The big tech companies are going to do well, it’s a matter of how they do relative to expectations: Analyst

James Cakmak Clockwise Capital Partner joins the On the Move panel to discuss what to expect with the Big Tech earnings.

Video Transcript

ADAM SHAPIRO: So we want to talk more though about what big tech has in store for us after the closing bell. Let's invite into the stream James Cakmak. He is with Clockwise Capital. He's a partner, and we want to say you're also joining us from Miami, Florida. Not so bad there. He grew up in South Florida.

All right, there's a lot to talk about here. We got Facebook. We got Amazon. We got Google, just to name a few. Let's start with Amazon--

JAMES CAKMAK: Mhm.

ADAM SHAPIRO: --because you've actually warned we might get a bit of a surprise because we're not going to be able to count the Amazon Prime, which was this quarter. But what else might be in there that could be a surprise to the upside for this stock?

JAMES CAKMAK: I think it's just the utilization that we've had over, you know, the course of the pandemic-- the fact that you realized how much of a dependency you really have on Amazon products, not just on a retail standpoint, but also, you know, their Prime efforts, their video efforts, and cloud efforts for businesses. So there's a lot of opportunities there with realized tangible optionality to those businesses.

But I think if you zoom out, we look at across all these big tech companies reporting tonight, obviously I think they're all going to do well. I think it just matter-- boils down to a matter of how they do relative to expectations because their current standings, as well as their immediate and longer-term standings, continue to be very attractive.

- James, another story line that seems to be developing quite rapidly is Spotify--

JAMES CAKMAK: Mhm, right.

- --and the way that it has to curate or manage its own platform, right?

JAMES CAKMAK: Yeah.

- So we do see Spotify shares under pressure today, but a lot of this has to come with the internal kind of agony, but also some consumers who say that perhaps Alex Jones should not be interviewed on a podcast with Joe Rogan, which of course was this blockbuster deal that Spotify had orchestrated.

JAMES CAKMAK: Right.

- So when you look ahead to how Facebook has been kind of bad at navigating a lot of this policing of content-- Twitter has been, I guess, a little bit better-- how do you anticipate a company like Spotify sort of jumping into this deep water and trying to figure out a way? Are they a platform? Are they going to be a news site? Just curious how you're thinking about it from an investor standpoint.

JAMES CAKMAK: Yeah, we actually love Spotify as an investment. You know, we think that the stock can conceivably double from where we are right now. But we do view it as a platform ultimately, and obviously there are some hiccups, you know, that can arise as we've seen, you know, to get to where they theoretically can and should be we think.

But at the end of the day, they're a platform, and we think that they have the ability to potentially gain market share, not from in terms of just advertising dollars, but also from traditional news media sites as being-- you're seeing in the numbers themselves because the whole thesis around that is that they'll be able to continue to grow their subscribers while getting more higher and higher quality subscribers, which is why you're seeing churn continue to fall.

So Spotify, I think it's more of a knee-jerk reaction. All these stocks have run up. Like I was saying before, this is a game of expectations over the near term.

DAN HOWLEY: James, this is Dan. I want to ask about, you know, the big tech firms and the idea of potential regulation and anti-trust issues. You know, yesterday at the Senate Commerce Committee hearing, they talked, like, for five seconds probably, but they still talked--

JAMES CAKMAK: Yeah.

DAN HOWLEY: --about Section 230. We know that there's the potential for regulation there, and that could dramatically impact everything on the internet basically. And then we have the antitrust discussions going on with Facebook, Google, Apple, and Amazon. I guess in your view, what's the real threat there to these companies, and is it significant enough for investors to be nervous?

JAMES CAKMAK: Yeah, I think regulatory risk is certainly there and will continue to be there as long as these companies have, you know, monopolistic power on the respective markets that they serve. But I think your point on 230 is spot on because from what I saw yesterday, none of these tech executives across Google, Facebook, nor Twitter did themselves any favors as it relates to 230 and how they were defending some of their policies and in the manner in which they were answering the questions.

And I think what-- the way that they approached it is probably going to draw further scrutiny. Obviously a lot is going to boil on who actually ends up winning the election. And I think with a Trump victory, if that is the case-- obviously the polls show otherwise. But if it is the case, then I think that, you know, these companies are going to be in much more heated waters than they are now.

JULIE HYMAN: James, when we look ahead a little shorter term to the earnings after the bell--

JAMES CAKMAK: Yeah.

JULIE HYMAN: --which of the majors do you think has the highest likelihood of disappointing investors with today's report?

JAMES CAKMAK: That's a good question. Obviously we're most bullish on Amazon. You know, we have not sold a single share of Amazon for as long as I can remember, maybe if ever. But as it relates to Facebook and Apple, we have been selling shares because we're continuing to push new valuation highs. You know, you have Facebook at eight times sales. You have Apple at six times sales. You know, this is 50% higher than their historical price-to-sales average. So we have been pushing the valuations higher.

I think an argument could be made for that to be a positive thing because of the fact that they have proven that they're absolutely essential infrastructure throughout the course of this pandemic in a way that we probably haven't thought before. But at the end of the day, the numbers do have to match the valuation parameters that we're looking at-- judging the companies against. And that's why there's-- they continue to be sizable positions, but we have been trimming on those names. And Google, we haven't really touched because, you know, we think that's more of a-- we don't invest in companies that are too much of a black box.