The 2024 holiday shopping season has officially started with Black
Friday on November 29. I want to get answers to a couple of questions:
How much inventory did U.S. retailers carry coming into this holiday season?
How has this inventory increased or decreased since last year?
Retailers are enjoying the benefits of robust economic growth and low unemployment. At the end of October, theunemploymentrate stood at 4.1%, andinflationwas
2.6%. Inflation has come down dramatically since a dramatic increase in
2021 and 2022. Since inflation affects inventory costs, the data shows a
dramatic increase in inventory held on a company's balance sheet in
2020 and 2021. The initial demand shock of 2020 during March quickly
turned into a supply shock as demand skyrocketed as stimulus was rolled
out. The increased demand and supply chain constraints likely increased
the costs of procuring inventory.
Amazon, for example, saw a steep 30% increase in inventory costs between 2020 and 2021 and another 18% increase in 2023(Exhibit 1). In 2024, the company only showed amodest 1.9% increasein
its inventory. Amazon has a massive number of third-party sellers on
its marketplace, and their inventory is not included in Amazon's balance
sheet.
Exhibit 1: Amazon's Inventory Costs in its Balance Sheet.
SEC, Snowflake Cortex Analyst, Excel
Similarly, Walmart saw a double-digit increase in its inventory costs in 2021 and 2022 but showed a1.9% decreasein 2024 compared to 2023(Exhibit 2). However, Walmart's data is for the fiscal period ending July 2024.
Exhibit 2: Walmart's Inventory Costs.
SEC, Snowflake Cortex Analyst, Excel
Among the big three retailers, Amazon, Walmart, and Costco, Costco
has increased its inventory by a double-digit rate going into the 2024
holiday season(Exhibit 3).
However, Costco has an excellent inventory turnover practice, so it
will quickly convert its inventory into cash. Costco typically only
carries 30 days of sales in inventory, the lowest among these three
retailers. You can read more aboutCostco here.
Exhibit 3: Costco's Inventory Costs.
SEC, Snowflake Cortex Analyst, Excel
I looked at the inventory for a few other retail companies,
including Dick's Sporting Goods, Deckers Outdoor, Home Depot, Lowe's,
Burlington Stores, and Autozone(Exhibit 4).
Most of these companies are coming into this holiday season with a
mid-to-upper single-digit increase in inventory compared to last year.
Lowe's is being cautious, with almost no change in inventory since 2023.
Dick's Sporting Goods has the highest inventory cost increase of 13%
over 2023.
Exhibit 4: Inventory Costs of Various Other Retailers.
SEC, Snowflake Cortex Analyst, Excel
Inventory costs are normalizing across the board for retailers
after the tumult caused by the pandemic. Dick's Sporting Goods increase
in inventory costs is a bit worrying, followed by Burlington Stores,
Deckers Outdoor, and Autozone. They are hoping for a strong holiday
season.
I generated the SQL usingSnowflake Cortex Analyst.
Cortex Analyst is a massive productivity booster that takes just a
little time to get started. Snowflake is one of the most accessible data
platforms for businesses to gain insights quickly. You can try ithere.
Disclosures: I am a Sales Engineer at Snowflake. All opinions
in this blog post are solely mine and do not reflect Snowflake's views. I
am not a Registered Investment Advisor, and any discussion on
securities or investments is not an inducement to make a particular
investment.
How much cash does the U.S. Federal Government carry on its balance sheet?
How does that cash compare to the money on Big Tech's balance sheet?
How is Big Tech spending on share repurchases?
Theoretically, how much cash could Big Tech have on its balance sheet, including the repurchase amounts?
How much cash does the U.S. Federal government carry in its Balance Sheet?
The U.S. Treasury Department owns and publishes the government's balance sheet annually. At the end of 2023, the U.S. government held $922 billion in cash (Exhibit 1). Although the Federal government, with congressional authorization, can print money to bolster its balance sheet at any time, we are using this amount as a fun exercise to compare against the cash held by the private sector, especially by the tech giants.
Exhibit 1: Assets Portion of the U.S. Government Balance Sheet
Bureau Of Fiscal Service
How does the federal government's cash holding compare to the private sector?
I queried the U.S. SEC filings using Snowflake to examine the cash held by various companies (Exhibit 2). I wanted to examine Big Tech but also threw in data from other companies, from Berkshire to Coca-Cola. Berkshire Hathaway had to be included in this list since its cash, bonds, and securities on its balance sheet total over $325 billion. The table below details only the cash holdings without looking at long-term bonds and securities companies may hold.
Warren Buffett believes in having a fortress balance sheet and has been selling his stock positions in Apple and Bank of America to bolster it over the past few quarters. So, what does Warren know about the markets that concern him? There's a cottage industry trying to guess Buffett's thinking and investment strategy. Buffett may be saying that U.S. stocks are overvalued, so it's time to cash in on the capital gains he has secured on Apple. My guess is as good as yours. If the market takes a beating in the coming months, Warren might be in a prime position to buy excellent businesses at a cheaper valuation.
Note: It was easy to create an AI app in Snowflake to learn from Warren Buffett's annual letters. You can learn about it here.
Amazon has the highest cash position, with $75 billion on its balance sheet, followed by Meta (Facebook), which has $43 billion. The top 10 companies on this list, from Amazon to Salesforce, held $273 billion in cash.
Note: Procter & Gamble (PG) data has a bug since the cash position is for 2019. I hypothesize that PG started using a different US GAAP tag after the 2019 fiscal year than the one I used in my query. I will look into this. You can learn more about my architecture in a series of blogs here and here.
Exhibit 2: Cash Held By U.S. Companies
Cash Held By U.S. Companies.
This amount of cash on the balance sheet feels tiny compared to many big tech companies' annual free cash flows. Where did all the money go?
How much is Big Tech spending on share repurchases?
Share repurchase is a financial technique companies use to buy back their shares. Repurchases reduce the total outstanding shares, offering multiple benefits to the company and its shareholders.
Companies can show earnings per share growth without increasing earnings from their business operations.
Existing shareholders see their stake in the business increase. Now, they own more of the business.
Reduce the total dividend that the company has to pay out annually.
If you and your friend were partners in a business and you bought out your friend's share, you would end up owning 100% of the company and keeping all the profits. Share repurchases are similar, except on a much bigger scale.
Let's look at an example to see the benefits of share repurchases.
Exhibit 3: Share Repurchase Example
Share Repurchase Example
Suppose a company had a net income of $1000 and a total outstanding shares of 10 in year 1. In this case, its earnings per share (EPS) is $100. Suppose the company earns the same amount of $1000 in net income in year 2 but repurchased 2 of its shares at the end of year 1. The number of outstanding shares is now eight instead of 10. The EPS has jumped from $100 to $125, a remarkable 25% increase without the business earning a single penny more. When EPS grows, the stock price should follow, benefitting the company and its shareholders.
When paying dividends to existing shareholders, share repurchases save the company money, assuming it decides not to increase its dividend per share. In this example, the total dividend amount the company has to pay is reduced from $100 to $80.
In the partnership example, when you buy out your friend, you would consider paying a fair price for his share of the business. You would be careful not to overpay. If you overpay, the returns you generate on your investment will be less. Similarly, buying back shares at any valuation is not recommended. Warren Buffett's rule on buybacks is only to repurchase shares when the stock is trading below its intrinsic value.
How much did Apple spend on buying back its shares?
Since 2018, Apple has spent a mammoth $559 billion on buying back its shares (Exhibit 4 & 5).
Exhibit 4: Amount of Money Apple Has Spent on Share Repurchase Since 2018.
Apple Share Repurchases
Exhibit 5: Apple's Spending on Share Buy Backs in Bar Chart Form.
Apple's Share Repurchases
How much has Apple managed to reduce its share count since 2018?
Apple has reduced its total outstanding shares from 20 billion to 15.4 billion, a 22% reduction.
Exhibit 6: Apple's Weighted Average Diluted Shares Outstanding
How much did Microsoft spend on buying back its shares?
Microsoft has spent $152 billion on share buybacks since 2018 (Exhibits 7 & 8).
Exhibit 7: Microsoft's Spending on Share Repurchases
Microsoft's Spending on Share Repurchases
Exhibit 8: Microsoft's Spending on Share Repurchases in Bar Chart Form
Microsoft's Repurchases.
How much has Microsoft managed to reduce its share count since 2018?
Microsoft has reduced its outstanding shares from 7.79 billion to 7.46 billion, a 4.2% reduction (Exhibit 9).
Exhibit 9: Microsoft's Outstanding Shares.
Microsoft's Outstanding Shares
In theory, Big Tech could have more money on its balance sheet than the Federal government if desired. It spends a lot on Capex, R&D, and share repurchases.
Note: All data analysis was done on Snowflake using Snowsight Worksheets and Snowflake Notebooks. If you like the analytics presented here and wish to do similar analytics with your data, Snowflake may be the easiest platform to gain insights quickly. Try Snowflake for free for 30 days here.
Disclosures: I am a Sales Engineer at Snowflake. All opinions in this blog post are solely mine and do not reflect Snowflake's views. I am not a Registered Investment Advisor, and any discussion on securities or investments is not an inducement to make a particular investment.
The S&P 500 index is market-capitalization-weighted. The weighting by market cap means the companies with the largest market capitalization (Market capitalization = Number of shares outstanding x Share Price) get the highest weight. Last year, this method for calculating the index made the five largest companies by market cap account for 23% of the index. That is just 5 out of the 500 companies accounting for about a quarter of the market capitalization. These five companies were: Apple, Microsoft, Alphabet (Google), Amazon, and Facebook (Meta). When the share price of these companies starts underperforming, the market takes a huge tumble. We can see that happening now. The S&P 500 index (VOO) is down about 9.72% (pre-market on January 28), while the S&P 500 equal-weighted ETF (RSP) is down 7.48% (See Exhibit 1: Invesco Equal-Weight ETF Beats Vanguard S&P 500 Market-Cap Weighted ETF). That is a difference in the performance of 224 basis points. In essence, the equal-weight ETF outperformed the market-cap ETF. The dividend yield is about the same for both ETFs. The Invesco Equal-Weight ETF charges a higher expense ratio than the Vanguard S&P 500 ETF. Invesco charges 20 basis points (bps) or 0.2%, while the Vanguard S&P 500 ETF (VOO) charges three bps or 0.03%. Invesco charges 7x more than the Vanguard ETF. Even after deducting the extra expense of investing in the Invesco ETF, it comes ahead in performance by over 200 bps.
The era of big-tech is coming to an end due to more regulation and their size inhibiting growth. At least for now, Apple seems to be bucking the trend after reporting blockbuster results yesterday. Interest rates are also rising, putting pressure on valuation because future earnings will be discounted at a higher interest rate. It may be good to have a position in the Invesco Equal-Weight ETF (RSP) during these times.
Both Apple (AAPL) and Microsoft (MSFT) are trading below its 10-day moving average. Apple is down from its 52-week high of $399.82 and currently trades at $380.16. That's a drop from the 52-week high of - 4.97%. Apple's 10-day moving average is 382.436 (Tuesday, July 28, 2020). Microsoft is down from $216.38 to $204.06 that's a -5.6% change. Its 10-day moving average is $202.15. Amazon (AMZN), Facebook (FB), and Alphabet (GOOG) are all trading below their 10-day moving average. Out of this cohort only Facebook is trading below its 50-day moving average.
Exhibit: Big Tech's Downturn has Started. When will it end?
Microsoft has gained 53% from its lows in March 2020. Apple has gained 76% form its March 2020 lows. The gains have been spectacular. Google has gained 50% from its March lows. Amazon has gained nearly 82% from its March 2020 lows.
It seems like all these stocks are starting a downward trend after the huge run-up they have had over the last few years and the rebound they have had since the pandemic induced crash of March 2020.
