Quantifying Expectations and Earnings Watch Party - Monthly Podcast with David Trainer & Kyle Guske

Kyle, let's go. Let's kick it off.

Let's do it. Footnotes matter, just ask Oracle investors. We'll talk a lot about this today. We thought it was a nice little intro to today's live podcast, the Quantifying Expectations and Earnings Watch Party with David Trainer and Kyle Guskey II. Here are disclosures and disclaimers. The main thing is we are not providing advice. We are publishers of research. Got a packed agenda today, so we'll get right to it. This is a monthly podcast. Next one will be April 10th. If you're here today, you're already signed up for the next one. So be sure to get that in your calendar. Jump in then. We've put out a bunch of research since we last talked. Some long ideas, danger zone reports, specifically on AI and the tech stars and tech's overall kind of makeup, where it's a lot of companies driving performance or a lot of companies that look bad with Performance driven by a few select stars that may be fading quickly. Got out some new Footnotes articles, closing new accounting loopholes, earnings watch parties, a bunch of awesome insight in those from David. And then we also put out Footnote Season Find Reports. We take a look at the info we're finding during footnote season. We always talk about going through footnotes. We're getting the most footnotes we'll get all year right now with the 2025 10-Ks coming out. So we put out some reports on what we're finding there. But on today's agenda, we'll talk about some upcoming trainings and then we'll get into the meat of it. We got some new features, reverse DCF case studies, earnings watch parties. So we'll go ahead and jump right in. Upcoming trainings. We do have an Ideas Dinner for Pro and higher members on March 17th at 4:00 PM Eastern. And then we've got a Super Stock Summit 2026 that will be next week as well, March 18th at 1:00 PM Eastern. I'll send out some registration links via email. But I'll also put one in the chat today so anyone who is here can go ahead and get signed up for that. There's some more info on it on the registration page and everything, uh, but we'd love to have you join there to talk about super stocks and finding opportunity in the current market. So there is the registration page in the chat there. But up first, we got some exciting news. I'm going to kick it over to you, David. FinSights is here.

Yes, it's back. It's running. We're going to do demos. I think some of you on the call already have access and are able to use it. So we're excited. We're working on a little bit of a streamlining on getting it to work more easily and getting people to sign up. We're going to incorporate it into more subscriptions and start selling access to it as well. I think it's really important to note that this is the only AI that Google Cloud has ever paid someone else to help them build. People pay them to build AI. They paid us for access to our expertise, to our data, in order to show the art of the possible when you combine their technology with the best data in the business. And this is now the art of the actual. So we're really excited about that. And we will be incorporating it into more demos and more action. And we hope that those of you that have had access have enjoyed it. And we look forward to rolling it out to more people.

Awesome. I can share this link as well in the chat here. The easier the better. The tool works, we want people to get access to it, not jump through hoops. Onto our next topic. We've got an interesting one here. Footnotes warned us about Oracle. We'll go ahead and do a reverse DCF case study on this. But we've been talking about Oracle a lot, specifically November 10th. 2025. So a couple months ago in our Danger Zone: Losers in the AI Arms Race, we warned that Oracle would need to cut spending or dilute investors to stay in the AI race. This was insight got from Footnotes data analyzing cash flows. And we see recently Bloomberg just reported Oracle's dropping major data center projects, OpenAI. The stock has crashed since then. And so today we're going to take a look at reverse DCF case study. We get a lot of requests for going through the reverse DCF model. quantifying expectations. So we'll look at, is the stock cheap after it's crashed? What are the expectations for future growth and what people are missing in the financials? It's a nice deep dive on exactly what our model shows in regards to Oracle and its valuation. But before we do that, do want to note Oracle wasn't a one-off. We actually reiterated Photronics as a cash flow winner just a few months before Oracle was flagged. I think it really shows the ability of our system to find Not only dangerous stocks, ones that could crash, but also ones that can take off. Since the article on Oracle's up, down 34%, Infotronics is up 47%. 2 sides of the same AI coin here. Oracle heading the wrong way, PLAB heading the correct way. And our system flagged it because of strong earnings, quality cash flows, and cheap valuations in regards to PLAB. Oracle, the opposite, hugely negative cash flows and warning signs all around. So we like to say we don't just create better data for the sake of better data. Better data is awesome, but we want it to actually have meaning and drive alpha.

So I think that we are pretty unique in that we're able to actually produce the superior data and then show people how to use it. You don't see that in any other research firms. You get people that talk about stocks and provide reports and they don't show you how they do it. And there are people that provide data, but they tend not to provide any reports or ratings or really any significant analytics, certainly any stock picks. And we do both. We're a fully vertically integrated research supply chain. I think that's an advantage. It certainly provides transparency. And when the picks work as well as they do, it's pretty powerful. Okay. You wanna, should we talk about Oracle?

Yeah.

I was actually just playing with— hey, Wally, you raised your hand. I think you meant to ask a question. Just playing with, with the Finsight just now. But yeah, here's Oracle, our rating. You can see we got a few reports, has been downgraded from unattractive to very unattractive. We just got a new queue yesterday and updated the model. So it looks like things are even worse. I honestly, I hadn't even looked at this since, but that's boom, bad. That's why you get this misleading trend. This is probably going to be a candidate for I shouldn't say this out loud. I don't know, but— and the system will decide, but I'm— I wouldn't be surprised if this shows up on our most dangerous stocks list here.

It's definitely got some characteristics of most dangerous.

When you see this and this.

Yep.

That's really bad. And this is funny too, and this is why they probably got the pop on earnings. I haven't seen how the stock has done since the— it had the pop the other day. I wonder if it gave up all that. Gain anyway.

Almost all of it.

Yeah, those temporary. Not surprised because this margin improvement is misdirect because the capital efficiency is taking such a hit that really cash flows are down. By the way, we're showing cash flows down long before anybody else. I saw a post the other day from one of our competitors, and they claim they got great data, blah blah blah blah, and they put out the chart for. Oracle, it showed that it just went free cash flow negative by, I don't know, $10 or $20 million or something. I'm like, dude, you're late and you're off by a lot.

A couple years off.

I didn't say that out. I didn't say it in the post because I'm polite, but here with us, we can speak. We can be real. Oh my gosh. Yeah. Negative trailing 12 months free cash negative free cash flow for Oracle, $213 billion. And for all of 2025, I think $26 billion here. So yeah, this is, yeah, the balance sheet's a disaster. So let's take a look at the reverse DCF. I've put together a couple scenarios to give people to like, to get a sense of like how expensive this baby is. And let's take a look. Let's start with the default, because I think the default's actually a pretty good scenario because this is based on consensus. It's, look, the default is based on consensus revenues. which you see here. And then these are the forecasted margins. So margins could keep getting better. And so we're assuming it stays about the same. The margins stay where they are going all the way out for 100 years. And then on the fixed asset side, I was looking at this a few minutes ago and I think the default— this is a lot of capital for every new dollar of revenue. What people are missing here though is that these guys have been— capital efficiency has been declining for a long time in a pretty bad way. But really the last 5 years and now this year, you're spending $1.19 for every new dollar of revenue, $3.40 for every new dollar of revenue, $5.40, $1.72, $11, almost $12 for every new dollar of revenue, $28 for every new dollar of revenue. That's not a good business model. It's not a good business model. So when you go with the default, even though with that, I think sanguine margin expectations and very optimistic balance sheet, it's hard to get much above $20 a share, $18 a share. So I went ahead and did an optimistic. I said, you know what, they're going to do 20% compounded annual growth in revenue. For the next 10 plus years. If they do that, then it looks pretty good. What does this mean for the free cash flow? And also, I had the same positive free cash flow characteristics going forward that look, I think, obviously way too optimistic. So let's see what this means for free cash flow. I'm going to just put these both on the optimistic so it's a little bit easier for comparison. And if we look at free cash flow, You can see that it requires a dramatic turnaround and get positive. And so this is dwarfed a bit, I think, by just how negative we are now. And so if we just do this, you can see it's a pretty significant hockey stick on what's going on for Oracle to justify that price. So you got to go from a very negative to all of a sudden a quite positive and continue that positive trend. So that this big spend is a one-time with huge revenues to come. Who thinks that's possible? So the best part about reverse DCF is going in and tweaking the assumptions a little bit. And I see some hands are being raised. Please put your questions into the chat or the Q&A. We'll get to them there. So I think the optimistic is a bit too optimistic. I would just think 20%. When's the last time they did 20%? 2011 to 30, and then in 2006, 2008 to 25. So maybe 20% is a little bit too optimistic. Let's go with something. Let's go. Let's see what the neutral— how does the neutral look? Neutral looks— okay, so neutral already. We got that. That's 11. That's quite a bit higher than consensus. Seems reasonable. We're going to go with really high margins, even higher than normal. It's a great scenario. And then the same capital assumptions. So let's go with decent amount of revenue, better than consensus, quite a bit better, way better margins than they've ever had, and then way better capital utilization. That's neutral. Can't get to $160 a share, $159 a share in 100 years. Really can't get to be much more than $80 a share. Let's take a look at what this means in terms of return on invested capital, right? You're saying, look at this, it's going to— its return on capital is going way down and then it's going to skyrocket back up. Same with free cash flow. Even with free cash flow getting this high, it doesn't get there. I think this neutral scenario is really instructive, really instructive. In fact, let's take a look back at the optimistic scenario on return on capital, because I bet that's going to be a nutty— yeah. All right. So it doesn't quite to where it was, but it's a dramatic turnaround. And I would say very dramatic and unlikely considering that I think we're in a different regime. We're not just out there like collecting people's data off the internet and getting them to put their preferences and stuff into an interface that we can Then monetize Google and Meta. But we're in a much— and I've been saying tech is turning into industrials and materials the way they got to spend on the balance sheet.

I think it's interesting to see that ROIC number basically has to get back to before their free cash flow started declining, that 2021 level. So it's like, yeah, if we can just erase the past 5 years, get back to that, things look good. But That seems like a very optimistic scenario at this point.

Yeah, super optimistic. Does anybody want to suggest some different numbers in here? I feel like these are 2 really pretty good scenarios. Let's, let's, let's knock the optimistic down to— let's see, that's 25. Let's go 15, 10, 10. You know what? Let's go 15 for 5 years at least. I think this is still very optimistic even at that level. We'll see how it goes. All right. This is the new optimistic, 17 years at 12% CAGR. So that's at least you got something. Let's see here. Gap 1. That's a pretty, it's, there's the ROIC and then there's the free cash flow. Pretty dramatic turnaround there. Free cash flow better than it's ever been. So that's, I would say that's a really optimistic scenario priced in there for Google. Great question in here. This is reverse DCF. This is for institutional clients. This is an institutional client tool. And the question was, where can we see the default assumptions for the rating? So if you're looking up here, you're like, what's the default scenario assumptions? You can see those, a summary of those at the bottom of this page where it'll show you the summary of what you get on the default scenario. So for example, for a default, 3.3, 15.2, 100. There you can see effectively those are the summary without giving you the whole forecast page, which is something that most people wouldn't want to see anyway. This is the summary there. So I think that's the answer to your question, John. Let's see here, Gerard. I think it's a good comment. This is the hard thing about tech today. We have 30 years of moving to asset-light operations and farming everything out. Over that time, I suspect but don't know that it's that spend rates have declined, drifted down maybe. I would suggest AI will accelerate growth as tech moves to a heavier asset business model. I think growth rates have been good, Gerard. I mean, great. Profits have been amazing for tech companies. But I think you're right. We are moving to a heavier asset business model. And really, I think so much of the business models the last few years have been on, for Apple, super small devices. Microsoft, it was all intellectual property. For Google, it was all customer information. For Meta, it's all client information. And Tesla was never a good business anyway. Big tech company, it never made any money. Been saying that for 10 years. And yeah, I think in all these software companies, really intellectual capital-based businesses. And I think AI is changing the landscape 100%. And I believe long-term that all these super profitable businesses are gonna be more a thing of the past. I think in general, the whole stock market is gonna be a lot less interesting. And I said this in the, I did a meeting this week on AI for the Financial Planners Association of Middle Tennessee. Great meeting, ton of great questions. And really what came out of it was, what's gonna happen to the stock market, David? With all this we're talking about. And one of my takeaways is that these businesses that were once super profitable are no longer gonna be that profitable. Most of the value of AI is going to accrue to individuals. Technology is a great disintermediator. We saw that with the internet, disintermediated all kinds of players. And then the tech companies found a new way to intermediate themselves between users and a lot of their data. You know, think about what blockchain does. It disintermediates banks and intermediaries for exchanging of goods and value. And what do those intermediaries do in that role? They steal from us. They charge us fees they don't need to charge us, or they lose our money. Blockchain makes all that go away. Who doesn't want that? And so that's what I think technology does. It disintermediates. And one of the things I think it's gonna be disintermediated is this ability to take all of our data, Personal data, financial data, tracking data, purchasing data, use it against us to sell us more stuff. I think that goes away. I think AI is going to be a tremendous democratizer. And so the value and the profits of these tech companies that we've seen just is going to be— it's going to go away. Now, there's still going to be some big profitable companies, but going to be fewer of them. We've already seen this with the last Danger Zone report showed that the tech sector Outside of a few companies, frack cash flow going way down. Yeah, I think so, Gerard. I think the growth transition started a couple years ago. That's why we— and some— this is a lot of companies just fly under the COVID of tech companies that were super profitable. Amazon's a great, great example of, oh yeah, such a great profitable company. Yeah, it's so great. Yeah. Let's look at free cash flow for Amazon. Negative $46 billion, negative $49 billion, negative $14 billion, negative $28 billion, negative $83 billion. I think another great point here, but Gerard too, is like a lot of the spending that's been not been capitalized. It's all been on people and software, and that's made it look like a more asset-light business, asset-light business than it really is. But I think the good old days are a bit behind us. So yeah, that's my— that's our takeaway on Oracle. Any questions on the reverse DCF? Like, I saw some things come across here, but maybe not. Gerard, anything in the Q&A, Kyle, that we missed?

Nope, I don't think so. I'm also going to throw a link to our education page on how our DCF model works. People can read up on that as well.

Great idea, great idea. And what do we have time left here for? You got a few more things to cover?

Next up was a mini earnings watch party. We just looked at Oracle. We were going to look at Adobe and Wheaton Precious Metals.

Let's do it. This link in here. Let's go Adobe. What happened with Adobe today or this week? Not good. Isn't this the company that Michael Burry said they need to go out and buy somebody that actually has real technology? I feel like this has been a great profitable business, but they really haven't done anything to innovate in a while. The stock is down 10%.

They've had, I know they originally, when they pivoted to subscription models, the stock went way up. That was probably 5, 6 years ago at this point, but it's come way back down since then.

Down 33% over the last year. Starting to get cheap. Yeah, I don't know, man, if we were going to try to ever, it's got an attractive rating, but it'd be tough to pitch this as a long idea just given I'm not sure what the vote looks like here. Yeah, leadership changes don't help. Nobody likes to see that. What was the Wheaton Precious Metals? We'll do that one last. What's the other one?

The other one was Oracle. They were the big earnings report this week.

Oh yeah, we already did that one.

Kind of looked at that one.

Yeah, we saw Oracle. I think just coming back to on the earnings report, it went up, stayed, didn't stay up for very long. I'm sure it's a relief rally. A lot of big investors own this. It's a relief like, oh my God, this stock's been just been getting beat up like crazy for a while here. Year to date, 20%. It's up 5%. But really, honestly, the real chart, 6 months, is probably the one. This is because this is when, right here, November 10th, that's when we called it. Uh, and I think since then it's down— you showed me, Kyle, 34% was in the slide a minute ago.

Yep.

And, and Photronics is down— is up like almost 50%. Yeah, I think that I want to take a second. We worked really hard. We said, look, it's hard to find good AI stocks because everything's so expensive. But we found one. We had two, I think. We found two, Arrow and Photronics. I think both have done well, especially in this timeframe. Took a while for people to catch on because they were so enamored with Oracle and all these other guys. But yeah, I think that's a good dichotomy there. All right, wheat and precious metals.

Before we go there, I just see John had a question about sharing this. I believe the answer is yes, but just want to answer that on the call.

Can we share this? John, do you mean the replay? Is that what you're talking about? Or are you taking a bunch of screenshots of all these ratings and cool things I'm showing you and send it out to people? That I don't really want you to share. But yeah, no, the replay, absolutely. The replay goes public. There's pretty much everything goes public unless you hear otherwise. And except for the long idea dinners. Those stay private to professional and above subscribers. And if you're a professional subscriber, you've not been to the Long Idea, you should show up. We do some really cool stuff. In fact, we talked about Wheaton Precious Metals in a subscribe— in a Long Idea dinner a long time ago. I think maybe a month or so ago, based on our good friend here, John, who brought it up. And let's see, how do they do? John, you've been saying you thought these guys were going to really crush it, if not this quarter, soon. I think in, on the form of major changes. Hikes cash dividend 18% after record 2025 payouts. Was it a good quarter overall? I can't, I guess I can't tell. It didn't really, we don't have the good, as much detailed news on this, but I think this is one. Yeah, John's a fan. John's a fan. And I'm not going to reveal what he discussed on our Long Ideas Dinner, but he has— he's got some very, I think, very insightful thoughts on this stock, uh, and why it looks like a good performer going forward. But even though it maybe looks expensive now, this could be quite cheap compared to what he thinks is going to happen in the future. I don't want to give away too much. Long Idea— Long Ideas members only. type of discussion, but I kind of gave away enough already. But yeah, that's earnings watch party. We're here at 30 minutes. Let's wrap it up, Kyle.

Yeah, I think that's really all we've got. I wanted to point out that this replay will be available in the online community. I just posted a link if anyone hasn't joined already. It's free to join. We post replays like this, we'll post other live trainings, and you can talk with people that are all interacting with New Constructs— current users, prospective users, traders, anyone in that community. Can share ideas, talk research, talk ideas, talk new constructs. And so it's a great way to get involved with the community, but sent that out in the chat there. Like I said earlier, next live podcast will be April 10th, and we hope to see you then. Thanks for joining us today. Bye.