PayPal Crashes & The Google Lie | Why Stocks are Falling.

hey everyone kevin here in this video

we're going to talk about four different

companies that just reported earnings

and what they're earning said tell us

about what's going on in the market and

what to potentially expect going forward

we're going to cover google starbucks

robinson and paypal so we can try to get

a little bit of a better understanding

as to what's actually happening quick

note this video is not sponsored but it

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life all right folks let's uh let's get

into what's going on with earnings first

why don't we go ahead and look at paypal

given that paypal is absolutely getting

crushed what happened with paypal well

the earnings call gives us a lot of

insights so i'm going to give you

the bare bones of it here let's get into

it so first of all

they argue that 2021 was a very

difficult year for them and part of the

reason for that was because supply chain

issues disproportionately impacted their

cross-border volumes this is like money

coming from china or whatever

transferring money to other people they

also say that inflationary pressures

impacted spending within certain

segments of their user base and this

becomes really important because they

talk about a specific type of person

who's starting to spend less money and

this is a little bit of a red flag not

just for paypal but also for the economy

that we want to watch for but it could

possibly be one that we could get

through so uh let's let's take a look at

exactly what paypal is saying here now

uh ceo here mentions that they say

they're in a significantly stronger

position than where they were when they

entered the pandemic which i think is

useful to note given that their stock

price is basically the same as what it

was when the pandemic began which is

quite wild to think about the amazing

rise and fall that paypal has had down

presently 26

on the day sitting at 129

the pre-pandemic price was about 124.

now they are calling 2022 an

unpredictable macroeconomic environment

this by the way is one of the reasons

personally

i've realized and many people have i'm

just being upfront about it that trading

in this environment is incredibly

difficult especially in momentum

segments so just be careful in the

momentum segments if you see something

trending the trends just are not lasting

as long as they used to but anyway

the

paypal executives talk about how they're

trying to invest in things like buy now

pay later and more user retention the

reason for that is because they've seen

a less successful

consumer adoption but not only that

they're also losing some of the

customers that they've been getting

because these customers are maybe less

engaged or they're running out of money

which is quite odd they mentioned here

the more muted into the year for or that

they expect 2022 to have a little bit of

a more muted e-commerce growth driven by

both supply chain challenges as well as

a pullback in spending by lower income

consumers affected by consumer growth so

in other words

as we're seeing prices go up and lower

income individuals are able to spend

less money

they also here they mention that their

strategy for keeping people uh has has

run into some challenges take a look at

this line here their programs uh have

been very successful in generating

account creation but overall those

customers that they've been attracting

have been lower engagement and higher

churn customers they've not met paypal's

required rates of return their internal

rates returned so in other words you've

got paypal here saying hey like a lot of

our customers which really mirror a lot

of people in the united states are just

not able to spend as much money because

they have less money and we're seeing

less engagement amongst a lot of people

that we brought onto the platform this

is not so ideal they talk about the

priority pareto dynamics which uh

remember the pareto principle is 80

uh of the uh profit is generated by 20

of customers essentially they're talking

about how this is totally true over at

paypal but one of the biggest things

that they're seeing here is the

following the impact of omicron and the

effect of inflationary prices combined

with a lack of stimulus is having an

impact on spending and by extension our

business this impact is most pronounced

in our lower income cohorts and has

continued into the first quarter this is

a little bit of a red flag right here

the fact that paypal is suggesting that

this issue that led to this bad earnings

is continuing into the next quarter

remember they reduced their guidance by

just over 10

now the stock is down over 26 which is

wildly disproportionate uh and seems

over overblown

but it shows you how little stability

some of these large phenomenal companies

have paypal is a great company it's a

200 billion dollar company i mean their

market cap is essentially halved from

almost 400 billion dollars but still the

fact that you could drop 26 on a day

with a 200 billion dollar company i mean

this is the kind of movement that you

would expect either in a definite bear

market or out of small caps

you know like a lawsuit coming against a

spac or something right it's quite wild

anyway they say quote the persistence of

inflationary effects on personal

consumption labor shortages supply chain

issues and weaker consumer sentiment

have led us to adopt a more cautious

outlook now this weaker consumer

sentiment argument right here has a lot

of folks wondering oh okay well if

consumers are or or maybe spending less

money that's potentially going to help

push inflation down right well that's

the hope but in the meantime the federal

reserve has to respond to what's

actually happening and we're seeing

pricing pressures increase remember the

new york fed survey from a couple weeks

ago where individuals are spending more

money on essentials and less money on

non-essentials because they're out of

freaking money everything that is

essential to them is becoming more

expensive and so they're spending more

money on non-essentials

uh or rather on essentials leaving less

money for non-essentials like

discretionary purchases right

they talk about how they're trying to

grow their revenues at about 18 percent

uh and this is actually a phenomenal

growth rate for the company and i think

the valuation is is almost as attractive

as netflix was at like 350 dollars but

anyway they say they plan to deliver at

least 20 revenue growth in the fourth

quarter so really what they're believing

is that things are going to get better

by q4 2022 now it's important to

remember that if in q4 2022 inflation

and supply chain issues trend down and

consumer spending remains relatively

stable then we could be good going into

2023 with nice gdp numbers for

2022 but if we end up having a negative

quarter of gdp growth in 2022

they're gonna be a lot of recessionary

fears coming into the fourth quarter and

first quarter of 2023 but anyway uh the

ceo here talks about how inflation is at

a 40-year high and supply chain issues

have never been this bad in their

lifetime and they believe that because

of this 2022 is now off to a slower

start than we previously anticipated not

so ideal now we get into the q a and i'm

just going to try to focus on the most

important parts uh that that really

affect the broader economy so i'm not

reviewing everything here but also some

fun facts like for example a wallet user

at paypal provides two times the revenue

of that of somebody who just checks out

using paypal now another thing that i

thought was wild is they say in their

earnings call here only 50 of their

users actually have the paypal app on

their phone and something else that just

personally bothers me is why don't they

have and maybe they do but it just

hasn't been convenient for me to set up

i suppose uh why don't they have like

apple pay for for paypal right uh like

i'd love to be able to put that into my

apple wallet so i could pay with them

but anyway maybe there's a reason for

that too many layers anyway take a look

at this okay this is the uh chief

financial officer

as i noted in my prepared remarks we've

seen weakness around spending in our

lower income cohorts and imagine for us

the percentage or we imagine that the

percentage of our user base is pretty

similar to the us overall and so it is a

large percentage of our user base and

this was a cohort that certainly

benefited from stimulus in the prior

periods early in the year and we're

seeing the effects of inflationary

pricing around that where there's a more

elastic demand curve in other words if

uh when you have an elastic demand curve

this means as price moves some people

stop buying inelastic would be like i

need my medication if the price goes up

50 i still need it my demand remains

constant so my demand remains constant

now you're inelastic uh however if you

have an elastic demand curve then as

price goes up you're like i'm not going

to buy anymore the problem is and

because initially like reactionally this

sounds good for inflation right but the

problem with this is that's just the

lower income individuals who have less

money to potentially buy

goods and services but take a look at

this with higher income cohorts you've

got a more inelastic demand curve and

that's a lower percentage of our base so

basically they're saying hey look the

higher income individuals they're still

spending like freaking crazy the lower

income individuals they're starting to

spend less

but the lower income individuals are the

ones using paypal in fact they kind of

make this joke they're like i'm not too

sure how many people are buying a boat

using venmo

they made that joke anyway

if you take the midpoint they say we do

have some expectation that some of the

supply chain and inflationary pressures

we've seen right now improve in the back

half of the year we're going to see this

reiterated a few times but i think it's

interesting how they quantify this with

some expectation that some of the issues

are going to get better in the second

half they're not saying everything's

gonna be better in the second half right

kind of interesting and the market's

gonna try to start pricing this data in

so i think it's really important to

watch

then we've got here

they're talking a little bit more about

their app this is where that stat is

with 50 of their users actually use

their app which i thought was incredibly

low i read all of this but some of the

parts were just boring so i don't

highlight them

they say that we feel supply chain

issues will work their way through this

is actually impacting quite profitable

revenue streams for us like cross-border

transactions i mentioned that at the

earlier part of this video

they also talk about how they're

planning on introducing a high-yield

savings account

and they say that we've been rolling out

venmo with amazon starbucks and doordash

and i thought this was quite interesting

because they're trying to get pay with

venmo going which i do think will

eventually turn into a competitor to a

firm and i kind of also think it's weird

that maybe it's not weird maybe it's

just a good strategy for amazon but

amazon's kind of going around partnering

with everybody's button like amazon just

wants

a byte out of everybody's button they

want the affirm button they want the

venmo button they want the you know pay

with amazon button they want the apple

paper i don't know it just seems like

they they want everybody's button so

this is paypal let's now jump on over to

starbucks then we'll go to robinson and

then google so starbucks was really

interesting take a look at some of these

so they talk about how the highly

transmissible omicron variant has

amplified staffing shortages in our

supply chain this might mean and

especially covet zero in china this

might mean that we might see higher

inflation at the beginning of the year

and potentially less later the problem

is is that going to spook markets

remember

bloomberg is now projecting that cpi is

going to come in at seven point three

percent so if you thought seven percent

in january was high if we end up getting

seven point three percent in february

it's going to be even worse people are

going to complain that it's continuing

to get worse and this is where we could

potentially get elevated talk about the

federal reserve being more aggressive

and potentially inflation getting worse

but we hope that this is temporary and

that's what we're trying to learn from

this when are we seeing the inflection

point right well let's see when

starbucks thinks we're going to have an

inflection point first prior to the

emergence of the omicron variant we were

experiencing some inflationary pressures

and staffing issues resulting from the

broader pandemic the omicron surge began

inflationary costs and staffing

shortages well amplified them well in

excess of our expectations that's not

good so starbucks is actually saying as

soon as omicron came around like the

second half of december and in january

all of a sudden boom what happens

inflationary it costs and staffing

shortages got amplified so not only were

costs of logistics or labor increased

but also coveted related pay

is was something that hit margin at

starbucks that's because they have to

pay their employees time off for covid

right

they do say though that customer demand

remains strong and this becomes

important because this is a little bit

different from what paypal is saying

where the lower income individuals are

spending less money maybe because they

have less stimulus or they just put

their stimulus checking paypal and then

never came back to it after spending

which i think is a little bit more

possible but over at starbucks they're

saying hey people keep buying our crap

even as we raise prices in fact listen

to this as we enter fiscal year 2022 we

had estimated full year inflationary

impacts around 200 basis points on

margin for the balance of the year we

expect these costs to increase versus

our previous estimates so in other words

starbucks is telling us we expect things

to actually get worse not better like

most economists we anticipate supply

chain disruptions will continue for the

foreseeable future we've already taken

pricing actions this year one in october

and one in january now this is also

critical because this means that the

january 22 price has not shown up in

inflation data that we have yet like the

cost of starbucks going up right which

if starbucks is raising their prices is

probable that other coffee shops are

also raising their prices

and we have additional pricing actions

planned throughout the balance of this

year in other words they're already

planning on raising prices more and more

throughout 2022 no inflection point down

yet at starbucks now that could just be

unique to starbucks we'll see

which play an important role to mitigate

cost pressures including inflation as we

position our business for the future

then they also said we had more partners

leverage coveted isolation benefits in

other words more people are like i'm

sick with covid and that increases cost

so they're talking about that they also

talk about how

they believe that this pay will moderate

as we get into the second half of the

year maybe because of the summer or

whatever and we start getting sort of a

relaxation of the amount of people using

these these benefits

they do say that their general and

administration expenses including this i

thought was crazy including promotional

spend and marketing were going to be

areas that they were going to tighten up

their spend so this is really

interesting because they're saying hey

we want to

grow revenue

by cutting advertising and instead just

raising prices like that's crazy think

about that for a second you want revenue

to go up so you're going to raise prices

and you're going to lower marketing

which if you lower marketing expense

that means you have to raise prices even

more

you know so that way you get a plus one

over here and a plus one over here which

offsets uh uh the uh the the uh you know

to actually give you some growth

otherwise you might cancel out price

increase with marketing right but just

as a quick rough example uh that's wild

i really didn't think that companies

would actually even remotely consider

reducing advertising uh it blows my mind

a little bit but okay

anyway they do say that it's the

services industry that's facing

particularly particular challenges

especially with increased turnover and

they're seeing a notable battle for

talent we know though it's not just the

services industry we see the same thing

happening at the banks and we see the

same thing happening throughout most

industries in fact when we go over to

robinson you're going to see what robin

says about robinson says about employees

they're saying we're purposefully paying

our employees more money so that way

they don't leave us because it costs

much more money uh to continue to train

more people as starbucks here complains

about exactly that

they said that uh they've got long-term

growth opportunities in china

but they do expect some complexities to

persist

then

they believe that they're going to have

meaningful margin headwinds because of

the dynamic of this environment with

inflation at its highest level in

decades coveted resurgences and

industry-wide labor shortages as a

result they believe it's prudent to

revise their margin and forward eps at

this time and they're also going to try

to do whatever they can to retain

employees more which is just another way

of saying we're going to pay people more

money right regarding margin guidance

they're guiding for about 17

on uh their operating margin this is

less than that 18 to 19 that they

usually have and they're talking about

how cost pressures accelerated in

december and this is not good we're

seeing those intensify as we noted in

january and into q2 now their q2 is q1

so between january and march they're

seeing prices go up i hate it when

companies do that like the scc should

mandate a standard for that because it's

stupid fiscal year garbage anyway

uh they'll continue to invest in their

business blah blah okay

now this was interesting when it came to

a question about how they can raise

their prices this one person's like oh

well we use analytics and artificial

intelligence blah blah blah this other

person gave a much more simple answer he

says as we saw inflation begin to

increase in the middle of this past year

we made the decision to take pricing and

we implemented pricing effective october

1. as inflation continued to grow we saw

that we needed to take additional action

and we did so effectively january 1st so

we've taken two moves in pricing to help

mitigate the challenges we're seeing now

we also have some additional pricing

actions that we have planned for the

balance of the year this is reiterating

what we heard earlier that will

additionally help offset trends in some

of the cost pressures we're seeing now

this was a big one okay listen to this

in terms of elasticity we have not seen

any meaningful impact to customer demand

that let that sink in for a moment they

raise prices twice

they're expecting to keep raises raising

prices and they're not seeing a

meaningful impact to demand

it just tells you you're in a messed up

inflationary market with a fed that's

not going to be your friend

honestly i lost a lot of faith in the

fed uh

when when uh when jerome powell u-turned

like within nine days of biden giving

him a spanking

uh i lost a lot of respect in the

impartiality of the fed it was very dif

very sad but anyway i didn't know this

seventy percent of their beverage

transactions are actually cold beverages

i thought that was kind of interesting

uh you know i thought people wanted like

more hot products

i like hot

meanwhile my hot coffee's cold

our turnover rates uh i would say as we

track them are elevated versus

pre-covered levels dub all right what do

we got over here

going into 2022

uh related to decisions we made around

wages the inflationary pressures in both

freight and labor across our supply

chain and across into our commodities uh

increase basically and this is why they

have to

adjust their guidance that they're

providing the lion share of that is

really inflationary pressure related to

omicron that we saw in december and

we're seeing quote further into

january through march

now they do say we don't know exactly

what will happen but when inflationary

pressures go down then they would expect

their margins to actually go up is

essentially what they're saying here

okay good so that's uh starbucks now

let's go on over to robinson oh sorry

that's their annual report all right

here we go here's robinson

so they are a

trucking and logistics company they talk

about an unprecedented level of supply

disruption and how repricing has enabled

them to reduce the amount of truckloads

that they have with negative margins so

in other words they're becoming more

profitable because they're able to price

more but they actually didn't give as

grim of an outlook in terms of inflation

and i would expect the first place that

we start seeing inflation to subside is

actually in trucking and that's

ultimately what they end up telling us

but let's look at exactly the details

looking at the market we're still seeing

load to truck ratios at historic highs

driven by structural constraints and the

expansion of truckload capacity

basically more demand leading to more

congestion

and they expect shipping to still be a

tight issue for longer in fact they're

saying we expect stronger for longer as

we look into 2022 so still seeing

inflation still seeing tightness don't

don't forget that part they're still

seeing inflation but they believe that

this inflation will continue at least

through the first half and potentially

through the greater portion of 2022 so

even though things might get a little

bit better we're probably still gonna

have pain for the entire year

and this is compounded by the backlog of

ships waiting outside of our ports to

unload car unload cargo strong u.s

import demand which is expected to

persist especially with a workforce

bottleneck

and elevated ocean shipping

now let's see here let's get some more

fun stuff oh yeah cost per mile was

relatively flat before rising in

december due to increases so they saw

kind of a pickup around that omicron

probably haul the daytime as well

they're spending some more money on

technology about nine percent more

repurchases for shares here we go

so they say that as we entered the year

this year the markets remain tight and

their north american surface

transportation in january uh has has

well been tight uh but uh in the first

couple weeks they saw things getting

more difficult but in the last two weeks

things have started moderating a bit and

so this was interesting and they say

here that if we basically get this

continuing moderating

that will if we get moderation we're

still going to be in a low single digit

inflationary environment so no

disinflation really here yet still

seeing inflation well i guess that would

be disinflation see disinflation would

be like inflation going from seven

percent to let's say four percent right

low single digits let's say but if you

went from

seven percent to negative four percent

that would be deflation right and this

is ultimately what we really want to be

able to drag cpi down but they're

suggesting maybe if things moderate

we'll see inflation do this in the

second half of the year but maybe not

they basically say that it's entirely

possible this tightness could remain all

of the year so this is better news but

it's still not great

uh let's see if there was anything else

in here oh i highlighted this one we

believe that the health of our

contractual portfolio will continue to

get better as we reprice in a more

moderately inflationary environment so

one of the problems is when inflation's

really high and you sign like a two-year

contract for shipping you could

potentially get screwed into lower

pricing and then have end up having

negative margins so they're saying hey

like once inflation stops being so

freaking volatile our contracts won't

lose us as much money all right so now

the last one is google this is actually

google mobility data which we could see

for the united states we're still kind

of down here on retail about 18

groceries 11 parks 15 percent and

transit stations down 18 workplaces

though coming up look at that trend

there on workplaces much better

obviously people spending more time at

home but more importantly i want to look

at the google earnings call

and uh the big like bottom line for the

google one is they had said literally

nothing about q1 now we expect their

stock split to occur by july 15th for

shareholders as of july 1st and i just

want to give a little bit of a quick

breakdown as to what google's talking

about which isn't too much about

inflation but it's worth looking at just

how incredible google is so they talk

about their ai business how great it is

they talk about how youtube is exploding

to where their revenue is now in excess

of that of of netflix how their pixel

phone is setting a record how they have

so many different levels of cloud from

ai and machine learning to multi-cloud

infrastructure cyber security google

workplace how shopify reported 6.3

billion in global sales by 47 million

customers all transacted on the google

cloud shopify by the way don't even look

at that chart man that thing went from

like 1700 to whatever 900 it is now it's

it's so it's so sad

but they they did not tell us a lot

about q1 which really bothered me i was

hoping for a little bit more forecast

for retail they say that in the fourth

quarter retail was by far the largest

contributor

thanks to strong consumer activity

followed by finance media entertainment

and travel

and they saw shoppers starting earlier

and spending more throughout the quarter

at the end of 2021 i do think that's

going to create a really difficult setup

for the end of 2022 they also have other

companies planning on expanding their

investments into advertising with google

i did think this was interesting talking

about this multi-year journey to bring

photoshop illustrator and the other

products from adobe online so it's kind

of like cloud rendering

which is kind of cool you can now also

cloud render video games with certain

companies but anyway

foreign exchange impact on revenues

would be a little bit of a headwind we

do expect to meaningfully increase capex

and look at the biggest spending that

they're going to spend money on right

here servers servers again will be the

largest increase of their capex spend

for web 3 they talk about looking at

blockchain and they talk about how the

technology is expected to continue to

evolve and innovate

they are continuing to fight for new

employees which is going to increase

more pressure on wages going up

they talk about innovating more sales

abilities and funnels with youtube they

say that cloud had impressive growth but

margins did come down but they're

obviously working on that and they say

they're in the early innings here of

some of their their new innovations they

say that travel has been relatively

uneven but that's to be expected because

of omicron uh talk about their share

based or share repurchasing

they do talk about broad

advertising strength but i thought this

was really interesting the way he said

this he said so overall we did see

strength as we were going through the

year as i indicated there was a

broad-based advertiser strength there

was strong consumer online activity and

those were really primary drivers i

think the one place that comments might

be more relevant is really an

understanding of the year to year within

youtube relative last year where there

was strength

uh and i think this is this is really

interesting because he's not talking

about forecast at all like this and none

of the analysts are hitting back here

like everything at google is looking

backwards now i'm still waiting for more

details on the stock split but google

didn't provide real guidance for q1 and

it kind of bothers me that google wasn't

giving us insight into q1 i thought this

was would be a really nice opportunity

and so personally i kind of think google

is a really bad indicator for the

economy right now that there could be a

lot of rallying over excitement of the

stock split but a complete failure to

recognize that we're actually having

pain in areas like a paypal e-commerce

shipping starbucks lower end consumer

spending uh we had a massive miss on

jobs today right now some of these

things hopefully will lead the the

federal reserve to slow down this is

actually one of my biggest concerns is

that the market or the economy starts

slowing but the fed keeps raising rates

because they have to because of

inflation

we'll see anyway uh hopefully you found

this insightful and useful if you did

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