1 00:00:00,040 --> 00:00:02,000 Welcome back, everyone. Today on the Joseph Carlson 2 00:00:02,000 --> 00:00:03,760 Show. Google is a monopoly. 3 00:00:03,760 --> 00:00:06,640 This is something that we've all understood to some degree over 4 00:00:06,640 --> 00:00:08,720 the past decade. The company's highly 5 00:00:08,720 --> 00:00:11,400 monopolistic with their search engine and with YouTube. 6 00:00:11,720 --> 00:00:14,160 But now it's official. It's in writing. 7 00:00:14,400 --> 00:00:16,640 The Department of Justice won their case. 8 00:00:16,640 --> 00:00:19,680 The judge ruled that Google monopolized search through 9 00:00:19,680 --> 00:00:22,960 illegal deals. This is a very long, detailed, 10 00:00:23,000 --> 00:00:26,560 rigorous ruling from the judge. There's a lot to break down with 11 00:00:26,560 --> 00:00:28,560 this ruling. First of all, now that Google's 12 00:00:28,560 --> 00:00:31,680 labeled as a monopoly, there needs to be a remedy. 13 00:00:31,880 --> 00:00:34,960 What does that remedy mean? How does it impact the company? 14 00:00:35,000 --> 00:00:37,880 How will it impact the revenues and operating profits of Google? 15 00:00:37,880 --> 00:00:39,840 What does it mean for future competition? 16 00:00:39,840 --> 00:00:42,880 We have different search products like Search GPT coming 17 00:00:42,880 --> 00:00:45,640 out from Open AI. Is Google going to have to 18 00:00:45,640 --> 00:00:49,040 compete more fiercely with them? Did the judge take into account 19 00:00:49,040 --> 00:00:51,080 these new competitors? We'll be looking at how this 20 00:00:51,080 --> 00:00:53,680 will impact Google from an investment perspective and how 21 00:00:53,680 --> 00:00:55,800 it impacts their partners. ALE. 22 00:00:55,800 --> 00:00:58,240 This lawsuit from the DOJ wasn't against ALE. 23 00:00:58,240 --> 00:01:01,800 They're not claiming that Apples monopoly here, but ALE has done 24 00:01:01,800 --> 00:01:05,720 business with the monopoly. Google and Apple's profiting 25 00:01:05,720 --> 00:01:09,600 dramatically from this business to the tune of $20 billion per 26 00:01:09,600 --> 00:01:11,080 year. At least. 27 00:01:11,120 --> 00:01:13,600 Apple's a highly profitable company, but the amount of cash 28 00:01:13,600 --> 00:01:16,880 flow they make is around $100 billion per year. 29 00:01:17,240 --> 00:01:20,840 So if you took away 20 billion of that, that's roughly 1/5 of 30 00:01:20,840 --> 00:01:23,600 their total profit. Putting this relationship in 31 00:01:23,600 --> 00:01:26,800 jeopardy not only has big implications for Google, but it 32 00:01:26,800 --> 00:01:29,360 does for Apple as well. We'll be breaking down the math 33 00:01:29,360 --> 00:01:32,320 of how this may impact both Google and Apple. 34 00:01:32,400 --> 00:01:33,680 Now, of course, we have some other news. 35 00:01:33,680 --> 00:01:37,160 Airbnb shares have fallen at 14% after reporting earnings. 36 00:01:37,320 --> 00:01:40,320 The company has warned that there's slowing demand in the US 37 00:01:40,320 --> 00:01:42,240 market. We have news that Disney finally 38 00:01:42,240 --> 00:01:44,440 posted their first ever streaming profit. 39 00:01:44,800 --> 00:01:49,160 So now Disney Plus, Hulu, ESPN Plus, all of that is finally 40 00:01:49,160 --> 00:01:51,840 profitable, even if it's by a tiny amount. 41 00:01:51,840 --> 00:01:54,560 And finally, we have an update on the ongoing fallout of the 42 00:01:54,560 --> 00:01:57,400 Crowdstrike outage. Delta Airlines has sued 43 00:01:57,400 --> 00:02:00,520 Crowdstrike and Microsoft, but Microsoft and Crowdstrike are 44 00:02:00,520 --> 00:02:03,560 both pushing back on Delta saying that it's actually their 45 00:02:03,560 --> 00:02:07,120 fault that they they declined repeated offers for help when 46 00:02:07,120 --> 00:02:09,199 the outage begin. Who's really at fault here? 47 00:02:09,280 --> 00:02:10,960 We'll be finding out. So we're going to be going over 48 00:02:10,960 --> 00:02:13,600 all of that plus much more. And if you like this type of 49 00:02:13,600 --> 00:02:15,720 content, you can also check out the Patreon. 50 00:02:15,880 --> 00:02:19,160 I have long format exclusive videos being released every 51 00:02:19,160 --> 00:02:21,840 single week on Patreon. 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Now let's go ahead and jump in. 62 00:02:48,800 --> 00:02:51,760 This has been a crazy week with a lot of volatility and a lot of 63 00:02:51,760 --> 00:02:54,040 news. But perhaps the biggest news of 64 00:02:54,040 --> 00:02:58,080 the week is Google finally officially lost their Department 65 00:02:58,080 --> 00:03:01,160 of Justice case that accused them of being a monopoly. 66 00:03:01,200 --> 00:03:04,160 The case concluded that Google illegally monopolized the search 67 00:03:04,160 --> 00:03:07,120 market through exclusive deals, the judge ruled on Monday, 68 00:03:07,200 --> 00:03:10,360 handing the government a win in its first major antitrust case 69 00:03:10,600 --> 00:03:12,840 against a tech giant in more than two decades. 70 00:03:12,960 --> 00:03:15,000 The most recent one before this was Microsoft. 71 00:03:15,000 --> 00:03:18,560 The judge said that Google's paying a combined $26 billion in 72 00:03:18,560 --> 00:03:21,720 payments to make it search engine the default option on 73 00:03:21,720 --> 00:03:25,000 smartphones and web browsers, effectively blocking any other 74 00:03:25,000 --> 00:03:26,760 competitor from succeeding in the market. 75 00:03:27,040 --> 00:03:29,800 Quote Google's distribution agreements foreclose a 76 00:03:29,840 --> 00:03:33,160 substantial portion of the general search service market 77 00:03:33,440 --> 00:03:35,680 and impairs rivals opportunities to compete. 78 00:03:35,760 --> 00:03:39,120 This ruling is massively detailed and rigorous. 79 00:03:39,320 --> 00:03:44,680 It covers every single nuance and concerned it's 286 pages. 80 00:03:44,800 --> 00:03:47,880 So this is a thorough ruling against Google unlikely to be 81 00:03:47,880 --> 00:03:50,080 overturned. By monopolizing distribution on 82 00:03:50,080 --> 00:03:52,880 phones and browsers, Google has been able to consistently raise 83 00:03:52,880 --> 00:03:55,920 prices for online advertising without consequences. 84 00:03:56,400 --> 00:03:57,840 Quote. The trial evidence firmly 85 00:03:57,840 --> 00:04:00,280 established that Google's monopoly power, maintained by 86 00:04:00,280 --> 00:04:03,080 exclusive distribution agreements, has enabled Google 87 00:04:03,080 --> 00:04:06,240 to increase text ad prices without any meaningful 88 00:04:06,240 --> 00:04:08,600 competitive constraint. Now on Bloomberg, they continue 89 00:04:08,600 --> 00:04:11,960 to rehash the same thing, that this is a monumental win for the 90 00:04:11,960 --> 00:04:14,680 American people, for the government, and this is a loss 91 00:04:14,680 --> 00:04:16,640 for Google. But when looking at this case 92 00:04:16,640 --> 00:04:19,720 with this loss for Google, what does it actually mean? 93 00:04:19,880 --> 00:04:22,880 What does Google actually lose? What is the remedy here? 94 00:04:22,920 --> 00:04:25,520 That seems to be the big question that's not yet 95 00:04:25,520 --> 00:04:27,840 answered. The Justice Department hasn't 96 00:04:27,840 --> 00:04:29,720 yet said what changes it will seek. 97 00:04:29,720 --> 00:04:33,280 So the DOJ has said so far, Google, you're a big, bad 98 00:04:33,280 --> 00:04:35,600 monopoly. You have defaulted yourself 99 00:04:35,600 --> 00:04:37,720 everywhere. You have boxed out competition, 100 00:04:37,920 --> 00:04:40,560 and you've unfairly raised prices on businesses wanting to 101 00:04:40,560 --> 00:04:43,360 advertise. But when the question rises, OK, 102 00:04:43,360 --> 00:04:44,520 what are you going to do about it? 103 00:04:44,760 --> 00:04:48,280 We have no answers as of now. We just have speculation. 104 00:04:48,480 --> 00:04:51,240 There's a few things that I think Google could be forced to 105 00:04:51,240 --> 00:04:53,560 do. I think US regulators are likely 106 00:04:53,560 --> 00:04:56,600 to copy European regulators. They've already gone over this 107 00:04:56,600 --> 00:04:59,520 issue with Google, and they forced Google to offer 108 00:04:59,520 --> 00:05:02,360 selections to the user when they're starting up their 109 00:05:02,360 --> 00:05:04,640 device. So if you get a new iPhone, if 110 00:05:04,640 --> 00:05:07,920 you get a new laptop, you have the default selection. 111 00:05:08,120 --> 00:05:10,360 Normally in the US, it's already picked for you. 112 00:05:10,520 --> 00:05:13,160 You don't select anything. You can go into your device and 113 00:05:13,160 --> 00:05:16,200 change it if you want, but Google's already the 114 00:05:16,200 --> 00:05:19,200 predetermined preselected default option. 115 00:05:19,240 --> 00:05:22,800 But in Europe, they forced Google and Apple to offer 116 00:05:22,800 --> 00:05:25,840 options to the user. So the user's presented with a 117 00:05:25,840 --> 00:05:29,280 list of search engines and then the user selects which one they 118 00:05:29,280 --> 00:05:32,440 want, therefore making it one more obstacle for the user to 119 00:05:32,440 --> 00:05:34,880 select Google. They will force Google on their 120 00:05:34,880 --> 00:05:38,520 Chrome browser to offer users different default searches. 121 00:05:38,520 --> 00:05:41,360 And that solution, if implemented now, comes at a 122 00:05:41,360 --> 00:05:43,600 pivotal time. On this note, we have Cantor 123 00:05:43,600 --> 00:05:46,880 from the Department of Justice arguing that this may be why 124 00:05:46,880 --> 00:05:50,360 Google's forced now to open up the selection of possible search 125 00:05:50,360 --> 00:05:52,720 engines. There's no competitor to search, 126 00:05:52,720 --> 00:05:53,800 so therefore you have to do this. 127 00:05:54,000 --> 00:05:58,560 Could you not be overridden by the event of July 25th 2024 128 00:05:58,560 --> 00:06:02,240 Search GPT prototype? These are factual questions. 129 00:06:02,240 --> 00:06:04,480 The court addressed the number of these questions and it's 130 00:06:04,520 --> 00:06:07,320 lengthy opinion that was extremely rigorous, detail 131 00:06:07,320 --> 00:06:10,400 oriented, relied on expert testimony as well as documents 132 00:06:10,400 --> 00:06:12,280 and data. The fact of the matter is 133 00:06:12,280 --> 00:06:15,200 competition often matters most when they're new inflection 134 00:06:15,200 --> 00:06:18,360 points that emerge in the market and monopolies have the greatest 135 00:06:18,360 --> 00:06:21,120 incentive during those inflection points to sifle 136 00:06:21,120 --> 00:06:24,480 competition before it has the opportunity to take hold. 137 00:06:24,480 --> 00:06:28,960 So at right now is perhaps the most critical inflection point 138 00:06:28,960 --> 00:06:31,960 we've seen in the search market in 15 years. 139 00:06:32,000 --> 00:06:36,160 And making sure that it has the opportunity that competitors 140 00:06:36,160 --> 00:06:39,520 have the opportunity to compete on the merits, benefit of their 141 00:06:39,520 --> 00:06:44,360 own innovations and and win or lose based on the merits of 142 00:06:44,360 --> 00:06:46,200 their products is the most important thing right now. 143 00:06:46,800 --> 00:06:50,760 We are at an inflection point of the most important time in the 144 00:06:50,760 --> 00:06:54,560 search market in over a decade, and this inflection point is 145 00:06:54,560 --> 00:06:57,880 precisely when the Department of Justice is opening up the 146 00:06:57,880 --> 00:07:01,120 floodgates of competition. The answer to how we remedy this 147 00:07:01,120 --> 00:07:03,760 problem of Google being a monopoly is by offering 148 00:07:03,760 --> 00:07:06,960 competition. Competition meaning other search 149 00:07:06,960 --> 00:07:09,000 engines. Allowing users to select from a 150 00:07:09,000 --> 00:07:12,040 list seems like a good idea because it solves the problem of 151 00:07:12,040 --> 00:07:15,280 claiming that only people use Google because Google's the 152 00:07:15,280 --> 00:07:18,760 default search engine. The issue with this remedy is 153 00:07:18,760 --> 00:07:21,400 that even when you have a big list of search engines, even 154 00:07:21,400 --> 00:07:26,040 when you have Perplexity DuckDuckGo, you have search GT, 155 00:07:26,120 --> 00:07:29,000 and you present that list to users and you allow them to pick 156 00:07:29,080 --> 00:07:31,720 guess what search engine they pick the majority of the time, 157 00:07:32,240 --> 00:07:35,240 they still pick Google. Not only the majority, but the 158 00:07:35,240 --> 00:07:38,920 huge majority of the time when you allow users to select from a 159 00:07:38,920 --> 00:07:42,520 list, they still pick Google. And that's still a problem for 160 00:07:42,520 --> 00:07:45,600 Google being the dominant monopolistic market share 161 00:07:45,600 --> 00:07:47,320 leader. This is where this case runs 162 00:07:47,320 --> 00:07:49,440 into an issue. The judge is saying that 163 00:07:49,440 --> 00:07:52,000 Google's a monopoly because of the default position. 164 00:07:52,240 --> 00:07:55,720 But even if you undefault Google, even if you allow users 165 00:07:55,720 --> 00:07:58,440 to select from a list what search engine they want to use, 166 00:07:58,680 --> 00:08:02,480 most users still use Google. So there can be other search 167 00:08:02,480 --> 00:08:05,760 engines like Bing or Chachi PT that went over some of the 168 00:08:05,760 --> 00:08:08,000 market, but not a meaningful amount. 169 00:08:08,280 --> 00:08:10,800 So the judge may want to go even further. 170 00:08:11,000 --> 00:08:14,480 The problem is, if the judge goes too far, it may cause more 171 00:08:14,480 --> 00:08:17,040 issues than it solves. European regulators have already 172 00:08:17,040 --> 00:08:20,200 ran into this issue when they require Google to offer users a 173 00:08:20,200 --> 00:08:24,080 choice of search engine. It LED few to switch, so they 174 00:08:24,080 --> 00:08:27,760 might go further and have more aggressive, invasive solutions. 175 00:08:28,000 --> 00:08:30,880 The agency could demand a separation of Alphabet search 176 00:08:30,880 --> 00:08:34,679 business from other products like Android and Chrome, which, 177 00:08:34,679 --> 00:08:37,520 if ordered by the judge, would mark the biggest force breakup 178 00:08:37,520 --> 00:08:41,600 of U.S. companies since AT&T was dismantled in 1984. 179 00:08:41,679 --> 00:08:45,400 Is the judge ready to break up one of EU s s best companies in 180 00:08:45,400 --> 00:08:47,280 the world? One that offers products that 181 00:08:47,280 --> 00:08:49,880 hundreds of millions of consumers love, that they use 182 00:08:49,920 --> 00:08:53,160 every single day. This is far bigger of a deal 183 00:08:53,160 --> 00:08:56,480 than even AT&T. AT&T was looked at as more of a 184 00:08:56,480 --> 00:08:59,480 utility, something like your water or heating. 185 00:08:59,800 --> 00:09:02,920 Google offers services that are updated routinely that benefit 186 00:09:02,920 --> 00:09:05,800 users in more personalized ways. Breaking up the company may 187 00:09:05,800 --> 00:09:08,120 damage the services that they offer to users. 188 00:09:08,240 --> 00:09:11,200 If the judge decides to break up Google, the risks are much 189 00:09:11,200 --> 00:09:13,080 higher. The option of breaking up Google 190 00:09:13,080 --> 00:09:16,280 is the most unlikely option. It may happen, maybe the judge 191 00:09:16,280 --> 00:09:18,200 will go down that route, but it's unlikely. 192 00:09:18,200 --> 00:09:20,480 More than likely, Google's going to be forced to not be able to 193 00:09:20,480 --> 00:09:22,760 have the same default relationship on different 194 00:09:22,760 --> 00:09:26,360 devices, especially Apple. So how does this impact Apple? 195 00:09:26,360 --> 00:09:29,880 We know that Google's paying $26 billion to different companies 196 00:09:29,880 --> 00:09:34,880 to be defaulted, and out of that $26 billion, Apple alone takes 197 00:09:34,880 --> 00:09:38,560 over $20 billion of it. So they're taking the lion's 198 00:09:38,560 --> 00:09:42,280 share of Google's nice payment that they make to be defaulted. 199 00:09:42,760 --> 00:09:44,640 Well, there's a couple different options here. 200 00:09:45,000 --> 00:09:48,520 First of all, it's unlikely that the DOJ can completely end this 201 00:09:48,520 --> 00:09:51,160 relationship. That's a really difficult thing 202 00:09:51,160 --> 00:09:53,120 to do. More than likely they'll change 203 00:09:53,120 --> 00:09:56,520 the deal a little bit and allow Google to still pay Apple around 204 00:09:56,520 --> 00:09:59,640 10 to $15 billion per year. And they can do different 205 00:09:59,640 --> 00:10:03,240 licensing agreements so that so that if users use Google search 206 00:10:03,240 --> 00:10:06,680 on Apple devices, Apple gets a cut of the Corey flow in the 207 00:10:06,680 --> 00:10:10,320 advertising around 10 to 30%. So Apple can still make a 208 00:10:10,320 --> 00:10:14,200 fortune from Google even if the DOJ makes certain rules 209 00:10:14,200 --> 00:10:16,560 regarding the relationship. Even if the Department of 210 00:10:16,560 --> 00:10:19,560 Justice was able to say that Google can make no deal with 211 00:10:19,560 --> 00:10:23,120 Apple whatsoever, Apple would probably still turn out just 212 00:10:23,120 --> 00:10:26,200 fine because the default position that Apple has is an 213 00:10:26,520 --> 00:10:30,320 incredibly valuable position. It's an incredible asset for 214 00:10:30,320 --> 00:10:34,120 Apple, and Google's not the only one willing to pay money to be 215 00:10:34,120 --> 00:10:36,160 defaulted. Microsoft has already said that 216 00:10:36,160 --> 00:10:38,680 they're willing to pay Apple any amount of money they want to be 217 00:10:38,680 --> 00:10:40,560 defaulted. It's worth so much money to be 218 00:10:40,560 --> 00:10:44,040 defaulted on Apple devices that Microsoft will cough up the cash 219 00:10:44,040 --> 00:10:46,440 and they'll make whatever economic agreement that Apple 220 00:10:46,440 --> 00:10:49,480 wants. They can even brand being under 221 00:10:49,480 --> 00:10:52,080 Apple. All Microsoft wants is that 222 00:10:52,080 --> 00:10:55,200 quarry flow to improve Bing. So if the Google deal was 223 00:10:55,200 --> 00:10:57,920 scrapped then Apple could move to an alternative like 224 00:10:57,920 --> 00:11:00,200 Microsoft. Or they can make a deal with 225 00:11:00,360 --> 00:11:03,600 open AI and ChatGPT. They're already in agreement 226 00:11:03,600 --> 00:11:05,560 with different aspects of these companies anyway. 227 00:11:05,560 --> 00:11:08,520 The reason you're seeing Apple stock move up today and an 228 00:11:08,520 --> 00:11:11,440 investor is not really too concerned about the economics of 229 00:11:11,440 --> 00:11:14,600 this deal going away, is because Apple's not the company being 230 00:11:14,600 --> 00:11:17,640 sued here and Apple has every right to default different 231 00:11:17,640 --> 00:11:19,760 search engines that have lower market share. 232 00:11:19,960 --> 00:11:23,600 The reason that we see Google moving up today, I also believe 233 00:11:23,600 --> 00:11:27,040 because investors are weighing the pros and cons of these deals 234 00:11:27,040 --> 00:11:29,600 changing. It is true that Google may lose 235 00:11:29,600 --> 00:11:32,520 its position as the default status on every device, but 236 00:11:32,520 --> 00:11:36,160 investors in Google assume the people still use Google search. 237 00:11:36,240 --> 00:11:40,080 That's unlikely to change. And if Google saves some money 238 00:11:40,080 --> 00:11:43,440 by not paying so many billions of dollars to be defaulted, it 239 00:11:43,440 --> 00:11:45,600 may actually benefit their bottom line. 240 00:11:46,040 --> 00:11:50,840 Imagine if Google pays $15 billion a year instead of 26 and 241 00:11:50,840 --> 00:11:52,640 they don't lose much market share. 242 00:11:52,720 --> 00:11:55,760 Well, in that case, they just saved $11 billion in payments. 243 00:11:55,880 --> 00:11:58,680 If you look at Google's free cash flow on a trailing basis, 244 00:11:58,680 --> 00:12:02,280 it's $60 billion. So if Google saved $10 billion 245 00:12:02,280 --> 00:12:05,200 and they had the same outcome with the same market share, they 246 00:12:05,200 --> 00:12:08,120 would add on an incremental 20% in free cash flow. 247 00:12:08,240 --> 00:12:12,040 So with both cases with Google and Apple, it's difficult to see 248 00:12:12,040 --> 00:12:13,960 how these companies are really in trouble. 249 00:12:14,280 --> 00:12:17,240 Google has many opportunities to and win consumers to their 250 00:12:17,240 --> 00:12:19,440 search engine if they're not defaulted. 251 00:12:19,480 --> 00:12:22,520 Apple has enormous opportunity to monetize their massive 252 00:12:22,520 --> 00:12:24,440 install base. And even though Google's now 253 00:12:24,440 --> 00:12:27,480 officially labeled a monopoly, it's still difficult to see how 254 00:12:27,480 --> 00:12:29,960 this company loses. Now moving on, we have news at 255 00:12:29,960 --> 00:12:32,160 Airbnb. One of these previously hyper 256 00:12:32,160 --> 00:12:35,960 growth companies is now seeing a slowdown and this has caused the 257 00:12:35,960 --> 00:12:39,600 stock to drop 14%. It is true that they missed on 258 00:12:39,600 --> 00:12:42,320 their earnings per share slightly that played a role in 259 00:12:42,320 --> 00:12:45,440 this, but the reason that the stock is down so much is because 260 00:12:45,440 --> 00:12:48,720 of their projections because of them warning about a slowdown in 261 00:12:48,720 --> 00:12:52,400 the US and this also brings up speculation of the US entering 262 00:12:52,400 --> 00:12:55,200 into a recession. Airbnb is a company that I 263 00:12:55,200 --> 00:12:58,840 studied that eventually led me to looking at Booking Holdings. 264 00:12:59,240 --> 00:13:01,000 So I was initially interested in Airbnb. 265 00:13:01,160 --> 00:13:04,680 I researched this company and upon looking at the industry and 266 00:13:04,680 --> 00:13:07,760 what they do, I came across Booking Holdings and ended up 267 00:13:07,760 --> 00:13:09,840 investing in that company instead. 268 00:13:10,200 --> 00:13:12,920 But along my research with Airbnb, I did learn some things 269 00:13:12,920 --> 00:13:15,640 about the company. If we look at this report, we 270 00:13:15,640 --> 00:13:18,240 can actually see how things are developing now. 271 00:13:18,240 --> 00:13:21,080 Up until now in Qualtrim, we could view the quarterly view 272 00:13:21,160 --> 00:13:23,920 and the annual view. Of course, quarterly shows all 273 00:13:23,920 --> 00:13:26,960 the metrics quarter by quarter. Annually shows it every single 274 00:13:26,960 --> 00:13:29,720 year. But now we also have quarterly 275 00:13:29,840 --> 00:13:31,960 TTM. When this view is selected, it 276 00:13:31,960 --> 00:13:35,080 shows the most recent quarters number plus the most previous 277 00:13:35,080 --> 00:13:37,600 3/4 combined every single quarter. 278 00:13:37,680 --> 00:13:40,040 And this allows you to see a smoother trend of what's going 279 00:13:40,040 --> 00:13:42,920 on with different financials. Seeing the quarterly trailing 12 280 00:13:42,920 --> 00:13:45,600 months really makes some these metrics easier to view. 281 00:13:45,840 --> 00:13:48,280 For example, if we switch back to quarterly and we take a look 282 00:13:48,280 --> 00:13:51,000 at the free cash flow, we can see some trends here. 283 00:13:51,000 --> 00:13:53,120 We see the free cash flow going U overtime. 284 00:13:53,560 --> 00:13:56,040 That looks good, but it's still a little jagged. 285 00:13:56,040 --> 00:13:59,800 It's kind of difficult to see. If we switch over to quarterly 286 00:13:59,800 --> 00:14:02,080 TTM, it shows it a bit more smoothly. 287 00:14:02,360 --> 00:14:05,120 For example, we go back to that same view and this is what it 288 00:14:05,120 --> 00:14:08,400 looks like the trailing 12 month on a quarterly basis. 289 00:14:08,440 --> 00:14:11,840 In the trailing 12 months, their free cash flow was $4.36 290 00:14:11,840 --> 00:14:13,760 billion. If we look at the bookings of 291 00:14:13,760 --> 00:14:16,560 the company on a trailing 12 month basis, we see a similar 292 00:14:16,560 --> 00:14:18,760 trend. It continues to go up, but it's 293 00:14:18,760 --> 00:14:21,760 slowing down slightly. There is some deceleration, but 294 00:14:21,760 --> 00:14:24,000 Even so, when I look at these charts, I don't see an 295 00:14:24,000 --> 00:14:27,400 indication of a recession. The fact that people are slowing 296 00:14:27,400 --> 00:14:30,480 down on their travel slightly lately is not an indication of a 297 00:14:30,480 --> 00:14:33,200 recession. It's an indication that the post 298 00:14:33,200 --> 00:14:37,360 COVID boom is coming to an end, that travel is now normalizing. 299 00:14:37,600 --> 00:14:40,200 And we've seen the same thing with Booking Holdings. 300 00:14:40,200 --> 00:14:42,600 Booking Holdings is a new position in My Portfolio. 301 00:14:42,600 --> 00:14:45,200 I've been buying into this one, building up the position. 302 00:14:45,200 --> 00:14:46,920 I bought more of it during the dip. 303 00:14:46,920 --> 00:14:50,760 Currently it's a $42,000 position, $4000 in the red. 304 00:14:50,800 --> 00:14:52,880 With a new position. I have to give this one time to 305 00:14:52,880 --> 00:14:55,120 compound. But Booking also shows a similar 306 00:14:55,120 --> 00:14:57,360 trend. If we look at the gross bookings 307 00:14:57,360 --> 00:15:00,960 over time, we can see the gross bookings slowing down a little 308 00:15:00,960 --> 00:15:02,560 bit. They're not stopping, they're 309 00:15:02,560 --> 00:15:04,760 not going down, but they're decelerating. 310 00:15:04,840 --> 00:15:07,480 If we look at room night sold, this is a forward-looking 311 00:15:07,480 --> 00:15:09,360 metric. We can also see a slight 312 00:15:09,360 --> 00:15:11,640 deceleration over the past four quarters. 313 00:15:12,200 --> 00:15:15,080 When you talk to the Booking management, they say that this 314 00:15:15,080 --> 00:15:17,000 is normal. This is just a normal 315 00:15:17,000 --> 00:15:20,160 deceleration after the huge bump post COVID. 316 00:15:20,160 --> 00:15:22,960 Overall, when I look at Airbnb's quarter, I see a highly 317 00:15:22,960 --> 00:15:25,720 profitable company that's still growing quite nicely. 318 00:15:26,000 --> 00:15:28,560 It's making a lot of net income, a lot of free cash flow. 319 00:15:28,680 --> 00:15:32,040 It has a strong balance sheet with $12 billion in cash, and it 320 00:15:32,040 --> 00:15:34,720 has organic growth ahead. I think Airbnb is a good 321 00:15:34,720 --> 00:15:36,680 company. The issue of this company is 322 00:15:36,680 --> 00:15:39,560 that it's far less diversified than a company like Booking. 323 00:15:39,880 --> 00:15:44,240 Airbnb offers nightly rental. That's basically the only thing 324 00:15:44,240 --> 00:15:46,920 this company does. Whereas Booking offers nightly 325 00:15:46,920 --> 00:15:50,440 rentals, hotels, car rentals, and reservations for 326 00:15:50,440 --> 00:15:52,840 restaurants. It is far more fully fledged. 327 00:15:52,840 --> 00:15:55,840 As a travel agency, they are your concierge during your 328 00:15:55,840 --> 00:15:59,320 entire vacation, so Booking Holdings is far more diversified 329 00:15:59,560 --> 00:16:01,920 and less reliant on the nightly rental market. 330 00:16:02,000 --> 00:16:05,080 Airbnb knows this and they're jealous of the market position 331 00:16:05,080 --> 00:16:07,560 that Booking has, and we can see that in their most recent 332 00:16:07,560 --> 00:16:09,880 earnings call. In the opening remarks of this 333 00:16:09,880 --> 00:16:12,760 earnings call, we have Brian Chesky, who is the the CEO of 334 00:16:12,760 --> 00:16:16,400 Airbnb and at the end of his opening remarks, he says 335 00:16:16,400 --> 00:16:18,320 something that's a little bit interesting. 336 00:16:18,320 --> 00:16:21,440 He says we also have new guest services and new host services 337 00:16:21,720 --> 00:16:23,960 that we're launching next year that we're working on. 338 00:16:24,120 --> 00:16:26,440 And then every year starting next year, we're going to launch 339 00:16:26,440 --> 00:16:29,520 new products and services. I look at Apple, I look at 340 00:16:29,520 --> 00:16:31,960 Amazon. Apple at one point was selling 341 00:16:31,960 --> 00:16:34,240 IMAX, Amazon was only selling books. 342 00:16:34,720 --> 00:16:37,120 We've gotten bigger than either of those companies just selling 343 00:16:37,120 --> 00:16:40,000 short term rentals, but we're ready to go beyond short term 344 00:16:40,000 --> 00:16:42,840 rentals. So the new Airbnb will be about 345 00:16:42,840 --> 00:16:44,680 a lot more than short term rentals. 346 00:16:44,920 --> 00:16:47,240 It's going to be about long term stays. 347 00:16:47,240 --> 00:16:50,960 It's going to be our guest services and host services and 348 00:16:50,960 --> 00:16:54,080 many new offerings that you'll begin to see the start of next 349 00:16:54,080 --> 00:16:56,000 year. Brian Chesky makes it very clear 350 00:16:56,000 --> 00:16:58,440 that they're going head to head with Booking Holdings. 351 00:16:58,680 --> 00:17:01,840 They want to become the fully serviced travel agency, just 352 00:17:01,840 --> 00:17:04,560 like Booking Holdings. The problem for Airbnb is that 353 00:17:04,560 --> 00:17:08,480 the the market in Europe for hotel stays is already taken. 354 00:17:08,640 --> 00:17:11,640 It is dominated by Booking Holdings, and I think there's 355 00:17:11,640 --> 00:17:14,560 little chance that they'll be able to uproot Booking Holdings 356 00:17:14,839 --> 00:17:17,240 in Europe. And the US market for hotels is 357 00:17:17,240 --> 00:17:19,880 far less valuable because most of that is dominated by the 358 00:17:19,880 --> 00:17:22,119 hotel chains Marriott and Hilton. 359 00:17:22,119 --> 00:17:25,160 So Airbnb is trying to go down this path of competing with 360 00:17:25,160 --> 00:17:27,920 Booking Holdings, but as far as I'm concerned, I would rather 361 00:17:27,920 --> 00:17:30,360 own the company that's already dominant in this market. 362 00:17:30,400 --> 00:17:33,320 Now moving on, we get to the news that Disney has posted its 363 00:17:33,320 --> 00:17:37,680 first ever streaming profit, but it's warning now about the parks 364 00:17:37,680 --> 00:17:40,280 business. So the tides have turned a bit. 365 00:17:40,600 --> 00:17:43,920 Before streaming was the money losing portion of the business, 366 00:17:43,920 --> 00:17:46,680 the part of the business that was a bit of a drag and the 367 00:17:46,680 --> 00:17:49,000 parks were the good part of Disney's business. 368 00:17:49,120 --> 00:17:52,520 Now with this earnings report, the parks business is struggling 369 00:17:52,760 --> 00:17:54,240 and streaming is the bright spot. 370 00:17:54,280 --> 00:17:56,600 The entertainment giant streaming unit, which includes 371 00:17:56,600 --> 00:18:01,280 Disney Plus, Hulu, ESPN Plus, became profitable 1/4 ahead of 372 00:18:01,280 --> 00:18:05,520 schedule, producing an operating income of 47 million dollars on 373 00:18:05,520 --> 00:18:11,840 $6.3 billion in revenue. Now, $47 million in profit is 374 00:18:11,840 --> 00:18:14,920 tiny, so Disney's barely eking out a profit with their 375 00:18:14,920 --> 00:18:18,520 streaming, especially based off of $7 billion in revenue. 376 00:18:19,160 --> 00:18:23,000 But it is a profit, and next quarter they should generate far 377 00:18:23,000 --> 00:18:24,600 more profits with their streaming. 378 00:18:24,640 --> 00:18:27,040 The CFO went on to CNBC. They said that they've made 379 00:18:27,040 --> 00:18:29,520 great progress. They said they were losing about 380 00:18:29,520 --> 00:18:32,520 a billion dollars a quarter. Not long ago, the streaming 381 00:18:32,520 --> 00:18:36,760 portion of Disney was recently losing 4 to $5 billion per year, 382 00:18:37,000 --> 00:18:40,320 and now it's profitable. That is incredible progress by 383 00:18:40,320 --> 00:18:42,880 the Disney team. Now, ironically, the part of the 384 00:18:42,880 --> 00:18:45,320 business that investors are looking at as being a bit of a 385 00:18:45,320 --> 00:18:50,400 disappointment is the parks. Operating income fell 3.3% to 386 00:18:50,400 --> 00:18:54,160 2.2 billion despite steady park attendance numbers and per 387 00:18:54,160 --> 00:18:56,240 visitor spending. This was largely due to the 388 00:18:56,240 --> 00:18:59,040 increased costs and soft consumer demand towards the end 389 00:18:59,040 --> 00:19:01,240 of the quarter. We know that Disney prices the 390 00:19:01,240 --> 00:19:04,080 parks based off of demand and because they don't have quite as 391 00:19:04,080 --> 00:19:06,880 much demand, prices in the parks are being lowered. 392 00:19:06,880 --> 00:19:09,440 Disney forecasted more challenges for the theme park 393 00:19:09,440 --> 00:19:11,440 business. The company said it expects 394 00:19:11,440 --> 00:19:14,920 operating income in the division to fall by mid single digit 395 00:19:14,920 --> 00:19:17,400 percentage points in the fiscal fourth quarter. 396 00:19:17,720 --> 00:19:21,280 So not only was this quarter a miss for the parks business, but 397 00:19:21,280 --> 00:19:23,800 next quarter is going to be a bit disappointing as well. 398 00:19:23,840 --> 00:19:26,280 If we look at some of the key performance indicators for 399 00:19:26,280 --> 00:19:29,960 Disney, we can see that this most recent quarter isn't that 400 00:19:29,960 --> 00:19:32,440 big of a change in their streaming subscribers. 401 00:19:32,440 --> 00:19:36,160 They only increase the amount of subscribers by 5% overall, not 402 00:19:36,160 --> 00:19:38,960 too much of A change over the past seven or eight quarters. 403 00:19:38,960 --> 00:19:41,640 When we look at revenue per subscriber, Hulu takes the 404 00:19:41,640 --> 00:19:43,440 lion's share. When we look at this without 405 00:19:43,440 --> 00:19:46,480 Hulu, we can see that the total revenue per subscriber is going 406 00:19:46,480 --> 00:19:49,200 up across the board. It ebbs and flows in the 407 00:19:49,200 --> 00:19:52,080 different markets, but it's now creeping up to $16.00 per 408 00:19:52,080 --> 00:19:53,880 subscriber. And then finally looking at the 409 00:19:53,880 --> 00:19:58,000 revenue per segment, Disney in 2023 decided to break this out 410 00:19:58,000 --> 00:20:00,640 into three different categories. That's why you see the change in 411 00:20:00,640 --> 00:20:02,640 color hair. The entertainment business, 412 00:20:02,640 --> 00:20:05,240 which has their movies is doing quite well. 413 00:20:05,320 --> 00:20:08,440 After a series of flops from Disney, they finally have some 414 00:20:08,440 --> 00:20:11,640 huge hits with Inside Out Two being one of the biggest ones. 415 00:20:11,680 --> 00:20:13,720 The sports business is also growing in revenue. 416 00:20:13,760 --> 00:20:16,760 The experiences business, which includes the parks is the 417 00:20:16,760 --> 00:20:17,640 problem. It's. 418 00:20:17,720 --> 00:20:20,800 It's only up 2.7% which is slower than inflation. 419 00:20:21,120 --> 00:20:24,200 So now Disney's reliant on sports and entertainment to grow 420 00:20:24,200 --> 00:20:26,480 the business. I realized the stock isn't doing 421 00:20:26,480 --> 00:20:28,520 well. It's down 3.5% today. 422 00:20:28,680 --> 00:20:32,000 It's down 2.78% year to date. So I realized Disney 423 00:20:32,000 --> 00:20:35,000 shareholders may be bummed out owning the stock this year, but 424 00:20:35,000 --> 00:20:36,800 I don't think things are so bad for Disney. 425 00:20:36,800 --> 00:20:39,320 If I was a Disney shareholder, I would not be disappointed with 426 00:20:39,320 --> 00:20:41,200 this report. Now finally we get an update on 427 00:20:41,200 --> 00:20:43,480 the story of the crowd strike outage. 428 00:20:43,480 --> 00:20:46,400 We know that out of all the companies that were hit, Delta 429 00:20:46,400 --> 00:20:48,680 was hit the hardest. And Delta is now suing 430 00:20:48,680 --> 00:20:52,880 Crowdstrike and Microsoft to be compensated for the losses of 431 00:20:52,880 --> 00:20:55,160 having their systems shut down for the day. 432 00:20:55,480 --> 00:20:58,080 They say it cost them upwards of $500 million. 433 00:20:58,360 --> 00:21:01,800 And recently, the CEO of Delta went on to CNBC to explain the 434 00:21:01,800 --> 00:21:04,880 problem. Well guys, this cost us a half a 435 00:21:04,880 --> 00:21:06,840 billion dollars. So that's what's going to 436 00:21:06,840 --> 00:21:07,240 happen. You're. 437 00:21:07,400 --> 00:21:08,920 Suing. Well, well, we've we're gone. 438 00:21:08,920 --> 00:21:10,000 We have no choice. Yeah. 439 00:21:10,320 --> 00:21:12,360 Over a period of five days between not just the lost 440 00:21:12,360 --> 00:21:14,720 revenue, but the 10s of millions of dollars per day and 441 00:21:14,720 --> 00:21:17,920 compensation and hotels. And we did everything we could 442 00:21:17,920 --> 00:21:19,640 to take care of our customers over that time frame. 443 00:21:19,880 --> 00:21:22,400 We have no. So if you're going to be having 444 00:21:22,400 --> 00:21:25,440 access, priority access to the Delta ecosystem in terms of 445 00:21:25,440 --> 00:21:27,800 technology, you've got to test the stuff you got to. 446 00:21:28,400 --> 00:21:32,840 You can't come into a mission critical 24/7 operation and tell 447 00:21:32,840 --> 00:21:34,640 us we have a bug. It doesn't work. 448 00:21:34,720 --> 00:21:37,720 What did they offer you? Did they say oh thanks, here's a 449 00:21:38,120 --> 00:21:39,440 meal voucher? Do you really want to know? 450 00:21:39,520 --> 00:21:40,840 Yeah. No, we really want to know. 451 00:21:40,840 --> 00:21:42,360 We're here. I won't, I won't go there. 452 00:21:42,960 --> 00:21:44,240 But no, they haven't offered anything. 453 00:21:45,480 --> 00:21:48,640 He says that they haven't offered him anything, but they 454 00:21:48,640 --> 00:21:50,960 claim otherwise. They say that they offered him 455 00:21:50,960 --> 00:21:53,880 something very important that he refused. 456 00:21:53,920 --> 00:21:56,360 In fact, Crowd Strikes said that they repeatedly reached out to 457 00:21:56,360 --> 00:21:58,880 Delta and offered on site assistance, meaning that they 458 00:21:58,880 --> 00:22:02,280 would send their team over to help assist in the recovery of 459 00:22:02,280 --> 00:22:05,360 this problem. And the fact that Delta refused 460 00:22:05,360 --> 00:22:08,760 that they wouldn't have on site assistance is what led to the 461 00:22:08,760 --> 00:22:12,440 ongoing problem, The ongoing outage costing them half a 462 00:22:12,440 --> 00:22:15,320 billion dollars. So Crowd Strike is arguing that 463 00:22:15,480 --> 00:22:18,840 yes, they are to blame for the original outage, but they're not 464 00:22:18,840 --> 00:22:22,840 to blame for the ongoing damage that that outage caused Delta 465 00:22:23,160 --> 00:22:27,080 because Delta had insufficient IT and they weren't willing to 466 00:22:27,080 --> 00:22:30,600 allow any type of assistance with their IT recovery efforts. 467 00:22:30,640 --> 00:22:34,240 So Delta owns the problems of the recovery effort, which cost 468 00:22:34,240 --> 00:22:36,520 them all this money. Microsoft is now agreeing with 469 00:22:36,520 --> 00:22:39,600 Crowdstrike, saying that Delta is the one to blame because they 470 00:22:39,600 --> 00:22:42,000 declined repeated offers for help. 471 00:22:42,000 --> 00:22:44,640 Microsoft said that their preliminary reviews suggested 472 00:22:44,640 --> 00:22:47,960 that Delta, unlike its competitors, apparently had not 473 00:22:47,960 --> 00:22:50,920 modernized its IT infrastructure, either for the 474 00:22:50,920 --> 00:22:54,520 benefit of its customers or for its pilots or flight attendants. 475 00:22:54,640 --> 00:22:58,400 Delta responded to that claim saying since 2016 Delta has 476 00:22:58,400 --> 00:23:01,720 invested billions of dollars into IT capital expenditures in 477 00:23:01,720 --> 00:23:05,040 addition to billions spent annually and IT operating costs. 478 00:23:05,040 --> 00:23:07,840 Microsoft responded to that saying, quote, we have no reason 479 00:23:07,840 --> 00:23:10,800 to believe that Microsoft failed to comply with contractual 480 00:23:10,800 --> 00:23:14,560 requirements and otherwise acted in grossly negligent, indeed 481 00:23:14,560 --> 00:23:17,000 willful manner in connection with the faulty update. 482 00:23:17,520 --> 00:23:20,760 So Microsoft is washing their hands clean from the Crowdstrike 483 00:23:20,760 --> 00:23:24,200 update, saying that if this is not Delta's fault, it's at least 484 00:23:24,200 --> 00:23:26,560 Crowdstrike's fault. This certainly is not 485 00:23:26,640 --> 00:23:29,800 Microsoft's fault. Microsoft claimed that Delta's 486 00:23:29,800 --> 00:23:33,520 public comments are incomplete, false, misleading, and damaging 487 00:23:33,520 --> 00:23:37,120 to Microsoft and its reputation. So as the situation stands right 488 00:23:37,120 --> 00:23:40,360 now, Microsoft and Crowdstrike are both saying that the reason 489 00:23:40,360 --> 00:23:43,280 Delta was uniquely hit is not because they just use 490 00:23:43,280 --> 00:23:47,120 Crowdstrike more, but because of their poor IT and because of 491 00:23:47,120 --> 00:23:50,240 their efforts, and it's their fault because they would not 492 00:23:50,240 --> 00:23:53,200 accept help from either company. This is likely a case where 493 00:23:53,200 --> 00:23:56,640 there's some truth to each side, and if I had to give an order of 494 00:23:56,640 --> 00:23:59,840 blame, I think the highest blame goes to Crowdstrike for 495 00:23:59,840 --> 00:24:03,240 releasing the poor update. The next in line is Delta for 496 00:24:03,240 --> 00:24:05,960 not accepting offers of help, and then the last in line is 497 00:24:05,960 --> 00:24:08,000 Microsoft. Microsoft never released a 498 00:24:08,000 --> 00:24:11,280 faulty update and they offered to help even though it wasn't 499 00:24:11,280 --> 00:24:13,880 their problem to begin with. I think the judge will rule in 500 00:24:13,880 --> 00:24:17,360 favor of Delta to receive some compensation, but probably not 501 00:24:17,360 --> 00:24:19,680 the half a billion dollars that they're asking for. 502 00:24:19,720 --> 00:24:21,840 That's all for this episode. I'll see you next time.