Welcome back everyone. Today on the Joseph Carlson
show, I sold a stock, rather, I trimmed it significantly.
I sold about half my position in one of my key holdings that I've
held for around five years. This has been a massive winner
in the portfolio, a company that I've talked about frequently.
I'm excited to go into the details, explain why I'm taking
gains in this company and which stocks I'm buying with the
proceeds. So we'll be looking at the
entire trade first thing in this video.
Now we also have a lot of other news we'll be getting into in
this episode, including the software is being eaten by AI
narrative. That is a theme that's been
around for a couple years now with Wall Street.
There are people that believe that artificial intelligence is
going to replace software companies.
I'll be highlighting a couple reasons why I don't think that's
going to be the case. Now, we also have a lot of other
news. Apple is now going full speed
into robotics. This is the first bullish thing
I've heard from Apple in some time.
We also have news that Perplexity is offering to buy
Google Chrome with a complete bogus offer.
We'll be looking at that publicity stunt.
Mark Mahaney, the Wall Street analyst, outlines why his top
pick is now a Duolingo. Amazon is pushing full ahead
into grocery competing with Walmart.
Paramount Plus bought their rights to USC, so Netflix isn't
getting that. I'll share some thoughts on that
as well as our own Qualtrum com. The website that I created and
use was used on Fox Business News.
We'll be looking at that segment as well.
So we have a ton of news to get into in this episode.
Let's go ahead and jump in now. We start things off today by
looking at my latest trade. I'll go over it real quick.
We have it here in the passive income portfolio.
This is my larger of the two portfolios with a current value
of around 908,000 dollars, $351,000 of that being gains.
When we look at the trade, it's fairly simple.
I am selling $30,000 of my Texas Roadhouse position, locking in
substantial gains and I'll be deploying that capital into
three separate companies. Now, if we look at the holding
right now before I execute this cell, Texas Roadhouse is a
$75,000 position. It's massive.
It's one of the biggest positions in this portfolio,
$40,000 of that. In fact, 41,000 is gains.
So the majority of this position is made-up by gains.
It's just quite frankly been an incredible out performer.
In fact, Texas Roadhouse has not only outperformed many of the
companies in my own portfolio, but it's outperformed most of
the companies in the market since purchasing it.
If you look back over the past five years, Texas Roadhouse has
outperformed companies like Microsoft, Meta, Google, Amazon,
many top tech companies. It's done better.
It's outperformed the QQQ, and it's done this by having
incredible fundamentals. Texas Roadhouse has grown its
revenue at a substantial rate over the past decade.
In fact, it's been growing around 17 to 18% revenue.
That's very fast. It's also accelerated the pace
of growth after the pandemic. So during a time period where
other restaurants were struggling, Texas Roadhouse
gained a market share. They took market share from
other restaurants like Cracker Barrel, other ones like Outback
Steakhouse. All these companies were
struggling while Texas Roadhouse was continuing to climb.
Now it's also grown in its earnings per share at a high
rate, beating out most companies, growing around 18 to
20% for the past five years. So we have incredible
acceleration in the earnings per share growth and the free cash
flow per share and all the other metrics.
When I look at it today, there's a couple reasons why I'm locking
in some gains and trimming this position.
First of all, the valuation is simply higher.
When I bought the company, I was buying it at a valuation of
around A4 to 5% free cash flow yield.
So we look at this metric and I was buying it right around here.
This is a 5% free cash flow yield.
For every $100 I invested, I got back 5 per year and that free
cash flow grew. Today, Texas Roadhouse sits at
more of a three percent, 2.7%. So the free cash flow yield is
down around half, meaning that on a free cash flow basis, the
company's roughly twice as expensive as when I first bought
it. And while the valuation is also
increased, the growth rate has also come down a little bit.
Texas Roadhouse recently grew revenue by 12%, a slight
deceleration from the 1617% it was growing.
So we have an increasing valuation.
We have a little bit of a deceleration in growth rate.
None of this is terrible. It just means that Texas
Roadhouse is not quite the deal today that it was five years
ago. On top of that, I noticed that a
lot of competitors like you can take Chili's for example, have
gotten their act together recently.
Chili's has upgraded their kitchens.
They've redone their service, they completely redid their
menu, they've lowered their prices.
They're competing a lot more fiercely with Texas Roadhouse
than they have before. And so I see a little bit of
increased competition as well. Now.
It's always difficult to sell companies that have done really
well. They're great performers in the
port portfolio. They're companies that you might
even have a bit of an attachment to.
Texas Roadhouse has been a company that I've talked about
forever. So it's difficult to take any
gains out of this company. But you have to do what you feel
is best as an investor. And I don't believe having a
small market cap or restaurant company as one of the largest
positions in my $1,000,000 portfolio is a smart move.
So what I'm doing is I'm simply paring down the bed, making it a
little bit smaller relative to the other positions.
Now with the $30,000 of gains, the proceeds from the sale, I'm
going to be rolling those gains into three different companies,
ones that I believe today offer a better risk reward.
We have Equifax being one of them.
I'm going to be buying $10,000 more of Equifax.
This is one of the newer positions.
Equifax is a deeply embedded data-driven company.
They are accelerating the growth of new products.
They already have an incredibly entrenched position with the
work number. They have pricing power and
they're heavily diversified. Now the next two that I'm buying
are in the tech category. I'm buying $10,000 more of
Google. Google has done incredibly well
recently. The stock has had a big
resurgence, but I still believe there's more room to run.
Google, if you can believe it, trades at a lower E ratio than
Texas Roadhouse. O, even though this company owns
YouTube, it owns Waymo, it owns Google Cloud, it owns a ton of
businesses outside of its core business of search, and it's
still growing at a high rate. It's just incredibly powerful.
It trades at a 20 PE. So even though the stock has
recently done well and I believe investors are starting to get
back on board, Google, I believe there's more room to run.
Google should trade at a 25 PE ratio.
It should be 30% undervalued today.
Plus it's a heavily entrenched deep Moat business.
Then we have the third one, which I'm buying with the
remaining $10,000, which is ASML.
This company is also deeply entrenched with its
technological supremacy, with its EUV lithography machines.
They make machines that nobody else knows how to replicate.
They can't even figure out the technology behind it.
And they have the distribution. And over time, ASML has a huge
product pipeline. They projected revenue a decade
out. The company is incredibly
insulated from competition and should grow cash flows
continually over the next 10 years.
So this is another company that's deeply entrenched, a very
wide Moat as technological supremacy, but it's trading at
lower valuations. So Simply put, that's the trade.
I'm taking $30,000 out of Texas Roadhouse, which has grown to a
large position. It's been a big winner and I'm
moving that money, $10,000 each into Equifax, Google and FML.
Now let's go ahead and move on to some news.
Now the first piece of news we jump into is addressing this
narrative of AI eating software. For a long time period before
artificial intelligence, we had the narrative that software was
eating the world. Software were the most powerful
companies, their high margin, reliable income, subscription
based, they just grew and grew and grew and they were very
profitable. Software companies outperformed
the majority of other companies in the market.
But now, since AI has come along, it's changed the
narrative dramatically. Investors are now very concerned
that artificial intelligence is going to make companies like
ServiceNow and Salesforce eradicated.
They're simply going to destroy them slowly, one bite at a time.
We have different people on CNBC, different analysts like
Jeffries, Brent, Phil saying that this is a problem for
software. Yeah, I think the application
software sector is is been crushed.
I mean you look at Salesforce, you look at anything in
applications, it's all down Monday included today.
So I think that category is the category that's been hit the
hardest and it's. The category that's been hit the
hardest by this narrative is the application software category
companies like Salesforce course and ServiceNow.
Now again, this is a narrative that's been around for a while,
but part of what's reignited this narrative just recently,
just of the past week, is a guy named Ben Writes's.
Let me read a bit of a summary of this note that he published.
The core argument is that while software has been eating the
world for the last decade, now AI is eating software.
This shift is causing investors to re evaluate the stock
valuations of SAS companies. The thesis draws a direct
parallel between the rise of AI today and the rise of cloud
computing years ago. In the past, companies
maintained expensive on premise data centers, which was good for
hardware providers like Dell, HP, and IBM.
As cloud services like Amazon Web Services and Microsoft Azure
emerged, these on premise hardware companies saw their
valuations plummet and their price to earnings multiples
contracted sharply. Today, SAS companies with their
seat based subscription models are seen as being in a similar
position. Melius Research argues that the
rise of AI tools, particularly a gentic AI that can complete task
without human intervention, will allow companies become more
efficient, productive with fewer employees.
This directly threatens the SAS business model as it could lead
to significant reductions in the number of paid seats that
companies need to buy now. This note goes even more in
depth along the lines of this argument, but this is the reason
why you've seen a huge fall in stock prices of companies like
Adobe, Salesforce, ServiceNow, and Monday.
Investors are very skittish about this thesis that AI is
eating software. Now, every narrative like this
has some truth to it. Artificial intelligence is
changing the dynamic of how software is developed, the type
of tools that we use, and agentic technologies.
Real it can be useful in creating more efficiencies.
But the argument here also leaves out a lot of counter
arguments, things that are important to look at when we're
assessing whether or not AI is going to replace companies like
Salesforce, companies like ServiceNow.
One of them is that if these tools do make companies far more
efficient and productive, that should also apply to these
software companies themselves. Companies like Salesforce and
ServiceNow should be able to push out products at a much
faster cadence if they do use a gentic technology like this bear
case is outlining, and that should also be applicable to
these companies. They should have fewer employees
doing more. Their margins should go higher.
They should also be able to use their massive distribution they
already have to implement these AI tools to their customers in a
very structured way. Now, with every bear case, there
is some truth to it and I'll acknowledge that artificial
intelligence is changing things dramatically.
It does make employees more efficient.
You can just look at ChatGPT, or Google Gemini.
You can see that it does a lot of work for you.
It speeds things up. But that doesn't necessarily
mean that these companies will have fewer and fewer employees.
In most cases, when an employee becomes more productive, when
they get you a higher return per employee that you hire, you want
to have more of them. That makes employees worth more.
When something is giving you a higher return, you want more of
it, not less. So while there may be some short
term margin gains from some companies laying off some
employees, most companies that have higher productivity per
employee are going to hire even more.
They're not going to reduce their budget, they're going to
increase their budget. It's the same thing that I do.
If I have an employee that's twice as productive, I want to
give that employee more work. If agentic technology helps the
employee become twice as productive, I want to pay them
more. I want them doing more.
So I don't believe that this is going to be a case where agentic
technology makes it so all these these companies layoff half
their employees. There may be some short term
firing going on, but that is the cyclicality of the market.
Overtime companies will hire more and more people.
And also stands to reason that if these companies did
theoretically fire half their employees, if suddenly half the
workforce was gone on all these different companies, people that
know how to use technology, people that are in the
marketplace, wouldn't they start new businesses?
Are we assuming that they'd never start new companies,
especially with AI tools that make it easier to start new
companies with? Those companies never need
software to manage customer relationships.
I don't believe that that's likely.
The products that companies like ServiceNow and Salesforce
provide are solutions to very common problems companies have,
which is simple relationship management, having sales
funnels, conversion funnels, reaching out to customers,
tracking tickets, things that companies don't want to focus on
themselves. They want to focus on their
product, the thing that they offer that's of value.
They don't want to rebuild a whole structure of managing
customer relationships. So I don't believe it's as easy
to replace companies like Salesforce or ServiceNow that
these type of analysts would have you believe.
It is true that if you look at the stock price, companies like
Salesforce are just getting obliterated.
It's down to $233 per share. Sentiment has literally never
been lower on this company. I've never heard such negative
talk about it ever. And if we look at the actual
fundamentals, I just want to show a couple things here.
Salesforce is now trading at a 5.6% free cash flow yield, 5.6%.
Even when you factor in stock based comp, it's 4.21%.
Now there's an idea that Salesforce pays their employees
too much. They're just a highly dilutive
company that has way too much stock based comp.
But the stock based comp has actually come down dramatically
relative to their free cash flow over just the past couple of
years. They've really gotten this under
control. We can take a look at it right
here. Here's the free cash flow.
Here's the free cash flow against the stock based comp.
For the past two years, stock based comp has been flat and
free cash flow has over doubled. So they are getting the stock
based comp relative to their profits in order.
It looks far better now than it did just in 2022.
In fact, if you have criticisms about Salesforce's stock based
comp percentage, Google also has a 25% stock based comp impact.
In fact, Google's is slightly higher.
So Google has a higher impact to stock based comp than
Salesforce. We can look at Meta.
This is another company that has a lot of stock based comp, even
more relative to their free cash flow than Salesforce.
So Salesforce is less dilutive by paying employees through SBC
than either Google or Meta. The whole idea that they're this
highly dilutive company, they just waste money on employees,
that's an idea that's two years old.
The narrative hasn't changed. Most people aren't paying
attention to the numbers here, but Salesforce has addressed
those concerns. They've said that they're never
going to have stock based comp be more than 8% of revenues, and
over time that scales better with the profits.
So we'll see this stock based comp impact go down over time.
With a 4.2% free cash flow yield, this makes the company
roughly half as expensive as Google.
It is trading at an incredibly low valuation.
Even the PE ratio on a forward basis is a 19, on a trailing
basis is a 36. And this is for a company that's
rapidly increasing margins, even with the dilution from their
stock based comp sales force reduced their shares outstanding
by 1 1/2%. They're paying a growing
dividend. They're returning more and more
capital to the shareholder every single quarter.
When we look at their expenses over time, their expenses have
been flat while revenue continues to grow.
This is a company that's exercising operating leverage.
They have fixed expenses with revenue growth.
So the margins are going up. As a result, gross margins are
increasing 78% now higher than Microsoft.
We have operating margins at 19% and stepping up every single
year. And we have profit margins at
17% also stepping up each year. And while this is happening,
Salesforce quite literally trades at the lowest valuation
on a free cash flow basis over the past five years.
It is now at a 5 1/2% yield. It's never been this high
before. We look at it on a price to
sales. Lower means cheaper.
We look at it right now and it's not the lowest, but it's getting
close to it. The lowest is during the
complete through in 2022 when the entire market was selling
off. The biggest criticism that you
can give for Salesforce is that the revenue growth has
decelerated. A lot of people have outlined
this is a substantial problem, but keep in mind as their
revenue has decelerated, their operating margins have
skyrocketed. So the revenue deceleration
should be paired with increased operating margins and they've
guided for continued expansion in operating margins as well as
guided for 8 to 9% revenue growth.
So they're guiding for increased revenue growth, increased
operating margins. And if we look at the company's
total performance obligations, which is contract growth, this
is the amount of companies that in the future have decided
contractually to do business with Salesforce.
It grew by 13% last quarter. So the pool of revenue they have
to pull from contractually, that pool's getting bigger.
It's growing faster than the revenue growth rate.
So we have a company that's growing revenue.
It's growing operating margins. It's free cash flow per share is
at all time highs. It's doing share buybacks,
reducing the shares outstanding. It's got its stock based comp
under control. It's at a record low valuation
over the past five years. But if you're listening to the
media and news analysts, the impression you'd get is that
this company's being eaten alive.
The artificial intelligence is destroying sales force, except
for the fact when you look at the numbers, you don't see that
anywhere. Not in the current numbers, not
in the previous ones and not in the guidance.
Even looking ahead, you don't see artificial intelligence
eating Salesforce. Now the man behind this note,
the one that created all this fair in software companies, the
one that's responsible for this last week's sell off in
companies like Intuit and Salesforce and Adobe and
ServiceNow. His name is Ben Reitz's, and
he's an analyst that published that note just recently.
He's also the analyst that published this note not too long
ago. This was earlier in 2025.
How Google could go the way of Kodak?
Google could be the next Kodak and that's bad for Alphabet
stock, an analyst says Disruption is always a fear of
technology investors for a good reason.
The radio gave way to televisions, landlines to cell
phones and flip phones and smartphones.
Now chat bots using artificial intelligence are beginning to
shake up Internet search. They feel dominated by Google.
According to Melius Research. Analyst Reitz's says that
Alphabet is down 25% from recent highs and is still cheap for a
reason. So during the very bottom of
April, this was April 1st, almost at the very bottom, Ben
Reitz's published a note comparing Google stock to Kodak.
And this is the very same analyst, the very same research
group, publishing this long note saying that companies like
Salesforce, Adobe, and ServiceNow are being eaten alive
by artificial intelligence. Now, while this research by
these analysts is thought provoking and provocative, it's
not always true. Google was never going to become
Kodak. Not a chance.
There was never a 1% chance that Google was a Kodak.
Not the company that owns Google Cloud, that owns YouTube, that
owns Waymo, that owns the leading AI models, that has
billions of users of distribution.
It's so much different than Kodak, it's almost insane to
compare it to Kodak. But that's what this analyst
did. And the same thought process is
now being applied to Salesforce. People are acting as though
Salesforce is going to be destroyed overnight.
The artificial intelligence is going to eradicate this
business. And that shows an incredible
lack of understanding of how deeply entrenched Salesforce is,
how difficult it is to move from the product, how most companies
don't want to deal with recreating this product even
through a Gentek technology. Most companies do not want to
focus on it. They'd rather outsource their
CRM management to a separate company that's proven that
structured, that has all the tools they need.
And I don't believe that this is going to be much different than
it's call on Google overtime, quarter after quarter.
This narrative that artificial intelligence is eating all these
software companies will get crushed by the numbers quarter
after quarter. As you go through the years and
you see that these companies still stick around.
They're still buying back shares, they're still
profitable, their margins are ticking up, and they're
incorporating many of these products that are supposed to
kill them. You're going to see this
narrative fade just as you saw the Google becoming Kodak
narrative fade as well. And that's why I just recently
added to my Salesforce position. Obviously, I could be wrong.
Maybe this time it's different, but I don't think it's going to
be. Now moving on, we get to this
article published here by Bloomberg's Mark Gernman.
He's the one that covers Apple. He always has the best coverage
of Apple. And he outlines how Apple is now
in the AI robots play. For a time now, I've been
outlining Amazon as my go to choice in AI and robotics.
I think it's the best setup company.
But now we have a new kind of entrance, a company that's been
a bit forgotten about, that's really trying to drive into
robotics, that is Apple. Apple is plotting an artificial
intelligence comeback with an ambitious slate of new devices,
including robots, a lifelike version of Siri, a smart speaker
with a display and security cameras.
They also report that there's going to be a tabletop robot
that serves as a virtual companion, as well as smart
speakers with displays. Now, if we move on and we just
go into these categories. They say that the home security
system is seen as another big growth opportunity.
New cameras will anchor Apple security system that can
automate household functions, an approach that should help
Apple's product ecosystem become stickier with consumers.
So they want to further entrench themselves in the home.
You have the iPhone, you probably have a few Macbooks,
you may have a a couple iPads, you maybe have Apple Airpods.
But now you might get the Apple cameras if they're well
integrated, they'll probably integrate them into the Apple TV
that if I see can just display a array of cameras on your
television if you want. I can already see the ways
Apple's going to integrate this, and of course with speakers as
well. It's all part of an effort to
restore Apple's mojo. It's most recent Moon Shot
product, the Vision Pro headset, remains a sales flop, and the
sign of its best selling devices has remained largely unchanged
for years. This is the first piece of truly
bullish news that I've read from Apple in some time.
The first thing that has actually got me excited about
the company so far. Apple has been struggling for
the past couple of years. They've of course struggled just
competing with competitors in China, other phones.
Then you also have the Vision Pro flop.
You have Apple failing to implement AI into their
smartphones effectively. They should already be smart
devices and they haven't accomplished that.
So it's left investors wanting to know what they can latch
onto. Where can they anchor Apple in
the future? We see a company that's
struggling to execute over the past couple of years laying out
this ambitious plan of pushing full steam ahead into robotics
and eventually implementing artificial intelligence into the
iPhone gives people something to anchor to.
Now, it's still up for debate of whether or not they can execute
on this as good as possible, but Apple has time.
It's a company that still maintains an incredibly deep
Moat. Everyone uses the iPhone.
It is a go to high end product in phones.
So Apple is still maintaining their Moat.
They have time. They can figure this out and if
they successfully expand their array of products into all of
these robotics and home automation tools, I believe
there's more upside for this stock.
Apple could be really well positioned for the future.
So it's a company that's going back on my watch list now.
Next we get to this news of perplexity.
Perplexity is like the Yahoo browser, the one that's AI
enabled, but they don't really have their own models.
They just plug in different ones.
It's it's made a lot of noise because the CEO is very noisy.
He likes to do a lot of publicity stunts, and he did
another one. He gave an unsolicited bid to
buy Google Chrome, and the bid was a massive lowball for what
Google Chrome is actually worth. If we look at the details here.
Perplexity bid to buy Google Chrome browser for $34.5
billion, which represents A dramatic moment for Internet
search giant a week before it celebrates the 20th anniversary
of its IPO. Even if the analysts aren't
taking the offer very seriously, Perplexity's move marks a
turning point. It's the first time an outside
party has made such a public and specific effort to strip out a
key piece of Google, which currently awaits a judge's
decision on whether it must take significant divestiture steps
forward in its ruling. So right now we don't know
whether or not the judge will actually force Google to sell
Google Chrome. Most investors do not believe
that's going to happen because frankly, it doesn't make much
sense. The arguments for selling Google
Chrome are not good ones, and every 3rd party analysis
confirms that. That's why most people believe
that that sale is not going to happen.
Now, what Perplexity is doing here is showing them to be more
of what they are, People that like publicity stunts that in
most cases shouldn't be taken seriously.
The bid itself for $34 billion, which was completely
unsolicited, is not only a massive lowball, it's way less
than what Google Chrome is actually worth.
If you're to put a more accurate bid, it would be north of $50
billion. So they're lowballing Google
with this unsolicited bid, but they're also bidding twice as
much as what their company's valued at.
Perplexity's last valuation was $18 billion.
The company likely runs close to a loss at this point in favor of
trying to grow. So it's $18 billion and they're
offering $34 billion to buy Chrome.
So they have no money to buy Chrome.
They're just saying we'll buy it and maybe we'll we'll find some
investors to help us buy it. But that's like me saying that
I'll bid $25 billion to buy Chrome and if they accept, I'll
just find some investors to help me buy it.
I have about the same chance and merit of buying Google Chrome
with My Portfolio of $1,000,000 as Perplexity has.
They have zero chance without substantial outside backing from
multiple massive investors to the point where they're not even
the ones really buying Google Chrome.
But it's not the only reason that Perplexity should not be
allowed to buy Google Chrome. The bigger reason is they just
don't deserve it. They frankly don't deserve
Google Chrome. Why should they be allowed to
control it? The CEO has never built
something as big. He's never managed something
with as many users. Google Chrome has billions of
daily users, people that count on that browser perplexity
hasn't ever managed anything that big or even close to that
big for that amount of time. They've proven no history of
being able to have good stewardship, take good care of a
product, grow it that much for that long, to treat the people
that use the product that well. We have no trust in them in the
same way that we have Google. Google has proven excellent
stewardship over Google Chrome. That's the reason why people
still use it. That's the reason why even
though you log into a Microsoft product, you buy a new Microsoft
laptop and Microsoft Edge pops up hoping that you'll keep it,
wanting to be the default. Inevitably you'll search Google
Chrome and download Google Chrome and then default Google
Chrome. That's the type of loyalty that
Google has built over a decade, and perplexity wanting to come
out of left field to buy something they don't deserve,
they can't afford, doesn't seem right.
So hopefully Google Chrome stays with Google where it rightfully
belongs. With the company that's grown it
carefully overtime, with the customer base that's grown to
love Google because of their stewardship over it, keeping it
free and safe and constantly updated overtime.
But even if it does get sold off, the last people that it
should go to are the people that are known for publicity stunts
and trying to grab attention headlines at every opportunity
possible, which is perplexity. And moving on, we get to my most
recent holding which is Duolingo.
This stock has gone through a little bit of a roller coaster
ride after earnings. When I first bought my $10,000,
the stock went from 3:30 to around 4:40.
So it gained around 30% in value just in one morning.
And then it slowly faded and it faded all the way back down to
where it was. And then even below where the
initial bounce was, it gave up an entire 30% bounce in just a
few days. When we look at Duolingo stock,
it now trades around 3:30, right back to where it was before.
My holding in it, I think it's down around 5-6 percent, but it
changes everyday. This is a very volatile holding.
It's a small market cap company. High growth trades around
anywhere from 5 to 10% swings per day.
If we look at the history of this company and even the 30%
decline after earnings, when you look at the actual price history
and price movements of this stock, that's not that unusual.
In fact, it's quite common with Duolingo.
Earlier in the year, it was 540. It came back down to 350.
Before that, it got to a high of 440.
It went all the way back down to 290.
Before that, it was at 360. It went back down to 310 and
then there's spikes all along the way.
Back in 2024, it was at 2:44, it plummeted down to 176.
That's a 30% decline. There's another 30% decline
right here, more 1015% declines all along the way of growing
over time. When we look at the actual
fundamentals of the business like the subscription revenue,
this is growing at 46% consistently over time.
And this is what I'm more focused on, the actual growth of
the company and the fundamentals.
Now, one investor and analyst that I really respect, I've
shown numerous clips throughout my series is Mark Mahaney.
You've seen him before. He's talked about Uber, he's
talked about Meta, he's talked about Netflix.
He's usually before a lot of companies that end up doing
really well. And he outlines Duolingo as his
current top pick in small cap tech.
Why is Duolingo your top pick for play for the small and mid
caps? You like this?
Yes, and it's you know, it's a little bit, you know, it's it's
it's relatively small, but not that small.
It's about nineteen $18 billion market cap name.
Now it's a language learning app and it's a highly popular one.
It's got about 30 million users in the US and out of a global
language learning market in the US that I think is closer to 150
million a 160 million. So there's a lot of room for
this company to continue to grow.
It's had a lot of controversy recently.
That's what you know, we stepped in when we thought it was overly
dislocated. They're also expanding into
other verticals like math, music, chess, and I think they
can do this a lot of different ways.
Their core languages are English, German, French,
Spanish, but I think there's about 30 languages you could
spend time learning. And I think they're they're the
leader in a segment and they've still got very low share of
their end market. So I think you're going to have
premium growth, call it 30% revenue growth for a substantial
period of time. That's rare air for for most.
Companies. I got about 20.
So Mark Mahaney outlines this as his top pick, even though it was
at $400.00 per share at the time of this clip.
Now it's dropped down to 3:30. So it's at a better valuation
today, and he has a price target for it at 5:40.
Now, of course, there's no guarantees in the stock market.
Maybe Duolingo really will be disrupted by all the AI tools in
the future, but I think that's unlikely.
And it's also nice to have someone else validate A thesis
that you have. Mark Mahaney's one of the most
well respected analysts and researchers on stocks.
He's had numerous good calls. So I like having him on my side
on this one. I like to see that he's still
bullish on this company and he has a very high price target on
it. So we'll see how this one ends
up in the future. Now moving on, we get to news
that Amazon is doing a major push into grocery expansion.
When we look at the details of this, there's certain companies
that this may impact. For example, the analysts say
that Amazon's move is a directional negative for Uber
and DoorDash. He said it would add likely
pressure on the margins as this update raises the competitive
intensity to their intra week delivery efforts.
So all these companies are trying to do grocery delivery.
Having Amazon brute force into grocery delivery certainly
doesn't help the dynamics. When does it ever help a company
to have Amazon fiercely compete in the same market?
Amazon's willing to go through massive losses to lower margins
to go for huge, huge gains in revenue at very low margins,
which of course is difficult for these competing companies.
But the one that's the most important by far, a company
that's made a lot of progress in grocery delivery and one that I
believe is the biggest competitor to Amazon today is
Walmart. I think Walmart's the biggest
competitor. When you look at the retail
business of Amazon, Walmart is sneaking its way into online
retail via grocery delivery. You have Walmart Plus, you can
go in the app and just order all the groceries you want.
There's these people that collect the groceries at Walmart
locations, then they use a delivery service to deliver it
to you in the same day. Now, I don't know if you've been
into a Walmart recently. Sometimes we go there, not
often, but I still go there once in a while.
And when I go into Walmart, I notice that around half the
people shopping at Walmart are the people collecting for
delivery services. It's a huge portion.
Just go in one an look at what's going on.
Everyone is is going around. There's Walmart employees that
have these huge carts and they're just collecting
groceries to be delivered. But the Walmart Plus app is
gaining ground through grocery delivery.
This was a notable weak spot for Amazon.
Out of my thesis on Amazon, this is actually one of the things
that I was the most concerned about.
So seeing Amazon push more into this, I see as a notable
positive on the stock. Amazon said shoppers in more
than 1000 cities and towns can now order fresh groceries with
same day delivery and then this is included in Prime.
So instead of having to sign up for a separate membership to
Walmart Plus, you can just have this bundled in with your Prime
Video service, your Prime 2 day shipping.
Now Prime members are going to have same day delivery services
for free on orders over $25. Now, again, you can talk about
Uber or DoorDash, these delivery services.
I don't think this is helpful to these companies, But ultimately
the biggest competitor here that I believe Amazon is focusing on
is Walmart. They know that Walmart Plus is
gaining members. They know that Walmart is
working its way into becoming a competitive service online.
When people sign up for Walmart Plus, then they're in the app
and they notice that you can buy other stuff just from the
Walmart website. Have that delivered as well.
Amazon does not want Walmart to make substantial share gains
against their first party and 3rd party seller services.
So now they're dealing with grocery.
The big thing that they have to tackle, the one key advantage
that Walmart has is grocery and seeing Amazon go full forced
into this I think is welcome news.
Now moving on, we have another news item here.
This is another big move from one of the companies that we
follow. Paramount buys UFC rights for
$7.7 billion for a 7 year deal. So this is about $1.1 billion
per year that Paramount is paying to have exclusive UFC
rights. This includes UFC's full slate
of 13 marquee events and 30 fight nights.
So this is everything. This is like the whole bundle.
This isn't just their main events.
This is all 30 fights. So it's basically like every
every week when you add this together, 43 fights, that's
almost every week, give or take that you have some event with
UFC now on Paramount or Paramount's networks.
Now there's lots of companies that would have loved to have
the UFC rights. Of course Netflix is one of
them, but you also have companies like Amazon that we're
surely bidding on it. You have companies like YouTube
that were bidding on this as well, but you have Paramount
winning this one. Paramount, which has the worst
balance sheet of all of them, They're the ones that got the
right, and that's because of this new deal and merger from
Paramount. The owner of the company now has
deep pockets and is bidding aggressively on these sports
rights, bidding enough that no other competitor wants to even
touch it because most companies realize that they can't make a
lot of money with this type of property.
Now I own Netflix stock. It's still one of my largest
positions. When I look at the reasons that
Netflix wouldn't want to buy this deal, I believe there's a
couple of them. One thing is that Netflix is a
heavily global company. They have so many viewers
outside of the US. In fact, over half their viewers
are outside of the US. The majority of this deal is
exclusive rights in the US. So it wouldn't even be
beneficial to the majority of Netflix's viewers.
And I think that's one reason why they didn't go for this
deal. The next thing is that it's
absurdly expensive. Netflix has a content budget of
around $18 billion per year. Over the next five years.
This would be 118th of their content budget just on UFC
rights alone every single year for the next 7 years.
And that's far more than Netflix likely wanted to spend on this
deal. There's too much other stuff
they could create, too many more series and content and things
that they could create with a billion dollars per year over A7
year period. So I believe that the price
being super expensive and the rights being exclusive to the US
are different reasons why Netflix decided not to go with
this deal. This will make it so that
Paramount does have a consistent viewer base.
Whether or not they can amortize his content and actually make
money on it is a different discussion.
Paramount already has struggled to become profitable and this is
going to put a lot more pressure on them.
Now finally we get to this last bit of news here, which is a bit
of a a self plug. We have Qualtrim, the software
that I created now making its way to national television.
We have the show here making money with Charles Payne on Fox
Business. This is one of the the business
shows everyday and we have him referencing a Qualitrum chart.
Some viewers noticed this so I wanted to point it out.
Here's the clip. Option right?
Software as a service. Assess that these stocks are
getting annihilated. We've got a table behind us.
Absolutely annihilate. Let let me you know the segments
going over software getting annihilated and that's been a
subject I've been talking about the chart being shared there in
the background. You can see the Qualitrum logo
on the bottom right and that's the dip Finder.
The DIP Finder is one of the the products we created in Qualtrim.
It shows the price change over different time periods, momentum
factors, visually illustrated. And you have hubs and Atlassian
and CRM, you have Salesforce there and all the different
companies. So there you have it.
Qualtrim has made it from YouTube on the cable networks.
Who knows where it's going to go next.
That's going to be it for this episode.
Hope you enjoyed. See you in the next one.