In this podcast, Motley Fool host Dylan Lewis and analyst Mason Moser talk about Tesla's down results and up market reaction, how Boeing's backlog insulates it from short-term delivery hiccups, and why Visa's results are boring...and that's A-OK.
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This video was recorded on April 24, 2024.
Dylan Lewis: We're hitting Boeing earnings and Boring earnings. Buckle up. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool Analyst Jason Moser. Jason, thanks for joining me.
Jason Moser: Hey. Happy to be here. Thanks.
Dylan Lewis: We've got all earnings today on the pod. We're going to be rolling up our sleeves and digging in results from Tesla, Visa and Boeing. Jason, three companies facing very different situations, why don't we kick things off with Tesla? Maybe a bit of a surprising market reaction given the results revenue and earnings both down year-over-year, both missed expectations, shares up 10%. Help me walk through that.
Jason Moser: Well, investing just makes so much sense. It's always a bit confounding sometimes the reactions and it's worth remembering too I mean me Tesla has had a very difficult year to this point, so it's a nice little bounce from what has been otherwise underperformance, but to me when I looked at the results and I saw the reaction from the market, Tesla has always been one of the most forward-looking ideas in regard to stock performance that I can recall seeing at least in that. It gets a lot of credit because it's doing something so bold in something so new and when you dig a little bit further in you think about Elon Musk and how he runs this company. On the one hand in critics will argue that he has a million big ideas in Tesla alone. Just with a one-company and Tesla and it flows. Remember he does a million other things it seems like but within Tesla, he's got a million big ideas it feels like. On the other hand, maybe they don't all succeed but if a couple do, then that can be a really big deal. I understand both perspectives there. It was not a good quarter when you look at the way that the business performed. This is a car company still at the end of the day. Much like Apple is an iPhone company, Tesla is a car company today. When you look at the negatives, they called out in the report specifically regarding profitability and the operating margin, there are reasons to at least be a little bit concerned in the near term. They talked about reduced vehicle selling prices, they talked about increases in operating expenses. Now a lot of that was guided by investments conscious in purposeful investments in AI as well as other R&D projects, battery cell advances, whatnot. There's the cost of the cyber truck rant, and there is a decline, unfortunately in vehicle deliveries. All of that tells you that maybe they are hitting a little bit of a trough in regard to the core business itself. But again, I go back to this notion that with Tesla, it's less about the fundamentals of the business. I think most bulls, look at this from a longer-term perspective. Whether that's right or wrong, time will tell there. But again, it feels like they're doing the right things based on Musk's grand vision. It's just a matter of whether that grand vision actually plays out.
Dylan Lewis: I think Musk would be happy to hear you say that based on comments he made in the call. I think that the direct quote here is, "If you value Tesla as just an auto company, it's just the wrong framework. If someone doesn't believe that Tesla will solve autonomy, they should not be an investor in this company." That is the duality of this business right now. This is what they do, but also this is where they're going. I felt like listening to the conference call, Musk spent a lot of time on where they are going and I think we tend to see more of that when the core business is struggling a little bit. In this call Jason, we had a lot of commentary on full self-driving. We also heard about them unveiling their robotaxi ambitions on August 8th later this summer, which I think is something that hopefully builds some of that enthusiasm because when things are not going well on the delivery side, they do need it.
Jason Moser: I think you're right. Going back to what we were talking about at the beginning there. One thing I think is always worth remembering, and it's not to say this is the standard, but remember, the market gave Jeff Bezos and Amazon a lot of leash in the early days. There are people banging their heads against the wall wondering how the stock could perform so well for a business that for all intents and purposes, made no money. Right now, Tesla obviously makes money but you think about the challenges the business is dealing with and going back to that trough notion, in regard to demand for EVs, you have to look at the bigger picture. I understand why Musk does that. I think this is an idea that very much depends on the narratives, the bigger picture goals that Musk has and mine. I talked about Tesla being a car company and most folks who are on the Boeish side of this would argue that Tesla is much more than just a car company. There's something to that. If you look at some of the numbers, energy generation and storage was up 7%, services up another 25%. It was interesting to me that he got on board with this. We're going to start talking about introducing this lower-cost vehicle. The robotaxi or cyber cab as he calls it. It's a big deal, got to give it a clever name. Cyber cab it changes everything. Those are all absolute catalysts that can play out for this business. I think it's a matter of two things. Number 1, if you believe those things will actually come to fruition and then Number 2, the timeline. Because when you think about the cyber cab for example, I understand the logic behind that. Now, will that actually work? Is that the direction in which we're headed? I don't know yet. I feel maybe we could get there. I think it's probably going to take a little bit longer than people are hoping for. The other point in regard to the lower-cost vehicles, I appreciate that as well. We've seen them having to cut prices in order to stock demand. That makes a lot of sense but by the same token, you start wondering in regard to EVs where we are in this EV transition. I think most of us would agree that eventually we're headed toward that EV future. Again, it depends on how long it takes us to get there. I don't know in the near-term that developing the new lower-cost EV is necessarily the immediate answer. We've had a lot of early adopters. There's a lot of people who have jumped on it and they're all in. But there are most folks out there who are still on the fence or not really sure if that's what they want to do. A lot of focus today on hybrids, for example. You know that old saying, get to learn how to walk before you can run. Maybe that EV is running to hybrids walking. I look at myself, for example, I talk to my kids, their friends, and a lot of them think, well, that's where things are going but maybe they're not there yet. Again, I think a lot of this boils down to just timeline. I like the decisions. It seems to me that as investors in the business, you need to be probably taking a little bit of a longer view on this one.
Dylan Lewis: If you are looking into the timeline for that lower-priced model, it will apparently go into production in late 2025. You're right, Jason. I mean, when we talk Tesla, generally, we have to focus on the headline and not the details when it comes to some of these ambitions because they are loose with timelines and loose with delivery dates. But I saw that lower-priced announcement and thought, this might be the company looking to answer some of the criticisms over BYD and China and the focus on other EV companies coming in producing lower cost, cheaper products, especially in some of the big markets that they operate in and are really banking on for future growth.
Jason Moser: Price plays a huge role in this. If you go years back, the very first EVs were not the most affordable options in the world. Tesla, for example, started out at the very high end and they've started to work their way back down. I think that's worked to an extent, they've created that interest and we've been able to see the adoption to an extent at least of EVs. But again, you have to ask yourself that question of like, have we hit that stage where the early adopters are in? Now the people who are on the fence, isn't going to take a little bit more time. The time is only going to tell there. But when you look at the near term, the numbers don't bode well. Total deliveries down from a year ago, margins getting hammered. Now, a lot of the reasons for that margin pressure was investment in the business. I go back to that Amazon example because that's really what Amazon had done all throughout its early days. It was just taking the money it was making and reinvesting back in the business. So I certainly wouldn't hold that against Musk doing that for Tesla as well. I think it's the right thing to do. But you start looking at inventory numbers, it was up from 15 days worth of sales a year ago to something like 28 days now. Clearly, demand is not there but I also would not look at that today and say, well, that's just the way it's going to be forever. We've got the hype cycle. We see these things that they have in flow. I think with Tesla, that won't be any different. Again, it's really a matter of time.
Dylan Lewis: All right. Over to another company that's in the process of working through it a bit too, Boeing. Jason, this is a highly anticipated release. The question really on everyone's mind with this company is, they've had to refocus their manufacturing process. They've had to focus on quality control for their commercial airlines. How does the slowdown in deliveries that comes with that show up in the financials and what investors are looking at? What did you see in the results?
Jason Moser: Well, this wasn't a surprising release and it's not a surprising reaction from the market. I think the bad news has been out for a while. So for Boeing, I think much of this all boils down to a couple of big questions is, when are they going to be able to recover from this production problem? These plane issues. Then furthermore, we know that there's a leadership question in this company that needs to be answered, that hasn't been answered yet. I think those are the two big questions with the business looking forward. When you have a market like this, it's really dominated by two primary companies. I know there are other producers out there but you look at Boeing and Airbus because they're the two companies that are really guiding this market, so to speak. Maybe this is one of those situations where Boeing is running into some unforced errors, some things that they did wrong and it sounds like these are problems that have existed for a while and built up over time. Hopefully, leadership can take care of that. A change in leadership often can but that's not to say it necessarily will. When you look at the actual performance in total revenue, down eight percent.
Jason Moser: When you consider the headlines we've been reading over the last several weeks, that doesn't sound all that bad. Obviously profitability has fallen off a cliff but the backlog is $529 billion is versus $411 billion a year ago and it does feel like if they can ride this ship here, they can get these problems solved, things will improve but again, this is a business obviously going through a very difficult time.
Dylan Lewis: You mentioned the backlog there and I think zooming in on the commercial airplanes segment for Boeing, there was large drops there. We saw a 30% revenue drop versus about 8% overall for the business. They need to get their manufacturing right but I've wondered, this has been about as bad as it can get for a business given what they do and yet that backlog is so tremendous. How disruptive can this be to this company? Because it seems like there's a lot of insulation there.
Jason Moser: Well, I think there isn't. Part of that is just the market dynamics. You get two companies that really control such a broad and large part of the market. We often talk about competitors in the businesses that we cover. The costs, the barriers to entry in regard to a business like this are so high. There's so much capital, there's so much technological prowess that comes with it. It's just not an easy business to replicate and so if this is a situation where the business is recovering from some unforced errors, then I can see a future where things get a lot better and when we probably look back and my inclination is to believe we look back at this point in time and think that this was probably a great time to look at buying Boeing. If that's something you're interested in because it's hard for me to see this business actually falling off a cliff. Cash burn, we talked a lot about cash burn over the past several weeks with a business like this and they burned what, $4 billion in the first quarter. That was a little bit better than what the estimates were. But when you look at the company's balance sheet, cash, and investments in marketable securities still total 7.5 billion right now that's down, I think from 16 billion at the beginning of the quarter. They've obviously had to deal with some serious issues but this is a business, they have a lot of financial resources, a lot of options, a lot of ways to raise capital in the near term, to take care of those near term issues. It all boils down to making sure they get the right leadership in place to fix the problems that have built up over the course of time and just to really make sure that this type of thing doesn't happen again.
Dylan Lewis: If you're focusing on the cash side of things, CEO Dave Calhoun noted that the company is continuing its commitment to a $10 billion annual free cash flow target by the 25,26 period and Jason, you noted the cash burn their second ago. How do you take a goal like that, that is being touted by a current CEO, knowing that there's going to be a different leadership regime sometime soon and we don't have a lot of details yet on who that is?
Jason Moser: Yes. If the current CEO were to stay in place, then I would probably take that $10 billion target and cut it by a third, at least. With new leadership coming in, I think you have to throw it out the window and it's not to say that they can't get there, they certainly could. That remains to be seen. But it's all to say that with new leadership, that new leadership may have completely different priorities in place and really all that depends on who is occupying that CEO seat when that seat is filled. It's very difficult to look at a business like this and look at those longer term targets and really hold a lot of faith in them simply because that may not necessarily be the priority or the targets that new leadership has when they step in, and that could very well be the right thing for the business given the challenges that they're witnessing today.
Dylan Lewis: Putting a bow on our earnings run down. We're going to check in on Visa and the state of the consumer. Jason, a lot of intrigue with the results from Boeing and Tesla. Worse so when we look at Visa, their CFO basically said in an interview with MarketWatch, hey, this is going to sound boring but things are looking pretty good.
Jason Moser: Boring. [laughs] You hit the nail on the head there. Visa is one of those companies that just quarter in and quarter out you've learned you don't expect a lot, you don't expect a little. It's just a status quo with a business like this for the most part and that's actually the reason why you own a company like this to begin with. They have done a very good job, I think over the course of the last several years. Maintaining a strong position in the payment space as the payment space has been up-ended with all different options, alternatives, fintechs, new ways of doing things. Visa and you look at MasterCard, I think is another good example as well. But these are companies that have done a very good job of finding a new place in the value chain as that value chain evolves and I think that really comes back to just the power of those networks. It goes to speak for how important a big network like that really is. When I talk about a big network, Visa is now it's a company with 4.4 billion cards out there, that's up from 4.2 billion cards just a year ago. It's a company that continues to grow its presence, obviously has a tremendous brand. The beauty of it is it's oftentimes, it's something as consumers we don't even think about. We develop a financial relationship with whatever bank or whatever payment service we prefer and then we get a card and we use that card to spend. Whether that's a MasterCard or a Visa, a lot of people don't care. They just get whatever their bank gives them and so I think these companies benefit from that and thankfully they ultimately benefit from us spending money. No matter what money has got to get from point A to point B all throughout the day, all around the world and the market opportunity for a company like Visa, they referred to this in the call their 2022 data showed that personal consumption expenditures, excluding Russia and China was approximately $40 trillion. Now within that 40 trillion, they see their addressable opportunity at $20 trillion. Hey, listen that looks like a pretty decent opportunity for me. For a market where it's very difficult for me to, like we've talked about Starbucks and it seems like it's going to be very difficult to disrupt coffee. It's going to be very difficult to disrupt the fact that money needs to move from point A to point B and it just turns out that Visa is a company that does it really well.
Dylan Lewis: No concerns with Visa, the business, strong growth and strong profitability trends. Seems like as the consumer spends, they continue to enjoy. But I want to dig into the consumer spending side of things and some of the trends there because,.
Jason Moser: Sure.
Dylan Lewis: One of the things I enjoy with a business like this, is not only do we get this backwards, look at the quarter when they are talking about their forecasts. They're talking about both the business forecasts and generally, consumer spend forecasts and what they're expecting and when we got commentary from management, they reiterated that guidance. They're not worried about anything for the rest of the year.
Jason Moser: No. they're not. I think a lot of that has to do with the fact they've done such a good job over the last several years of diversifying the business. It's not just a business anymore, or what we're thinking about the Visa that you or I might have in our wallet. They've diversified their revenue streams well beyond just payments into all of these little subcategories of payments. Whether it's cross-border payment and that was up 16% for the quarter. You talk about new flows, that new flows we're talking about things like business-to-consumer. One of the bigger opportunities they see that the government to consumer and then they're very excited about the government payment side of the business. That was up 14% for the year and so when we talk about payments volume being up 8%, it's worth breaking out exactly what makes up all of that payments volume because it's not just us swiping our Visa card anymore. There's so much more to it between the cross-border, the new flows and you're talking about value add, things like security data analytics, risk management. That value-add revenue was up 23% and you couple that altogether with the fact that they continue to grow that network and going back to that 4.4 billion number of total cards that I referenced earlier. You can see it just takes a little bit. Everybody using that card just a little bit one way or another, using that network just a little bit one way or the other. It really adds up and it sure seems like Visa continues to really maintain a strong position in the payment space.
Dylan Lewis: Strong report. Anything that jumped out to you as a concern or little wrinkle just give how steady everything seems, Jason?
Jason Moser: I don't think there were any concerns. I thought it was very encouraging to hear they reaffirmed their guidance for the year, talking about net revenue and operating expenses growing in that low double digits with earnings per share growing in the low teens. Neat thing about this business, they always do a very good job of repurchasing shares along with rewarding shareholders for dividends. I am a shareholder of Visa, I appreciate the share repurchases. I would love to see them really bump that dividend up to a little bit more of a meaningful number. That'll come in time and I think they'll just do it slowly and methodically. It's part of the business model, it's just share repurchases and dividends. One thing to be maybe note they did ratchet down the total payment volume growth just a little bit. They adjusted down to high single digits from low double digits. I don't know if that's something I would be terribly concerned with but it's probably something just to keep in mind.
Dylan Lewis: Here I am looking for drama and you're saying everything is fine, don't worry about it.
Jason Moser: [laughs] Try to keep the status quo there.
Dylan Lewis: Jason, you are far from boring. Always love having you on the show with me. Thanks for joining me.
Jason Moser: Thanks so much. It's a pleasure being here.
Dylan Lewis: Listeners, we're in the heart of earnings so no second segment today on the show. Same for tomorrow when my colleague, Deidre Woollard will kick off the big tech updates. Let us know what you think of trying something different during these big earnings weeks, you can reach us at podcasts@fool.com. As always, people on the program may own stocks mentioned and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, thanks for listening. We'll be back tomorrow.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dylan Lewis has no position in any of the stocks mentioned. Jason Moser has positions in Amazon, Apple, Mastercard, Starbucks, and Visa. The Motley Fool has positions in and recommends Amazon, Apple, Mastercard, Starbucks, Tesla, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
