The Transcripts

The Transcript 12.14.20

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Succinct Summary: Capital markets are ending 2020 with a bang thanks in part to last week’s hot IPOs. Business leaders are feeling confident about 2021 and expect next year’s earnings to exceed 2019’s. Consumer spending is similarly strong.  Even the housing market is stronger than in ’05.  It’s a K shaped recovery for some industries but a vaccine should unleash pent up demand and high unemployment means that interest rates will stay low for longer. Readers should keep an eye on growing supply chain bottlenecks. This could be a source of some inflationary pressure.

Macro Outlook:

Who would have thought that this is how 2020 would turn out?

“…it’s been quite a year. I did not think when this year started it would be like this…I don’t think I’m gonna worry much more than in April and May when we saw our business drop 80% in eight weeks in the middle of a pandemic. So, I’m just, I just want to say I’m so grateful to be here today,” – Airbnb (ABNB) Co-Founder & CEO Brian Chesky

People are confident heading into 2021

“I think when you look at the combination of tests more widely or testing more widely available, you look at the prospects of multiple vaccines being rolled out, that certainly does give us a sign of light at the end of the tunnel. And I think the combination of those things make us a bit more confident that next year it is more likely to show signs of normalcy” – Citigroup (C) CFO Mark Mason

“…we are looking forward to getting to 2021. We are looking to get past COVID…and I think we are going to get some lift, if you will, L-I-F-T, as the vaccine rolls out. And so were hopeful, let’s say, the FDA passes it, for instance, in the U.S., so people can getting the vaccine, I heard in some case, maybe even this weekend. I think in terms of the guidance, I think that’s largely correct.” – Uber (UBER) CFO Nelson Chai “

“So you have had advertisers who are more optimistic about the economy, certainly in lots of different sectors who want to go back into the market and advertise and tell customers about their products…So we’re clearly not back yet to where we were before. I don’t want to overstate it…But I think certainly each quarter is stronger than we expect it to be. I think 21 looks to be [strong]” – Comcast (CMCSA) CEO NBC Universal Jeff Shell

Most CEOs expect better earnings in 2021 than in 2019

“…most of the people doing projections think that earnings in 2021 in the United States will exceed earnings in 2019. So, that gives you some idea of the kind of snapback. And I just saw a business roundtable study that says, by the end of 2022, 90% of the CEOs believe that they’ll be exceeding 2019 levels” – Blackstone (BX) CEO Stephen Schwarzman

Consumer spending has been strong and resilient especially during the holidays

“What we’ve seen demonstrates to us that local commerce is really resilient. And we already observed that earlier during this year, even in the spring, where we saw customers already coming back throughout the spring and summer.” – Groupon (GRPN) CEO Aaron Cooper

“As far as the holiday season…We’re seeing really strong consumer spending. The question will be how much of that has been pulled forward, how much of did that have we’ve already seen, how much of that is to come. And so that story won’t be totally written till December of 24th. But like everybody else, we’re seeing big increases in online spends, consumers have shifted their behavior.” – American Express (AXP) CEO Steve Squeri

“…it’s true that customer expectations are also at an all-time high because ecommerce is exploding. In fact, an annual holiday report that’s powered by Adobe Analytics predicts that online holiday spending will reach $189 billion, which represents 33% year-over-year growth.” – Adobe (ADBE) CEO Shantanu Narayen

There’s significant pent-up demand

“…there remains significant pent-up demand, due in part to the underproduction of new homes over the past decade, as well as the impact of many millennials delaying homeownership decisions. We are finally seeing the millennial generation start to transition from renters to homeowners.” – Toll Brothers (TOL) CEO Douglas Yearley

“…consumers have very short memories. And as I said, I’ll just go back. Consumers are dying to travel, their banking points, attrition is at an all-time lows.” – American Express (AXP) CEO Steve Squeri

It is a K shaped recovery though

“…in the March, April timeframe, there was a severe decline across all spending categories. And what’s interesting to see is that it’s come back in most categories back to pre-COVID levels, with the exception of those industries that you would expect airlines, hotels, travel and entertainment. So those are continuing to be pressured, but for the other parts of the economy, the spend is almost back to where we were. And it’s also interesting that, that what we’re seeing a credit is better than you would expect, given the macroeconomic factors that we see. But I do think it’s a K recovery. There are a number of companies and corporations and individuals who are doing very well. But at the same time, there are also a number of consumers and small businesses that are very much struggling in this environment.” – U.S. Bancorp (USB) CEO Andy Cecere

Business spending is still below trend

“The Coupa Q4 BSI indicates that business spend sentiment is continuing to recover from a sharp drop in Q1 as companies grow increasingly more comfortable operating in the new normal. However, despite the positive adjustments made by companies in most major sectors, our analysis shows that confidence in the economy is still low, and is likely to remain below trend for at least the next three to six months. ..For a closer look at our Q4 BSI where we share more data on each of these trends, I invite you to visit” – Coupa Software (COUP) CEO Rob Bernshteyn

And the reserves of the less affluent starting to decline

“…we’ve also seen that as these government programs have come to an end the reserves that — those less affluent customers have built up have been starting to decline. We don’t see it as being gone yet. They’re still in a better position today than they were going into the pandemic from a savings point of view and we see that filter through our credit performance.” – Wells Fargo (WFC) CEO Charlie Scharf


China is the global star of growth

“We I think that China will end up as the global star in terms of growth” – Blackstone (BX) CEO Stephen Schwarzman “You look at China, and China has started to demonstrate a solid rebound. And while the rebound in China may not be enough to carry the entire region, I think that’s an important factor that we are seeing good signs of recovery in that economy. So I think that’s important You look at Europe on the other hand and Europe is going through a second wave, parts of Europe that are under lockdown. We certainly see pressure when you look at some of the key data and key economic indicators there. And so, you kind of look across that and you kind of see, I call it asynchronous stroke where you have the U.S. and China looking better. You have the rest of the world, particularly the EU and lesser developed, emerging markets under a bit of pressure.” – Citigroup (C) CFO Mark Maso


Credit performance has been extraordinarily good

“The credit performance has been extraordinarily good given where we stand.” – Wells Fargo (WFC) CEO Charlie Scharf

“We continue to see very stable performance from a credit point of view. And the short of it I think and I’ll take it through a little bit of it, but we are probably more likely to see releases when I think about reserves than we are to see build, is the way things have been trending” – Citigroup (C) CFO Mark Mason

“With regard to the reserve, credit quality trends have been more favorable than maybe what we had projected at the end of the third quarter. We don’t expect any further reserve build in the fourth quarter. But I wouldn’t expect a reserve release in the fourth quarter. Yes, I think there’s just too many uncertainties that still continue to exist out there at this particular point in time.” – U.S. Bancorp (USB) CEO Andy Cecere

Bitcoin is catching the attention of the institutional investors

“Bitcoin has caught the attention and the imagination of many people,” Fink said. “We look at it as something that is real,” he continued but noted that the market for the cryptocurrency is “still untested. It’s still a pretty small market relative to other markets.” – Blackrock (BLK) CEO Larry Fink

Is the market pricing in too much growth for recent IPOs?

“The question is: Is the market pricing in too large of a forward growth rate for these companies?” – BlackRock (BLK) CEO Larry Fink

Has COVID changed long term work trends?

“And then the real question over time is, how much has COVID changed longer term work trends? And what I mean by that is, are people going to only go to the office four days a week versus five? Are people going to not do to that extra meeting? Or not fly out for the one meeting? We will see over time” – Uber (UBER) CFO Nelson Chai


The housing market is even stronger than it was in ’05

“We are currently experiencing the strongest housing market I’ve seen in my 30 years at Toll Brothers…I have a much wider lens than I had in ‘05. And what I see nationwide, it feels stronger and it feels better, and let’s focus on the better part because by no my comment all on the top. I think we have a long runway. This does not resemble the market of 15 years ago.” – Toll Brothers (TOL) CEO Douglas Yearley

There’s room for growth in food delivery

“I mean if you compare this industry with others, 10% of restaurant sales are being delivered today. If you look at ecommerce, they’re closer to 20% in total retail sales and if you look at travel, over 50% of travel sales are now online so we’re playing in one of the biggest, yet still most under-penetrated categories in the world. So right now, the time is really to invest.” – DoorDash (DASH) Co-Founder & CEO Tony Xu

Sticky habits are developing

“…if you think about how we behave as consumers, once we get used to a habit, whether it’s buying things over the internet, whether it’s buying travel tickets now through a mobile app instead of through a phone call, we tend to stick to those habits.” – DoorDash (DASH) Co-Founder & CEO Tony Xu

CPG companies have scaled back heavily on some SKUs

“I think that the largest CPG companies have scaled back so heavily on SKUs just to produce the items that the retailers and the consumers need,” – United Natural Foods (UNFI) CEO Steven Spinner

Consumers are planning to travel again in 2021

“60% of our people that we surveyed are going to kick trips from planning 2020 into ‘21. And we’re seeing increase in our consumer travel bookings, not necessarily in our corporate bookings.” – American Express (AXP) CEO Steve Squeri

Some signs that people want to come back to NY

“I am not telling you it’s back, but it is improving. We’re hearing that buyers with the talk of vaccines are now thinking about living in New York. We’re hearing a few stories of some that render the suburbs, that are coming back to take a look. But that doesn’t mean I am ready to start a high-rise in New York, because it’s very different from the farm fields.” – Toll Brothers (TOL) CEO Douglas Yearley


Video game console demand has been very strong

“By all accounts these consoles are experiencing unprecedented demand, and we continue to work with the suppliers to meet that demand….I think that the demand has been unbelievable, Joe, as you mentioned. And we don’t see any end of that insight. So certainly, these are fabulous pieces of technology. The demand is terrific for it. Any allocation that we get and I think I’ve mentioned this on past calls the answer is we always want more. I will say the competitive set has changed between console launches really with the evolution of direct to consumer from the OEMs themselves.” – GameStop (GME) CEO George Sherman

Technology budgets are being ring-fenced

“…in most clients, they’re looking to conserve cash. There’s no question about that. But if there’s one budget that is being ring-fenced, it’s the budget around digital transformation. And so we’re sensing, and I’m hearing from customers, that actually, decisions that were taking months and often were progressing at a very slow pace and there was sort of filibustering and no sense of urgency, those types of decisions are happening a lot quicker and with a lot more urgency” – Salesforce.Com (CRM) President & Chief Revenue Officer Gavin Patterson

Tech spending growth is moving from devices to businesses

“…when we think about the drivers of end market demand for semiconductors in the handoff from handset cell phones as the predominant driver, a consumer-oriented device to something that’s nonconsumer discretionary spend, largest companies exposed to the largest industries, where investment as a key enabler of their business’ success, it’s existential. And when you think about every industry on the planet being transformed by technology, you’re talking about an economic pool that’s orders of magnitude greater than a consumer-oriented device.” – Applied Materials (AMAT) SVP & CFO Daniel Durn

C-band auctions in the US coming soon

“…the C-band auction is about to kick off here any day. And we do expect at least a couple of the carriers will be aggressive. That’s our expectation. Certainly, Verizon has stated that they expect to be a participant in that, as well as AT&T, and to some extent, maybe even T-Mobile. We do think that that C-band spectrum will become a pretty essential piece of the 5G deployments going forward. It’ll take a little bit of time to have that spectrum cleared, so that it can actually be used in wireless networks.” – American Tower (AMT) CFO Rod Smith


Moderna has two vaccine supply chains

“So I will remind everyone that there are two dedicated supply chains, one here in the US comprised of our own facility outside of Boston, Massachusetts as well as our partner facility with Lonza in New Hampshire. And that — the supply coming out of that dedicated supply chain will be for use in the US. outside of the US, our partners, Lonza out of Switzerland, will be supplying the rest of the world.” – Moderna (MRNA) SVP & Head of Investor Relations Lavina Talukdar

Industrials and Transport:

Supply chain constraints persist

“…even higher increases in demand of some products are still creating some supply issues. There are instances of 50%, 100% or even more sales increases of an item and if we can procure more, we’ve had even higher sales. Examples would include things like, exercise equipments, certain major appliances, certain electronics items, as well as certain housewares and small electric items.” – Costco (COST) EVP & CFO Richard Galanti

“…we would have had more revenue growth if we had not been capacity constrained in OCI during Q2. There was more demand than we have supply. ” – Oracle (ORCL) CEO Safra Catz

“The entire industry has it has been for a while now trying to chase down enough parts to service demand. And we’re confident that our standing in the industry the quality and capability of our supply chain puts us in a pretty good position there.” – Dell (DELL) SVP, Corporate Strategy Dennis Hoffman

There is continued pressure on freight charges

“We are continuing to see some pressure, primarily driven by some market factors obviously around COVID and seasonal retail and then heavy imports, but we are changing and working our model going from intermodal to over the road.” – United Natural Foods (UNFI) CEO Steven Spinner

“We do expect that we’ll continue to have some air freight rate pressure in Q4 and that is reflected in the guidance that we provided of a modest increase in Q4.” – lululemon athletica (LULU) CEO Calvin McDonald

There has been congestion at the ports

“On the transportation front, there have been some container shortages at origin, as well as some congestion at destination ports here in the states. The latter typically two to four days, but a little longer in some cases. We are managing through it and expect relief not until March or so of 2021, as well, the past few weeks there have been some challenges that you may have read about in the industry in terms of delayed delivery times of items just given the number of items being shipped now through third-party carriers.” – Costco (COST) EVP & CFO Richard Galanti

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