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EM Chat: US Earnings Season – Winners & Losers

HOSTS Alec Renehan & Bryce Leske|9 August, 2020

It’s that time of year again, where companies report their performance to their shareholders, and the market. Over in the US, companies report every quarter, so we’re seeing Quarter 2 results coming through at the moment, and the first indication of the impact of COVID-19 on revenue and profits. Australian companies report every half, and we’ve just started to see the FY20 full-year results come through.

In this episode we focus on some of the big US companies through the lens of a few key themes:

  • COVID-19
  • Retail
  • Big Tech

Some of the companies we review:

  • Netflix
  • Snap
  • Kroger
  • Albertsons
  • American Airlines
  • South West Airlines
  • Carnival Corp
  • Amazon

For more details and analysis on the Australian earnings season, head to FNArena, and use EQUITYMATES to get a 4-week free trial.


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Bryce: [00:01:28] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:42][14.1]

Alec: [00:01:42] I'm very good, Bryce. Very excited for this episode where we break down some of the recent earnings results we've seen overseas. Yes, it's a great time of the year for investors earnings season and there's always some surprises and there's always some interesting stories that come out of it, none more so than we've covered in the front of everyone's mind and really affecting the fortunes of some of these companies. [00:02:06][23.8]

Bryce: [00:02:07] There have been some big winners and some big losers in this reporting season. So we'll get stuck into all of that in a minute. [00:02:13][6.5]

Bryce: [00:03:55] Yeah, just as well. Another housekeeping. If you're not following us on Instagram, please go over and do so. We're using it as a sort of big tool to push a lot of our content and interesting stuff that we're finding during the week through the community. So just head over and follow us on Instagram at Equity Mates. [00:04:09][14.5]

Alec: [00:04:10] If you're interested in this episode, if you enjoy learning about some of the results that companies are reporting, if it helps you build a thesis for a company or knock down a thesis that you were building for a company and you want to keep track of some of the earnings results as they happen, will commit. Instagram's going to be well, we'll share some of the most interesting ones. Big commitment, [00:04:30][20.6]

Bryce: [00:04:31] but that's fine. That's fine. Right, Ren. Well, without further ado, let's jump into it. So reporting season is just about to kick into full swing here in Australia, but it is very much in full swing over in the States. If you've just joined us for the first time on the show. Welcome and welcome to the Equity Mates community. Fantastic to have you. If you're unsure what reporting season is, Ren is going to give you a quick rundown. [00:04:53][22.0]

Alec: [00:04:54] OK, so these public companies are obligated to tell the market, tell their shareholders how they're going in America. These companies report quarterly. So every quarter they release, you know, how much revenue they made, how much profit they made, and then, you know, other material impacts or other material metrics for their business. In Australia. It's generally done every half. And so we're at this sweet spot at the start of August where the American companies have reported the second quarter earnings and the Australian companies are just about to report their second half earnings. So we get firehose of information from companies right about now. And that's really reporting season. [00:05:41][47.2]

Bryce: [00:05:41] Yes. So the Aussies are actually reporting full year. [00:05:43][2.2]

Speaker 2: [00:05:44] Yes. Yeah, yes. [00:05:45][1.0]

Bryce: [00:05:46] Because we had run to a different financial year to the states. But yeah, anyway, full year coming in from F twenty one. F twenty. [00:05:52][6.7]

Speaker 2: [00:05:53] Yes, yeah. Yeah. [00:05:54][1.1]

Bryce: [00:05:55] So where do you want to start. Ren you want to start obviously with what's to come for Australia over the next couple of weeks in terms of some of the stocks we're looking forward to and then get into some thematic stuff. [00:06:06][10.9]

Alec: [00:06:06] Yeah, well this episode is out on the 10th of August and there were a few earnings, Australian companies that reported earnings last week. ResMed is obviously a very interesting one, given its relation to Covid, you know, making ventilator's and stuff like that. I saw that you made a note about Nick Scully, given that your. Really nesting at the moment, domesticating, settling down, eyeing off a two thousand dollar [00:06:32][26.4]

Speaker 2: [00:06:33] letter so far. Not sure. [00:06:34][1.3]

Alec: [00:06:36] So Bryce has highlighted that one, but retile retirement. [00:06:40][3.8]

Speaker 2: [00:06:40] That's all. [00:06:41][0.2]

Alec: [00:06:42] But there's a few companies that I'm interested in that are reporting in Australia this coming week. So I pulled out a couple on each day. And I guess that's the thing with the reporting season. Every day there will be an interesting company reporting, if not more than one. So today, Monday, a couple of real estate plays, GPT Group and shot a hole. So obviously everything's been thrown on its head with Covid and the property market. Different sectors of the property market have been affected differently. So those reports will be interesting. And their commentary around different sectors of their businesses today, for example, has big exposure to offices. So it'll be interesting to see what they say about that. Tuesday Shopping Centres Australasia is a company that, as the name suggests, holds a lot of shopping centres. So it will be interesting to see what they're saying about their business and what we can take from that around retail. Your favourite sector. Yes, Wednesday, a bit of a financial focus day, Commonwealth Bank reporting, and then Magellan Financial, the company that runs Magellan Global Fund and stuff like that. So it'll be interesting to see how they have performed during these Covid period Thursday. A couple of ASX market darlings, a couple that have done very well over the past few years, Treasury Wine Estates and Breville think Breville was one of your first stock picks with Julia Lee. Yes. And then Friday, another company that you have fallen in love with and are also looking at with your near term future plans in mind. Baby bunting is a holiday. [00:08:16][94.2]

Speaker 2: [00:08:17] No, no, no. [00:08:18][1.2]

Alec: [00:08:19] And then one other one that I was quite interested in, given we've had the co-founder on the show, Abelardo, and the co-founder Paul Wilson will be reporting their earnings on Friday alongside baby bunting. So a few names that I'll be looking for. I'm sure you've got some names as well. [00:08:37][18.3]

Bryce: [00:08:38] Yes, there are. And although I love the stocks that I am interested in coming in the following week, week, commencing 17th of August, there's a lot of companies reporting, obviously, A2 milk. You've got Sydney Airport, which I think will be interesting, JB Hi-Fi flights. And, you know, we're starting to get into a lot of the companies that are going to be impacted by Cochlear. Obviously, AAPT is going to [00:09:00][21.7]

Speaker 2: [00:09:00] be impacted by Lycos is having a rampant impact on the looked [00:09:08][8.1]

Bryce: [00:09:08] that another anyway? I think what I want to address here is where do we actually get this information from that people will want to know where we're actually finding this info. So where did you find information? [00:09:18][9.8]

Alec: [00:09:19] Don't you have a calendar that on the 1st of January every year, mark every earnings day? [00:09:24][5.1]

Bryce: [00:09:25] I wish I did that for quite good, but where do you go to find info on who's reporting? [00:09:29][4.1]

Alec: [00:09:30] So I just Google ASX earnings calendar and there's generally, you know, Morningstar or Yahoo! Finance or CommSec will generally be the first result. And they have a calendar where you can see what's coming up and you can search for companies as well. Yeah, there's plenty of people that track when companies are reporting. [00:09:48][17.7]

Alec: [00:10:10] So I really missed the memo that when I just said I Googled it. [00:10:12][2.5]

Bryce: [00:10:14] OK, so let's kick into some of the action that's happening overseas. A lot going on. And rather than just rate out, I guess you know how companies have performed. We want to talk about this from the point of view of some of the major themes that are occurring and impacting some of the results. So let's obviously start with the most obvious and most pressing, I guess. And that is covid. [00:10:35][21.2]

Alec: [00:10:36] Yes. Yes. And I guess the tag line that we've written down is overall the effect of the Covid shutdown is clear, but it's not as bad as expected. [00:10:46][10.2]

Speaker 2: [00:10:47] OK, yeah. [00:10:48][0.6]

Bryce: [00:10:48] OK, interesting. Do you think that that was the same will be here in Australia? [00:10:53][4.4]

Alec: [00:10:53] Probably. Probably. I mean, it's weird. Like the the US government's locked down and then on lock down and, you know, whatever the policy mix over there has been, it has been different to Australia, let's say that. But I imagine the broad trend will hold. The other thing to keep in mind is it's all about expectations in when companies report their earnings. And, you know, you can you can have a great result. You can get your profit can be up, your sales can be up. But if the market expected more of you, then your share price can still fall. And the flip side happened here, so. The actual results were not pretty average earnings per share of the S&P 500, so the 500 biggest U.S. stocks was down 36 percent. So basically a third, over a third of the US market's profits were wiped out in Q2 2019. Nineteen. But it's a good news story because the market expected 44 percent down. So it wasn't as bad as expected. And in fact, 83 percent of S&P 500 companies beat their earnings estimates, which is a record high apparently never before has. Eighty three percent or more of companies beat Wall Street expectations. So I think the real narrative that has come out of US earnings season so far is everyone expected it to be a bloodbath and it was just a blood puddle instead. [00:12:17][83.5]

Bryce: [00:12:18] I don't get this confused with everything's going well. Know companies are still absolutely in the lurch and getting hammered, but just not as bad as people originally thought. [00:12:29][11.5]

Bryce: [00:12:30] Yeah. [00:12:30][0.0]

Alec: [00:12:30] Yes. And so what you're saying then is that everyone has sort of readjusted their expectations upwards a little bit like it wasn't as bad as we expected. So they expect it to be a little bit better than expected going forward. That could be a fraught assumption, but I guess we'll have to wait until next earnings and probably a couple more earnings seasons to say. But where I want to stick with the Covid theme and the conversation we had around expectations is that expectations can really be a double edged sword. Yes. So the market as a whole breathed a sigh of relief because expectations were really low. And on the whole, the market or companies did a little bit better. But there are a few companies and we've pulled out, two in particular, that had big expectations going into this earnings season because covid was really meant to help them. Yeah, and those two companies are Netflix. Everyone's at home. Everyone's locked down yet. So the market was expecting big increases in subscriber numbers, revenue, all that stuff. And the other company is SNAP. Now, Bryce, you're an avid [00:13:36][65.6]

Bryce: [00:13:36] Snapchat Tik-tok don't tik-tok. [00:13:38][2.3]

Alec: [00:13:39] And they also had big expectations. So we'll start with Netflix and we'll get to Snapchat. Yeah. So Netflix for context, since the start of covid Lockdown's, their share price had risen 60 percent. So people were expecting good things from a company that thrives when you can't get up from your couch. And it reported pretty strong numbers. So it reported revenue of six point one dollars billion for the quarter, which was up 25 percent from the same quarter last year. And its profit or its earnings was seven hundred and twenty million dollars, which was up 166 percent from the same time last year. So on paper, that looks great, but the share price fell six, seven percent. And really, that's because the expectations were so high and the market expected more good news to come. They expected Netflix to say that as the lockdown's around the world continue, subscriber numbers are continuing to grow. But they sort of reported that that wasn't the case and it was actually slowing. And so despite some really strong actual numbers, the company's share price fell after they reported. So it's all an expectations game. [00:14:47][67.8]

Bryce: [00:14:48] So annoying you'd be spewing as a company CEO. [00:14:51][3.3]

Bryce: [00:14:52] Yeah, yeah, yeah. I mean, you Hot [00:14:54][2.0]

Bryce: [00:14:54] Shots in Wall Street setting expectations you just like. No. [00:14:57][2.8]

Alec: [00:14:57] Well, I mean, and that's that's there's a whole expectations game that CEOs and CFO play. Where how high do you set expectations? Do you want to set the bar low and keep beating expectations or do you want to set it high and made it? What you don't want to do is set it too high and not made it. But there's a whole art and science to earnings estimates and expectation setting. The other company, SNAP SNAP is a it's an interesting company [00:15:22][24.4]

Bryce: [00:15:22] play forgotten about snap out of it. It's like they had this big fanfare IPO that was meant to be amazing. Then they tried to move into becoming a, you know, photography tech company. Yeah. [00:15:31][9.5]

Bryce: [00:15:32] Ditmars cameras. Yeah, yeah, yeah, yeah. [00:15:35][2.8]

Bryce: [00:15:35] So they're still kicking around. We're still [00:15:36][1.3]

Alec: [00:15:36] kicking around. So their share price more than doubled since the start of the pandemic. So a lot of expectation there. And their results were pretty good. Their revenue was four hundred and fifty four million, which was up seventeen percent for [00:15:49][12.8]

Bryce: [00:15:50] the quarter for the quarter. [00:15:50][0.8]

Alec: [00:15:51] They still lost money. I don't think they've ever turned a profit. And they're what are [00:15:55][4.0]

Bryce: [00:15:55] they losing money? [00:15:55][0.5]

Alec: [00:15:56] They they made a bigger loss than they did last year. So they lost twenty eight percent more money this quarter than the same quarter last year. So not great from them. And then their share price also fell because the boost in numbers in users it had seen during Covid Tik-tok then dissipated faster than we expected. So Snapchat again, big expectations share price more than doubled and it really fell away. Sorry. [00:16:23][27.0]

Bryce: [00:16:24] Well, I mean. Yeah, too interesting. Examples of what it means when you don't beat expectations Ren. But there have obviously been a couple of winners from covid, particularly in the retail space. [00:16:36][12.4]

Bryce: [00:16:37] Your favourite my [00:16:37][0.7]

Bryce: [00:16:38] favourite space food, retail, even more so. Do you want to give us a run through of some companies that have smashed expectations and put out some almost unbelievable quarterly figures? [00:16:50][12.3]

Bryce: [00:16:51] Yes, yes. We had [00:16:52][1.6]

Bryce: [00:16:53] to do we had to cross-check our numbers here because [00:16:54][1.8]

Bryce: [00:16:55] certainly some of these numbers is so ridiculous. [00:16:57][1.7]

Alec: [00:16:57] Now, the a lot of the big food retailers in the US, the ones that first come to mind, haven't reported yet. So Wal-Mart is reporting on the 18th of August, Costco on the 24th of September. [00:17:08][10.4]

Bryce: [00:17:09] That's going to be interesting. [00:17:09][0.4]

Alec: [00:17:10] Yeah. Target on the 19th of August, Dollar Tree, which is like a big discount store. I'm not sure how strong in food they are, but discount retail. Twenty seventh of August. So they're always going to be ones to watch, but two that have reported Kroger and Albertsons, which are two of the biggest pure supermarkets rather than, you know, the Wal-Mart, which is sort of everything department stores. So Albertsons and Kroger both reported and you can see the effect of panic buying in their numbers. So if we start with Kroger, which is the biggest, their revenue was up thirteen point five percent for the quarter and their profit was up 47 percent for the quarter. [00:17:48][37.9]

Bryce: [00:17:48] So so it's really a three month period here, just McClair Quarter Quarterly. [00:17:52][3.5]

Alec: [00:17:52] Yeah, but the crazy thing for them, so same store sales were up 19 percent, which as a as a retail guru like yourself would know, is unbelievable. Yeah. And their digital sales, so their online sales up 92 percent for the quarter. So you can just say in those numbers that volumes were so much higher and that people were shopping online so much more. So panic buying really helped them. But then we get to the company that blew us away and we had to double check the numbers Albertsons company I sort of knew about but didn't really know much about the second largest supermarket in the US, probably what, double the size of Woollies in terms of 2500 stores. [00:18:37][44.2]

Bryce: [00:18:37] Yes. Or two and a half times the size of Woollies in terms of total number of shops. [00:18:40][3.6]

Alec: [00:18:41] So their revenue was up twenty one percent and their profit and this number was the one that we had to double check. Their profit was up over a thousand percent for the quarter. And we haven't dug too deep into what drove that covid. [00:18:57][16.0]

Bryce: [00:18:58] Yeah, but revenue up [00:19:00][1.5]

Alec: [00:19:00] twenty one percent, profit up 1000 percent. That's some nice margin. [00:19:04][4.0]

Bryce: [00:19:04] Increase their margins. But yeah, the [00:19:07][2.3]

Alec: [00:19:08] the company's net income was 596 million for the quarter compared to net income of forty nine million for the same quarter last year. Yeah. [00:19:16][8.3]

Bryce: [00:19:16] We, I mean if you if you look at Kroger, their profit up 47 percent and then Albertsons. So Kroger in terms of store size relative to Albertsons is not actually that much bigger. They have 2900 stores, Kroger and Albertsons 2005. So not too dissimilar yet. The numbers are just outstandingly. [00:19:36][19.8]

Alec: [00:19:37] Yeah, maybe they were just ruthless capitalist and just marked up, [00:19:40][3.3]

Bryce: [00:19:40] just passing out on pricing. [00:19:42][1.2]

Bryce: [00:19:44] Nice one, Ren. Well, you mentioned some of the other retailers that are reporting very much, looking forward to seeing what happens with them, equally excited to see what happens to some of these Australian retailers over the next few weeks. But you've also pulled out here that Bank of America has actually put buyer ratings on a number of these retailers. Do you just want to give a bit of a synopsis on what that actually means? [00:20:05][21.2]

Alec: [00:20:05] Well, I mean, so investment banks put out analyst reports. We buy hold, sell recommendations. [00:20:11][5.9]

Bryce: [00:20:13] They never mean anything. [00:20:13][0.7]

Bryce: [00:20:14] Yeah, yeah, yeah. [00:20:15][1.0]

Alec: [00:20:15] They always make for good headlines in financial media. Yeah. But yeah, I think if you look at what happened during covid and then if you look at some of the results that you've seen from the retailers that have reported, it's probably not a stretch to put a buy recommendation on some of the ones that are still going to report. [00:20:31][16.0]

Alec: [00:21:05] So we went out to the Equity Mates community to test that thesis and ask them questions on how they think about their super. [00:21:11][6.1]

Bryce: [00:22:26] So continuing with the Covid theme, it's obviously had a significant impact on some sectors and industries within the economy, none more so than travel. Now, we've gone and pulled some numbers from some of the big transport providers in America, particularly, obviously airlines, and how to look at some of the cruise ship companies as well. And Ren, let me tell you, it's not a good time to [00:22:55][28.7]

Alec: [00:22:55] be a good time. There is a lot of interest in, you know, the Equity Mates Facebook group and other Facebook groups about airlines. And I understand that I personally haven't put any money into the airlines. And I don't think I'm going to because depending on how long these shutdowns lost, we'll get into the cash burn metric, which is a really important one. We'll explain it. But they may be have to be going hat in hand to the government at some point if they shutdowns continue for another couple of quarters. So I guess we start with the airlines. So there are four big airlines in America, American Airlines, United, Delta and Southwest. And so to give you an idea of how much their revenue has fallen, respectively, American Airlines down 86 per cent from the same time last year, united down 87 percent from the same time last year. Delta down 90 percent from the same time last year and Southwest down 83 per cent from the same time last year. So their revenue has just fallen off a cliff. Makes sense. No one's really flying. But what that means is that they've all made a loss for the quarter. So none of them were profitable for obvious reasons. But then it introduces this idea of cash burn rate because running an airline is an expensive business. [00:24:13][78.3]

Bryce: [00:24:14] Yes. [00:24:14][0.0]

Alec: [00:24:15] And you're not bringing any money in the door. It means that you're burning cash that you have in your balance sheet to pay your expenses. And so the four airlines reported a daily cash burn metric, which was basically how much cash they're spending a day to cover their expenses, that they're not recovering in revenue daily. Keep that in mind daily. So the numbers are American Airlines, 55 million a day. That's United 40 million a day, Delta 43 million a day, and Southwest twenty three million a day. [00:24:50][35.3]

Bryce: [00:24:52] Which is just nuts, if you think about it, and this really comes down to, you know, you need to dig deep in and look at these companies, it will eventually get to a point where either they have to reach out to the government for support. They'll have to reach out to their shareholders and do another raise to get some money to cover their cash flow. Or there's a high likelihood that some of them might go bankrupt and go insolvent and get snapped up by a competitor or whatever it may be, just because they don't have the cash to continue running their day to day business. To put those numbers into perspective, Ren Qantas also have a cash burn. Theirs is 40 million a week, though. [00:25:27][35.0]

Alec: [00:25:27] Yeah, right. [00:25:28][0.4]

Bryce: [00:25:28] So nowhere near as, I guess, intensive as some of these big American Airlines. But but still, they've they've said that at that rate they have enough to last until December 2021, not flying from that point onwards. If they can't get any more revenue in the door, they're going to be in serious trouble. [00:25:47][18.8]

Alec: [00:25:47] Yeah. Yeah. And so the a lot of these companies, and I'm sure Qantas has done the same thing, have sure shored up their balance sheets. Um, you know, there was when debt markets were really petrified in the beginning of Covid, it was difficult to raise capital that way. But given, you know, unprecedented liquidity from the Fed, returning confidence in the market, a lot of these companies have been able to shore up their balance sheets. So if you if you do hold these companies or you're building a thesis around one of those companies, go to their quarterly reports, go to the transcripts of their investor calls and read about what their balance sheet situation is and how much run rate they have based on their current cash burn. And they all provide commentary on that. They will provide commentary on where they expect their cash burn to move. You know, they're constantly, you know, moving things around, potentially rearranging the deck chairs on the Titanic or getting things in order to survive this period. So, yeah, if you're building a thesis around it, there's plenty of commentary on that because it is going to be the most important thing. [00:26:54][67.0]

Bryce: [00:26:55] A lot of the stock prices have obviously followed this a similar direction. I'm just looking at American Airlines at the moment, down 56 percent from its peak in February. So, look, they're providing a lot of, I guess, opportunities for some investors to get in on some of these stocks, drastically reduce prices Ren, you know, and you follow the whole buy when others are fearful sort of theme from Buffett and look for these opportunities. But what would be required for you to actually consider buying into airlines again? [00:27:22][27.8]

Alec: [00:27:23] Well, I never have owned an airline, so. [00:27:25][1.4]

Bryce: [00:27:25] But but I mean, you said at the start of this that, you know, a lot of people are interested in buying shares, but we both agree at this stage, it still doesn't seem like the right thing to be doing. Yeah. Is it a vaccine that you'd be looking as a trigger point or a catalyst or do you think there these guys are always going to be in trouble? [00:27:43][18.4]

Alec: [00:27:44] Three things come to mind. One is general economic opening. And so that would be, you know, a vaccine or Trump actually just saying we're going doing it. We're just opening up what we're hoping for, herd immunity and just get on a plane and leave [00:27:59][14.4]

Bryce: [00:27:59] your life somewhere [00:27:59][0.4]

Alec: [00:28:00] so that that would be one. But the important thing there is you got to look at government policy, but then you've also got to think about, like, how people are actually going to respond to what other state governments in America are going to step in. But that would be one, a general opening up and sort of the path to returning to normal. Number two would be a government bailout. If the government decides that these airlines are too big to fail and is going to guarantee their solvency and going to basically protect them, then you downside risk very quickly goes away. So that would be the second thing. The third thing, I guess, would be a relative bet if one of these airlines got their house in order or found some way to, you know, rip the seats out and sublet their planes to DHL and FedEx and Amazon er or something like some way to bring that burden right back into London, ideally, or at least far lower than their competitors, you'd potentially make the bet that the likelihood of them surviving is a lot higher than their competitors. And if one of their competitors goes under, they're going to be in the best position to take market share from that competitor. So potentially there's an investment thesis you can build around that. So for me, those would be the three things that I'd be looking at. But again, there's so much uncertainty in the airline industry and there's no guarantee that the market share that these American Airlines are in, they will continue to own. I mean, there's a bunch of government backed airlines around the world. Can they take market share? I don't know. But, yeah, it's it's not a great time to be an airline executive. I'd have to say. [00:29:39][99.5]

Bryce: [00:29:40] Well, what about an executive of a cruise [00:29:43][2.8]

Bryce: [00:29:43] company, Ren? [00:29:44][0.5]

Bryce: [00:29:45] So equally there, the cruise industry has sunk pun intended. [00:29:49][5.0]

Bryce: [00:29:51] Do you think that one Ren not that can you tell from my reaction, I was expecting more than that, but that's OK. [00:29:57][6.0]

Bryce: [00:29:59] Carnival Corp. and Norwegian Cruise, both to big cruise ship operators, have taken some serious hit. How do you want to run us through the numbers there? [00:30:08][9.0]

Alec: [00:30:08] And yes, these companies are both US listed, the revenue for Carnival Corp. down 85 percent, and then revenue from Norwegian Cruise down 99 percent. I mean, [00:30:22][14.0]

Bryce: [00:30:22] God, [00:30:22][0.0]

Bryce: [00:30:23] yeah, it's really honestly 99 [00:30:26][2.8]

Bryce: [00:30:27] percent. [00:30:27][0.0]

Alec: [00:30:27] So Carnival still pulling 700 million in the quarter. I just want to know where they're getting that money from. [00:30:33][5.6]

Bryce: [00:30:34] Still sailing, aren't they? Are they? Yeah, I'm pretty sure they've got boats on the water and people are getting on cruise ships in Sydney Harbour. Really? Yeah, well, maybe not in Sydney. Look, that's not [00:30:43][9.4]

Bryce: [00:30:43] that's not that's not a fact. Yes, that is. [00:30:47][3.4]

Bryce: [00:30:47] But you can book cruises because I say all these things being like super cheap cruises, blah, blah, blah. [00:30:51][3.9]

Alec: [00:30:52] Yeah. Yeah. So both of these companies reported rather than daily cash burn, they both reported monthly cash burns. But similar concept, similar problem that they're facing. Carnival is burning 650 million a month and Norwegian smaller company is burning one hundred and sixty million a month. So same thing. Again, the fundamentals of the business, depending on how long this lockdown goes for, aren't there? Their costs are too high to sustain this for, you know, a prolonged period of time. Now, similarly to the airlines, they've all shored up their balance sheets and they've provided a fair bit of commentary around how much runway they've got. They've all got billions of dollars worth of debt facilities and stuff like that. So they've all got some time on their side. But at the same time, you come out the other end and you just crippled from a balance sheet perspective. Doesn't paint a rosy picture. [00:31:47][55.2]

Bryce: [00:31:47] No. So Ren, I should fact check what I just said. You can't be buying tickets for a cruise. Doesn't look like at least through Carnival here in Australia any sooner than December this year. So maybe it's earnings for next year because there's a lot of cruises that you can buy for next year should things peter out. [00:32:06][18.4]

Alec: [00:32:06] Yeah, right. And you're a notorious cruiser. [00:32:08][1.7]

Bryce: [00:32:09] So really nice one cruise, you know, so [00:32:12][3.3]

Alec: [00:32:13] I would imagine your pre-booking a few holidays, those cheap Bryce. [00:32:16][3.6]

Bryce: [00:32:17] Well, yeah, rent out my place in Sydney and then and then jump on a cruise ship. Not bad. So we have Covid of the Covid impacts with Covid of food, retail, Netflix and SNAP Ren, let's move into the trend from bricks and mortars to online in the retail space. [00:32:35][18.0]

Alec: [00:32:36] Yeah. Now you love retail, as we keep saying, the retail whisperer, as you've been asking me to call you and [00:32:41][5.6]

Bryce: [00:32:42] I have known or known as the retail whisperer. I actually heard that given [00:32:47][4.9]

Alec: [00:32:48] your success with retail stocks and picking winners Afterpay Baby Bunting, Breville City [00:32:55][7.4]

Bryce: [00:32:55] SHAC. I actually saw [00:32:57][1.5]

Alec: [00:32:57] in our joint email account that a few retail CEOs have reached out to you and asked us to continue to be on the board. [00:33:05][7.2]

Bryce: [00:33:06] If you confirm that, [00:33:07][0.9]

Bryce: [00:33:07] cannot confirm or deny [00:33:09][1.0]

Bryce: [00:33:09] that. Right. Okay. Are you are you actively information? [00:33:11][2.4]

Alec: [00:33:12] Are you actively taking requests for you to sit on the board of retail or retail? As I said, it's stocks. [00:33:17][5.5]

Bryce: [00:33:18] Again, I'll take that as a comment. [00:33:20][1.6]

Bryce: [00:33:21] And really, you're playing it coy. [00:33:22][1.7]

Bryce: [00:33:25] Yeah, look. So, anyway, we'll move away from the retail Vistara and look at back of what's happening overseas. Well, let's start with Amazon. Some pretty phenomenal quarterly numbers coming out of Amazon. Yeah. [00:33:38][13.7]

Alec: [00:33:39] So revenue up 40 percent from the same time last year to eighty nine billion and nine billion. So their profit doubled up 100 percent from the same time last year to 5.2 billion. Now, you got to remember with Amazon that it's a retailer with a very profitable cloud business and a few other businesses tacked on to the side. But the bulk of its revenue is still coming from online sales and it is growing. [00:34:05][26.9]

Bryce: [00:34:07] Absolutely. It's it's just kicking goals. So investors will be pleased to see the profit number going up for a very, very long time there. They weren't even making a profit. Bezos has had the view that reinvest a lot of the money back into the business, long term growth. That's sort of been his plan. But obviously now kicking in, it's important. [00:34:28][21.4]

Alec: [00:34:29] You always take you still take Amazon's profit with a grain of salt, especially the movement quarter to quarter. Because you're right, their whole strategy is long term value creation. And that profit number moves around quarter to quarter. It's not you don't you wouldn't expect like a steady hockey stick up like like you say with our revenue if you tried it out. And that's that's their philosophy. That's the investor mindset that they've cultivated with their investors. And there's no reason to suggest that anything will change there. But, yeah, 100 percent not bad. [00:35:02][33.1]

Bryce: [00:35:03] Now, the next one, I want to pump your tires a little bit Ren. You've been you've had your eye on this stock for a while, and I'm pretty sure you bought into it recently. And kudos to you because they've had an incredible reporting quarter to and that stock is Shopify. What's your thesis and what happened? [00:35:19][16.7]

Alec: [00:35:20] Yeah, so we one of our first afternoon beer discussion YouTube series, we talked about the online retail landscape and the battle between Amazon and Shopify and the two different models of online retail that they represent. Amazon is a centralised marketplace where it has it sells its own stuff, but it also tries to aggregate as many third party sellers onto its marketplace. It wants to be the marketplace for online retail Shopify. This model is different. Shopify is model is to create the infrastructure to make it easy for online businesses to build their own shop, to create their own marketplace on their own website. And these two different models of online retail clearly are both doing very well because we talked about Amazon's numbers. They're going up. Shopify is numbers also very strong, albeit from a much lower base. Revenue up 97 percent compared to the same quarter last year, and its earnings with negative last year. But they made a profit this quarter of thirty six dollars million. So I think the broader story that we're seeing play out with both of these sets of results is that the shift to online retail is still alive and well and is accelerating through these Covid period, which isn't a revelation, like people are aware of that from their own habits and plenty of media about it. But you can just say that Amazon and Shopify have different models of how online retail should work, and you can have a thesis on where it's going to go. But really what we're saying is there's plenty of pie to go around. [00:37:01][100.9]

Bryce: [00:37:01] I'd say it's an interesting broader point around having a digital footprint. You know, talking to a lot of the fund managers that we're getting here to interview and the companies that they're all going after are the ones that are either transitioning to a digital world from your traditional sort of bricks and mortar or old school way of doing businesses and the and those businesses that aren't quite. A of doing that at this stage of the ones that are getting absolutely burnt, so I think it from my point of view Ren it's something that I look for when I investing in any stock is it's obviously not a tech stock, but what is its digital footprint and what is its strategy to kind of build its presence and operating, I guess, rhythm online. [00:37:40][39.1]

Alec: [00:37:41] The thing with Amazon, obviously those there's been a lot of criticism that they rip off third party sellers. And The Wall Street Journal had a big exposé that we included in, for starters, our mailing list. God, we're getting a lot of plugs in here. That's great. But, you know, you could say you could say that. And also, the thing is, if you're a third party seller on Amazon trying to win that search term for whatever product is selling is a brutal fight. Arguably, the buy it now button on Amazon is the most valuable real estate on the Internet, and it's tough to compete in there. And so I think we're seeing a lot of businesses through these Covid period move online but want to, you know, be in control of their own destiny and don't want to be beholden to the rules and the algorithms of the Amazon search function and marketplace. [00:38:26][45.2]

Bryce: [00:38:27] Break them up. [00:38:27][0.4]

Alec: [00:38:28] We'll break them up or just build it yourself with Shopify. And so, yeah, I find this dynamic fascinating. Obviously, I look to you as the retail whisperer [00:38:40][11.7]

Bryce: [00:38:40] for guidance and I think [00:38:43][2.6]

Bryce: [00:38:43] between us got some good retail sort of stocks in there. But anyway, let's close this chat out. Ren reporting season, nothing more interesting than obviously the big tech. [00:38:51][8.7]

Alec: [00:38:52] Yeah. Can't talk about American stocks without talking about Apple, Alphabet, Microsoft, Facebook, the tech names that dominate our minds, dominate the media and dominate the market. [00:39:03][11.4]

Bryce: [00:39:04] Yes, they're now part of Australia now day and night. [00:39:06][2.4]

Bryce: [00:39:07] So they have been [00:39:08][0.8]

Bryce: [00:39:08] going through some, I guess recently, weren't they, in Congress or getting grilled by the US senators? And, you know, if you were lucky enough to watch the riveting conversation that that was, obviously all the CEOs are out there just talking absolute smack. In my opinion. They're not really getting grilled. But anyway, in [00:39:27][18.5]

Alec: [00:39:27] defence of the House committee that grilled them, if you look back at like the start of the Trump presidency and some of the testimony and the questions that were asked, compared to now it's clear that those congresspeople have staffed up and built some technology because the questions are a little bit more robust than they were back [00:39:44][17.3]

Bryce: [00:39:44] in the day. Still some ones [00:39:46][1.2]

Alec: [00:39:46] that you scratch your head over, but they're obviously boning up on their tech. Know how. [00:39:51][5.5]

Bryce: [00:39:52] Yeah, so there's that. There was also a moment there where people were questioning Facebook's model, given that there was a slowdown in advertising. [00:39:58][6.1]

Alec: [00:39:59] Yeah, Alphabeat as well. [00:39:59][0.9]

Bryce: [00:40:00] And Alphabeat. And obviously these businesses solely will not solely but heavily, heavily rely on advertising revenue coming in. But given all those circumstances, you still look at the performance of the last quarter and they're still pumping out some pretty decent numbers. [00:40:15][15.5]

Alec: [00:40:16] Yeah, so comparing half one. So not quarter, but two quarters put together. So half one. Twenty, twenty. So it really January to the end of June compared to half one last year, the five big tech companies all saw profit increase despite the Covid slowdown. So Amazon's revenue was up 34 percent, Apple's revenue was up six percent, Alphabet's revenue was up six percent, Microsoft's revenue was up 14 percent, and Facebook's revenue was also up 14 percent. So you can just say that despite, you know, obviously it was a headwind in some senses, but a tailwind because people were online more with covid. But despite the disruption that was Covid, these tech companies just keep growing. [00:41:01][45.8]

Bryce: [00:41:02] Yeah, Ren. Speaking of growth, you know, we've just gone through the fastest market crash and recovery in history. We're facing an economic climate that is similar to sort of Great Depression statistics in some instances, depending on what you're looking at. Even worse yet, we are on the brink of seeing a two trillion dollar company. [00:41:21][19.1]

Bryce: [00:41:22] And that was [00:41:24][2.1]

Bryce: [00:41:24] your one of your bold predictions for 2020. Was that where you would say a two trillion dollar company? I think at the start of the year, though, most a couple of them were in the one trillion. Just just and it's phenomenal to think that Apple sitting at one point nine trillion, has almost doubled its market cap in the last sort of seven months or so, which is just phenomenal growth, [00:41:44][20.1]

Alec: [00:41:45] one point nine trillion. US is more than two [00:41:47][2.7]

Bryce: [00:41:48] trillion as it is. But I think, you know, yes, you're right. But I like the spirit [00:41:53][5.2]

Alec: [00:41:53] of the bet was two trillion local content and [00:41:56][3.2]

Bryce: [00:41:57] it's probably going to hit it this week. [00:41:58][1.0]

Bryce: [00:41:59] If things go the way [00:42:00][1.1]

Bryce: [00:42:01] they have been. We're going to we might be lucky enough to see the first two trillion dollar publicly listed companies. So, look, phenomenal growth from these big tech companies and they're just eating everyone that's in their path. So look, go along well. [00:42:15][14.7]

Bryce: [00:42:16] Well, go. No, no, no specific recommendation. But personally, recently, we. [00:42:22][5.8]

Bryce: [00:42:23] Long nights, Ren, so that closes out the chatter around reporting season, as you mentioned, this week is the start of some of the, I guess, Juca companies here in Australia, and that's going to continue for the next three weeks or so. We'll try and keep you updated. As we said through Instagram, [00:42:39][16.4]

Alec: [00:42:40] we're going to be pumping the content through Instagram. [00:42:42][2.3]

Bryce: [00:42:43] Yes, pumping content through Instagram. Next week, we'll come back and hopefully or maybe the week after and review some of the reports from the Aussie companies and maybe follow the same sort of theme retail and what's going on and see what happens. [00:42:56][12.8]

Alec: [00:42:56] And you know what this sets us up perfectly for. Yes, we've got our hypothetical portfolio. Yes, we've done the basics of building the core ETF portfolio. Yeah. And now we get to go to the fun stuff, the satellite portfolio. Yes. And this earnings season, there will be plenty to talk about, plenty of places to build on or, you know, start working on. So I think we've timed it. Well, I think coming out of this reporting season, both in the US, Australia will obviously have a little look in Europe. It's not markets that we've looked at much, but there's plenty of interesting companies there as well. So we'll start pulling out some names and putting some hypothetical money down. [00:43:37][40.6]

Bryce: [00:43:37] Given that we've committed to liquidating the portfolio, I'd hate for Afterpay to beat expectations because [00:43:43][5.6]

Bryce: [00:43:43] that thing's going to go through the roof. Well, let's put it this way. [00:43:45][2.6]

Alec: [00:43:46] There's no way that Afterpay could beat your expectation given the sky [00:43:51][4.6]

Bryce: [00:43:51] high Dollars stock and it's not there yet. So I think it's a market cap. [00:43:57][5.7]

Bryce: [00:43:58] Nice one, Ren. We'll look. We'll leave it there. As I said, if you are interested in getting more info on reporting season, have a Google or had to find Arena. They've been kind enough to open up the platform to you guys for four weeks, if you want to check it out, Equity Mates as the referral code. But look, Ren, we'll leave it there. Exciting times for all investors reporting season and we'll catch up next week. [00:44:18][19.7]

Alec: [00:44:18] We'll actually catch up tomorrow. Live streamed and we hope to catch up with everyone listening. Yes. [00:44:25][7.4]

Speaker 4: [00:44:27] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything here in Equity Mates investment podcast with general advice on link content has been prepared without knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment Podcast may maintain positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:44:27][0.0]

[2246.3]

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Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

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