Welcome back everyone. Thanks for joining. This week is one of the busiest weeks in the market. In fact, in terms of earnings, this is it. This is like the Super Bowl of earnings. We have all of the big companies outside of Apple. We have Microsoft, Google, Visa, Amazon and Meta all reporting
this week. And what I hope to do in this video is give some preview of the earnings, some insight and background into what I expect and some context into what these companies are doing Now. If we look at the full week ahead, it's very busy. It it's not much going on on Monday. That's why I record this video today is because on Mondays we have companies. Most of them, they're just not that meaningful.
No offence, but none of these companies really move the needle when we get into Tuesday. That's where things get really explosive. We start off the day with Coca-Cola, Verizon reporting earnings. We have other companies like 3M and then we have Spotify as well. Now you'll notice that I've circled some of these in red and those are the ones that I'm going to be reviewing in this video. So we're going to be going over Coca-Cola, Verizon and Spotify.
We'll also be looking Tuesday after close at Microsoft, Google, Snapchat and Visa. Now earnings Whisper in their calendar left out a couple companies, so I added them in. So these are ones that are reporting earnings tomorrow as well. We have Canadian Pacific and Vici. I added these in because both of these are companies that I own. I think they're important companies as well. Now we move on to Wednesday.
Wednesday is a big day as well. We have Thermo Fisher Scientific, that's a very popular, high quality company. A lot of super investors are in it. That one's reporting earnings Wednesday, market open. Then we of course have Texas Roadhouse. That is one that I've been talking about for a while. I own a huge stake in Texas Roadhouse. They're reporting earnings as well. Then we move on to Wednesday after close. We have meta, they're reporting earnings, highly anticipated.
We have Thursday. Thursday is the last big day of the week. We have MasterCard reporting earnings, so we have both Visa and MasterCard this week. We have a company that I haven't talked about a whole lot, but it's one that's being passed around on the the Fintwit and the Internet, which is Tractor Supply Company. It's a retailer. They're reporting earnings. Thursday market open, then Thursday market close. We have a huge holding of mine, which is Amazon.
I'll be spending some time on this one, giving some thoughts into what's going to be happening. Then Thursday market close. We also have Chipotle, another company that I own. This is one of the the companies that Bill Ackman owns as well. So that's a full look ahead and we'll be going over again each of those that were circled in red to give context and insight into what's happening with these
companies. Now I must mention before we even start off that I'm not just someone that talks about stocks. I actually invest in them. I have public holdings that I track every single week, week by week. So if you want to see how these portfolios do, I have two portfolios. The Story fund is one of them. This is a tech portfolio that I started more recently during 2021, and I'm investing in a a very concentrated group of companies, 6 positions, $150,000. This is all my money. It's all real.
I've invested in companies like Amazon and Netflix is my two biggest holdings. Netflix just reported earnings last week along with Tesla. Tesla's earnings were a little disappointing. That's a company that I I've avoided so far, but I am invested in Netflix and their earnings report was incredibly strong. It was there's no other way around it.
It was an incredibly strong earnings report and I see more of a bright future for Netflix. So I'm going to have an update on Netflix and an in depth dive into that company's analysis tomorrow on this channel. Now the other portfolio I have is the passive income portfolio. I've been following this one for some time and again the goal here is to show transparency, show you what I'm investing in. You can follow week by week. I follow this one on my other YouTube channel, Joseph Carlson.
And the goal of this one is largely the same. It's concentrated into a group of companies that I consider to be incredibly high quality companies, ones that are in the top 1% of the top 1%. I call them compounding machines, but they're companies that have extremely reliable earnings growth. They have very low debt. They have high barriers to entry. They're all around very difficult companies to compete with and they continually compound year after year after
year. So when I talk about these upcoming earnings, I may hold positions in these companies. In fact, many of them I do. And I'm giving you my perspective on how I think this will turn out. Now we'll start off here right at the beginning Tuesday market opening, so tomorrow market opening, we have Coca-Cola reporting earnings before the bell. I like Coca-Cola. I think it's a solid holding.
Warren Buffett I think does a, he's done the right decision in just buying this company and holding it long term. Now I also like with the management of Coca Cola's doing making their company more capital light. They're also bringing down debt. If we look at the long term debt trends, let me zoom zoom in on this over the past 10 years, let's just take a look at debt alone. Notice it's going down over time, the total debt and long term debts going down over time, which I like to see.
I would be a little bit more concerned if it was just going up over time, but then we also have the cash increasing over the past 3/4. So debts going down, cash is increasing. I like what I see there with the balance sheet. I also like how the company's positioned. They have an extremely strong portfolio. Coca-Cola is a safe haven. I think it has a decent free cash flow yield of 4%.
It's not price too high. The one reason I don't own this company is when I when I do analysis on companies, I'm not just looking at if they're stable and if they're defensive. I'm also looking at how much they can grow their intrinsic value on a per share basis year after year. Meaning I'm searching for companies that on a per share basis are going to have higher free cash flows, earnings and
revenue. They're going to have revenue per share, free cash flow per share, earnings per share, all of that's going to go up. The way that I measure that using qualtrum.com here is we can look at the free cash flow. This is going up, but then I also want to look at the free cash flow per share. I can look at that right here. The free cash flow per share is going up over time. That's a trend I like to see. But the rate that it's increasing is not as high as I would like.
Over the past decade, it's only increased 2.35% annualized. So over a compound annual growth rate, 2.35% is not even inflation. So Coca-Cola is basically just staying stagnant with its free cash flow per share. For me that's not good enough. I want companies that are growing that free cash flow per share 10% or above for the next 10 years. And I believe I can find those type of companies. We'll be looking at ones later in this this episode. So I think Coca Cola's earnings
will be fine. In fact, I think they'll probably beat their earnings estimates, but it's still not a company that I find attractive to own right now. Now Next up, we have a company Verizon, which is reporting earnings Tuesday before market open. Let's go ahead and take a look at this and for the sake of time, all lump in AT&T as well for when they report earnings because most of my comments are going to be very similar for
both of them. So we have Verizon here and I think investors could save a lot of time if they simply just didn't worry about Verizon or AT and TI see so many dividend investors and investors online on Twitter voting which is a better company, Verizon or AT&T. Is the yield good enough now to buy in. Is this company finally at a good place to buy? It's been on a down streak. Are we buying the dip? I think it's it's just time better spent moving on to different companies.
Don't worry about Verizon or AT&T. Ignore them. Focus on better companies that are going to create more value for your future. These companies are value traps. I've been saying that for two years straight repeatedly. Every time I comment on them, I say their value traps. Even Warren Buffett gave up on the company. He sold it at a low because he knew it's a value trap. When you look at this one, it's it's down all year again. It's creating no value for
shareholders 5 years straight. The company and the the competitive dynamics are not good. They're reliant on a lot of things they can't control. And then the balance sheet of these companies is one of the worst I've ever seen of any companies in the market. Right now. Both of them have excess of $100 billion in long term debt, $100 billion in debt, and they have no cash, only like 1 or $2 billion.
So if you took Google's balance sheet, flipped it upside down, that's what this would look like. Google has a ton of cash and no debt. This company has a ton of debt and no cash. It's literally the exact opposite of what I like to see. The reason this is so problematic is when these companies carry that amount of debt. When they have interest rates go up. Now the cost of capital is higher and their earnings go down because they're paying a higher interest rate on their
newly renewed debt. These companies are not good investments. They're not going to be good investments if they drop another 5%. So this is in the category of a strong avoid. I would not invest in Verizon, I wouldn't invest in AT&T. If you own them. You're buying value traps and you're hoping you're hoping the future will magically look much different than the past than what these companies have done
over the past 20 years. And I think the future is going to look very similar to the past for Verizon and AT&T. Now moving on from that, we have Spotify. Spotify is a company that I'm very interested in. This is one that I really, really love the product. I've actually owned Spotify stock for a short time. I think the company has tremendous amounts of potential. There's a couple things that make me really resistant to owning this company. One of them is that they're
competing with all of big tech. So you have Apple and Apple Music. You have YouTube with YouTube Premium and YouTube Music. You have Amazon and Amazon Music, three big juggernauts, all competing with Spotify, and there's other competitors outside of that. It's also difficult because they don't own the rights to most of the music that's streamed. It's the music studios.
So they're in a very difficult situation to have pricing power since pricing power is one of the key things I look for, for any holding Now it's just it doesn't fit in. This company doesn't fit in because it lacks pricing power. And I would say even more than pricing power, it's the fact that when they do raise prices, they're not able to keep the profits from raising prices. It goes to the music labels that
makes it very difficult. That's why you see this company have continually it has EBITDA that's in the negative or barely in the positive. They can't seem to make money with any amount of users. And I think that's indicative in and of itself. If a company has half a billion users and can't generate meaningful amounts of profits, then when are they going to, when are they finally going to, when they get to 700 million, when they get to a billion
active users? Are you going to have to wait another 15 years for them to finally make meaningful profits? It's just too much of A waiting game. I want companies that can show and prove today that they're profitable and that they'll make even greater profits in the future. So Spotify is one that I think the earnings will be fine. If I had a guess, I think they'll actually exceed their earnings. They'll probably report decent growth.
I think that this is the type of product that people can afford right now. People can't afford stuff that's financed right now, like solar systems, cars, and homes. But they can't afford things like Spotify that are a few bucks a month. They can afford things like Netflix. They can afford restaurants. So I think Spotify is going to be fine this quarterly report, but overall I'm still avoiding the company. Now moving on, we get into the big earnings reports Tuesday
after market close. We have both Microsoft and Google reporting earnings. These are going to be ones that really dictate what direction the market goes. The investors that are concerned about the market or investor sentiment, they always look to big tech to save them. What is big tech going to do? So let's go ahead and take a look. Starting off with Microsoft. Again, I'll mention that I own a lot of Microsoft stock in my main portfolio. I've owned Microsoft since 2018.
I bought heavily into the company when it dipped down to $220 per share. A lot of people said that was crazy. 2/20 was the fair value and I wasn't buying it undervalued. Here it is trading up to 330, a full $100. We're up $10,700 in the green on this portfolio. And then I also own even more Microsoft in the story fund. I also own another $16,000 of the company, $3800 in the green. On this one, Microsoft has been one of the easier stock picks in my opinion.
The company is what I have called frequently the poster child for the perfect fundamentals in a company. I dare you to try to find a flaw with Microsoft's fundamentals. Go ahead, take a look, we can look at the revenue growth. It is flawless. It goes up over time on a very consistent basis and ever since the CEO Satya Nadella came in and made the company subscription based, cloud based, the revenue growth accelerated. In the past ten years it's gone
up 11.73% per year. It's almost 12% per year at the company this current size. That is remarkable and in my opinion there's no reason it should slow down. People say Microsoft's so big, how can it keep growing? The world's very big and a lot of people need the tools that Microsoft offers. They have a lot of pricing power. So this revenue is going to continue growing I think above what investors have seen before with the company this size. We look at any of these
fundamentals. We can look at the EBITDA, it follows right in line with the revenue, remarkable the growth of the EBITDA. We look at the free cash flow, again it follows right in line with the revenue growth. So all of the financial metrics move in line with the top line growth. You even have stock based comp. A lot of companies have bigger trouble with this like Google and Meta, not Microsoft. They have that under control. In fact if we zoom in here, we can probably see this clear.
Now these blue bars right here are stock based comp, the orange is the free cash flow. So we can see that even as they grow their free cash flow, they're not diluting investors that much. There are a little bit they're paying some employees in stock based comp, which is fine. You want your employees to be incentivized, but you can see that Microsoft is doing this the right way.
They're growing their cash flows far and above what their stock based comp is. That's a company that's actually returning cash back to a shareholder. If you want to see a company that doesn't do this, we can look at Unity for example. This is the polar opposite. If we look at the free cash flow against the stock based comp, notice how the stock based comp is much higher than any free cash flow, meaning this company's generating no cash for
the investor. But that's not the case with Microsoft. Again, the the company has perfect fundamentals. You look at the net income that grows in line with the revenues. You look at the earnings per share almost perfectly consistent growing in line. You look at the cash and debt. They maintain more cash than debt even after buying Activision Blizzard. They're basically going to be balanced on their cash to debt and I think they'll quickly start to build back a cash
balance. So in terms of Microsoft's fundamental direction, in my opinion, nothing has gone worse for Microsoft. There's no fundamental deterioration. Everything looks as good or better than it did three years ago or five years ago. The company's in as strong of a position it's ever been because of that. I'm not selling the company. I sell companies when their fundamentals look like they're worsening over time. But again, that's not the case
here. The price has gone up a bit, so the valuation looks a little bit worse. So I'm not actively buying the company right now. If we look at the free cash flow yield and the PE ratio, we have it at a free cash flow yield of 2.4%. When we adjust out the stock based comp, that's a real free cash flow yield of 2%. So that's pretty low, that's a a pretty high valuation. the PE ratios at a 27 which is this is middle of the road from Microsoft right now.
I don't consider Microsoft a still, but I also don't consider it grossly overpriced. I don't think it's in bubble territory. When it gets into the 35 to 40 PE ratio, that's where it's concerning and I'd probably start trimming my holding, taking some gains, but we're not at that point right now. I think we're at a Microsoft that is around around intrinsic value, around it's fair value, not grossly undervalued or overvalued.
So I don't expect to see anything incredible with Microsoft's earnings in my opinion is going to be mostly in line and I consider the company right now to simply be a hold. Now moving on, we also have Google reporting earnings at the same time. Now if we look at Google here in My Portfolio, this is again one that I've been bullish on repeatedly. It's a company that I've owned for a long period of time. I'm in the green by $6300 in the story funds. So this one's been a big winner.
It's now a $33,000 position. A lot of people say, Joseph, you're critical of Google. You come out with videos criticizing them. Therefore, you must be bearish on the company or have something against it. I'm not bearish on Google at all. I don't own $33,000 worth of companies that I'm bearish on. So Google's a company that I'm overwhelmingly positive on. I really like the company. But being overwhelmingly bullish on the company doesn't mean I have to like everything about
the stock. So let's go ahead and take a look at what I think is good and bad about Google right now. What I think is good about Google is the investment case is very simple and straightforward. You're buying a high quality company that has incredible diversified assets through Google Search, Bard, and the AI portion of it. They also have Android, so that's another big property. They have YouTube and they have Google Cloud.
So you have 4 massive properties of which I think all of them are incredibly good, but I think Google Cloud is underrated right now and I think YouTube is an incredibly good property. When I look at media analysis, YouTube's something that has no competitor. I don't consider Twitch to be a competitor to YouTube or Tiktok. To be YouTube stands alone. So Google owns all of these incredible products.
These franchises that are all growing and I think independently have very high intrinsic value that should go up over time. It's also a simple investment thesis because the company trades at a relatively undemanding PE ratio and 18 Ford PE, which is basically in line with the S&P 500 and it has a balance sheet that is like if you took Verizon's balance sheet, you flip that upside
down. Here you have Google's Google has a balance sheet right now that has $118 billion in cash and $13 billion of long term debt, so around $100 billion of excess cash. So they have enough cash to do whatever they want, but in the meantime they can just earn interest on this cash. So that's a very simple investment thesis. It's a great company, has a great balance sheet, good growth prospects and trades at a low
valuation. Now let's move on to some of the downside, some of the things that I think investors spend a little less time focusing on with Google. The real valuation of Google is more expensive than what most investors seem to believe and that is because of stock based comp. For example, the free cash flow yield before factoring in dilution through stock based comp is 4.06%. When you look at that, you think, wow, Google's really this company's really cheap.
But then we look at the free cash flow yield adjusted for stock based comp, it's down to 2.85%. All of a sudden it doesn't look nearly as good. That's a 30% reduction in the amount of cash flow it's producing. To illustrate this more clearly, we can look at the free cash flow chart here again, you can see all of this on qualtrum.com. And let me take a look at the, we'll look at quarterly here. We'll bring up the free cash flow. This is what it looks like over
time. Let's zoom into the past 10 years to make this more clear and then we'll look at the free cash flow and stock based comp Boom. There you have it. Every quarter the stock based comp takes up roughly 30% of what they produce in free cash flow. Now again with Microsoft, this is more like 10 to 15%. It really wasn't that big, but with Google it's 30%. That's a significant chunk of the free cash flow being diluted away from the shareholder.
And don't be mistaken, stock based comp may not be cash, but it dilutes away your ownership of the cash. Since money is fungible, it's the exact same thing. You're getting less of this cash because it's being diluted away. Now, this isn't a bear case for Google. I'm not arguing against the company, but I point this out only to point out that the company is not as cheap as it
appears. Google's really trading at a 2.85% free cash flow yield, and that makes it a little bit more fairly valued right now than what a lot of investors believe. So that's a downside of Google. The company's not quite as cheap
as it first appears. Another thing that I think is a concern for Google shareholders is because this company is so big, so dominant, so powerful, makes so much money, and has such great market share with Google search, it has a constant target right on its back for every big government. Every government, including the US, wants a piece of the Google pie. The Justice Department sues Google for monopolizing digital advertising technologies.
They want to break up the agreement that Google has with being the default on every Apple device. They want to, they want to break up Google, make it less profitable, do everything they can to try to break down this giant. We have other lawsuits always happening through Europe all the time. Google's getting fined for one thing or another and then we even have news. Just today, Google faces new antitrust probe in Japan. So they're being targeted for being anti competitive in Japan as well.
And this is something that's going to be never ending. Google is a monopolistic company. It's going to be pushed around by the government because they're really one of the only ones that can compete with Google. So overall, even with the recent rise in Google stock price, I still think the company's worth owning. I certainly don't think it's overvalued or a bad one to have in the portfolio. And I have no reason to believe in this earnings report that
Google's will be disappointing. Maybe it will, maybe the ad market overall slowed down, but I don't see that. I still see a lot of consumer spending, a lot of digital advertising. I think that Google Cloud is going to be growing above schedule and I think that YouTube might even re accelerate growth. YouTube seems to be doing well recently. So in terms of Google, it's another one that I feel very good about going into this earnings report.
I look forward to it. Next up, we have Snapchat reporting earnings after market close on Tuesday. Let's go ahead and take a look at Snapchat. What I'll say about this company is that it's one that has returned no value over its lifetime to investors. In fact, it's actively destroyed value while paying the employees and especially the executives enormous amounts in stock based comp. This right there, the $2 billion that goes to the owner of the company.
So he's buying mansions right now while his shareholders suffer and get nothing in return. That's the relationship that happens with Snapchat. Unfortunately, a lot of the public market works this way. There's people that are taken advantage of. I think that's what's happened in this case. So Snapchat's not a company that I would own. I don't think the product's that good. I don't think they're in that great of a competitive shape.
This is one that has routinely dipped 1520% after earnings. Sometimes it will spike up 10%. Either way, I don't think it's worth owning, not one that I'm going to be interested in. Now moving on from Snapchat, we have Visa and I'll lump in MasterCard as well, which is reporting earnings on Thursday into this discussion because I think they're virtually the
same. Both of them are a duopoly in credit payments and I don't own any Visa, but I do own a bunch of MasterCard. I chose MasterCard because it has more significant market share gain over the past ten years in Europe than Visa. MasterCard is executing. They're out executing Visa in Europe and I like to see those trends. But either way, I think both of them are worth owning. These companies are in a class
of their own. They have some metrics that no other company has none on a planet earth. I really can't find any company that has such a consistently high cash flow generation. We can look at some of the metrics here. Let me focus in on one of them here, the profit margins of the company. Look at the profit margin in 2020, 244.6%.
Go on call, trim and search basically any other company besides MasterCard and Visa and try to find one that has consistently above a 35% profit margin that is near impossible to find. From their revenue, their revenue generation to their free cash flow, around half of revenue is turned into free cash flow. And then while they're able to accomplish that, you can see that they have almost no dilution at the same time.
So they're converting all of their revenue into at least half of it into free cash flow and then they're not diluting the investor at all during that process. And then what's even more incredible is they do buybacks at the same time, making their free cash flow per share grow at a ridiculous rate. With MasterCard, it's grown at 17% over the past five years. That's incredible. This company really has some of the the best metrics I've ever seen in a company. In the past decade, it's grown
at 17% free cash flow per share. So when I was looking at Coca-Cola, I was saying that I wanted to find companies that are growing that per share intrinsic value at a faster rate. This is it. This is a company growing per share intrinsic value at a faster rate, growing per share value 17% per year and they continue doing that in virtually any market. That is incredible. So what I see here with Visa, MasterCard are two companies that I never worry about the
upcoming earnings report. I would worry about something fundamentally risking the business. So some competitor like Apple Pay or or PayPal or something and I don't see that in the horizon. I don't consider crypto to be a credible threat at all. I don't think the Apple Pay is a threat. And these companies are still expanding.
They're still on the move. In fact, there's a recent Wall Street Journal article that they are expanding into Africa and they want to get a a little bit of that mobile payment money from Africa and offer their services there as well. And I think they will. They have such a good product that I think the people in Africa will love using MasterCard and Visa's brand recognition, their security, their insurance, the same way that people in the US love it.
So these are companies that I really think their earnings report is going to be fine. I could see Visa, MasterCard both outperforming. I think that people are pulling back on big ticket items, cars, solar panels, homes. I don't think they're pulling back on small ticket items, going out to eat, buying stuff on Amazon, paying for Spotify and Netflix, all of that stuff they're doing through credit cards and I think that's going to continue Now. We're still on Tuesday after market close.
We also have Canadian Pacific and Vici's earnings release. Let's go ahead and take a look at Canadian Pacificare. This is one that I own in the portfolio. It's been flat all year and it's a railroad company. It's growing its free cash flow at a very fast speed.
We can see that over time growing revenue slowly and steadily like railroads do. I think there's one thing that is a pretty positive thing for Canadian Pacific and that is that 2 super investors that I respect a lot, both have significant stakes in this company. One of them is Chris Hone, the other is Bill Ackman. Now these investors, they don't talk with each other. They're not sharing research amongst each other.
They both independently come to the same conclusion, that Canadian Pacific is a high quality company that the merger will have significant synergies. Canadian Pacific recently merged with Kansas City Southern and they're saying that it's going to increase their capacity for freight, their convenience for customers, their pricing power and ultimately lead to per share out performance, which of course is what we want.
And I think with this earnings report, we're going to see more per share earnings growth at a very decent pace. So as we see the company grow its earnings, we're going to see the stock price catch up over time. Now Vici's another company that's lesser known, but I invest in it. It's a big holding of mine. Vici's looked at as a little bit of a substitute for the 10 year treasury. As a 10 year treasury goes up and yield Vici goes down because the opportunity cost becomes
greater. But over time, I think Vici's creating enough intrinsic value that it's going to grow either way, no matter what direction the 10 year treasury goes. I think Vici will ultimately, over the course of 10 years, create a lot of value for shareholders. So this is 1 where I am excited about the earnings report. I expect another quarter of 100% rent collection. And I think the company's latest acquisition with Bolero Properties was a good one. And I'll have more on that
acquisition in a future episode. Now moving on, we get to Wednesday where we have a couple big earnings reports. One of them is Thermo Fisher Scientific. This is one that I believe Terry Smith owns. We also have Chris Hohn owning this one. So a couple of the Super investors like this stock and I think I can see the reasons why. It's a medical device company that has products that need to be purchased by hospital and medical staff no matter what the conditions are.
So they sell a product that is necessary at all times, which is a good thing. The stock has been struggling this year. So there's some investors that may be looking at this as a good time to enter, but over time it's a a good compounder company that's done terrific over the past decade. Now, even though I avoid medical companies for the most part, I do like TMOI think this one's a decent one. What I'm concerned about with these companies is always the chance of lawsuit.
They can really cripple a medical company. So if you're selling a bunch of devices and then it turns out that you presented something inaccurate or the device has some flaw, this happens a lot of the times with pharmaceutical companies. There's some tests that come out that show that a a pill has a problem that wasn't previously discovered and then the pharmaceutical companies on the hook for it, they have to pay out billions of dollars because
of some big lawsuit. I think there's a chance of that happening with TMO. But as long as things are smooth sailing with it, I think this one's going to have fine earnings. Now, a company that I am invested in is Texas Roadhouse, This restaurant here also reporting earnings on Wednesday. Right now, I think Texas Roadhouse is at a decent valuation. It has good growth prospects and I think the company's going to
have good earnings. I say that knowing that they're supposed to be a recession and a slowdown in consumer spending. But what I see are people that are still willing to spend on small experiences. Going out to a restaurant, paying $50.00 for the family to eat a bunch of steaks and have a nice evening on a weekend is something that I think most people are still willing to afford. So I look at Texas Roadhouse's revenue growth. I think it's going to be mostly in line, maybe a bit above.
I think they'll generate decent free cash flow this year and I think their earnings will be good. I could be wrong. I wouldn't bet on this. I can't see the future. Maybe it will be a huge disappointment. But what I see is a company that most people can afford. They still offer a great value proposition when I continue to not be concerned at all about
the future of this company. Now moving on, we get to Wednesday after market close where we have the highly anticipated meta earnings report. Now before we jump into my analysis on meta, I have some misinformation that I want to clear up about myself and some trading that I've done. Some people on the Internet have spread a rumour that I sold meta at rock bottom that Joseph sold meta right at the bottom of the big dip. Let's go ahead and take a look at the timeline here.
Meta over the past five years traded down dramatically, and at one point it almost got to $80.00 per share right there at the rock bottom. Now, during that time period, the very rock bottom of meta, I came out with a video called The Hard Truth About Meta, and that video was basically an essay going over everything that Mark Zuckerberg did wrong over the past year to crush the stock price, including him talking incessantly about a metaverse, something that investors weren't
interested in at all. Now, a lot of people seem to have assumed that since I released a video showing everything that Meta was doing wrong that I must have sold the stock right at that point, right at the low when I released the video. The problem is, that's not accurate at all. I didn't own meta when I released the video. I had to own Meta for months before releasing that video. In fact, I sold meta right here.
October 27th, 2021, I released a video called Warning to Facebook Investors where I went over how I was incredibly nervous about Mark Zuckerberg's talk of the Metaverse. I thought he was very disconnected with Wall Street. The analyst seemed to hate everything he was saying and I sold out of the stock right here at a profit. The stock continued to sell off like crazy. It went down like 50%. I bought a little bit back right here and then immediately sold a week later and then it's sense
traded down to $80.00 per share. That's where I released this video and it's traded back up to this point. Meta today still does not trade at the price that I sold in 2021. Now again, this is a bit of misinformation passed around and I consider that my fault for not illustrating this clearly. Right now I don't own any meta. I haven't owned the company for nearly two years so it's a stock that I've just been outside of, but my overall trading history
with meta is positive. I made around $1500 on the stock as a small position. So looking at the company going forward, I'm actually very optimistic about Meta because I think the ads market similar to Google, Microsoft and Amazon, I think it's very strong. There's still people wanting to buy small ticket items that are advertising based. Meta has done a great job growing Instagram, growing all of their properties. I don't think they're taking really any market share from Twitter.
So I think that the meta threads has been a little bit of a disappointment, but I believe the company has enough good core products to push it forward. Where I get nervous with meta is the valuation of the company's another one that's a little bit deceiving. It looks right now like the valuation is at a 3% free cash flow yield, but the stock based comp is an incredible impact on this company. See how the purple lines go up roughly half of the free cash
flow that's generated. That's not good. That's not something that I want to see. A lot of people have criticized this for Salesforce and I think that meta deserves equal criticism. Even after the year of efficiency from Mark Zuckerberg, it still seems like the company's not all that efficient. They are generating a lot of free cash flow, but also a ton of stock based comp and it doesn't seem like it's changing anytime soon. The stock comp packages continue to rise.
I think Med is a fine bet, but personally I like Google more. I like the properties that Google owns more. I like their free cash flow and their stock based comp situation more. I like their balance sheet a little bit more. I just think Google's in a better position overall. So that's my choice. That's where the majority of my money goes. But I don't blame anyone for owning meta.
Now moving on to Thursday before market open, we have MasterCard and Tractor Supply Company. We've already gone over MasterCard. So let's take a look at Tractor Supply Company. This may be one that you're unfamiliar with. I have not talked about this company before and at first glance it sounds like a company. If you're not familiar with Tractor Supply Company, this is
a retailer. So you go to retail location and then they sell stuff mostly for rural areas, things like this, boots, power generators, flashlights, a lot of tools feed for chickens and and you know you have safes and outdoor stuff here. You might have 4 Wheelers and sheds, just lots of different stuff like that. It's kind of a Home Depot but for more outdoorsy areas. So that's what the company does. It's an outdoor style retailer and I think it's an interesting one.
Now it does have good fundamentals growing overtime like we've seen with a lot of these retailers and this all seems really good. Where my concern comes in with this company is that it will have the Dollar General effect. If you haven't paid attention to what happened with Dollar General, this is a company that I've covered before. It seemed like it was doing incredibly well for a long period of time. And then suddenly it went down 50 plus percent because it mismanaged its inventory.
It had margins go down, sales slowed, everything seemed to collapse in a single year. So 50% of the gains gone in a single year. And if I'm being honest with myself, I did not see this coming with Dollar General. It's not something that I ever saw coming. I'm lucky that I didn't own the stock.
I've never owned Dollar General, but it makes me take a step back and realize that with these small retailers, Tsco, the Tractor Supply Company, Dollar General and all these other smaller retailers, it's very difficult to see upcoming threats to them. So even though I think this one will continue to do well, there's lots of data supporting that. It's what I don't know that concerns me. I feel like there's hidden threats with retailers with how competitive the industry is.
And unless they have some type of incredible Moat or something that is outside of the retail business to keep people shopping there, I think it's very difficult. Right now, I only own 2 retailers. One is Costco, which has that subscription model, and the other is Amazon, which also has the subscription model.
So Tractor Supply Companies, one that I think is interesting, but for the reason that it's a retailer and I don't know what I don't know about the company, It's one that I'm going to be avoiding. Now moving on, we get to the final big company of the week, which is Amazon. Amazon is the most significant bet in the story fund. I have around 1/3 of the entire story fund in this company alone with $53,800 as the current holding. I'm around $4000 in the red. So just a hair in the red.
This one's been in the green, it's been in the red. It's a more volatile stock like Netflix. But I still believe in the long term intrinsic value drivers of Amazon. Those long term intrinsic value drivers are the retail business, especially the third party retail business where they have sellers selling on their platform. They charge fees along the way.
Those fees are very high margin and that's a nice high margin business for Amazon. You also have the Amazon Prime subscription that's like the Costco model. That's of course very high margin. There's not much to maintain a Prime subscription. Then of course you have the AWS business that is another large portion of Amazon's intrinsic value driver. I only see that growing overtime.
From a developer perspective, Amazon has an incredible offering with AWS, basically everything you need to build your company. And then of course they have the ads business that they layer upon the retail business. So with owning Twitch and owning all of the retail shopping, I believe that Amazon has the best ads business of any big tech company. It's better than Google's. It's better than Netflix. It's better than Microsoft's, better than Apple's. How targeted their ads are are
incredible. So we know that Amazon has these great core intrinsic value drivers of the ad business. Prime, AWS and the third party sales, all of those are core intrinsic value drivers. They're growing every single year. But this has been masked by the amount of CapEx the company has done. If we go to the expenses and we look at the CapEx, it is really incredible how much they've done. This is on a quarterly basis. Now take a look at what's happening here. The CapEx is actually going
down. This was the investment cycle right there from Amazon. They doubled their fulfilment network in a single year. That caused an enormous amount of lagging CapEx to pay for all of their new vans, to pay for all their warehouses and tooling and equipment for every warehouse. That's super expensive. But now they've done it, they paid for most of it and we're seeing the CapEx go down every single quarter.
Jassy, the CEO has said that he's getting costs under control, that he can make the company profitable. He's been tasked with that as the executive and investors are very unnerved by this. They're very concerned about Jassy and his ability to do this. But Jassy has been with the company almost as long as Jeff Bezos. Jassy has made AWS what it is today, which is the Holy Grail of Amazon.
So a lot of people are are doubting the CEO that's tasked with making this company profitable, getting CapEx and
cost under control. And I don't doubt him, I think he's going to be able to do it. What I believe we're going to see over the next couple of years with Amazon is explosive free cash flow growth through a combination of all their intrinsic value components of the business, the Prime membership, the third party sales, the ADS business and AWS all growing and the combination of a reduction in CapEx expense.
I think we're going to continue to see the CapEx go down proportionate to revenue, which will cause a lot of a lot of free cash flow growth, a lot of operating leverage in the business. So right now, things look a little messy with Amazon. Investors want more clarity. They want it to look more like Microsoft or Google, but Amazon's a business that has far more operating leverage.
It's a little bit more difficult to read and I think that it has more chance for our performance because it's so difficult to gauge. But my bet is, and again, I could be wrong, this is my bet. I think Amazon's going to have incredibly explosive free cash flow over the next couple of years and I believe it could start this year. We already had last quarter be a great quarter, way above expectations. The quarter before that they generated $12 billion in free cash flow.
And going into the holiday season, I think they're going to have a very good results. We saw more recently that even as the economy slows down and we're hearing all of these people predict recessions that Amazon's Prime Day was the biggest Prime Day launch ever in the company's history. So Amazon's telling you a different story in terms of their company than what a lot of analysts and a lot of economists
are trying to tell you. And I believe Amazon more than The Economist. So I think this earnings report is going to be really good. I look forward to it. I'd be surprised if it was super underwhelming. There's always a chance it will be underwhelming and that will be a bummer, but I think it will be good. Now, last but not least, we have Chipotle.
This is another company that I hold on My Portfolio now in terms of Chipotle. I'm going to make the same prediction I've made for the better part of two years. I think companies like Chipotle, Starbucks, Texas Roadhouse, McDonald's. I think that these companies have done really well for the past two years and I think they're going to continue to do really well. I think people are addicted. They can't give up the convenience and the ease of getting a tasty meal that takes
2 minutes to get. They don't want to spend the time cooking at home and collecting all the ingredients from grocery stores, which in many cases is equally as expensive. So a lot of times they're going to favor the convenience of something like Chipotle. So I think that even though these companies have done really well, I think they're going to continue to do really well. And again, Chipotle's 8 dollars, $10 a meal. You go to McDonald's, you pay 5 or 6 bucks a meal.
You go to Texas Roadhouse, you pay 12 to $15 a meal. These are small ticket items. I believe right now the type of things that are going to get hurt are what Steve Eisman points out, cars, mortgages, things that require financing and interacting with a bank. I think customers will continue to go to Chipotle. So when I look at these upcoming earnings, I'm not concerned about Chipotle.
I think it will be fine. I'd be far more concerned with the upcoming earnings of Ford that's reporting on the same day. So that's a look at the full week ahead. I hope you enjoyed this overview. If you like this type of content, make sure to subscribe to the channel. And if you want to see more additional content, check out the Patreon. There's more exclusive episodes every single week. That's all for now. See you in the next one.