Snapchat and Spotify are back, Bonza isn’t & Pimp my Portfolio returns

Bryce: [00:00:31] Welcome to another episode of Equity Mates, a podcast where we explore what's possible in the world of investing. If you've just joined us for the first time, a huge welcome. We have a massive episode today. We're going to start with the collapse of Bonza. We're then looking at some of the learnings coming out of the earnings season in the US and closing out with another Pimp My Portfolio with Adam Dawes. My name is Bryce. And to chat through it as always is my equity buddy, Ren. How are you? 

Alec: [00:00:55] I'm good. Bryce, very excited for this episode. To pull back the curtains on what's going on here at equity Mates. Very excited to see you again because you've been away for a while. Getting tanned in the Whitsundays. 

Bryce: [00:01:08] Getting. Yeah, getting. Lucky enough to spend a few nights up in the Whitsundays for my sister's 30th. 

Alec: [00:01:15] Few nights, it feels like it's been a month. 

Bryce: [00:01:17] No, six nights. 

Alec: [00:01:19] Happy 30th, Claire. 

Bryce: [00:01:20] Yes. Happy 30th, Claire. Spent lovely time with the family. Don't often get to spend, a good chunk being, obviously mum and dad are still in Wagga, so, it was lovely. I got to see the reef, Great Barrier Reef. 

Alec: [00:01:34] How's that going? 

Bryce: [00:01:36] That's what they say in the papers. There's a bit of bleaching. But look, overall, I really enjoyed the sourcing experience. Saw some great fish, and there was still some colour in parts. So, I think it's been on my bucket list. Something to do before. It was just completely annihilated. So, I got it done. 

Alec: [00:01:56] That's that's sad. 

Bryce: [00:01:57] I know. 

Alec: [00:01:58] Anyway, let's get into it because while we've been gone, plenty of news has been happening. Now, Bryce, you mentioned bonza are at the top. But before we get into that, probably the biggest news in financial markets at the moment is US interest rates. The Fed met last week and they have agreed they're not going to raise rates.

Bryce: [00:02:20] Holding rates steady. They do admit, though, that inflation is a little bit higher than they thought it would be at this point in time. 

Alec: [00:02:28] Yeah. It's like mixed news. So they said it's stubbornly high. It's not going down as fast as they want. They're going to hold rates steady. But Jerome Powell did come out and say he still thinks the next move is down. Just not as soon as he thought it would be. 

Bryce: [00:02:42] This guy's a political mastermind. 

Alec: [00:02:44] Do you reckon. 

Bryce: [00:02:46] All right I reckon. I think he's just saying the right things. He's, he's very, very calculated. 

Alec: [00:02:53] I think we need to, this is going to get me cancelled. But if they orchestrate a soft landing here. We need to give them some credit. 

Bryce: [00:03:01] This is. I think he already deserves credit. Yeah. I think he's done an incredible job. If you look at where they are, we know this last mile is very very difficult. I went pretty hard. Pretty early. 

Alec: [00:03:13] Yeah. Like he's done the right thing.

Bryce: [00:03:15] Absolutely. 

Alec: [00:03:16] Now it's important. The when I was reading about this this morning, the words from our JP Morgan Asset Management quarterly briefing were ringing in my ears, which was no one's going to cut before the US cuts, because if the US are holding or raising and other central banks are cutting, what that's going to do to that country's currency is just not really palatable. So JP Morgan Asset Management's view was no one cuts before the US cuts. And it just like Australians if they're right we should keep that in mind and temper our expectations accordingly. 

Bryce: [00:03:51] Well Ren, all eyes will be on the RBA tomorrow when they meet to discuss interest rates. 

Alec: [00:03:55] Yeah. So head over to Instagram. We'll certainly do something when the RBA announced. But the biggest business news story back here in Australia has been Bonza. The Australian airline has collapsed. 

Bryce: [00:04:11] Has collapsed. It's quite timely as well. When we flew into the pine, which is the local airport up there, it was packed with bonza planes and I'd never flown Bonza. And I even went searching for flights between the routes that we, you know, generally take Sydney and Melbourne, whatever. They don't do that route. I don't think so. 

Alec: [00:04:28] Yeah. They also, so a couple let's start at the beginning because even in what you just said that there's a couple of unique aspects of their business model that didn't quite work. So, operations started on the 31st of January, 2023. It folded at the end of April 2024. So it lasted 15 months. 

Bryce: [00:04:46] And this is a low cost airline? 

Alec: [00:04:47] Yes. Bonza Airlines, a low cost airline. 

Bryce: [00:04:50] For All Australia, that's their tagline. 

Alec: [00:04:55] But the two the two things that you just said, flagged. First of all, they weren't flying in and out of the major cities. They were trying to fly regional routes, underutilised and unserved routes between regional and domestic cities through a point to point network model similar to that of Ryanair in Europe. So that's the first aspect of the business that ultimately didn't work. Australia isn't Europe, and it turns out we'll get to Gold Coast isn't Manchester to Milan? 

Bryce: [00:05:26] Yeah, yeah. This is something is thinking about when it was on the news. It's just like they did not model this? 

Alec: [00:05:32] Well, I'm sure they did. I think the investors behind it. I read about them a while ago, and this is from memory, so it could be wrong, but I think they're like a Miami firm. But they backed a low cost airline who did something similar in Canada, and it actually kind of worked over there. So they thought they could pick it up and do it, at. 

Bryce: [00:05:51] Least put in Sydney to Melbourne. At least.

Alec: [00:05:56] As we share an Instagram. Maybe a week ago. Most valuable airline, right? Yeah. Sydney to Melbourne. 

Bryce: [00:06:02] Exactly. Maybe they didn't get the airport spots because we know the challenges. But yeah, the challenges that Qantas posed with Qantas, Jetstar, Virgin like that, it's ultra competitive but high cost. 

Alec: [00:06:14] High cost. 

Bryce: [00:06:14] Yeah. So they probably need to wait for Badgerys Creek to open here in Sydney. But too little too late. 

Alec: [00:06:20] Yeah. Now. So that's the first aspect, where they were serving. The second aspect is you weren't going to find their flights on any Google flights or Momondo or any flight matrix. No, no, no, you weren't because you had to download the app and search for flights directly. 

Bryce: [00:06:35] Yeah, it's just something I was saying when we landed and I said to Harriet, my wife, I said, I've never seen them pop out on a, on a flight, aggregator. It's because you had to download the app.

Alec: [00:06:45] Yeah, yeah, yeah. They, specifically, weren't aggregated. Like, that's what I'm telling you. Yeah. So that was part of their business model. So I downloaded the app. Well, because I actually thought they were flying to regional centres. I thought they were doing a rex. So it was like flying from Sydney to Parkes. And so, you know, if I was going to Forbes and I could fly to Parkes, but then I realised when I downloaded the app and searched, it was not. It was right. 

Bryce: [00:07:10] It's like Parkes to Wagga.

Alec: [00:07:11] Yeah, exactly.

Bryce: [00:07:11] Yeah, yeah. But that didn't go to Wagga. 

Alec: [00:07:13] Did they not go to Wagga?

Bryce: [00:07:14] No. I couldn't get to Wagga the other part of the model was highly concentrated on Queensland. Very like 12 or 13 stops in Queensland or something like that. And then missed pretty other significant regional areas in Australia. 

Alec: [00:07:29] I mean I'm sure their model that South East Queensland growth area. 

Bryce: [00:07:33] We'll get Sydney to get it done. Honestly. 

Alec: [00:07:35] Anyway, so this has just reminded me that airlines are a terrible business. And here's my big call: I will never invest in an airline in my life.

Bryce: [00:07:44] Oh Warren Buffett over here.

Alec: [00:07:47] No, Warren Buffett did invest in airlines. I pulled out a couple of Buffett quotes. So, about investing in airlines. This is from his 2007 letter. Indeed, if a far sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down. So that's Orville Wright, when he first flew. Yeah. And then another Buffett quote from another letter. Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results. It's been a death trap for investors. 

Bryce: [00:08:19] I think it's also a shame or potentially an indication of the, I don't know if competitiveness is the right word, but the fact that we can't get decent airline competition in Australia, I think is a bit of a problem as well. But, these airlines should be able to survive. 

Alec: [00:08:36] But well know that part of the reason is because it is the most difficult industry in the world because you're competing with government subsidised. It's an irrational industry. But Qantas even one of the best airlines in the world, Australia's darling, Australia's protected darling in the last 20 years. What do you reckon? Its share price is down. 

Bryce: [00:08:56] It's flat.

Alec: [00:08:56] No it's up 50% okay. Yeah I think you know it's paid maybe a dividend or two over that time, but not a heap of dividends from coming from Qantas. I would never invest in an airline. Hold me to that. 

Bryce: [00:09:07] Okay. Two. 

Alec: [00:09:08] Now, Bryce, the other big bucket of news that, you've been missing while you've been on your holiday is earnings season in the United States is in full swing. 

Bryce: [00:09:20] Full swing. We've got Q1 results coming out. So we're going to look at three key lessons. 

Alec: [00:09:25] Now. We haven't really had it in Australia because most companies report half yearly. We've had some quarterly results. But really the focus of this is what are we learning out of the US and learning number one, inflation has not gone away. I mean, not surprising given how we started this show talking about interest rates and all of that. But here's just some of the company highlights that sort of point to it. And I guess some of the contributing factors. So UPS, the delivery company called out rising gas prices. And they've bought back fuel surcharges for deliveries. And that oil price story is going to be an important one for inflation with ongoing conflict in the Middle East. But UPS called it out. PepsiCo reported that inflation is still all throughout their pipeline. Chipotle reported a wage increase and higher tech costs to support new restaurant software. The wage story is going to be an important story in Australia and in the US. Ford reported higher than expected costs in their EV division, meaning they lost more money than they thought they would in that space. They thought they were going to lose money. They lost more money. J.B. Hunt, now a company that isn't as well known but an important one for this story. A trucking company, had this to say about the economic backdrop. We continue to face inflationary cost pressures despite also facing deflationary pricing pressures. 

Bryce: [00:10:50] That's tough. That is very tough. So we'll have to keep an eye on this one. 

Alec: [00:10:55] It's just it's going to take time. I think this is the story. Learning number two. The smaller tech names are back.

Bryce: [00:11:05] How small? 

Alec: [00:11:07] They're still massive, but not the giant Magnificent Seven. These are the tech names that had a massive run up in 2021 and then got smashed in 2022 and 2023, and they were doing layoffs. Their share prices were falling 80 or 90%. People were wondering if there were going to be bankruptcies to their credit. There weren't a lot of bankruptcies. Also, to their credit, it seems like a lot of them doubled down on what worked and cut a lot of fat around things that didn't work. You know, the classic example for me is Spotify spent about $2 billion on podcasts. And they just said this is a losing bet. Cut that refocus on what works. So two examples that illustrate this. But it is a much broader trend in a lot of these names, honestly. Side note we're going to look back at like 2022 and kick ourselves for not buying more of like Shopify, Snapchat, Spotify, like all those smaller tech names, separate conversation. Maybe let's do a segment on that. The smaller tech names that we wish we'd bought two years ago. 

Bryce: [00:12:13] How depressing. I mean, even Tesla. Yeah, I saw something. Yeah, Netflix has doubled. More than doubled. 

Alec: [00:12:20] Okay. Anyway, two examples that I want to bring, from this reporting season. First of all, snap. Snapchat always outperforms. People always wonder who uses Snapchat anymore. Well, let me tell you who uses Snapchat. 422 million people daily. That is, their daily active users number up 10% from a year ago. 

Bryce: [00:12:43] Pretty phenomenal. This is one of those ones that I think always comes out in surprises, but their stock price hasn't done a lot since 2022.

Alec: [00:12:51] No, but if you look at it like the last six months has done well. 

Bryce: [00:12:53] Yeah. So what, so as every company in the S&P 500. 

Alec: [00:13:00] Not every company. 

Bryce: [00:13:01] Very close.

Alec: [00:13:05] Not Boeing. Not Tesla. Anyway, let me tell you more about snap. Quarterly revenue up 20% from a year ago up to just over $1 billion. Still not profitable, but some impressive numbers. Spotify was another one I mentioned earlier. How about these sets of numbers? Monthly active users, up 19% from a year ago to 615 million paid subscribers, up 14% to 239 million. Revenue up 20% and the highest ever quarterly profit. Spotify focussed on what works and they're doing well.

Bryce: [00:13:38] The story with a lot of these, and it'll continue to play out over the next couple of weeks, is these tech companies that have just laid off thousands and thousands of people. It's starting to pay dividends. Because their cost lines and now, so much reduced, so far reduced. Anyway. 

Alec: [00:13:56] Well, speaking of paying dividends, let me get to learning number three, which is AI may be expensive, but Google can still pay a dividend. 

Bryce: [00:14:04] The first dividend ever. 

Alec: [00:14:05] First dividend ever. So, all of the big tech players announced big increases in CapEx spending, like capital spending. And it's all because of AI. Meta. They flagged to $3 billion annualised increase in spending because of AI. So that'll get them to around $10 billion per quarter in costs. No, that's like total cost. Not just AI, but the increase in cost is driven by AI. Microsoft said capital expenditures jumped 79% from a year earlier to around 14 billion for the quarter. Alphabet, the owner of Google, said it spent $12 billion in the quarter just on capital expenditures, soaring 91% from a year earlier. So CapEx bills are rising because of AI, and that's because they need more computing power. They need more data centres. It's an expensive enterprise. But even with this increased AI spend one of the biggest headlines from this earnings season is that Google is paying its first dividend $0.20 a share. But don't worry, they also are doing a $70 billion stock buyback as well. 

Bryce: [00:15:15] It's crazy. These tech companies continue to amaze me. I read, recently that Microsoft are apparently exploring developing their own nuclear reactor. 

Alec: [00:15:24] Yeah, I know because of the energy required. 

Bryce: [00:15:27] Requires so much energy. Yeah, I think it's crazy. Now that's a capital expenditure. Imagine doing their budgets with that and being like, guys, we need to factor in a nuclear reactor. 

Alec: [00:15:39] Yeah. And honestly like that is. 

Bryce: [00:15:42] It is crazy. 

Alec: [00:15:43] If you think it's crazy. And then you stop and you say, well, these companies are bigger than most countries. Yeah, yeah. And they've got energy needs bigger than most countries. And then it's like, yeah, okay. Well now it's starting I guess to make sense that they just vertically integrate a lot of things in their supply chain when they think they can do it more efficiently. And I would, if I was, an American company looking at the US electricity grid and, you know, a lot of electricity grids are struggling with this transition to net zero. You'd probably say we might be able to do this more efficiently.

Bryce: [00:16:19] Definitely. Well, to put that into context, in 2019, Microsoft plans to open 100 data centres over the next decade. They are now building more than 100 every year and are increasing their number of data centres from 192 today to 800 in the next six, in the next four years. That is crazy. 

Alec: [00:16:42] So Microsoft, experimented with an under the undersea data centre. Because obviously one of the biggest challenges with data centres is keeping it cool. Because there's some it's just like so much computer, so many computers running, it gets hot. So the massive air conditioning bills, and so they were like, what if we put it under the water to keep it cool? And like the rate they were building data centres. We might need to start doing that. Yeah. Probably not good for the right.

Bryce: [00:17:08] We are in a crazy time. At the moment, these companies are just. 

Alec: [00:17:11] What about you know, what is freezing cold space. 

Bryce: [00:17:15] Yes.

Alec: [00:17:16] Space data centre. All right, before we go too deep down this road. Let's pause here. Let's take a break. We'll keep you up to date with what's happening in earnings season on the podcast, through our email and on Instagram. So make sure you're subscribed. All those links are in the show notes. We're going to take a quick break here. And on the other side, we're going to be joined by Adam Dawes for another edition of pimp my portfolio. 

Bryce: [00:17:47] It is time for. That's right. It is Pimp my portfolio. The time we bring in an expert in a community member to get their portfolio pimped. And it is our pleasure to welcome our expert to the studio, Adam Dawes. 

Adam: [00:18:02] It's great to be here, guys. 

Bryce: [00:18:03] And the equity mates community member, Richard. Richard, welcome to equity mates. 

Richard: [00:18:08] Hi guys. How are you guys doing? 

Bryce: [00:18:10] We're very excited for this one. So to kick things off, Ren, what does Richard's portfolio look like?

Alec: [00:18:16] Yeah. So it looks like we've got a portfolio of ETFs here. A number of Vanguard ETFs, the Aussie shares high yield Aussie shares diversified growth, diversified high growth that that fund is also held off market. The high growth index fund. the vanguard MSCI index International. And then finally an iShares ETF, S&P 500 ETF. So there's seven ETFs. And then there's one individual stock holding and that's ResMed which is just shy of 10% of the portfolio. So Dawesy, what do you think?

Adam: [00:18:52] Well look I think Richard, you've got a good portfolio here. But we're going to give it a name of A double up. I think yeah. Sort of doubling up on the, the ETFs that you've got in there. Did you just sort of choose these sort of at random or are you sort of there's some plan behind this. 

Richard: [00:19:11] It's like, so as I watch a lot like podcast and a lot of recommendation on YouTube. So that's why I'm, that's as I'm young as a tech risk. So that's why I set out to purchase some of the ETF and see how it goes. But right now as I go through my portfolio, yeah, I think it's kind of overlapping like some of them.

Adam: [00:19:31] So I think it's definitely overlapping and just taking the two. So I really like Vanguard as an ETF provider. They have very low MERS. MERS meaning management expense ratios. So they are some of the lowest in in the market. So you're doing very well by keeping with the Vanguard theme there. But then also then you've got, you know the Australian high shares yield as well as the Australian shares. Now both of those ETFs will have BHP, Commonwealth Bank, Woolworths and all of those. So you've sort of doubled up on those those two by buying two different ETFs. You're still doubling up on the individual stocks that are inside of that. So I think that's something that you need to look at. And then obviously the vanguard diversified growth and the high growth side of things. That's obviously, you know, you sort of you wanting to grow the portfolio. So I think that that's in the right space that looks good. But over then again you divert you with the diversified growth. You're doubling up again in in each individual sector. So you need to look at the portfolio and especially ETFs. You can go online and do ETF fact sheet. And you actually look at the fact sheet that the ETFs are Vanguard VIS. And look at the fact sheet. And it'll give you all of the holdings that you've got in there. And so what I'd recommend is that you print out or looking at on the screen of the different ETFs that you've got and seeing your double ups there, seeing how those weightings are going to be affected. And I think that's really, really important to start with really like ResMed. I think you'll do okay. I suspect your in profit on ResMed. Is that correct? Good. So keep that. So that's fine. And certainly the iShares S&P 500 you've probably would have done quite well on. How long have you held that one for. 

Richard: [00:21:13] I mean hold on. Probably around 4 or 5 months, right. 

Adam: [00:21:18] Okay. So you've made some money. That's been good. So that's that's been good for you. But I would definitely look at which one would you choose? I mean, I suspect that you're sort of quite young still. So the Vanguard Diversified High Growth Fund is probably better for you because you've got time for it to grow. But also, if we have a a bit of a blip in the market, you know, you've got time to make that back. And potentially, if you look into the high growth side of things, the Vanguard, which is the vVDHG, you look into that, it will then have sub sectors or asset allocation. So Ren, you we were talking about it before it got 30% Aussie. 

Alec: [00:21:55] Yeah. Yeah about 30% Aussie about then 40% global shares. Yeah. it's got a little allocation to small companies and emerging markets and then some fixed income as well. 

Adam: [00:22:07] So that makes sense to me. With a lower balance of a portfolio is to basically selling some of these other ones and just putting it into that high growth side of things that will give you more money in one ETF, and that'll allow the ETF to then to grow over time. And I think that's probably better than having these sort of different shares all doubling up and overlaying. And then we like it to be what's called the core versus satellite. You got to have the core portfolio, which could be the diversified high growth side of things, and then you can have some fun with some speculative or some stuff on the outside. If you're putting more money into the market on a regular basis.

Bryce: [00:22:45] Richard, you're at uni. You're right. You're very. You know, you said you're young. That's right. You're at uni. And. Are you just putting, a bit of money in each week or each fortnight? How are you approaching building the portfolio? 

Richard: [00:22:57] It is like, 50% of my income will go toward, ETF and fund. Fortnight and monthly is my, currently, investment right now, I got two accounts I got to broker, one is, CommSec. And second thing is the second is, Vanguard. So the vanguard would be fortnight. But CommSec is going to be like the monthly investment. 

Alec: [00:23:22] Nice, nice. I think, you know, Richard, it looks like you're doing a lot of things right. You know, like you're starting young. You're investing 50% of your income. Like, that's great. Yeah. And you're investing regularly fortnightly or monthly. So I think there's a lot of great things there with the personal finance habits. One thing that people often get tripped up on is they feel like they need a lot of different lines in their portfolio, and it makes sense because we always hear about needing diversification. But a great thing with these ETFs is that they are diversified themselves. So, you know, you don't feel like you need 6 or 7 ETFs to be diversified. If you get some of these ETFs, diversified enough. And, the one that Adam was talking about, VDHG, you've got global stocks, you've got diversification across asset classes. so yeah there's plenty of diversification built into that product. [00:24:20][57.3]

Bryce: [00:24:20] Yeah. And Adam, correct me if I'm wrong, but it's more beneficial more often than not to get a reasonable, you know, 5 to $10,000 position in VDHG, then multiple little $500 positions all over the place. [00:24:33][12.7]

Adam: [00:24:34] And then having that regular contribution strategy that you're doing, Richard, is that in when markets are up, you're continuing to contribute. And then when markets are down you continuing to contribute. So over the longer period you get a better portfolio with better cost basis going forward. So yeah you're doing it right. It's just that you've got these sort of mismatches of ETFs in there. And I think cleaning that up will do better for you in the long run. 

Bryce: [00:25:02] Love it. Well, Richard, I hope Adam's been able to provide some general advice there for you that will help you plan out the portfolio and put you in a better position. But as Ren said, I think there's so many things that you're doing right. We look at ourselves when we were in our 20s, we definitely weren't doing this. 

Bryce: [00:25:18] 50% of our income definitely goes into other things. So, so well done. And, I hope you got something out of today's session. 

Richard: [00:25:24] Yep. Definitely a good guy for me right now. Also watch a lot of ETF, a lot of YouTube videos because I don't know exactly what I should focus on right now? 

Bryce: [00:25:35] Well, I think, yeah. As Adam was saying, there's nothing wrong with focusing on one of them that's in your portfolio at the momentVDHG, but you're definitely on the right track. So, it's all there in front of you. 

Alec: [00:25:45] Yeah. All the best with that, Richard. Good luck. 

Richard: [00:25:47] Okay. Thank you for that. 

Bryce: [00:25:53] If you'd like to submit your portfolio, just like Richard did, then head to equitymates.com/contact and there'll be a section for Pimp My Portfolio. And if you'd like to sit down with Adam Dawes, head to equitymates.com/advice and tick the Adam Dawes box, and we'll make sure we connect him with you. But, Adam, as always, absolute pleasure. 

Adam: [00:26:11] Yeah. Thanks so much. It's great to be here, guys.