Title: 6 Stock Update Show: Joseph Carlson - Qualtrim Studio (Market Updates) Guest: Joseph Carlson (solo) Date: 2026-AUG-27 URL: https://www.qualtrim.com/app/studio/watch/ae2bfc11-4525-4bd1-9416-95dd959cffe7 Length: 49:49 Note: Transcript from the in-page English subtitle (WebVTT) track of the self-hosted, login-gated Qualtrim Studio video (no youtu.be deep-links); (mm:ss) cues real, grouped ~15s. Fillers (um/uh) and immediate word repeats removed; wording, numbers and names otherwise verbatim (auto-caption mis-hearings left as captioned).
(00:00) Welcome everyone. We're going to be reviewing six different companies. This is going to be just a really quick review, a little market update on these companies. Let's go through the list. We have sales force up 22% today. Big day for Salesforce. Let's see what it's up to. I have thoughts as someone that has owned this stock before,
(00:17) I've looked at it at time or two. I have thoughts on this report. Of course we have Nvidia huge de friend vedere wild projections projecting all the way up to 2028. Massive growth numbers again big growth numbers like wild growth numbers will be looking at that app.
(00:34) Lovin. This one is moving up the ranks in popularity on Qualtrics. I can see the analytics. Lots of different people, unique users looking at this company. So I'm going to just look at it for the first time and kind of go through some of the information here and see what I find.
(00:49) We have Reddit. This is one that also has been trending for a long time. Reddit's a product that I'm very familiar with, but the stock is still somewhat new in terms of analyzing the stock, so we'll be looking at that one. We have space. I haven't looked at this one too much, so I just wanted to share some thoughts on space.
(01:04) And then we have Netflix, which has its own things going on right now. I think it'd be good to take a look at this one as well. So that's the list. We're going to go through all of it. Let's start off here with Salesforce. Salesforce is up to $250, and it's up to 22 or 22% on the day.
(01:22) So Salesforce reported earnings yesterday and it looks something like this. This was the headlines Salesforce stock jumps 18% on AI growth and anthropic investment gain. Now there's a couple things about this. First of all this is a really good quarter for sales Salesforce just organically.
(01:40) So organically the company is doing well. And that's important when organically the company is doing well, it proves a couple things. One of them is that the SaaS is dead or AI's eating SaaS. That whole scare, it's diminishing that scare.
(01:58) It's making that scare not as scary. So if you remember, there's a couple blogs, a couple people, a couple really important people that made viral posts about the doomsday of all of software. Now, one of them is I forget the name of it, but
(02:16) what's the most popular financial Substack? And it is. Let's see here. This is it, Citron. So you'll notice something here. The most popular financial substance in terms of readers
(02:31) are typically doomsday bearish ones. And that fits the trend. Here you have Michael Berry. He's kind of he makes calls on everything and most of them are bearish or they're against the grain. So he's a big bear. And then above that you have citron which also has made some notable bearish calls.
(02:48) One of them was their whole hypothetical about how software is going to be eaten. Everything with an interface is going to go away and AI will kind of dominate everything. Now, I haven't fully believed that. In fact, I came up with a whole piece on a whole segment going through that
(03:05) and directly giving my rebuttal, highlighting why I think it's ridiculous. For example, one of the primary one of the primary companies that they highlighted that would get disrupted by AI was DoorDash. They said that agents would be able to go out and find the cheapest food delivery network and order directly from that.
(03:21) So why would you need DoorDash? Obviously, I didn't agree with him because in my portfolio, I bought DoorDash. I bought it after reading that. I just thought their whole thing is ridiculous and DoorDash is up 32%, 33% now. So I don't agree with their thought process on that.
(03:39) And now it seems like the market overall is starting to get past the point of believing that AI is going to have an immediate dramatic effect on software companies broadly. So when I look at this, I think that it's not just Salesforce that's going to do well, it's going to be Salesforce, it's going to be into it.
(03:56) It's going to be Adobe, it's going to be ServiceNow. It's going to be all these companies, all of that. That basket I think will benefit. Salesforce had a particularly good day, I believe, for a couple of reasons. One of them, we look at the term brief.
(04:11) We can just see some of the headline numbers here. Salesforce raised their 27 revenue guidance after record second quarter results. Revenue was up 11% year over year. Now there's a big caveat on this. And I'm not trying to I'm not trying to diminish Salesforce.
(04:26) But that's with the Informatica acquisition. If you take out the Informatica acquisition that is -3% to their revenue, which means that's their organic revenue growth. So their organic revenue growth is more like 8 to 9%, which is still strong.
(04:43) That's still good. So but it's not 11%. So Salesforce is still a very mature, slower growing company. It hasn't organically been growing in the double digits. But when you lump in that Informatica purchase, that bumps them up to 11%, their obligations rose 14%.
(04:59) And then again, without the on organic basis, they increase their revenue guidance by 100 million, not 200 to 300. So a lot of the things here that are being highlighted are not organic. For example, we look at the article here from CNBC,
(05:15) $5.90 adjusted versus $3.27. Well, $5.06 came from equity gains on an anthropic and other equities that they held. They weren't from just organic earnings growth. So even this number here not entirely organic.
(05:32) They didn't just blow away their earnings report. They basically came in line with their earnings per share. Now what they did do, which was incredible, is they bought back a lot of shares. Not only is a company growing at a solid pace,
(05:47) but really did they did they lean into the buyback lever. So if we look at Qualtrics we can see this. Let's minimize the cauldron brief. Let's go down. Let's go down to the share count shares outstanding right here. This shows the diluted shares outstanding which is the most accurate way
(06:04) to look at shares outstanding. And you'll notice like in the past ten years their shares outstanding had been climbing the whole time. But then we get to the last four quarters in Q4 of 2025, they had 962 million. Then they just bought back a little bit, not enough to really meaningful,
(06:21) meaningfully move the stock, but then look at what they did from 940 to 8 71 to 821. In the past year, they've reduced their shares outstanding by 15%. That's insane. They bought back. They basically reduced their share float 15% crazy.
(06:41) And the reason they were able to do this is because the stock traded down to a cheap valuation. Plus one other big reason. Now here's where we get into the other big reason right here you may notice something. This is the long term. Most websites do not give you the balance sheet going this far out okay.
(06:58) Call term does. I've made the decision to try to give as much data as possible for everyone. So we go back to 2004 and you can kind of see where the cash and debt stand. But you'll notice a massive spike in debt starting in the past quarter or two.
(07:16) And we zoom into the past ten years. You can see this even more clearly. See the big red line there. That's your gross debt. That's just how much debt they added on. And you have some capital leases, their long term obligations. They're a little bit different than debt. And then you have green which is a cash. So up until two quarters ago they had as much cash
(07:34) roughly as debt meaning they were in unindicted company. Just zero debt, very strong financial position. A year ago they actually had more cash in debt. So their net cash, now they have net debts of like
(07:49) $27 billion. So their balance sheet just dramatically piled on debt. And you might say was that a smart decision? Was it a smart decision for them to take out a bunch of debt
(08:04) and buy back a bunch of shares? And investors will kind of swirl over this a little bit because there's trade offs. Okay. But I want to explain the trade offs and why I actually think this is a smart decision. So basically what they did was they made a balance sheet or capital allocation decision to transfer
(08:21) equity transfer debt for equity. So they took on debt and they got rid of shares outstanding. When you do that there's pros and cons to it. But I want to lay out the math here. Let's see if I can find I went ahead and dug into this a little bit to try to find out exactly how this affects the financials.
(08:39) And here's a basic way of viewing it. So we have the underlying earnings of the company okay. This is before any debt or any buybacks. So let's just go back to what the company earns before debt or buybacks. Let's say that that's $12 million because that's about what it was.
(08:54) So this top line here $12 billion of underlying earnings. Now when you take on debt. The problem is you have an interest expense associated with that debt. So they took out 20, 27 billion, $25 billion worth of debt,
(09:10) that new debt, that $25 billion, they have to pay interest on it. The average weighted interest rate on that debt was about 5%. So they're now paying about 5% annually on 25 billion, which is about 1.06 billion.
(09:27) So that's their annual interest payment on taking out that debt. Now how does that affect their net income? Well, if you take 12,000,000,000 in 1 case C let's let's zoom in here so you can see this.
(09:42) We take 12 billion. And in the one case you have the 12 billion. That's your net income okay. So again this number at the top is our underlying earnings. So 12 billion goes to 12 billion. Because in this scenario they had no debt. And this one they have the one the $1.06 billion in interest expense.
(09:58) So now the post interest or the net income is different between the two scenarios. In this case, with no debt, no leverage, they earned a $12 billion. In this case, they earned $10.94 billion.
(10:14) So you think their net income goes down a billion? Okay, that's bad, but we factor in the share count. You can't forget about how many shares they took out of the situation. With the share count. They went from 960 million with no leverage. That's no debt.
(10:29) With the levered buybacks they went to 831 million. So you took out 100 and 130 million shares. Crazy amount of shares to reduce. And that means on an earnings per share,
(10:45) because you're not just dividing the net income by nothing like the net. You own shares of a company. The net income is being divided by a share count. So when you look on earnings per share with no leverage, you earned $12.12 $0.50 per share with leverage yearned 13 point
(11:03) or $13.16 rather per share. So even after looking at all the mathematics of this, it becomes abundantly clear why the Salesforce team decided to do this.
(11:18) You are getting far better results by doing these levered buybacks, and there's an additional benefit to it. The debt stays the same. Okay. So let's just say that they pay the minimum payment and they have 5%.
(11:33) So this billion this billion dollar net interest expense remains flat while Salesforce is revenue grows. As Salesforce's revenue grows, their net income grows. All the all the metrics grow, but that debt remains flat on the alternative.
(11:50) The benefits from reducing those shares actually improve as the company grows in the per share value increases. So this isn't only a good decision in the short term, it's also good in the long term, because when you're able to eliminate all those shares,
(12:05) those shares, it makes the other shares so much more valuable as the economics of the company grow. And meanwhile, the interest expense becomes a smaller portion that 1 billion is going to be a smaller portion of the overall revenue of the company as a company continues to grow revenue.
(12:21) So it's not only a short term smart decision, but it's a long term smart decision. The biggest downside with this type of thing, where you add on a lot of debt, is that it makes the company far weaker financially. In terms of acquisitions, it makes it far less flexible,
(12:39) like they just have a huge amount of debt to pay off now. It makes it so that they can't as easily. This is a very acquisitive company and now they can't really do acquisitions, which in the case of Salesforce might actually be nice for the investor to not see so many acquisitions. But basically it makes your company less flexible,
(12:56) less nimble, and it makes the balance sheet much worse. So there are downsides to this, but the downsides, I think, weighted against the upside, the opportunistic upside and even long term upside, I think are very I think they're very flopped on this.
(13:11) I think that there's way more upside. So I actually think this is a smart financial engineering by Salesforce. Very good move by them. I think it's great that they did this. And aside from what some people may believe, I'm glad this stock is going up. I'm happy to see stocks even if I don't own the stock.
(13:28) I'm glad to see that it's going up. And that's something that I think a lot of people have wrong. A lot of people go, Joseph, don't you think it was a mistake to sell Salesforce or, you know, don't you wish you kept Salesforce or whatever? I'm sure if I wish I could sell every company
(13:45) when they're at the maximum value and buy every company at the perfect minimum value, I wish, I wish that was the case. Unfortunately, we don't work with hindsight bias, right? You can't you can't make decisions on this stuff after the fact. What I what I do know is that the majority of companies
(14:02) that I buy, the huge majority are really good companies. I'd like to even say that all the companies I buy, they're all really good companies, and that means they're all going to generally do really well. The huge majority of them are going to do well.
(14:17) Even the companies that I sell, they'll do well. I've sold booking holdings, I've sold Chipotle, I've sold Apple, I've sold into it, I've sold Salesforce, I've sold Equifax. These are all companies that I've owned before and I've sold them.
(14:33) Some of them had a big profit, some of them out of loss. Overall, my profit and loss on my sales is net $100,000 in gains. So my overall selling I sell things at a profit. Now, if you took all the all the stocks that I've ever owned,
(14:49) at least the ones recently last five years, and you put those in a basket and then you created like an ETF or created a fund out of them. That's going to do well. I think these stocks will still do well. I think Apple is going to do well booking into it, Salesforce, Equifax.
(15:04) And that's why I remain bullish on stocks even after selling them. And the reason that they're going to do well is because I could companies. So when I see when I see situations like this where stock that I have owned before ends up doing really well,
(15:19) I don't take that as some type of insult or some type of a problem. It just means that I buy good companies. Most of the companies I buy will end up doing well over the long term, because I do a lot of research on the companies. The decision to
(15:34) trade into different positions is a lot of time portfolio allocation, or I'm weighing good outcomes against even slightly better outcomes. When I traded Salesforce to buy meta, I didn't just trade Salesforce to buy meta, I also traded S&P Global Moody's.
(15:53) I trimmed those positions. I also sold Equifax. I traded, I think, 4 or 5 companies to buy more. Meta. A couple of those have been really good. I've been able a lot of them went down. In fact, Equifax went down big time. S&P Global and Moody's both traded down big time.
(16:09) And I was able to buy back in to a large extent when those ones were much lower, Salesforce went down. Now it's back up above the price that I sold it. And I don't think that's a problem. So when I look at it, my decision to trade into meta was because meta
(16:24) is growing about three times the speed of Salesforce organically. So just an organic revenue growth is growing three times as fast. I believe meta has a deeper moat, and I believe meta does have more upside long term. Now, again, that doesn't mean that Salesforce
(16:39) that I'm bearish on Salesforce and that's not what I'm saying there. I hope that's not being misinterpreted. So I view it as a good thing. I like it when my stocks do well. I hope Starbucks does well and Chipotle does well and into it does well. I hope Equifax does well. I genuinely root for those companies and I genuinely believe I'm bullish on them.
(16:58) I believe they'll do well. I'm trying to make my portfolio somewhat concentrated and specific to which ones I think are the best bet, so I'll get a lot of them in here that are really good bets, and I'm very bullish on the companies that I have. And while it's true I've sold some companies that have gone up, Salesforce has gone up a little bit
(17:16) since I've sold it. I think it's up 20 or 30%. I've also bought companies, I just bought DoorDash and that one's up 33%. You know, Uber's up 6% now. A lot of these are going in the right direction. The Texas Roadhouse by I did recently is up about 35%.
(17:32) So a lot of these recent ones are doing well. But regardless I think hats off to Salesforce. Very good financial engineering makes total sense to me. There's some things you have to look through the report to see whether it's organic or not. But overall great report. Next we get to Nvidia.
(17:48) Big day frame Vidya up 9.3% after an earnings report. And it looks really good. Now we'll be going over some of the earnings report. But just the headline number here. Let's go ahead and just look at Qualtrough brief again. We'll zoom in. We'll zoom in tight on this one.
(18:03) This is 19 hours ago Nvidia projected 70% growth in 2028 amid AI infrastructure demand. Now one thing important 2028 I'm pretty sure it's fiscal 2028 or what Nvidia they're 2028 right?
(18:19) I don't think they're projecting revenue two years out. I don't think they're doing that. But fiscal 2028, which I believe like nine months overlap with 2027 calendar year. They're saying that's going to grow 70%. That's wild, 70% of growth next year,
(18:36) that it's completely insane. I think this is why Warren Buffett just says by a slice of America, never bet against America. You have companies like Nvidia that do not stop. They just they don't stop this company. Half the people that work at it are worth like over $20 million.
(18:54) It is incredible what they're doing. I far underestimated the continued demand of this company. It just continues on. I thought that it would, I thought it would or taper off a little bit faster than it is. So it's a good thing this continues going. But now they're projecting huge numbers for 2027, fiscal 2027 or their 2028
(19:15) or rather calendar 2027, their fiscal 2028. They say Q2. We have the summer here. Q2 revenue was a record 96 billion, more than doubling the year over year. Data center revenue reached $89 billion, up 18% sequentially.
(19:31) Management expects 2028 revenue to grow approximately 70% year over year, despite customer forecasts indicating demand could support roughly 100% growth. And Vidya characterize a 70% outlook as supply constrained.
(19:48) They could even grow faster, but their supply constrained. What a what a business, the company said. Supply is expected to remain a bottleneck through at least the end of fiscal 2028. Again, I think that ends around
(20:04) late January of 2028. So beginning of January is when fiscal 2028 ends. Jensen Wong cited constraints across the supply chain rather than identifying a single limiting component. Q3 revenue guidance is 108 billion plus or -2%.
(20:21) Very good. We have hyperscale customers in AWS expansion. The hyperscale revenue was about 49 billion, up 13% sequentially, driven by Blackwell, demand management said. The top five hyperscalers are expected to spend nearly 800 billion
(20:36) in CapEx during the 2026 and 1.3 trillion in 2027. How are hyperscalers going to spend that much? Is Amazon making up like half of that 1.3 trillion next year? That is insane.
(20:51) AWS is to deploy an additional 2 million Nvidia GPUs beginning in the current quarter through Q2 fiscal 2029. This is insane. I could go through this. This report is super long, but what it's showing
(21:06) is that Nvidia's revenue and the big surprise here is that 70% next year, that's what caused the stock to bump. The company is massive right now and video is 5.52 trillion. But it is still growing very fast. And that's what sustaining its current valuation.
(21:21) Now when I look at this, I think it's I think it's all positive. I think the AI revolution is very real. The people that are very concerned or bearish about AI, I feel like they don't fully understand how much a value it's bringing to every different segment of the economy,
(21:37) from every different type of job you can do from coding, general engineering, design, drafting, searching, data, analyzing, organizing, you know, processes,
(21:54) dependencies, project management, research and development, modeling and scoping. You know, like just everything. It's so it's so dynamic and so helpful in so many different ways that organizations need it.
(22:10) They really need it. And Vidya is the one powering this whole wave for the meantime. They are they're doing it and they're going to be doing it for a long time. But they're definitely the demand is just there right now. And the thing causing the demand is not just
(22:25) some it's not just anthropic making up funny money. It's it's hundreds of millions of companies signing up for their tools, implementing them into all their sequences and flows. It's real products being developed, real things becoming more efficient. So I look at this and I just think it's an incredible company, incredible position.
(22:44) I have underestimated how good Nvidia has done. It's fine. I haven't bought the stock, but it's just really done. Incredible. When I look at it today, I could enter in a position it's at a £0.20, but I just believe that with my focus, it's always on durability of growth.
(23:02) That's what I'm concerned about long term is how much how durable it is. And I believe that companies like Google and Amazon are just a bit more durable. They have more infrastructure, they have more customers there. I think they're positioned to be more durable.
(23:17) And I think they will do well over time. So even though I think Nvidia is great right now, I'm staying out of that one, another one that is becoming popular that I don't know much about. So this one I'm going in a little blind is app lovin now. It's hard for me to take a company seriously.
(23:33) That's called app lovin, but I'm going to give it a shot here. I'll give it an honest try, but you come at me with this huge company, $100 billion market cap, and it's called App lovin. Okay, who named this? Who name this thing the second quarter.
(23:48) This is 22 days ago. Second quarter revenue. Okay. So they had their earnings report 20 days ago. It looked okay. What went wrong with it. It looks like the stock is dropping. So this is I think why a lot of people are interested in this. One is a stock went super high and now you're getting you're
(24:04) getting a better price. It went up to 733. It's down to $300. So it's chopped off about 60% of its market cap just in the past year. Incredible. When we look at the growth of the company to on a trailing 12 month smooth basis, this is what it looks like growing 47% year over year.
(24:21) This is where the story is coming into play. I see, I see it. We have some stars aligning a company that is down by 60%. That's growing revenue 47% right there. It's starting to get a little interesting. Let's go ahead and look at more charts here.
(24:36) Net income growing 81% looks insane Ebit a growing 67% also looking insane. Free cash flow growing by 58%. Free cash flow per share growing about the same. So they're holding the share count steady. How much stock based comp do they have? Not a lot.
(24:53) This is looking really interesting. So I immediately understand why investors are interested in this one based on the fundamentals. Now if we look at if we look at what the company actually does, let's go ahead and take a look at this here. This is maybe I can zoom in a bit here.
(25:11) No it's below the Annals projection okay. So this is the new company overview, by the way. I tried to make it just a bit more on the nose of exactly what the company does and not talk in such broad terms. So if you look at company overviews, they should be as well as the barren
(25:26) bull case. All of this has been dramatically improved. App lovin is a performance advertising platform whose axon models match advertiser demand with mobile app inventory. It matches advertiser demand with mobile app inventory.
(25:41) Okay app discovery acquires users for advertisers, while Macs monetize as publishers, inventory and suppliers auction data. Gaming is the economic engine because it's mature advertisers, and publisher network gives acts on defense feedback on outcomes.
(26:00) App Love and Ads Manager extends the same system into web based consumer advertisers initially e-commerce while whorl they have lots of interesting names Max, Axon and Whirl. Non-gaming app inventory and connected TV
(26:15) are longer dated supply and category optionality. So they start off with gaming. Now they're moving into they're moving into connected TV and longer dated supply. So that's a bit of optionality. The durable advantage investors focus on is the feedback loop between advertiser
(26:32) conversion data publisher supply and model performance. Better predicted returns attract more spend, which generates the data used to improve the model further. Okay, so an interesting little summary of what the whole investment is on this company.
(26:49) Now in the bull case it says investors positive on app love and argue that the second quarter slowdown was an R&D timing issue rather than an advertiser demand problem. Revenue grew. It still grew 53% year over year, adjusted EBITDA
(27:04) grew 58%, and management's third quarter outlook called for a sequential after a model improvement went live just after quarter end. They see consumer advertising as the next leg of the same axon flywheel, with advertiser spend already 28% above the prior seasonal peak.
(27:22) Despite the platform being deliberately focused on mid-market brands, and they view the conclusion of its inquiry without recommended action as removing a major challenge to the durability of the data and model advantage. So I'm I'm not familiar with this, but it looks like the SEC was investigating
(27:40) this company and the data that they have and their inquiry. They removed it without any recommended action, which is good for app loving. We look at the bear case here. Investors negative on app love and read the same second quarter results
(27:55) as evidence that growth is unusually dependent on discrete, unpredictable model breakthroughs. Sequential revenue grew only slowed to 4%. Management said that expected uplift was higher during the quarter, and that third quarter guidance depends on an improvement already
(28:12) deployed, rather than a repeat cadence of future releases. They also argue that consumer expansion remains unproven as durable. Second engine because App Lovin is targeting the limited mid-market cohort, while its long tail onboarding is constrained by the need of effective video creative.
(28:29) This is a pretty intense bear case. These are very specific, more advertiser data and broader band awareness. If those constraints persist, axons gaming trained advantage may not transfer fast enough to offset a slower core auction business.
(28:44) By the way, the reason that these are so specific is because these are updated. This company overview with the bear case and bold case will be updated every time the company reports earnings. So like a day or two after company reports earnings, we feed we feed the
(28:59) AI a bunch of data like the whole earnings transcript and financials of the new report. And then it formulates the bull and bear case based off of common sentiment. It goes in searches for sentiment. It matches it with the data and then it builds. These bear in both cases. So that's the reason these are so like specific.
(29:15) We worked hard to try to improve these I do see I mean these are very good bear cases. So if we look at the sequential growth which is just the growth of one quarter to the next quarter, not smooth out with the trailing 12 months,
(29:30) you can see what they're talking about here. The sequential growth slowed down a little bit, which is not what you want to see. Overall, I like the setup for this stock. It's a stock that's already beaten down big time. It's in a teens Ford PE ratio. High free cash flow yield advertising is a great industry
(29:46) to be in any time you can help advertisers be more effective, make more money, match to better customers that they want to match to. There's a big business there. So I don't know all the specifics about the bear and bull case. I'll be researching those and looking at this company more, but I do understand why investors are interested in this one.
(30:03) I'm looking at it. It makes total sense. Next up we have read it. This is a company that has been pitched to me many times in the community. Many people excited about this one. Reddit has been around forever. I remember the old days of using Reddit growing up when it really felt like an old form.
(30:18) I mean, it was like little triangular arrows that you clicked on to expand conversations and rooted conversations. The UI felt so old, it just felt like an old forum board, and a lot of OG Redditors liked that feel. It felt kind of like a terminal, really gritty, really stripped down and raw.
(30:38) That was the Reddit that it started out as. Now it's updated, it's a bit more social media feeling. It's got all the AI search features, rounded corners, nice interface, and it's changed the it had a certain it had a certain magic to it, a certain charm.
(30:54) The old way that I think it's lost. But the new way is pretty good too. The user interface is definitely improved. I'm just biased. I like the old gritty forum that seemed. It felt like you're more on a hacker form on Reddit than you are today. But regardless, Reddit has really grown into a massive online
(31:11) social media company form, whatever you want to call it. I think the biggest thing that I look at Reddit is, in fact, before we go into the numbers and stuff here, the biggest thing that I like about Reddit, I would say, is the internet's getting more and more full of bot
(31:26) scam, inauthentic conversations or just very surface level conversations. So any place you can go to and actually see a human enlighten you in depth on a subject that's pretty interesting. Reddit has a lot of that. It still feels like there's humans that go there and converse.
(31:43) Not everything is run by bots, so I think that's probably the biggest benefit to Reddit now. 14 days ago it was added to the S&P 500. That's great right? It's profitable. It's growing fast. Old company, very proven. It should be added to the S&P 500.
(31:59) I support that. As an owner of S P global, I give my stamp of approval as a shareholder to add Reddit to the to the indices. So we have here two this company is growing fast 66% revenue growth on a 12 month basis.
(32:14) When you look at it on a quarterly basis, it's a little bit more up and down, but still really good. These numbers look great, right? It's also down 35% year to date. This data looks really good. Reddit's net income is going well into the green. The free cash flow is surging upwards. They have relatively high stock based comp compared to the free cash flow.
(32:33) This is about 3,040% of it. But that's normal when they're starting to build this up. Superb balance sheet, tons of cash. They have $3 billion worth of cash. Overall the numbers look really good. Let's go ahead and just highlight some of what we won't go over the overview
(32:48) I guess we can look at a little bit of it, but I already know what Reddit does. I don't want to go over the overview too much. They have dynamic Reddit, max automation, dynamic product ads, shopping list video and app install products is the economic engine.
(33:04) The content licensing to AI companies is smaller, strategically valuable optionality. So they make most of their money by advertising, by allowing lots of companies to advertise in every community and so community specific that you can really have targeted ads.
(33:19) The durable assets is the depth, the authentic topic, specific human discussions that give advertisers high intent context and give AI systems a differentiated source of opinions, recommendations and lived experiences. Product works and feed app onboarding.
(33:35) Search and answers is intended to turn occasional visitors into direct repeat users, making both admitted and the underlying data asset more durable. So yeah, a community driven conversation and discovery platform and advertising business
(33:51) investor is positive on Reddit. Point to advertiser revenue growth, growing 64% alongside more than 70% growth in active advertisers. So both revenue of advertisers, advertising revenue and the amount of advertisers is growing like crazy.
(34:07) This is a very fast growing, and it's interesting. It's fast growing while being old. So if I look at Reddit, I guess we'll go to the bear case. But the company is how old. I mean, it was early 2000. It had to be very old, yet its revenues just growing like crazy.
(34:23) Now they took an asset that wasn't really being monetized properly, and now they're just plugging in ads. They're plugging in. They're selling AI companies lots of data. They're doing a lot of things to monetize it. Investors negative on Reddit focus on the same dependance on internet rich conversations, and discovery.
(34:41) Management said that each referrals were choppy and became more volatile late in Q2, while the company's own filings worn it. Changes to search algorithms, interfaces and AI generated answers could reduce traffic and ultimately harm its business. They argued that they argue that AI answer product would structurally intercept
(35:01) the research queries that once sent users to Reddit. That's a big thing. So basically, Reddit was a source of answers for many eyes. But if AI's can answer you a question without sending you to Reddit, that's disintermediation.
(35:17) Leaving the company to prove that feed upgrades, paid acquisitions, and app conversions can replace that funnel. The decision to stop disclosing logged in and logged out user metrics in Q2 make that proof harder to assess. Oh, interesting.
(35:32) So bears are pointing out that they stopped an important KPI. They also view data licensing as uncertain optionality rather than a dependable offset, because Reddit describes the market as new and rapidly evolving, and must negotiate arrangements to preserve both the value of its content and the referral traffic.
(35:50) I think Reddit is fine. I actually think it's a good investment. I think it will do well. I think it's going to be around for a long period of time. There's not many social media companies I'll say that for, but so far I've only thought that meta is the only one that can really make money with social media, but Reddit's proving that they can.
(36:08) Of course, YouTube makes a ton of money, but YouTube, I don't really consider social media. It's kind of that YouTube's more of a video hub and platform than anything, but overall, Reddit is proving they can make a lot of money with theirs. So good stock. The valuation I think, is reasonable.
(36:24) I think it has decent upside here. It's priced in quite a bit of sentiment, going down 35% in the red this year. 25 Ford P 3% free cash flow yield I think it's a good one at a at a good valuation today on this one.
(36:39) Just broadly I think space is like the coolest thing ever, being able to launch rockets. I saw one of them actually. I was in Florida on a beach when a space rocket was launching and just feeling the earth rattling experience. It literally shakes the earth. You can just feel the power of it.
(36:54) And the noise, the booming noise of that rocket flying up. Very cool. Also more impressive to catch it, to have the rocket come down and be able to catch it. It's just incredible what they've accomplished. So I like space. I like a lot of the assets in here, the AI, Starlink.
(37:12) I have a bunch of the Starlink's myself. I like all of them. Two days ago, SpaceX will build a new rocket launch site in coastal Louisiana. SpaceX announces plans for the new Louisiana Launch Society to expand its US launch infrastructure beyond Florida, California and Texas.
(37:29) The project could increase long term capacity, but adds construction regulatory execution requirements. It's good they're expanding. They should keep growing. I think that's the right thing. Keep it going. We don't have a lot of data here. It's just sparse because it's a brand new company publicly listed.
(37:45) So when they have a few quarters. So I can't draw any conclusions off this. There's just not enough with the data. What I can do is at least look at sentiment and what investors are arguing today. Let's go ahead and take a look at that. How do you fit an overview of space in like a couple sentences?
(38:01) I don't think it's going to be able to do this. But we'll we'll see. Let's give it a try. SpaceX is economic engine is Starlink consumer broadband enterprise and government connectivity aviation and maritime service and direct to sell mobile connectivity sold over satellite networks
(38:16) that it launches and replenishes and replenishes itself. Its SpaceX segment sells Falcon launches and develop Starship, whose strategic value is lowering the cost and increasing the cadence of deploying Starlink and future space infrastructure, rather than being the principal earnings
(38:32) source today. So basically, they vertically integrated where their launches, their Falcon is a catalyst just to build SpaceX infrastructure. And the space infrastructure is really the monetization engine.
(38:47) The durable advantage is the integrated control. And by the way, every overview, it likes to highlight what it believes is the thesis for the durable advantage of the company, kind of what overall driving the company today. The durable advantage is the integrated control of the launch vehicles,
(39:04) satellite production, spectrum enabled connectivity and ground operations, AI cloud hosting, grok X direct to sell expansion and eventual orbit orbital compute our high risk optionality built on that base. So
(39:20) they have that the core products and they have a lot of optionality. And people are paying a lot of money for the optionality. Investors positive on the company point to connectivity 4.3 billion in quarterly revenue, 1.7 billion of operating income, and accelerated enterprise and government demand as evidence that Starlink has become
(39:38) a reoccurring profitable platform capable of financing its own network expansion. They also point to 1.6 billion in initial quarterly AI infrastructure revenue from cloud agreements. The subsequently disclosed 6.7 billion
(39:53) additional contract cloud service revenue and Starlink's mobile plan use of EchoStar spectrum as evidence that the company can monetize assets across connectivity compute before Starship's full economics arrive. So basically, the bull case here is they have tons of optionality.
(40:11) But not only are they getting to this endpoint of where they're going to monetize Starship, they also have all these other ways of making money. Elon's creative at making money. He's just using all of the tools and all the assets they have to make money. And it's working. They're growing revenue super fast.
(40:27) The bear case investors negative on the company use the same mix of facts to argue that the profitable Starlink franchise, as being asked to support and usually capital intensive AI and starship build AI compute accounted for 15.8 billion of the quarters 18.4 billion capital expenditure, while the space segment reported
(40:45) 205 million adjusted EBITDA loss as Starship development accelerated. They argue that third party AI hosting is exposed to structural normalization and compute scarcity and pricing. That means that over time, that that extra compute capacity won't be worth as much.
(41:02) While the more expensive Starlink and orbital compute economics depend on achieving rapid, reliable full Starship reusability. Subsequently, reporting still describes the first upper stage tower catch as future test objective rather than an accomplished capability.
(41:20) So very complex business, tons of optionality, but also just a ton of complexity in it. And even looking at the valuation on this one is terribly different, difficult. It's very difficult to look at this company and say, well,
(41:35) it's how much revenue has it done? It's done 13, 20 billion. How much revenue is going to do in the full year? We don't quite know. That makes it so we don't really know what the p we don't know a PE ratio even to begin with. But we don't know a price to sales. Is this a really a 110 after a year what does this price
(41:54) to sales going to look like? Is it going to be a 50? We're not sure. I do know the market cap is 1.84 trillion. That's a lot of money. I think it's just SpaceX is just a really unwieldy loose end target.
(42:09) Like you can buy it, but it's very you don't really have down reliable growth and you can't look and extrapolate at all with this company. So you're kind of trying to anchor down a company that is very difficult to put in a constrained environment where you can model out the revenue
(42:26) model, out the economics, and try to get to a point where you can do any type of modeling that is actually reliable. So right now, I believe SpaceX is very unpredictable in terms of trying to model out what it's actually worth. I think people buying the company or doing it more on
(42:41) the thought of just super long term, we don't really need to model it out. It's about $1.8 trillion. We think it will grow to a five plus trillion dollar company at some point. And Elon usually has a way of making a lot of money. He can pull together a lot of he can pull a lot of strings to make things happen.
(42:57) So I'm just going to buy into space, you know, buy into Elon Musk's vision, a company that has a ton of optionality. And I think that's why people are doing it, which I don't think is such a problem. If you want to put one, have a couple bets like this, I think that's fine. Do I think you should also have an ETF full
(43:15) of really profitable growing incrementally companies? Yes. But I think there's no issue. And buying into the vision of space, it's real. What they're doing is impressive. Starlink is real. Their products are real. It's it's not this isn't a fake company.
(43:30) I don't have any problem with people buying it. I think that you should just also balance that with companies that have their valuation and their growth rate and everything like that a little bit more laid out in the future. So overall, I'm interested in this one. I want to see how the financials develop over the next couple of years.
(43:46) Now finally we get to Netflix. I wanted to check up on this one because I wanted to expound upon one segment in the most recent episode, which is Netflix potentially becoming a streaming hub. So let's just quickly go over the definitions. Streaming service means you log on a Netflix, you watch Netflix shows. Streaming hub means you watch onto, you log on to Netflix, you watch Netflix
(44:05) shows. Plus, you can sign up for Peacock or Paramount+ or HBO or whatever it is. Fox one all of those on the Netflix streaming service. So in the Netflix interface, you could sign up for those streaming apps, and then you'd see those shows within
(44:20) the Netflix interface, therefore increasing the library, making it enough to skip from app to app, those shows that also have all the tools to stream that Netflix has, all the nice little, you know, just Netflix's user interface is just really nice.
(44:35) So why is that so meaningful? Well, so far, Netflix can only monetize by spending more money and by their own product. And as much as it would be nice to live in a world as a Netflix investor, not real life, but in a Netflix investor, theoretically it would be nice
(44:53) if Netflix just consumed all TV and was just the only giant monopoly. Everybody watched everything new Netflix, and they had a content budget of, you know, $1 trillion per year. That'd be great. That would mean that you would win Netflix. Investors would be filthy rich. It wouldn't be good for the world, but it would be good as an Flix investor.
(45:11) Unfortunately for Netflix investors like me, that's not going to happen. There's going to be competition, there's going to be other services, and those services are going to look especially the smaller ones. They will look for distribution. So I doubt that Apple will I doubt that Amazon will. They're not going to
(45:26) they're not going to sign up and have their stuff distributed through Netflix's app. So those ones are probably out. But I bet that Peacock, Paramount, Fox and ton of other stuff, they will want their stuff distributed through Netflix stars.
(45:42) Another one. They all want it distributed through Netflix. What they would do is Netflix could craft agreements and say, hey, anybody that signs up through our platform, we get 20% of the take. I don't know the real numbers of what it would be. So 20% is totally fictional. I have no clue on market research on what it would actually be,
(45:58) but to say that they get 20% of whatever Netflix charge is for people that sign up for Peacock in their app. So Peacock, you know, if it's like, oh, you pay eight bucks a month or something, Netflix gets a couple dollars a month for having being the distributor of the Peacock service.
(46:15) Peacock is happy because Peacock believes we may have not even gotten that customer without Netflix. So it's kind of a total sum game or situation where it's like a hotel room just not being filled for the night. They don't really lose anything
(46:31) if it's not filled, but they only earn additional money if somebody signs up. So when you have businesses like this, they're eager to have more distribution because they view it as not really an additional expense as having one more customer. It's all just money on the table. So if Netflix can gain them 50 million more subscribers, double
(46:47) the size of their service. But Netflix is taking a cut of 20% of all of that. Those services will pay that cut happily, because they believe that those additional incremental subscribers wouldn't have happened without Netflix. So this changes this situation.
(47:04) Right now, Netflix is only growing by their own merits, by their own content, by their own licensing, by their own app, everything they're having to pay and build themselves. But having a streaming hub makes it so that they could be the distribution layer.
(47:19) They could become a service that grows based on the content of someone else. They would charge basically like a license fee, a royalty fee to have them sign up through their service. And that's a great business, is when you can earn money on the work of other businesses. That's what Mastercard and visa do.
(47:35) As I make more money and I spend more on my visa card, visa makes more money. So Netflix basically, I think it's a good path for them if they do it right. My concern is that they'll just ruin the interface. They'll make it spammed with random shows from different services that have price tags attached to it.
(47:51) That'd be awful. They can't do that. They have to have it look sleek, easy, still enticing, but really sleek and easy. They can't mix and match free shows with paid ones all the time. That really frustrates a lot of people. So I think that Netflix will do a lot of testing user behavior,
(48:06) all that type of stuff. But I think they're going to go down that path. And in terms of the bear case for Netflix today, if you look at sentiment and what we define as a bear case, it's heavily reliant on engagement. You know, the viewing hours only increased by 2% in the first half.
(48:23) Live programing is expected to consume 5% of the content budget and only produce a 1% of viewing hours. That's live events. So live events are more meaningful viewing. So I think that investors have to let go of just watch time as being healthy engagement. And I think that story will shift because if somebody has a live event,
(48:42) that's really an important hour that makes the service more valuable to them. The perceived value of the service is greater. Like the rock star preview of Grand Theft Auto six releasing today. So release today that that our is going to be valuable to people.
(48:58) They'll be glad they have a Netflix subscription to watch it in the big screen very easily after the six hours or whatever, it's going to go elsewhere. But Netflix continues to build value by having a lot of exciting things happen within their service itself in a live manner. And I think the live, I think the live aspect has been really successful.
(49:15) I think podcasts will be successful and I think if they do a hub, if they become a hub, I think that Netflix can pull that off and make a ton of money doing it. So this is a company I think that has lots of potential. Very bullish on Netflix. Still 20 3PE ratio I think you're getting a great company.
(49:32) Great situation in this situation for a relatively low price, not dirt cheap. Netflix could trade around from 23 to 25. That's fine, but I don't think it's expensive right now. That's going to be it. Hope you enjoyed this little market update. I'll do more of these as exclusives throughout the week.