So I think at the end of the day, like it’s not that bad to own fixed assets. So I think what you were saying is that it’s better to be asset-light and high margin.
Scott 13:20 – Yeah. Yeah, I think to your point, it’s really, it’s not about fixed asset ownership or asset light. It’s about scarcity of supply and intensity of demand. And so if you control something that’s in scarce supply with intense demand, that’s going to be really high return on capital. And yeah. If you have a monopoly on an algorithm, That can be in scarce supply if you make it. So yeah, I think that’s probably a good place to stop.
Erick 13:47 – Thank you for joining us this week. Very happy again. Always reach us at [email protected] and leave us your reviews and comments in your favorite Podcatcher see you next week. Thank you.
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