April Update, 2021: Simple Delights of a Hot Fudge Sundae

Investors continue to value the companies in your portfolio with generous valuations. It is hard to find fault with their enthusiasm when confronted with the following facts.

Amazon hit record highs this Friday after posting its 24th consecutive quarter of revenue growth exceeding 15%. This past quarter its sales grew 44% to $108.5 billion or $1.2 billion per day, with profit of $100 million per day. Lest you think that they don’t care about employees, they spent $1.5 billion on Covid protections and have announced a further $1 billion wage increase for their 500,000 employees, that’s $2000 each. Their competitors are horrified.

Apple reported sales of $90 billion in the past 90 days raking in a cool $23.6 billion in net profit (that’s $262 million a day!). Apple continues to torment Facebook, Google and every other company that thrives by collecting and making money from the data you produce using their platforms on Apple’s products. It’s a war that is sure to continue to drive these hyper competitors to further innovation, delighting their customers as a result.

Speaking of the Evil Empire, Facebook continues to make liars of us all. The company just reported that a record 2.85 billion of us may hate the company but frequent its properties regularly. Advertisers, mostly small and medium-sized businesses, handed Facebook $26.1 billion in the past 90 days of which shareholders netted $9.5 billion in after tax profits. Every one of those 2.85 billion users generated a profit of $3.33. The company increased advertising rates 30% but advertisers beat a path to their door nonetheless.

Google, the company that knows everything about everything and everyone, produced record profits of $14.1 billion these past 13 weeks. YouTube, one of its properties, will generate more revenues than Netflix by this time next year. Netflix is valued at $235 billion and will spend $17 billion this year making movies. YouTube won’t spend a cent on content, but 720,000 hours of new content will be uploaded by their users every day. Advertisers love YouTube because it’s the second most visited website in the world. The number one website? Google. Number three? Facebook. No wonder these companies are so disliked, everywhere we turn we see them…

Microsoft, that ‘old tech death star’, minted profits of $14.5 billion this quarter, up 34% year over year. Not too bad for the oldest kid on the block. The company continues to weave itself deeper into the productivity tools that have become a part of our daily lives. Microsoft is set to acquire Nuance Communications, a leader in conversational artificial intelligence communication. One application of Nuance’s will amplify Microsoft’s growing ambition to alter the health care field by permitting doctors and other health care workers to dictate their notes while performing their duties, not afterwards. This is a massive productivity enhancement that will greatly help reduce the cost of delivering healthcare. 

Home Depot, one of the world’s most highly-ranked brands, has seen its sales grow 20% over the past year. The Home Depot continues to be the dominant home improvement supplier to both the retail and professional market with aggressive moves into online delivery showing tremendous progress.

McDonalds continues to grow not just its store count and profits, but also its online delivery business. During the pandemic, I am clearly not the only one ordering hot fudge sundaes as a late night “pick-me-up” treat, delivered to my door in less than 15 minutes. The company receives hundreds of online delivery orders every second. Who needs a store when you can order from your phone? This digital business did not exist 2 years ago and now accounts for more than 20% of its sales. Phenomenal.

The financial system continues to work well, and while some tsk-tsk the blind faith and optimism of young, new entrants to the ‘markets’, and the high-flying ‘Crypto Craze’, the fact is that blind faith and enthusiasm have been financially rewarding. How long that trend continues is unknown. In our opinion it is irrelevant. It has nothing to do with the amazing companies in your portfolio. There is a saying that a strong wind does not break a flexible tree. The results of the above-mentioned companies to name only a few, speak to their brilliant franchises and their adaptive and flexible management teams nurturing delightful products and services that the world uses every day, and will continue to do so for many more years.  That deserves premium valuations.

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