Motley Fool Hidden Gems Investing - “You better brace yourself.”

Episode Date: June 1, 2022

Jamie Dimon has a warning for Wall Street analysts and investors. (0:25) Jason Moser discusses: - Salesforce shares rising on strong Q1 results and increased guidance - How the Slack acquisition is going so far - Elon Musk's ultimatum for executives at his company - Dimon outlining how JP Morgan Chase is preparing for an "economic hurricane" (15:41) Just in time for summer concert season Ricky Mulvey talks with Yeganeh Torbati about her reporting for The Washington Post about Live Nation and how t may have benefited from millions of dollars in grants intended for small businesses. Stocks discussed: CRM, MSFT, TSLA, JPM, LYV Host: Chris Hill Guests: Jason Moser, Yaganeh Torbati Producer: Ricky Mulvey Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Two of the most high-profile CEOs in America shared their thinking on the immediate future of work and the economy. Motley Fool Money starts now. I'm Chris Hill and I'm joined today by Motley Fool Senior Analyst, Jason Moser. Thanks for being here. Jason Moser. Hey, thanks for having me. Let's start with Salesforce, because first quarter profits and revenue were higher than expected. Interesting to me that Salesforce raised their earnings guidance for the full fiscal year while actually lowering their full-year guidance for revenue. I guess that means they're planning on spending less money? Yeah. They are definitely going to keep

an eye on the expense line. I think they talked of measured hiring and just making sure that their getting the most bang for their buck, so to speak. The downward guide on the revenue side really seemed to be more tied to foreign currency impacts. We typically view those as, over the long haul, over the course of years, we view those as more or less a wash, so to speak. don't get too terribly worked up over foreign currency effects. But it's always worth keeping in mind that it does exist and it certainly seems like that's what they were guiding down. The guy down was very, very slight. Extremely slight based on the guidance that they gave in the fourth quarter just a quarter ago. But all things considered, it was a really

strong start to the year for Salesforce. Revenue of $7.41 billion, that was up 26% in constant currency, that outperformed their own expectations. Operating cash flow, just under $3.7 billion, that was up 14% from a year ago as well. Again, to the guidance for full-year fiscal 2023, they're guiding in a range of $31.7 billion to $31.8 billion, and that still represents around 20% growth for the full year. The neat thing about Salesforce, because they're pursuing this huge market in CRM, the customer relationship management, being the market leader has really given them the opportunity to play a lot of offense. They've assembled a lot of very powerful tools, a lot of very powerful brands under their umbrella,

so to speak, that has helped move this business forward. We talked about their data business, the data cloud business that includes properties like MuleSoft and Tableau. The data cloud business grew 15% over a year ago. The sales cloud and service cloud businesses, they're both $6 billion plus businesses now. In the quarter, they grew 18% and 17% respectively. Then of course, I think Slack is what people remember probably the most. That's the most recent acquisition that people people remember, and that's actually working out very well. I think Slack on its own, I just didn't see a lot happening there. I think Slack still as a communication tool, frankly to me, it feels like it needs a lot of work, but it just hasn't really done. It's still

kind of the same thing it's always been since we started using it, but being a part of the Salesforce family, that gives Salesforce a chance to really leverage that property across all of the customers that they have. They've been very productive with that acquisition. They said that Slack outperformed revenue expectations with $348 million in the quarter versus $330 million they were expecting. The number of customers there spending more than $100,000 annually grew 45% from a year ago. All things together, great start to the year. I certainly understand the market's enthusiasm today. I was going to say, it was six years ago this month that Microsoft announced they were buying LinkedIn for $26 billion. You and I and other people who

have been on this show looked at each other and thought, okay, well, I guess you can do that if you want. I'm not really sure how you're going to make that work. Then at some point in the last six months, in one of Microsoft's earnings reports, I remember they came out and they broke out, here's what LinkedIn is doing in revenue. One, we were reminded of the fact that Microsoft owned LinkedIn, but we were also all surprised at how much revenue LinkedIn was bringing in under the Microsoft umbrella. I was going to ask you about Slack and what grade we're giving that now, but maybe we give Salesforce a couple more years, because Certainly, if you were grading Microsoft a year or so into the LinkedIn acquisition,

it probably wouldn't have been a very good grade. No, probably not. It was a little bit of a head scratcher at the time, and it's still a head scratcher as to how they're exploiting so much value from that. Because frankly, every time I check in on LinkedIn, I wonder, why did I just do that. It's just a very noisy experience, so I don't know. Maybe they're able to really do something with all of that data, but clearly it's worked out very well for Microsoft. I think we're seeing the same signs here with Slack and Salesforce. When you look at it in the context of the overall business, Slack was essentially $350 million in revenue for the quarter versus the $7.4 billion that the company generated. It's a drop in the bucket right now. But again,

given Salesforce's reach, given the number of customers, given its market leading position in CRM, I think Slack is a platform they can leverage very effectively as a communication tool. Lots of businesses around the country, around the world are using Slack to communicate. And so, I mean, the signs are there that it is growing. Again, you go back to that number of customers spending more than $100,000 annually, I mean, 45% year-over-year is nothing to sneeze at. But with that said, yeah, I don't know that it's going to be some massive needle mover for the business in the near-term at least, but I think it's one more tool that they add to their toolbox in what is a market they pursue in CRM that just requires doing

a lot of things very well. Fortunately, Mark Benioff, he had that vision early on of how to really piece this business together. All of these acquisitions along the way, he's just made some really good moves there. I feel like Slack is going to ultimately be another one. I want to get your thoughts on the CEO comments of the day. We'll start with Elon Musk, because he sent a couple of emails to employees and it had to do with going back to the office. I'll quote directly from one of the emails, if you don't show up, we will assume you have resigned. Anyone who wishes to do remote work must be in the office for a minimum, and I mean minimum, of 40 hours

per week or depart Tesla. This is less than we ask of factory workers." One of the things that strikes me from a communication standpoint is the juxtaposition of factory workers. He's basically saying to executives, we've got people in factories who are onsite doing this, and if you don't want to be on-site, I'm going to essentially color you with being elitist." Well, maybe that's something that entered his mind, the elitist perspective there. I feel like with Musk, he has done so much to get this business to where it is today. He's done it all. He's been there in the trenches. He's spent nights in the factory. He has a very personal connection to this business, and I feel like it's hard to argue

that he doesn't have some genuine perspective here. There are going to be some businesses I would imagine where you could say, okay, remote workforce can get by and everything. But it reminds me of an article I read back at the beginning of the year when it was talking about young employees losing out on not going to an office. As business experts say, young employees are missing out. There are a lot of people out there that have entered the workforce that have never dealt with an office environment, so they don't really have a comparison. The thing that stood out to me, the quote that stood out to me, Musk's quote, was when he said, there are, of course, companies that don't require this, but when was the last

time they shipped a great new product. It's been a while." That's a broad statement. I don't know that he was targeting any company in particular, but I think it does speak to the shortcomings of a virtual or a remote workforce. I think having that hybrid workforce, offering that hybrid option, remote work is a nice feature of an overall strategy, but as a standard, I think what we're finding here over the last couple of years, it can be very limiting, particularly with some businesses as opposed to others. It does feel like at least it does result in siloed workforces, however company defines its culture. It does feel like it's hard to maintain a culture as a remote company. But also, collaboration

really takes a massive hit. You just don't have those spur-of-the-moment conversations, don't have those face-to-face meetings where you're really going through ideas and trying to come up with that next lightning-in-a-bottle idea. For Tesla, that's really the foundation of this company, is innovation. He knows that the competitive landscape now for Tesla is far stronger than it's ever been. They have to really be on their game. He said something there, listen, we're just not going to settle for people phoning it in. I think in this case, I certainly respect it, I understand it. Leaders have to get in there and make difficult calls, but I think given his personal connection to this business and given everything that he has

personally put into it, honestly, I think it gives him the right to make this call. I think that if you don't like it, go find a job somewhere else because I bet you there are a lot of people out there that would love to be a part of that family. It's really going to be interesting to see over the next three to six months how all of this plays out, not just with Tesla, with other large companies that are trying the hybrid approach. You think about Airbnb, Brian Chesky coming out and saying, we want to be fully remote, but we're going to once a quarter, every team is going to to get together for a week. I feel like we're all going to be smarter about what works and what doesn't work six months from now than we are now. Let me get your thoughts on the

other CEO comments of the day. That's Jamie Dimon. He was at a financial conference today in New York City and said that he is prepping JPMorgan Chase for an economic hurricane. This was a room full of analysts and investors, and he said, things seem fine at the moment, and I'm quoting now, nobody knows if the hurricane is a minor one or Superstorm Sandy. You better brace yourself. JPMorgan is bracing ourselves, and we're going to be very conservative with our balance sheet. This is me talking now. I don't own shares of JPMorgan Jays, but Jamie Dimon is one of those leaders. I am always interested in what he has to say, particularly when it's about the broader economy. Yeah, I agree. I always take into consideration

his perspective because he clearly has a good one. He has a good insight into what's going on in the economy from a global perspective. Ultimately, we have to look at this from a global perspective today. I think what we're seeing, the confluence of events that are going on all around the world are showing just how interconnected our economy is. It's no longer just a domestic economy, it really is a global economy in many cases. You look at everything that's going on, he was referring to two specific things. It was not exclusive to just these two points, but I think he called out the quantitative tightening as opposed to the easing. The money supply is going to shrink. It's not going to be the same free

money environment that we've been living in over the past decade plus. That is going to hamper economic activity, but then also you look at what's going on with Ukraine and Russia. That's another example of something that's ultimately out of our control, it's out of most of the world's control, but it's something that appears to be dragging on and on and on with no real end in sight. There are consequences that come from that. We've seen its impact on energy, but there are also unforeseen consequences that we really can't even determine yet and and given the global nature of the economy, it's something that really comes into play. You look at some of the data out there today, obviously, inflation is hitting a lot of people

where it hurts. You look at consumer sentiment, it's the lowest in 10 years. Remember, that's a backward, that's a lagging indicator. It tells us about the past, how people are feeling, as opposed to the market that's a forward-looking mechanism. Then also, you look at the personal savings rate now. The personal savings rate is the lowest since 2008 at 4.4%. There, I don't think, are going to be many calls for additional stimulus at this point. With that in mind, it does feel like a lot of the stimulus that has been pumped through the economy has now been drained. I think it makes a lot of sense to have the bank in a good position from a balance sheet perspective because you never really do know what the future holds. But one thing you can do,

as opposed to trying to predict the future, I've said this before, we don't focus on predicting the future, just prepare for it. There are plenty of signs out there today that just tell us that, probably a good idea to be safe than sorry. It sounds like that's where he's coming from here. I hope it's not a hurricane. I hope maybe we're looking at worst a tropical storm, but I do understand where sentiment is coming from. Appreciate the time, Jason. Thanks so much for being here. Thank you. Summer concert season is here, and if you're going to a concert,

there's a good chance it's a show presented by Live Nation. Ricky Mulvey caught up with Yagane Torbati of The Washington Post about her reporting on Live Nation and how the company may have benefited from millions of dollars in grants intended for small businesses. Joining us now is Yeganeh Torbati, an economic policy reporter for The Washington Post. She's co-authoring the series, The COVID Money Trail, along with Tony Rahm. They recently wrote the article headlined, quote, Live Nation subsidiaries got millions in aid meant for independent venues. Welcome, Yeganeh. Thanks so much for having me. So, Live Nation is not just concert tickets. It also owns venues like the House of Blues,

runs festivals, including Austin City Limits and Lollapalooza, owns talent management firms, and sells sponsorships for their shows. This is a vertically integrated business that Congress very much does not like. Is that fair to say? I think in some ways, yes. It's definitely a company that over the course of the last 20 years or so has really focused on growth via acquisition and rolling up some of these smaller venues, smaller companies, regional chains into a business that extends, of course, across the country, but then also throughout the Middle East, South America, Europe, et cetera. That's really been a focus of Live Nation over the past couple decades. And, you know, it's gotten them into some trouble. The merger in 2009, 2010 with

Ticketmaster was really a source of a lot of controversy that was allowed to go forward by the Justice Department, but under certain rules and restrictions. And a couple years ago, the Justice Department found that Live Nation had actually violated those rules and that kind of settlement over that merger. And so I would say, yeah, it's very true that Live Nation is not super popular among members of Congress on Capitol Hill. I'd say that's probably fairly bipartisan, although maybe a little bit more pronounced on the Democratic side. And that has affected some of the ways that members of Congress approach Live Nation, even on some unrelated issues. So as Congress doled out trillions of dollars in relief funding, they very much tried to leave

Live Nation out of the arts funding as a part of the Save Our Stages program. So how did Live Nation perhaps find a side door where they benefited from about $19 million in small business administration loans? Right. So, this was sort of the crux of our reporting. And what we found was that Live Nation over time has purchased all sorts of different venues, or at least purchased stakes in these different venues and different businesses, including talent management firms as well. And so, what occurred in this case is that Congress very specifically wanted this pot of funds known as the Save Our Sages Act or the Shuttered Venue Operators Grant. It wanted that $15, $16 billion in funding to go to independent venues, independent companies.

And they wrote into the law that the money couldn't go to publicly traded companies or companies that are majority owned or controlled by publicly traded companies. And there were some other restrictions in there as well. Our reporting found that that rule was very much sort of in the minds of some members of Congress very much aimed at companies like Live Nation and Live Nation specifically. And that happened, you know, despite a lot of lobbying by Live Nation to be included in that legislation. But, you know, Congress decided they didn't want that. And so, you know, that lobbying was not successful. However, what we saw happen was that several companies that are 50% owned by Live Nation, so they're not technically majority owned, but Live Nation is their largest

shareholder, several companies that fit that description or are otherwise listed as subsidiaries of Live Nation on their public, you know, annual report that they file with the SEC, they managed to get funds. And, you know, we did a lot of reporting on this. We talked to people at Live Nation. We got statements from them as well as the companies in question. Their argument is that these are independent, you know, technically small businesses. They followed all the rules and they received these funds. But I think, you know, we tried to get across in sort of a nuanced way that even though those companies are independent, the fact that they received these funds still benefited Live Nation in the long term, because really its

business is made up of these subsidiaries. Who are some of these subsidiaries? So these subsidiaries include a company called Frank Productions Concerts, which is a, itself sort of part of Frank Productions, which is kind of a major regional concert promoter based in Wisconsin. And Live Nation bought a majority stake in Frank Productions back in 2018. But according to what the company told us, Frank Productions, Live Nation does not have a majority stake in Frank Productions Concerts, which is the entity that got the $10 million from this grant program. Another of the companies is one called Gelman Management, which is a management firm with offices in Nashville and California. And they received a small amount, around $400,000

or so. But Live Nation bought a 50% stake in Gelman Management over a decade ago now. And then the other two are a pair of venues in St. Louis that kind of sit next to each other on the Del Mar Loop. And they are each 50% owned by Live Nation as well. And what were these subsidiaries doing with the money from the SBA loans? And so, just to clarify, these are actually not loans. They are grants. They are grants. Excuse me. Yeah. So, these companies don't have to pay it back. They say that these grants really helped them survive. They paid employees. They were able to pay their vendors. They were able

to kind of make sure things were going, even when they didn't necessarily need the employees because everything was shut down, even just being able to, of course, pay those people who had lost their jobs or whose jobs were furloughed and also sort of like keep a connection with them meant that when those companies were ready to start up again and performances were going again and things were happening, they sort of had a workforce that they had a longer standing connection to than if they had just had to cut them completely. And you're reporting also, you know, there may have been cases where these subsidiaries were not taking loans directly from Live Nation because they were able to get these grants.

Right. So, the CEO of Frank Productions told me in an interview that, you know, they had had a loan facility with Live Nation, but in part because of sort of what he called conservative fiscal management of their resources, and then also because of this grant, they did not have to draw on that. And in another case, we actually found the opposite. We found that one of the St. Louis venues called The Pageant actually did take out a loan from Live Nation and from its other owners. One of the owners declined to tell me how much that loan was for. But it does show that Live Nation was playing a major role in this entity's survival.

So, at the end of the day, how meaningful is this $19 million for Live Nation's business? I mean, this is a company that did $6.2 billion in revenue in 2021. These grants, which they did not, even if they went directly to Live Nation, that would represent about eight Harry Styles concerts for them in terms of revenue. Yeah, I think it's a really good point. We wrestled a lot with this story over the nuances of it. Clearly, $19 million in some ways is a rounding error for a company like Live Nation. And as we point out, there does not appear to have been any fraud, at least according to what we could find out. It seems like these companies really followed the letter of the law, although some would argue maybe not the spirit of the law.

So, you know, this is, it's hard to argue that this made a life or death difference for Live Nation. I think the only point that the story, I think, successfully makes is that at the end of the day, it did improve their prospects at least slightly. Because if these companies are able to survive, live to see another day post-COVID, continue to put on shows, it just means that that much faster they can start making payments to Live Nation again, provide the same benefits that any subsidiary would in terms of passing on profits to the owners. So it's a small benefit, but it is a benefit. And it did seem to be one that in our reporting seems to have gone against the intent of Congress. And so that's why we thought it was important to report this out.

And this is just one small piece of your reporting on the COVID money trail. Well, I hope you guys find where the $163 billion went for unemployment fraud soon. Yeah, we'll try to work on that. Us and, you know, all the federal investigators that are working on it. That's kind of a crazy story, and a lot of people were victims of that. But yeah, it's definitely something that we continue to look into. Yaganath Torbati is an economic policy reporter for The Washington Post. Thanks for joining us on Motley Fool Money. Thank you so much for having me. As always, people on the program may have interest in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.