Microsoft and Ferrari Earnings+An Update on Bill Ackman (Not Positive)
Microsoft is weighted the third most in my portfolio, and Ferrari is second in terms of weight. In the past two days, both companies have reported earnings, with near-opposite reactions from investors. I will be reviewing both companies' earnings, but first, an update on Bill Ackman’s situation.
I went over this a few articles ago, but Bill Ackman was attempting to create the close-ended fund. A close-ended fund is a fund that IPOs and invests the proceeds into companies. Fundamentally, however, close-ended funds are faulty. They often trade at relative discounts to the companies they hold, and Bill Ackman is sort of cuckoo, so that also sucks. Anyway, this fund was supposed to pull in $25 billion of money, which was cut down to ten, and now, this fund has been erased completely. Because nobody wanted to invest in this lame fund, Bill pulled the IPO. This is a super, SUPER bad look for Bill.
What this says is that nobody in the market trusted this fund, so by proxy, nobody trusted him with this. This was all extremely public as well, spawning delightful headlines like “Ackman’s IPO Dream Implodes From $25 Billion to Zero in Weeks” from Bloomberg and various other wacky headlines. I have never liked Bill Ackman that much. He’s never been in my burn book or anything, but I find him to be a bit of a blowhard, especially since he's a decent manager but nothing spectacular. The last I will say about Bill is that his hair is great. I have to give it to him; his hair is great. His IPO though, is not quite as strong.
Okay, let’s talk about Microsoft. The stock was down about 7% post-earnings, so you would assume that something awful had happened. No, earnings were average. The big freakout was over cloud growth coming in at 29% instead of 31%, a completely ludicrous data point for investors to freak out over. Sales and profit both beat expectations, and revenue increased 15%. THAT IS INSANE. For a company of Microsoft’s size to increase its overall revenue by 15% over the past year is awesome. This was expected, however. The valuation was/is very high, so earnings were going to force the price to fall unless they were spectacular.
One of the other numbers investors are focusing on is CAPEX. CAPEX is capital expenditures, the amount of money a company spends on improving and maintaining fixed assets like land or equipment, and Microsoft’s total CAPEX was $19 billion for this quarter, 55% higher than one year ago. To be fair, that is quite a bit of money. For context, Uber’s entire revenue for the last quarter is equal to half of Microsoft’s CAPEX for the same quarter. Microsoft’s elevated CAPEX is going to AI, obviously, but executives had said that they would continue to spend as much money as needed on AI, which is exactly what I wanted to hear.
I thought this was an above-average quarter for Microsoft, and I am extremely optimistic for this company, and its future.
Ferrari is only behind Costco in my portfolio in terms of weight, and they also released earnings this week. Earnings were positive, and the company raised nearly every full-year target. Revenue, free cash flow, profitability, and EPS all beat, and targets for the end of the year were raised. The most important figure for me is that hybrid cars comprised about half of total shipments. The vast majority of Ferrari buyers already own a Ferrari. They are repeat buyers, so if the veteran base was opposed to hybrids, I would be worried. That would leave the company vulnerable, with a younger base preferring hybrids and an older base shunning them. Questions would be raised about priority, and it would be a tricky situation, especially with that new factory, but no, Ferrari hybrids are extremely popular with their customers. Shipments were 3% higher, a difference of 13 cars, than expectations, but that doesn’t matter.
Keeping the brand rare and prized is the most important task for any Ferrari employee, so if the second-quarter shipments were super high, I would be worried, but Vigna is doing a great job.
There really isn’t much I can say about Ferrari. Vigna is an excellent CEO and a Ferrari man. I feel ultra-optimistic about Ferrari, and I would have no hesitation buying more if the company didn’t already make up 20% of my portfolio.
