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🔑 Key Takeaways

  1. Disney's vast inventory and appeal to a wide audience make it a strong player in the streaming market, positioning it well for long-term success.
  2. Disney's diverse portfolio and organic content creation make them poised to thrive in the broken streaming model, despite risks. Cost restructuring and lack of engagement in bidding wars make them a strong investment choice.
  3. Disney's success comes from creating relatable characters and updating them to meet changing audience needs. User feedback collected through Disney Plus informs content creation and helps Disney meet the specific preferences of each market segment.
  4. Investors should consider the audience preferences and challenges for Disney, including leadership changes and normalization of earnings, when valuing the company. Despite streaming losses, Disney's operating income from parks and broadcast channels remain strong.
  5. Disney's long-lasting assets give them an advantage in the streaming war. They don't have to compete and can benefit from repackaging their IP. They also have the advantage of owning their offline content and a strong valuation.
  6. Disney's non-value acc crypto franchisees or assets could be removed to potentially improve their financials by 30-40% over the next 3-5 years. While a good long-term investment, the current stock price may be overvalued.
  7. Despite challenges from streaming services, Disney's parks and intellectual property create a significant income. While streaming may currently be losing money, Disney's replacement cost makes it a de-risked investment option.
  8. Despite its free service barely breaking even, Spotify's focus on content creation and agreements with major labels allowed it to maintain its position as the largest music streaming service, competing with major labels who hold over 85% of the market share.
  9. Despite the challenges of the music streaming business, Spotify's successful move into podcasting and strategic equity distribution to limit record label influence has allowed for growth and profitability.
  10. Despite competition from Google and Apple, Spotify's audio-first platform and cross-platform advertising attribution tools make them a strong player in the podcast ecosystem.
  11. Spotify's success is due to its cross-platform availability, but it faces a potential challenge in the rise of TikTok. The competition with iTunes may persist, but exclusive access to podcasts can give it an edge.
  12. Spotify plans to reach 1 billion users by 2030 by focusing on different verticals like podcasting and audio books, with a high ambition of earning €100 per user and expanding revenue through non-music verticals. They prioritize free cash flow to hit the scale.
  13. Strategic acquisitions and innovation in the industry are key to success, but content creators hold some leverage and loyalty can be a long-term risk.
  14. Being on an app can boost visibility for independent publishers, while successful biotech companies can still generate returns in a competitive industry despite off-patent periods and competition with tech giants.
  15. Amgen's upcoming patent expiration for their successful drug, Ember, may bring declining profits, but their leading drug, Humira, has a biosimilar that is ahead of the competition, generating future cash flow growth and making it a cheap buy for investors with consistent returns and shareholder yield.
  16. The historically reliable 10-3 inversion, though faded by some, suggests a recession may be on the horizon. Picking financially stable companies like Amgen can be a safe bet in a turbulent market, particularly in the pharma industry.
  17. When evaluating companies for investment, focus on operating earnings, free cash flow, buybacks, and dividends, and calculate these metrics yourself. Look for evidence of actual buybacks and dividend payouts, and rely on quantitative analysis rather than management's statements for informed decisions.
  18. Take a long-term approach to investing, carefully consider who is pitching investment opportunities, invest in your own funds, and prioritize businesses with stable market shares and high returns on investor capital.
  19. In the biotech and pharmaceutical industries, companies compete by offering different drugs and avoiding price wars. They also navigate high barriers of entry and fixed costs, and must prepare for potential breakdowns in their barriers.
  20. Owning distribution channels is crucial for tech companies, but changing consumer behavior is challenging. Google's ownership of Chrome gives it an advantage, while Microsoft lost out in the past. Valuable PPC searches are now going directly to Amazon instead of Google, making it difficult for competitors. Companies that have strong moats will remain valuable as they are key parts of a larger system.
  21. In the fast-changing tech landscape, even the biggest players can lose their edge to unexpected forces, like Microsoft's new edge browser and Amazon's growing search ad share. The future holds even more potential with AI-powered chatbots like GPT, hinting at a possible metaverse where voice commands can control the digital world.
  22. Google is at risk of losing its top talent to open AI, which is seen as the future in AI technology. Despite this, Google still has time to adjust and should not be written off just yet.

📝 Podcast Summary

Disney's evergreen content and acquisitions provide an advantage in the streaming market.

Disney has inherent advantages over competitors in the direct-to-consumer or streaming content business model due to its vast inventory of evergreen content and volume of content through acquisitions. It's like a railroad in this context with high acquisition costs for similar content by competitors. These advantages position Disney well in a market where the cost of content is exorbitant due to Netflix's war for talent and content. The evergreen content of Disney appeals to a wider audience, making it a stronger player compared to direct-to-consumer streaming businesses like Netflix or Apple. Thus, investors should consider Disney a long-term favorite as it has a stronger position in the market.

Disney's Diversification Strategy in the Entertainment Industry

Disney has multiple advantages in the entertainment industry, including their ability to reach customers through various sources and their successful parks and cruises. They are also capturing the streaming market with Disney plus Hulu bundle with ESPN Plus. While there are risks, such as their exposure to economic weaknesses and bidding wars with competitors, Disney's pool of talent and ability to organically create good content is their strong suit. To improve profits, they are engaging in significant cost restructuring and reducing non-par expenses. As the streaming model is broken, Disney is in a great position to come out stronger due to their diversification and lack of engagement in the bidding war, making them a strong investment choice.

Staying Relevant: Disney's Strategy with New Characters and User Feedback

Disney's power lies in creating strong connections with its audience through relatable characters, especially princesses for young girls. However, they need to continue updating and creating new characters to stay relevant to the current generation. Disney Plus serves as an invaluable tool for aggregating user feedback and preferences to inform content creation. Each kid has their own preference, and it is essential to understand the market segment to meet their needs. Additionally, creativity and profitability should remain the focus for the company. Disney should continue creating new characters and updating existing ones to maintain its stronghold in the market.

Considering Disney's Audience and Challenges for Investors

Disney's content from long ago is often watched by adults, while newer content is watched by kids. This is important for investors to consider, as evidenced by the popular and expensive pancake breakfast with Disney princesses. Despite losing a billion dollars each quarter on streaming services like Disney Plus, their cable and broadcast channels and parks still bring in more operating income. Investors should also consider the leadership changes and challenges facing Disney, and the need to normalize earnings when valuing the company. However, they do hold a strong position in streaming and are worth considering as an investment.

Disney's Unique Position in the Streaming War

Disney can participate peripherally in the streaming war, as their business of creating long-lasting assets that can be monetized provides them with the leverage to repackage their IP over and over again for different audiences. They don't have to compete in the space as they are better positioned than other players, and can still benefit even if they don't participate. They own the IP, so they don't have to pay millions to celebrities to create a new movie or series. Disney's offline content can be digitized for their streaming service, providing them with a unique edge over the competition. Lastly, the valuation piece suggests that PE is high, but the earnings of Disney will keep going up.

Potential ways for Disney to improve their balance sheet and earnings

Disney is currently in a sweet spot where they do not need to focus on generating more revenue. However, getting rid of non-value acc crypto franchisees or assets could improve their balance sheet and earnings, leading to a potential 30-40% improvement over the next 3-5 years. The stock price could also improve as a result. While the core of Disney is a good business, the market may be overvaluing it and the 3% free cash flow yield is hard to justify in today's market. As a long-term investment, buying Disney at a reasonable price could lead to decent returns, but now may not be a great timing.

Disney's Value in a Changing Landscape

Disney's intrinsic value is lower than 100 due to the changing interest rates and competition from streaming services. However, its park experience and products contribute to a significant income segment of 7-8 billion. Disney is also a valuable content creator with intellectual property libraries of Disney animation, Pixar, and Marvel. The parks and Disney stores help monetize this content. While Disney's streaming services may be losing a billion dollars a quarter, they generate $4 billion per year in analytics. ESPN remains a valuable asset despite its political stance. Ultimately, Disney's replacement cost would be humongous, making it a de-risked investment option.

Spotify's Journey to Becoming the Largest Music Streaming Service.

Spotify is the largest music streaming service in the world with a 30% market share. It offers two tiers of service, premium and free, to stream music, listen to podcasts, and purchase audiobooks. The free service aims to convert users to paid subscribers. Despite barely breaking even, it is a key part of content creation. Spotify started in Stockholm in 2006 and was the first company to bring stream music to the masses. It now competes with major labels who have more than 85% of the market share. Spotify's agreements with these labels make it difficult for smaller competitors and has allowed it to maintain its position as the largest music streaming service.

Spotify's Diversification into Podcasting and Independence from Record Labels

Spotify had to give equity to record labels in order to limit their influence in the music streaming business. However, the co-founders still maintained voting rights and control over the company. Music streaming has poor margins, but podcasting offers better margins due to lower production costs. Spotify is betting on podcasting to become their biggest business unit, and they have already surpassed Apple Podcasts in just over four years. While the music streaming business is tough, Spotify has managed to achieve great success by diversifying into podcasting and maintaining independence from the labels.

Spotify's Advantage in Podcast Advertising Attribution

Spotify has the best advertising attribution tools compared to its competitors in the podcast ecosystem. They are creative for all platforms as opposed to something that's just on iOS or Android with a market share of over 30%. Though it may seem like they have a disadvantage compared to Apple Music, since it's pre-installed on their app, Spotify's advantage comes from being an audio-first platform. Google has gone back and forth on whether they want to display a play button in the browser for whenever you search for a podcast. Still, audio is just such a low priority for Alphabet or for Google that they removed it. Spotify has an opportunity with the risk they have because they are competing with Google and Apple.

Spotify's Availability on All Platforms and the Threat of TikTok

Spotify's success can be attributed to its availability on all platforms, not just smartphones. Although Apple Music is only available on iPhones, Spotify has lived on all mediums, giving it an advantage. The biggest risk for Spotify is TikTok, which has close to no market share right now but could disrupt the entire music industry and have a huge market share soon. While Spotify managed to overcome competition from iTunes, it remains to be seen how much of its revenue will fall through to the bottom line as it spends a lot. As an investor, the competition from iTunes is unlikely to go away, but Spotify's exclusive access to certain podcasts can help.

Spotify's Expansion Plans Beyond Music

Spotify, with its aim to reach 1 billion users by 2030, plans to expand beyond music and focus on different verticals like podcasting and audio books for profit. CEO Daniel Ek believe that scale is never-ending and not about short-term profit but about monetizing the users. They also want to set up different verticals; the first one being podcasting and their recent launch of audio books contributing to a high ambition of earning €100 per user. With gross margin reaching around 4%, they aim to expand their revenue through non-music verticals. To hit the scale, they focus more on the free cash flow as they have growth CapEx for the past three years.

Spotify's understanding of podcasting and audio space

Spotify has a deep understanding of the podcasting and audio space, as evidenced by their acquisition of leading hosting platform Megaphone, personalized ads, and inclusion of audiobooks in their app. However, their long-term risk lies in being a pure content aggregator with rising content costs and loyalty to content creators, not to the channel. While they have some leverage over content creators, such as requiring payment to feature feeds on their platform, content creators may also have leverage over them. Despite the uncertainties, Spotify's success demonstrates the importance of understanding and innovating within your industry, as well as the potential benefits of strategic acquisitions.

Challenges and Opportunities for Independent Publishers and Biotech Companies in a Competitive Market

Independent publishers may face challenges as different studios team up with different apps and promote their own content. However, being on the app can be powerful as they control the discover function and can recommend listening to other similar shows. Additionally, companies that have successfully competed against tech giants like Google, Amazon, and Apple, such as Amgen, may have potential investment opportunities despite the limited period of time where they can earn all the money from these drugs. Biotech's competition often remains at a gentlemanly level, and they still make good returns on invested capital after going into off-patent world.

Amgen's potential for growth despite patent expiration

Amgen, a biotech company, has a successful drug called Ember, but its profit will gradually decline as it competes with biosimilars when its patent ends. However, Amgen's leading drug, Humira, which is about to come off patent, has a biosimilar that is about five months ahead of everyone else, which will generate good revenues and cash flow growth in the future. Amgen is a quantitatively cheap stock with an exceptional buyback record since 2018. It has retired about 26% of its shares outstanding, and also has a consistent record of paying dividends. Its shareholder yield is monstrous, driven by the fact that they have a free cash flow yield of over 7%. It's priced as if the revenues will permanently decline from here, but it's unlikely that revenues will decline. This is a great opportunity to buy Amgen's stock cheaply, given its consistent returns over a very long period of time.

The 10-3 inversion historically precedes recessions and has never had a false positive. Although Cam Harvey has come out and faded it, other indicators suggest that it's worth considering, particularly given that S&P 500 Ford earnings have now gone negative and it coincided with an incredible spike in the market since October. Tobias Carlisle believes that 2023 is likely where we will see an enormous amount of pain. Picking financially robust companies like Amgen, which have good conservative returns and will survive regardless of the global macro picture, is a reasonably safe bet. Pharma companies are like a safe haven in a turbulent market, where investors expect the revenue to fall off, but still, they manage to come up with a few more drugs.

Focusing on Quantitative Analysis and Actual Metrics in Company Evaluation

When evaluating companies, Tobias Carlisle focuses on operating earnings, free cash flow, buybacks, and dividends rather than management's estimates of EBITDA or adjusted EBITDA. He calculates these metrics himself and looks for evidence of actual buybacks and dividend payouts rather than relying on management's statements. Carlisle emphasizes the importance of quantitative analysis, preferring to focus on the cash flow statement and shares outstanding. He notes that while there is always some discretion in financial reporting, revenue is a more reliable metric than other income statement components. Ultimately, Carlisle is more concerned with what management has done than what they say they will do in order to make informed investment decisions.

Success through Slow and Steady Growth, Smart Investing, and Barriers to Entry

Slow and steady wins the race, as observed in Amgen's 10 year financials that show revenue growth, dividends being hiked every year, and shares being bought back. It is important to understand who is pitching a stock and their approach, such as Tobi's basket approach of 30 large cap and 100 small cap stocks. It is admirable to have a significant part of one's own net worth in their own funds. The one thing to consider when it comes to competitive situations in business or investing is barriers of entry, as it can be seen through stable market share and high consistent return on investor capital, according to Bruce Greenwald's book 'Competition Demystified'.

Avoiding price wars and navigating barriers in the biotech and pharmaceutical industries.

In the biotech and pharmaceutical industries, competing on price is painful as it can lead to losses for everyone. Instead, companies use different methods to signal to their competitors that they do not want to engage in a price war. Due to high barriers of entry and high fixed costs, major companies in this industry typically have different drugs and try not to step on each other's toes. Lowering prices as the bigger player to keep competitors out may actually hurt the larger company the most. Barriers of entry may eventually be broken down, even the best ones, as seen in the biotech industry when patents run out. Even renowned investors like Buffet avoid investing in biotech due to the unpredictable nature of the industry.

The Power of Distribution in Tech Companies

The power lies in distribution, not just in technology, and it is difficult to change consumer behavior. Google controls the distribution channel through its ownership of the Chrome browser, making it easier for users to search through Google. Microsoft was in a similar position in 98-99 but lost its share of the distribution channel, leading to a bad phase in the late 2000s. Valuable searches for pay per click are for products, which consumers nowadays prefer to directly search on Amazon rather than through Google. While Bing may have better search results than Google, it is difficult to shift consumer behavior. Companies that have moats sitting below the line of sight tend to remain expensive as they are key parts of a bigger thing.

Microsoft and Amazon Challenge Google's Dominance in Browser and Search Ads

Microsoft is trying to take away the mind share of entry point of the distribution channel from Google by introducing the new edge browser with Chat GDP integrated. Competitors like Amazon are also taking away Google's sponsored search ad share because valuable searches are going to Amazon. The way these moats get crossed is not by direct competition, but by something that comes out of the blue. The future might be in the metaverse where you will just have a little wristwatch and say it to the ether and it'll go away and do it. The technology of AI and computers will make it possible. GPT chat robot is useful for programming and can generate code, it is incredibly powerful.

The Risk of Google Losing Top Engineering Talent to Open AI

The risk for Google is not just about market share, but also losing their top engineering talent to open AI, which is currently the Google of 2000. Microsoft is backing open AI, putting them on the offensive. There is a risk that open AI could steal more engineers from Google, as they are seen as an old company that is bureaucratic and big. Despite this, it is too early to write off Google, as there are more rounds to go and it still has time to adjust. Both speakers are involved in investment funds and have written books, and can be found on their respective websites and Twitter handles.