Latest / The Financial Exchange Show / Mega Cap companies continue to hold up markets

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Mega Cap companies continue to hold up markets · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Chuck Zada and Mike Armstrong.
1:10
Speaker 2: Chuck, Mike and Tucker with you, and we got mixed
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Speaker 2: markets today as markets have given up early gains and
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Speaker 2: who knows where this ends up going. I mean, you
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Speaker 2: could see this puppy rebounding, you could see it sliding
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Speaker 2: and continuing, you know, some of last week's struggles. But
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Speaker 2: ultimately right now, the Dow Jones Industrial Average, or the
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Speaker 2: Dow as it's commonly referred to, is off two hundred
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Speaker 2: and fifty nine points, being largely dragged lower by Caterpillar, Intel,
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Speaker 2: and oh G. United Health continuing to have just one
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Speaker 2: of the worst years that I've ever seen for a
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Speaker 2: megacap company. I don't think I've ever seen anything quite
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Speaker 2: like it, to be honest. The S and P five
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Speaker 2: hundred is flat on the day and the Nasdaq being
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Speaker 2: you know, spurred forward by chip makers today after a
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Speaker 2: couple weeks of chip maker's kind of sucking wind a
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Speaker 2: little bit, the NASDAK is up half a percent, so again,
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Speaker 2: very much mixed markets at the moment. Ten year US
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Speaker 2: Treasury not really doing much of anything, just saying hey,
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Speaker 2: I'm good, bro, I'm just gonna chill. It is at
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Speaker 2: four point two two nine percent. That is down three
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Speaker 2: tenths of a basis point, so not much going on there.
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Speaker 2: Oil anything exciting there, down twenty two cents a barrel. Okay,
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Speaker 2: that could help at the pump a little bit, sixty
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Speaker 2: four to thirteen on West Texas Intermediate, and the national
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Speaker 2: average still remains stubbornly stuck at three sixteen a gallon.
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Speaker 2: We've just been in this three ten to three twenty
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Speaker 2: range pretty much the entire year right now. It could
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Speaker 2: be worse, it could be better, but that's where we are. Finally,
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Speaker 2: we've got gold gold moving a little bit up fifteen
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Speaker 2: dollars and twenty cents nowns to thirty four forty eight
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Speaker 2: right now. And so overall a pretty quiet day in
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Speaker 2: markets thus far. But under the surface you've got a
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Speaker 2: lot of movement and a lot of dispersion there. I mean,
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Speaker 2: you've got some stocks like AMD which is up five
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Speaker 2: point seven percent after being down six percent yesterday when
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Speaker 2: it reported, So why does any of this matter? You've
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Speaker 2: got Apple up another two point seven percent a day
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Speaker 2: after Tim Cook went to the White House to meet
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Speaker 2: with the President in video, up about one point three percent.
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Speaker 2: So again like tech kind of being, you know, the
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Speaker 2: leader in the clubhouse. On the other side of things,
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Speaker 2: you got Caterpillar, Delta Airlines, American Express, Nike, all down
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Speaker 2: north of one percent. And the result is a market
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Speaker 2: that look for the S and P pretty much in balance,
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Speaker 2: completely flat today.
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Speaker 3: This is a market and this is you know, something
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Speaker 3: we have talked about before, but this is a market
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Speaker 3: right now that is being so anchored by those giant
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Speaker 3: megatap megacap tech companies who frankly are just not affected
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Speaker 3: all that much by tariffs, and even if they are,
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Speaker 3: they're getting carve outs like Apple has seen here when
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Speaker 3: you look at you know, four hundred of the other
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Speaker 3: companies in the S and P five hundred, they are struggling.
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Speaker 3: They just don't matter as much for the direction of
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Speaker 3: the S and P five hundred. But where it does matter, right, like,
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Speaker 3: where this really does matter is those top companies in
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Speaker 3: terms of market cap, the ones that are dragging the
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Speaker 3: stock market higher are not huge employers.
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Speaker 4: And that's to me, why then they can't do this forever?
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Speaker 1: Right?
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Speaker 4: They can't United States of Apple? Right.
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Speaker 2: I know you wouldn't have to change the acronym, but
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Speaker 2: fundamentally I'd have problems.
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Speaker 3: What's what's the one of the two big companies in idiocracy,
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Speaker 3: I think it's Costco and Starbucks. But in either case,
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Speaker 3: you're right, it's not going to be that forever. But
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Speaker 3: the other situation I worry about is, look, if you're
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Speaker 3: in that four hundred company camp that's not having a
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Speaker 3: great year, eventually you cut costs and you look at
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Speaker 3: your employment situation, and that's where this can start to
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Speaker 3: affect the real economy. And you know, it's it's tough
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Speaker 3: to work your way through, but like, yeah, if Caterpillars
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Speaker 3: Terra situation and business situation gets so bad, they will
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Speaker 3: start to cut employment, even if it's even if it's
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Speaker 3: still hanging on there.
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Speaker 2: This is actually a great segue. We're going to be
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Speaker 2: joined next segment by Luke Kwa, who's the market's editor
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Speaker 2: at Sherwood News and just one of my favorite follows
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Speaker 2: online on social media. He actually puts something out yesterday
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Speaker 2: on this very topic. So it's I can't believe that
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Speaker 2: you did this so nicely. But if you look at
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Speaker 2: the S and P five hundred and equal weight it
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Speaker 2: so each one of the five hundred companies is point
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Speaker 2: two percent of the index margins during the last two
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Speaker 2: and a half years. From Q one of twenty three
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Speaker 2: through Q two of twenty five, margin on the equal
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Speaker 2: weight S and P five hundred have gone from about
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Speaker 2: nine and a half down to eight point eight percent.
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Speaker 2: So margins have declined on an equal weighted basis over
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Speaker 2: the last two years.
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Speaker 4: Plus.
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Speaker 2: If you look at the S and P five hundred
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Speaker 2: on a market cap weighted basis, margins have expanded from
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Speaker 2: about twelve point seventy five up to thirteen point seven.
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Speaker 2: Why because the big tech companies margins are getting wider
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Speaker 2: and else since everyone else is are narrowing. But like
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Speaker 2: in the aggregate, the other four hundred ninety three companies,
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Speaker 2: their margins are narrowing. And so this is kind of
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Speaker 2: the whole ballgame. And this is this is a two
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Speaker 2: year trend here. So this is not just because of
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Speaker 2: you know, this is not a tariff thing. This is
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Speaker 2: not a this is hey, corporate profits in the aggregate
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Speaker 2: are look at a little bit dodgier. It's just that
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Speaker 2: you have these big tech companies with these huge margin
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Speaker 2: expansions that are driving the story. And so look the
6:39
Speaker 2: thing that I will say, I know everyone always likes
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Speaker 2: to talk about, you know, hey, you want a wider
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Speaker 2: market in a market with more breath, will you need
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Speaker 2: breadth of earnings growth too, because if that narrow earnings growth,
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Speaker 2: if that narrow margin expansion goes away, we'll get below
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Speaker 2: quite honestly, yeah, that's and it's pretty easy to drive
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Speaker 2: the line. You can't ask is AIG growth going to
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Speaker 2: last forever? Right? It's like it's the only thing driving it.
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Speaker 2: This is the ballgame here, speaking of ballgames. Actually no,
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Speaker 2: you know what, let's take a quick break when we
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Speaker 2: come back. Just we've been talking about this. Luke Cowa
7:11
Speaker 2: is going to join us immediately after this in order
7:14
Speaker 2: to talk about what is going on in markets.
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Speaker 2: As promised from now. Joined by Luke Kawa, the Markets
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Speaker 2: editor at Sherwood News. Luke, appreciate you joining us today.
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Speaker 6: Oh, pleasure to be here. Thanks for having me, Luke.
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Speaker 2: We were just talking last segment about something you had
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Speaker 2: posted yesterday, the divergence in profit margin when you look
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Speaker 2: at the S and P on a market cap weighted
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Speaker 2: basis versus equal weight. Can you talk a little bit
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Speaker 2: just about what you're seeing there and really what's the
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Speaker 2: driving force behind this? Right now?
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Speaker 1: Well, right now, I.
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Speaker 6: Do think this is a bit of a broader story
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Speaker 6: about the US economy in the short term, but it's
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Speaker 6: also a story about just the longer run trajectory of
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Speaker 6: what market's been doing over the past ten to fifteen years,
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Speaker 6: and that is the ascendance and the dominance of of
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Speaker 6: mega cap tech companies. These companies have more earnings power
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Speaker 6: and more pricing power than the rest of the universe
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Speaker 6: combined effectively. So what we're seeing is effectively the average
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Speaker 6: company in the s and P five hundred, what are
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Speaker 6: they facing if they're not a mega cap tech company,
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Speaker 6: they're facing well, a world of a little more consumer
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Speaker 6: uncertainty and cost pressures because of tariffs, and at the
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Speaker 6: same time consumers that don't have the same degree of
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Speaker 6: income growth that they've had in the past. So that's
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Speaker 6: a bit more of a precarious situation in which to
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Speaker 6: be protecting profitability. If you raise prices, you may lose
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Speaker 6: out a lot on volume. I think that'll be a
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Speaker 6: very fun story to be tracking in the next three months.
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Speaker 6: And on the other side of the spectrum, you do
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Speaker 6: have meg tech companies which are now effectively introducing a
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Speaker 6: lot more AI accessibility and enhancements to their models. These
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Speaker 6: capabilities are trying to be adopted by effectively every major
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Speaker 6: company and every major industry, and they're willing to pay
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Speaker 6: up to do it. And the kind of proof that's
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Speaker 6: in the putting is even you know, though you don't
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Speaker 6: effectively expect capex to pay for itself in one year,
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Speaker 6: you expect longer payback periods for that. If you just
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Speaker 6: look at some of the biggest tech companies, the hyper scalers,
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Speaker 6: everything they've done to juice Capex in the past year
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Speaker 6: has more than been made up with in sales already.
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Speaker 2: When we look at the long term play, then for
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Speaker 2: these big AI companies, the hyper scalers, I guess what
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Speaker 2: I'm trying to wrap my head around is ultimately they
10:53
Speaker 2: need to be able to sell their services to all
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Speaker 2: the other companies that are out there, hey, you know
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Speaker 2: and pop whoever you need AI in order to do
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Speaker 2: this all the way up to you know, you know,
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Speaker 2: regional companies that need AI to do something. But those
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Speaker 2: companies still need to make you know, final sales to
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Speaker 2: end buyers and consumers. How does this all work if
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Speaker 2: we're in a really stagnant labor market that could be
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Speaker 2: made worse by AI, Like, how do we reconcile where
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Speaker 2: all of this can be going in the next several years.
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Speaker 2: I kind of tie myself in notts trying to figure
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Speaker 2: it out.
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Speaker 6: Oh man, I wish I had the perfect answer to that,
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Speaker 6: But that is the exact right question to be asking
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Speaker 6: right now. When you think about CAPEX booms zooming out,
11:38
Speaker 6: CAPEX booms generally happen as a result of two to
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Speaker 6: three things. One is a response to an acceleration and
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Speaker 6: consumer demand. Consumers who want to buy a lot more.
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Speaker 6: You don't have the capacity to produce it, so you've
11:50
Speaker 6: got to expand capacity in order to meet that demand.
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Speaker 6: The second is a large shock and commodity prices that
11:56
Speaker 6: tends to, you know, engender some supply response, whether it
12:00
Speaker 6: be from oil producers, miners, et cetera. The third is
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Speaker 6: a policy change. Sometimes around you know, big tax policy changes.
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Speaker 6: You do see kind of one off jumps in CAPEX.
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Speaker 6: Right now, we really don't have any of those. I
12:14
Speaker 6: think there's there's an argument to be made that's been
12:16
Speaker 6: slept on a little that some of the tax changes
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Speaker 6: in the One Big Beautiful Bill Act have made it
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Speaker 6: a little easier to be spending billions and billions more
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Speaker 6: on on AI related needs. But what we have right
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Speaker 6: now is a situation in which consumers spending has been
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Speaker 6: decelerating a lot, capex has been picking up a lot,
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Speaker 6: and we haven't really had a rubber meets the road
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Speaker 6: point where we've had to choose between the two because
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Speaker 6: even as you know, even as you note that margins
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Speaker 6: for the average company might not be getting too much better,
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Speaker 6: they're also not getting too much worse and sales are
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Speaker 6: still going up. So we're still in a in a
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Speaker 6: bit of a situation where although consumer spending has been
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Speaker 6: softening at the margins certainly not off to a great
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Speaker 6: start this year, it has not been bad enough to
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Speaker 6: effectively pull down the incentive to be spending a lot
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Speaker 6: more to invest in AI. Ultimately, you know, consumers about
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Speaker 6: seventy percent of the US economy. If you think about
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Speaker 6: what will ultimately happen, the consumer will ultimately win. The
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Speaker 6: consumer quote unquote wins in two ways. Either a all
13:24
Speaker 6: of this spending on AI, all of the kind of
13:27
Speaker 6: associated productivity benefits we're supposed to get down the road,
13:31
Speaker 6: and also just the increase in network that's coming from
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Speaker 6: the market rally being led by a lot of these stocks.
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Speaker 6: Either that is sufficient to help choose consumer spending or
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Speaker 6: keep it good enough so that effectively it's consumers steadying
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Speaker 6: up or kind of the capex the floor being built
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Speaker 6: up onto the capex that's being met by consumer demand.
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Speaker 6: Or it's quite simply that in choosing to have the
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Speaker 6: marginal dollar from corporates increasingly and increasingly go towards AI
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Speaker 6: rather than labor, that you're creating a situation which the
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Speaker 6: consumer wins by falling down and dragging everything else down
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Speaker 6: with it. I do think that this is the key
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Speaker 6: question that will be coming up as we head through
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Speaker 6: the rest of the year.
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Speaker 2: It's a question of.
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Speaker 6: That also encompasses, Hey, have was spending just delayed due
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Speaker 6: to tariff uncertainty or is the kind of real spending
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Speaker 6: drag really something that's getting in train as tariff's more
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Speaker 6: and more work their way through the system, companies work
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Speaker 6: down inventory and then you get additional rounds of price
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Speaker 6: increases going forward. I think it's a very open question.
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Speaker 6: I'm not sure what the answer is, but I'm sure
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Speaker 6: the answer at the end is the consumer wins.
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Speaker 2: Look, so these are you know, kind of bigger long
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Speaker 2: term things. I want to focus now on just what's
14:46
Speaker 2: been going on the last week, because it's been kind
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Speaker 2: of an odd week that I'm trying to make sense
14:51
Speaker 2: out of here pretty much ever since the FED meeting.
14:54
Speaker 2: Last week we have a FED meeting and then after
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Speaker 2: hours you get Microsoft and Meta that have you know,
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Speaker 2: blowout earnings to the top side there through the roof.
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Speaker 2: Stocks open the next day, Positive can't hold their games,
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Speaker 2: the S and p n's up down for the day,
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Speaker 2: and then Friday we get kind of puky with a
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Speaker 2: bad jobs report. So it looks like we're heading for
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Speaker 2: a leg down potentially this week. No major news aside
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Speaker 2: from I guess yesterday maybe some of the tariff exemptions
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Speaker 2: for semiconductors, but this market feels like it doesn't want
15:24
Speaker 2: to go down. Now, What is going on here in
15:26
Speaker 2: this last week because I'm having a little trouble making
15:30
Speaker 2: sense of market action.
15:32
Speaker 6: Herein Join the club, Join the club. I do think
15:36
Speaker 6: that a big catalyst, a big reason for why markets
15:41
Speaker 6: seem to rebound very quickly, is that if you look
15:45
Speaker 6: over the past ten plus years, you can again you
15:48
Speaker 6: can zoom out to make sense of what's happening in
15:51
Speaker 6: the near term. I think this is one of those
15:53
Speaker 6: examples dip buyers have not ever effectively been that punished.
15:58
Speaker 6: The only year you could argue in the past, you know,
16:01
Speaker 6: fifteen or so where that's really been the case is
16:04
Speaker 6: twenty twenty two. We've seen that when there's policy changes
16:08
Speaker 6: that are seen as negative.
16:10
Speaker 2: Those will be reversed.
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Speaker 6: So a negative catalyst on the trade front, for instance,
16:15
Speaker 6: seems to get watered down if it's judged to be
16:18
Speaker 6: doing sufficiently sufficient damage to the forward outlook for stocks.
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Speaker 6: We have seen that through the first week of April.
16:25
Speaker 6: So we have a situation which there is a Pavlovian
16:28
Speaker 6: response to be buying the dip because you aren't punished. Hey,
16:32
Speaker 6: if you continuously get rewarded for the same behavior, you'll
16:36
Speaker 6: keep doing it. It's the same way if AI companies
16:39
Speaker 6: get rewarded for spending more and more on capax in
16:41
Speaker 6: the form of both sales and their market value going up,
16:44
Speaker 6: they're going to do a lot more of it. If
16:45
Speaker 6: people get rewarded for buying the dip and there is
16:48
Speaker 6: this habit of doing so, the direction of travel will
16:51
Speaker 6: be to do so until you know there comes a sufficient.
16:54
Speaker 4: Time where you're punished for it. And I believe you can.
16:58
Speaker 6: You can continue to make the argument that what the
17:01
Speaker 6: US economy is really seeing is just a slow slowdown,
17:05
Speaker 6: a moderation and growth, and that there's no real near
17:09
Speaker 6: term cliff to fall off of the idea that job
17:13
Speaker 6: growth should be going down a lot because labor supply
17:15
Speaker 6: has decreased. A law to that consumer income growth, once
17:19
Speaker 6: you include transfers, really isn't that awful, and it's decent
17:22
Speaker 6: to support the ongoing expansion of consumer spending. You can
17:26
Speaker 6: fall back on these fundamental arguments to justify it, but
17:30
Speaker 6: in the end, it's what the behavior that you're really
17:33
Speaker 6: rewarding is that, Hey, the last time I did this,
17:36
Speaker 6: it worked, and it worked the time before that and
17:38
Speaker 6: the time before that, so I'm going to do it again.
17:41
Speaker 2: Fantastic, Luke, appreciate you joining us today and thanks so
17:44
Speaker 2: much for the time.
17:46
Speaker 6: Pleasure to be here.
17:47
Speaker 1: Thank you.
17:47
Speaker 2: That is Luke Kawa, the markets editor at Sherwood News.
17:51
Speaker 5: All right, time for trivia here on the Financial Exchange,
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Speaker 5: and on this day. Back in two thousand, al Gore
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18:31
Speaker 2: Let's see I don't want to talk about this at
18:33
Speaker 2: and T story right now.
18:37
Speaker 3: Starbucks, Airbnb, Airbnb struggling to continue to grow, and when
18:44
Speaker 3: you think about their business model, it makes total sense
18:47
Speaker 3: to me. Not only are you facing consumers that are
18:50
Speaker 3: I think, having trouble keeping up with the travel spend,
18:53
Speaker 3: but I just looked up the list of cities that
18:55
Speaker 3: are now banning Airbnb in some way, shape or form,
18:58
Speaker 3: New York City, Boston, San Francisco, Los Angeles, Las Vegas, Barcelona,
19:02
Speaker 3: and total bands are They're not total bands, but they
19:05
Speaker 3: make it very difficult to host Airbnb's in these cities Barcelona, Amsterdam, Berlin, Paris, Montreal,
19:11
Speaker 3: and those were just naming the ones that I could
19:13
Speaker 3: easily find those are your growth areas, so you can
19:18
Speaker 3: only you know, you can only rent out so many
19:20
Speaker 3: yurts in Montana before your business starts to stry.
19:24
Speaker 2: I got to tell you though your season is common,
19:27
Speaker 2: Your season is common. Quick break here when we come back,
19:30
Speaker 2: we got the trivia answer in Wall Street.
19:31
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19:55
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19:58
Speaker 5: It looks like markets are now retreating from early morning
20:01
Speaker 5: gains after reciprocal tariffs on several countries went into effect
20:06
Speaker 5: at midnight. Right now, the Dow is off by over
20:10
Speaker 5: six tenths of one percent, or two hundred and eighty
20:13
Speaker 5: seven points. SMP five hundred is down by a tenth
20:15
Speaker 5: of a percent or eight points. Nasdaq is actually up
20:19
Speaker 5: by four tenths of one percent or eighty two points higher.
20:22
Speaker 5: Rusted two thousand is off nearly a half a percent.
20:25
Speaker 5: Ten year treasure Field is flat at four point two
20:28
Speaker 5: two five percent, and crude oil is down about a
20:31
Speaker 5: third of a percent, trading just above sixty four dollars
20:34
Speaker 5: a barrel. President Trump took to truth social this morning,
20:38
Speaker 5: calling for Intel CEO Lipbou Tan to resign immediately. Tan
20:42
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20:45
Speaker 5: down by three percent. Meanwhile, Apple adding to its gains
20:48
Speaker 5: yesterday and is up another three percent today after the
20:52
Speaker 5: tech giant announced an extra one hundred billion dollars in
20:55
Speaker 5: US manufacturing. Sticking with Apple related news, where Corning shit
21:00
Speaker 5: are climbing over one percent higher after Apple said it
21:03
Speaker 5: would expand its partnership with the Precision glass maker as
21:06
Speaker 5: part of its US push. Another Apple partner in Rare
21:11
Speaker 5: Earth Minor MP Materials, also seeing gains of over two percent. Elsewhere,
21:16
Speaker 5: ELI Lilly sinking fourteen percent after the drug maker said
21:19
Speaker 5: it's experimental weight loss pill help people lose up to
21:22
Speaker 5: twelve percent of body weight, a bit less than Wall
21:25
Speaker 5: Street had expected, however, and dual Lingo shares are surging
21:28
Speaker 5: nearly thirty percent after the language learning platform boosted its
21:32
Speaker 5: guidance due to strong user growth driven by artificial intelligence.
21:38
Speaker 5: I'm Tucker Silva and that is Wall Street Watch. And
21:41
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21:43
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22:00
Speaker 2: Piece in CNBC Peloton post surprise profit announces yet another
22:04
Speaker 2: round of layoffs, impacting six percent of staff.
22:09
Speaker 3: Finally hitting a I don't mean a stock bottom, but
22:12
Speaker 3: a business bottom for this company where they are stabilizing sales.
22:16
Speaker 2: I guess I didn't realize they had much in the
22:18
Speaker 2: way of staff left, but I guess you can always
22:19
Speaker 2: cut another six percent. Look, this is one of those
22:24
Speaker 2: that it's going to be just a classic study of hey,
22:28
Speaker 2: how did this stock get to one hundred and fifty
22:30
Speaker 2: dollars a share back in twenty twenty one and then
22:34
Speaker 2: go down to you know, two dollars in change before rebounding.
22:37
Speaker 2: It's it's seven thirty right now. And here's the thing
22:40
Speaker 2: about Peloton. When you look at the overall business, they
22:43
Speaker 2: do about two point five billion dollars in revenue a year,
22:46
Speaker 2: so it's like it's a business, you know, it's it's
22:48
Speaker 2: not to say that there's nothing there. It obviously is
22:54
Speaker 2: still you know, somewhat of a niche product. But I'll
22:58
Speaker 2: also point out Planet Fitness does a billion dollars in
23:03
Speaker 2: revenue a year, so like again, when it comes to
23:07
Speaker 2: exercise equipment, there's only so much money that's out there.
23:10
Speaker 2: And look, Peloton has at least a decently sized business.
23:15
Speaker 2: The problems that they have had. Number one, they obviously
23:18
Speaker 2: have not been profitable basically ever, aside from a couple
23:22
Speaker 2: quarters in twenty twenty and early twenty one details Chuck,
23:26
Speaker 2: in fact, they were hugely unprofitable for a while, losing
23:29
Speaker 2: you know, almost three billion dollars across the first half
23:33
Speaker 2: of twenty two and second half of twenty one. So
23:36
Speaker 2: like that was a problem. From a free cash flow perspective,
23:40
Speaker 2: another area where they were pretty heavily negative until the
23:42
Speaker 2: end of twenty three, they're actually free cash flow positive now.
23:45
Speaker 2: So yeah, it seems like they've you know, figured out
23:48
Speaker 2: how to form you know a little bit of stability
23:52
Speaker 2: in the business. But ultimately the problem is still going
23:57
Speaker 2: to come back to one thing. At the end of
23:59
Speaker 2: twenty one one, they're trailing twelve month revenue was four
24:02
Speaker 2: point one three billion dollars and now it's two point
24:04
Speaker 2: five and it's continuing to decline very very slowly. You
24:09
Speaker 2: can't build a long term successful business off a shrinking
24:13
Speaker 2: revenue base.
24:14
Speaker 3: Yeah, it does just feel like it's not a standalone company,
24:19
Speaker 3: at least not a sustainable standalone business that's going to
24:21
Speaker 3: be able to grow in the stock market.
24:23
Speaker 2: It feels like a company that, ultimately, I mean, I mean, look,
24:28
Speaker 2: it should be under Apple. Let's call a spade a spade.
24:34
Speaker 2: It's a high priced product that you know, is its
24:38
Speaker 2: brand is all about image and and this and that.
24:42
Speaker 2: It should be under Apple. Apple's already got you know,
24:45
Speaker 2: this whole Apple Fitness thing. They've got Apple Health. You
24:48
Speaker 2: could fold it in a million different ways. Hey, if
24:51
Speaker 2: you subscribe to Apple TV, will give you, you know,
24:54
Speaker 2: a Peloton subscription for free just by the hardware.
24:57
Speaker 3: Plus plus, Apple's got to spend six hundred billion dollars
25:01
Speaker 3: in the United States.
25:03
Speaker 4: Apples made this.
25:04
Speaker 2: Commitment to spend six hundred billion dollars. Why not spend
25:07
Speaker 2: the three billion dollar company now you have them a
25:09
Speaker 2: thirty percent premium fine, spend four billion of it buying
25:12
Speaker 2: Peloton I don't know. It just feels too easy to
25:18
Speaker 2: me like it. There's some things that just makes sense,
25:22
Speaker 2: and Peloton being bought by Apple makes sense aside from
25:25
Speaker 2: they probably don't want to pay this much, so they're
25:27
Speaker 2: probably hoping that the stock goes down more.
25:28
Speaker 4: But back to two dollars.
25:30
Speaker 2: Yeah, exactly, But look what when you're in the size
25:32
Speaker 2: of Apple, A billion dollars is a rounding error. Not
25:36
Speaker 2: quite but almost.
25:37
Speaker 3: I would be very interested to know the iPhone to
25:41
Speaker 3: Peloton user overlap, and I'd be willing to bet it's
25:44
Speaker 3: a lot higher than the national average.
25:46
Speaker 2: I think so. I think so.
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27:06
Speaker 2: So DraftKings is a company that makes money based on
27:11
Speaker 2: you being bad at gambling, and.
27:14
Speaker 4: Not you specifically, but the collective view.
27:17
Speaker 2: We'd be they make money based on us being bad
27:19
Speaker 2: at gambling, and the good news for DraftKings is that
27:23
Speaker 2: we got worse at gambling in the most recent quarter.
27:25
Speaker 3: So good news for DraftKings, good news for a shareholders,
27:28
Speaker 3: bad for everyone else, including people that don't bet on
27:32
Speaker 3: Draft gangs.
27:32
Speaker 2: Yes, the average revenue per monthly unique player or mooph
27:39
Speaker 2: as they or is it mup. I'm gonna go mup
27:42
Speaker 2: like a muppet. I don't want to be a muppet though.
27:44
Speaker 2: I don't want to be a moope either, But you
27:46
Speaker 2: know it's when forced to choose, one chooses the moop. It. So,
27:50
Speaker 2: the average revenue per moop jumped twenty nine percent over
27:53
Speaker 2: from last year to one hundred and fifty one dollars,
27:56
Speaker 2: a lot of money. And so that means that on average,
27:59
Speaker 2: the the average person on DraftKings lost lost one hundred
28:06
Speaker 2: and fifty one dollars for the quarter.
28:08
Speaker 3: And there's a lot of people on DraftKings, right, Sorry,
28:11
Speaker 3: was that annualizers that in a quarter?
28:14
Speaker 4: That was that was the revenue per moop for the quarter.
28:17
Speaker 3: So if you're as bad so annualize that, you're talking
28:20
Speaker 3: about six hundred bucks a year people are losing on
28:22
Speaker 3: DraftKings on average.
28:23
Speaker 4: That is really bad on average.
28:26
Speaker 2: And this is so a moop as they define it,
28:30
Speaker 2: it's the number of users that at least one real
28:32
Speaker 2: money paid engagement in a month. So you're basically you're
28:36
Speaker 2: making at least one bet a month in order to
28:37
Speaker 2: qualify there and they had three point three million of those.
28:40
Speaker 2: So two percent of the US population on average is
28:45
Speaker 2: losing six hundred dollars a year just to DraftKings.
28:48
Speaker 3: So I want to compare this to something that's not
28:51
Speaker 3: very comparable. But let's talk about Facebook for a minute.
28:54
Speaker 3: They have a different metric of their users, which is
28:56
Speaker 3: our poo the average revenue per user, and I haven't
28:58
Speaker 3: looked at it in a while in the United States.
29:01
Speaker 4: I think it was in the high teens.
29:03
Speaker 2: Fifteen to eighteen feels right, per year that they would
29:07
Speaker 2: earn on their average Facebook user fifteen dollars per year.
29:13
Speaker 4: DraftKings is making some six hundred dollars per year on
29:16
Speaker 4: their average user.
29:16
Speaker 2: Is that No, that was per quarter. That's per quarter
29:20
Speaker 2: still eighty dollars. So DraftKings is making ten times as
29:22
Speaker 2: much than Facebook is. Obviously, Facebook has you know, three
29:26
Speaker 2: point three billion users. I think it's like two eight instead.
29:28
Speaker 3: Of different scale, correct and different muddle right, They're not
29:32
Speaker 3: paying anything to be on Facebook's platform, but wow, that
29:37
Speaker 3: is a lot.
29:37
Speaker 4: Of money to be losing on gambling every quarter.
29:40
Speaker 2: I gotta be completely honest, and look, I don't sports
29:44
Speaker 2: gambled Tuckle like you can probably have the other side
29:46
Speaker 2: of this. I'm starting to really wonder whether having sports
29:51
Speaker 2: gambling available via the phone is something we should have. Yeah,
29:57
Speaker 2: I'm not saying banned sports books. I might be saying
30:00
Speaker 2: ban mobile sports books.
30:02
Speaker 5: Well, now you're seeing this leak into sports now, well
30:05
Speaker 5: it's you see a couple of pictures from the Guardians.
30:07
Speaker 5: Now it's a who are like throwing balls on purpose?
30:11
Speaker 2: Right, So, A, you've got, you know, some questionable things
30:13
Speaker 2: happening when it comes to actual players and umpson referees.
30:19
Speaker 2: B I can't go five minutes without someone telling me
30:23
Speaker 2: the parlay of the day in a broadcast, which, by
30:26
Speaker 2: the way, if you're parlaying, you're losing. Just want to
30:29
Speaker 2: let you know.
30:30
Speaker 4: Uh.
30:30
Speaker 2: And So honestly, I kind of look at this and
30:35
Speaker 2: I'm just no, I'll be quite honest, it's a net
30:39
Speaker 2: drag on society to have mobile sports books allowed.
30:43
Speaker 5: Well, the thing where they get you is all these
30:46
Speaker 5: advertisements for bonus bets. Oh I know, because it's just like, oh,
30:49
Speaker 5: well it's free money. It was like, well not really,
30:51
Speaker 5: because you can't cash out, correct.
30:54
Speaker 3: So I see all these downsides to it. I recognize
30:57
Speaker 3: all of them. And it just contradicts the way I
31:01
Speaker 3: generally feel about how we should legalize things and deal
31:05
Speaker 3: with them. And I get that it's different because it's
31:08
Speaker 3: an addictive type of thing, and so you know, maybe
31:11
Speaker 3: it belongs in the same classification as other addictive products
31:15
Speaker 3: that were put out there.
31:16
Speaker 4: But I don't know when this got legalized.
31:19
Speaker 3: I was kind of all in favor, like, yeah, legalize it,
31:21
Speaker 3: make it safe, tax it, rather than having people, you know,
31:25
Speaker 3: gamble I legally with their sports book, with their But
31:28
Speaker 3: I do see.
31:29
Speaker 4: The societal negatives here that we are all.
31:32
Speaker 3: Because you know, we joke around about these things, and
31:34
Speaker 3: we can talk about how annoying it is to people
31:37
Speaker 3: talking about their parlays and all this stuff. The real
31:41
Speaker 3: style damage is that there are a bunch of young
31:43
Speaker 3: twenty something year old mainly men, who are in thousands
31:47
Speaker 3: of dollars of gambling debt.
31:49
Speaker 4: Yeah, like that, that's the problem.
31:51
Speaker 3: Like that that is a really big issue for those people,
31:56
Speaker 3: and honestly, society generally like that.
31:59
Speaker 4: That is a really big you know.
32:00
Speaker 2: And I'll give you just an example.
32:04
Speaker 4: Well, let me take a quick break and then we'll
32:06
Speaker 4: do an example gambling example. Okay, let's get right after.
32:09
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32:52
Speaker 2: All right, So, last second, we were talking about draft
32:54
Speaker 2: kings and I made the point like, look, I don't
32:58
Speaker 2: really have a problem with legalized sports batting. I think
33:00
Speaker 2: I do have a problem with legalized mobile sports betting.
33:04
Speaker 2: And I'll use myself as a point of comparison. Last weekend,
33:08
Speaker 2: I went to a casino and I played some blackjack
33:13
Speaker 2: for about six hours. I made fifty dollars over the
33:16
Speaker 2: entire time, So net I entertained myself. I got some
33:19
Speaker 2: free drinks, and I made fifty dollars.
33:20
Speaker 4: It was fine.
33:21
Speaker 2: You know, it didn't lose the house, didn't make a
33:24
Speaker 2: new house. It was just it was what it was.
33:27
Speaker 2: But the point is I had to drag myself to
33:31
Speaker 2: that casino, get there, and go through the act of
33:34
Speaker 2: actually doing that in order to make those bets. I
33:39
Speaker 2: couldn't just be sitting at work on my phone firing
33:43
Speaker 2: off a bunch of blackjack bets during the day and
33:47
Speaker 2: trying to pretend that I'm a functioning human being otherwise.
33:50
Speaker 2: And so I think my point on this is I
33:53
Speaker 2: don't really have a problem with gambling in and of itself.
33:56
Speaker 2: Like I gamble, I don't do it on sports just
33:58
Speaker 2: because I'm really bad at it to be only that's,
34:00
Speaker 2: you know, just a me thing. But gambling in and
34:03
Speaker 2: of itself, I don't think is something that should be banned.
34:06
Speaker 2: I think the problem is on the phones, it's way
34:09
Speaker 2: way too easy to get yourself into trouble because you
34:13
Speaker 2: can literally do it twenty four hours a day, even
34:15
Speaker 2: on stuff you don't know of. I remember during the pandemic,
34:18
Speaker 2: everyone's betting on freaking Korean baseball at two am because
34:22
Speaker 2: they needed something to do, and I don't.
34:25
Speaker 3: Know, try this just is such a weird, dangerous slope
34:29
Speaker 3: to me, Like what's their slope? I just don't I
34:33
Speaker 3: don't know that we I have a tough time making
34:36
Speaker 3: this argument that hey with gambling specifically, we shouldn't allow
34:40
Speaker 3: that on our phones, whereas I'll go further fun we
34:42
Speaker 3: should just ban smartphones? Yeah, like just get rid of them,
34:46
Speaker 3: like they're awful. They're awful in general.
34:48
Speaker 2: Yeah, you know, And I say, this is someone who
34:50
Speaker 2: uses one, so like, I get what I'm saying, but honestly.
34:54
Speaker 3: I recognize it's a problem, and I don't know, I
34:58
Speaker 3: still have to die and that I think, But I'd
35:01
Speaker 3: rather legalize it.
35:02
Speaker 2: And what do you think the problem is in saying, hey,
35:05
Speaker 2: you have to gamble in a casino instead of on
35:08
Speaker 2: a smartphone.
35:09
Speaker 4: I would be.
35:11
Speaker 3: Yeah, I guess I'm perfectly fine with that on a
35:15
Speaker 3: but I want the states to be able to decide it,
35:17
Speaker 3: I guess.
35:17
Speaker 4: But yeah, it's a fair point. Should we Should we
35:19
Speaker 4: just do that?
35:22
Speaker 3: DraftKings would certainly not like it, but all the casinos
35:25
Speaker 3: be pretty darn happy about it.
35:26
Speaker 2: I don't know, Like that's kind of where I land is.
35:30
Speaker 2: I'm totally fine with gambling of any kind. I gamble
35:33
Speaker 2: on a regular.
35:34
Speaker 3: Basis, and I think there is something to the psychology
35:39
Speaker 3: of needing.
35:40
Speaker 2: So I was first out of college, I was going
35:41
Speaker 2: to boggling right now, as we speak right now. No,
35:45
Speaker 2: but I can't. Like that's the thing. I can't be
35:47
Speaker 2: playing blackjack on my phone for money. Oh yeah, you can't. Yeah,
35:51
Speaker 2: I'm sure. I'm sure there's like an app I could download,
35:54
Speaker 2: but you know, like then I get into all kinds
35:55
Speaker 2: of weird stuff.
35:56
Speaker 3: So and I think there's something psychologically about physically walking
36:01
Speaker 3: yourself into a casino.
36:02
Speaker 4: You kind of make that rule in your.
36:04
Speaker 3: Head, like all right, I've got the cash in my pocket,
36:05
Speaker 3: that's the money I have to spend tonight.
36:07
Speaker 4: And when that, I'm.
36:08
Speaker 2: True, you can you can always take out a cash
36:10
Speaker 2: e vance on a credit card.
36:11
Speaker 4: Yeah, and people do. But to your point, trust me,
36:14
Speaker 4: I have much more.
36:15
Speaker 2: This is what I'm saying. Like I've been there where
36:17
Speaker 2: it's like, hey, if I don't win this next bet,
36:22
Speaker 2: I don't know if I can pay the rent this month.
36:24
Speaker 2: I've actually been there in a casino once. To be fair,
36:28
Speaker 2: Fortunately I won the next bet and it was like
36:30
Speaker 2: everything worked okay. But direction of Chuck's life, I we've
36:35
Speaker 2: been all we've been all downhill from there. But I
36:39
Speaker 2: understand like where all of that comes from. My point
36:42
Speaker 2: is I had to go to a casino in order
36:45
Speaker 2: to do that, and so that put a natural guard
36:47
Speaker 2: rail on how badly I could potentially spiral in that. Yeah,
36:52
Speaker 2: I could go down every Saturday, and that was what
36:54
Speaker 2: it was when I was a year out of college.
36:56
Speaker 2: Like my buddies and I like doing that. But I
36:58
Speaker 2: couldn't just sit at my day on my couch.
37:01
Speaker 4: The bag on the stage.
37:03
Speaker 3: I mean, like the sports, the professional sports leagues are now.
37:07
Speaker 3: It might be they're making so much money on this, Yeah,
37:10
Speaker 3: they're not gonna get it there.
37:11
Speaker 4: There's just no way in my mind that they're go backwards.
37:15
Speaker 2: They're not gonna give it up.
37:17
Speaker 4: This.
37:17
Speaker 3: This is this is done right like this. This is
37:19
Speaker 3: going to be part of society for a long time
37:21
Speaker 3: until something breaks.
37:22
Speaker 2: I mean guys like look at look at Europe just
37:25
Speaker 2: as an example, Like there's been sports gambling there for
37:28
Speaker 2: a long long time. They kind of tried to warn
37:31
Speaker 2: us about this, but ultimately, even though some really bad
37:33
Speaker 2: things happened there, it's just like, Okay, what are we
37:35
Speaker 2: gonna do? You know what, Once it's there, it's there
37:37
Speaker 2: and we got to live with it.
37:39
Speaker 3: I just I just think that there's a yeah, what
37:42
Speaker 3: I think is going to happen is there's going to
37:43
Speaker 3: be a bunch of twenty year olds that are going
37:45
Speaker 3: about to learn a lot of very hard lessons.
37:49
Speaker 2: I'd see what it's doing to young men financially, and
37:53
Speaker 2: it hurts me, like it really does. And I say,
37:56
Speaker 2: this is someone again who's kind of been through some
37:59
Speaker 2: of that on not quite the same scale. But it's
38:04
Speaker 2: just something where I'd rather have you have to go
38:06
Speaker 2: somewhere to do it as opposed to just do it
38:08
Speaker 2: twenty four hours a day. But that's me and kind
38:12
Speaker 2: of an old fogie about this. I don't know. We're
38:14
Speaker 2: done for the day and we'll see you tomorrow. To
38:17
Speaker 2: wrap up the week on the Financial Exchange,