#182 - The Economics Of Love, No Recession Is Bad For Stocks and The Full Swing Documentary
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Thoughts on the Full Swing Doc
Earnings Season and the looming recession
Dating app economics
The Ai Hype Cycle
Recommendations and Predictions
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
The theme last week was No Landing vs a Soft Landing.
This week, Walmart, Home Depot, Coinbase, Domino's and Alibaba report earnings. Those companies cover a lot of the global economy.
The NY Fed Recession Probabilities model, based on the historical relationship between the shape of the US Treasury yield curve and economic activity, is saying the US will certainly see a recession in the next 12 months. Markets are seemingly ignoring this warning, but not because they dismiss history as irrelevant…
The Recession Probabilities model is at 57 pct. And that is higher than it was heading into the 2008 Great Recession. Yet, no one seems to care. This is probably probably because Fed-induced recessions should have Fed-induced recoveries.
Investors believe that history WILL repeat itself, and the Fed will turn dovish. (Pivot)
This lack of clarity in monetary policy has lead to outperformance from our “Value” corner of the market. Anything Growing fast has been sold off and the markets that have struggled in the face of free money are finally having their time in the sun.
As you can see here, Europe went nowhere for 20 years, mostly due to its lack of exposure to high growth stocks.
Industrial and cyclical stocks leading the way in this new bull market, Europe is the global leader once again.
It's the U.S. that's the laggard.
Here's the Euro STOXX 600 hitting new 52-week highs and coming out of a multi-decade base: Chart from All Star Charts
And if you're wondering whether or not this index will see new all-time highs soon, I would encourage you to check out what some of the individual countries are doing.
Take France for example. Hitting all time highs last week.
A great thread from Gavin Baker Speaking to the difficulties investors are having pricing equities in the short-medium term:
Deep Dive of The Week: from TSOH
We’re In The Business Of Discovery: SPOT 0.00
From “We’re Doing Much Better Than You Think”:
“Consider this data in light of what I shared above: from FY18 - FY21, music revenues increased from €5,259 million to €9,468 million, or cumulative growth of €4,209 million. Over the same period, music gross profits increased from €1,353 million to €2,679 million - cumulative growth of €1,326, with incremental gross margins of ~31.5%. That number - the 31.5% - was ~330 basis points higher throughout this period due to Marketplace. Naturally, if the Marketplace contribution significantly outpaces revenue growth, that benefit will expand over time... This is an important revelation; it shows the clear path to 30%+ Music gross margins at Spotify.”
In Q4 FY22, Spotify reported its strongest monthly active user (MAU) growth – by far – in its history. Long time readers may remember that I previously worried about MAU growth following the “Stream On” market launches; with the benefit of hindsight, it turns out that I just needed to be patient. (Adjusted for the Russia exit, Spotify added roughly 88 million net MAU’s in FY22.)
While MAU growth is a great starting point, ad-supported users generate significantly lower revenues than Spotify’s premium subscribers (the premium ARPU is roughly 10x higher than the ad-supported ARPU). Over time, it’s critical that Spotify demonstrates continued success with driving premium penetration (providing enough value to convince ad-supported users to subscribe to the premium offering). As shown below, Spotify hit a major milestone in Q4 FY22, with the company crossing 200 million premium subscribers; Spotify’s premium subscriber count has quadrupled since the end of 2016. (“[In 2014], Ek began to concede that Spotify’s paid tier was the key not only to its longevity, but to its very survival.”)
While penetration rates continue to track nicely in the U.S. and Europe, with both regions at >50% premium mix, there’s work to be done in LatAm and Rest of World. Some of this is timing (there’s a lag between when a user joins Spotify and when they typically decide to become a paid sub / engagement reaches a threshold to justify paying); that said, it’s also important to recognize that these are geographies where “free” may be a major selling point for users. This is a key metric to track in the quarters ahead.
MAU and premium sub growth are both important – the underlying drivers of mid-teens constant currency revenue growth for Spotify in 2022 – but they are one part of the story. Another notable metric is profitability (or lack thereof), with the company reporting a €659 million operating loss for the year. With Spotify expected to reach half a billion MAU’s in Q1 FY23, inclusive of more than 200 million premium subs, they have absolute and relative scale (if this isn’t scale, I don’t know what is). That position should confer certain advantages to Spotify (as CEO Daniel Ek likes to say, “everything changes at scale”). The key question to answer in the years ahead, as I wrote in “The Power Question”, is whether Spotify can leverage product-market fit to establish a power opportunity in the audio industry.
💸Reformed Millennials - Post of The Week
The Ontario housing market is showing some cracks.
🎙Podcast & YouTube Recommendations🎙
Ben Thompson Interviewed Matthew Ball and they talk at length about the future of the streaming industry. Specifically, they cover the inevitable spin off of ESPN, Hulu Acquisition completion and the business of Sport.
🔮Best Links of The Week🔮
Becoming Trader Joe. Source: New Yorker
Risk and Regret - “David Cassidy’s last words were, “So much wasted time.” Source: Collaborative Fund
Biden’s Surprise Visit to Kyiv and The Russian State of the Union Speech. Source: Bloomberg
Neither the media nor the public belong in politicians’ bedrooms - Mel Caouette
Finding an emerging franchise to hitch your wagon to. Source: The Wolf of Franchises