Podcast Summary
Cisco's progress in AI infrastructure market and inventory issues: Despite a market displeasure with Cisco's guidance, the company's solid revenue and growing software/subscription business indicate progress in AI infrastructure market. Inventory issues are temporary setback due to cyclical nature of tech industry.
Despite the market's displeasure with Cisco's guidance, the cyclical nature of the tech industry and Cisco's handling of inventory issues are reasons for optimism. Cisco's solid revenue and growing software and subscription business indicate the company's progress in the AI infrastructure market. However, the market may have overreacted to the slow order rate, leading to muted guidance. This is not an unusual occurrence in the tech industry, especially for companies that sell a lot of hardware like Cisco. The company's admission of the problem and efforts to moderate inventory are positive signs. When looking at Cisco's quarterly filings, a decrease in finished goods inventory will be an indicator of their progress in clearing out excess stock. Overall, the tech industry's cyclical nature and Cisco's handling of inventory issues make this a temporary setback rather than a cause for concern.
Cisco's Focus: Transitioning to Subscription Model and Executing Business Strategy: Cisco is transitioning to a more predictable subscription model, executing its business strategy, and increasing customers on cloud-based subscriptions, while dealing with hardware's cyclicality and integrating new technologies like AI infrastructure.
Cisco's current focus is on transitioning its business towards a more predictable subscription model, while dealing with the cyclicality of the hardware business. The company is making progress in software and subscription revenue, but integrating new technologies like AI infrastructure takes time. The real story for Cisco is less about AI and more about executing its business strategy, including matching customer demand with what it's building and increasing the number of customers on cloud-based subscriptions. While partnerships with companies like NVIDIA can be promising, their significance should be evaluated based on actual sales and execution.
Partnerships and collaborations for business success: Focus on incremental improvements to established products and services for business success, rather than relying on revolutionary changes or 'future of something' partnerships.
Meaningful partnerships and collaborations, as signified by the assignment of sales teams and joint engineering efforts, are crucial for the success of a product or business. The speaker expresses skepticism towards grandiose claims about the future of a product or partnership, citing numerous examples of failed "future of something" products throughout their career. They believe that incremental improvements to established products and services are more important for business success than revolutionary changes. While the potential partnership between Cisco and NVIDIA to enhance Webex could be beneficial, it is not essential for Cisco's overall success. Instead, the company should focus on making small improvements to its existing offerings and shifting its business towards more subscription-based products.
Managing Investor Expectations: A Key Factor in Market Reactions: Effective execution and managing investor expectations can lead to vastly different market reactions despite similar earnings reports. Walmart's potential for improved operating margins could make it an undervalued stock, while Target's lower expectations led to a more positive market reaction despite a revenue decline.
The recent performance of Target and Walmart is less about their technology and more about their effective execution. Both companies have shown solid earnings reports, but the market reactions have been vastly different due to differing investor expectations. Walmart, which has been on a rally, faced a significant sell-off after setting more modest guidance than analysts anticipated. The market seems to underestimate Walmart's potential, but if the company manages to improve its operating margins, it could lead to substantial upside for investors. Currently, Walmart's operating margin stands at 4.1%, and it's showing signs of improvement. This improvement could make Walmart a massively undervalued stock with significant potential for long-term gains. Target, on the other hand, has faced lower expectations and has seen a more positive market reaction despite a revenue decline. The execution stories of these two companies highlight the importance of managing investor expectations and the potential rewards for companies that can deliver even modest improvements.
Walmart's International Business: A Key Growth Driver: Walmart's international business is growing rapidly, generating substantial operating leverage, and remains undervalued due to strong performance.
Walmart's international business is growing significantly and generating substantial operating leverage, making it an increasingly important part of the company. The international division's net sales were up 10.8% to $28 billion for the quarter, and operating income increased 20.9% to $1.1 billion. This growth is coming from digital ordering, investments in international markets, and a growing advertising business. While there are similarities between Walmart and Amazon in terms of marketplaces and advertising, the core businesses remain distinct. Walmart is not primarily a last-mile logistics business like Amazon, but rather a logistics business that leverages its physical stores. As long as Walmart continues to demonstrate strong operating leverage in its international business, the stock remains undervalued.
Walmart and Amazon's Competition for US Consumer Dollars: Walmart and Amazon are competing for US consumer dollars, each with unique advantages. Consumers may benefit from both through memberships or pickup services. Smaller retailers could be at risk, but Costco remains distinct.
Walmart and Amazon are set to engage in a fierce competition for US consumer dollars, particularly in the areas of grocery pickup and in-store shopping experiences. Walmart, with its unique advantages in logistics and physical stores, and Amazon, with its massive customer base and convenience, are poised to capture a significant share of consumer spending. However, both companies may coexist in consumers' lives, and smaller retailers, particularly Target, could be at risk of being squeezed out. Costco, with its unique business model, is expected to remain a distinct player in the market. Consumers can benefit from both Amazon's and Walmart's offerings through memberships or pickup services, respectively. The used car industry, represented by ACB Auctions, is another market undergoing significant changes, with the company disrupting the dealer-to-dealer auction space. Overall, these companies and industries illustrate the dynamic nature of business and the importance of adapting to changing market conditions.
Digitizing the Inefficient Dealer-to-Dealer Used Car Wholesale Market: ACV is a leading digital marketplace in the US dealer-to-dealer wholesale market, addressing inefficiencies and trust gaps through digital solutions, and growing rapidly by focusing on whole cars instead of damaged ones.
ACV is solving the inefficiencies and trust gaps in the dealer-to-dealer used car wholesale market by digitizing the process. Traditional physical auctions were unpredictable, inefficient, and time-consuming, leading to low price realization, conversion, and trust for both buyers and sellers. ACV addressed these issues by building a marketplace that scales supply and demand, establishes trust and transparency, and creates an end-to-end ecosystem for financing, transport, and title transfer. As a result, ACV has become a leading digital marketplace in the US dealer-to-dealer wholesale market, accounting for about 7-8% of the market and growing. Unlike competitors like Copart, which primarily deals with damaged and salvage cars, ACV focuses on whole cars and is the leading digital player in the market. The traditional physical auction houses remain the biggest competitors for ACV.
Using AI for accurate car pricing at ACV Auctions: ACV Auctions uses AI-powered ClearCar system for efficient and accurate car pricing, initially for wholesale market and later expanded to retail market during COVID-19.
ACV Auctions, an online car marketplace, faces the challenge of accurately pricing cars for both dealers and consumers. To address this issue, they introduced ClearCar, an AI-powered system that uses car attributes and condition to provide more efficient and accurate pricing. This technology was initially developed for the wholesale market but was later expanded to the retail market during COVID-19 when dealers faced a shortage of cars and consumers were inundated with emails to sell their cars. The use of AI is crucial due to the industry's lack of transparency, allowing for more accurate and dynamic pricing based on local market conditions. ACV Auctions, which started in 2014 and has seen growth through network effects, is currently prioritizing profitability on an operating basis.
Scaling profitable territories with technology and infrastructure investments: The company invests in technology and infrastructure to automate titles, scale payments, implement AI and pricing, and create efficiencies on both sides of the business, aiming to reach greater scale and drive efficiency across the entire company.
The company is focused on scaling its profitable territories in local and national markets by investing in technology and infrastructure. This includes automating titles, scaling payments, implementing AI and pricing, and creating efficiencies on both the inspection and marketplace sides of the business. The ultimate goal is to leverage these investments to drive efficiency across the entire company and reach greater scale. It's important to remember that individuals on the program may hold stocks discussed, and The Motley Fool may have formal recommendations. Always do your own research before making investment decisions.
