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The Motley Fool: Large Banks and Big Rates

In this podcast, Motley Fool host Dylan Lewis and analysts Emily Flippen and Jason Moser discuss:

  • What big interest rates mean for big banks and the latest insights from Jamie Dimon.
  • Pepsi's earnings showing signs that growth might be propped up by price hikes.
  • Atlassian's $1 billion acquisition of Loom.
  • The market reaction to the Birkenstock IPO.
  • Spotify's latest audio push. 
  • Two stocks worth watching: Outset Medical and Twilio.

Bloomberg's Zeke Faux talks with Motley Fool host Deidre Woollard about the trial of FTX's Sam Bankman Fried.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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VIDEO: Big Banks and Big Rates
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This video was recorded on Oct. 13, 2023.

Dylan Lewis: We've got an update on what Big Banks are doing with big rates and one acquisition announced, another one closed. Motley Fool Money starts now.

Jason Moser: From Fool Global headquarters, this is Motley Fool Money.

Dylan Lewis: It's the Motley Fool Money radio show. I'm Dylan Lewis, joining me in studio, Motley Fool Senior Analysts Emily Flippen and Jason Moser. Great to have you both here. Hey.

Emily Flippen: Hey.

Dylan Lewis: We've got the story from the courthouse at the trial of Sam Bank, been freed. A tepid reception for a new IPO and a big deal, finally coming to a close. But first, we've got earnings, results that will have us checking in on two major stories, interest rates and pricing power. Jason, we're going to start with interest rates and the Big Banks. They reported Friday morning getting the earnings party started. What did you see in results from JP Morgan and Wells Fargo?

Jason Moser: It seems on a day where the markets viewing things from the glass-half-empty perspective, these banks are at least presenting a little green for us. I think the big headline for these banks, of course, is the higher rate environment. Rates hit banks in a number of different ways. Some good, some bad. They're going to pay up for deposits as consumers shift holdings and higher yielding instruments, they benefit from higher interest payments on those mortgage loans. By the same token, higher borrowing costs tamp down demand for those loans. Then the bonds owned by these banks, they start to fall in value as these yields rise. It hits their capital positions. I think that beyond the macro stuff, I mean that's one thing to keep an eye on is the capital requirements as this landscape begins to evolve for these greater capital requirements for these banks. Jamie Dimon is not a big fan, but we'll get to that. Talking about JP Morgan, I mean solid quarter revenue up 21 percent. Just over $40 billion. They saw net income up 35 percent. That was actually up 24 percent of your exclude First Republic. But I think the big story for JP Morgan and Wells Fargo on the profitability side, we just saw net interest income really grow nicely and that's thanks to these higher rates. We saw net interest income for JP Morgan up 30 percent, up 21 percent excluding First Republic. I think probably with JP Morgan, the thing that stands out most was Jamie Dimon's language in the release regarding the great macro. He's talking about US consumers and businesses generally remain healthy though spending is down, those excess cash buffers are dwindling. Coupled that with what did he say? This may be the most dangerous time that the world has seen in decades. That's an attention getter.

Dylan Lewis: I think when America's banker speaks, we all tend to listen. Emily, I look at those comments and think there are a lot of different directions we could take that, but this seems to be a tough environment and yet we're seeing that the consumer seems to be OK. Let's parse that a little bit.

Emily Flippen: I think what's happening here is that we're seeing Dimon and Banks kind of manage expectations. This is actually a really strong environment with which to be a bank operating. Those heightened regulations, yes, they hamper capital just a little bit, but it creates a more sound financial system. All of this put together is, banks are doing well, consumers seem to be doing well, the economy is not yet crumbling, but then you have Dimon over here who's saying, hold up. This is really dangerous, stuff's happening, there's geopolitical tension, there's question marks about debt, not just from the government side, but from the consumer side. Banks ultimately need a really healthy consumer in order to drive solid business. I think what they're trying to do is, almost as we've seen every single quarter, I swear Dimon has some other thing to say about, we're not out of the tunnel quite yet. That is because they don't want to have expectations that are mismanaged. That's going to hurt their stock.

Jason Moser: Well, I liked what we were talking about, pre-production too. Emily put it so perfectly. We were talking about these Basel Three, these regulatory demands. These banks they're going to have to deal with these higher capital requirements. Jamie Dimon is not a big fan. I mean, he'll tell you, listen, I know what I'm doing. I don't need these capital requirements. These requirements aren't for folks who know what they're doing, these requirements are for the bankers, who don't know what they're doing to protect us. Because not everybody is on the same playing field when it comes to these regulatory requirements. Banks, listen, they're dealing with a lot of money and there are a lot of economic forces that come into play with how those financial models work.

Dylan Lewis: We talked about a promised pricing power. We have to get to that part of the earnings discussion as well. We get that in Pepsi's results. And I think to some extent we get a little bit of a look here, Emily, at the health of the consumer and what's going on with consumer wallets too.

Emily Flippen: Honestly, you can take what's happening with PepsiCo and apply it to basically any consumer goods business that we're seeing reporting earnings. I would say not just previously but even coming into earnings season. PepsiCo in this case, headline numbers look good. Earnings and revenue both beat expectations. It's weird to see this type of business that's growing in the double digit rates. That's unusual for a business like PepsiCo. But the flip side is that, even though they have raised guidance, 13 percent earnings per share, growth guidance, that's incredible. The majority of their growth is still coming from pricing increases. If you actually look at the volumes of products that Pepsi sells and it's not just the beverages, but it's also their packaged foods goods, volumes are largely down across the board, especially in North America that drives a majority of their revenue. You can raise prices so much. You can only offset declining demand so much with price increases. Especially if the consumer health of Americans declines over time. Things look good right now. Guidance, a middle for the rest of the year looks solid. Organic revenue growth in the high single digits is nothing to dismiss, but I think I'm just a little bit more cautious of this business because pricing only goes so far.

Jason Moser: Where do you stand on the Ozempic conversation here? Seriously, we were talking before and Shrink, we talked about it on this show over the last several quarters, Shrink being a very popular term that was thrown out there on inventory on earnings calls everywhere. It seems like we're starting to hear Ozempic a lot more in relation to a lot of different businesses that cover a lot of different markets. I don't know that they necessarily buy into, I mean, maybe Ozempic is something that hits them on the margin, but I don't know if it's as great a threat as maybe some think.

Emily Flippen: Look, I don't know Ozempic personally. At the risk of being horribly wrong in a decade and we're all super skinny and super healthy and eating carrots, there's one thing I do know across my 30 years of being an American and that I generally don't bet against bad habits by Americans, especially as it applies to drinking cokes and eating chips. I think those habits stick.

Jason Moser: I'm with you.

Dylan Lewis: I'm right there with you too. That's my plan for lunch. [laughs] Taking a step back as we wrap up this earnings talk and looking at the themes that we're seeing from the banks and the themes that we're seeing so far in Pepsi's results, knowing that we're going to be seeing a lot more companies report over the next couple of weeks. Emily, anything that you're particularly paying attention to for the industry?

Emily Flippen: I want to continue to watch consumer discretionary spent here. We're coming off the week where Amazon had their prime day and passed with very little fanfare heading into the holiday season as well. Consumer spending I think is going to be very indicative of the health of the economy moving forward, especially with the resumption of student loan repayments. I'm cautious.

Dylan Lewis: Jason, what about you?

Jason Moser: It's the consumer. It doesn't feel like the consumer should be as healthy as the consumer is today. I feel like that is just, that's getting ready to change here. It's slowly and then all at once. One thing to remember with inflation too, we talk about inflation slowing down a little bit. But inflation is still rising and it's compounding off a very high base over these last several months. It is getting to a point where you have to look at those words Jamie Dimon offered in regard to the US consumer and wonder if the beginning of 2024, we don't start to see some real pinching of the purse strings, so to say.

Dylan Lewis: It's not all about the earnings beat this week. Up next we've got one software company dropping 1 billion to add a new piece to its suite and a fresh debut for a funky sandal company. Stay right here, you're listening to Motley Fool Money. Welcome back to Motley Fool Money, I'm Dylan Lewis, joined here in studio by Emily Flippen and Jason Moser. We're going to kick off the segment talking deals. Atlassian announced a one billion dollar acquisition of software company Loom this week. Emily, the market kind of shrugged at the acquisition, shares of Atlassian were down 4% since being announced. Different story at Loom, co-founder and CTO Vane Herrimath said, we are insanely hyped. Can we talk a little bit about what Loom does and how this fits into the Atlassian software suite?

Emily Flippen: Yeah, sure. Fool. Look, if I also sold a company that's probably worth 200 million for a billion dollars, I would also be 'insanely hyped. '

Jason Moser: You're saying they overpaid?

Emily Flippen: [laughs] I'm willing to bet that in five years even I'll say three years. I bet in three years, Atlassian has taken a massive write down on this acquisition. To answer your question, Dylan, which is what does Loom do? How does it fit into the Atlassian portfolio? Loom does asynchronous video communications. If you imagine sitting in front of your computer, I'm going to record a video of myself talking over say like a PowerPoint presentation or the like. I'm then going to send it to my co-worker and Loom has the technology to allow your co-worker to what is this? Watch the video that you recorded and respond to the video that you recorded, and it doesn't fit really into any of Atlassian's existing products and that's actually the thing that I had the least amount of gripe with. Atlassian has a really robust portfolio of communication tools that's largely used for asynchronous workflow. The video aspect, it's new for them, but I don't hate it as much as I just hate the existence of Loom in the first place. I apologize, they're 25 million customers, they do have paying customers, but I don't know what this company does that isn't already achieved by the likes of their potential namesake, Zoom.

Jason Moser: You mentioned their customers and I think part of the reason this deal even happened was Atlassian was a Loom customer to start. That I think is how the relationship got started and maybe what creased the wheels. We will check back in 2026 and see will this wound up being an acquisition that was worth happening. Loom CTO did wind up saying he wanted people to think they got to steal with Loom, which I think a lot of people may feel that way as they're being acquired into a business. One of the questions we generally have as we look at software is, is this a feature of something or is this a product that is sellable in and of itself? Emily, it sounds like you're in the camp of this is a feature that can be replicated.

Emily Flippen: This is a feature that is already replicated by the likes of Zoom and others. Now they might have differences in how they've executed, but the core service here is not something super proprietary. For that reason, I think that billion-dollar price tag is pretty crazy and for exactly that quote that you mentioned, Dylan, which is Atlassians are customers of Loom and we love Loom and that quote from the co-founder and CTO, who clearly is obsessed with Atlassian, which is also a founder-led company. To me, this reeks of pet project. This reeks of two very nice visionary co-founders and CEOs, or CTO's, in this case getting together and saying, well, we both really like each other. We both have cool companies and cool technology, why don't we just combine? From the investing perspective, I'm not sure, I'm excited about this at all.

Jason Moser: You know what that feels like? That really, honestly feels like Square or Blocks recent acquisition of Title. I mean, Jack Dorsey and Jay-Z are tight, I know. Really Title? Seriously, come on man.

Dylan Lewis: What do those businesses have to do with each other?

Jason Moser: Well, and I feel like maybe that was like there was probably more like an NFT angle with that deal than anything else given blocks pivot or not pivot really, but just really more laser focus on blockchain and cryptocurrency technology and whatnot. But I mean, yeah, when you're talking about music streaming, I mean there's Apple music, there's Spotify, and then there's whatever else. It doesn't matter because Apple and Spotify rule it. It sounds a lot like that title deal.

Dylan Lewis: It sounds to me like Atlassian shareholders should mind the goodwill line item on the balance sheet going forward and be paying attention to that.

Emily Flippen: Yeah, I think I like Atlassian to be clear. I don't think this is a reason to be selling your Atlassian shares, but it does worry me a little bit. I just want to hear more from their co-founders and their CEOs. Their Co-CEOs I believe, and hear about how they're going to integrate this into their product suite to actually be a creative. Because the only mention they've had right now is that this is going to hurt operating margins over the relatively near term, and as an Atlassian investor, those are words you never want to hear.

Dylan Lewis: This week we also had a fresh debut shares of sandal company Birkenstock, down over 10% after the company IPOed on the New York Stock Exchange. Jason, we talked about this one a few weeks ago when we got a look at the prospectus and we talked through the footbed technology. We spent a lot of time on the footbed technology, if I remember correctly, and the company's timeless appeal. What are you thinking about with this company now that it's public and we have a sense of the valuation?

Jason Moser: Yeah. Well, I mean, I said then. I mean, I was a bit surprised going through the F1 as it really did capture my attention. I think a lot of that was really, how they're selling the company right Birkenstock. It's a mindset. It's a way of life. I will say, I mean, it piqued my interest. I went and looked at the website to see all of the different types of styles and shoes they had. This is not the Birkenstock that existed when I went to college. This is a far bigger and more diverse company now. At the end of the day, it is still footwear, so let's keep our expectations in check. I do think that in regard to the valuation, I mean you've got a shoe company. I mean a lot of positive qualities, but it's still valued. It's something like 40 times trailing earnings, which just in this market right now, that sounds very expensive. Now they do have some growth to back that up. In 2022, $1.24 billion in revenue recorded a gross margin of 60% and they're direct to consumer, and I think that's going to be a big key to the story. Is they can continue with this direct to consumer penetration that grew from 30% of revenue in fiscal 2020 to 38% in fiscal 2022, and they've grown revenue at a 20% annual growth rate from fiscal 2014-2022. There is growth there, but I think you have to keep those expectations in check when you understand this is really, it's a company that does one thing and they do it very well. This is just a difficult market. I think you look at some of these other IPOs, you look at arms IPO for example, that priced at $51 the price today is right around $52 in change. That's arm, that thing got a lot of hype. Instacart $30 IPA today, the price is around $25 I think we're just seeing it's a very difficult time for businesses big and small to go public, and it's going to take a lot to really prove that case. Ultimately, we just need to get to a point where market conditions are a little bit more welcoming of these businesses that are taking that leap.

Dylan Lewis: As a testament Jason to this not being the Birkenstock of your college years. This is a business that has expanded into offerings that look an awful lot more like crocks. Trying to play a little bit on the trend there. Do you think that there's enough there for them to capture a next wave of consumer and continue to be relevant?

Jason Moser: I think they need to be careful in how far they pursue that. I don't know that I necessarily want to see Birkenstock offering up a Reese's peanut butter cup version of their shoe, or a Taco Bell sponsored version of a Birkenstock. I think there is a line that they probably want to focus on not crossing. This is a higher price point item to be sure. Footbed technology does not come cheap and I only say that half tongue in cheek, Dylan. These are really good shoes and the footbed technology is a real deal. I think that you look at a company like Tiffany. I'm not comparing them to Tiffany directly. But Tiffany is not going to cave on the pricing side, because they've got a rep to protect. I think Birkenstock ought to be thoughtful about that as well.

Dylan Lewis: All right, our last story for the news round-up, Emily, Spotify is continuing its march toward offering all things audio. The company announced plans to offer audiobooks to premium subscribers. What do you make of it?

Emily Flippen: It's a bit of a divisive action because Spotify, we actually saw it get downgraded by at least one Wall Street analyst as a result of the launch of their audio-book offering. Who believed that this would be gross margin decretive, I should say, or hurt their gross margins. Management actually thinks that their launch of audio-book offerings for all Spotify members can have gross margins somewhere around 40% which would be bigger than their current business. But really what this is doing is just adding an extra value add. If you're paying Spotify subscriber, you'll have 15 free hours every month of audiobook listening. If you want more than that, you can pay a little bit extra for it. There's already plenty of options to have access to audiobooks today. People have libraries obviously. There's also competitive offerings by Audible from Amazon. But in this case, Spotify, I think has the advantage of having it all in one app, easily accessible, all building off the acquisition of audiobook offering find a way that they made in 2021. I like this move by them and I'm excited to see where it takes them.

Dylan Lewis: Emily, this is a company that has had a lot of different ambitions in the audio space. Started out really focused on music streaming over the last couple of years, has focused heavily on podcasting and also gone into some of their own original content. We now see them focused on audio books. Are there places where you are more excited or less excited to see them investing and putting resources to work?

Emily Flippen: The three main areas that I'm equally excited about are their existing business, which is music streaming, has gross margins around 30%. They've already largely achieved that, so that's a mature offering. Then you have podcast, which is largely ad based. They were about a decade late to the podcasting game, and now they're the largest podcasting platform in the world. That says a lot about their ability to come into an industry and dominate it. The ad market's been soft though, so the podcasting business has been unprofitable for them. That's where a lot of the flag they get from Wall Street analysts. If audiobook also ends up hurting their margins, then I could see that also dragging them down. But long term, I think both, I should say all three of these offerings end up being successful.

Jason Moser: I'm going to see bring earnings calls into this platform. I know that's a little nerdy and maybe they just need to acquire that app by order. It's a great app for that. Man, I mean, I tell you there's probably a pretty big audience of listeners out there with a love that value ad of just earnings calls and earnings investor presentations.

Dylan Lewis: It would certainly make preparing for the Friday show just just a smidge easier.

Jason Moser: About how much easier it is, just to access all of that information and have it all in one nice little place.

Dylan Lewis: I'm 100% with you, Jason. Let's see if we can make it happen. Jason and Emily, we're going to see you guys a little bit later in the show. Up next we've got the story of what's happening on the ground in New York at the trial of former crypto billionaire Sam Bankman-Fried. Stay right here. You're listening to Motley Fool money.

Welcome back to Motley Fool Money, I'm Dylan Lewis. The trial of FTX Sam Bankman-Fried is underway and we're beginning to get details on the alleged fraud and how the crypto exchanges customer funds were misused. Bloomberg Zeke Faux has been at the courthouse covering the trial and Motley Fool Money's Deidre Woollard spoke with him about the atmosphere details and what we've learned so far about the case.

Deidre Woollard: I'm Deidre Woollard checking in today with Zeke Faux, the writer of the book Number Go Up, which is about Sam Bankman-Fried and the crypto craze. I interviewed him a couple of weeks ago. He's been at the trial a couple of days this week and is giving us the latest. Zeke just quickly, for people who might not be following the frenzy, what is the trial about and why is it happening?

Zeke Faux: Sam Bankman-Fried ran the crypto exchange FTX and back in November the exchange collapsed. Basically, think of this like an app like E*TRADE, where people sent in money to trade crypto, just like you might send money to E*TRADE to trade stocks. Back in November when customers tried to get their money out, a lot of people at once lost confidence and asked for their money back. It was revealed the money was gone. There's 8 billion dollars missing. The US government arrested Sam Bankman-Fried and charged him with a giant fraud. They're essentially alleging it boils down to, he embezzled this money and allowed a hedge fund that he controlled to gamble it away and spend it on all sorts of stuff like real estate in the Bahamas, political donations, even a private jet to fly Amazon packages from Miami to the Bahamas for employees.

Deidre Woollard: That detail is pretty stunning. There's this media hype around this. It reminds me a little bit of the Theranos trial. What's it like being there, what's the scene like?

Zeke Faux: There's about 50 reporters there every day. The Court's packed. Right around the corner trump has been on trial for fraud himself, so there's all sorts of security in the area, tons of TV crews, you can't quite tell. Well, the first day I arrived I was like, are all these crazy military type security guys here for Bankman-Fried? It turns out they were Trump. But around the corner where the Bankman-Fried trial is happening, there's camera crews set up and there's all sorts of Paparazzi who chase any witnesses who come in. The main guy himself, Bankman-Fried is in jail pending trial or during the trial so he comes in through a basement garage. I believe he can't be photographed, but his parents and the witnesses get chased by paparazzi as soon as they show up, and reporters camp out starting at 5.00 or 6:00 AM to get seats in the main court room.

Deidre Woollard: Wow. Sounds crazy. So much has been made about his appearance, he cut the crazy hair, he's wearing a suit. Is that all? Do you think that he's trying to signal that he's taking this seriously?

Zeke Faux: Definitely. I mean, while he rose to power, it was really his thing that he showed no respect for traditional rules, he wouldn't dress up for anybody. Always shorts and a T shirt. Wild hair that he didn't comb. Occasionally for Congress he would put on a suit, but it always looked like he just bought it at the store on his way in. He didn't even tie his shoes. He testified before Congress with shoes that he just bought at the store and the laces were still in that clump that they come in when you buy them from the store. For a court, he's signaling respect by dressing up, cutting his hair, and listening attentively, but I don't know how much that's going to help given the barrage of evidence the government has been presenting.

Deidre Woollard: I know that people have talked a lot about how he's not being too demonstrative, he's just staring mostly at his laptop. I'm wondering what has surprised you so far in this?

Zeke Faux: I knew what to expect. We knew that his top lieutenants were all going to testify against him, but it's still very powerful to hear them doing it in person because you've got this jury there of regular people who frankly, many of them seem bored, some have fallen asleep. But if they do snap to attention, what they have in front of them is a series of very nice, trustworthy seeming young people, nerdy, maybe a little shy but perfectly well spoken, who are saying, hey, I committed a big fraud, I'm very sorry about it. I did it with that guy, Sam, over there. The details are frankly very complicated and I'm sure the jury is doing their best to understand them. But if they don't catch the details, what they just get is a bunch of fairly trustworthy seeming people saying yes, it was a fraud, it was not some accident. The customer's money was stolen and it was Sam's fault.

Deidre Woollard: So much of it right now with the case has been hinging on the testimony of Caroline Ellison, the head of Alameda Research and his on and off girlfriend. What's your impression of her testimony so far?

Zeke Faux: Back in November, just after FTX collapsed, I flew down to the Bahamas to talk with Sam before the cops showed up. We had this long, long talk about what had happened. He made a lot of excuses about how it was all a mistake, and he basically blamed it on Caroline Ellison who ran his hedge fund. He said, I wasn't paying any attention to the money and the people running that hedge fund, they should have known that there was a problem. Now Caroline, she finally showed up this week to testify. What she said pretty convincingly was Sam knew all the numbers, we had regular meetings. I would tell him about the situation, about how much customer money the hedge fund was using, about how risky it appeared. She pretty much demolished Sam's excuses that he hadn't been aware he hadn't been directing this. He had told them to use, according to her, he had told them to delete all their text messages. They used auto delete on Signal. However, they also used Google Docs. She presented Google Docs that showed the financial situation of Alameda, the hedge fund, and they even had comments on them from Bankman-Fried right there in the Google Doc. She can't prove that everything that she's saying about her meetings with Sam Bankman-Fried, but there's clear evidence that she consulted with Bankman-Fried about the hedge funds financial situation. His excuses didn't seem very credible before, and now just seem seem like lies.

Deidre Woollard: There's a lot of coercive nature that she testifies to of not wanting to upset him and trying to follow everything he did. One thing I was wondering is the romantic relationship, is that a little bit of a smokescreen around the business relationship too because it's very complicated? Because they were together, they weren't together and it seems like she's painting it very much that he told her to do these things and she had no option because this is her boss and her boyfriend.

Zeke Faux: Well, it's been part of his excuse. He's claimed that because they broke up, they were not talking. That was part of why he didn't know what was going on. She said, yes, it was a bad break up, but we still talked about business. We had regular meetings and he was aware of everything. She hasn't tried to say he made me do it, I had no choice. She sobbed in court and said she feels horrible about what happened and what she did. It's also been interesting to see that she was paid very poorly compared to men at the company. Admittedly, she still got like tens of billions of dollars. That she had asked for an ownership stake in the hedge fund which she was running. Other employees had gotten things like that and Sam had said it was too complicated. Even when they were dating, it seemed like she was not treated as a equal partner in this business.

Emily Flippen: Also she said that he told her to use FDX customer funds for Alameda, and some of that was some of the spending you talked about with the penthouse and things like that. Also venture fund investing, do you think he somehow thought that he was going to make it back?

Zeke Faux: Yes. He had always said, I want to make tons of money so I can give it all away, and basically save the world. I think that he really did believe that, and that he thought it was good for him to make money, and that that would justify whatever actions he had to take to make that money. Caroline said that was seductive, and she came to feel that way too, and many people at the company fell into this cult of Sam Bankman-Fried, and they really thought they were the heroes of this movie, and they had to do whatever was necessary. I think that yes, Sam did think he would make it all back, and that he had taken these crazy gambles because that's what it was going to take to become a trillionaire, and that's what was needed to save the world from things like the next pandemic, or evil AI robots, something they really talked about quite a lot.

Emily Flippen: The other thing is they were trying to raise money from various sources including MBS to basically to make up that shortfall. If they had gotten the money, would this be happening now, or would this be pushed down the road? Would more people have gotten hurt?

Zeke Faux: So Crypto prices have not recovered, so a lot of their investments would still be looking bad. But sure, yeah, if they had raised enough money, they could have covered up this hole, and maybe we still wouldn't know about it. One of their investments that they made with this customer money was in an AI company, and it looks like it was a pretty good investment, and it might have made them billions of dollars. I'm not sure if that's enough to cover the hole, but it looks like that's going to be part of Bankman-Fried's defense, that in fact the bets would have worked out, and maybe even in some cases have worked out. However, I don't think that's really going to work. If I rob a casino and then I go take the money to another casino, bet it on red, double my money, and return the money to the first casino, I think I'm still going to jail.

Emily Flippen: I think so. That's part of the defense too, is that his lawyers are arguing he acted in good faith. It does not sound like you believe he acted in good faith.

Zeke Faux: No. It was so clear that you were not supposed to borrow the customer money and gamble it at other casinos or invested in venture capital or whatever. The more testimony that comes out, his associates are saying that this started really early on at FTX. Within months of launching the exchange, they were dipping into the customer money. Each day of testimony looks worse and worse for Sam, to be fair, he hasn't really been able to put on his side yet, and maybe there's some really surprising thing that his lawyers are going to pull out when it's their turn. But in cross examining these Prosecution witnesses, they've been totally ineffective, and the Judge has scolded them for wasting time.

Emily Flippen: Obviously, this is being widely reported. Is there anything in the public conversation, do you think that is either being overblown or something that people are getting wrong?

Zeke Faux: One thing that interests me, which you brought up a little before, is was this guy just a con man, a scammer, who never intended to do anything good for the world? I really don't think that's the case, I think he did have this crazy plan. A bad plan, maybe even an evil plan. But I think that he did have a plan to try to save the world. Caroline spoke about this in her testimony. His philosophy, utilitarianism, means that you have to judge your actions based on what will create the greatest good for the greatest number of beings. She was asked about this, and they said, how would lying or stealing fit into that? Caroline said, he didn't think rules like don't lie or don't steal fit into that framework. In other words, the ends justify the means, he had to do anything it took to make money because he believed he was doing something good for the world in the end. He just had to get to be a trillionaire first.

Dylan Lewis: Zeke Faux's book on crypto number Go up is out now, and you can catch his latest coverage on the trial at Zeke Faux on X. Coming up after the break, Emily Flippen and Jason Moser return with a couple stocks on their radar. Stay right here, you're listening to motley for money.

As always, people on the program may have interests in the stocks they talk about, and the motley fool may have formal recommendations for, or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Emily Flippen and Jason Moser. We've got stocks on our radar in a second. But first, Microsoft shareholders can rest easy knowing they'll be the proud owners of some of the biggest video game titles in the world. Their planned $69,000,000,000 Acquisition of Activision officially closed Friday after some regulatory hoop-jumping. Jason, I have to be honest, I wasn't sure that this deal was actually going to go through.

Jason Moser: Well, we've been covering this story off and on since it's inception here on the show, so it's been a while. I'm glad that we can tie a bow on it. It struck me that just how protracted this had become in the concessions, we would see ongoing. I mean, it felt to me like they were doing whatever they could to make sure this deal got done. I'm not terribly surprised at the end of the day that it got done, given everything that we've seen. I'm sure that shareholders that have hung in there. Dad, congratulations. My dad's a longtime shareholder of Activision Blizzard. Hey, you made it. Yeah, I think and Emily, you said there was a special dividend. I think that those who kept their patients will get from this as well.

Emily Flippen: Yeah, it's a good thing for activist and shareholders who have been holding on. They got that special dividend as a result of the delay that was caused by the UK regulatory authorities. But this is a loss for regulators because regulators across the world largely sought to either change this deal or prevent this deal from happening entirely. It does raise the question of, Activision's first now owned by Microsoft, who's next?

Dylan Lewis: I was going to say, Emily, now that we know that the door might be open for some bigger deals, are there any that we should be either in a very real way, or in a fantastical way keeping our eye on?

Emily Flippen: I mean, I don't think it's a coincidence that we've heard rumors this week that the Disney Board has apparently been talking to management about potentially acquiring EA, or at least some assets from EA to push Disney back toward Game Development, which was historically a lucrative opportunity for them. That could be interesting now, granted EA still much smaller than Activision. But if you allow Microsoft to acquire Activision, you have a really hard uphill battle trying to explain why Disney can't acquire EA.

Dylan Lewis: Jason, anything for you, anything in terms of the deal-making environment that you'd be keep an eye on?

Jason Moser: Honestly, I'm keeping an eye on all of the FDC right now, or the Amazon and Google. I think that's what I want to keep an eye on because we saw Satya Nadella, CEO of Microsoft on the stand there last week in regard to the antitrust case against Google. It's going to be very interesting to see how those two cases shake out, because I think they're fairly weak as well, and if they lose one or both of those, boy oh boy, talk about compounding your losses.

Dylan Lewis: Let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason, you're up first, what are we looking at this week?

Jason Moser: What a miserable week for Outset Medical. First, there are headlines at the weight loss drug, Ozempic, showed surprisingly early effectiveness in a study aimed at combating kidney failure. That sent shares of all dialysis providers down Outset, Davida and others. But then adding insult to injury, Thursday evening Outset pre-announces earnings. It's not a very good look there. There is the Ozempic threat, of course, that to the extent that there is one granted, that's entirely unknowable at this point. There was an FDA letter that should have been filed regarding the Tableau cart that they didn't file, but management has noted that they did file it. It is something, it's a technicality, it seems at this point that should be resolved. But I think the bigger picture here is the ratcheting back of guidance, and partly based on this climate of cautious hospital spending that management quoted. I'm not going to hold that against him, and one of the main reasons why is because that's totally real. That's not something that's just an Outset problem. Intuitive Surgical for example, just last quarter noted that very same thing in their call. They said, 'customers particularly in the US, appear to be cautious in their capital spending given ongoing financial pressures. Customers are talking about the hospitals,' so that's something that they're dealing with. In a high flyer like Outset Medical is still working its way to profitability, market just doesn't have any tolerance for that stuff, and unfortunately we've seen the stock really take a shacking.

Dylan Lewis: Dan, a question about outset medical.

Dan Boyd: Now, Jason, you said it was a bad week for Outset Medical, but, man, it's starting to look like it's been a bad three years for Outset Medical. 

Jason Moser: Well, there are some pockets of success in there, Dan. I will say there are some pockets of success in there, focus on the pockets.

Dylan Lewis: All right. Emily, what is on your radar this week?

Emily Flippen: Well, I'm worried about how Dan's going to feel about my radar stock now, but Twilio is actually back on my radar now. This is a communication as a platform service provider whose services are really integral to the companies that they provide services for, obviously, for their day-to-day functioning. But this is a business that had a growth-at-any-cost mentality, earned a lot of cash as a result, and now has quite a fall from grace. But I think it's current valuation could be potentially compelling. They're trading at around two times enterprise value to sales right now, so if they're able to really improve their margin profile, which is management's guidance, then this could end up being a bit of a steal at today's prices.

Dylan Lewis: Dan, a question about TWLO, Twilio.

Dan Boyd: Twilio sounds like it should be a Halloween candy. Probably one that nobody likes. Also, Emily, this stock chart is ridiculous. They're back down to pre-pandemic levels for the stock price. Like what's going on?

Emily Flippen: Yeah, they're no Twix. I'd buy up Twix really quickly. But I do think that Twilio, this is a turnaround story. They lose money or they're a great performer.

Dylan Lewis: Dan, which comeback story are you putting on your watch list?

Dan Boyd: Just 'cause I'm hungry, I'm going to go with Twilio.

Dylan Lewis: It sounds like a snack, it's not, but it sounds like one. Dan, thanks for weighing in on our radar stocks. Emily Flippen, and Jason Moser, thanks for being here and bringing them to us.

Jason Moser: Thank you.

Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dan Boyd has positions in Amazon and Walt Disney. Deidre Woollard has positions in Alphabet, Amazon.com, Apple, Intuitive Surgical, JPMorgan Chase, and Walt Disney. Dylan Lewis has positions in Block, Spotify Technology, and Twilio. Emily Flippen has positions in Block and Spotify Technology. Jason Moser has positions in Alphabet, Amazon, Apple, Block, Outset Medical, Twilio, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Atlassian, Bank of America, Block, Intuitive Surgical, JPMorgan Chase, Outset Medical, Spotify Technology, Twilio, Walt Disney, and Zoom Video Communications. The Motley Fool has a disclosure policy.


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