Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
I hope you are having a fantastic week and you are looking forward to learning something!
You can find my Best Buys for October list here:
In case you want to re-read the previous weekly notes, here is the link
Without further ado, let’s start:
First things first
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Salesforce Q2 earnings release
My take on the latest earnings release from Salesforce: encouraging
Revenue +9%, RPO 26.5bn (+10%); 4.3bn in share repurchases in the quarter, YoY the number of outstanding shares declined by 1.3%. CFO Amy Weaver will leave the position after 3 years. Gross margin increased to 76%, operating margin to 20%. Workday is the first Agentforce Partner.
Here are some interesting quotes from the earnings call:
It's going to turn this into these incredible margin and revenue machines...we're making it easy to build these powerful autonomous agents for sales, for service, for marketing, for commerce, automating the entire workflow on their own, embedding agents in the flow of work and getting our customers to the agent future first. And this is our primary goal of our company right now. This is my singular focus.
delivering 25 trillion Einstein transactions across all of the clouds during the quarter, that's 25 trillion and more than 1 trillion workflows are now managing 250 petabytes of data for our customers.
This is not Copilots. So many customers are so disappointed in what they bought from Microsoft Copilots because they're not getting the accuracy and the response that they want. Microsoft has disappointed so many customers with AI. Listen, these agents are autonomous. They're able to act with accuracy. They're able to come right out of the box.
One of the reasons that our agents are so accurate is because of the huge amount of data and metadata that we had. And data is the foundation for every AI transformation. And with Data Cloud, we're providing a high-performance data lake that brings together all our customer and business data, federating data from external repositories through this credible zero-copy alliance.
nearly 80% of our new business in the quarter was driven by multi-cloud deals
The last point is this, these customers, they're still going to build models, but it's in our platform. They're still going to fine-tune those models in our platform. They're going to still use our AI studios and build their own prompts in our platform.
In my last earnings release post I shared this chart screenshot with a price of 218$ per share. I believe that at 288$ Salesforce is still very fairly attractive. I personally initiated a large trading position on top of my long-term investment position in July and I am very happy with how it is playing out so far.
Mark Zuckerberg’s transformation
I am fascinated by how Mark Zuckerberg (the CEO of Meta, former Facebook) turned his public image around. He used to look like a human lizard and now has the image of a hip-tech guy. I love having him as the CEO of one of my largest holdings and he has a long runway ahead.
These two people look totally different, yet they are the same person, just 2 years apart.
Apart from the change in his public image, Zuck has always been a visionary. Facebook shared this road map for the next 10 years back in 2016:
It is amazing how many things became a reality. Instagram is dominating the social media presence and AR/VR is currently a major driver of Meta’s R&D spend. Meta’s AI tools are getting more and more powerful by the day. I would love to see what Meta’s road map for the next 10 years looks like.
How to keep your secret
Apple is known to have great product release events. Steve Jobs showing the world the first iPhone was one of these events: A fantastic presentation for a device that would go on to change the world as we know it.
The amazing thing about Apple (and to some extent other companies) is that most major releases are not being fully leaked before the planned presentation. Considering the sheer amount of people working on these topics it is an incredible feat. Of course, this is no coincidence. Teams work on separate tasks and sometimes don’t even know of the existence of another team.
Apple uses a handful of tricks to track down the source of a leak:
The following quotes are from this article: https://9to5mac.com/2023/05/11/how-apple-catches-leakers/
In fact, one section of it is #0D0D0D instead of #000000. By making changes as subtle as this to different pixels, you can create a near-infinite number of variations, each of which would be impossible to distinguish by eye.
Only if you zoom in really close on this black square, you will see how a small portion is not as black as the rest of it
Document serial numbers is another variation. For example, when Apple shares videos with employees, each is watermarked with an ID number which is likely cross-referenced with the Apple Connect ID of the member of staff.
Tesla used a similar strategy when they sent a critical email to some employees and each email had a different double space between the sentences. This made each email unique and the employee who leaked the critical information was identified.
Invest in companies under antitrust scrutiny
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This sounds counterintuitive at first sight. I will show you why it actually makes sense:
When you look at the S&P500 by market cap, nearly half of it is currently under antitrust scrutiny. If one of your holdings is under investigation it means, that it might have an unfair advantage over its competition. Isn’t that exactly what we want from the companies that we own? Google’s current case is just one more example where the Department of justice is considering a breakup. I view it more as a certificate of excellence.
As a shareholder of Alphabet, I would also not worry too much. Before an actual breakup, Alphabet would drag this case out many years in court. Even if such a breakup might come, I believe that the sum of the individual parts of Alphabet is greater than the current total. YouTube alone or Google Cloud are amazing businesses and would do very well on their own.
MercadoLibre
MercadoLibre is one of the best companies that you can own. The growth is insane and there is so much more potential for the next years and decades. South America is a relatively untapped market and the move into the financial industry is a great move by the management. The incumbents in this sector have shown no interest in offering attractive products to their customers and MercadoLibre is taking full advantage of it.
If you haven’t read my deep dive on MercadoLibre yet, now is a great time to do so. If the stocks come back, this is certainly a position where I would add more shares. Since I published my deep dive the shares are up 34%.
Where to find inspiration
Rick Rubin is one of the greatest music producers of all time. Chances are that you know many songs of his since they range all the way from hip-hop to metal. In this short clip, he describes how he helped System of Down to come up with a missing part of the lyrics for their song. I love how he bangs his head on the song all those years after producing it in 2001. Inspiration is everywhere, you just need to keep your eyes open.
Wisdom from Charlie
Charlie Munger had it right all along and is dearly missed for quotes like this one. As he always preached: Invert, always invert.
“It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."
David Senra on Li Lu
Founders from host David Senra is my absolute favorite podcast. Nothing comes close and since I found this podcast I am trying to listen to every single episode. Quite some episodes have led me to buy the underlying book.
With this podcast, David raised the bar yet again. He collected his own material from speeches and articles by Li Lu and made this wonderful episode. If you don’t know Li Lu: He is the founder of Himalaya Capital and was in a previous life one of the main organizers of the student protests in the 1989 Tiananmen Square event. He is also the only outsider whom Charlie Munger ever trusted to manage parts of his family's money.
You can find this wonderful podcast here:
https://www.founderspodcast.com/episodes/363-li-lu-and-charlie-munger-and-warren-buffett
Enjoy your week and keep investing in great companies.
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Invest at your own risk, this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
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