1 00:00:00,080 --> 00:00:02,320 Welcome back everyone today on the Details of Carlson Show. 2 00:00:02,800 --> 00:00:05,160 We've already made it through the majority of earnings season. 3 00:00:05,160 --> 00:00:07,600 We've passed the test. We've seen what's happened to 4 00:00:07,600 --> 00:00:10,360 our portfolios. Most of the big tech companies 5 00:00:10,360 --> 00:00:13,760 have reported earnings, but there's always a few stragglers, 6 00:00:13,760 --> 00:00:17,520 a few companies that wait a week or two after to report their 7 00:00:17,520 --> 00:00:18,960 earnings. They're always late to the 8 00:00:18,960 --> 00:00:21,880 party. In this case, this Wednesday, we 9 00:00:21,880 --> 00:00:25,160 have a number of companies that are quite notable reporting 10 00:00:25,160 --> 00:00:28,680 earnings, one of them being NVIDIA, a three plus trillion 11 00:00:28,680 --> 00:00:31,600 dollar market cap company reporting earnings Wednesday 12 00:00:31,600 --> 00:00:34,080 after market close. Then we have Crowdstrike, the 13 00:00:34,080 --> 00:00:36,920 cybersecurity company trying to recover from one of the biggest 14 00:00:36,920 --> 00:00:40,160 tech outages ever. They're under lawsuit from 15 00:00:40,160 --> 00:00:43,800 companies like Delta Airlines. And then we have Salesforce. 16 00:00:43,800 --> 00:00:45,560 This is one that's in My Portfolio. 17 00:00:45,840 --> 00:00:48,760 Salesforce traded down after their last earnings. 18 00:00:48,760 --> 00:00:52,160 It dipped big time and I thought the earnings were quite good. 19 00:00:52,600 --> 00:00:55,080 So we're going to go into my expectations and my position in 20 00:00:55,080 --> 00:00:57,040 Salesforce. And then moving on to Thursday, 21 00:00:57,040 --> 00:00:59,440 we have two more notable companies reporting earnings, 22 00:00:59,680 --> 00:01:02,520 Lululemon and Ulta. These are two companies that 23 00:01:02,520 --> 00:01:05,400 value investors are buying up. We'll be looking at what to 24 00:01:05,400 --> 00:01:08,080 expect from their earnings. So we'll be going through all 25 00:01:08,080 --> 00:01:10,840 five of these upcoming earnings. I'll be framing it for you, 26 00:01:10,840 --> 00:01:13,200 giving you a picture of what Wall Street is expecting and 27 00:01:13,400 --> 00:01:16,080 what I expect. Now we also have some other news 28 00:01:16,080 --> 00:01:18,600 to get to. I recently tweeted out some news 29 00:01:18,600 --> 00:01:22,000 about Costco and the tweet went ultra viral. 30 00:01:22,200 --> 00:01:30,000 It has 8.2 million views, 20,000 likes, 2200 reposts and 425 31 00:01:30,000 --> 00:01:31,920 comments. The tweet showed the massive 32 00:01:31,920 --> 00:01:35,880 lines to get into a new Costco in Okinawa, Japan, the first one 33 00:01:35,880 --> 00:01:39,840 in the city, and also shows just the massive crowds inside. 34 00:01:40,120 --> 00:01:43,280 They're at Max capacity. Within an hour of opening up, 35 00:01:43,640 --> 00:01:46,200 they had lines of is wrapping around the building. 36 00:01:46,200 --> 00:01:49,400 So we'll be looking at why this tweet went so viral, what people 37 00:01:49,400 --> 00:01:52,760 are saying about it, and what the obsession is with Costco. 38 00:01:52,760 --> 00:01:55,400 So let's go ahead and jump in. We'll start off with this week. 39 00:01:55,400 --> 00:01:58,440 Now when we look at the map with Monday and Tuesday, we don't see 40 00:01:58,440 --> 00:02:00,560 that many interesting earnings reports. 41 00:02:00,840 --> 00:02:03,800 We really get to the interesting companies come Wednesday. 42 00:02:04,040 --> 00:02:06,760 Wednesday after market close, we have the biggest, most 43 00:02:06,760 --> 00:02:08,680 meaningful earnings report of the week. 44 00:02:09,000 --> 00:02:11,360 And maybe you have the entire season, even though it's coming 45 00:02:11,360 --> 00:02:13,960 later, maybe this is the most important earnings report of the 46 00:02:13,960 --> 00:02:16,920 season, which is NVIDIA. The first thing I need to 47 00:02:16,920 --> 00:02:21,000 establish is that NVIDIA is a massive company and a lot of 48 00:02:21,000 --> 00:02:23,760 people don't really have a clue or they can't really 49 00:02:23,760 --> 00:02:26,560 conceptualize how big this company actually is. 50 00:02:26,880 --> 00:02:28,440 So let me give it some context here. 51 00:02:28,760 --> 00:02:33,800 NVIDIA has raised up to a market cap of $3.18 trillion, so it's 52 00:02:33,800 --> 00:02:37,200 well above the $3 trillion market cap territory. 53 00:02:37,600 --> 00:02:43,200 It's gone up 163% year to date, so it's well over doubled in 54 00:02:43,200 --> 00:02:46,360 2024. In fact, it's about doubled in 55 00:02:46,360 --> 00:02:48,240 market cap since February of this year. 56 00:02:48,560 --> 00:02:51,720 So it hasn't taken long for the market cap to completely double. 57 00:02:52,200 --> 00:02:55,280 Now, a lot of people are predicting the NVIDIA will 58 00:02:55,280 --> 00:02:58,720 continue racing up like it has. We look at the charts here and 59 00:02:58,720 --> 00:03:01,320 of course, going back a year, it's up 170%. 60 00:03:01,600 --> 00:03:04,640 Going back five years, it's up thousands of percentages. 61 00:03:05,080 --> 00:03:08,720 So what's one more double? What's another 50 or 60%? 62 00:03:09,160 --> 00:03:10,560 Well, I'll tell you what that would mean. 63 00:03:11,120 --> 00:03:15,120 If NVIDIA were to double again, if the stock price was to race 64 00:03:15,120 --> 00:03:19,160 up another just another 100%, which it's already done this 65 00:03:19,160 --> 00:03:23,640 year really easily, that would make NVIDIA bigger than Google, 66 00:03:23,920 --> 00:03:28,040 Amazon and Meta combined. All three of those companies, 67 00:03:28,440 --> 00:03:32,680 the combined market cap of Google, Meta and Amazon is $5.25 68 00:03:32,680 --> 00:03:36,360 trillion. NVIDIA would be past $6.5 69 00:03:36,360 --> 00:03:41,920 trillion if it doubled again, so simply going up 100% more would 70 00:03:41,920 --> 00:03:44,600 make it bigger than three of the largest companies in the world. 71 00:03:44,680 --> 00:03:46,800 So obviously this company is massive. 72 00:03:46,800 --> 00:03:50,360 It is a juggernaut of a company. But can this growth continue? 73 00:03:50,600 --> 00:03:52,600 Let's take a look. We can better frame this by 74 00:03:52,600 --> 00:03:55,360 looking at how much NVIDIA is supposed to grow this quarter, 75 00:03:55,600 --> 00:03:57,240 according to Wall Street analysts. 76 00:03:57,240 --> 00:04:01,520 Project revenue growth of 28.84 billion according to the 77 00:04:01,520 --> 00:04:04,960 estimates compiled by Visible Alpha, which would be more than 78 00:04:04,960 --> 00:04:08,520 double Nvidia's revenue in the same period a year ago. 79 00:04:09,080 --> 00:04:12,840 So revenues expected to grow over double from one year ago. 80 00:04:13,200 --> 00:04:16,120 And if we look at this on 1/4 over quarter basis, we can take 81 00:04:16,120 --> 00:04:19,800 a look at this in the numbers. So we have the most recent 82 00:04:19,800 --> 00:04:21,000 quarter here. I'll zoom in. 83 00:04:21,000 --> 00:04:25,880 In the past 10 years, the most recent quarter was 26 .04 84 00:04:25,880 --> 00:04:27,760 billion. So you're going to see growth 85 00:04:27,920 --> 00:04:30,760 that looks like that. That's what the next line is 86 00:04:30,760 --> 00:04:32,720 going to look like. That's what the expectations 87 00:04:32,720 --> 00:04:34,680 are. So investors are expecting this 88 00:04:34,680 --> 00:04:38,840 next quarter to be another one of large acceleration, a massive 89 00:04:38,840 --> 00:04:41,680 leap up from year over year, which was right here. 90 00:04:41,920 --> 00:04:44,560 This is about, let's say, $14 billion. 91 00:04:44,560 --> 00:04:48,520 Thirteen billion. So they're going from 13 to 28 / 92 00:04:48,520 --> 00:04:51,760 100% revenue growth. And likewise, net income is also 93 00:04:51,760 --> 00:04:55,840 expected to more than double from a year earlier to $14.95 94 00:04:55,840 --> 00:04:57,840 billion. If we look at the net income 95 00:04:57,840 --> 00:05:02,520 chart here, we can see one year ago we go back 1234, that was Q3 96 00:05:02,520 --> 00:05:08,400 of 2023, that was $6.06 billion. So net income is expected to go 97 00:05:08,400 --> 00:05:12,280 from $6 billion four quarters ago to now 15 billion. 98 00:05:12,480 --> 00:05:15,680 One notable thing about this is that the most recent quarter, it 99 00:05:15,760 --> 00:05:19,280 is almost 15 billion as well. So net income is basically 100 00:05:19,280 --> 00:05:21,840 supposed to stay flat quarter over quarter. 101 00:05:22,280 --> 00:05:25,480 It's growing massively year over year, but this is going to be a 102 00:05:25,480 --> 00:05:27,760 flattish quarter over quarter with net income. 103 00:05:27,760 --> 00:05:29,960 Now they also mentioned that it's going to have a sharp 104 00:05:29,960 --> 00:05:33,400 decline in earnings per share expected primarily as a result 105 00:05:33,400 --> 00:05:36,640 for the 10 for one stock split. Really when you're looking at 106 00:05:36,640 --> 00:05:40,080 earnings per share, you should be looking at diluted earnings 107 00:05:40,080 --> 00:05:42,000 per share. If you want to get technical, 108 00:05:42,120 --> 00:05:43,920 that's the only thing you should pay attention to. 109 00:05:44,400 --> 00:05:47,000 You should never look at non diluted earnings per share 110 00:05:47,000 --> 00:05:48,880 because that doesn't account for stock splits. 111 00:05:49,160 --> 00:05:52,240 So in Qualtrim, whenever I'm looking at earnings per share 112 00:05:52,240 --> 00:05:54,920 and the earnings per share chart here, this is the diluted 113 00:05:54,920 --> 00:05:56,960 earnings per share. This will show you the earnings 114 00:05:56,960 --> 00:06:00,680 per share with stock options, with dilution, and with stock 115 00:06:00,680 --> 00:06:03,920 splits accounted for. So this is the best way to look 116 00:06:03,920 --> 00:06:06,000 at it and it's what most people should be looking at. 117 00:06:06,080 --> 00:06:08,520 Now to look at the diluted earnings per share, they have 118 00:06:08,520 --> 00:06:11,680 the estimates here as $0.59. If we go back and look at the 119 00:06:11,720 --> 00:06:15,720 earnings per share chart, the last quarter was $0.60. 120 00:06:16,000 --> 00:06:18,920 So again, they're basically expecting, and this makes sense 121 00:06:18,920 --> 00:06:20,880 because the net income was about flat. 122 00:06:21,160 --> 00:06:24,240 They're expecting the earnings per share to also be about flat 123 00:06:24,560 --> 00:06:27,360 quarter over quarter. So consecutive quarters it's 124 00:06:27,360 --> 00:06:30,600 going to be relatively flat, but year over year it's a massive 125 00:06:30,600 --> 00:06:33,360 gain. If we go back 1234 quarters ago, 126 00:06:33,360 --> 00:06:37,520 it was $0.25. So we're going from $0.25 up to 127 00:06:37,520 --> 00:06:40,320 $0.60. But keep in mind, we're not 128 00:06:40,320 --> 00:06:43,640 growing it quarter over quarter like we have for the last five 129 00:06:43,640 --> 00:06:45,680 quarters. So this is going to be the first 130 00:06:45,680 --> 00:06:49,640 time that the earnings per share for NVIDIA has stayed flat for 131 00:06:49,640 --> 00:06:52,320 two consecutive quarters in at least a year. 132 00:06:52,360 --> 00:06:55,160 So, so far with NVIDIA, we have around a $2 billion growth in 133 00:06:55,160 --> 00:06:58,520 consecutive quarter in revenue and net income and earnings per 134 00:06:58,520 --> 00:07:00,520 share. That's staying relatively flat 135 00:07:00,520 --> 00:07:04,040 on a consecutive quarter basis, but it's still growing massively 136 00:07:04,040 --> 00:07:06,280 year over year. Now the biggest thing that they 137 00:07:06,280 --> 00:07:09,280 point out, the biggest thing they're looking for in growth is 138 00:07:09,280 --> 00:07:11,520 in the data center. And this is something that I've 139 00:07:11,520 --> 00:07:15,200 been saying for a long time, The NVIDIA has a concentration of 140 00:07:15,200 --> 00:07:17,560 revenue and earnings in the data center. 141 00:07:17,880 --> 00:07:19,800 On call trim. We have different charts here. 142 00:07:20,040 --> 00:07:21,880 One of them just shows the total revenue. 143 00:07:22,320 --> 00:07:24,800 It's difficult to differentiate what's going on here. 144 00:07:25,160 --> 00:07:28,280 But we've also added in key performance indicators. 145 00:07:28,440 --> 00:07:30,840 One of them is revenue by segment. 146 00:07:31,000 --> 00:07:34,280 This shows you in a granular basis where the revenues coming 147 00:07:34,280 --> 00:07:35,880 from. If we look at the different 148 00:07:35,880 --> 00:07:39,280 categories here, we can see very clearly that everything is 149 00:07:39,280 --> 00:07:42,480 coming down to the data center. In fact, if we get rid of the 150 00:07:42,480 --> 00:07:45,840 data center, if we check that out, if you take out the data 151 00:07:45,840 --> 00:07:49,440 center, NVIDIA has no growth since Q4 of 2020. 152 00:07:49,720 --> 00:07:52,400 So there's no growth coming from gaming or professional 153 00:07:52,400 --> 00:07:56,200 visualization or automotive. It's all coming from the data 154 00:07:56,200 --> 00:07:57,920 center. If we reverse this and we look 155 00:07:57,920 --> 00:08:01,440 specifically at the data center, only you can see the massive 156 00:08:01,440 --> 00:08:03,920 growth in this. All of it comes down to the data 157 00:08:03,920 --> 00:08:07,560 center, which grew 426% year over year. 158 00:08:07,560 --> 00:08:09,640 So if you're investing in NVIDIA, you're investing in a 159 00:08:09,640 --> 00:08:12,560 data center company. The data center revenue reached 160 00:08:12,560 --> 00:08:15,960 a record high of 22.6 billion dollars in the first quarter of 161 00:08:15,960 --> 00:08:19,760 fiscal 2025, surpassing its previous record set the three 162 00:08:19,760 --> 00:08:21,960 quarters prior. We can see that illustrated 163 00:08:21,960 --> 00:08:25,400 here. This is the $22.56 billion and 164 00:08:25,400 --> 00:08:28,240 it's going up sequentially. Analysts expect revenue for the 165 00:08:28,240 --> 00:08:32,440 data center to be 25.19 billion in the second quarter, which 166 00:08:32,440 --> 00:08:36,679 would be a new all time high. So we are expecting the revenue 167 00:08:36,679 --> 00:08:40,080 for the data center to be 25.19 billion. 168 00:08:40,440 --> 00:08:43,559 To put that in perspective. That is around right here, 169 00:08:44,039 --> 00:08:48,040 another incremental setup, which I think is realistic. 170 00:08:48,240 --> 00:08:50,400 I don't think there's anything outlandish about these 171 00:08:50,400 --> 00:08:52,480 projections here. We're just extrapolating the 172 00:08:52,480 --> 00:08:54,160 same growth we had in recent quarters. 173 00:08:54,240 --> 00:08:56,880 But with NVIDIA, as we've illustrated here, a lot is 174 00:08:56,880 --> 00:08:59,720 riding on the data center. Everything comes down to this 175 00:08:59,720 --> 00:09:02,560 one business line. It is where all the growth and 176 00:09:02,560 --> 00:09:04,600 earnings are coming from for the company. 177 00:09:04,760 --> 00:09:07,560 There was one concerning report that came up recently that 178 00:09:07,720 --> 00:09:10,320 caused the stock to go down a little and that was a reported 179 00:09:10,320 --> 00:09:11,920 delay in their new Blackwell chip. 180 00:09:12,360 --> 00:09:14,480 Any type of delays, of course is going to be something of 181 00:09:14,480 --> 00:09:17,400 concern, but most analyst looked at this and they said it's 182 00:09:17,400 --> 00:09:20,440 really not that big of a deal. Raymond James analyst said that 183 00:09:20,440 --> 00:09:23,080 the impact would be modest and they expect management to 184 00:09:23,080 --> 00:09:26,640 downplay the speculated delays. So there's a bit of set up for 185 00:09:26,640 --> 00:09:29,560 Nvidia's earnings and you get an idea of the expectations this 186 00:09:29,560 --> 00:09:31,800 quarter. Now, if we go back to one major 187 00:09:31,800 --> 00:09:34,960 point here, one that I touched on at the beginning of this, the 188 00:09:34,960 --> 00:09:39,720 sheer size of this company, like I said, NVIDIA is a $3 trillion 189 00:09:39,720 --> 00:09:43,240 market cap company, almost three trillion, 200 billion. 190 00:09:43,640 --> 00:09:45,960 And if the stock goes up another double. 191 00:09:45,960 --> 00:09:50,160 It's bigger than Meta, Amazon and Google combined. 192 00:09:50,560 --> 00:09:53,160 If we look at NVIDIA in isolation and we look at the 193 00:09:53,160 --> 00:09:55,920 amount of cash flow the company's actually generating, 194 00:09:56,240 --> 00:09:57,920 we can view this on a trailing basis. 195 00:09:58,240 --> 00:10:00,640 NVIDIA does generate a lot of free cash flow. 196 00:10:00,640 --> 00:10:06,080 On a trailing 12 month basis, it is generated $39.33 billion. 197 00:10:06,600 --> 00:10:09,320 So we're basically at the $40 billion mark. 198 00:10:09,640 --> 00:10:13,880 Now if instead we look at this on a quarterly basis and we look 199 00:10:13,880 --> 00:10:17,840 at the most recent quarter, which was 15 billion and we do 200 00:10:17,840 --> 00:10:22,280 15 * 4, we of course get 60. So we can say that the run rate 201 00:10:22,280 --> 00:10:24,960 of cash flow right now is $60 billion. 202 00:10:25,360 --> 00:10:29,160 That's assuming that NVIDIA makes $60 billion this year and 203 00:10:29,160 --> 00:10:31,960 they continue doing so in the future and hopefully for their 204 00:10:31,960 --> 00:10:34,640 shareholders that that amount of free cash flow continues to go 205 00:10:34,640 --> 00:10:36,520 up. If we compare that to other 206 00:10:36,520 --> 00:10:39,960 companies we have here, Google, we can take a look at that. 207 00:10:40,160 --> 00:10:43,400 We can see that Google made $60 billion in free cash flow. 208 00:10:43,400 --> 00:10:45,920 So Google's making the same amount as NVIDIA. 209 00:10:46,280 --> 00:10:49,440 Even if you use Nvidia's run rate and you use Google's 210 00:10:49,440 --> 00:10:52,120 trailing numbers, that means that we're using past numbers 211 00:10:52,120 --> 00:10:54,640 for Google, we're using future numbers for NVIDIA. 212 00:10:54,920 --> 00:10:57,360 Even if we do that, they're generating the same amount of 213 00:10:57,360 --> 00:10:59,960 free cash flow. But Google is a full trillion 214 00:10:59,960 --> 00:11:03,960 dollars cheaper than NVIDIA. Amazon, which is $1.3 trillion 215 00:11:03,960 --> 00:11:07,200 cheaper than NVIDIA. Amazon generated $48 billion in 216 00:11:07,200 --> 00:11:09,280 free cash flow over the trailing 12 months. 217 00:11:09,680 --> 00:11:12,080 That's $8 billion more than NVIDIA. 218 00:11:12,320 --> 00:11:16,120 And Amazon again is $1.3 trillion cheaper than NVIDIA. 219 00:11:16,520 --> 00:11:19,120 Then we look at Meta. Met is a company that has a 220 00:11:19,120 --> 00:11:20,720 relatively high free cash flow yield. 221 00:11:21,000 --> 00:11:23,760 We look at the trailing 12 months and it's $50 billion. 222 00:11:23,920 --> 00:11:26,400 So Met is generating around the same amount of free cash flow as 223 00:11:26,400 --> 00:11:30,120 NVIDIA today, while the market cap is currently less than half 224 00:11:30,120 --> 00:11:32,560 the size of Nvidia's. So it's not a question of 225 00:11:32,560 --> 00:11:34,480 whether or not Nvidia's price for growth. 226 00:11:34,560 --> 00:11:38,000 It is priced for massive growth in its free cash flow today. 227 00:11:38,360 --> 00:11:40,880 It's priced that it will continue to earn at least $15 228 00:11:40,880 --> 00:11:43,240 billion in free cash flow per quarter. 229 00:11:43,600 --> 00:11:46,320 And then it also assumes that this company will be able to 230 00:11:46,320 --> 00:11:50,080 sustain those levels of free cash flow for years and years in 231 00:11:50,080 --> 00:11:52,520 the future. They can't just earn it in one 232 00:11:52,520 --> 00:11:54,600 year to justify the current market cap. 233 00:11:54,920 --> 00:11:57,920 You need to have a reasonable expectation it can do this for 234 00:11:57,920 --> 00:12:01,200 years and years in the future. So the question that investors 235 00:12:01,200 --> 00:12:04,560 need to ask is whether or not NVIDIA can grow its baseline of 236 00:12:04,560 --> 00:12:08,800 free cash flow today, sustain it for year on end, and continue to 237 00:12:08,800 --> 00:12:10,680 grow incrementally in the future. 238 00:12:10,840 --> 00:12:13,920 So when I try to balance out all of these questions, I don't have 239 00:12:13,920 --> 00:12:16,880 confidence in Nvidia's ability to do that over the next 10 240 00:12:16,880 --> 00:12:18,520 years. I think it's it's going to be 241 00:12:18,520 --> 00:12:20,200 very challenging. When I look at different 242 00:12:20,200 --> 00:12:22,840 companies like NVIDIA and stack it up against different software 243 00:12:22,840 --> 00:12:24,920 companies. I think software companies are a 244 00:12:24,920 --> 00:12:28,120 bit more predictable and the same people that will tell you 245 00:12:28,440 --> 00:12:30,880 that NVIDIA is going to do this in the future. 246 00:12:31,080 --> 00:12:33,240 It's a very predictable company with a wide Moat. 247 00:12:33,560 --> 00:12:36,920 Most of them did not predict Nvidia's growth over the past 248 00:12:36,920 --> 00:12:39,280 five years. Most of them did not invest in 249 00:12:39,280 --> 00:12:41,640 NVIDIA before this parabolic growth. 250 00:12:42,080 --> 00:12:44,480 In fact, I don't know many investors that were invested in 251 00:12:44,480 --> 00:12:48,240 the company at this time period. Most of them joined along after 252 00:12:48,240 --> 00:12:51,760 the parabolic spike in growth, and now they're predicting that 253 00:12:51,760 --> 00:12:54,760 this parabolic spike will continue in the future. 254 00:12:55,120 --> 00:12:57,640 For me, that's a very difficult judgement to make. 255 00:12:57,680 --> 00:13:00,440 NVIDIA lacks the predictability that I look for in a stock. 256 00:13:00,440 --> 00:13:03,360 At least in my case, I wasn't able to predict the huge influx 257 00:13:03,360 --> 00:13:05,800 in demand before it happened, and I don't believe I'll be able 258 00:13:05,800 --> 00:13:08,200 to predict any glut in demand before it happens. 259 00:13:08,640 --> 00:13:11,400 There's a few things we can look for to try to determine demand 260 00:13:11,400 --> 00:13:14,560 for Nvidia's chips. One of them is commentary by 261 00:13:14,560 --> 00:13:17,640 their biggest customers. Their biggest customers are big 262 00:13:17,640 --> 00:13:19,960 tech companies, specifically the hyperscalers. 263 00:13:20,320 --> 00:13:23,120 NVIDIA makes most of the money from data center, and the 264 00:13:23,120 --> 00:13:25,840 companies that invest the most in data center are their biggest 265 00:13:25,840 --> 00:13:29,560 customers, Sundar Pichai being one of them, Sundar in the most 266 00:13:29,560 --> 00:13:32,720 recent earnings report said. I think one of the ways to think 267 00:13:32,720 --> 00:13:36,200 about it is when we go through a curve like this, the risk of 268 00:13:36,240 --> 00:13:39,760 under investing is dramatically greater than the risk of over 269 00:13:39,760 --> 00:13:43,280 investing for us here, even in scenarios where it turns out 270 00:13:43,440 --> 00:13:47,960 that we over invested. So Sundar is saying that the 271 00:13:47,960 --> 00:13:52,280 risk of us under investing in cloud and AI is bigger than the 272 00:13:52,280 --> 00:13:54,920 risk of over investing. So we're going to make sure we 273 00:13:54,920 --> 00:13:58,360 over invest. That's good for NVIDIA today 274 00:13:58,360 --> 00:14:01,800 because Sundar Pichai is spending a lot of money, but it 275 00:14:01,800 --> 00:14:03,840 doesn't necessarily mean it will be good in the future. 276 00:14:03,880 --> 00:14:06,600 What happens if Google and Sundar Pichai realizes with the 277 00:14:06,600 --> 00:14:08,240 data that they've been over investing? 278 00:14:08,520 --> 00:14:11,080 What happens when they cut down their orders from NVIDIA? 279 00:14:11,080 --> 00:14:13,160 That could impact the stock to some degree. 280 00:14:13,200 --> 00:14:15,760 The only thing that Andy Jassi from Amazon said regarding 281 00:14:15,760 --> 00:14:19,480 NVIDIA, or at least it was a reference to NVIDIA, was we are 282 00:14:19,480 --> 00:14:23,680 investing a lot across the board in AI and we'll keep doing so as 283 00:14:23,680 --> 00:14:26,040 we like what we're seeing and what we see ahead of us. 284 00:14:26,080 --> 00:14:28,960 That's very vague, but overall very positive for NVIDIA. 285 00:14:28,960 --> 00:14:31,520 He's saying that we're going to continue investing heavily in 286 00:14:31,680 --> 00:14:33,480 AI. Amy Hood from Microsoft said 287 00:14:33,480 --> 00:14:36,120 that they are capacity constrained in AI, that they 288 00:14:36,120 --> 00:14:37,800 need greater and greater investment. 289 00:14:38,160 --> 00:14:41,320 So all three of these companies, at least for this next quarter, 290 00:14:41,560 --> 00:14:45,280 are going to be spending big on AI, which a good portion of that 291 00:14:45,280 --> 00:14:48,240 spend is going to be for NVIDIA. As a result, even though 292 00:14:48,240 --> 00:14:50,680 Nvidia's market cap and price, I believe is getting a little 293 00:14:50,680 --> 00:14:53,280 inflated, I still think this next quarter is going to be 294 00:14:53,280 --> 00:14:55,240 good. I think they'll continue to grow 295 00:14:55,240 --> 00:14:57,120 on pace. I don't think there's going to 296 00:14:57,120 --> 00:15:00,680 be any major red flags because what we see right now is all 297 00:15:00,680 --> 00:15:03,640 three of their biggest customers willing to continue to spend 298 00:15:03,640 --> 00:15:05,800 money. When that will change, I don't 299 00:15:05,800 --> 00:15:09,400 know, but so far it looks good. Now Next up, we have Crowdstrike 300 00:15:09,400 --> 00:15:12,400 reporting at the same time. Obviously the earnings report of 301 00:15:12,400 --> 00:15:15,400 Crowdstrike is going to be overshadowed by Nvidia's, but 302 00:15:15,400 --> 00:15:18,160 it's still a really important earnings report, especially 303 00:15:18,160 --> 00:15:21,760 because Crowdstrike recently just went through a huge ordeal. 304 00:15:22,080 --> 00:15:24,960 They released an update which was a simple content update. 305 00:15:25,160 --> 00:15:28,880 It's supposed to be a low risk update and it had a major fatal 306 00:15:28,880 --> 00:15:31,400 error on every Microsoft device that was updated. 307 00:15:31,600 --> 00:15:34,360 It bricked the computers, causing hundreds of 1,000,000, 308 00:15:34,360 --> 00:15:37,080 if not billions of damages to different companies. 309 00:15:37,280 --> 00:15:41,240 One of them, Delta Airlines, is suing Microsoft and Crowdstrike 310 00:15:41,520 --> 00:15:44,720 for the update, so they have some ongoing litigation. 311 00:15:44,960 --> 00:15:47,400 They've had a little bit of tit for tat battle between the two 312 00:15:47,400 --> 00:15:50,080 companies where their lawyers are shooting off different 313 00:15:50,080 --> 00:15:52,200 things. It's a a bit of a mess. 314 00:15:52,200 --> 00:15:55,200 It's caused them to change their website, their marking material, 315 00:15:55,200 --> 00:15:57,560 the way that they approach business to business sales. 316 00:15:57,840 --> 00:16:00,520 It's also caused them to change the way that they do updates. 317 00:16:00,720 --> 00:16:03,240 They now test them among smaller groups of customers before 318 00:16:03,240 --> 00:16:06,520 releasing them to everyone. So Crowd Strike has learned a 319 00:16:06,520 --> 00:16:09,880 lot over the past three months. They're in a bit of a recovery 320 00:16:09,880 --> 00:16:11,560 mode. They're trying to move on from 321 00:16:11,560 --> 00:16:14,160 this, move on from the litigation, depressed forward 322 00:16:14,160 --> 00:16:16,960 into the future. Now, I think Crowd Strike is a 323 00:16:16,960 --> 00:16:19,440 really good company. This is one that I've actually 324 00:16:19,440 --> 00:16:21,080 owned in the past for a short time. 325 00:16:21,560 --> 00:16:23,360 I'm really interested in the stock. 326 00:16:23,600 --> 00:16:26,800 I think it's a really good recurring revenue company. 327 00:16:27,040 --> 00:16:29,600 So if we look at the revenues here, you see that the total 328 00:16:29,600 --> 00:16:32,800 revenues climb quarter over quarter, quarter over quarter. 329 00:16:32,800 --> 00:16:35,600 It's climbing fast. We break this down by segment. 330 00:16:36,000 --> 00:16:38,760 It illustrates how much of it is non subscription. 331 00:16:39,160 --> 00:16:42,320 This is the professional service or non subscription portion of 332 00:16:42,320 --> 00:16:43,840 revenue. And then you have the 333 00:16:43,840 --> 00:16:46,600 subscription portion. The subscription portion is a 334 00:16:46,600 --> 00:16:50,240 huge majority and it grows steadily every single quarter 335 00:16:50,480 --> 00:16:52,480 because they're making more, more money per their 336 00:16:52,480 --> 00:16:56,000 subscribers. Now I expect this to continue 337 00:16:56,240 --> 00:16:59,240 and I actually think that crowd strike is set up well to recover 338 00:16:59,240 --> 00:17:01,920 from this incident. Before the incident, the stock 339 00:17:01,920 --> 00:17:06,640 traded up to $380.00 per share. So it was flying high. 340 00:17:06,640 --> 00:17:09,800 It was the Sky's the limits. Everybody was very bullish on 341 00:17:09,800 --> 00:17:11,720 the company. Of course, this put a huge 342 00:17:11,720 --> 00:17:14,400 damper in. It traded down to 217. 343 00:17:14,800 --> 00:17:19,520 Now the stock is already up to 260 and I think within the next 344 00:17:19,520 --> 00:17:22,280 three months, I would not be surprised to see crowd strike 345 00:17:22,280 --> 00:17:25,599 trading above $300.00 per share. And there's a couple reasons 346 00:17:25,599 --> 00:17:27,319 why. One of them is the ongoing 347 00:17:27,319 --> 00:17:29,720 growth in their revenue and earnings per share. 348 00:17:30,120 --> 00:17:32,960 This quarter they're expected to reveal an earnings per share of 349 00:17:32,960 --> 00:17:36,880 $0.98. That indicates a growth of 32%. 350 00:17:36,960 --> 00:17:41,840 The revenues also expected to be $958 million, which is a 31% 351 00:17:41,840 --> 00:17:43,840 increase. Even though this company faced a 352 00:17:43,840 --> 00:17:46,920 blunder, I think the combination of organic growth, earnings 353 00:17:46,920 --> 00:17:50,000 growth and the free cash flow of the company, which is increasing 354 00:17:50,320 --> 00:17:53,080 every single quarter is going to push the stock higher. 355 00:17:53,360 --> 00:17:56,520 If we look at the free cash flow per share, it continues to grow. 356 00:17:56,840 --> 00:17:59,360 It is true that they have some stock based comp, but they're 357 00:17:59,360 --> 00:18:02,840 pulling away from the stock based comp over the past 3/4. 358 00:18:03,200 --> 00:18:05,400 As a company differentiates rates, the amount of stock based 359 00:18:05,400 --> 00:18:08,680 comp against the free cash flow, the free cash flow margins get 360 00:18:08,680 --> 00:18:10,640 higher and higher. I'm going to wait around with 361 00:18:10,640 --> 00:18:13,720 crowd strike because it's still at a high valuation, but if we 362 00:18:13,720 --> 00:18:16,760 get a really good dip in the stock, if it sells off after the 363 00:18:16,760 --> 00:18:18,640 quarter, it is going to be one I'm looking at. 364 00:18:18,640 --> 00:18:20,600 Now moving on, of course we have sales force. 365 00:18:20,600 --> 00:18:22,960 This is one that's reporting earnings Wednesday after market 366 00:18:22,960 --> 00:18:26,000 close and it's also one of my larger positions in My 367 00:18:26,000 --> 00:18:28,480 Portfolio. In fact, sales force is a new 368 00:18:28,480 --> 00:18:32,000 position to the passive income portfolio and right now it's the 369 00:18:32,120 --> 00:18:34,600 only one that's in the red. That's right. 370 00:18:34,640 --> 00:18:36,280 Every other position's in the green. 371 00:18:36,280 --> 00:18:38,400 Most of them buy a a very decent margin. 372 00:18:38,640 --> 00:18:41,520 We even just had booking holdings move into the green. 373 00:18:41,520 --> 00:18:44,880 So this one's looking good. And then we have Salesforce, the 374 00:18:44,880 --> 00:18:47,320 one company that I missed time to buy. 375 00:18:47,600 --> 00:18:49,160 I bought it before an earnings report. 376 00:18:49,160 --> 00:18:52,560 Salesforce dropped around 10 to 15% after the most recent 377 00:18:52,560 --> 00:18:55,520 quarter's report. So investors did not like last 378 00:18:55,520 --> 00:18:57,840 quarter's report. They sold out of the stock and 379 00:18:57,840 --> 00:19:01,720 I've been in the red ever since. Now I have a total position size 380 00:19:01,720 --> 00:19:05,200 of $58,000 and it's only down 2500. 381 00:19:05,440 --> 00:19:08,080 So we're getting closer and closer to the green and I 382 00:19:08,080 --> 00:19:10,840 believe eventually this one will work its way into the green 383 00:19:11,160 --> 00:19:13,400 either this upcoming quarter or the next. 384 00:19:13,720 --> 00:19:17,560 And in fact, I don't believe that Salesforce deserved to sell 385 00:19:17,560 --> 00:19:20,920 off last quarter like it did. I don't believe the stock 386 00:19:20,920 --> 00:19:23,360 deserved to be down. And I based that off of a few 387 00:19:23,360 --> 00:19:25,840 different reasons. One of them is that Salesforce 388 00:19:25,840 --> 00:19:28,880 had a very strong quarter. They did everything that they 389 00:19:28,880 --> 00:19:30,520 told investors they are going to do. 390 00:19:30,840 --> 00:19:34,120 They said that they are going to grow organic revenue without any 391 00:19:34,120 --> 00:19:36,680 big acquisitions. That's exactly what they did. 392 00:19:36,680 --> 00:19:39,760 They grew their revenue by 11 percent on a trailing 12 month 393 00:19:39,760 --> 00:19:42,040 basis. Even quarter over quarter grew 394 00:19:42,160 --> 00:19:44,040 11%. That is nice. 395 00:19:44,040 --> 00:19:46,240 Organic revenue growth through more products and more 396 00:19:46,240 --> 00:19:48,360 customers, customers and higher prices. 397 00:19:48,800 --> 00:19:50,640 Then we look at the different segments of business. 398 00:19:51,040 --> 00:19:53,560 Every segment of Salesforce is growing. 399 00:19:53,920 --> 00:19:56,840 So across the board we have strength in every important 400 00:19:56,840 --> 00:19:59,680 segment. Now, most importantly, the 401 00:19:59,680 --> 00:20:02,000 biggest thing that confuses me about Salesforce is stock 402 00:20:02,000 --> 00:20:04,760 currently. Is the fact that the free cash 403 00:20:04,760 --> 00:20:07,680 flow is growing exponentially parabolically. 404 00:20:08,000 --> 00:20:09,520 You can see the free cash flow line here. 405 00:20:09,520 --> 00:20:12,960 On a trailing 12 month basis, last quarter was a record high 406 00:20:13,280 --> 00:20:16,920 eleven, $33 billion in the past 12 months. 407 00:20:17,280 --> 00:20:19,200 So we have massive free cash flow growth. 408 00:20:19,600 --> 00:20:22,520 Salesforce has struggled with stock based comp diluting away 409 00:20:22,520 --> 00:20:25,400 some of the free cash flow. But when we look at this, the 410 00:20:25,400 --> 00:20:27,440 stock based comp is even going down. 411 00:20:27,760 --> 00:20:30,760 You can see here, if we zoom in, we can see this more clearly. 412 00:20:31,080 --> 00:20:34,600 The stock based comp has been going down consistently since Q1 413 00:20:34,600 --> 00:20:37,680 of 2023. So the margins between the free 414 00:20:37,680 --> 00:20:40,040 cash flow they're generating and the dilution they're doing 415 00:20:40,040 --> 00:20:43,000 through stock based comp is getting wider and wider and 416 00:20:43,000 --> 00:20:44,640 wider. If we look at this on a free 417 00:20:44,640 --> 00:20:48,120 cash flow per share chart, you can see the exponential growth. 418 00:20:48,400 --> 00:20:51,080 It increased by 62% year over year. 419 00:20:51,440 --> 00:20:54,600 These are very strong numbers. These aren't the numbers of a 420 00:20:54,600 --> 00:20:58,200 struggling or weak company, and typically companies like this 421 00:20:58,640 --> 00:21:01,400 dominant software companies with fast growing free cash flow 422 00:21:01,400 --> 00:21:05,440 margins are priced really high. But in the case of Salesforce, 423 00:21:05,440 --> 00:21:08,960 the valuation is not demanding. In fact, I think the company is 424 00:21:08,960 --> 00:21:13,080 currently undervalued. It trades at a modest 26 Ford PE 425 00:21:13,080 --> 00:21:16,040 ratio, so it's not really a high PE ratio. 426 00:21:16,440 --> 00:21:19,080 The free cash flow yield is 4.4%. 427 00:21:19,440 --> 00:21:22,240 Even when we take out stock based comp, it only goes down to 428 00:21:22,240 --> 00:21:24,960 3.3%. That's a high free cash flow 429 00:21:24,960 --> 00:21:26,760 yield for company in this position. 430 00:21:26,920 --> 00:21:28,800 Now if we look at some of the analysts commentary on this 431 00:21:28,800 --> 00:21:31,440 stock, Deutsche Bank's Brad Zelnick says that Salesforce's 432 00:21:31,440 --> 00:21:35,000 Q2 operating margins could move the stock as well as its Q3 433 00:21:35,000 --> 00:21:37,320 outlook for a key financial metric. 434 00:21:37,600 --> 00:21:41,120 The current remaining performance obligations, CRPO 435 00:21:41,120 --> 00:21:44,920 bookings are an aggregate of deferred revenue and a backlog. 436 00:21:45,400 --> 00:21:49,000 Now that number, he's referring to, the obligations we have 437 00:21:49,000 --> 00:21:52,640 measured right here in Qualtrim. This is the obligations of 438 00:21:52,640 --> 00:21:55,200 different companies to use Salesforce contracts they've 439 00:21:55,200 --> 00:21:57,200 agreed to. And you can see the growth of 440 00:21:57,200 --> 00:22:00,360 this is around 15%. So if we have another good 441 00:22:00,360 --> 00:22:03,160 performance obligation number showing more and more people 442 00:22:03,160 --> 00:22:06,400 committing, that can move the stock higher because this is a 443 00:22:06,400 --> 00:22:09,000 form of deferred revenue. At Oppenheimer, analyst Brad 444 00:22:09,000 --> 00:22:12,360 Schwartz said in a report that positively the stock trades at a 445 00:22:12,360 --> 00:22:15,840 deep discount multiple versus its pairs, which infers that 446 00:22:15,840 --> 00:22:20,080 investors expectations are low heading into the Q2 print and 447 00:22:20,080 --> 00:22:22,520 that the business is heading towards better seasonality in 448 00:22:22,520 --> 00:22:26,480 the second-half of fiscal 2025 for sales for stock right now, 449 00:22:26,480 --> 00:22:29,560 expectations are low. Investors aren't enthused about 450 00:22:29,560 --> 00:22:31,440 the company. They don't look at it as an AI 451 00:22:31,440 --> 00:22:34,160 play, but I look at it as a free cash flow play. 452 00:22:34,440 --> 00:22:37,880 I think that ultimately, given enough time, the free cash flow 453 00:22:37,880 --> 00:22:41,000 per share growth of the company will eventually push up the 454 00:22:41,000 --> 00:22:43,440 stock price. And I think right now, the fair 455 00:22:43,440 --> 00:22:45,040 value of the company's around 300. 456 00:22:45,920 --> 00:22:49,200 Now this earnings report, I can't say what direction it will 457 00:22:49,200 --> 00:22:51,880 trade right after earnings. Maybe it will have another 458 00:22:51,880 --> 00:22:54,360 disappointing earnings report. Maybe Mark Benioff will say 459 00:22:54,360 --> 00:22:56,200 something silly on the earnings call. 460 00:22:56,200 --> 00:22:58,560 I don't know. But given enough time, usually 461 00:22:58,560 --> 00:23:00,960 the fundamentals override fleeting narratives. 462 00:23:01,280 --> 00:23:04,160 And for me, Salesforce is a free cash flow per share play. 463 00:23:04,240 --> 00:23:06,920 Now moving down the week, we get to Thursday and we have 464 00:23:06,920 --> 00:23:09,520 Lululemon reporting after market close. 465 00:23:10,240 --> 00:23:13,200 An interesting article that I read about Lululemon is the fact 466 00:23:13,200 --> 00:23:16,440 that consumer preferences and especially TikTok preferences 467 00:23:16,640 --> 00:23:19,240 change all the time. There once was a time where 468 00:23:19,240 --> 00:23:22,640 everyone valued name brands. You wanted to have the logo, you 469 00:23:22,640 --> 00:23:25,280 wanted to have the name brand. But now we have a report from 470 00:23:25,280 --> 00:23:28,160 the Wall Street Journal saying that the TikTok crowd, the young 471 00:23:28,160 --> 00:23:30,920 people on TikTok, they're OK with dupes. 472 00:23:31,400 --> 00:23:32,640 They don't care if you have knockoffs. 473 00:23:32,640 --> 00:23:33,960 They don't care if you're being cheap. 474 00:23:33,960 --> 00:23:36,280 Less expensive versions of premium products have become an 475 00:23:36,280 --> 00:23:38,720 acceptable alternative, particularly for the younger 476 00:23:38,720 --> 00:23:41,440 shoppers. In some cases, dupes, short for 477 00:23:41,440 --> 00:23:44,560 duplicates, are considered cooler than the real thing. 478 00:23:44,880 --> 00:23:47,720 This is becoming a problem for the company that pioneered high 479 00:23:47,720 --> 00:23:50,880 end athleisure and made $100 leggings the norm. 480 00:23:50,880 --> 00:23:54,280 This is a change from history. We used to signal things of how 481 00:23:54,280 --> 00:23:57,280 good we were in our status by the clothes that we wore. 482 00:23:57,400 --> 00:24:00,440 The more expensive the better. This is why high fashion brands 483 00:24:00,440 --> 00:24:02,640 exist. Look, I can buy something that 484 00:24:02,640 --> 00:24:05,000 you can't. That makes me a cooler, better 485 00:24:05,000 --> 00:24:07,000 person. That's how we used to signal 486 00:24:07,000 --> 00:24:10,400 things to other people, and specifically with clothing and 487 00:24:10,400 --> 00:24:12,800 with cars we drive. But now it seems like more and 488 00:24:12,800 --> 00:24:14,960 more people are rejecting that type of signaling. 489 00:24:15,200 --> 00:24:18,800 They're going more Dave Ramsey. People are in fact signaling the 490 00:24:18,800 --> 00:24:22,840 exact opposite, that you're cool if you can find the deal, if you 491 00:24:22,840 --> 00:24:26,040 can get something for cheaper that makes your status go up. 492 00:24:26,400 --> 00:24:29,800 And this is a notable challenge for companies that rely on 493 00:24:29,800 --> 00:24:32,880 status symbols, that rely on being the name brand, the 494 00:24:32,880 --> 00:24:35,840 expensive original brand. On top of these differences in 495 00:24:35,840 --> 00:24:39,200 consumer preferences and the willingness to go into dupes, we 496 00:24:39,200 --> 00:24:40,920 also have the challenge of competition. 497 00:24:41,240 --> 00:24:44,160 The heightened competition comes as Lululemon has made a series 498 00:24:44,160 --> 00:24:47,320 of missteps that have turned off even some of its most devoted 499 00:24:47,320 --> 00:24:49,120 fans. One of the big things they 500 00:24:49,120 --> 00:24:52,600 outline here is the color palette, and this shows how 501 00:24:52,600 --> 00:24:56,720 difficult clothing brands are. Clothing brands are so 502 00:24:56,720 --> 00:24:58,520 difficult. You have to have the size that 503 00:24:58,520 --> 00:25:00,680 fits everyone. Is it wide enough? 504 00:25:00,680 --> 00:25:02,200 Is it thin enough? Is it tall enough? 505 00:25:02,200 --> 00:25:04,240 Is it short enough? Does it does it have the 506 00:25:04,240 --> 00:25:06,080 waistline that you want, the leg width? 507 00:25:06,320 --> 00:25:09,560 It has to fit everyone to all these different body shapes. 508 00:25:09,840 --> 00:25:12,600 And then you also have to have the different color preferences 509 00:25:13,160 --> 00:25:16,200 O in a clothing brand, you have to keep so much stock of 510 00:25:16,200 --> 00:25:20,040 different sizes, different color ways of the same type of 511 00:25:20,040 --> 00:25:22,000 clothing. And if you don't sell enough of 512 00:25:22,000 --> 00:25:24,520 one different size of one different color, you eat the 513 00:25:24,520 --> 00:25:27,440 manufacturing cost of that. That's why these companies are 514 00:25:27,440 --> 00:25:30,280 very difficult. Nike is an outlier of getting 515 00:25:30,280 --> 00:25:32,200 this right for a long period of time. 516 00:25:32,240 --> 00:25:35,600 They say that the color palette with Lululemon was too limited 517 00:25:35,600 --> 00:25:38,920 and not having enough of some products such as smaller size 518 00:25:38,920 --> 00:25:41,120 leggings. The misfires have pushed people 519 00:25:41,120 --> 00:25:43,760 such as Natalie to seek out different brands. 520 00:25:44,000 --> 00:25:46,320 The 20 year old college student said that she switched from 521 00:25:46,320 --> 00:25:50,520 Lululemon to Gym Shark and AYBL not just because their leggings 522 00:25:50,520 --> 00:25:53,960 cost less, but because they have more color varieties. 523 00:25:54,080 --> 00:25:56,880 It's not just the lower priced dupes that are eating away at 524 00:25:56,880 --> 00:25:59,720 Lululemon's dominance. The brand is also facing more 525 00:25:59,720 --> 00:26:03,400 competition from new premium labels such as Aloe Yoga and 526 00:26:03,400 --> 00:26:06,120 Viori, whose prices are similar to Lululemon's. 527 00:26:06,640 --> 00:26:08,760 So they're getting flanked from all sides. 528 00:26:08,760 --> 00:26:11,440 You have duplicates that are much cheaper, ones that are 529 00:26:11,440 --> 00:26:14,880 knockoffs of these companies at places like Costco or online at 530 00:26:14,880 --> 00:26:16,920 Amazon. There's 1000 Chinese retailers 531 00:26:16,920 --> 00:26:19,760 making knockoffs of Lululemon. But then you also have premium 532 00:26:19,760 --> 00:26:23,080 brands very similar in quality to Lululemon, like Viori, that 533 00:26:23,080 --> 00:26:26,600 are also taking market share, the combination of which is very 534 00:26:26,600 --> 00:26:29,440 difficult for even a strong company to deal with. 535 00:26:29,800 --> 00:26:33,680 Lululemon is a fantastic brand and a fantastic company, but 536 00:26:33,680 --> 00:26:36,120 this is challenging for this company to deal with. 537 00:26:36,640 --> 00:26:39,040 Lululemon still remains the favorite brand for people making 538 00:26:39,040 --> 00:26:42,680 over 100,000, but Aloe and Viori are gaining ground. 539 00:26:42,920 --> 00:26:46,520 So Lululemon right now is currently losing market share to 540 00:26:46,520 --> 00:26:49,640 their two premium competitors. So we have a difficult setup for 541 00:26:49,640 --> 00:26:52,720 this company and for Lululemon. The earnings call is going to be 542 00:26:52,720 --> 00:26:55,720 just as important as the earnings report because we have 543 00:26:55,720 --> 00:26:58,920 the company going to explain how it's going to face all of these 544 00:26:58,920 --> 00:27:01,200 challenges. The stock is down big time. 545 00:27:01,200 --> 00:27:05,320 It's down 45% year to date, and it seems like it's set up for a 546 00:27:05,320 --> 00:27:07,680 rebound. So we have many value investors, 547 00:27:07,680 --> 00:27:10,520 different people jumping in here, buying this company at 548 00:27:10,520 --> 00:27:13,040 different points in time, hoping for recovery. 549 00:27:13,440 --> 00:27:16,640 That recovery may come. But I think this is again, a 550 00:27:16,640 --> 00:27:19,480 difficult situation. When I'm looking at companies 551 00:27:19,480 --> 00:27:22,800 like Lululemon, I'm always looking at predictability first. 552 00:27:23,160 --> 00:27:26,600 And with any apparel brand, as good as it is, when it faces 553 00:27:26,600 --> 00:27:30,160 this much increased competition, duplicates and challenges with 554 00:27:30,160 --> 00:27:33,200 consumers wanting to pull back on high-priced goods, I think 555 00:27:33,200 --> 00:27:35,240 it's a difficult setup for this company. 556 00:27:35,320 --> 00:27:38,360 So I'm not bearish on this quarter for Lululemon, but given 557 00:27:38,360 --> 00:27:41,440 the pressures this company faces, it's not one that I'm 558 00:27:41,440 --> 00:27:43,440 interested in. Now finally, we get to Ulta 559 00:27:43,440 --> 00:27:46,360 Beauty reporting at the same time after market close on 560 00:27:46,360 --> 00:27:48,360 Thursday. This is a company that I've been 561 00:27:48,360 --> 00:27:51,160 following for some time. I've covered it as a stock 562 00:27:51,160 --> 00:27:53,640 that's a retailer and one of the better retailers. 563 00:27:53,640 --> 00:27:56,760 This has historically been a massive compound machine for a 564 00:27:56,760 --> 00:27:59,400 long period of time. It recently sold off early this 565 00:27:59,400 --> 00:28:01,480 year as the company faced challenge and gave lower 566 00:28:01,480 --> 00:28:03,880 guidance and the stock continued to go down. 567 00:28:03,920 --> 00:28:07,080 It went down and down and down until Warren Buffett finally 568 00:28:07,080 --> 00:28:08,920 bought the stock. Berkshire entered into a 569 00:28:08,920 --> 00:28:12,400 position with their last 13 F and immediately after it became 570 00:28:12,400 --> 00:28:16,240 known the stock was up 10%. So this bounce from the dip 571 00:28:16,240 --> 00:28:18,800 right there is because of Warren Buffett's buy. 572 00:28:18,840 --> 00:28:21,720 He gave the stamp of approval to value investors that it's time 573 00:28:21,720 --> 00:28:24,880 to jump in and Ulta Beauty since then has become one of the most 574 00:28:24,880 --> 00:28:27,720 talked about investments by value investors and dip buyers. 575 00:28:28,320 --> 00:28:31,640 O the question is whether or not it's now finally a decent time 576 00:28:31,640 --> 00:28:34,440 to buy into this company, whether the trend will continue 577 00:28:34,440 --> 00:28:36,640 to reverse and we'll see some upside in this stock. 578 00:28:36,680 --> 00:28:39,360 The first thing we can look at is the past 10 years of this 579 00:28:39,360 --> 00:28:41,600 company. In the past decade, it's up 580 00:28:41,640 --> 00:28:45,360 282%, which is really good. But you'll also notice if you 581 00:28:45,360 --> 00:28:48,160 look at the chart here, this company is routinely going 582 00:28:48,160 --> 00:28:51,280 through large dips. It's gone through a dip in 2017, 583 00:28:51,480 --> 00:28:56,760 multiple dips in 2018, multiple dips in 2019, and then 2020 is 584 00:28:56,760 --> 00:28:59,120 when it really took off. It got a little ahead of itself 585 00:28:59,120 --> 00:29:02,560 in 2022, like a lot of other companies, it's sold back down. 586 00:29:02,800 --> 00:29:05,640 It got ahead of itself again, and since then it's traded back 587 00:29:05,640 --> 00:29:07,720 down. This is a volatile stock full of 588 00:29:07,720 --> 00:29:10,800 ebbs and flows and I would not be surprised if we see another 589 00:29:10,800 --> 00:29:13,320 surge upwards in the price. The revenue growth has been 590 00:29:13,360 --> 00:29:15,640 relatively consistent for a long period of time. 591 00:29:16,000 --> 00:29:19,560 If we factor out the Covic period, we can see that revenue 592 00:29:19,560 --> 00:29:22,600 really is on track with this long term historical norm 593 00:29:22,880 --> 00:29:26,840 growing around 11% overall. So we have a strong top line 594 00:29:26,840 --> 00:29:29,600 growth and this growth is mostly organic. 595 00:29:29,640 --> 00:29:32,320 It's not from large acquisitions or doing anything tricky. 596 00:29:32,520 --> 00:29:35,400 They are growing up by opening up new locations, growing their 597 00:29:35,400 --> 00:29:37,960 location sales and growing their online sales. 598 00:29:38,000 --> 00:29:39,840 Then of course, we get into my favorite metric for these 599 00:29:39,840 --> 00:29:41,560 companies, which is the free cash flow. 600 00:29:41,880 --> 00:29:44,720 On a trailing basis, we can see that the most recent quarter 601 00:29:44,880 --> 00:29:48,240 they generated $900 million in free cash flow, which looks 602 00:29:48,240 --> 00:29:50,400 really good. It's at a high free cash flow 603 00:29:50,400 --> 00:29:52,560 yield. So the stock is cheap right now 604 00:29:52,560 --> 00:29:55,720 based on its current free cash flow, but I also take a look at 605 00:29:55,720 --> 00:29:59,600 this and see that it hasn't grown that much since 2020. 606 00:30:00,000 --> 00:30:02,600 It has a shrink, but the free cash flow hasn't been growing. 607 00:30:02,880 --> 00:30:05,800 It's been a steady producer of around the same amount of free 608 00:30:05,800 --> 00:30:08,040 cash flow per year. When we look at the free cash 609 00:30:08,040 --> 00:30:10,960 flow per share, it's going up slightly because they're buying 610 00:30:10,960 --> 00:30:13,600 back some shares. But again, it still looks 611 00:30:13,600 --> 00:30:16,120 relatively the same for the past couple of years. 612 00:30:16,640 --> 00:30:19,680 I like to buy companies where I see more explosive free cash 613 00:30:19,680 --> 00:30:21,760 flow upside. So a lot of companies that I'm 614 00:30:21,760 --> 00:30:25,400 buying I consider to be strong free cash flow growth companies. 615 00:30:25,720 --> 00:30:28,880 With Ulta, I think this is more of a current valuation play. 616 00:30:29,040 --> 00:30:31,200 I think investors are buying this company hoping that the 617 00:30:31,200 --> 00:30:33,440 outlook will improve and the multiple will rise. 618 00:30:33,480 --> 00:30:35,960 My biggest concern for Ulta Beauty is similar to other 619 00:30:35,960 --> 00:30:38,000 companies, which of course is competition. 620 00:30:38,320 --> 00:30:41,680 They noted in their most recent call that competition is 621 00:30:41,680 --> 00:30:44,800 impacting the company. The retailer said in late May 622 00:30:45,400 --> 00:30:49,320 that they lost market share in the prestige brands, noting that 623 00:30:49,320 --> 00:30:53,080 quote, more than 1000 new points of distribution have been opened 624 00:30:53,080 --> 00:30:55,760 in the past two years. Much of this is probably 625 00:30:55,760 --> 00:31:00,360 referring to Sephora, which is opened up inside more than 900 626 00:31:00,360 --> 00:31:03,480 Kohl's. So over the past couple of 627 00:31:03,480 --> 00:31:07,040 years, there's other companies that are very similar to Ulta 628 00:31:07,040 --> 00:31:10,880 Beauty Sephora that have opened up 1000 new locations. 629 00:31:11,040 --> 00:31:13,240 That's a development I don't like to see. 630 00:31:13,560 --> 00:31:16,640 When your company has another competitor that's expanding very 631 00:31:16,640 --> 00:31:19,320 rapid and there's not much difference between the products 632 00:31:19,320 --> 00:31:21,200 you sell. You can get the same thing at 633 00:31:21,200 --> 00:31:23,800 Sephora that you can get at Ulta for the most part. 634 00:31:24,040 --> 00:31:26,760 Another emerging threat is Amazon, where luxury cosmetic 635 00:31:26,760 --> 00:31:28,920 brands have been broadening distribution. 636 00:31:29,000 --> 00:31:31,800 Every single year, more and more people get used to purchasing 637 00:31:31,800 --> 00:31:34,720 things online, even things that they weren't used to purchasing 638 00:31:34,760 --> 00:31:37,680 recently, like healthcare items, prescriptions. 639 00:31:37,960 --> 00:31:40,480 And now you're going to see more and more beauty items purchased 640 00:31:40,480 --> 00:31:43,000 on Amazon. If people find out a product 641 00:31:43,000 --> 00:31:45,920 that they like from Ulta Beauty and they already have tried the 642 00:31:45,920 --> 00:31:48,280 product, they know what they like and then they find it 643 00:31:48,280 --> 00:31:51,360 cheaper on Amazon.com, they might go to Amazon to purchase 644 00:31:51,360 --> 00:31:54,160 it in the future. So this creates another issue 645 00:31:54,160 --> 00:31:56,480 for Ulta Beauty. So overall, my biggest concern 646 00:31:56,480 --> 00:31:59,040 with Ulta Beauty is once again, competition. 647 00:31:59,360 --> 00:32:02,680 Now having said that, they do have a very reliable free cash 648 00:32:02,680 --> 00:32:05,440 flow over the past three years. And I think that's likely to 649 00:32:05,440 --> 00:32:09,000 continue, which I think puts a bit of a floor on the valuation 650 00:32:09,000 --> 00:32:11,840 of this company. I can't imagine it getting much 651 00:32:11,840 --> 00:32:15,200 lower than it is today, so I think investors buying in today 652 00:32:15,440 --> 00:32:18,280 are likely to have the stock trade around where it is or 653 00:32:18,280 --> 00:32:21,320 maybe somewhat higher. I don't expect any massive 654 00:32:21,320 --> 00:32:23,840 returns with the company, at least I don't see that in the 655 00:32:23,840 --> 00:32:26,160 numbers. But right now I do see it as a 656 00:32:26,160 --> 00:32:28,320 good value play with minimal downside. 657 00:32:28,400 --> 00:32:31,040 If I was to pick between Lululemon and Ulta Beauty, I 658 00:32:31,040 --> 00:32:34,520 would pick Ulta Beauty because right now I think there's less 659 00:32:34,520 --> 00:32:38,120 downside in the stock. Now that wraps up this week's of 660 00:32:38,120 --> 00:32:39,960 earnings. It'll be interesting to see how 661 00:32:39,960 --> 00:32:41,960 this all plays out. If you want to see follow up 662 00:32:41,960 --> 00:32:45,240 videos on these earnings, what I thought about Nvidia's earnings 663 00:32:45,240 --> 00:32:48,000 or crowd strikes or Salesforce, just make sure you subscribe to 664 00:32:48,000 --> 00:32:49,920 the channel and my other YouTube channel. 665 00:32:50,120 --> 00:32:52,480 I'll be doing updates there Now let's go to move on to this 666 00:32:52,480 --> 00:32:55,920 viral post about Costco. Now to preface this, I post 667 00:32:55,920 --> 00:32:58,120 somewhat frequently on X or Twitter. 668 00:32:58,280 --> 00:33:00,480 If you want to follow me it's at Joe Carlson show. 669 00:33:00,880 --> 00:33:05,040 Now in most cases, my post get a couple 100 likes, maybe a few 670 00:33:05,040 --> 00:33:08,080 dozen comments and if you reach tweets, the account that I have 671 00:33:08,080 --> 00:33:10,760 is somewhat large. It's 4500 followers. 672 00:33:11,000 --> 00:33:14,400 So it's not a small account, especially in terms of financial 673 00:33:14,400 --> 00:33:16,360 accounts, but it's also not massive. 674 00:33:16,360 --> 00:33:19,360 I don't have millions of followers on Twitter so most of 675 00:33:19,360 --> 00:33:23,400 the posts get around that same amount, but this one from Costco 676 00:33:23,760 --> 00:33:25,800 got into an entirely different stratosphere. 677 00:33:25,920 --> 00:33:30,320 This is by far the most engaged, the most viewed, the most 678 00:33:30,320 --> 00:33:34,280 everything post I've ever made. It currently has 21,000 likes, 679 00:33:34,600 --> 00:33:38,480 2300 retweets with so many people quote tweeting it, 680 00:33:38,720 --> 00:33:41,360 talking about it, and 429 comments. 681 00:33:41,840 --> 00:33:44,280 Now if we look at the actual post here, I say that this is 682 00:33:44,280 --> 00:33:47,480 the first Costco in Okinawa that opened today. 683 00:33:47,800 --> 00:33:51,520 They opened 3.5 hours before the normal hours. 684 00:33:51,680 --> 00:33:53,840 The building quickly reached Max capacity. 685 00:33:54,120 --> 00:33:55,760 Cars wrapped around the parking lot. 686 00:33:56,000 --> 00:33:58,440 They could only let in people as others left. 687 00:33:58,640 --> 00:34:00,440 There was a 5 hour wait to get in. 688 00:34:00,840 --> 00:34:04,440 So this is the new Costco opening in Okinawa and you can 689 00:34:04,440 --> 00:34:06,960 see the massive demand they have here. 690 00:34:07,200 --> 00:34:10,000 How excited people are to get into this Costco. 691 00:34:10,600 --> 00:34:13,679 Look at the lines you have an entire wall of Costco, which is 692 00:34:13,679 --> 00:34:17,400 just massive with thousands of people waiting outside. 693 00:34:17,679 --> 00:34:20,400 And my first thought when looking at this, which I found 694 00:34:20,400 --> 00:34:24,000 these these pictures on a small Instagram of a a news account in 695 00:34:24,000 --> 00:34:26,639 Japan. I saw this picture and I 696 00:34:26,639 --> 00:34:29,960 thought, why is it dark out? What are what are people doing 697 00:34:29,960 --> 00:34:31,840 lining up at Costco with it dark out? 698 00:34:32,159 --> 00:34:34,600 Costco normally opens late in the morning. 699 00:34:34,600 --> 00:34:37,400 So it's normally pretty bright outside when you go to Costco 700 00:34:37,960 --> 00:34:40,199 and that's why I dug a little deeper into the news article and 701 00:34:40,199 --> 00:34:42,440 they opened it up 3 1/2 hours ahead of time. 702 00:34:42,800 --> 00:34:45,840 So it's literally dark out. People travelled almost in the 703 00:34:45,840 --> 00:34:48,880 middle of the night to get to Costco on opening day. 704 00:34:49,320 --> 00:34:51,040 They waited in line until they could get in. 705 00:34:51,280 --> 00:34:55,000 It reached Max capacity. You can see every single teller 706 00:34:55,000 --> 00:34:57,080 is open here. Everyone's in the the food 707 00:34:57,080 --> 00:34:58,920 court. There's other people that have 708 00:34:59,080 --> 00:35:02,560 done enhanced pictures of this. They've shown that the price of 709 00:35:02,560 --> 00:35:08,080 the hot dog combo is around buck $40.50 in USD. 710 00:35:08,320 --> 00:35:10,720 So no matter where you go, whether it's in the US or Japan, 711 00:35:10,720 --> 00:35:13,280 they're staying true to their dollar fifty combo. 712 00:35:13,920 --> 00:35:17,600 Now, Costco's normally busy most days, especially on weekends. 713 00:35:17,600 --> 00:35:19,640 It's busy. It's tough to move around, but 714 00:35:19,640 --> 00:35:22,560 it's not quite this busy. It's just incredible seeing 715 00:35:22,560 --> 00:35:25,680 these people stuffed in the Costco, excited about this 716 00:35:25,680 --> 00:35:28,400 opening of a warehouse outside of the location. 717 00:35:28,400 --> 00:35:31,080 The entire parking lot's filled. Cars are being funneled around 718 00:35:31,080 --> 00:35:33,240 the building because there's not enough parking spaces. 719 00:35:33,600 --> 00:35:36,000 And again, this is almost in the middle of the night, very early 720 00:35:36,000 --> 00:35:38,960 morning with the dark outside. This led to a lot of commenters 721 00:35:38,960 --> 00:35:42,760 speculating of why Costco does so well in other countries. 722 00:35:43,120 --> 00:35:46,080 Why are the Japanese so obsessed with Costco? 723 00:35:46,080 --> 00:35:48,680 They love it. And before Costco moved to 724 00:35:48,680 --> 00:35:51,560 Japan, there was speculation that Costco wouldn't do well 725 00:35:51,560 --> 00:35:53,080 there. In fact, Costco would do poorly 726 00:35:53,080 --> 00:35:56,200 because they sell big bulk items and Japanese people are pretty 727 00:35:56,200 --> 00:35:57,880 reserved. They live in smaller places. 728 00:35:58,080 --> 00:36:00,360 Maybe they don't have storage room for all the goods they're 729 00:36:00,360 --> 00:36:03,240 getting at Costco. That whole thesis was proven 730 00:36:03,360 --> 00:36:06,840 incredibly wrong when Costco had their first opening in Japan. 731 00:36:07,120 --> 00:36:09,840 But we see continued demand in Japan. 732 00:36:10,120 --> 00:36:13,240 Some people have said that it's simple product market fit, that 733 00:36:13,240 --> 00:36:15,720 Japan doesn't have anything like Costco, which I think is true. 734 00:36:16,160 --> 00:36:19,680 There's others saying that it's just another telling, another 735 00:36:19,680 --> 00:36:23,640 win of American consumerism. But I think it's even more than 736 00:36:23,640 --> 00:36:24,800 that. It's not just American 737 00:36:24,800 --> 00:36:27,360 consumerism, it's the best of America. 738 00:36:27,600 --> 00:36:30,760 Costco represents the best consumerism of America. 739 00:36:30,880 --> 00:36:33,720 Costco represents the best value for customers, the lowest 740 00:36:33,720 --> 00:36:37,360 prices, the best facility. It's kept up really nice every 741 00:36:37,360 --> 00:36:39,280 time you go in it. The happiest employees that are 742 00:36:39,280 --> 00:36:42,280 well paid, they're well taken care of, friendly staff. 743 00:36:42,280 --> 00:36:45,880 The best return policy and investors that make a fortune 744 00:36:45,880 --> 00:36:47,960 because of how efficiently the companies ran. 745 00:36:48,040 --> 00:36:50,560 Overall, Costco continues to prove that it is the best 746 00:36:50,560 --> 00:36:53,120 company in the world. I've said that repeatedly over 747 00:36:53,120 --> 00:36:55,440 the past five years. I've said it not Ironically, 748 00:36:55,440 --> 00:36:57,960 Costco's a company where the business model is predictable, 749 00:36:58,000 --> 00:37:00,800 replicable, repeatable, and improveable over time. 750 00:37:01,160 --> 00:37:04,440 The company has continued to do the exact same playbook with 751 00:37:04,440 --> 00:37:07,960 slight moderations over decades of time, and the rewards have 752 00:37:07,960 --> 00:37:09,840 been significant in My Portfolio. 753 00:37:09,840 --> 00:37:12,400 I still hold the shares of Costco that I purchased. 754 00:37:12,800 --> 00:37:16,520 I now have gains of $42,000 in the company and I continue to 755 00:37:16,520 --> 00:37:18,320 hold. So even though I agree that the 756 00:37:18,320 --> 00:37:21,280 valuation looks more challenging in the short term, I believe 757 00:37:21,280 --> 00:37:24,640 given the fullness of time, in the long term, the next 20 or 30 758 00:37:24,640 --> 00:37:27,680 years, Costco will continue to prove itself as one of the 759 00:37:27,680 --> 00:37:30,160 biggest winners ever. So I'm keeping it in My 760 00:37:30,160 --> 00:37:33,680 Portfolio, every single share. That's all for this episode. 761 00:37:33,720 --> 00:37:35,480 Hope you enjoyed. See you in the next one.