Apple Results, Amazon, Microsoft, Google, and the Cloud - 7investing
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Apple Results, Amazon, Microsoft, Google, and the Cloud

November 3, 2021

Apple had an incredible quarter but the market did not embrace those results because the company warned about supply chain issues impacting its holiday sales. That has been a typical pattern despite the company reporting record results repeatedly. Anirban Mahanti joins the show to discuss Apple as well as take a look at cloud numbers from Amazon, Microsoft, and Google as well as the huge opportunity for growth that remains in that space.

Transcript

Dan Kline  0:13  Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Good afternoon, and welcome to the Wednesday edition of 7investing Now. My name, of course, is Daniel Brooks Kline. I am the host of the program. I’m being joined today by Anirban Mahanti. We’re going to talk about Apple earnings. Then we’re going to talk about the cloud, Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOGL), maybe a little Microsoft (NASDAQ: MSFT), we’re going to work in all sorts of cloud.

But before we do that Anirban, I committed a crime against Australia tonight. I apologize. I blame this on my wife. But we’re taping this at about 7:30pm. And we ordered Uber Eats from Outback Steakhouse. And I don’t know if this is a brand you’re familiar with, in actual Australia, but this is basically like, if you went to a restaurant called fake America Land and ordered like George Washington chicken, like it is the least authentic Australian experience you could possibly have. I had something called the kookaburra wings, which, yeah, I’m pretty sure not in any way, Australia. But is this a company you’re familiar with?

Anirban Mahanti  1:25  I know Outback Steakhouse. I think we have some here in Sydney as well. I’ve been to, I think. I’m not 100% sure but I think we do, Outback Steakhouse. But I’ve been to Outback Steakhouse in Canada and in the US, so they do a fine job. I mean, I don’t I don’t read the labels of what they’re offering. Is it kookaburra? Or is it kangaroo from like, New Zealand?

Dan Kline  1:53  The food is fine. Like I’d say it’s a little better than like that level of restaurant. But the theming is so like egregiously awful. And it’s just like, we’re not going to talk about this too long. But basically, the American perception of Australia was formed by Crocodile Dundee. So like, basically, we expect everyone to have the hat on and have like a kangaroo sidekick and be carrying around a big neck. This is very American. I mean, we’ve seen that on our sitcoms. I’m sure you’ve seen The Trouble with Apu, the documentary on on The Simpsons, we tend to boil down, as a Jewish guy feel the same way this comes up a lot, you get sort of the very surface level. I’m getting into dangerous territory here. So I am going to stop this.

But Anirban Apple (NASDAQ: AAPL) reported. And as usual, in my opinion, I’ll talk about this later. The market got it entirely wrong. They focus on the little tiny bit of not even negative, just like responsible, you have to say this, like if I’m taking you on like a blimp ride when the blimp is tethered at the fair, somewhere in the documentation is like the blimp could blow up. But it’s like, it could but it’s not going to. That’s kind of what happened with Apple. But why don’t you give us some of the headlines, and then we can talk about how the market reacted.

Anirban Mahanti  3:10  I mean, you did the headline already. I mean, Apple’s results are what I call fabulous results at scale. I mean, this company delivered a record quarter I believe, which was. I a record in so many different records were there. I forgot to count. I didn’t count how many times they said “record quarter”, “record this”, “record that”. But the company delivered 29% revenue growth. Now when is 29% revenue growth bad when the 29% revenue growth results in $83.4 billion in sales? Right? I mean, that is just a phenomenal number. If you just annualize that, that’s $360 billion a year and this company’s saying I’m growing at 29%.

Now it’s also saying we’re going to grow at high double digits. So that’s probably somewhere in between 15% and 20% next year. This is like fabulous. But here’s the kicker, the kicker was that as the scale increases, given the share buybacks and the leverage offering leverage in the business, earnings per share jumped 60%. Now tell me which small cap is going to grow earnings at 60%? Like 60% is phenomenal. Right? Installed base hit an all time high, so again, that’s reflective of a lot of Android switching going on. That’s reflective of … the platform is just doing what it’s supposed to be doing 745 million subscriptions on the platform. That’s probably the largest subscription platform in the world. It’s up by 160 million in just 2021. If Netflix (NASDAQ: NFLX) looks at this number.

Dan Kline  4:57  That number is stunning. Now those aren’t all Apple subscriptions, right? So some of them are through the app store, I get a subscription to whatever. So this isn’t like, there aren’t 600 million people on Apple Fitness or Apple TV, but they are collecting revenue on a subscription model. That has to be the most by triple of anything. Maybe Alphabet and Google to be fair, because there’s a similar model in the Google Play store.

Anirban Mahanti  5:25  I mean, the thing is that, a lot of this would be things like Apple One subscriptions. And in Apple Cloud subscriptions, Apple Music subscriptions. But a lot of that is also going to be third party, people who have subscribed to Netflix, back in the day are paying through iTunes, the Apple store credit and things like that.

So, I mean, again, it’s just phenomenal. I think that the platform is doing what it is doing, and 160 million additions to subscriptions, however the subscription was added. That’s besides the point almost, because that’s the number of subscribers like Disney (NYSE: DIS) or like, Netflix would have, right. So I mean, it’s just the scale is just unbelievable.

The other thing that I think is very interesting, and I think it’s worth thinking about is Apple has been going at India, Vietnam, and some of the emerging economies that are fast growing economies for a long time. And has been steadily trying to gain share. And as I like to say, in India, people have Android phones, because they couldn’t afford an Apple phone.

Yeah. not anymore based on these numbers.

But not so much anymore. Because it looks like 1/3 of the revenue that Apple earned came from emerging markets. And they doubled revenues in Vietnam and India. So I think the strategy is working. But basically, the strategy is, as these countries raise the living standards and the wages that they earn, they’re going to just have more people buying Apple stuff. Which, I can tell from talking to relatives and other people who don’t want to have Apple. It’s just too expensive right now for them.

So, services revenue hit a record, what $18 plus billion in the quarter. They said that they had records for several things. And this I think, is really important. And this is like a Tim Cook legacy. Records for cloud services, music, video advertising, and Apple Care and payment services, right? This is good news, in my opinion, because basically this shows that when Apple starts something, whether it’s like, Fitness+ or TV+ and they’re saying a video, they aren’t actually record on video. So that’s very interesting, in my opinion, although it could be you know that you hit a record of a very small base, that’s a different thing. But it basically just says that they have an opportunity to iterate because this is almost like a sidekick business that they’ve got. So they can iterate over Fitness+ and because it’s not their sole business, they can actually make it great. And they can do it over time. Yeah, so I think this is a fantastic quarter.

Dan Kline  7:49  I’m an Apple One subscriber minus fitness. And it’s because I used to be a magazine guy, and magazines are all integrated into Apple’s news program. So I don’t consume it as much as I did back when I got sent a physical magazine. But Apple Music, that’s what my family uses. At some point, once you have one or two, it actually makes sense to pay for the bundle. And then it really comes down. It’s like, okay, is each new piece of the bundle gonna bring in enough people to justify that it’s only an incremental cost over the others. And so far, you know I’ve been skeptical of Apple TV+. But it’s hard to argue that Ted Lasso, which is probably like 60% of all Halloween costumes this year, was a driver, at least a driver in people talking about it. I don’t know, that has actually been viewed as many times as as the world would let you think it was.

So these numbers are incredible. But then the two scariest words, we just passed Halloween here in the US. That was Sunday. So the scary words would be “supply chain”. Apple said on top of a record quarter that supply chain issues cost them about $6 billion. Now is that $6 billion gone? Some of it, some percentage probably went like geez, I can’t get an iPhone, I need a phone. I’m gonna have to buy something. But actually, I would bet, and Anirban tell me if I’m wrong. The vast majority of people did what I did. Put in an order for an iPhone and when it showed up, they were happy it showed up. Mine actually showed up early based on what it was supposed to, which is actually typical. Apple tends to under promise and over deliver. But what did they lose a couple $100 million dollars. Like I actually think they just pushed sales forward because they couldn’t build as many iPhones and we saw today that they’re gonna build less iPads so they can build more iPhones because the demand has shifted there. So am I missing something? This doesn’t seem like it’s the big boogeyman that the market played it out to be?

Anirban Mahanti  9:02  No, so I think you’re right, like I mean, there’s some truth to losing. So I think there is some truth to this that they’re saying the holiday quarter is gonna also have like an $8 billion to $10 billion headwind from supply chain. I think the dynamics of the holiday quarter is like, Okay, if I want an iPhone, or you want an iPhone, my wife got her iPhone. You’re not going to switch to an Android phone, because you can’t get the iPhone, you’ll just wait. So that is almost like a given sale, that’s going to happen. It’s just deferred. But if I have to give to my distant cousin something, and I was going to give them an iPad, and now I can’t? Well, I think what I would suggest to all these people is you should just buy an Apple gift card and give it to those people so that they can buy, maybe they don’t want an iPad, they maybe they want an Apple Watch, just give them the gift card, that will be my suggestion.

But I think there is a potential for loss of sale there. Right? If you want to give someone something and you can’t buy it, you can’t have it, it’s not going to show up by holiday season. Although I’ll also caveat this by saying that this is true for a lot of other things. Like if you are buying stuff for holiday and you haven’t planned it.  It’s like it’s not going to show up for the holiday season gifting. So there is potential for losing somebody. It’s not in the tune of billions would be my guess. I’d be amazed if it is in the tune of half a billion dollars. But again, at Apple’s business scale, it could be right.

Dan Kline  11:09  You’re significantly more generous than I am, I would be happy to get a Starbucks (NASDAQ: SBUX) gift card from most of my relatives and I like my relatives. But certainly nobody’s giving me an iPad. And I will say, I actually think this is going to be the holiday of deferred gifts. Now, you know I used to run a toy store. And I never understood the parents who would like kill themselves so that they could give their kid the whatever it is, that’s the hot toy. When instead you should really teach your kid, you can have this, like we’re gonna get you the Cabbage Patch Kid or the hamsters that go around the thing that were big a few years ago, or whatever it is. But you’re not going to be able to get until mid January, when they come back into stock. Like as an adult, I’m pretty sure I could give my wife a picture of an iPhone and say I’ve ordered an iPhone for you. It’s showing up at some point.

 

But I will go back to my toy store days, there is a certain amount of mania that happens during the holidays. So if we did an average of $200,000 a weekday, which is probably more than we did, but like it’s somewhere in that range. If we had a snow day, the next few days, we might do $250,000 for two or three days, but some amount of money was lost because I used to joke during the holidays. There’s what I call the bags of leaves season. Where if I had just put out bags of leaves on the floor and said buy a bag of leaves, it’s a great gift, I would have sold them all. Because like people just panic. They absolutely just don’t know what to get. And we were a pretty responsible store. So we tried really hard to get people gifts that would make people happy. But there are definitely other stores that use Christmas to be like, “couldn’t sell this all year”, like, oh, that movie tanked and we’re stuck with like 50 Lego sets from it. Like sure your kids love Dune Legos or whatever it is.

So I do think there’s some amount of sales lost. But if it’s 5%, I’d be stunned. If you want an Apple Watch, you’re not going to be thrilled to get a Fitbit or a Samsung watch there. There there is a very small percentage of people that are like, boy, I love Android and I love iOS. Like the iPad’s probably the most vulnerable. Because from a price point of view, you can make a pretty easy argument that a Windows tablets good enough, or even a Kindle for like $60 bucks, it depends what you’re using it for.

Anyway, with that, give me the final word. We feel great about Apple, right? Like, to me, this is a company that the past like four quarters have been like ridiculous. And the only thing holding them down is they’re responsible when they say that there are some tough roads ahead, but tough roads that are going to hold their growth in the 20 percentile instead of the 30 percentile. Which like, could you imagine a year ago if I told you Apple would grow by 20% a quarter? Like nobody would have believed me on that.

Anirban Mahanti  14:02  Yeah, I think that’s the thing that Apple I think what they’re doing is they’re sowing the seeds for the future. So I think a lot of things are happening which is going to in due course we’re going to come back and say Okay, so now that makes sense. Right? I think their their journey with the Mac’s with the chipsets that they’ve gone to, lower power chipsets. I think this is just setting the stage for other things that they’re going to be doing. And they’re also right now trying to appeal to both the developer community and the sort of, the hobbyist and the other people through the range of products.

So I think this is expanding the ecosystem, planning other products, planning other services in the background, not talking about them. Again, I feel good if this company grows at 15%, 10-15% I’d be happy. The multiple is not that demanding and they buy back their shares every now and then. Whenever there’s a pullback they should just buy back more. Yes, as a long term shareholder again, this company has done wonders for me. Lastly, because it has been inexpensive.

Dan Kline  15:04  So let me throw out one last question. Essentially the way … [INAUDIBLE] … or two, do you think that’s possible because I have, I am actually doing this on a 2020 Mac. The problem there being, I won’t be able to buy the new Mac. I would like for them to go to a Microsoft style hardware-as-a-service model, where every two years I get like an upgrade offer, which is actually how I do my iRobot (NASDAQ: IRBT) as well, with my Roomba. Where every two years, I get the latest Mac, it’s just a perpetual payment I have. The one I have, which now goes into the refurb pool and sells to someone in Vietnam who maybe can’t afford a new one or whatever it is. It feels to me that that model has worked. I’m pretty thrilled to pay $24 a month for Xbox which comes with Game Pass and basically unlimited games. And know, I’m always gonna have the latest hardware. And the same thing with my Roomba. Like who wants to shell out $600 bucks for a new room but every two years, but I’m spending the same money I’m just spending it on like a subscription basis. Is that something Apple could consider?

Anirban Mahanti  16:14  I think they are considering that right? I mean that’s happening with the phone already right? You can you can have the phone pretty much on a subscription plan. You can upgrade every so often. I think that should and could happen with the, I think that would be a great sales lift. I just don’t understand why they haven’t done it yet. I am with you in that. It makes sense.

Dan Kline  16:34  Because the problem is, the new MacBook Pro is better than the one I have. But it’s not better enough to justify replacing a less than one year old MacBook Pro.

Anirban Mahanti  16:45  Well, I have been in a situation where what I did is I had a MacBook Pro which is relatively new, I upgraded because they came up with the M1 chips because I wanted to just try it out. Well I upgraded and I waited for a while before upgrading and like within few months of upgrading now there is an M1 plus, M1 pro, so it’s sometimes hard to keep up with Apple’s incessant products with upgrades.

Dan Kline  17:10  They do generally have a pretty good buyback program. But it’s not, it’s certainly not you know dollar for dollar.

Let’s move on here. But before we do that, it’s early in the month, we just put out at 7investing our latest stock picks. Anirban’s pick is going to blow you away. My pick is perhaps less exciting, but it is a company that I think you’ll understand, I think you’ll see why I picked it.

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Anirban, we are going to move into Amazon, Microsoft and the cloud. So Amazon followed sort of a similar pattern to Apple, they had good numbers, but they had some warning over supply chain. They also did a very Amazony thing where they said yeah, we see some things and we’re gonna spend a lot of money to mitigate those problems. So this is pretty typical Amazon. Now their numbers were not overall as blowout as Apple’s were, simply because they did have significant added costs. We all know some of the shipping issues. We all know that wages are going up at sort of the bottom of the wage scale that’s affecting Amazon. But there’s one standout area here and that would be Amazon Web Services, AWS. This is a business which keeps actually lowering prices, but doing better, right? What are the numbers look like here?

Anirban Mahanti  20:02  Well, the AWS numbers, Amazon Web Services numbers are excellent again. So this business did bought $16 billion in revenue, which was up 39%, year over year. This is actually a bit of an acceleration from the prior quarter, I think the last quarter, the year over year growth was something like 37-36%. So again, fantastic growth at scale, right? The operating income, if you think about the income that this business is generating was about, like close to $5 billion. That’s very, very good. And if you think about the scale of this, right, so $16 billion a quarter, that’s about $64 billion a year, growing at about 35% annually, and the operating margin, if you think 5 divided by 16, that’s about 1/3. So, if you think about this is a standalone business. If you apply a standard 20 multiple, like a lot of SAS players are getting, this would be worth a lot, this is already worth itself, like, close to $1.2 trillion. So this is like the hidden gem inside Amazon. I mean, the retail part of the business is great, right? But let’s say it’s a business at scale, which generates very tiny margins, right? Because that’s the nature of retail.

Dan Kline  21:16  Yeah. And it’s very expensive. And look, I think there might be points where they’ve built out what they need to build out, and you have years with less investment. I think, historically, we’ve seen that, where the numbers look really incredible. But they’re going to build 1000’s, maybe 10’s, of 1000’s, of grocery stores and convenience stores, which is going to enhance their delivery, it’s going to add to their efficiency. But that’s not cheap. It’s not like, if you want to add cloud capacity, that’s relatively cheap, compared to being able to say like, yeah, we need to add, 200 Amazon Go stores in the Greater Sydney area. That takes a lot to get going. And you can make it simple. Obviously, companies have really figured out, they built a Taco Bell in like three weeks near us in Orlando. But you still have to build it, you still have to do it. So that business is never gonna look as good as the cloud business does.

Anirban Mahanti  22:10  I agree with you 100%.

Dan Kline  22:12  Yeah, and I’m glossing over the overall Amazon results, because I don’t think they matter. This is a company doing a tremendous amount of business in an unprecedented time. Like, yes, there’s less COVID mitigation than there was. But wages are high, getting people to take these jobs is difficult. Building out your third party delivery is difficult. I have to be honest, I’ve experienced more Amazon problems in the last couple months than I have in probably the previous two years. I had an order yesterday that was delivered, and they said well, did you ask all your neighbors? Like, well, who does that? Like? Like? Yes, yes, I knocked on every door and said, did you get my eyedrops? Like, yeah, it wasn’t even like it was that important. But that being said, those are glitches.

I want to keep focused on the cloud here. Because success in the cloud was not unique to Amazon, it was also a big part of the success of my biggest holding. And that would be Microsoft. And Microsoft is not my biggest holding, because I put the most money into it. It’s because I was fortuitous enough to work at Microsoft during Windows 8, the worst period ever for Microsoft stock. And I believed in the company, I believed in the now deposed management. And I bought a bunch of shares, not a bunch, but for me a bunch of shares. And they’re up something like 400% since I purchased them, so it is my largest holding, but they kind of killed it in the cloud to as well, right?

Anirban Mahanti  23:38  Yeah, so like, again, Microsoft overall had great results, whether or not again, for a company at that scale was very, very good. We’re not going to talk about that. What we’re talking about is really the cloud, as you said, so that Microsoft does not break out their cloud, which is Azure, what it gives us is something that they call intelligent cloud.

I’ll jump in here, I just want to say this, as someone who’s following Microsoft, they have made their business structure intentionally, ridiculously confusing. They take like parts of office and put it in different groups, like they don’t want you, and there might be some strategic business reason for this. They don’t want you to be able to clearly break down their revenue. So Anirban has done a really good job in sort of guessing at it. So sorry to step on you there. But it’s a pet peeve of mine.

No, no, no. I didn’t want to say that obfuscation is something that they do, and they do it really well. So you kinda have to guess. But the intelligent cloud business they did about $17 billion revenue, which was up 31%. And, they basically said that Azure, and I’m quoting them, and other cloud service revenue, grew at about 50%. Okay, so you have that part that’s growing at 50%. Then others, I guess servers, Microsoft servers and things like that that’s growing at less than that. Together they grew at 31%.

So my guess is that Azure is probably somewhere around 60% of the intelligent cloud revenue.  That would put Azure on $10 billion for the quarter or $40 billion run rate, growing at 50%. That is phenomenal. That still makes it the number two in cloud behind AWS. But that’s a pretty solid number two, if you’re growing at 50%. And if they can keep up that rate for a little longer they might actually be, toe to toe with, with Amazon. So again, fantastic. I thought that the results were fantastic there. I’m doing a little bit of guesswork here. But I think I’m probably in the ballpark of probably somewhere in the 50-60% would be my guess, for the intelligent cloud.

Dan Kline  25:45  These numbers are incredible. And Google, Alphabet, whatever you want to call them. Their numbers were great, too. And they’re sort of the, I don’t want to call them the “also ran”. But if it’s a big three, they’re three in this space, I think that’s probably fair to say. And by the way, IBM (NYSE: IBM) if it’s a three team race, IBM is seven, like I’m not sure. IBM is… if there’s Coke, Pepsi they’re Virgin Cola, which is defunct.

Anirban Mahanti  26:12  Yes, so, yeah, it’s it’s funny how we are going to call Google Cloud, or GCP, Google Cloud Platform, like an also ran, right. But I mean, when you look at the other two, it kind of looks like an also ran. But this business, Google Cloud Platform has been an ascendancy ever since they got Thomas Kurian running the show. Thomas Kurian came from Oracle (NYSE: ORCL), and he was running Oracle’s cloud, and Kurian has done a great job.

So again, one of the things I like to say is that until your numbers are great, you don’t want to break it out. Once your numbers are great, you want to break it out. So like I mean, once you establish, I guess, if Azure gets to number one position in cloud, they’ll probably break it out. Until then it will not be broken out. But Google Cloud, as a whole consists of a bunch of other things. Like its various cloud offerings and things like that, like whether you’re getting into the Google’s cloud offerings of like storage and using the emails and things like that, or its version of Office, that would be under Google Cloud. That revenue came in at $5 billion, and it was up from about $3.4 billion.

So that’s a pretty significant growth. And that’s roughly 45%. What they said is, basically, the GCP grew above that 45% for the segment. So again, maybe GCP is growing at 50%. They didn’t give out the number, my guess would be that GCP is roughly 80% of that $5 billion. So that’s a $4 billion run rate. So when you compare that the $10 billion for Azure, and the $16 billion for Amazon it’s really a distant number three. But it’s getting there. So this is still $16 billion annually, right? I mean, that is phenomenal. If you add all the three together, this is $110 billion per year growing at 35% plus. That is something phenomenal, right? I mean, if somebody asked me this question, five years ago, I would not be able to say that I think that is the scale at which they will be growing. And that these guys would be number two, number three. And so that’s, I think it’s phenomenal.

Dan Kline  28:14  I don’t think we know the growth potential. I want to follow up on Google, though, is Google hurting itself by being bad at products. And I’ll give a couple of examples. Google’s office version is terrible compared to Microsoft Office. We use it for a lot of things. Google Chrome is by far the worst of the streaming players. Android is dreadful compared to iOS. And I have things I didn’t choose, my cable system is based on Android, my new fitness thing I’m pointing at because it’s in the room over there, has an Android tablet. And it’s worse than like my old Apple Newton, it is not well done. This seems like something you could fix really easily if you were Alphabet. And they almost take pride in like being bad at what they do. Like I’m not I’m not really sure I understand what the logic is here.

Anirban Mahanti  29:07  So I will take the other side, it’s actually a really hard problem to solve. So what you’re basically saying is that they are. So I call Google an engineering company, right? An engineering company, it’s in their DNA. So they’re a great engineering company, they hire people for engineering. Engineers what data, they want to do complex engineering things. If you ask them to build a data center, that’d be fantastic at it, right? The most complex code. What I think they miss is, an engineering company can never really be a design company. And it is very difficult to make the transition. And this is primarily the reason why their products kind of don’t make it right, because they’re not a design firm. They’re not what I call a human-computer interaction firm. And I think that’s the problem. It’s very difficult to make the transition, because it’s almost like if it’s ingrained in a in an organization to think in a certain way, it’s very difficult to change and think another way.

And the other way to think about this is the very few companies make great products. Especially consumer facing products are really hard to do at mass scale. Because it requires a different type of thinking. It requires a different type of design philosophy, right. And I think those are challenging things to do. Some things money can’t buy, is what I say, because it’s all in the company’s DNA, and changing the company’s DNA, it’s relatively difficult. So that’s my take.

Dan Kline  30:28  Here’s the thing, it’s really hard to be good. And I would argue that Apple in the technology world is perhaps not unique, but very close to unique. But it is a giant gap between Amazon and Google. Like the Amazon Kindle is not perfect. And it is an Android variant. But it’s dramatically better for the entertainment consumption or for reading are for the things it’s for, they’ve done a really good job. And it feels to me like I agree, you can’t go out and buy great, but you should be able to buy better than bad. Or, frankly, when it comes to Office, do a better job copying and like hire a high school intern to like work on printing things and see if the formatting can hold from what you see on screen to like, what what actually prints out? I just think it’s a very strange miss to me. Because again, I don’t think you need to be great. I think you should just not be bad.

Anirban Mahanti  31:27  But I think see, this is a great discussion, right? Because what you’re saying is. I think what Amazon has done is the right strategy, where what you do is you try to do a lot. And then you figure out that when I tried to do a lot, it actually doesn’t work. So what basically Kindle is just for reading, right? So when you when you basically make the minimum viable product, one thing, you can actually do a decent job of it at a good cost point, right. But I think the philosophy Google has taken is that we want to do all of these things that say Office is doing. And then do all the engineering underneath it to offer an awesome killer product on the cloud. And then the basically become an engineering company, which forgot all about the design issues. I think it’s very difficult I think. And I think if you did a slimmed down version, maybe if they just focused on one thing, they could have done a good job of it.

Dan Kline  32:17  The Kindle’s actually a pretty delightful reader. But the Kindle Fire at the price point was a very nice tablet. For years, I owned an iPad, but didn’t want to have it be the throw it in my bag for when I’m on a plane because it’s too valuable to lose. And my $60 Kindle Fire was good enough. It’s clunky, it’s heavy, it’s not as fun to hold hold on a plane, I certainly always felt better giving my kid one than then giving him an iPad. Because obviously, you could put your iPad in that clunky case where the kid can’t break it, my kid could break it. This is an interesting discussion. This is not the direction I expected to go in. But these are the problems that actually to me, are compelling.

So I would argue that we’re in the early days of cloud growth, that there’s actually a lot of things still being done old school. And look, I worked at an internet company in the 90’s. When I worked at Uproar, which was a an online game show company. We had server farms, we had rooms in New York and an alternate site in California, just giant warehouses full of servers. And that, of course, made our company absolutely untenable from an expense point of view. And that’s kind of why the internet stocks all crashed in the in the 90’s. The numbers didn’t work. Basically, the cloud now has made that irrelevant. And basically everything’s going to be in the cloud. I mean, medical records, like any data is eventually going to the cloud. So are there room for other players? Or is this just going to be these three really dominate and a couple of niche, areas maybe somebody else comes in?

Anirban Mahanti  33:50  Yeah, so this is a good question. There’s a lot happening. So I think in the cloud, and the biggest thing that I’m watching is what’s happening at the edge. So a company like Cloudflare (NYSE: NET), is really trying to basically up the game in the cloud front, and basically saying that, well, you could do a lot of the things that you’re doing right now in the sort of the centralized cloud, at the edge of the network. And they’ve rolled out a few different products, basically, which are not just price competitive, but also feature competitive, but at the edge.

So there is a lot I think that is happening. And I think the question really is, is there a new model that’s going to come that’s going to sort of supplant itself, or at least plant a poll, and then try to take the new generation of product development onto that platform. So a lot is happening. I mean, there’s a lot of momentum here into business momentum for the infrastructure side of cloud. But there’s a lot of stuff happening at the edge as well. So I think it’s still interesting times and my guess would be the TAM for this entire market. So the total addressable market in dollar figures over the years could be it could be half a trillion dollar plus. So that always brings competition and Cloudflare would be an interesting. Cloudflare is a very innovative company, innovates at a very fast pace. So, and being small and nimble is actually an advantage here because small and nimble with newer products, which doesn’t build on legacy platform gives you an edge to do things differently. So that’s the thing to think about.,

Dan Kline  35:20  You have to operate on the edges because your Amazon, your Google’s your your Microsoft’s have steadily lowered prices. So you really have to be doing something that isn’t just storage. And if the bulk of this is going to be storage. Look, there are companies we’ve never heard of that are going to be massive successes in the cloud space and doing things we haven’t even considered from a safety and privacy and who knows what capacity point of view. But these three companies for Cloud as a commodity, they have the ability to grow the scale. And this is the only thing I can think of in my lifetime. And maybe I’m wrong, I’m sure there’s other examples, where the price has steadily gone down. This has actually steadily gotten cheaper. And that is typically not how things work. But Anirban Mahanti I will give you the last word before we say goodbye here.

Anirban Mahanti  36:10  Oh I don’t have anything last to say. Just to say that, again, I thought these. I guess the main thing is that there’s this thing that people think that big companies can’t grow quickly. But I think, and there’s all these things about the time spent at the top. And there’s this tendency to compare today’s tech giants with the Exxon Mobil’s of 2006 or whatever. I think there’s a little bit of a difference here, because these companies are operating at such big markets and are growing at such phenomenal scale, and have got such phenomenal balance sheets that this really puts them in a very different place.

Like I mean, these companies could miss a trend and still be okay. Right. That’s the thing that is really, really cool. And maybe the only thing that comes in their way is really regulation and just governments being uncomfortable with the fact that there’s so much clout. Whether it’s in product development, technology landscape, and what happens next. And therefore they start interfering with their growth or with their with their future plans. So but I think these companies are all, I don’t own all of them, I just own Apple and Amazon. I think that they’re just in a phenomenal place.

Dan Kline  37:24  Apple has so much cash, they could do things on a whim. That would be major news stories for other companies. And I joke but like buying beats for $4 billion for Apple was like me taking you out to a nice dinner. Like sure you’re aware you spent the money. Like if tomorrow apple but Shake Shack (NYSE: SHAK) because Tim Cook like their shakes. That wouldn’t be that big a deal. I’m teasing a little bit. But I don’t think people really think about the scale. Because look, when Disney spent the $7 billion it did for Pixar, or the $4 billion for Marvel, the $4 billion for Lucasfilm, those transactions were actually pretty relevant given where Disney was at the time. Those are big purchases. Right now, if Apple literally said we’re spending $4 billion to buy retro Jordans for everyone who works here. People would be like, well, that’s a little strange. I don’t even think the stock would go down. 2% like that is how rich this company is.

If you would like to get in touch with us, you can send us an email at info@7investing.com. If you want to follow us online that is easy to do. We are on Twitter @7investing and we just went public today with our new Discord channel. This is sort of like a message board where there’s space for our members, their space where just people are interested in the stock market. You can get into some really interesting discussions there. All seven of us jump in and out, more in the members area than the public areas. But sometimes we get enticed. So for Anirban Mahanti, thank you to JT Street. Thank you to Sam Bailey. I will see you Friday.

 

 

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