1 00:00:00,040 --> 00:00:02,040 Welcome back everyone. Today on the Joseph Carlson 2 00:00:02,040 --> 00:00:04,720 Show, we're going to be reviewing 6 different companies 3 00:00:04,720 --> 00:00:06,240 that are very important to the market. 4 00:00:06,520 --> 00:00:09,080 These are companies that were once considered compounding 5 00:00:09,080 --> 00:00:12,200 machines, the best of the best, the high growth companies that 6 00:00:12,200 --> 00:00:15,800 every investor wanted to own. But each of them has run into a 7 00:00:15,800 --> 00:00:18,360 series of challenges. They've stumbled and the stock 8 00:00:18,360 --> 00:00:22,120 price has come crashing down. So they are fallen compounding 9 00:00:22,120 --> 00:00:25,960 machines, formerly great companies, but now it's up for 10 00:00:25,960 --> 00:00:27,560 debate. Now the market's trying to 11 00:00:27,560 --> 00:00:30,480 figure out whether or not these companies are still great. 12 00:00:30,800 --> 00:00:35,160 We're talking about Lululemon, which is down 53% year to date. 13 00:00:35,560 --> 00:00:38,280 Investors seemingly have given up on this company, but as it 14 00:00:38,280 --> 00:00:41,120 deserved, we have Celsius, the healthy energy drink company, 15 00:00:41,320 --> 00:00:45,480 down 36% year to date. We have Ulta, the beauty 16 00:00:45,480 --> 00:00:50,960 company, down 34% year to date. Nike, down 30% year to date 17 00:00:50,960 --> 00:00:52,720 after falling down even last year. 18 00:00:52,920 --> 00:00:56,600 Where is the bottom for Nike? We have Airbnb, which reported 19 00:00:56,600 --> 00:00:59,080 its recent quarter. It was disappointing, and the 20 00:00:59,080 --> 00:01:02,480 stock is down 15%. This was a incredibly fast 21 00:01:02,480 --> 00:01:04,080 grower. And then of course, we have 22 00:01:04,080 --> 00:01:05,880 Disney. Disney's not yet recovered to 23 00:01:05,880 --> 00:01:09,000 its 2021 highs. The stock is down 5%. 24 00:01:09,160 --> 00:01:10,880 What does the future look like for Disney? 25 00:01:10,920 --> 00:01:13,600 We'll be looking over each of these 6 fallen compounders, 26 00:01:13,600 --> 00:01:15,960 looking at analysis on the companies and determining 27 00:01:15,960 --> 00:01:17,680 whether or not they're a buy. Now, the first one we're going 28 00:01:17,680 --> 00:01:21,760 to be taking a look at is Lululemon, down 53% year to 29 00:01:21,760 --> 00:01:24,000 date. It's hard to believe Lululemon 30 00:01:24,000 --> 00:01:26,640 seems like such a great company. They can charge so much money 31 00:01:26,640 --> 00:01:29,600 for their clothing. Everyone's addicted to the yoga 32 00:01:29,600 --> 00:01:32,360 pants and the at the leisure type of clothing. 33 00:01:32,680 --> 00:01:35,280 So you think this company would be having a great year as 34 00:01:35,280 --> 00:01:37,880 consumers have been mostly strong with a lot of other 35 00:01:37,880 --> 00:01:40,360 businesses. But it's down over and over 36 00:01:40,360 --> 00:01:44,320 again all throughout the year, trailing down 53% over the past 37 00:01:44,320 --> 00:01:46,320 one year. It's down 34 percent or sorry, 38 00:01:46,320 --> 00:01:51,280 38% over the past five years. It's now only up 34%. 39 00:01:51,520 --> 00:01:54,720 So it's underperformed the S&P 500 for A5 year basis. 40 00:01:54,720 --> 00:01:57,400 What happened to Lululemon to have this type of performance? 41 00:01:57,520 --> 00:02:00,560 Well, according to a BMO senior analyst, Lululemon is simply 42 00:02:00,560 --> 00:02:03,520 becoming not cool. So, so I think that's the 43 00:02:03,520 --> 00:02:05,320 question. I think you and I have talked 44 00:02:05,320 --> 00:02:07,200 about in the past, we've talked about on the show this notion 45 00:02:07,200 --> 00:02:11,920 that brands hit ubiquity levels, brands become not cool at a 46 00:02:11,920 --> 00:02:14,360 certain level. And that level, my team has done 47 00:02:14,360 --> 00:02:16,120 phenomenal work on this. So thank you to them. 48 00:02:16,120 --> 00:02:19,720 But what we have found is $3 billion in North America is that 49 00:02:19,720 --> 00:02:21,640 level. And so companies go above it and 50 00:02:21,640 --> 00:02:22,720 then they come crashing back down. 51 00:02:23,000 --> 00:02:26,040 And so Lulu right now at over 6 billion looks much higher. 52 00:02:26,080 --> 00:02:28,720 Now guys going to come at me and say, well, where's Nike fit on 53 00:02:28,720 --> 00:02:29,920 that? And the answer is there are 54 00:02:29,920 --> 00:02:32,640 exceptions. And so we need to figure out, is 55 00:02:32,640 --> 00:02:36,280 this an exception what you look for is whether the sales are 56 00:02:36,280 --> 00:02:38,360 eroding, the quality of sales are eroding, do they have to 57 00:02:38,360 --> 00:02:41,120 discount to get those revenues last quarter? 58 00:02:41,200 --> 00:02:41,880 They did. So. 59 00:02:41,880 --> 00:02:44,480 According to this analyst, once an apparel company goes from $3 60 00:02:44,480 --> 00:02:48,800 billion to above $3 billion in sales in the US, it goes from 61 00:02:48,800 --> 00:02:52,000 being cool to not cool. It becomes too ubiquitous. 62 00:02:52,000 --> 00:02:55,080 Basically, everyone's getting that thing, so the trending 63 00:02:55,080 --> 00:02:57,640 thing or the cool factor is diminished. 64 00:02:57,720 --> 00:02:59,920 It's reasonable to assume that once something becomes too 65 00:02:59,920 --> 00:03:02,960 popular or ubiquitous, it loses some of its uniqueness or appeal 66 00:03:02,960 --> 00:03:05,320 to some degree. But at the same time, I see many 67 00:03:05,320 --> 00:03:09,120 counter examples to this, not just Nike, which of course he 68 00:03:09,120 --> 00:03:12,760 mentions Nike as an exception, a convenient exception, but Nike 69 00:03:12,760 --> 00:03:15,680 has been a staggering exception. The Nike Air Force One shoes are 70 00:03:15,680 --> 00:03:18,400 the most commonly sold shoes in the US and the world. 71 00:03:18,720 --> 00:03:21,440 They are so common that every teenager has a pair of them. 72 00:03:21,680 --> 00:03:25,280 Every teenager wants them. That shows the exact opposite of 73 00:03:25,280 --> 00:03:28,320 the point he's trying to make. It seems that the more people 74 00:03:28,320 --> 00:03:31,080 have these shoes, the more people want these shoes. 75 00:03:31,440 --> 00:03:34,280 You also have the example of of you than other companies like 76 00:03:34,280 --> 00:03:36,760 Crocs. Crocs hit $4 billion in sales. 77 00:03:37,040 --> 00:03:38,800 That's mostly in the United States. 78 00:03:39,200 --> 00:03:41,560 That didn't seem to stop them from becoming popular. 79 00:03:41,560 --> 00:03:44,520 It seems like more and more people that have the shoes make 80 00:03:44,520 --> 00:03:45,960 more and more people want the shoes. 81 00:03:46,200 --> 00:03:48,600 So I'm not entirely convinced that the reason that Lululemon 82 00:03:48,600 --> 00:03:51,520 is going down so much is because it's becoming too popular. 83 00:03:51,520 --> 00:03:54,120 So that's one theory of why Lululemon is doing poorly, but 84 00:03:54,120 --> 00:03:55,480 he also points to another reason. 85 00:03:55,600 --> 00:03:57,680 It's 3 billion of sales at retail. 86 00:03:57,680 --> 00:03:59,240 So what that means? So these companies report their 87 00:03:59,240 --> 00:04:01,120 revenues, but Ralph is a wholesale business. 88 00:04:01,120 --> 00:04:03,920 And so if you strip out the business and you add that up, 89 00:04:04,240 --> 00:04:05,680 they're actually it's, it looks different. 90 00:04:05,760 --> 00:04:08,000 And so that's really important because I don't really care 91 00:04:08,000 --> 00:04:10,320 about what revenues a business recognizes. 92 00:04:10,600 --> 00:04:12,240 I care about what level of consumer spends. 93 00:04:12,760 --> 00:04:14,480 And so a lot of these businesses, you watch Ralph, you 94 00:04:14,480 --> 00:04:16,800 watch Coach, you watch Michael Kors, you watch these businesses 95 00:04:16,800 --> 00:04:19,079 go higher with wholesale, which helps. 96 00:04:19,440 --> 00:04:21,839 Lulu doesn't have wholesale to any real extent, but then they 97 00:04:21,839 --> 00:04:24,360 actually did come back down. And so part of what Ralph did so 98 00:04:24,360 --> 00:04:27,400 well is they appreciate this idea that you can sell less and 99 00:04:27,400 --> 00:04:30,800 charge more and make more money. You can raise your price, and we 100 00:04:30,800 --> 00:04:32,920 learned this in Econ 101 price elasticity. 101 00:04:32,920 --> 00:04:35,600 I can make a lot more money by being more exclusive. 102 00:04:35,600 --> 00:04:37,560 We all want to be inclusive. We want to sell to everyone, but 103 00:04:37,560 --> 00:04:39,520 the reality is you don't. So he's also concerned that the 104 00:04:39,520 --> 00:04:42,320 quality of sales from Lululemon is starting to decline as they 105 00:04:42,320 --> 00:04:44,200 discount their products and give more deals. 106 00:04:44,640 --> 00:04:46,920 And I believe this is more concerning thing to point to. 107 00:04:47,200 --> 00:04:50,120 Lululemon is facing greater and greater competition. 108 00:04:50,160 --> 00:04:52,200 If we were to divide this company into three different 109 00:04:52,200 --> 00:04:57,520 phases, we have phase one right here from 2005 to 2010, the 110 00:04:57,520 --> 00:05:00,800 company during phase one faced almost no competition. 111 00:05:00,880 --> 00:05:02,320 The stuff they were making was novel. 112 00:05:02,320 --> 00:05:05,240 These good looking yoga pants that were seamless, that took 113 00:05:05,240 --> 00:05:07,800 very complex sewing machines to even create. 114 00:05:08,080 --> 00:05:10,640 They were very expensive and only a niche consumer even knew 115 00:05:10,640 --> 00:05:13,120 about them. During this second phase of 116 00:05:13,120 --> 00:05:18,800 growth during the 2010 to 2020, the company was not quite as 117 00:05:18,800 --> 00:05:20,680 novel. It was picking up steam, but 118 00:05:20,680 --> 00:05:23,080 there still isn't any big competitor to Lululemon. 119 00:05:23,080 --> 00:05:25,760 There is nobody directly ripping off everything they did. 120 00:05:25,760 --> 00:05:28,640 So this is a time period where they face some competition, but 121 00:05:28,640 --> 00:05:31,280 it still was not intense. Then we enter into the third 122 00:05:31,280 --> 00:05:33,480 phase of this company, 2020 to current day. 123 00:05:33,760 --> 00:05:37,200 Lululemon's competition has increased dramatically over this 124 00:05:37,200 --> 00:05:39,640 time period. Now competitors are competing 125 00:05:39,640 --> 00:05:41,840 fiercely. There are so many brands you can 126 00:05:41,840 --> 00:05:45,640 list off that are almost exact dulicates or better yet, slight 127 00:05:45,640 --> 00:05:47,920 variations that are some ways better or worse. 128 00:05:48,280 --> 00:05:52,200 But regardless, Lululemon is no longer in phase one or two where 129 00:05:52,200 --> 00:05:55,680 they have organic growth without facing dramatic competition. 130 00:05:55,720 --> 00:05:57,840 When you have dramatic competition, a few things 131 00:05:57,840 --> 00:06:00,760 typically happen. The first of which is pricing 132 00:06:00,760 --> 00:06:03,080 power. Dramatic competition leads to 133 00:06:03,080 --> 00:06:06,480 declines in pricing power. So while Lululemon was able to 134 00:06:06,480 --> 00:06:09,920 raise prices during phase one and phase two, I think it's 135 00:06:09,920 --> 00:06:13,160 going to be much more difficult for them to raise prices during 136 00:06:13,160 --> 00:06:15,480 phase three facing all these competitors. 137 00:06:15,760 --> 00:06:18,920 And in fact, Lululemon might find themselves in that circle 138 00:06:19,160 --> 00:06:22,360 of continually lowering prices. There are now some analysts that 139 00:06:22,360 --> 00:06:25,120 believe Lululemon's actually going to have its first down 140 00:06:25,120 --> 00:06:27,080 year in its history. Look, it's both. 141 00:06:27,080 --> 00:06:29,440 It's, it's very simple. The street thinks that 142 00:06:29,440 --> 00:06:31,880 Lululemon's going to grow double digits into perpetuity. 143 00:06:31,880 --> 00:06:35,040 We think that Lululemon's U.S. business is going to turn 144 00:06:35,040 --> 00:06:38,040 negative next year for the first time ever. 145 00:06:38,120 --> 00:06:41,120 And why is that? Well #1 The athletic leisure 146 00:06:41,120 --> 00:06:44,600 category used to grow at a mid to high single digit rate before 147 00:06:44,600 --> 00:06:47,280 COVID, grew to a double digit rate post COVID. 148 00:06:47,520 --> 00:06:50,880 Now after COVID, you have that COVID hangover, if you will, and 149 00:06:50,880 --> 00:06:53,760 that's creating a slowing in the growth rate for the backdrop of 150 00:06:53,760 --> 00:06:56,120 the industry. In addition, you have companies 151 00:06:56,120 --> 00:06:59,760 like as I said earlier, Aloe and Viori, you're seeing it all over 152 00:06:59,760 --> 00:07:02,440 the place in terms of big cities, they're gaining market 153 00:07:02,440 --> 00:07:05,240 share, particularly Aloe in a big fast manner. 154 00:07:05,240 --> 00:07:07,160 So that's creating an additional headwind. 155 00:07:07,160 --> 00:07:09,720 And I think what the street is missing is they're not 156 00:07:09,720 --> 00:07:12,680 projecting U.S. sales to go negative next year. 157 00:07:12,920 --> 00:07:15,760 We are that's why we're, we're massively below, below the 158 00:07:15,760 --> 00:07:16,760 street. And when you look at our 159 00:07:16,760 --> 00:07:19,920 numbers, so the the total growth rate for the company by the 160 00:07:19,920 --> 00:07:23,760 consensus is over 11% growth for 2025. 161 00:07:23,800 --> 00:07:24,920 We just think that doesn't happen. 162 00:07:25,120 --> 00:07:28,400 If Lululemon is priced for 11% growth and it actually turns 163 00:07:28,400 --> 00:07:32,000 negative next year, the stock will be re rated even lower. 164 00:07:32,240 --> 00:07:34,560 And This is why it's important to know that just because a 165 00:07:34,560 --> 00:07:37,400 stock is down in price doesn't necessarily mean that it's a 166 00:07:37,400 --> 00:07:40,960 good buy or a good deal. Lululemon is down 52% and 167 00:07:40,960 --> 00:07:43,120 there's still a lot of risks in this company. 168 00:07:43,600 --> 00:07:46,240 I agree with the analysts that there is a risk of the company 169 00:07:46,240 --> 00:07:49,800 turning negative next year. The growth rate is decelerating. 170 00:07:49,920 --> 00:07:52,880 If we get negative growth in 2025, that could be trouble for 171 00:07:52,880 --> 00:07:55,000 the company. When I look at Lululemon, it's 172 00:07:55,000 --> 00:07:57,840 still a stock that trades at 16 Ford PE ratio. 173 00:07:57,840 --> 00:08:00,720 Given the risks of an apparel brand facing new competitors 174 00:08:00,720 --> 00:08:03,800 with slowing growth, I would need a price tag much lower than 175 00:08:03,800 --> 00:08:05,680 this one. I would want to buy this company 176 00:08:05,680 --> 00:08:09,200 around A10 Ford PE ratio. That seems super cheap, but if 177 00:08:09,200 --> 00:08:12,480 it never gets there, that's OK. This one for me is a pass at 178 00:08:12,480 --> 00:08:14,560 this price point. It's just too risky now. 179 00:08:14,560 --> 00:08:17,240 Next up we have Ulta Beauty. This is another company that was 180 00:08:17,240 --> 00:08:20,080 once a compounding machine. It was a very dependable company 181 00:08:20,280 --> 00:08:23,280 with fast growing free cash flow and at a healthy valuation. 182 00:08:23,480 --> 00:08:26,600 But the stock is now down 34% year to date. 183 00:08:26,880 --> 00:08:28,160 So it's getting crushed this year. 184 00:08:28,160 --> 00:08:29,560 It's one of the worst performers. 185 00:08:29,920 --> 00:08:32,200 And we want to take a look why. Now when we look at the 186 00:08:32,200 --> 00:08:35,280 quarterly trailing 12 months of this company, we can see the 187 00:08:35,280 --> 00:08:37,039 gradual revenue growth over time. 188 00:08:37,039 --> 00:08:41,000 It looks really good, especially because this part right here is 189 00:08:41,000 --> 00:08:43,679 because they had to close their stores during COVID and it 190 00:08:43,679 --> 00:08:45,440 recovered rapidly from that point. 191 00:08:45,560 --> 00:08:47,320 But you're starting to see a similar trend here. 192 00:08:47,560 --> 00:08:50,120 The growth seems to be decelerating like it did with 193 00:08:50,120 --> 00:08:52,200 Lululemon. And I believe that Ulta is 194 00:08:52,200 --> 00:08:53,920 running into very similar problems. 195 00:08:54,520 --> 00:08:57,640 Altas facing increased competition in the same manner 196 00:08:57,640 --> 00:09:00,120 as Lululemon. Most of that competition seems 197 00:09:00,120 --> 00:09:02,640 to be coming from their largest competitor, Sephora. 198 00:09:02,880 --> 00:09:06,480 The main thing is, as you you said it, that the competition is 199 00:09:06,480 --> 00:09:10,760 really heating up. We've seen Sephora really ramp 200 00:09:10,800 --> 00:09:14,000 up its store count with its partnership with Kohl's and a 201 00:09:14,000 --> 00:09:18,320 much faster rate than Ulta's been ramping up its partnership 202 00:09:18,320 --> 00:09:20,480 with Target. We've also seen the rise of 203 00:09:20,480 --> 00:09:22,840 Amazon and digital players capturing share. 204 00:09:22,840 --> 00:09:26,720 And it's really LED Ulta to pull on a number of traffic drivers 205 00:09:26,720 --> 00:09:30,080 such as heavier promotions and marketing spend to get those 206 00:09:30,080 --> 00:09:33,520 consumers back in the stores. And what we're seeing and what 207 00:09:33,520 --> 00:09:35,960 we're we're fearful of it's, it's going to become a much 208 00:09:35,960 --> 00:09:38,920 bigger margin, margin hit than than we originally. 209 00:09:39,640 --> 00:09:43,200 So Ulta falls into the same challenges as Lululemon, rising 210 00:09:43,200 --> 00:09:45,600 competition, pricing power going down. 211 00:09:45,840 --> 00:09:48,440 They're having to give out discounts and promotions and 212 00:09:48,440 --> 00:09:52,040 deals to get more customers, which of course, in turn causes 213 00:09:52,040 --> 00:09:54,760 their margins to go down. And no investor likes seeing 214 00:09:54,760 --> 00:09:56,520 their businesses margins go down. 215 00:09:56,560 --> 00:09:59,480 And even though this one seems like it's at a deal, even though 216 00:09:59,480 --> 00:10:02,160 it seems like it's a high quality company at a discount, 217 00:10:02,560 --> 00:10:06,480 I'm still not buying this stock. And that is because at the end 218 00:10:06,480 --> 00:10:10,320 of the day, it is a retailer and I don't like investing in 219 00:10:10,320 --> 00:10:12,480 retailers. There's only two companies that 220 00:10:12,480 --> 00:10:15,280 you can consider a retailer that I currently have a position in. 221 00:10:15,600 --> 00:10:18,880 One of them is Amazon, which is obviously quite a bit different 222 00:10:18,880 --> 00:10:22,600 than a normal retailer with a massive AWS business with a 223 00:10:22,600 --> 00:10:26,040 massive advertising business. And then there's also Costco. 224 00:10:26,400 --> 00:10:29,560 Now some of you might say, Joseph, that's hypocritical. 225 00:10:29,800 --> 00:10:33,080 Why do you say you don't invest in retailers like Ulta, but here 226 00:10:33,080 --> 00:10:36,960 you are investing in Costco? Costco is truly unique in 227 00:10:36,960 --> 00:10:40,400 retailers and in fact, it's so unique that I don't consider any 228 00:10:40,400 --> 00:10:43,200 other physical retailer to be anywhere close to Costco. 229 00:10:43,600 --> 00:10:46,320 There's some that are somewhat close, like BJ Wholesale or 230 00:10:46,320 --> 00:10:49,800 Sam's Club, but Costco is by far the most unique retailer. 231 00:10:50,040 --> 00:10:53,080 Not a specifically because of their subscription model. 232 00:10:53,560 --> 00:10:56,560 It's a membership model, that's what they call it, but it's 233 00:10:56,560 --> 00:11:00,480 truly a subscription model, just like a software company, SAS 234 00:11:00,480 --> 00:11:04,440 selling software as a service like Intuit or like Adobe. 235 00:11:04,800 --> 00:11:08,720 Costco has that for retail. Now that's something truly 236 00:11:08,720 --> 00:11:10,760 unique. Not many companies can pull this 237 00:11:10,760 --> 00:11:14,240 off because not many companies have the benefit of the customer 238 00:11:14,240 --> 00:11:16,160 loyalty and offering that Costco has. 239 00:11:16,520 --> 00:11:19,640 So they have this big wide Moat where they can offer something 240 00:11:19,640 --> 00:11:21,120 that no other retailer can offer. 241 00:11:21,320 --> 00:11:24,800 The shopping experience is not comparable to other companies. 242 00:11:25,120 --> 00:11:27,880 And then they wrap that into a membership model that further 243 00:11:27,880 --> 00:11:30,160 supports their business. When I look at this on a 244 00:11:30,160 --> 00:11:34,160 trailing 12 month basis, the membership model has generated 245 00:11:34,160 --> 00:11:38,040 nearly $5 billion of revenue and this is extremely high margin 246 00:11:38,040 --> 00:11:39,920 revenue. It's basically all profit. 247 00:11:40,320 --> 00:11:43,280 They don't have to do any type of promotions to advertise this. 248 00:11:43,680 --> 00:11:45,480 You don't really see commercials on TV. 249 00:11:45,800 --> 00:11:49,200 They went over their customer organically and at the same time 250 00:11:49,200 --> 00:11:51,960 they can raise prices on this just like they announced couple 251 00:11:51,960 --> 00:11:54,480 weeks ago, they're raising prices by 8%. 252 00:11:55,000 --> 00:11:57,720 Now this is a small price raise, but again, this is very high 253 00:11:57,720 --> 00:11:59,760 margin. All of this will basically hit 254 00:11:59,760 --> 00:12:02,440 the bottom line. So Costco's a company that the 255 00:12:02,440 --> 00:12:05,840 reason that I hold it is because it's like a software style 256 00:12:05,840 --> 00:12:09,360 company with a subscription model wrapped into a retailer. 257 00:12:09,680 --> 00:12:12,400 When I look at companies like Ulta, it seems like it's at a 258 00:12:12,400 --> 00:12:14,520 great valuation. It seems like it has good 259 00:12:14,520 --> 00:12:17,680 prospects, but it's also facing increased competition from 260 00:12:17,680 --> 00:12:19,720 Sephora. It doesn't have any type of 261 00:12:19,720 --> 00:12:22,480 subscription model. It has a customer loyalty 262 00:12:22,480 --> 00:12:25,440 program, but that's not the same as a subscription model. 263 00:12:25,800 --> 00:12:29,960 So even though Ulta is trading down, I see more continued 264 00:12:29,960 --> 00:12:33,480 struggles with margins, revenue growth slowing due to 265 00:12:33,480 --> 00:12:37,040 competition, and I think the cash flows may stay flatter for 266 00:12:37,040 --> 00:12:39,440 longer. So even though this one seems 267 00:12:39,440 --> 00:12:42,680 cheap, it's another one that I'm not going to be jumping in at 268 00:12:42,680 --> 00:12:44,600 this point. Now Next up, we have Disney. 269 00:12:44,600 --> 00:12:47,080 This company seems to be making a bit of a comeback, but it's 270 00:12:47,080 --> 00:12:50,120 still struggling this year. When we look at Disney, it's 271 00:12:50,120 --> 00:12:53,520 down 5% year to date. At one point, it was trading at 272 00:12:53,520 --> 00:12:57,440 1:22 and it's traded all the way back to $86 per share. 273 00:12:57,880 --> 00:13:00,760 So we were getting the recovery. It seemed like things are back 274 00:13:00,760 --> 00:13:04,160 on track, but then the most recent quarters, Disney's traded 275 00:13:04,160 --> 00:13:06,840 down. Now I have to say, when I look 276 00:13:06,840 --> 00:13:09,800 at Disney, I've done a lot of analysis on this company and I 277 00:13:09,800 --> 00:13:12,960 continue to believe that overall, Netflix is a better 278 00:13:12,960 --> 00:13:14,680 bet. And that is where I've had my 279 00:13:14,680 --> 00:13:16,760 money. At the start of this year, I 280 00:13:16,760 --> 00:13:19,600 even sold a little bit of Apple to buy more Netflix. 281 00:13:19,880 --> 00:13:21,480 This is a massive position of mine. 282 00:13:21,640 --> 00:13:24,240 It's continued to grow and I think that Netflix will continue 283 00:13:24,240 --> 00:13:27,240 to be the streaming leader. It's a more simple company, more 284 00:13:27,240 --> 00:13:30,040 predictable, and it's up 35% year to date. 285 00:13:30,560 --> 00:13:32,760 But Disney's one that I've never really counted out. 286 00:13:33,040 --> 00:13:35,080 It's not one that I've ever been bearish on. 287 00:13:35,440 --> 00:13:37,800 It's one that I continue to look at because I think there's a lot 288 00:13:37,800 --> 00:13:40,040 of potential here and there's a couple things that are moving in 289 00:13:40,040 --> 00:13:43,080 the right direction for Disney. First of all, the box office 290 00:13:43,080 --> 00:13:45,240 hits. Deadpool and Wolverine crossed 291 00:13:45,240 --> 00:13:47,840 $1 billion at the global box office. 292 00:13:47,880 --> 00:13:52,040 This movie is a mega success. It's the most profitable rated R 293 00:13:52,040 --> 00:13:55,000 movie ever. That's really incredible from 294 00:13:55,000 --> 00:13:56,160 Disney. Now. 295 00:13:56,160 --> 00:13:58,920 They've had a bunch of flops leading up to this, but now 296 00:13:58,920 --> 00:14:02,040 they're seeing the hits. You have Inside Out Two and you 297 00:14:02,040 --> 00:14:04,640 have Deadpool and Wolverine and this one's still going. 298 00:14:04,640 --> 00:14:06,720 It's still making money. It'll probably make a couple 299 00:14:06,720 --> 00:14:08,560 $100 million more in the box office. 300 00:14:08,800 --> 00:14:11,480 Then they'll put it on streaming and make even more money and 301 00:14:11,480 --> 00:14:13,880 streaming revenue over time. This is what we want to see from 302 00:14:13,880 --> 00:14:16,520 Disney. Fun movies universally love that 303 00:14:16,520 --> 00:14:18,280 make fun of itself. It's self aware. 304 00:14:18,280 --> 00:14:19,800 They make fun of Fox and Marvel in it. 305 00:14:19,840 --> 00:14:22,960 We see this is a mega success. It seems like the creators are 306 00:14:22,960 --> 00:14:24,920 back on track here now. Another thing that Disney's 307 00:14:24,920 --> 00:14:27,240 planning on doing is further investing in their parks. 308 00:14:27,320 --> 00:14:30,000 In the Anaheim park, they're making a Monsters Incorporated 309 00:14:30,000 --> 00:14:32,800 theme at Disney that seems like a really fun addition to the 310 00:14:32,800 --> 00:14:35,360 park. It'll attract new visitors and 311 00:14:35,360 --> 00:14:38,240 Hollywood Studios, complete with Disney's first suspended roller 312 00:14:38,240 --> 00:14:40,520 coaster. So brand new roller coaster type 313 00:14:40,760 --> 00:14:44,320 that makes them more competitive with the faster, more extreme 314 00:14:44,320 --> 00:14:46,280 roller coasters that you see at Universal. 315 00:14:46,640 --> 00:14:50,720 Disney mostly has more mundane smaller rides for little kids, 316 00:14:51,120 --> 00:14:53,200 but a suspended roller coaster seemingly would be more 317 00:14:53,200 --> 00:14:55,320 exhilarating. So that's another thing they're 318 00:14:55,320 --> 00:14:57,280 adding to make the park more dynamic. 319 00:14:57,320 --> 00:14:59,440 And these are big new investments in their parks, the 320 00:14:59,440 --> 00:15:01,800 scope of which are above 10s of billions of dollars. 321 00:15:01,840 --> 00:15:04,320 And this is what Disney should be doing, investing in things 322 00:15:04,320 --> 00:15:06,440 that they know they're going to get a good ROI. 323 00:15:06,720 --> 00:15:10,000 Investing and expanding their parks is a guaranteed money 324 00:15:10,000 --> 00:15:11,880 maker. Even though there's some short 325 00:15:11,880 --> 00:15:14,960 term cyclicality and demand, there's some seasonality. 326 00:15:15,200 --> 00:15:18,320 The parks are money printers. So I like seeing Disney spend 327 00:15:18,320 --> 00:15:20,040 more money investing in their parks. 328 00:15:20,200 --> 00:15:22,680 The other thing that I like seeing for Disney is the growth 329 00:15:22,680 --> 00:15:25,360 in their streaming subscribers. Now this shows all their 330 00:15:25,360 --> 00:15:28,080 different digital media properties, but if we cross out 331 00:15:28,080 --> 00:15:31,240 Disney Hotstar, which is like the cheaper version of it and 332 00:15:31,240 --> 00:15:34,600 Hulu, you can see Disney domestic and international. 333 00:15:34,920 --> 00:15:37,480 This is growing 12% year over year. 334 00:15:37,680 --> 00:15:39,000 That's a lot of subscriber growth. 335 00:15:39,000 --> 00:15:41,800 So they're still growing their subscribers for their core 336 00:15:41,800 --> 00:15:43,800 streaming service. And then not only that, they're 337 00:15:43,800 --> 00:15:46,520 growing the amount that customers are paying while 338 00:15:46,520 --> 00:15:49,560 growing the number of customers. So you're seeing growth in 339 00:15:49,560 --> 00:15:53,120 subscribers and the average revenue per subscriber, both of 340 00:15:53,120 --> 00:15:55,720 these metrics moving up at the same time speaks really well for 341 00:15:55,720 --> 00:15:58,000 Disney Plus. And they just raised prices 342 00:15:58,000 --> 00:15:59,480 again. They're going to make more money 343 00:15:59,480 --> 00:16:02,800 as I think most people be very reluctant to cancel their Disney 344 00:16:02,800 --> 00:16:04,440 Plus. Now when we look at the revenue 345 00:16:04,440 --> 00:16:08,280 by segment of the company, up until Q2 of 2023, they broke it 346 00:16:08,280 --> 00:16:10,960 down from media and entertainment into parks. 347 00:16:11,320 --> 00:16:13,240 But now we have these three different categories. 348 00:16:13,480 --> 00:16:17,320 Experiences is now the parks. You have sports, which of course 349 00:16:17,320 --> 00:16:20,200 is ESPN and then you have the entertainment, which is all the 350 00:16:20,200 --> 00:16:23,240 streaming services. Now the parks is mostly 351 00:16:23,240 --> 00:16:26,400 flattish, but that's still good. That's high income, a money 352 00:16:26,400 --> 00:16:29,240 generator for the company. You have sports, which is 353 00:16:29,240 --> 00:16:31,400 growing a little bit year over year as they're growing their 354 00:16:31,400 --> 00:16:35,200 ESPN and you have entertainment, which is a portion that I'm the 355 00:16:35,200 --> 00:16:38,160 most excited about. This is their box office, it's 356 00:16:38,160 --> 00:16:41,520 their streaming services. And as this portion grows, the 357 00:16:41,520 --> 00:16:44,040 predictability of Disney's earnings gets better and better. 358 00:16:44,080 --> 00:16:45,640 I like what I see from Disney. Now. 359 00:16:45,640 --> 00:16:47,560 We also see the free cash flow coming back. 360 00:16:47,840 --> 00:16:51,760 On a trailing 12 month basis. They've made seven $96 billion 361 00:16:51,760 --> 00:16:55,360 in free cash flow, so they're now again highly profitable with 362 00:16:55,360 --> 00:16:57,640 their free cash flow, and they're projecting that this 363 00:16:57,640 --> 00:17:00,320 will steadily go up over time as they build their streaming 364 00:17:00,320 --> 00:17:02,520 service. With the stock trading back down 365 00:17:02,520 --> 00:17:06,400 over the past couple of months to $86 per share, I think Disney 366 00:17:06,400 --> 00:17:10,359 has crept back in to a buy. I see positive catalyst as 367 00:17:10,359 --> 00:17:12,119 streaming grows and becomes profitable. 368 00:17:12,440 --> 00:17:15,359 The parks are flat and that's the part where people are 369 00:17:15,359 --> 00:17:17,720 selling the stock. But I believe that's temporary. 370 00:17:17,800 --> 00:17:20,400 Disney will continue to grow the parks experience over time. 371 00:17:20,640 --> 00:17:22,800 There's not going to be other companies that build parks like 372 00:17:22,800 --> 00:17:23,599 Disney. Disney does. 373 00:17:23,640 --> 00:17:26,160 I think at $85 per share, Disney's a buy. 374 00:17:26,200 --> 00:17:29,200 Now moving on, we get to Airbnb, another compounding machine that 375 00:17:29,200 --> 00:17:32,760 has fallen this year. Airbnb is down 15% year today, 376 00:17:32,760 --> 00:17:35,000 especially after their most recent earnings. 377 00:17:35,520 --> 00:17:37,960 They basically said that things are going to slow down a little 378 00:17:37,960 --> 00:17:39,320 bit. We don't know how much, but 379 00:17:39,320 --> 00:17:42,000 they're just going to slow down. That spooked investors, so they 380 00:17:42,000 --> 00:17:44,480 head for the exits. The biggest problem I have with 381 00:17:44,480 --> 00:17:48,240 Airbnb is a couple things. One of them is that the company 382 00:17:48,240 --> 00:17:51,080 is not that diverse. They have one way of making 383 00:17:51,080 --> 00:17:53,400 money and that is by short term rentals. 384 00:17:53,760 --> 00:17:56,280 Now the CEO of the company is moving into different 385 00:17:56,280 --> 00:17:58,400 categories. He's probably going to do long 386 00:17:58,400 --> 00:18:01,320 term rentals, maybe hotels, maybe more of a management 387 00:18:01,320 --> 00:18:04,160 thing, We don't know. But he said that every year 388 00:18:04,160 --> 00:18:07,240 they're going to add more and more different revenue items to 389 00:18:07,240 --> 00:18:09,480 Airbnb. So that's exciting for Airbnb 390 00:18:09,480 --> 00:18:12,720 investors that takes a long time to build out and even longer to 391 00:18:12,720 --> 00:18:15,480 gain customers. And when we're looking at this, 392 00:18:15,480 --> 00:18:17,280 I'm comparing it to booking holdings. 393 00:18:17,600 --> 00:18:23,400 Airbnb currently trades at a 27 Ford PE ratio while Booking the 394 00:18:23,400 --> 00:18:27,880 company I do invest in trades at a 19, so bookings at a much 395 00:18:27,880 --> 00:18:31,640 cheaper valuation even though they're growing around the same 396 00:18:31,640 --> 00:18:34,680 rate. Booking grew at 7% revenue last 397 00:18:34,760 --> 00:18:38,040 quarter and Airbnb grew around 10%. 398 00:18:38,120 --> 00:18:40,840 And This is why I didn't buy Airbnb at this point. 399 00:18:40,840 --> 00:18:44,800 So even after this 15% decline year to date, I'm still not 400 00:18:44,800 --> 00:18:47,040 buying Airbnb to buy this company. 401 00:18:47,040 --> 00:18:50,920 I'd be looking at a price point around a 24 PE ratio, so it 402 00:18:50,920 --> 00:18:53,720 would still have to come down in price quite a bit now Next up we 403 00:18:53,720 --> 00:18:55,520 have another fast growing company. 404 00:18:55,520 --> 00:18:58,840 Very exciting one that was supposed to be monster two point 405 00:18:58,840 --> 00:19:02,840 O that is Celsius, the healthy energy drink company. 406 00:19:03,240 --> 00:19:07,360 Now we look at this company and it's traded down 35% year to 407 00:19:07,360 --> 00:19:08,960 date. Over the past five years, it's 408 00:19:08,960 --> 00:19:12,640 up to 1600%. Celsius growth and dominance has 409 00:19:12,640 --> 00:19:15,760 been incredible over the past couple of years, but I'm fearful 410 00:19:15,760 --> 00:19:19,240 that the investors buying in now have missed the window of this 411 00:19:19,240 --> 00:19:21,920 incredible growth. It's true that the revenue has 412 00:19:21,920 --> 00:19:25,640 grown dramatically since 2020, but remember, when you're buying 413 00:19:25,640 --> 00:19:28,320 a stock, you're not buying the previous revenue, you're buying 414 00:19:28,320 --> 00:19:31,440 the future revenue. And the revenue is slowing. 415 00:19:31,440 --> 00:19:34,600 It's decelerating. My issue with Celsius is I still 416 00:19:34,600 --> 00:19:37,280 believe it's victim to the caffeine bubble. 417 00:19:37,480 --> 00:19:40,480 This is a call I made early this year where I said there's so 418 00:19:40,480 --> 00:19:45,240 many companies like McDonald's and Starbucks and Dutch Bros and 419 00:19:45,280 --> 00:19:49,200 you name it, getting into highly caffeinated beverages, making 420 00:19:49,200 --> 00:19:52,040 energy drinks. You have Monster Energy and 421 00:19:52,040 --> 00:19:54,960 Celsius and you have a bunch of other brands doing the same 422 00:19:54,960 --> 00:19:58,240 thing and eventually that level of competition is going to catch 423 00:19:58,240 --> 00:20:00,440 up. So you see the common theme 424 00:20:00,440 --> 00:20:03,360 here, Competition catching up to these fast growing companies 425 00:20:03,360 --> 00:20:06,600 lowers their pricing power. When pricing power is lowered 426 00:20:06,880 --> 00:20:10,200 and they don't have that organic growth, eventually the growth 427 00:20:10,200 --> 00:20:13,880 slows down and if the company is not priced for slowing growth, 428 00:20:14,040 --> 00:20:17,520 the stock price will plummet. So with Celsius, even though the 429 00:20:17,520 --> 00:20:22,040 company's down 3540% year to date, I would not be buying this 430 00:20:22,040 --> 00:20:23,920 company. I still think it's incredibly 431 00:20:23,920 --> 00:20:26,840 risky. It's still trading at a 43 Ford 432 00:20:26,840 --> 00:20:29,400 PE ratio. This company has a long ways to 433 00:20:29,400 --> 00:20:33,040 drop even from here if the growth continues to slow, which 434 00:20:33,040 --> 00:20:35,480 I think there's a good chance it will now finally we get to the 435 00:20:35,480 --> 00:20:39,840 last one, Nike, which is currently down 30% year to date 436 00:20:39,840 --> 00:20:41,600 and Nike's had a very difficult time. 437 00:20:41,920 --> 00:20:44,960 If we look at the stock over the past five years, it's literally 438 00:20:44,960 --> 00:20:47,960 gone nowhere. It's down 11% on A5 year basis. 439 00:20:48,040 --> 00:20:51,040 I believe the problem with Nike is simply that the company is 440 00:20:51,040 --> 00:20:54,680 too expensive, and it has been way too expensive for a very 441 00:20:54,680 --> 00:20:57,040 long time. Investors got used to seeing 442 00:20:57,040 --> 00:21:00,960 this company at a 40 or 50 PE ratio, and they assumed since 443 00:21:00,960 --> 00:21:04,800 the company traded at a 40 or 50 PE ratio last year, it'll do the 444 00:21:04,800 --> 00:21:07,480 same this year. But that doesn't always hold, 445 00:21:07,480 --> 00:21:11,320 and we shouldn't use previous PE ratios to justify current PE 446 00:21:11,320 --> 00:21:14,800 ratios. Nike now trades at a 24 PE 447 00:21:14,800 --> 00:21:19,360 ratio, even after dropping 30%. Even after going nowhere for 448 00:21:19,360 --> 00:21:22,720 five years, I still think the company's very expensive. 449 00:21:23,000 --> 00:21:27,640 It should trade much lower, 15 to 17 four PE, given the level 450 00:21:27,640 --> 00:21:29,560 of competition the company faces now. 451 00:21:29,840 --> 00:21:35,040 It's also new with on Brand and Hoka and Lululemon and you name 452 00:21:35,040 --> 00:21:37,160 it, competing with different aspects of this company. 453 00:21:37,360 --> 00:21:39,720 Nike now faces more competition than ever. 454 00:21:39,920 --> 00:21:42,560 The growth for the company is more difficult than ever and 455 00:21:42,560 --> 00:21:46,200 trying to justify this one by how much it's dropped or what PE 456 00:21:46,200 --> 00:21:49,920 ratio it used to trade at is not the way to look at this company. 457 00:21:49,960 --> 00:21:52,600 So Nike's another one that for me is a pass. 458 00:21:52,960 --> 00:21:54,480 And you see some common themes here. 459 00:21:54,760 --> 00:21:57,120 When I'm looking at compounding machines, the most difficult 460 00:21:57,120 --> 00:22:00,320 thing for these companies is to fend off competition. 461 00:22:00,520 --> 00:22:03,440 Competition is always the most difficult part of investing in 462 00:22:03,440 --> 00:22:05,240 stocks. And that's why when I look at 463 00:22:05,240 --> 00:22:09,200 compounding machines, the very first, the very top attractive 464 00:22:09,200 --> 00:22:11,840 attribute I look at is monopolies. 465 00:22:12,080 --> 00:22:15,600 Companies that have a huge market share, dominant moats, 466 00:22:15,680 --> 00:22:18,800 they own the industry. This is why I put the majority 467 00:22:18,800 --> 00:22:21,240 of my money in companies like S&P Global and Moody's. 468 00:22:21,280 --> 00:22:23,760 There's no up and coming competitors to S&P Global and 469 00:22:23,760 --> 00:22:25,280 Moody's. There's no companies that can 470 00:22:25,280 --> 00:22:27,640 take their market share of credit ratings. 471 00:22:28,200 --> 00:22:31,040 MasterCard and Visa. There's always talks of new 472 00:22:31,040 --> 00:22:34,560 payment methods, but MasterCard and Visa continue to own the 473 00:22:34,560 --> 00:22:36,840 dominant market share. You look at companies like 474 00:22:36,840 --> 00:22:40,080 Intuit, which have over 80% market share of things like 475 00:22:40,080 --> 00:22:42,600 TurboTax and QuickBooks. These are the ones that I 476 00:22:42,600 --> 00:22:45,040 typically go into because I think they make the most 477 00:22:45,040 --> 00:22:47,760 attractive investments. So with My Portfolio, I'll 478 00:22:47,760 --> 00:22:51,040 continue to focus on companies that have dominant market share, 479 00:22:51,040 --> 00:22:54,240 brand value and pricing power. And you can measure that by 480 00:22:54,240 --> 00:22:56,280 whether or not they're raising or lowering prices. 481 00:22:56,640 --> 00:22:59,680 Companies lowering prices is a clear indicator that they're 482 00:22:59,680 --> 00:23:02,400 lacking in pricing power. Now that's a review of these 483 00:23:02,400 --> 00:23:03,720 companies. I hope you enjoyed it. 484 00:23:03,800 --> 00:23:05,560 That's all for now. See you in the next one.