Welcome back everyone. It's time for an earnings week
preview, and this is for week 3 of earnings.
This is the last really big earnings.
We've made it through week one and two.
The markets held up, but we have a couple big names this week, in
particular Amazon and Apple. Those are two big ones.
I own both of them. So I'm going to be going over
and doing a bit of analysis on each of these companies.
Now as we look through this week ahead, we have a whole list of
companies here. I scanned through them and I
circled the ones that we're going to be going over in this
video. These are the ones that I
believe are the most notable, the most interesting or the most
impactful. And we're going to be doing a
little bit of an earnings preview on each of these
companies. Now to start off the week, we
have Sophie, they just reported earnings this morning and
they're up 15%. So a huge beat by Sophie.
I'll be sharing some opinions on that stock in general.
And then we have tomorrow a whole list of companies.
We have the continued theme of the the recovery in cruise lines
with Norwegian Cruise Line. This is I think a pretty good
cruise line. So we'll be looking at that.
We have Uber. This is a company that I'm
getting more interested in over time.
And then after market closed tomorrow, we have Starbucks,
another food company very similar to Chipotle in my
opinion. Then we move on to Wednesday.
We have two big fintech companies, one of them being
PayPal and the other one being Shopify.
Now a lot of people think that I'm wrong, that Shopify isn't
really a fintech company, it's an online retailer, but I'm
going to explain why. I believe Shopify is a fintech
company like PayPal as well. So we're going to be going over
both of those companies. I'll be giving you my opinions
on what's going to happen in their earnings.
Then we move on to Thursday. Thursdays is a big day.
We have before market opens, Warner Brothers Discovery.
They're dealing with a ton of debt, they're dealing with a
very difficult content slate and they're dealing with the riders
strike along with Netflix and everyone else in the
entertainment industry. So that's a very complicated,
kind of messy company. Right now after market close is
where we really get into it with Amazon and Apple reporting at
the same time. I'm going to be spending the
most time going over Amazon and Apple in this video.
So we'll be looking at those two.
And then we also have Airbnb. That's another company I find
very intriguing. And then to close out the week,
we have Nikola, a company that's infamous for rolling a truck
down a hill and pretending that it was driving itself.
We're going to be looking at Nicholas Financials and doing a
little bit of an update on their upcoming earnings as well.
So we have a lot of stocks to cover in this video and a lot of
analysis to get to. Let's go ahead and jump right
in. We'll start off with Sophie.
Sophie just reported their earnings this morning and as we
can see right here in Qualtram, the stock is up 18.53% today.
This is just today's return, so it's up nearly 20% today.
Sophi Investors are having a very good day today.
Now on Qualtram, we also have something where if there's any
notable change in stock price, it informs you of what's going
on. And Qualtram says that Sophi
Technologies shares are trading higher.
After the company reported better than expected Q2
financial results, it issued 2H adjusted net revenue guidance
and raised the financial year 2023 adjusted net revenue
guidance. So basically they beat their
current estimates and then they raised estimates for the rest of
2023. And that is precisely what
investors are looking for. Investors are bidding up these
companies year to date in hopes that they raise their guidance
for the full year of 2023. But the reason that Sofi stock
is doing so well this year is the company's doing really well.
Every core metric that they track, the amount of customers
they have, the amount of loans they're giving out, the amount
of financial services they're doing, all of that's moving in
the right direction. We have their member count.
This is the amount of customers going up per year.
We see very strong growth with Sofi.
Now I've looked at Sofi. I find this company intriguing.
I think it's one of the better fintechs in existence in my
opinion between Sofi and Ally Financial.
Right now I probably like Sofi a little bit more because if you
look at Ally as a competitor to Sofi, both of them are offering
a lot of financial services. They're offering a lot of
fintech banking like products. But Sofi's doing it in a
category that I think is less risky.
Ally Financial, for example, has most of their loans based around
used cars, which is a market that I don't want a ton of loan
exposure in. Sophie, on the other hand, is
highly diversified. A lot of it is student loans, a
lot of it is mortgage, a lot of it is car loans.
But overall, it's a bigger breadth of product that they're
offering. So I like the diversification of
this company a little bit more. So overall, I like the earnings
report. I like the situation of Sophie.
I like the loan diversification. I like that the company's headed
in the right direction as well. Fundamentally speaking, the big
things I would be looking for at this company continuing from
here is that free cash flow. When are they going to generate
real free cash flows like the bigger, more mature banks.
Now moving on, tomorrow morning, we have Norwegian and Uber
reporting their earnings before the bell.
Let's go ahead and start off with the cruise line here,
Norwegian Cruise Line. Now this is in the category of
company where I think you're better off enjoying their
services and their product than you are investing in the stock.
That's the case in some some companies you're just better off
enjoying what they have to offer instead of putting your money
behind them. In this case, I actually think
Norwegian Cruise Line is a very fun company.
I've only gone on two cruises. One was with Carnival, one was
with Norwegian, and Norwegian was much, much better.
The cruise ships are really fun. They're almost like amusement
parks. On top of the ship, they have
courts and swimming pools and slides and rope courses.
They have a plank that you can walk out the side of the boat
over the edge of it. We were looking down at the
water. I did that and it was incredibly
frightening, but a fun thing to do.
It's just a lot of fun. These are cruise liners that are
made a little bit more modern and updated, and that's a fun
part of it. What's not fun is finding
yourself wrapped up in a cruise line stock because you bought in
hoping to buy the dip. In some cases, that can pay off
if you're able to time it correctly.
For example, if you bought into Norwegian Cruise Line at the
beginning of the year, you'd be up 83%, feeling very good right
now. Even if you bought the company
one year ago, you'd be doing okay.
But if you bought it five years ago, over a longer time horizon,
you're down 55%. If you bought it 10 years ago,
you're down 28%. And then all time with this
stock back to 2013, you're still down 12%.
So this is a stock where you have to time the ups and downs,
you have to buy in on a dip, sell at the top and historically
that's proven to be incredibly difficult for investors near
impossible to do consistently. So my thoughts are to avoid
these type of stocks overall when I look at Norwegian, we can
look at the problems with this type of industry, The revenue
has recovered. So we're back to all time high
revenues and we're probably going to see all time high
revenues this quarter. But the revenues, not the only
thing that matters. We look at the economics of the
company. Since Norwegian had to take on
so much debt during the COVID shutdown, the company literally
doubled its longterm debt. It went from running around $5.7
billion in debt to now running 12 billion.
So we have double the amount of debt, which means double the
amount of interest payments. And this is longterm debt.
Longterm debt needs to be refinanced eventually.
So not only do they have double the debt they had previously,
but the debt they now have is going to have to be refinanced
at a higher price in the future. When those loans mature and the
company has to refinance, that's not going to be a fun time for
this company if interest rates are where they are today.
This is why I try so hard to focus on companies that don't
have much longterm debt exposure and cruise lines have that.
So what we see is a company that has a lot more debt and it's
going to be very difficult to get back to the same earnings
per share they were at previously.
Now, aside from their financial situation, I do expect this to
be good earnings. In terms of the expectations
investors currently have, I expect a beat on the top and
bottom line. I can't say for sure there's no
guarantees, but I would be pretty surprised if they didn't
considering the demand that cruises have right now.
Now moving on, we have Uber. Uber is one that I've looked at
for a long period of time. This company, the only thing
wrong with it has been that it hasn't really made any money
throughout its history. But a couple quarters ago, I
believe around 3/4 ago, the CEO of Uber said that their primary
focus is becoming profitable, becoming free cash flow
positive, focusing on the economics of the business, he
basically made a huge pivot. He went from being a company
that's focused on disruptive growth and market share and
network effects, the profitability, cash flow and
profitability. And when he said that, I really
think he meant it. He really said that they're
shifting the whole company towards profitability.
So that's what we would expect to see this quarter, continued
growth in their free cash flow and profits.
We look at the company so far, right now it's $100 billion
stock, so $100 billion market cap and it has stock based comp
adjusted a negative free cash flow.
So they're just in that inflection point of becoming
economically positive. Uber is up 94% year to date.
It trades out of $100 billion market cap.
Investors have very high expectations for this company
and right now the company is a very risky 1A, risky 1 to be
invested in. If they do not hold up to their
high expectations, this stock is going to trade down
dramatically. If they give very poor or
underwhelming guidance, the stock will trade down as well.
They need to show accelerated continued cash flow growth,
great operating leverage, improvements in the margins and
profitability. Otherwise the stock is going to
go down. So it's at one of those pivotal
moments right now in the stocks transition to profitability.
This was the same situation that Netflix had and their last
quarter, investors had very high expectations.
The stock got bid up, but Netflix told investors they're
going to make $5 billion in free cash flow this year.
That's what kept the stock where it is.
So these type of companies that are transitioning from growth to
profitability, they have a really big task on their
shoulders. They really have to prove their
business model and prove the economics of it.
And if they get it wrong, if for whatever reason they can't grow
profitably, it's going to be, it'll be a bloodbath for these
companies in my opinion. I think Uber will be able to do
it. I think that they'll be able to
meet their guidance and they'll have good cash flows.
Now Next up, we have a company that I really love, which is
Starbucks reporting earnings after market close on Tuesday.
Let's go ahead and take a look at this one.
I used to own Starbucks for a long period of time in my
passive income portfolio. I think it's a great company
that has good brand value, very high returns on capital
employed. When they open up a new
Starbucks location, they get it paid back very quickly within
two years, which is a great payback period.
And then the company sold off because of concerns that I
didn't think would really impact the business.
The big scare with Starbucks just a year ago was the
unionization. We had the New York Times
writing about it. We had a bunch of articles
saying how big and bad Starbucks is, how poorly they treat their
employees, all of the stuff that was completely fictional.
Starbucks is one of the best employers for the food service
industry. They pay the best benefits,
they're an incredibly good employer, but they become the
target because they're very big company.
So that news to me was a great opportunity to buy into this
company at a reduced price. It traded down to $70.00.
Now it's back up to $100 and I've since exited that position
at a decent profit. That's my history with
Starbucks, but I still keep this one on my watch list.
If we get weakness in it, if we get a big sell off in this one,
I could very well reenter the position.
Now when we look at Starbucks's upcoming earnings report,
everyone's going to be focused on the top and bottom line,
whether they be or missed, and that's not what you should be
focused on as an investor. Whether or not the earnings per
share beats by two pennies or misses by two pennies is not a
big impact on the overall story of the company.
It's really not. So try not to focus too much on
that. What I would focus on instead
are the core drivers of the intrinsic value of the company,
one of them being the app. The app is so important to the
story of Starbucks. The more people that are using
the app on a monthly basis, the more money this company's going
to make. The app is incredibly crucial to
the future of of Starbucks. It makes it so that they can get
the money that people upload to it and they can use it as an
interest free loan to open up new restaurants.
So they're getting super high returns with their new
restaurants, with money they're getting from an app for free.
And then to fulfill on that extra revenue, the obligation
from that money uploaded, they simply serve coffee, which is
very inexpensive to make. So Starbucks really has, they've
created something very magical with the rewards program.
Now the rewards program is so important.
When I look at this, they currently have 30.8 million as
of last quarter. This is the previous one.
And I think that there's a chance that they get up another
2,000,000 users. So we'll see.
But I want to see growth with this app.
When I was doing my analysis on Chipotle and part of the reason
that I bought into Chipotle and I sold out of Starbucks is
because of the incredible digital property that Chipotle
has. Chipotle has a fraction of the
locations that Starbucks has, a complete fraction.
They actually have around 10 times less.
So Chipotle is way smaller than Starbucks in size and scale, but
they have around as many people using their app, 30 million
compared against 30.8 million. Right now they're tied and I
believe Chipotle is going to pass them up.
People really for whatever reason love the Chipotle app and
Chipotle has been great at marketing this.
So the fact that Chipotle at the size it is already has 30
million people using its app, I think is a huge positive thing
for the company, encouraging more growth, encouraging more
longterm customers. The next thing that I look at
with Starbucks is the same store sales of the company.
Starbucks is already really big and the amount of restaurants
they have, So same store sales is very meaningful to the
economics of the company. So I want to see strong same
store sales. I also want to see new expansion
and see how things are going in China.
Another reason that right now I felt a little bit more
comfortable with Chipotle over Starbucks is simply because
Starbucks is going head first into China.
They're really making that their major growth path ahead.
And I'd prefer for companies that have lots of ways to grow,
including China, but not have that be their really only major
growth path. But other than that, I believe
that Starbucks is very well situated.
They have a growing dividend, they're doing share buybacks.
They have a balance sheet that's not as good as one like
Chipotle. They do have a lot of debt, but
it's not anything, it's not anything that's troublesome.
Starbucks has ample liquidity. They're a company that has very,
very good economics. So I'd expect to see maybe a 1
to 2% change in price after earnings.
Now moving on, we get to Wednesday.
We're halfway through the week and we have PayPal and Shopify
both reporting earnings after market close.
Let's go ahead and talk about PayPal here for a minute.
PayPal, I think is one of the more popular ones online right
now. A lot of people are betting on
this company and I can see the thesis.
I think it's very simple. PayPal has a low P/E ratio, so
not too much in terms of expectations.
It has a high free cash flow yield.
So they're generating a decent amount of cash, especially in
today's market and the company has been beat up.
So it's a little bit of a recovery play as well.
We look over the past five years, PayPal was at $300.00 per
share and it's down dramatically.
Currently trading at what is it now, $75 per share, so 300 to
75, low P/E ratio, high free cash flow yield.
I get it. It's a very simple thesis and I
don't blame anyone for investing in this company.
When I look at PayPal overall as a business and it's longterm
growth trajectory, there's other bets and Fintech that I like
more. A lot of people, in fact a lot
of people believe that PayPal is like new tech, Visa, MasterCard
or older tech and outdated. And I don't share that viewpoint
anymore. I once did until I studied
MasterCard and Visa and I learned more about their
business models. I think these companies are
every bit as up to date, as technologically advanced as
companies like PayPal. So when I look at them, I see no
difference other than MasterCard and Visa have bigger moats, they
have a wider network and they have better financials.
They run more efficiently. So I view MasterCard and and
Visa as companies that both are incredibly powerful.
They operate in a very similar fashion as a huge network
effect. But I think that they're at the
same valuation and they offer better economics.
In particular, if we look at the PayPal valuation, a 4% free cash
flow yield 4.5%, we can compare that to Visa, and Visa right now
actually has a higher yield, meaning Visa on a free cash flow
basis is selling for cheaper than PayPal.
Here's another thing that I'd look at when comparing these
different groups of companies PayPal may beat on this earnings
report. They might be able to do that
and maybe the stock will run up. But what I'm looking at is
companies that can continually generate shareholder returns and
growing shareholder returns. When we look at the free cash
flow of PayPal notice, however, since 2018, they've been unable
to grow their free cash flow. It's really just stalled out.
It's the same amount that it was all the way back in 2018.
If we compare that the Visa or MasterCard, it paints a very
different picture. Look at Mastercards or Visas
free cash flow in 2018. Here it is in 2018 at 12
billion, today it's at 18 billion.
So they're well on their way of doubling their free cash flow.
They have it going up basically every single year.
We can look at Mastercards as well.
MasterCard has even more linear growth in their free cash flow.
In 2018 it was at 6 billion, now it's at 10 billion.
So they increased it by over 50%, massive increases in free
cash flow and they're doing this without much stock based comp or
dilution in the process. The economics are simply
superior. PayPal has stalled free cash
flow growth while they have a bigger amount of dilution
through stock based compensation.
Both of these are more unattractive trades.
So if you're invested in PayPal, what you're expecting is
continued growth. We have to see some growth in
their free cash flow because even if we look at it on a
quarterly basis, it still looks like it's pretty flat over the
past couple of years. And this is the problem I have
with the story of PayPal. Why are they not growing in
their economics? What is wrong in this company to
make it so they have no operating leverage, They have no
continually increasing margins? Where are they going wrong?
Because when we look at the top line, the top line of the
company has been growing. So that's my big question mark
for this one. When I go into Paypal's
earnings, I'm going to be looking at what are they doing
in terms of transferring their revenue growth into continually
high margins and more free cash flow growth.
That is the big question for the investor.
My thoughts on PayPal are right now I think that there is low
expectations into the stock. I think that it's likely to
outperform this earnings, but longer term there's still some
big question marks with this story.
Now moving on, we also have Shopify that's reporting
earnings at the same time as PayPal and Shopify is I I just
love this company, I really do. I think Shopify is a wonderful
company. I think it's the best company to
ever come out of Canada and I don't say that lightly.
Canada has some great railroads. They have some great banks, but
Shopify is the first company to come out of Canada.
Where I could really see this company becoming a 203 hundred
$400 billion market cap company, something that Canada has been
unable to accomplish before now, but they have a real treasure
here, a real asset in Shopify. Now we can look at the past of
this company and the share price has gone all over the place.
In the past five years it went up to $180 per share around that
price. Now it's back down to around
$6570 per share. Right now it's at 67.
So the share prices come down. We've had a lot of volatility.
Shopify probably got up a little too high like most stocks and
it's trading back down to a better valuation.
But if we ignore all of the price fluctuation underneath all
of that, I believe we have a very good company that will have
very good future economics. The growth over the past five
years has been 43% per year. That is incredible.
Last year it was 16.4%. So it's slowing down a little
bit as we would expect, but we still have a very fast top line
growth. We look at this company and a
lot of people make the mistake when they haven't done a lot of
analysis on Shopify to believe that this company is only online
retail. But Shopify does a lot more than
just online retail. They also have an Apps business
where they sell services and they also are a Fintech company
similar to PayPal or any other fintech company like Sophie.
Shopify is a fintech company. Shopify has products like
Shopify Capital where they give their merchants on their stores
loans and then the brilliant thing about the loans they give
is they know how much money every single merchants making
because it's on their store, their merchant.
So they know how much transactions you're doing, how
much revenue you're doing. They don't know the exact
profitability of every item you sell, but they know your top
line revenue because they're the ones that are servicing your
store now because they know how much revenue you make and how
consistent it is, they can offer Shopify Capital loans this
product to their merchants and they do so based on a payback
through the revenue of the company.
So if I take out a Shopify Loan as a merchant, I pay it back by
them taking a certain percentage of my revenue until the loan is
paid back. So every transaction I do, they
might take back 10% of those transactions until the loan is
paid back. That's an incredibly brilliant
strategy from Shopify. They simply hand out loans and
take the money back through your revenue with every process
transaction on your website. And since they can do it that
way, they don't need to go through banks or an underwriting
process to give you the loan. So they save a huge amount of
hassle and underwriting work to figure out your credibility.
So they're bypassing a lot of administrative work, they're
giving out loans quicker, and a lot of entrepreneurs use Shopify
Capital over banks because of how hasslefree it is.
You can either go to a bank, you can try to give them tons of
information about your company's financials, you can go through
and give all your credit scoring and everything with your
company, and you try to get a loan at a certain interest rate.
Or you can go to Shopify, you apply for a loan and in one
click they'll say here's your loan, here's the interest rate
and here's the loan. No underwriting process, nothing
because they already have all the data.
That is a really advantageous position for Shopify.
So what they bill out here is a nice little ecosystem for
themselves. They have all these retailers
using their website to sell all their merchandise and they're
layering upon more and more services adjacent to online
retail that they can make a lot of money from.
So I really like the situation this company's in with all of
the products they're offering this quarter, I think is going
to be good. I think online retail has been
strong. Consumers are still spending
money. What I'd be worried about with
Shopify is their forecast throughout the rest of the year
because I think that so far consumers have been strong.
But I'm starting to get the sense that consumers are going
to slow down a little bit throughout the rest of the year.
They're going to tighten their belt, focus on their budget a
little bit more. So I would be concerned going
into this earnings more about future forecasts than I would
this previous quarter report. Now moving on, later this week,
we get into Thursday before market open.
We have Warner Brothers Discovery reporting their
earnings. And this is a company that so
far I've avoided because first of all, the entertainment
industry is very difficult. It's tough to make consistent
money in this industry as an investor.
We've seen the troubles that Disney's had.
It's been just complex and difficult and it's been overall
a very difficult investment. I don't like my investments to
be difficult. I like them to be easy,
predictable, simple, non complex.
So complexity to me is not a good thing.
Warner Brothers Discovery is in a complex situation.
They have a ton of debt. They took on a lot of debt from
the AT&T sell off merger. So their debt went up almost
three to four times. They have more cash flows now,
but they also have been scrapping different series
trying to save money. Now we have the writers strike
and the actors strike thrown in the mix.
That's going to make things more expensive when they're trying to
create content. They're going to be able to have
a halt in the content creation. So this will actually make their
free cash flow look better in the next quarter.
But that's a very temporary thing and that's not really a
positive thing. People that are subscribing to
these streaming services want new content, so the fact that
it's going to be halted and the production will be frozen is not
a good thing for these companies overall in my opinion.
When I look at Warner Brothers Discovery, I think the earnings
will be OK this time because they're going to forecast higher
free cash flow. Investors will probably like
that. What I would look for in this
earnings report is a continual debt pay down.
They should be using their free cash flow to get this debt down
as fast as possible because that is a threat to their longterm
business. I do not like holding companies
that have substantial amounts of long term debt and they usually
don't have a great track record. So I want to see pay down on
that. I want to see ample free cash
flow growth. They got to get the free cash
flow positive and I would want to see forecasts of positive
free cash flow. And then finally with this
company, I will be looking at how many Mac subscribers they
gain. The new streaming service from
them is called Max. I want to see how that's doing.
That is I think the most important thing to the future
story of this company. Now moving on to Thursday after
market close, we get to the highly anticipated earnings of
Amazon and Apple. That's going to be an exciting
market close. Let's go ahead and talk about
Amazon for a minute. I'm invested in the company,
very bullish on its future, but Amazon the stock has been acting
differently than Amazon the company.
For example, over the past five years, Amazon stock has been
going every direction. It's had a huge run up and then
it's had a big sell off and then it's had another run up.
Overall it's only up 48%. So it hasn't been great over the
past five years. Meanwhile, the company, the
revenue has been growing, the Amazon Prime business has been
growing, the advertising business has been growing and a
WS has been growing. Every core intrinsic value
driver of the company has been growing.
The big problem that I've highlighted many times with
Amazon is that right now they've had an explosion in temporary
one time CapEx costs as they went through a reinvestment
cycle. Many companies go through this.
They outlay a bunch of money to reinvest in different warehouses
and then they should slow down on that reinvestment.
The savings in CapEx when that reinvestment slows down should
fuel further free cash flow growth.
When we look at this, there's lots of things that you can look
at with Amazon. We can study the free cash flow
history and see how each quarter is doing.
We can look at the amount of dilution they're doing in stock
based comp. We can look at the amount of
CapEx they're doing and R&D they're doing.
They have huge CapEx budget and you can see the explosion there
in 2020. There's all these different
metrics we can look at, but the three biggest ones, to me the
three biggest focuses, the intrinsic value drivers of this
company are first AWS, Amazon's web service is a massive
intrinsic value driver. As that grows, that company
becomes worth more. Then we have ads.
Ads is a fast growing business from Amazon.
They offer ads on their retail website, Amazon.com.
If you go there, you'll see sponsored listings.
And that's just like the end cap of a grocery store.
Lots of companies will advertise and pay extra to be on that end
cap. So Amazon does that in their
online retail store. They also advertise on Twitch.
They advertise on Amazon Prime Video.
They advertise everywhere they can.
So the ads portion is high margin and it's a fast growing
portion of the business. And then finally we get to Prime
Now, the Prime membership encompasses a lot of value
propositions. There's the Amazon Music,
there's photo upload. There's a lot of different
things they throw in there. But overall, the Prime
membership I believe is a big intrinsic value driver of the
company. The more Prime subscribers they
have, the lower churn it is, the better off Amazon is
intrinsically. So these are the big things that
I'd look at how is AWS doing, how is he adds business doing
and how is overall the Prime business doing.
A big driver of these additional businesses is the retail
business as well and Amazon is always improving the retail
business. Amazon says it's delivering more
packages in one day or less after overhauling their delivery
network. So we're seeing the returns on
this investment for the customer.
They invested heavily in overhauling their delivery
network. Now customers are getting their
packages in one day. That is a big Moat between
Amazon and other retailers like Sheen or TIMU that take one to
three weeks to get your package. So what I'm going to be focused
on this Thursday looking at Amazon's earnings report is
looking at these three things, mainly the AWSC ads and the
Prime business. I want to see how all of their
companies doing, but these are the three biggest metrics to me.
The other thing that most investors will be focused on,
it's going to be this. It's going to be AI.
Is Amazon focused on AI or is Microsoft winning or is Google
winning? In my opinion, AI has become too
much of A buzzword right now. Of course, Amazon is focused on
AI. They use it in virtually every
part of their company. They use it in their
recommendations of what type of ads you get.
They use it in the recommendations of what type of
products you get when you visit their page.
It drives all their algorithms. It drives the Prime homepage.
They use it in AWS as well for numerous products.
So Amazon has been using artificial intelligence for a
long period of time, recommendation algorithms and
different forms of it. So they're not only using AI,
but they're also building tools to enable other people to use
AI. That's just not something I'm
very concerned with. So as most investors focus on
this, I'm going to be firmly focused on this.
Overall, my thesis on Amazon is that they can show some real
operating leverage and real margin improvement by winding
down on their CapEx investment. They already expanded their
delivery network. They don't need to do as many
new investments as they did before.
So we should see some real operating leverage from those
investments, but it is a bit riskier of a play.
Amazon is always more unpredictable.
You can't determine whether or not it's going to be up 10% or
under 10%. So it's not a company that I'd
ever make any bets on the immediate earnings.
Next up we have Apple. This one's very simple.
I've owned Apple for a long period of time.
My prediction is that they be on the top and bottom line, they
post good earnings. I think they will be reluctant
to give any type of substantial guidance is Apple usually does
not, but I think the company's going to post very strong
earnings as they usually predictably do.
Apple is a company that as far as I'm concerned, it's business
as usual. The Moat is as wide as it's ever
been. The companies is in a strong
position as it's ever been before because investors
continually under appreciate the Moat that Apple has, that
ecosystem they have and the economics they can generate from
that ecosystem. I remember talks of Apple being
expensive nearly five years ago, and since then the company has
grown its free cash flow per share at 23% substantial growth
in the amount of cash flow they generate.
Nothing in my opinion, makes me believe that the Moat has gotten
weaker for Apple in terms of future outlook and product
development. Again, I think it's business as
usual for Apple. They're going to iterate on
their current product line. They're going to continually
improve it incrementally, year over year and give enough
goodies, just enough little improvements, that you kind of
want to get the new iPhone. You have yours and you're
looking at the features of the new one.
And you're thinking, I spent so much time on my iPhone, I kind
of want to get that new one. In this case, they're doing a
lot to advance towards the perfect phone, what Apple
believes is the perfect phone. Let's go ahead and just take a
look at a couple of the improvements they're doing.
For starters, Apple designers have long dreamed of an iPhone
that is truly all screen, with no borders around the display,
no cutouts and cameras or sensors.
With the iPhone 15 this fall, Apple will take another step
towards that goal. The standard iPhone 15 models
will trade in the notch for the dynamic island, while the Pro
and Pro Max displays will be made with new technology, low
injection pressure over molding, or lipo, as it's dubbed inside
Apple. That new process will shrink the
border size around the display to 1.5 millimeters from about
2.2 millimeters in the current iPhones.
That's a dramatic improvement from 2.2 to 1.5.
We're working with small amounts here, but that's a pretty
dramatic improvement. Now they say that lightbulb was
first used in Apple series Watch seven to make the device borders
thinner and increase the size of the display.
And Apple plans to eventually bring the feature to the iPad as
well. So we have the rumors here that
Apple is basically working on making the screen fill out more
of the actual device, making it seem like there's no bezel at
all from one side to the other, screen to screen.
Think about the situation that competitors to Apple are in.
Are they supposed to create a better phone that has lesser
bezels? How would they even do that?
All the best engineers are working at Apple.
And then on top of that, how are they supposed to compete with
the huge ecosystem that Apple has?
I still think Apple's in such a good position and whether or not
the earnings come in a little bit lower than expected or a
little bit higher than expected, in my opinion, that's very
shortterm stuff. I wouldn't be too concerned on
it. I do think they'll be on the top
and bottom line. But I also think the longterm
story for Apple's very well intact and I see incredibly good
profit growth in this company. Now.
We also have Airbnb reporting earnings on Thursday after
market close. This is a company I've been
falling for a while. I like the business model of it
because it's asset light. It has a very organic growth
product. It just grows based on social
media and more people using it. They have a great balance sheet.
They have a lot more cash than debt.
You know how much I don't like longterm debt and the company
has been taking efforts to move towards profitability.
So we can see free cash flow going up as well way above stock
based comp. I really like the fundamentals,
I like the direction of the company.
I do think that there's a good chance that Airbnb will struggle
over the next six months. When I look at the housing
market and house prices, when I look at the amount of active
listings and and different people that are now going on
vacation looking for places in Airbnb as opposed to a year ago,
I think there's been a general decline.
I don't know for sure. I'm not an expert in these
markets, but I would believe that Airbnb is going to struggle
over the next six months. So I would be concerned going
into this earnings report about their forecast, maybe they can
surprise to the upside, but for me I'm a little bit iffy on this
one. And then finally, Friday, market
close. We have none other than Nikola.
The last time I really covered Nikola as a company was when
they showed a phony marketing video of one of their trucks
driving. But really it was just rolling.
They took it to a small grade hill and they rolled it down the
hill and they filmed it like it was driving itself.
It was a big marketing scheme. They use specific language to
try to trick people. And now the CEO is being charged
with fraud, so he's probably going to get some jail time as
well. Nikola has changed.
The leadership has changed to some extent, but I still believe
this company offers no value to investors and I think there's a
good chance it will go bankrupt. When I look at the financials of
Nikola, there's no real ratios you have to look at.
You just need to look at the fundamentals and understand how
this is going. The revenue is iffy, but that's
not the most important thing here.
We have EBITDA that's continually in the red.
The free cash flow is going negative every single quarter at
an aggressive rate. The net income is always
negative and the earnings per share negative as well.
Now while that's going on, you can see the trends in their cash
balance as well. Just a simple glance at it shows
that the cash on hand is going down and the amount of debt is
going up. And we hit a critical point
here, a critical point where the cash actually went below the
amount of long term debt. So now they are a net zero cash
company that has more long term debt than they do cash.
When I see this trend happen with an unprofitable company and
I see the amount of shares being diluted because they need to
raise more cash to run the business, this puts an enormous
amount of pressure on future profitability.
So Nicola better start posting profitable quarters right away
this quarter, next quarter and they better forecast future
profitability to stay in business.
Otherwise, investors aren't going to give them new capital
via share issuance and the debt markets are going to be very
reluctant as well. My prediction is right now that
within one year Nikola will have filed for bankruptcy.
So we'll see if that happens. We'll look back in a year and
see if this company's still currently in business, but that
is a busy week ahead. We have a lot of earnings
reports to go over. If you're interested in
following up on this content, make sure to subscribe to the
channel hit the Bell icon. You can follow me on my other
YouTube channel as well. I cover a lot of earnings
reports on that one, but that's all for now.
See you in the next one.