What Company Earnings Are Telling Us About Today’s Economy

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0:58That's 20 % off your first purchase with code investing at liquidiv.com. The other night I'm online shopping for Brenner Inc. Yes, I still use a Brenner, I know. And I'm getting ready to check out when I suddenly realize, yet again, I cannot remember my stupid password. But that's when I noticed they've recently added at the top of the screen that purple shop pay button. One click and my name, done. Address, done. Card info, done. Done. Check out. Done. Honestly, it's one of the best things in online shopping right now. That button is Shopify. And if you're running an online business or thinking of starting one, Shopify makes the transaction just as easy on your side.

1:36They give you inventory tracking, payment processing, analytics, marketing, and much, much more all in one place. No jumping between platforms, no chaos. And if you get stuck, they have 24-hour support that genuinely is the best. See, less carts go abandoned and more sales go with Shopify and their ShopPay button. Sign up for your$1 per month trial at Shopify.com slash beginners. Go to Shopify.com slash beginners. That's Shopify.com slash beginners. Is that, what did we say a few months ago that Netflix needs to find their next Stranger Things? That could be it. yeah well it certainly is it's super popular i think i read somewhere that it was it was the one of the top streaming shows they've ever had and so it'll be interesting to see how the the stranger things uh i guess finale that starts you know around december time that'd be interesting to see i love this podcast because it crushes your dreams of getting rich quick.

2:42They actually got me into reading stats for anything. You're tuned in to the Investing for Beginners podcast. Led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. All right, folks, welcome to Investing for Beginners podcast. Today, Andrew and I are going to take a stroll through the economy. We're going to talk about some of the companies that we think could be a good illustration of maybe how the economy is doing. There's lots of discussion about economics and what's going on. And this may give some insight, good or bad, into what we see going on with the economy.

3:26And we're not just picking the big names. We're actually taking a stroll through some smaller names or some maybe diverse different kinds of companies. So with that, But let's go ahead and start off with the retail giant, Walmart. What does Walmart tell us about the economy right now? So Walmart's actually doing pretty well. Earnings just came out November 20th. They posted 6 % sales growth, constant currency. I think that's pretty decent for them. Profits up also close to that number. E-commerce is a big one for them, surging 27%. And international, they said it led with 11.4 % sales growth and even higher operating margin growth or operating income growth.

4:16And the comp sales in the US were 4.5%. So kind of interesting. Some of the factors that they discussed as the reason for that great performance, they said they're increasing market share, especially in grocery and general merchandise, by appealing to a broad customer base. And also there's a notable increase in engagement from higher income households in the United States. So is that a good indicator or a bad indicator? Because on the one hand, Walmart could be killing it. On the other hand, is it that rotation of, if higher income households are rotating to value, everyday low value that Walmart provides, could that be a canary in the coal mine almost?

5:01It's hard to say. Yeah, it is hard to say. I do remember hearing something along the lines that management was saying that they were noticing two trends. One, that the cart size, so the amount of money people were spending per cart was going up, and also that the price per item was going up as well in the cart. So that could tell you that maybe inflation is still impacting people on the grocery front or other parts of the retail that Walmart calls attention to. So I think it's interesting. I think Walmart would be a really good barometer, if you will, of how people feel about the economy or whatnot.

5:52Yeah, and grocery is kind of going through an interesting change. And this is kind of anecdotal, but I've seen content out there, people talking about protein being one of these things that a lot of people are paying a premium for. So I know when I first started in the stock market, when you mentioned grocery, you always thought of very low revenue growth. You thought of inflation type as your upside for groceries because people aren't going to pay up for groceries. And then Whole Foods came around and kind of flipped that on its head with the whole organic products. And now you have protein potentially being that next thing.

6:30I don't know how much you've seen the different kind of items they have, but I can tell you from my cupboard, not cupboard, but pantry, I've got protein cereal. I have protein pancakes. I have protein, obviously just regular protein like a beef jerky and things like that. Protein drinks. I have a wide variety of protein drinks if you want a protein bartender. So there's just, and I've seen like protein cookies and there's just so many different protein, the bars, obviously. So any of those products, you wonder, and I'm not saying that Walmart called out protein. I'm just saying just as a general kind of overview, if the economy was really that bad, would protein be something that people would be paying up for, right?

7:17Something I wonder. No, I certainly don't think they would. And I probably would maybe hesitate to speculate that maybe the middle class to people below that would probably not be paying up for protein. I know that there's, you know, of course, people go through different stages, waves, fads with dieting or how they consume food and whatnot. and protein, to your point, you can't go on Instagram and not see at least three out of every five videos somebody's talking about trying to get more protein. I follow a lot of people, chefs or people making food and every one of them is protein related. How to make a pizza with protein, how to make cookies with protein and how to make a high protein breakfast, all those kinds of things.

8:16So it is definitely in people's minds for sure. Well, I just recently learned how to make a protein Crunchwrap Supreme. So Mr. Steven and Mr. Dave, just keep that in mind if you ever want to come visit. Okay. All right. Good to know. What's the next company? Yeah. The next company we're going to look at is Shopify. So the ticker for this company is SHOP. and this is the e-commerce business that is based out of Canada. They were one of the pandemic darlings during COVID. They soared to incredible heights. And after the pandemic, they fell to incredible lows. And now they're kind of working their way back up there.

9:06This is not a company that I have followed closely much. We have worked with them in a business sense a few times, and it seems like it's a fantastic platform, but it is driving the e-commerce trend that is going on in the world today. And the whole, what would you call it, the side hustle nation or the side hustle culture, a lot of that is being stimulated by what Shopify has done. And I will say they do make it easy to start a website and to build everything, especially if you're not tech-related like myself. So kind of looking at the numbers for the company, they saw a 32 % increase in their gross merchandise volume, which is a really good indicator that means that people are buying more stuff on their platform.

10:00They also saw revenue up 32 % year over year, which is really, really high, very, very strong. And they also saw merchant solutions revenue grow as well. And that's their payments platform. And that grew 38%. And they saw subscription revenue grow 15%. So all in all, if you look at the numbers for Shopify, they see a continuing strength of their platform and what people are doing. and if you look at management's discussion on maybe why some of this is happening it's because they're definitely uh they're definitely positioned themselves to be one of the leaders if not the leader in the e-commerce uh landscape and they have developed all their tools and worked really hard to make all the platform as easy as possible as they can they're also incorporating ai toby lukey is talks a lot about ai and the advantages that the company has and they've been partnering with companies like ChatGPT and Microsoft Copilot to enable things to make it easier.

11:02And in addition to working with more of single entrepreneurs, people like yourself and I that are entrepreneurs and others like them, they've also been upping their enterprise game. And that means that they're working with bigger companies. So primarily, they have focused on small to medium business people. But some recent clients that they've signed, which are pretty big names, Estee Lauder, Elf Cosmetics, Mattel, Aldo, which I'm not familiar with, and FanDuel. So they've signed some pretty big name enterprise customers, which I think bodes well for their company. And so this, I guess, you can contradict me if you want, but it really makes me feel like that even though people may feel like they're maybe stuck in their nine-to-five jobs or that maybe they're not making as much money as they want, that Shopify is seeing success in enabling people to either start side hustles or to start being their own boss.

12:05And I think that is something that has grown tremendously over the last five years. And I don't see that slowing down. I absolutely agree. And I think it's not a company we're planning to cover today, but if you look at Meta and just the way that advertising revenue has grown for Meta, it's very natural for people to sell physical goods on Shopify and advertise for their physical goods on an Instagram or one of Meta's platforms. And you see both of those growing together and growing at a really, really high rate. One thing I did find interesting, and these are really great growth numbers, international GMV growing 41%.

12:48That's huge. That's the second company now out of two of two that have mentioned this whole international growth. And the stock market is so America, so US focused because so many of the companies are headquartered here. but is that something that you start to see become a factor again i know coming out of the pandemic gdp for the united states was higher higher than it has been historically and pretty high compared to some other countries do we start to see some of that reversion and i think that's i think that's an interesting trend to follow not just because it's interesting but because there could be some profit opportunities there some investment opportunities there that people aren't looking that right now because everybody wants to talk about AI.

13:33Yeah, exactly. Exactly. And to your point, the company is seeing success outside of the borders of the United States or Canada, where Amazon actually, I think, has been seeing some struggles if they look outside of the United States. They have been growing in the US, but internationally, they have not been doing as well. And I mean, it's all relative, but still, they're not performing as well. And I know Brazil being one of my focuses, Mercado Libre and Coupang and C-Limited have done really, really well in Latin America, whereas Amazon doesn't have much of a presence there at all. So I think Shopify seeing success outside of their home border, you will, bodes really well for them going forward.

14:22Yeah, it certainly makes sense. So I'm going to move on to Netflix. We're going to go from consumer goods to something more digital, the streaming industry. This is from the quarter ending in September, the end of September. So a month has passed since these earnings, but this is still, I think, relevant. Revenues have jumped up. We're talking about 17 % in the quarter. And operating profit, taking a small dip, so operating margins down. So operating profit hasn't grown as much as revenue, but still growing at a double-digit rate. Before we dive into the rest of it, what is your take on that 17 % revenue growth in the September quarter for Netflix?

15:14That sounds really, really strong. And I guess the first question that I would ask is, is this still a result of the account sharing crackdown that they've been doing? Are they still benefiting from that or have they moved past that now? yeah those are great questions yep yep so the two things that they did point out number one a record timeshare for the tv in both the us and the uk doesn't mention about the account sharing in in that factor and then the other one being their best ad sales quarter ever i remember that was like a huge controversy for them several years ago did we go ad platform and investors were torn between do they just stay as a SaaS company, strictly SaaS, or do they go into advertising that appears to be paying off for them right now with that strong engagement for them.

16:19They mentioned K-pop Demon Hunters being really successful. I feel like I've heard about that everywhere I turn. What did we say a few a few months ago that Netflix needs to find their next Stranger Things that could be it yeah well it certainly is super popular I'll admit I've watched it twice I think my daughter has seen it like half a dozen times at least and yeah it's it's been really really popular I think I read somewhere that it was one of the top streaming shows they've ever had and And so it'll be interesting to see how the Stranger Things, I guess, finale that starts around December time, it'll be interesting to see how that plays out.

17:13We're already starting to see ads on TV for the show, and they're including characters in different commercials and things of that nature. So I suspect that that's going to be huge for them for that quarter. I'm excited to share our friends over at the Plink app released a major upgrade featuring a sleek new look, real-time insights, smoother trades, and tools that help you feel more confident with every move. Here's the bonus I think you'll love. They also released the Dividend Match, where they'll match 25 % of all the dividends you earn up to$250 a year. You can track the match along with estimated dividend payouts all within the Income Hub on the app.

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19:56I think I would probably position it this way. It's hard. I feel like, and correct me if I'm wrong, it feels like Netflix is a must-have, whereas some of the other ones are a, it'd be nice to have. like if you were going to cut anything netflix would be the last of those to go like you would you know people would would you keep your apple tv subscription would you keep your prime would you keep your wbd or hbo would you keep your paramount plus like all these different ones i i don't know if they i know they aren't doing as well numbers wise as netflix is doing but it feels like netflix to me is a must-have whereas the other ones maybe don't rise to that level yeah i mean i'm the guy who lives under a rock so obviously i am opposite of everything you described but the numbers are certainly pointing to netflix dominating they compete against all types of entertainment and media that's that's everything from social media all the way to traditional TV and they are obviously gaining share in those areas.

21:15So that does tell you a lot. I hope they continue to report that KPI because that seems like it would be critical to their success moving forward. Yeah, for sure. Yeah, for sure. Yeah. I think that's a good highlight of maybe how looking at Netflix probably gives us an indication that things aren't really bad because then people would potentially be cutting that and we would start to see a drop in revenue potentially. Yeah. All right. So maybe we can move on to the next one. So we're going to switch complete gears and go from streaming to banking. So this is the world of finance and really how we all use our money.

22:07We all have to, well, we all have to, But the vast majority of us have to work through a bank to buy things, to pay our bills, to receive money from our employers and whatnot. So the bank we're going to look at is JPMorgan Chase, which is ticker JPM. This is arguably one of the largest, arguably one of the best banks in the United States run by Jamie Dimon. They reported earnings early in October. So this is a little bit dated, if you will. It's about a month old-ish or so, but they did report a pretty good quarter. So they saw a growth in revenue. So they saw$47.1 billion in revenue, which is up 9 % year over year.

22:53They also saw their credit grow as well, their assets under management, which is investments grew 18 % year over year. That's$4.6 trillion. and they saw their long-term net inflows grow by 72 million. So that means that people are putting money into their accounts to invest. And those are all good signs for all of this to continue. And one of the things that they did call out in the call is that they feel like the credit of the consumer is still pretty good. And they did look at the 30-day, 90-day NPLs, which means non-performing loans. And those actually stayed steady for the quarter. So that helps indicate that even though there may be some signs on the horizon that things maybe aren't going as well as everybody would like, it appears that the consumer is still remaining strong.

23:56They're still spending money. They're still investing and they're using their credit fairly responsibly and are not defaulting on their loans, which would be a good indicator that things are probably doing okay. Yeah, MPLs, that's kind of a big economic indicator. I think when people talk about that, they talk about all the big banks, but then they also mention the American Express and Discovers of the World who do these credit card loans. And when you start to see defaults in that area or in car loans like an Ally Bank or just general credit cards with the big banks, then that can be signs of economic trouble on the horizon.

24:38It doesn't sound like JP Morgan is experiencing that whatsoever. No, not at all. The only downside that Jamie called out in the call was that they reported an elevated charge-off, so$170 million from some apparent fraud in a securing lending facility. And Jamie kind of described it as one cockroach in a coal mine. And he said there were some other aspects that the bank needed to tighten down on their security to help reduce some of the fraud that they are seeing. but he didn't think that that was an indication of any, any broader trouble in the economy or within the bank itself. I do remember Howard Marks, uh, called out that comment by Jamie Dimon.

25:23He had a great memo recently. You should go read it. If, if you haven't yet, Howard Marks, everything he puts out is really good. All right. McDonald's, uh, the good times, good memories burger place. Maybe for some of you, I know for me, maybe not for the rest of you. I kind of see them as the road trip indicator, but that's just Andrew's opinion. That's not anybody else's. Global comparable sales. So how did their restaurants do unit by unit? 3.6 % year over year growth. And in the US, it was 2.4%. So those seem like lower numbers. I don't know, especially in the US, not growing even above inflation i don't know if that's par for the course for the company i admittedly do not own the stock i've never really looked seriously at owning them it's always just kind of been an expensive stock but i never remember seeing like huge growth numbers out of them but a lower growth so the road trip indicator is maybe not great right now i did read recently that mcdonald's is is changing part of their menu and they're starting to offer the dollar menu and the $5 menu are coming back.

26:44And because I think they feel like that people are feeling the pinch from food. And so that is McDonald's way of trying to fight back because they have seen, I don't have the numbers in front of me, but I believe they have seen quite a bit of growth in the cost of what they're selling and they are charging more. And so you see all the time people complaining, I went and got meal for me and my child and it cost us$22 for two people at McDonald's. So McDonald's does seem to be acknowledging that their consumer needs some help and they're trying to help. Yeah, that's a good point. adjust to the EPS flat year over year.

27:34So they're not growing with the rest. So we have four winners and one loser so far. Yep. All right. Let's move on to Home Depot. So the retail giant, if you will, in the home repair, home fix-it building space, ticker HD. So the company reported earnings actually just recently, a few days ago. And their total sales for the quarter was$41.4 billion, which was an increase of 2.8 % from the prior year. But they did note that$900 million came from an acquisition that they did recently. So maybe organic growth was a little softer than indicated. They did say that their comp sales increased 0.2 % overall with US comp sales up 0.1%.

28:31So those are numbers, I would say. Not a company I follow closely, so I don't know if those are great numbers. They're bad. Okay. All right, then. There we go. From the expert, they're bad. Yeah. All right. A couple of things that they did call out. They did say that they think that they're in challenging market conditions for Home Depot in their industry, but the management believes that the company itself is growing market share. And they threw out some different reasons for that. They also highlighted the fact that they've had some positive performance in big-ticket transactions, so items over$1 ,000.

29:22which was driven primarily by categories like appliances and portable power. And I would imagine lawnmowers and things of that nature. So they did see bigger ticket items, which is helping with that. They've also initiated an organic pro initiatives. So one of the things that I saw an ad for the other day, which I thought was kind of surprising, is they are offering courses or classes for people to go at Home Depot and learn a trade. So learn how to be a carpenter, learn how to be an electrician, a plumber, and so on. And Home Depot will pay for it. So it's free. And so I thought that doesn't necessarily impact their bottom line, but that could be future.

30:04I think it's a brilliant idea because those could be future customers. Because most people are going to be fairly grateful for getting that opportunity. And I think it's a much needed opportunity for a lot of people. And that's awesome. So yeah, that's kind of what I saw from Home Depot. So I guess compared to McDonald's and now Home Depot, and then maybe looking at Walmart, if you looked at those three kind of retail-ish type businesses, what would be your conclusion? That housing is crushed right now. People aren't going out to eat and people are getting value. I mean, there's the tie, right?

30:47Walmart and McDonald's, people aren't going out to eat and so they're cooking more. And so Walmart's getting more grocery. One of the things they called out, which I thought was interesting here, so there's so much pressure in the housing market that there's 40-year lows in housing turnover and adjusting home prices. So Home Depot repair and remodel is very closely tied with the home building industry as a whole. Probably not super, uh, super hard thing to imagine when affordability gets pressured. So does the industry. The question moving forward will be, does that, is that systemic or is it just another housing cycle?

31:34So, um, I know like one of, one of the guys I know is usually pretty bullish on housing and he just went bearish and sold one of his stocks that he was going to hold for the long term. I think that might be a sign of the bottom, but that's just complete speculation on my part. But it could be a sign. It's like the inverse of the Uber driver tells me about a stock, that's a sign of the top. nitty gritty value investor bails out of a housing stock that's the sign of the bottom exactly the signs are everywhere Uber growing like a weed feeling like a fool every day I see that trips up 22 % marking the fastest growth since 2023 gross bookings grew 21 % adjusted EBITDA is up 33 % these are huge numbers grocery and retail achieved a 12 billion dollar gross bookings run rate lots of growth lots and lots of growth and this was for the quarter ending november 4th so all throughout the government shutdown uber was thriving they were they were oh that was a way a lot of people earned money during the pandemic and the delivery business since has really helped sustain them.

33:03And I think it really has grown maybe faster than some analysts probably expected. I mean, that whole, that is one of the things I think coming out of the pandemic has probably done better than a lot of people may have thought it would, you know, kind of lumping, you know, DoorDash and some of the other businesses, Grubhub and some of those other ones into that bucket. But I think the Uber delivery part of it, I think has been a surprise to a lot of people. Yeah. Including yourself, right? Yeah, me too. And their strategy of really doubling down on the whole Uber Eats thing. I remember people, lots of smart people, and myself too, I was doubting.