0:05

It's Earningspalooza. We're celebrating with an

0:07

entire show covering company updates. This

0:09

week's Motley Fool Money radio show starts now. Everybody

0:26

needs money. That's why

0:28

they call it money. From

0:37

Fool Global Headquarters, this is Motley Fool

0:39

Money. It's the Motley Fool Money radio

0:41

show. I'm Dylan Lewis. Joining me over

0:43

the airwaves, Motley Fool senior analysts Andy

0:46

Cross and Emily Flippen. Fools,

0:48

great to have you both here. Hey

0:50

Dylan. Hey, good to be here. It is

0:52

one of the biggest weeks in earnings season

0:54

and that means Earningspalooza, a marathon of updates

0:56

from Big Tech, the streamers in audio and

0:58

video, and a look at what to expect

1:00

in the ad market in 2024. I

1:04

do want to start us off with

1:06

the big macro Earnings Edition. Taking

1:08

a look at the current landscape as we are seeing

1:10

all these reports come in this week

1:13

and next. Andy, what are you paying

1:15

attention to, maybe outside of company's control but affecting

1:17

some of the results and what we might see

1:19

from companies this quarter and going forward for the

1:21

rest of the year? Dylan, it's been

1:23

a pretty good quarter so far. You have

1:25

80% of companies in the S&P 500 that

1:27

have reported that are feeding the earnings expectations

1:29

if you play that game. Obviously,

1:32

there's been some volatility in the market

1:34

because of some of the macro issues

1:37

with Federal Reserve wondering about the interest

1:39

rate policies and whether we actually have

1:41

to cut as soon. Remember, at the

1:43

beginning of the year, there were something

1:46

crazy like six or seven rate cuts

1:48

baked in. Now there's basically one

1:50

or two after some of these initial

1:53

data points that have popped up over the

1:55

past couple of weeks and some commentary from

1:57

the Fed. But overall, it's been a

1:59

pretty strong earnings. season, especially as we

2:01

will talk about for big tech that

2:03

is driving really the big bulk of

2:05

the earnings growth, Dylan. And

2:07

I kind of say that's, that's the way it's

2:09

been. And it probably looks like when

2:12

we're seeing from these companies, the way it's the way

2:14

it's going to be for the, for the foreseeable future.

2:16

Emily, Andy brought up the rate picture. So

2:18

I'm going to take the bait here. We

2:20

saw some updated inflation numbers that just kind

2:22

of continued this narrative of this is sticky.

2:25

It's getting a little bit hard to resolve.

2:27

What are you paying attention to you as

2:29

you're trying to get a sense of where

2:31

that picture's going? Yeah. The earnings

2:33

season narrative is, is very happy, right?

2:35

We're seeing a lot of companies report

2:37

stronger bottom lines than we expected, but

2:39

I think big picture for the economy,

2:41

we're seeing some warning signs. It's not

2:43

just the fact that rate cuts may

2:45

not happen as aggressively as as quickly

2:47

as many investors expect, but I think

2:49

we're actually seeing some initial kind of

2:51

warning signs of what could be a

2:53

tax inflationary environment. And that's a pretty

2:55

dramatic statement to say. Staffly share environment

2:58

is really the worst of both worlds.

3:00

It's high inflation, low GDP growth, and

3:02

also high unemployment. And a lot of

3:04

companies who are reporting strong earnings this

3:06

quarter are doing so because they massively

3:08

cut costs, which includes things like layoffs.

3:10

So despite the fact that the economy

3:12

seems to be doing well, consumers are

3:14

still spending inflation does seem sticky. And

3:16

to the extent that we see unemployment

3:18

start to trend upwards, which hasn't happened

3:20

yet, but if it were to happen

3:22

while GDP growth stays low and inflation

3:24

stays high, that could lead to stack

3:26

inflation, which is really, I would

3:28

say impossible. I won't say I say that

3:30

word loosely, but hard, really challenging for the

3:33

federal reserve and for our government to fix. All

3:36

right. Digging into some of the company results

3:39

from this week, we're going to kick off

3:41

with two household names and two full favorites,

3:43

Chipotle and Tesla, Andy, higher

3:45

prices and in the inflationary environment, not

3:48

necessarily taking a bite out of Chipotle's

3:50

results shares up 8% this

3:52

week after the burrito maker

3:54

posted earnings ahead of expectations.

3:57

It seems like Chipotle is in this

3:59

spot. And it kind of a

4:01

magical one anywhere. almost nothing can go

4:03

wrong. So I'll just say Dylan was

4:05

another. Outstanding reports you know, the movie

4:07

An Assembly Line May been made famous

4:10

by Henry Ford although not really invented

4:12

by him. But. Support

4:14

Way has made an art and science

4:16

from the burrito assembly line and that's

4:18

really showing up and all of the

4:20

results at Winning Formula is about getting

4:22

people in the door or the app.

4:24

Through. The line quickly and satisfied and

4:27

charging these competitive prices which they are

4:29

all doing in the do it over

4:31

and over again this quarter the improve

4:33

that throughput by to fool on trees

4:35

still and during the average fifty minute

4:37

mere period. So we think about that.

4:39

I think what twenty or twenty five

4:41

bucks per fifteen minute periods and Tripoli's

4:44

is doing this time and time again.

4:46

This helped drive com growth of seven

4:48

percent for the quarter as five percent

4:50

transactions and only two percent in price

4:52

revenue increase fourteen percent as he opened

4:54

up forty. Seven new stores and as you

4:56

mention, the earn his picture. Because operating margins

4:59

increase a little bit, they now have all

5:01

these to put lanes the drive through that

5:03

they're opening up on a P S or

5:05

his prissy or jumped twenty seven percent lower

5:07

food and beverages. Packet. And

5:09

packaging cause fell to twenty eight point eight

5:12

percent of sales force a twenty nine percent

5:14

of sales a year ago. So with this

5:16

revenue they're getting scale the open a more

5:18

stores the balance he is packed with two

5:20

point two billion dollars in cash and know

5:23

dead to so much going right for to

5:25

put way right now. You.

5:27

Mention comps and actually up there cop

5:29

and he Dutch Poli now into space

5:31

same store. Sales will grow by mid

5:33

to high single digit percentage which is

5:35

up from mid single the percentage which

5:37

their original guidance the company also is

5:39

focused on at seven thousand location. Goal:

5:41

Continue to make progress. There is there

5:43

anything not to like him? What we're

5:46

seeing from Spotlight? Well maybe the price

5:48

of will be able to sell said

5:50

about fifty five times this year's earnings.

5:52

Actually, a slight discount to

5:54

what historically. Australia And for a

5:56

company that returns equity of more than forty

5:58

percent in a five year earnest compound growth

6:00

of forty five percent. Kind.

6:03

Of a premium price willing to pay for

6:05

one of the premium operators in the restaurant

6:07

business. Or at.

6:09

We also saw results from Tesla

6:11

this week and a big time

6:13

response to what seemed like Emily

6:15

kind of man. Earnings Results: shares

6:17

are up twenty percent, even as

6:20

the company posted revenue and earnings

6:22

declines year over year and both

6:24

of those missed expectations. What?

6:26

Exactly had the market so excited! Lots.

6:29

More like what exactly at the market.

6:31

So disappointed throughout the course of twinkling

6:33

for because of prior to this Quarter

6:35

was down something like forty percent for

6:37

the year. So there's an expectation heading

6:39

into this quarter from investors that we

6:41

knew the environment was going to be

6:43

bats. It wasn't the question mark about

6:45

how bad it was as you mentioned

6:47

Dell and there was a mess and

6:49

general in terms of both profits and

6:51

and deliveries sales expectations for Cast on

6:53

the Quarter, but the market actually responded

6:56

very positively and I think that's because

6:58

the question wasn't. You know how

7:00

bad is it? But it's where's the

7:02

company going from here? Because over the

7:04

course of Twenty Twenty Four wheezing competition

7:06

increase especially for B Y De and

7:08

China squeezing cheaper alternatives come onto the

7:10

market, especially internationally. in places like Europe,

7:13

we've also seen a slowing, easy adoption

7:15

rates so other car manufacturers of actually

7:17

pulled back and recent quarters on their

7:19

expansion into pure electric vehicles, choosing to

7:21

focus on hybrid vehicles. Meanwhile, passes

7:23

out here announcing all of these kind

7:26

of cool new crazy initiatives like a

7:28

Robo Taxis and having a big planned

7:30

launch event for for that initiative later

7:32

this year. So there's a question mark

7:34

from investors heading into this quarter about

7:36

what is Tesla said as he speaks.

7:38

for years he been communicating are Tesla

7:41

has been communicating that their goal is

7:43

to provide a cheap, accessible electric vehicle

7:45

that could be purchased by anyone and

7:47

everyone, but they are not first a

7:49

market for that. B Y De has

7:51

beaten them, especially internationally. So. What is

7:53

Tesla going to do today and we saw that

7:56

and is quarter management doubled down on the cheaper

7:58

he be so there is still focus. Providing

8:00

widely accessible via cause with a margin

8:02

being made up to up cells things

8:04

like Auto Pilates and other Ai initiative

8:06

that can actually do a lot to

8:08

increase their birth margin pass that up

8:10

to the Plane Automaker so I think

8:12

it was just a matter of seems

8:14

not been quite as bad as investors

8:16

expected and a reiteration of that strategy

8:18

that has remained unchanged despite the fact

8:20

the environment they're working and right now

8:22

she is increasingly challenged. Andy

8:24

I want to go over to you for

8:26

such and because there were a lot of

8:28

forward looking things to be excited about. the

8:30

supports. Also some things that I think we

8:33

do need to know they are cost cutting.

8:35

They're laying off ten percent of their workforce.

8:37

Yeah, we saw this is highly publicized cyber

8:39

truck recall and we know the volumes for

8:41

that are Los. It seems like there's also

8:43

some some reasons to be concerned about this

8:45

business going forward. Well I think though the

8:47

pushed to the model to that was the

8:49

big news as the cheapest car the zebra

8:51

car below twenty five thousand dollars say that's

8:53

that's been the market. That's the likes of

8:55

B y de others over and China

8:57

have been pushing to aggressively doing done

8:59

so well in assembly bleed to people

9:01

are are. Looking. For cheaper cars

9:04

and Tesla is really always focus on

9:06

and a law must on the more

9:08

expensive ones including that cyber shrug so

9:10

the layoffs getting more efficiently. Emily mentioned

9:12

that earlier on that top of the

9:14

our about the layout so I think

9:16

investors have some a some reasons to

9:18

be encouraged because this was tests on

9:20

he i must recognizing that there's there's

9:23

a market that the market that the

9:25

investors are looking into go into the

9:27

cheaper markets and Tesla is now going

9:29

to spend time there whether they get

9:31

they are in two years. At swimming

9:33

expect to start rolling some of them out.

9:35

Use off by the end of two Two

9:37

Thousand and Twenty five as pretty ambitious, but

9:39

if they get their as a good sign

9:41

for investors. I have a higher

9:44

degree of confidence will see of the on the

9:46

robot axes could they gave us a firm date

9:48

of August Eighth? Twenty Three Fourths remains to be

9:50

seen on a low price. Models are a couple

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of after the break. We've got the latest trend

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in big sex dividends. The right here is magical

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Next Wave is a good podcast to add

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to your rotation. Welcome

11:07

back to Motleyful Money. I'm Dylan Lewis

11:09

joined again on the air by Andy

11:11

Cross and Emily Flippen. If you like

11:13

big numbers, this segment is for you.

11:15

We've got updates on about 6 trillion

11:18

in market cap coming with looks at

11:20

Meta, Microsoft and Alphabet. Andy, let's start

11:22

with Alphabet shares up 10% this week

11:24

after the company earnings results were out

11:27

and it seemed like the results were pretty strong,

11:29

but I have to say a lot of the

11:31

attention, a lot of the investor excitement seemed to

11:33

be more about the capital allocation decisions the company

11:35

is making. But Dylan, it was finally

11:37

a positive reaction from investors. If you look

11:39

at the last two earnings reports, the stock

11:41

fell 8% and 10% the next

11:43

day. Now I'm not a daily investor, of course,

11:45

but it was nice to see the reaction and

11:48

a lot of that obviously was from the dividend

11:51

launch that they announced. I

11:53

think there was hope that they would, but not really the

11:55

expectation. So that's nice to see in a $70 Billion

11:58

additional buyback. But operationally

12:00

the really starting to get it done.

12:02

Cloud was a real nice spot with

12:04

revenues up twenty percent an acceleration from

12:06

last quarter. I think there were some

12:09

worries of that's not gonna continue to

12:11

sell wreaths and profit jumping almost five

12:13

acts in that business and nine hundred

12:15

million. And so it really seems that

12:17

the artificial intelligence initiatives, the Ai initiatives

12:19

pie to it's cloud business is really

12:21

starting to help the gender of ai

12:23

overlays if you are using this in

12:25

Google search is those results are late

12:27

or have led to more than a

12:29

billion queries with. That Jan A on

12:31

it's still rolling out there. Seen encouraging

12:33

results. I keep search tied in a

12:36

competitive position for them years or so.

12:38

They say they see a clear path

12:40

to monetizing more and more. A I

12:43

threw Gemini. It's. New before

12:45

his Performance Max Tool which is is

12:47

ad campaign manager to also search and

12:49

as in the cloud and their subscriptions

12:52

it's all this least. Revenues I grew

12:54

fifteen percent company operating income jumped forty

12:56

six percent Earnings per share was at

12:58

sixty two percent Search revenues grew forty

13:01

percent you to grew twenty percent Nasa

13:03

Fast is your rear quarter growth in

13:05

many many quarters. You tube and Google

13:08

Cloud deal and are now expected to

13:10

end this year with a hundred billion

13:12

sales run rate of about. Three hundred

13:15

billion in total sales. So it's

13:17

not just search and importantly as

13:19

will hear a lot capital expenditures

13:21

into infrastructure or was three billion

13:23

last year and this year now

13:25

their own of fifty billion dollar

13:27

run right as about more than

13:29

half of their earnings estimates. So

13:31

they're in heavily into infrastructure across

13:33

the board to be able to

13:35

be competitive when it comes to

13:37

artificial intelligence and that service open

13:39

all of the results. Emily, You

13:41

and I are both Millennials and

13:43

have generally. Grown up in in investing

13:45

environment where dividends for almost a dirty

13:48

word especially for high growth tech companies.

13:50

alphabet following in met his footsteps hear

13:52

what he make a list. I

13:54

thought we were over this point. that history. right

13:56

i may have so many investors get started as

13:58

a market at be they're interested in

14:01

things like dividends. But, you know, Dylan,

14:03

younger investors especially, I think they want

14:05

to invest in what they see as

14:07

the cutting edge of the future, right?

14:09

That's technology, that's the metaverse, that's growth,

14:11

that's whatever it is. It's not dividends.

14:13

So it's a little bit interesting to

14:15

see the market respond so positively to

14:17

Alphabet's news, because it just goes to

14:19

show that money in your

14:21

pocket is money in your pocket. And I

14:23

do think that this could be a little

14:25

bit of Alphabet plugging their ears and saying

14:27

la la la la to the impending threat

14:29

that is AI. It's an opportunity for them, but

14:32

also a threat to their search business, which is

14:34

part of the reason why I think they're focusing

14:36

on ad-generated content on things like

14:38

YouTube, for instance. But still, the fact that they

14:40

are sitting here saying, we don't have a better

14:42

place to invest this money other than share buybacks

14:44

and now a dividend, I think

14:46

speaks a lot about the capital allocation of this

14:48

business moving forward. Great company, but

14:51

one that I am a little bit more

14:53

questioning over now, simply because they're

14:55

telling us they don't have a better place to reinvest. When

14:58

Andy was giving his rundown on Alphabet,

15:00

he mentioned strength in the cloud. We

15:02

also saw that showing up in results

15:04

from Microsoft, a little bit more of

15:06

a muted response from the market on

15:08

them. But it seemed like we saw

15:10

really strong core earnings numbers here from

15:12

the business. It's unfortunate for

15:14

Microsoft they're reporting earnings this week when we've

15:16

had such big stories from our other large

15:18

tech companies, because what is otherwise a really

15:21

stellar quarter for Microsoft has kind of gone

15:23

unnoticed by the market. It's not inherently a

15:25

bad thing for Microsoft, but as you mentioned,

15:27

Dylan, this is a business that continues to

15:29

push in the correct direction, which

15:31

is to say they're looking for what is next

15:33

for the business. And yes, a lot of that

15:36

focus is on cloud revenue, which as you mentioned,

15:38

was really strong in the quarter, up 23%. And

15:41

in particular, using Azure, they're gaining market

15:43

share. If I'm Amazon, I'm

15:45

scared a little bit personally, but it's

15:47

good for Microsoft shareholders to see Azure

15:50

still stealing market share. And part thanks

15:52

to that dedication to their forward-looking AI

15:54

initiatives. And with the launch of CoPilot

15:56

across so many different functionalities for enterprises

15:59

and individuals. like, there's a lot to like

16:01

with Microsoft moving forward. Now, I give Microsoft a

16:03

pass in comparison to Alphabet. Yes, they have a

16:05

little bit of a dividend, but I feel a

16:07

little bit more of a forward-looking management team when

16:09

it comes to Microsoft. So I like the direction

16:11

this company is headed. You know what's

16:14

interesting, Dylan, is on the call,

16:16

Sachin Adela said, we are doubling

16:18

down on this very important work,

16:20

putting security, I'm talking cybersecurity above

16:23

all else, before all of our

16:25

features and investments. Now, this is

16:27

an important part because they got

16:31

a little bit, not just a little bit,

16:34

very flatly criticized by the Cyber

16:36

Safety Review Board in 2000

16:39

earlier this year, when

16:41

they criticized the cybersecurity

16:44

capabilities of Microsoft and pretty

16:46

much said they require an

16:48

entire overhaul, particularly in light

16:50

of the company's centrality in

16:52

the technology ecosystem. So the

16:55

fact that with all going

16:57

on AI spending, infrastructure

16:59

spending, which Microsoft is spending gobs

17:01

as well, it

17:03

is very interesting to see that they realize

17:05

cybersecurity is not a strength of theirs or

17:08

there's at least it needs some work and that

17:10

they are also very focused on that space and

17:12

going to put real resources behind that to address

17:14

these shortcomings. Andy, speaking

17:16

of AI spending, we got an update

17:19

from Meta this week as well as

17:21

part of the big tech rundown. And

17:23

I was a little surprised because they

17:25

said, hey, we are heavily investing CapEx

17:28

in AI. And it seemed like the market

17:30

was like, yep, yep, wait, wait, wait, no,

17:32

not like that. We want you investing in

17:34

this space, but it doesn't seem like they

17:37

were too thrilled with the way that Meta

17:39

is doing it. Well, if it takes

17:41

money to make money, investors certainly were not thrilled at

17:43

the 40, up to 40 billion

17:45

expected CapEx this year, a pretty

17:47

large increase. And really for

17:50

pretty good reason, because again, from a percentage

17:52

of income or cash flow, it's a much

17:54

higher level than the other

17:57

larger tech companies. That

18:00

was a concern weighing on people as Meddas continue to

18:02

invest in AI. I

18:05

think it's starting to have real impacts. You start to

18:07

see that things like when you start to see about

18:09

their growth and how much impact

18:12

they're having on their ad business. That's

18:15

really coming through in some of these results.

18:17

They still have massive operating losses in the

18:19

reality labs. They're not backing away from that.

18:21

You're going to see these investments in the business. Overall,

18:24

the ad business of

18:27

Meddas continues to be very healthy and a

18:29

lot from these investments. But

18:31

they are investments and to be competitive, they got to

18:33

spend the money in this space. The

18:35

Metaverse won't build itself. Maybe they're taking a lesson from

18:38

Roblox here just to say, hey, why would we spend

18:40

all of our time and energy trying to build the

18:42

Metaverse so we can let the robots do it for

18:44

us? Yeah. At

18:47

$45 billion in cumulative losses

18:49

so far for reality labs,

18:52

Andy, I'm just curious, what

18:54

needs to happen for that investment to make

18:56

sense and to pay off from that?

18:58

What's really interesting, Dylan, is that Mark

19:01

Zuckerberg on the call started to group

19:03

together reality labs and the AI initiatives

19:06

and saying that they're really tied together.

19:09

I wouldn't be surprised that eventually, sometimes,

19:11

we start to see them not break

19:13

out the reality labs disclosure. Even

19:16

with all those losses, they generated

19:18

about $440 million in revenues this

19:21

quarter. There's

19:23

so much attention on those losses and those investments.

19:27

At some point, if they even pull back

19:29

on that, that might be a very encouraging

19:31

sign for investors and the stock price. Right

19:33

now, he's not slowing down in that space. In

19:36

fact, he's doubling on it. Do

19:38

you think that's why there was a little bit of pessimism

19:40

around that capex AI spend? They're like, actually, we know what

19:42

you're doing here. This is Metaverse spend. This is an AI.

19:45

Well, I think for sure. Also, again, just

19:47

because the volumes are so high, but also

19:49

they realize that everybody is doing it. If

19:51

the companies to be competitive continue to invest

19:53

in this space, it's a lot of money.

19:56

All right. Up next, the earnings rundown continues.

19:58

We check out streaming and trends and data. digital ads

20:00

stay right here listening to Motley Fool Money. Welcome

20:16

back to Motley Fool Money. I'm Bill Lewis joined

20:19

by Emily Cippen and Andy Cross. It

20:21

is one of the biggest earnings weeks in

20:23

the market. So our look at the post

20:25

earnings movers continues. This time

20:27

we're zooming in on digital ad

20:30

market spend and streaming. And Emily,

20:32

we're going to start that look

20:34

with Spotify. The stellar 12 month

20:36

run for this company continues, really

20:38

strong earnings results. Looks like we saw

20:41

some great revenue growth and a lot

20:43

of positive user trends for one of

20:45

the leading music streamers. It's

20:47

absolutely mind boggling or it should be

20:49

mind boggling to investors about just

20:52

how much Spotify has continued to

20:54

grow despite how saturated the business

20:56

is already with over 600 million

20:58

monthly active users on their platform.

21:00

For context, that's like something like

21:02

13% of the global world population.

21:04

And I'm not adjusting for babies

21:06

and others, right? This is an

21:08

incredible number of monthly active users

21:10

are Spotify. Now, not all of

21:12

them are premium subscribers, only around

21:14

40% or so of those members

21:17

actually pay to get rid of ads

21:19

on their platform. But as the ad

21:22

market has kind of take up here over

21:24

the course of the past year, so has

21:27

monetization for the platform. So between rising subscription

21:29

prices for those who are willing to pay

21:31

for the platform and a better ad market,

21:33

it's created just a one, two punch in

21:35

terms of strong financial performance for Spotify. But

21:38

despite the fact that the market has really

21:40

rewarded Spotify over the past year, which is

21:42

well deserved after a couple of years of

21:44

challenging growth, I will say I'm

21:46

a little bit more cautious around some of

21:49

the commentary that management provided in this most

21:51

recent quarter. I like a lot of the

21:53

initiatives they're getting into podcasting now pushing to

21:55

become profitable this year. Audio books remain a

21:57

great growth opportunity. But the fact that management

21:59

reiterated that they pulled back too much from

22:02

advertising over the past year, and they want

22:04

to spend more on advertising moving forward, has

22:06

me scratching my head a little bit because

22:09

maybe they're seeing a growth opportunity that I

22:11

am missing here. But the number of hundreds

22:13

of millions of monthly users that they already

22:15

have, personally, my focus

22:17

would be better on monetizing and

22:19

engaging those users as opposing to

22:22

try to create double-digit user growth

22:24

because I think they could run

22:26

into a Netflix-esque problem if

22:28

that user growth falls off the cliff because right now,

22:30

that's what the market is rewarding the business for. In

22:34

recent weeks, the stock is basically back at

22:36

all-time highs, very close to them. I think

22:39

shares are up over 100 percent over the

22:41

last 12 months. It's been an incredible run,

22:43

but you did mention the user growth, it

22:45

seems like it's got to be saturated at

22:47

some point. They've been in that magic period

22:49

where they've been able to grow because there

22:52

are more people using the platform and they've

22:54

been able to raise prices. Emily, are you

22:56

saying that we should be a little bit

22:58

more careful here, maybe not expect the same

23:00

type of growth and share price appreciation from

23:03

Spotify going forward? I would

23:05

always rather be overly cautious and then

23:07

pleasantly surprised as opposed to baking in

23:10

a level of growth that I think could be

23:12

untenable for the company over the long term. I

23:14

do not think this is a business that is

23:16

going to see double-digit monthly active user growth over

23:18

the next five years, the same way they have

23:20

over the previous five years. Then the question mark

23:23

for investors just becomes, where does

23:25

the business start to drive profits from

23:27

this point forward? Because that gross margin

23:29

is capped. They've done a great job

23:31

of reducing their costs, which has driven

23:33

up profits and free cash flow for

23:35

the business over the past 12 months, but

23:37

that's not going to be sustainable to the

23:39

extent that they continue to invest in advertising.

23:42

They really need podcasting to expand their margins,

23:44

which is again benefited by a stronger ad

23:46

market. But they also need audiobooks to drive

23:48

up engagements because those can have higher gross

23:51

margins than their pure music streaming business. I

23:53

love the fact that they are in land grab mode.

23:56

I want them to be the most dominant streaming platform.

23:58

They are the most dominant streaming. podcasting

24:00

platform, maybe one day the most dominant

24:02

audiobook platform as well. And I understand

24:04

that takes a lot of reinvestment. But

24:06

I want to hear management talk about

24:08

how many hundreds of millions of people

24:10

they think they can truly get on

24:12

the platform, because I'm pretty happy with,

24:14

you know, $615 million. All right, we're going

24:16

to stick with ad talk. Shares of Snap

24:18

up over 20% after the company reported 20%

24:21

top line growth. And Andy, Snap is one

24:23

of those companies I feel like every time

24:26

I let it fade off my radar, it

24:28

goes and puts out a quarter like this

24:30

and a market reaction like this. Well,

24:32

it's probably the most volatile stock around

24:35

earnings that I can recall. The

24:37

average move of the past couple earnings reports

24:39

have been around 20%, both highs

24:41

and lows. That includes a 35% drop

24:44

in February after its fourth quarter when

24:46

it guided to a negative

24:48

operating profit, which really sent investors

24:51

fleeing, and for good reason. But

24:53

instead, this quarter, Dylan, it delivered around $45

24:56

million in operating profits if you measure it

24:59

by earnings before income taxes,

25:01

depreciation and amortization. And its guide

25:03

for the next quarter is ahead

25:05

of analyst estimates as well. So

25:08

that's why the stock reacted so

25:11

positively. But this is a really

25:13

volatile stock, especially around earnings season.

25:15

But the quarter was quite positive

25:18

daily active users up 10% to

25:20

$422 million. And Snapchat plus users,

25:23

that's their subscription business. That more

25:25

than tripled to $9 million. From

25:27

what I read, that was really

25:30

far ahead of what analysts were expecting. Ad revenues

25:32

were up 16%, total revenues up 21%. So you

25:34

can see, they're

25:37

starting to get more and more efficient with

25:39

how they are driving revenues relative to who

25:41

they are coming in. That's also much better

25:44

than it was in the fourth quarter, and

25:46

far better than it was in the first

25:48

quarter a year ago, Dylan, because that was

25:50

a negative number. So They're

25:53

lapping some weaker comps per se,

25:55

but still overall pretty good quarter

25:57

spotlight and creative stories viewing. That

26:00

was up one hundred and twenty

26:02

five percent. They did mention augmented

26:04

reality. More than three hundred million

26:06

users engage with augmented reality every

26:08

day on snapshots. I'm not quite

26:10

sure what that is. But.

26:12

They how a lot of people engaging with

26:15

that mean three and four hundred million daily

26:17

over on three hundred million using some kind

26:19

of form of augmented reality. What was interesting

26:22

deal is the gross margin was lower because

26:24

of. Infrastructure investments,

26:27

As we heard costly but these companies

26:30

making more more investment into their business

26:32

into their infrastructure would grow as of

26:34

what it is so that really cutting

26:36

his hip other operating margin strength was

26:38

gray because of. Further, Restructure

26:40

means A.they've done including with seven

26:43

percent fewer employees than a year

26:45

ago. You. Mentioned a

26:47

Snapshot Plus subscription offering and I want

26:49

to zoom in on that for a

26:51

second. You you pointed out Nine million

26:53

subscribers as it relates to the financials.

26:55

Eighty seven million in revenue for the

26:57

other revenue category for them, not ads

26:59

primarily that is their staffs hapless subscriptions.

27:01

It is small in the grand scheme

27:03

of the overall revenue pies, but I

27:05

think a lot of people have looked

27:08

at Snap and said there's a loyal

27:10

user base here that continues to use

27:12

the product or you encourage by them

27:14

looking for other ways to monetize an

27:16

outside of As. He a small it

27:18

is is is it the and drop

27:20

in the bucket right now however they

27:22

they. That was one thing that all

27:24

these companies are so add driven because

27:27

the admire he can be so fickle

27:29

or that says one thing they need

27:31

to continue to to focus on to

27:33

help to drive other subscription or parts

27:35

of of their business one into seem

27:38

kind of commentary was around the indies

27:40

me around small and medium size advertisers

27:42

now again so thinking about the ad

27:44

market in the concerns around who is

27:46

spending. For advertisements, the ad market

27:49

what they said on small and

27:51

medium sized advertisers. Those active advertises

27:53

on the platform where up eighty

27:55

five percent in the quarter, so

27:57

that's encouraging. Usurped a sink about.

28:00

The platform and all these mines is a sin

28:02

efforts they are trying to do. You gotta get.

28:04

The. Advertisers on the platform, not just

28:06

the users. Yeah, get the advertisers.

28:08

And so when the advertiser for

28:11

inflamed the platform their seen something

28:13

so maybe. These. Investments it Evan

28:15

Spiegel on his team are making are starting

28:17

to play out there. Starting to make more

28:19

more investments in the platform into artificial intelligence

28:21

know like as well as what we saw

28:23

for met us and maybe I certainly have

28:25

an impact is starting to help their advertisers

28:28

be more efficient in their in their spend

28:30

that they have on the platform which is

28:32

why they're they're in the first place. Or.

28:35

Through that looks at audio. add

28:37

spend social media as and know

28:39

where to look over at video

28:41

and streaming. Add spend Emily shares

28:43

of Roka down eight percent of

28:45

sweet after earnings. A lot of

28:48

the results were ahead of expectations,

28:50

but the company did warn that

28:52

competition is heating up. Is this

28:54

the impact of streamers like Netflix

28:56

and Prime? Beginning to explore those

28:59

ad supported options. A

29:01

competition competition for Roka that has

29:03

more than fifty percent market share.

29:05

The North Americans you know, at

29:07

home Tv. Smart. Tv market.

29:10

no actually, It's It's funny to me

29:12

when a business comes out to the report

29:14

earnings and then headlines get caught up. Maybe

29:16

one or two sentences that didn't attributes the

29:19

underperformance to and in this case grassy thing

29:21

a lot more. At the same for Roka,

29:23

there's theater performance in my opinion comes down

29:25

to the inability to expand streaming margins in

29:28

the quarter. If with a strong ad market

29:30

we see that from businesses like Snap was

29:32

and just talked about I'm as well as

29:34

others modify big Another good example but for

29:37

some reason broke his gross margin says did

29:39

not move in the same direct. Sense as

29:41

other Add based platform so there's bless

29:43

this question mark about why it's and

29:45

there was a a commentary from Ceo

29:47

Anthony Woods who did note that they

29:49

were seeing a little bit of a

29:51

had went in terms of expanding that

29:53

margins because of the number of Add

29:55

Be streaming platforms that were available to

29:57

subscribe to but they also attributed it

29:59

to. I think of the larger

30:01

impact of those price hikes lapping challenging

30:03

price hikes at this point last year.

30:05

So they had a lot of growth

30:07

at this point last year because as

30:09

businesses like Netflix than others raise their

30:11

subscription price if you buy those subscriptions

30:13

over the Roka platform, broken gets a

30:15

cut of it. and if the price

30:18

of that sucker fingers up, naturally brokers

30:20

revenue goes up as well. they're laughing

30:22

challenging Com to this point last year,

30:24

which meant that that margin didn't quite

30:26

moving the same direction as other add

30:28

be streaming platforms. And while it's true.

30:30

That these add based option things like

30:32

add based Amazon Prime be a good

30:34

example or advice Netflix I'm are lower

30:36

margin lower revenue share for business as

30:38

I grow Cubes: If you're going to

30:40

have ads on the rocky platforms you

30:43

still have to enter an inventory split

30:45

with Broke when the first place. So

30:47

regardless of whether or not people are

30:49

watching via or subscriptions, Roka was still

30:51

getting a cut. So it the most

30:53

important metrics in my opinion for Roka

30:55

shareholders are just watching this Engagement numbers

30:57

watching their market share market share continues.

31:00

To expand their Roku bread a T V's

31:02

while dragging those plot for murder or those

31:04

hardware Martin sounds will help support higher pot

31:06

for margins over the long term. Least that

31:08

is the thesis for his business. I'm so

31:10

remain focus on what matters and ignore the

31:12

silly headline saying it thing like add these

31:14

platforms that are hurting them because and fact

31:17

it's all supporting the same narrative. Are

31:19

taking a step back and looking at

31:21

the results from Spotify, Snap and Roque

31:23

who all together and eat. What I'm

31:25

seeing is a lot of strength in

31:28

the ad markets and a lot of

31:30

these businesses feeling pretty good about the

31:32

back half of Twenty Twenty Four. This

31:34

is an election year which means we

31:36

typically see elevated at activities. It seems

31:38

like the consumer spend story is holding

31:40

up do you feel like the rest

31:42

of the year? Both fairly well for

31:44

add based businesses compared to what we

31:46

saw near the end of last year

31:48

when there. Is lot of concerns and

31:50

some of the as ad tech

31:52

companies on. How.

31:54

much activity would be available from clients

31:57

who spent on platforms would they be

31:59

new york cautious going into a period

32:01

when the interest rates were high. This is

32:03

before a lot of that talk about the

32:05

Fed rate cut. I think there

32:08

were some concerns around that, Dylan, and now we're starting

32:10

to see that these

32:12

platforms are so large and online

32:14

and video and streaming advertising is

32:16

such a new way to reach

32:18

other clients, including by the way

32:20

retail. When you look at what's

32:22

going on with Walmart and Amazon

32:24

and retail ad spending on

32:27

retail platforms, that's a really exciting

32:29

spot to it. I'll be very interested to

32:31

see what Amazon reports on their ad business that's

32:34

done very well. I think

32:36

the ad market is starting to slowly

32:39

show up and come back.

32:41

Like you said before, going into an election

32:43

season, which tends to be quite good for

32:45

ad businesses,

32:48

that bodes well. Now we'll have to see

32:50

how all the AI concerns

32:53

around advertising on different platforms

32:55

for elections and concerns around

32:58

that impact this, but overall

33:00

a pretty good spot for the ad market right now, it seems.

33:03

Well, it really depends on where you're situated

33:05

in the ad market too, because election years

33:07

are good for ads because guess what? Everyone's

33:10

trying to reach consumers, right? Voters.

33:12

You look at things like Roku with Connected

33:14

TV being a good example or even Spotify,

33:17

YouTube, all the businesses we've talked about, those

33:19

all benefit from higher ad, click per cost

33:21

ad spend, right? Because they're trying to reach

33:23

voters. That happens during election years, but when

33:26

you talk about Etsy and Amazon and these

33:28

other ones that depend on enterprise ad spending,

33:30

right? I'm spending more money to get my

33:32

product in the face of consumers. That

33:35

gets increasingly expensive for those companies and it's

33:37

hard for environment. So they may actually pull

33:39

back on that spending because they're not reaching

33:41

consumers as effectively as they would be in

33:43

not election years. So I think it helps

33:45

some ad businesses, but could actually potentially hurt

33:47

others. All right, coming up after the break, we've

33:49

got an earnings look ahead and we've got stocks

33:52

on our radar. Stay right here. As

34:26

always, people on the program may have interests in the

34:29

stocks. One

35:00

of the big ones, Amazon, you mentioned

35:02

there what's going on with their cloud

35:04

spending. You see the acceleration in cloud

35:06

growth from Google, from Alphabet, and from

35:08

Microsoft. So is that taking share or

35:10

not? Lots of Game of

35:12

Thrones going on with these tech giants, it

35:14

seems. And then obviously in their advertising spend,

35:16

which I mentioned before, is really

35:19

starting to come on. I think they're like one

35:21

of the third largest advertising platforms out there right now. So

35:24

very interested to see what goes on with

35:26

Amazon from that spend. And then also Starbucks.

35:28

I talked about Chipotle and how great

35:30

and Dylan, you had mentioned their comp

35:32

growth and their expectation for continued comp

35:35

growth. How does that impact Starbucks and

35:37

what are they seeing in the marketplace

35:39

when it comes to that comp growth?

35:41

Can they be competitive and still continue

35:44

to drive higher comp

35:46

growth when it comes to their overall

35:48

business? Emily, what about you

35:51

as we see earnings continue? What are you watching?

35:53

There are so many great consumer-facing names that are reporting

35:55

next week. But honestly, I'm kind of bored by those

35:57

companies. We already know consumer spend from all of our...

36:00

PDP data has been strong. So I kind

36:02

of expect for a lot of these consumer-facing

36:04

businesses to come out of the gate with

36:06

decent results. It's on par with what we've seen

36:08

already. So I'm interested in those kind of enterprise-looking

36:11

businesses, the ones that are looking to

36:14

sell to other companies, because

36:16

that's where I think we'll start to see some of the economic pressure.

36:18

And I'll pull out a name here that I think is

36:21

interesting, almost like a second radar

36:23

stock, if I can. It's AON.

36:25

A-A-O-N is their ticker. And they

36:28

are in kind of a specialized

36:30

HVAC manufacturer for large-scale industrial

36:32

projects. And they make these custom HVACs.

36:35

It's been an incredibly strong performing business

36:37

operating in a really interesting market, but one

36:39

that admittedly depends on a lot of capex

36:41

spending that is not related to things like

36:44

data centers or GPUs. So I'll be interested

36:46

to see what that kind of actual industrial

36:48

capex spend looks like next week. I

36:51

think Emily just found a loophole to getting a

36:53

third radar stock or a second for herself into

36:55

the mix. Let's get over to our formal radar

36:57

stocks. And maybe Dan, I'll have a question about

37:00

that too. Andy, what are you watching this week?

37:02

Dan, not new to you, I'm sure. Visa, $550

37:05

billion, largest payment processor, doesn't need much

37:07

of an introduction. But it's one that

37:09

I've never personally owned, preferring the smaller

37:11

MasterCard. And Visa continues to put up

37:13

these robust growth numbers, 10% EPS

37:16

growth kind of per year for the last

37:18

few years. And the stock has pulled back

37:20

from $290 to

37:22

about $275 or so. So I just

37:24

think it's really interesting. It's issued 4.3 billion

37:27

credit and debit cards. It processes more than

37:29

280 billion payments across

37:31

this network. Payment volume was at

37:33

8% last quarter. And their

37:36

earnings were up 17% on top of 9% growth,

37:39

pays out nearly $4 billion in annual dividends,

37:41

bought back $12 billion in stock

37:43

last year. It's a long-term

37:45

earnings growth that's compounded at more than

37:48

10% for the last few

37:50

years. Has a price-to-earnings ratio of about

37:52

26 with pretty low volatility,

37:54

obviously lots of regulation concerns, and the

37:56

potential merger of Cab One and Discover.

37:58

But Dan, I pretty attractive

38:00

at these prices and definitely worth considering.

38:03

Dan, I've got this one in my wallet and I'm guessing

38:06

you might too. A question or a comment about Visa? I

38:09

mean, what can I ask about

38:11

Visa? Like it's a Titan. It's

38:14

a shoe in for a potential

38:16

radar stock win here. Come on,

38:18

Andy. Come on. Well, what

38:20

I'm hearing there is Emily, bring it. What's

38:22

on your radar? You got to beat Visa,

38:25

which is a Titan. Here's

38:27

what I will say. I didn't think I could

38:29

pick something more boring than Visa, but I do.

38:31

I have managed to outdo Andy's boringness because my

38:33

radar stock this week is Tyler

38:36

Technologies, the ticker is TYL. You may

38:38

not be familiar with the name, but

38:40

they are an enterprise software provider for

38:42

federal, local, and state governments. That sounds

38:44

very boring and trust me, it is.

38:46

But let me sell you on something.

38:48

Have you been to Georgia? How

38:50

about Palm Beach? Have you

38:52

been to Idaho, Juneau,

38:55

Alaska? All of these cities and counties

38:57

rely on Tyler Technologies to supply their

38:59

everyday transactions and enterprise software operating behind

39:02

the scenes. And if that doesn't get

39:04

you excited, Dan, honestly, I don't know

39:06

what will. Dan, a question

39:08

about Tyler Technologies. I think

39:10

Emily is trying to sneak in a

39:12

lot of Texas into today's show with

39:15

Aeon having a factory in Texas

39:17

and Tyler Technologies being based in

39:19

Texas. And Emily, you're not fooling

39:22

me. I'm a Texan

39:24

through and through. What can I say? Dan, which one's

39:26

going on your watch list this week? We got Visa,

39:28

we get Tyler Technologies, or if you want to go

39:30

off menu with Emily's other one, Aeon. I

39:33

mean, it's a snoozefest through and through today,

39:35

Dylan, but what can I say bad about

39:37

Visa? It's a great company. It's a huge

39:40

company. It ought to be the winner. There you have it.

39:42

It's a Titan. Emily Flippen and A. Croft,

39:44

I appreciate you guys being here. Dan, I appreciate you weighing

39:46

in. That's going to do it for this week's Molly School

39:48

Money radio show. The show is mixed by Dan Boyd. I'm

39:50

Dylan Lewis. Thanks for listening. We'll see you next week. Vill

40:00

passengers, check out the YouTube descriptionumin.Anonymous. prairie.ai