Welcome back everyone. We have some breaking news.
Elon Musk is saying that he's going to be cutting 10% of the
Tesla Workforce, ten percent of the jobs.
They employ 100,000 people said that would be roughly 10,000
jobs. Now, the reason that he's saying
that he's doing this is because of quote, a super bad feeling
about the economy and that they need to cut about 10% of jobs at
the electric car maker. So this was news, it was leaked
by Reuters and Elon Musk saying that he has a bad feeling about
the economy that he's going to be.
Cutting 10% of the workforce. There's lots of opinions,
swirling about this. This news has caused Tesla stock
to drop 9% today. So it's down way further than
the QQQ. And I think it's primarily
because of this announcement and this news also comes
conveniently after an email, two days after an email that Elon
sent out to the Tesla Workforce, saying you have to come into
work for 40 hours a week. We're building the most
important stuff in the world and we expect you to be in the
Right. He had this Stern stance on work
from home. He clarified this email coming
out with a new one saying that every single worker needs to
come in the office 40 hours per week.
So there's now some people drawing some conclusions that
just maybe, just maybe his hard stance on work from home was an
effort to in fact, just get people to quit the job.
If people didn't want to come into the office, they could
quit, then you would need a fire less people because he's already
wanting to get rid of people. Now, I'm going to go through all
of this with you. We'll talk about Tesla.
Ting jobs will talk about Elon having a super bad feeling about
the economy and we'll talk about working from home.
I worked as a developer for very long time.
So I do have some opinions on work from home and I think that
Elon Musk has that subject wrong, but overall, I want to
discuss this news because I don't own any Tesla stock.
I don't have a stake in this company.
I have no dog in this fight so to speak.
And so I'll give you an unbiased take because I think a lot of
Tesla Fanboys. So to speak will instantly just
try to spin this as good news. That Tesla's going to be more
Efficient and profitable and I don't plan on doing that.
I want to give you an unbiased take and tell you what I really
think from a third-party perspective.
So we're going to jump into all of that as well.
As. One other thing in this video.
I want to address a common question and and comment left on
my previous video. I did a video on Salesforce.
I reacted to their earnings report, their future outlook,
and I did fundamental analysis on the company and one part of
my analysis. I showed was that Salesforce
issues shares right now, they are dilute of Me, and you can
see the shares outstanding over time.
Now, I received the most comments about this part of
their fundamentals, that they are deluded of company, and many
people have the conclusion in their head.
They think, if a company has any dilution like this, it's just a
bad company. You don't want to buy, you don't
want to own it. It's bad for the shareholder.
The rest of the fundamentals, don't really matter.
This is a complete Nono, and I want to address this because
dilution has been a very popular subject.
Everyone has an opinion on dilution.
And I want to answer the question is dilution good or
bad. I'll be answering that once and
for all. So we have a lot to get to.
Let's go ahead and Jump Right In.
We'll start off with the Elon Musk and Tesla news.
This is what we know so far. So, let me just lay out the
facts here, this morning, an exclusive from Reuters said that
Elon Musk wants to cut 10% of Tesla jobs.
Now, Tesla hires or they employ 100,000 people.
So that's roughly 10,000 people. He said in the memo that quote,
he has a super bad feeling about the economy and needs to cut.
At 10% and the title of it was pause.
All hiring worldwide. So Tesla has already paused all
hiring but now they're actually going to be cutting back on
their Workforce in this is really all we know.
He has a super bad feeling about the economy.
He's paused all hiring and they want to cut the workforce.
Now this going to be a lot of Tesla Fanboys, a lot of Tesla
investors that try to spin this as positive news as possible.
One thing that you should ask yourself when you look at other
YouTubers and other you know, Financial content creators.
Ask yourself. What was their opinion?
One Netflix had slowing growth and had to cut back on their
Workforce. Did they have a positive opinion
on that? They think that that was such a
great thing for Netflix. What about Amazon Amazon
recently over hired had a very slow growth quarter and now
they're trying to trim down on their Workforce.
They're not hiring any more did those?
Same people that think that this is good news for Tesla, think
that, that was good news for Amazon, right?
Is it good news in general, when a Growing company that still in
the growth praise right? Tesla is a fast growing rapidly
growing company with a very high, P/E ratio, very high
expectations. And now they're trimming ten
percent of their Workforce. Now, I do think that companies
should have a level of discipline.
They should try to gauge their hiring based off of their
budget, their revenue, their profitability, and their future
demand. I do not think companies should
gauge their hiring off of having super bad feelings about the
economy. That to me seems like a very odd
way to put this. We're going to Eventually fire
10,000 people because you woke up and had a bad feeling bad,
feeling about the economy, a gut feeling.
That's how you're going to run the business.
There's got to be a better reason than that.
And generally speaking calling it like it should be called.
A growing company should be hiring employees.
If a company is growing rapidly and has excess demand, that is
trying to keep up with it, should be expanding crowdstrike
is hiring many employees. That's because it's a growing
company. Atlassian, tiring, many
employees. That's because it's a growing
company. Any growing Company in today's
market is desperate for employees.
So having Tesla now say that they're cutting back.
I don't see how this with. Any honesty can be viewed as a
huge positive and I think the market is right, to be skeptical
about it to say that this is not really a great thing.
Now, on this subject. Let me address one other thing,
just a couple days ago. Elon Musk sent out.
This leaked email, we have right now.
This is spread all over Twitter, and it says that anyone who
wishes to do remote work, must be in the office for a minimum.
And I mean, I'm minimum. In Asterix there for 40 hours
per week or depart Tesla. This is less than we asked
Factory workers. If there are particularly
exceptional contributors for whom this is impossible.
I will review and approve those exceptions directly.
Now, this email renewed the debate of work from home whether
or not, it's good or bad, whether or not Elon Musk should
require employees to come in, you know, are other companies
going to do that. Other executives are trying to
figure out the right balance. Some of them like they're in.
Ploys to be in the office all the time.
They think it's better for various reasons.
Some of them. Allow them to work at home
either. Full time or partially.
Now I have some thoughts on this as well.
I worked as a senior level full stack web developer for about
eight years and work from home was something that I did before
and I've also worked in an office for 40 hours a week and
my thoughts on. It are the I think there are
many cases many employees that do not need to come in the
office for 40 hours a week. And I disagree entirely with
Elon. On the subject, requiring
everyone to come into an office 40 hours per week.
Because Factory workers do doesn't make sense.
And even after Elon Musk has had all the flaws in this argument
pointed out. He's continued to defend this
position, repeatedly on Twitter. The CEO of atlassian says that
the news from Elon Musk and Tesla today feels like something
out of the 1950s. I agree.
He says everyone at Tesla is required to spend a minimum of
40 hours a week in the office, very different approach to what
we are taking at. Atlassian.
And here's why he explains how he wants the best talent in the
world working for their software company.
So he hires people across the world that aren't even close to
an office there like two or three hours away from the
closest office. And as long as they're
contributing and helping, they are an asset to atlassian.
Now, Elon Musk. He responded to this.
He said everyone eats the same food uses the same rest rooms
Etc. No, executive chef or others in
an ivory Tower stuff. There shouldn't be this workers
versus Judgment to class system. Everyone is a worker.
There's so many flaws with this logic, just for one, not
everyone's paid the same. So if everyone's just the same
and should be treated the same, why do senior Executives make
far more money than the factory workers?
Right? There's multiple flaws with
this. One of these jobs requires you
requires you to be in person. The other one does not.
That's the simple facts and Elon Musk doesn't seem to be taking
this into account at all. And if you're developing
throughout the day, There's other ways to even hold you
accountable. So the people saying that Elon
Musk is correct, because if you're working from home, you
could be slacking. Who knows what you could be
doing. You should judge an employee by
their output, what they're able to accomplish, and there's ways
to do that with development. There's coding reviews.
You can look at what they're submitting to GitHub to the
repositories. So this this idea that everyone
should work in an office because Factory workers have to because
of their job is just silly door-to-door.
Salesmen have to work outside. Does that mean everyone should
be equal and work outside walking around the streets
knocking on doors? No different jobs, necessitate
different needs and for some jobs.
It's fine to work from home. So I don't agree with Elon Musk
at all on the subject. I think he's incorrect and
there's a couple reasons why I think he would be doing this.
One of them is I think there is maybe room for exception for a
carmaker. Tesla is an automaker.
So encouraging the work from home environment with an
automaker, may not be the best. Best idea.
So maybe that's part of his thinking here is we can't have a
culture of work from home, right, ditching Transportation.
When we're Tesla. We're in auto maker.
And I think that that would be a defendable stance.
So maybe in this unique stance, Elon Musk can defend it that
way, but I also think the other reason why that he has this very
aggressive hard. No, Stan some work from home is
because he wants to get rid of employees.
Now, we know he wants to fire 10% of Tesla Workforce.
So if you quit because you're frustrated with their From home
policy. So be it, who cares?
He wants to get rid of you anyway, and that way, he doesn't
have to pay Severance, and it doesn't look like Tesla's
cutting back but now. Well, now the cats out of the
bag, now, moving on, it's time to address one subject from the
previous episode. Is dilution good or bad.
I did a video on Salesforce. And this was one where I went
over their earnings report, their valuation.
And one of the metrics that I brought up one of the
fundamentals was, the dilution chart.
It shows that the shares outstanding overtime continue to
grow as say, Salesforce partially funds their business
and their stock based compensation through dilution.
Now, this received a lot of comments and I mean, a lot, we
had people commenting on dilution and dilution and
dilution dilution dilution dilution over and over again,
all throughout the comment section, and many people have
the attitude that if there's any dilution with the company at
all, I'm not even going to look at it.
I won't even look at the other fundamentals.
I will never buy a company at all.
That does any dilution whatsoever.
So, let's go ahead and Take a look at this and address the
subject of dilution together. We have sales force here, which
it's very clear that this company is diluting.
The shareholder dilution means that they're issuing more shares
which makes your Equity ownership in the company go down
over time because you buy one chair and if the company issues
more shares you own a smaller percentage of the company.
So this is just on a on a plane basis.
It's a - because you have less ownership of the company and
Salesforce has been doing this since the very beginning.
It's a growth company is diluting the shareholder.
But this should be looked at through the context of the
overall fundamentals of the company.
This shouldn't be looked at in isolation, one, important thing
to keep in mind. Is that even though Salesforce
has roughly doubled their shares outstanding over the past 10
years, there amount of free cash flow.
They've generated over the past 10 years, has gone up roughly 10
times. So they've doubled the share
count and then 10x the amount of free cash flow on a free cash
flow, dilution adjusted basis. They're growing their free cash
flow at an Pull rate. So the equity owner hair owns a
greater and greater amount of cash flow per share per year,
and I'm actually going to include a graph in qual, Trim in
this new update that will have free cash flow per dilution
adjusted share. Meaning that you're seeing, even
with dilution factor it in the amount of free cash flow of the
company is growing. So that'll make this more clear.
But again, that's something that you have to factor in every
company can dilute or they can do share BuyBacks.
What's really important is the amount of free cash flow of the
company is generating. On a per share basis.
And we can look at other examples of this apple a
company. Everyone loves, this is a great
company and its a company doing. Share BuyBacks.
Right? Well, it's a company that now
does share BuyBacks, but up until 2012.
This company wasn't doing share BuyBacks.
You can clearly see that for the majority of apples life, for
over half the company, they were diluting.
The shareholder was Apple, a poor investment in 2010 because
it was diluting, the shareholder.
Should you warn people from investing in apple back in 2005,
or Early 2000s because it was deluding, did it suddenly become
a great investment in 2013, when it stopped dilution.
No, this was just the Arc of the growth of the company company
start off diluting, and then, they start to do share BuyBacks.
Once they get to massive scale. This is exactly what this chart
shows with apple. We can look at Google as an
example, another company that many people right now, Phil is
undervalued. Well, if we look at Google's
shares outstanding, over time, from 2003, at the start of the
company, all the way to 2017 into 1018 this company was
deluding the shareholder. So everyone that thinks that
dilution is just an instant write-off for the company.
Take a look at these charts, every great company.
In today's market did dilution for the majority of their
lifetime. Only recently, in 2019.
Did Google start to do, share BuyBacks.
That is a recent occurrence. We can take a look at Facebook.
Another company that many people feel is undervalued right now.
Facebook did dilution up until 2017.
Another company that Throughout the first half of the lifetime,
deluded, the shareholder. And again, recently started
doing share, BuyBacks. Microsoft is no exception either
this company shares outstanding show that up until 2005.
This company was deluding the shareholder.
Then in 2005. They started to do a lot of
share BuyBacks. So all I want to point out here
is that dilution is just a tool. It's inherently neither, good
nor bad. It's the way that the company is
using it. If the company is taking money
by doing dilution and creating more value on a per share basis.
In the free cash flow per share, then that is an accretive
attractive transaction for the investor.
And on a side note. This is virtually.
What all REITs do? Every single reap dilutes realty
income Corp, the monthly paying dividend company.
It's diluted its entire lifetime.
It's issued more and more shares because they can't retain any
earnings. They have to distribute all of
them. But on a per share basis, they
create greater and greater a FF 0 which is the amount of free
cash flow. They have the same thing with
Vici. The same thing with any Real
Estate Investment Trust, so they use dilution in a Very good way,
they create more value for the shareholders.
So I'm not trying to say that dilution is fine and you should
just ignore it, always take it into account because some
companies do you use it in a way that's dis advantageous for the
investor, but put it in context. See if the company is growing
their free cash flow per share, that factors in dilution.
So that's my thoughts on that. I hope you enjoyed this episode
and I'll see you in the next one.