1 00:00:00,080 --> 00:00:03,160 Today on the Joseph Carlson Show, the US economy contracts 2 00:00:03,160 --> 00:00:06,480 at a .3% rate in the first quarter of 2025. 3 00:00:06,520 --> 00:00:09,200 This marks the first time the economy has shrink since the 4 00:00:09,200 --> 00:00:11,600 first quarter of 2022. And part of the reason the 5 00:00:11,600 --> 00:00:14,480 economy is shrinking is softer consumer spend. 6 00:00:14,800 --> 00:00:17,200 But there's more to the story. In fact, there's a much bigger 7 00:00:17,200 --> 00:00:20,160 aspect to this economic report. We'll explain why the tariffs 8 00:00:20,160 --> 00:00:23,640 had such a huge impact on this first quarter result, even 9 00:00:23,640 --> 00:00:26,480 though the tariffs weren't in place during this time period. 10 00:00:26,480 --> 00:00:28,600 Now, of course, we have a lot of other news to get into. 11 00:00:28,600 --> 00:00:31,600 S&P Global, my largest holding, I have this company in two 12 00:00:31,600 --> 00:00:34,400 portfolios with over $100,000 invested in it. 13 00:00:34,400 --> 00:00:37,040 They just reported earnings. The stock is up, it's flat on 14 00:00:37,040 --> 00:00:40,040 the year and the company's divesting their mobility 15 00:00:40,040 --> 00:00:42,000 business. SME Global Management has 16 00:00:42,000 --> 00:00:44,720 decided that it's best to separate this segment of the 17 00:00:44,720 --> 00:00:47,480 business into an entirely separate stock. 18 00:00:47,640 --> 00:00:50,400 I'll explain why they're doing this, how it works and how it 19 00:00:50,400 --> 00:00:53,400 will impact current investors. We also have Visa reporting 20 00:00:53,400 --> 00:00:56,560 earnings, giving a gauge of the overall economy that works in 21 00:00:56,560 --> 00:00:59,680 conjunction with this first quarter GDP report. 22 00:00:59,800 --> 00:01:02,760 We'll see how Visa's report stacks up with GDP growth. 23 00:01:02,840 --> 00:01:04,440 Booking Holdings reported earnings. 24 00:01:04,440 --> 00:01:08,280 The stock is flat after earnings after being flat year to date. 25 00:01:08,400 --> 00:01:11,160 Booking Holdings report painted a slightly different narrative 26 00:01:11,160 --> 00:01:12,520 than the one you've heard in the media. 27 00:01:12,600 --> 00:01:15,400 In fact, the CEO of Booking Holdings went on to CNBC and 28 00:01:15,400 --> 00:01:19,200 said travel remains very strong globally, that people continue 29 00:01:19,200 --> 00:01:22,160 to want to travel across the world, including the US. 30 00:01:22,160 --> 00:01:25,120 Even this appearance from the CEO saying travel remains strong 31 00:01:25,360 --> 00:01:26,920 caused a lot of people to get upset. 32 00:01:27,040 --> 00:01:29,000 Every comment is upset at this video. 33 00:01:29,040 --> 00:01:32,120 Lowell demand as collapsed. I listened to several airline 34 00:01:32,120 --> 00:01:34,760 conference calls. Just cancelled trip to the US 35 00:01:34,760 --> 00:01:36,960 going to Australia or Canada. Not true. 36 00:01:36,960 --> 00:01:39,480 Travel has been going down. This dude is full of it. 37 00:01:39,760 --> 00:01:43,560 The booking CEO, oh boy, how bigly he dismisses the macro 38 00:01:43,560 --> 00:01:45,440 reality. We'll be responding to some of 39 00:01:45,440 --> 00:01:47,840 these comments and we have so much more to get into with 40 00:01:47,840 --> 00:01:50,680 multiple companies reporting earnings including FICO, 41 00:01:50,680 --> 00:01:53,520 Spotify, Microsoft. I'll be going over some thoughts 42 00:01:53,520 --> 00:01:57,120 on each of these as well as the big earnings piece tomorrow, 43 00:01:57,400 --> 00:01:59,960 which is Amazon. This company is coming under 44 00:02:00,080 --> 00:02:03,440 central focus and I want to share a few thoughts on Amazon a 45 00:02:03,440 --> 00:02:05,520 day ahead of earnings. So we have a ton of stuff to get 46 00:02:05,520 --> 00:02:07,720 into in this episode. Now, before we jump into the 47 00:02:07,720 --> 00:02:11,440 headline news that the market is going down as a response of the 48 00:02:11,440 --> 00:02:15,080 GDP report, I first want to take a look at My Portfolio. 49 00:02:15,320 --> 00:02:18,040 We've had a lot of new people join the channel over the past 50 00:02:18,040 --> 00:02:20,960 month or the past six months if you're new here. 51 00:02:21,200 --> 00:02:23,240 These are my personal portfolios. 52 00:02:23,320 --> 00:02:26,040 I've shown them publicly for over 5 years. 53 00:02:26,280 --> 00:02:28,280 This one's called the passive income portfolio. 54 00:02:28,280 --> 00:02:30,160 It is my primary investment account. 55 00:02:30,400 --> 00:02:33,120 It's where I have the majority of my money right now. 56 00:02:33,120 --> 00:02:36,000 I've been building this portfolio full of compounding 57 00:02:36,000 --> 00:02:39,520 machines with the goal of outperforming the S&P 500. 58 00:02:39,840 --> 00:02:43,320 I want to have better risk adjusted and overall total 59 00:02:43,320 --> 00:02:46,320 performance in the market. Now when I measure this, I take 60 00:02:46,320 --> 00:02:48,760 a look at things like the Yeartodate return. 61 00:02:49,040 --> 00:02:52,040 Right now this ortfolio's down 388. 62 00:02:52,200 --> 00:02:55,720 When we compare that with the 500 Yeartodate, it's down 6 63 00:02:55,720 --> 00:02:57,480 ercent. So we have a little bit of 64 00:02:57,480 --> 00:03:00,480 outperformance here with the S&P 500 on the year to date. 65 00:03:00,520 --> 00:03:03,040 When we look back over the course of a year, if we go back 66 00:03:03,040 --> 00:03:05,720 to trailing year now to be clear, this is not money that 67 00:03:05,720 --> 00:03:07,360 I've contributed to the portfolio. 68 00:03:07,360 --> 00:03:11,000 This is gains. I compare that 13.64% against 69 00:03:11,000 --> 00:03:15,440 the S&P 500, which is currently up 9.27% over the same timeline. 70 00:03:15,800 --> 00:03:18,120 So whether we're looking at the year to date or the past 71 00:03:18,120 --> 00:03:20,360 trailing year, the passive income portfolio has 72 00:03:20,360 --> 00:03:22,720 outperformed the market. If we load in my other 73 00:03:22,720 --> 00:03:25,840 portfolio, this one's called the Story Fund, this one is a bit 74 00:03:25,840 --> 00:03:28,600 more aggressive, it's more concentrated, and the goal here, 75 00:03:28,600 --> 00:03:31,080 again is to outperform the benchmark index. 76 00:03:31,080 --> 00:03:33,360 If I look at the performance of this one year to date, it's 77 00:03:33,360 --> 00:03:37,040 currently down .7%. The NASDAQ 100 during the same 78 00:03:37,040 --> 00:03:38,760 time period is currently down 8%. 79 00:03:38,800 --> 00:03:41,680 When we look at the trailing year, this one is up 30%. 80 00:03:41,720 --> 00:03:45,280 That's $63,000 in gains. Over that same time period, the 81 00:03:45,280 --> 00:03:48,240 Nasdaq's up 10%. The Story Fund continues to see 82 00:03:48,240 --> 00:03:51,720 wide outperformance of both the NASDAQ and the S&P 500. 83 00:03:51,840 --> 00:03:54,600 Both of these portfolios have outperformed the market since 84 00:03:54,600 --> 00:03:57,000 inception. But a lot of people suggested 85 00:03:57,000 --> 00:04:00,240 that the only reason that Joseph, that I was outperforming 86 00:04:00,240 --> 00:04:03,800 the market was because I had higher beta, meaning my stocks 87 00:04:03,800 --> 00:04:07,200 were simply just more volatile. I was just taking on more risk 88 00:04:07,200 --> 00:04:09,960 with more volatile stocks. And when the market went up, 89 00:04:10,040 --> 00:04:12,760 they would go up more. When the market went down, they 90 00:04:12,760 --> 00:04:14,920 would go down more. But what we're seeing here with 91 00:04:14,920 --> 00:04:18,880 the data is that narrative fall apart as the market goes down. 92 00:04:18,880 --> 00:04:23,520 This year with fair uncertainty, tariffs and contracting GDP, 93 00:04:23,960 --> 00:04:26,320 this portfolio is holding up better than the market. 94 00:04:26,320 --> 00:04:28,720 And the reason that I highlight this is because investing is not 95 00:04:28,720 --> 00:04:31,360 about taking risk, it's about reducing risk. 96 00:04:31,600 --> 00:04:34,320 If you observe the behaviour of every great investor like Warren 97 00:04:34,320 --> 00:04:37,920 Buffett, their entire strategy is to reduce risk as much as 98 00:04:37,920 --> 00:04:40,200 possible. Invest in the most predictable 99 00:04:40,200 --> 00:04:43,640 winners in the market, companies with incredibly powerful, deeply 100 00:04:43,640 --> 00:04:47,160 embedded business models, ones that will not be disrupted even 101 00:04:47,160 --> 00:04:50,400 during economic contraction. Those type of companies are 102 00:04:50,400 --> 00:04:53,720 called compounding machines. And in My Portfolio, I 103 00:04:54,120 --> 00:04:57,120 compounding machines, that's what you're seeing them do this 104 00:04:57,120 --> 00:04:59,520 year and that's what you've seen them do over the past five 105 00:04:59,520 --> 00:05:01,680 years. Now, as easy as investing seems 106 00:05:01,680 --> 00:05:04,040 and as simple as it seems to hold these great companies 107 00:05:04,040 --> 00:05:06,840 during troubling times, it actually is more difficult than 108 00:05:06,840 --> 00:05:09,560 people anticipate. It takes a lot of willpower to 109 00:05:09,560 --> 00:05:12,760 continually invest in great companies knowing that there's 110 00:05:12,760 --> 00:05:15,200 economic uncertainty. For example, I'm sure you've 111 00:05:15,200 --> 00:05:18,160 seen the headlines that the markets down today after we had 112 00:05:18,160 --> 00:05:22,680 the news of the first quarter GDP report, the GDP contracted, 113 00:05:23,000 --> 00:05:26,200 meaning the economy overall, the way that we're measuring it with 114 00:05:26,200 --> 00:05:29,840 GDP is going down from the Wall Street Journal, the US economy 115 00:05:29,840 --> 00:05:33,080 contracts at a .3% rate in the first quarter. 116 00:05:33,360 --> 00:05:36,920 Now the prediction was that it would grow .4%. 117 00:05:37,000 --> 00:05:39,760 We were projecting out growth and then we had a bit of 118 00:05:39,760 --> 00:05:42,640 contraction. So what caused this contraction? 119 00:05:42,880 --> 00:05:44,720 Was it the impact of the tariffs? 120 00:05:44,800 --> 00:05:47,520 Well, tariffs certainly had something to do with it, but not 121 00:05:47,520 --> 00:05:49,600 in the way that many people May 1st think about it. 122 00:05:49,640 --> 00:05:51,280 Now we can look at the GDP over time. 123 00:05:51,600 --> 00:05:54,280 This is what it looks like going back to early 2021. 124 00:05:54,480 --> 00:05:58,240 We had some quarters of really good growth going up 4 to 6 to 125 00:05:58,280 --> 00:06:01,280 almost 8% and then it leveled out a little bit between the two 126 00:06:01,280 --> 00:06:04,120 to 4% range, which is typically where the US grows. 127 00:06:04,120 --> 00:06:06,160 That's kind of the the mid range there. 128 00:06:06,160 --> 00:06:07,960 That's what we're expected to grow over time. 129 00:06:08,400 --> 00:06:12,640 And then we have 2025 Q 1 which is noticeably much weaker than 130 00:06:12,640 --> 00:06:16,560 any previous quarter. Now the projection remains that 131 00:06:16,560 --> 00:06:20,800 growth will resume next quarter, but with the tariff uncertainty 132 00:06:20,800 --> 00:06:24,000 that makes it nearly impossible to predict right now. 133 00:06:24,000 --> 00:06:27,040 What we know for certain is that the economy contracted for a 134 00:06:27,040 --> 00:06:30,120 single quarter, raising the chances of a recession. 135 00:06:30,520 --> 00:06:33,640 A recession is when the economy contracts for two consecutive 136 00:06:33,640 --> 00:06:35,480 quarters. So to put this in perspective, 137 00:06:35,480 --> 00:06:38,360 the economy contracted quite a bit in the first quarter of 138 00:06:38,360 --> 00:06:42,040 2022, but that wasn't technically a recession because 139 00:06:42,040 --> 00:06:44,360 the economy did not contract the next quarter. 140 00:06:44,480 --> 00:06:47,520 There was not six months or two consecutive quarters of GDP 141 00:06:47,520 --> 00:06:49,280 contraction. So that didn't meet the 142 00:06:49,280 --> 00:06:52,360 definition of a recession. But now we're back to territory 143 00:06:52,360 --> 00:06:55,320 where we have that first quarter of GDP contraction. 144 00:06:55,360 --> 00:06:58,080 If we have another one below 0, we have a recession. 145 00:06:58,280 --> 00:07:00,880 The US recession chance, according to Polymark, is now 146 00:07:00,880 --> 00:07:03,560 67%. They're saying it's now likely a 147 00:07:03,560 --> 00:07:06,120 decent chance, 7 out of 10 that will have a recession. 148 00:07:06,120 --> 00:07:08,800 Now, this all looks very grim, but if we put this in context, 149 00:07:08,800 --> 00:07:11,560 it doesn't look quite as bad. The first thing to understand 150 00:07:11,560 --> 00:07:14,680 about whether or not we're in a recession is to back up a little 151 00:07:14,680 --> 00:07:18,160 bit and look at the calculation. For example, GDP is the 152 00:07:18,160 --> 00:07:21,520 calculation of consumption, that's spending by households, 153 00:07:21,760 --> 00:07:25,240 the calculation of investments, business capital, residential 154 00:07:25,240 --> 00:07:28,920 construction, the calculation of government spending on goods and 155 00:07:28,920 --> 00:07:31,800 services. So all three of those things are 156 00:07:31,800 --> 00:07:34,640 captured in gross domestic product calculation. 157 00:07:34,640 --> 00:07:37,640 But the other aspect that a lot of people may forget about is 158 00:07:37,640 --> 00:07:41,280 that GDP calculation incorporates net exports, 159 00:07:41,520 --> 00:07:45,640 meaning exports minus imports. Which also means if for some 160 00:07:45,640 --> 00:07:48,960 reason a lot of people in the United States had a strong 161 00:07:48,960 --> 00:07:53,280 incentive to rapidly import as much goods as possible, knowing 162 00:07:53,280 --> 00:07:56,000 that there was going to be a price hike on those goods in 163 00:07:56,000 --> 00:08:00,040 just a couple months, then that may affect GDP negatively 164 00:08:00,120 --> 00:08:02,640 because a net export measure would look far worse. 165 00:08:02,880 --> 00:08:05,240 And that's exactly what happened this quarter. 166 00:08:05,280 --> 00:08:08,680 In Q1 of this year, everyone knew that there was going to be 167 00:08:08,680 --> 00:08:10,920 tariffs. Trump was talking about them 168 00:08:10,920 --> 00:08:13,840 incessantly. And many businesses got ahead of 169 00:08:13,840 --> 00:08:16,400 that. They ordered all these supplies, 170 00:08:16,400 --> 00:08:19,320 all this stuff that they could warehouse ahead of paying for 171 00:08:19,320 --> 00:08:22,240 these expensive tariffs. Q1 had a record amount of pull 172 00:08:22,240 --> 00:08:24,920 forward imports. For example, we have here an 173 00:08:24,920 --> 00:08:27,920 economist from Wells Fargo saying the headline declines 174 00:08:27,960 --> 00:08:31,640 overstates the weakness because a lot of that was tariff induced 175 00:08:31,680 --> 00:08:33,880 pull forward. When you factor out the pull 176 00:08:33,880 --> 00:08:37,240 forward from tariffs, she says that overall I think that it was 177 00:08:37,240 --> 00:08:40,600 relatively solid underlying report when it comes to demand. 178 00:08:40,760 --> 00:08:43,640 Now again, this is not an attempt to defend Trump or say 179 00:08:43,640 --> 00:08:46,040 that the economy is in great shape or even say that I like 180 00:08:46,040 --> 00:08:47,840 the tariffs. I'm not saying any of that. 181 00:08:47,840 --> 00:08:50,960 But we need to be clear here. This GDP report looks a bit 182 00:08:50,960 --> 00:08:53,480 worse than it actually is because of this pull forward. 183 00:08:53,880 --> 00:08:57,400 A logistical consideration makes Wednesday's report difficult to 184 00:08:57,520 --> 00:08:59,400 interpret. Imports subtract from the 185 00:08:59,400 --> 00:09:03,040 Commerce's Department calculation of GDP since they 186 00:09:03,040 --> 00:09:06,400 represent spending on foreign made goods and services. 187 00:09:06,400 --> 00:09:10,760 GDP is gross domestic, so foreign spending doesn't count. 188 00:09:10,880 --> 00:09:14,680 Since companies spent a ton of money on foreign goods ahead of 189 00:09:14,680 --> 00:09:17,720 the tariff, that for certain negatively impacts the GDP 190 00:09:17,720 --> 00:09:19,840 report. It's difficult to interpret what 191 00:09:19,840 --> 00:09:22,120 the impact would be without that because there's so many 192 00:09:22,120 --> 00:09:24,760 different aspects, But a measure of the consumer business 193 00:09:24,760 --> 00:09:28,080 spending that gauges underlying demand in the economy. 194 00:09:28,360 --> 00:09:32,760 Final sales to private domestic purchasers rose at 3% annual 195 00:09:32,760 --> 00:09:35,680 rate, and even though consumer spending is slowing down, it 196 00:09:35,680 --> 00:09:38,200 still rose at 1.8% on an annual rate. 197 00:09:38,200 --> 00:09:41,400 Business spending on software, research and development, 198 00:09:41,400 --> 00:09:45,520 equipment and structures rose at 9.8% on an annual rate. 199 00:09:45,880 --> 00:09:48,840 So again, when we look at different areas of spending, it 200 00:09:48,840 --> 00:09:51,080 still looks like consumers are spending money. 201 00:09:51,080 --> 00:09:54,640 The economy underneath this is still growing to some degree, 202 00:09:54,720 --> 00:09:57,440 but when you have this one-of-a-kind substantial uptick 203 00:09:57,520 --> 00:10:01,720 in overall imports buying other foreign goods, that's going to 204 00:10:01,720 --> 00:10:04,280 impact this measurement. So looking at this, it's 205 00:10:04,280 --> 00:10:07,160 difficult to interpret what the real economy looks like. 206 00:10:07,160 --> 00:10:09,040 How much of this was a one time event? 207 00:10:09,320 --> 00:10:11,880 We know that tariffs are expected to slow the economy, 208 00:10:11,880 --> 00:10:15,320 slow consumer spending as they raise prices for imported goods, 209 00:10:15,320 --> 00:10:17,560 which a large part of the US economy relies on. 210 00:10:17,560 --> 00:10:19,560 But we also know that the US economy would not have 211 00:10:19,560 --> 00:10:23,440 contracted at a .3% rate without the measurement of this pull 212 00:10:23,440 --> 00:10:26,280 forward in imports. Either way, the market is down a 213 00:10:26,280 --> 00:10:28,800 little bit today with this negative news, and we have the 214 00:10:28,800 --> 00:10:31,200 president now disowning the stock market. 215 00:10:31,480 --> 00:10:35,160 He posted just today that this is Biden's stock market, not 216 00:10:35,160 --> 00:10:37,520 Trump's. I didn't take over until January 217 00:10:37,520 --> 00:10:40,480 20th, But when the stock market was headed up during Biden's 218 00:10:40,480 --> 00:10:44,720 term in January 29th of 2024, he said this is the Trump stock 219 00:10:44,720 --> 00:10:48,360 market because my polls against Biden are so good that investors 220 00:10:48,360 --> 00:10:51,320 are projecting that I will win. Like most politicians, he's 221 00:10:51,320 --> 00:10:53,680 trying to take credit when things are going well and not 222 00:10:53,680 --> 00:10:55,160 take credit when they're going poorly. 223 00:10:55,440 --> 00:10:57,440 But the stock market is for looking. 224 00:10:57,560 --> 00:11:00,720 It's not looking at previous GDP reports as much as it's looking 225 00:11:00,720 --> 00:11:03,160 at the tariff plan ahead. Investors are trying to 226 00:11:03,160 --> 00:11:05,680 underwrite the growth and prospects of these US 227 00:11:05,680 --> 00:11:09,520 businesses, and Trump will have to own the stock market over the 228 00:11:09,520 --> 00:11:11,920 course of 2025. Now, as investors, you're free 229 00:11:11,920 --> 00:11:14,040 to do whatever you want with your money during this time of 230 00:11:14,040 --> 00:11:16,440 uncertainty. But my plan and my advice 231 00:11:16,440 --> 00:11:19,720 remains the same, to stay invested and stick to your plan 232 00:11:19,960 --> 00:11:23,160 to buy stocks when they become cheaper, especially because of 233 00:11:23,160 --> 00:11:25,800 macro concerns. Concerning yourself with macro 234 00:11:25,800 --> 00:11:28,240 is generally a waste of time. I've had but multiple of my 235 00:11:28,240 --> 00:11:31,160 holdings report earnings over just the past couple of days and 236 00:11:31,160 --> 00:11:34,280 they've done incredibly well. My largest position is S&P 237 00:11:34,280 --> 00:11:37,440 Global and the report was great. As you would expect, the stock 238 00:11:37,440 --> 00:11:40,400 went up after hours. The company is flat year to date 239 00:11:40,400 --> 00:11:43,640 on a down year and this is a company that's still today, 240 00:11:43,760 --> 00:11:46,760 right now I believe is attractively valued. 241 00:11:46,760 --> 00:11:50,040 When we combine the quality and the current valuation multiple, 242 00:11:50,240 --> 00:11:52,080 this one's still trading at a discount. 243 00:11:52,120 --> 00:11:55,080 Let's take a look at the most recent quarter on a trailing 12 244 00:11:55,080 --> 00:11:57,320 month basis. This will give us a better idea 245 00:11:57,320 --> 00:12:00,480 of overall smoothed out growth. This company's been around for a 246 00:12:00,480 --> 00:12:03,120 long period of time. Let's zoom into just the past 10 247 00:12:03,120 --> 00:12:04,760 years. The last year on a trailing 248 00:12:04,760 --> 00:12:08,600 basis, as of the most recent quarter, it grew by 13%. 249 00:12:08,720 --> 00:12:11,480 Now in Qualtrum, we have a KPI that breaks up this revenue 250 00:12:11,480 --> 00:12:14,200 growth into segments. We have the market Intelligence 251 00:12:14,200 --> 00:12:16,040 segment. We have the market Intelligence 252 00:12:16,040 --> 00:12:18,320 segment. This is the Bloomberg Terminal 253 00:12:18,320 --> 00:12:20,840 like product. A lot of data on a lot of 254 00:12:20,840 --> 00:12:23,960 companies that they sell at a license or with yearly 255 00:12:23,960 --> 00:12:26,000 subscriptions. Then you have the ratings 256 00:12:26,000 --> 00:12:27,880 business. This is the business where they 257 00:12:27,880 --> 00:12:30,440 rate the debt. Similar to Moody's, we have 258 00:12:30,440 --> 00:12:33,480 commodity Insights. This is an analytical platform 259 00:12:33,480 --> 00:12:36,120 that prices and gives information on commodities. 260 00:12:36,320 --> 00:12:39,320 So even though commodities are highly cyclical, this data 261 00:12:39,320 --> 00:12:42,640 analytics platform is far less cyclical than the underlying 262 00:12:42,640 --> 00:12:44,880 commodities. Then you have mobility. 263 00:12:45,200 --> 00:12:48,880 This is the car index portion of the business that owns different 264 00:12:48,880 --> 00:12:51,600 assets like CarMax. It's a really great business, 265 00:12:51,600 --> 00:12:53,000 but they're spinning this one off. 266 00:12:53,200 --> 00:12:55,160 They're making it an entirely separate company. 267 00:12:55,160 --> 00:12:56,560 We'll go into that in just a minute. 268 00:12:56,920 --> 00:12:59,800 And then you have the indices where they're the owners of the 269 00:12:59,800 --> 00:13:02,960 Dow Jones, the owners of the S&P 500 index. 270 00:13:03,320 --> 00:13:08,200 So everyone that's investing in VOO or SPY pays this company a 271 00:13:08,200 --> 00:13:11,800 little bit of a licensing fee. By that investment, they make 272 00:13:11,800 --> 00:13:14,720 money as more and more people invest in the S&P 500. 273 00:13:14,880 --> 00:13:17,640 Overall these businesses are growing at 13%. 274 00:13:17,640 --> 00:13:20,080 S&P Global is a super profitable company. 275 00:13:20,320 --> 00:13:23,320 It's one in an elite category. In the trailing 12 months, it's 276 00:13:23,320 --> 00:13:25,880 up to $5.5 billion in free cash flow. 277 00:13:25,880 --> 00:13:28,920 Stock based comp is a tiny fragment of their free cash 278 00:13:28,920 --> 00:13:30,680 flow. This company is highly efficient 279 00:13:30,720 --> 00:13:33,600 both in capital expenditures and stock based comp. 280 00:13:33,720 --> 00:13:35,840 The earnings per share starting to grow as well. 281 00:13:35,840 --> 00:13:39,480 The EPS is up 42% year over year, nearing back to all time 282 00:13:39,480 --> 00:13:43,000 highs, even though the amount of debt being issued is still 283 00:13:43,000 --> 00:13:46,640 reduced of what it was in 2021. So this company's profits are 284 00:13:46,640 --> 00:13:50,320 surging far above where it used to be, even though the macro 285 00:13:50,320 --> 00:13:52,920 environment was better back in 2021. 286 00:13:52,920 --> 00:13:55,040 While they're posting these profits, they're buying back 287 00:13:55,040 --> 00:13:57,320 shares, reducing the share count by 2%. 288 00:13:57,320 --> 00:14:00,240 So you're earning more of the company as you simply hold it. 289 00:14:00,240 --> 00:14:03,000 And again, throughout all of this, the company still remains 290 00:14:03,000 --> 00:14:05,720 at the the lowest price to earnings ratio over the past 291 00:14:05,720 --> 00:14:07,560 year. This is why I believe even 292 00:14:07,560 --> 00:14:10,480 though it's had out performance, the company still attractively 293 00:14:10,480 --> 00:14:13,000 valued. So overall, I was happy with S&P 294 00:14:13,000 --> 00:14:15,440 Global's report, but they mentioned one thing that was a 295 00:14:15,440 --> 00:14:17,240 little bit of a surprise to investors. 296 00:14:17,440 --> 00:14:20,800 They mentioned that they were going to split off the mobility 297 00:14:20,800 --> 00:14:24,240 portion of their business. Now again, this is the portion 298 00:14:24,240 --> 00:14:27,560 of the business right here. It's a small portion and it 299 00:14:27,560 --> 00:14:28,960 didn't seem to cause any trouble. 300 00:14:29,160 --> 00:14:32,280 Overall, the mobility business was profitable, had fairly high 301 00:14:32,280 --> 00:14:35,160 margins and was growing revenue. And when I looked into it, it 302 00:14:35,160 --> 00:14:38,200 started to make more sense. On Qualtrim, we have a summary 303 00:14:38,200 --> 00:14:41,520 of the earnings call transcript. This succinctly summarizes every 304 00:14:41,520 --> 00:14:44,840 aspect that they discussed by topics and one of the main 305 00:14:44,840 --> 00:14:48,200 aspects they discussed on the call was mobility division 306 00:14:48,200 --> 00:14:50,680 separation. S&P Global announced the intent 307 00:14:50,680 --> 00:14:53,400 to spin off the mobility division as a stand alone public 308 00:14:53,400 --> 00:14:57,200 company within 12 to 8 months, expected to be tax free for the 309 00:14:57,200 --> 00:14:59,520 US, US shareholders. They describe the mobility 310 00:14:59,520 --> 00:15:02,160 business as being strong, so they're talking about it 311 00:15:02,160 --> 00:15:04,160 attractively. Now this is where we have to 312 00:15:04,160 --> 00:15:07,560 read between the lines. This company owns the mobility 313 00:15:07,560 --> 00:15:09,720 business and they're trying to spin it off and have a 314 00:15:09,720 --> 00:15:11,720 successful spin off. They're not going to talk 315 00:15:11,720 --> 00:15:14,680 negatively about the mobility business, but one of the things 316 00:15:14,680 --> 00:15:17,880 that they highlighted is that overall, in aggregate, when you 317 00:15:17,880 --> 00:15:22,400 take all the other businesses of S&P Global, they are at a 50% 318 00:15:22,400 --> 00:15:26,040 margin while mobility is at a 40% margin. 319 00:15:26,560 --> 00:15:29,440 So the mobility business is a lower margin business than the 320 00:15:29,440 --> 00:15:32,200 rest of S&P Global. They use vague terms here. 321 00:15:32,200 --> 00:15:34,680 Again, they don't want to down talk one of the businesses that 322 00:15:34,680 --> 00:15:36,840 they own. They say the separation is aimed 323 00:15:36,840 --> 00:15:40,200 at sharpening strategic focus, leveraging similarities among 324 00:15:40,200 --> 00:15:43,400 core divisions and unlocking value for shareholders. 325 00:15:43,480 --> 00:15:46,000 The mobility business, for example, owns assets like 326 00:15:46,000 --> 00:15:49,400 Carfax, Automotive, Mastermind, Market Scan. 327 00:15:49,400 --> 00:15:51,720 They're entrenched with OEMs and dealers. 328 00:15:51,800 --> 00:15:54,600 Now that sounds like a great business, which mobility is not 329 00:15:54,600 --> 00:15:58,120 a bad business, but it doesn't align with the overall business 330 00:15:58,160 --> 00:16:01,040 that S&P Global's in. The mobility business is a whole 331 00:16:01,040 --> 00:16:04,000 different type of product with a different type of customer. 332 00:16:04,040 --> 00:16:07,200 It usually deals with end consumers, the other segments of 333 00:16:07,200 --> 00:16:10,080 their business overwhelmingly with ratings, market 334 00:16:10,080 --> 00:16:12,320 intelligence, commodity insights and indices. 335 00:16:12,600 --> 00:16:15,280 They serve institutional investors, governments and 336 00:16:15,280 --> 00:16:17,480 corporate clients. These are clients that want 337 00:16:17,480 --> 00:16:20,520 financial or macroeconomic data and analytics. 338 00:16:20,560 --> 00:16:24,640 So the entire focus of the company except for mobility is 339 00:16:24,640 --> 00:16:27,160 focused on these big institutional clients. 340 00:16:27,320 --> 00:16:30,280 And then you have Mobility which focuses on OEM's, dealers and 341 00:16:30,280 --> 00:16:32,760 consumers. It's an incredibly different 342 00:16:32,760 --> 00:16:34,200 customer that you're dealing with. 343 00:16:34,240 --> 00:16:36,920 And because of how different these businesses are and their 344 00:16:36,920 --> 00:16:39,960 end customer, it's more operationally complex to have 345 00:16:39,960 --> 00:16:42,480 this business as part of S&P Global. 346 00:16:42,480 --> 00:16:45,800 S&P Global wants to be a data conglomerate selling to these 347 00:16:45,800 --> 00:16:48,960 big institutional clients. They want to rely on a highly 348 00:16:48,960 --> 00:16:52,200 scalable, more data centric reoccurring revenue model with 349 00:16:52,200 --> 00:16:54,840 higher margins. So exiting out of the mobility 350 00:16:54,840 --> 00:16:56,800 business helps them focus on that better. 351 00:16:57,120 --> 00:17:00,960 And I do believe that overall this strengthens the portfolio. 352 00:17:00,960 --> 00:17:04,359 S&P Global will be a higher quality company after the exit 353 00:17:04,359 --> 00:17:07,359 of mobility than it was before because they are exiting a 354 00:17:07,359 --> 00:17:10,440 business that's not aligned with their strategic goals and has 355 00:17:10,440 --> 00:17:12,880 lower margins. Once they separate the mobility 356 00:17:12,880 --> 00:17:15,480 business, I will likely exit that position as well. 357 00:17:15,640 --> 00:17:18,720 Over a duration of time, I'll try to get a good deal on those 358 00:17:18,720 --> 00:17:21,560 shares and reinvest them back into S&P Global. 359 00:17:21,800 --> 00:17:24,960 I'm far more interested in their core business, in the credit 360 00:17:24,960 --> 00:17:28,280 rating business, in the analytic platform, in the industry 361 00:17:28,280 --> 00:17:30,520 business. My central thesis about S&B 362 00:17:30,520 --> 00:17:32,960 Global has never been around the mobility business. 363 00:17:32,960 --> 00:17:34,840 Next up, we have Visa that reported earnings. 364 00:17:34,840 --> 00:17:36,600 This is a company that's held up well. 365 00:17:36,600 --> 00:17:39,480 It's basically flat. The day after Visa reported 366 00:17:39,480 --> 00:17:43,160 strong growth with revenue up 9% year over year, a growth rate of 367 00:17:43,160 --> 00:17:47,000 10% in earnings per share. Payment volume grew by 8%, with 368 00:17:47,040 --> 00:17:50,920 US payment volume up 6% and international payment up 9%. 369 00:17:51,320 --> 00:17:54,480 Now, this is another thing that we can throw in conjunction with 370 00:17:54,480 --> 00:17:57,440 this collapsing of GDP. Of course, Visa doesn't 371 00:17:57,440 --> 00:18:00,640 represent the entire economy, but in terms of digital 372 00:18:00,640 --> 00:18:03,840 spending, which in most cases people assume that you spend 373 00:18:03,840 --> 00:18:07,160 with credit cards, US consumers are still spending money. 374 00:18:07,600 --> 00:18:12,400 US payment volume was up 6% and international payment was up 9%. 375 00:18:12,480 --> 00:18:16,280 In the quarter, Visa purchased $4.5 billion in stock and paid 376 00:18:16,280 --> 00:18:19,320 $1.2 billion in dividends. And they highlight all these 377 00:18:19,320 --> 00:18:22,080 different deals and advances they're making with their value 378 00:18:22,080 --> 00:18:25,440 added services. Now, in terms of the GDP 379 00:18:25,440 --> 00:18:27,960 contraction, they had some commentary on that. 380 00:18:28,280 --> 00:18:31,000 They said that consumer spending remains strong and resilient 381 00:18:31,000 --> 00:18:34,560 across segments and regions despite macroeconomic 382 00:18:34,560 --> 00:18:37,040 uncertainties. You can take that how you want, 383 00:18:37,040 --> 00:18:40,640 but when you put that in context of the GDP report, it seems like 384 00:18:40,640 --> 00:18:43,400 they're contradictory. Visa over here is saying that 385 00:18:43,400 --> 00:18:46,200 spending remains resilient by consumers. 386 00:18:46,200 --> 00:18:49,240 This is incredibly different than what the news media will 387 00:18:49,240 --> 00:18:51,240 tell you. They will tell you that the US 388 00:18:51,320 --> 00:18:55,040 economy is in freefall, that it's collapsing, that nobody 389 00:18:55,040 --> 00:18:58,200 wants to spend a dime anymore. They will cite different polling 390 00:18:58,200 --> 00:19:01,320 data showing that everyone's backing off on their spending. 391 00:19:01,440 --> 00:19:04,440 They're being more cautious. They're not going out, but then 392 00:19:04,440 --> 00:19:08,440 you actually have the data from the source itself from Visa 393 00:19:08,440 --> 00:19:12,120 themselves saying that US spending remains resilient. 394 00:19:12,280 --> 00:19:14,560 There are some areas where the tariff is likely hitting the 395 00:19:14,560 --> 00:19:18,400 United States, specifically with inbound travel from Europe and 396 00:19:18,400 --> 00:19:20,960 Canada. Some travel categories, airlines 397 00:19:20,960 --> 00:19:25,160 and lodging show slower growth, but total discretionary and non 398 00:19:25,160 --> 00:19:27,240 discretionary spending is robust. 399 00:19:27,360 --> 00:19:29,360 Aren't these things supposed to be caving in? 400 00:19:29,360 --> 00:19:31,200 Isn't the sky supposed to be falling? 401 00:19:31,440 --> 00:19:33,520 Isn't there no one traveling to the US? 402 00:19:33,920 --> 00:19:36,200 It doesn't say that travel demand is collapsing. 403 00:19:36,400 --> 00:19:38,280 It says that it's showing slower growth. 404 00:19:38,280 --> 00:19:42,000 It's hard to come to terms with the real data, but as investors, 405 00:19:42,000 --> 00:19:45,320 I'm always looking for the truth, and these companies have 406 00:19:45,320 --> 00:19:47,720 the real data. It's not polls, it's not 407 00:19:47,720 --> 00:19:50,080 intentions. It shows in the numbers what 408 00:19:50,080 --> 00:19:52,640 consumers are really doing. As we look further into what's 409 00:19:52,640 --> 00:19:56,280 going on with the US economy and the world economy, specifically 410 00:19:56,280 --> 00:20:00,120 with travel, there's no greater illustration of the narratives 411 00:20:00,160 --> 00:20:02,560 fighting against the data than Booking Holdings. 412 00:20:02,560 --> 00:20:05,680 Booking Holdings is a company. That I invested in recently, 413 00:20:05,680 --> 00:20:08,600 it's actually one of my newer holdings and it's been a quickly 414 00:20:08,600 --> 00:20:10,920 profitable one. The reason that I invested in 415 00:20:10,920 --> 00:20:14,040 this company is because Simply put, the fundamentals of this 416 00:20:14,040 --> 00:20:16,960 company, the economics of it are breathtaking. 417 00:20:17,160 --> 00:20:20,280 They are shockingly good. I pour over companies to look 418 00:20:20,280 --> 00:20:23,520 for high quality ones, ones that have all the different financial 419 00:20:23,520 --> 00:20:26,040 metrics that I like to see. And it's not an understatement 420 00:20:26,040 --> 00:20:28,880 to say that Booking Holdings has some of the craziest financial 421 00:20:28,880 --> 00:20:30,520 metrics you'll see in any company. 422 00:20:30,520 --> 00:20:33,400 Whether it's the rapid and consistent revenue growth 423 00:20:33,400 --> 00:20:37,080 outside of a global pandemic, the constant pouring in a free 424 00:20:37,080 --> 00:20:40,760 cash flow this company generates at a very consistent and growing 425 00:20:40,760 --> 00:20:43,040 basis. And doing it with almost no 426 00:20:43,040 --> 00:20:46,160 stock based comp, incredibly fast earnings per share growth. 427 00:20:46,240 --> 00:20:49,080 And importantly, this company has such incredible economics. 428 00:20:49,280 --> 00:20:52,800 It was even profitable during the pandemic, a literal 429 00:20:52,800 --> 00:20:55,600 pandemic, and a travel company still made money. 430 00:20:55,680 --> 00:20:59,720 This company pours money into buybacks, aggressively lowering 431 00:20:59,720 --> 00:21:02,120 the share count for investors. In the past year, they've 432 00:21:02,120 --> 00:21:04,800 eliminated 4.7% of the share count. 433 00:21:04,880 --> 00:21:07,800 If we look at the margins of this company, they have 100% 434 00:21:07,800 --> 00:21:09,800 gross margins. No, that's not a mistake. 435 00:21:10,040 --> 00:21:13,720 The operating margins are 31%. That's higher than the gross 436 00:21:13,720 --> 00:21:17,880 margins of many companies and the profit margins are 25%. 437 00:21:18,320 --> 00:21:21,200 This isn't an elite category that only few companies on 438 00:21:21,200 --> 00:21:23,400 planet Earth have higher profit margins. 439 00:21:23,560 --> 00:21:27,080 Ones like Visa, MasterCard and Booking Holdings trades at a far 440 00:21:27,080 --> 00:21:29,400 lower valuation than either of those companies. 441 00:21:29,520 --> 00:21:31,800 So I've loved this company from the very beginning. 442 00:21:31,800 --> 00:21:34,600 The 2nd that I started learning about it, I liked it more and 443 00:21:34,600 --> 00:21:37,520 more and I made a heavy investment in it and so far it's 444 00:21:37,520 --> 00:21:40,640 done really well. It's flat year to date, even 445 00:21:40,640 --> 00:21:44,440 amongst all the scary news that we've heard and seen around the 446 00:21:44,440 --> 00:21:46,560 travel collapse. And if you've looked at the 447 00:21:46,560 --> 00:21:50,880 mainstream news at all, you've seen article after article of 448 00:21:50,880 --> 00:21:53,360 the collapse in travel demand from USA TODAY. 449 00:21:53,360 --> 00:21:56,040 Canadian travelers are taking their loonies elsewhere, tanking 450 00:21:56,040 --> 00:21:59,400 demand for US flights. CNBC reports that airlines 451 00:21:59,400 --> 00:22:03,120 expect to cut 2025 outlooks as travel demand falters. 452 00:22:03,200 --> 00:22:05,320 Plane tickets are getting cheaper as domestic travel 453 00:22:05,320 --> 00:22:08,160 demand weakens. Economic turbulence shakes US 454 00:22:08,160 --> 00:22:10,280 airlines as travel demand falters. 455 00:22:10,320 --> 00:22:12,920 And so on and so forth. We've seen article after article 456 00:22:12,920 --> 00:22:16,520 of US travel demand faltering. And what did Booking Holdings do 457 00:22:16,520 --> 00:22:18,720 this quarter? Booking holdings beat the annual 458 00:22:18,720 --> 00:22:21,640 assessments on the revenue, the earnings per share, the gross 459 00:22:21,640 --> 00:22:25,000 bookings, Adjusted EBITDA, adjusted earnings per share and 460 00:22:25,000 --> 00:22:28,680 the room nights sold. Every category of this company, 461 00:22:28,800 --> 00:22:32,160 they be analyst estimates and the CEO went on to an interview 462 00:22:32,160 --> 00:22:35,760 of CNBC to explain that this was overall a great quarter. 463 00:22:35,760 --> 00:22:39,040 We're saying that we're still saying for the future for the 464 00:22:39,040 --> 00:22:45,200 full year EPS mid double digit numbers, the top widen out a 465 00:22:45,200 --> 00:22:49,400 little bit too low double digit. So that's not not coming out 466 00:22:49,400 --> 00:22:52,400 with something that's recognizing that there could be 467 00:22:52,400 --> 00:22:54,240 some uncertainty. By the way, we're not really 468 00:22:54,240 --> 00:22:56,840 seeing it yet. We started the whole call with 469 00:22:56,840 --> 00:22:59,560 say, hey, we're seeing steady travel globally. 470 00:22:59,760 --> 00:23:02,720 I'll be in some parts of the world like the US maybe having a 471 00:23:02,720 --> 00:23:05,680 little bit of a softer time. But for us, we're very. 472 00:23:05,680 --> 00:23:10,000 Global He notes that the US is maybe having a softer time, but 473 00:23:10,000 --> 00:23:13,320 they are a global company, so they're not as concerned if 474 00:23:13,320 --> 00:23:15,800 there's a slowdown in travel from Europe and Canada 475 00:23:15,840 --> 00:23:17,720 specifically to the United States. 476 00:23:17,880 --> 00:23:20,560 I understand certainly we're going, we'd like the US to be 477 00:23:20,560 --> 00:23:23,520 doing better too, but because we're so global, we get a 478 00:23:23,520 --> 00:23:25,760 benefit. So if a Canadian, for example, 479 00:23:25,760 --> 00:23:29,320 says I don't want to go to the US and they go to Mexico 480 00:23:29,320 --> 00:23:32,120 instead, but we'll still get that booking and it's still 481 00:23:32,120 --> 00:23:34,160 going to show up on our, you know, our PNL. 482 00:23:34,480 --> 00:23:38,080 I'll be not so great for the hotelier in the US though. 483 00:23:38,160 --> 00:23:40,640 The question for booking holdings is not whether or not 484 00:23:40,640 --> 00:23:43,760 people want a vacation in the United States, it's whether or 485 00:23:43,760 --> 00:23:45,920 not people want to go on vacations at all. 486 00:23:46,080 --> 00:23:49,080 I still believe at the end of the day, people are always going 487 00:23:49,080 --> 00:23:51,120 to want to travel. This is a point that I've 488 00:23:51,120 --> 00:23:54,400 consistently agreed with him on is that travel is an innate 489 00:23:54,400 --> 00:23:56,200 desire. People want to go, have 490 00:23:56,440 --> 00:23:59,040 experiences, and over time people are prioritizing that 491 00:23:59,040 --> 00:24:00,880 higher and higher. In the summary of the earnings 492 00:24:00,880 --> 00:24:03,600 call, we have a section devoted to travel demand and market 493 00:24:03,600 --> 00:24:05,320 trends. This is where they talk about 494 00:24:05,320 --> 00:24:07,960 the US travel demand. They were asked specifically 495 00:24:07,960 --> 00:24:12,360 about this by analysts and the response was more of the same. 496 00:24:12,680 --> 00:24:14,880 They're basically saying that the news that there's a travel 497 00:24:14,880 --> 00:24:17,040 collapse has an element of truth. 498 00:24:17,360 --> 00:24:20,680 There is some moderation in travel to the United States, but 499 00:24:20,680 --> 00:24:23,320 it's far exaggerated. Everything that they show here 500 00:24:23,320 --> 00:24:26,720 shows that this news is continually being exaggerated. 501 00:24:26,720 --> 00:24:29,680 They say that the regional room night growth of Europe and Asia 502 00:24:29,680 --> 00:24:33,360 saw high single digit growth. The rest of the world grew at 503 00:24:33,360 --> 00:24:37,000 low double digits while the United States grew at low single 504 00:24:37,000 --> 00:24:38,960 digit growth. So the US travel industry is 505 00:24:38,960 --> 00:24:41,480 still growing, but much slower than the rest of the world. 506 00:24:41,560 --> 00:24:44,280 Booking Holdings remains far more resilient than people give 507 00:24:44,280 --> 00:24:46,800 it credit for. The company is still undervalued 508 00:24:46,800 --> 00:24:50,800 according to the metrics. It trades at APE ratio of 22, a 509 00:24:50,800 --> 00:24:55,280 free cash flow yield of 5.3% while growing earnings double 510 00:24:55,280 --> 00:24:57,840 digits. Despite the uncertainty it faces 511 00:24:57,840 --> 00:25:00,560 in the future, I'm still excited about this company. 512 00:25:00,720 --> 00:25:03,840 Now, a company that I don't currently own, annoyingly, is 513 00:25:03,840 --> 00:25:05,720 Fair Isaac. And the reason that I believe 514 00:25:05,720 --> 00:25:07,920 this company is annoying is because it's one that I don't 515 00:25:07,920 --> 00:25:10,160 own and it consistently does so well. 516 00:25:10,400 --> 00:25:12,880 So I'm sitting here watching this one from the sidelines. 517 00:25:13,120 --> 00:25:15,560 So are higher and higher and do better and better. 518 00:25:15,600 --> 00:25:19,200 In summary of their financial performance, they reported $499 519 00:25:19,200 --> 00:25:22,240 million in revenue, up 15% year over year. 520 00:25:22,400 --> 00:25:26,040 GAAP income was up 25%. GAAP earnings per share was up 521 00:25:26,040 --> 00:25:28,240 28%. They had free cash flow this 522 00:25:28,240 --> 00:25:33,120 quarter of 65,000,677 million over the past four quarters, a 523 00:25:33,120 --> 00:25:36,840 45% increase year over year. And they reiterated their fiscal 524 00:25:36,840 --> 00:25:39,280 2025 guidance. Nothing has changed their 525 00:25:39,280 --> 00:25:42,240 prospects this year so far. I have this one as a top 526 00:25:42,240 --> 00:25:44,920 consideration on the watch list. And for now, I'm still waiting 527 00:25:44,920 --> 00:25:46,640 on the sidelines for an entry point. 528 00:25:46,640 --> 00:25:49,720 Spotify's another company that just reported yesterday and it's 529 00:25:49,720 --> 00:25:53,840 trading up another 4% today. Spotify and Netflix, ironically 530 00:25:53,840 --> 00:25:57,360 these two companies that in many cases are considered weaker or 531 00:25:57,360 --> 00:26:00,600 have a weaker Moat, are companies that are both widely 532 00:26:00,600 --> 00:26:04,240 in the green this year, up 20 and 30% year to date. 533 00:26:04,360 --> 00:26:07,360 The management of Spotify acknowledges the macroeconomic 534 00:26:07,360 --> 00:26:10,480 uncertainty but believes its business model is resilient, 535 00:26:10,560 --> 00:26:13,680 engaging and increasingly central to users lies. 536 00:26:14,080 --> 00:26:16,600 The company maintains its confidence in the long term 537 00:26:16,600 --> 00:26:19,760 outlook driven by its freemium model, high engagement, 538 00:26:19,760 --> 00:26:23,600 retention and flexibility of the users during uncertain times. 539 00:26:24,000 --> 00:26:27,120 In 2025, it positioned itself as the year of accelerated 540 00:26:27,120 --> 00:26:29,680 execution. They are still hitting the gas 541 00:26:29,680 --> 00:26:32,840 and the company continues to gain market share with new 542 00:26:32,840 --> 00:26:34,920 subscribers. I have no complaints about 543 00:26:34,920 --> 00:26:37,840 Spotify's quarter. I think it was good across the 544 00:26:37,840 --> 00:26:39,720 board. It's really tough to be critical 545 00:26:39,720 --> 00:26:43,080 about this company and Spotify's performance continues to prove a 546 00:26:43,080 --> 00:26:45,160 lot of people wrong. I'm not going to talk about 547 00:26:45,160 --> 00:26:47,280 these ones too much today. I want to have time to really 548 00:26:47,280 --> 00:26:49,400 dive into the report and have a better take on them. 549 00:26:49,400 --> 00:26:51,600 So I'll be talking about these companies later in the week. 550 00:26:51,800 --> 00:26:54,280 Make sure you're following the Joseph Carlson After Hours 551 00:26:54,280 --> 00:26:56,560 channel to see follow up commentary on these. 552 00:26:56,840 --> 00:27:00,240 One that I want to go over going into this earnings is Amazon. 553 00:27:00,560 --> 00:27:06,400 Amazon is down another 3.28% on the day, trading at $180 as of 554 00:27:06,400 --> 00:27:08,480 today. When we look at the stock price 555 00:27:08,480 --> 00:27:11,320 and we zoom out five years, this is what it looks like. 556 00:27:11,960 --> 00:27:15,840 Now I'm going to draw a line here and this line is from the 557 00:27:15,840 --> 00:27:20,840 beginning of 2020 to current day, right about there. 558 00:27:21,480 --> 00:27:25,560 You'll notice that today Amazon is trading at roughly the exact 559 00:27:25,560 --> 00:27:30,920 same price it hit in Q2 of 2020, so the same price today as Q2 of 560 00:27:30,920 --> 00:27:33,120 2020. What has happened over that time 561 00:27:33,120 --> 00:27:35,760 period, over those past 4 1/2 years? 562 00:27:35,760 --> 00:27:39,640 If we bring up the revenue of Amazon in Q2 of 2020, we can see 563 00:27:39,640 --> 00:27:43,960 that it was $321 billion, so 321. 564 00:27:44,360 --> 00:27:48,880 The last quarter was $637 billion, meaning during this 565 00:27:48,880 --> 00:27:52,800 time period where the stock is the exact same, revenue has 2X 566 00:27:53,360 --> 00:27:56,640 doubled the total revenue of the company, which was already 567 00:27:56,640 --> 00:27:59,800 massive five years ago. Now importantly, not only did 568 00:27:59,800 --> 00:28:02,960 the revenue double since Q2 of 2020, because that doesn't 569 00:28:02,960 --> 00:28:06,640 really give Amazon enough credit, what really happened is 570 00:28:06,640 --> 00:28:09,160 the low margin revenue, the first party sales. 571 00:28:09,280 --> 00:28:14,000 This lowest margin revenue went from 163 billion to around 247 572 00:28:14,000 --> 00:28:16,720 billion. So it did grow, but not that 573 00:28:16,720 --> 00:28:18,960 much. When we look at the third party 574 00:28:18,960 --> 00:28:22,240 seller services, which is a much more important form of revenue 575 00:28:22,240 --> 00:28:26,720 with higher margins. This went from 63 billion to 156 576 00:28:26,720 --> 00:28:28,880 billion. It over 2X. 577 00:28:28,880 --> 00:28:31,640 During that time period, advertising went from virtually 578 00:28:31,640 --> 00:28:36,480 nothing, not even a reportable metric, to now a $56 billion 579 00:28:36,480 --> 00:28:39,440 advertising business. Which is notable because this is 580 00:28:39,440 --> 00:28:42,520 expected to be one of the highest, if not the highest 581 00:28:42,520 --> 00:28:46,320 margin form of Amazon's revenue. Meaning that not only did the 582 00:28:46,320 --> 00:28:50,160 revenue double, but during the doubling of this revenue, the 583 00:28:50,160 --> 00:28:53,880 revenue also became higher quality overall, higher margin, 584 00:28:53,920 --> 00:28:56,040 a higher mix of higher quality businesses. 585 00:28:56,240 --> 00:28:59,840 In Q2 of 2020, Amazon earned an EPS of $1.30. 586 00:29:00,200 --> 00:29:04,520 The trailing 12 months to date is $5.53, so the earnings per 587 00:29:04,520 --> 00:29:07,560 share roughly 4X D. Over that time period, Amazon's 588 00:29:07,560 --> 00:29:10,360 net income went from 13 billion to 59 billion. 589 00:29:10,360 --> 00:29:13,640 The operating margins have likewise doubled over that same 590 00:29:13,640 --> 00:29:16,120 time period, again of the stock remaining flat. 591 00:29:16,400 --> 00:29:20,040 Now, you may argue that Amazon was just dramatically overvalued 592 00:29:20,040 --> 00:29:22,160 in 2020. Investors are simply making 593 00:29:22,160 --> 00:29:24,640 their decisions of whether or not the stock was overvalued 594 00:29:24,640 --> 00:29:27,920 then or undervalued now. When I look at the situation 595 00:29:27,920 --> 00:29:31,720 here, I continue to believe that the stock was not overvalued in 596 00:29:31,720 --> 00:29:34,240 2020. I believe investors buying the 597 00:29:34,240 --> 00:29:39,400 company for around 170 or 180 in 2020 made the right decision, 598 00:29:39,720 --> 00:29:42,680 and I believe investors selling the stock today are making the 599 00:29:42,680 --> 00:29:44,920 wrong decision. We can look at a very similar 600 00:29:44,920 --> 00:29:47,640 circumstance if we look at Netflix over the past five 601 00:29:47,640 --> 00:29:50,840 years, investors could have incorrectly concluded the same 602 00:29:50,840 --> 00:29:53,160 thing. The stock at one point looked 603 00:29:53,160 --> 00:29:57,680 like it was an incorrect buy to buy it in 2020, like investors 604 00:29:57,680 --> 00:29:59,640 are paying too much to buy it then. 605 00:29:59,680 --> 00:30:03,280 After all, the stock was trading for $700.00 per share. 606 00:30:03,720 --> 00:30:06,480 So during this time period, it felt like you were paying too 607 00:30:06,480 --> 00:30:07,800 much. It was overvalued. 608 00:30:08,120 --> 00:30:12,600 And look at where the company is now in 2022 or in 2023. 609 00:30:13,000 --> 00:30:15,120 All the time you felt like you were overpaying. 610 00:30:15,480 --> 00:30:18,760 But as soon as we got to 2024. But here's how the math works 611 00:30:18,760 --> 00:30:21,200 Now. If you bought Netflix at the 612 00:30:21,200 --> 00:30:25,360 highest point, the very top of the most expensive part of 2021, 613 00:30:25,800 --> 00:30:29,040 let's say you had the absolute worst timing and you bought it 614 00:30:29,040 --> 00:30:32,760 there and you simply held it to current day, you would have a 615 00:30:32,760 --> 00:30:38,800 64% gain, far outperforming both the QQQ and the S&P 500. 616 00:30:39,240 --> 00:30:43,520 Your gain in Netflix is 64%. Your gain in the S&P 500 over 617 00:30:43,520 --> 00:30:46,400 this exact same time period would be 15%. 618 00:30:46,560 --> 00:30:49,520 It's difficult to judge things even in hindsight in some 619 00:30:49,520 --> 00:30:52,320 situations. A buyer that looked really bad 620 00:30:52,320 --> 00:30:54,840 just a couple years ago now looks really good. 621 00:30:55,160 --> 00:30:57,920 And I believe we're going to see the same thing with Amazon. 622 00:30:58,000 --> 00:31:00,880 If we bring up Amazon again, we can look over the past five 623 00:31:00,880 --> 00:31:03,840 years and it's disheartening to see a stock trade flat for so 624 00:31:03,840 --> 00:31:05,400 many years. But if we look at the 625 00:31:05,400 --> 00:31:08,360 fundamentals of the company and note the aggressive revenue 626 00:31:08,360 --> 00:31:11,080 growth, all the different industries that Amazon has 627 00:31:11,080 --> 00:31:15,200 gotten into, they've grown into the profitability metrics alone 628 00:31:15,400 --> 00:31:18,520 show that this company fundamentally is on the move. 629 00:31:18,800 --> 00:31:21,880 Even though the stock price doesn't reflect that today, it 630 00:31:21,880 --> 00:31:24,680 eventually will. Stocks can remain a voting 631 00:31:24,680 --> 00:31:26,440 machine for a short period of time. 632 00:31:26,760 --> 00:31:29,120 Investors right now are voting because they're scared about 633 00:31:29,120 --> 00:31:31,400 tariffs and the uncertainty in the market. 634 00:31:31,760 --> 00:31:35,720 But over a longer period of time, these buys right here may 635 00:31:35,720 --> 00:31:37,960 actually turn out to look like very smart buys. 636 00:31:38,000 --> 00:31:40,000 The most important thing is to continue following the 637 00:31:40,000 --> 00:31:42,880 fundamentals of a company and we'll see what Amazon says 638 00:31:42,960 --> 00:31:44,560 tomorrow. Now that's gonna be it for this 639 00:31:44,560 --> 00:31:46,080 episode. Hope you enjoyed. 640 00:31:46,280 --> 00:31:47,080 See in the next one.