Did You Miss What Microsoft Had to Say?

In this podcast, Motley Fool analyst Bill Mann discusses:

• Microsoft (MSFT 0.46%) having tough comps, with the cloud division shining once again.
• Alphabet (GOOG 1.43%) (GOOGL 1.42%) proving its resilience.
• Chipotle (CMG 0.53%) continuing to raise prices and profits.

Motley Fool producer Ricky Mulvey talks with Motley Fool research analyst Jack Caporal about The Motley Fool's latest research into crypto scams and how you can avoid them.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on July 27, 2022.

Chris Hill: Big tech bounces back and not a moment too soon. Motley Fool Money starts now. I'm Chris Hill joined by Motley Fool's Senior Analyst, Bill Mann. Thanks for being here.

Bill Mann: Hey Chris, how're you?

Chris Hill: There's green in the market, so I'm doing better than I was yesterday.

Bill Mann: Also still nice to see you in the studio.

Chris Hill: Yes.

Bill Mann: This is happening, isn't it?

Chris Hill: It is actually happening. Let's start with Microsoft because Microsoft's fourth-quarter revenue came in just shy of $52 billion. Not as high as Wall Street wanted. It was the slowest revenue growth in two years. However, the Cloud growth for Microsoft looked pretty strong, their guidance was upbeat. They basically reiterated the guidance they put out three months ago for the new fiscal year. So guidance tramps results, right?

Bill Mann: Well, kind of. I think some of this has to do with the fact, and we're going to talk about another company that this fits also, that Microsoft's, the news that they came out with even though they missed. We don't care that much about analysts' estimates whether they hit or miss, but it does in fact impact the stock. 2021 turns out to have been really hard comps for a lot of companies. Particularly because people were still inside. We were all pretty nervous, and we solved that by shopping. Microsoft's results, not only were they great, they were bonkers in certain ways. Five years ago, Microsoft's total revenues were $97 billion.

Chris Hill: For the entire fiscal year?

Bill Mann: Yeah. Now, for the quarter, if you take the quarter just for Cloud and put it on a run rate, which basically means you take the number, multiply it by four, it's $100 billion. They're making more in Cloud than they made in everything five years ago. Once again, we're talking about Microsoft, which five years ago was 12 years removed from the antitrust lawsuits in the US and Europe. This company is absolutely positively massive. Maybe that's not a great insight, but it is growing rather quickly in areas that really didn't exist as revenue streams for it even a couple of years ago.

Chris Hill: When the larger conversation around the economy, the potential for a recession, inflation, all of those things continues to take place, what should we take from Microsoft maintaining their guidance of three months ago? For they're looking out over the next 12 months and saying, yes, everything we believed three months ago, factoring, inflation, rate hikes, increased talk of recession, we're still of the same mindset in terms of what we see for this business. What should we take from that?

Bill Mann: I think it's important for companies, in terms of operators, to recognize that this may have been the hardest operating environment that companies have ever operated. Certainly in the last 50 years, given the fact that it seemed like the economy around the world was coming to a grinding halt in 2020. For better or for worse, our central banks around the world responded to that, which meant that they responded by making sure that growth came as quickly as possible. We were worried about deflation. Now we're worried about inflation is here. I think with a lot of companies, particularly ones that are huge like Microsoft, you have to keep in mind when you see a company that's operating in the way that they have, the environment that we're operating in is absolutely unprecedented.

Chris Hill: Let's move on to Alphabet. On last Friday's show, Jason Moser and Matt Argersinger and I were talking about the mindset going into this earning season. I'm paraphrasing what Matt said, but he basically said, "I feel like the message from Wall Street is just don't disappoint us too much."

Bill Mann: That's right. [laughs]. It's OK. That's right.

Chris Hill: Just don't disappoint us too much. I feel like that's what Alphabet has done with second-quarter profits and revenue coming in lower than expected. It's really across the board. It's their mainstay business, it's YouTube. But shares up four or five percent because essentially this is Alphabet saying, hey, we're not Snap.

Bill Mann: Yes, that's right again.

Chris Hill: Had last week with Snap, we're not them.

Bill Mann: That's on them, pal. That's on them, that's not on us. There's something really important to keep in mind when you're talking about Google, and you're talking about their results. Obviously, it was 16 percent growth in constant currency. But I don't know if you've heard about this, Chris, but the US dollar is up against almost every currency in the world a lot. If you take that currency factor out of the equation, they really did well. Importantly, their revenues for advertising, which is the area that blues snap out of the water because their revenues went down so much. Beat expectations at $56.3 versus 56.1, which you do that math backwards, that means they beat by $200 billion. This is a great business, and it is showing that in a very difficult environment and the companies that compete with it that are lower-quality are suffering in a way that Google or Alphabet is not.

Chris Hill: When Alphabet CEO, Sundar Pichai, talks about, as he did on the call, about this is a time where they are going to be focusing more, they're going to be looking more intensely at all of their business units, do you read anything into that with respect to the parts of Alphabet's business that doesn't really make much money? If you're part of the other bets division, are you nervous when you hear that or do you think, no this is just a little bit of extra focus and a little bit of extra color from the CEO?

Bill Mann: No, I think one of the things that's really important is that Alphabet came out a couple of weeks ago and said that they were pulling back on hiring basically. Their employee headcount quarter-over-quarter, going through the second quarter of 2022 was 10,000 additional employees. If you do the math backwards a little bit, there's about $300,000 in expenses per new employee per year. If you just ratchet that back, and this is not an entirely fair way to think about, it, but it's not a bad way to think about it, that's about six billion dollars in additional free cash flow that may fall to the bottom line. Alphabet hasn't said that they're cutting anywhere. They're simply removing some of the bets that weren't working out, they're simply ramping back a little bit in terms of hiring. I wouldn't be nervous at all if I was anywhere within that big weighted blanket that is Alphabet.

Chris Hill: Chipotle second-quarter revenue was a little lower than expected, but their profits were strong because amazingly, Chipotle continues to raise prices and it continues to work. When I saw this, I thought back to earlier this year when they were talking about how they had been raising prices up to that point. Brian Niccol, the CEO, saying, yeah we're going to continue to do this. I think I may have said on this show, this is going to be interesting to watch because I'm not sure how much higher they can go. Clearly they can go higher and it's working. The stock is up 15 percent, Bill.

Bill Mann: There was an amazing number in this report, and it is this, Chipotle's food cost as a percentage of sales dropped despite inflation, which just shows how much power they have had to go to their board and raise prices, and they've stuck. Now, at some point, they're going to come up on a natural limit. But the fact is they weren't raising prices at least 100 percent as a response to inflation, they were raising prices because they felt like they had capacity to go to the board and increase that way.

Chris Hill: I'm going to make the mistake of comparing Chipotle, which is a business that makes burritos to Apple, [laughs] which is a business that makes iPhone.

Bill Mann: One of which has a name like a food. It fits.

Chris Hill: But in the earlier days, you go back a decade, people would ask and it was a reasonable question at the time. Can Apple continue to do this? Can they continue to keep because the law of pricing when it came to consumer technology for the longest time was prices come down over time. Flat-screen TVs which used to cost a $1,000 now cost just a couple of $100. How much longer can Chipotle keep this up? Because if you'd asked me earlier this year, are they going to be able to do this in the summer? I would have bet no, and I would have been wrong.

Bill Mann: Our friend from Technomic, David Henkes made a really interesting point about Chipotle's earnings. It was observational versus anything else. It was that Chipotle is on a list of other businesses that are struggling with their in-store experience because of the lack of labor availability. I think if there is a risk for Chipotle, like being able to keep doing it, it's because they are, and it maybe it's not their fault because labor has been really tight, that they do have some labor costs that I think are latent at this point that fully staffed storage would, in fact, will increase that cost in a way that's not being measured now.

Chris Hill: Great point. Bill Mann, always great talking to you. Thanks for being here.

Bill Mann: Thank you, Chris. ...

Chris Hill: The cryptocurrency market may be crashing, but we are trending toward a record year for crypto scams. Ricky Mulvey caught up with Jack Caporal to talk about The Motley Fool's latest research on investment fraud and how you can avoid these scams.

Ricky Mulvey: 2022 will be a record year for investment fraud, and a lot of that money is going to come from cryptocurrencies joining us to talk about investment fraud and The Motley Fools' research on crypto scams is Jack Caporal analysts for the Ascent. Thanks for being here, Jack.

Jack Caporal: Thanks for having me.

Ricky Mulvey: What did you learn? What did you guys research on crypto and investment scams, what did you find out?

Jack Caporal: We used the combination of data from the FTC and survey data that we collected. As you said, we found out that 2022 is going to be a record year for losses both in terms of investment scams and then crypto scams in particular, most of which are a subset of investment scams and the numbers are pretty mind-boggling, especially in relation to the past five years. In the first quarter of 2022 alone, we're looking at a total of $672 million in losses from investment scams. 2017 for the entire year, there were $50 million lost and investment scams. In the first quarter of 2022, loan losses have already totalled more than a third of the total losses in 2021. In a quarter, you've done a third of all of the losses last year.

Ricky Mulvey: Quarters do it a third. That's way too much math for my head, Jack.

Jack Caporal: Basically, we're on track to potentially be like have 50 percent more losses from investments scams overall this year compared to last year. We're probably looking at a range of maybe two billion in losses reported. That's definitely an undercount. Our survey shows that not everybody reports losses. Then in terms of crypto fraud alone, 2021 there's about $680 million reported loss as a result of crypto fraud. We're going to smash through that this year in the first-quarter of 2022, there have been $329 million reported lost nearly half in a quarter.

Ricky Mulvey: I want to clarify something. You said 2018, there's about $12 million lost in investment fraud that was cryptocurrency fraud in 2018 where 12 million was lost. That's investment fraud has been around for a very long time. We're just now seeing a new flavour of it. What are these cryptocurrency scams looking like?

Jack Caporal: Crypto scams are just a new type of wrinkle in old scams. Instead of being contacted by phone or online, text message about some great investment opportunity or an investment manager that can take your money and guarantee you a 25 percent return in six months. They're just saying we can do that but with crypto. We're like a crypto fund manager. Or you'll see it as a play on a romance scam where you'll be tricked into online relationship and your alleged partner will say, hey, I've got a great investment opportunity, it's in crypto. Says how you can send me some crypto. Obviously, the victim never gets that money back. We're seeing scams of old use crypto as an investment opportunity and also as a method of payment or transaction.

Ricky Mulvey: It's just, it's like a little cayenne pepper into an old recipe where you got essentially that the classic romance scam, which is someone essentially what catfishing is someone else than saying, hey, I need money for X, Y, Z or hey, here's a cool, which by the way, I am shocked that these romance scam partners are not just shutting down the conversation once they start hearing about crypto. That doesn't seem like a good lead-in if you were trying to meet people online.

Jack Caporal: The way that I think about the romance scam thing in particular and also the investments scams where my experience, I'll get like a WhatsApp from a random number and they'll be like, hey, I'm a Bitcoin fund manager, click on this link and you can send I'll set you up with these crazy returns. The way I think about it is there are very few people in my life that I would be comfortable sending a significant amount of money to manage. Right. If I don't know you in-person and haven't known you for a very long time and trust you, there's like a zero percent chance I'm going to send you any money, any crypto, whatever. It's a huge red flag. If you get that type of message, you should really think twice before you send money or crypto to someone, to some number who you've never met in-person, or you just know online.

Ricky Mulvey: One interesting part of your research as you looked specifically at how much money people are losing on all these types of scams. I thought it was interesting that the investment fraudsters are netting an average of 575 bucks per scam. Meanwhile, the government impostors, I assume those are the folks calling me with information about my social security benefit, are only netting $40. What are the investment fraudsters doing right? It seems like that's a very little amount of money to get from a scam.

Jack Caporal: I think there are probably two things going on there. First is it's more attractive to send money or crypto to someone who says we can double that versus you owe me money. They're going to drag your feet on the person who says you owe me x amount of money or you need to pay this amount to get your social security unlocked or whatever, but the reward is enticing. The investment opportunity is enticing. Then second, this is another just like gut feeling. There are pretty hefty legal ramifications for impersonating government officials, and I think that type of risk probably makes that type of scam less attractive. It's much riskier proposition to impersonate a government official than it is to say I'm an alleged investment fund manager.

Ricky Mulvey: What's social media's role in the rise of these crypto scams? It does seem like I'm seeing a lot of those account takeovers on someone's Instagram where surprise now they're showing a crypto, but actually it's a hacker who got into their account and now they're running a scam.

Jack Caporal: Yeah. The data on this is pretty wild. In 2018, 11 percent of scams that use crypto as a payment method started on social media. More recently, that number has jumped up to nearly 50 percent. Scammers operating in the crypto space are leaning heavily on social media, and it's working. I think it's working for a couple of reasons. First is there's an insane amount of personal information that people put on social media that scammers can use to personalize scams or target certain individuals that they think are more likely to fall for the scam. It's way easier to gather information on potential targets over social media. Then second, I think there's so much FOMO originates from social media. You see folks who have allegedly made big gains on crypto over the past few years, and social media, you're just one or two DMs away from trying to get in on that game. It makes sense that see these big success stories, you're already on social media. Someone reaches out to you through social media. It's all in the same space.

Ricky Mulvey: To your point about the success stories, that was the story for maybe the past couple of years. Right now, the crypto market is down precipitously. Yet, according to your research, scams are still going to skyrocket. What do you think gives there where you have this very down market? You would think there's less interest in crypto and yet scams are going to skyrocket this year.

Jack Caporal: Yeah. I think it's two things. I think there's still quite a bit of that FOMO that I was talking about. 2020, the latter half, and 2021 were pretty insane unprecedented runs, especially for the crypto market. I think people still want to get it on that. If you're like a real believer in crypto, the thought is that it's going to go back up eventually and this is just a period where there's a downturn, but the true believers still think that it's going to go to the moon and all that. Then second, I don't know how much the average scam victim is taking into consideration the longer-term downturn trend. I think if someone approaches to you and they say, send us some crypto, we can manage it, I get you 25 percent in two months. That sounds pretty good. It might even sound better given that the crypto market is in a downturn. The idea of just making a quick buck is so attractive and history shows that it could be possible, so why not give it a shot.

Ricky Mulvey: One of the things you've found is that the average age or the most likely age to get caught by a crypto scam was 30-39. I thought that was particularly interesting. That it's millennials, especially getting hit with these people who you would think are more Internet savvy. For someone listening right now, you might think you're too good to get scammed, but it's always good to know the common signs. What are some of the common signs you would say of a crypto scam getting thrown at you?

Jack Caporal: Yeah. I mean, for any scam that's investment-related, if the opportunity seems too good to be true, it's usually a scam. No one can guarantee you outrageous returns over an extremely short period of time. It's just not going to happen. Do your own research. At The Fool, we said don't invest in something if you don't understand it or haven't heard of it. If you're approached by someone who's hocking token that's new to you, just throw that token in Google with scam or review or complaint next to it, and if it is a scam, it'll be very clear. Then if you're approached about investment opportunity that requires you to pay by crypto, by wire transfer, or by gift card, that's definitely a scam. Those three methods of payment once you've sent the money is extremely difficult, if not impossible, to get it back, and that's the reason why those are the most common forms of transactions in scams.

Ricky Mulvey: Full disclosure. I own a little bit of Solana on a little bit of Ethereum. Has your research on crypto scams affected the way you invest and do you invest in any cryptocurrencies personally?

Jack Caporal: I don't own any crypto. I wouldn't say that my research hasn't affected my thought process behind investing in crypto. Doesn't fit my risk profile, and I'd like to see more regulation in the space on par with how traditional equities are regulated. The research for me is just crystallized that this is a space where more education is needed. I think 47 percent of the folks that we surveyed said that financial institutions in the government and have done a poor or very poor job educating them about investment on crypto scams, and it's unfortunate because the amount of money that's being lost by just average Americans of all ages is really mind-boggling.

Ricky Mulvey: But not everybody. In separate research, you guys found that 62 percent of high net worth crypto owners say they're actually more interested in investigate cryptocurrency because of high-profile scams, something you did back in November, and that's a conversation for another time. Hey Jack Caporal, he's an Analyst for The Ascent to The Motley Fool, appreciate your time.

Jack Caporal: Thanks for having me.

Chris Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.