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00:00 Speaker A
When you have free cash flow, you have a lot of options. I immediately went to his history. Uh he was at HPQ since 2011. The low price of the stock since he was there was $3 in 2012. The high price was $37 just about a year ago. From the time he became CEO, he was elevated to that position in 2019, the low of the stock was $10, it went up to $37. Here’s the big thing. HPQ when you think about it, you say, wow, that is a boring business with little innovation and yet, they were able to have a 10 bagger over 10 bagger over a decade. How did they do that? Well, they did exactly what PayPal needs, which is they took a boring business that wasn’t innovating and and they reduced the share count. Get this from 2 billion shares outstanding in 2012 to 953 million shares today. So basically, if you had a slice of the pie in 2012, your pie got twice as big, more than twice as big without putting one more dollar of cash. They continue to buy cash, they continue to uh to generate cash, they continue to buy in the stock. Well now, how does that compare to PayPal? Well, PayPal is generating $6 billion of free cash flow. You would have thought today based on the response this morning that they generated negative free cash flow and sales were down 20%. And that’s simply not the case. Total payment volume was up 9%, revenues were up 4%. Uh operating margins were up 19 basis points. EPS was up 38%. and they guided, uh not only are we going to generate $6 billion of free cash flow again in 2026. We’re going to buy in another $6 billion in stock, which basically means at this morning’s valuation, they’re going to buy in 15% of the company over the next 12 months and you can’t give the stock away. So that’ll be the case. People will be puking in the hole this morning and guess who will be buying it in the next few days after the blackout period ends. The weak sisters will be selling, PayPal will be buying and uh the story will go on. And Enrique Lores, I think is the right person at the right time. I do think, look, Alex Chris did do a lot of partnerships. He did create a lot of things. He was trying. I think it’s going to be very much like Gelsinger. Uh Gelsinger did a lot of the work to get the fabs going. The board got tired of waiting. They brought in Lit Butan, which was a good decision. Lit Butan walked walked across the goal line from the 10 yard line and spiked the football even though Gelsinger laid a lot of the foundation. I think it’s going to be similar for Enrique Lores. I think Alex Chris did lay a lot of the foundation. He did try to do a lot lot of positive uh positive things. The board got tired, Enrique Lores is going to spike the football. And when you have 14 billion of cash on the balance sheet, you got $6 billion of free cash flow, you got a lot of options and even if you can’t innovate, you can just buy in the whole company over the next few years, uh and the stock will go up on an EPS basis on that basis alone. And God forbid he actually innovates or some of these initiatives actually work, uh which on the early signs, they’re okay, the guidance is not ideal. The the market hates the guidance, the market hates the uncertainty of a new CEO. But math is still math and uh and and we continue, we own the stock. Uh I can tell you we’re not going to be a seller. I can’t tell you what we are going to be in the next few days, but uh look, it’s a detour, it’s not ideal and I think you remember this a little bit, Brian, you’ve known me for a while. We went through this exact same thing in Alibaba. It was a huge free cash flow generated. It was the most hated sector a couple years ago, and we made a fortune on it. So, yeah, you got to deal with the short-term volatility, but if they’re generating free cash flow and they’re buying in shares and God forbid they catch a little innovation and a little bit of break, uh you got real upside here.