Insights

CEO Talk From Elon Musk and Jamie Dimon

In this podcast, Motley Fool senior analyst Jason Moser discusses:

Salesforce (NYSE: CRM) shares rising on strong Q1 results and increased guidance.
How its Slack acquisition is going so far.
Elon Musk’s ultimatum for executives at his company.
How JPMorgan Chase (NYSE: JPM) and CEO Jamie Dimon are preparing for an “economic hurricane.”

And just in time for summer concert season, Motley Fool producer Ricky Mulvey talks with Yeganeh Torbati about her reporting for The Washington Post about Live Nation (NYSE: LYV) and how it may have benefited from millions of dollars in grants intended for small businesses.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on June 1, 2022.

Chris Hill: [MUSIC] Two of the most high-profile CEOs in America shared their thoughts on the immediate future of work and the economy. Motley Fool Money starts now. [MUSIC] I’m Chris Hill and I am joined today by Motley Fool senior analyst Jason Moser. Thanks for being here.

Jason Moser: Hey, thanks for having me.

Chris Hill: Let’s start with Salesforce because first-quarter profits and revenue were higher than expected. Interesting to me that Salesforce raised their earnings guidance for the full fiscal year while actually lowering their full-year guidance for revenue. I guess that means they’re planning on spending less money.

Jason Moser: [laughs] Yeah. They are definitely going to keep an eye on the expense line. I think they talked of measured hiring and just making sure that they’re getting the most bang for their buck, so to speak. The downward guide on the revenue side really seem to be more tied to foreign currency impacts and so that’s something we typically over the long haul, over the course of years, we view as more or less a wash so to speak. We don’t get too terribly worked up over foreign currency effects, but it’s always worth keeping in mind that it does exist and certainly seems like that’s what they were guiding that and the guide down was very slight. They’re extremely slight based on the guidance that they gave in the fourth quarter, just a quarter ago but all things considered, it was a really strong start to the year for Salesforce, revenue of $7.41 billion.

That was up 26% in constant currency. That outperformed their own expectations. Operating cash flow just under $3.7 billion. That was up 14% from a year ago as well. Again, to the guidance for full-year fiscal 2023, they’re guiding in a range of $31.7 billion to $31.8 billion and that still represents around 20% growth for the full year and the neat thing about Salesforce, because they’re pursuing this huge market, in CRM, that’s customer relationship management, being the market leader has really given them the opportunity to play a lot of offense and they’ve assembled a lot of very powerful tools, a lot of very powerful brands under their umbrella, so to speak, that has helped move this business forward. We talk about their data business, the Data Cloud business that includes properties like MuleSoft and Tableau. Data Cloud business grew 15% over a year ago.

The Sales Cloud and Service Cloud businesses, they are both $6 billion-plus businesses now. In the quarter they grew 18% and 17%, respectively. Then, of course, I think Slack is what people remember probably the most, that’s the most recent acquisition that people remember and that’s actually working out very well. I think Slack on its own, I just didn’t see a lot happening there. I think Slack still is a communication tool. Frankly, to me, it feels like it needs a lot of work, but it’s still the same thing it’s always been since we started using it but being a part of the Salesforce family, that gives Salesforce a chance to really leverage that property across all of the customers that they have and so they’ve been very productive with that acquisition. They said that Slack outperformed revenue expectations with $348 million in the quarter versus $330 million they were expecting and the number of customers that are spending more than $100,000 annually grew 45% from a year ago so all things together, great start to the year. Certainly understand the market’s enthusiasm today.

Chris Hill: I was going to say it was six years ago this month that Microsoft announced they were buying LinkedIn for $26 billion and you and I and other people who have been on this show looked at each other and thought, well, I guess you can do that if you want. I’m not really sure how you’re going to make that work and then at some point in the last six months, in one of Microsoft’s earnings reports, I remember they came out and they broke out, here’s how LinkedIn is doing in revenue, and one, we were reminded of the fact that Microsoft owned LinkedIn, but we were also all surprised at how much revenue LinkedIn was bringing in under the Microsoft umbrella. I was going to ask you about Slack and thinking of what grade we’re giving that now, but maybe we give Salesforce a couple of more years because certainly if you were grading Microsoft a year or so into the LinkedIn acquisition, it probably wouldn’t have been a very good grade.

Jason Moser: No, probably not. It was a little bit of a head-scratcher at the time and it’s still a head-scratcher as to how they are exploiting so much value from that because frankly, every time I check in on LinkedIn, I wonder why did I just do that? It’s just a very noisy experience so I don’t know, maybe they’re able to really do something with all of that data, but clearly, it’s worked out very well for Microsoft and I think we’re seeing the same signs here with Slack and Salesforce. When you look at it, in the context of your overall business, Slack, essentially $350 million in revenue for the quarter versus the $7.4 billion that the company generated so it’s a drop in the bucket right now but again, given Salesforce’s reach, given the number of customers, given its market-leading position in CRM, I think Slack, it’s a platform they can leverage very effectively as a communication tool. Lots of businesses around the country around the world are using Slack to communicate and so the signs are there that it is growing.

Again, you go back to that number of customers spending more than $100,000 annual, 45% year over year is nothing to sneeze at. But with that said, I don’t know that it’s going to be some massive needle-mover for the business in the near term at least but I think it’s one more tool that they add to their toolbox in what is a market they pursue in CRM that just it requires doing a lot of things very well. Unfortunately, Marc Benioff, he had that vision early on of how to really piece this business together and so all of these acquisitions along the way, he’s just made some really good moves there and I feel like Slack is going to ultimately be another one.

Chris Hill: I want to get your thoughts on the CEO comments of the day and we’ll start with Elon Musk because he sent a couple of emails to employees and it had to do with going back to the office. I’ll quote directly from one of the emails. “If you don’t show up, we will assume you have resigned. Anyone who wishes to do remote work must be in the office for a minimum, and I mean a minimum of 40 hours per week or depart Tesla (NASDAQ: TSLA). This is less than we ask of factory workers.”

Jason Moser: Yeah.

Chris Hill: One of the things that strike me from a communication standpoint is the juxtaposition of factory workers. He’s basically saying to executives, we got people in factories who are onsite doing this. If you don’t want to be onsite, I’m going to essentially color you with being elitist.

Jason Moser: [laughs] Well, maybe that’s something that entered his mind that the elitist perspective there. I feel like Musk, has done so much to get this business to where it is today. I mean, he’s done at all. He’s been there in the trenches. He’s spent nights in the factory. He has a very personal connection to this business and I feel like it’s hard to argue that he doesn’t have some genuine perspective here. There are going to be some businesses, I would imagine where you can say, a remote workforce can get by and everything. But it reminds me of an article I read back at the beginning of the year when I was talking about young employees losing out on not going to an office. Those business experts say, young employees, they’re missing out.

A lot of people out there have entered the workforce that has never dealt with an office environment so they don’t really have a comparison. The thing that stood out to me, the quote that stood out to me, Musk’s quote, was when he said there are, of course, companies that don’t require this. But when was the last time they shipped a great new product? It’s been a while. That’s a broad statement. I don’t know if he was targeting any company in particular, but I think it does speak to the shortcomings of a virtual or remote workforce. I think having that hybrid workforce, offering that hybrid option, remote work is a nice feature of an overall strategy but as a standard, I think what we’re found over the last couple of years, it can be very limiting, particularly with some businesses as opposed to others. It does feel like at least it does result in siloed workforces.

I mean, however, a company defines its culture. It does feel like it’s hard to maintain culture as a remote company, but also collaboration really takes a massive hit. You just don’t have those spur-of-the-moment conversations. You don’t have those face-to-face meetings where you’re really going through ideas and trying to come up with that next lightning-in-a-bottle idea. For Tesla, that’s really the foundation of this company, is innovation. He knows that the competitive landscape now for Tesla is far stronger than it’s ever been.

They have to really be on their game. He said something in there, listen, we’re just not going to settle for people phoning it in. I think in this case, I certainly respect it, I understand it. The leaders have to get in there and make difficult calls, but I think given his personal connection to this business and given everything that he has personally put into it honestly, I think it gives them the right to make this call. I think that if you don’t like it, go find a job somewhere else because that venture, there are a lot of people out there that would love to be a part of that family.

Chris Hill: It’s really going to be interesting to see over the next 3-6 months how all of this plays out, not just with Tesla, with other large companies that are trying the hybrid approach. You think about Airbnb, Brian Chesky coming out and saying we want to be fully remote, but once a quarter, every team is going to get together for a week. I feel like we’re all going to be smarter about what works and what doesn’t work six months from now than we are now. Let me get your thoughts on the other CEO comments of the day and that’s Jamie Dimon. He’s at a financial conference today in New York City and said that he is prepping JPMorgan Chase for an economic hurricane.

This was a room full of analysts and investors. He said things seem fine at the moment. I’m quoting that, “Nobody knows if the hurricane is a minor one or Superstorm Sandy, you better brace yourself. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.” This is me talking now. I don’t own shares in JPMorgan Chase, but Jamie Dimon is one of those leaders I’m always interested in what he has to say, particularly when it’s about the broader economy.

Jason Moser: Yeah, I agree. I always take into consideration his perspective because he clearly has a good one. He has a good insight into what’s going on in the economy from a global perspective and ultimately, we have to look at this from a global perspective today, I think what we’re seeing, the confluence of events that are going on all around the world are showing just how interconnected our economy is. It’s no longer just a domestic economy, really is the global economy in many cases. I think you look at everything that’s going on, I think he was referring to two specific things. It was not exclusive to just these two points, but I think you called out the quantitative tightening, as opposed to the easing.

The money supply is going to shrink. It’s not going to be the same “free money” environment that we delivered over the past decade-plus. That is going to hamper economic activity but then also you look at what’s going on with Ukraine and Russia, that’s another example of something that’s ultimately out of our control. It’s out of most of the world’s control, but it’s something that appears to be dragging on and on with no real end in sight. There are consequences that come from that. We’ve seen its impact on energy, but there are also unforeseen consequences that we really can’t even determine yet. Given the global nature of the economy, it’s something that really comes into play. You look at some of the data out there today, and obviously, inflation is hitting a lot of people where it hurts. You look at consumer sentiment is the lowest in 10 years. Remember that’s backward, that’s a lagging indicator.

It tells us about the past, how people are feeling as opposed to the market. That’s a forward-looking mechanism. Then also if you look at the personal savings rate now, the personal savings rate is lowest since 2008 at 4.4%. I don’t think there are going to be many calls for additional stimulus at this point. With that in mind, it does feel like a lot of the stimulus that has been pumped through the economy has now been drained. I think it makes a lot of sense to have the bank in a good position from a balance sheet perspective. Because you never really do know what the future holds. But one thing you can do as opposed to trying to predict the future. I’ve said this before. We don’t focus on predicting the future, just prepare for it. There are plenty of signs out there today that just tell us that, hey, you know what? Probably a good idea to be safe than sorry and it sounds like that’s where he’s coming from here. I hope it’s not a hurricane and I hope maybe we’re looking at worst a tropical storm, but I do understand where his sentiment’s coming from.

Chris Hill: I appreciate the time, Jason. Thanks so much for being here.

Jason Moser: Thank you. [MUSIC]

Chris Hill: Summer concert season is here, and if you’re going to a concert, there’s a good chance it’s a show presented by Live Nation. Ricky Mulvey caught up with Yeganeh Torbati of The Washington Post about her reporting on Live Nation and how the company may have benefited from millions of dollars in grants intended for small businesses.

Ricky Mulvey: Joining us now is Yeganeh Torbati, an economic policy reporter for The Washington Post. She’s co-authoring the series the “COVID Money Trail” along with Tony Romm, they recently wrote the article headlined, “Live Nation subsidiaries got millions in aid meant for independent venues.” Welcome, Yeganeh.

Yeganeh Torbati: Thanks so much for having me.

Ricky Mulvey: Live Nation is not just concert tickets, it also owns venues like the House of Blues, runs festivals including Austin City Limits and Lollapalooza. Owns talent management firms and sells sponsorships for their shows. This is a vertically integrated business that Congress very much does not like. Is that fair to say?

Yeganeh Torbati: I think in some ways, yes. It’s definitely a company that over the course of the last 20 years or so has really focused on growth via acquisition and rolling up some of these smaller venues, smaller companies, regional chains, into a business that extends, of course across the country, but then also throughout the Middle East, South America, Europe, etc. That’s really been a focus of Live Nation over the past couple of decades. It’s gotten them into some trouble. The merger in 2009, 2010 with Ticketmaster was really a source of a lot of controversy that was allowed to go forward by the Justice Department, but under certain rules and restrictions.

A couple of years ago, the Justice Department found that Live Nation had actually violated those rules in that settlement over that merger. I would say yes, it’s very true that Live Nation is not super popular among members of Congress on Capitol Hill. I’d say that’s probably fairly bipartisan, although maybe a little bit more pronounced on the Democratic side. That has affected some of the ways that members of Congress approach Live Nation even on some unrelated issues.

Ricky Mulvey: As Congress doled out trillions of dollars in relief funding, they very much tried to leave Live Nation out of the arts funding as part of the Save Our Stages program, so how did Live Nation perhaps find a side door where they benefited from about $19 million in Small Business Administration loans?

Yeganeh Torbati: This is the crux of our reporting and what we found was that Live Nation over time has purchased all sorts of different venues or at least purchased stakes in these different venues and different businesses, including talent management firms as well. What accrued, in this case, is that Congress very specifically wanted this pot of funds known as a Save Our Stages Act or the Shuttered Venue Operators Grant, it wanted that 15, $16 billion in funding to go to independent venues, independent companies. They wrote into the law that money couldn’t go to publicly trade companies or companies that are majority-owned or controlled by publicly traded companies.

There were some other restrictions in there as well. Our reporting found that that rule was very much in the minds of some members of Congress, very much aimed at companies like Live Nation and Live Nation specifically. That’s happened despite a lot of lobbying by Live Nation to be included in that legislation. But Congress decided they didn’t want that and so that lobbying was unsuccessful. However, what we saw happen was that several companies that are 50% owned by Live Nation. They’re not technically majority-owned, but Live Nation is their largest shareholder. Several companies that fit that description or otherwise, are listed as subsidiaries of Live Nation on their public annual reports that they filed with the SEC.

They managed to get funds. We did a lot of reporting on this. We talked to people at Live Nation. We got statements from them as well as the companies in question. Their argument is that these are independent technically small businesses. They followed all the rules and they received these funds, but I think we tried to get across in a nuanced way that even though those companies are independent, the fact that they received these funds still benefited Live Nation in the long term because really its business is made up of the subsidiaries

Ricky Mulvey: Who are some of these subsidiaries?

Yeganeh Torbati: These subsidiaries include a company called Frank Productions Concerts, which is a self part of Frank Productions, which is a major regional concert promoter based in Wisconsin. Live Nation bought the majority stake in Frank Productions back in 2018. But according to what the companies told us, Frank Productions, Live Nation does not have a majority stake in Frank Productions Concerts, which is the entity that got the $10 million from this grant program. Another of the company is one called Gelman Management, which is a management firm with offices in Nashville and California, and they received a small amount, around $400,000 or so. But Live Nation bought a 50% stake in Gelman Management over a decade ago now. Then the other two are apparel venues in St. Louis that sit next to each other on the Delmar Loop. They are each 50% owned by Live Nation as well.

Ricky Mulvey: What were these subsidiaries doing with the money from the SBA loans?

Yeganeh Torbati: Just to clarify, these are actually not loans, they are for grants.

Ricky Mulvey: Grants. Excuse me.

Yeganeh Torbati: These companies don’t have to pay it back. They say that these grants really helped them survive. They paid employees, they were able to pay their vendors. They were able to make sure things were going. Even when they didn’t necessarily need the employees because everything was shut down, even just being able to, of course, pay those people who have lost their jobs or whose jobs were furloughed and also keep a connection with them meant that when those companies were ready to start up again and performances were going again and things were happening, they had a workforce. They had a longer-standing connection to that if they had just had to cut them completely.

Ricky Mulvey: There may have been cases where these subsidiaries were not taking loans directly from Live Nation because they were able to get these grants.

Yeganeh Torbati: Right. The CEO of Frank Productions told me in an interview that they had had a loan facility with Live Nation, but in part because of what he called conservative fiscal management of the resources and then also because of this grant, they did not have to draw on that. In other cases, you actually found the opposite. We found that one of the St. Louis venues called The Pageant actually did take out a loan from Live Nation and from its other owners. One of the owners declined to tell me how much that loan was for. But it does show that Live Nation was playing a major role in this entity’s survival.

Ricky Mulvey: At the end of the day, how meaningful is this $19 million for Live Nation’s business? This is a company that did $6.2 billion in revenue in 2021. These grants, even if they, which they did not, even if they went directly to Live Nation, would represent about eight Harry Styles concerts for them in terms of revenue.

Yeganeh Torbati: Yeah, I think it’s a really good point, we wrestled a lot with the story over the nuances of it. Clearly, $19 million in some ways is a rounding error for a company like Live Nation. As we point out, doesn’t appear to have been any fraud, at least according to what we could find out, it seems like all these companies really followed the letter of the law. Although somewhat maybe not the spirit of the law. It’s hard to argue that this made a life-or-death difference for Live Nation. I think the only point that the story successfully makes is that at the end of the day, it did improve their prospects at least slightly because if these companies are able to survive, live to see another day post-COVID, continue to put on shows.

It just means that much faster they can start making payments to Live Nation again, providing the same benefits that any subsidiary would in terms of passing on profits to the owners. It’s a small benefit, but it is a benefit. It did seem to be one that in our reporting seems to have gone against the intent of Congress. That’s why we thought it was important to report this out.

Ricky Mulvey: This is just one small piece of your reporting on the COVID Money Trail. Well, I hope you guys find where the $163 billion went for unemployment fraud soon.

Yeganeh Torbati: [laughs] We’ll try to work on that. We and all the federal investigators are working on it. [MUSIC] That’s a crazy story and a lot of people were victims of that. But yeah, it’s definitely something that we continue to look into.

Ricky Mulvey: Yeganeh Torbati is an economic policy reporter for The Washington Post. Thanks for joining us on Motley Fool Money.

Yeganeh Torbati: Thank you so much for having me.

Chris Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against them, so don’t buy or sell stocks based solely on what you hear. I’m Chris Hill, thanks for listening. We’ll see you tomorrow. 

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Chris Hill has positions in Airbnb, Inc., JPMorgan Chase, and Microsoft. Jason Moser has no position in any of the stocks mentioned. Ricky Mulvey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Inc., Microsoft, Salesforce, Inc., and Tesla. The Motley Fool recommends Live Nation Entertainment. The Motley Fool has a disclosure policy.

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