Youtube daily Oct 31 2018

Today Apple unveiled its leaner and meaner technology at an event in the Big Apple, New

York City.

There's a thinner iPad and lighter MacBook Air, both which Apple says are have improved

security.

You may recall the company unveiled its new iPhone last month.

But not everybody is lining up to buy the new products tech giants have to offer, including

smart phones.

Mollye Barrows, contributor for America's Lawyer, joins us now to explain.

Hey Mollye, are some people getting sort of fed up with all the new cell phones out there

or are they still just as popular as ever?

You know they're pretty popular, Bart, I don't think the demand for smartphones is gonna

go away necessarily, but it's the demand for the newer ones.

There was a time when every time a new smartphone came on the market, people were lining up,

they were flying off the shelves.

Well that's not the case anymore.

According to a new report from The Wall Street Journal, people are holding onto their older

cell phones a lot longer, which of course has caused a little consternation among carriers,

but the main reason, and there are several, seems to be tied to expense.

Some of these phones are pretty pricey, costing as much as $1,000.00, and also these contracts

that they used to have, it used to be that the price of your phone was tied to your monthly

service bill, now it's separate.

So once the phone's paid off people like to see that lower monthly service bill and they're

not in any hurry to bump up their monthly costs again.

You're also seeing a similar trend in the U.K., replacement phone sales have been down

for the past five years.

Then of course you had just last week, which you reported on Boom Bust, the Italian competition

authority fined both Samsung and Apple more than five and a half million dollars or the

equivalent thereof because they were basically pushing updates, software updates for their

phones on their customers and once they did it, their phones were moving slower and as

a result they were getting new phones, and it turns out through an investigation that

that was the intention of these new updates, that they were designed to slow these phones

down, to be like, hey go get a new phone, sorry you're old one's not working anymore.

Those sorts of things aren't gonna help annual sluggish sales, but its still continuing to

be pretty popular.

People aren't giving them up, they're just not buying the new ones as quickly, Bart.

Mollye, my brother-in-law has a 2003 phone, I don't know if it's a Nokia or something

and he only keeps five or six addresses in it, or not addresses, phone numbers in it

and when it gets slow-

Yes.

He never accepts an update on the phone, never ever, so he wouldn't get one of those makes

it slower things, but when the phone does slow down, he just hits a factory reset.

He loves this phone.

The worst case is he's got to put five, six numbers in all the time.

I know there are some people who are getting fed up with this.

I mean, given everything that you've said, Mollye, what does this mean for the future

of smartphones?

Well it's actually pretty interesting.

People are buying them, like we said, they're just not as desperate to upgrade because a

lot of the new features that are coming out, even though you have Apple which came out

with their iPhone last week, and they're saying hey it's got all these special features, people

are like, ah whatever, sorta like your relative who's saying, you know I have my basic uses

for my phone, I don't need all these fancy upgrades, you're not gonna entice me to get

a higher bill and trade in my other phone for a new one that's more expensive.

But it's interesting, there's a ... just this year, the Mobile World Congress met and they're

talking about the future of smartphones and they're basically saying demand is gonna continue

to be huge and a big part of it is because they're making these additional technology

features, which are slowly evolving.

Everything from, get this, we've heard a little bit about facial recognition.

They're gonna try to make that standard I believe, but they want flexible smartphones.

Maybe even possibly foldable, so they don't break as easily.

New ways to supply power, so you're not stuck constantly hunting for a place to charge it,

and some more virtual features, a variety of those which includes virtual images.

Instead of just taking a picture, you'll be able to look at, almost like you're in a store

looking at what's on a book shelf or a grocery store shelf.

So, with all that in mind, they expect there's gonna be a consistent demand, and by 2021

the International Data Corporation says, worldwide smart phone shipments are gonna be increasing

by 1.7 billion phones.

So, everybody wants one.

All right, everybody wants one, Mollye, but I just keep saying, to me, all of the apps

that they load on there and apps that you can't-

Right.

Get rid of and all of the updates-

You're right.

It was one thing back in the day where you did just want some phone numbers, etc. and

maybe a couple of addresses, so now if there's so much there that it's just overwhelming

and to me it just seems like maybe there's gonna be a lot of folks, or maybe I'm just

too old school, that say enough is enough and let's just stick with something.

Boy, Mollye, so helpful for you to go through this.

Basic.

Thank you so much.

Mollye Barrows, contributor of America's Lawyer.

Thanks Mollye.

All right.

Thanks, Bart.

For more infomation >> Investigation Finds Smartphone Updates Designed To Increase New Device Sales - Duration: 4:44.

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UpWork Stock: Everything Investors Need to Know - Duration: 8:12.

Dylan Lewis: Today, we are going to be talking about a company that helps people live that lifestyle.

We're gonna be talking about Upwork.

This is a company that just went public, and it's actually a company that The Fool uses quite a bit.

We use it to manage our contractor relationships, both in editorial and with some of our tech projects.

It's a pretty incredible platform.

Why don't we get into how this company makes money and what they do to kick things off?

Brian Feroldi: For people that don't know, Upwork is the largest online freelance marketplace in the world.

They bring together freelancers who are looking for gigs and employers who have projects or

jobs that they want to do, and they basically match them up.

It's kind of a win-win situation for both sides.

If you're a freelancer and you have skills, you can go to the site, log in, and browse

through jobs that might interest you, and you can apply for those jobs.

You can do that as a side hustle to earn extra money in addition to your regular job, or,

if you have enough volume, you can basically do that full time.

For employers, it's a way for them to instantly access a pool of talent.

Upwork claims that they have basically 70 categories of work and they have 5,000 different

skills within those categories.

If they need instant expertise with anything like graphic design, accounting, data analytics,

search engine optimization, and dozens more, they can quickly find an expert that they need and hire them.

In fact, Upwork likes to say that the average time to go from posting a job to having somebody

starting work is about 23 hours. That is lightning fast.

Lewis: So much of the value prop of this business is connecting businesses with qualified individuals.

They really tout the fact that so many of the freelancers on their platform either hold

baseline degrees, advanced degrees, very special skill sets.

You have employers that are looking at people that are qualified to do the type of work

that they are looking for, which is huge.

They say that a lot of the jobs, a lot of the things that become available for workers

to work on, there are qualified candidates coming in within the first 24 hours on Upwork,

which is a testament to how much quicker this allows companies to get things done, compared

to a month-long type situation that you often have when you are hiring for a full time job

at HQ for a lot of companies. Feroldi: That's exactly right.

That's the big benefit that they bring.

To give you a sense of their scale, they have 375,000 freelancers and 475,000 paying clients

on the platform today. That list of clients includes about 30% of the Fortune 500.

These guys are the top dog in the space.

Lewis: Brian, one of the reasons that I wanted to have you on this show was, you put together

an awesome breakdown of Upwork. That's available on fool.com.

It's a great rundown of what this company does and it's very methodical.

I particularly loved it, though, because it gives a great look at how to break down a

business and whether it's investment-worthy. We are going to essentially walk through that on the show.

If listeners would rather read any of this, you can just e-mail the show and we'll make

sure to send it out to you. Just getting that out of the way.

The first criteria in your checklist for breaking down these businesses is a look at the books.

What do you see when you're looking at Upwork?

Feroldi: Like you said, I have a checklist that I've developed over the years.

Anytime I come across a business that I'm interested in, I basically just go top to

bottom on my checklist and look at everything that I can find about a business so that

I can come up with a ranking system to compare it to other businesses.

As you said, one of the first things I start with is financials.

When I look at Upwork's financials, as you said, they just went public.

During their IPO, they raised about $187 million before fees.

About $95 million of that went into the company's bank account.

About $78 million of those proceeds went to insiders who were looking for an exit.

The company did not get 100% of the proceeds.

Having said that, they did use the money that they raised to retire some of their debt.

After the IPO, their balance sheet has $112 million dollars in cash and their debt load

was reduced to just $24 million.

They have about $80-90 billion in net cash on the balance sheet, which is great to see.

Lewis: Yeah, this is not a company that is over levered or sitting on way too much debt

that would be unsustainable for them to make payments on.

They have a nice cash balance there that should be able to cover that for the time being.

This is not a profitable company, though, at the time.

Feroldi: Correct. Upwork is purposely choosing to reinvest as aggressively as they possibly can into

building out their business. That's a decision that I think is the smart move to make.

Operating a platform business like this, scale is everything.

Freelancers are naturally going to want to go to the place that has the most job listings.

Conversely, businesses are going to want to post jobs on the site that has the most freelancers available.

Upwork is purposely operating at a loss so that they can grow as quickly as possible.

Having said that, their loss for the first six months of 2018 was about $7 million.

However, over the same time period, they generated about $8 million in free cash flow.

Their bank balance went up by $8 million, so they are technically unprofitable.

However, that doesn't concern me at all because they have such a huge cash balance on their

balance sheet after the IPO and because they're producing free cash flow.

Lewis: That small loss came on somewhere in the neighborhood of $220- 230 million,

something like that, for the first half of 2018. In 2017,

they did $203 million, which is up over 20% year over year.

When you are looking at a company, and the pitch is, "This is going to be a high-growth company.

There are a lot of tailwinds that this company can ride.

They're not profitable, though," what you really want to check is, long-term, is the profit in place?

Can you envision this company eventually turning a profit and really switching the engine there?

And I think yes for this company. They are not losing money because this is operationally a bad business.

In fact, their gross margins are great.

It's really just that they are choosing to invest now to grow the business,

and then they'll worry about profitability a little bit later.

Feroldi: That's exactly right. To the margins, their gross margin over the last six months was about 67%.

That's something that I want to see.

Ideally, you'd like to see that their gross margin grows over time as the business gets bigger,

and they can scale more and more fixed costs over a larger base of business.

That's something that I look for. Their gross margin has not increased over the past year.

I'm not terribly concerned about that yet. But that is an area that I'm going to watch going forward.

Lewis: Got it. The second criteria in your checklist is moat.

This is something you hinted at a little bit before when you were talking about the draws of the platform.

This is a business that really benefits from the network effect.

Feroldi: Yeah, exactly. Broadly speaking, there are four different types of moats.

I won't make an investment in a company unless I believe that the company has a durable competitive

advantage over its competition.

I think that you can safely say that Upwork, because it is the biggest platform for freelancers,

does benefit from the network effect, like I said before.

They have the most freelancers and they have the most clients.

Both of those want to be where the biggest pool of applicants is.

Right now, I do think it's safe to say that Upwork is benefiting from the network effect.

You could also make an argument that the brand name Upwork is valuable.

You could also make an argument that their clients do have some switching costs if they

wanted to move to a different platform once they get verified and set up.

But by and large, the long-term competitive advantage is the size of the network.

For more infomation >> UpWork Stock: Everything Investors Need to Know - Duration: 8:12.

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