1 00:00:00,080 --> 00:00:01,960 Welcome back everyone. Today on the Joseph Carlson 2 00:00:01,960 --> 00:00:03,480 Show. We're finally getting back to 3 00:00:03,480 --> 00:00:05,680 earnings season after a long weekend. 4 00:00:05,840 --> 00:00:09,280 We have an important earnings coming up today that is Netflix. 5 00:00:09,560 --> 00:00:11,440 Now, Netflix is important for a couple of reasons. 6 00:00:11,720 --> 00:00:13,600 One of them is for me personally. 7 00:00:13,600 --> 00:00:17,680 I own $90,000 of the stock. It's one of my most significant 8 00:00:17,680 --> 00:00:20,080 bets. So obviously, I care about the 9 00:00:20,080 --> 00:00:23,440 company and its report. But Netflix is also one of the 10 00:00:23,440 --> 00:00:25,880 major tech companies kicking off this earnings season. 11 00:00:26,080 --> 00:00:28,360 They're going to set the tone, so to speak. 12 00:00:28,720 --> 00:00:30,760 Now Netflix is not the only one reporting earnings. 13 00:00:31,080 --> 00:00:33,160 We have Netflix aftermarket closed today. 14 00:00:33,400 --> 00:00:36,960 But then looking further along this week on the calendar, we 15 00:00:36,960 --> 00:00:40,080 have Ally Financial going to go over that earnings report and 16 00:00:40,080 --> 00:00:43,800 share a few thoughts on it, as well as Intel and American 17 00:00:43,800 --> 00:00:46,000 Express. American Express lets us know 18 00:00:46,000 --> 00:00:47,680 how Visa, MasterCard are going to do. 19 00:00:48,080 --> 00:00:50,760 Now again, the major focus is going to be on Netflix and I'll 20 00:00:50,760 --> 00:00:54,160 be giving you predictions on how many subscribers I think they're 21 00:00:54,160 --> 00:00:58,000 going to gain today and what the outlook looks like for 2025. 22 00:00:58,040 --> 00:00:59,960 Now, of course, we also have some big news to get into. 23 00:01:00,480 --> 00:01:02,360 Trump has taken office officially. 24 00:01:02,360 --> 00:01:06,240 Yesterday was the inauguration and there's a lot of talk about 25 00:01:06,240 --> 00:01:09,200 Trump and tariffs. He's been going on about how 26 00:01:09,200 --> 00:01:11,200 he's going to stick it to these different countries. 27 00:01:11,200 --> 00:01:13,800 He's going to make them pay. He's going to make things even. 28 00:01:14,040 --> 00:01:16,680 And the tool of his choice to do that is tariffs. 29 00:01:16,800 --> 00:01:19,360 Taxing the imports on other countries products does have an 30 00:01:19,360 --> 00:01:21,480 impact on pricing. And today we're going to be 31 00:01:21,480 --> 00:01:25,640 looking at the different countries and products that are 32 00:01:25,640 --> 00:01:28,160 likely going to be impacted the most from the tariffs. 33 00:01:28,240 --> 00:01:30,120 And there's a lot of investors concerned of whether or not 34 00:01:30,120 --> 00:01:33,040 tariffs 'cause inflation, we're going to be discussing if they 35 00:01:33,040 --> 00:01:36,440 do in fact cause inflation and if so, how do we protect our 36 00:01:36,440 --> 00:01:39,400 portfolios against inflation. And then finally, over the past 37 00:01:39,400 --> 00:01:42,280 couple of years, as we've all been living our own lives, busy 38 00:01:42,280 --> 00:01:46,240 with the endeavors that were involved in Walgreens has had a 39 00:01:46,240 --> 00:01:50,560 secret battle being waged, a secret war, so to speak, with 40 00:01:50,560 --> 00:01:54,480 Walgreens and a digital refrigerator cover company. 41 00:01:54,480 --> 00:01:57,240 We'll be going over all the details of this bitter battle 42 00:01:57,240 --> 00:01:59,480 between Walgreens and this fridge company. 43 00:01:59,560 --> 00:02:01,880 Now we start off today looking at the upcoming earnings of the 44 00:02:01,880 --> 00:02:03,600 week. In order to do that, the best 45 00:02:03,600 --> 00:02:06,360 view is with the calendar that I have on Qualtrim. 46 00:02:06,640 --> 00:02:09,240 If we go to qualtrim.com, this is the website that I develop. 47 00:02:09,240 --> 00:02:10,560 It's part of the Patreon membership. 48 00:02:10,560 --> 00:02:13,320 We have this new feature here. You can look at a 5 day week 49 00:02:13,320 --> 00:02:15,200 calendar. It shows the current day 50 00:02:15,200 --> 00:02:17,360 highlighted there in blue just like Google Calendar. 51 00:02:17,640 --> 00:02:20,160 And then you have the company's reporting earnings organized by 52 00:02:20,160 --> 00:02:23,040 market cap underneath with before market open and 53 00:02:23,040 --> 00:02:25,120 aftermarket close. Now looking at Netflix 54 00:02:25,120 --> 00:02:28,040 specifically today and what I think they're going to do, we 55 00:02:28,040 --> 00:02:30,120 can take a look at some of the expectations. 56 00:02:30,120 --> 00:02:33,200 If we click on Netflix here, it opens up this drawer and we have 57 00:02:33,200 --> 00:02:36,600 this feature here called what to watch for it is AI generated. 58 00:02:36,880 --> 00:02:40,880 This is where Qualtrum feeds the AIA bunch of data specific to 59 00:02:40,880 --> 00:02:43,720 their financials, their last earnings report, and then it 60 00:02:43,720 --> 00:02:46,680 summarizes what are the most important things based on the 61 00:02:46,680 --> 00:02:49,960 commentary of the CEO that investors should be watching 62 00:02:49,960 --> 00:02:51,320 for. And it highlights some of the 63 00:02:51,320 --> 00:02:53,480 biggest key performance indicators to look at. 64 00:02:53,760 --> 00:02:56,480 For example, one of the things we know about 2024 that 65 00:02:56,480 --> 00:03:00,120 management has said is that the content slate was a little bit 66 00:03:00,360 --> 00:03:02,120 uneven. There's some months where they 67 00:03:02,120 --> 00:03:04,840 came out with a lot and some months not a lot, and that was 68 00:03:04,840 --> 00:03:06,320 mostly because of the writers strike. 69 00:03:06,680 --> 00:03:10,520 Now, they say the strategy includes a consistent drum beat 70 00:03:10,520 --> 00:03:13,000 of big title releases across various regions. 71 00:03:13,120 --> 00:03:16,240 That drum beat means that every single week, every single month, 72 00:03:16,520 --> 00:03:19,400 they're going to be consistent big releases from Netflix in 73 00:03:19,400 --> 00:03:21,440 2025. They're expanding into new 74 00:03:21,440 --> 00:03:23,600 entertainment formats. The company is actively 75 00:03:23,600 --> 00:03:26,800 investing in new initiatives including gaming and live events 76 00:03:26,800 --> 00:03:29,960 such as a Tyson Paul fight WWE broadcast. 77 00:03:30,160 --> 00:03:32,040 The expansion represents incremental growth 78 00:03:32,040 --> 00:03:34,240 opportunities. On the earnings call today, 79 00:03:34,680 --> 00:03:38,080 you're going to hear Netflix CEO's talk about this diverse 80 00:03:38,080 --> 00:03:40,720 content slate and going into the live events, you're going to 81 00:03:40,720 --> 00:03:43,240 hear a lot of analysts ask about this in the Q&A. 82 00:03:43,240 --> 00:03:46,360 They're going to want to know how did things go with the Tyson 83 00:03:46,360 --> 00:03:48,880 Paul event? How do they go with WWE? 84 00:03:48,960 --> 00:03:52,280 How many new subscribers did these big live events gain? 85 00:03:52,280 --> 00:03:54,120 Were they really profitable and bringing in a lot of 86 00:03:54,120 --> 00:03:56,560 subscribers? What's the churn rate after the 87 00:03:56,560 --> 00:03:58,840 event ends? That's a lot of the questions 88 00:03:58,840 --> 00:04:00,120 they're going to get on this call. 89 00:04:00,320 --> 00:04:03,920 The next thing of focus is the advertising tier, advertising 90 00:04:03,920 --> 00:04:06,720 grow trajectory. The ad plan's membership base is 91 00:04:06,720 --> 00:04:09,400 growing and the company expects substantial year over year 92 00:04:09,400 --> 00:04:12,360 increase in AD revenue, suggesting a strong growth 93 00:04:12,360 --> 00:04:15,200 opportunity that could become more integral part of their 94 00:04:15,200 --> 00:04:17,040 revenue stream in the upcoming years. 95 00:04:17,480 --> 00:04:20,640 Right now, the ad revenue is not the most meaningful part of 96 00:04:20,640 --> 00:04:24,080 Netflix's revenue, but with the way that it's growing, how fast 97 00:04:24,080 --> 00:04:26,760 it's growing, it should really become meaningful over time. 98 00:04:26,800 --> 00:04:29,200 Now, with Netflix's earnings report today, the biggest single 99 00:04:29,200 --> 00:04:32,040 metric that investors are going to be paying attention to is 100 00:04:32,040 --> 00:04:35,200 that subscriber number, the thing they always pay attention 101 00:04:35,200 --> 00:04:37,640 to. But today, it's more important 102 00:04:37,640 --> 00:04:40,840 than usual because it's the last time they're reporting that on 103 00:04:40,840 --> 00:04:43,600 their regular quarterly reports. Now they're going to give 104 00:04:43,600 --> 00:04:46,360 updates down the road when they hit certain landmarks, right? 105 00:04:46,360 --> 00:04:49,640 If they hit like a 50 million subscriber landmark, but they're 106 00:04:49,640 --> 00:04:52,720 no longer going to be reporting every single quarter how many 107 00:04:52,720 --> 00:04:54,240 subscribers they gained and lost. 108 00:04:54,240 --> 00:04:57,520 And against the expectations, it's going to be a blackout. 109 00:04:57,880 --> 00:05:02,120 So the way that I look at this is this is the final hoorah of 110 00:05:02,120 --> 00:05:05,160 Netflix's subscriber number before going into the abyss, 111 00:05:05,160 --> 00:05:08,840 before going into the dark. And this sets the tone for all 112 00:05:08,840 --> 00:05:12,240 of 2025. If they miss on this subscriber 113 00:05:12,240 --> 00:05:15,720 number or it comes in low, that means that they go into this 114 00:05:15,720 --> 00:05:18,840 abyss after having missed their subscriber number. 115 00:05:19,280 --> 00:05:21,400 And then investors will be concerned about their subscriber 116 00:05:21,400 --> 00:05:23,360 gain the entire rest of the year. 117 00:05:23,640 --> 00:05:27,280 So it's especially important that they do well this quarter 118 00:05:27,360 --> 00:05:29,760 today. Now I have a couple thoughts on 119 00:05:29,760 --> 00:05:32,080 what may happen in terms of predictions. 120 00:05:32,520 --> 00:05:33,960 We have the different ranges here. 121 00:05:34,480 --> 00:05:38,680 If Netflix has less than 0, if they somehow lost subscribers, 122 00:05:39,720 --> 00:05:44,640 that would be a doomsday event. The stock would be down 25% at 123 00:05:44,640 --> 00:05:47,120 least. That would be, I think, a 124 00:05:47,120 --> 00:05:51,000 reasonable down day. It'd be down 25%, maybe 30%. 125 00:05:51,360 --> 00:05:54,760 If they really lost subscriber last quarter after what they put 126 00:05:54,760 --> 00:05:58,160 out in content, that would be a significant problem. 127 00:05:58,440 --> 00:06:00,320 Investors would be incredibly concerned. 128 00:06:01,080 --> 00:06:03,600 Management would have to, you know, deal with that issue. 129 00:06:04,040 --> 00:06:05,200 I don't think that's going to happen. 130 00:06:05,200 --> 00:06:07,640 I think the chances of that happening are incredibly, 131 00:06:07,800 --> 00:06:11,640 incredibly slim. If they only gain 1 to 4 million 132 00:06:11,640 --> 00:06:14,640 subscribers, that's going to be a really weak quarter. 133 00:06:15,000 --> 00:06:16,720 It'll be great that they didn't lose. 134 00:06:16,720 --> 00:06:20,920 They're not shrinking, but I still think that's a -, 10% day. 135 00:06:21,440 --> 00:06:23,120 Really sad. If that happens, I'm going to be 136 00:06:23,120 --> 00:06:25,560 very bummed out about this earnings and the performance of 137 00:06:25,560 --> 00:06:28,280 the company. If they gain between 5:00 to 138 00:06:28,280 --> 00:06:33,240 7:00, that's just kind of a meh day, not the worst. 139 00:06:33,240 --> 00:06:36,120 It's not a doomsday event. They still grew, but that's not 140 00:06:36,120 --> 00:06:38,400 the fastest growth either. That's as fast as they grew last 141 00:06:38,400 --> 00:06:40,000 quarter. Nothing special. 142 00:06:40,320 --> 00:06:43,560 The stock might flounder around. I can't see it trading too much 143 00:06:43,560 --> 00:06:45,680 on that. It may go down a little bit if 144 00:06:45,680 --> 00:06:47,720 that's the case. I think where we get to the 145 00:06:47,720 --> 00:06:51,200 happy medium is somewhere around 8 to 10 million subscribers. 146 00:06:51,640 --> 00:06:54,920 If that happens, I'm happy as an investor, I'm satisfied. 147 00:06:54,920 --> 00:06:56,680 The company's growing. They're on track. 148 00:06:56,920 --> 00:06:59,480 That's more than they gained last quarter, not as much as 149 00:06:59,480 --> 00:07:02,960 they gained last year in Q4, but I think that would be a solid 150 00:07:02,960 --> 00:07:06,120 quarter. So I'd be happy with anything 151 00:07:06,120 --> 00:07:07,920 above 8 million subscriber gains. 152 00:07:08,480 --> 00:07:11,000 Where I'd be really thrilled with the company's performance 153 00:07:11,000 --> 00:07:14,360 if they're able to do this is 11,000,000 plus. 154 00:07:14,440 --> 00:07:18,640 If they get over that 11,000,000 mark, double digit subscriber 155 00:07:18,640 --> 00:07:22,120 gain, you know, this is that would be significant growth. 156 00:07:22,400 --> 00:07:24,440 They're headed towards 300 million subscribers. 157 00:07:24,840 --> 00:07:27,040 I would be super happy if that's the case. 158 00:07:27,160 --> 00:07:30,400 So this is basically how I break it down and my reaction to these 159 00:07:30,400 --> 00:07:32,000 different subscriber number options. 160 00:07:32,360 --> 00:07:35,480 Now, my guess is, if I have to guess, I think it's going to be 161 00:07:35,480 --> 00:07:38,760 over 8 million up to 11 + 1,000,000. 162 00:07:38,760 --> 00:07:40,720 I think it's going to be somewhere in this range. 163 00:07:41,040 --> 00:07:44,080 I'm leaning more towards 11,000,000 for a couple reasons. 164 00:07:44,560 --> 00:07:47,440 First of all, they had the Jake Paul Mike Tyson event. 165 00:07:47,880 --> 00:07:51,480 Nobody likes Jake Paul, everyone knows that, but everyone watched 166 00:07:51,480 --> 00:07:53,960 that event and a lot of people signed up for the Netflix 167 00:07:53,960 --> 00:07:56,400 service to watch that fight. Some of them of course 168 00:07:56,400 --> 00:07:59,080 cancelled, but many of them will keep it because they see all the 169 00:07:59,080 --> 00:08:01,360 other great content. Then of course you have the NFL 170 00:08:01,360 --> 00:08:03,640 live events. That was a huge event on Sunday 171 00:08:03,720 --> 00:08:06,560 broadcasting two NFL games. I think that caused a lot of 172 00:08:06,560 --> 00:08:09,800 sign ups as well. Then you had Squid Game season 2 173 00:08:10,000 --> 00:08:12,560 released the day after Christmas, which went viral all 174 00:08:12,560 --> 00:08:15,880 across the world. So we have some major, major 175 00:08:15,880 --> 00:08:18,800 content releases that just makes me believe they can get into 176 00:08:18,800 --> 00:08:20,960 that double digit, the 10 million plus. 177 00:08:21,120 --> 00:08:22,600 So again, we'll see what happens. 178 00:08:22,600 --> 00:08:25,400 In terms of my Netflix investment, I haven't sold a 179 00:08:25,400 --> 00:08:27,960 single share. I'm going into this with my full 180 00:08:27,960 --> 00:08:30,440 stake in the company and I'm willing to hold it through a 181 00:08:30,440 --> 00:08:32,280 downturn. I've proven that once before. 182 00:08:32,520 --> 00:08:34,640 I can prove it again if we have a bit of a bump now. 183 00:08:34,640 --> 00:08:37,200 Next up, we have Wednesday before market open. 184 00:08:37,200 --> 00:08:39,520 We have Ally Financial is one of the companies reporting 185 00:08:39,520 --> 00:08:41,280 earnings. This one's more interesting 186 00:08:41,280 --> 00:08:43,880 because there's a lot of different financial companies 187 00:08:43,880 --> 00:08:46,560 that have already reported earnings and I think it's going 188 00:08:46,560 --> 00:08:48,400 to be good. I think Ally Financial will be 189 00:08:48,400 --> 00:08:51,200 on the top and bottom line, they'll put out a strong report 190 00:08:51,480 --> 00:08:54,120 simply because of the reports from all the major banks. 191 00:08:54,680 --> 00:08:57,600 The indication right now is that is that the customer is strong, 192 00:08:57,640 --> 00:09:00,240 the economy strong. Things look very bullish 193 00:09:00,240 --> 00:09:02,120 overall. So when you're looking at other 194 00:09:02,120 --> 00:09:05,240 financial companies like Ally Financial or Sofi, I think 195 00:09:05,240 --> 00:09:08,120 investors right now are expecting a good quarter and I 196 00:09:08,120 --> 00:09:10,240 think they're going to get it. A huge amount of Ally 197 00:09:10,240 --> 00:09:13,920 Financial's balance sheet is based on paying off car loans, 198 00:09:13,920 --> 00:09:17,560 used car loans, and it looks like consumers are doing that. 199 00:09:17,560 --> 00:09:19,920 They're able to afford their cars, they're able to pay for 200 00:09:19,920 --> 00:09:21,240 them. So I think the trends with 201 00:09:21,240 --> 00:09:24,160 credit performance and charge off is going to be good #2 is a 202 00:09:24,160 --> 00:09:25,960 net interest margin. This quarter. 203 00:09:25,960 --> 00:09:28,400 The management has indicated that while near term 204 00:09:28,400 --> 00:09:32,080 fluctuations are expected due to changes in deposit pricing and 205 00:09:32,080 --> 00:09:35,640 interest rates, favorable margin dynamics from the shift towards 206 00:09:35,640 --> 00:09:38,800 high yielding auto loans and reduction in low yielding assets 207 00:09:38,800 --> 00:09:41,680 may support net interest margin expansion over time. 208 00:09:42,040 --> 00:09:44,760 So we can look to see the trajectory of the net interest 209 00:09:44,760 --> 00:09:47,080 margin, super important metric for banks. 210 00:09:47,440 --> 00:09:50,200 Another thing specific to Ally Financial is their accounting 211 00:09:50,200 --> 00:09:52,360 changes. They say a shift from the flow 212 00:09:52,360 --> 00:09:55,720 through method to a deferral method would allow for a 213 00:09:55,720 --> 00:09:58,800 smoother earnings path by spreading the recognition of EV 214 00:09:58,880 --> 00:10:00,960 tax credits throughout the life of the leases. 215 00:10:01,640 --> 00:10:04,040 So it's no longer going to be the lumpy tax credits all in one 216 00:10:04,040 --> 00:10:05,720 quarter. They're kind of doing this 217 00:10:05,720 --> 00:10:08,760 amortized schedule type of thing where they flow out through 218 00:10:08,760 --> 00:10:11,280 quarter after quarter. And the predictability of the 219 00:10:11,280 --> 00:10:14,680 loss rates and delinquencies. Management has noted even though 220 00:10:14,680 --> 00:10:17,600 the long trend remains strong, there's going to be some 221 00:10:17,600 --> 00:10:19,920 volatility in this. So expect this to be a little 222 00:10:19,920 --> 00:10:22,400 bit volatile this quarter. Again, most of the companies 223 00:10:22,400 --> 00:10:25,080 we're looking at in the fintech space, I expect their earnings 224 00:10:25,080 --> 00:10:27,840 to be strong. Ally Financial is no different. 225 00:10:28,080 --> 00:10:31,560 Even though they're working with auto loans of used cars, I still 226 00:10:31,680 --> 00:10:33,880 building that consumer group is stronger than usual. 227 00:10:34,000 --> 00:10:36,360 When we look at the other notable earnings this week on 228 00:10:36,360 --> 00:10:38,600 Thursday, we have FICO. This is one of the most 229 00:10:38,600 --> 00:10:41,400 incredible stories of a company over the past five years. 230 00:10:41,400 --> 00:10:44,760 It's been a true compounding machine with unmitigated pricing 231 00:10:44,760 --> 00:10:47,720 power and we have a couple different factors to look for. 232 00:10:47,920 --> 00:10:50,560 I want to highlight two of them. As they grow, they keep their 233 00:10:50,560 --> 00:10:53,200 margins very high and they try to raise their margins. 234 00:10:53,480 --> 00:10:56,760 This leads them into extensive share repurchasing. 235 00:10:57,080 --> 00:11:00,320 This is the story behind FICO. They grow the revenue, they grow 236 00:11:00,320 --> 00:11:02,640 the margins, and they funnel that money back into share 237 00:11:02,640 --> 00:11:04,560 repurchases. The company reported a 238 00:11:04,560 --> 00:11:08,560 significant 31% year over year increase in free cash flow to 239 00:11:08,560 --> 00:11:11,760 607 million. FICO has been actively returning 240 00:11:11,760 --> 00:11:14,400 capital to shareholders, but it highlights an issue here. 241 00:11:14,720 --> 00:11:17,560 It's repurchasing shares at higher average prices. 242 00:11:17,840 --> 00:11:20,480 Investors should observe Fico's free cash flow generation in the 243 00:11:20,480 --> 00:11:22,640 current quarter and any potential further share 244 00:11:22,640 --> 00:11:25,320 repurchase activity as these factors contribute to 245 00:11:25,320 --> 00:11:27,560 shareholder value. One of the big issues I have for 246 00:11:27,560 --> 00:11:29,840 FICO is that the share repurchase strategy works 247 00:11:29,840 --> 00:11:32,840 particularly well for companies that are undervalued. 248 00:11:33,120 --> 00:11:35,880 So if a company is trading on a low PE ratio, the share 249 00:11:35,880 --> 00:11:38,960 repurchases really bump up their earnings and grow their earnings 250 00:11:38,960 --> 00:11:40,560 per share over time at a rapid pace. 251 00:11:40,880 --> 00:11:43,640 But the PE ratio that Fico's trading at means that the share 252 00:11:43,640 --> 00:11:46,400 repurchases are less impactful. Now, again, my guess is that 253 00:11:46,400 --> 00:11:47,960 Fico's earnings are going to be strong. 254 00:11:48,200 --> 00:11:51,000 There's still the de facto default that everyone uses for 255 00:11:51,000 --> 00:11:54,520 home origination and the home sales, even though they slowed, 256 00:11:54,520 --> 00:11:57,120 they've kind of bottom out and in some places they're starting 257 00:11:57,120 --> 00:11:59,480 to speed back up. Now at the same time, Thursday 258 00:11:59,480 --> 00:12:02,120 before market open, we have Intel giving us a look at their 259 00:12:02,120 --> 00:12:04,480 earnings, showing us what's been going on for the past three 260 00:12:04,480 --> 00:12:06,360 months. Intel has a lot of problems to 261 00:12:06,360 --> 00:12:08,080 solve. They're focusing on cost 262 00:12:08,080 --> 00:12:11,920 reduction and improving efficiency, maximizing the X86 263 00:12:11,920 --> 00:12:14,440 franchise value, deployment of the advanced nodes, 264 00:12:14,440 --> 00:12:17,280 restructuring impact for financial outlook and 265 00:12:17,280 --> 00:12:19,480 advancements in AI and foundry businesses. 266 00:12:19,560 --> 00:12:21,320 It again leads me to the same conclusion. 267 00:12:21,400 --> 00:12:25,080 Intel right now is a mess. The company is so complex. 268 00:12:25,080 --> 00:12:27,640 They have their hands in so many different things and they're not 269 00:12:27,640 --> 00:12:30,760 executing that well on any individual thing for this 270 00:12:30,760 --> 00:12:32,400 company. They're being beaten out by 271 00:12:32,400 --> 00:12:35,480 NVIDIA and AMD. I think the AMD right now is 272 00:12:35,480 --> 00:12:38,520 stealing their lunch. They are losing contracts with 273 00:12:38,520 --> 00:12:41,120 different big companies all the time and it's a turn around 274 00:12:41,120 --> 00:12:43,040 play. Turn around plays are very 275 00:12:43,040 --> 00:12:45,120 difficult. If you're invested in Intel, I 276 00:12:45,120 --> 00:12:47,280 think you need to be careful. The last company we'll look at 277 00:12:47,280 --> 00:12:50,240 reporting this week is American Express reporting Friday before 278 00:12:50,240 --> 00:12:52,320 market open. And I am very bullish going into 279 00:12:52,320 --> 00:12:54,240 this earnings. I think it's an easy call. 280 00:12:54,320 --> 00:12:56,640 They're focusing on expanding and refreshing their product 281 00:12:56,640 --> 00:12:58,720 line. It notes here that from the CEO, 282 00:12:58,720 --> 00:13:02,520 American Express has refreshed 40 products globally within the 283 00:13:02,520 --> 00:13:05,880 year, aiming to enhance value for existing members and attract 284 00:13:05,880 --> 00:13:07,920 new ones. The card fee revenues grew by 285 00:13:07,920 --> 00:13:11,080 18% last quarter. The company's ability to acquire 286 00:13:11,080 --> 00:13:15,160 3.3 million new cards with a particular focus on millennials 287 00:13:15,200 --> 00:13:17,640 and Gen. Z is a testament to the success 288 00:13:17,640 --> 00:13:20,040 of their strategy. American Express is growing in 289 00:13:20,040 --> 00:13:21,800 market share with the younger crowd. 290 00:13:21,920 --> 00:13:25,040 And then finally, an area that they're expanding into is dining 291 00:13:25,080 --> 00:13:27,480 technology. The focus on expanding dining 292 00:13:27,480 --> 00:13:30,160 capabilities shown by acquisitions of Rezi and Talk 293 00:13:30,400 --> 00:13:32,440 presented significant growth opportunities. 294 00:13:32,440 --> 00:13:35,640 Since dining is one of the fastest growing T&E categories 295 00:13:35,640 --> 00:13:38,840 and strategic investment area for differentiation, investors 296 00:13:38,840 --> 00:13:41,000 should assess how these developments might influence 297 00:13:41,280 --> 00:13:44,880 customer spend and engagement, especially amongst younger card 298 00:13:44,880 --> 00:13:46,480 members. So American Express has 299 00:13:46,480 --> 00:13:49,720 identified this somewhat niche area of growth in dining 300 00:13:49,720 --> 00:13:51,480 technology. They're putting significant 301 00:13:51,480 --> 00:13:53,440 investments behind that. I think their earnings are going 302 00:13:53,440 --> 00:13:55,040 to be great, but we'll have to wait and see. 303 00:13:55,040 --> 00:13:56,320 Now. Next, we get to the news that 304 00:13:56,320 --> 00:13:57,600 Trump has finally taken in office. 305 00:13:57,600 --> 00:13:59,280 Once again. You may have heard the news. 306 00:13:59,760 --> 00:14:02,560 Now the big question for investors is what does this mean 307 00:14:02,560 --> 00:14:04,720 for various stocks? And one of the biggest points of 308 00:14:04,720 --> 00:14:07,480 contention have been the impacts of tariffs. 309 00:14:07,480 --> 00:14:09,480 And based on what Trump has talked about for the past couple 310 00:14:09,480 --> 00:14:12,560 of years, he is implementing tariffs at least to some degree. 311 00:14:12,600 --> 00:14:15,520 China's the largest furniture exporter in the globe. 312 00:14:15,840 --> 00:14:20,920 In 2023, thirty, $2.4 billion in furniture was imported into the 313 00:14:20,960 --> 00:14:23,920 US 29% of that came from China alone. 314 00:14:24,040 --> 00:14:26,880 So in terms of furniture exports, China's the biggest 315 00:14:26,880 --> 00:14:29,440 country, but Vietnam is also not small. 316 00:14:29,440 --> 00:14:31,320 They're actually just behind China, which is kind of 317 00:14:31,320 --> 00:14:33,080 surprising. I want to have guessed that. 318 00:14:33,080 --> 00:14:35,560 But a lot of furniture comes from Vietnam. 319 00:14:35,880 --> 00:14:39,960 So they may gain some business if we have some severe tariffs 320 00:14:39,960 --> 00:14:42,160 on China that we don't have on Vietnam. 321 00:14:42,240 --> 00:14:44,920 Another big industry that could be impacted by the tariffs is 322 00:14:44,920 --> 00:14:47,480 the beauty industry. For example, Elf Beauty makes 323 00:14:47,480 --> 00:14:52,280 around 80% of its products from that region, so this is a huge 324 00:14:52,280 --> 00:14:55,840 percentage of exposure to China. Mexico creates a lot of cars, 325 00:14:55,840 --> 00:14:58,840 bear and avocados, so we can see that impacting various 326 00:14:58,840 --> 00:15:00,600 companies. I don't invest in the auto 327 00:15:00,600 --> 00:15:03,440 industry anyways, so this isn't going to impact My Portfolio too 328 00:15:03,440 --> 00:15:05,320 much. Canada's a huge exporter to the 329 00:15:05,320 --> 00:15:07,120 US as well, so that would have a big impact. 330 00:15:07,160 --> 00:15:09,400 So we could see how this impacts different industries. 331 00:15:09,400 --> 00:15:12,800 The auto industry outside of the US could become more expensive. 332 00:15:13,120 --> 00:15:15,560 We have different various food prices going up. 333 00:15:15,720 --> 00:15:19,160 We have beauty products, home furniture and toys that are sold 334 00:15:19,160 --> 00:15:22,120 on Amazon and other places may go up in price. 335 00:15:22,640 --> 00:15:25,800 Now how does this affect your portfolio is a different 336 00:15:25,800 --> 00:15:27,680 question. Overall, this is going to be 337 00:15:27,680 --> 00:15:30,320 spread out across lots of different products, but most of 338 00:15:30,320 --> 00:15:33,520 them that I look at won't have a direct impact on My Portfolio. 339 00:15:34,160 --> 00:15:37,400 Now the big question or concern that many investors have is what 340 00:15:37,400 --> 00:15:39,040 does this mean in terms of inflation? 341 00:15:39,440 --> 00:15:42,040 A lot of people believe that if something becomes more 342 00:15:42,040 --> 00:15:45,040 expensive, that's inflation. That just means that inflation 343 00:15:45,040 --> 00:15:46,960 happened. That's not really the full 344 00:15:46,960 --> 00:15:48,600 story. When we look at different 345 00:15:48,600 --> 00:15:51,760 comments like this one's from so-called experts, we have one 346 00:15:51,760 --> 00:15:55,080 of them here saying all of these actions are inflationary. 347 00:15:55,440 --> 00:15:57,680 You have to pay the piper somewhere. 348 00:15:58,040 --> 00:16:00,880 And this is the sentiment that a lot of people share that I 349 00:16:00,880 --> 00:16:03,960 completely disagree with. I don't believe that tariffs in 350 00:16:03,960 --> 00:16:05,720 and of themselves are inflationary. 351 00:16:06,040 --> 00:16:08,320 And I think the people that believe that tariffs in and of 352 00:16:08,320 --> 00:16:11,040 themselves are inflationary don't understand what creates 353 00:16:11,040 --> 00:16:13,360 inflation. When we look at what Scott 354 00:16:13,360 --> 00:16:16,280 Besson said on this subject, I think he's the most accurate. 355 00:16:16,560 --> 00:16:19,600 He says that tariffs can't be inflationary because the price 356 00:16:19,600 --> 00:16:21,880 of one thing goes up. Unless you get people more 357 00:16:21,880 --> 00:16:24,800 money, they have less money to spend on the other thing. 358 00:16:25,040 --> 00:16:28,120 So there is no inflation. The inflation comes through 359 00:16:28,120 --> 00:16:31,240 either increasing the money supply or increasing government 360 00:16:31,240 --> 00:16:33,360 spending. Over the past 20 years, the only 361 00:16:33,360 --> 00:16:35,920 times that we've had big inflation spikes is when we gave 362 00:16:35,920 --> 00:16:38,640 people trillions of dollars from the government. 363 00:16:38,920 --> 00:16:43,120 We loaded people with cash to spend immediately at a time 364 00:16:43,120 --> 00:16:45,360 where there wasn't much production of goods and 365 00:16:45,360 --> 00:16:47,240 services. So we increased demand 366 00:16:47,240 --> 00:16:49,920 dramatically while shutting down supply. 367 00:16:50,440 --> 00:16:53,240 Any time you have that type of equation where you're increasing 368 00:16:53,240 --> 00:16:56,680 demand and closing off supply, you're going to spur a lot of 369 00:16:56,680 --> 00:16:58,120 inflation. And that's what we had in 370 00:16:58,120 --> 00:17:02,160 2020-2021. We saw the inflation ramp up as 371 00:17:02,160 --> 00:17:04,280 people got trillions of dollars of spending money. 372 00:17:04,440 --> 00:17:08,280 Student loans were halted, everyone had excess capital, and 373 00:17:08,280 --> 00:17:10,839 there wasn't a lot of goods and services because supply chains 374 00:17:10,839 --> 00:17:12,839 were shut down. And I don't believe there's any 375 00:17:12,839 --> 00:17:15,400 reason to believe that some items being slightly more 376 00:17:15,400 --> 00:17:18,480 expensive because of tariffs are going to have anywhere the same 377 00:17:18,480 --> 00:17:21,000 impact as giving away trillions of dollars. 378 00:17:21,160 --> 00:17:23,920 Now, even though I don't believe that these tariffs are going to 379 00:17:23,920 --> 00:17:27,240 cause a huge spike in inflation, it is true that inflation 380 00:17:27,240 --> 00:17:30,120 happens all the time. Every single year things get a 381 00:17:30,120 --> 00:17:32,880 little bit more expensive and the value of the dollar gets a 382 00:17:32,880 --> 00:17:35,640 little bit less buying power. And they're natural hedge 383 00:17:35,640 --> 00:17:37,800 against inflation with two different things. 384 00:17:38,120 --> 00:17:41,600 One of them is having a revenue that can pass along the cost to 385 00:17:41,600 --> 00:17:44,280 customers and another one is having pricing power. 386 00:17:44,280 --> 00:17:46,240 And I'll show you examples of each of those. 387 00:17:46,720 --> 00:17:49,280 So first of all, we have the companies that pass along the 388 00:17:49,280 --> 00:17:51,960 cost to the customer. These are companies like 389 00:17:51,960 --> 00:17:54,600 MasterCard. If you look at MasterCard, Visa, 390 00:17:54,600 --> 00:17:57,520 American Express, these companies make their money by 391 00:17:57,520 --> 00:18:00,040 taking a percentage of all revenue, all the different 392 00:18:00,040 --> 00:18:03,040 digital transactions. Inflation means the prices of 393 00:18:03,040 --> 00:18:05,280 things go up. MasterCard makes more money 394 00:18:05,280 --> 00:18:07,200 because they're charging a percentage based. 395 00:18:07,560 --> 00:18:11,680 So this company is very much a natural hedge against inflation. 396 00:18:11,720 --> 00:18:14,360 Another company that is a natural hedge against inflation 397 00:18:14,800 --> 00:18:17,360 is Costco. Prices of goods and services go 398 00:18:17,360 --> 00:18:19,840 up. Costco passes those costs right 399 00:18:19,840 --> 00:18:22,440 along to the customer. They try to get the lowest price 400 00:18:22,440 --> 00:18:25,560 possible, but either way they're going to pass along that cost. 401 00:18:25,680 --> 00:18:28,040 The other type of company that's good inflation hedge is one that 402 00:18:28,040 --> 00:18:30,760 has pricing power. Simply put, they offer products 403 00:18:30,760 --> 00:18:34,080 and services so good that they can price things however they 404 00:18:34,080 --> 00:18:35,840 want because they have a value surplus. 405 00:18:36,320 --> 00:18:38,600 Amazon can do that with their Amazon Prime membership. 406 00:18:38,960 --> 00:18:41,040 They raised it and no one really noticed. 407 00:18:41,040 --> 00:18:43,040 And Netflix can do the same thing with their subscription 408 00:18:43,040 --> 00:18:44,520 service. They continually raise the 409 00:18:44,520 --> 00:18:47,520 prices over time above the rate of inflation because their 410 00:18:47,520 --> 00:18:50,800 product and service is so good that very few people cancel. 411 00:18:50,800 --> 00:18:53,840 So to me, whether or not tariffs cause inflation or the extent 412 00:18:53,840 --> 00:18:55,480 that they do doesn't really matter. 413 00:18:55,720 --> 00:18:58,960 My Portfolio across the board is well prepared for inflation, 414 00:18:59,200 --> 00:19:01,720 whether it happens or not. Now, finally, we get to the news 415 00:19:01,720 --> 00:19:04,920 of this silent and bitter battle that's been fought for the past 416 00:19:04,920 --> 00:19:07,480 couple of years. For years you've been living 417 00:19:07,480 --> 00:19:10,720 your own life, involved in the news and politics of the day. 418 00:19:10,720 --> 00:19:15,120 And while all that's going on, Walgreens has been at war, 419 00:19:15,440 --> 00:19:19,400 fighting against a company that is a digital refrigerator 420 00:19:19,400 --> 00:19:21,840 display company. I'm not joking. 421 00:19:21,880 --> 00:19:23,760 This is it's not a joke. It's not satire. 422 00:19:23,760 --> 00:19:27,040 This is real news. This company that creates these 423 00:19:27,680 --> 00:19:31,240 fridge covers, I can give you an idea of what they look like. 424 00:19:31,240 --> 00:19:34,000 We have a picture of them here. So normally you go to the 425 00:19:34,000 --> 00:19:37,440 grocery store or you go to Walgreens and you just see clear 426 00:19:37,440 --> 00:19:39,880 glass and you get to see what's inside of the fridge. 427 00:19:40,360 --> 00:19:43,840 Well, Walgreens management said that works too well. 428 00:19:44,280 --> 00:19:47,240 It's too good of a system. It's too well proven. 429 00:19:47,560 --> 00:19:50,200 Customers like it too much. They like being able to just see 430 00:19:50,200 --> 00:19:53,000 what's in the fridge so they can open and grab what looks 431 00:19:53,000 --> 00:19:56,160 appetizing to them. So because it's not broken and 432 00:19:56,160 --> 00:19:58,640 it works so well, let's try to fix it. 433 00:19:59,480 --> 00:20:02,360 And the goal here was to basically make it so that you 434 00:20:02,360 --> 00:20:05,880 can advertise on your fridge panels so that they could turn 435 00:20:05,880 --> 00:20:09,360 this into an ad revenue thing where they could sell ad space 436 00:20:09,360 --> 00:20:12,120 and different animated things and make money that way. 437 00:20:12,720 --> 00:20:15,720 They saw that Amazon is making a fortune through advertising 438 00:20:15,760 --> 00:20:18,000 revenue. Walgreens wanted in on that 439 00:20:18,000 --> 00:20:19,880 money. They instead wanted to advertise 440 00:20:19,880 --> 00:20:22,000 on the real estate of their fridges, and along came this 441 00:20:22,000 --> 00:20:24,160 company that offered that solution. 442 00:20:24,160 --> 00:20:27,160 This company came along offering these smart doors that obscured 443 00:20:27,160 --> 00:20:28,760 shoppers. You have the fridge's actual 444 00:20:28,760 --> 00:20:32,280 contents, replacing them with virtual rows of Gatorade, Bagel 445 00:20:32,280 --> 00:20:34,280 Bites, and other goods that promised were inside. 446 00:20:34,320 --> 00:20:37,480 When proximity sensors detected passerby's, the fridge doors 447 00:20:37,480 --> 00:20:40,840 would start playing short videos of Hawking Doritos or urging 448 00:20:40,960 --> 00:20:42,640 customers to check out with Apple Pay. 449 00:20:42,920 --> 00:20:46,840 Problems started in December 2023 when all the screens went 450 00:20:46,840 --> 00:20:48,640 blank. At first, the outage didn't 451 00:20:48,640 --> 00:20:50,960 arouse suspicion. These Internet connected fridge 452 00:20:50,960 --> 00:20:54,160 panels, developed by Chicago startup called Cooler Screens, 453 00:20:54,400 --> 00:20:57,320 frequently flickered, crashed or showed the wrong product. 454 00:20:57,520 --> 00:21:00,440 Every so often they caught fire, but store managers were stuck 455 00:21:00,440 --> 00:21:04,720 with them as part of a 10 year contract with Walgreens for 456 00:21:04,720 --> 00:21:08,680 split revenue of the ads. So this business came in, they 457 00:21:08,680 --> 00:21:11,440 advertised this great product that would cover up all the the 458 00:21:11,440 --> 00:21:13,600 fridges with these new digital displays. 459 00:21:14,120 --> 00:21:17,040 They had problems like flickering, going blank or 460 00:21:17,040 --> 00:21:21,160 Catching Fire and they got in with a 10 year agreement. 461 00:21:21,520 --> 00:21:24,440 So Walgreens has been stuck with these things, dealing with this 462 00:21:24,920 --> 00:21:28,920 horrendously terrible technology making their stores worse for 463 00:21:28,920 --> 00:21:30,800 everyone. Cooler Screens had installed 464 00:21:30,800 --> 00:21:34,520 10,000 smart doors at hundreds of US locations like this one. 465 00:21:34,800 --> 00:21:37,000 It planned to install 35,000 more. 466 00:21:37,040 --> 00:21:39,120 By this point, Walgreens had already tried to pull out of the 467 00:21:39,120 --> 00:21:41,800 deal and get rid of the doors, blaming what it said was glitchy 468 00:21:41,800 --> 00:21:44,040 hardware and software. But Cooler Screens had 469 00:21:44,040 --> 00:21:47,240 temporarily prevented their removal by prior June by suing 470 00:21:47,240 --> 00:21:50,120 Walgreens for breach of contract, seeking $200 million 471 00:21:50,120 --> 00:21:52,360 and demanding its screens stay in place. 472 00:21:52,400 --> 00:21:54,840 Unreported until now. Over the ensuing months of legal 473 00:21:54,920 --> 00:21:57,760 battling, during which Walgreens had counter suit for monetary 474 00:21:57,760 --> 00:22:01,680 damages, Cooler Screens chief executive officer decided to try 475 00:22:01,680 --> 00:22:05,720 a different form of push back. So the CEO of this digital 476 00:22:05,720 --> 00:22:08,960 screen company, in this bitter legal battle between these 477 00:22:08,960 --> 00:22:12,640 companies, he decides a new tactic, and that's to simply 478 00:22:12,640 --> 00:22:15,760 make all the screens go blank. He intentionally inflicted 479 00:22:15,760 --> 00:22:19,000 damage on Walgreens business. The team secretly cut the data 480 00:22:19,000 --> 00:22:21,040 feeds of more than 100 stores in Chicago. 481 00:22:21,360 --> 00:22:24,480 The dozen or so smart doors affected in each of these stores 482 00:22:24,920 --> 00:22:28,320 either glazed over with a white pixel or blacked out altogether. 483 00:22:28,720 --> 00:22:31,200 So they just shut off the screens on all these 484 00:22:31,240 --> 00:22:33,760 refrigerators. Customers could no longer see 485 00:22:33,760 --> 00:22:37,640 where the Coke and Red Bull and Hot Pockets and Heineken SAT and 486 00:22:37,680 --> 00:22:40,440 either assume the fridges were out of order or found themselves 487 00:22:40,680 --> 00:22:42,440 rummaging through them one by one. 488 00:22:42,760 --> 00:22:46,440 Some staffers pasted pieces of paper on opaque screens that 489 00:22:46,440 --> 00:22:49,400 read, for example, a sort of drinks or coffee. 490 00:22:49,560 --> 00:22:52,600 Others filed service requests with the company cooler screens, 491 00:22:52,920 --> 00:22:55,880 which have been marking all incoming complaints as resolved 492 00:22:55,880 --> 00:22:58,840 without fixing anything. These scumbags, these guys 493 00:22:58,840 --> 00:23:02,400 running this company, first of all, they they sell Walgreens on 494 00:23:02,400 --> 00:23:03,920 this software. They say it's going to be great. 495 00:23:03,920 --> 00:23:05,640 They say that we're going to split the ad revenue. 496 00:23:05,640 --> 00:23:07,360 You're going to be able to be like Amazon. 497 00:23:07,360 --> 00:23:09,360 You're going to be able to advertise in your store. 498 00:23:09,600 --> 00:23:11,760 Customers are going to love it. It's going to trend online. 499 00:23:12,160 --> 00:23:15,680 Some of that kind of happened. There is some novelty to it. 500 00:23:15,960 --> 00:23:19,640 Some of it went viral online, but then it was met with faulty 501 00:23:19,640 --> 00:23:23,120 software having items marked here that weren't really in the 502 00:23:23,120 --> 00:23:26,240 fridge, making customers upset. And then there was glitchiness 503 00:23:26,240 --> 00:23:29,840 with the screens going black as they went back and forth suing 504 00:23:29,840 --> 00:23:32,440 each other with Walgreens trying to exit out of this agreement. 505 00:23:32,880 --> 00:23:36,440 This company went so far as to intentionally shut down the data 506 00:23:36,440 --> 00:23:40,240 feed and make hundreds of Walgreens locations have a blank 507 00:23:40,240 --> 00:23:42,400 door or it just turned completely black. 508 00:23:43,000 --> 00:23:45,800 And then when Walgreens said, hey, we've got to fix this, 509 00:23:46,120 --> 00:23:48,760 we're filling out these service requests, they literally just 510 00:23:48,760 --> 00:23:50,520 marked them as complete without doing anything. 511 00:23:50,600 --> 00:23:53,360 Now this story goes on from Bloomberg for like another 50 512 00:23:53,360 --> 00:23:56,640 pages detailing out one of the most extensive battles I've seen 513 00:23:56,640 --> 00:23:59,320 between two different companies, to the point where Walgreens 514 00:23:59,320 --> 00:24:02,680 literally just started ripping the door screens off, replacing 515 00:24:02,680 --> 00:24:05,560 them with standard glass, even though the judge told them not 516 00:24:05,560 --> 00:24:06,960 to. They're willing to just do what 517 00:24:06,960 --> 00:24:09,480 they want now and ask for forgiveness later rather than 518 00:24:09,480 --> 00:24:12,400 deal with this company anymore. So as this company's dealing 519 00:24:12,400 --> 00:24:15,480 with the normal challenges of being destroyed by Amazon, 520 00:24:15,760 --> 00:24:19,400 having their entire business being taken over by by Amazon, 521 00:24:19,400 --> 00:24:22,520 and dealing with stuff like lawsuits against the Department 522 00:24:22,520 --> 00:24:25,640 of Justice for opioid prescriptions, all these various 523 00:24:25,640 --> 00:24:27,840 challenges they're already dealing with, They also made a 524 00:24:27,840 --> 00:24:30,440 massive unforced error by wrapping themselves into legal 525 00:24:30,440 --> 00:24:32,880 battles with a refrigerator screen company. 526 00:24:33,040 --> 00:24:35,280 I said for a long time, Walgreens is a terrible 527 00:24:35,280 --> 00:24:37,080 investment. I don't know why people are 528 00:24:37,080 --> 00:24:38,800 buying that stock when Amazon exists. 529 00:24:38,800 --> 00:24:40,600 That's all for this episode. See in the next one.