1 00:00:00,080 --> 00:00:02,400 Welcome back everyone. Today on the Joseph Carlson Show 2 00:00:02,400 --> 00:00:04,800 we get into the biggest earnings week of this season. 3 00:00:05,040 --> 00:00:07,760 This is it, the most important one by far. 4 00:00:08,039 --> 00:00:11,120 There are trillions of dollars worth of market cap reporting 5 00:00:11,120 --> 00:00:14,200 earnings this week and we can take a look at the schedule. 6 00:00:14,520 --> 00:00:16,840 This is the weekly outlook on earnings. 7 00:00:16,840 --> 00:00:18,920 We start off here on the left with Monday. 8 00:00:19,160 --> 00:00:22,440 We work our way to Friday and the most important days are 9 00:00:22,440 --> 00:00:25,440 Tuesday through Thursday. For example, jumping into 10 00:00:25,440 --> 00:00:28,640 tomorrow on Tuesday. We have a couple companies here 11 00:00:28,640 --> 00:00:32,759 that are familiar. We have S&P Global and Spotify 12 00:00:32,759 --> 00:00:36,120 reporting earnings. S&P Global is still today my 13 00:00:36,120 --> 00:00:38,640 largest position across both my portfolios. 14 00:00:39,000 --> 00:00:42,440 It is massive and there's a reason why I'll be going over my 15 00:00:42,440 --> 00:00:45,800 expectations of this company going into tomorrow as well as 16 00:00:45,800 --> 00:00:48,160 we have Spotify. This is a company that I've 17 00:00:48,160 --> 00:00:50,400 outlined is one that's on my watch list. 18 00:00:50,400 --> 00:00:52,760 It's a top consideration. I'll be going over some 19 00:00:52,760 --> 00:00:55,240 predictions with Spotify and the reason that I believe this 20 00:00:55,240 --> 00:00:57,200 company deserves the premium it has. 21 00:00:57,280 --> 00:00:59,960 Moving on to Tuesday after market close, we have some other 22 00:01:00,040 --> 00:01:02,080 other big companies that are reporting earnings. 23 00:01:02,320 --> 00:01:05,239 For example, we have Visa. I'm going to combine this one 24 00:01:05,239 --> 00:01:08,080 with MasterCard that's reporting Thursday market open. 25 00:01:08,280 --> 00:01:10,160 So I'll be looking at both of these companies. 26 00:01:10,160 --> 00:01:11,480 I'll be giving some thoughts on them. 27 00:01:11,800 --> 00:01:13,760 And then we also have Tuesday after market close, we have 28 00:01:13,760 --> 00:01:15,880 Booking Holdings, another massive company. 29 00:01:15,880 --> 00:01:17,960 This one's been a very successful investment in My 30 00:01:17,960 --> 00:01:20,720 Portfolio so far. And one interesting thing about 31 00:01:20,720 --> 00:01:24,720 Booking, this company faces what could be considered multiple 32 00:01:24,720 --> 00:01:27,400 disruptions. For instance, it's a travel 33 00:01:27,400 --> 00:01:30,760 company and travel supposedly under pressure, and it's a 34 00:01:30,760 --> 00:01:34,360 company that's supposedly being pressured by LLMS that can plan 35 00:01:34,360 --> 00:01:36,720 vacations. But regardless of both of those, 36 00:01:36,720 --> 00:01:39,040 Booking Holdings is in the green year to date. 37 00:01:39,320 --> 00:01:42,160 So why does this company continue to go up despite all 38 00:01:42,160 --> 00:01:43,600 odds? We'll be going over that. 39 00:01:43,760 --> 00:01:46,120 Moving on throughout the week, we get to Wednesday, and this is 40 00:01:46,120 --> 00:01:47,880 the first massive day of the week. 41 00:01:48,080 --> 00:01:52,280 Wednesday after market close. We have Microsoft and Meta both 42 00:01:52,280 --> 00:01:54,080 reporting earnings at the same time. 43 00:01:54,560 --> 00:01:56,040 We're going to be giving a full outlook. 44 00:01:56,320 --> 00:01:59,160 I own a lot of Microsoft. I don't own any Meta. 45 00:01:59,360 --> 00:02:01,560 I'll be going over the biggest thing investors should be 46 00:02:01,560 --> 00:02:03,400 looking for for both of these companies. 47 00:02:03,800 --> 00:02:08,199 And then Thursday after market close, we have Apple and Amazon 48 00:02:08,199 --> 00:02:10,280 both reporting earnings at the same time. 49 00:02:10,360 --> 00:02:13,560 I recently sold the majority of my Apple steak for a large 50 00:02:13,560 --> 00:02:15,080 profit. That was an incredible 51 00:02:15,080 --> 00:02:17,400 investment. But Apple faces far more 52 00:02:17,400 --> 00:02:19,720 challenges today than they did a few years ago. 53 00:02:20,200 --> 00:02:23,640 And Amazon remains one of my most significant bets. 54 00:02:23,960 --> 00:02:26,080 It's a massive holding in My Portfolio. 55 00:02:26,320 --> 00:02:28,680 It makes up roughly 40% of the story fund. 56 00:02:28,840 --> 00:02:31,720 And Amazon faces a lot of questions this quarter over the 57 00:02:31,720 --> 00:02:34,080 tariffs. This is a jam packed, crucial 58 00:02:34,080 --> 00:02:37,040 week for the market. And the market so far, even 59 00:02:37,040 --> 00:02:39,520 despite the uncertainty of the tariffs, has staged the 60 00:02:39,520 --> 00:02:42,280 beginnings of a comeback. It looks like it's headed back 61 00:02:42,280 --> 00:02:45,600 up and if this week goes well and certain things play out, 62 00:02:45,840 --> 00:02:48,000 there is reason to believe the market could make a full 63 00:02:48,000 --> 00:02:50,480 recovery. We'll be going over what needs 64 00:02:50,480 --> 00:02:53,360 to happen for these companies to rise once again. 65 00:02:53,400 --> 00:02:56,120 So we have all of that to get into plus more and we start 66 00:02:56,120 --> 00:02:58,000 things off by looking at this week. 67 00:02:58,520 --> 00:03:01,560 When we look at the calendar Monday, really not a lot it's 68 00:03:01,560 --> 00:03:03,600 going on today. We don't have too many important 69 00:03:03,600 --> 00:03:05,720 earnings. It really starts to begin on 70 00:03:05,720 --> 00:03:07,960 Tuesday, tomorrow before market open. 71 00:03:07,960 --> 00:03:11,520 We have S&P Global reporting their earnings and this has been 72 00:03:11,520 --> 00:03:14,480 a key company in My Portfolio. If we bring up the passive 73 00:03:14,480 --> 00:03:17,760 income portfolio here, we can see my position in S&P Global. 74 00:03:18,000 --> 00:03:21,480 It's in the financial category and this company is a very large 75 00:03:21,480 --> 00:03:26,160 position, $105,000 holding with $23,000 being in the green. 76 00:03:26,480 --> 00:03:30,000 So I have a substantial exposure to it in this portfolio. 77 00:03:30,160 --> 00:03:33,240 If we load in the story fund, which is my secondary portfolio, 78 00:03:33,280 --> 00:03:36,360 one of the five companies that I've picked is S&P Global, 79 00:03:36,560 --> 00:03:40,720 another $20,000 invested another 4300 in the green. 80 00:03:41,000 --> 00:03:43,960 So I have this one across both portfolios because I really like 81 00:03:43,960 --> 00:03:46,200 this company. S&P Global is a compounding 82 00:03:46,200 --> 00:03:49,080 machine through and through. It has a very durable 83 00:03:49,080 --> 00:03:51,440 competitive advantage through multiple aspects of its 84 00:03:51,440 --> 00:03:53,800 business. It's deeply entrenched in the 85 00:03:53,800 --> 00:03:56,920 system, the financial system of the entire globe. 86 00:03:57,240 --> 00:04:01,560 It has worldwide scalability. It also generates significant 87 00:04:01,560 --> 00:04:04,560 and growing free cash flow every single quarter and the 88 00:04:04,560 --> 00:04:06,800 management team is aligned with the shareholders. 89 00:04:07,080 --> 00:04:09,240 They don't generate this cash flow just to give it back to the 90 00:04:09,240 --> 00:04:12,200 employees like some companies. I'm a shareholder. 91 00:04:12,200 --> 00:04:14,320 I want a company that will treat the shareholders right. 92 00:04:14,760 --> 00:04:17,800 So when I look at S&P Global, this is a company that I believe 93 00:04:17,800 --> 00:04:20,680 fits well within My Portfolio. That's why I have so much 94 00:04:20,680 --> 00:04:23,160 exposure to it. Now going into this earnings, we 95 00:04:23,160 --> 00:04:24,600 can bring up some information here. 96 00:04:24,720 --> 00:04:27,360 When we look at the most important aspects to watch for 97 00:04:27,360 --> 00:04:30,200 going into this earnings, we have a feature here that takes a 98 00:04:30,200 --> 00:04:33,640 look at the most recent earnings report and shows us what this 99 00:04:33,640 --> 00:04:35,880 company's focused on. A couple things that we can look 100 00:04:35,880 --> 00:04:39,640 at is S&P Global had record-breaking performance in 101 00:04:39,640 --> 00:04:43,160 2024. They forecasted 5 to 7% growth 102 00:04:43,160 --> 00:04:45,840 in 2025. We need to see if they continue 103 00:04:45,840 --> 00:04:48,200 with that forecast. They may throw in the towel. 104 00:04:48,200 --> 00:04:51,240 They may say the future is too uncertain, we can't give 105 00:04:51,240 --> 00:04:53,280 guidance. But I think that'd be very 106 00:04:53,280 --> 00:04:56,920 unlike S&P Global. My belief is that they'll once 107 00:04:56,920 --> 00:05:00,600 again reaffirm their guidance and in fact, they may even raise 108 00:05:00,600 --> 00:05:02,080 it. I think there's a chance they'll 109 00:05:02,080 --> 00:05:03,520 do that. They might. 110 00:05:03,520 --> 00:05:05,120 They might not because of the tariffs. 111 00:05:05,120 --> 00:05:07,640 They may say it's too uncertain. But I certainly don't think 112 00:05:07,640 --> 00:05:09,800 they're going to lower guidance. I would be surprised if they did 113 00:05:09,800 --> 00:05:11,560 that. The other thing is the Market 114 00:05:11,560 --> 00:05:14,160 Intelligence segment recovery and growth. 115 00:05:14,520 --> 00:05:17,800 The reason that this is outlined is number 2 is this is the 116 00:05:17,800 --> 00:05:21,720 weakest part of S&P Global and it's also the biggest portion of 117 00:05:21,720 --> 00:05:23,680 revenue. The key indicators for the 118 00:05:23,680 --> 00:05:26,840 Market Intelligence segment include revenue acceleration and 119 00:05:26,840 --> 00:05:30,040 margin stabilization, particularly as the division 120 00:05:30,040 --> 00:05:33,760 works through cancellation headwinds from 2024 and faces 121 00:05:33,760 --> 00:05:36,040 heightened pricing pressure and competition. 122 00:05:36,120 --> 00:05:39,600 So this segment of the business is under pressure and if we look 123 00:05:39,600 --> 00:05:44,520 at S&P Global and the revenue by segment, the market intelligence 124 00:05:44,520 --> 00:05:47,960 is this dark orange part, kind of the burnt orange there at the 125 00:05:47,960 --> 00:05:50,280 bottom. So it makes up a big portion of 126 00:05:50,280 --> 00:05:52,560 the company. And what they're basically 127 00:05:52,560 --> 00:05:54,880 saying is they're facing a lot of competitive pressures, 128 00:05:55,200 --> 00:05:58,280 specifically from companies like Bloomberg or Fax Set. 129 00:05:58,440 --> 00:06:01,920 There's other data providers outside of S&P Global, and 130 00:06:01,920 --> 00:06:04,200 they're all competing for the same customers, for the same 131 00:06:04,200 --> 00:06:07,400 clients. Now, S&P Global notes that Q4 of 132 00:06:07,400 --> 00:06:11,520 2024 highlighted the improved retention rates, strong 133 00:06:11,520 --> 00:06:15,680 annualized contract value, and successful competitive wins, but 134 00:06:15,680 --> 00:06:19,600 notes that the first half of 2025 remain muted before showing 135 00:06:19,600 --> 00:06:23,160 gradual improvement. So basically, it's warning right 136 00:06:23,160 --> 00:06:26,640 here that this next quarter could be slow once again for 137 00:06:26,640 --> 00:06:29,360 market intelligence. Now #3 we have the resilience in 138 00:06:29,360 --> 00:06:32,240 the growth of the rating business in 2024. 139 00:06:32,240 --> 00:06:35,120 It highlights that it was an atypically strong year. 140 00:06:35,360 --> 00:06:39,040 It did better than expected. S&P Global outperformed in this 141 00:06:39,040 --> 00:06:41,680 segment of business. And the question is, can they do 142 00:06:41,680 --> 00:06:44,240 it again? Well, since this, we've had 143 00:06:44,320 --> 00:06:47,160 Moody's report earnings and their ratings business actually 144 00:06:47,160 --> 00:06:49,720 did really well. So this should not be a problem 145 00:06:49,720 --> 00:06:52,360 for SP Global this quarter. I think the ratings business 146 00:06:52,360 --> 00:06:54,600 will be strong. Number four and five are focused 147 00:06:54,600 --> 00:06:57,640 around generative AI being implemented across the entire 148 00:06:57,640 --> 00:07:02,320 organization, basically changing how all the company operates and 149 00:07:02,320 --> 00:07:05,560 creating new products and how all of this will ultimately 150 00:07:05,560 --> 00:07:08,600 impact the revenue growth and the margins of the company. 151 00:07:08,960 --> 00:07:12,200 Those are the two primary things we should see from AI. 152 00:07:12,480 --> 00:07:15,400 We should see faster revenue growth and we should see margins 153 00:07:15,400 --> 00:07:18,000 go up. Employees should be able to do 154 00:07:18,000 --> 00:07:20,680 more with less. If you have artificial 155 00:07:20,680 --> 00:07:24,120 intelligence, if you have Gemini and ChatGPT, you are more 156 00:07:24,120 --> 00:07:26,680 efficient. You get things done quicker. 157 00:07:26,880 --> 00:07:29,240 You answer your own questions much faster. 158 00:07:29,440 --> 00:07:30,800 That makes you a better employee. 159 00:07:31,080 --> 00:07:33,640 That makes it so that you can accomplish more tasks in the day 160 00:07:33,640 --> 00:07:36,880 and across an entire massive organization. 161 00:07:37,320 --> 00:07:39,120 That should mean that it's more profitable. 162 00:07:39,120 --> 00:07:41,880 Revenue should grow faster. So this is something that we 163 00:07:41,880 --> 00:07:45,880 want to see show up in the numbers we've had AI implemented 164 00:07:45,880 --> 00:07:49,200 over the past year. We want to see actual margin 165 00:07:49,200 --> 00:07:52,720 increase, the same amount of employees accomplishing more and 166 00:07:52,720 --> 00:07:55,680 the organization able to launch more products generating more 167 00:07:55,680 --> 00:07:57,760 revenue. Another thing I'll add to it is 168 00:07:57,760 --> 00:08:00,520 it trades at a historically very cheap valuation. 169 00:08:00,880 --> 00:08:06,040 It's at a 27 Ford PE ratio and a 3.73 free cash flow yield. 170 00:08:06,160 --> 00:08:08,600 And if we put this in a historic Oracle context, in terms of 171 00:08:08,600 --> 00:08:12,160 valuation in the past five years, it's trading towards the 172 00:08:12,160 --> 00:08:16,040 highest free cash flow yield it has, meaning that it's one of 173 00:08:16,040 --> 00:08:18,840 the cheapest price points you could buy it over the past half 174 00:08:18,840 --> 00:08:21,280 a decade. So right now I think is a decent 175 00:08:21,280 --> 00:08:23,880 time to own the company. I'm not concerned about S&P 176 00:08:23,880 --> 00:08:26,600 Global's earnings at all. Now moving on, we get into 177 00:08:26,600 --> 00:08:28,880 Spotify. This company also reports 178 00:08:28,880 --> 00:08:32,360 tomorrow before market open. Spotify does miss on earnings 179 00:08:32,360 --> 00:08:35,159 frequently. It misses about half the time. 180 00:08:35,480 --> 00:08:38,480 So it's literally a coin flip of or not they'll beat on their 181 00:08:38,480 --> 00:08:40,640 earnings per share estimate or their revenue. 182 00:08:40,880 --> 00:08:42,919 In fact, on the revenue, it's even worse. 183 00:08:43,039 --> 00:08:45,920 They miss more than half the time, well over half the time on 184 00:08:45,920 --> 00:08:48,080 revenue. But it doesn't really seem to 185 00:08:48,080 --> 00:08:51,400 matter with this company because this company is still kind of in 186 00:08:51,400 --> 00:08:54,640 the phase of where Netflix was when they used to report 187 00:08:54,640 --> 00:08:56,760 subscribers. All the investors care about is 188 00:08:56,760 --> 00:08:59,640 the subscriber number, the amount of users every single 189 00:08:59,640 --> 00:09:01,600 month. With Spotify, we have this is a 190 00:09:01,600 --> 00:09:04,080 KPI on Qualtrim. We can look at the monthly 191 00:09:04,080 --> 00:09:06,360 active users. We have that number right here. 192 00:09:06,680 --> 00:09:11,400 Total it's 675,000,000 users and you can look at it grow quarter 193 00:09:11,400 --> 00:09:14,000 over quarter, growing 12%. Here's the break up. 194 00:09:14,000 --> 00:09:16,720 When we look at it through the free tear and the paid tear, the 195 00:09:16,720 --> 00:09:19,400 free users are in the green pads in the purple. 196 00:09:19,480 --> 00:09:21,720 But either way you look at it, whether or not you're just 197 00:09:21,720 --> 00:09:24,440 looking at the premium or just looking at the ad supported, 198 00:09:24,760 --> 00:09:27,040 both of them show consistent growth over time. 199 00:09:27,040 --> 00:09:29,920 The amount of users that Spotify reports will be top of mind this 200 00:09:29,920 --> 00:09:31,320 quarter. It's going to be more important 201 00:09:31,320 --> 00:09:33,920 than whether or not they be on the earnings per share revenue. 202 00:09:34,440 --> 00:09:37,120 Now another thing that Spotify has been focused on for the past 203 00:09:37,120 --> 00:09:39,760 couple of years is the margins of the company. 204 00:09:40,080 --> 00:09:43,720 The gross margins are incredibly important to this company and 205 00:09:43,720 --> 00:09:47,200 they finally expressed operating leverage, something that the 206 00:09:47,200 --> 00:09:49,280 company was under question about. 207 00:09:49,520 --> 00:09:51,960 Investors thought that this company may not have any 208 00:09:51,960 --> 00:09:54,840 operating leverage. They can't drive margins up and 209 00:09:54,840 --> 00:09:58,920 Spotify prove they could, so in this quarter, gross margin 210 00:09:58,920 --> 00:10:02,480 variability and profitability trends will be one of the major 211 00:10:02,480 --> 00:10:04,840 focuses. Investors should closely watch 212 00:10:04,840 --> 00:10:08,560 for changes in gross margins in Q1 of 2025 as management 213 00:10:08,560 --> 00:10:11,920 indicated that margins will likely decline sequentially due 214 00:10:11,920 --> 00:10:14,960 to seasonal weakness and investments in video and other 215 00:10:14,960 --> 00:10:17,560 initiatives. However, improvements are 216 00:10:17,560 --> 00:10:21,040 expected across the full year with both gross and operating 217 00:10:21,040 --> 00:10:24,440 margins forecasted to rise, albeit at a slower paced in 218 00:10:24,440 --> 00:10:29,160 2024's record expansion. So this quarter, gross margins 219 00:10:29,160 --> 00:10:32,200 and profitability are going to contract a little bit towards 220 00:10:32,200 --> 00:10:34,440 the end of the year. It's going to be even higher 221 00:10:34,480 --> 00:10:37,400 under the subscriber game prediction, It says the prior 222 00:10:37,400 --> 00:10:40,680 quarter saw record net additions and monthly active users and 223 00:10:40,680 --> 00:10:43,760 premium subscribers, but the company forecasted a slowdown in 224 00:10:43,760 --> 00:10:48,240 net ads for Q1 of 2025 due to seasonality and a focus on a 225 00:10:48,240 --> 00:10:50,520 higher value, more engaged users. 226 00:10:50,600 --> 00:10:53,280 Another important thing that investors in Spotify are looking 227 00:10:53,280 --> 00:10:56,520 at is an acceleration in the pace of product launches, focus 228 00:10:56,680 --> 00:11:00,560 on tailored subscriptions such as the Super Fan and hi-fi tear, 229 00:11:00,880 --> 00:11:04,080 expansion of video, podcasts and personalized AI driven 230 00:11:04,080 --> 00:11:06,760 experiences. The uptake of these innovations 231 00:11:06,760 --> 00:11:09,560 as well as the effect on user engagement, retention and 232 00:11:09,560 --> 00:11:12,960 average revenue per user will serve as key indicators for the 233 00:11:12,960 --> 00:11:15,800 financial opportunities and the competitive positioning. 234 00:11:15,840 --> 00:11:19,200 Spotify has even talked about more recently of launching an 235 00:11:19,200 --> 00:11:22,640 even higher priced tear that has all these advanced features. 236 00:11:22,920 --> 00:11:25,240 So they're really trying to push the pricing power. 237 00:11:25,440 --> 00:11:28,440 The reason that I can't can't invest in Spotify today, and 238 00:11:28,440 --> 00:11:30,960 I've tried to make it work, I've tried to look at investing in 239 00:11:30,960 --> 00:11:34,160 this company, is when I type in different expectations. 240 00:11:34,160 --> 00:11:38,480 For example, a 30% earnings per share growth rate for the next 5 241 00:11:38,480 --> 00:11:44,000 years and a 30 times multiple. With those lofty assumptions, 242 00:11:44,360 --> 00:11:48,840 30% growth rate 30 times multiple, I get a 3% return. 243 00:11:49,360 --> 00:11:51,080 That's the only thing keeping me out of this stock. 244 00:11:51,080 --> 00:11:53,320 I'd love to own it, but I just can't get behind these 245 00:11:53,320 --> 00:11:55,520 assumptions. Spotify is a wonderful, 246 00:11:55,520 --> 00:11:57,920 one-of-a-kind company, but I want to find it at a cheaper 247 00:11:57,920 --> 00:11:59,320 deal. Now moving on throughout the 248 00:11:59,320 --> 00:12:01,560 week, we get to Tuesday aftermarket close. 249 00:12:01,560 --> 00:12:04,800 We have a couple big companies here, Visa and Booking Holdings 250 00:12:05,200 --> 00:12:06,920 for Visa. I want to group this one with 251 00:12:06,920 --> 00:12:09,560 MasterCard because it's reporting on Thursday and the 252 00:12:09,560 --> 00:12:12,560 companies are very similar. This is the reason that I only 253 00:12:12,560 --> 00:12:15,080 own one of them. I chose MasterCard, but the 254 00:12:15,080 --> 00:12:18,120 companies have so much overlap that I didn't feel the need to 255 00:12:18,120 --> 00:12:20,040 own both of them. If we look at the what to watch 256 00:12:20,040 --> 00:12:24,120 for for each of these companies, number one for Visa is sustained 257 00:12:24,120 --> 00:12:26,400 strong payment volume and revenue growth. 258 00:12:26,960 --> 00:12:28,480 This is top of mind for investors. 259 00:12:28,480 --> 00:12:30,400 The first thing they're going to be looking for with Visa. 260 00:12:30,680 --> 00:12:33,520 If we look at MasterCard, my guess is it's going to be the 261 00:12:33,520 --> 00:12:37,760 exact same sustained revenue growth and volume momentum, so 262 00:12:37,760 --> 00:12:40,600 worded slightly different, but basically the exact same thing. 263 00:12:40,920 --> 00:12:43,360 Investors want to look at the overall growth of these 264 00:12:43,360 --> 00:12:45,240 companies. With every company reporting 265 00:12:45,240 --> 00:12:47,720 earnings, you get an idea of what the expectations are, what 266 00:12:47,720 --> 00:12:50,320 the economy looks like, their views on tariffs and how they're 267 00:12:50,320 --> 00:12:52,920 impacting consumers. But then you have companies like 268 00:12:52,920 --> 00:12:56,000 Visa and MasterCard, which are kind of the catch all. 269 00:12:56,440 --> 00:12:59,240 They really are part of almost every industry, every 270 00:12:59,240 --> 00:13:01,760 transaction. So they have more data than 271 00:13:01,760 --> 00:13:04,400 anyone. Their input is simply weighted 272 00:13:04,400 --> 00:13:07,960 higher than any other company. So investors want to know what 273 00:13:07,960 --> 00:13:09,920 their expectations are going forward. 274 00:13:09,920 --> 00:13:12,520 We're going to get a look of how cross-border looks, how many 275 00:13:12,520 --> 00:13:15,120 people are going on vacation to Europe using credit cards, 276 00:13:15,320 --> 00:13:18,520 spending money on e-commerce and travel, all these different 277 00:13:18,520 --> 00:13:20,800 industries. We get an insight with Visa's 278 00:13:20,800 --> 00:13:24,800 earnings, then we have value added services tokenization 279 00:13:24,800 --> 00:13:27,680 expansion. This is like the other part of 280 00:13:27,680 --> 00:13:30,040 Visa. Visa and MasterCard both are 281 00:13:30,040 --> 00:13:33,600 basically half a network and then half value added services. 282 00:13:33,880 --> 00:13:37,360 And most people aren't aware of the value added services. 283 00:13:37,480 --> 00:13:40,320 If we look at MasterCard, they don't break it up into as many 284 00:13:40,320 --> 00:13:44,760 categories, but the value added services last year was $10.8 285 00:13:44,760 --> 00:13:47,800 billion and for the last year the payment network was 17 286 00:13:47,800 --> 00:13:50,200 billion. So these value added services of 287 00:13:50,200 --> 00:13:53,800 security Analytics, all the data, all the type of SAS stuff 288 00:13:53,800 --> 00:13:56,320 they sell to these companies is worth a fortune. 289 00:13:56,400 --> 00:13:58,720 Visa and MasterCard are both trading at reasonable 290 00:13:58,720 --> 00:14:01,440 valuations, meaning they're not extremely expensive, they're not 291 00:14:01,440 --> 00:14:03,880 extremely cheap. They're not my top buys today. 292 00:14:04,200 --> 00:14:06,840 And I believe that this earnings season will be more business as 293 00:14:06,840 --> 00:14:09,320 usual. They may note some various 294 00:14:09,320 --> 00:14:12,120 levels of slowdown with some consumer spending like in 295 00:14:12,120 --> 00:14:14,360 restaurants and pulling back from experiences. 296 00:14:14,480 --> 00:14:16,680 But these are extremely resilient companies and I'm not 297 00:14:16,680 --> 00:14:18,520 concerned about them going into these earnings. 298 00:14:18,520 --> 00:14:21,720 Moving on Tuesday after market close, we also have Booking 299 00:14:21,800 --> 00:14:24,680 Holdings reporting earnings. I have to mention that I do have 300 00:14:24,680 --> 00:14:26,160 a large investment in this company. 301 00:14:26,200 --> 00:14:27,920 It's been a really fun one to own. 302 00:14:28,360 --> 00:14:30,880 Booking Holdings is a company that at first glance you may 303 00:14:30,880 --> 00:14:33,720 think it's weak because it's just a travel company. 304 00:14:33,720 --> 00:14:36,360 But really what they've done is they've aggregated a ton of 305 00:14:36,360 --> 00:14:40,520 demand of of hotel listings and inventory in Europe. 306 00:14:40,840 --> 00:14:43,360 They have a strategy where they have incredible marketing, they 307 00:14:43,360 --> 00:14:45,880 aggregate demand. They have a seamless platform 308 00:14:45,880 --> 00:14:48,880 and integration. Booking Holdings as of this year 309 00:14:48,880 --> 00:14:51,600 is basically flat. It's down 1%. 310 00:14:52,000 --> 00:14:55,680 So despite the fact that this company is seemingly under 311 00:14:55,680 --> 00:15:00,320 pressure because travel may slow down with the tariffs, there's 312 00:15:00,320 --> 00:15:03,960 less vacationing going on and under pressure because a lot of 313 00:15:03,960 --> 00:15:07,400 LLM's advertising pitch is that they can plan a vacation. 314 00:15:07,760 --> 00:15:11,680 Despite those two big disruptive factors, the stock remains the 315 00:15:11,680 --> 00:15:13,920 same. How is that even possible? 316 00:15:13,960 --> 00:15:17,440 Well, I can explain why Booking Holdings, despite all these 317 00:15:17,440 --> 00:15:21,440 factors working against it, is so profitable that even though 318 00:15:21,440 --> 00:15:24,080 some investors are selling their shares, reshifting their 319 00:15:24,080 --> 00:15:27,200 portfolios, they basically buy the shares from you. 320 00:15:27,560 --> 00:15:29,720 They do it with consistent buybacks. 321 00:15:29,960 --> 00:15:32,520 And I believe that's the reason that this stock continues to 322 00:15:32,520 --> 00:15:35,360 just be so strong despite uncertainty. 323 00:15:35,360 --> 00:15:38,120 One of the charts here we have on Qualtrum really illustrates 324 00:15:38,120 --> 00:15:40,000 this point. It's called the return of 325 00:15:40,000 --> 00:15:42,320 capital. Now this isn't return on 326 00:15:42,320 --> 00:15:44,640 capital. This is return of capital, 327 00:15:44,640 --> 00:15:47,000 meaning the amount of money they pay back to shareholders. 328 00:15:47,320 --> 00:15:50,080 If we look at it just over the past five years, this is what it 329 00:15:50,080 --> 00:15:53,480 looks like over trailing 12 month basis, they've returned 330 00:15:53,480 --> 00:15:56,400 roughly $8 billion back to the shareholder. 331 00:15:56,440 --> 00:16:00,320 Through buybacks they did 6.51 billion, through dividends they 332 00:16:00,320 --> 00:16:04,160 did 1.17 billion. So they are throwing money back 333 00:16:04,160 --> 00:16:06,000 to the shareholder buying back shares. 334 00:16:06,280 --> 00:16:09,080 Any shareholder that wants out of their position booking 335 00:16:09,080 --> 00:16:11,640 holdings will buy it from you. Another thing to note about this 336 00:16:11,640 --> 00:16:14,040 company is when they're buying back shares, they're not doing 337 00:16:14,040 --> 00:16:17,040 it just to pay their employees. A lot of companies buy back 338 00:16:17,040 --> 00:16:20,280 shares, but they also dilute the share count by paying employees 339 00:16:20,280 --> 00:16:23,320 through heavy stock based compensated packages. 340 00:16:23,360 --> 00:16:26,360 This company has a relatively low base level of stock based 341 00:16:26,360 --> 00:16:28,000 comp because they have fewer employees. 342 00:16:28,200 --> 00:16:31,680 So they paid out roughly $600 million in stock based comp out 343 00:16:31,680 --> 00:16:34,200 of the $8 billion they return to shareholders. 344 00:16:34,600 --> 00:16:36,880 So basically, the money that they're paying back to 345 00:16:36,880 --> 00:16:41,800 shareholders is undiluted money, causing an enormous decline in 346 00:16:41,800 --> 00:16:43,840 share count over the trailing 12 months. 347 00:16:43,840 --> 00:16:47,560 It was -5.1%. This company is eviscerating 348 00:16:47,560 --> 00:16:49,440 their share count. So the reason that Booking 349 00:16:49,440 --> 00:16:52,800 Holdings holds up so well is the incredible finances behind the 350 00:16:52,800 --> 00:16:55,400 company. It's simply so profitable that 351 00:16:55,400 --> 00:16:57,920 it can face a lot of uncertainty and still flourish. 352 00:16:58,400 --> 00:17:00,880 Now when we look at the biggest things to watch for this 353 00:17:00,880 --> 00:17:04,920 quarter, we have the number one, which I agree right here that it 354 00:17:04,920 --> 00:17:07,920 sustained growth in room nights and gross bookings. 355 00:17:08,240 --> 00:17:12,240 If we look again at insights, we have this metric in a KPI. 356 00:17:12,599 --> 00:17:16,760 It is right here the gross booking metric and you can see 357 00:17:16,760 --> 00:17:19,560 this grow over time since 2020. We want to see if this trend 358 00:17:19,560 --> 00:17:22,000 continues or if it finally decides to pull back. 359 00:17:22,160 --> 00:17:24,440 There's a lot of reports that you've probably seen that the 360 00:17:24,440 --> 00:17:27,240 travel industry is completely dead because of the tariffs and 361 00:17:27,240 --> 00:17:30,080 the uncertainty. While there may be some truth to 362 00:17:30,080 --> 00:17:32,520 that, there's probably some data to say that things have slowed 363 00:17:32,520 --> 00:17:34,200 down. Just keep in mind that this 364 00:17:34,200 --> 00:17:38,280 company has survived and expanded and grown and become 365 00:17:38,280 --> 00:17:42,000 more profitable and bigger during pandemics, wars, and 366 00:17:42,000 --> 00:17:45,080 financial crisis. It's done it through the Great 367 00:17:45,080 --> 00:17:47,240 Recession. It's done it through the COVID 368 00:17:47,240 --> 00:17:49,320 pandemic. It's done it through multiple 369 00:17:49,320 --> 00:17:52,960 wars in foreign countries. Travel is inherent to human 370 00:17:52,960 --> 00:17:55,800 nature. People want to travel when GDP 371 00:17:55,800 --> 00:17:58,880 per capita grows, when people have more money, they want to go 372 00:17:58,880 --> 00:18:01,280 out and have experiences, they want to leave the home. 373 00:18:01,600 --> 00:18:05,520 And this is like an investment that captures that demand in an 374 00:18:05,520 --> 00:18:09,000 incredibly profitable way. So despite the near term 375 00:18:09,000 --> 00:18:11,560 concerns, I remain very bullish on this company. 376 00:18:11,600 --> 00:18:13,840 It may not be this quarter, but I believe this one's going 377 00:18:13,840 --> 00:18:15,360 higher. Now, moving down the week. 378 00:18:15,360 --> 00:18:17,880 We get to Wednesday and this is where it really begins. 379 00:18:17,880 --> 00:18:21,120 So far we've been talking about important companies, but not big 380 00:18:21,120 --> 00:18:22,800 Tech. We get to Wednesday and this is 381 00:18:22,800 --> 00:18:25,640 the start of Big Tech. Specifically after close, we 382 00:18:25,640 --> 00:18:27,920 have Microsoft Meta. We'll start off here with 383 00:18:27,920 --> 00:18:30,480 Microsoft. We know the company is the 384 00:18:30,480 --> 00:18:32,640 poster child for the perfect fundamentals. 385 00:18:32,840 --> 00:18:35,280 They rarely ever miss on their earnings per share and their 386 00:18:35,280 --> 00:18:37,440 revenue. I think that'll be fine, but 387 00:18:37,440 --> 00:18:39,920 there's bigger concerns for the Microsoft shareholder, 388 00:18:40,360 --> 00:18:43,840 specifically the AI outlook. This is what everyone's going to 389 00:18:43,840 --> 00:18:46,720 be digging into. Microsoft reported AI revenue 390 00:18:46,720 --> 00:18:51,160 above expectations, citing a $13 billion annualized revenue run 391 00:18:51,160 --> 00:18:54,360 rate for its AI businesses. Investors should closely track 392 00:18:54,360 --> 00:18:57,080 the company's ability to continually scaling AI 393 00:18:57,080 --> 00:19:00,440 infrastructure and monitor any future impacts from ongoing 394 00:19:00,440 --> 00:19:03,320 capacity constraints. As management highlighted, the 395 00:19:03,320 --> 00:19:07,080 demand remains ahead of current supply, but investments are 396 00:19:07,080 --> 00:19:10,640 ramping up to address this. We have heard this time, time 397 00:19:10,640 --> 00:19:13,840 again, that demand is outstripping supply with 398 00:19:13,840 --> 00:19:16,360 artificial intelligence. Microsoft is one of the 399 00:19:16,360 --> 00:19:19,280 companies that said this, but then they also said some things 400 00:19:19,280 --> 00:19:21,920 that contradicted it a bit, saying that they're going to be 401 00:19:21,920 --> 00:19:24,320 very measured with their CapEx investment. 402 00:19:24,600 --> 00:19:28,560 I believe the AI growth with Microsoft is going to continue 403 00:19:28,560 --> 00:19:30,880 at a very fast pace, but I do think we'll see some 404 00:19:30,880 --> 00:19:34,000 deceleration. It'll likely be 100% year over 405 00:19:34,000 --> 00:19:38,040 year, down from 175. Next we get to Microsoft cloud 406 00:19:38,040 --> 00:19:40,000 revenue. It's surpassed 40 billion for 407 00:19:40,000 --> 00:19:42,960 the first time with Azure and other cloud services showing 408 00:19:42,960 --> 00:19:47,960 strong 31% growth, including a significant contribution from AI 409 00:19:47,960 --> 00:19:50,240 services. So in the Azure and other 410 00:19:50,240 --> 00:19:54,800 services, we had 31% growth and that should continue at a very 411 00:19:54,800 --> 00:19:56,600 brisk pace. In fact, there are some 412 00:19:56,600 --> 00:19:59,320 estimates that it may even increase, which would be 413 00:19:59,320 --> 00:20:00,720 incredible to see from this company. 414 00:20:00,720 --> 00:20:02,440 So this is going to be another big focus. 415 00:20:02,680 --> 00:20:04,720 Microsoft needs to hit their cloud numbers. 416 00:20:04,960 --> 00:20:07,680 If they show any weakness here, that's going to hit the stock. 417 00:20:07,960 --> 00:20:10,520 If they project out in the future any weakness, that's also 418 00:20:10,520 --> 00:20:12,480 going to hit the stock. This company should show 419 00:20:12,480 --> 00:20:14,560 continued strong growth on the AI. 420 00:20:14,560 --> 00:20:17,480 Cloud investors should watch for capital spending levels, the 421 00:20:17,480 --> 00:20:21,160 pace at which new capacity comes online, and the impacts of these 422 00:20:21,160 --> 00:20:24,800 investments on margin profiles and free cash flow, especially 423 00:20:24,800 --> 00:20:28,160 as Microsoft transitions to higher margin AI and cloud 424 00:20:28,160 --> 00:20:31,560 services. Again, overall, we've seen this 425 00:20:31,560 --> 00:20:34,560 talk of artificial intelligence for the past couple of years. 426 00:20:34,880 --> 00:20:37,760 It's finally implemented. We should now start to see 427 00:20:37,760 --> 00:20:39,920 higher margins, higher efficiency. 428 00:20:40,200 --> 00:20:43,160 If we don't end up seeing that at some point or another, 429 00:20:43,160 --> 00:20:46,000 investors are going to wonder, is artificial intelligence 430 00:20:46,000 --> 00:20:49,200 really boosting profits? Is it really increasing margins? 431 00:20:49,400 --> 00:20:51,560 Investors really want to see evidence of that. 432 00:20:51,560 --> 00:20:54,000 Now. Microsoft is very likely to post 433 00:20:54,000 --> 00:20:57,120 strong earnings with growth in cloud, artificial intelligence 434 00:20:57,120 --> 00:20:59,680 increases. And if they do happen to paint a 435 00:20:59,680 --> 00:21:03,240 positive picture of the future with optimism about consumer 436 00:21:03,240 --> 00:21:06,920 spending and resilience and AI, cloud growth, I believe it will 437 00:21:06,920 --> 00:21:09,760 send the markets higher. Not just Microsoft, but the 438 00:21:09,760 --> 00:21:13,640 entire S&P 500. This is one of the kings of the 439 00:21:13,640 --> 00:21:16,040 market. It's one of the leaders of the 440 00:21:16,040 --> 00:21:18,840 S&P 500. Other companies and investors 441 00:21:18,840 --> 00:21:22,320 look to Microsoft to see which direction this market should 442 00:21:22,320 --> 00:21:24,640 trade. If they are optimistic about the 443 00:21:24,640 --> 00:21:27,280 future. If they post that they see a lot 444 00:21:27,280 --> 00:21:29,960 of resilience and opportunity for growth and higher profits 445 00:21:29,960 --> 00:21:34,560 ahead, then the S&P 500 could go higher, making a full recovery. 446 00:21:34,560 --> 00:21:37,560 The S&P 500 trades off of big tech. 447 00:21:37,960 --> 00:21:40,960 It doesn't trade off of car companies and other companies 448 00:21:40,960 --> 00:21:43,000 hit by tariffs, low margin companies. 449 00:21:43,320 --> 00:21:46,400 It trades based on these incredible, magnificent 7 450 00:21:46,400 --> 00:21:48,480 companies. They are the market leaders and 451 00:21:48,480 --> 00:21:50,880 I believe there's a strong potential here for Microsoft to 452 00:21:50,880 --> 00:21:53,720 lead them higher. Google tried, but Google is 453 00:21:53,760 --> 00:21:58,240 overshadowed by the threat of Chachi BT Microsoft doesn't have 454 00:21:58,240 --> 00:22:00,480 any type of disruptive threat to their story. 455 00:22:00,720 --> 00:22:04,400 This company could post equally strong results, and without that 456 00:22:04,400 --> 00:22:07,840 overshadowing and concern of disruptive risk, it could send 457 00:22:07,840 --> 00:22:11,240 the markets higher. So overall, I'm very optimistic 458 00:22:11,240 --> 00:22:14,720 about Microsoft going into this week and I believe it could have 459 00:22:14,720 --> 00:22:17,960 big consequences on the entire S&P 500. 460 00:22:18,480 --> 00:22:20,240 The next company that we look at is Meta. 461 00:22:20,560 --> 00:22:22,640 This is another one that I believe will have strong 462 00:22:22,640 --> 00:22:25,320 results, but a lot of this strong result that we're going 463 00:22:25,320 --> 00:22:28,320 to see with Meta has been priced in due to Google. 464 00:22:28,320 --> 00:22:30,680 This happened after Google reported earnings, tipping 465 00:22:30,680 --> 00:22:33,240 investors off that the advertising market remains very 466 00:22:33,240 --> 00:22:35,680 strong. Meta actually went up more than 467 00:22:35,680 --> 00:22:39,640 Google again because Meta has a very similar thesis as Google, 468 00:22:39,920 --> 00:22:43,240 but less of an overall disruptive overshadowing of 469 00:22:43,240 --> 00:22:45,640 Chachi BT. This stock's already up around 470 00:22:45,640 --> 00:22:48,320 $70.00 from the low when I look at Meta. 471 00:22:48,320 --> 00:22:51,160 Overall, this is a company that's done incredibly well and 472 00:22:51,160 --> 00:22:53,960 I don't have any big reason to believe it can't go higher. 473 00:22:54,040 --> 00:22:57,680 When we look at the valuation of Meta, it trades at a 22 Ford PE 474 00:22:57,680 --> 00:23:00,040 ratio, a 4% free cash flow yield. 475 00:23:00,320 --> 00:23:04,520 This is an attractive valuation despite its growth, despite the 476 00:23:04,520 --> 00:23:07,560 share price increase, it's growing revenue continually 477 00:23:07,560 --> 00:23:10,840 above 20%. So it's in the elite category of 478 00:23:10,840 --> 00:23:13,480 revenue growth. So long as they maintain this, 479 00:23:13,640 --> 00:23:16,480 they will be undervalued and the stock will continue higher. 480 00:23:16,560 --> 00:23:18,720 And I believe that's what you're going to see this quarter. 481 00:23:18,840 --> 00:23:21,360 Now moving on further down the week, we get to Thursday where 482 00:23:21,360 --> 00:23:23,600 we get the other two big tech companies. 483 00:23:23,880 --> 00:23:27,400 We have Amazon and Apple both reporting earnings after market 484 00:23:27,400 --> 00:23:29,520 close on Thursday. We'll kick things off with 485 00:23:29,520 --> 00:23:31,560 Amazon. Now this is a company. 486 00:23:31,560 --> 00:23:34,720 Before we go into anything to watch for this quarter, I just 487 00:23:34,720 --> 00:23:36,760 want to highlight my investment in this company. 488 00:23:37,120 --> 00:23:39,880 If we look at the story fund, this is where I hold Amazon. 489 00:23:40,240 --> 00:23:43,280 This portfolio is doing great. When I look at the year to date 490 00:23:43,280 --> 00:23:47,960 performance, just this year, it's down 1%, widely 491 00:23:47,960 --> 00:23:51,560 outperforming the QQQ, outperforming the S&P 500. 492 00:23:51,920 --> 00:23:56,080 And that is after this portfolio has has beat out the S&P 500 and 493 00:23:56,080 --> 00:23:59,840 the QQQ by a huge extent. So it's not only doing well 494 00:23:59,840 --> 00:24:02,680 during bull years and bull markets, it's also holding up 495 00:24:02,840 --> 00:24:05,680 really well during this downturn, specifically because 496 00:24:05,680 --> 00:24:08,040 of Netflix. For example, if I just look at 497 00:24:08,040 --> 00:24:11,080 the year to date again right now, you can see that Netflix is 498 00:24:11,080 --> 00:24:13,280 really holding this entire portfolio up. 499 00:24:13,280 --> 00:24:15,920 It's the reason that it's not deeply in the red this year. 500 00:24:16,160 --> 00:24:19,160 It's counterbalancing all the other companies going down. 501 00:24:19,600 --> 00:24:23,200 So if these companies start to perform, if they start to go up 502 00:24:23,200 --> 00:24:26,320 as well, if Amazon especially, which is my next biggest 503 00:24:26,320 --> 00:24:30,160 position by far, starts to perform, the outperformance will 504 00:24:30,160 --> 00:24:32,440 be incredible. The performance of this 505 00:24:32,440 --> 00:24:35,240 portfolio will just be epic. If we look at the performance of 506 00:24:35,240 --> 00:24:39,960 the Story Fund against the S&P 500 as of today, it's already 507 00:24:39,960 --> 00:24:43,800 crushing it. It's up 93% to the S&P 500, up 508 00:24:43,800 --> 00:24:46,040 37%. So we've over doubled the 509 00:24:46,040 --> 00:24:48,560 performance so far. And you can imagine what this 510 00:24:48,560 --> 00:24:51,840 would look like if Amazon went up to $200 per share. 511 00:24:52,160 --> 00:24:56,120 If Amazon went up to two 2240, the outperformance would be 512 00:24:56,120 --> 00:24:58,960 incredible. The S&P 500 would rise as well, 513 00:24:58,960 --> 00:25:02,360 but not to the same extent as My Portfolio because I have a much 514 00:25:02,360 --> 00:25:05,040 greater level of exposure specifically to Amazon. 515 00:25:05,480 --> 00:25:09,000 So what I'm looking for for this company is the $200 mark, the 516 00:25:09,000 --> 00:25:12,480 220 mark, the 240 mark. I believe the fair value of 517 00:25:12,480 --> 00:25:16,680 Amazon is so disconnected from where the company trades today 518 00:25:16,800 --> 00:25:20,480 that my fair value for this company is around 260. 519 00:25:20,600 --> 00:25:23,200 A lot of people look at that and think that's crazy, but that's 520 00:25:23,200 --> 00:25:26,720 how I view the company. It's trading nearly $80.00 under 521 00:25:26,720 --> 00:25:29,520 value by my estimation. Amazon is a collection of 522 00:25:29,520 --> 00:25:31,760 incredibly high quality businesses, the first one of 523 00:25:31,760 --> 00:25:34,880 which is AWS. The previous quarter highlighted 524 00:25:34,880 --> 00:25:39,360 continued strong growth in AWS, including 19% year over year 525 00:25:39,360 --> 00:25:44,000 revenue growth and a $115 billion annualized run rate. 526 00:25:44,320 --> 00:25:47,240 However, management indicated that further acceleration is 527 00:25:47,240 --> 00:25:49,800 being tempered by supply constraints. 528 00:25:50,160 --> 00:25:53,920 Where did we hear that news? We heard it from Microsoft. 529 00:25:54,160 --> 00:25:57,840 They said the exact same thing. Number one on the list was that 530 00:25:57,840 --> 00:26:00,920 the AI developments and the growth of their cloud was being 531 00:26:00,920 --> 00:26:05,240 constrained, they say now, particularly in chips, power and 532 00:26:05,240 --> 00:26:07,880 select components. These are all from NVIDIA. 533 00:26:08,160 --> 00:26:10,800 Andy Jassi has gone on to interviews saying that this is 534 00:26:10,800 --> 00:26:13,360 all too expensive and prices will come down. 535 00:26:13,680 --> 00:26:15,720 They're creating a lot of this stuff themselves. 536 00:26:16,120 --> 00:26:18,600 Investors should monitor whether or not the supply chain 537 00:26:18,600 --> 00:26:22,600 constraints begin to ease in the current quarter, enabling AWS to 538 00:26:22,600 --> 00:26:26,280 capture additional demand, and how ongoing AI infrastructure 539 00:26:26,280 --> 00:26:29,240 investments translates into realized revenue and margins. 540 00:26:29,760 --> 00:26:31,680 Now there's two different groups of investors here. 541 00:26:31,960 --> 00:26:34,840 There's ones that have avoided Amazon because they believe all 542 00:26:34,840 --> 00:26:37,640 this investment in CapEx spend is not going to have a high 543 00:26:37,640 --> 00:26:40,560 return. I've piled into Amazon because 544 00:26:40,560 --> 00:26:44,160 I'm under the belief that this will have high returns, and I 545 00:26:44,160 --> 00:26:46,520 want to see that start over this year. 546 00:26:46,800 --> 00:26:49,680 So I'll be paying attention to the profitability, the margins 547 00:26:49,920 --> 00:26:52,360 of this investment. When we look further at the 548 00:26:52,360 --> 00:26:55,680 CapEx investment, this is a huge part of the story for Amazon. 549 00:26:56,000 --> 00:26:59,400 Amazon achieved record operating income in the previous quarter 550 00:26:59,760 --> 00:27:02,280 with notable year over year margin expansion in both North 551 00:27:02,280 --> 00:27:06,800 America to 8% and international to 3%, supported by efficiency 552 00:27:06,800 --> 00:27:08,560 gains and cost reduction initiatives. 553 00:27:08,640 --> 00:27:11,480 However, significant capital investments, especially to 554 00:27:11,480 --> 00:27:15,360 support AWS AI initiatives, are expected to be maintained or 555 00:27:15,360 --> 00:27:18,800 grow, and management noted operating margins will likely be 556 00:27:18,800 --> 00:27:22,560 impacted in the near term. Observing how operating margins 557 00:27:22,560 --> 00:27:25,920 evolve in light of ongoing CapEx, which is indicated to 558 00:27:25,920 --> 00:27:29,600 remain at high levels dominated by tech infrastructure, will 559 00:27:29,600 --> 00:27:32,800 provide insight into Amazon's profitability resilience. 560 00:27:33,000 --> 00:27:36,320 Another storyline with Amazon that I love about this company, 561 00:27:36,360 --> 00:27:40,720 the reason that I put $100,000 into it is partly because of the 562 00:27:40,720 --> 00:27:42,720 robotics. When investors talk about 563 00:27:42,720 --> 00:27:45,640 robotics and investing in robotics, they're typically 564 00:27:45,640 --> 00:27:48,160 referring to Tesla, and I believe that's more of a 565 00:27:48,160 --> 00:27:51,400 branding type of thing. Investors have been sold this 566 00:27:51,400 --> 00:27:54,640 narrative that Tesla is the leading robotics company, and I 567 00:27:54,640 --> 00:27:57,640 don't believe that's correct. Amazon has far more robots 568 00:27:57,640 --> 00:28:00,560 working in factories and completing tasks than Tesla, and 569 00:28:00,560 --> 00:28:02,840 these robots are replacing human jobs. 570 00:28:02,840 --> 00:28:05,880 Amazon has continued reducing its global cost to serve on a 571 00:28:05,880 --> 00:28:08,840 per unit basis for the second consecutive year and is 572 00:28:08,840 --> 00:28:12,280 accelerating the deployment of robotics and automation across 573 00:28:12,280 --> 00:28:14,680 its fulfillment network. The current quarter will show 574 00:28:14,680 --> 00:28:16,800 whether these logistics innovations are beginning to 575 00:28:16,800 --> 00:28:20,040 make a material impact on the cost structure and fulfillment 576 00:28:20,200 --> 00:28:23,480 scalability, potentially driving further margin gains. 577 00:28:23,880 --> 00:28:27,160 I don't think this is just potential, I think this is 578 00:28:27,240 --> 00:28:30,680 incredibly likely. Amazon has already proven with 579 00:28:30,680 --> 00:28:34,400 real warehouses working today with real robots in them that 580 00:28:34,400 --> 00:28:36,840 they can automate and Dr. efficiency. 581 00:28:36,960 --> 00:28:39,440 Scaling that across all the various warehouses they have 582 00:28:39,440 --> 00:28:42,520 across the country will take time, but as they do, they'll 583 00:28:42,520 --> 00:28:46,200 Dr. margins higher and higher. This is another huge story for 584 00:28:46,200 --> 00:28:48,600 Amazon. The retail business is looked at 585 00:28:48,960 --> 00:28:51,680 as this very low quality, low margin business. 586 00:28:52,120 --> 00:28:55,520 But when you layer robots on top of it, when you get rid of the 587 00:28:55,520 --> 00:28:58,680 need for all that human capital, where humans need health 588 00:28:58,680 --> 00:29:02,240 insurance, they can get injured, they have high hourly wages, and 589 00:29:02,240 --> 00:29:04,720 they're working these jobs and warehouses that are potentially 590 00:29:04,720 --> 00:29:07,640 dangerous, The robots can have a major impact here. 591 00:29:07,680 --> 00:29:10,400 I can literally think of no other company in the world that 592 00:29:10,400 --> 00:29:13,720 has more room to benefit from robots and automation than 593 00:29:13,720 --> 00:29:16,280 Amazon. They're the biggest by revenue, 594 00:29:16,320 --> 00:29:17,880 they're the biggest company in the world. 595 00:29:18,120 --> 00:29:20,520 They sell the most stuff, they have the biggest amount of 596 00:29:20,520 --> 00:29:23,440 customers. The automation and any margin 597 00:29:23,440 --> 00:29:25,920 gains in this company are substantial. 598 00:29:25,920 --> 00:29:28,240 When you look at a company that has the amount of revenue that 599 00:29:28,240 --> 00:29:31,560 Amazon has, the slightest increase in margins on the 600 00:29:31,560 --> 00:29:34,400 retail side means massive profits. 601 00:29:34,800 --> 00:29:38,000 People have no clue how it translates into profits. 602 00:29:38,120 --> 00:29:41,120 I'll give you just one example of how this type of margin 603 00:29:41,120 --> 00:29:43,760 expansion effects companies with this broad of revenue. 604 00:29:44,120 --> 00:29:47,480 You can take a look at Costco. If Costco is just to hike prices 605 00:29:47,480 --> 00:29:50,600 by 3% across the board, if they just increased everything 606 00:29:50,600 --> 00:29:54,720 they're selling by 3%, which is very difficult to notice for 607 00:29:54,720 --> 00:29:58,560 most people, a 3% price hike. But assuming Costco did that, 608 00:29:58,800 --> 00:30:01,480 their profits would increase by 70%. 609 00:30:01,920 --> 00:30:04,640 That's how much just a slight increase in a broad based 610 00:30:04,640 --> 00:30:06,880 revenue increases profits. So when we talk about 611 00:30:06,880 --> 00:30:10,480 efficiencies, any slight marginal improvement in their 612 00:30:10,480 --> 00:30:13,600 retail business has enormous profit potential. 613 00:30:13,920 --> 00:30:16,200 And this is something that's incredibly difficult for 614 00:30:16,200 --> 00:30:19,040 analysts to analyze. They simply have a hard time 615 00:30:19,040 --> 00:30:22,880 baking this into their models. So Amazon has a real potential 616 00:30:22,880 --> 00:30:27,120 here to outperform analyst expectations by a huge extent. 617 00:30:27,160 --> 00:30:30,200 The robotics part of the company should help out with the first 618 00:30:30,200 --> 00:30:34,120 party sales and the third party sales, which make up over half 619 00:30:34,120 --> 00:30:37,000 of Amazon's total revenue. But then we get to the higher 620 00:30:37,000 --> 00:30:40,800 margin portions of revenue. Third party sales is is fairly 621 00:30:40,800 --> 00:30:43,840 high margin, but the highest margin are the advertising 622 00:30:43,840 --> 00:30:46,800 subscriptions and AWS advertising. 623 00:30:46,800 --> 00:30:49,800 I've highlighted as one of the best businesses in the world. 624 00:30:50,040 --> 00:30:53,520 Amazon's advertising in their direct click for sponsored links 625 00:30:53,840 --> 00:30:56,840 is really difficult to compete with and investors are expecting 626 00:30:56,840 --> 00:30:59,880 continued growth and even acceleration in the advertising. 627 00:31:00,200 --> 00:31:03,920 Advertising in the last quarter grew by 18% year over year to 628 00:31:03,920 --> 00:31:07,680 17.3 billion, making it a major profit Center for both North 629 00:31:07,680 --> 00:31:09,520 America and international segments. 630 00:31:10,000 --> 00:31:12,200 With new features such as an enhanced full funnel, 631 00:31:12,200 --> 00:31:15,320 advertising options and improvements to attribution 632 00:31:15,320 --> 00:31:18,120 modeling, investors should be attentive to whether Amazon 633 00:31:18,120 --> 00:31:21,120 sustains or accelerates its advertising growth trajectory, 634 00:31:21,360 --> 00:31:24,520 which directly boosts segment profitability and the company's 635 00:31:24,520 --> 00:31:28,560 overall margin mix. So as advertising takes market 636 00:31:28,560 --> 00:31:32,560 share, so to speak, from the other segments of Amazon, that's 637 00:31:32,560 --> 00:31:34,600 a good thing. We don't want advertising to 638 00:31:34,600 --> 00:31:36,560 lose market share from the rest of the company. 639 00:31:36,640 --> 00:31:40,280 And then finally, one thing that could hamper profitability is 640 00:31:40,280 --> 00:31:44,720 the impact of foreign exchange. FX headwinds were significant in 641 00:31:44,720 --> 00:31:48,360 the prior quarter, with revenue negatively impacted by $900 642 00:31:48,360 --> 00:31:52,840 million and future quarters guided with an anticipated $2.1 643 00:31:52,840 --> 00:31:57,080 billion FX drag. So if the dollar continues to go 644 00:31:57,080 --> 00:32:00,000 up, that hurts Amazon with this foreign exchange. 645 00:32:00,320 --> 00:32:02,200 But the dollar has gone down a little bit. 646 00:32:02,280 --> 00:32:04,320 I haven't modelled out how that's going to impact the 647 00:32:04,320 --> 00:32:08,160 company in terms of FX exchange. It's not something I model into 648 00:32:08,160 --> 00:32:10,560 The intrinsic value. Something that Amazon has more 649 00:32:10,560 --> 00:32:13,400 direct control over is the useful life accounting changes. 650 00:32:13,680 --> 00:32:17,200 This is basically where they amortize the life of a GPU or a 651 00:32:17,200 --> 00:32:19,440 server. They say that we get most of the 652 00:32:19,440 --> 00:32:22,160 value in the first year, but the life goes down over five years. 653 00:32:22,440 --> 00:32:24,960 It's very similar to what Netflix does with their content. 654 00:32:25,440 --> 00:32:28,720 Netflix says that we have this content, we capitalize it, so 655 00:32:28,720 --> 00:32:31,600 it's something that's an asset, but the value of the content 656 00:32:31,600 --> 00:32:33,480 goes down over time as people consume it. 657 00:32:33,800 --> 00:32:37,240 So they have an amortization schedule for a new show that it 658 00:32:37,240 --> 00:32:40,560 drops off after the first year, becomes less valuable every 659 00:32:40,560 --> 00:32:42,400 additional year to about four years. 660 00:32:42,880 --> 00:32:45,720 That's what Amazon is doing, but with their servers instead of 661 00:32:45,720 --> 00:32:47,840 content. They have the same type of 662 00:32:47,840 --> 00:32:49,920 accounting care. So we'll get to see commentary 663 00:32:49,920 --> 00:32:52,680 on what they do with that, whether they keep it the same or 664 00:32:52,680 --> 00:32:54,720 they extend the life or reduce it. 665 00:32:54,800 --> 00:32:57,960 Qualitatively, everything looks good for Amazon going into this 666 00:32:57,960 --> 00:33:00,080 quarter. But the big elephant in the room 667 00:33:00,080 --> 00:33:03,360 is the tariffs. Amazon is at the dead center of 668 00:33:03,360 --> 00:33:05,760 the tariff battle. They're the company that really 669 00:33:05,760 --> 00:33:08,560 has the most customers, that does the most business with 670 00:33:08,560 --> 00:33:11,200 China, which is at the center of this tariff war. 671 00:33:11,600 --> 00:33:14,040 So Amazon is going to have a lot of questions on the earnings 672 00:33:14,040 --> 00:33:16,360 call about the tariffs. And I believe it will be very 673 00:33:16,360 --> 00:33:20,320 similar answers to what we heard already from Andy Jassy, that is 674 00:33:20,720 --> 00:33:22,680 that he believes it's going to harm consumers. 675 00:33:23,000 --> 00:33:26,240 He said directly that most of the sellers on Amazon will pass 676 00:33:26,240 --> 00:33:29,640 along the huge majority, if not all the cost onto the customer. 677 00:33:29,680 --> 00:33:31,800 That's going to be the response to it because the sellers on 678 00:33:31,800 --> 00:33:34,040 Amazon don't have a lot of margins to work with. 679 00:33:34,360 --> 00:33:37,720 They're already a low margin business, so they can't absorb 680 00:33:37,720 --> 00:33:41,760 the impact of 100% price increases on an input cost. 681 00:33:42,200 --> 00:33:45,160 They're going to pass that price increase on to the consumer. 682 00:33:45,360 --> 00:33:48,080 Part of being an Amazon investor today means that you're ready to 683 00:33:48,080 --> 00:33:50,880 weather through this storm. We're going into some uncharted 684 00:33:50,880 --> 00:33:53,760 territory here with the tariffs. But if you believe in the vision 685 00:33:53,760 --> 00:33:56,880 of Amazon long term, all the good things happening with their 686 00:33:56,880 --> 00:34:00,600 retail business, with artificial intelligence, with AWS, with the 687 00:34:00,600 --> 00:34:04,240 robotics and margin expansion, if you can look ahead past the 688 00:34:04,240 --> 00:34:07,720 near term uncertainty, I believe this still remains one of the 689 00:34:07,720 --> 00:34:10,080 most attractive investments in the market. 690 00:34:10,560 --> 00:34:13,440 So despite some near term uncertainty, I remain fully 691 00:34:13,440 --> 00:34:15,520 invested and very bullish on this company. 692 00:34:15,560 --> 00:34:18,840 Now finally this week, we get to Apple reporting earnings at the 693 00:34:18,840 --> 00:34:21,960 same time as Amazon. This company typically beats on 694 00:34:21,960 --> 00:34:24,360 their revenue and their earnings expectations and I think they 695 00:34:24,360 --> 00:34:27,880 will again this quarter. Apple has been releasing Apple 696 00:34:27,880 --> 00:34:29,679 Intelligence slower than expected. 697 00:34:29,920 --> 00:34:32,480 They say initially investors should track the continued 698 00:34:32,480 --> 00:34:35,520 global roll out of user adoption of Apple Intelligence features 699 00:34:35,840 --> 00:34:39,679 as initial markets with these capabilities saw stronger iPhone 700 00:34:39,679 --> 00:34:41,880 16 sales compared to those without. 701 00:34:42,320 --> 00:34:45,280 The upcoming expansion to additional languages and markets 702 00:34:45,280 --> 00:34:49,320 in April is expected to further drive both device upgrades and 703 00:34:49,320 --> 00:34:52,400 user engagement. So the storyline, the thesis for 704 00:34:52,400 --> 00:34:56,400 Apple was there's going to be this super cycle of device 705 00:34:56,400 --> 00:34:58,480 upgrade. Everyone's going to upgrade to 706 00:34:58,480 --> 00:35:01,600 the new 16 iPhones because of Apple intelligence. 707 00:35:02,040 --> 00:35:04,720 And so far that thesis has played out a little bit. 708 00:35:05,000 --> 00:35:07,840 Apple has said on the calls that in the markets they have Apple 709 00:35:07,840 --> 00:35:10,320 intelligence, they've done better, but we want to see that 710 00:35:10,320 --> 00:35:13,240 expand globally. They've been really slow in 711 00:35:13,240 --> 00:35:16,200 expanding Apple Intelligence. It's been one of the rare cases 712 00:35:16,200 --> 00:35:19,320 where Apple has over promised to feature Apple service business 713 00:35:19,320 --> 00:35:23,800 achieved an all time record 26.3 billion in revenue, up 14% year 714 00:35:23,800 --> 00:35:25,760 over year. Continued growth and paid 715 00:35:25,760 --> 00:35:29,400 subscriptions and high gross margins now at 75% for services 716 00:35:29,720 --> 00:35:33,160 are critical to watch particularly as services become 717 00:35:33,160 --> 00:35:36,080 increasingly accretive to the overall company profitability. 718 00:35:36,280 --> 00:35:39,440 Apple services are set to grow and I believe they'll continue 719 00:35:39,440 --> 00:35:42,960 to because so far they haven't been forced to lower the price 720 00:35:42,960 --> 00:35:46,360 of their take rate. They're still taking 15 to 30%. 721 00:35:46,480 --> 00:35:48,920 That's a huge portion of all these different companies doing 722 00:35:48,920 --> 00:35:52,720 business on the Apple App Store. So this company is still a toll 723 00:35:52,720 --> 00:35:56,840 booth taking a large cut of all these transactions taking place 724 00:35:56,840 --> 00:35:59,960 across this busy Rd. I sold my Apple steak early this 725 00:35:59,960 --> 00:36:02,040 year out of the fear that the company was trading at a 726 00:36:02,040 --> 00:36:05,520 relatively high valuation and it was not growing fast. 727 00:36:05,520 --> 00:36:09,520 In fact, when we look at Apple today, it trades at a 28 Ford PE 728 00:36:09,880 --> 00:36:12,120 and it trades at this premium PE ratio. 729 00:36:12,120 --> 00:36:14,880 While the revenue growth has remained roughly the same for 730 00:36:14,880 --> 00:36:17,240 the past couple of years. Right now, even though the 731 00:36:17,240 --> 00:36:19,720 company should post great earnings, I don't believe it's 732 00:36:19,720 --> 00:36:21,720 an attractive investment overall. 733 00:36:21,720 --> 00:36:23,720 This week, we'll determine whether or not we have the 734 00:36:23,720 --> 00:36:27,160 market make a full recovery. If these companies, specifically 735 00:36:27,160 --> 00:36:30,960 Visa, MasterCard, and the four big tech companies, Microsoft, 736 00:36:30,960 --> 00:36:34,640 Meta, Apple, and Amazon, all post positive earnings with 737 00:36:34,640 --> 00:36:38,080 positive future outlook, even in the face of uncertainty and 738 00:36:38,080 --> 00:36:40,800 tariffs, we could see the market market make a full recovery. 739 00:36:41,120 --> 00:36:43,920 Because these companies have such power and influence over 740 00:36:43,920 --> 00:36:46,880 the S&P 500. If they alone signal to the 741 00:36:46,880 --> 00:36:49,840 market that earnings remain strong, that profit outlooks are 742 00:36:49,840 --> 00:36:53,080 still growing, the market will have no choice but to go further 743 00:36:53,080 --> 00:36:54,400 higher. That's going to be it for this 744 00:36:54,400 --> 00:36:55,600 episode. Hope you enjoyed. 745 00:36:55,760 --> 00:36:56,480 See you in the next one.