Motley Fool Money - “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

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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 Full Senior analyst Jason Moser. Thanks for being here. Hey, thanks for having me. Let's start with Salesforce because first quarter profits in 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, yeah.

I mean, they are definitely going to keep an eye on the expense line. I think they talked of measured hiring and just making sure that they're getting the most bang for their buck, so to speak. And yeah, I mean, the downward guide on the revenue side really seem to be more tied to foreign, currency impacts. And so that's something, you know, we typically view those as over the long haul, you know, over the course of years, we view those as more or less a wash, so to speak, right? We don't get too terribly worked over, worked up over foreign currency effects. But I mean, it's always worth keeping in mind that it does exist. And it certainly seems like that's

what they were guiding down. And the guide down was very, very slight, right? I mean, the extremely slight based on the guidance that they gave in the, in the way, they were guiding. the fourth quarter just a quarter ago. But all things considered, I mean, it was a really strong start to the year for sales first. 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 23, they're guiding in a range of $31.7 billion to $31.8 billion. And that's That still represents around 20% growth for the full year.

And the neat thing about Salesforce, because they're pursuing this huge market, right, in CRM, that customer relationship management, being the market leader has really given them the opportunity to play a lot of offense. And 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 talk about their data business, right? the data cloud business that includes properties like MuleSoft and Tablo, those data, 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. And then of course, I think Slack is what people remember probably the most, that's the most recent acquisition of the people, people remember. And that's actually working out very well. I think Slack on its own, you know, 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've 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. So, they've been very productive with that acquisition. They said that Slack outperform revenue expectations with $348 million in the quarter versus 330 million they were expecting, and the number of customers there spending more than $100,000 annually grew 45 percent from a year ago. So all things together, great start to the year.

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, and you and I and other people who have been on this show kind of 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. And 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 sort of, here's what LinkedIn is doing in revenue. When we were all, 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. So I was going to ask you about Slack and sort of how, you know, 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. I mean, it was a little bit of a head scratcher at the time, and it's a, it's a little bit of a It's still kind of a head scratcher as to how they're exploiting so much value from that.

Because frankly, every time I check in on LinkedIn, I kind of wonder, why did I just do that? It just doesn't seem to be, it's just a very noisy experience. So I don't know. I mean, maybe they're able to really do something with all of that data, but clearly it's worked out very well for Microsoft. And I think we're seeing the same signs here with Slack and Salesforce. I mean, when you look at it in the context of the overall business, right? I mean, Slack, you know, essentially $350 million in revenue for the quarter versus the

$7.4 billion that the company generated. So it's kind of 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, you know, Slack is just, it's 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 annual. 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, 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 it requires, it requires doing a lot of things very well. Unfortunately, Mark Benioff had, he had that vision early on of how to really piece this business together. And so all of these acquisitions along the way, he's just made some really, really good moves there.

And I feel like Slack is going to ultimately be another one. I want to get your thoughts on the CEO. comments of the day. And we'll start with Elon Musk because he sent a couple of email to employees and it had to do with going back to the office. And 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 on site doing this. And if you don't want to be on site, I'm going to essentially color you with being elitist. Well, I mean, it's, yeah, maybe that's, maybe that's something that entered his mind, the, the sort of elitist perspective there. I feel like, I feel like with, with Musk, you know, he has done so much to get this business to where it is today, right? I mean, he has, he's done it all.

He's been there in the trenches. He's spent nights in the factory. Like, 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. I mean, there are going to be some businesses, I would imagine, where you can say, okay, a remote workforce can get by and everything. But it reminds me even 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. You know, as business experts say young employees are missing out. And 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. And that's a broad statement, right? I mean, I don't know that he was targeting any company in particular, but I think it does speak to the 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. I mean, it does feel like, at least, it does result in siloed workforces. I mean, however, company defines its culture. I mean, it does feel like it's hard to do. to maintain a culture as a remote company.

But also, you just, you know, collaboration really takes a massive hit. I mean, you just don't have those spur of the moment conversations. You don't have those face-to-face meetings where you're really kind of going through ideas and trying to come up with that next lightning and a bottle idea. And for Tesla, I mean, that's really the foundation of this company, is innovation. And he knows that the competitive landscape now for Tesla is far stronger than it's ever. been. So they have to really be on their game. And so, you know, he said something in there. Listen, we're just not going to settle for people phoning it in. And I think in this case,

I certainly respect it. I understand it. And, you know, hey, the 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. And 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 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, and that's Jamie Diamond, who's at a financial conference today in New York City, and said that he is prepping J.P. Morgan Chase for an economic hurricane. This was a room full of analysts and investors, and he said, things seem fine at the moment,

and nobody knows, and I'm quoting that, nobody knows if the hurricane is a minor one or Superstorm Sandy. You better brace yourself. J.P. Morgan is bracing ourselves, and we're going to be very conservative with our balance sheet. And I don't, this is me talking now. I don't own chairs of JPMorgan Jays. But Jamie Diamond 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. And ultimately, we have to look at this from a global perspective today, right? I mean, I think while we're seeing, the confluence of events that are going on all around the world are showing just how interconnected our economy is, right? It's no longer just a domestic economy. It really is a global economy in many cases.

And I think you look at everything that's going on. I think he was referring to two specific things. I mean, it was not exclusive to just these two points, but I think he called out the quantitative tightening right as opposed to the easing. I mean, the money supply is going to shrink. It's not going to be the same sort of free money environment that we've been living in over the past decade plus. And that is going to hamper economic activity. But then also, you look at what's going on with Ukraine and Russia. And I mean, that's another example of something that's ultimately out of our control is 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. And there are consequences that come from that, right? We've seen its impact on energy, but there are also unforeseen consequences that we really can't even determine yet. 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. I mean, obviously, Inflation is hitting a lot of people where it hurts. You look at consumer sentiment is the lowest in 10 years. And remember, that's a backward that's a lagging indicator. So it kind of tells us about the past, how people are feeling as opposed to the market.

That's a forward-looking mechanism. And then also, you look at the personal savings rate now. I mean, 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 savings rates. stimulus at this point. And with that in mind, it does feel like a lot of the stimulus that has been pumped through the economy has now been drained. And so 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, or we don't focus on predicting the future, just prepare for it. And there are plenty of signs out there today that just tell us that, hey, You know what? Probably a good idea to be safe and sorry. And it sounds like that's where he's coming from here. And 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 Yegane 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 Yegana 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, Yegana. 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 kind of rolling up some of these smaller venues, smaller companies, regional chains into a business that sort of 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 lens? Right. So this is sort of the crux of our reporting. And what we found was that, you know, 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, you know, 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 numbers 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 Congress decided they didn't want that, and so 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 annual report that they file with the SEPA. 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 receive 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 Gellman 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 Delmar 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. Excuse me. Yeah. So they don't, these companies don't have to pay it back. You know, they say that these grants really help 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, 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 kind of 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. And 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. I mean, we wrestled a lot with this story over, kind of the nuances of it, clearly $19 million, you know, in some ways is a rounding error for a company like Live Nation. And, you know, 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, you know, it's just, it just means that that much faster they can start making payments to Live Nation again, you know, kind of 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 all the federal investigators that are working on it. That's a, you know, 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. Yeganatatatir 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 ourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.