Podcast Summary
Effective Communication and Inflation's Impact: Improve communication skills through expert advice and practical tips from the Think Fast, Talk Smart podcast, while businesses and individuals navigate the impact of inflation on essentials and consumer spending.
Communication skills are essential in business and life, and the Think Fast, Talk Smart podcast, with its expert guests and practical tips, can help individuals hone these skills. The podcast, which has received over 43 million downloads and is the number one career podcast in 90 countries, covers topics from managing speaking anxiety to taking risks in communication and harnessing nervous energy for powerful presentations. Meanwhile, in the business world, inflation continues to impact consumers, with the annual rate holding steady at 8.5%. However, the food index, which has increased by 10.9% over the past year, is a particular concern as essentials become more expensive. This trend could start impacting consumer discretionary spending, and companies are already adjusting their guidance accordingly. For example, Datadog, which reported recently and has no connection to consumer businesses, still acknowledged the impact of inflation on its business. Overall, effective communication and navigating inflation's impact on consumers and businesses are crucial skills in today's world.
Consumer discretionary spending impacts companies like Datadog and The Trade Desk differently: Datadog faces cautious spending from consumer discretionary firms, while The Trade Desk thrives on first-party data and targeted advertising
The consumer discretionary sector's spending patterns are impacting various companies across industries, including cloud infrastructure providers like Datadog. Datadog, which has a subscription product business model, has issued conservative guidance due to spending cautions from consumer discretionary companies. However, some sectors, such as advertising through companies like The Trade Desk, are thriving as they focus on first-party data and targeted advertising. The Trade Desk's early adoption of first-party data usage has positioned them as a preferred choice for advertisers looking to maximize their remaining budgets. Despite some consolidation in the streaming industry, The Trade Desk's focus on targeted advertising using first-party data is expected to remain beneficial. Overall, companies that can effectively adapt to changing consumer spending patterns and leverage first-party data will likely fare better in the current economic climate.
Streaming boom opens new opportunities for advertisers: The shift towards streaming platforms and normalization of first-party advertising presents both risks and opportunities for companies like The Trade Desk, with Walmart Plus offering a cheaper alternative to Amazon Prime and increased competition and engagement needs also present challenges.
The shift towards streaming platforms and the normalization of first-party advertising presents a potential tailwind for companies like The Trade Desk. Walmart Plus, for instance, offers a cheaper alternative to Amazon Prime with similar benefits, opening up new opportunities for advertisers to reach audiences using first-party data. However, the streaming boom also comes with challenges, such as increased competition and the need for higher engagement levels. Additionally, the ongoing tech layoffs, particularly in the private sector, may lead to a surge in talented tech workers looking for remote opportunities, creating both opportunities and challenges for companies. Overall, these trends present both risks and opportunities, and it's essential to stay informed and adapt to the changing landscape.
A prime opportunity for entrepreneurship during economic downturns: Invest in early-stage venture capital firms and strong public companies with ample capital during economic downturns. Understand share buybacks' context and consider share count as a valuable metric.
Despite the current narrowing of the venture capital market, it presents a prime opportunity for entrepreneurship. During economic downturns, some of the most groundbreaking companies are born. Engineers and innovators who may have been let go or seen their companies struggle could be the ones creating the next game-changing businesses, which could take years to emerge. For investors, it's essential to keep an eye on venture capitalists actively investing in early-stage companies, as those are the firms most committed to the long-term growth of innovative ideas. Additionally, public companies with strong fundamentals and ample capital, such as Jamf, may not be blockbusters but are valuable investments during uncertain times. Share count, a less frequently discussed metric, can offer insights into how management allocates capital and plays a role in share repurchases. Not all share buybacks are created equal, and it's crucial for investors to understand the context behind them.
Determining a Company's Size with Share Count: Understanding a company's share count is essential to calculating its market cap, with diluted shares and potential repurchases impacting the count.
Understanding a company's share count is crucial in determining its market capitalization and size. Share count refers to the number of shares a company has outstanding, and it can be found on a company's investor relations site or in their quarterly earnings reports. The market cap is calculated by multiplying the number of shares outstanding by the company's stock price. Diluted shares, which include stock options and restricted stock, should be focused on for a more conservative estimate. Share repurchases, where a company buys back its own stock, can be a bullish sign but are not a new phenomenon, with Warren Buffett being an early advocate. Companies may engage in share repurchases when they have excess cash and are struggling to find good investment opportunities.
Companies can increase shareholder value through share buybacks: Companies like NVR and Lowe's have used share buybacks to reduce share counts, boost earnings per share, and increase share prices
Share repurchases can increase the value of a company for its shareholders by reducing the outstanding share count and increasing earnings per share. A good example of this in action is NVR, a leading homebuilder that has spent over $7 billion on share buybacks in the last 10 years, reducing the share count by more than a third and seeing earnings per share grow almost 14x during that time. Another example is Lowe's, which has spent $1 billion on share repurchases over the past 5 years and has seen its share count decrease by almost 23% since 2018. Both companies have seen their share prices rise as a result of these efforts, and in the case of NVR, it has outperformed Amazon since the year 2000. Share repurchases can be an effective way for companies to return value to shareholders, but it's important for investors to ensure that the company is also increasing its earnings power to support the buybacks.
Tech Companies' Buybacks and Share Count: While some firms like Lowe's decrease share count through buybacks, enhancing EPS, others, such as Meta Platforms and NVIDIA, issue new shares for employee compensation, resulting in minimal share count reduction. Despite this, their strong earnings and stock performance keep investors interested.
While companies like Lowe's effectively reduce share count through buybacks, enhancing earnings per share for shareholders, others like Meta Platforms and NVIDIA, despite significant buyback spending, have seen only minimal reduction in share count due to issuance of new shares for employee compensation. These tech companies, known for their generous stock option packages, have seen their share prices perform well despite less-than-effective buyback strategies. However, it's essential to remember that buybacks should not be the sole reason for investment and that earnings power remains the primary focus. Nonetheless, the market seems to be giving these companies a pass, understanding the compensation practices in the tech industry.
Potential Impact of New Excise Tax on Share Repurchases: The new excise tax on share repurchases under the Inflation Reduction Act may cause some companies to consider paying dividends instead to avoid the extra cost, but its overall impact on buybacks remains uncertain.
The new 1% excise tax on share repurchases under the Inflation Reduction Act may not deter companies from engaging in buybacks due to the relatively low cost compared to their equity costs. However, it could potentially lead some companies to consider paying dividends instead, as investors may prefer this option and avoid the extra cost. This tax might also encourage a reevaluation of dividend policies among companies. It's important to remember that individual investment decisions should not be based solely on the information discussed in this conversation.
