Let's see, we've got good spend, we've got bad spend, and we have no spend.
Everyone talks about how much a company is making. But we never talk about how much a company is spending.
This quarter is rapidly devolving into what a company has to do to grow and if it has to spend too much without a quick reward it's bad spend, unless it's spend that makes a company more sustainable and ecofriendly.
How about we start with good spend. One of the S&P's leaders today is Mondelez (MDLZ) , the snack company. Why is it flying? Because it has much better than expected growth and it didn't have to spend a lot of money to get it. In fact, the only spend I really could make out was money toward local media in international markets to take share from other snack companies. It's a brilliant strategy but what I liked even more is that they said that soon they could be self-funding, meaning they could spend without it really impacting the bottom line of each division. That's the holy grail because Mondelez would be able to continue to take share in a relentless way. This stock's a buy next time we get some real bad news with the coronavirus.
Then there's Microsoft (MSFT) . The company had a remarkable quarter although with increased margins and plus 60% growth in the cloud.
What spend stuck out to me? The billion fund that Microsoft created to accelerate carbon reduction and renewables. This money, plus the company's decision to be carbon negative in 2030, puts Microsoft in the vanguard of all the ESG money that's flooding into the market. The company's CEO, Satya Nadella, said shareholders have given him permission to do so because the company's doing so well. It his another all-time high today. Good spend.
Then there's Tesla (TSLA) . It can spend like made. We don't care. Because he is spending not to advertise, not to dominate the category, but to build plants to satisfy customers as Tesla already owns the category.
What does the market consider bad spend? First is the money UPS (UPS) is spending to continue to satisfy and speed up delivery to smaller and medium size businesses including weekend delivery. It's an expensive foray but I think it could bring dividends as early as 2021 while it might also be something that keeps Amazon (AMZN) happy.
I think the spend is necessary if UPS can land a knockout blow to the hobbled FedEx (FDX) . When a competitor is down you don't let up, you step on the jugular, you go all toto - which is turn off the oxygen. That's exactly what UPS is doing.
Finally there is the spend that Facebook (FB) is committed to, a spend that seems like it is actually going to constrain earnings as it gets its house in order to meet all sorts of regulator hurdles and programs that safeguard privacy. I have always felt that Facebook should spend to build up its ties with small and medium sized business that use Facebook, particularly Instagram to build business. That would be good spend. This kind of spend? Well, the stock sure tells the story.