🏆 Top articles of 2022
🏆 Top articles of 2022
The 10 most popular posts of the year
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Today, we revisit 10 of the most popular articles published by App Economy Insights in 2022, with key takeaways.
The list below includes App Economy Insights articles across two services:
How They Make Money (via Substack):
I launched How They Make Money in 2022 to share free articles weekly. This newsletter breaks down how businesses make money. Readers can support my work to get extra perks (exclusive articles and reports).
App Economy Portfolio (via Seeking Alpha):
I run a popular premium research service called App Economy Portfolio. That's where I share my entire stock portfolio and my trades in real-time. I share quarterly updates on 70+ companies with my ratings (BUY, SELL or HOLD) in a private chat room. I also write stock deep dives and discuss investing mindset.
It’s the last article of 2022, so it’s time to reflect.
It’s been an incredible year for App Economy Insights:
More than 175,000 followers & subscribers across all our channels (up 4X).
More than 25 million views between articles and social posts (up 4X).
However, 2022 has been a rocky year for investors, to say the least.
The S&P 500 is the index tracking the stock performance of 500 large companies listed on stock exchanges in the US. It fell more than 20% in 2022.
How bad is that?
2022 was the 7th worst year for stocks in the past century. 👀
Such an awful performance happened only twice in the past 20 years (stocks fell 38% in 2008 and 23% in 2002). And before that? You’d have to go back to 1974 and 1937.
The common phrase is that the stock market goes up like an escalator (slowly and gradually) and down like an elevator (less often, but much faster).
The S&P benchmark returned an average 10% annual return from 1926 to 2021, and 74% of the years were positive. However, stocks are extremely volatile. They make us put up with years like 2022 every decade or so.
The stock market is often referred to as forward-looking because it is based on the expectations of future economic performance. So the general consensus is that business fundamentals will be ugly in 2023, with a potential recession looming.
However, as best put by Peter Lynch:
"This one is different," is the doomsayer's litany, and, in fact, every recession is different, but that doesn't mean it's going to ruin us.
Unless you own a crystal ball and can predict the future (I can’t), you need a sustainable and repeatable process over many years and be prepared for a rollercoaster ride.
To benefit from the amazing wealth-creation machine that is the stock market, you need to make a lifelong commitment to it. It involves riding the ups and downs without interruption and letting the power of compound interest do its magic.
Before we start 2023, here are 10 of the most popular posts by App Economy Insights in 2022 across Substack and Seeking Alpha.
1. 📱 Apple: Warren’s favorite — Link
Key takeaways:
Switchers to iPhones grew double digits in Q4 FY22.
There are 900 million paid subscriptions across all Services.
Apple continues to outpace the rest of the smartphone industry.
More ads are coming to the App Store, and possibly Apple Maps.
Services are only 20% of overall revenue but 33% of overall gross profit.
2. 📉 How to handle big losers — Link
With a calamitous first half of the year, I discussed in August how to handle big losing positions in a portfolio. The article remains relevant today.
Key takeaways:
The odds of having a big loser are high: 2 out of 5 stocks are money-losing investments, and 64% of stocks underperform the index.
Even legendary investors are wrong about half of the time. The slugging percentage (the average gain on your winning investments) matters more than your batting average (the percentage of your selection beating the market).
A broken stock is not a broken business: Stocks tend to fall in unison with the rest of their category. It says nothing about the business in the short term.
Re-assessing the thesis: I cover six steps to challenge our own beliefs, including working through pre-mortem scenarios (assuming success or failure, and working backward to imagine what may have caused it).
Market pullbacks only appear in hindsight: It’s toxic to rewrite history or claim we knew what would happen. If you invest at regular intervals over decades, you will invest at market tops and bottoms. You have to learn to live with that.
Losers don't have to be big: I follow many safeguards to protect my portfolio. For example, I have a max allocation per stock. It means I cannot invest more in a company once I reach a certain amount. That way, I’m not tempted to add too much to a losing position just because it appears cheap. As a result, no single stock can keep me awake at night, even if it’s down 90%.
Buying or selling is a false dichotomy: As best put by Charlie Munger:
“The big money is not in the buying and selling... but in the waiting.”
3. ☁️ Amazon: Day 1 — Link
Key takeaways:
Amazon Web Services (AWS) — the world’s largest cloud platform — was only 8% of overall revenue, but it was 216% of the overall operating profit.
AWS revenue growth was in the mid-20% by the end of Q3, showing a big slowdown. Management is helping customers optimize their costs.
Advertising remains a bright spot and could improve margins.
Subscription is a tailwind with Prime expanding its content and benefits.
Third-party sellers (better margin) represented 58% of total paid units sold.
4. 📊 Earnings visuals (11/2022) — Link
November was a busy month, with 54 companies covered in our earnings report. 👀
5. ♾️ Meta: Virtual insanity — Link
Key takeaways:
Mark Zuckerberg can afford to push on his metaverse bet without putting the company's future at risk.
However, in a challenging environment for the adtech industry, combined with a strong dollar and widening Reality Labs losses, the margin of safety could dwindle quickly.
Reviewing Meta’s trailing financials can be very misguiding. The operating cash flow just collapsed by 31% Y/Y in Q3.
Even if successful, Reality Labs could need years before the segment becomes cash-flow accretive.
Messaging apps are still under-monetized, particularly Whatsapp.
6. 💻 Microsoft: Cloudy with a chance of AI — Link
Key takeaways:
Azure saw some softness due to moderation in consumption growth (similar to AWS).
Gaming has faced headwinds in 2022 with normalizing behavior post-COVID. More than 20 million people have used Game Pass to stream games to date.
Management expects a significant slowdown with weak PC demand and tough comparisons in the near term.
LinkedIn has 875 million members and 150 million subscriptions to newsletters.
From low-code to Azure ML, AI-enabled tools are critical to Microsoft’s success.
7. 🛖 Airbnb: Off the beaten path — Link
Key takeaways:
Despite the macro uncertainty, guest demand remained strong.
Long-term stays remain at 20% of nights booked, illustrating a unique model.
The operating margin reached a new high of 42%.
Sales & marketing expenses were only 13% of revenue in Q3, defying the rest of the travel industry.
Airbnb is in a solid financial position, with $3 billion in free cash flow in the past year and a net cash position of $7 billion.
8. 🐭 Disney: Creative destruction — Link
Key takeaways:
The creative destruction is visible. Direct-to-consumer (DTC) growth is more than offset by the decay in other media segments.
The ARPU (Average Revenue per User) declined following aggressive discounts and bundles.
Parks & Experiences rebounded with favorable COVID comps. However, if we compare Parks, Experiences, and Products to Q4 FY19 (pre-COVID), it grew only +12% Y/3Y, not even keeping up with inflation.
FY23 guidance is a mixed bag. It implies continued strong demand for parks but a slowdown in DTC growth due to tough comparisons and a price hike for Disney+.
We now know Q4 FY22 was the last quarter for CEO Bob Chapek (replaced by returning CEO Bob Iger in November).
9. 🎧 Spotify: Let the music play — Link
Key takeaways:
Spotify recently reached 479 million monthly average users (+18% Y/Y).
Paid conversion is exceptionally high, at 43% of the audience, or 202 million.
Ad revenue growth has been soft (+3% Y/Y fx neutral) in a challenging environment for advertisers.
The crux of the Spotify bull case is that advertising will turn the company into a highly profitable business (mainly through podcasts). While it makes sense on paper, the company needs to improve its AI and targeting. I pointed out how I was served ads in languages I don’t speak, illustrating the lack of first-party data.
Signing exclusive podcast content could lead to a race to the bottom (against big tech), and it could lead to negative cash flow margins (a la Netflix when the company shifted to original content).
10. 🚘 Tesla: Bigger than Apple? — Link
Key takeaways:
Elon Musk said that Full Self Driving (FSD) is safe enough to have no one in the car by the end of next year (we’ll have to see).
The company is very lean, well-funded, and demonstrates operating leverage.
Tesla needs to continue to deliver on its growth story to justify its valuation.
Some shareholders might wonder to what extent other Musk-owned companies like SpaceX or Twitter could divert his attention away from Tesla.
The crux of the Tesla bull case is around its execution as a technology company (as opposed to a car manufacturer). They want to address some of the world’s most challenging problems (self-driving transportation, productivity).
Bonus:
💡 10 investing secrets I wish I knew when I started — Link
I often describe investing as a "journey" requiring its fair share of trials and failures.
The investing journey requires us to experiment, learn painful (costly) lessons, and ultimately change for the better (hopefully).
In this article, I covered ten essential investing secrets I have gathered over the years. Some might appear semi-controversial because they challenge the way many people think.
The Power Law governs returns: 80% of your returns will come from 20% of your investments. So cherish your winners and hold on to them.
Volatility is the cost of admission: As Morgan Housel puts it, volatility is “a feature, not a bug.”
Expanding our time horizon reduces risk: Just like in a video game, if there is such a thing as an "easy mode" in investing, it's for those who choose to invest over a longer time frame without predicting market tops and bottoms.
Only fundamentals matter in the long run: The stock price is determined by the earnings per share. If the business does well over time, the stock price will follow. That’s why I’m a business-focused investor.
There is always a reason to sell: Success is not linear. Even the best-performing businesses in the world have a series of bad quarters at some point.
Macro predictions should be ignored: Half of them are wrong, and there is no way to know which ones.
Your behavior drives your returns: Staying the course is critical to your investing success. So building a portfolio that matches your predisposition is paramount. It’s called portfolio suitability.
IPO means It's Probably Overpriced: Recognize when the odds are against you.
Timing the market is futile: You need to be lucky on both the exit and the re-entry. Your odds of success are very thin, with significant upswings and downswings usually happening in tandem.
Successful investing takes time: Until you have been investing for 20+ years, the amount you save probably matters more than your returns. Patience is your most precious virtue. As best put by American economist Paul Samuelson:
“Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.”
Plans for 2023
You can expect How They Make Money to expand in 2023:
More business breakdowns.
Portfolio review of high-profile investors.
Demystification of complex financial concepts.
How governments or non-profits make money.
Comparisons of companies in the same industry.
and a lot more!
Thank you for tagging along!
I wish you and your family a wonderful 2023. ✨
That’s it for today!
Stay healthy and invest on!
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Disclosure: I am long AAPL, ABNB, AMZN, META, in the App Economy Portfolio. I share my ratings (BUY, SELL or HOLD) with App Economy Portfolio members here.