00:00Marcelo, welcome, because you were one of those critics last week.
00:03When Block announced its layoffs, he posted this on X, quote,
00:07Block's 40% reduction in force is the new Citrini fake narrative.
00:12Everyone will assume Jack Dorsey is the, quote, greatest of all time,
00:15is doing this because AI.
00:17He's not.
00:18Block has been massively bloated for years.
00:20Don't forget, Jack was head of Twitter.
00:22When Elon took over, he fired 80% of staff within five months,
00:25and the product got better.
00:26That was before Gen AI and Claude Code.
00:29So is this about AI at all or not at all about AI?
00:34Yeah, Tim, thanks for having me.
00:36You know, I think there's no question that AI is going to make companies more efficient.
00:40We heard from Jamie Dimon last week talking about moving people from certain jobs to other jobs
00:45where their skills can be better used as AI takes over certain tasks.
00:50But as far as Block is concerned, I think it's hard to argue that this company wasn't massively bloated.
00:57I think, in fact, even after this reduction in force, they're still above about 50% more than where they
01:03were in 2019.
01:04And the company really should be a lot more efficient if you compare them to other global players in fintech.
01:11Well, they didn't have a few things.
01:12They didn't have Afterpay in 2019.
01:14It was still called Square back then.
01:17The company's changed a lot since then.
01:19What about using, instead of using a fintech as a corollary, we use a company like Anthropic as a corollary.
01:27A corollary, a company with more than $300 billion in valuation in the private market and just several thousand employees.
01:35That's sort of the AI angle there.
01:38Does that make sense?
01:40Yeah, I think it does.
01:42You can, in fact, I did a ranking of Block a few years ago where you could go and look
01:48at how much in gross profits different companies generated,
01:52even from different industries, because that is really the metric that matters for Block is gross profits.
01:57That's really their top line.
01:58And then how much of that drops to the operating income line?
02:02And Block was dead last, almost, next to a cruise ship company.
02:08So across different industries, including software, fintech, et cetera, Block was really poorly, shown very poorly in terms of efficiency.
02:17They were eating up a lot of dollars between those two lines, gross profits and operating income,
02:22in things like R&D expenses, general administrative sales and marketing, et cetera.
02:27So, like, if you were sitting down with Jack Dorsey, what would you be asking him?
02:30What do you want to know from him right now?
02:33Well, I'd say, you know, Jack, is this reduction in force really the most that you could have done?
02:39If you could pull an Elon here, how far would you go?
02:43And is there more to come?
02:46Because, you know, still the margins that they are guiding to next year are about 26 percent EBIT margin compared
02:53to gross profits.
02:55But a company like Adyen is at 69 percent.
02:58A company like Nubank is at 66 percent.
03:01PagSeguro is at 34 percent.
03:03StoneCo is at 43 percent.
03:05So they could be even more efficient than they're projecting for 2026 now after this reduction in force.
03:11Do you think, just based on what we saw in the share price on Friday, jumping almost 17 percent, 21
03:18percent at its highs intraday,
03:21but finishing with a 17 percent gain, another half a percent higher today,
03:25Marcelo, that you think that is maybe, I don't know, what message does that send to Jack Dorsey?
03:31I mean, obviously, the investors are behind it.
03:34Are they misreading it, though, in your view?
03:37You know, I think short-term stock price moves have a lot of noise.
03:40There could be short covering in the stock.
03:42I don't have the short data right in front of me right now.
03:45But there's no question that this increases the probability of them actually achieving that metric,
03:51which is earnings per share that investors actually want to see.
03:56A few years ago, I think it was almost two years ago to the date,
03:59I sent Jack and Amrita an email with a projection showing about $4 in earnings per share of 2026.
04:05I think they're going to deliver, according to their guidance, $3.66.
04:10Of course, they're probably trying to beat that.
04:12So they are actually now, finally, after this reduction in force,
04:16delivering the high end of my estimate from two years ago.
04:19And, you know, frankly, they should continue on this path, and hopefully they do.
04:23And I hope shareholders enjoy that ride because it's better late than never
04:29that the company should become more efficient.
04:31Are you a shareholder now?
04:34I am not a shareholder now.
04:35I was a frustrated shareholder for many years,
04:38and I kept trying to get in touch and engage the company on this topic of
04:42becoming more efficient, showing them this is what your valuation will be
04:46if you deliver these numbers.
04:47This is what the IRR between the current share price and the future share price could be.
04:52And it was not very fruitful, so I moved on.
04:56Are you, would you, would you invest in the company again?
05:00Look, if I have proof that Jack and Amrita have really changed their stripes and they
05:05really are focused in generating shareholder value, then yes, I think I would, because
05:10I do think Jack is a visionary.
05:12He's a great product guy.
05:13But I do think that the company was really not one for shareholders historically.
05:18And I would like to see if you could marry both things, be a product visionary, be good
05:23at executing, and be a good steward of shareholder capital, then this company could do extremely
05:28well for shareholders as well.
05:31Yeah, it's kind of interesting, you know, I guess to have this happen on top of the
05:37Citrini research, you know, this nightmare of kind of mass unemployment, and that certainly
05:44spooked the markets when that report came out.
05:47You know, we just talked, you know, with Danny Moses, founder of Moses Ventures, of course, you know,
05:55the big short fame, if you will.
05:57But this idea that these things that are some of these things coming out, and I'm just going
06:02to go to the Citrini research, that maybe it's just, you know, a longer term view of perhaps
06:06where these things are headed.
06:07Because if you do talk to a lot of executives, they're very careful in terms of the impact
06:13on the company.
06:14But it's hard to ignore that things are changing when it comes to the impact of AI.
06:20How do you put it kind of in its proper place?
06:23Or what is your view on what is the AI trade, the AI scare?
06:28What is the proper place for investors?
06:30How should they be kind of reading into it?
06:33You know, Carol, I think every investor should try to code to buy code with cloud and with cloud
06:41code and codecs as well from OpenAI.
06:44They're fantastic tools.
06:45I've been using them a lot.
06:46I used to be a software engineer earlier in my career, and it's not at the panacea that
06:51everybody, it's sort of this magic wand that everybody claims it is, oh, I one-shotted
06:56this or that application.
06:58It's actually pretty complicated, and you have to guide it a lot.
07:01Yesterday, I spent a lot of hours coding a plugin for Excel that I want to do certain
07:06things, looking up a certain API, et cetera.
07:09So this still requires a lot of guidance.
07:11Yes, I do understand the science fiction future, but I think some of the smartest voices now
07:17are really actually the guys trying to disrupt the incumbents.
07:22And those are the top capitalists in the world, people like Mark Andreessen from Andreessen
07:25Horowitz, right?
07:26And if you listen to what his firm is saying, these guys are in the business of disrupting
07:32incumbents.
07:32They are saying that AI will be actually a tailwind to the best enterprise software companies.
07:39So when the guy's saying that, and they have a vested interest in disrupting the incumbents,
07:44maybe we should listen to that signal, right?
07:46Yeah, there is certainly something to that.
07:48I do want to be fair.
07:50Jack Dorsey did take to social media on Friday and responded to one critic who pointed to the
07:54accusations of bloat that have dogged his companies.
07:57He acknowledged the company is overhired during COVID and operated inefficiently when he ran
08:01Square and Cash App as two separate businesses.
08:04He went on to say the bloat had corrected for all of that and that it now aims to generate
08:07more than $2 million in gross profit per employee, quadruple what it was generating pre-pandemic.
08:12And then bloat's chief financial officer said in an interview with Bloomberg, we are taking
08:16bold and decisive action here, but we're doing it from a position of strength.
08:21So just wanted to share that with everyone as well.
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