1 00:00:00,080 --> 00:00:01,720 Well, we finally did it. We made it through the most 2 00:00:01,720 --> 00:00:03,760 important earnings week of the season. 3 00:00:04,000 --> 00:00:06,520 The biggest companies in the market reported earnings over 4 00:00:06,520 --> 00:00:09,800 the past five days and overall it was OK, but there was 5 00:00:09,800 --> 00:00:12,920 definitely some winners and some, well, companies that 6 00:00:12,920 --> 00:00:15,200 didn't do quite as well. In this episode, we'll be going 7 00:00:15,200 --> 00:00:18,120 over the biggest earnings of the week and giving an earnings week 8 00:00:18,160 --> 00:00:19,920 recap. We're going to be taking a look 9 00:00:19,920 --> 00:00:23,240 at Amazon. Amazon is up around 7% today. 10 00:00:23,520 --> 00:00:25,960 It's been touching $200 per share. 11 00:00:26,280 --> 00:00:28,640 Investors really liked this earnings. 12 00:00:28,840 --> 00:00:30,080 We're going to be diving into it. 13 00:00:30,080 --> 00:00:32,920 I'm going to be spending some time going over the fundamentals 14 00:00:32,920 --> 00:00:36,160 of Amazon, what's changing in the business, Some things that 15 00:00:36,160 --> 00:00:38,920 they're doing that I expected them to do, and then some things 16 00:00:38,920 --> 00:00:41,480 that they're doing that I did not, I did not expect them to 17 00:00:41,480 --> 00:00:43,480 do. So I'll be reviewing Amazon. 18 00:00:43,760 --> 00:00:46,360 We also have Meta. Meta's actually trading a little 19 00:00:46,360 --> 00:00:49,440 bit lower following earnings. It's up a little bit today, but 20 00:00:49,440 --> 00:00:52,440 it's down from 590 before its earnings report. 21 00:00:52,440 --> 00:00:55,200 What did investors see in Meta's report that's causing them to 22 00:00:55,200 --> 00:00:57,440 take a bit of a breath? We're going to be looking at it. 23 00:00:57,440 --> 00:01:01,040 Booking Holdings is a very large position in my main portfolio. 24 00:01:01,280 --> 00:01:04,599 They reported earnings this week and the company's just a rocket 25 00:01:04,599 --> 00:01:06,720 ship. This one is out of control. 26 00:01:06,760 --> 00:01:09,720 It has gone up so much. It went up 6% the day after 27 00:01:09,720 --> 00:01:11,840 earnings, and then it's up another 1% today. 28 00:01:12,120 --> 00:01:16,800 It's up to $4700 per share. It's moving up to $5000 per 29 00:01:16,800 --> 00:01:18,520 share. We'll be looking at the simple 30 00:01:18,520 --> 00:01:21,520 reality of why Booking Holdings continues to surge. 31 00:01:21,560 --> 00:01:24,280 Apple also reported earnings, and despite a revenue and 32 00:01:24,280 --> 00:01:27,320 earnings per share beat, the stock is trading slightly lower. 33 00:01:27,320 --> 00:01:29,480 Following earnings. We'll be looking at the story of 34 00:01:29,480 --> 00:01:32,880 Apple and why I'm not quite as bullish on this company as I 35 00:01:32,880 --> 00:01:34,480 once was. And then finally, we get to 36 00:01:34,480 --> 00:01:36,440 Microsoft. They reported earnings and the 37 00:01:36,440 --> 00:01:39,640 stock is likewise down a little bit since their earnings report. 38 00:01:39,840 --> 00:01:43,160 We're seeing a slight recovery today, but overall investors 39 00:01:43,160 --> 00:01:45,520 again are taking a bit of a breather in Microsoft and we'll 40 00:01:45,520 --> 00:01:47,640 be looking at why. So we have a number of companies 41 00:01:47,640 --> 00:01:49,600 to look at, a lot to get to in this episode. 42 00:01:49,600 --> 00:01:50,880 Let's go ahead and start off now. 43 00:01:50,880 --> 00:01:53,040 Before we jump into the companies, I first want to just 44 00:01:53,040 --> 00:01:56,120 do a quick mention. We've had a lot of people try 45 00:01:56,120 --> 00:01:59,440 out the earnings calendar on qualtrim.com. 46 00:01:59,520 --> 00:02:01,640 This is the website that I completely own and that I 47 00:02:01,640 --> 00:02:03,360 develop. And this is a new feature that 48 00:02:03,360 --> 00:02:06,280 lays out the entire week before you, both the companies 49 00:02:06,280 --> 00:02:09,400 reporting earnings before market open and after market close. 50 00:02:09,680 --> 00:02:11,400 You can simply look week by week. 51 00:02:11,680 --> 00:02:14,680 It loads in all the icons and it just looks really good, really 52 00:02:14,680 --> 00:02:16,880 simple. There's also a dark mode, which 53 00:02:17,000 --> 00:02:19,560 again, looks really good. And then you can click on any 54 00:02:19,560 --> 00:02:21,240 company. You can see the earnings 55 00:02:21,240 --> 00:02:23,680 projections, you can see the revenue estimates. 56 00:02:23,880 --> 00:02:26,840 You can see all of this data historically and a nice little 57 00:02:26,840 --> 00:02:28,720 calendar. I rolled out that feature on 58 00:02:28,720 --> 00:02:31,280 Monday and the response has just been incredible. 59 00:02:31,480 --> 00:02:33,600 Hundreds of new people have tried out the feature. 60 00:02:33,600 --> 00:02:36,280 They've joined the Patreon, they've been using Qualtrim. 61 00:02:36,280 --> 00:02:39,360 The feedback overwhelmingly has been super positive. 62 00:02:39,400 --> 00:02:41,560 The reason I bring it up is, first of all, I appreciate all 63 00:02:41,560 --> 00:02:43,360 of you trying it out. I think you're going to love it. 64 00:02:43,640 --> 00:02:46,280 But for those of you that are still not convinced, you're on 65 00:02:46,280 --> 00:02:49,080 the fence about it, if you join today, you get the entire month 66 00:02:49,080 --> 00:02:51,880 of November as a free trial. So now is the time to try it. 67 00:02:51,880 --> 00:02:54,440 If you're just interested, want to try it out, you have nothing 68 00:02:54,440 --> 00:02:56,200 to lose. Now, let's go ahead and jump in. 69 00:02:56,240 --> 00:02:58,760 The first thing I want to do is I have not done a portfolio 70 00:02:58,760 --> 00:03:01,640 update for a while. And this is important because a 71 00:03:01,640 --> 00:03:04,560 lot of the companies that I talk about, a lot of the companies 72 00:03:04,560 --> 00:03:08,120 that I'm doing coverage of and giving my analysis on are ones 73 00:03:08,120 --> 00:03:11,400 that I'm heavily invested in. I'm not someone that's just a 74 00:03:11,400 --> 00:03:14,560 commentator of stocks. I don't just give opinions on 75 00:03:14,560 --> 00:03:16,760 them. I am an investor and I have 76 00:03:16,760 --> 00:03:20,120 nearly all of my money invested in these companies that I talk 77 00:03:20,120 --> 00:03:21,680 about. For example, one of my 78 00:03:21,680 --> 00:03:23,520 portfolios is called the Story Fund. 79 00:03:23,920 --> 00:03:26,600 This is my secondary portfolio. It's not quite as big as the 80 00:03:26,600 --> 00:03:29,680 passive income portfolio, but this one's focused more on 81 00:03:29,680 --> 00:03:33,440 explosive growth potential, a little bit more upside focused 82 00:03:33,440 --> 00:03:36,680 and less defensive, but it shares a lot of similarities to 83 00:03:36,680 --> 00:03:40,200 the passive income portfolio. I invest in highly concentrated 84 00:03:40,200 --> 00:03:42,160 positions on world class companies. 85 00:03:42,520 --> 00:03:47,080 Now just to give a performance update on this portfolio, it's 86 00:03:47,080 --> 00:03:50,400 done really well and the main driving forces behind it doing 87 00:03:50,400 --> 00:03:54,000 so well is the concentration between two companies. 88 00:03:54,520 --> 00:03:58,360 Now, at first glance, you might look at this portfolio and you 89 00:03:58,360 --> 00:04:02,640 see some big tech names and you think that Joseph is just buying 90 00:04:03,080 --> 00:04:05,920 the S&P 500 names. He's just basically investing in 91 00:04:05,920 --> 00:04:08,800 the S&P 500 and naming it the Story Fund. 92 00:04:09,000 --> 00:04:10,920 And a lot of hedge funds do just that. 93 00:04:10,960 --> 00:04:14,160 They're closet index investing, meaning that they take investors 94 00:04:14,160 --> 00:04:16,800 money, they manage their portfolio, they charge a fee, 95 00:04:17,040 --> 00:04:20,519 and they basically recreate the S&P 500 so that their 96 00:04:20,519 --> 00:04:22,200 performance never looks all that bad. 97 00:04:22,760 --> 00:04:26,040 Now that's a thing that exists and a lot of people do that, but 98 00:04:26,240 --> 00:04:28,640 this is not the case with My Portfolio. 99 00:04:29,000 --> 00:04:32,200 This is not a closet index or anything close to a closet 100 00:04:32,200 --> 00:04:35,360 index. First of all, the S&P 500 has 101 00:04:35,360 --> 00:04:39,000 500 companies. This has five companies. 102 00:04:39,320 --> 00:04:43,080 So we're down to one 100th of the amount of companies in the 103 00:04:43,080 --> 00:04:45,840 S&P 500. The level of concentration is 104 00:04:45,840 --> 00:04:49,600 nowhere close to the S&P 500. The next thing that I'd point 105 00:04:49,600 --> 00:04:53,040 out is not only is a concentration level completely 106 00:04:53,040 --> 00:04:58,080 different, but also the top two holdings, just Amazon and 107 00:04:58,080 --> 00:05:03,040 Netflix make up for a combined 60% of this portfolio. 108 00:05:03,400 --> 00:05:07,320 So if we look at the pie here of my total portfolio, this is all 109 00:05:07,320 --> 00:05:08,800 of it. This is 100%. 110 00:05:09,280 --> 00:05:13,760 Just this portion right here, right here all the way to right 111 00:05:13,760 --> 00:05:18,640 here is Amazon and Netflix. You see that it makes up over 112 00:05:18,640 --> 00:05:22,760 50% of the portfolio. Just these two companies have a 113 00:05:22,800 --> 00:05:26,960 massive waiting. Netflix is not 32% of the S&P 114 00:05:26,960 --> 00:05:32,440 500 or the QQQ. Amazon is not 33% of the S&P 500 115 00:05:32,440 --> 00:05:34,880 or the QQQ. So even though I think the S&P 116 00:05:34,880 --> 00:05:38,920 500 is great and the NASDAQ is great, don't be mistaken, this 117 00:05:38,920 --> 00:05:40,800 portfolio does not resemble them. 118 00:05:40,880 --> 00:05:43,480 It's nothing like them. The limited amount of holdings 119 00:05:43,480 --> 00:05:46,680 and the extreme concentration make for a very differentiated 120 00:05:46,680 --> 00:05:48,840 portfolio. And also when we look at the 121 00:05:48,840 --> 00:05:50,920 results, the results are very different. 122 00:05:51,280 --> 00:05:55,200 For example, Netflix this year is currently outperforming both 123 00:05:55,200 --> 00:05:58,800 the S&P 500 and the QQQ by a very large extent. 124 00:05:59,160 --> 00:06:01,920 It's up currently 62% year to date. 125 00:06:02,320 --> 00:06:05,200 That's around double the S&P 500 and QQQ. 126 00:06:05,240 --> 00:06:09,760 Amazon likewise is outperforming both the S&P 500 and the QQQ by 127 00:06:09,760 --> 00:06:13,520 a wide extent this year, currently up 33% year to date. 128 00:06:13,800 --> 00:06:17,960 When we compare that with the S&P 500, the S&P 500 is up 21%, 129 00:06:18,280 --> 00:06:21,760 the QQQ is up 21%. So both of these are having 130 00:06:21,760 --> 00:06:25,160 around 21% returns. Both of my main holdings are 131 00:06:25,160 --> 00:06:27,960 outperforming that which overall leads to a wide range of 132 00:06:27,960 --> 00:06:31,160 outperformance this year. When I look year to date on a 133 00:06:31,160 --> 00:06:34,200 money weighted return, this portfolio is up 32%. 134 00:06:34,200 --> 00:06:36,880 Since I haven't made any significant contributions to the 135 00:06:36,880 --> 00:06:39,800 portfolio this year, the money weighted return is the same as 136 00:06:39,800 --> 00:06:43,520 time weighted return. So I have 32% returns this year, 137 00:06:43,720 --> 00:06:47,040 while both the S&P 500 and QQQ are at 21%. 138 00:06:47,080 --> 00:06:49,680 Even when we zoom out a little bit further, we can zoom out to 139 00:06:49,680 --> 00:06:53,200 the one year period. This portfolio is up 50% over 140 00:06:53,200 --> 00:06:55,480 the trailing year. If we compare that again to the 141 00:06:55,480 --> 00:07:00,640 S&P 500, that is 35% to the QQQ that is 36%. 142 00:07:01,040 --> 00:07:04,040 So this portfolio is outperforming both of them by a 143 00:07:04,040 --> 00:07:07,440 decent margin over the past year and over the year to date since 144 00:07:07,440 --> 00:07:09,680 inception. We're also doing really well 145 00:07:09,680 --> 00:07:12,720 beating out both the S&P 500 and the QQQ. 146 00:07:13,000 --> 00:07:15,920 When I chart this out against the S&P 500, this is what it 147 00:07:15,920 --> 00:07:17,960 looks like. The ticker symbol SPY, which is 148 00:07:17,960 --> 00:07:21,520 the S&P 500 is in red and the story fund is in blue. 149 00:07:21,960 --> 00:07:24,200 Now there's a big long story behind this. 150 00:07:24,480 --> 00:07:28,920 During this time period in 2022 and 2023, it was a mess. 151 00:07:28,920 --> 00:07:31,360 I I made a couple mistakes as well as a lot of my core 152 00:07:31,360 --> 00:07:34,600 holdings like Netflix and Amazon sold off dramatically. 153 00:07:34,600 --> 00:07:36,840 So I was underperforming during those time periods. 154 00:07:36,840 --> 00:07:39,960 But with some good investments, especially buying more Netflix, 155 00:07:40,200 --> 00:07:43,000 this portfolio has been roaring back with a vengeance. 156 00:07:43,120 --> 00:07:45,680 And now we have a firm lead by a decent margin. 157 00:07:46,000 --> 00:07:49,880 The story funds total returns is 59.34%. 158 00:07:50,160 --> 00:07:54,480 If we benchmark that against the S&P 500, it's at 45 point 2%. 159 00:07:54,480 --> 00:07:57,240 So we're now above the index by around 14%. 160 00:07:57,240 --> 00:08:00,680 Now again, I've said many times in this portfolio that the 161 00:08:00,680 --> 00:08:04,520 returns and the outperformance are linked to Netflix and 162 00:08:04,520 --> 00:08:06,360 Amazon. The waiting in those two 163 00:08:06,360 --> 00:08:09,480 companies are determining the outcome of this portfolio and 164 00:08:09,480 --> 00:08:13,000 whether I meet my goal of outperforming the S&P 500 by the 165 00:08:13,000 --> 00:08:15,480 end of 2025. The goal since the very 166 00:08:15,480 --> 00:08:18,400 beginning, when I started this a couple years ago, was to 167 00:08:18,400 --> 00:08:22,400 outperform the benchmark index, the S&P 500, from from the start 168 00:08:22,400 --> 00:08:26,560 point to the end of 2025. Since then, so far, it's above 169 00:08:26,560 --> 00:08:30,840 the S&P 500 and the QQQ when I calculate the returns overall. 170 00:08:31,160 --> 00:08:32,880 It hasn't been the case the entire time. 171 00:08:33,159 --> 00:08:37,080 In 2022, we were behind by a huge degree, but with Netflix 172 00:08:37,080 --> 00:08:40,559 and Amazon both having the epic recovery that they've had, the 173 00:08:40,559 --> 00:08:44,080 returns have soared since 2022. I've said for a while that I'm 174 00:08:44,080 --> 00:08:47,640 willing to hitch my performance on these two companies because I 175 00:08:47,640 --> 00:08:50,120 think they offer a great deal of asymmetric risk. 176 00:08:50,320 --> 00:08:53,600 They had ample upside, limited downside, and I believe they're 177 00:08:53,600 --> 00:08:55,880 highly predictable companies that aren't getting the credit 178 00:08:55,880 --> 00:08:58,560 they deserve. By Wall Street, by analyst. 179 00:08:58,880 --> 00:09:01,000 Netflix was basically left for dead. 180 00:09:01,000 --> 00:09:03,640 It was a company that nobody wanted anything to do with a 181 00:09:03,640 --> 00:09:06,600 couple years ago, and if you bought that company at the 182 00:09:06,600 --> 00:09:09,800 Lowe's, the returns have been astronomical since those lows. 183 00:09:10,080 --> 00:09:12,520 I wish I bought more of it, but I bought enough to make a big 184 00:09:12,520 --> 00:09:14,600 difference. With Amazon, we saw the same 185 00:09:14,600 --> 00:09:16,840 thing. It wasn't long ago that Amazon 186 00:09:16,840 --> 00:09:19,400 was trading below $100 per share. 187 00:09:19,720 --> 00:09:22,880 We look at the chart here, just over the past five years, it was 188 00:09:22,880 --> 00:09:25,800 down to $93.00. In 2023. 189 00:09:26,040 --> 00:09:29,360 Not even two years ago, this company was worth less than half 190 00:09:29,360 --> 00:09:31,320 it is today. And investors that bought it 191 00:09:31,320 --> 00:09:34,280 during this time created a lot of alpha for their portfolios. 192 00:09:34,280 --> 00:09:37,040 So as we look at these companies reporting earnings, many of them 193 00:09:37,040 --> 00:09:40,040 I've already built large positions in, I'm benefiting 194 00:09:40,040 --> 00:09:42,400 from the rise in the stock price, but I still have the 195 00:09:42,400 --> 00:09:45,160 question of whether or not there's more to go or whether or 196 00:09:45,160 --> 00:09:48,200 not these reports were good, whether it's time to sell or to 197 00:09:48,200 --> 00:09:50,680 buy more. When I look at Amazon, we can 198 00:09:50,680 --> 00:09:52,520 take a look at what happened over the past. 199 00:09:53,360 --> 00:09:56,720 First of all, Wall Street likes to report stock is up around 6 200 00:09:56,720 --> 00:09:59,000 to 7%. It's bouncing around just below 201 00:09:59,000 --> 00:10:02,080 $200 per share. It's seen a lot of resistance 202 00:10:02,080 --> 00:10:05,280 there, but I think eventually it's going to surpass $200. 203 00:10:05,320 --> 00:10:08,680 There's a couple driving factors with Amazon that will continue 204 00:10:08,680 --> 00:10:10,400 to lift the stock higher and higher. 205 00:10:10,560 --> 00:10:13,080 Let's go ahead and just take a look at the report and see those 206 00:10:13,080 --> 00:10:15,880 driving factors. First of all, the total revenue 207 00:10:15,880 --> 00:10:18,200 growth of the company. Looking at this over a long term 208 00:10:18,200 --> 00:10:20,200 basis, you can see that it's really consistent. 209 00:10:20,440 --> 00:10:22,600 It's had times where it's gone up a little bit more than usual, 210 00:10:23,040 --> 00:10:25,680 but the revenue growth was 11% overall. 211 00:10:25,920 --> 00:10:29,040 We see it right there. That green 11 percent is the 212 00:10:29,040 --> 00:10:31,840 compounded annual growth rate over the past year. 213 00:10:31,840 --> 00:10:35,640 They simply grew 11%. Now, that doesn't really share 214 00:10:35,640 --> 00:10:39,280 what's actually going on with Amazon because Amazon is a vast, 215 00:10:39,280 --> 00:10:41,880 complex company. It's it's just a behemoth. 216 00:10:41,880 --> 00:10:44,400 There's so many different parts to it that you want to dig down 217 00:10:44,400 --> 00:10:47,960 a little bit more to see what this 11% growth actually 218 00:10:47,960 --> 00:10:50,680 entails. When we do that, we have the 219 00:10:50,680 --> 00:10:54,440 Amazon revenue by segment, which is a KPI where I look at the 220 00:10:54,440 --> 00:10:58,080 earnings report and then I break out all the segments of Amazon 221 00:10:58,280 --> 00:11:00,000 and chart it on a stacked bar chart. 222 00:11:00,080 --> 00:11:02,720 This just gives it a better visualization than the actual 223 00:11:02,720 --> 00:11:04,720 earnings report. If we go to the earnings report, 224 00:11:04,720 --> 00:11:07,360 we can look at the same data right at the end. 225 00:11:07,360 --> 00:11:10,520 It's right around. Let's take a look right here. 226 00:11:10,640 --> 00:11:12,080 So these are the exact same numbers. 227 00:11:12,080 --> 00:11:14,200 This is where I get it from. But we have them charted out 228 00:11:14,200 --> 00:11:16,720 right here in visual format. And again, when we look at this, 229 00:11:16,720 --> 00:11:20,760 we have the 11% combined growth with all of the bars, every 230 00:11:20,760 --> 00:11:24,640 segment of the company. But if we start crossing out the 231 00:11:24,640 --> 00:11:27,600 low margin parts of the business, if I was just to say I 232 00:11:27,600 --> 00:11:30,680 want to cross out all the low margin parts and only focus on 233 00:11:30,680 --> 00:11:34,520 the high margin parts, we cross out first party online sales. 234 00:11:34,880 --> 00:11:36,640 That is the products that Amazon list. 235 00:11:37,120 --> 00:11:39,760 It's like toilet paper, toothpaste and batteries. 236 00:11:40,040 --> 00:11:43,240 These are very low margin items. There's fierce competition. 237 00:11:43,440 --> 00:11:46,160 They're not making a lot of money and profits from their 238 00:11:46,160 --> 00:11:48,920 first party sales. They're not making I think any 239 00:11:48,920 --> 00:11:52,080 money from physical stores, at least not enough to to really 240 00:11:52,080 --> 00:11:55,280 pay attention to physical stores like Whole Foods have profit 241 00:11:55,280 --> 00:11:59,480 margins of around 2%, maybe 4% of its Whole Foods and a bit 242 00:11:59,480 --> 00:12:04,160 more expensive, but overall very, very slim razor slim 243 00:12:04,360 --> 00:12:06,440 profit margins. So we cross that out. 244 00:12:06,600 --> 00:12:09,000 Then we look at the other segment which is experimental 245 00:12:09,000 --> 00:12:10,880 and actually loses money in most cases. 246 00:12:11,320 --> 00:12:14,400 And that leaves us with the high profit margin portions of the 247 00:12:14,400 --> 00:12:17,080 business. Third party seller services. 248 00:12:17,520 --> 00:12:20,280 This is where you can store stuff in Amazon's warehouses and 249 00:12:20,280 --> 00:12:23,040 they charge you by the amount of items you're storing. 250 00:12:23,320 --> 00:12:24,920 This is where they pick items for you. 251 00:12:25,240 --> 00:12:27,200 They do. They deal with customer service 252 00:12:27,200 --> 00:12:29,760 for you. They fulfill by Amazon Prime, 253 00:12:29,760 --> 00:12:32,840 meaning they're running the entire logistics for you, 254 00:12:32,840 --> 00:12:35,320 selling your product. That's high margin. 255 00:12:35,560 --> 00:12:37,800 They get to charge the sellers for all these services. 256 00:12:38,040 --> 00:12:40,960 They don't make money just by the the price of the sale. 257 00:12:41,520 --> 00:12:43,920 We have advertising super high margins. 258 00:12:43,920 --> 00:12:46,120 I estimate it's above 50% margins. 259 00:12:46,360 --> 00:12:49,400 We don't know for sure because they're not disclosing it, but 260 00:12:49,520 --> 00:12:52,200 come on, advertising is high margin across the board. 261 00:12:52,400 --> 00:12:56,280 If you look at YouTube, you look at Google, you look at Meta, and 262 00:12:56,400 --> 00:12:59,360 we have reason to believe that Amazon actually has higher 263 00:12:59,360 --> 00:13:03,040 margins than all those other companies because Amazon's are 264 00:13:03,040 --> 00:13:06,640 direct listing items in a sales website. 265 00:13:07,160 --> 00:13:09,160 There's nothing that could get higher margin than that. 266 00:13:09,200 --> 00:13:12,400 You're paying for direct sales conversions there, extremely 267 00:13:12,400 --> 00:13:14,480 trackable. We have reason to believe that 268 00:13:14,480 --> 00:13:18,240 Amazon has very, very high margins with their advertising. 269 00:13:18,560 --> 00:13:21,080 Now, this also includes other things like Amazon Prime Video. 270 00:13:21,360 --> 00:13:24,120 They simply threw ads on everyone and everyone just 271 00:13:24,120 --> 00:13:25,800 accepted it. That was amazing. 272 00:13:25,800 --> 00:13:29,120 Netflix can't do that. Netflix can't say all of our 273 00:13:29,120 --> 00:13:31,720 subscribers are going to have ads or they'd all throw a fit. 274 00:13:31,760 --> 00:13:34,200 Amazon Prime Video is just included as part of your overall 275 00:13:34,200 --> 00:13:36,480 membership. We have subscription services, 276 00:13:36,760 --> 00:13:40,040 stuff like Audible and Twitch subscriptions, all the different 277 00:13:40,080 --> 00:13:43,000 subscriptions they sell. And then we have Amazon Web 278 00:13:43,000 --> 00:13:45,480 Services, which they do disclose the margins of. 279 00:13:45,800 --> 00:13:48,080 We'll get to that, but they're also very high. 280 00:13:48,840 --> 00:13:52,240 Now the moral of the story here is when we just filter by the 281 00:13:52,240 --> 00:13:55,240 higher margin portions of the business, the growth rate of 282 00:13:55,240 --> 00:14:00,040 Amazon increases. It goes from 11% overall to 14%. 283 00:14:00,160 --> 00:14:03,120 The importance of this is that it means that the high margin 284 00:14:03,120 --> 00:14:06,640 portions of the business are taking total market share over 285 00:14:06,640 --> 00:14:09,880 the business's revenue. Amazon is becoming a higher 286 00:14:09,880 --> 00:14:13,320 margin business over and over and over again. 287 00:14:13,640 --> 00:14:16,000 Every quarter margins are stepping up. 288 00:14:16,080 --> 00:14:18,400 When I'm investing in a company, I'm looking for three different 289 00:14:18,400 --> 00:14:21,000 things. I'm looking for long term stable 290 00:14:21,000 --> 00:14:24,000 revenue growth. I'm looking for long term stable 291 00:14:24,000 --> 00:14:27,400 margin expansion and I'm looking for an entry point that I can 292 00:14:27,400 --> 00:14:30,880 get in at a good price. Amazon has presented all three 293 00:14:30,880 --> 00:14:33,040 of those. They have a long term stable 294 00:14:33,040 --> 00:14:35,520 revenue growth. They have long term stable 295 00:14:35,520 --> 00:14:37,760 margin expansion. And of course, if you bought the 296 00:14:37,760 --> 00:14:40,240 company over the past two years, you had a decent price to get 297 00:14:40,240 --> 00:14:43,120 in. So this company has a great 298 00:14:43,120 --> 00:14:46,400 story going forward and with this most recent quarter, that 299 00:14:46,400 --> 00:14:48,600 story continues to play out. But then we get into 300 00:14:48,600 --> 00:14:52,880 advertising, which is arguably much higher margin than even the 301 00:14:52,880 --> 00:14:57,160 third party seller services. So the 3P seller services is a 302 00:14:57,160 --> 00:14:59,560 great business. Advertising is a way Better 303 00:14:59,560 --> 00:15:02,680 Business, and this is growing at 18%. 304 00:15:03,200 --> 00:15:06,360 Huge growth from advertising. The run rate for this is going 305 00:15:06,360 --> 00:15:10,440 to be above $60 billion soon. And then we get to the crown 306 00:15:10,440 --> 00:15:13,440 jewel of Amazon, the biggest, most important part of this 307 00:15:13,440 --> 00:15:17,000 company by far, which is Amazon's web services. 308 00:15:17,320 --> 00:15:19,720 When we look at this, it grew 19%. 309 00:15:19,760 --> 00:15:22,880 Now some people will point out that Amazon Web Services is 310 00:15:22,880 --> 00:15:25,760 growing a little bit slower than Google Cloud and Azure. 311 00:15:26,040 --> 00:15:29,120 In fact, Google Cloud is growing really fast at 35%. 312 00:15:29,520 --> 00:15:33,200 AWS is only growing at 19%. Isn't that concerning? 313 00:15:33,520 --> 00:15:36,440 Isn't Amazon's web services losing market share to Google 314 00:15:36,440 --> 00:15:40,240 Cloud and Azure? While it's true they are losing 315 00:15:40,240 --> 00:15:43,200 market share, we need to look at the total size of these 316 00:15:43,200 --> 00:15:46,400 businesses. Google Cloud is nowhere close to 317 00:15:46,400 --> 00:15:48,760 Amazon's web service in size or scale. 318 00:15:49,000 --> 00:15:50,920 We're measuring like two different things. 319 00:15:50,920 --> 00:15:53,160 They're not even in the same vicinity at this point. 320 00:15:53,160 --> 00:15:54,880 Let's go ahead and just take a look here. 321 00:15:55,160 --> 00:15:58,440 If we look at AWS, again, we look at the total revenue of 322 00:15:58,440 --> 00:16:00,800 this business. We can look at it over the past 323 00:16:00,800 --> 00:16:07,080 quarter, it was $27.4 billion. That is a run rate of $110 324 00:16:07,080 --> 00:16:09,840 billion per year. We type in Google, we go to 325 00:16:09,840 --> 00:16:12,720 Google Cloud and we look at the scale of the Google Cloud 326 00:16:12,720 --> 00:16:16,120 business. Google Cloud did $11 billion in 327 00:16:16,120 --> 00:16:20,920 revenue, the total run rate of which is $44 billion. 328 00:16:20,960 --> 00:16:23,240 So it is true that Google Cloud is chipping away. 329 00:16:23,240 --> 00:16:24,440 They're building a good business. 330 00:16:24,440 --> 00:16:27,160 They're gaining market share technically, but we also need to 331 00:16:27,160 --> 00:16:32,080 keep in mind that Google Cloud is around 1/3 the size of AWS. 332 00:16:32,440 --> 00:16:34,720 So it has a long ways to go before it becomes anywhere 333 00:16:34,720 --> 00:16:37,440 comparable to AWS. Now I want to go to a couple 334 00:16:37,440 --> 00:16:39,840 parts of the report that I thought were very strong and 335 00:16:39,840 --> 00:16:41,680 some parts of the report that I thought were a little bit 336 00:16:41,680 --> 00:16:43,440 weaker. Just looking at the numbers 337 00:16:43,440 --> 00:16:46,600 here, The strong part of the report is the earnings growth 338 00:16:46,800 --> 00:16:50,880 over 100% per year. So explosive upside earnings per 339 00:16:50,880 --> 00:16:53,920 share growth, and they beat on their earnings per share and 340 00:16:53,920 --> 00:16:56,040 their revenue estimate. They also gave very good 341 00:16:56,040 --> 00:16:59,000 guidance for next quarter. But where we get into the story 342 00:16:59,000 --> 00:17:01,960 where it looks a little bit weaker is the free cash flow. 343 00:17:02,320 --> 00:17:05,200 I've been predicting this year that Amazon will have explosive 344 00:17:05,200 --> 00:17:08,240 free cash flow growth. But when we look at it, it did 345 00:17:08,240 --> 00:17:13,640 explode from 2022, going down all the way to $30 billion in 346 00:17:13,640 --> 00:17:17,200 the negative on a trailing basis all the way up until last 347 00:17:17,200 --> 00:17:21,480 quarter. It was $48.34 billion over the 348 00:17:21,480 --> 00:17:23,480 trailing 12 months. But now we see the free cash 349 00:17:23,480 --> 00:17:26,240 flow taking a break. The free cash flow number was 350 00:17:26,240 --> 00:17:28,359 not great this quarter. In fact, when we just look at 351 00:17:28,359 --> 00:17:32,960 this quarter in and of itself, they only posted $3.35 billion 352 00:17:32,960 --> 00:17:35,760 in free cash flow. This was below where it was one 353 00:17:35,760 --> 00:17:37,680 year ago. So we had a natural decline in 354 00:17:37,680 --> 00:17:39,560 free cash flow this quarter year over year. 355 00:17:39,960 --> 00:17:41,960 What gives? What's going on with Amazon? 356 00:17:42,360 --> 00:17:45,560 This is the year of explosive growth with margin expansion, 357 00:17:45,840 --> 00:17:49,160 with free cash flow is hitting numbers of $75 billion. 358 00:17:49,520 --> 00:17:53,320 So what's going on? What's going on is AIAI this 359 00:17:53,320 --> 00:17:55,600 year is out of control. It's very real. 360 00:17:55,600 --> 00:17:59,160 It's changing companies inside and out in very meaningful ways. 361 00:17:59,520 --> 00:18:03,760 Over 25% of the code written at Google is written by AI. 362 00:18:04,080 --> 00:18:05,960 That's meaningful. That's not fake. 363 00:18:05,960 --> 00:18:08,360 That's not buzz. That is a meaningful change to a 364 00:18:08,360 --> 00:18:10,000 company. And I have to believe that 365 00:18:10,000 --> 00:18:13,640 Amazon's finding a lot of ways to integrate AI as well as serve 366 00:18:13,640 --> 00:18:17,600 it to other customers because of AI and how important this is. 367 00:18:18,120 --> 00:18:21,000 They've identified it as a key area of investment to grow. 368 00:18:21,040 --> 00:18:24,120 And of course, they need the server capacity and GPU capacity 369 00:18:24,440 --> 00:18:27,000 to serve themselves and all their various customers. 370 00:18:27,480 --> 00:18:31,680 And as we look at the CapEx, the CapEx from Amazon, there was 371 00:18:31,680 --> 00:18:35,480 once a time where I thought the CapEx of Amazon would go down a 372 00:18:35,480 --> 00:18:37,080 bit. I thought that it would actually 373 00:18:37,080 --> 00:18:39,600 cool down and and flatten out a little bit. 374 00:18:40,000 --> 00:18:42,880 And that's just not the case. It's just not the case anymore. 375 00:18:43,120 --> 00:18:46,080 When we look at the CapEx over time, they hit their highs in 376 00:18:46,080 --> 00:18:49,800 2021 as they're expanding their huge fulfillment network, 377 00:18:50,120 --> 00:18:53,080 building out all these buildings and buying more trucks and 378 00:18:53,440 --> 00:18:55,080 everything that they have to buy for employees. 379 00:18:55,080 --> 00:18:58,360 Those are CapEx investments. And then it started to go down 380 00:18:58,360 --> 00:19:02,120 as they were unwinding that investment cycle, but then AI 381 00:19:02,120 --> 00:19:04,720 came along. Jassy believes that this is a 382 00:19:04,720 --> 00:19:07,240 core area of investment for the future of Amazon. 383 00:19:07,880 --> 00:19:10,560 I agree with him and they're aggressively investing. 384 00:19:10,840 --> 00:19:13,880 Look at this step up in CapEx every single quarter. 385 00:19:14,120 --> 00:19:19,480 Last quarter it was 22.62 billion dollars, 22 billion in a 386 00:19:19,480 --> 00:19:22,440 single quarter. That number's astronomical. 387 00:19:22,960 --> 00:19:26,760 What company spending $22 billion in CAPAX in 1/4 except 388 00:19:26,760 --> 00:19:29,160 for Amazon? I had to double check this 389 00:19:29,160 --> 00:19:30,800 number. I went into the earnings report, 390 00:19:31,040 --> 00:19:33,000 we get to the statement of cash flows, hair. 391 00:19:33,000 --> 00:19:35,280 We look at the most recent quarter, the past three months 392 00:19:35,280 --> 00:19:41,080 in 2024 and there it is. It's the correct number, $22.62 393 00:19:41,080 --> 00:19:44,920 billion in CapEx. So even though Amazon is having 394 00:19:44,920 --> 00:19:48,480 a huge step up in their operating income, operating 395 00:19:48,480 --> 00:19:52,760 income year over year went from 21 billion to 26 billion, their 396 00:19:52,760 --> 00:19:56,320 CapEx went up even more causing their free cash flow to go down. 397 00:19:56,480 --> 00:19:59,360 So while we look at these numbers and provide some context 398 00:19:59,360 --> 00:20:03,000 here underneath this rather disappointing free cash flow 399 00:20:03,000 --> 00:20:05,520 number and the free cash flow seem like they're taking a 400 00:20:05,520 --> 00:20:07,760 break. We have better context here 401 00:20:07,760 --> 00:20:10,880 knowing that there is a very healthy business underneath 402 00:20:10,880 --> 00:20:13,440 this. Their income from operations 403 00:20:13,440 --> 00:20:17,600 continues to rise dramatically year over year, lockstep. 404 00:20:17,600 --> 00:20:20,840 They're generating more cash from their current operations 405 00:20:20,840 --> 00:20:23,080 running their business. So the only reason that Amazon's 406 00:20:23,080 --> 00:20:25,360 free cash flow has taken a breather this quarter and is 407 00:20:25,360 --> 00:20:27,920 down a little bit year over year is because of a deliberate 408 00:20:27,920 --> 00:20:30,000 decision to invest directly in AI. 409 00:20:30,320 --> 00:20:32,480 This is a choice. This is something that they're 410 00:20:32,480 --> 00:20:35,640 choosing to do. Amazon management could easily 411 00:20:36,000 --> 00:20:39,240 generate $10 billion of free cash flow this quarter and 412 00:20:39,240 --> 00:20:42,160 deliver that to investors via dividend and buybacks. 413 00:20:42,520 --> 00:20:45,200 They could do it every single quarter of their choosing, but 414 00:20:45,200 --> 00:20:47,480 they're not doing that. They believe the key areas of 415 00:20:47,480 --> 00:20:50,360 investment in artificial intelligence back into CapEx. 416 00:20:50,360 --> 00:20:54,800 Buying GPU's from from Jensen Wong, buying it from NVIDIA is a 417 00:20:54,800 --> 00:20:57,400 better route to go. Amazon has a great track record 418 00:20:57,400 --> 00:21:00,360 of investing in the future and getting a high return on their 419 00:21:00,360 --> 00:21:02,920 CapEx investment. And I have no reason to believe 420 00:21:02,920 --> 00:21:05,640 that artificial intelligence will give them a low return. 421 00:21:05,720 --> 00:21:09,080 So I had a thought going into this year that Amazon's free 422 00:21:09,080 --> 00:21:11,920 cash flows would explode, and they have exploded. 423 00:21:11,920 --> 00:21:13,720 They've caught up a lot. I mean, look at the difference 424 00:21:13,720 --> 00:21:16,520 between this year and last year. But my expectations were a 425 00:21:16,520 --> 00:21:18,520 little bit higher than what they're probably going to do. 426 00:21:18,840 --> 00:21:22,640 I thought on a trailing basis, for the full year of 2024, they 427 00:21:22,640 --> 00:21:25,640 would deliver around $75 billion of free cash flow. 428 00:21:26,160 --> 00:21:28,560 And it looks like they're not really on track to do that. 429 00:21:29,000 --> 00:21:31,240 If I was to give an estimate, I think it's probably going to be 430 00:21:31,240 --> 00:21:34,360 a little bit lower. Fifty, $60 billion, not quite up 431 00:21:34,360 --> 00:21:38,080 to that $75 billion mark. So on a free cash flow yield 432 00:21:38,080 --> 00:21:42,120 basis, Amazon may look more expensive when you factor in 433 00:21:42,120 --> 00:21:44,400 what they're doing, the investments they're making, 434 00:21:44,480 --> 00:21:46,880 their operating income and the health of the business. 435 00:21:47,400 --> 00:21:49,840 This doesn't make me feel any worse about the company. 436 00:21:50,120 --> 00:21:53,400 I think this one is on track to take a breather with their free 437 00:21:53,400 --> 00:21:56,520 cash flow, make these big investments in AI before the 438 00:21:56,520 --> 00:21:58,960 next leg up. And I believe strongly, once we 439 00:21:58,960 --> 00:22:01,280 see the returns of the investments they're making this 440 00:22:01,280 --> 00:22:04,480 quarter, over the next year or two, we're going to have another 441 00:22:04,480 --> 00:22:08,200 seismic step up in free cash flow like we've had this year. 442 00:22:08,320 --> 00:22:10,680 At this point, I think it's eventually inevitable for Amazon 443 00:22:10,680 --> 00:22:13,920 to surge above $200 per share. The company has strong earnings 444 00:22:13,920 --> 00:22:16,040 growth, a consistent track record of earnings. 445 00:22:16,280 --> 00:22:18,760 The free cash flow is growing year over year and they're doing 446 00:22:18,760 --> 00:22:21,240 key investments for the future. They're well positioned with 447 00:22:21,240 --> 00:22:24,200 many service portions of the business and they trade again at 448 00:22:24,200 --> 00:22:25,600 a decent valuation. Today. 449 00:22:25,920 --> 00:22:28,640 Most people believe that they're undervalued, and I'm one of 450 00:22:28,640 --> 00:22:30,280 those. I still think that Amazon has 451 00:22:30,280 --> 00:22:32,280 ample upside. I believe the company is going 452 00:22:32,280 --> 00:22:35,680 to be like Google, worth 220 or above. 453 00:22:35,960 --> 00:22:38,960 When we look at what the banks did, what the analysts did after 454 00:22:38,960 --> 00:22:42,200 this report, basically all of them upped their price targets. 455 00:22:42,320 --> 00:22:45,320 We have JP Morgan moving their price target from Amazon from 456 00:22:45,320 --> 00:22:49,160 2:30 up to 250. Goldman Sachs moved it from 2:30 457 00:22:49,160 --> 00:22:51,640 up to 240. Bank of America raised it from 458 00:22:51,640 --> 00:22:55,960 2:10 up to 230. Telsey raised it from 2:15 to 459 00:22:55,960 --> 00:23:00,480 2:35, and same with Jeffries and Baird and TD Cohen, all of them 460 00:23:00,480 --> 00:23:04,160 raising it up 10 or $15. They already had a price target 461 00:23:04,160 --> 00:23:07,040 around 220. Now every analyst is raising it 462 00:23:07,040 --> 00:23:09,400 to around 2:40. And this is what analysts do 463 00:23:09,520 --> 00:23:13,280 after the price already moves, after Amazon already jumped 7%, 464 00:23:13,480 --> 00:23:16,160 after the company will report great earnings, they're going to 465 00:23:16,160 --> 00:23:17,920 move their price targets up more and more. 466 00:23:18,200 --> 00:23:20,160 But I think we're going to see more continuation of this 467 00:23:20,160 --> 00:23:22,200 overtime. Now moving on, we get to Meta. 468 00:23:22,200 --> 00:23:24,680 They reported earnings this week as well, one of the key 469 00:23:24,680 --> 00:23:28,200 companies too, and they actually fell a little bit after earnings 470 00:23:28,200 --> 00:23:31,920 around 3 or 4% in the red. The stock went from around 590 471 00:23:31,920 --> 00:23:35,040 to around 57. And if you're a Meta investor 472 00:23:35,040 --> 00:23:37,880 and you're looking at this report, I would not be upset. 473 00:23:38,080 --> 00:23:40,600 If I had held Meta for the past couple of years and I was way in 474 00:23:40,600 --> 00:23:44,040 the green and I saw this report, I would think it's no biggie. 475 00:23:44,320 --> 00:23:46,640 After all, Meta is one of the better performing companies. 476 00:23:46,640 --> 00:23:51,080 This year it's up 64%, so if it goes down a few percentage 477 00:23:51,080 --> 00:23:53,600 points, come on, you're not going to be upset about that. 478 00:23:53,640 --> 00:23:55,920 When I look at the earnings report from Meta, it was also 479 00:23:55,920 --> 00:23:58,680 strong across the board. I thought it was a great report. 480 00:23:58,920 --> 00:24:02,440 The only weakness and the reason that Meta traded down was for 481 00:24:02,440 --> 00:24:05,080 two reasons. First of all, the family daily 482 00:24:05,080 --> 00:24:07,440 active people. This is the KPI that we track in 483 00:24:07,440 --> 00:24:10,680 Qualtrum because it's really an important metric for Meta. 484 00:24:10,960 --> 00:24:14,440 It's basically just how many people use their apps, one of 485 00:24:14,440 --> 00:24:18,120 their family apps everyday. So daily active users. 486 00:24:18,120 --> 00:24:20,680 If you log on to Facebook, if you log on to Instagram, if you 487 00:24:20,680 --> 00:24:24,760 log on to Reels at least once a day, then you're going to end up 488 00:24:24,840 --> 00:24:27,000 in this number. On a year over year basis, they 489 00:24:27,000 --> 00:24:31,880 had an increase of 4.78%, which is impressive to me because I 490 00:24:31,880 --> 00:24:34,360 look at these numbers and the most recent quarter they had 491 00:24:34,360 --> 00:24:38,880 3.29 billion people use their apps every day. 492 00:24:39,400 --> 00:24:42,240 That's insane. That's just insane. 493 00:24:42,240 --> 00:24:45,320 There's no other way to say it. That's like half the world using 494 00:24:45,320 --> 00:24:47,080 their apps and they're still growing. 495 00:24:47,400 --> 00:24:48,960 How do they do it? I don't know. 496 00:24:49,320 --> 00:24:52,280 They're just there's more people spawning everyday that use their 497 00:24:52,280 --> 00:24:55,520 apps like it's like a video game or it's like Orcs and Lord of 498 00:24:55,520 --> 00:24:58,880 the Rings just spawning out of the ground that sign up for Meta 499 00:24:58,880 --> 00:25:00,480 apps. I don't know any other way to 500 00:25:00,480 --> 00:25:03,600 say it there. There is 3 billion people plus 501 00:25:03,600 --> 00:25:06,680 using their apps and they're still growing the daily users. 502 00:25:07,080 --> 00:25:11,000 Now, the most recent quarter, it only grew by a couple 100 503 00:25:11,000 --> 00:25:12,840 million. That's what investors are a 504 00:25:12,840 --> 00:25:15,800 little bit disappointed on. To me, that's ridiculous. 505 00:25:16,160 --> 00:25:18,200 Meta has half the world using their apps. 506 00:25:18,400 --> 00:25:21,680 To expect it to grow much from here I think is unreasonable. 507 00:25:22,080 --> 00:25:24,480 But either way, they continue to grow it, which is incredible. 508 00:25:25,160 --> 00:25:27,640 The other part of this report where investors were a little 509 00:25:27,640 --> 00:25:32,120 bit concerned just slightly, was that Meta hired more employees. 510 00:25:32,760 --> 00:25:35,720 They recently just did a big year of efficiency. 511 00:25:35,720 --> 00:25:37,920 They really cut down on their employee count. 512 00:25:38,160 --> 00:25:40,440 Mark Zuckerberg laid off a bunch of people. 513 00:25:40,440 --> 00:25:43,400 He did it in a nice way. He found them new jobs. 514 00:25:43,400 --> 00:25:46,720 He paid a huge severance for them, so they're taken care of. 515 00:25:46,720 --> 00:25:48,600 But he really got rid of a lot of employees. 516 00:25:49,120 --> 00:25:53,400 And after it went down, they hired like 9000 new employees 517 00:25:53,400 --> 00:25:56,000 this most recent quarter. So that's a little bit of an 518 00:25:56,000 --> 00:25:58,480 interesting decision. They basically fired a ton of 519 00:25:58,480 --> 00:26:00,600 people and now they're starting to hire them back. 520 00:26:00,840 --> 00:26:02,680 I think investors are a bit confused about that. 521 00:26:02,840 --> 00:26:04,760 And then the other thing they mentioned on the call that was a 522 00:26:04,760 --> 00:26:08,280 bit concerning to Meta investors is that they mentioned CapEx is 523 00:26:08,280 --> 00:26:11,560 going up a lot, but they're not going to disclose specifically 524 00:26:11,560 --> 00:26:13,760 how much. So they kind of gave us a big 525 00:26:13,760 --> 00:26:16,360 question mark saying we're going to be spending a lot of money on 526 00:26:16,360 --> 00:26:18,160 CapEx. We're not going to tell you 527 00:26:18,160 --> 00:26:20,760 exactly what it was. The combination of hiring more 528 00:26:20,760 --> 00:26:24,000 employees, increasing the amount of CapEx to an unknown number, 529 00:26:24,280 --> 00:26:27,160 and a little bit of a slowdown in the daily active people 530 00:26:27,360 --> 00:26:29,760 caused Meta investors to take a little bit of a breather. 531 00:26:30,480 --> 00:26:33,600 But again, these are like these aren't a big deal to me. 532 00:26:33,600 --> 00:26:36,480 Meta overall is super strong. The free cash flows are 533 00:26:36,480 --> 00:26:38,480 incredible. They continue to grow year over 534 00:26:38,480 --> 00:26:40,440 year. The company is getting the stock 535 00:26:40,440 --> 00:26:42,200 based comp under control as well. 536 00:26:42,240 --> 00:26:44,800 I looked at this report and I didn't see much wrong about it 537 00:26:44,920 --> 00:26:46,240 trading down a couple percentage. 538 00:26:46,240 --> 00:26:48,800 When they're up this much, it's not a big deal and the company 539 00:26:48,800 --> 00:26:50,720 remains at a decent valuation now. 540 00:26:50,720 --> 00:26:53,000 Next up, we have Booking Holdings, which also reported 541 00:26:53,000 --> 00:26:55,320 their earnings this week and they were great. 542 00:26:55,480 --> 00:26:59,800 The stock was up 7% after hours on the day and then another 1% 543 00:26:59,800 --> 00:27:03,080 today so booking has just been a rocket This company has really 544 00:27:03,080 --> 00:27:06,200 taken off it's exceeded my highest expectations. 545 00:27:06,440 --> 00:27:09,440 This is a company that I bought this year I just bought it a 546 00:27:09,440 --> 00:27:13,000 couple months ago right here around 34135 hundred. 547 00:27:13,320 --> 00:27:16,160 I believe my average price cost is around there and now the 548 00:27:16,160 --> 00:27:19,800 stock trades at 4700. So it's gone up $1000 just over 549 00:27:19,800 --> 00:27:21,560 the past few months. And I believe that's a 550 00:27:21,560 --> 00:27:23,360 combination of a couple different things. 551 00:27:23,600 --> 00:27:26,080 First of all, I believe it was just undervalued here. 552 00:27:26,240 --> 00:27:28,680 So starting off with a great company that's undervalued is a 553 00:27:28,680 --> 00:27:31,520 good starting point. But they've also posted great 554 00:27:31,520 --> 00:27:33,920 earnings. The company continues to execute 555 00:27:34,160 --> 00:27:36,320 and even deliver. When people think that things 556 00:27:36,320 --> 00:27:38,560 are going to slow down. People are concerned about 557 00:27:38,560 --> 00:27:41,720 vacationing, they're concerned about restaurants, they're 558 00:27:41,720 --> 00:27:43,640 concerned that the consumer is going to slow down. 559 00:27:43,680 --> 00:27:46,080 But when I look at things, I don't see that at all. 560 00:27:46,160 --> 00:27:48,080 I don't see the consumer slowing down. 561 00:27:48,320 --> 00:27:52,360 I see them going on vacation, booking out trips to Europe over 562 00:27:52,360 --> 00:27:55,160 and over again. People want to have experiences. 563 00:27:55,400 --> 00:27:57,080 People are inheriting a lot of wealth. 564 00:27:57,080 --> 00:27:59,240 They want to spend that money on experiences. 565 00:27:59,600 --> 00:28:02,000 They're sick of COVID, they're sick of staying inside, they're 566 00:28:02,000 --> 00:28:04,680 sick of doing the same thing. People want to see things. 567 00:28:04,920 --> 00:28:08,520 This company makes money as the largest online travel agency. 568 00:28:08,840 --> 00:28:11,520 They have a basic monopoly in Europe. 569 00:28:11,600 --> 00:28:14,680 So there is somewhat of a tollbooth gateway from US to 570 00:28:14,680 --> 00:28:17,360 Europe and vacations. And that's a very profitable 571 00:28:17,360 --> 00:28:20,640 situation to be in. In fact, the European Union has 572 00:28:20,640 --> 00:28:24,520 defined them as one of the only monopolistic companies in all of 573 00:28:24,520 --> 00:28:26,280 Europe. Now there's a lot of metrics we 574 00:28:26,280 --> 00:28:27,760 can look at with booking holdings. 575 00:28:27,760 --> 00:28:31,240 For example, if we look at the 12 months, we can look at the 576 00:28:31,240 --> 00:28:34,880 gross bookings, it looks strong. Nice growth path overall. 577 00:28:35,080 --> 00:28:37,920 We look at the room nights sold. This is the amount of bookings 578 00:28:37,920 --> 00:28:40,360 that they get, and you can see the trends here. 579 00:28:40,640 --> 00:28:43,560 We had the COVID dip. A lot of people stopped going on 580 00:28:43,560 --> 00:28:46,000 vacation. Ever since then, it's steadily 581 00:28:46,000 --> 00:28:47,960 reclaimed where it was headed before. 582 00:28:48,160 --> 00:28:50,440 So overall, the business is healthy. 583 00:28:50,440 --> 00:28:53,680 People are booking rooms now literally more than ever. 584 00:28:53,720 --> 00:28:56,720 This is an efficient business that's highly profitable. 585 00:28:56,960 --> 00:28:59,400 It's cheap to run and makes a ton of money. 586 00:28:59,680 --> 00:29:02,600 For example, when we compare the free cash flow against the stock 587 00:29:02,600 --> 00:29:05,640 based comp, the stock based comp is a fraction of the free cash 588 00:29:05,640 --> 00:29:07,640 flow. That's a wonderful thing to have 589 00:29:07,640 --> 00:29:10,720 a company that generates this much profit and it doesn't get 590 00:29:10,720 --> 00:29:12,800 diluted away. That amount of free cash flow 591 00:29:12,800 --> 00:29:15,440 generation means that they can deliver that money to the 592 00:29:15,440 --> 00:29:17,840 investors in a very efficient manner. 593 00:29:18,080 --> 00:29:20,520 They can deliver it through buybacks and dividends. 594 00:29:20,720 --> 00:29:23,320 This shows you the capital that they're returning to the 595 00:29:23,320 --> 00:29:26,080 investor every quarter. In the most recent quarter, they 596 00:29:26,080 --> 00:29:31,040 returned a total of $2 billion back to the investor, 1.7 by 597 00:29:31,040 --> 00:29:34,760 buyback, .3 by dividend. And this wasn't a unique 598 00:29:34,760 --> 00:29:36,560 quarter. Almost every quarter they're 599 00:29:36,560 --> 00:29:39,920 returning around 2 plus billion dollars back to the shareholder 600 00:29:40,240 --> 00:29:42,400 and they're using most of that to buy back shares. 601 00:29:42,640 --> 00:29:46,320 The share count declined by 6% year over year. 602 00:29:46,560 --> 00:29:49,240 That's a massive decline. Most companies that try to do 603 00:29:49,240 --> 00:29:53,600 buybacks can only decline the share count by 1 to 2%, lucky if 604 00:29:53,600 --> 00:29:57,000 they get up to 3% because most of them dilute a lot with stock 605 00:29:57,000 --> 00:29:58,720 based comps. So they're buying back that 606 00:29:58,720 --> 00:30:01,000 dilution. In the case of Booking Holdings, 607 00:30:01,160 --> 00:30:04,000 they don't do a lot of dilution, they're only doing buybacks. 608 00:30:04,000 --> 00:30:06,560 So when we look at the total share count, the numbers here 609 00:30:06,560 --> 00:30:08,800 are wild. We look at this overall and you 610 00:30:08,800 --> 00:30:11,560 see the constant decline in share count. 611 00:30:11,760 --> 00:30:14,640 They're buying back stock hand over fist and that's all this 612 00:30:14,640 --> 00:30:16,320 story is. A company that's highly 613 00:30:16,320 --> 00:30:19,120 efficient, generates a lot of free cash flow, uses that free 614 00:30:19,120 --> 00:30:21,240 cash flow to buy back their shares, and I think they're 615 00:30:21,240 --> 00:30:24,280 going to continue doing it. The valuation is not nearly as 616 00:30:24,280 --> 00:30:27,120 attractive now is when I first bought in because of the stock 617 00:30:27,120 --> 00:30:30,120 price rise over the past few months, the yield has gone down 618 00:30:30,120 --> 00:30:33,640 from an 8% yield to around a 5% yield now. 619 00:30:33,640 --> 00:30:35,720 I still think it's attractive. I still don't think this 620 00:30:35,720 --> 00:30:38,640 company's overvalued, but it's no longer a still. 621 00:30:38,680 --> 00:30:40,880 Now moving on, we get to Apple. They also reported their 622 00:30:40,880 --> 00:30:44,640 earnings this week and they did beat on the top and bottom line, 623 00:30:44,640 --> 00:30:47,120 but the stock still fell a couple percentage points. 624 00:30:47,480 --> 00:30:50,440 This is one that I was a little bit on the fence of as well. 625 00:30:50,680 --> 00:30:53,760 Apple has some challenges. Again, the biggest thing I look 626 00:30:53,760 --> 00:30:56,880 for when buying new positions in new companies, when I'm trying 627 00:30:56,880 --> 00:31:00,800 to make extra returns, alpha returns, I'm looking for 628 00:31:00,800 --> 00:31:04,320 companies that can grow revenue steadily above inflation, above 629 00:31:04,320 --> 00:31:07,520 the market for a long period of time, as well as ones that can 630 00:31:07,520 --> 00:31:10,720 expand margins predictably for a long period of time. 631 00:31:11,000 --> 00:31:13,600 Then I'm looking for good entry points on those companies. 632 00:31:14,000 --> 00:31:17,320 With Apple, we have a company, the revenue growth is looking a 633 00:31:17,320 --> 00:31:19,600 little sluggish. I'll be honest here, it looks a 634 00:31:19,600 --> 00:31:22,360 little slow when we look at it on a trailing basis, this is 635 00:31:22,360 --> 00:31:26,120 what it looks like. 2% growth is not really growth given the 636 00:31:26,120 --> 00:31:28,680 inflation we've had. So the revenue's flat, but it's 637 00:31:28,680 --> 00:31:30,480 starting to pick back up a little bit. 638 00:31:30,800 --> 00:31:34,280 The revenue by segment looks like this getting very flattish. 639 00:31:34,280 --> 00:31:38,240 For the past number of quarters, 7 to 10 quarters, it's been 640 00:31:38,240 --> 00:31:40,720 mostly flattish. When we break this down, there's 641 00:31:40,720 --> 00:31:42,600 different segments of the company that's growing. 642 00:31:42,960 --> 00:31:45,200 The most important part is the services. 643 00:31:45,400 --> 00:31:49,120 This is the Apple insurance, the App Store, their tollbooth. 644 00:31:49,120 --> 00:31:53,160 They have the 30% tax that they take and this is growing, but 645 00:31:53,160 --> 00:31:56,080 it's only growing by around 12 to 13%. 646 00:31:56,600 --> 00:31:59,680 So even the most important service part of the company's 647 00:31:59,840 --> 00:32:02,320 not posting the strongest growth anymore. 648 00:32:02,360 --> 00:32:04,920 That's concerning for me as an investor in this company because 649 00:32:04,920 --> 00:32:07,440 if you have slow revenue growth, that's a concerning thing for a 650 00:32:07,440 --> 00:32:09,160 stock. Stocks don't tend to move up a 651 00:32:09,160 --> 00:32:12,920 lot revenue and the company overall stays relatively flat. 652 00:32:13,360 --> 00:32:16,040 The other thing that we can look at though is maybe the margin 653 00:32:16,040 --> 00:32:19,280 expansion story. In the case of Apple, this is a 654 00:32:19,280 --> 00:32:24,720 story that's non existent. Apple has right now around 31% 655 00:32:24,720 --> 00:32:27,600 operating margins and they're just not growing. 656 00:32:27,720 --> 00:32:30,200 The operating margins are staying the same. 657 00:32:30,520 --> 00:32:33,280 They're not improving. And year over year we see them 658 00:32:33,280 --> 00:32:37,560 go a little bit up, maybe like 1/2 percentage point, but just 659 00:32:37,560 --> 00:32:40,840 not enough to be meaningful. The operating margins are likely 660 00:32:40,840 --> 00:32:43,120 where they're going to be for a long period of time. 661 00:32:43,520 --> 00:32:46,040 How is Apple expecting to grow the operating margins? 662 00:32:46,360 --> 00:32:48,720 The services business, their highest operating margin 663 00:32:48,720 --> 00:32:51,080 business, is facing a lot of headwinds. 664 00:32:51,480 --> 00:32:55,320 There's pressure to price lower, to not charge 30%, but to 665 00:32:55,320 --> 00:32:58,880 instead charge 15 or 10%. So they have pressure on their 666 00:32:58,880 --> 00:33:01,600 most highest margin portion of their business, as well as they 667 00:33:01,600 --> 00:33:05,600 have pressure from Google to stop paying Apple the $20 668 00:33:05,600 --> 00:33:09,400 billion or $25 billion a year to be the default search engine. 669 00:33:09,440 --> 00:33:11,880 If they lose that agreement, that could be another thing that 670 00:33:11,880 --> 00:33:15,000 pressures the margins of Apple. So overall, I look at this 671 00:33:15,000 --> 00:33:18,840 company and I just see a story of flattish operating margins 672 00:33:19,120 --> 00:33:21,840 and flattish growth. Now, the Moat is still 673 00:33:21,840 --> 00:33:23,720 resilient. Apple's still making the best 674 00:33:23,720 --> 00:33:26,200 products. They're buying a lot of shares 675 00:33:26,200 --> 00:33:28,960 back, so they increase their free cash flow by share to a 676 00:33:28,960 --> 00:33:31,560 small extent. But again, when you have slow 677 00:33:31,560 --> 00:33:34,440 revenue growth and you have no margin expansion, there's only 678 00:33:34,440 --> 00:33:37,080 so much you can do. Amazon's growing revenue much 679 00:33:37,080 --> 00:33:39,520 faster while growing their margins much faster. 680 00:33:39,760 --> 00:33:42,080 They're exercising far more operating leverage. 681 00:33:42,240 --> 00:33:45,360 They're a more immature company in their growth arc. 682 00:33:45,400 --> 00:33:50,040 Apple still trades at a rather high PE ratio, a 34 PE, a 3% 683 00:33:50,040 --> 00:33:52,480 free cash flow yield. This is at the higher end of 684 00:33:52,480 --> 00:33:54,680 where this company has traded over the past decade. 685 00:33:55,080 --> 00:33:58,000 So it's a company that's both being priced with a lot of 686 00:33:58,000 --> 00:34:01,200 expectations and right now I just don't see the growth 687 00:34:01,200 --> 00:34:03,640 profile. This is why I've been trimming 688 00:34:03,640 --> 00:34:07,200 Apple over the past year, why I've been continually selling 689 00:34:07,200 --> 00:34:09,719 more and more of this company. I've made a lot of money with 690 00:34:09,719 --> 00:34:12,120 the stock. I love Apple products, I'm a fan 691 00:34:12,120 --> 00:34:15,440 of the company. I've made around $35,000 in the 692 00:34:15,440 --> 00:34:17,320 stock so far. But paying attention to the 693 00:34:17,320 --> 00:34:20,400 story of a company is important, and I personally don't believe 694 00:34:20,400 --> 00:34:23,800 that AI advancements in the iPhone are going to be enough to 695 00:34:23,800 --> 00:34:25,639 drive substantial growth in this company. 696 00:34:25,719 --> 00:34:28,280 Now finally we get to Microsoft. They also reported earnings this 697 00:34:28,280 --> 00:34:30,360 week. My thoughts going into this one 698 00:34:30,360 --> 00:34:32,639 were pretty simple. Fundamentally, Microsoft is an 699 00:34:32,639 --> 00:34:35,560 incredible company, but it's trading out of lofty valuation. 700 00:34:35,560 --> 00:34:38,120 So we have the combination of great fundamentals, lofty 701 00:34:38,120 --> 00:34:41,520 valuation that typically means that the stock can beat on their 702 00:34:41,520 --> 00:34:44,440 earnings and revenue, but still trade flat or down. 703 00:34:44,480 --> 00:34:46,320 And that's exactly what this company did. 704 00:34:46,600 --> 00:34:48,920 They beat it on the top and bottom line like Microsoft 705 00:34:48,920 --> 00:34:52,040 almost always does. They beat by a decent margin, 706 00:34:52,440 --> 00:34:55,320 but the stock still traded down 20-30 bucks. 707 00:34:55,600 --> 00:34:58,640 Not an unexpected outcome. Overall, the report was 708 00:34:58,640 --> 00:35:00,480 excellent. Microsoft did everything they 709 00:35:00,480 --> 00:35:01,960 said they're going to do and more. 710 00:35:02,160 --> 00:35:04,200 There's no problems with the past three months. 711 00:35:04,600 --> 00:35:08,320 The reason that Microsoft traded down 4% is a combination of the 712 00:35:08,320 --> 00:35:11,480 price being rather high and their expectations they gave of 713 00:35:11,480 --> 00:35:14,560 next quarter being a little soft, being a little bit weaker 714 00:35:14,560 --> 00:35:16,840 than expected. The numbers are slightly on the 715 00:35:16,840 --> 00:35:18,800 low end of what the analysts were expecting. 716 00:35:19,000 --> 00:35:21,360 Fundamentally, this doesn't change the business, doesn't 717 00:35:21,360 --> 00:35:24,400 change the Moat, doesn't change the qualities or the fact that 718 00:35:24,400 --> 00:35:28,080 this company will continue to grow lockstep year after year 719 00:35:28,080 --> 00:35:30,320 after year. There's just slight ebbs and 720 00:35:30,320 --> 00:35:33,520 flows in the growth rate, but overall we have a very healthy 721 00:35:33,520 --> 00:35:36,680 Microsoft trading a range that I consider to be around fair 722 00:35:36,680 --> 00:35:38,600 value. Now that's the recap for this 723 00:35:38,600 --> 00:35:40,560 week. Once again, if you haven't tried 724 00:35:40,560 --> 00:35:43,160 out Qualtrim and you haven't tried out the earnings calendar, 725 00:35:43,320 --> 00:35:45,440 it's a brand new feature. A lot of people are trying it 726 00:35:45,440 --> 00:35:46,240 out. They love it. 727 00:35:46,440 --> 00:35:48,920 If you join today, you get the entire month for free. 728 00:35:49,000 --> 00:35:50,920 You've got nothing to lose with the free trial. 729 00:35:50,920 --> 00:35:53,680 In addition to Qualtrim in the entire suite, you also get a 730 00:35:53,680 --> 00:35:56,240 Discord. You get exclusive content, a lot 731 00:35:56,240 --> 00:35:57,840 of fun things, so try it out if you haven't. 732 00:35:58,120 --> 00:35:59,880 Other than that, I'll see you in the next episode.