1 00:00:00,120 --> 00:00:02,000 Welcome back everyone. Today on the Joseph Carlson 2 00:00:02,000 --> 00:00:03,680 Show. This week we get into the 3 00:00:03,680 --> 00:00:05,680 biggest earnings week of the season. 4 00:00:05,920 --> 00:00:08,480 We've already gone through a number of companies like Google, 5 00:00:08,760 --> 00:00:11,880 Visa, Texas Roadhouse. We had some pretty big ones 6 00:00:11,880 --> 00:00:15,160 reporting earnings last week, but this week is really where we 7 00:00:15,160 --> 00:00:17,560 get into it. Let's go ahead and just take a a 8 00:00:17,560 --> 00:00:20,640 look at the list here. We have it up on the board and 9 00:00:20,680 --> 00:00:24,600 we start off today with McDonald's already reporting 10 00:00:24,600 --> 00:00:27,000 earnings was not good. We're going to go over 11 00:00:27,000 --> 00:00:29,160 McDonald's earnings and look at the problems they're having. 12 00:00:29,480 --> 00:00:32,000 But then Tuesday we get into the upcoming earnings. 13 00:00:32,000 --> 00:00:35,600 We have Sofi, Microsoft, we have Starbucks. 14 00:00:35,600 --> 00:00:37,640 These are all ones that we've been paying attention to. 15 00:00:37,920 --> 00:00:41,000 I didn't circle PayPal, but I'll probably share a few thoughts on 16 00:00:41,000 --> 00:00:43,320 that one as well. Then we have Wingstop. 17 00:00:43,320 --> 00:00:46,160 This has been one of the high flying compounder stocks. 18 00:00:46,160 --> 00:00:48,800 It's gone up like crazy. I'll share a few thoughts on 19 00:00:48,800 --> 00:00:51,320 Wingstop. We have MasterCard, one of my 20 00:00:51,320 --> 00:00:54,000 core holdings. Then we have more big tech on 21 00:00:54,000 --> 00:00:56,760 Wednesday after market close. We're going to hear from Meta 22 00:00:56,760 --> 00:00:59,280 and see how that company's doing on Thursday. 23 00:00:59,280 --> 00:01:02,480 We also have a massive day. In fact, I think Thursday is the 24 00:01:02,480 --> 00:01:06,560 biggest day because we have the duo Amazon and Apple. 25 00:01:06,840 --> 00:01:11,040 These are two of the most well owned stocks by investors. 26 00:01:11,040 --> 00:01:15,680 So many investors own Amazon and ALE for good reason, and we're 27 00:01:15,680 --> 00:01:17,840 going to be looking at what to expect going into those 28 00:01:17,840 --> 00:01:19,880 earnings. And then finally, another stock 29 00:01:19,880 --> 00:01:22,560 that's a bit smaller, but one that I have in My Portfolio. 30 00:01:22,560 --> 00:01:25,040 I've been building a position is Booking Holdings. 31 00:01:25,480 --> 00:01:27,480 That one's also reporting earnings on Thursday. 32 00:01:27,760 --> 00:01:29,360 I'll be sharing some thoughts on that as well. 33 00:01:29,480 --> 00:01:31,720 So looking at the list here, it's going to be a massive week. 34 00:01:31,720 --> 00:01:34,040 We have 10 companies. I'll be going over in this 35 00:01:34,040 --> 00:01:37,600 episode and giving some context and insight into what to expect. 36 00:01:37,800 --> 00:01:39,640 We'll start off with the beginning of the week and work 37 00:01:39,640 --> 00:01:42,360 our way to the end. We'll start off with Monday 38 00:01:42,360 --> 00:01:45,560 morning, which McDonald's already reported earnings. 39 00:01:45,760 --> 00:01:47,520 McDonald's earnings were not good. 40 00:01:47,600 --> 00:01:49,720 And I know that's disappointing to hear if you're a McDonald's 41 00:01:49,720 --> 00:01:51,480 shareholder, but they just weren't good. 42 00:01:51,720 --> 00:01:53,760 That's the truth. They missed on the top and 43 00:01:53,760 --> 00:01:56,120 bottom line and they missed by a meaning full amount. 44 00:01:56,400 --> 00:01:59,400 These weren't just really narrow misses, but that's not the 45 00:01:59,400 --> 00:02:01,560 biggest deal here. I don't think that's the biggest 46 00:02:01,560 --> 00:02:05,000 concern. I'm OK if companies miss as long 47 00:02:05,000 --> 00:02:07,120 as things are still headed in the right direction. 48 00:02:07,480 --> 00:02:09,840 If a company misses their expectations, but they're still 49 00:02:09,840 --> 00:02:12,760 growing and intrinsic value, I think that's fine. 50 00:02:13,120 --> 00:02:16,240 In this case, McDonald's is not really headed in the right 51 00:02:16,240 --> 00:02:18,720 direction. McDonald's same store sales 52 00:02:18,960 --> 00:02:24,160 shrink 1%, so the company literally sold less on a per 53 00:02:24,160 --> 00:02:26,120 store basis than they did last year. 54 00:02:26,560 --> 00:02:29,880 This also missed the growth expectations of .4%. 55 00:02:30,160 --> 00:02:32,160 So expectations were not that high. 56 00:02:32,280 --> 00:02:35,720 The expectations that it was basically flat, but they still 57 00:02:35,720 --> 00:02:38,040 shrink. It's the first time the company 58 00:02:38,040 --> 00:02:41,600 wide same store sales have fallen since the fourth quarter 59 00:02:41,600 --> 00:02:44,080 of 2020. So we're seeing a reversal of 60 00:02:44,080 --> 00:02:46,280 trend. McDonald's went through a time 61 00:02:46,280 --> 00:02:48,720 period of immense pricing power and price hikes. 62 00:02:49,000 --> 00:02:51,760 Everyone's felt it and now customers, as they're finally 63 00:02:51,760 --> 00:02:54,040 pushing back, they're not ordering as much at McDonald's 64 00:02:54,320 --> 00:02:58,360 and you're seeing sales actually shrink year over year. the US 65 00:02:58,600 --> 00:03:01,480 McDonald's same store sales decreased by .7% for the 66 00:03:01,480 --> 00:03:03,520 quarter. A year ago, the chain reported 67 00:03:03,600 --> 00:03:07,440 US same store sales of 10.3%. So we're seeing a huge reversal 68 00:03:07,440 --> 00:03:10,480 here. Consumers have cut back on their 69 00:03:10,480 --> 00:03:13,040 restaurant spending, particularly at fast food 70 00:03:13,040 --> 00:03:15,120 chains. I think that's because fast food 71 00:03:15,120 --> 00:03:17,960 chains are not good value anymore. 72 00:03:18,080 --> 00:03:20,880 They're not good value compared to sit down restaurants. 73 00:03:21,160 --> 00:03:23,760 Compare the price you pay bringing your entire family to 74 00:03:23,760 --> 00:03:26,480 McDonald's to what you pay at Texas Roadhouse. 75 00:03:26,840 --> 00:03:28,680 Texas Roadhouse, you're getting steaks. 76 00:03:29,040 --> 00:03:31,600 They're they're grilled fresh for you right there. 77 00:03:31,800 --> 00:03:34,000 You're getting homemade food, usually with homemade 78 00:03:34,000 --> 00:03:37,960 ingredients, and you're getting service, and the price is 79 00:03:37,960 --> 00:03:40,600 usually around the same as when you go to McDonald's. 80 00:03:40,840 --> 00:03:44,360 It's not that much different. So fast food companies have 81 00:03:44,360 --> 00:03:47,480 really pushed up the pricing too much, and that's why you're 82 00:03:47,480 --> 00:03:50,440 seeing a pushback in McDonald's and you're not seeing it in 83 00:03:50,440 --> 00:03:51,960 restaurants like Texas Roadhouse. 84 00:03:52,360 --> 00:03:54,480 Texas Roadhouse just grew earnings like crazy. 85 00:03:54,680 --> 00:03:57,240 McDonald's is seeing a massive amount of pushback, and I think 86 00:03:57,240 --> 00:03:59,720 it's very clear that the reason there's such a pushback in fast 87 00:03:59,720 --> 00:04:02,560 food in particular is because it's no longer great value. 88 00:04:02,560 --> 00:04:04,560 People feel like they're getting ripped off, and so they're 89 00:04:04,560 --> 00:04:07,600 finally pushing back. Even the CEO of McDonald's on 90 00:04:07,600 --> 00:04:10,600 the earnings call noted that they're seeing weakness all 91 00:04:10,600 --> 00:04:13,280 across their stores. Customers are pushing back, 92 00:04:13,280 --> 00:04:16,760 They're ordering less, they're ordering smaller amounts, and 93 00:04:16,760 --> 00:04:19,880 they're reacting. Now the stock today off of this 94 00:04:19,880 --> 00:04:23,160 bad earnings is up. It's up 3.2%. 95 00:04:23,680 --> 00:04:26,320 That can make you believe that this was good earnings if you're 96 00:04:26,320 --> 00:04:27,960 just looking at the stocks reaction. 97 00:04:28,320 --> 00:04:32,280 But remember that the stock going up after or going down 98 00:04:32,280 --> 00:04:35,080 after earnings is not an indicator of how good the 99 00:04:35,080 --> 00:04:36,840 earnings are. That's something that I always 100 00:04:36,840 --> 00:04:39,600 try to tell people. This does not determine how the 101 00:04:39,600 --> 00:04:42,880 company's doing because in a lot of cases, this just means that 102 00:04:42,880 --> 00:04:45,960 investors were expecting slightly worse and some metric 103 00:04:45,960 --> 00:04:48,840 came in slightly better, and so the algorithms are pushing it 104 00:04:48,840 --> 00:04:51,320 up. This is not a sustainable rise. 105 00:04:51,560 --> 00:04:55,080 McDonald's being flat and shrinking revenues means that 106 00:04:55,080 --> 00:04:57,840 the company's not going to sustainably grow unless they 107 00:04:57,840 --> 00:05:00,400 start growing those metrics. What we can look at here is that 108 00:05:00,400 --> 00:05:04,400 the price of McDonald's stock is down 13% year to date. 109 00:05:04,800 --> 00:05:07,480 So this is a company that's in decline right now. 110 00:05:07,720 --> 00:05:10,840 Same store sales are falling and they're trying to turn things 111 00:05:10,840 --> 00:05:12,840 around. Now, McDonald's CEO does have a 112 00:05:12,840 --> 00:05:15,480 plan to address this, and that's the $5 value menu. 113 00:05:15,480 --> 00:05:19,480 So they're bringing back the really cheap value meals, and a 114 00:05:19,480 --> 00:05:21,200 lot of customers are excited about that. 115 00:05:21,200 --> 00:05:23,000 I think investors are excited about them. 116 00:05:23,320 --> 00:05:25,680 Some of them may believe that it will cause the stock to go up 117 00:05:25,720 --> 00:05:28,040 the rest of this year, but I think that's going to be very 118 00:05:28,040 --> 00:05:30,560 difficult. It's difficult to grow sales 119 00:05:30,560 --> 00:05:33,800 meaningfully with a restaurant chain this big. 120 00:05:34,080 --> 00:05:37,400 When you're offering more value or cutting prices for customers, 121 00:05:37,640 --> 00:05:39,280 that's just really difficult to do. 122 00:05:39,840 --> 00:05:43,080 So right now, I think McDonald's is in a tough spot. 123 00:05:43,160 --> 00:05:45,640 I really do. They can get out of it. 124 00:05:45,640 --> 00:05:48,480 I think that they can grow sales over time over the long term, 125 00:05:48,880 --> 00:05:50,720 But in the short term, I think it's going to be difficult. 126 00:05:51,000 --> 00:05:53,120 And this earnings report was just not good. 127 00:05:53,240 --> 00:05:56,440 Now moving into Tuesday before market open, we have Sofi 128 00:05:56,440 --> 00:05:58,280 reporting earnings. Let's go ahead and take a look 129 00:05:58,280 --> 00:06:00,480 at this company. This has been one that's passed 130 00:06:00,480 --> 00:06:02,640 around online. I see a lot of retail investors 131 00:06:02,640 --> 00:06:05,080 investing in this one. And I think it's a decent 132 00:06:05,080 --> 00:06:07,800 company. If you're looking for a bank 133 00:06:07,800 --> 00:06:11,080 technology company, they're kind of a mixture between the two. 134 00:06:11,520 --> 00:06:14,360 If we look at what Sofi does, they offer a lot of financial 135 00:06:14,360 --> 00:06:17,640 services that they sell to customers and they sell to other 136 00:06:17,640 --> 00:06:20,640 financial institutions. And we have two different things 137 00:06:20,640 --> 00:06:25,400 that I measure here in Qualtrim that are specific KPIs to Sofi. 138 00:06:25,800 --> 00:06:28,920 One of them is the amount of members this institution has. 139 00:06:29,440 --> 00:06:32,160 So we look at the membership chart here, and this is one of 140 00:06:32,160 --> 00:06:34,400 my favorite ones. I do like this chart a lot 141 00:06:34,400 --> 00:06:37,640 because it shows the company's growing very consistently over a 142 00:06:37,640 --> 00:06:40,040 long period of time. We can see the amount of members 143 00:06:40,040 --> 00:06:43,760 they have every single quarter. Going back to 2019, they had 144 00:06:43,760 --> 00:06:48,120 704,000. In 2020, they had around 3.46 145 00:06:48,120 --> 00:06:50,280 million. So you see exponential growth 146 00:06:50,280 --> 00:06:52,880 going on there. And then most recently, as of 147 00:06:52,880 --> 00:06:56,000 Q1, they had 8.13 million members. 148 00:06:56,560 --> 00:06:59,160 So Sofi is growing up. They're gaining millions and 149 00:06:59,160 --> 00:07:01,080 millions of members, which is what they need to do. 150 00:07:01,160 --> 00:07:04,240 So we have immense membership growth there and we have product 151 00:07:04,240 --> 00:07:06,720 growth. This is another unique KPI that 152 00:07:06,720 --> 00:07:09,920 we're tracking on Qualtrim that shows the amount of products 153 00:07:09,920 --> 00:07:12,720 that different customers have. For example, they have the 154 00:07:12,720 --> 00:07:15,440 financial service products and then the lending products. 155 00:07:15,920 --> 00:07:19,120 So we have this bucketed in the two different categories, but 156 00:07:19,120 --> 00:07:21,040 the combined growth is very strong. 157 00:07:21,360 --> 00:07:23,000 Again, we're looking at these growth numbers. 158 00:07:23,320 --> 00:07:26,400 When we look at it, it's 38% year over year. 159 00:07:26,720 --> 00:07:29,200 So we're seeing huge growth in the amount of products that 160 00:07:29,200 --> 00:07:32,280 they're selling to customers. So when we look at this company 161 00:07:32,800 --> 00:07:35,480 right now, the financials in terms of the earnings and free 162 00:07:35,480 --> 00:07:37,680 cash flow, they don't look great. 163 00:07:37,720 --> 00:07:40,640 They're all over the place. It looks a little bit shaky. 164 00:07:40,920 --> 00:07:43,680 The earnings per share are finally in the positive, but not 165 00:07:43,680 --> 00:07:46,280 by much, just by a few pennies. But when we look at the actual 166 00:07:46,280 --> 00:07:49,080 KPIs and what the CEO of the company's tracking, what the 167 00:07:49,080 --> 00:07:52,400 executives are tracking, they're looking at these numbers of 168 00:07:52,400 --> 00:07:54,840 their user growth and their product growth. 169 00:07:55,080 --> 00:07:56,720 They're looking at their membership grow. 170 00:07:57,000 --> 00:07:59,400 And I think that's the primary thing they're focusing on. 171 00:07:59,840 --> 00:08:03,320 I believe over time, Sofi is going to transition from growing 172 00:08:03,320 --> 00:08:07,080 the platform, growing and scaling into profitability. 173 00:08:07,280 --> 00:08:11,240 But Sofi does have some of that already priced in at a $7.83 174 00:08:11,240 --> 00:08:13,800 billion market cap. It's already a pretty big 175 00:08:13,800 --> 00:08:15,720 company. And it's estimated that it's 176 00:08:15,720 --> 00:08:17,880 going to generate at least hundreds of millions of dollars 177 00:08:17,880 --> 00:08:20,480 in free cash flow. So investors have already priced 178 00:08:20,480 --> 00:08:23,240 this thing to where it's generating a lot of cash flow 179 00:08:23,240 --> 00:08:27,480 that it's currently not now. Right now, Sofi's in a position, 180 00:08:28,000 --> 00:08:29,720 but I think it's just too tricky. 181 00:08:30,000 --> 00:08:32,960 It's too tricky to have a real valuation on this company 182 00:08:33,200 --> 00:08:35,880 because I don't think any investor really knows how much 183 00:08:35,880 --> 00:08:38,480 free cash flow they're going to generate over the next three 184 00:08:38,480 --> 00:08:40,080 years. I don't even think the 185 00:08:40,080 --> 00:08:42,640 executives know. It's just too difficult to tell 186 00:08:42,640 --> 00:08:45,160 right now. So they may come up with some 187 00:08:45,680 --> 00:08:48,880 some analysis or some projections and put them on a 188 00:08:48,880 --> 00:08:51,880 spreadsheet, but that doesn't mean much when you really don't 189 00:08:51,880 --> 00:08:53,600 know how much this thing is going to generate. 190 00:08:53,600 --> 00:08:55,680 Now, I don't personally own Sofi stock. 191 00:08:55,680 --> 00:08:58,000 It's not a company that I'm interested in because I usually 192 00:08:58,000 --> 00:09:02,440 don't invest in banks, but if I were invested in Sofi, I would 193 00:09:02,440 --> 00:09:06,360 focus less on the earnings and cash flow today and I would 194 00:09:06,360 --> 00:09:09,040 still remain focused on these KPIs. 195 00:09:09,200 --> 00:09:11,680 So when I'm looking at this company, I'd be seeing if 196 00:09:11,680 --> 00:09:14,960 they're still having steady and strong growth and membership and 197 00:09:14,960 --> 00:09:19,320 in their products with the hope that later on they can monetize 198 00:09:19,320 --> 00:09:21,960 those products to a meaningful amount because they need to be 199 00:09:21,960 --> 00:09:23,960 able to flip that switch in the future. 200 00:09:23,960 --> 00:09:26,120 Now let's go ahead and move on. One of the companies that I 201 00:09:26,120 --> 00:09:28,760 didn't circle because I didn't want to do a full analysis on 202 00:09:28,760 --> 00:09:32,120 it, but I'll just mention a few thoughts on is PayPal. 203 00:09:32,480 --> 00:09:35,240 Paypal's reporting earnings Tuesday before market open, so 204 00:09:35,240 --> 00:09:38,920 tomorrow morning. Now, when I look at PayPal, I've 205 00:09:38,920 --> 00:09:42,520 been saying the same thing about this stock so often that I feel 206 00:09:42,520 --> 00:09:44,440 like I'm just a broken record at this point. 207 00:09:44,760 --> 00:09:47,440 The company isn't really growing free cash flow a meaningful 208 00:09:47,440 --> 00:09:49,080 amount. They've been stuck in the same 209 00:09:49,080 --> 00:09:51,080 kind of funk for the past five years. 210 00:09:51,440 --> 00:09:55,000 And even though they're growing in the amount of transactions 211 00:09:55,000 --> 00:09:59,640 per account that looks good, the company's really not growing 212 00:09:59,720 --> 00:10:02,160 otherwise. For example, if we look at their 213 00:10:02,160 --> 00:10:06,280 total active users, this is another unique KPI to PayPal 214 00:10:06,280 --> 00:10:09,120 that we track in Qualtrim. Look at their total active 215 00:10:09,120 --> 00:10:11,560 accounts. That doesn't really paint the 216 00:10:11,560 --> 00:10:15,360 positive picture for PayPal. It shows that the company is 217 00:10:15,360 --> 00:10:17,920 just not growing. And what is the excuse for 218 00:10:17,920 --> 00:10:20,240 PayPal not growing the amount of active accounts? 219 00:10:20,640 --> 00:10:23,120 Have they maxed out the amount of adults that can use payment 220 00:10:23,120 --> 00:10:24,560 networks? They haven't. 221 00:10:24,800 --> 00:10:27,360 There's companies that have many, many more people on them 222 00:10:27,360 --> 00:10:30,720 than PayPal. PayPal only has 429 million. 223 00:10:31,080 --> 00:10:33,560 That's a lot, but that's not nearly the their total 224 00:10:33,560 --> 00:10:36,400 addressable market. So PayPal has maxed out their 225 00:10:36,400 --> 00:10:39,160 total users. They haven't grown it since 226 00:10:39,160 --> 00:10:42,200 2021. So there's no growth in active 227 00:10:42,200 --> 00:10:44,160 accounts. They're only growing the amount 228 00:10:44,160 --> 00:10:48,120 of transactions per account, so that's good I guess they're 229 00:10:48,120 --> 00:10:50,520 growing in the amount of transactions, but what I see 230 00:10:50,520 --> 00:10:53,760 here is a company struggling to meaningfully grow and I see a 231 00:10:53,760 --> 00:10:56,840 lot of investors buying in it because of the perpetually low 232 00:10:56,840 --> 00:10:59,800 valuation. It trades at a 5.5 free cash 233 00:10:59,800 --> 00:11:04,600 flow yield. It trades at a 12.6 PE ratio in 234 00:11:04,600 --> 00:11:07,160 my opinion. And again, I, I hope I'm wrong 235 00:11:07,160 --> 00:11:08,520 on this. I hope that I'm wrong. 236 00:11:08,520 --> 00:11:11,400 I hope PayPal does incredible and the stock goes up. 237 00:11:11,880 --> 00:11:14,840 I really hope that. But to me, the stock feels a 238 00:11:14,840 --> 00:11:17,760 little bit like a value trap. And it's felt that way for a 239 00:11:17,760 --> 00:11:20,720 while. I said for over a year now that 240 00:11:20,720 --> 00:11:22,280 Paypal's a company I would avoid. 241 00:11:22,600 --> 00:11:26,800 And it's just trading around the same territory, down 22% over 242 00:11:26,800 --> 00:11:30,440 the past year because it feels like a value trap, because I 243 00:11:30,440 --> 00:11:33,520 don't see the core metrics rising a meaningful amount. 244 00:11:33,880 --> 00:11:37,440 This company to me is an avoid. I look at companies just as a 245 00:11:37,440 --> 00:11:39,160 reminder. This is an investment 246 00:11:39,160 --> 00:11:41,120 philosophy. It's 8 pages long. 247 00:11:41,280 --> 00:11:44,040 This is where I outlined everything that I look for and 248 00:11:44,040 --> 00:11:45,880 you can download this completely free. 249 00:11:46,320 --> 00:11:49,760 But as part of the site, go over the intrinsic value of a company 250 00:11:50,040 --> 00:11:53,160 and what are the main drivers of intrinsic value? 251 00:11:53,520 --> 00:11:56,400 The main thing that causes a company to increase its 252 00:11:56,400 --> 00:12:00,200 intrinsic value is organic revenue growth, free cash flow 253 00:12:00,200 --> 00:12:03,440 per share growth and the predictability or the Moat 254 00:12:03,600 --> 00:12:05,520 improving. Simply put, if those three 255 00:12:05,520 --> 00:12:08,360 things happen, the stock is going to go up, the intrinsic 256 00:12:08,360 --> 00:12:10,320 value will increase. And so when companies aren't 257 00:12:10,320 --> 00:12:12,400 doing these things, when they're not growing their revenue 258 00:12:12,400 --> 00:12:15,640 organically without acquisition, when they're not growing their 259 00:12:15,640 --> 00:12:18,640 free cash flow per share and they're not improving their Moat 260 00:12:18,640 --> 00:12:21,120 or predictability, they're not going to grow their intrinsic 261 00:12:21,120 --> 00:12:22,640 value. So Paypal's one of these 262 00:12:22,640 --> 00:12:25,280 companies that I think investors are expecting a turn around 263 00:12:25,280 --> 00:12:28,080 play. Turn around plays can work, but 264 00:12:28,080 --> 00:12:30,320 I think they're really risky and they're difficult. 265 00:12:30,520 --> 00:12:33,280 The risk is that you put a lot of capital in them and you're 266 00:12:33,280 --> 00:12:36,720 stuck in a value trap for year after year after year until you 267 00:12:36,720 --> 00:12:39,680 finally sell at around the same price that you bought in. 268 00:12:40,040 --> 00:12:43,120 And that is a big opportunity cost where your money could be 269 00:12:43,120 --> 00:12:46,080 used at far more predictable companies that are growing 270 00:12:46,080 --> 00:12:49,720 routinely in intrinsic value. Now Next up, we have Tuesday 271 00:12:49,720 --> 00:12:52,920 after market close the biggest big tech company reporting 272 00:12:52,920 --> 00:12:56,400 earnings which is Microsoft. Microsoft is what I have 273 00:12:56,400 --> 00:13:00,440 described routinely as the poster child for the perfect 274 00:13:00,440 --> 00:13:03,560 fundamentals in My Portfolio. I have the main one here called 275 00:13:03,560 --> 00:13:06,320 the passive income portfolio. This one's done really well over 276 00:13:06,320 --> 00:13:09,160 time and one of the companies that's really helped in this 277 00:13:09,160 --> 00:13:11,760 performance is over weighting Microsoft. 278 00:13:11,800 --> 00:13:15,240 I've added more Microsoft than the S&P 500 holds, more 279 00:13:15,240 --> 00:13:17,160 Microsoft than even the QQQ holds. 280 00:13:17,480 --> 00:13:21,400 I made it a huge position in My Portfolio and I added a lot to 281 00:13:21,400 --> 00:13:25,000 the company when it traded around 2:20. 282 00:13:25,360 --> 00:13:27,840 That's when I was pounding the table saying that Big Tech was 283 00:13:27,840 --> 00:13:30,480 cheap and Microsoft was a company that was highly 284 00:13:30,480 --> 00:13:32,440 predictable, that was selling for cheap. 285 00:13:32,800 --> 00:13:35,840 Now, if we look at this position here, this is a company that I 286 00:13:35,840 --> 00:13:38,160 like so much. I own it in two places. 287 00:13:38,400 --> 00:13:42,120 So I have a $70,000 position here with $26,000 in gains. 288 00:13:42,120 --> 00:13:45,320 But then I also own Microsoft in my other portfolio, the Story 289 00:13:45,320 --> 00:13:46,760 Fund. If we switch over to that one, 290 00:13:46,760 --> 00:13:50,160 we have the Story Fund here and we have Microsoft right there, 291 00:13:50,160 --> 00:13:55,440 another $21,000 total position with 8600 in gains. 292 00:13:55,880 --> 00:13:58,880 That's been about a double in the stock in the Story Fund 293 00:13:59,120 --> 00:14:02,000 because again, I primarily bought into this one at 2:20. 294 00:14:02,240 --> 00:14:05,560 And Microsoft, again, in my opinion, is near perfect in 295 00:14:05,560 --> 00:14:08,840 terms of its fundamentals. The company has subscription 296 00:14:08,840 --> 00:14:11,080 revenue for around 80% of its revenue. 297 00:14:11,360 --> 00:14:13,640 It's reoccurring revenue that's highly predictable. 298 00:14:13,920 --> 00:14:17,280 Microsoft has three primary segments, productivity and 299 00:14:17,280 --> 00:14:19,960 business processes. This is like the thing that all 300 00:14:19,960 --> 00:14:22,760 the Fortune 500 companies have where they're using all their 301 00:14:23,000 --> 00:14:25,960 productivity software like Excel, you know, different 302 00:14:25,960 --> 00:14:28,520 document software. They're using all of that. 303 00:14:28,600 --> 00:14:30,880 And that's a staple for every business. 304 00:14:30,880 --> 00:14:33,040 Basically, every business has to use that. 305 00:14:33,520 --> 00:14:36,840 Then you have the intelligent cloud, another huge portion of 306 00:14:36,840 --> 00:14:38,200 the company that's growing quickly. 307 00:14:38,520 --> 00:14:40,000 Then you have personal computing. 308 00:14:40,280 --> 00:14:42,880 Personal computing is the least meaningful portion of this 309 00:14:42,880 --> 00:14:45,720 company. If we look at business processes 310 00:14:45,720 --> 00:14:49,040 and productivity and intelligent cloud, these are the big 311 00:14:49,040 --> 00:14:51,440 portions. The intelligent cloud includes 312 00:14:51,440 --> 00:14:54,520 Azure, so you have this company that has bundling subscriptions. 313 00:14:54,600 --> 00:14:56,080 Everybody's using their business. 314 00:14:56,360 --> 00:14:59,800 They can constantly acquire or copy any company that offers a 315 00:14:59,800 --> 00:15:02,560 new product, and because they already have the relationship 316 00:15:02,720 --> 00:15:05,600 with so many Fortune 500 companies, they're already 317 00:15:05,600 --> 00:15:08,120 embedded in the system. You have other segments of the 318 00:15:08,120 --> 00:15:10,880 business like Azure as well, growing like crazy. 319 00:15:11,160 --> 00:15:14,360 A lot of people believe now that Azure will eventually catch up 320 00:15:14,360 --> 00:15:16,920 and surpass AWS. I think that's going to be 321 00:15:16,920 --> 00:15:20,600 difficult, but if there's one company that can surpass AWS, 322 00:15:20,920 --> 00:15:22,800 it's Microsoft. So they have highly diverse 323 00:15:22,800 --> 00:15:25,760 revenue across various products and it's also highly diverse 324 00:15:25,760 --> 00:15:28,240 across customer base and geography. 325 00:15:28,640 --> 00:15:32,320 And on top of that, the revenue is also very high margin and 326 00:15:32,320 --> 00:15:34,680 they maintain those margins. If we look at the margins of 327 00:15:34,680 --> 00:15:38,160 Microsoft, their gross margins are always going to be around 328 00:15:38,160 --> 00:15:40,000 70%. I can look at it. 329 00:15:40,000 --> 00:15:42,040 I don't even need to look at the most recent quarters. 330 00:15:42,200 --> 00:15:45,200 I just know it's going to be right along the 70% gross margin 331 00:15:45,200 --> 00:15:47,920 line. Microsoft themselves put a huge 332 00:15:47,920 --> 00:15:51,240 focus on this gross margin. They do not want to go below 333 00:15:51,240 --> 00:15:54,160 70%. So at this upcoming quarter, I 334 00:15:54,160 --> 00:15:56,480 expect gross margins to be above 70%. 335 00:15:56,760 --> 00:15:59,000 We also have operating margins that are very high. 336 00:15:59,000 --> 00:16:04,480 They're growing over time, now 45% profit margins that are 36%. 337 00:16:04,920 --> 00:16:07,680 So across the board, they're able to maintain these margins 338 00:16:07,680 --> 00:16:10,840 because competitors do not have the scale or means to compete 339 00:16:10,840 --> 00:16:13,040 with them. There are some risks to 340 00:16:13,040 --> 00:16:16,080 Microsoft, but I think they're fewer than other companies. 341 00:16:16,360 --> 00:16:19,400 I think the Moat is incredibly deep and wide for this company. 342 00:16:19,880 --> 00:16:23,040 They also generate meaningful free cash flow every quarter. 343 00:16:23,040 --> 00:16:25,760 I think they're going to generate around 60 to $70 344 00:16:25,760 --> 00:16:29,680 billion per year very reliably. Now, this isn't as much as 345 00:16:29,680 --> 00:16:33,640 Apple, but Microsoft is considered more predictable than 346 00:16:33,640 --> 00:16:35,360 Apple. So even though they generate a 347 00:16:35,360 --> 00:16:38,680 bit less free cash flow, they generate it on a more 348 00:16:38,680 --> 00:16:41,400 predictable basis with subscription revenue and they're 349 00:16:41,400 --> 00:16:43,680 not having to come out with new iPhones every single year. 350 00:16:43,760 --> 00:16:46,560 Their free cash flow per share has grown around 13% for the 351 00:16:46,560 --> 00:16:49,360 past five years. It took a little dip last year 352 00:16:49,360 --> 00:16:51,960 as their free cash flow went down, but that's one temporary 353 00:16:51,960 --> 00:16:53,360 bump. We've seen that before. 354 00:16:53,640 --> 00:16:56,720 I expect the free cash flow per share this year to be above 355 00:16:56,720 --> 00:17:00,880 where it was 2022. The company qualitatively is 356 00:17:00,880 --> 00:17:03,000 incredible. Again, I can't say enough about 357 00:17:03,000 --> 00:17:05,359 Microsoft. This stock is the perfect stock 358 00:17:05,599 --> 00:17:08,000 or near perfect in terms of the fundamentals. 359 00:17:08,319 --> 00:17:10,720 The problem with the company right now is if you're buying 360 00:17:10,720 --> 00:17:12,319 it, you're not buying it on a discount. 361 00:17:12,760 --> 00:17:15,440 You're buying it around what I consider to be it's fair 362 00:17:15,440 --> 00:17:18,680 intrinsic value. The company trades at a 34 Ford 363 00:17:18,680 --> 00:17:20,960 PE ratio. It's not really cheap. 364 00:17:21,160 --> 00:17:24,520 That's an expensive company. The free cash flow yield, if you 365 00:17:24,520 --> 00:17:29,880 buy $100 worth of Microsoft you get back $2.23 in free cash flow 366 00:17:29,880 --> 00:17:33,120 every year, where if you buy $100.00 of a bond you can get 367 00:17:33,120 --> 00:17:37,000 back 5.5%. So Microsoft is over double the 368 00:17:37,000 --> 00:17:40,360 price of AUS Treasury, meaning they'd have to double their free 369 00:17:40,360 --> 00:17:44,400 cash flow per share to be at the same free cash flow of AUS 370 00:17:44,840 --> 00:17:47,120 Treasury. So you can see the problem here. 371 00:17:47,480 --> 00:17:50,360 Relatively speaking, Microsoft is not at a discount. 372 00:17:50,720 --> 00:17:53,600 And going into this earnings, I think that's going to be the 373 00:17:53,600 --> 00:17:55,840 biggest challenge. I think they'll beat on their 374 00:17:55,840 --> 00:17:57,480 earnings per share and their revenue. 375 00:17:57,600 --> 00:18:00,840 I think the cloud will come in very strong, very strong growth 376 00:18:00,840 --> 00:18:02,920 with a cloud. I think overall it will be a 377 00:18:02,920 --> 00:18:06,640 very solid earnings report. My prediction is even with that, 378 00:18:06,640 --> 00:18:09,520 the stock will be mostly flat or slightly down. 379 00:18:09,840 --> 00:18:11,400 That's how I think this one's going to play out. 380 00:18:11,520 --> 00:18:14,520 Now keep in mind, even though Microsoft is priced at a high PE 381 00:18:14,520 --> 00:18:17,920 ratio and a low free cash flow yield, it's relatively expensive 382 00:18:17,920 --> 00:18:21,360 right now and I'm not seeing super high upside in this 383 00:18:21,440 --> 00:18:24,240 upcoming quarter. I still think it's a great hold 384 00:18:24,240 --> 00:18:26,160 and it's a company that I'm not selling. 385 00:18:26,360 --> 00:18:28,960 I'm not going to be buying more right now, but I'm certainly not 386 00:18:28,960 --> 00:18:31,800 selling my position because again, if we look at the drivers 387 00:18:31,800 --> 00:18:34,880 of intrinsic value, as the company grows its organic 388 00:18:34,880 --> 00:18:37,800 revenue, free cash flow per share and predictability, the 389 00:18:37,800 --> 00:18:39,840 stock will continue to move up over time. 390 00:18:40,280 --> 00:18:43,600 It'll have some ebbs and flows in some cases in a three month 391 00:18:43,600 --> 00:18:46,560 period, it will go up a lot. In some cases, it will stay flat 392 00:18:46,560 --> 00:18:49,240 for a while. But holding on to it typically 393 00:18:49,240 --> 00:18:52,120 is better than trying to time those ebbs and flows. 394 00:18:52,560 --> 00:18:56,600 So with Microsoft, even though I'm not expecting massive upside 395 00:18:56,600 --> 00:18:59,840 this quarter, I'm still holding with my full position with 396 00:18:59,840 --> 00:19:02,960 around $80,000 of value in this company. 397 00:19:03,040 --> 00:19:06,200 Now Next up, reporting earnings after market close on Tuesday, 398 00:19:06,400 --> 00:19:09,320 we have Starbucks. This is a highly anticipated 399 00:19:09,320 --> 00:19:13,040 earnings report because if I'll remind you, Starbucks last 400 00:19:13,040 --> 00:19:15,800 quarter was terrible. It was one of the worst quarters 401 00:19:15,800 --> 00:19:18,080 I've ever seen. Basically every single metric 402 00:19:18,080 --> 00:19:19,880 was in the red. Everything was going down. 403 00:19:20,160 --> 00:19:22,840 They're active members. The, you know, the amount of 404 00:19:22,840 --> 00:19:26,840 sales per location was down, their geographic mix, 405 00:19:26,840 --> 00:19:29,680 everything, their pricing power was down, their earnings went 406 00:19:29,680 --> 00:19:31,520 down. The revenue, all of it was 407 00:19:31,520 --> 00:19:35,680 headed in the wrong direction. And then the CEO, Starbucks went 408 00:19:35,680 --> 00:19:40,360 on to CNBC to give an interview. And Jim Cramer, of all people, 409 00:19:40,640 --> 00:19:42,320 just crushed him in the interview. 410 00:19:42,400 --> 00:19:45,760 He asked difficult questions. The CEO of Starbucks could not 411 00:19:46,040 --> 00:19:48,040 hold up to it. He couldn't answer the questions 412 00:19:48,040 --> 00:19:50,040 confidently. It didn't instill a lot of 413 00:19:50,040 --> 00:19:53,080 confidence in the investor. It was a terrible interview. 414 00:19:53,240 --> 00:19:55,720 I did a whole video on it, so you can watch the interview if 415 00:19:55,720 --> 00:19:58,000 you want to be reminded of it, but it wasn't good. 416 00:19:58,120 --> 00:20:01,280 Now, what happens like this in cases where a company fumbles 417 00:20:01,280 --> 00:20:05,320 big time, where the CEO really loses track of things and it 418 00:20:05,320 --> 00:20:07,040 looks like the company's not being LED well? 419 00:20:07,680 --> 00:20:09,640 Well, it's like having blood in the water. 420 00:20:09,640 --> 00:20:11,400 It attracts sharks. There's people that pay 421 00:20:11,400 --> 00:20:13,520 attention to this. They see the situation that 422 00:20:13,520 --> 00:20:16,600 Starbucks is in and of course they want to profit from it. 423 00:20:16,840 --> 00:20:20,280 So you have activist investors attracted to struggling 424 00:20:20,280 --> 00:20:23,480 companies like this, especially if the company has a history of 425 00:20:23,480 --> 00:20:25,400 being high quality, which Starbucks does. 426 00:20:25,760 --> 00:20:28,840 And that's the case here. We have activist investor 427 00:20:29,000 --> 00:20:32,240 Elliot, which is a firm that is owned by Paul Singer. 428 00:20:32,840 --> 00:20:34,720 Who Paul Singer. I, I won't go over his whole 429 00:20:34,720 --> 00:20:37,640 background, but he's just a scary guy in the hedge fund 430 00:20:37,640 --> 00:20:39,560 world. He's one of the like big bosses. 431 00:20:39,560 --> 00:20:42,560 He's one of the scarier ones to have invested in your company. 432 00:20:43,080 --> 00:20:45,800 Now he has taken a softer approach with some companies, 433 00:20:46,160 --> 00:20:49,800 but others he he's a bully. He'll come in and he'll really 434 00:20:49,800 --> 00:20:52,280 throw his weight around. He'll throw the ownership. 435 00:20:52,280 --> 00:20:55,440 He has to pressure companies in the directions they don't want 436 00:20:55,440 --> 00:20:57,920 to go. So he does cause a lot of 437 00:20:57,920 --> 00:21:01,960 contention, a lot of adversarial relationships with companies. 438 00:21:02,160 --> 00:21:04,560 The Wall Street Journal reports that Elliott has been engaging 439 00:21:04,560 --> 00:21:06,720 with the company behind the scenes in recent weeks. 440 00:21:06,720 --> 00:21:09,360 The situation is fluid, and it is possible that they'll reach 441 00:21:09,360 --> 00:21:12,760 an agreement privately soon. So we don't know how this is 442 00:21:12,760 --> 00:21:15,880 going to conclude. But right now, Starbucks is 443 00:21:15,960 --> 00:21:18,520 under pressure. That's how I describe the stock. 444 00:21:18,560 --> 00:21:21,360 A lot is on the line for this earnings report. 445 00:21:21,680 --> 00:21:25,400 If we look at what's going on, their total stores are opening 446 00:21:25,400 --> 00:21:28,320 at a slower cadence than they expect, especially in China. 447 00:21:28,720 --> 00:21:31,160 So they need to speed up this total store opening. 448 00:21:31,520 --> 00:21:33,600 Another thing that was really disappointing on their most 449 00:21:33,600 --> 00:21:37,320 recent earnings call was this other unique KPI, which is their 450 00:21:37,320 --> 00:21:40,680 90 day active reward members. These are people that have 451 00:21:40,680 --> 00:21:43,760 logged in and used the Starbucks app in the past three months. 452 00:21:44,280 --> 00:21:46,400 It went down quarter over quarter. 453 00:21:46,680 --> 00:21:49,480 Now, year over year, it's still up 6.49%. 454 00:21:50,000 --> 00:21:52,080 That's what the CEO said. He said, hey look, year over 455 00:21:52,080 --> 00:21:55,520 year it's still up and having a 1/4 consecutive loss there is 456 00:21:55,520 --> 00:21:57,920 not a great thing. I think it will be very 457 00:21:57,920 --> 00:22:01,120 disappointing to Starbucks investors if this goes down for 458 00:22:01,120 --> 00:22:04,000 another consecutive quarter. I think that'll cause a lot of 459 00:22:04,000 --> 00:22:07,400 panic for Starbucks investors. One of the big investment 460 00:22:07,400 --> 00:22:11,040 thesises is using the Starbucks app to gain new membership, to 461 00:22:11,040 --> 00:22:13,040 gain more people that are constant customers of the 462 00:22:13,040 --> 00:22:14,800 company. And seeing that headed in the 463 00:22:14,800 --> 00:22:17,880 wrong direction is just a really bad thing to see. 464 00:22:18,280 --> 00:22:22,800 So this quarter we need to see this number be above 32.8 465 00:22:22,800 --> 00:22:25,480 million. If it's below 32.8 million, I 466 00:22:25,480 --> 00:22:27,160 think that's going to be really bad for the stock. 467 00:22:27,240 --> 00:22:29,800 Right now, the one positive about Starbucks is it's at a 468 00:22:29,800 --> 00:22:33,320 very low valuation. It's at a 24 PE ratio and a four 469 00:22:33,320 --> 00:22:37,080 point 2% free cash flow yield. So the company is relatively 470 00:22:37,080 --> 00:22:39,320 cheap and it has a lot of upside. 471 00:22:39,600 --> 00:22:43,600 If they can get the KPIs, the metrics back on track, this 472 00:22:43,600 --> 00:22:47,440 company will have a 2030% bump. So overall, going into this 473 00:22:47,440 --> 00:22:50,040 earnings, I actually feel pretty good about Starbucks. 474 00:22:50,040 --> 00:22:52,440 I think that the report's going to be much better than last 475 00:22:52,440 --> 00:22:54,400 quarter. I think there's really only 476 00:22:54,400 --> 00:22:57,320 upside from that report. And I think if they can get 477 00:22:57,320 --> 00:23:00,720 those active members to grow again, investors will be re 478 00:23:00,720 --> 00:23:02,960 enthused and I could see a little bit of a RE rating for 479 00:23:02,960 --> 00:23:04,640 the stock. Now moving on from Tuesday, we 480 00:23:04,640 --> 00:23:06,560 get into Wednesday before market open. 481 00:23:06,760 --> 00:23:08,960 We have a Wingstop reporting earnings. 482 00:23:09,400 --> 00:23:11,720 This is one that I haven't talked about that much, but I do 483 00:23:11,720 --> 00:23:14,800 cover food companies and Wingstop has been one that's a 484 00:23:14,800 --> 00:23:17,560 franchise business model rapidly growing. 485 00:23:17,560 --> 00:23:22,120 It's a fast growing company and it's also insanely expensive. 486 00:23:22,240 --> 00:23:25,320 I don't have much to say about this company other than the 487 00:23:25,320 --> 00:23:27,640 price of it. It's just such an incredibly 488 00:23:27,640 --> 00:23:30,400 expensive stock when you look at any of the basic metrics. 489 00:23:30,680 --> 00:23:33,880 For example, if we look at the PE ratio of the company right 490 00:23:33,880 --> 00:23:38,040 now, it trades at 120 times the next 12 months expected 491 00:23:38,040 --> 00:23:41,920 earnings. So 120 times expected earnings 492 00:23:41,920 --> 00:23:45,240 is quite expensive. The free cash flow yield is half 493 00:23:45,240 --> 00:23:47,720 a percent. I like Wingstop as a concept, 494 00:23:47,800 --> 00:23:50,440 but I don't own it. The valuation's just too crazy. 495 00:23:50,680 --> 00:23:53,080 Going into a company with that low of a free cash flow yield, 496 00:23:53,280 --> 00:23:56,640 that high of APE ratio, no matter what type of discount of 497 00:23:56,640 --> 00:23:59,720 cash flow I give it, it just seems incredibly risky. 498 00:23:59,880 --> 00:24:03,160 If there's any downside or weakness in the report, this is 499 00:24:03,160 --> 00:24:07,000 a stock that that could drop twenty, 3040% because it's not 500 00:24:07,000 --> 00:24:10,160 being supported by cash flows. So I think Wingstop will 501 00:24:10,160 --> 00:24:13,520 continue to execute well, but the risk of substantial 502 00:24:13,520 --> 00:24:16,040 unsupported downside, I think it's too great. 503 00:24:16,120 --> 00:24:18,680 Now Next up, we have MasterCard also reporting earnings 504 00:24:18,680 --> 00:24:21,800 Wednesday before market open. This is a large position in My 505 00:24:21,800 --> 00:24:23,720 Portfolio. I've gone over the stock many 506 00:24:23,720 --> 00:24:25,240 times. So if you want to see content on 507 00:24:25,240 --> 00:24:28,800 MasterCard, I have many videos going over this one, so I'm not 508 00:24:28,800 --> 00:24:30,120 going to repeat too much about it. 509 00:24:30,120 --> 00:24:32,360 Most of you know the thesis about MasterCard. 510 00:24:32,360 --> 00:24:35,080 It's a huge network company. It's monopolistic. 511 00:24:35,080 --> 00:24:37,680 It shares a duopoly with Visa. And what I'll say about the 512 00:24:37,680 --> 00:24:40,520 earnings is that MasterCard is just not a company I concern 513 00:24:40,520 --> 00:24:42,920 myself with. I review the earnings every 514 00:24:42,920 --> 00:24:46,560 single quarter, but it's one of these companies that really it's 515 00:24:46,560 --> 00:24:48,880 not one that trades too much off of earnings. 516 00:24:49,320 --> 00:24:51,880 It it really doesn't. It might go up a couple percent 517 00:24:51,880 --> 00:24:54,080 or down, but this is not a nail biter. 518 00:24:54,160 --> 00:24:57,840 This is a company that is a predictable compounding machine, 519 00:24:57,960 --> 00:25:00,800 a company that will grow its free cash flow per share year 520 00:25:00,800 --> 00:25:03,280 over year over year. They do that by growing the 521 00:25:03,280 --> 00:25:06,560 payment network, which will which will organically grow over 522 00:25:06,560 --> 00:25:09,520 a long period of time and their value add services. 523 00:25:09,840 --> 00:25:12,480 This is the data and subscription services and 524 00:25:12,640 --> 00:25:15,520 security services and know your customer that they sell to 525 00:25:15,520 --> 00:25:17,880 different companies. So they have these two different 526 00:25:17,880 --> 00:25:21,880 forms of revenue and they grow these year after year after 527 00:25:21,880 --> 00:25:24,120 year, and they do so very efficiently. 528 00:25:24,440 --> 00:25:28,080 MasterCard is also growing the total Mastercards around the 529 00:25:28,080 --> 00:25:31,200 world routinely. We can see that over the past 530 00:25:31,240 --> 00:25:33,920 year they've grown this by 8.56%. 531 00:25:34,200 --> 00:25:38,360 So that's 3.01 billion Mastercards outstanding. 532 00:25:38,520 --> 00:25:40,720 That's how many total cards there are outstanding. 533 00:25:41,040 --> 00:25:43,400 And you can see that the total cards continue to go up. 534 00:25:43,680 --> 00:25:47,280 I look at this the same way I do Costco cards or Costco 535 00:25:47,280 --> 00:25:49,840 membership, right? As these metrics, let's grow the 536 00:25:49,840 --> 00:25:51,920 company inevitably will make more money. 537 00:25:52,000 --> 00:25:54,640 So with Mastercard's earnings, it's one that I'll look at. 538 00:25:54,640 --> 00:25:56,760 But again, it's not a nail biter, not one that I'm 539 00:25:56,760 --> 00:25:58,800 concerned about. I put this one in the back 540 00:25:58,800 --> 00:26:00,840 burner. I invest in it and I hold it 541 00:26:00,840 --> 00:26:02,880 long term. And so far it's been a market 542 00:26:02,880 --> 00:26:05,120 beating position. Now as we get further into the 543 00:26:05,120 --> 00:26:07,960 week, we get back into the big tech companies, starting off 544 00:26:07,960 --> 00:26:11,320 with Meta reporting their earnings after market close on 545 00:26:11,320 --> 00:26:13,240 Wednesday. This is going to be a big one, a 546 00:26:13,240 --> 00:26:14,840 highly anticipated earnings report. 547 00:26:15,120 --> 00:26:18,080 Lots of investors in Meta and for good reason. 548 00:26:18,080 --> 00:26:21,760 The stock has been an incredibly well ran stock by Mark 549 00:26:21,760 --> 00:26:24,480 Zuckerberg. For a time, the company was 550 00:26:24,480 --> 00:26:27,160 headed downhill. As he was going off this path of 551 00:26:27,160 --> 00:26:30,800 the metaverse, he kept talking about that we had CapEx going 552 00:26:30,800 --> 00:26:33,760 up, we had a lot of investment in the metaverse and people 553 00:26:33,760 --> 00:26:37,480 didn't really understand it. And then Mark pivoted right 554 00:26:37,480 --> 00:26:39,240 around here. He started a pivot. 555 00:26:39,560 --> 00:26:42,880 He went from talking about the metaverse to instead talking 556 00:26:42,880 --> 00:26:45,880 about being efficient. The year of efficiency. 557 00:26:46,720 --> 00:26:49,120 They laid off a bunch of employees, they gave them great 558 00:26:49,120 --> 00:26:51,600 severance packages. So the the previous employees 559 00:26:51,600 --> 00:26:54,800 were happy with what they got. But we also had the stock grow 560 00:26:54,800 --> 00:26:58,640 tremendously as the free cash flow continued to grow and the 561 00:26:58,640 --> 00:27:01,200 free cash flow surpassed where it was in 2021. 562 00:27:01,640 --> 00:27:03,000 So we have the year of efficiency. 563 00:27:03,200 --> 00:27:07,600 We have a pivot from the metaverse into instead LLMS and 564 00:27:07,720 --> 00:27:09,320 AI. And that was something that 565 00:27:09,320 --> 00:27:11,600 investors really wanted to hear because they could see all the 566 00:27:11,600 --> 00:27:14,440 profits from NVIDIA. So we had a lot of good 567 00:27:14,440 --> 00:27:17,320 pivoting, a lot of good strategic movement from Mark 568 00:27:17,320 --> 00:27:21,520 Zuckerberg running the company. And that's because he is the de 569 00:27:21,520 --> 00:27:25,240 facto owner of Meta. He can change the company on a 570 00:27:25,240 --> 00:27:27,200 whim. He's not really beholden to 571 00:27:27,200 --> 00:27:29,520 anyone else. He has complete control over it. 572 00:27:29,760 --> 00:27:32,960 Even the board can't do anything about Mark Zuckerberg. 573 00:27:33,280 --> 00:27:37,320 So the fact is that he has an immense influence in controlling 574 00:27:37,320 --> 00:27:38,720 what direction the company's going. 575 00:27:39,040 --> 00:27:42,040 And over this past year and a half, two years, it's really 576 00:27:42,040 --> 00:27:44,160 just been a rocket. They've gone back to all time 577 00:27:44,160 --> 00:27:45,720 highs. When we look at the company 578 00:27:45,720 --> 00:27:48,320 right now, we can first look at the free cash flow. 579 00:27:48,640 --> 00:27:50,480 You can see the resurgence of free cash flow. 580 00:27:50,840 --> 00:27:54,720 We had the dip where they're doing explosive CapEx growth and 581 00:27:54,720 --> 00:27:56,920 talking about the metaverse. That's what causes stock to go 582 00:27:56,920 --> 00:28:01,000 down and the resurgence of free cash flow as they slow down on 583 00:28:01,000 --> 00:28:02,480 that and had the year of efficiency. 584 00:28:02,840 --> 00:28:05,920 Now the free cash flow is back up to around 13 billion per 585 00:28:05,920 --> 00:28:07,960 quarter. They do have some issues with 586 00:28:07,960 --> 00:28:12,080 stock based comp, but this has really been a manageable issue 587 00:28:12,080 --> 00:28:14,360 as they've kept it flat for the past two years. 588 00:28:14,880 --> 00:28:17,280 So overall great growth in their free cash flow. 589 00:28:17,520 --> 00:28:20,720 When we look at some of the key metrics here, we have the 590 00:28:20,720 --> 00:28:24,960 revenue by segment and all this really shows is that this is an 591 00:28:24,960 --> 00:28:27,720 advertising company. They have some other things like 592 00:28:27,800 --> 00:28:31,320 Reality Labs and other, but it's just not meaningful. 593 00:28:31,320 --> 00:28:34,160 This is an advertising company and that's a good thing because 594 00:28:34,160 --> 00:28:36,000 advertising is a good space to be in. 595 00:28:36,320 --> 00:28:39,320 What really surprises me about Meta, and this is where I've 596 00:28:39,320 --> 00:28:42,920 gotten this company wrong, I just don't see it growing in the 597 00:28:42,920 --> 00:28:45,200 future with more and more families using it. 598 00:28:45,520 --> 00:28:48,320 And I'm always surprised to see that there's more families out 599 00:28:48,320 --> 00:28:51,520 there, more daily active users using Meta. 600 00:28:51,840 --> 00:28:53,840 It's really, it's outstanding to see. 601 00:28:54,160 --> 00:28:59,960 The company has grown to have 3.24 billion family daily active 602 00:28:59,960 --> 00:29:02,120 people. These are people using it every 603 00:29:02,120 --> 00:29:07,080 single day, 3.2 billion. I think it's got to end at some 604 00:29:07,080 --> 00:29:08,640 place. We got to Max out the amount of 605 00:29:08,640 --> 00:29:11,720 humans out there, but apparently there's just more and more. 606 00:29:11,920 --> 00:29:14,040 The world's growing and Meta grows with it. 607 00:29:14,520 --> 00:29:17,960 So we're seeing substantial growth even with Facebook, even 608 00:29:17,960 --> 00:29:21,040 with their already mature platforms in usership now. 609 00:29:21,040 --> 00:29:24,520 Meta's also competing in the LLM game, the AI game. 610 00:29:24,760 --> 00:29:26,680 They're making a lot of different models and they have 611 00:29:26,680 --> 00:29:28,240 some of them that are open source. 612 00:29:28,640 --> 00:29:31,280 So Mark Zuckerberg is actually being more open source with the 613 00:29:31,640 --> 00:29:34,880 the AI space than open AI, which is kind of ironic. 614 00:29:34,880 --> 00:29:37,680 But he's going down that route of open sourcing different 615 00:29:37,680 --> 00:29:40,840 technologies with AI, making it more publicly available, making 616 00:29:40,840 --> 00:29:42,400 it so more people can build upon it. 617 00:29:42,640 --> 00:29:44,520 And they have their own, which is Meta AI. 618 00:29:44,840 --> 00:29:48,480 So they also have that gross story with AI and it enabling 619 00:29:48,680 --> 00:29:51,680 their platform use. Overall, right now looking at 620 00:29:51,680 --> 00:29:55,240 the valuation of Meta going into this earnings and looking at the 621 00:29:55,240 --> 00:29:59,040 advertising market with Google, I don't see much of a reason to 622 00:29:59,040 --> 00:30:02,120 be bearish on this quarter. In fact, I think that MET is 623 00:30:02,120 --> 00:30:04,760 going to do just fine. The one thing that I could see 624 00:30:05,000 --> 00:30:08,960 kind of hurting the stock this quarter maybe a little bit is 625 00:30:08,960 --> 00:30:12,480 talks about increased CapEx. I think that they might throw in 626 00:30:12,480 --> 00:30:14,440 that they're going to increase the CapEx. 627 00:30:14,760 --> 00:30:17,760 If we look at that hair investors really don't like 628 00:30:17,760 --> 00:30:20,800 hearing that you're going to spend far more money in building 629 00:30:20,800 --> 00:30:22,280 out servers and that type of thing. 630 00:30:22,600 --> 00:30:24,560 They want to hear that free cash flow is going to grow. 631 00:30:24,720 --> 00:30:27,000 But I could see that hitting the stock this quarter. 632 00:30:27,000 --> 00:30:30,200 If Mark Zuckerberg gets on and says we're not in efficiency 633 00:30:30,200 --> 00:30:33,360 mode, we're an expansion in CapEx mode, that might be a 634 00:30:33,360 --> 00:30:35,680 little bit of a bummer on the stock, but that's the only thing 635 00:30:35,680 --> 00:30:37,880 that I could see out of all of their fundamentals. 636 00:30:37,880 --> 00:30:40,680 And in terms of the value, I don't think there's much reason 637 00:30:40,680 --> 00:30:42,480 to be concerned about Meta right now. 638 00:30:42,640 --> 00:30:45,080 Now going into the rest of this week, we get into companies that 639 00:30:45,080 --> 00:30:48,880 I'm very excited to hear from, specifically Amazon. 640 00:30:48,960 --> 00:30:52,800 This is a massive holding in my story fund portfolio and makes 641 00:30:52,800 --> 00:30:57,400 up 34% of this portfolio. So I have a huge bet on Amazon. 642 00:30:57,400 --> 00:30:59,120 It's a company that I'm super bullish on. 643 00:30:59,360 --> 00:31:04,760 The position size is now 77,000 dollars, 19,200 in the green. 644 00:31:05,240 --> 00:31:08,280 So we have some some big positions here, Amazon, Netflix, 645 00:31:08,280 --> 00:31:10,920 and then we have smaller ones like Google, Microsoft and S&P 646 00:31:10,920 --> 00:31:12,840 Global. But Amazon is by far the 647 00:31:12,840 --> 00:31:14,960 biggest. Now when we look at Amazon, 648 00:31:15,480 --> 00:31:17,400 there's a couple of reasons that I'm super bullish on this 649 00:31:17,400 --> 00:31:19,800 company and it has to do with the lines of business that 650 00:31:19,800 --> 00:31:23,480 Amazon is in and the math. I think the company's still 651 00:31:23,480 --> 00:31:28,360 undervalued even today, even at 183, I think it's around 20 to 652 00:31:28,360 --> 00:31:31,880 30% undervalued. If I was to give a price target, 653 00:31:31,880 --> 00:31:34,960 which I, I don't typically do that, but if I was to give a 654 00:31:34,960 --> 00:31:37,960 price target, I think that Amazon could be around 220 by 655 00:31:37,960 --> 00:31:42,200 the end of this year. I see around a, a 40% return 656 00:31:42,200 --> 00:31:44,080 this year. It's already up 21%. 657 00:31:44,400 --> 00:31:46,920 I think it can go up to around a 40% return this year. 658 00:31:47,320 --> 00:31:49,520 Now don't bet on that. There's nothing guaranteed. 659 00:31:49,520 --> 00:31:52,080 I can't see the future, but that's my prediction. 660 00:31:52,400 --> 00:31:54,560 And that prediction is based on math. 661 00:31:54,920 --> 00:31:57,480 It's based on the fact that I think that Amazon this year will 662 00:31:57,480 --> 00:32:00,960 generate around $70 billion in free cash flow. 663 00:32:01,400 --> 00:32:05,600 When you take 70 billion and you divide that by the total market 664 00:32:05,600 --> 00:32:11,200 cap, 1.9 trillion, you get around a 3.6% yield. 665 00:32:11,480 --> 00:32:15,800 So I believe that Amazon right now is trading at a 3.6% free 666 00:32:15,800 --> 00:32:17,920 cash flow yield. Let's go ahead and just compare 667 00:32:17,920 --> 00:32:21,760 that to some other large successful big tech companies. 668 00:32:22,440 --> 00:32:25,080 We have Microsoft. Microsoft's a bit more 669 00:32:25,080 --> 00:32:28,240 predictable than Amazon, but Microsoft trades at a much lower 670 00:32:28,240 --> 00:32:31,680 free cash flow yield of 2.2. We look at Apple and Apple 671 00:32:31,680 --> 00:32:35,160 currently trades at a 3% yield, so that one's the closest. 672 00:32:35,480 --> 00:32:38,640 But you also have Amazon, which is growing faster than all of 673 00:32:38,640 --> 00:32:41,640 them, faster growth in both free cash flow and revenue than all 674 00:32:41,640 --> 00:32:43,960 of those companies. And based on this year's 675 00:32:43,960 --> 00:32:47,280 projection that I have, it would also be the cheapest. 676 00:32:47,760 --> 00:32:51,280 So it's the cheapest big tech company growing its cash flows 677 00:32:51,280 --> 00:32:53,800 the fastest. That's a combination I really 678 00:32:53,800 --> 00:32:57,000 like and that's the reason why I've overweighted this position 679 00:32:57,000 --> 00:33:00,400 so much in My Portfolio. I think I have the best chance 680 00:33:00,400 --> 00:33:05,000 of outperforming the S&P 500 in the QQQ by having a strong 681 00:33:05,000 --> 00:33:08,240 overweighting of Amazon given the company score businesses, 682 00:33:08,240 --> 00:33:12,520 its valuation, my projections of its free cash flow and I think 683 00:33:12,520 --> 00:33:14,160 the predictability of the company. 684 00:33:14,760 --> 00:33:18,560 Amazon operates in a number of different market segments, but 685 00:33:18,560 --> 00:33:20,920 the ones that are really important are the services 686 00:33:21,080 --> 00:33:23,120 business. So we can take out their first 687 00:33:23,120 --> 00:33:25,480 party online sales. Let's just remove that. 688 00:33:25,720 --> 00:33:28,960 We can take out physical stores. That's not a big part of Amazon 689 00:33:29,000 --> 00:33:30,640 either. That's not a huge growth story. 690 00:33:31,000 --> 00:33:34,440 We can take out other, which is just random stuff they bucket. 691 00:33:34,440 --> 00:33:37,600 It's a small amount and then we're left with the services 692 00:33:37,600 --> 00:33:39,520 businesses. These are the best part of 693 00:33:39,520 --> 00:33:41,640 Amazon. We have the third party seller 694 00:33:41,640 --> 00:33:43,720 services. So if you store things in an 695 00:33:43,720 --> 00:33:45,800 Amazon warehouse, if you distribute it using their 696 00:33:45,800 --> 00:33:49,320 system, if it's fulfilled by Amazon, that's the service they 697 00:33:49,320 --> 00:33:51,760 charge and it's a higher margin business. 698 00:33:52,000 --> 00:33:55,720 Then we have advertising. Amazon owns Amazon Prime Video, 699 00:33:55,720 --> 00:33:59,160 they own Twitch, they advertise all over their website as well, 700 00:33:59,160 --> 00:34:01,920 and Amazon.com. So you have the advertising 701 00:34:01,920 --> 00:34:04,280 portion here, which is massive, and then you have the 702 00:34:04,280 --> 00:34:06,960 subscription services and you have AWS. 703 00:34:07,040 --> 00:34:09,360 You have four different service businesses here. 704 00:34:09,800 --> 00:34:13,600 All of these are phenomenal and these ones combined are growing 705 00:34:13,840 --> 00:34:17,840 at 17.21%. So again, if we add in the other 706 00:34:17,840 --> 00:34:22,719 lines of business, overall Amazon's growing at 12%, which 707 00:34:22,719 --> 00:34:25,639 isn't the fastest. When you filter out to just the 708 00:34:25,639 --> 00:34:29,320 highest margin, most important segments of the company, the 709 00:34:29,320 --> 00:34:32,880 growth is accelerated. It grows at 17.21%. 710 00:34:33,440 --> 00:34:35,920 This is the part of the company that I think is the intrinsic 711 00:34:35,920 --> 00:34:39,760 value driver of the company, the services high margin business. 712 00:34:40,040 --> 00:34:42,520 This is the part of the company that will grow the free cash 713 00:34:42,520 --> 00:34:45,840 flow. So having this grow at near 20% 714 00:34:45,840 --> 00:34:48,880 is really impressive and I think it's going to continue growing 715 00:34:48,880 --> 00:34:51,960 at a very fast pace. The third party seller services 716 00:34:51,960 --> 00:34:55,400 business is growing at 16%. The advertising business is 717 00:34:55,400 --> 00:35:00,440 growing at 24% and they must have margins of around 70 to 80% 718 00:35:00,560 --> 00:35:02,960 with this advertising business. It's just phenomenal. 719 00:35:03,280 --> 00:35:06,000 We have the subscription services growing at 11 percent. 720 00:35:06,360 --> 00:35:09,120 This is like Amazon Music and and that type of stuff. 721 00:35:09,400 --> 00:35:13,480 And then we have AWS, the biggest hyperscaler, the biggest 722 00:35:13,480 --> 00:35:17,960 cloud company in the world, growing at 18.51% and that's 723 00:35:17,960 --> 00:35:19,680 going to continue around that pace. 724 00:35:19,800 --> 00:35:23,760 Qualitatively, Amazon sits as the large concentrated winner in 725 00:35:23,960 --> 00:35:27,120 many meaningful markets. In cloud hosting, their number 726 00:35:27,120 --> 00:35:32,320 one with AWS, in online retail, their number one with 40% market 727 00:35:32,320 --> 00:35:35,520 share. In video streaming, you have 728 00:35:35,520 --> 00:35:38,520 Netflix's number one, and you have Amazon Prime Video as 729 00:35:38,520 --> 00:35:42,160 arguably #2 so they have a nice concentrated market position in 730 00:35:42,160 --> 00:35:44,320 video streaming, and they're gaining in sports and 731 00:35:44,320 --> 00:35:48,040 entertainment overall. You have advertising, Meta, 732 00:35:48,040 --> 00:35:52,040 Google, and then you have Amazon as #3 that's a pretty good 733 00:35:52,040 --> 00:35:54,080 position to be in. And I would argue again that 734 00:35:54,080 --> 00:35:56,840 their advertising business, although smaller than Meta and 735 00:35:56,840 --> 00:36:00,280 Google, is actually a Better Business because of how targeted 736 00:36:00,280 --> 00:36:03,280 their ads are. So you have this company in #1 737 00:36:03,280 --> 00:36:06,840 two or three of many important markets, and they're continuing 738 00:36:06,840 --> 00:36:08,840 to dive into new markets all the time. 739 00:36:09,240 --> 00:36:11,600 I think that Amazon is also a company that will benefit 740 00:36:11,600 --> 00:36:17,120 dramatically from robots over the next 10 years from LLMS and 741 00:36:17,120 --> 00:36:19,720 machine learning. They are well positioned to be a 742 00:36:19,720 --> 00:36:22,400 company to have enormous efficiency gains in their 743 00:36:22,400 --> 00:36:25,040 warehouses. So there's a lot of reasons to 744 00:36:25,040 --> 00:36:28,080 be bullish on Amazon. The low valuation, the steady 745 00:36:28,080 --> 00:36:32,080 reliable businesses, the company is concentrated in key markets. 746 00:36:32,360 --> 00:36:35,200 All of that put together makes me feel good about the company. 747 00:36:35,840 --> 00:36:39,200 Now, there are some risks to it, and I'd say that the risks are 748 00:36:39,200 --> 00:36:43,320 similar to metas in a way. Amazon really doesn't care about 749 00:36:43,320 --> 00:36:46,680 short term gains in the stock. They're not a company that 750 00:36:46,680 --> 00:36:49,760 focuses on pumping the stock in the next quarter. 751 00:36:50,120 --> 00:36:52,720 And in many cases, they'll do things like say that they're 752 00:36:52,720 --> 00:36:55,400 going to double the amount of money they spend on CapEx and 753 00:36:55,400 --> 00:36:57,160 they don't really care how investors respond. 754 00:36:57,480 --> 00:37:01,040 So you can see the massive CapEx explosion in 2020. 755 00:37:01,560 --> 00:37:04,720 They did that because they needed more fulfilment and that 756 00:37:04,720 --> 00:37:06,360 causes the stock to go down a lot. 757 00:37:06,480 --> 00:37:09,640 So Amazon has done things that investors don't like from time 758 00:37:09,640 --> 00:37:12,960 to time, but they always focus on what's best for the future of 759 00:37:12,960 --> 00:37:14,960 their business. One thing that I think that 760 00:37:14,960 --> 00:37:19,240 Amazon could do that I think will upset investors again is 761 00:37:19,240 --> 00:37:22,000 they'll say that they're not returning any money back to 762 00:37:22,000 --> 00:37:24,200 shareholders. They're not going to do really 763 00:37:24,200 --> 00:37:26,800 any meaningful buybacks. So they're not returning capital 764 00:37:26,800 --> 00:37:29,360 through buybacks and of course, they're not paying a dividend. 765 00:37:29,480 --> 00:37:32,320 And I think that's the biggest challenge for Amazon so far. 766 00:37:32,320 --> 00:37:35,320 They've shown no interest in returning capital back to the 767 00:37:35,320 --> 00:37:37,680 shareholders. And investors of course, love 768 00:37:37,680 --> 00:37:40,320 companies that return money back to the shareholders. 769 00:37:40,800 --> 00:37:44,240 I think Amazon, though, eventually will be forced to 770 00:37:44,240 --> 00:37:47,480 return capital back to the shareholders because if they 771 00:37:47,480 --> 00:37:51,960 grow their free cash flow by double up to 60 or $70 billion 772 00:37:52,200 --> 00:37:55,240 from 32 billion last year, they're going to have too much 773 00:37:55,240 --> 00:37:57,160 cash. Simply put, they're just going 774 00:37:57,160 --> 00:37:58,800 to have too much. They're not going to be able to 775 00:37:58,800 --> 00:38:01,600 spend it all, and they'll be forced to either do a dividend 776 00:38:01,680 --> 00:38:03,640 or start doing aggressive share buybacks. 777 00:38:03,720 --> 00:38:06,880 I know that the stock can go up or down based on a few metrics 778 00:38:06,880 --> 00:38:10,160 or AWS growth or margins. There's always a couple things 779 00:38:10,160 --> 00:38:13,080 that can really set off investors in the algorithms. 780 00:38:13,400 --> 00:38:16,640 But overall, I'm looking at the consistency of growth in those 781 00:38:16,640 --> 00:38:19,080 core businesses. So as we go into Amazon's 782 00:38:19,080 --> 00:38:21,920 earnings, I'll be looking at the overall intrinsic growth of the 783 00:38:21,920 --> 00:38:24,320 company and I'll be reviewing it on this channel. 784 00:38:24,360 --> 00:38:26,840 Now moving on, we have Apple reporting earnings at the same 785 00:38:26,840 --> 00:38:28,240 time. Let's go ahead and talk about 786 00:38:28,240 --> 00:38:30,240 Apple. First of all, Apple's another 787 00:38:30,240 --> 00:38:33,480 company in My Portfolio. A lot of these, these big tech 788 00:38:33,480 --> 00:38:36,040 companies I've been saying are the best investments. 789 00:38:36,040 --> 00:38:38,400 These are the ones that I think are just great investments over 790 00:38:38,400 --> 00:38:41,600 the past five years and they've far outperformed the market. 791 00:38:41,880 --> 00:38:45,560 The reason that the S&P 500 and the QQQ has has done so well 792 00:38:45,560 --> 00:38:48,480 over the past five years is driven by companies like Apple 793 00:38:48,480 --> 00:38:51,600 and Microsoft. Now, Apple's a company that I've 794 00:38:51,600 --> 00:38:55,800 made substantial gains in owning this company since around 2018. 795 00:38:56,080 --> 00:38:59,400 I started buying the stock on the basis that they're more than 796 00:38:59,400 --> 00:39:02,040 just a hardware company. They're transitioning from a 797 00:39:02,080 --> 00:39:05,360 hardware company to a full ecosystem of products and 798 00:39:05,360 --> 00:39:07,360 services. And they'd have a lot of 799 00:39:07,360 --> 00:39:11,200 opportunity to market and advertise and monetize their 800 00:39:11,200 --> 00:39:13,000 their nice products that they make. 801 00:39:13,400 --> 00:39:16,240 So that was the thesis and at the time that was a novel 802 00:39:16,240 --> 00:39:18,720 thesis. Now that that's well known, 803 00:39:18,720 --> 00:39:21,600 that's what Apple's really done and that thesis has played out 804 00:39:21,600 --> 00:39:24,920 to to great success. So we see the position right now 805 00:39:25,640 --> 00:39:30,280 as a $48,000 position, $31,000 of that in the green. 806 00:39:30,720 --> 00:39:34,400 So the majority of the position right now is gains, and I've 807 00:39:34,400 --> 00:39:38,200 actually started to trim Apple a little bit over the past year. 808 00:39:38,520 --> 00:39:42,200 I'm taking some off the table even though this remains a very 809 00:39:42,200 --> 00:39:45,480 high quality company and I want to explain why I've done that. 810 00:39:45,560 --> 00:39:48,480 The issue with Apple right now is a company struggling to grow. 811 00:39:48,480 --> 00:39:51,600 It's struggling to grow. It's organic revenue and it's at 812 00:39:51,600 --> 00:39:55,800 a high valuation. It trades at a 34 PE ratio, a 3% 813 00:39:55,800 --> 00:39:58,280 free cash flow yield. So it's not terrible. 814 00:39:58,280 --> 00:40:00,640 I wouldn't say it's the most overvalued stock in the market 815 00:40:00,640 --> 00:40:04,120 by any means, but Apple's not a cheap company and it's trading. 816 00:40:04,280 --> 00:40:06,720 As though it's going to have a meaningful amount of free cash 817 00:40:06,720 --> 00:40:08,000 flow and earnings per share growth. 818 00:40:08,520 --> 00:40:11,600 But free cash flow and earnings per share growth is driven 819 00:40:11,640 --> 00:40:15,120 primarily by revenue growth. You have to grow the top line to 820 00:40:15,120 --> 00:40:16,560 be able to find some margin there. 821 00:40:16,840 --> 00:40:18,920 If we look at the revenue growth, we can see the total 822 00:40:18,920 --> 00:40:21,560 revenue. It's been flat sort of over the 823 00:40:21,560 --> 00:40:23,920 past couple of years. But I think this becomes clear 824 00:40:23,920 --> 00:40:26,400 if we break it down on a revenue segment basis. 825 00:40:26,400 --> 00:40:30,880 We can see that here in Qualtrum, 2024 only has Q1, so 826 00:40:30,880 --> 00:40:33,240 this is only 1/4 of the year going through. 827 00:40:33,480 --> 00:40:35,960 So you'll see this go up overtime as we get through the 828 00:40:35,960 --> 00:40:37,840 next quarters. But if we look at the most 829 00:40:37,840 --> 00:40:42,360 recent five years, we can see that in 2019 to 2020, it grew 830 00:40:42,360 --> 00:40:45,040 soundly. And then in 2020 we had a pull 831 00:40:45,040 --> 00:40:48,080 forward of demand, massive demand for Apple products as 832 00:40:48,080 --> 00:40:50,520 people are getting their stimulus checks as the only 833 00:40:50,520 --> 00:40:53,120 thing you could really do is work from home and be online, 834 00:40:53,360 --> 00:40:54,920 lots of people buying their products. 835 00:40:55,200 --> 00:40:59,600 So massive growth in the product sale and specific massive growth 836 00:40:59,920 --> 00:41:03,640 in the iPhone. The iPhone went from 147 billion 837 00:41:03,960 --> 00:41:07,000 to 198 billion. So all of Apple's hardware 838 00:41:07,000 --> 00:41:11,440 products have shrunk since 2021. The one portion of the business 839 00:41:11,440 --> 00:41:15,240 that continues to grow every single year is services. 840 00:41:15,280 --> 00:41:18,920 Services include things like Apple TV, Apple Fitness, Apple 841 00:41:18,920 --> 00:41:22,560 Music, and it also includes the Apple insurance on your 842 00:41:22,560 --> 00:41:25,440 different products. And it includes the game revenue 843 00:41:25,440 --> 00:41:28,600 they get from the Apple Store. So all the different apps you 844 00:41:28,600 --> 00:41:32,160 download, the microtransactions, the little games you play, they 845 00:41:32,160 --> 00:41:34,720 get a lot of money from that. They also make a lot of money 846 00:41:34,720 --> 00:41:37,840 from different companies like match.com or they have dating 847 00:41:37,840 --> 00:41:40,120 apps and they do transactions in the App Store. 848 00:41:40,720 --> 00:41:44,160 So as all of those companies are growing outside of Apple, all 849 00:41:44,160 --> 00:41:46,680 those little video game companies and dating companies, 850 00:41:46,960 --> 00:41:50,640 Apple's taking a fee, a license from that, similar to like 851 00:41:50,640 --> 00:41:54,000 Universal Music Group taking a fee anytime a streaming service 852 00:41:54,000 --> 00:41:56,440 plays their song. And that's growing Apple 853 00:41:56,440 --> 00:42:00,440 services year over year. So we see that reach $87 billion 854 00:42:00,440 --> 00:42:03,400 in 2023. It's going to grow in 2024 as 855 00:42:03,400 --> 00:42:04,840 well. In the first quarter, it's 856 00:42:04,840 --> 00:42:09,160 already $24 billion. So massive service revenue. 857 00:42:09,280 --> 00:42:12,160 The question is whether or not the service revenue can make up 858 00:42:12,160 --> 00:42:14,560 for the lack of growth in the rest of the business. 859 00:42:14,800 --> 00:42:17,920 And investors are debating that. They're trying to figure out if 860 00:42:17,920 --> 00:42:21,040 that's the case. Apple has also said that they're 861 00:42:21,040 --> 00:42:24,200 moving in to the artificial intelligence sphere. 862 00:42:24,480 --> 00:42:27,600 They're moving into where now their ecosystem of products is 863 00:42:27,600 --> 00:42:32,240 going to be AI driven with AI, Alexa and lots of different LLM 864 00:42:32,240 --> 00:42:34,400 tools and AI tools. We've seen all those 865 00:42:34,400 --> 00:42:37,840 demonstrations, so a lot of investors became very bullish as 866 00:42:37,840 --> 00:42:40,600 soon as they went into the AI sphere and they gave a good 867 00:42:40,600 --> 00:42:43,360 presentation on that. Apple's a high quality company, 868 00:42:43,360 --> 00:42:45,960 but this upcoming earnings on Thursday, I think is going to be 869 00:42:45,960 --> 00:42:48,440 challenging. They have to show a clear path 870 00:42:48,440 --> 00:42:50,360 of growth and future for the company. 871 00:42:50,600 --> 00:42:52,360 They have to show that they're not saturated. 872 00:42:52,680 --> 00:42:54,600 They have to show that they can overcome the different 873 00:42:54,600 --> 00:42:57,480 challenges with regulation and slow down in China. 874 00:42:57,800 --> 00:43:01,000 So there's a lot of different hurdles for Apple and on top of 875 00:43:01,000 --> 00:43:04,200 the high valuation, which leaves little room for multiple 876 00:43:04,200 --> 00:43:07,320 expansion, I think it's just a more challenging earnings. 877 00:43:07,560 --> 00:43:10,760 So I'm not expecting a lot from Apple going into this earnings 878 00:43:10,960 --> 00:43:13,600 and that is the reason that I've been taking some off the table 879 00:43:13,600 --> 00:43:16,720 for this stock. Hopefully it does well, but I 880 00:43:16,720 --> 00:43:17,920 think it's going to be a tougher 1. 881 00:43:18,560 --> 00:43:22,360 Now finally, at the same time, we get into Booking Holdings. 882 00:43:22,480 --> 00:43:25,120 This is a new holding to the passive income portfolio that 883 00:43:25,120 --> 00:43:27,400 I've been buying into. Booking Holdings is the largest 884 00:43:27,400 --> 00:43:29,120 online travel agency in the world. 885 00:43:29,360 --> 00:43:33,160 It is a super profitable company that trades at a low valuation. 886 00:43:33,640 --> 00:43:36,000 Now let me give you some scenarios on this upcoming 887 00:43:36,000 --> 00:43:38,080 earnings. Let's just have the scenario 888 00:43:38,080 --> 00:43:39,960 here. Let's pretend for a bit that 889 00:43:39,960 --> 00:43:42,360 Booking Holdings has a terrible earnings report. 890 00:43:42,840 --> 00:43:46,600 They guide that there's going to be a cyclical slowdown in travel 891 00:43:46,880 --> 00:43:49,160 as people are pulling back. They're pulling back on 892 00:43:49,160 --> 00:43:51,640 McDonald's, they're pulling back on spending all together. 893 00:43:51,960 --> 00:43:55,240 Let's say for example, that they decide that they're pulling back 894 00:43:55,240 --> 00:43:58,840 on travel and Booking Holdings is seeing less bookings, you 895 00:43:58,840 --> 00:44:00,600 know, less people using their platform. 896 00:44:00,600 --> 00:44:06,080 Over the next three months, if the stock drops 2030%, we have 897 00:44:06,080 --> 00:44:09,600 an epic sell off in Booking. That's not the worst thing for 898 00:44:09,600 --> 00:44:12,920 this holding in most cases. I would be pretty concerned if 899 00:44:12,920 --> 00:44:14,600 that happened. But if we look at booking 900 00:44:14,600 --> 00:44:18,520 holdings here, we can bring up the stock and see that part of 901 00:44:18,520 --> 00:44:21,360 the investment thesis here is the enormous buybacks. 902 00:44:21,360 --> 00:44:25,240 They're able to consistently do booking trades at such a low 903 00:44:25,240 --> 00:44:28,400 valuation. Their PE ratio is at a 20 and 904 00:44:28,400 --> 00:44:31,400 their free cash will yield, even after accounting for stock based 905 00:44:31,400 --> 00:44:35,920 compensation is nearly 5%. So they're generating a 5% 906 00:44:35,960 --> 00:44:40,040 yield, similar to a treasury bond, and they use that money to 907 00:44:40,040 --> 00:44:43,480 both pay a dividend and buy back their shares aggressively. 908 00:44:43,920 --> 00:44:47,480 They are a buyback machine and that is part of the reason. 909 00:44:47,720 --> 00:44:50,880 In fact, that's a very central part of why I like this company. 910 00:44:51,280 --> 00:44:55,040 The stock consistently trades at a low valuation for fare of the 911 00:44:55,040 --> 00:44:58,560 cyclicality of the travel industry, causing their buybacks 912 00:44:58,560 --> 00:45:00,880 to be extra accretive and effective. 913 00:45:01,360 --> 00:45:05,680 Last year, year over year, they bought back roughly 9% of their 914 00:45:05,680 --> 00:45:07,920 market cap. They reduced the shares 915 00:45:07,920 --> 00:45:12,760 outstanding by 8.63% and you can see that over time, the share 916 00:45:12,760 --> 00:45:15,920 count is dropping like crazy. This gives the owners of the 917 00:45:15,920 --> 00:45:18,680 company more equity in it. It grows the earnings per share 918 00:45:18,680 --> 00:45:20,720 faster. It grows the free cash flow per 919 00:45:20,720 --> 00:45:23,440 share faster by reducing the total amount of shares 920 00:45:23,440 --> 00:45:25,920 outstanding. So in the scenario where Booking 921 00:45:25,920 --> 00:45:28,400 Holdings guides with disappointment and they see a 922 00:45:28,400 --> 00:45:31,680 slowdown in the travel industry, that's a temporary concern that 923 00:45:31,680 --> 00:45:33,160 will cause a sell off in the stock. 924 00:45:33,520 --> 00:45:36,400 If the stock sells off, Booking will buy back their shares at an 925 00:45:36,400 --> 00:45:39,920 even cheaper price, raising the earnings per share, raising the 926 00:45:39,920 --> 00:45:43,520 free cash flow per share. So this is one that I'm just not 927 00:45:43,520 --> 00:45:46,120 concerned about. Even if there is a slowdown, 928 00:45:46,280 --> 00:45:47,920 eventually things will speed back up. 929 00:45:48,160 --> 00:45:50,880 The travel industry is in a secular growth trend for the 930 00:45:50,880 --> 00:45:53,240 next 10 years. People will continue to travel 931 00:45:53,240 --> 00:45:56,240 more and more, and this is a stock that continually earns 932 00:45:56,480 --> 00:45:59,680 high amounts of free cash flow. Even if there is slowdowns in 933 00:45:59,680 --> 00:46:03,040 travel, they still generate positive free cash flow if the 934 00:46:03,040 --> 00:46:06,360 price goes up after earnings. I already have $22,000 invested 935 00:46:06,360 --> 00:46:08,480 in the stock and I'm happy that way as well. 936 00:46:08,600 --> 00:46:10,600 So either way, I'm looking forward to their earnings 937 00:46:10,600 --> 00:46:12,440 report. I'm really not concerned about 938 00:46:12,440 --> 00:46:14,040 it at all. Now that's an overview. 939 00:46:14,040 --> 00:46:16,640 Looking ahead this week, if you want to see reactions and 940 00:46:16,640 --> 00:46:19,360 analysis of these earnings reports, make sure you subscribe 941 00:46:19,360 --> 00:46:21,800 to the channel and I'll be going over each of them. 942 00:46:22,080 --> 00:46:23,520 That's all for now. See you in the next one.