Motley Fool Money - Big Tech Bounces Back

Episode Date: July 27, 2022

Microsoft and Alphabet didn't disappoint with their latest quarterly results. (0:22) Bill Mann discusses: - Microsoft having tough comps, with the cloud division shining once again - Alphabet proving its resilience - Chipotle continuing to raise prices and profits (12:54) Ricky Mulvey talks with Jack Caporal about The Motley Fool's latest research into crypto scams and how you can avoid them. Stocks mentioned: WMT, TGT, AMZN, COST, SHOP ETH, SOL Host: Chris Hill Guests: Bill Mann, Jack Caporal Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by KolaGard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The KoloGard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, KolaGar takes the scare out of colon cancer screening. If you're 45 or older and at average risk, ask your health care provider about the KoloGard test. KoloGard is available by prescription only. Learn more or request a prescription today at KolaGar.com slash screen.

Big Tech bounces back and not a moment too soon. Motley Full Money starts now. I'm Chris Hill, joined by Motley Fool Senior Analyst Bill Mann. Thanks for being here. Hey, Chris. How are you? There's green in the market, so I'm doing better than I was yesterday. Also, still nice to see you in the studio. Yes, yes. This is happening, isn't it? It is actually happening. Let's start with Microsoft because Microsoft's fourth quarter revenue came in just shy of $52 billion, not as high as Wall Street wanted. It was the slowest

revenue growth in two years. However, the cloud growth for Microsoft looked pretty strong. Their guidance was upbeat. They basically reiterated the guidance they put out three months ago for the new fiscal year. So guidance trumps results, right? What kind of, I think some of this has to do with the fact, and we're going to talk about another company that this fits also, that Microsoft's, the news that they came out with, even though they missed. And, you know, we don't, we don't care that much about, about analyst estimates, whether they, they hit or miss. But it does, in fact, impact the stock. You know, So, 2021 turns out to have been really, really hard cops for, you know, for a lot of companies,

particularly because people were still, people were still inside. We were all pretty nervous, and we, we solved that by shopping. So Microsoft's results, not only were they, were, were they great, they were bonkers in certain ways. You know, five years ago, Microsoft's total revenues were $97 billion. For the entire fiscal year. Yeah. Now, for the quarter, if you take the quarter for just for cloud and put it on a run rate, which basically means you take the number multiplied by four, it's $100 billion.

They're making more in cloud than they made in everything five years ago. And once again, we're talking about Microsoft, which five years ago was 12 years removed from antitrust, like antitrust lawsuits in the U.S. and Europe. This company is absolutely positively massive. Maybe that's not a great insight, but it is growing rather quickly in areas that really didn't exist as revenue streams for it even a couple of years ago. So when the larger conversation around the economy, the potential for a recession, inflation, all of those things, continues to take place.

Do you take, what should we take from Microsoft maintaining their guidance of three months ago? They're looking out over the next 12 months and saying, yes, everything we believe three months ago, factor in inflation, rate hikes, increased talk of recession. still in of the same mindset in terms of what we see for this business? What should we take from that? I think it's important for companies, you know, in terms of operators, to recognize that this may have been the hardest operating environment that companies have ever operated. Certainly, certainly in the last 50 years, given the fact that it seemed like the economy around the world was coming to a grinding halt in 2020. And so for better or,

or for worse, you know, our central banks around the world responded to that, which meant that they responded by making sure that, you know, that growth came as quickly as possible. We were worried about deflation. Now we're worried about inflation. Inflation is here. I think with a lot of companies, particularly ones that are huge like Microsoft, you have to keep in mind when you see a company that's operating in the way that they have, the environment that we're operating, in is absolutely unprecedented. Let's move on to Alphabet. On last Friday show, Jason Moser and Matt Argusinger and I were talking about the mindset

going into this earning season. And I'm paraphrasing what Maddie said, but he basically said, I feel like the mindset from the message from Wall Street is, just don't disappoint us too much. That's right. You can disappoint us a little, but just don't disappoint us too much. And I feel like that's what Alphabet has done with second quarter profits and revenue coming in lower than expected. And it's really across the board. It's their mainstay business.

It's YouTube. But shares up four or five percent because essentially this is Alphabet saying, hey, we're not Snap. Yeah. That's right. Again. Yeah, exactly. The thing that happened last week with Snap, we're not them. That's on them, pal.

That's on them. That's not on us. there's something really, really important to keep in mind when you're talking about Google and you're talking about their results. So obviously, it was 16% growth in constant currency. But I don't know if you've heard about this, Chris, but the U.S. dollar is up against almost every currency in the world a lot. So on a, you know, if you take that currency factor out of the equation, they really, really did, you know, they really, really did well. And importantly, their revenues for advertising, which is the area that blew snap out of the water because their revenues went down so much, beat expectations at $56 billion. $56.3 versus 56.1, which, you know, you do that math backwards, that means they beat by $200 million. So this is a great business, and it is a, and it is showing that in a very difficult environment.

And the companies that compete with it that are lower quality are suffering in a way that Google or Alphabet is not. When Alphabet's CEO, Senator Pichai, talks about, as he did on the call, about, about this is a time where they're going to be focusing more, they're going to be looking more intensely at all of their business units. Do you read anything into that with respect to the parts of Alphabet's business that don't really make much money? If you're part of the other Betts division, are you nervous when you hear that? Or do you think, no, this is just a little bit of extra focus and a little bit of extra color from the CEO? No, I think one of the thing that's really important is that is that Alphabet came out a couple of

weeks ago and said that they were pulling back on employee, on hiring, basically. And their employee headcount quarter over quarter, going through the second quarter of 22, was 10,000 additional employees. And if you do the math backwards a little bit, you know, there's about $300,000 in expenses per new employee per year. So if you just, if you just ratchet that back, and this is not an entirely fair way to think about it, this is not a bad way to think about it. That's about $6 billion in additional free cash flow that may fall to the bottom line. So Alphabet hasn't said that they're cutting anywhere. They're simply, they're, they're simply removing some of the bets that weren't working,

working out, they're simply ramping back a little bit in terms of hiring. So I wouldn't be nervous at all if I was anywhere within that big weighted blanket that is alphabet. Chippolde's second quarter revenue was a little lower than expected, but their profits were strong because amazingly, Chipotle continues to raise prices and it continues to work. And when I saw this, I thought back to earlier this year, when they were talking about how they had been raising prices up to that point, Brian Nicol, the CEO, saying, yep, we're going to continue to do this. And I think I may have said on this show, this is going to be interesting to watch, because I'm not sure how much higher they can go, and clearly they can go higher, and it's working.

The stock is up 15 percent, Bill. Yeah. There was an amazing number, an amazing number in this report, and it is this. Chipotle's food cost as a percentage of sales dropped despite inflation, which just shows how much power they have had to go to their board and raise prices, and they've stuck. Now, at some point, they're going to come up on a natural limit, but the fact is they weren't raising prices at least 100% as a response to inflation. they were raising prices because they felt like they had capacity to go to the board and increase that way.

I'm going to make the mistake of comparing Chipotle, which is a business that makes burritos to Apple, which is a business that makes, I don't know. One of which has a name like a food. So, yeah, okay, so it fits. But in the earlier days, you go back a decade. people would ask, and it was a reasonable question at the time, can Apple continue to do this? Can they continue to keep? Because the law of pricing when it came to consumer technology for the longest time was prices come down over time. Flat screen TVs, which used to cost $1,000, now cost just a couple hundred dollars.

How much longer can Chipotle keep this up? Because if you'd asked me earlier this year, are they going to be able to do this in the summer? I would have bet no, and I would have been wrong. Our friend from Technomic, David Hinkas, made a really interesting point about Chipotle's earnings. And it was observational versus anything else. And it was that Chipotle is on a list of other businesses that are struggling with their in-store experience because of the lack of labor availability. And so I think if there is a risk for Chipotle, like being able to keep doing it,

it's because they are, and maybe it's not their fault because they, you know, because labor has been really, really tight, that they do have some labor costs that I think are latent at this point that fully staff stores would, in fact, increase that cost in a way that's not being measured now. Great point. Bill, man. Always great talking to you. Thanks for being here. Thank you, Chris. One investment scam is on the rise and we'll help you avoid it right after a word from our friends at Bigger Pockets.

Real estate investing is one of the best ways to build long-term wealth. But to be a successful investor, you need to know what news and trends to pay attention to and what's just noise. I'm Dave Meyer, real estate investor and VP of Analytics at Bigger Pockets. And in my new show, on the market, a Bigger Pockets podcast presented by Funrise, we bring you expert perspectives in a adjustable format so you can make informed investing decisions. And we make it fun. I promise you, On The Market is definitely not another boring news show. Each week, I chat with a panel of experts about the latest news and trends affecting the real estate investing world. We touch on things like government policy, 3D printed houses, investing in the Metaverse, and more. So join us every Monday

for On the Market, the podcast designed to help you invest with confidence. Just search on the market in your favorite podcast app. That's on the market. The cryptocurrency market may be crashing, but we are trending toward a record year for crypto scams. Ricky Mulvey caught up with Jack Caparral to talk about the Motley Fool's latest research on investment fraud and how you can avoid these scams. 2020 will be a record year for investment fraud, and a lot of that money is going to come from cryptocurrencies. Joining us to talk about investment fraud in the Motley Fool's research on crypto scams. Is Jack Caprile analyst for The Ascent?

Thanks for being here, Jack. Thanks for having me. So what did you learn? What did you research on crypto and investment scams? What did you find out? Yeah, so we use the combination of data from the FTC and survey data that we collected. And like he said, we found out that 2022 is going to be record year for losses, both in terms of investment scams and then crypto scams in particular, most of which are a subset of investment

scams, right? And the numbers are pretty mind-boggling, especially in relation to the past five years. So in the first quarter of 2022 alone, we're looking at a total of $672 million in losses from investment scams. 2017, for the entire year, there were $50 million lost in investment scams, right? and in the first quarter of 2022 alone, losses have already totaled more than a third of the total losses in 2021, right? So in a quarter, you've done a third of all of the losses last year. A quarter's do it a third. That's way too much math for my head, Jack. Basically, we're on track to potentially be like 50%, have 50% more losses from investment scams

overall this year compared to last year. And so we're probably looking at a range of, of maybe $2 billion in losses reported. And that's definitely an undercount, right? Our survey shows that not everybody reports losses. And then in terms of crypto fraud alone, you know, 2021, there's about $680 million lost, reported loss as a result of crypto fraud. We're going to smash through that this year. In the first quarter of 2022, there have been $329 million reported lost, right? So nearly half in a quarter. I want to clarify something. You said 2018, there's about $12 million lost in investment fraud. That was cryptocurrency fraud in 2018, where $12 million was lost. That's where, like, investment fraud has been around for a very long time. We're just now seeing a new flavor of it. What are these cryptocurrency scams looking like? Yeah, so crypto scams, they really are just a new type of wrinkle and old scams. Right. So instead of being contacted by phone or on,

line text message about some great investment opportunity, an investment manager that can take your money and guarantee you 25% return in six months. They're just saying we can do that, but with crypto. So we're like a crypto fund manager. Or you'll see it as a play on a romance scam where you'll be kind of tricked into online relationship and your alleged partner will say, hey, I've got a great investment opportunity. It's in crypto. This is how you can send me some crypto. Obviously, the victim never gets that money back. So we're seeing scams of old use crypto as an investment opportunity and

also as a method of payment or transaction. It's just, it's like a little cayenne pepper into an old recipe where you got essentially that the classic romance scam, which is someone essentially like what catfishing is someone else, then saying, hey, I need money for XYZ or, hey, here's a cool. Which, by the way, I am shocked that these romance scam partners are not just shutting down the conversation once they start hearing about crypto. That doesn't seem like a good lead in if you were trying to meet people online. Yeah, I mean, the way that I think about the romance scam thing in particular and also the

investment scams where, you know, in my experience, I'll get like a WhatsApp from a random number and I'll be like, hey, I'm a Bitcoin fund manager, like, click on this link and you can send, like, I'll set you up with these crazy returns. The way I think about it is, there are very few people in my life that I would be comfortable sending a significant amount of money to manage, right? And if I don't know you in person and haven't known you for a very long time and trust you, there's like a 0% chance I'm going to send you any money, any crypto, whatever. So it's a huge red flag if you get that type of message, and you should really think twice

before you send money or crypto to someone, to some number who you've never met in person, right? You just know online. One interesting part of your research is you looked specifically at how much money people are losing on all these types of scams. I thought it was interesting that the investment fraudsters are netting an average of $575 bucks per scam. Meanwhile, the government impostors, I assume those are the folks calling me with information

about my social security benefit, are only netting $40. What are the investment fraudsters doing right? It seems like that's a very little amount of money to get from a scam. I think there are probably two things going on there. First is it's more attractive to send money or crypto to someone who says we can double that versus you owe me money. You're going to drag your feet on the person who says, you know, you owe me X amount of money, or you need to pay this amount to get your social security unlocked or whatever.

But the reward is enticing, right? The investment opportunity is enticing. And then second, you know, this is another just like gut feeling. There are like pretty hefty legal ramifications from personating government officials. And I think that type of risk probably makes that type of scam less attractive. right, it's a much riskier proposition to impersonate a government official than it is to say, you know, I'm an alleged investment fund manager. What's social media's role in the rise of these crypto scams?

It does seem like I'm seeing a lot of those account takeovers on someone's Instagram where, surprise, now they're shilling a crypto, but actually it's a hacker who got into their account and now they're running a scam. Yeah, so the data on this is pretty wild. In 2018, 11% of scams that use crypto. as a payment method started on social media. More recently, that number has jumped up to nearly 50%. So scammers and operating in the crypto space are leaning heavily on social media, and it's working. And I think it's working for a couple of reasons. First is there's an insane

amount of personal information that people put on social media that scammers can use to kind of personalized scams or target certain individuals that they think are more likely to fall for the scam, right? So it's way easier to gather information on potential targets over social media. And then second, I think there's so much FOMO originates from social media, right? You see folks who have allegedly made big gains on crypto over the past few years and, you know, social media, you're just one or two DMs away from trying to get in on that game. So it makes sense that see these big success stories.

You're already on social media. Someone reaches out to you through social media. It's kind of all in the same space, right? Well, and to your point about the success stories, that was the story for maybe the past couple of years. Right now, the crypto market is down precipitously. And yet, according to your research, scams are still going to skyrocket.

What do you think gives there where you have this, very down market, you would think there's less interest in crypto, and yet scams are going to skyrocket this year. Yeah, I think it's two things. I think there's still quite a bit of that FOMO that I was talking about, right? 2020, the latter half and 2021 were pretty insane, unprecedented runs, especially for the crypto market. And I think, you know, people still want to get in on that.

If you're like a real believer in crypto, the thought is. that, you know, it's going to go back up eventually, and this is just a period. Or, yeah, there's a downturn, but, you know, the true believers still think that it's going to go to the moon and all that. And then second, I don't know how much the average scam victim is taking into consideration kind of the longer-term downturn trend, right? I think if someone approaches you and they say, send us some crypto, we can manage it, get you 25% in two months. That sounds pretty good, even if it might even sound better, given that the

crypto market's in a downturn, right? So the idea of just making a quick buck is so attractive, and history shows that it could be possible. So why not give it a shot, right? One of the things you found is that the average age or the most likely age to get caught by a crypto scam was 30 to 39. I thought that was particularly interesting, that it's millennials, especially getting hit with this, people you would think are more internet savvy. So for someone listening right now, you might think you're too good to get scammed, but it's always good to know the common signs.

What are some of the common signs you would say of a crypto scam getting thrown at you? Yeah. I mean, for any scam that's investment related, if the opportunity seems to be a common sense. too good to be true, it's usually a scam, right? No one can guarantee you outrageous returns over an extremely short period of time. It's just not going to happen. Do your own research. You know, at the fool we say don't invest in something if you don't understand it or haven't heard of it. And if you're approached by someone who's hawking a token that's new to you, just throw that token in Google with scam or review or complaint next to it. And if it is a scam,

It'll be very clear. And then if you're approached about investment opportunity that requires you to pay by crypto, by wire transfer, or by gift card, that's definitely a scam. Those three methods of payment, once you've sent the money, is extremely difficult, if not impossible, to get it back. That's the reason why those are the most common forms of transactions in scams. Full disclosure, I own a little bit of Solana, own a little bit of Ethereum. Has your research on crypto scams affected the way you invest, and do you invest in any cryptocurrencies personally? So I don't own any crypto.

I wouldn't say that my research hasn't affected my thought process behind investing in crypto. It doesn't fit my risk profile. And I'd like to see more regulation in the space on par with how traditional equities are regulated. The research for me is just crystallized that this is a space where more education is needed. I think 47% of the folks that we surveyed said that financial institutions and the government have done a poor or very poor job educating them about investment and crypto scams. And it's unfortunate because the amount of money that's being lost by just average

Americans of all ages is really mind-boggling. But not everybody in separate research, you guys found that 62% of high net worth crypto owners say they're actually more interested in investing in cryptocurrency because of high-profile scams. That was something you did back in November, and that's a conversation for another time. Hey, Jack Capril, he's an analyst for The Ascent to the Motley Fool. Appreciate your time. Thanks for having it. 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 yourself stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.

You know,