Apr 24 • 57M

#190 - Never Short a Dull Market, Ad Supported Netflix and The Space X Launch Success.

 
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The Reformed Millennials Podcast covers a wide ranging topic arc focusing on Sports and Investing. RM Pod is dedicated to identifying the latest trends in technology, sport and investing. We discuss the ways Millennials can leverage these trends to better invest their time, fandom and money.
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  1. Market update

  2. Space X Launch

  3. Netflix earnings

  4. HBO Max Makes a Branding Mistake

  5. AI Breakthroughs Of The Week

  6. Recommendations and Predictions

Listen on AppleSpotify, or Google Podcasts.


📈📊Market Update💵📉

If you missed Friday's market action, here is a useful summary by CNBC.

US equities ended little changed on Friday after a raft of corporate earnings results. Large caps and small caps closed slightly higher: S&P 500 (+0.09%) vs. Russell 2000 (+0.10%).

Consumer discretionary (+1.20%) and consumer staples (+0.75%) bested the broader market indices, while materials (-0.91%) and energy (-0.59%) lagged. Procter & Gamble (+3.46%) and Disney (+1.53%) led the Dow (+0.07%) higher; Intel (-1.81%) and Dow Inc (-1.49%) were the index's worst performers.

The Nasdaq gained 0.11%, while tech lost 0.32%. The "FAAMG" stocks mostly fell: Meta (-0.08%), Amazon (+3.03%), Apple (-0.98%), Microsoft (-0.12%), Alphabet (+0.01%).

The VIX slipped 2.33% to 16.77. The 30-year and 10-year Treasury yields increased to 3.771% and 3.568% respectively, while the 2-year yield rose to 4.179%.

Most of US Big Tech reports calendar Q1 earnings this week (GOOG, MSFT, META, AMZN), with Apple scheduled to release next week.

With these stocks all outperforming the S&P 500 by a wide margin YTD, the expectations bar is set quite high for their earnings. Not only must these companies beat, but they must also guide to a re-acceleration of EPS growth in Q2 2023 and beyond. That’s what the Street is looking for and is the key catalyst behind this group’s remarkable resurgence in 2023.

Big Tech Earnings Expectations from Data Trek: everything below

Most of US Big Tech reports earnings this week, so for Disruption today we have a summary of what the Street is expecting from each name. We will also discuss Apple’s expected results, due out on May 4th. The discussion format for each company is the same:

  • Year to date price returns (every one of these names has beaten the S&P 500 by a wide margin thus far in 2023).

  • Calendar Q1 expected EPS and revenue growth.

  • The company’s recent track record for beating/missing analysts’ EPS estimates.

  • Current revenue and EPS growth expectations for Q2 2023.

Alphabet/Google, +19.5 percent YTD (reports Tuesday):

  • Expected EPS: $1.07/share, down 13.0 percent from last year.

  • Expected Revenues: $68.9 billion, up 1.3 percent from last year.

  • Alphabet has missed earnings expectations in every quarter over the last year.

  • Analysts expect GOOG to return to earnings growth in Q2 (up 5.0 percent year over year) on modestly accelerating revenue growth (+3.7 percent) versus Q1.

Comment: GOOG is the only name on today’s list that has missed estimates in every one of the last 4 quarters, so one would think numbers are finally set low enough that the company might actually beat. It needs to … The Street is looking for a resumption of year over year EPS growth in Q2 (the current quarter). Away from the nitty gritty of quarterly numbers, analysts and investors will likely want to know how Generative AI products might affect the company’s current dominance in search.

Microsoft, +19.2 percent YTD (also reports Tuesday):

  • Expected EPS: $2.23/share, essentially unchanged from last year’s $2.22/share.

  • Expected Revenues: $51.0 billion, up 3.4 percent from last year.

  • Microsoft has beaten earnings expectations in 3 of the last 4 quarters, but only by 1-2 percent. Its one miss (calendar Q2 2022) was also small (3 percent).

  • Analysts expect MSFT’s year over year earnings growth to reaccelerate in calendar Q2, to 10.3 percent.

Comment: The Street expects MSFT to go from zero year over year EPS growth in Q1 to 10 percent in Q2, the largest sequential increase among the names we are reviewing. It’s probably too early for its integration of ChatGPT to have a meaningful economic impact, so investors will want to understand the bridge between a flat calendar Q1 to a double-digit EPS growth Q2.

Meta/Facebook, +76.9 percent YTD (Wednesday):

  • Expected EPS: $2.03/share, down 25.4 percent from last year.

  • Expected Revenues: $27.6 billion, essentially unchanged (-1.0 percent) from last year.

  • Meta has missed expectations over the last 3 consecutive quarters, by anywhere from 5 – 21 percent.

  • Analysts expect META to show similar EPS to year ago levels in Q2 ($2.41/share versus $2.46/share in Q2 2022)

Comment: Meta has been aggressively cutting costs, and Wall Street analysts expects the payoff to come in Q2. The stock’s YTD rally – the best of any name we’re covering today – suggests we may see some of it in Q1’s results.

Amazon, +27.3 percent YTD (Thursday):

  • Expected EPS: $0.22/share versus a loss of $0.38/share last year.

  • Expected Revenues: $124.5 billion, up 6.9 percent from last year.

  • Amazon has missed expectations in 3 of the last 4 quarters, posting small losses instead of small gains.

  • Analysts expect AMZN to build on its Q1 profits in Q2 (EPS estimate of $0.33/share).

Comment: AMZN has the largest revenue base of any Big Tech name, but this only occasionally translates into respectable profits. Calling AMZN’s EPS is difficult in the best of times. Forecasting its Q1 2023 results seems more difficult than usual given waning US consumer spending through the quarter.

Apple, +27.0 percent YTD (May 4th, a week from Thursday):

  • Expected EPS: $1.43/share, down 5.9 percent from last year.

  • Expected Revenues: $92.9 billion, down 4.5 percent from last year.

  • Apple has beaten estimates in 3 of the last 4 quarters by 2-6 percent, but its one miss was just last quarter (3 percent).

  • Analysts expect AAPL to post year over year EPS growth in calendar Q2 ($1.23/share versus $1.20/share)

Comment: Closing out with another name where the Street thinks EPS growth will resume in Q2 after Q1’s expected earnings decline. Given recent weakness in global consumer electronics demand, that seems a stretch to us. Still, Apple is the best run company in global Big Tech and it’s hard to bet against Tim Cook and his team.


💸Reformed Millennials - Post of The Week

Finally we can breathe.

After 9 months of mind warping Ai advancements, it seems the S curve of progress is starting to reach its mid term apex.

From the wired article:

“Altman’s declaration suggests an unexpected twist in the race to develop and deploy new AI algorithms. Since OpenAI launched ChatGPT in November, Microsoft has used the underlying technology to add a chatbot to its Bing search engine, and Google has launched a rival chatbot called Bard. Many people have rushed to experiment with using the new breed of chatbot to help with work or personal tasks.

Meanwhile, numerous well-funded startups, including Anthropic, AI21, Cohere, and Character.AI, are throwing enormous resources into building ever larger algorithms in an effort to catch up with OpenAI’s technology. The initial version of ChatGPT was based on a slightly upgraded version of GPT-3, but users can now also access a version powered by the more capable GPT-4.

Altman’s statement suggests that GPT-4 could be the last major advance to emerge from OpenAI’s strategy of making the models bigger and feeding them more data. He did not say what kind of research strategies or techniques might take its place. In the paper describing GPT-4, OpenAI says its estimates suggest diminishing returns on scaling up model size. Altman said there are also physical limits to how many data centers the company can build and how quickly it can build them.”

Netflix Earnings:

Two items Important to Read If you’re interested in the streaming business:

Ben Thompson’s stratechery post here.

The most important takeaway, though, is that Netflix was right to introduce ads, and that that business represents a meaningful growth opportunity, above and beyond the benefit it provides to Netflix’s other initiatives like paid sharing and password-sharing crackdowns. Netflix has the opportunity to basically increase revenue per customer without raising prices (while also opening the door to more future price raises), even as it offers a lower entry price; it’s a pretty compelling example of how advertising tends to be much more of a win-win than its many critics allege.

Tweet Thread from Eric Suefert: Here


🎙Podcast & YouTube Recommendations🎙

  • The first 20 mins of the All-In Pod are all you need to listen to this week as the rest was… boring. The first features my favorite fund investor, Gavin Baker and Private markets Investor Antonio Gracias. The dive into the Space X launch of Starship:

  • Autobiography of Winston Churchill:

🔮Best Links of The Week🔮

  • The Change in Consumption - Scott Galloway

  • Sobering Thread from Bob Elliot on Englands Inflation Problem and how it’s likely to impact western policy makers: Twitter Thread here

  • Apple is starting a bank and everyone should be shaking in their boots - Source: the FT

  • Top executives from Teck Resources Ltd. and Glencore Plc have each been making their case to investors on the best path forward for the Vancouver-based mining company. While Glencore is seeking to take over the Canadian mining company, Teck is looking to move ahead with its plan to segment its steelmaking coal business through a key shareholder vote taking place on April 26. - Source: BNN

  • "Alphabet CEO Sundar Pichai saw his total pay last year rise to $226mn, thanks to a giant stock award that is likely to have made him one of America’s best-paid business leaders for the year. News of the stock award, which Google’s parent company makes to its CEO once every three years and which was worth $218mn, follows the company’s move earlier this year to cut jobs across the board in the face of a sharp advertising slowdown. Pichai was reported at the time to have told workers that senior executives would receive lower bonuses as part of the cost-cutting." Source: FT

  • "Technology companies including Google parent Alphabet and Amazon as well as stalwarts from the food, pharmaceutical and energy sectors, highlight a busy earnings week amid concerns about the U.S. economy. The coming reports will provide clues to investors about how companies fared in the first quarter of 2023 as the recent banking crisis, continuing layoffs in sectors such as technology, and inflation weighed on the economy. Other tech heavyweights on tap to report include software company Microsoft, Facebook owner Meta Platforms and chip maker Intel." Source: WSJ


👉 For specific investment questions or advice contact Joel @ Gold Investment Management.

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