Welcome to the Joseph Carlson show on today's episode, Elon
Musk bought, a nine percent stake and Twitter.
Now, this is actually old news. He bought this steak yesterday.
The news, the breaking news is that he's now on Twitter's
board. So he was immediately put on
Twitter's board after buying the large stake.
And this brings into question, what is elon's master plan hair?
What is he trying to accomplish? This is one of the most powerful
individuals in the world. Maybe the most powerful by some
quantifiable measures and now he's on the board of directors
of one of the most influential companies in the world.
So we're going to talk about what Elon musk's, real plan here
is what he's really hoping to accomplish.
We also have some big news regarding Starbucks.
Howard Schultz is back as the interim CEO, and the first thing
he did was scrapped the buyback plan.
That's right. Remember six weeks ago, how
Starbucks pledged 20 billion and BuyBacks and dividends that was
a major part of my investment thesis in this company.
Well, now the new CEO is saying you know what, we're not doing
BuyBacks anymore. In fact, we're going to
prioritize Baristas over the stock price.
So obviously, I have a lot of thoughts about this news.
As someone who has a sizable holding in Starbucks and I'll be
sharing my thoughts in this episode.
And then of course, I'll be showing you how my portfolio is
doing the passive income account, which is my real money
invested in a dividend growth portfolio.
So we have a lot to jump into in today's episode.
Now let's go ahead and jump right in Elon Musk purchase 9%
of Twitter and he can do that because he has a lot of money.
In fact, he could buy a lot more.
Twitter if rules and regulations didn't prevent him from it but
now he owns nine percent of the company and this was breaking
news. As of yesterday, just that news
alone launch Twitter shares up around 25% in one day.
So the company gain more in a single day than it ever has
senses IPO and in that single day of the 25% increase Elon
Musk made it over 500 million dollars on his investment to put
that in perspective. That is more than Twitter's
entire net income for the past three years.
Musk made more money in one day off of Twitter stock than the
company's made in the past three years.
Well, this is big news in and of itself but then there's
discussion on well, what does he intend on doing right?
Is he going to have a passive stake where you kind of just
owns the company and has it as an investment?
Or is he going to take a more active role and many people
actually assumed that he would take a passive stake?
That is an assumption I think is ridiculous.
When you look at someone like Elon Musk, is he really that
passive in anything? And this man has the most active
on the Forefront, CEO of almost any company, and I didn't think
he was going to buy Twitter to take a backseat in the company
will, of course, the very next day which is today, Elon Musk is
now joining Twitter's board of directors and he's teasing
significant improvements. So he's making it very clear
that this is not a passive stake, he's on the board of
directors. He's now in part, helping run
the company and Elon Musk plays a unique role in this.
Because typically, when you have someone joined the A directors,
they don't have the same type of voice that someone like Elon
Musk does. So now the situation that we're
in is Elon Musk, owns nine percent of the company, the
company stock prices up 33 percent in the past two days,
and he's joined Twitter's board of directors.
So, this leaves the question, what does he plan on doing now
in? This is where I think we're
getting some good takes on a lot of bad takes here's where I
think we get a bad take of why Elon Musk bot Twitter.
This is from Rich Green Field. He goes on to explain how
investors are overlooking the user growth of Twitter more than
anything. It certainly highlighting
Twitter's had a lot of progress momentum on the user growth side
that investors simply ignored after the last quarter, because
of the cost side of the equation.
So, Elon Musk bought Twitter, because investors are ignoring
Twitter's user growth, this is not about profits and losses and
user engagement and it you see what it's about.
Actually I disagree I think it is about user then why isn't the
broken you know, all the fallen angels and Tech and taking
steaks and all of this, this one is wearing our, you're missing
the point, you're missing the point, the reason he's making
these comments about open sourcing and that, you know,
kind of at the Town Hall like this whole way he's thinking
about it is because Twitter has gotten so big and so important
that he believes that there should be different, algorithms
are different ways of information ferreting up to the
top. He wouldn't care if Twitter was
irrelevant and Tiny and not growing as rapidly as it is.
He wouldn't care. So, I think the point is, he
does care because Twitter is Relevant Twitter is a,
relatively is the most important.
He's not doing this to try to juice the stock and make some
money, like an activist investor to try to open up shareholder
value. So, we can make someone, he's
doing it because he wants to change the way that the
Twitter's being run right now, in terms of censorship and and
everything, you don't think that that's what he's doing here.
You think, is purely an economic play that he's making, why
didn't he buy? But there's a lot of cheap
companies out there that he's not interested in.
I think this breaks down in large part the Give it happening
over Twitter. A lot of Twitter shareholders,
might think that Elon Musk is buying Twitter for economic
reasons, he's buying it because the company's undervalued and
Elon Musk sees value there. And then, there's the Joe
current inside of it, where he's saying that the economics have
no part in this, the valuation of Twitter has no part in it.
Elon Musk is buying Twitter for entirely different reasons.
And I have to say this is one of the cases where I strongly
agree, with Joe, Kernan. Now Rich goes on to make another
assumption that I think is clearly false.
I don't think it's true at all. Here's what he says regarding
elon's ability to make change at Twitter.
I mean nine percent steaks, not going to give him the ability to
change. Yeah, that's what this company
not. So, we'll see.
He's got to own a lot more than 9% to have an impact on how this
company runs. Well, you gotta start with 9%,
you can't, you know, you can't start with 60%.
He says that 9% isn't enough to make change at the company.
It's not enough to impact the company at all.
And just a day later after this interview, Elon Musk is on the
board of directors and saying, Working closely with them and
advocating for great changes to the company.
If we're going to look at, why Elon Musk is buying Twitter.
I think its first important to understand incentive here, Elon
Musk has literally no incentive to make more money.
He has all the money. He could possibly spend in a
hundred lifetimes. He's worth currently 267 billion
dollars that is over a quarter trillion dollars.
Most of us look through things through the lens of economic
value. We want to create more wealth.
We want to get more wealthy. Because right now we don't have
enough money to fully retire or we don't have enough money to
get all the things that we want. Elon Musk has solved this
problem long ago and money hasn't been his primary
motivator. I think for a very long time, I
think that his aspirations are far beyond that and we can get
an idea of what you'll on mosques aspirations are by
previous things that he said on Twitter.
He was quickly, welcome to the board of Twitter, quote, through
conversations with Ilan and recent weeks, it became clear to
us, that he would bring Great Value to our board.
The CEO Prague said, Quote, he's both passionate and a believer
in intense critic of the service, which is exactly what
we need on Twitter and in the boardroom to make us stronger in
the long term. So the CEO of Twitter is very
welcoming to Elon Musk and I think he should be Elon Musk
creates a lot of value with most things that he's involved in,
even the former CEO, Jack Dorsey, also praised the move
saying that must cares deeply about our world and Twitter's
role in it must reply to this saying that he's looking forward
to working with Twitter and making significant improvements.
Movements to Twitter in the coming months, so that is the
basis of what we know so far is Elon Musk wants to improve the
platform. He's also hinted at this many
times in the past, for instance, he did a poll yesterday, saying,
do you want an edit button and he misspelled?
Yes. In the poll, he also did a poll
on March 25th, saying free speech is essential to a
functioning democracy. Do you believe that Twitter
rigorously adheres to these principles?
Yes or no? And he said, the consequences of
this poll will be important. Please vote carefully.
And this poll hair is. A lot of the discussion is
generated from. It's clear that Elon musk's he's
issues with Twitter's Free Speech policy.
The way that they have content, moderation either thinks that
it's unfair or it's not free enough or it.
Should at the very least, be changed and altered and improved
and a lot of people are having adamant discussions and
arguments over this point. I actually think that Elon
musk's plans are much broader than Twitter and even content.
Moderation, alone, he looks at Twitter is a social Town Hall.
A place where ideas and thoughts can be expressed openly Lee and
I think he is going to try to improve the content moderation
and make it more of a free speech platform.
But content, moderation is very difficult.
Those type of changes would take a lot of time to execute
correctly and even if he does accomplish that, I don't think
he's going to stop there. There's one tweet by the
conservative commentator, Denise to sausa, that I really think
gives some insight into what Ilan must be thinking about.
He says tweets are fine, Elon Musk but you can dramatically
change the political and cultural landscape in this way.
One by and Go over a major social media platform to acquire
and create a TV network, like, ABC, NBC or CBS and three,
create a world class online university, and offer degrees
for free. Now, there's lots of ideas that
are thrown at Elon Musk from time to time, but this is one
that you like musk actually responded to on January 28th.
You replied saying, quote, interesting ideas, and then a
month later, he's already done step one, by n, takeover and
major social media platform. He bought Twitter and he's On
the board of directors, and I think that begs a question, is
he going to be doing step two and three, creating a TD like
Network, like, ABC, NBC or CBS, and then also, creating an
online university that offers degrees for free.
So maybe he will do these things, who knows?
I could see, Elon Musk starting a news company.
A news company with the focus of just having facts and not being
biased. I could also see him starting
the online university, where he gives away to Greece for free.
That'd be something that would be a huge net benefit for the
world. So who knows what he'll do next?
All we know for Now is that you'll I must clearly isn't
satisfied. Just running Tesla or the boring
company or SpaceX. He's already changed the world
in a number of different ways and I think he wants to change
the world in a few more. Now, moving on, we gotta talk
about this Starbucks news Starbucks, just threw a
curveball to investors. This was somewhat of surprising
news, Howard Schultz. The interim CEO came back to
Starbucks. And on the first day, he said
that he's prioritizing Baristas over the stock price, and the
first action that he Did was announcing that they're
suspending billions of dollars. In share repurchases and said
his immediate Focus would be on cafes customers and employees
rather than the stock market. Now after announcing that he
scrapping the buyback program, he goes on to explain how every
decision that they're making is for the employees.
It's not for the shareholders quote.
I'm not in the business as a shareholder of Starbucks to make
every single decision based on the stock price for the quarter.
Those days, ladies and gentlemen, are over.
So the days of making Decisions for the stock price.
Each quarter for the shareholders are over Wall
Street, of course, responded to this by sending the shares down
3.7% to $88. In fact, since he announced the
suspension of his buyback program, the shares are
currently down 7%. So there's a couple different
ways to look at this news, but I see this as an overall negative
for the company. And for shareholders, first of
all, I realized the game that Schultz is playing, he's wanting
to play the political game. He knows that there's a
unionization. Effort that's going on right now
with Starbucks. He's trying to slow down the
union effort. He's trying to stop the union
effort and he knows it. Share BuyBacks politically are
unpalatable, there's something that politics looks at very
negative. So the first thing that he does
coming back as CEO is announces, that he's going to stop those
dirty BuyBacks and instead put that money into the company and
into the employees like a very good company.
Would that is the political phrasing of this news in
reality. The BuyBacks are not a problem.
Starbucks has been growing extremely rapid.
They have been reinvesting into their stores, they have been
increasing pay. All while returning cash to
shareholders in the form of BuyBacks and dividends and they
have the balance sheet and the fundamentals to continue
supporting that size. See the only reason for them to
really scrap BuyBacks is largely a political move to improve the
Optics of the company and I think such an aggressive
response to the union effort shows that Starbucks is
vulnerable. It shows that they're actually
concerned about this effort. It's having a material Real
effect and they're actually willing to change their
long-standing Capital allocation policy in a response to this
movement. And I think that's very telling
from the company, a lot of investors in Starbucks, I don't
think realize the extent of how important share BuyBacks are to
their overall returns. Take a look at this chart.
I'll throw it on the screen here.
This is the amount of dividends that Starbucks pays to
investors, compared to the amount of BuyBacks.
Look at them year-over-year and see which way, Starbucks returns
more money to its shareholders. You have the dividends and gray
and the Buybacks in blue in 2022.
The dividends make up a sliver that is so far in 2022 in 2021.
It was a unique year where they did no BuyBacks, right.
That was all dividends. But then look at the prior years
in 2020. It was split almost 50/50 and
2019 Starbucks did over ten billion dollars in stock
BuyBacks. They bought back nearly 10% of
the entire market cap of the company.
This improve the earnings per share of the company.
This drove of the stock price higher the shareholders at that
time benefited dramatically from it and the same thing in 2018,
and 2017 Starbucks has rewarded shareholders dramatically
through share BuyBacks. Here's another chart.
We can look at to illustrate this further.
Look at the overall yield of the company in the way that they
return Capital to the shareholder.
Over the past five years. Starbucks has returned five
point three, nine percent of its yield through BuyBacks and only
one point eight three percent through diplomatic It's BuyBacks
are the huge majority of way that Starbucks rewards its
shareholders. And essentially what they're
saying right now is, they're removing that option.
They're removing 80% of the way that they've historically,
rewarded shareholders. I know that Schultz is looked at
as a legendary CEO. He founded Starbucks but I do
question, a lot of the moves. He's making now to come in and
say, hey, we're no longer rewarding shareholders.
We're going to scrap the BuyBacks and were almost doing
anything to say that will help out the employees.
I think it changes the environment.
Investment thesis, listen to some of the wording that he's
saying here in one of the meetings, he promised employees
at the form that the company's best days were ahead of them.
That's great. But then he goes on to say we
have to reimagine the role and responsibilities of a public
company in America. Today we have to reimagine the
role and responsibilities of a public company.
What does that mean? Does that mean we no longer
reward shareholders? We give everything to the
employees of the company because if that's the case, that's not
Only a company. I want to be a shareholder of
there. Should be rewards for taking
risk. He also goes on to apologize, to
the employees. Saying quote, we haven't done
enough, I promise to do better. What exactly is he apologizing
for Starbucks? Has better pay better benefits
and better working conditions than almost every single
comparable store in its industry.
So I fail to see what Starbucks is so emphatically apologetic
about to add even more confusion to this Howard Schultz recently.
Did this open Forum to their Partners where he goes on
explaining And some new business ventures that Starbucks will be
going into you. Look at the companies to Brands
and celebrities the influences that are trying to create a
digital nft platform and business.
I can't find one of them that has the Treasure Trove of assets
that Starbucks has from Collectibles to the entire
Heritage of the company. So here's the see sometime
before the end of this calendar year, we are going to be in the
nft business, so we're going into the nft business.
Now that is apparently a priority for Starbucks.
So with all this recent news and events of Howard Schultz
returning back to Starbucks, the stock price has dropped seven
percent in just a couple of days and I'm currently down three
thousand dollars on the holding. Now, I've thought about this for
a bit, I've considered all the Possibilities.
And I'm still holding on to this stock, I view this as a material
- I think that it means that the unions are causing more trouble
than Starbucks would like to admit, they're willing to change
their entire corporate policy because of it and I think a lot
of this stuff is political and it's Optics driven but overall
Starbucks is still a company that is in secular growth.
They're opening up stores rapidly.
I think they'll generate more free cash flow in the future and
even though it's largely undefined of what they plan on
doing with all their free. Cash flow instead of doing
BuyBacks. I think they might be able to
find something productive to do with it.
Maybe they will reinvest back into their company at a very
productive way, but I know that Starbucks generates a lot more
cash than what's necessary to pay their employees.
A very favorable wage so that cash needs to go somewhere.
So either they're going to pay down debt dividend out build new
stores or reinvest back into their current stores.
A lot of options remain open for the company but just fair
warning, if you're an investor in Starbucks.
Now, after this recent surprise, Is I would not expect the stock
to be surging up words. Anytime soon it's down 4%, again
today as analysts are giving it a downgrade because when you
stop doing share BuyBacks the earnings growth doesn't grow as
rapidly. So my opinion, I agree with the
analysts here. The company is worthy of a
temporary downgrade until they reinstate their normal policies.
So that's my thoughts for now. I hope you enjoyed the episode
and I'll see you in the next one.