Part one of the Cloudflare and Spotify reviews are included as snapshots in section one of this piece. Cloudflare looks mostly good (aside from gross margin weakness), but with a sky-high valuation, it’s easy to see why shares weren’t more sharply rewarded. Especially with the flood of noisy headlines we got on Friday. Spotify looks pretty underwhelming at first glance. Revenue underperformance was foreign exchange driven, so not something to worry about. EBIT underperformance was amplified by higher-than-expected payroll tax from its rising share price, but even without this hit, it still would have missed its own guidance by 6.5%. After a string of such fantastic quarters from them, it was surprising to see this. Still, I should finish reading everything before I comment more. I plan to publish full reviews of Cloudflare and Spotify whenever I can find time this earnings season. With 10 reviews coming next week and several more snapshots, that will not happen until mid-to-late August.

Demand:

Volume trends (great read on consumer spending):

So far this month, USA payments volume has accelerated to 9% Y/Y, with debit accelerating to 10% Y/Y and credit accelerating to 9% Y/Y. Lapping the  outage last year and July 4th timing are helping a bit, but so is general underlying consumer resilience.

Profits & Margins:

Balance Sheet:

Guidance & Valuation:

Visa guides to FXN growth rather than nominal growth. For Q4 2025, it guided to roughly 10% revenue growth and 7%-9% EPS growth. Revenue estimates were stable following this news; EPS estimates fell from $3.01 to $2.96. 2026 sales and profit estimates actually both rose a tad.

Visa trades for 27x forward EPS. EPS is expected to rise by 14% this year and by 12% next year.

Demand:

Profits & Margins:

Balance Sheet:

Q3 Guidance & Valuation:

Spotify trades for 37x forward FCF. FCF is expected to grow by 19% this year and by 25% next year.

Demand:

Profits:

Balance Sheet:

Guidance & Valuation:

Cloudflare trades for 200x forward EPS. EPS is expected to grow by 13% this year and by 30% next year. It also trades for 219x forward FCF. FCF is expected to grow by 52% this year and by 39% next year. Very expensive name. Has been since the IPO.

Demand:

Profits & Margins:

Balance Sheet:

Guidance & Valuation:

Guided to $705M in subscription and service revenue and a roughly 85% transaction margin.

COIN trades for 29x forward EBITDA. EBITDA is expected to fall by 9% this year (following 300%+ compounding for 2 years) and grow by 22% next year.

Comp Sales Breakdown:

China comparable sales rose by 2% Y/Y due to 6% Y/Y transaction growth vs. 4% transaction growth last quarter. This was its best result there in a long time.

Operating leverage is not currently a priority. There’s too much to fix. I think it’s fair to expect that to kick in as we move through fiscal year (FY) 2026. They just announced a $500M investment in incremental labor hours and are working on several other initiatives that cost money to carry out. They’re doing this while cutting inefficient costs, putting them in position to “actually see future growth flow through to the bottom line,” per new CFO Cathy Smith.

No formal outlook. SBUX trades for 36x forward EPS (the Brian Niccol effect). EPS is expected to fall by 27% this year, and then compound at a 20% clip over the next two years.

This was a dense, exciting and information-packed earnings call. 

Early Signs of a USA Turnaround:

While the big changes (more later) CEO Brian Niccol will make have not yet taken hold, there are early signs of a turnaround forming. And encouragingly, these subtly brightening trends are a byproduct of the small changes Niccol has implemented. They’ve now re-established condiment bars, cut the non-dairy milk upcharge, upleveled barista standards in a re-vamped code of conduct and gotten far more proactive and effective at marketing. They hosted 14,000 employees last month, galvanizing its organization and concretely placing customer service, elite omni-channel experiences and operational excellence at the center of everything they do.

I realize this approach sounds obvious. But it was apparently not obvious to the previous leadership team, which is a big reason why the company’s struggles deepened so quickly. Niccol has not had enough time to turn this back into a steady grower but he has stabilized the decline and shown glimmers of progress throughout the model. 

“We've fixed a lot and done the hard work on the hard things to build a strong operating foundation, and based on my experience of turnarounds, we are ahead of schedule… I'm confident that we're not just getting back to Starbucks. We are building a better Starbucks.”

CEO Brian Niccol

Now, onto some tangible indications of a U.S. recovery. Shift completion rates rose sharply to 98.2%, as its base of labor became more consistent. Relatedly, customer connection scores and complaints both meaningfully improved Y/Y and Q/Q. Customer value perception, which has been a company weakness for years, is at 2-year highs. And its other pressing throughput issue is starting to alleviate. Nearly half of its U.S. stores are now under its 3-minute 20-second peak drive-thru order fulfillment goal.

SBUX’s most important key performance indicators also showed early signs of progress. The percentage of company-owned USA stores with positive transaction growth (for all dayparts) sequentially improved for the 3rd straight period. Its revenue quality improved and became far less discount-dependent, as U.S. ticket growth rose 2% Y/Y and its proportion of fully priced orders improved by 33% (this is huge). It’s also no longer ignoring non-rewards members like the old team did. U.S. transaction growth from non-members rose Y/Y for the first time in three years. Rewards members comps are still negative, as it continues to lap irrational discounting practices, but full-price transactions meaningfully improved for this segment as well.

For the licensed store business, its university locations enjoyed 10%+ Y/Y growth, while its airport channel also enjoyed Y/Y growth. Grocery and retail fell Y/Y.

“I'm confident by the end of 2026, Starbucks in the U.S. will look and feel very different, delivering the industry's best customer experience. We're not just getting Back to Starbucks, we're building a better Starbucks.”

CEO Brian Niccol

Bigger Operational Changes to be Implemented:

Starbucks is convinced that its Green Apron Service model is the correct way forward. While it previously planned to have this rolled out to ⅓ of its U.S. stores by the end of the summer, they now expect to infuse this into every U.S. location by then. Clearly, they like what they’re seeing in the 1,500-store experiment. And there are reasons why. These stores are seeing ramping transaction and revenue growth, as well as boosts to customer service scores. This is likely the result of more adequate staffing and the  ordering algorithm allowing it to raise the percentage of orders delivered under its 4-minute goal by 10+ points. 80% of stores with Smart Queue are already meeting throughput goals, before the other supportive changes take place… and they see progress merely building from here.

“Smart Queue is bringing order to mobile ordering.” – CEO Brian Niccol

They want this live for their famous pumpkin spice and holiday promotions. As a reminder, this initiative focuses on warm customer engagements with a smile, clean stores, more staffing support like assistant general managers and its Smart Queue order sequencing algorithm. It is a standardized and structured way for store managers to deliver the aforementioned operational excellence that they’ve gotten away from. 

Fixing its USA Store Portfolio:

Starbucks is slowing down the pace of new store growth to focus on fixing its tired existing portfolio. They’ll invest $150,000 per U.S. location and expect little to no operational disruption. Improvements will include bringing back seating that was eliminated and improving the overall ambiance. This will start in NYC and move to Southern California by the end of next quarter. More generally speaking, they’re currently evaluating their North American footprint to make sure they have the “right coffeehouses in the right locations.” Sounds like there might be some eliminations in some markets – including plans to close around 90 mobile order pickup-only concept stores.

They’re also developing a new store concept with 30% lower buildout costs and ample seating. They think this will raise location margin ceilings, which should unlock more fringe markets for future expansion.

Looking Ahead:

Once all of these aforementioned fixes are in place, Starbucks will begin playing significant offense with menu innovation. Niccol does not want to start introducing more drink and food concepts until operations are entirely sound. That way, its baristas will actually be ready for these debuts and they can be introduced with systemic order, rather than chaotic frustration. Green Apron is vital to give all of this a chance to 

Along similar lines, SBUX is now finally collaborating with its baristas and clearly communicating these changes and how to execute them. It’s also finally considering how to add new goods while using existing production capacity, thus minimizing learning curves and investments. Again… all very simple ideas… that weren’t being practiced. Now they are.

The product pipeline SBUX has left over from the old team was sparse and un-compelling, which means it will take time to re-build the prospect pool. Starbucks is unwilling to guess at what will work and hope it works in stores with minimal testing. That’s how the previous CEO inexplicably operated. It will continue to utilize its “Starting 5” approach (each experiment tested in 5 stores to start) and use a stage-gated process for all menu introductions. By the time we enter Fiscal Year 2026 (this winter), it thinks it will be ready to rev this innovation engine. 

The focus areas will obviously include new beverage concepts. In addition to that, it will include food items that “resonate across dayparts” and healthier options that align with evolving preferences. Those are two exciting concepts to me. SBUX should be doing way more afternoon and evening business than it does, but struggles because the current food lineup is sub-par. They also do a poor job with addressing common allergens like gluten and providing healthier options for customers. That’s all changing.

This quarter, it will add protein cold foam as a sugar-free iced beverage add-on with 15 grams of protein and customizable flavoring. Their entire baked showcase is set to change early in calendar 2026 while it also adds a new dark roast coffee to U.S. stores. From there, it will add more items, such as its coconut water-based teas that are currently being tested. Gluten-free and protein-packed options will also get more prominent.

Rewards Program:

Early next year, they plan to introduce an overhauled rewards program. It had become a vehicle for offering steep discounts rather than more holistically rewarding loyalty, which will change. This app is going to get more personalized and more tied to actual engagement levels.

China:

Starbucks remains interested in selling a large portion of this business and partnering with a local entity there. It has 20 interested parties, but doesn’t feel forced to make a deal. It will remain patient. Until then, things in that troubled market are looking much better. Comparable sales inflected positively and it recorded a third straight period of positive revenue growth. This was innovation-fueled and gives SBUX more confidence in that market supporting 1,000s more stores.

Competition:

They were asked about competition a few times. The team is far more worried about fixing itself than others. As these fixes work their magic, it is not worried about competition preventing its success.

International Outside of China:

Starbucks will host an Investor Day during Q2 2026. I expect multi-year financial targets to be shared at that event.

Two things are true. First, the headline numbers are still quite bad. That’s inevitable, considering just how poor old leadership was for this blue chip. Secondly, the signs that Niccol will right this ship are becoming clearer and more frequent every quarter. Everything that needs to look better right now, from throughput to customer service scores, early signs of strengthening traffic, rising full-price sales rates and more, is looking good. These, in my mind, are the obvious leading indicators pointing to durable comparable store sales growth and margin-accretive revenue growth starting to kick in around the end of this calendar year. I thought Niccol was the man for the job and I grow more confident in that opinion every single quarter. I think he’s well on his way to turning it back into a Wall Street darling. I also think upward profit and revenue revisions in the coming years are all but inevitable. If markets continue to cool off, this will likely be one of the names I add more aggressively to. I want more shares.

Guidance assumes stable tariffs, macro and that its default search revenue-sharing contract with Google remains in place. Alphabet pays Apple $20B per year (so somewhere around $5B/quarter) for this contract and there will be a ruling on the legality of it next week. If this contract is forcibly eliminated, Apple would likely need to revise their current guidance. To be determined. Had they left this revenue out of guidance, revenue guidance would have been around 1.5% below estimates rather than 3.6% ahead (assuming growth guidance means 7% Y/Y).

f. Call & Release

Tariffs & Domestic Production:

The $800M tariff headwind is set to ramp to $1.1B next quarter. Barring changes to import tax levels (which are entirely possible if not probable), that should be a reasonable estimate for the quarterly impact going forward. For context, that’s a little under 3% of next year’s projected EBIT. Not nothing, but also not massive… and I’m sure leadership will be working to recoup some of these losses through other supply chain initiatives.

A key initiative to focus on is bringing more manufacturing to the United States. Apple will invest $500B in this country through 2030, with projects such as a new Manufacturing Academy in Detroit to groom workers for high-skilled jobs. They also invested $500M in MP Materials to boost domestic access to rare earth metals. As tariff levels remain quite high in markets like India and Vietnam (where Apple has tried to move production away from China to), it’s becoming more apparent that there’s really nowhere to hide to side-step these costs besides the USA. Hence these decisions. 

Again, these tariffs led to a short-term demand acceleration as folks rushed to buy new hardware before feared price hikes. That has since reverted, which is why revenue growth is expected to modestly slow Q/Q.

iPhone:

iPhone enjoyed material growth in every market and 10%+ growth in its emerging markets category. This performance includes successful results in highly important markets such as Brazil and India, and a record quarter for new iPhone upgrades. Specifically, iPhone 16 upgrades rose by 10%+ vs. iPhone 15 upgrades at the same point in that product’s previous ramp. It’s important to point out that much of the 1-point tariff pull-forward boost came from iPhone, but with an 11% beat vs. consensus, they did not need this help to outperform vs. expectations. Assuming ¾ of the pull-forward was within iPhone, the product still would have enjoyed roughly 11% Y/Y growth and comfortably surpassed consensus estimates by about 9%. This was strong seasonal outperformance even when eliminating temporary trade war tailwinds. Longer battery life and an upgraded camera are apparently all it took to deliver its best iPhone quarter in well over a year. 

Apple had the top 3 iPhones in Greater China and the #1 model in the USA, UK, Australia, Japan and Urban China this quarter. And this momentum should continue for now, considering a sky-high and stable 98% customer satisfaction rate. And finally, channel inventory dynamics improved Q/Q, which will diminish reliance on promotions or risk of gluts in the quarters ahead.

Other Hardware:

Mac also enjoyed a record quarter for upgrades, which rose 10% Y/Y thanks to broad-based strength across the new Air and the new Studio model. The Studio model specifically is a more powerful piece of hardware with more of the early AI tools Apple has released thus far, so that was good to hear. They also unveiled a new braille experience for Mac and reviewed WWDC announcements like adding the Phone App to the product. U.S. customer satisfaction rates expectedly stayed at a lofty 97%.

Like Mac and iPhone, Apple Watch enjoyed a record quarter for upgrade rates, while customer satisfaction was 97%. AirPods debuts like audio recording and a camera button have both been popular early on, and its previously-announced hearing aid feature for the product has been too.

The team was asked about how well Meta is doing with smartglasses and whether or not that’s changing their roadmap for VisionPro. It doesn’t sound like that’s happening. Cook told investors he thinks it’s highly unlikely that looking at iPhone screens won’t remain a ubiquitous part of consumer hardware interactions in the world of AI. Candidly, I don’t think he should hold that opinion with as much conviction as he does. It is far more natural to interact with AI through these smart glasses and far easier for the hardware to see and hear what we see and hear. 

That reality unleashes more relevant and impactful experiences. I think it’s clear that Meta is ahead of Apple in next-gen consumer hardware and I think Apple should be moving with far more urgency and aggression in this space. They should also have smart glasses flying off of the shelves at this point in time… and they don’t. Meta does. They need to catch up.

Services:

There was significant concern about Apple’s Services business during the quarter. Analyst channel checks pointed to material slowing, while some data sources pointed to Safari queries falling Y/Y in April for the first time ever. Furthermore, this is the first period in which Apple was required to permit external payment links from developers in the app store. That means no lofty commission for Apple and no monopoly-like control over their app store’s payments processes.

It’s true that this app store change was implemented mid-quarter and that leadership still doesn't have a great feel for what the impact will be. But still, it’s still hard to see the slowdown fears materialize in these results. And it’s also worth noting that this category got no help from tariff pull-forwards like its products category did. 13% Y/Y growth was much better than expected and most of its subcategories accelerated Q/Q (cloud services was the standout). Paid subscriptions and paid accounts both again grew by 10%+ Y/Y and overall transacting accounts also set new highs. App store revenue also rose by more than 10% Y/Y. Quarter after quarter, Apple reaches new all-time highs for its overall device install base and layers in more services to cross-sell. That formula should provide stable growth for this segment.

On the Safari note, all leadership said is that it’s “watching the situation closely.” The ruling on the legality of Apple’s revenue sharing search contract with Alphabet is expected next week, so it understandably didn’t want to talk much about this segment.

Apple Intelligence:

Apple Intelligence added new languages and opened its on-device small language models (SLMs) for 3rd-party building. 2026 operating systems, which are equipped with more Apple Intelligence features and will come out this quarter, are enjoying strong preliminary interest, as beta testing traffic is dwarfing previous limited releases. They continue to work on "embedding this across its devices” and “making them easy to use and accessible for everyone.” 20 tools have already been launched, but the real needle movers are expected to come with 2026 operating system releases, including call screening and hold assist teased at WWDC, as well as next year’s Siri launch.

Speaking of which, thankfully, there were no more delay announcements for upgrading Siri. They’re planning on launching that next year and are meaningfully adding resources to this project and its AI initiatives overall. Some of that will come from its balance sheet, while it also shifts some other teams to this focus area as well. It ramped CapEx modestly to nearly $4B this quarter, as it also boosts private cloud investments for secure off-device processing. This ramp should continue in the coming quarters.

China:

4% China revenue growth was thanks to strong iPhone and Mac performances. Subsidies from that government did help things, but aforementioned notes like having the top 3 smartphones there and a record upgrade quarter also helped a lot too. And that’s far more structural, which is great news, considering the Chinese runway remains quite long. Most quarterly Chinese hardware customers remain brand new to the products.

Enterprise Sales:

This was Apple’s best quarter in a while. To be fair, their financial performance has been bad for over a year, so the bar wasn’t terribly high to clear. Regardless, they cleared it and they deserve credit for that. Great performance for iPhone (even excluding tariff help) was the highlight of the quarter, while much better-than-feared services growth was a very close second. This was drama-free execution, with no more product delays, no more negative multi-year revenue compounding, and no more macro excuses.

While I strongly prefer other large cap tech value propositions and valuations, Apple shareholders should be pleased with this performance. Unfortunately for them, it came on the same day that new tariffs went live, nuclear threats were offered and aggressively negative payroll revisions came out. That’s probably why this wasn’t more handsomely rewarded. As I often say, that’s irrelevant for the fellow long-term investors. But relevant for other approaches, and interesting to note nonetheless.

I will say that I didn’t love Tim Cook’s rather apathetic answer about smart glasses and assuming smartphones would remain omnipresent for the long haul. I think that demonstrates complacency, although it could just simply be Cook refraining from sharing his product roadmap. They love to keep a tight lid on product innovation, and rightfully so, considering competition can only benefit from that knowledge.

SoFi quickly issued, priced and closed its $1.5B shelf offering this week. It’s worth roughly 7% total shareholder dilution and will likely be used to pay down debt, as well as potentially for an acquisition (no formal plans there as of now). It has about $1.5B in drawn warehouse facilities and credit revolvers with a blended interest rate of over 5%. Paying all of this down would add nearly $0.07 to 2025 earnings, while the 7% dilution will likely shave about $0.03 off of 2025 earnings. It does not sound like they’ll use all of the proceeds to pay down debt, as the company came out and said this maneuver would be neutral to current EPS guidance. To me, that means they’ll use about 42% of these proceeds to pay down debt. 

With the other $870M, the company update also cited brightening growth opportunities they’d like to take advantage of to raise the revenue ceiling. This meshes very well with earnings call commentary talking about being overwhelmed by the amount of opportunity they had and needing to frustratingly say no to some of it due to budget constraints. This will certainly help in that department. The most likely uses of cash within this bucket, to me, are accelerating the Galileo roadmap, expediting the crypto product schedule or ramping the asset-heavy mortgage business (now with more capital ratio cushion).

To me, the 7% dilution is an extremely easy pill to swallow. The entire reason for disliking dilution is that it eats into profit per share… which is what drives stock prices higher. Not only is this neutral to EPS in the immediate term, but a higher revenue ceiling will naturally create more fixed cost leverage in the years to come to generate more profit growth. A lot of people were complaining about this news halting the stock price’s momentum and being unfriendly to shareholders. They’re wrong, in my opinion. Friendliness to shareholders entails maximizing profit per share in the years to come. This will come from a leadership team that has built my trust in them for 5 years.

Oppenheimer significantly raised their Trade Desk revenue estimates for 2025 and 2026 by nearly 4% each. They also raised their 2025 EBITDA estimate by 6% and their 2026 EBITDA estimate by 5%. All of this stems from observed strength in customer spending, strong results from Google/Meta and not believing Amazon is a significant competitive headwind. They hiked their price target from $80 to $110. RBC also expects Trade Desk to beat revenue estimates by 2%. They raised their price target from $85 to $100.

UBS sees Shopify notching “significant gains” with large enterprises. They think this success could add a whopping 4-5 points to Shopify’s top-line growth for the next ten years. They reiterated a $110 price target and a neutral rating despite this optimism, as the valuation (for now) does remain lofty.

Several sportsbooks in Illinois, including DraftKings and FanDuel, have added $0.50 minimum bet fees in response to rising taxes there. BetMGM set a $2.50 minimum, while others, such as ESPN Bet, have not set one yet.

Waymo is launching in Dallas with Avis as its fleet management partner. It will run the app, rather than using Uber. Waymo has been very clear about experimenting with many different business models as it expands across the city. Some of those will inevitably not include Uber.

Zscaler closed its acquisition of Managed Detection and Response (MDR) firm Red Canary.

Palo Alto is buying CyberArk for $25B to enter the identity security space.

Meta, Amazon and Microsoft all offered CapEx numbers and outlooks that were significantly larger than expected.

Weird week in macro land. The Fed meeting (no updated summary of economic projections) brought no rate cuts and the continuation of quantitative tightening. Jerome Powell’s press conference talked up economic resilience and strong employment markets, which sent September rate cut probabilities tanking from 70% to under 40%. But then? Non-farm payroll revisions for May and June came… and boy were they ugly. Revisions lowered job gains from those two months from 291,000 to 33,000 and July data missed 106,000 estimates by 33,000. It’s odd to think a Fed in the most advanced economy in the world is using inaccurate data to inform their monetary policy decisions, but I digress. Rate cut odds for September recovered to 65% following that news, but rate cuts to address poor employment metrics (rather than below trend inflation) are not something to be excited by, in my opinion. Consumer spending powers 70% of the economy and is heavily correlated with employment markets.

All of this data does point to the labor market beginning to show preliminary signs of softening. It’s important to point out that we're still firmly in full employment territory, wage inflation remains healthy, ADP data for July was strong and this data could be related to trade tensions. Those tensions have eased since May and this is not yet a trend. Just something we need to watch.

Employment Data:

Aside from the revisions we got, data was strong and makes me think the May/June weakness will be more of a blip than a pattern.

Inflation Data:

Consumption & Consumer Confidence Data:

Output Data: