Welcome back everyone. Today on the Joseph Carlson
Show, we're going to be taking a look at three different
companies, three that you've heard about that we're going to
do some in depth research and this is going to be a little bit
more in depth than I think you're used to.
We're going to really dive into these companies and try to do
some some research of how they're going to evolve over the
next five years. Now the companies that we're
going to be looking at today are ones that we've heard about, but
I think they're worth reviewing. We have Spotify is number one.
We have Uber and we have Google. We're going to be going over all
three of them. These are three companies I
really like. 2 of them I don't own, which is Spotify and Uber,
and then one I obviously do, which is Google.
And what we'll be doing here is looking at different hedge funds
research on these companies. And I'll be giving you some of
my feedback. We'll be going through their
take on it. I'll go through it and give you
some commentary and reaction and whether or not I agree or
disagree. And we're also going to be
looking at the fundamentals of these companies, the valuation a
little bit, and see if these companies are opportunities.
Because I really think that Spotify, Uber and Google are
three of the best companies in the world and they're really
worth looking at. Let's go ahead and just take a
look at their research and see what they say.
Spotify continues to be our largest position and has been
the largest contributor to fund performance over the past two
years. That's like Spotify is like
their Netflix for me. It's just this one company big
position that goes wild. The stock was up 71% in the
first half after enduring 4 years of underperformance.
Isn't that what you have to suffer through?
They have these incredible returns.
You have to suffer through some time periods of
underperformance, in this case, four years of underperformance.
Spotify has delivered a 5.7 X return or 27.5% annualized since
we initiated our position 6.5 years ago.
They're doing a little boasting care and they deserve it. 27%
annualized return from their top position.
Just incredible. The core Spotify's thesis is
that the spoken word, including music is the most undervalued
form of communication on the web by a country mile.
The spoken word including music is the most undervalued form of
communication on the web by a country mile.
Certainly piques my interest. I I'm always very bullish on
video entertainment. I've I've seen studies that
video is more engaging, video has more watch time, but they're
saying spoken word and music is more undervalued than video.
Very interesting. Spotify's business model is to
deliver an exceptional search and discovery user experience in
exchange for ownership of your real time behavior data and a
monthly fee for an ad free premium tear.
Similar to YouTube and Meta, Spotify continues to demonstrate
that owning consumer attention at scale can be more valuable
than owning the content being consumed.
They're pointing out a lot of stuff here and This is why I
like it. It makes me consider things and
really reflect on things when I read these hedge funds that are
pouring tons of resources into studying these type of dynamics.
For example, this is not just flowery language saying it's a a
great company. They're pointing out here a
couple things that I fully agree with.
Owning the consumer attention at scale is more valuable than
owning the content. We've seen that with Netflix.
Netflix doesn't have all the best content that they own.
They have some good content. They have Stranger Things, they
have Squid Game, they have, you know, all these UK shows and
South Korean shows. They have some good stuff.
But, but Netflix also licenses content that's better than their
own content. Routinely.
They license Warner Brothers Discovery, they license Dune,
right? They license a lot of content
that's better than what they already own 'cause they got the
attention. Netflix has the attention.
Even if they don't have the, the content, they have the
subscribers and that's what matters.
The platform of distribution, the attention is what matters.
And one thing that I strongly believe is that analysts,
professional analysts in their banks, in the high rises in New
York City, at working at the banks that are underwriting
these companies, they believe that these type of companies
like Spotify, YouTube, Netflix, they didn't have a lot of
pricing power, that just having attention alone doesn't have a
lot of pricing power associated with it.
And that was the total absolutely wrong take, totally
180° wrong. The attention economy has
enormous pricing power. People will pay for something
that they find so engaging that they take time out of, out of
their busy schedule to consume. So in the case of Netflix,
Netflix has exercised immense pricing power over the past 10
years. The Netflix Top subscription is
like $24.00 a month where 10 years ago it was 7, right?
And then all their plans kind of go up every single year.
We've seen the same with Disney Plus.
We've seen the same with all these attention driven things.
Meta just continues to turn out more cash every single year just
based purely on attention. Spotify is generating more and
more revenue, upping prices over and over again based on
attention engagement, right? Attention at scale has enormous
pricing power. A company that has attention at
scale is more important than even the content.
The platform of distribution is more important than the content.
It is the platform that Netflix developed is more important than
Disney's IP, more important than Pixar, more important than
Lucasfilm and Marvel. Just the platform, the
attention, the way of consumption, and that's what
Spotify has figured out as well. So already there's a couple of
things I really like that they're pointing out here.
I think it rings very true. I'll continue on.
They say while other platforms have been ultra successfully at
monetizing video, unlocking the value of audio has historically
required a different approach. Spotify has made enormous
progress in closing the monetization gap between audio
and video, but they're still very early on in this journey.
Spotify recently got an important boost to future
earnings power after winning its years long fight with Apple on
June 4th in the US 9th Circuit appeals court ruled that Apple
must immediately comply with the judge Rogers April 2025 finding
that Apple must allow Spotify to direct users to external payment
options. Spotify subscription onboarding
before the ruling Go Premium. You can't upgrade to premium in
the app. We know it's not ideal.
It's a static message, like a pamphlet saying go there after
the ruling. Spotify Premium, play millions
of songs ad free and offline. Individual duo, family, student
has the prices and a big green button to get premium right
there right in the app while bypassing Apple's App Store.
Those little differences of how easy it is to sign up for a
platform, it makes a world of difference because if someone's
trying to sign up for something and they run into any friction,
they might bail out halfway through the process.
As of June 4th, Spotify's 145,000,000 US users will be
able to directly purchase anything Spotify wants to sell
using a one click link within the app, including upgrading the
premium subscription and audio book credits while not paying
the App Store 15% commissions. I mean that that is really big.
Like again, I see this from an an owner's perspective, when you
can reduce the friction of your own customers to buy something
you're selling, that's a big deal.
So this is a really bullish thing towards Spotify.
Direct billing is the next tool in Spotify's tool kit to
continue unlocking the value of the spoken word.
The first benefit will be lowering churn from a reduction
in friction to sign up and maintain premium subscribers.
Think about this. OK, so I'm running Qualtrim and
when I run it through Patreon, I have very limited options of
being able to offer anything like referrals, you know,
campaigns, affiliate marketing. I don't have really control
over. I don't even have people's
credit cards saved. Like I don't have control over
their billing. It's harder for me to do refunds
and all this type of stuff, right?
I don't have that relationship. When we build things directly
and we have control over the customer, we can do so much
more. For example, we can reduce churn
if people sign up directly on qualtrum.com in the future.
How can we do that? We can say if they've been a
member for over eight months, OK, so they've been like a
member for a while. If they want to cancel, I can
offer them a month for free to stay, right?
I can say, hey, you want to cancel.
Would you stick around if we give you a month for free to
kind of make up your mind? And if they click no, they can
continue to cancel. But I can, I can do stuff like
that. I can say that if they've been a
member for eight months, then those members that want to
cancel, I'll give them a a month free to try to reduce churn.
And even if like 20 or 30% of people accept that month for
free, maybe that's enough to convince them to stick around,
right? And I'm not saying that's what
we're going to do, but those are just ideas that you can do when
you control the customer relationship.
When you don't, when it's on a different platform, you don't
have that flexibility. So, so Spotify by having control
over their own customers and their own payment system, they
can come U with all these super like tested mathematical ways to
lower churn even further, making it so that they can offer secial
churn reduction tools like the one I just came U with, right?
So this is a, a big thing, like on scale, this is a massive
thing. Spotify can now evolve faster
into a grown up marketplace platform allowing artists,
authors, podcasters, creators and content owners of all walks
of life to directly monetize their audiences.
Advertising and related revenues represent only 10% of Spotify's
total revenue, or approximately €2 billion versus $25 billion
for YouTube and 180 billion for Meta.
With Spotify's user base projected to surpass 1 billion
over the next 18 months, the runway for scaled advertising
monetization is substantial at roughly 30 times our estimates
of 2026. EBITDA.
Spotify Spotify's valuation is optically expensive, as it has
been the entire time we've owned it.
However, looking out over the next few years, Spotify's $145
billion valuation today will look cheap if management can
keep even close to achieving their goals of $20 billion of
operating earnings with a minimal incremental capital
invested. Now I'll say Spotify is a
company I'm seriously considering.
I really just want to own it. When I look at Spotify, I see a
company now at 140 billion, and yes, it's far more expensive
than it was a couple years ago. And that anchoring bias can be
very strong. The anchoring bias can keep you
out of good companies. You could say, oh man, I could
have bought it for $75.00. That's anchoring bias.
If you erase all the past and you just look at the company
now, you have a company at A50 PE and a 2% free cash flow yield
in the 50 PE. This company went from -5
dollars in earnings to plus $6 in, in two years.
That's incredible levels of earnings per share growth
exercising operating leverage in terms of the, the free cash
flow. I mean, look at this, it looks
Netflix like it, it looks explosive operating leverage
out, out of control operating leverage with this company,
they're growing the free cash flow while they're stock based
comp and their expenses are going down.
Incredible to see this. The cash is just stacking up
with this company. Again, incredible to see.
You know, it's just all around. It's an incredible company, an
incredible product. You can hate on Spotify just
like people hate on Netflix. I think the product personally
is great. It it's global, it's needed,
it's consolidated the demand for audio entertainment.
My podcast, in fact, the Joseph Carlson Show is picking up steam
on Spotify. Every episode gets thousands and
thousands of views and listens on Spotify.
And I think this is a company that you could buy and hold for
like 10 or 15 years and not break sweat, you know, not break
a sweat over every time they have an earnings report, Every
time this or that happens. It's one that I don't think you
can be too concerned about. Now, of course, next, like I
said, we have Uber. Uber is a technology provider
that connects riders with drivers and customers with
restaurants and food carriers operating it's on demand
platform in over 70 countries with more than 170 million
monthly users. As far as quality is concerned,
Uber operates one of the best business models around a network
based marketplace. Uber aggregates both the supply
and demand and transportation services at a scale large enough
to give it both a cost and service advantage over any would
be competitors. Adding to this extensive user
data enables continuous improvement and dynamic pricing
and utilization algorithms, which in turn enhances the value
proposition for both drivers and riders.
This combines into powerful flywheels where both the product
and the economics of the business continuously improve
with the passage of time. As such, what started as a taxi
alternative has expanded to encroach an on car rentals and
public transportation and now even competes with car ownership
among certain demographics. So their Tam, the total
addressable market is just it. It's creeping in the different
categories, constantly expanding organically in the different
categories. They're doing this without any
major acquisitions or, you know, buying their way to success.
Late last year and into the beginning of this year, Uber
stocks sold off as much as 30% due to investors concerns
regarding autonomous vehicles. To start, this theoretical risk
is mainly applicable to Uber's US ride sharing business, which
accounts for approximately 25% of its gross bookings.
It is hard for a VS to compete with food delivery and the labor
cost of low income countries, but let's leave that aside for
now. We believe that these concerns
are misplaced for two main reasons.
One, the time frame for AV adoption will be longer than
expected. And two, adoption will
ultimately be good be a good thing for Uber as it will expand
their total addressable market considerably.
While we admit that AV technology is advancing rapidly,
broad based commercialization is expected to be more measured due
to key limitations such as achieving consistent superhuman
safety records, establishing harmonized regulatory frameworks
nationwide, scaling the cost effective manufacturing and
developing the on ground infrastructure and operations.
Adding to these issues is the highly variable nature of ride
sharing demand, which fluctuates massively throughout the day,
week and year. Think vacation destinations.
This variability and demand would make it very hard to build
out a fixed AV fleet that maximizes profits.
Without third party marketplace to smooth the volatility.
That would either undersupply and lose customers or oversupply
and lose money. Uber can just have their drivers
get on at any busy time. What do you do with all these AV
cars when they're not being used?
They just sit in a parking lot, right?
So you have underutilization or you don't have enough of them
during peak hours. Said another way, Uber's
marketplace model with its dynamic supply and human drivers
can naturally adjust to peak peaks in demand, allowing for
optimized utilization. Therefore, we believe that most
likely outcome is that partnering with existing
rideshare networks like Uber will be the most effective
solution for AV players to scale faster, maximize vehicle
utilization and avoid the substantial operating expenses
of recreating Uber's capabilities.
For #2 If we believe partnering with Uber is the best strategy
for AV providers, then having a product that is much better, a
much better consumer experience on Uber's network at a
significant price step down should unlock a lot of new
business for Uber. Consider that today, the most
penetrated use case for Uber is an airport drop off in pickups.
In a world where a VS make ridesharing both cheaper and
more convenient, we could imagine more and more consumers
forgoing car ownership all together, leading to a
significant acceleration in Uber's business.
So it's basically saying they're, they're just saying,
look guys, you're missing the forest from the trees.
If you're focused on like a VS taking a little bit of market
share here and there in these cities, what a VS will do over
the next 10 years is make it so people won't even own cars,
they'll just have an app and Uber will show up.
And again, we can have anchoring bias if you, if you missed out
on these companies here. And a lot of cases people say,
oh, I didn't buy it there, so I'm not going to buy it here.
And then it goes up another 50% and then they say, well, I
didn't buy it here, so I'm not going to buy it there.
The truth is, if a company's around for 20 years and it's an
excellent company, it's going to be a great investment.
You could have bought it like a long, long time ago.
I mean, look at Amazon. Look at all the time periods you
could have bought this stock. So you don't want to have
anchoring bias. It is impossible to consistently
time the bottom in stocks. You might get lucky once, but
then your next buy, you'll not time the bottom.
Nobody's ever consistently timed the bottom in stocks.
No one's ever done it. What you want to do is make sure
the valuation is reasonable, meaning that if you buy it right
now, you have a good future expected return.
The way that the fundamentals and the thesis and everything
plays out today. So use the Qualtrim DCF
calculator, throw in a few examples, kind of look at where
you think, think things will be in five to 10 years.
Is Uber going to be dramatically bigger?
Is it really going to continue growing this AV demand?
Are fewer people going to own cars in busy places and they're
just going to use Ubers everywhere?
You know, if that happens, this is a fantastic buy today.
The stock could double over the next 5 to 10 years.
So don't get wrapped up in anchoring bias.
It's always fun, you know, when you get crazy games, if you get
a great company that really gets gutted like a Netflix or Meta or
Spotify in 2022. So you got to take advantage of
when that happens. But again, if you're investing
for the next 20 or 30 years, I think it you're best served to
just keep building positions in great companies, you know, hold
them through thick and thin, add to them more when they sell off.
Now finally we get to the last one here.
It's this little company, very obscure.
You might have heard me talk about it.
I think I've mentioned it like a couple times, a super obscure,
tiny company. OK, it's Google and it's about
three $3 trillion market cap. And we know the investor we're
talking about today, it's Pershing Square Capital.
We got Bill Ackman in Google. I'm happy to be in this one with
Bill Ackman. I think he's a great investor.
I so wish that he held on to to Netflix.
Did you know, just a fun fact, had he not sold his Netflix
position, it would be by far, by far his biggest position, over
double the size of any other position in his portfolio.
Regardless, I'm happy that he's in in Google.
I think this one's treating him well.
I think he's going to stick around in Google because it
looks great. So I haven't read this again.
This is going to be just my reaction.
Let's go ahead and jump into some Google hair.
Alphabet, parent company of Google is successfully executing
on its vast AI potential. The company's key advantages
stemming from industry leading models and full stack approach
to technical infrastructure, including proprietary chips,
access to high quality data, rapidly improving product launch
velocity, and robust distribution ecosystems of
several different apps with over 2 billion users each are
beginning to meaningfully widen Google's mode and competitive
differentiation and AI. That's a mouthful, but I agree
with everything. I mean, look at what they
outline full stack approach. I've been saying the same thing.
Full stack means they got the hardware, the infrastructure,
they got the TP us, the chips. They're like, they're, they're
designed. They have like a mini NVIDIA,
you know, not quite NVIDIA, but like a mini NVIDIA with their
chips. They have the models, they have
Gemini, best model on the market one of them.
They have the data scientists and engineers.
And then they have the distribution, they have the
software, they have their reach. 8 out of the top 50 apps or
Google Apps in the App Store. I mean, Google has it all like
they had the whole world's in their hands.
They have it all robust distribution ecosystem, 7
different apps with over 2 billion users each.
This is an incredible, incredible company.
I just look at what we have here with Google all for a 25 PE like
it's just such AI mean it's you get so much for a price that's
so reasonable. In its core search product, the
company's AI leadership is most evident in its broad roll out of
AI powered summary responses called AI Overviews, are now
served to more than 2 billion users across 200 countries,
making it the most widely used. Consumer AI product AI overviews
are resulting in users asking more detailed questions,
clicking through at higher rates and searching with greater
frequency. On the back of AI overview
success, the company also introduced AI mode, which more
closely resembles a chat like user experience directly into
the search page. Beyond the core search
integrations, the company is also having tremendous success
across its broad consumer app portfolio.
YouTube continues to lead streaming watch time in the US.
YouTube a crown jewel in planet Earth.
They own it and it's leading streaming time even above
Netflix. It's leading streaming time with
AI driving meaningful improvements to its
recommendation algorithm, auto dubbing and content creation
tools. Many people that are watching
this very video are doing so in like a dozen different
languages. I don't have to pay someone to
do that because it's now built into YouTube.
Google state-of-the-art video generation model VO3 has been a
viral hit with over 70 million videos created since its launch
in May. Last month, the company also
introduced a new agenda capability with AI powered
calling to local businesses to make appointments and
reservations. This is a feature that Google is
uniquely positioned to deliver by integrating its search, maps,
calendar and Gmail services for users.
Google's cloud segment, a $50 billion run rate revenue
business growing at 30% plus rate, is also seeing its AI
capabilities accelerate product differentiation.
The company signed the same number of over 1 billion deals
in the first half of 2025 that they did throughout all of 2024.
Just the first half they signed more than all of last year.
With increasing scale, the cloud segment has increased from break
even profitability in 2023 when they initiated that position to
a 21% profit margin in the most recent quarter with line of
sight to achieve greater than 30% profit margins enjoyed by
pairs. By the pairs they mean AWS has
above 30%. Despite tremendous business
momentum, Alphabet still trades at a discounted valuation for a
business of its quality and growth prospects. 100% true.
It's not even close. Again, Google has the whole,
they have the whole world in their hands and it's out of 25
PE. Bill Ackman highlights a lot of
stuff in this latest research that I agree fully with.
Google's trading at a reasonable to low valuation.
I know the stock is up since that write up.
So it's up about $20. It doesn't matter.
Google's still undervalued. Look at this stock.
It has all of that going on, all this momentum.
YouTube, it has cloud growing 30%.
It has a full stack operations, highly diversified, 7 apps with
over 2 billion users, you know, 7 apps in the top 50 of Apple's
App Store and it's at a 2024 Ford PE ratio.
It's not the cheapest it's ever been, but I still think this one
is just fantastic. I have no thoughts of selling it
and I feel like it's in a great position.
So no changes on my thought on this one.
I think Google's still a buy today.
But amongst other great companies, I really like Uber.
I really like Spotify. These are three companies that I
mostly agree with the bullish stance of these different hedge
funds. I think they're great to own.
So that's gonna be it for this episode.
Hope you all enjoyed and got something out of this.
See you in the next one.