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- 👉 Week in Review: Buffett's $189B Cash Pile
👉 Week in Review: Buffett's $189B Cash Pile
& we were right about Amazon...
Happy Sunday, everyone.
You think your $20K emergency fund is big? Think again.
Below is a graph illustrating Warren Buffett’s Berkshire Hathaway’s (BRK) $189B cash pile. I want you to read that again — $189 billion dollars in cash. Billion with a B.
When asked why he doesn’t invest / deploy the money, Warren said this:
“I don’t think anyone at this table has any idea of how to use it [$189B in cash] effectively, and therefore we don’t use it.
We only swing at pitches we like… today things aren’t attractive.
I don’t mind at all, given current conditions, building our cash position. When I look at the equity markets and the composition of what’s going on in the world, we find cash quite attractive.”
Portfolio Updates:
I don’t have any updates to share regarding the portfolio. However, I plan to deploy $20K during the month of May toward the portfolio — and I’m excited to begin purchasing new stock ideas.
Most of those ideas have been shared between this post and this post over the last few weeks. As always, I never purchase new stock ideas before telling you all first.
Stay tuned!
Week in Review — Too Long, Didn’t Read:
Amazon delivers $99B in operating cash flow, Apple authorizes a $110B share buyback program, Wall Street doesn’t know what to do with Coinbase stock, Starbucks has a PR disaster, Boeing is getting accused of killing people, Carvana rips higher, a breakdown of the jobs report, and the Fed’s not happy at all about inflation.
Key Earnings Announcements:
Amazon delivers $99B in operating cash flow, Apple authorizes a $110B share buyback program, and Wall Street doesn’t know what to do with Coinbase stock.
Amazon (AMZN)
Key Metrics
Revenue: $143.3 billion, an increase of +13% YoY
Operating Income: $13.0 billion, an increase of +215% YoY
Profits: $10.4 billion, an increase of +228% YoY
Earnings Release Callout
“It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results. The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate).”
My Takeaway
Another incredible quarter by one of the largest holdings in my portfolio. Amazon’s stock price, as you all might remember, trades alongside cash flow — both free cash flow and operating cash flow. If the company is able to generate cash flow growth, history tells us their stock price will follow.
Their operating cash flow increased +82% during the trailing 12 months ($99.1 billion), compared to only $54.3 billion the previous year. Their free cash improved to an inflow of $50.1 billion during their trailing 12 months, compared to an outflow of -$3.3 billion during the previous year.
We saw this coming. We’ve been talking about how excited we are for Amazon for what seems like forever now — I even posted this TikTok video about them 9-months ago. Their stock price is up +40% since posting that, while the S&P 500 is up only +13%.
So what about the next 12 months? For starters, management guided to $10-14B in operating income during Q2 — this was +10% higher than Wall Street’s expectations at the mid-point. Amazon has now reported operating income above the high end of its guidance range for five consecutive quarters — a very good sign.
I also believe the company has many drivers going forward to help expand their operating margins — continued cost efficiencies within its fulfillment network, as well as the ongoing mix shift toward their higher-margin AWS (+17%) and advertising (+24%) business segments.
I’m buying as much of this stock as I can get my hands on! Their stock price is up +23% YTD and +81% over the last 12-months. I don’t think this is going to slow down anytime soon.
Apple (AAPL)
Key Metrics
Revenue: $94.8 billion, an increase of +4.5% YoY
Operating Income: $28.3 billion, an increase of +1% YoY
Profits: $24.2 billion, an increase of +2% YoY
Earnings Release Callout
“Given our confidence in Apple’s future and the value we see in our stock, our Board has authorized an additional $110 billion for share repurchases. We are also raising our quarterly dividend for the twelfth year in a row.”
My Takeaway
Apple delivered quarterly results that were much better than originally feared — as headline results beat Wall Street’s expectations and a generally in-line iPhone quarter. The star of the show, however, was their Q2 guidance calling for low single digit growth — much better than Wall Street’s original expectation of decline as iPhone demand is now slowly starting to turn the corner.
The company also announced a historical $110B stock buyback authorization — which speaks volume to their massive expectations for cash flow generation in the future. This is also the drumroll moment for Apple as everyone is patiently waiting for the company to unveil their AI strategy to their 1B+ installed base.
Many investors are expecting this to be shared during their WWDC event in June alongside the reveal of the iPhone 16. In my opinion, betting against Apple’s $110B share buyback authorization + their much-anticipated AI strategy is the wrong move.
While my Apple position hasn’t been growing, it certainly hasn’t been shrinking. I’ll remain a happy shareholder — and if new information is shared during WWDC in June, I might be purchasing more shares!
Coinbase (COIN)
Key Metrics
Revenue: $1.6 billion, an increase of +115% YoY
Adj. EBITDA: $1.0 billion, an increase of +253% YoY
Profits: $1.2 billion, compared to -$79.0 million last year
Earnings Release Callout
“Additionally, we made meaningful progress against our 2024 priorities of driving revenue, utility, and regulatory clarity. Our market share in US spot and derivatives increased, we reached all-time highs on Coinbase Prime, and USDC market capitalization increased. Coinbase One adoption remains strong, and our international business was a larger contributor to our growth.”
My Takeaway
Coinbase reported an exceptionally strong quarter — with a huge beat on their adjusted EBITDA coming in at $1B, more than they made all of 2023… in just one quarter! They also delivered a massive beat from the “Assets on Platform" perspective, coming in at $334.7 billion vs. $251 billion expected. They’re also expanding their international footprint, earning the title of “first and largest crypto exchange in Canada.”
Their subscription revenue of $510M came in +$50M higher than Wall Street’s expectations, a specific business segment Coinbase has been trying to build upon as they’re evolving away from just a “transaction-based” company, to a “durable year-round” company. They also shared with us they generated over $300M in total transaction revenue during the month of April, and that Subscription and Services revenue growth is expected to land around $550M in Q2.
With all of that being said, Wall Street is very much torn about this company. They can’t tell if it’s worth owning or not — specifically, Bank of America gave them a $100 price target (-60% from current prices), while WedBush gave them $250 price target (+20% from current prices). I find myself somewhere in the middle — I’m very optimistic about their involvement with ETFs, while I remain skeptical of their transaction revenue durability.
With that being said, their stock price tends to take alongside the price of Bitcoin — I think it’s a fine idea to own both Coinbase stock and Bitcoin if you’d like.
Investor Events / Global Affairs:
Starbucks has a PR disaster, Boeing is getting accused of killing people, and Carvana rips higher.
Starbucks (SBUX) Takes a Beating
Last week, Starbucks reported weaker-than-expected earnings and revenue — with a surprising decline in same-store sales leading to an immediate -12% stock price plunge. The company slashed its forecast for fiscal 2024, anticipating continued underperformance in its cafes for several quarters.
Across all regions — Starbucks saw shrinking same-store sales and falling traffic, including a -4% decline in same-store sales and a -6% drop in cafe traffic.
The U.S. market specifically experienced a -3% decrease in same-store sales and a -7% decline in traffic, while international segments also faced challenges — particularly in China where same-store sales plunged by -11%.
Management expects flat to low single-digit EPS growth for fiscal 2024, down from previous forecasts of +15-20% growth.
This was wild… Jim Cramer decided to absolutely rip the Starbucks CEO on live TV.
Another Boeing (BA) Whistleblower Dies…
Boeing is facing significant challenges with whistleblowers — as a second one has died under mysterious circumstances…
These events are part of a larger crisis within Boeing, which also reported a -$355 million revenue loss in Q1.
Whistleblowers like Joshua Dean, who recently passed away, and John Barnett, who died a few weeks ago, raised concerns about safety flaws and alleged corporate negligence at Boeing. The company's troubles include Congressional investigations and a scathing House report in 2020 pointing to repeated failures in safety.
Boeing is down -31% YTD, and more whistleblowers are reportedly emerging.
Carvana (CVNA) Comes Back to Life
Carvana's shares surged +30% in after-hours trading following their record-breaking Q1 results — including +$49 million of net income compared to a -$286 million loss in the previous year.
The company's earnings per share of 23 cents exceeded expectations.
Revenue reached $3.06 billion — surpassing the expected $2.67 billion.
Carvana's gross profit per unit (GPU) stood at $6,432, and its adjusted EBITDA profit margin for the quarter reached 7.7%.
CEO Ernie Garcia III attributed this success to operational efficiency gains, especially in vehicle reconditioning and cost management.
The company's restructuring efforts over the past two years — focusing on profitability rather than growth — have also contributed to its recovery. Shares had climbed +67% YTD before the Q1 results were even announced.
“In the first quarter, we delivered our best results in company history, validating our long-held belief that Carvana’s online retail model can drive industry-leading profitability while delivering industry-leading customer experiences.”
Major Economic Events:
A breakdown of the jobs report and the Fed meeting.
Jobs Report & Unemployment Rate
In April, U.S. job growth reached +175,000 — falling short of the +240,000 estimated by Dow Jones. The unemployment rate rose to 3.9% — surpassing expectations of holding steady at 3.8%.
Average hourly earnings rose +0.2% MoM and +3.9% YoY, lower than expected.
Health care saw the most significant job creation, adding +56,000 jobs — followed by social assistance (+31,000), transportation & warehousing (+22,000), and retail (+20,000).
Fed Chair Jerome Powell's characterization of the job market as "strong" contrasts with market sentiments of easing labor market conditions and softer wage growth — prompting discussions about potential rate cuts to address economic concerns.
“This is the jobs report the Fed would have scripted…The first downside payrolls surprise in several months, as well as the dip in average hourly earnings growth, will bring the rate cutting dialogue back into the market and perhaps explains why Powell was able to be dovish on Wednesday.”
— Seema Shah, Chief Global Strategist at Principal Asset Management
Jerome Powell’s Vibe Check
The Federal Reserve — as widely expected — decided to maintain its benchmark rate steady at a range of 5.25% to 5.5%.
Experts now predict the first rate cut will occur in September or November, with Jerome Powell and the other Fed leadership not being satisfied with inflation’s stickiness.
Inflation has remained stubbornly high, with consumer prices rising +3.5% YoY in March — prompting concerns about borrowing costs for consumers (including credit cards and mortgages).
Despite hopes for rate cuts, borrowing is expected to remain expensive, with mortgage rates possibly exceeding 7% again. However, savers may benefit from higher-interest savings accounts with yields above 5% and other attractive savings options.
"In light of the meeting, we're probably going to have to get used to the average rate on a 30-year mortgage being above 7% again… Those 7% rates that people dread are probably going to stick around."
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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