#116 - Wild $Times for $TSLA, Trump Gets Closer to "Truth Social" with $DWAC, @Jack Warns of Hyperinflation, and Zuck Preps $FB For a Platform Shift
In this week's episode of Reformed Millennials, Broc and Joel talk about everything from SPAC news coming from Trump and the Faze clan to a hyperinflation prediction from the Twitter CEO and even the upcoming Facebook name change. If there's any trends in this episode it's probably celebrity CEO's since we also talk about Tesla, specifically their Hertz partnership and joining the Trillion dollar market cap club.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
If you had invested $10,000 in Apple in October 1991…
The value of that investment:
• December 1997: $2,675 😭
• Today: $4 million 🤑
Life is never straight up and to the right. Play long-term games and learn how to take a punch.
When in doubt, zoom out.
Short Update Because It’s Earnings SZN
$FB 3Q'22 Earnings Update
When Evan Spiegel was busy cajoling Apple during the disruptive iOS changes, Zuck understood the gravity and prepared FB quite well ahead of the changes.
But the battle seems to change every quarter. Now it's capital allocation.
3Q'21 topline grew 33.2% but since spending ramped up, incremental operating margin fell a lot.
As you will see below, it may take quite some time before we see ~60-70% incremental operating margin from FB.
DAU and MAU both +6% YoY
Revenue by geography YoY
North America +35%
# of Ad impressions and price/impression in '21
Q1: +12%/ +30%
Q2: +6% / +47%
Q3: +9% / +22%
Zuck started with the nuances of the challenges FB faces. Don't think his critics are afraid of coming across as prejudiced.
$FB invested $5 Bn in security so far in 2021.
"I believe that's more than any other tech company even adjusted for scale."
III. Next Computing Platform
"Reels will be as important for our product as Stories is. We expect to make significant changes to IG and FB next yr to further lean into video and make Reels a more central part of the experience"
18-29 yr old is now core focus for FB
"we are retooling our teams to make serving young adults their North Star rather than optimizing for the larger number of older people."
Commerce is a multi-year journey. Plan is to work with a few biz that are doing well on FB, learn from their experiences, and then scale the solutions broadly next year.
"We're building multiple generations of our VR and AR products at the same time as well as a new operating system, a development model, a digital commerce platform, content studio and, of course, a social platform."
From next quarter, FB will segment Facebook Reality Labs (FRL) separately and expects it to eat away $10 Bn operating profit!!
FB is swinging at AR/VR pretty hard here.
iOS changes were indeed a headwind. Although FB didn't quantify, they mentioned without the changes, FB would see sequential, instead of flat, revenue growth.
It sounds more work is required, but doable over LT.
FB enhanced its buyback significantly this quarter and announced $50 Bn buyback authorization. Cash on balance sheet now is $58.1 Bn.
I believe Zuck will use buyback as his machete if shareholders don't agree with his metaverse ambition.
4Q'21 guidance $31.5-34 Bn (+16-25% YoY)
CY'21 expense narrowed to $70-71 Bn. But the real news is CY'22 expense guide is $91-97 Bn. 👀
It’s Important to remember FB has a history of providing a very aggressive expense guide which later is tampered down.
Even CAPEX guide for CY'22 is $29-34 Bn (+70% YoY at mid-point)
Buying FB is betting on the intersection of media, communication, and tech. It's extremely dynamic and missing a big pivot will be VERY expensive.
Zuck seems to have a conviction on AR/VR. We don't have to necessarily believe it now, but I most certainly won't laugh at it.
💸Reformed Millennials - Post of The Week
Palantir: the Tesla of enterprise software
WTF is PLTR? from Adam Singer
Palantir is a company that builds software allowing organizations, private/public businesses, and governments to integrate data, decisions, processes, into one platform in an effort to answer complex questions quickly.
The reason I've done this is because of my change in the process. That being - own the world and to outperform and take advantage of the opportunity, own the tails, or better said - the companies with the opportunity to disrupt and change the world for the better.
PALANTIR, TO ME, IS THE LMT (LOCKHEED MARTIN) OF SOFTWARE/ML.
In the most recent Invest Like The Best episode with Sam Bankman-Fried, SBF talked about how he believes the world of business and investing has changed. He called it Tail Investing.
For me, this meant that we need to change our mindset when viewing opportunities.
No longer is mediocre possible. It's either a continuation of the same or drastic disruption and change.
These opportunities present incredible upside returns. Asymmetric risk opportunity. And it's irresponsible not to take chances on these as asset managers.
My Notes From the article attached:
Like Tesla they’ve started upstream and worked on the ‘hard’ problems first (or in Tesla’s case, luxury/performance market) before going broader. PLTR already today powers key government agency operations, is used by hedge funds, banks, and financial services firms and notable clients include Merck, Airbus, Amazon, IBM, Ferrari and more. Not just quietly used by the largest and best run companies on Earth is also rumored Palantir helped find Bin Laden and even uncover Madoff
Their founder is an iconoclast. Wall Street is still missing the fact that at this point, we need weird (and driven) people to think big. And founder-led at this level in tech is something you don’t see often not continue to win. I’ve admired Alex Karp, Palantir’s founder for some time but have only recently spent the time to review his talks, conference calls, and videos. He is far more grounded than Elon (you have to be to run the type of company he does) but his passion and ambition are no less.
I think the Palantir bet is simple: They are going to be the operating system for governments, intelligence operations, modern supply chain management, and soon even startup and growth company decision-making in a way that’s different from existing products and yes, actually giving normal people without PhDs the advantage of sophisticated AI tools.
They started with the hard stuff, similar to how Tesla started with the luxury market, and are now starting to move downstream. The approach is counter to how most software is developed, and actually, while the services aspect is important it of course becomes less so with the smaller contracts.
Palantir’s stack for government and intelligence
The US Army recently awarded Palantir an $823 million contract to enable an intelligence data fabric and analytics as part of an effort to modernize legacy battlefield intelligence system. Palantir has been (rightfully) under the radar to share their software but a quick video shows the power, scale and trust of what their teams have built over the last decade. These contracts are not given lightly, and once a technology is engrained in the function of the largest operations on Earth it is likely they will continue to be used (massive contracts end up being lindy).
Nato has just launched an AI strategy and $1B fund as defense race heats up. And Palantir holds keys to the future of how defense, intelligence and governments will operate. Do we think global conflict escalation is backing down anytime soon?
Making modern supply chains work - You’ve been hearing a lot about broken supply chains lately? PLTR is now my favorite investment to address them (now and into the future). Palantir Foundry addresses the fundamental challenge most supply chains face by building a digital twin of the entire supply chain, from the hand of the supplier to the hand of the customer. This digital twin is then directed at solving discrete supply chain challenges by connecting analytics and operations. It’s about being not only smarter, but better. Building the supply chain digital twin and wielding it towards common supply chain problems can be done in hours in Palantir Foundry, a process that may take years in other software.
Seven lessons I learned from the experience totally transformed my approach to investing. Here’s what I look for now: 🧵
Need large TAM + great management. If opportunity and business fundamentals are solid, will be fierce competition. I see a lot of folks talk about “industry tailwinds” - not enough. Why this company and why this team? Are they the right folks to win the market and sustain the advantage?
looking for public and trusted. Watched us become trusted by the street and it was honestly a superpower. Cheaper capital, more leeway when things go wrong, more patience for bigger bets, the stronger base of long-term ownership by institutional funds.
Rev/HC ratio. Can this company grow revenue faster than headcount? Peek behind curtain and many growth Co’s are 1:1 correlated here. We were maniacal about pushing this curve up to generate leverage on ppl investments. Company must have a clear path to nonlinear growth.
Buy early in a company’s 2nd/3rd act. Company went thru several iterations. These sits create BIG dislocation btwn current valuations and future growth. Higher risk entry point b/c of execution risk. Upside can be VC-like if you’re right, though.
Culture of intellectual honesty + accountability. Does mgmt admit mistakes? Are they transparent? Overly-bullish leadership = red flag. Even the best companies aren’t perfect, and Co’s that are growing quickly get it wrong a lot. Embrace failure, be honest. All abt recovery rate.
Don’t fuck the customers. Your customer isn’t technically on your balance sheet, but they should be. Customer. is. your. biggest. asset. The company must be willing to, and have a history of, trading short-term pain for long-term relationships.
Company growth aligned directly to user value. Our pricing went through many iterations, but always with the North Star of directly tying our success to the customers. The difficulty of Pricing and packaging is under-appreciated, and the impact of getting it right is massive.
🌊 Canadian Companies To Peruse🌊
Pocketed - Pocketed is a powerful grant matching platform for small businesses designed to do all the heavy lifting for you. | Recently raised $1m seed round, located in Vancouver.