Can you hear their fear? CEOs of growth stocks down more than 40% | Quartr Reporting Season

Bryce: [00:00:16] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How are you going?

Alec: [00:00:31] I'm very good. Bryce I am pumped for this episode. We're back its earnings season in America. Earnings season never seems to end and we have pulled out the quarter up and listen to some of the biggest names in corporate America. Well, no, just in the business world. And we've tried to say we tried to hear if there's any fear in their voices. 

Bryce: [00:00:58] Yes, yes. Like there's a lot going on at the moment, and we've got the big tech companies that have absolutely been smashed during reporting season. 

Alec: [00:01:09] Well before reporting sales, 

Bryce: [00:01:10] before reporting season as well. And we're going to pull out some of the key messaging from their their C-suite to listen to what they have to say before we do. You did mention the quarter out there. This episode is proudly sponsored by Quarter, who we think is a fantastic app to hear directly from the CEOs of some of the biggest companies in the world. It's one of the fastest growing investor relations app around. Head to quartr.com. And you have the opportunity to listen to all of the investor calls for portfolios in your company from all around the world.

Alec: [00:01:51] And can I just say so, we did this last year and the app was good, like the functionality of aggregating all these earnings calls and being able to listen to them like an audiobook or a podcast is pretty epic. But the improvement in the app is something to behold. They've done a they've done an incredible job in the last few months, so it's a great app and being able to easily hear from these business leaders and say CEOs, that we spend our days looking at their companies and trying to learn about their companies and to be able to hear it directly from the leaders themselves. This is great functionality. 

Bryce: [00:02:26] So before we jump into hearing from Spotify and whether or not they sound worried, we've got two pieces of housekeeping. The first this is the last day for our community survey. We really, really appreciate if you could click the link in the show notes or on our Instagram page and fill out the the survey. It's an opportunity for us to hear your feedback on how how we're going and to give you the chance to provide us with some feedback for the coming year. It's all about building content that is going to be valuable for your investing journey. If you complete the whole survey, you go in the running to win five hundred bucks. So final chance to do that. And then also Ren. We're playing the ASX share market game along with the boys from Kva and also Maddie and Sophie from your own good company. And we've opened up our league to all of the Equity Mates community to play along with us. So those links will be in the show notes as well. If you want to join our league, it's called Amaria and it kicks off. This week, 3rd of March, 

Alec: [00:03:26] prices thrown down the gauntlet that he's going to smoke everybody, that he's got the strategy that's going to win the game. So put him in his place, come and try and beat Bryce. And yeah, let's have some fun and see who wins. But let's get into this episode because I'm excited for this. We have seen an absolute sell off in growth stocks, and we've named this episode. Can you hear their fear growth stocks down more than 40 per cent? So what we've done is we've pulled out some of the biggest names in America and Canada and had a look at other CEOs worried. Can you hear the fear in their voice? We've got Spotify. That's down 58 percent from its all time highs. Facebook down 46 percent. Netflix down 43 percent. Peloton down 82 percent. Shopify down 63 percent. PayPal down 66 percent. There's plenty of others we could have chosen, I think, between those companies. They've lost about a trillion dollars in market cap. 

Bryce: [00:04:27] So that's amazing. 

Alec: [00:04:29] That's that's a big fall. But let's start with Spotify, down 58 percent from all time highs. The first clip we have is the CEO Daniel Ek. Yes, talking about the long term for Spotify. Love it. 

Daniel Ek: [00:04:43] But let's move to the long term, which is where I try to focus my time. We're building a category defining company. And this takes patience, and some may still describe us as the leading music subscription service. And while this surely reflects where we've been. It doesn't encompass all the advancement we've been making in the audio. And further, I don't think it properly captures all the future initiatives that we're working on, either. It is, as Jim Barksdale described, it's constantly about bundling and unbundling on the internet. So what are we focussed on then? Well, the best way to describe it is a subset of the creator economy. People have been talking about the creator economy for some time and it has taken on many different meanings for us. The single largest trend to keep track of is the rapid professionalisation of creators. And I see this as one of the biggest opportunities on the internet and for all the millions of artists and creators that have leveraged Spotify to date. I think we've only scratched the surface of the creative potential in audio to become the preferred destination for all of your prayers. We will accelerate the move from a one size fits all model to a much more dynamic and open platform, and we will give them greater flexibility and the power to be more entrepreneurial, which will of course, unlock the extraordinary potential of their business and communities. We will provide greater reach. We will provide tools and access to diverse revenue streams that can be personalised to meet the needs of each creator. I believe this will all lead to the creation of millions of jobs for the creator economy. And while this is not limited to Spotify, we are building the platform that will enable the whole ecosystem to work together on a global scale. And we think that the Spotify ecosystem alone will encompass more than 50 million active creators, which is a significant increase from the 11 million total that we have today. So think of it as 50 million small and medium sized businesses that we can support by giving them the infrastructure and resources to grow. And this evolution will take time. But I know some of you are wondering what this means in the near term. 

Bryce: [00:06:54] So Ren way of thinking long term here at Equity Mates and so does Daniel Ek. As we heard there at the start, you know he's really asking for some patience. Do you think investors? 

Alec: [00:07:03] Do you think he sounds worried? No. Yeah, I didn't think he sounded worried, but I did find it interesting. The creator economy very interested in the professionalisation of creators. Oh, that's awesome. That's awesome. Plans to get to 11 million creators on the platform today. 50. So plans to get to 50. Today they have 11. I guess where part of the 11?

Bryce: [00:07:25] Yeah, but we're not making any money 

Alec: [00:07:26] as a full size Spotify. We make zero dollars from you. Yeah. Well, I guess people listen through Spotify.

Bryce: [00:07:32] It doesn't matter. We're not making anything from Spotify. And if he's interested in the professionalisation of creators on his platform, we're not part of that yet. 

Alec: [00:07:41] Okay. Anyway, next, we're not going to throw down the gauntlet to every tech company that we spoke about here. Although Peloton, I still am waiting on a bike, but we'll get to you. All right, so we've got one more from the Spotify earnings call. This is from an analyst question, and I think a really interesting transition was saying in Spotify is the movement from a subscription app to an advertising platform? Yeah, and they have about 400 million users about, I think, about 180 million of them subscribe. And the name of the game five years ago for Spotify was to convert that 180 million to paid subscribers. Yeah, but that's not so much anymore. So here's here's this question from an analyst to the Spotify executive. 

Rich Greenfield: [00:08:28] All right, another question from Rich Greenfield on the advertising opportunity. You've talked about advertising becoming 20 percent of revenues, if not 30 to 40 percent longer term, while you're no longer giving full year guidance. How do you think about the trajectory of getting to 20 percent and what are they key puts and takes? 

Daniel Ek: [00:08:44] Yeah, thanks, Rich. So I think obviously it's hard to predict long term exactly how it will play out. And I think when you look at platforms overall in the space and the mix between different options, I think I've alluded to this in the past. I don't think many of these content platforms in the future are going to be single revenue stream. I think there are going to be multiple revenue streams and it's really just about the mix. We start from the paid and we're obviously growing into having both advertising and paid. And there will be some other platform that that started with advertising and then starts adding more paid content as well. So I really think it's the combination of subscription alacarte and advertising that long term will be the revenue mix. Now, speaking specifically to advertising, what is the primary puts and takes it really at this present moment comes down to two things primarily. One is inventory. We see an enormous amount of demand from advertisers and the number one thing that we're we're stretched for at the moment is more inventory. And that's why you see us introducing things such as span and other things. And then long term, with a little bit more horizon, it's obviously international. So many platforms start out monetising the US and UK very well. But it takes a little bit more time to monetise the international markets. I don't think we will be an exception to that. So long term. I think it will be more geographical things too, but there's really positive signal. In those markets, too, I remember going back to the Chinese market 10, 15 years ago, there was a huge debate whether advertising was a viable model at all in the Chinese internet market. And now you see gigantic companies being built with advertising as the number one source. And I think that bodes really well for regions such as India, Indonesia and others to where Spotify has obviously had enormous success. But that's also how you should read into those investments. They may not be large from a revenue perspective today, but I am absolutely confident that by investing in these markets and becoming the number one audio platform there, that's going to be a very worthwhile position to own in the long term. 

Bryce: [00:10:56] So Ren, it's clear that Mr Ek is thinking about the ambitions of Spotify expansions into India, Indonesia, a lot of these sort of emerging markets. And with that aiming to become a much bigger advertising platform, I think their recent result also a huge increase in advertising revenue as a total proportion. I think 15 percent now, some something somewhere around that. 

Alec: [00:11:18] Yeah, I think even getting close to 20 percent. But yeah, yeah, yeah. Yeah, a big part of their revenue mix. 

Bryce: [00:11:23] So certainly you're making that making that transition, and it makes sense. 

Alec: [00:11:27] Yeah. And listening to the earnings call more generally like a repeated theme over and over again was we need more inventory for advertisers. Advertising demand is just so much higher than the inventory. We have to place ads. So if you're Spotify and that's informing that strategy like they've announced, they're moving into audio books and you know, they're trying to build more podcast advertising into their platform, and that's because they're just desperate for desperate for inventory. Hmm

Bryce: [00:11:58] Well, as a Spotify shareholder, Ren who after looking at my portfolio this morning and saying that not only is Spotify down 58 percent, but I'm down 51 percent on my holdings, I am not worried and I am glad that Ek spoke the way he did. Hmm. 

Alec: [00:12:17] Daniel Ek, one of our white whales that we're chasing. Yes, although if anyone has a contact to him, pass it on. But let's move to a company that you love and I hate Metta the the company formerly known as Facebook, down 46 percent from its all time highs. And we're going to start with a clip from Mark Zuckerberg's introduction to their most recent earnings 

Mark Zuckerberg: [00:12:40] Hi everyone, and thanks for joining today. This was a solid quarter for our products and business. It was also an important one for our company. In October, we announced that NET would be our new name, and we laid out our vision for the Metaverse. And when we shared our plans to connect, I said, this is not something that we're going to do on our own. The Metaverse will be built by creators and developers who will be interoperable and will touch many different parts of the economy. In the months since, it's been exciting to see lots of other companies share their own plans for the Metaverse and how their experiences and products might show up, too. And I look forward to partnering with a lot of them as we work to bring this to life together. So last year was about putting a stake in the ground to where we're heading, and this year is going to be about executing. And today I'm going to discuss our seven major investment priorities for 2022, and there are real community messaging, commerce and privacy, A.I. and of course, the Metaverse. And these are the areas that we're putting a lot more talent and budget towards. But before we get to that, I want to briefly touch on our Q4 results, which I know Sheryl and Dave are going to go deeper on. I'm proud of the work that our team did here. We shipped products, our community continued to grow, and businesses of all sizes turned us to help them reach people. But there are two things that I want to call out that are having an impact on our business. The first is competition. People have a lot of choices for how they want to spend their time, and apps like Tik-tok are growing very quickly. And this is why our focus on rails is so important over the long term as our work to make sure that our apps are the best services out there for young adults, which I spoke about on our last call. The summit area and related to this is that we are in the middle of a transition on our own services towards short form video like rails towards more activity shifts towards this medium. We are replacing some time and newsfeed and other higher monetising services. So as a result of both competition and the shift to short term short form video, as well as our focus on serving young adults, we're optimising overall engagement. We're going to continue to see some pressure on impression growth in the near term. Now, I'm confident that leaning harder into these trends is the right short term trade off to me. In order to get long term gains, we've made these types of transitions before with mobile feed and. Stories where we took on headwinds in the near term to align with important trends over the long term. And while video has historically been slower to monetise. We believe that over time, short form video is going to monetise more like feed or story is sound like watch. So I'm optimistic we'll get to where we need to be with Reels to 

Bryce: [00:15:37] so Ren. Last year, October, they announced the name change to matter. I think spec images sent something through that they've lost 500 billion in market cap since changing well for for metadata from Facebook 

Alec: [00:15:50] that mean that has to be the worst name changeable. Yeah. 

Bryce: [00:15:54] So this is their first quarter report since, and for Zuckerberg, it's all about now actually putting rubber on the road. 

Alec: [00:16:03] Yeah, but I think, you know, they're obviously having a lot of trouble facing a lot more competition. Tik-tok. And they're having a real difficulty monetising short form videos. We've got one more clip. This one is Sheryl Sandberg answering a question. And then I want to ask you the question. We're going to ask for all of these earnings calls. Do they sound worried? OK. 

Facebook (meta): [00:16:24] We've also heard from advertisers about other macro trends that contributed to the headwinds in Q4, including global supply chain disruptions, labour shortages and inflationary pressures. A number of industry reports have pointed to people shopping earlier in the holiday season to avoid potential supply chain issues and shipping delays. This is in line with the behaviour we saw from advertisers, many of whom frontload their spend earlier than usual. Mark, talk about seven areas of investment. I'd like to talk about our progress in three of those ads. Commerce and messaging. First, as. Like others in our industry, we faced headwinds as a result of Apple's iOS changes, as we described last quarter, Apple created two challenges for advertisers. One is that the accuracy of our ads targeting decreased, which increased the cost of driving outcomes. The other is that measuring those outcomes became more difficult. These challenges are complex and interrelated. We're working to try and improve things, for example, by making progress in closing the under-reporting gap for iOS five conversions and by introducing tools like our aggregated event measurement solution to deliver better insights for advertisers. These efforts will help to mitigate some of the challenges, but we expect the overall targeting and measurement headwinds to moderately increase from Apple's changes and from regulatory changes in Q1 and throughout 2022. 

Alec: [00:17:49] So Bryce Sheryl Sandberg talking about some of the challenges they're facing the Apple iOS changes, I guess risk of regulatory changes, the troubles with monetising short form videos. She had wins over at Medha and we didn't even include clips talking about the massive investment they're making in the Metaverse and what that looks like. So Bryce worried or not worried.

Bryce: [00:18:14] They sound worried. They sound a bit desperate.

Alec: [00:18:17] Desperate. Wow.

Bryce: [00:18:20] They sound worried. Look. Zuckerberg has done this before a large pivot, not to the extent of completely changing the company direction, but yet I 

Alec: [00:18:30] think I think it's worth so everyone talks about the Zuckerberg pivot from desktop to mobile, and that was his finest moment, as I say. So I think we we should acknowledge that. The other thing is Sheryl Sandberg is remarkably good at monetising new formats, and she mentioned monetising Instagram Stories there. And if you think back to when Instagram Stories launched, it was because Snapchat had something similar and they just ripped that feature and then built it into their platforms. And then Sandberg found a way to make lots of money from it. And if you're bullish on Facebook, if you're bullish on Metta, you're going to say that they're going to do the same thing with Tik-tok functionality. If you're not bullish, you're going to say they're not. 

Bryce: [00:19:11] They're not. Yeah, and they're done, but they sound worried. 

Alec: [00:19:15] All right. Do we want to take a quick break and then get into Netflix, Peloton, Shopify? 

Bryce: [00:19:21] That just keeps getting worse, doesn't it? Yeah, let's do it. Let's take a quick break and jump into Netflix. 

Alec: [00:19:27] I Bryce before the break, we have the scorecard of Spotify. You don't think they're worried Facebook or meta. You think they are worried. So let's get into Netflix, down 43 percent from all time highs. And let's start, these guys didn't do an introduction. The whole earnings call was a Q&A with a Fidelity analyst, which I actually appreciated. So let's start at the very beginning. 

Netflix: [00:19:51] Thank you, Spencer. Good to be with you all again. Great to see all the new content. Over the quarter, I've been a little less productive, so I think I can blame you all for that. As usual, I'd like to start with net ads during the quarter, which came in a little bit lighter than you expected. Just help us understand the underperformance there. 

Netflix: [00:20:10] Ninety eight point three vs. eight point five dollars, two hundred and twenty two million. In fairness, the reason it was a little shy, so I'll take it in any size. As they said we delivered. You know, first, we we're quite pleased with how the quarter played out. We delivered eight point three million paid that ad, so it was just a bit shy about a tenth of a percent on the non roughly two hundred and twenty two million paying members. And overall, we're quite pleased with how our titles performed. We had big viewing. We started the quarter with squid game becoming a global phenomenon, and we ended the quarter in December with big TV series like the finale of the cost of apparel, P&L, a big returning show and The Witcher, our two biggest movie releases of all time. So overall, the business was healthy. Retention with strong churn was down. Viewing was up. But on the margin, we just we didn't grow acquisition quite as fast as as we would have liked to see in our our large subscriber base. A small change in acquisition can have a pretty big flow through and net adds in. And again, our acquisition was growing, just not growing quite as fast as we were perhaps hoping or forecasting.

Netflix: [00:21:28] Great, and as we look ahead to Q1, the guidance was a bit below kind of what was expected and what you've done in previous ones. Maybe just help us understand what some of the key considerations were that went into the guidance. And you know, does it raise any concerns for you about anything structural, whether it's competition or saturation? Or does it give you any pause in terms of starting your return on content spend? 

Netflix: [00:21:59] Sure. No, no structural change in the business that we see what's reflected in the guidance we guided to two point five million paid net adds in Q1. And what's reflected there is pretty much the same trends we saw in Q4. So healthy retention retention, which churn down healthy viewing and engagement with viewing up and acquisition just, you know, growing but a bit slower than than pre-COVID levels just hasn't fully recovered. And you know, we're trying to pinpoint what that is. It's it's tough to say exactly why our acquisition hasn't kind of recovered to pre-COVID levels. It's probably a bit of just overall Covid overhang that's still happening after two years of a global pandemic that we're still unfortunately not fully out of some macroeconomic strain in some parts of the world, like Latin America in particular. You know, while we can't pinpoint it or point a straight line using when we look at the data on a competitive impact, there may be some kind of more on the on the marginal kind of side of our growth, some impact from competition. But but which again, we just don't see it specifically. So overall, that's what's reflected in the guide. I'd say we are big titles are also landing. These are known be titles a little bit later in the quarter with season two of Bridgerton in March, the ANA project also in March. As you know, we also while we are taking, you know, changing prices in countries every quarter in Q1 of this year, it happens to be our largest country, as we announced last week and actually our largest region with Canada as well. So that's paying a little bit more impact than a typical quarter. 

Netflix: [00:23:38] But maybe you're right to reflect on two years ago, we were 10 million above plan, which was a shock. You know, last year we were 10 million below our nine million. And so, you know, the pull forward sort of makes it hard to read. You know, in the prior year, we were very steady so we can have confidence on incremental trends. But as Spence said, you know, when you we reflect, of course, you know, hey, that's a load guide, you know, and we think it'll be accurate. It's not sandbagged at all on kind of what's going on. And you know, there's a number of potential explanations and Covid, but then we worry about hanging too much on that. You know, there's more competition than there's ever been, but we've had Hulu and Amazon for fourteen years, so it doesn't feel like any qualitative change there. And overall confidence in streaming becomes all of entertainment, you know, linear dissipates over, you know, the next 10 to 20 years. Very high confidence in Ephesus because everyone's coming into streaming. So like market size, very large. Our execution, you know, is steady and getting better. So for now, we're just staying calm and trying to figure out again. The Covid is introduced so much noise it just wants us to give it some pause. And as we work on everything we've always worked on,

Bryce: [00:25:01] will Ren, I know you're going to ask me, do they sound worried or not? And I'm just going to nip it in the bud right now. They don't sound worried based off how they started that call a lot of laughter around the fact that in classic style, they just missed expectations and get absolutely walloped. Yeah, but they still had a pretty good report. 

Alec: [00:25:18] Yeah, yeah, they don't sound worried at all. And I mean, they're an incredibly competitive business, but they seem to be kicking a lot of goals. I mean, they just keep having titles that capture the world. 

Bryce: [00:25:33] Yeah. To that point, I think they were the number one publisher or creator of content to get Oscar nominations this year. 27 Oscars 

Alec: [00:25:42] The The Art of the Power of the

Bryce: [00:25:44] Dollars twenty seven beat out some of the traditional guys. What I have noticed, though, and through some of the commentary is that they now are recognising that this space is becoming very, very crowded. Previously, they've been saying our only competitor is sleep and we think there's plenty of room in the market. Our penetration of U.S. households is still so small, blah blah blah. But this was the first time that I've actually heard them softly say, You know what? There's actually a fair bit of calm. 

Alec: [00:26:13] Yeah, well, let's get to the the next question, because you're right, it's an incredibly competitive environment now, and when you're competing, you need to keep producing good content. And they had some comments on that. So let's. Thread of this 

Netflix: [00:26:29] to read, I'd say, you know, we took a, you know, a big bad years ago on this, that people would move onto Netflix and Netflix type offerings to consume movies and film. That was a big, big bet that we've seen continue to have no change in our confidence in that. And I think what's really been great about 2021, even through all those conditions, we were able to kind of prove out to other theses that we've bet on starting years ago, one big one around our investment in international programming. We glad that we started that seven years ago with the guavas. And now, you know, we were betting that you could take films and series from anywhere in the world and entertain the entire world. And we were, you know, getting getting more, bigger and bigger milestones against that goal. And now we have proven to have got a global sensation from France, with Dubai, from from Spain, with the custody of about a day. And then in the biggest way possible in 2021 was good game, which has become our biggest series ever and it is unapologetically imperfectly Korean. So it's not built to be this kind of global thing. It's proving that great storytelling from anywhere in the world can entertain the world, and our other big bat was our investment in big budget feature films and our bet that we could effectively release them and compete with big theatrical releases for audience and for attention and red notice. This year, of course, and don't look up and become our number one and number two most watched movies ever on Netflix. And if you look at the hours, you know that we publish out, you can do the maths and back into it. They may be the most watched movies anywhere in the world this year. So I think those two that's coming true, it kind of strengthens our confidence in the overall bet in the service and pleasing customers and leaning into consumer first business models, then we could succeed there.

Alec: [00:28:14] So Bryce, it's a content game. It's an incredibly competitive game. But Netflix, it's fair enough. The comments they make that they are doing very well. Yeah, yeah. And we talk about Netflix in the office sometimes. And the one thing that I really think that they have an advantage over a lot of their competitors is that they're truly global, that, you know, Lupin Squid Game Honey. Hi, guys. Yeah, yeah. Yeah, all these shows that were made for local audiences that blow up globally. I think Disney is trying to get there, but not many of the competitive 

Bryce: [00:28:48] ones in Australian one going to blow up. Has there been one 

Alec: [00:28:52] other licencing question? Yeah, yeah. But I think Netflix, they don't sound worried. They know, they know that they're in a competitive fight. But. They are just one of the best companies. 

Bryce: [00:29:05] But yeah, they don't sound word, they still think there's massive opportunity. 

Alec: [00:29:08] And sorry, I should say best companies in terms of like the management and the culture. Maybe not in terms of like the business fundamentals of needing to pay hundreds of millions of dollars a quarter to produce new content. 

Bryce: [00:29:19] $17 billion, I think they spent in 2021. Yeah, $17 billion on content. 

Alec: [00:29:25] It's a capital intensive game. 

Bryce: [00:29:27] It's crazy. Crazy. So let's move on to one of the hottest stocks during Covid, where we were lucky enough to speak to the managing director here in Australia for our summer series. And that's Peloton, down 82 per cent from their all time high. We're going to hear if they sound worried at all. Yeah. 

Alec: [00:29:45] Let's start with a clip from John Foley, the co-founder and at the time of the earnings call, say 

John Foley: [00:29:53] a reconciliation of gap to non-GAAP financial measures is provided in today's shareholder letter. With that, I'll turn the call over to John. Thank you, Peter. Good morning, everyone, and thanks for joining us today on short notice. As you've probably seen by now, we made a number of important announcements this morning, all of which are intended to ensure Peloton is well positioned for sustainable, profitable growth. I'd like to start by stating, I love telecom. I love the role we play in connecting the world through fitness. Our goal has always been to bring immersive and challenging workouts into people's lives in a more accessible, affordable and efficient way. We've done a great job of delivering on that vision, and our large and loyal member community is proof of that. But we also acknowledge that we have made missteps along the way. To meet market demand, we scaled our operations to rapidly and we over invested in certain areas of our business. We own this, I own this and we are holding ourselves accountable. That starts today. Early today, we announced several important leadership changes. I will be taking a new role as executive chair of the board and Barry McCarthy will be assuming the role of CEO. I couldn't think of a better person for that job. As we transition to Peloton's next phase of leadership, there is a tremendously talented executive with deep experience and growing content dependent digital subscription businesses and doing so profitably. And he has partnered successfully with two extraordinarily talented founders during this journey. Berry most recently led Spotify's global advertising business and also served as CFO, overseeing their direct listing and helping to establish Spotify as a global brand. It is today. Many of you may also know that Berry served as Netflix CFO for over 10 years plus. Barry is a long time passionate Peloton member who shares our team's enthusiasm for our company's vision of improving lives through home fitness. I'll be partnering closely with him as we address the challenges facing our business and work to deliver on the value inherent in Peloton. 

Bryce: [00:32:09] So the CEO has stepped down. Yes, they are worried. 

Alec: [00:32:14] Well, yeah, I think so. But you know what? John Foley might? Well, Peloton might be worried, but John Foley has still made out very well. 

Bryce: [00:32:23] Yeah. Well, he's still executive chairman. 

Alec: [00:32:25] Yeah, he's also a co-founder. Multi-billionaire. Yeah. 

Bryce: [00:32:27] So, so he's doing alright. But look, you're not not worried if you're getting rid of your CEO and

Alec: [00:32:35] not 

Bryce: [00:32:36] getting rid of your CEO and changing a few things up. They also cut their jobs. Job Force about twenty eight hundred two thousand eight hundred Job Force 

Alec: [00:32:45] Job Force haven't had that before 

Bryce: [00:32:48] workforce by 28 hundred two thousand eight hundred jobs, roughly 20 percent of their workforce. So I would certainly say, and it sounds like they they're worried about where they're at and I guess how they front run all the demand. And now in a bit of a situation where that demand is no longer there and they've probably expanded too quickly. 

Alec: [00:33:08] Well, on that point of demand not being there anymore, we have a question from an analyst who asked that question Where are we going to see growth again? 

Peloton: [00:33:16] No next question coming from the line of Edward Yruma with KeyBanc L.A. Open. Hey, guys, thanks for taking the question for all the details. I just want to kind of follow up on the last question, but ask the broader question on demand as you think about all the different things you've experimented with, right? Tactical price reductions, new products. As we think about the longer term growth algorithm, what what do you think restores the business back to a growth trajectory? Is it some of these new products as it just kind of lapping some of these comps? And I know that you did make a comment about affordability and trying to reduce that at once. You know how that squared with the implementation delivery fees? Thank you. Thanks, dad. I'm going to take this, and I think John might chime in. There's a lot here. Certainly, our second half demand is a softer demand picture. And so it obviously exemplifies the fact that it has been difficult for us to forecast and predict demand coming out of Covid. But I do want to highlight that there are three other factors that we believe are relatively short term in nature that are driving our revised outlook. No doubt we are going to see an elasticity response from the price increases on our original buy and tread and those, as you know, are in the form of the delivery and installation surcharge. We also are intending to purposefully reduce our marketing spend in the back half of the year so that we better understand baseline of demand and post that post Covid. And I think it's just important as we move forward, we're making a lot of opex cuts. But to be clear, from a marketing perspective, that is an engine that we are not shutting up marketing at will be critical to our success going forward. And so what you'll see is that what we want to do is one get to better marketing and media efficiency and also reduce a lot of the fixed costs within sales and marketing so that we can allocate more to that variable marketing spend. So that is something that we are not going to sacrifice on. We want to grow, we want to change more lives. And then third, I think we would be, I think, naive if we didn't think that there could be some operational disruptions as we work through this restructuring. And so those are sort of the three short term headwinds that we're seeing. But stepping back, we believe that the opportunity is unchanged. We believe the fitness and wellness industry will continue to grow. It's grown for decades. Through many, many cycles. The connected fitness industry will take share. The connected fitness industry will also grow fitness participation. And we know that consumers coming out of Covid with work from home and hybrid models are more predisposed to want to workout at home today than they ever were pre-COVID. And I just wanted to also take one other step back as it relates to our subscriber base. Keep in mind, we are projecting three million subs by the end of this year when we entered Covid, which feels like a decade ago now for whereas at Peloton, two years ago, we had just over 700000 subscribers. So while our growth in sales in our connected fitness has been non-linear, we are emerging from all of this with a very large scale growing member base with low churn. We're changing lives. We have a great product, high NPS, low churn and are the category leader. And that's what really makes us excited about the future. And it's the same playbook we've had before. It's growing our core bike business, growing new products, growing our channels like corporate wellness and growing international. 

Alec: [00:37:08] So Bryce. I think the point that the CFO Jill Woodworth makes there is a fair point that if you zoom out, they're doing pretty well. It's just that Covid dragged a lot of demand forward thoughts. 

Bryce: [00:37:23] It's it's a good way to to to to present this situation. If you drag out on a lot of companies, they're doing pretty well. But it just really comes down to that fundamental question that I think we've been trying to answer. And we when we spoke to the MD here, we were trying to answer. It's like, is there bet on the future of fitness the right bet at the moment? Yeah. So that's something that is still very much an unknown.

Alec: [00:37:53] Yeah. For me, it's like, yeah, I completely accept that you bought demand forward and I accept that your share price is actually up from when you listed. It's just been an incredibly bumpy ride to get there. But I think the overarching question is you brought demand forward, but what is total demand look like? And you know, we've spoken to expert investors often that say Peloton is, you know, like a world beating company. We've spoken to others that don't say that. But for me, I am just not. I don't have a clear view on what the future of fitness looks like in terms of. Is it going to be an at home thing? Are they really going to be able to disrupt gyms? So, yeah, for me, that's the question. You brought demand forward, but how much demand is there? Going forward, going forward, 

Bryce: [00:38:46] yeah, yeah. And they still haven't sent us the damn bike to try us. 

Alec: [00:38:50] Well, you know what, if if they had sent us the bike, I could be sitting here. Yeah, like I'm Super Bowl ish. I'm ripped as shit right now. And I know that when people say me on our I.J, they're going to be getting Peloton's as well. But instead, I'm not Ricochet's, so I can't say that 

Bryce: [00:39:09] we'll have to follow them. Unbelievable. 

Alec: [00:39:12] So let's move to a company that I own that I have a real soft spot for. But the market doesn't love because it's down 63 percent from its all time highs. And that's Shopify. The Canadian e-commerce enabler that powers so many online stores that you would have bought from that you would have never even known everything from Tesla and Red Bull to local Facebook sellers all around the world. So. I am going to start this one by giving the award for the lamest opening to an earnings call. This is a Canadian company, but this minute just struck me as so American.

Shopify: [00:39:56] Thanks, Katie, and good morning, everyone. The digital commerce revolution, which accelerated as a result of the pandemic in 2020, continued in full force in 2021. The direct to consumer and omnichannel commerce trends that got supercharged with Covid were reinforced as more consumers bought directly from their favourite brands, engaging in unforgettable shopping moments that are possible when commerce is everywhere. The evolution of commerce that fast forwarded over the past two years offers more selling opportunities to makers, creators, influencers and curators. These entrepreneurs are ready. Their resilience and our drive to build them the best products for modern commerce puts Shopify and our merchants out ahead. 

Alec: [00:40:40] So Bryce the digital commerce revolution, unforgettable shopping moments that are possible when commerce is everywhere. These entrepreneurs are ready. [00:40:52][11.6]

Bryce: [00:40:53] You got to give it to them. Hot hyping it up. I know it. Look, it was. It was. It was pretty lame. But that doesn't mean the company's lame. 

Alec: [00:41:06] No, because it's far from it. No. And the numbers that we're about to hear from the company aren't lame at all. But it does raise the question while the share price falls so much. So let's listen to this and then I'll ask you worried or not worried. 

Shopify: [00:41:22] We close 2021 with annual revenue nearly triple 2019 levels. Our merchant base, nearly twice as big as 2019 as a share of merchants outside of North America continued to grow as part of our mix over the past year. More than 14000 merchants on Shopify Plus, with approximately 4000 of these coming on in 2021, the strongest year ever for standard upgrades, as well as new merchants joining the platform and emergency and the more than doubled 2019 levels reaching $175 billion in 2021. In Q4 of 2021, our merchants had their most successful Black Friday Cyber Monday selling period, generating $6.3 billion in GMV, significantly outpacing growth in the broader e-commerce market. In 2021, nearly 600 million shoppers made a purchase from a Shopify merchant, up nearly 31 percent from 2020. Seven companies that grew their businesses on Shopify reached a new threshold for growth by becoming publicly traded, and we got stronger growing Shopify team to 10000 people, enthusiastically taking on the big opportunities ahead of us. Shopify's impact comes from the combined power of our total offering, our infrastructure platform, merchant solutions and our partner ecosystem. This is coupled with our belief that the work we do creates value not just for merchants, but for everyone who has the privilege to interact with them. 

Alec: [00:42:54] All right, Bryce. The numbers are strong. The seven companies that were built on Shopify IPO in their own right in 2021, so it literally powers every end of the e-commerce spectrum. And it's had an incredibly good few years as people shift to e-commerce demand brought forward because of the pandemic. But the share price is down 63 percent from its all time highs at the time of recording in February alone. The share price is down 37 percent poor Shopify. 

Bryce: [00:43:27] The numbers that it pumped out, though, were incredibly impressive. Are they wired or not? Absolutely not. 

Alec: [00:43:33] Well, not based on the opening. No unforgettable shopping moments. I can honestly attest that I've never had an unforgettable shopping moment. Every shopping moment for me has been forgettable. It's just like you just go to the register and pay or you check out, particularly online. 

Bryce: [00:43:50] Yeah, yeah. 

Alec: [00:43:50] The one exception to that, and this is UNsponsored institu is pretty good luck. Yes. That's not online. They really look after you. They measure you up and they, you know, but other than that. Yeah, every shopping moment is forgettable. So. 

Bryce: [00:44:07] So this is just a case of a company that's been caught up in the broader growth stock tech sell off. And for Shopify, you know, for the likes of Spotify as well, these companies certainly don't seem worried. The fundamentals behind all of this is is still pretty fantastic. 

Alec: [00:44:27] Yeah, I saw this chart that put Amazon and Shopify side by side because Shopify saw growth, but it's just that Amazon and Amazon third party sellers saw more growth. And so you could make a case that they're falling behind in taking market share from Amazon. But I think, you know, the pie the e-commerce pie is growing so quickly as well. So yeah, there's a lot to like about Shopify, but I think in a similar vein to a lot of these growth stocks that we're talking about, an especially the one we're going to finish on next. Even the best companies can be too expensive, and there would be plenty of people that argued that the last year or two Shopify gotten very expensive. Yeah. And speaking of a great company that pumps serious numbers but arguably got too expensive, let's close this episode out with PayPal. 

Bryce: [00:45:23] Yeah, PayPal down 66 percent from all time highs. But let's let's take a listen to this clip that goes through some of the results because pretty amazing figures and you have to ask the question why is the market reacted the way it has? 

Paypal: [00:45:40] Let me turn the call over to Dan. Thanks. Gabriel. Thanks everyone for joining us today. I'm going to highlight our 2021 results, but I also want to spend time discussing the opportunities and challenges we face this year. 2021 was one of the strongest years in US history. Our revenues grew by 18 percent to twenty five point four billion dollars, and our non-GAAP eps grew 19 percent to $4 and 60 cents. We surpassed one trillion dollars in annual TPV for the first time in our history, ending the year with one point twenty five trillion dollars of total payment volume. We had a record 5.3 billion of transactions in Q4 alone, up 21 percent. We added 49 million net new active accounts to exit the year, with 426 million active accounts, including 34 million merchants in the last two years. We added 122 million net new active accounts, and despite that spike in new users, our transactions for active accounts grew to 45 this past year. The 11 percent increase and last but not least, we generated $5.4 billion in annual free cash flow. With all that said, 2021 was also a difficult year. It was a particularly hard year to forecast eBay's migration to manage payments been faster than we anticipated. Overall, eBay put one point four billion dollars of pressure on our top line, reducing our revenue growth by 700 basis points. Ex eBay for revenue growth was very strong, growing 29 percent on a spot basis for the full year and 22 percent in Q4. Exogenous factors also did impact our results. Supply chain issues disproportionately impacted our cross-border volumes and our small business merchants. Inflationary pressures impacted spending within certain segments of our user base. Rising threats from COVID variants could travel and event bookings and the elimination of government stimulus had an impact as well. E-commerce growth rates during the holiday season were lower than industry expectations, despite a strong two year growth rate of almost 50 percent. We are also lapping some of the strongest quarters of growth in our history. Even so, we once again grew our market share and came within our revenue guidance for the quarter. 

Alec: [00:49:02] So Bryce. PayPal grew revenue 18 percent. They did five point three billion transactions in the quarter. They added 49 million new active accounts, taking their total active accounts to 426 million. 

Bryce: [00:49:18] Yeah, yeah, I kept going, 

Alec: [00:49:19] but I don't have anything to to go. I just want to 

Bryce: [00:49:23] close that you can pose that. I do remember, though, that quite recently came out that like 30 odd million or something with fraudulent accounts or oh, really? Yeah. But anyway, something they always have to deal with. 

Alec: [00:49:35] Yeah, I mean, we can get into a whole thing. I reckon Facebook encourage bots on that platform because that helps them Typekit customer numbers, for sure. And they all try and get in our Facebook group and it's so annoying. But I think listening to that PayPal call, there are a couple of things. First of all, get better audio quality. 

Bryce: [00:49:54] Yes. 

Alec: [00:49:56] Second of all, you know, we talk about is this 2000 is. It's a similar story to what we saw in 2000, where those high growth tech names, internet stocks just collapsed and listening to those numbers $5.3 billion transactions in the quarter, 426 million accounts were serious revenue numbers and growing revenue numbers. You just a reminder that these businesses that we're talking about here, PayPal, Shopify met on Netflix, they're not the same as the businesses that fell off a cliff in 2000. 

Bryce: [00:50:34] They're real businesses.

Alec: [00:50:35] They are giant businesses that produce real money, and it's sure a lot of them may not be profitable. Some of the ones that we spoke about today are but like, there's money going through that, yeah, 

Bryce: [00:50:47] internet native businesses as well. They're not trying to just. Become something that they're not, yeah, yeah, so yeah, you're right. Look and look, this this this this is a great opportunity. That's why this is we like this, this sort of stuff. PayPal down sixty sixty six percent shop Shopify. Sixty three percent pelt Peloton will label on Netflix. Will Labour buying medical leave alone? Spotify, down 58 percent likes. There's some if you have a look under the hood and do your own research, but there's potentially some pretty good opportunities coming up. The question is where where are they on the grand scheme of falling? So look, yes, some interesting, exciting potential opportunities popping up with some of these big companies that don't seem worried focussed on the long term. You know, they're still pumping out amazing growth rates. Yeah, it's it's a it's a good time to be alive in the investing world.

Alec: [00:51:39] But I think whether or not they're good investing opportunities, an opportunity that we can 100 percent know for certain is that Quartr is the best opportunity to easily listen to the executives of these companies. I think, you know, that was just what we did six companies there, but that is literally just the smallest taste of the companies that are available there. So if you're trying to figure out how to navigate this potential generational buying moment, this opportunity where it seems like so many great names are at a discount. Listening to the companies themselves on the quartr up, you can also read their earnings like PowerPoint, presentations and stuff like that on the app. It is a great place to start. 

Bryce: [00:52:26] Conference calls, reports and they even do transcripts. So if you don't like listening, you like reading. And it's all for free. So it's pretty amazing worldwide. I'm listening to companies in Sweden. You're over in Africa. 

Alec: [00:52:42] Yeah. Jumia. 

Bryce: [00:52:44] Nice. Look, there's plenty to listen to on quarter. It's quarter dot com. You can download it on on Apple Store or Google Play, so make sure you do that. But we're going to be back next Monday with another breakdown of some companies that have been reporting will be pulling out some more conference calls and we're having a look. Doing a bit of a different take. Breaking down the supply chain of a particular industry. And seeing how companies at each point in the supply chain has been reporting differently.

Alec: [00:53:17] Yeah, you've heard enough of us talking about inflation and supply chain bottlenecks. So next episode, we're going to hear from companies CEOs talking about how inflation and bottlenecks are affecting their businesses. 

Bryce: [00:53:30] That's it. So Ren, it's always great to chat stocks. Thank you, too. Quartr. Check it out. Download it on your App Store now, and we'll pick it up next week.