Kids These Days Still Want 'Value'
'A little cringe'... What the young and old agree on... Apolitical supply and demand... Kids these days still want 'value'... Why the world's best businesses are so great... Spotify: A real-time example – up 13% today...
A lot of people will tell you 'kids these days' are a mess...
They don't want to work... They sit inside on their phone all day and night... They live at home until age 30 or older...
Or as portrayed in this Saturday Night Live skit from last year – "Gen Z Hospital" – that featured Tesla (TSLA) founder Elon Musk, maybe they speak a form of the English language you might not understand...
In the bit from NBC's sketch comedy show, Musk plays an emergency-room doctor, speaking to a bunch of Gen Zers (roughly ages 10 to 25, born between 1997 and 2012) in a fictional hospital waiting room.
They were looking for an update on their friend who had been in a car accident with her "Hellcat," a Dodge Challenger sportscar. Musk appears in the white coat, coming out of surgery...
Dr. Musk: Is this Morgan's squad?
Kid No. 1: Gang, gang.
Kid No. 2: Doctor, please tell us, what's up with our bestie?
Dr. Musk: Y'all might want to sit down. What I have to say right now might be a little cringe.
Kid No. 3: Just give us the tea.
Kid No. 2: Bestie's going to be OK, right?
Dr. Musk: I'm sorry, but at this particular time, that's looking like "cap"...
Translation (with the help of a Google search of Gen Z slang)...
The "tea" (gossip or information) about their "bestie" (friend) is a "little cringe" (awkward or uncomfortable) and the idea that she's going to be OK is "cap" (a lie or an exaggeration)...
Yes, younger Americans do and say things that are different than older generations...
This alone is not a new idea... Generational differences have been a thing for hundreds of years in the U.S., and much longer in other parts of the world.
You probably also already know that millennials – those born between 1981 and 1996 – are now the largest living generational group in America, with more than 72 million people. They started to outnumber Baby Boomers in 2019...
And you might have heard people say that millennials' preferences, followed by those of the 67 million Gen Zers behind them, will shape American culture and policy for decades to come...
These are numbers and forces to keep front of mind when investing today...
Demographics are helping power many long-term trends, like demand for housing (there aren't enough new homes available to buy)... green-energy initiatives... and certain policy pushes that could gain more steam, like eliminating student debt.
But I (Corey McLaughlin) am not here today to talk about what might change, to teach you Gen Z slang, or wag a finger at the youth of America and tell them to get off your lawn.
No, I want to point out quite the opposite... I want to point out that things might not be as different among the generations today as they seem on the surface... or at least as they are portrayed in popular media like Saturday Night Live.
And, as I'll show, to understand the generational similarities can be a critical advantage for long-term investors who have the patience to look at the "big picture"...
Said another way, things will change, but some things that really matter will also stay the same...
A recent survey looked at the preferences of Gen X, millennials, and Gen Z...
The Associated Press-NORC Center for Public Affairs Research and cable channel MTV put together the new report and published it last month...
The survey asked nearly 4,000 Americans ages 13 to 56 the same questions and compared and contrasted the responses among generational groups: Gen X (born 1965 to 1980), millennials, and the younger Gen Z.
The topics included broad questions... like what people find more important in life, the barriers they feel are most in the way of achieving their goals, and what they feel are "socially acceptable" actions.
The survey also covered specific timely topics like how COVID-19 has been handled, it asked for thoughts about "unplugging" from technology, and it asked whether people are concerned about offending other people when discussing politics.
You can read the full report here and spend as much time as you want with it... But for our investing purposes, I want to share what I gleaned might have been most important – not the differences between people, but what's the same.
Among all the generations, two things stood out...
And they both have to do with money.
Gen X, millennials, and Gen Z all ranked "being financially secure" as the thing that was most important to them... topping other options like "having a family of your own," "making a difference in the world," and "living a religious life."
Interestingly, "being wealthy" ranked near the bottom of the list of most important things, telling us most people want "enough" to be free to do what they want... At the same time, not surprisingly, all three groups said finances caused them the most stress.
So there's the first takeaway... As much as people might not admit it publicly, most folks' greatest concerns in life are tied to the issue of money.
Most of you reading this have already made the decision to take your financial future into your own hands, and we're probably not telling you anything new... But it's still interesting to see concerns about money reflected in a formal survey across three generations of Americans.
The second takeaway has to do with how people decide to spend their money...
And this ties in more closely with an investing concept that longtime Digest readers and Stansberry Research subscribers are familiar with: value...
People were asked a question about the reasons they choose to 'buy a specific brand'...
While headlines and attention-grabbing news stories might seem to say that most people decide what they buy based on the company's environmental policies or social or political beliefs... those were far from the most important reasons given in this survey.
By a wide margin ‒ wider than any of the results of any other topic asked about ‒ people said that a "major reason" why they choose to buy a product from a specific brand is simply because "it offers good value."
As researcher and author Neil Howe – the guy who coined the term "millennial" many years ago – wrote in his Demography Unplugged newsletter on January 12 about the survey...
Young consumers also care a great deal about how others view companies. 25% are more likely to buy a brand they know is "trendy," and 29% are more likely to buy a brand their friends own... Millennials and Xers rank these preferences lower.
[But] to be sure, the positive brand attribute that all three generations most agree on is that it should offer good value. Roughly two-thirds of all generations agree here, without much difference between generations.
Translation: More than a company's stance on laws, carbon emissions, or anything else, people are most compelled to buy something if they want it and feel like it's being offered at a fair price. As Howe continued...
If there is something else all three generations agree on, it's that very few say they care if the brand "shares your political beliefs." This is consistent with other surveys.
No matter how partisan and polarized Americans become when they have to vote or mobilize for or against a political party, we don't like to think that we care about the party itself... We like to think that we care first about our "values" – whatever those are – and then vote for the party likely to align themselves with them.
Point being, good old apolitical supply and demand will win out in the long run...
People need to buy things... Let us not forget 70% of the American economy stems from consumer spending.
The world's best businesses – companies that continue to focus on creating and selling high-quality products that people like – will continue to thrive, no matter what political or generational forces influence the world in the decades ahead.
Businesses that can afford to charge what they want – because their products are so in demand, or even addictive – will continue to be well-positioned to make profits and pass on the rewards to shareholders with dividends or buybacks...
It might sound obvious, but somehow today this idea feels contrarian...
Take the ongoing brouhaha with audio-streaming service Spotify Technology (SPOT) and its popular podcast host Joe Rogan having "controversial" guests...
A groundswell of headlines recently made it seem like he was about to be "canceled" for spreading COVID-19 disinformation...
And the controversy started to have business consequences... Last week, musician Neil Young demanded his music be removed from Spotify saying the company "can have Rogan or Young. Not both." Spotify agreed to remove Young's music and keep Rogan.
Over the weekend, Prince Harry and Meghan Markle, the runaway British royals who have an exclusive contract with Spotify, said they shared "concerns" with the company about the topic of pandemic information. But the company, again, is backing Rogan.
Why? His show was the most-listened to podcast on Spotify worldwide in 2021... And Spotify paid Rogan $100 million in 2020 to give the streaming service exclusive rights to his show, which he had been hosting on YouTube, owned by Google-parent company Alphabet (GOOGL).
Spotify's stock price has taken a hit since November alongside many other tech names, but it seemed to fall especially amid the Rogan fallout... dropping 13% last week. But it didn't take much for a reversal.
Shares erased all of last week's losses in one day today, with the stock popping a whopping 13%... Last night, Rogan also issued a statement on the matter. He said he would try to be more careful selecting guests and said more in a video posted to Instagram...
I'm not trying to promote misinformation, I'm not trying to be controversial... I've never tried to do anything with this podcast other than to just talk to people.
Agree with him, disagree with him, or never heard of him, Rogan – who used to host Fear Factor on NBC many years ago – talks to people well. And from a business standpoint, that works for Spotify.
Most people simply don't care about the politics...
As the survey we quoted earlier demonstrates, when thinking about products, people care mostly if it offers "value"... Spotify's product does. As of the third quarter of 2021, the platform had roughly 400 million monthly active users.
Our flagship Stansberry's Investment Advisory team recommended shares of the company about three years ago... and subscribers booked a 62% return, or 24% annualized gain, upon selling shares when they hit a stop loss in May 2021.
Spotify has become the go-to service for podcasts, making many people easily forget the Apple (AAPL) audio platform ever existed... Remember it's the reason "podcasts" are called podcasts in the first place... because they originally played on the iPod.
Spotify's app and web player are high quality, easy to use, and offer a rich library of podcasts, artists, and playlists for anything you might want... from baby music to workout jams.
The company sells paid subscriptions and has a free, ad-supported model, to which Rogan and other artists and podcasters attract eyeballs, earbuds, and attention. Spotify makes money when someone listens to a Rogan podcast.
Add it all up, and Spotify has a user-friendly business that can also collect data and sell ads and information the same way Google or Facebook do... Those are part of two of the largest companies in the world... Alphabet and Meta Platforms (FB).
In the third quarter of 2021, Spotify grew total monthly active users 19% year over year ("YOY") and grew profits by 37%, boosted by growing its revenue from its ad-supported model by 75% YOY.
It grew its free cash flow – a favorite metric of ours – by 191% from the previous quarter... generating $99 million that it could use to do what it wants, like buy back shares and reward stockholders by making the remaining shares more valuable.
The company announced in August that it plans to repurchase up to $1 billion worth of its shares through 2026...
I'd be surprised if Spotify's business suffered materially because of these short-term headlines... They've already decided to add "content advisory" warnings to anything that discusses COVID-19, which should keep the wolves at bay until people forget completely about it.
If incidents like these keep happening over time, it's a different story, but for now, I don't think hundreds of millions of people are collectively ending their Spotify subscriptions or deleting the app from their phones... I know I didn't.
Let me be clear: I am not recommending you buy shares of Spotify today. I will leave our formal and fully researched recommendations up to our editors and analysts, but I bring up the company mostly as an example... to show that "value" will never go out of style.
This is why owning shares of high-quality businesses that sell and monetize in-demand products – be they podcasts or chocolate bars made by Hershey (HSY) – should be central in any long-term investing strategy in the stock market.
There is great value in providing, well... value. The idea sounds simple, and it is. But you'd be surprised how many people overlook or ignore the basics... and don't understand what people really want, no matter the generation.
New 52-week highs (as of 1/28/22): AbbVie (ABBV), CVS Health (CVS), Enstar (ESGR), McCormick (MKC), and United States Commodity Index Fund (USCI).
In today's mailbag, thoughts on the following comments about risk from Dr. David "Doc" Eifrig's Masters Series essay on Sunday. Doc wrote, in part...
Keep your bets properly sized for the risk that they entail.
If you want to speculate in cryptos, go ahead. Non-fungible tokens could work, too. You could even bet that the Detroit Pistons will win this year's NBA title at 1,000-to-1 odds if you'd like. Any or all of these wagers could pay off.
But you must remember one valuable detail if you do that... Bet small!
Your position size needs to be commensurate with the risk and likelihood of the payoff.
"The 1,000-to-one odds is about right for my Detroit Pistons. I'm thinking the Detroit Lions odds for next year's Super Bowl might be even higher!" – Paid-up subscriber Michael K.
Do you have a question or comment? As always, e-mail us at feedback@stansberryresearch.com.
All the best,
Corey McLaughlin
Baltimore, Maryland
January 31, 2022