1 00:00:00,120 --> 00:00:03,040 Welcome back, everyone. We recently had two huge 2 00:00:03,040 --> 00:00:06,120 earnings reports, Starbucks and Amazon. 3 00:00:06,480 --> 00:00:09,880 These two companies also had very, very different outcomes. 4 00:00:10,360 --> 00:00:14,960 For example, Starbucks today is down 17% after earnings. 5 00:00:15,560 --> 00:00:19,600 To say that this was weaker than expected is accurate, but it's 6 00:00:19,600 --> 00:00:23,280 also an understatement. This was a disastrous earnings 7 00:00:23,280 --> 00:00:24,760 report. We're going to go into the 8 00:00:24,760 --> 00:00:26,200 details. We're going to share what's 9 00:00:26,200 --> 00:00:29,560 going on with this story and we're going to observe my claim 10 00:00:29,560 --> 00:00:33,320 that I made four months ago. Four months ago, I made a video 11 00:00:33,600 --> 00:00:37,760 saying that I believe we are entering in to a caffeine 12 00:00:37,800 --> 00:00:39,640 bubble. It's something that's not 13 00:00:39,640 --> 00:00:41,640 getting talked about enough. Not enough investors are 14 00:00:41,640 --> 00:00:44,880 focusing on this little niche caffeine bubble. 15 00:00:45,240 --> 00:00:46,800 But I've seen it. I've spotted it. 16 00:00:47,120 --> 00:00:51,440 And I believe that this is the first real material evidence of 17 00:00:51,440 --> 00:00:54,800 that bubble manifesting today. So we're going to be looking at 18 00:00:54,800 --> 00:00:56,480 Starbucks. We'll also be looking at the 19 00:00:56,480 --> 00:00:59,120 Starbucks CEO. Just today, he went on an 20 00:00:59,120 --> 00:01:02,680 interview with Jim Cramer. And let me tell you, that 21 00:01:02,680 --> 00:01:05,519 interview did not go well. I know that a lot of people have 22 00:01:05,519 --> 00:01:09,160 opinions about Jim Cramer, but he grilled the CEO in this 23 00:01:09,160 --> 00:01:11,440 interview. It is devastating. 24 00:01:11,440 --> 00:01:14,440 It was difficult to watch, but we're going to, we're going to 25 00:01:14,440 --> 00:01:16,000 soldier through it. I'll take you through the 26 00:01:16,000 --> 00:01:18,040 interview. I'll give you my reaction when 27 00:01:18,040 --> 00:01:20,200 watching it, and we're going to go through the numbers on 28 00:01:20,200 --> 00:01:22,360 Starbucks and see if there's any hope for this company in the 29 00:01:22,360 --> 00:01:25,000 future and see what what the future looks like. 30 00:01:25,600 --> 00:01:27,480 The other company, of course, we're going to be looking at is 31 00:01:27,480 --> 00:01:30,400 Amazon. It's up a little bit today on a 32 00:01:30,400 --> 00:01:35,560 red day, which is is good. The Nasdaq's down .6% and 33 00:01:35,560 --> 00:01:38,600 Amazon's up 1 1/2 percent or 1.1%. 34 00:01:39,000 --> 00:01:41,640 So that's always a good day. It's up a little bit, but this 35 00:01:41,640 --> 00:01:44,560 wasn't the monstrous quarter that we expected. 36 00:01:44,800 --> 00:01:48,760 It's not up 10 or 15%. Amazon's just holding on to its 37 00:01:48,760 --> 00:01:51,000 gains. But there's a lot more to this 38 00:01:51,000 --> 00:01:52,840 story. There's a lot more takeaways. 39 00:01:53,160 --> 00:01:55,960 After time of looking at the earnings report, listening to 40 00:01:55,960 --> 00:01:58,200 the earnings call and going through what I think are the 41 00:01:58,200 --> 00:02:01,320 biggest indicators of Amazon, I'm going to give you a full 42 00:02:01,320 --> 00:02:02,880 update. I'm going to give you a full 43 00:02:02,880 --> 00:02:06,800 review of the financials in context with what's going on 44 00:02:06,800 --> 00:02:09,759 with Amazon and how I view the company for the remainder of 45 00:02:09,759 --> 00:02:11,880 2024. So this is going to be a lot of 46 00:02:11,880 --> 00:02:13,400 fun to go through both of these companies. 47 00:02:13,400 --> 00:02:14,880 I hope you enjoy this type of content. 48 00:02:15,200 --> 00:02:18,240 If you do, just on a side note, to gain access to Qualtrum, 49 00:02:18,240 --> 00:02:21,520 which you get all of this pretty data, you get access to hundreds 50 00:02:21,520 --> 00:02:24,560 of exclusive episodes. You can join the Patreon today 51 00:02:24,760 --> 00:02:26,640 risk free. If you join today, you get the 52 00:02:26,640 --> 00:02:29,600 entire month for free as a free trial. 53 00:02:29,680 --> 00:02:31,440 So if you haven't already, try it out. 54 00:02:31,440 --> 00:02:33,600 Today's the time. Let's go ahead and start off 55 00:02:33,640 --> 00:02:36,640 with Starbucks. Like I said, it's down 17% 56 00:02:36,640 --> 00:02:38,480 today. Now the first thing I want to 57 00:02:38,480 --> 00:02:41,280 say about Starbucks is this is a company I really like. 58 00:02:41,320 --> 00:02:43,000 I think it's a really strong company. 59 00:02:43,000 --> 00:02:45,200 Fundamentally. It has great brand value. 60 00:02:45,400 --> 00:02:48,360 It does have pricing power. It's a company that has a great 61 00:02:48,360 --> 00:02:51,160 loyalty program. Starbucks has one of the best 62 00:02:51,160 --> 00:02:54,320 digital assets with millions of members using it every single 63 00:02:54,320 --> 00:02:56,920 day. And it kind of works as a form 64 00:02:56,920 --> 00:02:58,920 of a bank. They get a lot of capital from 65 00:02:58,920 --> 00:03:01,440 their app that they can use in future investments. 66 00:03:01,720 --> 00:03:04,120 So I've been someone that's actually been bullish on 67 00:03:04,120 --> 00:03:07,120 Starbucks in the past, but there's been something that's 68 00:03:07,120 --> 00:03:10,240 changed my mind over time, something that caused me concern 69 00:03:10,240 --> 00:03:14,600 about Starbucks in the future. I saw this across the horizon, 70 00:03:14,600 --> 00:03:18,240 getting closer and closer and closer and I finally decided to 71 00:03:18,240 --> 00:03:21,360 sell my position because I feel like the risks were increasing 72 00:03:21,360 --> 00:03:24,160 for Starbucks. We can see that in my trading. 73 00:03:24,400 --> 00:03:27,920 If we look at My Portfolio here, you can see my trading history 74 00:03:27,920 --> 00:03:31,440 with Starbucks. I was buying it in like the 70s 75 00:03:31,440 --> 00:03:36,120 and 80s, around 2022 and then I started to sell the company 76 00:03:36,680 --> 00:03:39,560 early 2023 so we can look at these cells here. 77 00:03:39,720 --> 00:03:43,480 I sold 1000 of it here for 105102 right there. 78 00:03:44,040 --> 00:03:50,880 My my last sell my big one, July 24th, 2023 I sold 3700 dollars 79 00:03:50,880 --> 00:03:54,080 of the stock. The last of my position at 103. 80 00:03:54,520 --> 00:03:59,000 The reason I sold out of Starbucks was because I felt 81 00:03:59,000 --> 00:04:00,600 like we're getting into a caffeine bubble. 82 00:04:00,840 --> 00:04:02,880 Four months ago I made a video on this. 83 00:04:02,880 --> 00:04:04,400 You can go back and watch the video. 84 00:04:04,640 --> 00:04:08,440 I basically explained in this video that I believe there's too 85 00:04:08,440 --> 00:04:11,840 many companies entering into Starbucks is fair, too many 86 00:04:11,840 --> 00:04:13,880 companies. We have McDonald's having 87 00:04:13,880 --> 00:04:18,399 Cosmics, a new Starbucks like drink type of concept where 88 00:04:18,399 --> 00:04:21,480 people just go through in lines around me locally. 89 00:04:21,720 --> 00:04:24,160 There's multiple places where you can go through Dr. Thrus and 90 00:04:24,160 --> 00:04:25,520 get your caffeine for the morning. 91 00:04:25,720 --> 00:04:28,920 You have Panera Bread actually killing two people at their 92 00:04:28,920 --> 00:04:31,640 highly caffeinated energy charge drinks. 93 00:04:32,080 --> 00:04:35,240 You have Jack-in-the-box coming out with an energy drink. 94 00:04:35,640 --> 00:04:38,680 You have other companies that are fast food companies 95 00:04:38,880 --> 00:04:42,640 transitioning to energy and caffeine based drinks. 96 00:04:42,800 --> 00:04:45,800 They all want to get part of this high margin industry which 97 00:04:45,800 --> 00:04:48,160 is the caffeine addicted consumer group. 98 00:04:48,720 --> 00:04:51,280 And not only do you have the fast food industries, the Jack 99 00:04:51,280 --> 00:04:54,360 in the Boxes, the Panera breads, the McDonald's moving into 100 00:04:54,360 --> 00:04:57,800 Starbucks's category, but you also have a whole other category 101 00:04:58,040 --> 00:04:59,720 that I think has significant overlap. 102 00:05:00,040 --> 00:05:03,640 The category there are the Celsiuses, the Monster Energy, 103 00:05:03,920 --> 00:05:06,560 the Red Bull. Now you have C4 Energy. 104 00:05:06,560 --> 00:05:09,360 You have so many other companies moving into this energy drink 105 00:05:09,560 --> 00:05:11,480 sphere. So when I saw that on the 106 00:05:11,480 --> 00:05:14,640 horizon, I just thought, you know what, Starbucks is at a 107 00:05:14,640 --> 00:05:17,160 healthy valuation right now. It's fully valued. 108 00:05:18,080 --> 00:05:20,200 I've done well in the stock. I made money on it. 109 00:05:20,520 --> 00:05:23,000 I'm going to sell out now and move this money into companies 110 00:05:23,000 --> 00:05:24,720 that I feel a little bit more confident in. 111 00:05:25,040 --> 00:05:27,960 So that's my initial concern with Starbucks. 112 00:05:28,520 --> 00:05:31,360 And like many of these theories, you don't know if they'll really 113 00:05:31,360 --> 00:05:32,880 hit. You don't know if Starbucks is 114 00:05:32,880 --> 00:05:36,680 just going to go right through these concerns and maybe I sold 115 00:05:36,680 --> 00:05:39,520 prematurely and Starbucks would continue to go up and have great 116 00:05:39,720 --> 00:05:43,000 same store sales or it might go the other direction where these 117 00:05:43,000 --> 00:05:45,360 concerns start to manifest through the numbers. 118 00:05:45,720 --> 00:05:47,880 Ultimately the numbers will show you the truth. 119 00:05:48,240 --> 00:05:52,240 And this quarter in particular for Starbucks is the first time 120 00:05:52,240 --> 00:05:56,000 that I've seen real evidence of this caffeine bubble thesis 121 00:05:56,000 --> 00:05:58,720 starting to play out. I think we're starting to see 122 00:05:58,720 --> 00:06:02,240 real evidence here. Now before we even go through 123 00:06:02,240 --> 00:06:05,520 the Qualtrum numbers, which look really ugly this quarter, I 124 00:06:05,520 --> 00:06:08,240 first want to show you some of the breakdown of just how bad 125 00:06:08,240 --> 00:06:10,960 this quarter was. This isn't just a stock selling 126 00:06:10,960 --> 00:06:14,400 down because of volatility or selling down because of a simple 127 00:06:14,400 --> 00:06:17,600 overreaction. These are really ugly numbers. 128 00:06:17,920 --> 00:06:21,240 We can look at the adjusted diluted EPS, that's the normal 129 00:06:21,240 --> 00:06:25,680 EPS number you want to look at. The Wall Street expectations 130 00:06:25,800 --> 00:06:31,200 were for $0.80. They came in at $0.68, so 15% 131 00:06:31,200 --> 00:06:33,240 below Wall Street's expectations. 132 00:06:33,640 --> 00:06:36,760 Revenue was also a miss, so they missed on the top and bottom 133 00:06:36,760 --> 00:06:39,280 line revenue and especially earnings. 134 00:06:40,200 --> 00:06:41,880 We have same store sales percentage. 135 00:06:42,200 --> 00:06:45,560 This is a major KPI that you track for any type of 136 00:06:45,560 --> 00:06:48,120 restaurant, any type of retail location. 137 00:06:48,760 --> 00:06:54,880 You have it here at -4%. Now overall, Wall Street was 138 00:06:54,880 --> 00:06:59,320 expecting +1.46%. So Wall Street was pricing in 139 00:06:59,320 --> 00:07:02,400 that they're going to grow same store sales slightly, it came in 140 00:07:02,560 --> 00:07:05,160 -4%. This is also distributed 141 00:07:05,160 --> 00:07:08,280 throughout the entire globe. So this isn't some type of issue 142 00:07:08,280 --> 00:07:11,800 just between international or China or just the US. 143 00:07:12,080 --> 00:07:19,200 This was everywhere -3% in the US, -6% internationally, -11% in 144 00:07:19,200 --> 00:07:21,360 China. So China's getting crushed. 145 00:07:21,360 --> 00:07:23,640 The US is going negative and everywhere else is going 146 00:07:23,640 --> 00:07:25,640 negative as well. Not great. 147 00:07:25,920 --> 00:07:28,920 And you can see that Wall Street was pricing in growing same 148 00:07:28,920 --> 00:07:32,640 store sales everywhere but China, they had minus same store 149 00:07:32,640 --> 00:07:36,120 sales everywhere including China and way worse in China than 150 00:07:36,120 --> 00:07:39,160 expected. You have the transactions was 151 00:07:39,160 --> 00:07:43,120 also a huge miss. Wall Street was expecting it to 152 00:07:43,120 --> 00:07:49,840 be roughly equal kind of in line the same -.27 and it came in at 153 00:07:49,840 --> 00:07:53,560 -6%. So traffic volumes are going way 154 00:07:53,560 --> 00:07:56,960 down both in North America and internationally. 155 00:07:57,280 --> 00:08:00,280 Again, you can't blame this on one single country or one single 156 00:08:00,280 --> 00:08:03,000 geography. You have ticket growth. 157 00:08:03,440 --> 00:08:06,280 So transaction is the amount of traffic, people coming in and 158 00:08:06,280 --> 00:08:08,920 out of stores and then you have ticket growth which is due to 159 00:08:08,920 --> 00:08:10,440 pricing, how much people are paying. 160 00:08:11,160 --> 00:08:15,200 Traffic is way down and people are paying slightly more but 161 00:08:15,200 --> 00:08:19,000 still amiss on paying. Their ticket growth was 2%. 162 00:08:19,280 --> 00:08:24,040 Wall Street was pricing in 2.4, North America was 4%, Wall 163 00:08:24,040 --> 00:08:27,200 Street was pricing in 4.15. So that's one of the only 164 00:08:27,200 --> 00:08:30,560 metrics that they really hit. They came in with their ticket 165 00:08:30,560 --> 00:08:34,799 growth in North America, not to mention they missed North 166 00:08:34,799 --> 00:08:38,080 America's traffic by set by over 8%. 167 00:08:38,480 --> 00:08:42,520 Internationally it was down big ticket growth was much smaller 168 00:08:42,520 --> 00:08:46,840 internationally -3% then even in the new store openings. 169 00:08:46,840 --> 00:08:49,280 So you expect the company to continue opening up new stores, 170 00:08:49,280 --> 00:08:50,560 That's how they get new customers. 171 00:08:51,480 --> 00:08:57,880 Net new locations in North America was 134 compared to 144 172 00:08:57,880 --> 00:09:00,720 expected. So they missed that by 7%. 173 00:09:01,040 --> 00:09:05,760 International was 230, expected was 429, they missed that by 174 00:09:05,760 --> 00:09:08,840 46%. So they're not opening up as 175 00:09:08,840 --> 00:09:12,680 many locations as expected. And this is what I'm referring 176 00:09:12,680 --> 00:09:14,840 to. No matter which way you slice 177 00:09:14,840 --> 00:09:17,840 it, no matter which way you look at this, Starbucks missed on 178 00:09:17,840 --> 00:09:20,040 everything. They missed on every aspect of 179 00:09:20,040 --> 00:09:23,320 every part of their earnings. There are no good highlights 180 00:09:23,320 --> 00:09:25,160 about this. There's really, it's really hard 181 00:09:25,160 --> 00:09:28,160 to find anything to be really happy about this report. 182 00:09:28,680 --> 00:09:31,920 So in some cases I see stocks selling off and I shrug my 183 00:09:31,920 --> 00:09:33,720 shoulders. I have a hard time finding where 184 00:09:33,720 --> 00:09:36,760 the weakness is. In this case, I think the sell 185 00:09:36,760 --> 00:09:39,560 off is largely justified. I think that investors were 186 00:09:39,560 --> 00:09:42,640 totally blindsided by what happened here and I think that 187 00:09:42,640 --> 00:09:46,920 Starbucks did a really bad job guiding investors expectations 188 00:09:46,920 --> 00:09:49,520 into this quarter. This was a huge communication 189 00:09:49,520 --> 00:09:53,040 breakdown between the management and their expectations and 190 00:09:53,040 --> 00:09:55,720 guiding and guiding investors in the right direction. 191 00:09:56,080 --> 00:09:58,760 Obviously investors were caught way off guard. 192 00:09:59,200 --> 00:10:01,600 Now we go down to the other metrics here and we can see this 193 00:10:01,600 --> 00:10:04,160 show up in the longer term context. 194 00:10:05,040 --> 00:10:08,160 We look at the revenue here, I'll zoom in a little bit so you 195 00:10:08,160 --> 00:10:12,240 can just see this more clearly. See this last quarter its way 196 00:10:12,240 --> 00:10:15,400 down even from a year ago, you had it climbing and then all of 197 00:10:15,400 --> 00:10:18,960 a sudden it fell rapidly. So the latest quarter it's down 198 00:10:19,120 --> 00:10:23,440 big, big time decline there. It looks unusually low. 199 00:10:23,520 --> 00:10:26,120 We look at the free cash flow and this looks like it's growing 200 00:10:26,120 --> 00:10:27,640 overtime. So the free cash flow I'll give 201 00:10:27,640 --> 00:10:31,000 them looks OK, but there's other issues with the free cash flow. 202 00:10:31,280 --> 00:10:33,600 A lot of this money that they earned this quarter is already 203 00:10:33,600 --> 00:10:36,040 spoken for and I'll go into that a little bit later. 204 00:10:36,520 --> 00:10:39,560 When we look at the earnings per share, here's the other big 205 00:10:39,560 --> 00:10:41,000 miss. You can see earnings per share 206 00:10:41,000 --> 00:10:43,560 declining year over year. If I zoom in a little bit here, 207 00:10:43,560 --> 00:10:46,280 you can see this more clearly. This is the most recent quarter 208 00:10:46,480 --> 00:10:49,280 we go back four quarters ago. That's what it looks like right 209 00:10:49,280 --> 00:10:53,560 there. So it went from $0.79 down to 68 210 00:10:53,800 --> 00:10:59,480 decline and EPS year over year. Now they were guiding for around 211 00:10:59,480 --> 00:11:03,240 15% earnings per share growth and now analyst estimates are 212 00:11:03,240 --> 00:11:06,280 wondering even if they can become flat, even if they can 213 00:11:06,280 --> 00:11:07,800 just keep their earnings per share. 214 00:11:08,080 --> 00:11:09,840 That's how much of A blind side this was. 215 00:11:10,360 --> 00:11:13,240 When we look at the cash and debt, they took on more debt 216 00:11:13,240 --> 00:11:15,720 last quarter. So long term debts going up 217 00:11:15,720 --> 00:11:18,360 during a time where interest rates are higher, meaning that 218 00:11:18,360 --> 00:11:21,160 their interest on this debt is going to be much higher and 219 00:11:21,160 --> 00:11:24,120 that's a problem for Starbucks. When we look at dividends, 220 00:11:24,440 --> 00:11:27,120 they're keeping their dividend, but this dividends becoming an 221 00:11:27,120 --> 00:11:29,960 increasing amount of their cash flows, taking up a bigger and 222 00:11:29,960 --> 00:11:34,000 bigger proportion of their cash flows leaving less amounts for 223 00:11:34,000 --> 00:11:36,840 things like paying down debt and doing buybacks. 224 00:11:36,960 --> 00:11:39,120 When we look at the shares outstanding, we can see a 225 00:11:39,120 --> 00:11:42,760 decline year over year, but it's not going down quarter to 226 00:11:42,760 --> 00:11:44,560 quarter. The shares outstanding was 227 00:11:44,560 --> 00:11:47,800 completely flat from this quarter to last quarter because 228 00:11:47,800 --> 00:11:50,040 they cannot afford to do buybacks. 229 00:11:50,200 --> 00:11:53,400 One of the key things I look for in my companies are ones that 230 00:11:53,400 --> 00:11:56,880 can afford to do buybacks if the share price plummets because 231 00:11:56,880 --> 00:11:59,400 that's always a thing that can buoy the stock back up. 232 00:11:59,680 --> 00:12:01,360 It's a little bit of a margin of safety. 233 00:12:01,600 --> 00:12:04,480 If you have a company that has a ton of cash flow and sells off 234 00:12:04,480 --> 00:12:07,640 big time, they can just buy back their stock over and over again, 235 00:12:07,640 --> 00:12:10,800 improving all of their per share metrics, making it so that it's 236 00:12:10,960 --> 00:12:13,120 really a matter of time until the stock goes back up. 237 00:12:13,480 --> 00:12:16,600 That's why I like investing in companies like Texas Roadhouse 238 00:12:16,600 --> 00:12:19,680 or MasterCard or Intuit. All these companies can pull a 239 00:12:19,680 --> 00:12:22,680 buyback lever if the stock price ever falls. 240 00:12:22,840 --> 00:12:26,560 The issue for Starbucks is they can't do buybacks. 241 00:12:26,800 --> 00:12:29,600 They can't afford to. This year, Starbucks is going to 242 00:12:29,600 --> 00:12:33,520 generate around 3 to $4 billion of free cash flow, OK, So they 243 00:12:33,520 --> 00:12:36,840 have 3 to $4 billion of free cash flow to do buybacks with. 244 00:12:37,280 --> 00:12:39,440 Seems like that's a good thing. They can buy back with $4 245 00:12:39,440 --> 00:12:43,480 billion, but remember, 2 1/2 billion dollars of that is 246 00:12:43,480 --> 00:12:47,040 already going to dividends. So 2 1/2 billion dollars is 247 00:12:47,040 --> 00:12:50,800 spoken for going to dividends. Then they have debt payments, 248 00:12:50,800 --> 00:12:54,200 interest payments on their debt of 1 1/2 billion dollars. 249 00:12:54,600 --> 00:12:57,160 So right there, all of their money that they're generating in 250 00:12:57,160 --> 00:13:00,440 free cash flow is already going to interest payments and 251 00:13:00,440 --> 00:13:03,400 dividends, leaving them no money for buybacks. 252 00:13:03,680 --> 00:13:07,240 So as the stock price falls, they have no tool in their tool 253 00:13:07,240 --> 00:13:08,840 belt to really buy back the stock. 254 00:13:09,200 --> 00:13:11,920 The only way that they could really afford it right now is by 255 00:13:11,920 --> 00:13:14,400 issuing more debt. But that wouldn't make sense 256 00:13:14,400 --> 00:13:16,680 because then they're increasing the amount of interest payments 257 00:13:16,680 --> 00:13:19,680 they have in the future. So this is also a company that 258 00:13:19,680 --> 00:13:23,600 doesn't really have an easy tool to be able to fight back on this 259 00:13:23,600 --> 00:13:26,440 share decline, and that makes this situation even tougher for 260 00:13:26,440 --> 00:13:28,440 them. In order to do buybacks right 261 00:13:28,440 --> 00:13:31,120 now, they'd need to cut the dividend, and I don't think they 262 00:13:31,120 --> 00:13:33,320 want to do that. So there's a brief overview of 263 00:13:33,320 --> 00:13:36,040 the numbers this quarter of the fundamentals. 264 00:13:36,200 --> 00:13:40,520 And anytime a big company like this posts 1/4 this bad, this 265 00:13:40,520 --> 00:13:44,240 unexpectedly terrible, investors want an explanation. 266 00:13:44,240 --> 00:13:46,760 And they want an explanation of the leader of the company, of 267 00:13:46,760 --> 00:13:49,600 the top executive, the CEO of the company. 268 00:13:49,880 --> 00:13:51,280 They want to hear his side of it. 269 00:13:51,280 --> 00:13:53,000 What is going on with our business? 270 00:13:53,000 --> 00:13:56,280 What what's happening here? Now I have my explanation. 271 00:13:56,280 --> 00:13:58,240 My thought is that it's a caffeine bubble. 272 00:13:58,480 --> 00:14:00,240 I think it's very clearly a caffeine bubble. 273 00:14:00,440 --> 00:14:01,800 I think caffeine's too expensive. 274 00:14:01,800 --> 00:14:04,120 There's too many products, too many competitors, and we're 275 00:14:04,120 --> 00:14:06,080 finally seeing evidence of a breaking point. 276 00:14:06,320 --> 00:14:10,040 But that's just my opinion. What we see here is the CEO 277 00:14:10,040 --> 00:14:14,080 coming on to CNBC and being interviewed by none less than 278 00:14:14,080 --> 00:14:16,480 Jim Cramer. Now say what you will about Jim 279 00:14:16,480 --> 00:14:19,840 Cramer, but this interview, this one was a rough one. 280 00:14:19,840 --> 00:14:23,600 He Jim Cramer really pressed him in this interview. 281 00:14:23,600 --> 00:14:26,680 I I think it's great, but I also think it's it's a tough one. 282 00:14:26,680 --> 00:14:28,760 Let's go ahead and just tune into it. 283 00:14:29,000 --> 00:14:32,520 I'll bring it up here. We have here the the CEO of 284 00:14:32,520 --> 00:14:35,800 Starbucks being interviewed by Jim Cramer and right there he 285 00:14:35,800 --> 00:14:38,600 has a face where he's looking pretty upset and I think 286 00:14:38,600 --> 00:14:42,360 rightfully so because again, Starbucks investors went into 287 00:14:42,360 --> 00:14:44,960 this and got blindsided. Let's go ahead and start off 288 00:14:44,960 --> 00:14:47,400 here. Jim, it was a very tough 289 00:14:47,400 --> 00:14:49,880 quarter. Thank you for having me. 290 00:14:50,360 --> 00:14:53,760 There were three reasons for for this. 291 00:14:53,840 --> 00:14:59,000 First, we saw unexpected pressures on our occasional 292 00:14:59,000 --> 00:15:02,560 customers more intense than we expected that impacted their 293 00:15:02,560 --> 00:15:05,520 visitation. Second, the choppiness of the 294 00:15:05,520 --> 00:15:09,480 recovery in China continued with a more intense price war and 295 00:15:09,480 --> 00:15:13,320 what we expected. And 3rd, challenges of our 296 00:15:13,320 --> 00:15:16,360 business in the Middle East that impacted us not just in the 297 00:15:16,360 --> 00:15:18,840 Middle East but also in other geographies. 298 00:15:19,800 --> 00:15:23,720 Another thing he mentions here is conflicts in the Middle East 299 00:15:23,720 --> 00:15:26,200 and that weighing on the business, there is some 300 00:15:26,200 --> 00:15:29,040 protesting and some boycotting of of Starbucks. 301 00:15:29,360 --> 00:15:32,440 I think that's having an impact, but I think companies like to 302 00:15:32,440 --> 00:15:35,400 blame stuff like that more than it actually is causing a 303 00:15:35,400 --> 00:15:38,320 concern. Starbucks is being impacted by 304 00:15:38,520 --> 00:15:41,160 some boycotts, but they're everywhere. 305 00:15:41,160 --> 00:15:43,720 They're in every geography and you're seeing the same type of 306 00:15:43,720 --> 00:15:47,520 thing happen in every geography. These protests are not happening 307 00:15:47,680 --> 00:15:50,720 in every single geography, so I don't believe that's really a 308 00:15:50,720 --> 00:15:54,400 valid excuse for the overwhelmingly and diversified 309 00:15:54,640 --> 00:15:57,440 poor performance from Starbucks. Now we continue on with this 310 00:15:57,440 --> 00:15:59,400 interview and it just gets rougher and rougher. 311 00:16:00,480 --> 00:16:03,520 I understand. Now what I'm trying to figure 312 00:16:03,520 --> 00:16:07,120 out Sir, is why did you not feel the need to pre announce this 313 00:16:07,120 --> 00:16:11,320 shortfall given the fact in the previous quarter your CFO said 314 00:16:11,320 --> 00:16:14,680 that you she felt that you could have a a earnings per share 315 00:16:14,680 --> 00:16:17,000 growth in the range of 15 to 20%. 316 00:16:17,360 --> 00:16:20,800 This is a substantial decline from that and given the fact 317 00:16:20,800 --> 00:16:23,360 that you said on the call that April did not end well, I went 318 00:16:23,360 --> 00:16:27,000 to know why you did not feel the need to come out and say our 319 00:16:27,000 --> 00:16:28,480 quarters going to be substantially worse than 320 00:16:28,480 --> 00:16:30,480 expected at least four weeks ago. 321 00:16:31,880 --> 00:16:36,320 I think, Jim, we've been working on action plans to address these 322 00:16:36,320 --> 00:16:38,480 headwinds. And So what we wanted to come 323 00:16:38,480 --> 00:16:41,800 back with was not just the announcement, but also the 324 00:16:41,800 --> 00:16:43,480 action plans that we have in place which. 325 00:16:43,800 --> 00:16:47,040 So just three months ago, the leadership of Starbucks was 326 00:16:47,040 --> 00:16:49,480 saying they were going to grow earnings by 15%. 327 00:16:49,760 --> 00:16:52,160 Now analysts are wondering if they're going to grow earnings 328 00:16:52,160 --> 00:16:55,320 in the mid single digits, 4 or 5%. 329 00:16:55,600 --> 00:16:57,880 So the estimates are being dramatically changed. 330 00:16:58,680 --> 00:17:02,280 By the way, are not business as usual and I'm happy to talk 331 00:17:02,280 --> 00:17:04,520 about them. Well, let's let's finish 'cause 332 00:17:04,520 --> 00:17:06,599 I know that investors are trying to figure out why they should 333 00:17:06,599 --> 00:17:10,480 hold on to the stock. What I Some of the things that I 334 00:17:10,480 --> 00:17:13,720 am confused about. I checked with all the major, 335 00:17:13,720 --> 00:17:16,560 both public and private companies that are in a similar 336 00:17:16,560 --> 00:17:21,560 business to you and no one saw a 3% decline in com stores because 337 00:17:21,560 --> 00:17:25,960 of weather and none of them saw a negative number except for 338 00:17:25,960 --> 00:17:28,480 you. Is it possible that your coffee 339 00:17:28,480 --> 00:17:32,200 is just too darn expensive? Such. 340 00:17:32,200 --> 00:17:34,440 A good question. Again, criticize Jim Cramer for 341 00:17:34,440 --> 00:17:36,360 what you want, but this is such a great question. 342 00:17:36,600 --> 00:17:39,520 He did all the comps of all the similar businesses, all the ones 343 00:17:39,520 --> 00:17:42,920 selling expensive caffeinated drinks, and all of those are 344 00:17:42,920 --> 00:17:45,720 seeing growth. Starbucks is the only one seeing 345 00:17:45,720 --> 00:17:47,600 declines year over year in their sales. 346 00:17:47,920 --> 00:17:49,840 So how is he going to explain this? 347 00:17:52,200 --> 00:17:55,880 Jim, I think that if I look at the US occasional customer, 348 00:17:56,200 --> 00:17:58,880 they've clearly cut back on, on visits to us. 349 00:17:59,280 --> 00:18:02,680 If you look at the value for money scores we have, they're 350 00:18:02,680 --> 00:18:06,080 still strong, but there's no question that the occasional 351 00:18:06,080 --> 00:18:08,520 customer is cutting back on visits to us. 352 00:18:08,840 --> 00:18:12,200 We have not been able to communicate to them the value 353 00:18:12,200 --> 00:18:15,840 that we provide. So what we are doing about it is 354 00:18:15,960 --> 00:18:18,480 it's not business as usual, but there's an action plan we have 355 00:18:18,480 --> 00:18:22,160 in place in order to do that, to reach them and to communicate 356 00:18:22,240 --> 00:18:27,960 the value that we are providing. This, this line, he sees the big 357 00:18:27,960 --> 00:18:29,840 problem with Starbucks right now. 358 00:18:30,440 --> 00:18:33,520 Not that their prices are too high, but it's a it's just a 359 00:18:33,520 --> 00:18:36,000 miscommunication of the value that they're providing. 360 00:18:36,000 --> 00:18:38,320 They haven't communicated correctly the value they're 361 00:18:38,320 --> 00:18:41,280 providing. The correct answer here for this 362 00:18:41,360 --> 00:18:43,760 CEO is to just say we took too much pricing. 363 00:18:43,760 --> 00:18:46,160 We raise prices little too fast, a little too soon. 364 00:18:46,520 --> 00:18:49,120 And so we're going to ease off the the gas pedal a little bit, 365 00:18:49,200 --> 00:18:52,200 give breathing room, We're going to hold off on price increases. 366 00:18:52,440 --> 00:18:54,400 That's exactly what other companies do when they get a 367 00:18:54,400 --> 00:18:57,000 little head with pricing. They say, you know what, we took 368 00:18:57,000 --> 00:18:59,000 a lot of pricing. We're seeing some pushback from 369 00:18:59,000 --> 00:19:00,920 customers, so we're going to ease off. 370 00:19:00,920 --> 00:19:04,000 We might lower prices slightly in some markets to regain 371 00:19:04,000 --> 00:19:06,520 customer traffic. There's nothing wrong with that. 372 00:19:06,760 --> 00:19:09,200 There's nothing wrong with a company admitting that they 373 00:19:09,200 --> 00:19:11,840 raise prices a little too fast for customers. 374 00:19:12,160 --> 00:19:15,480 But instead of doing that, he blames it on a miscommunication 375 00:19:15,480 --> 00:19:18,360 of value. They aren't communicating 376 00:19:18,360 --> 00:19:23,280 correctly that the price of a drink going from $4.00 to $6 in 377 00:19:23,280 --> 00:19:27,080 a matter of a year is still not great value for customers. 378 00:19:27,920 --> 00:19:31,040 I don't think any way that they communicate the value to 379 00:19:31,040 --> 00:19:34,480 customers, whatever he means there is going to fix this. 380 00:19:34,800 --> 00:19:38,000 There's too many alternatives. Starbucks is not the only game 381 00:19:38,000 --> 00:19:41,760 in town selling a morning drink that gives you your buzz, that 382 00:19:41,760 --> 00:19:43,360 gives you your energy for the morning. 383 00:19:43,840 --> 00:19:47,280 So I think this is a big misstep by the CEO here. 384 00:19:47,480 --> 00:19:50,280 He had an opportunity to say you know it. 385 00:19:50,280 --> 00:19:52,840 We think it's mostly due to just taking too much pricing. 386 00:19:53,400 --> 00:19:55,880 We're going to lay off of that. Instead, he focuses on this 387 00:19:55,880 --> 00:20:00,200 communication talking point. What we're doing for that is we 388 00:20:00,200 --> 00:20:02,840 are making it attractive for them to come back into the 389 00:20:02,840 --> 00:20:06,760 Starbucks app and join it. On the app, what you will see is 390 00:20:06,760 --> 00:20:10,080 you will see value that they haven't seen because they've not 391 00:20:10,080 --> 00:20:13,000 been part of that environment. There are drops that are going 392 00:20:13,000 --> 00:20:15,800 to happen every Monday. There are bundles that we're 393 00:20:15,800 --> 00:20:18,360 putting in place that are attractive for them, For 394 00:20:18,360 --> 00:20:21,360 example, a beverage and a drink at a certain price. 395 00:20:21,720 --> 00:20:24,840 And So what you're seeing there is the effort we're making in 396 00:20:24,840 --> 00:20:28,680 order to ensure that our occasional customers get to see 397 00:20:28,680 --> 00:20:30,840 the value that we provide a loyal. 398 00:20:30,920 --> 00:20:33,160 Customers school program go from 30. 399 00:20:33,720 --> 00:20:38,480 What customers want to hear is that that things are expensive 400 00:20:38,480 --> 00:20:41,280 right now and executives realize things are expensive. 401 00:20:41,280 --> 00:20:43,080 They want to hear that people are paying attention to their 402 00:20:43,080 --> 00:20:45,640 concerns about the ever rising price for everything. 403 00:20:46,040 --> 00:20:49,280 So if you communicated that a little better here, that he 404 00:20:49,280 --> 00:20:51,680 realizes you know that things are expensive so they're going 405 00:20:51,680 --> 00:20:54,360 to pay attention to that, I think that'd come across so much 406 00:20:54,360 --> 00:20:56,520 better. But this continues on. 407 00:20:56,520 --> 00:20:58,520 And again, it just it gets worse from here. 408 00:20:58,520 --> 00:21:05,400 I promise. 34.3, the 32 point, 32.8 in linked quarter, I mean 409 00:21:05,400 --> 00:21:08,040 those people are not occasional, those people are hardcore. 410 00:21:08,240 --> 00:21:11,040 Why did your members and I know your membership was up 6% year 411 00:21:11,040 --> 00:21:12,440 over year. I'm not concerned with that. 412 00:21:12,640 --> 00:21:16,400 I'm concerned with linked quarter, why you had not the 413 00:21:16,400 --> 00:21:19,160 occasional but the hardcore drop off? 414 00:21:20,440 --> 00:21:22,720 Julie, if you look at the most loyal customers, they actually 415 00:21:22,720 --> 00:21:24,640 continue to come in. They continue to buy as 416 00:21:24,640 --> 00:21:28,000 frequently they compete. They continue to customize and 417 00:21:28,000 --> 00:21:30,120 upgrade. It's at the tail of the loyalty 418 00:21:30,120 --> 00:21:33,320 program, particularly those that are you know in the 90 day 419 00:21:33,320 --> 00:21:36,120 active as we call it. The folks that didn't come back, 420 00:21:36,440 --> 00:21:38,880 they again are very similar to the occasional customers. 421 00:21:38,880 --> 00:21:41,600 We have an action plan in place right now to communicate 422 00:21:41,600 --> 00:21:45,000 directly with them with offers that have gone out even as 423 00:21:45,000 --> 00:21:49,960 recent as this week in order to ensure that we can reverse the 424 00:21:49,960 --> 00:21:53,080 visitation losses that we have seen with them and to bring them 425 00:21:53,080 --> 00:21:54,680 back. And yes, you're right, overall 426 00:21:54,680 --> 00:21:58,960 program did grow by 6%, right. So instead of lowering prices, I 427 00:21:58,960 --> 00:22:02,400 think the plan here is to give more freebies, offer more little 428 00:22:02,400 --> 00:22:05,840 discounts, perks, you know, bundled items and that type of 429 00:22:05,840 --> 00:22:07,280 thing. Which is something I think 430 00:22:07,280 --> 00:22:10,120 that's a good route to go down. It's better than doing nothing. 431 00:22:11,000 --> 00:22:13,000 That's necessary. But what's more important, I 432 00:22:13,000 --> 00:22:14,360 think it's the link quarter decline. 433 00:22:14,360 --> 00:22:17,520 Now let me before I turn it over to my colleagues, you said it's 434 00:22:17,520 --> 00:22:19,560 not business as usual. I want to make a point here, 435 00:22:19,560 --> 00:22:22,120 Sir. You are still expanding as if it 436 00:22:22,120 --> 00:22:24,680 is business as usual. You add for instance, on the 437 00:22:24,680 --> 00:22:27,840 quarter, you talk about opening stores in Honduras and Ecuador. 438 00:22:28,120 --> 00:22:32,000 Is it not time to pause, Sir, and figure out what's really 439 00:22:32,000 --> 00:22:36,080 going wrong and spend a deep dive and making it so that this 440 00:22:36,240 --> 00:22:39,360 decline in comp store numbers does not continue because it is 441 00:22:39,360 --> 00:22:42,440 perilous to the actual existential existence of 442 00:22:42,440 --> 00:22:45,840 Starbucks? Jim, thank you for the question. 443 00:22:45,840 --> 00:22:49,600 I what I would tell you is if you look across the world, our, 444 00:22:49,840 --> 00:22:54,920 our system sales in Latin America expanded double digits. 445 00:22:55,560 --> 00:22:59,200 Our sales in Japan expanded double digits. 446 00:22:59,720 --> 00:23:03,040 Our business outside of Malaysia and Indonesia and Asia Pacific 447 00:23:03,200 --> 00:23:07,640 showed growth if you look at the US business and look at the 448 00:23:07,640 --> 00:23:09,080 fund. We just went through all the 449 00:23:09,080 --> 00:23:11,920 numbers, see, see the difference between the story he's painting 450 00:23:11,920 --> 00:23:15,080 and just the raw numbers. We saw that everywhere in the 451 00:23:15,080 --> 00:23:17,480 world, same store sales is in the negative, but when you 452 00:23:17,480 --> 00:23:19,920 listen to them, it's like you're hearing just the complete 453 00:23:19,920 --> 00:23:22,440 opposite than the actual numbers in front of you. 454 00:23:22,680 --> 00:23:27,160 Bundles of the US business, we are holding share in the US We 455 00:23:27,160 --> 00:23:28,880 are still the largest. That's what he says. 456 00:23:28,880 --> 00:23:34,360 We're holding share in the US. Starbucks is holding market 457 00:23:34,360 --> 00:23:36,680 share in the US? Really. 458 00:23:36,680 --> 00:23:38,960 Starbucks, you're holding your market share in the US? 459 00:23:39,560 --> 00:23:42,320 Really. In out of home coffee, if you 460 00:23:42,320 --> 00:23:44,160 look at some of the metrics that we have and. 461 00:23:44,400 --> 00:23:46,960 Tim Horton said you were not holding share, Sir. 462 00:23:47,280 --> 00:23:50,840 I regard them as being Seminole companies that are just as good 463 00:23:50,840 --> 00:23:53,680 when it comes to McDonald's says you are losing share. 464 00:23:53,880 --> 00:23:55,840 I can't go against those three companies. 465 00:23:55,840 --> 00:24:00,320 They are too good and too honest and too big for me to dismiss. 466 00:24:01,800 --> 00:24:05,200 We are the leading. So, so Jim, this is again, this 467 00:24:05,200 --> 00:24:07,000 is an excellent line of questioning. 468 00:24:07,400 --> 00:24:10,040 Say what you will about Jim Cramer, I know, but his 469 00:24:10,040 --> 00:24:13,800 questioning here is fantastic. He highlights that the other big 470 00:24:13,800 --> 00:24:16,880 companies you have Dunkin' Donuts, you have McDonald's 471 00:24:17,000 --> 00:24:20,840 saying that they're taking share from other other drink 472 00:24:20,840 --> 00:24:23,800 companies, they're taking share from Starbucks and then you have 473 00:24:23,800 --> 00:24:27,080 Starbucks saying we're keeping our share while same store sales 474 00:24:27,080 --> 00:24:30,560 are going down. Obviously one of them is 475 00:24:30,600 --> 00:24:32,360 misrepresenting the situation here. 476 00:24:34,080 --> 00:24:37,560 Category player in coffee, I'm talking visitation share and 477 00:24:37,560 --> 00:24:41,320 what we have if you look at our in home coffee business, it grew 478 00:24:41,320 --> 00:24:45,360 share 140 basis points. But if you look at the business 479 00:24:45,400 --> 00:24:50,520 under underpinning US tea grew 8%, cold grew 1%. 480 00:24:50,920 --> 00:24:53,600 So there are elements in here. If you look at our partner 481 00:24:53,760 --> 00:24:57,960 sentiment and what we have inside stores, attrition is down 482 00:24:57,960 --> 00:25:01,040 to its lowest levels. So there's worth going in. 483 00:25:01,040 --> 00:25:05,800 The thing we didn't do enough of is really attack the occasional 484 00:25:05,800 --> 00:25:09,920 customer with delivering and communicating value to them in a 485 00:25:09,920 --> 00:25:12,640 more aggressive manner. That's what the plan we have 486 00:25:12,640 --> 00:25:16,720 does. And and there you have it. 487 00:25:16,720 --> 00:25:20,360 So you know this interview did not go well. 488 00:25:20,480 --> 00:25:23,200 The stock price continued to fall another 3% after this 489 00:25:23,200 --> 00:25:24,800 interview, which is usually not a good sign. 490 00:25:24,800 --> 00:25:28,240 When the CEO comes on, they try to defend the stock and the 491 00:25:28,240 --> 00:25:31,360 stock falls further. Not a great interview from the 492 00:25:31,360 --> 00:25:33,800 CEO, but you hear their plan of attack. 493 00:25:33,800 --> 00:25:37,840 To turn this around from the CE OS own plan of attack is to 494 00:25:37,840 --> 00:25:40,960 basically offer more freebies and goodies and things to entice 495 00:25:40,960 --> 00:25:43,240 people in the app. They're using their digital 496 00:25:43,240 --> 00:25:46,080 property to get people back in the fold at Starbucks. 497 00:25:46,400 --> 00:25:48,560 I'm not going to be buying Starbucks stock. 498 00:25:48,560 --> 00:25:51,320 It's not one that I find attractive enough to jump into. 499 00:25:51,760 --> 00:25:54,080 I think there's other opportunities in the market that 500 00:25:54,080 --> 00:25:56,360 are far more predictable. But if you are buying Starbucks 501 00:25:56,360 --> 00:25:58,280 stock, I genuinely hope the best for you. 502 00:25:58,560 --> 00:26:01,080 Now moving on from Starbucks, we have to talk a little bit about 503 00:26:01,080 --> 00:26:03,600 what Amazon did. They just reported yesterday as 504 00:26:03,600 --> 00:26:05,920 well. And before we even jump into it, 505 00:26:05,920 --> 00:26:08,680 I have to mention that I am invested in Amazon. 506 00:26:08,680 --> 00:26:10,560 So this is one that I'm bullish on. 507 00:26:10,560 --> 00:26:13,920 I I really like the company and it's up a little bit today. 508 00:26:13,920 --> 00:26:17,960 Amazon's up around 1 1/2%, floating around in the positive 509 00:26:17,960 --> 00:26:21,120 today, even though the market's in the red because the report 510 00:26:21,120 --> 00:26:23,600 overall was really good in my opinion. 511 00:26:23,600 --> 00:26:26,840 I just thought it was a decent report, in line with most of my 512 00:26:26,840 --> 00:26:29,880 expectations, even slightly better in some areas. 513 00:26:30,200 --> 00:26:32,200 We have the headline here from CNBC. 514 00:26:32,480 --> 00:26:35,040 Amazon profit more than Triples topping Wall Street 515 00:26:35,040 --> 00:26:37,520 Expectations. We look at the top and bottom 516 00:26:37,520 --> 00:26:39,240 line here. The earnings per share was a 517 00:26:39,240 --> 00:26:45,240 beat, $0.98 versus 83. The revenue was a beat 143.3 518 00:26:45,360 --> 00:26:48,720 versus 142.5. So we got a beat on the top and 519 00:26:48,720 --> 00:26:50,440 bottom line. But of course, with Amazon, 520 00:26:50,440 --> 00:26:52,120 there's so much more underneath the surface. 521 00:26:52,120 --> 00:26:54,680 Let's go ahead and take a look at their segments of their 522 00:26:54,680 --> 00:26:57,400 business. We can do this by the revenue 523 00:26:57,400 --> 00:26:59,200 segments. So we're looking at revenue here 524 00:26:59,480 --> 00:27:01,720 broken down into different aspects of their business. 525 00:27:02,000 --> 00:27:04,640 The first revenue segment we're going to look at is the first 526 00:27:04,640 --> 00:27:08,160 party online sales. So this is stuff that Amazon 527 00:27:08,160 --> 00:27:10,640 sells like the Amazon Basics brand, right? 528 00:27:10,640 --> 00:27:12,280 You can buy their Amazon batteries. 529 00:27:12,840 --> 00:27:17,000 Amazon has actually been winding down their first party brands. 530 00:27:17,520 --> 00:27:19,280 There's so many complaints about them. 531 00:27:19,320 --> 00:27:22,720 Anytime Amazon sells something, they're competing with someone 532 00:27:22,720 --> 00:27:24,520 else. And since they're competing with 533 00:27:24,520 --> 00:27:27,080 someone else that's usually selling something else on their 534 00:27:27,080 --> 00:27:29,680 same website, people get really upset about it. 535 00:27:30,000 --> 00:27:32,360 They say Amazon stealing all of their secrets and they're 536 00:27:32,360 --> 00:27:34,680 copying them and they're selling it for cheaper. 537 00:27:34,880 --> 00:27:37,160 And then Amazon quickly becomes the bad guy. 538 00:27:37,240 --> 00:27:40,680 So they're winding down their first party online sales and 539 00:27:40,680 --> 00:27:43,480 they're taking off hundreds of their first party brands. 540 00:27:43,760 --> 00:27:46,600 This has made it so that last quarter they didn't grow their 541 00:27:46,600 --> 00:27:48,480 first party sales that fast at all. 542 00:27:48,880 --> 00:27:55,720 If you look at it, it went from 52.97 billion to 54.67 billion. 543 00:27:56,200 --> 00:27:59,520 Now it's funny, It's funny in Amazon's case to say that it 544 00:27:59,520 --> 00:28:03,520 grew by $2 billion and that's like no growth at all. 545 00:28:03,920 --> 00:28:06,160 But in reality that's really minimal. 546 00:28:06,160 --> 00:28:09,960 That's growth of like 2%. So this portion of the business 547 00:28:10,280 --> 00:28:13,440 is not growing fast. Amazon is not focusing on it. 548 00:28:13,680 --> 00:28:16,400 It's caused them a lot of grief with regulators and people 549 00:28:16,400 --> 00:28:19,960 complaining about them, them competing and they don't really 550 00:28:19,960 --> 00:28:22,120 need it. It's also a low margin portion 551 00:28:22,120 --> 00:28:24,800 of their business. So they're not focusing on 552 00:28:24,800 --> 00:28:27,520 growing this. It's not a real intrinsic value 553 00:28:27,520 --> 00:28:30,240 mover for the company. Even if they make a lot more 554 00:28:30,240 --> 00:28:32,640 money in this segment, it's not going to move the needle for 555 00:28:32,640 --> 00:28:35,040 Amazon. Now when we move on to physical 556 00:28:35,040 --> 00:28:38,600 stores, this is another part of the company that's more concept 557 00:28:38,600 --> 00:28:42,040 stores trying out new things and mostly at this point, Whole 558 00:28:42,040 --> 00:28:44,400 Foods. So they own Whole Foods. 559 00:28:44,400 --> 00:28:47,760 They're trying to integrate that into Amazon as much as possible 560 00:28:48,160 --> 00:28:51,440 and it it's not growing the fastest, but we are seeing some 561 00:28:51,440 --> 00:28:53,560 steady growth with their physical stores. 562 00:28:53,840 --> 00:28:56,720 I have to say there's a nice gradual line of increase ever 563 00:28:56,720 --> 00:29:00,800 since 2020, it's increasing nicely, Not the fastest growth 564 00:29:00,800 --> 00:29:02,360 ever. But again, this is another 565 00:29:02,360 --> 00:29:05,360 portion of the business that I don't consider intrinsic value 566 00:29:05,360 --> 00:29:06,880 moving. I don't think it's the biggest, 567 00:29:06,880 --> 00:29:08,280 most important part of the company. 568 00:29:09,040 --> 00:29:13,040 When we move over to the third party seller services, this is 569 00:29:13,040 --> 00:29:15,560 really important. This is where they host other 570 00:29:15,560 --> 00:29:19,040 thirdarty sellers and allow them to sell on their platform and 571 00:29:19,040 --> 00:29:22,160 then they provide a variety of different services and charge 572 00:29:22,160 --> 00:29:24,840 them for those services if those sellers choose to use them. 573 00:29:24,840 --> 00:29:27,720 More and more sellers are increasingly choosing to use 574 00:29:27,720 --> 00:29:30,560 Amazon services and they're pricing the services more 575 00:29:30,560 --> 00:29:32,840 aggressively because they know the value they're providing. 576 00:29:33,000 --> 00:29:37,360 Third party seller services grew by 16% year over year. 577 00:29:37,360 --> 00:29:40,080 Then we have advertising. This is another pillar of 578 00:29:40,080 --> 00:29:42,440 intrinsic value. This is something that will 579 00:29:42,440 --> 00:29:44,320 really move the needle for Amazon. 580 00:29:44,640 --> 00:29:48,480 We had high hopes here. I had high hopes that it would 581 00:29:48,480 --> 00:29:50,640 be good. I didn't know the exact numbers. 582 00:29:50,640 --> 00:29:54,040 I couldn't predict it with exact precision, but based off of 583 00:29:54,040 --> 00:29:57,040 Meta's report, based off of Google's, based off of 584 00:29:57,040 --> 00:29:59,440 Linkedin's, I knew this is going to be really fast. 585 00:29:59,680 --> 00:30:03,960 And it was really fast. This grew at 24% year over year, 586 00:30:04,280 --> 00:30:08,760 going from 9.5 billion to 11.8 billion. 587 00:30:09,200 --> 00:30:13,160 And no matter what people tell you, if someone says 24% was 588 00:30:13,160 --> 00:30:18,040 slow, they just, that's just not accurate. 24 percent is very 589 00:30:18,040 --> 00:30:22,000 fast growth for business doing this much this quickly. 590 00:30:22,200 --> 00:30:25,160 They spawn this business out of nowhere just a couple years ago 591 00:30:25,400 --> 00:30:28,720 and already it's doing $12 billion per quarter. 592 00:30:28,960 --> 00:30:32,000 Last quarter before that during the holiday season, it did $15 593 00:30:32,000 --> 00:30:35,320 billion. Advertising is a monstrous 594 00:30:35,320 --> 00:30:38,360 portion of this company, a monstrous portion of the value 595 00:30:38,360 --> 00:30:40,640 proposition. We move on to the subscription 596 00:30:40,640 --> 00:30:43,080 businesses. This is another one that it was 597 00:30:43,080 --> 00:30:44,840 right in line with my expectations. 598 00:30:45,040 --> 00:30:47,120 I said that this one would just be steady. 599 00:30:47,320 --> 00:30:49,800 I didn't predict anything spectacular with it. 600 00:30:50,120 --> 00:30:52,560 I thought it would be steady just like it is throughout its 601 00:30:52,560 --> 00:30:54,880 entire history. And that's exactly what 602 00:30:54,880 --> 00:30:57,920 happened. It grew by 11%. 603 00:30:58,440 --> 00:31:02,920 So this was steady growth from the subscription services, which 604 00:31:02,920 --> 00:31:05,520 is really good as well because this is another high margin 605 00:31:05,520 --> 00:31:09,000 portion of the business. Then we get to AWS. 606 00:31:09,440 --> 00:31:12,640 This is what's creating the profits for Amazon today. 607 00:31:14,160 --> 00:31:17,240 AWS grew quickly. It grew much faster than 608 00:31:17,240 --> 00:31:20,120 expected. Analyst estimates were for it to 609 00:31:20,120 --> 00:31:23,240 grow 14%. That's what Wall Street was 610 00:31:23,240 --> 00:31:28,680 expecting. They grew it 17%, so far above 611 00:31:28,800 --> 00:31:32,200 Wall Street's expectations. Now other doesn't mean anything. 612 00:31:32,200 --> 00:31:33,840 It's not a category I pay attention to. 613 00:31:33,840 --> 00:31:36,560 When we look at the high quality businesses, the ones that 614 00:31:36,560 --> 00:31:39,120 Amazon's really trying to grow, the ones that drive the 615 00:31:39,120 --> 00:31:42,640 intrinsic value of the company higher and higher, we have the 616 00:31:42,640 --> 00:31:46,920 third party seller services growing 16%, advertising growing 617 00:31:46,920 --> 00:31:53,040 24%, We have subscription services growing 11% and we have 618 00:31:53,040 --> 00:31:57,560 AWS growing 17%. Re accelerating over last year's 619 00:31:57,560 --> 00:32:00,400 growth. The four most important segments 620 00:32:00,400 --> 00:32:03,960 of the business are all the fastest growing segments and out 621 00:32:03,960 --> 00:32:07,760 of these four, I even think that these three are even more 622 00:32:07,760 --> 00:32:09,560 important. These are the three most 623 00:32:09,560 --> 00:32:12,240 important segments. It's difficult to say what is 624 00:32:12,240 --> 00:32:14,680 the most important. They all play a pivotal role 625 00:32:14,920 --> 00:32:17,400 when you break this down. You have a company that has a 626 00:32:17,400 --> 00:32:19,760 high amount of concentration into really incredible 627 00:32:19,760 --> 00:32:23,640 industries, concentrated into online sales, concentrated into 628 00:32:23,640 --> 00:32:26,560 advertising and concentrated into cloud hosting. 629 00:32:26,920 --> 00:32:29,400 They're in such an enviable position. 630 00:32:29,840 --> 00:32:33,400 Every company on earth would love to be in Amazon's position. 631 00:32:33,480 --> 00:32:35,840 Now, another key performance indicator we can look at for 632 00:32:35,840 --> 00:32:40,760 Amazon is with AWS right here. If we go back to this chart, we 633 00:32:40,760 --> 00:32:43,840 have AW s s revenue. So this is Amazon Web Services 634 00:32:43,840 --> 00:32:48,040 revenue on a quarterly basis. It reached $25.3 billion last 635 00:32:48,040 --> 00:32:51,640 quarter, which puts it at a run rate of 100 billion. 636 00:32:52,000 --> 00:32:56,440 So you have a company now run rate $100 billion and we want to 637 00:32:56,440 --> 00:32:58,880 look at other key indicators to see how this is growing in the 638 00:32:58,880 --> 00:33:00,840 future. One of them that we can look at 639 00:33:00,840 --> 00:33:04,160 is this right here AWS customer commitments. 640 00:33:04,440 --> 00:33:08,000 These are large customers that have signed contracts with AWS 641 00:33:08,160 --> 00:33:11,360 to use their business that the contract linked is over 12 642 00:33:11,360 --> 00:33:13,920 months. So these are long term customer 643 00:33:13,920 --> 00:33:17,160 commitments and how much unearned revenue that Amazon 644 00:33:17,160 --> 00:33:19,520 has. When we look at this last 645 00:33:19,520 --> 00:33:27,040 quarter, it went up again from $155.7 billion to 157.7. 646 00:33:27,680 --> 00:33:30,280 Now we don't know exactly when the customers will use this 647 00:33:30,280 --> 00:33:33,800 revenue, but it's going to be over like a four year period. 648 00:33:34,200 --> 00:33:37,960 This is already money that people have committed to AWS. 649 00:33:38,120 --> 00:33:42,040 They haven't paid yet another $157 billion. 650 00:33:42,240 --> 00:33:44,720 So we break down all the revenue into those segments. 651 00:33:44,720 --> 00:33:46,600 I think it looks strong across the board. 652 00:33:46,800 --> 00:33:49,680 All the major segments I look for are growing at least with my 653 00:33:49,680 --> 00:33:52,240 expectations. But when we look at an overview 654 00:33:52,240 --> 00:33:55,480 of Amazon and all the basic financials of the company, it 655 00:33:55,480 --> 00:33:58,040 also looks relatively strong from my perspective. 656 00:33:58,040 --> 00:33:59,760 I don't see many weaknesses here. 657 00:34:00,240 --> 00:34:04,400 The overall revenue grew 12.5% beating analysts expectations. 658 00:34:04,680 --> 00:34:07,480 The reason that they continually beat expectations is because 659 00:34:07,480 --> 00:34:11,159 they always set the bar low. Amazon is one that under 660 00:34:11,159 --> 00:34:14,120 promises and over delivers. They always come in at the top 661 00:34:14,120 --> 00:34:18,159 end of their revenue guidance. So no surprise they beat 662 00:34:18,159 --> 00:34:21,120 expectations. Again the EBITDA, you know all 663 00:34:21,120 --> 00:34:23,440 this stuff is improving. We can look at the free cash 664 00:34:23,440 --> 00:34:25,679 flow. This one's a little bit tricky, 665 00:34:25,679 --> 00:34:29,159 but if we zoom in here, we can see that last quarter it was 666 00:34:29,159 --> 00:34:32,800 4.06 billion. Now I give a range between 4:00 667 00:34:32,800 --> 00:34:35,679 to $10 billion. So again, this is in line with 668 00:34:35,679 --> 00:34:38,320 expectations because they'll throw in a lot of expenses, a 669 00:34:38,320 --> 00:34:40,199 lot of working capital into this quarter. 670 00:34:40,440 --> 00:34:42,159 But we look at this on a year over year basis. 671 00:34:42,560 --> 00:34:48,400 It was -9.42 billion last year on the same quarter and +4.06 672 00:34:48,400 --> 00:34:51,120 billion this quarter. I believe that the remaining 673 00:34:51,120 --> 00:34:54,360 quarters will be very, very big quarters, but this is off to a 674 00:34:54,360 --> 00:34:56,239 great start. We look at the net income, they 675 00:34:56,239 --> 00:34:59,920 posted another net income quarter above $10 billion. 676 00:35:00,200 --> 00:35:03,280 So you can see the gradual increase reaching record high 677 00:35:03,280 --> 00:35:05,760 after record high. This is going to continue to go 678 00:35:05,760 --> 00:35:07,560 up. The earnings per share were a 679 00:35:07,560 --> 00:35:09,880 massive beat. We have the company's earnings 680 00:35:09,880 --> 00:35:13,960 per share climbing 216%. That's not an error. 681 00:35:13,960 --> 00:35:16,880 If we go back four quarters ago, it was $0.31. 682 00:35:17,120 --> 00:35:19,440 We go to this quarter it was $0.98. 683 00:35:19,440 --> 00:35:22,760 If we look at the balance sheet of Amazon, they took on some 684 00:35:22,760 --> 00:35:26,600 debt to pay for all of their expansions during the COVID 685 00:35:26,600 --> 00:35:28,720 boom. But we look at this now and the 686 00:35:28,720 --> 00:35:32,320 debt has been going down routinely over the past year and 687 00:35:32,320 --> 00:35:34,520 this is something that they mentioned on their earnings 688 00:35:34,520 --> 00:35:36,640 call. They don't like the debt. 689 00:35:36,640 --> 00:35:39,400 They want to get rid of it. They're paying off debt 690 00:35:39,400 --> 00:35:41,640 steadily. In fact, one of the reasons when 691 00:35:41,640 --> 00:35:44,240 we look at their shares outstanding that it's actually 692 00:35:44,240 --> 00:35:48,200 going up and not down is because Amazon right now is not 693 00:35:48,200 --> 00:35:51,320 concerned about the dilution in the shares outstanding as much 694 00:35:51,320 --> 00:35:53,320 as getting their balance sheet in order. 695 00:35:53,640 --> 00:35:56,360 They basically said, in fact it was the CFO of the company 696 00:35:56,360 --> 00:35:59,840 saying, look, what we're doing right now is we're not paying a 697 00:35:59,840 --> 00:36:03,320 dividend, we're not doing buybacks, but instead we're 698 00:36:03,320 --> 00:36:06,720 going to get our debt paid down to a very healthy level. 699 00:36:06,880 --> 00:36:09,560 They don't like having this debt and the high interest payments. 700 00:36:09,920 --> 00:36:12,720 So they're going to continue paying down this debt and get 701 00:36:12,720 --> 00:36:16,680 that down 1st and then I believe they'll transition to the 702 00:36:16,680 --> 00:36:20,400 dividends and the buybacks. That's the order that Amazon 703 00:36:20,400 --> 00:36:23,280 said they're going to go. So a lot of investors were kind 704 00:36:23,280 --> 00:36:27,200 of antsy waiting around hoping that Amazon would would launch a 705 00:36:27,200 --> 00:36:29,440 dividend and say this is going to be their first quarter 706 00:36:29,760 --> 00:36:33,160 because we had Google do it and we had a meta do it, but Amazon 707 00:36:33,160 --> 00:36:35,880 doesn't really follow the pack. They want to do things in the 708 00:36:35,880 --> 00:36:38,640 order they want to do it. And that would be one of the 709 00:36:38,640 --> 00:36:41,360 criticisms that I think a lot of people have about this quarter. 710 00:36:41,880 --> 00:36:45,360 As of this quarter, they are not returning capital back to the 711 00:36:45,360 --> 00:36:48,240 shareholder, really none of it. They're not paying any 712 00:36:48,240 --> 00:36:50,360 dividends. They're not doing any buybacks. 713 00:36:50,680 --> 00:36:53,240 They're paying down debt and they're investing back in the 714 00:36:53,240 --> 00:36:56,480 company. So no capital return back to the 715 00:36:56,480 --> 00:36:59,440 shareholder is something that you can take both ways. 716 00:36:59,440 --> 00:37:00,720 You can see that that's really bad. 717 00:37:00,720 --> 00:37:04,200 You want to focus on companies at capital return or you can say 718 00:37:04,200 --> 00:37:06,400 that you're happy they're paying down debt and you're happy 719 00:37:06,400 --> 00:37:08,120 they're reinvesting back into the company. 720 00:37:08,520 --> 00:37:10,880 Two ways to look at it, but right now that's something to 721 00:37:10,880 --> 00:37:13,320 keep in mind. Overall, I would say that's the 722 00:37:13,320 --> 00:37:15,560 single biggest shock to me this quarter. 723 00:37:15,840 --> 00:37:18,280 I thought they were going to announce either a bigger buyback 724 00:37:18,280 --> 00:37:20,320 program or a very small dividend. 725 00:37:20,560 --> 00:37:24,760 I thought they'd do something in terms of capital returns, but 726 00:37:24,760 --> 00:37:26,760 they didn't. They just said they're not doing 727 00:37:26,840 --> 00:37:29,000 either right now. They're focusing on the debt. 728 00:37:29,240 --> 00:37:32,040 Now if we move further down the financials, another thing that I 729 00:37:32,040 --> 00:37:35,840 think soured Wall Street a little bit is the CapEx of the 730 00:37:35,840 --> 00:37:38,200 company. If we look at the CapEx over the 731 00:37:38,200 --> 00:37:41,720 past 10 years, you can see that Amazon was focusing on 732 00:37:41,720 --> 00:37:44,640 efficiency. Over the past year, the CapEx 733 00:37:44,640 --> 00:37:48,000 was going down as revenues were growing and that painted a nice 734 00:37:48,000 --> 00:37:49,880 image that they could continue doing this. 735 00:37:50,200 --> 00:37:54,360 That was the talk over the past year, efficiencies and capital 736 00:37:54,360 --> 00:37:58,520 efficiency, focusing on profits, turning out free cash flow, that 737 00:37:58,520 --> 00:38:00,960 type of thing. So a lot of investors, including 738 00:38:00,960 --> 00:38:02,960 me, thought that they would continue with this trend. 739 00:38:03,640 --> 00:38:09,200 But then AI happened, AI happened, and it puts a kink in 740 00:38:09,200 --> 00:38:12,760 these plans. Amazon said, you know what, we 741 00:38:12,760 --> 00:38:14,840 thought we had enough server capacity. 742 00:38:15,040 --> 00:38:18,600 We thought we had enough investment into AWS. 743 00:38:19,120 --> 00:38:21,280 But then there's so many customers coming to us saying 744 00:38:21,280 --> 00:38:24,760 that they want AI training, they want inference, they want 745 00:38:24,760 --> 00:38:28,920 hosting, they want usability for AI and we don't have enough 746 00:38:28,920 --> 00:38:31,960 capacity right now. So what are they doing? 747 00:38:31,960 --> 00:38:34,920 What does Amazon do when they don't have enough capacity? 748 00:38:35,440 --> 00:38:39,040 They build and build and build. They announced on this call 749 00:38:39,040 --> 00:38:43,120 something that was again unexpected to me, that this most 750 00:38:43,120 --> 00:38:48,760 recent quarter here would be the lowest CapEx quarter of 2024. 751 00:38:49,080 --> 00:38:52,400 So instead of the CapEx going down, it's going up. 752 00:38:53,000 --> 00:38:55,280 Now the reason it's going up is not because of low margin 753 00:38:55,280 --> 00:38:56,840 retail. It's not because they're 754 00:38:56,840 --> 00:39:01,880 investing in you know, random projects that the CEO wants to 755 00:39:01,880 --> 00:39:03,360 invest in. It's not because they're 756 00:39:03,360 --> 00:39:05,280 investing in rockets or anything like that. 757 00:39:05,800 --> 00:39:09,960 It's for AWS. They're investing more into AWS 758 00:39:10,240 --> 00:39:13,480 and that's where primarily their CapEx is going to be spent. 759 00:39:14,280 --> 00:39:17,760 Now they also mentioned on the call that some of the spend that 760 00:39:17,760 --> 00:39:21,520 goes towards AWS does support the retail business as kind of 761 00:39:21,520 --> 00:39:26,120 like a a second benefit, but primarily it is for AWS and it 762 00:39:26,120 --> 00:39:30,400 is because of AI. They're investing more in AWS to 763 00:39:30,400 --> 00:39:34,800 support all the AI demand they have and they already said that 764 00:39:34,960 --> 00:39:40,400 AI on AWS is a multi billion dollar business. 765 00:39:40,840 --> 00:39:43,840 So they didn't disclose the exact amount they're making, but 766 00:39:43,840 --> 00:39:47,280 they said they're already making multi billion dollars in AI 767 00:39:47,280 --> 00:39:50,800 revenue, real revenues from AI. So again there's two ways to 768 00:39:50,800 --> 00:39:52,200 take this. You can be bummed that they're 769 00:39:52,200 --> 00:39:55,120 kind of investing more into AI. You can believe that they should 770 00:39:55,120 --> 00:39:58,240 cut back on that or you can say, you know what I really believe 771 00:39:58,240 --> 00:40:01,320 in, AII believe that they're going to get a very high return 772 00:40:01,320 --> 00:40:03,960 on these investments. So I want them to invest more. 773 00:40:04,120 --> 00:40:07,120 I want them to build out more data centers so that I make more 774 00:40:07,120 --> 00:40:10,160 money down the road on this. Overall, I think that Amazon 775 00:40:10,160 --> 00:40:11,840 investors should be happy right now. 776 00:40:11,840 --> 00:40:13,960 They're getting the best of both worlds. 777 00:40:14,160 --> 00:40:17,040 They're getting a company that's expanding margins, growing net 778 00:40:17,040 --> 00:40:20,320 income, growing free cash flow aggressively year over year 779 00:40:20,680 --> 00:40:23,520 while still investing in growth for the future. 780 00:40:23,720 --> 00:40:26,600 They're doing both of it. Growing in the future, making 781 00:40:26,600 --> 00:40:29,440 good investments today while expanding margins and growing 782 00:40:29,440 --> 00:40:31,920 profitability. So I believe fully that Amazon's 783 00:40:31,920 --> 00:40:33,760 still on track. I think the company is doing 784 00:40:33,760 --> 00:40:36,400 great across the board and I look forward to its progress in 785 00:40:36,400 --> 00:40:38,200 2024. Now that's going to be it for 786 00:40:38,200 --> 00:40:39,800 this episode. Remember, if you want to try out 787 00:40:39,800 --> 00:40:42,760 the Patreon, today's the day to do it, you can join today for 788 00:40:42,760 --> 00:40:44,800 free and get a month long free trial. 789 00:40:45,080 --> 00:40:46,680 There's a link in the pin comment below.