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Come on, you knew we were going to talk about in video earnings. This is Motley Full Money. [MUSIC] Welcome to Motley Full Money.
“I'm Tyler Crowe, and today I'm joined by the long time full contributors Matt,”
Franklin, and John Clause. Earnings are still the topic of the week and some investor favorites are certainly reporting. We're going to get into the results of the trade desk, and I'm going to test her John and Matt about Mercado Libra's most recent quarter. But first, it would be hard to be taken seriously as an investing podcast, and not discuss
in videos earnings right at the top. So we're going to get right into it here. Shares are in video down about 4% as we tape today. After the company reported fourth quarter and full year 2025 results. It's been a minute since we've seen in video report earnings that didn't blow
analysts in investors away, and it looks like based on the stock market reaction. That was kind of the case today, because apparently 73% year over year growth for revenue doesn't wow anyone anymore, John?
Well, it wells this guy. I mean, look, here's what wowed me. Somehow, Nvidia's growth is still
accelerating. You pointed to the 73% revenue growth in its most recent quarter. That's insane as it is. But next quarter, it expects around 77% growth. I mean, let's just put these numbers into a little bit of more tangible contextualized perspective here. In video for the year, it just reported 216 billion in revenue. It added 85 billion in revenue compared to the previous year. There are companies that have existed for decades and never
“reached 85 billion period. And that's what Nvidia just reported that it added to revenue in the”
single year. It's absolutely mind blowing. That comes with 120 billion in net income on top of that. I don't know how to even say that out loud. It's so incredible. And here's something that's even more wow if we need some more wow here. These results don't include any revenue from China. That could come online soon as that gets worked out. Then you have other drivers such as software and AI. That's a potential revenue driver over the long term here. Software and AI revenue
tripled to 30 billion. You know, a lot of countries are seeing this as a national security issue.
And so we could see more countries investing more money into Nvidia's products to build their own infrastructure. So very wow results as far as I'm concerned. Yeah. I will say that this is not the first time that Nvidia has beat earnings estimates and issued strong guidance only to see it stock fall the next day. I agree with John the numbers look strong to the point where they're tough to put
“into words. But Nvidia trades for about 46 times earnings about 24 times sales. And although revenue”
grew by 73% year, but you're not taking anything away to about 68 billion. That's clearly not sustainable year after year, even though they're expecting it to accelerate into the first quarter. For example, so a large part of the hundreds of billions of dollars that we've heard in CapEx plan by meta Amazon alphabet, et cetera, it's earmarked for data setter chips, specifically in video chips. And data setter chips are most of Nvidia's business today. Those three companies
alone are spending about $500 billion this year between them. Primarily to build out their AI
infrastructure. So a 73% growth rate just to go full math guy on you right now implies $4.5 trillion in spending in the year 2030. If we keep that growth rate up, clearly that's not likely to happen. So this is a long way to say that in less than video posts below out numbers, which I'd call this quarter good, not a blowout. It's not too surprising to see the stock pull back a little bit, just on valuation and sustainability concerns. John Whitby, apparently Matt is not impressed with
73% growth and hasn't read the McKinsey report that they do expect to be spending somewhere like $7 trillion between now and 2030 on all this stuff. But I digress. I mean, this could easily become like the finance version of that SNL skip from the Chris Farley show where we just kind of go around the rooms. They have great Nvidia is. But let's kind of poke and prod some of the soft spots in Nvidia and maybe we can see where this conversation goes because look,
we can say how great it is, but people want to buy this company and they should know bit upsides and downsides. One, Reuters report that I read about today's earnings and was and it's kind of discussing some of the shifting demand and compute power and made me think a little bit and kind of talking through this a little bit here. As more AI companies shift from training models to actually deploying models to customers, they will need more of the generalize computing
power from CPUs versus the lots of smaller tasks all running in parallel that are, you know,
Nvidia GPU processors were known for and worked incredibly well for training ...
of the big hyperscalers are starting to develop their own proprietary equipment. You know,
we were just talking about their big spending. But Alphabet, for example, has it's application specific tensor processing units that it claims are better designed to accelerate machine learning workloads, you know, when deploying these things into the real world. Look, Nvidia isn't just a GPU company. It has CPUs as part of its product sweep and it has other ways to monetize a lot of what's going on here. So it's not like I'm saying the company is,
you know, it's cooked from here. But I do wonder if Nvidia's pricing power might start to take it on the chins lightly as competitors start to find ways around paying that massive premium for an Nvidia product. I mean, that if anything would be my concern from here going forward. Like are either of you considering this when looking at Nvidia or maybe I'm missing a bigger challenge here that you guys might identify? No, I love that you brought this up. I've said before that unless you've
“tried to talk yourself out of an investment, you should have made it. And you're absolutely right.”
And it's one of the biggest reasons why I own AMD and my portfolio and not Nvidia,
although I completely acknowledged that Nvidia's an amazing business. So obviously, if
if alphabet and others develop their own processor, it doesn't help either of the companies I just mentioned. But you're right, the pricing power could be under pressure. And the premium nature of Nvidia's GPUs could certainly be less in demand in a couple of years. AMD just to kind of, you know, talk about my own investment as a 12% net margin versus 53% for Nvidia. That's due to its markups because of the premium nature of its products, like you mentioned. But for AMD, I see
margin compression is being less of an issue. For one thing, data center GPUs are a much smaller percentage of its business. Second, AMD's GPUs, AMD's GPUs, they don't command the pricing premiums
that Nvidia does. And third, AMD doesn't just have CPUs as you put it with, within Nvidia,
“they're a core product for the business. So that's why that's a very legitimate concern and”
it's why I want another direction. Yeah, I think both Matt and Tyler are hitting it on the head here. You look at Nvidia's margin. It's essentially doubled over the past five years, over 50% now as Matt pointed out. I think it's unreasonable to expect the margins to stay this high until kingdom come. At some point, I'd expect the margins to go back from otherworldly right now to just great in the future. And that margin compression could impact this as an investment. It's one of the
reasons that I'm personally not buying Nvidia. Even though I'm wild, I'm wild as we pointed out. But how much higher can the revenue go? I can't answer that to my own satisfaction. And how much longer before that margin goes back down to just a great margin and not a otherworldly margin? I don't know that either. The situation has prevailed in lasted way longer than I ever originally thought possible. So I'm already way in the wrong here, but I can't really predict it into the future.
“And so that's why I'm on the sideline. I like the way you frame that too. And perhaps an important”
message as we discussed these sort of things was talking about adding to a position or buying something today is very different from owning the stock. I'm sure that people who own the stock are pretty satisfied with what's going on here. But when trying to make that next capital allocation decision, based on valuation, based on where you think the company is going to be going, it can drastically change the way you frame the thought on a company, whether it's adding to
or continuing to hold. So I think something investors in Nvidia want to consider when we talk about these things because there is some nuance here. And now after the break, I'm going to play a little deal. Devil's Advocate here for two Mercado Libre investors. Having it figured it out by now, I do like to be a little antagonistic and play the devil's Advocate from time to time, especially with Matt and John because we've been doing this for a long time.
They don't mind it. They're blood doesn't boil when we do these sort of things. So in the vein, I want to talk about Mercado Libre and their most recent earnings report. Shares dropped about 8% after announcing earnings yesterday. And over the past five trading days, Shares are down like 12.8% as we are recording this. Now, if I remember, John, you said on one of our other group chats, kind of before we were discussed this here, that it is trading at its cheapest
valuation since the great recession. Did I read that right? Yeah. So in that group chat, I want to
Acknowledge I was referencing basically the dumbest of all valuation metrics.
price to sales ratio. Now, the reason I do look at the price to sales ratio, it's not my entire
“valuation process, but it's part of the picture. I like that it's smooth out some inconsistencies”
potentially in the profits. But right now, it trades at just three times at sales. If you go back to the absolute height of the great recession market crash, it traded at 2.6 times sales. So it's only trading for a hair above what it traded for during one of the worst market crashes of our investing careers. If you look though at other valuation metrics, right? Now, it trades at about 16 times its free cash flow, which is actually quite reasonable when you consider how
much it's investing into its infrastructure, which naturally suppresses its free cash flow generation. You can look at cash from operations. It trades at eight times its cash from operations. That is
absolutely incredible for a business that just turned in its seventh consecutive year of greater than
30% growth. We're setting the table here. We have an seemingly cheap stock based on historical metrics
“and things like that, Matt, run us through the fourth quarter numbers. As I put on my devil's”
costume to ask a couple questions here. On the surface, things look really solid. I'm not saying this stock's down for no reason as we're going to get to in just a little while, but just consider the headline numbers. So gross merchandise value. This is their e-commerce platform. It was up 37% year over year. And 43% more items were sold on the platform. The Mercado Pago FinTech business, which I'd called kind of like a stripe. I guess in Latin America, was up 53%. The credit portfolio,
which is credit cards, business loans, and other kinds of lending. Ruined by 90% to 12.5 billion dollars, all of this produced combined 47% revenue growth year over year. So it's clear this is still a rapidly growing business. The big concern, which I'm sure we're about to get into, is profitability, but the net margin fell to 6.4% from over 10% a year ago. So now go for it.
“Yeah, it sounds like you see the headlights coming down the road here. So here's kind of my”
antagonistic view on this a little bit. But I do genuinely believe this is an investor.
Not all growth is created equal. Not all growth is good. I don't always think that it's worth
pursuing like those extra few percentage points of growth. If it erodes things like margins and rates of return, and margins and rates of return form are called a Libra peaked in 2023. And one of the things I've really kind of picked up on is that charges for bad or questionable accounts, you know, things that they've written down, because they aren't sure people are going to pay them back. That's now equivalent to 25% of its gross profits this past quarter.
I'm not a Mercado Libra, shareholder. I know both of you are many have done incredibly well with this stock, as have many other investors at the Molly Fool, both members and analysts. But things like this would give me pause, especially the questionable account credit provisions, things like that. To me, it looks like the company's growth isn't as quality as it looks on paper. And so I want you guys to kind of convince me, and the audience here, it's like am I just shouting it
clouds here? No, it's a valid concern of the nearly four percentage points of net margin compression that I mentioned a minute ago. More than 3% of that was due directly due to rising costs. That includes launch reserves, that includes CapEx, which arose by 53% year every year, you know, faster than revenue. But we've seen the similar story with other companies that I follow. Like Karna, for example, where it's U.S. banking services are growing over 100% year every year.
Or some forms of growth, especially in the financial sector where people are borrowing money from you and then paying it back. It doesn't need to happen quite so fast. It's really hard. It's easier
to assess risk on, say, $100 million of loans that it is on $12 billion worth of loans.
And it's easier to handle it with things go bad. So I'm not too concerned yet. This is still a profitable business. It's still doing well. As John mentioned, it's grown over 30% for the 7 consecutive years that includes during the COVID years. But it's something that needs to be monitored for sure. So I'm a shareholder. I'm a happy shareholder. But I'm watching this very closely. A one quick comment I would add to that is this is a Latin American business. When I lived in Latin
America, I was I was a Paul to the interest rates when it comes to borrowing. That's was particularly true of mortgages, but credit cards as well. There is higher credit risk in in these markets. A lot of people don't have a credit history. So that can be really hard to assess the risk as the lender. So reserves naturally are higher. But the income potential from the accounts not in default is higher because they're charging higher rates. So we need to make sure that we're running this
Through a Latin America grid and not a U.
The other thing I'll say is this. Another reason that margins are down from Ricardo Libre is because it recently lowered the threshold for free shipping and Brazil. We can open up our history books here and see what can happen in a situation like this. I agree with you Tyler that not all growth is good. You do need to think about long-term margins. But if we look back at 2005 at Amazon, it started offering free two-day shipping for its prime members. Now from 2005 through 2010,
Amazon's operating margin dropped by about 30%. So that doesn't look good at first. But
revenue soared 400% during that time. And eventually that greater scale was important because it
“was able to monetize in new ways. So all I'm saying is I think that Mercado Libre is playing the”
long-game here just as Amazon was playing the long-game 20 years ago. Let's just put it this way. Because again, I like to be antagonistic. Whenever Mercado Libre quarterly earnings report is, we'll do our check-in and see if things are trending in the right direction. After the break, we'll go and see if trade dust can pull out of its nose dive. I'm going to do my best to not be the podcast host equivalent of,
has this ever happened to you person on those gimmicky as seen on TV commercials as we go through
trade desks earnings. Because this is not a company I follow much, but I know both of you do.
And so I'm going to lean on you to make everyone smarter about the trade desk here. Shears of the trade desk are down about 6% as we tape and down 67% over the past year. Now, there's been lots of chatter about turnover at the executive level and a curse three glance for me. There's been a drastic change in valuation for this company.
“So what is the market reacting to here in this most recent earnings report?”
And did the trade desks most recent earnings for you at least change some of that narrative that we've seen? The market is reacting to the fact that growth is decelerating for the trade desk plain and simple. It just reported 14% growth, which I believe is the slowest growth that's reported
as a publicly traded company. And it's guidance for the next quarter implies 10% growth.
And so there's a real chance that it dips into the single digits in 2026. And the market is reacting to it being a low growth business now. Now, what's interesting is there's competition, at least competition in the narrative. And we're talking about Amazon. What's so interesting is that the trade desks management called out Amazon by name in the call saying, "Hey, our product is better than Amazon's."
And so it's almost like it called attention to the elephant in the room and told investors
“that it wasn't an elephant. Here's the thing, Amazon just turned in 22% advertising growth”
at a higher scale. And I know it's not apples to apples, but still growth accelerated in advertising for Amazon in the past year, whereas it's decelerating for the trade desk. And I think that that is something that investors are very cognizant of. Yeah, as John said, for the time being, this is a slower growth business right now. For a few reasons, investors want reassurance on a few things.
They want to know why they couldn't keep a CFO more than a few months. They want to know when the company's growth might accelerate again to the, you know, with Amazon putting 22% advertising growth when can we expect that? And we want to know whether companies like Amazon are truly a disruptive threat to the business or not. We haven't seen that yet at least to the extent that investors would like.
So having said that this is a business that is still growing. It's still profitable. And right now, it's trading for 11.4 times forward earnings estimates. I don't think AI or any of the big tech companies are truly an existential threat to the trade desk. Well, so I think it might be appealing as a takeover target at this point. It's cheaper than it will cost someone to build this.
Bottom line is I don't think investors would be making a bad move if they bought the stock today. But I'd certainly expect this roller coaster ride to continue for a little while. Any mention of a takeover target makes for a fun topic, especially for, you know, talking heads in financial media. So it's going to be a fun way to close out. You know, Matt, if this really is a takeover target as you might be suggesting here, let's play a little game. You guys get to, you know, make your best
cases, you know, analysts or somebody on one of the larger financial TV shows or something like that. Who would you like to see a choir of the trade desk? Well, I'm not sure how much I would necessarily care. But speaking of Amazon, I know that Walmart loves to stay step for step with Amazon. And so I think that Walmart might be an interesting a choir here of the trade desk.
Interesting.
So that there is some already some a relationship there. I think a more compelling idea in my view
would be Roku. That would probably more be more of a merger than an acquisition. So Roku, of course, the connected TV platform, the trade desk has a large presence in connected TV. Roku is
excelling with adoption, but struggling with monetization, maybe having the trade desk would help it.
“Amazon would love to have this. But I think there would be too many anti-trust concerns that”
it wouldn't be regulatory possible. I'm going to say Microsoft would be a great acquire for
Microsoft has some advertising business, but nowhere near on the level of like an Amazon or
alphabet, the company said it directly competes within so many other ways. I think Microsoft could make a play for this. It would be, I mean, acquiring the trade desk would be a rounding error on its dowel sheet, and it could seriously take its advertising business to the next level.
“So not that it's going to happen, but just for a fun little speculation, I think Microsoft”
would be a likely acquire. This is all just rampant speculation here. So I don't think any of us have an inside information on whether trade desk really is a takeover target, just a fun way to end a Thursday conversation here. And unfortunately, that is all the time we have for today.
“Matt, John, thanks for sharing thoughts. As always, people in the program may have interests in the”
stocks they talk about, and the market full may have formal recommendations for her against, still buy herself stocks based solely on what you hear. All personal finance content follows Molly Full Editora standards and is not approved by advertisers. Advertisements are sponsored content and provided for information on purpose is only to see our full advertising disclosure these takeover show notes. Thanks for producing Dan Boyd in the rest of the
Molly Full team for Matt John and myself. Thanks for listening and we'll chat again soon.
