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