2026-11-01 23:03:11
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🔥 The October report is here!
All the key earnings visuals from the past month in one place.
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Inside the October report:
🚀 IPO Deep Dives: Anthropic, SpaceX.
☁️ Mega-Caps: Alphabet, Microsoft, Amazon, Meta, Tesla.
🧩 Chips: TSMC, ASML, Samsung, SK hynix, Intel, KLA, Lam, Sandisk.
💊 Healthcare: Lilly, J&J, UNH, Abbott, AbbVie, AstraZeneca.
💳 Fintech: Amex, Visa, Mastercard, PayPal, Robinhood, SoFi.
💰 Wall Street: Morgan Stanley, Goldman Sachs, BlackRock.
🏦 Banks: JPMorgan, BofA, Wells Fargo, Citigroup, Schwab.
💻 Software: IBM, SAP, ServiceNow, Fortinet, AppFolio.
✈️ Travel: American, Delta, Southwest, United, Hilton.
🍿 Entertainment: Netflix, Comcast, Spotify, Roblox.
🛡️ Aerospace: Boeing, Airbus, Lockheed Martin.
☕ Restaurants: Starbucks, Chipotle, Domino’s.
📡 Telecom: AT&T, T-Mobile, Verizon.
🚗 Autos: Rivian, GM, Ford, Stellantis.
Plus Nike, Accenture, Reddit, Pinterest, Etsy, Coca-Cola, PepsiCo, Mondelez, Hershey, UPS, P&G, GE Vernova, Tilray, Intuitive, and more.
2026-10-31 22:02:33
Welcome to the Saturday PRO edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
📊 Monthly reports: 200+ companies visualized.
📩 Tuesday articles: Exclusive deep dives and insights.
📚 Access to our archive: Hundreds of business breakdowns.
📩 Saturday PRO reports: Timely insights on the latest earnings.
One notable omission from today’s roundup is Amazon. Its Q3 results deserve a standalone deep dive, so we’re saving that analysis for Tuesday’s issue.
Today at a glance:
💻 Microsoft: Azure Breaks Away
💊 Eli Lilly: Volume Machine
📱 Samsung: Sold Out Through 2027
🧠 SK hynix: Sold Out Through 2029
💳 Visa: Cost of Growth
💳 Mastercard: Services Take the Lead
🏭 Intel: AI Can’t Save PCs
🥤 Coca-Cola: Global Divide
🦠 Merck: Keytruda Bridge
🧬 AstraZeneca: Funding the Pipeline
⚡ GE Vernova: Pricing Power Arrives
🔬 KLA: $200 Billion Market
📡 Verizon: Subscriber Turnaround
💾 Sandisk: AI Storage Supercycle
🧑💻 ServiceNow: The AI Paradox
📶 T-Mobile US: Pricing Over Growth
🛩️ Boeing: Recovery Delayed
🛩️ Airbus: Q4 Crunch
🔒 Fortinet: Service Gap
☕️ Starbucks: Turnaround Holds
💡 Cadence: Agentic Moat
📦 UPS: Margin Test
🪶 Robinhood: Prediction Engine
🍪 Mondelez: Volume Takes Over
🍫 Hershey: Volume Problem
🏨 Hilton: AI Lodging Boom
📦 FedEx: Network Payoff
💳 PayPal: Standalone Test
📈 Coinbase: Diversification Takes Hold
👾 Roblox: Retention Payoff
🌯 Chipotle: Traffic Holds Up
👽 Reddit: The Google Problem
🏦 SoFi: Profit Inflection
⚡ Rivian: R2 Takes Over
📌 Pinterest: Advertiser Problem
📦 Etsy: Buyers Are Back
🦷 Align: A New Chapter
🩺 Teladoc: Insurance Gap
Microsoft’s Q1 FY27 revenue (September quarter) rose 19% Y/Y to $92.3 billion ($1.5 billion beat), while adjusted EPS grew 18% to $4.89 ($0.17 beat).
Azure revenue accelerated to 48% growth, from 43% in Q4, comfortably exceeding expectations. Shares jumped as strong cloud demand and better-than-expected cash generation eased concerns about AI spending.
Microsoft also introduced a new reporting structure, combining its cloud and enterprise software businesses into two main segments:
Agents and Infra, which grew 25% to $76.8 billion.
Devices and Consumer declined 3% to $15.5 billion.
Microsoft revamped its reporting segments just two years ago, so another reshuffle feels like overkill. The visual below breaks down revenue by product and service instead, which I find more comprehensive and insightful.
The AI investment cycle is beginning to show tangible returns:
Azure reached $33.2 billion in revenue, with growth expected to accelerate further to 49%–50% in Q2. Demand continues to exceed available capacity.
OpenAI-related commercial revenue reached $10 billion, representing roughly 11% of Microsoft’s total revenue, up from about 7% in FY26. This strengthens AI monetization but also highlights customer concentration.
Microsoft 365 commercial cloud grew 18%, adding another AI monetization source through Copilot. Meanwhile, customers using consumption-based Copilot billing grew more than 75%.
Cash CapEx more than doubled to $39.4 billion, while total capital spending, including leases, reached $45.2 billion. Operating cash flow grew 29% to $58 billion. As a result, free cash flow fell 27% to $18.6 billion. Microsoft expects CapEx to exceed $50 billion next quarter and accelerate further in early calendar 2027.
Commercial RPO remained enormous at $677 billion, up 73% Y/Y but roughly flat sequentially. That backlog provides visibility, though OpenAI likely still accounts for a substantial portion.
Microsoft is showing that AI infrastructure spending can drive accelerating revenue and strong profitability at the same time. The challenge is sustaining those returns as spending rises further, particularly if demand from OpenAI or other large AI customers becomes less predictable.
Eli Lilly’s Q3 revenue surged 39% Y/Y to $24.4 billion ($1.8 billion beat), while adjusted EPS grew 7% to $7.48 ($0.87 beat). Volume increased 53%, more than offsetting a 15% decline in realized prices. Shares jumped more than 6% as Lilly raised its annual revenue outlook by an impressive $5.5 billion.
Mounjaro and Zepbound generated a combined $16.1 billion, representing 66% of total revenue:
Mounjaro grew 65% to $10.7 billion, with international sales surging 93% to $5.7 billion despite lower prices, particularly in China.
Zepbound grew 49% to $5.35 billion, benefiting from expanded US insurance coverage. More than 500,000 patients have enrolled in the new Medicare GLP-1 Bridge program, with roughly 70% starting on a Lilly medicine.
Foundayo reached $184 million, up from $98 million in Q2 but below the ~$231 million consensus. Lilly’s oral obesity pill is struggling to match the early adoption of Novo Nordisk’s Wegovy pill.
The quarter also benefited from $900 million in favorable adjustments and milestone payments, including $410 million from Jardiance that will not recur. Meanwhile, retatrutide delivered positive head-to-head Phase 3 results against Ozempic, strengthening Lilly’s next-generation obesity pipeline ahead of a planned Q1 2027 FDA filing.
Lilly raised FY26 revenue guidance to $91–92 billion (from $85–87 billion), while underlying EPS expectations increased by $4.07 at the midpoint. However, $4.57 in acquired R&D charges more than offset that improvement, leaving reported adjusted EPS guidance slightly lower at $35.00–36.00.
Lilly’s GLP-1 franchise continues to grow despite falling prices, with expanding coverage creating a larger addressable market. The challenge is sustaining extraordinary volume growth while building a second generation of treatments that can defend its market leadership.
Samsung’s Q3 revenue surged 127% Y/Y to a record ₩195.3 trillion (~$146 billion), while operating profit climbed nearly ninefold to ₩107.4 trillion (~$80 billion), another record. Operating margin reached an extraordinary 55%, up from 52% in Q2. Yet shares fell more than 4% as earnings missed elevated expectations and investors questioned how much of the AI windfall would reach shareholders.
The divergence between Samsung’s businesses is becoming extreme:
Semiconductor revenue rose 15% Q/Q to ₩147.1 trillion, while operating profit climbed to ₩106.5 trillion. The chip division now accounts for 99% of Samsung’s total operating profit.
HBM4 sales more than tripled Q/Q, as Samsung gains ground in next-generation AI memory. Management says 2027 capacity is already fully booked, with supply shortages expected to persist through 2028.
The consumer electronics business lost ₩0.8 trillion as soaring memory prices squeezed profitability in smartphones, TVs, and appliances. The same shortage fueling record semiconductor profits is hurting Samsung’s other businesses.
2026-10-30 20:02:23
Welcome to the Free edition of How They Make Money.
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In case you missed it:
“Ah shit, here we go again.”
Google shares plunged 13% after earnings, and you might be feeling déjà vu. Investors are worried about the future of Search. Again.
But this time, the concern is more tangible. Queries are growing at their fastest pace in five years, yet revenue growth is slowing, with AI Mode monetizing at lower rates.
Meanwhile, Cloud revenue doubled and margins expanded.
AI is simultaneously Alphabet’s biggest growth engine and a threat to its core ad business.
Can the booming AI business outgrow the disruption it’s creating elsewhere?
Here’s what stood out this quarter.
Today at a glance:
Alphabet Q3 FY26.
From models to monetization.
Key insights from the earnings call.
What to watch moving forward.
Alphabet recorded an $8.7 billion loss on equity investments, largely reflecting the decline in SpaceX’s stock price during the quarter. That’s a sharp reversal from the $99 billion paper gain in Q2, demonstrating how Alphabet’s growing investment portfolio can distort its reported earnings.
Revenue grew 25% Y/Y to $127.6 billion ($0.3 billion miss), while GAAP EPS fell 26% to $2.12 ($0.89 miss). The EPS shortfall was largely driven by the investment losses.
🔎 Advertising: $82.0 billion (+11%).
Search: $63.4 billion (+12%).
YouTube ads: $11.2 billion (+9%).
Network: $7.5 billion (+1%).
📱 Subscriptions, platforms, and devices: $14.3 billion (+11%).
☁️ Cloud: $30.7 billion (+103%).
Margin trends:
Gross margin: 60% (flat Y/Y).
Operating margin: 32% (+1pp Y/Y).
Services (Advertising & Other): 41% (+2pp Y/Y).
Cloud: 36% (+13pp Y/Y).
Operating cash flow declined 13% Y/Y to $42.3 billion, weighed down by a one-time $5.2 billion European Commission fine and inventory buildup ahead of TPU system sales.
Free cash flow deteriorated to a $9.1 billion outflow, compared to $24.6 billion generated a year ago and a $5.9 billion outflow in Q2.
CapEx reached a record $51.4 billion, up from $44.9 billion in Q2. Management maintained its FY26 outlook of ~$200 billion and reiterated that spending will increase significantly in 2027.
Cash, cash equivalents, and marketable securities: $265 billion.
Long-term debt: $125 billion.
🔎 Search growth slows despite record engagement: Search revenue grew 12% Y/Y, down from 17% in Q2 and 19% in Q1, missing expectations despite the fastest query growth in five years. FX was the biggest driver of the slowdown, but lower AI Mode monetization also contributed.
☁️ Cloud doubles: Cloud revenue accelerated to 103% growth, from 82% in Q2, while operating income more than tripled to $11.1 billion. The operating margin held at a record 36%. TPU system sales were a meaningful contributor, though management said underlying Cloud growth remained exceptionally strong without them.
📦 The backlog keeps climbing: Cloud backlog rose to $561 billion, up 9% sequentially. More than 55% is expected to convert into revenue within 24 months, up from just over 50% last quarter. The backlog offers extraordinary revenue visibility, though the returns on fulfilling those commitments remain uncertain.
📈 Cloud’s margin pressure is delayed: Management had warned that third-party computing capacity would weigh on Q3 profitability. But the rented capacity only came online near quarter-end, leaving margins largely unaffected. Usage will ramp in Q4, bringing the expected pressure. That makes the next quarter a more meaningful test of Cloud’s underlying economics.
🤖 Gemini reaches one billion users: The Gemini app crossed one billion users, while the first-party APIs processed nearly 32 billion tokens per minute, up from 22 billion in Q2. Enterprise adoption is also expanding, with more than 100 million AI knowledge-work seats sold. Consumption continues to grow rapidly, though the economics of serving that demand are difficult to assess.
🎬 YouTube’s World Cup boost fades: YouTube advertising growth slowed to 9%, from 13% in Q2, as the exceptional World Cup comparisons normalized. Meanwhile, YouTube Music and Premium surpassed 150 million subscribers globally, including trials. Subscriptions continue growing faster than advertising, providing a more recurring revenue stream.
🚕 Other Bets losses widen: Revenue reached $0.4 billion, while operating losses expanded to $2.0 billion, from $1.4 billion a year ago. Alphabet continues funding Waymo’s expansion, but the business remains a significant drag on consolidated profitability.
💡 Takeaway: Cloud’s acceleration validates AI infrastructure demand, but Alphabet’s financial profile is changing. More growth now comes from capital-intensive infrastructure and hardware sales, while AI is reshaping the economics of Search. The challenge is sustaining those strong margins as infrastructure spending and TPU system sales continue scaling.
Gemini 4 Argon rolled out broadly on October 13, targeting coding, cybersecurity, and complex professional workflows. Two weeks later, Alphabet unveiled Gemini 4 Carbon, which now leads the updated Artificial Analysis Intelligence Index with a score of 59. Access remains limited to selected cybersecurity partners, with broader availability pending.
Last quarter, Sundar Pichai acknowledged that the company needed to improve in agentic coding. Now management says Argon has helped internal engineering teams ship 35% more code with 30% fewer errors. The improvement is encouraging, although internal productivity gains don’t necessarily translate into commercial success.
Alphabet also introduced a universal Gemini work agent that automates research, coding, and workflows across enterprise applications and can access third-party models.
The company is competing on two fronts: building frontier models and owning the interface businesses use to access them. The second may prove more defensible if models become increasingly interchangeable.
Alphabet's custom AI chips are becoming a commercial business, with management expecting TPU system sales to ramp significantly in 2027.
Distribution is expanding. Oracle will become the first competing hyperscaler to offer TPUs in 2027, while Blackstone-backed Crux AI provides another channel for customers seeking dedicated computing capacity.
Anthropic’s newly released S-1 disclosed $114.5 billion in compute commitments to Alphabet through 2033, alongside $161.2 billion in TPU equipment leases with Broadcom.
But there’s a trade-off. Hardware sales require inventory investment before delivery and may carry different margins than recurring cloud services. TPUs are becoming a major business, but their economics remain largely opaque.
Universal Cart launched in the US on October 15, allowing consumers to save products across Search and Gemini, track prices, find promotions, and check out through Google Pay or participating merchants.
The broader development is the Universal Commerce Protocol (UCP), which now enables direct checkout for hundreds of thousands of brands. Meanwhile, advertising is expanding within AI Mode, including new multi-turn formats in the US.
The implications extend beyond shopping convenience. AI assistants increasingly promise to compare products, recommend purchases, and complete transactions on behalf of consumers. That could disrupt the traditional model of monetizing commercial searches through advertising clicks.
Universal Cart keeps Alphabet involved beyond the initial search, potentially preserving valuable purchasing intent even as consumers move toward agent-driven shopping.
The next challenge is monetizing actions as effectively as clicks.
Check out the earnings call transcript on Fiscal.ai here.
The Q3 call shifted from the model war to the economics of AI. Analysts pressed management on Search monetization, the working-capital demands of TPU sales, and the opportunity to supply infrastructure to competitors.
On why Search growth slowed despite record query growth:
“First, there was FX. It was the single largest driver of Search deceleration relative to Q2. […] Also to the next part of your question, it’s worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode.”
Schindler separates temporary factors behind the slowdown from a longer-term monetization challenge. The expansion of AI Mode advertising into international markets and multi-turn formats will test whether growing engagement can eventually translate into comparable revenue.
On the cash flow implications of selling TPU systems:
“When we sign an agreement with a customer to sell TPU systems, once we sign that agreement you’ll first see that showing up in our backlog. Then we start building inventory. […] As we start delivering and billing customers for these TPU systems, then you see cash coming in. It’s not the traditional kind of CapEx […], but rather a different cycle of cash flow generation.”
This distinction matters for interpreting Alphabet’s negative free cash flow. TPU system sales consume working capital before delivery, while owned data centers require long-lived CapEx. Both require upfront cash, but their payback profiles differ significantly.
On selling AI infrastructure to competitors:
“We have long viewed what we build as categories of things which we build as products, and then there are categories of things which we build as platforms. You need to have a clear view on which is which. […] Similarly, we view our TPU systems as an important platform we are building.”
Treating TPUs as a platform turns rivals into potential customers. Broader adoption could improve unit economics through scale, giving Alphabet another way to participate in the AI boom. The company can profit from the AI model race even when someone else’s model wins.
Gemini’s share of global GenAI website traffic nearly doubled over the past year, reaching 25% in September, according to Similarweb. But its share peaked around 27% in April and has since slipped, while ChatGPT recovered modestly.
Website traffic captures only part of AI adoption and excludes mobile apps and APIs. Still, the plateau raises an interesting question. Can Gemini 4’s improved capabilities reignite share gains, or has distribution already delivered most of the easy wins?
Alphabet is expanding advertising within AI Mode, but it remains uncertain whether those queries can eventually monetize as effectively as traditional Search.
More queries create additional opportunities for advertisers, but AI-generated responses also require more computing power. The critical test is whether incremental advertising revenue can offset any erosion in Search’s existing economics.
Meta faced a similar challenge when Reels began cannibalizing higher-monetizing Feed and Stories. In 2022, the shift created a $500 million quarterly revenue headwind. A year later, Reels was no longer a drag on advertising revenue, even though monetization per minute remained lower.
OpenAI is seeking a $1.25 trillion valuation, while Anthropic’s IPO could value it over $1.5 trillion. Investors are assigning extraordinary value to frontier AI platforms, despite their enormous infrastructure commitments.
Yet Alphabet competes with both at the model frontier, while owning proprietary TPUs, a booming Cloud business, and distribution to billions of users. And it’s trading at roughly 16x EBITDA.
Of course, the infrastructure bill is enormous. Alphabet disclosed up to $924 billion in future purchase commitments, alongside another $152 billion in pre-commencement leases and other obligations. But its AI rivals face similarly staggering commitments, without Alphabet’s established cash-generating businesses.
Why does Wall Street celebrate frontier AI at trillion-dollar valuations, yet assign a conventional multiple when those capabilities sit inside Alphabet?
That’s it for today!
Happy investing!
Disclosure: I am long AAPL, AMD, AMZN, GOOG, META, MSFT, NFLX, NVDA, and TSLA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author’s Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization’s views.
2026-10-27 20:04:12
Welcome to the Premium edition of How They Make Money.
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In case you missed it:
The company behind Claude is growing faster than we’ve ever seen in software.
Founded only five years ago, it’s already challenging the world’s largest technology companies for the future of AI.
Anthropic finally filed its S-1, revealing a business that generated $16.3 billion in revenue in the first half of 2026, up 14x year-over-year. The Financial Times reported that revenue reached $16.8 billion in Q3 alone.
The investment thesis comes down to three things:
Claude is winning enterprise customers.
AI agents are expanding what software can do.
Compute costs could make or break the economics.
Anthropic may be building one of the most valuable software platforms of the next decade.
But staying at the frontier of AI comes at an unprecedented cost.
I dug through 300+ pages of its S-1 to unpack the business, the financials, and the risks, supported by our signature visuals. By the end, you’ll understand how Anthropic makes money, what its extraordinary growth actually costs, and how to interpret its valuation when the IPO arrives.
Today at a glance:
Overview
Business model
Financial highlights
Risks & challenges
Management
Use of proceeds
Future outlook
Personal take
Anthropic started as an AI safety research lab. Five years later, it’s one of the leading challengers to OpenAI and Google, with Claude increasingly embedded in the operations of some of the world’s largest companies.
Founded in 2021 by seven co-founders, including former OpenAI researchers, Anthropic was built around the belief that increasingly powerful AI systems must also become safer and more reliable. That mission remains central to its identity, but it has also become a commercial selling point: Enterprises need AI they can trust with sensitive data and business-critical work.
Headquarters: San Francisco, California
Founded: 2021 by Dario and Daniela Amodei and five other co-founders
Ticker: ANT (proposed Nasdaq listing)
Mission: Responsible development and maintenance of advanced AI for the long-term benefit of humanity
Structure: Public benefit corporation (PBC)
The easiest way to understand Anthropic’s ambition is to look beyond the chatbot.
Most people discovered generative AI through a chat window: Ask a question, get an answer. Anthropic believes that’s just the beginning.
Its S-1 introduces the concept of “Virtual Collaborators” — AI systems capable of planning, reasoning, navigating software, and completing complex tasks autonomously. Instead of merely suggesting what a human should do next, Claude can increasingly execute the work itself.
Claude Code demonstrated this shift for software developers, moving from code suggestions to writing, testing, and debugging entire projects. Claude Cowork extends the same approach to other knowledge workers, handling files, applications, and multi-step workflows.
The ambition is to transform Claude from a tool people consult into a colleague they delegate work to.
Anthropic had approximately 20 customers spending at least $100K annually at the end of 2023. That figure reached roughly 200 in 2024, 1,500 in 2025, and more than 11,900 by September 2026.
And these aren’t just small experiments:
More than 1,900 customers generated at least $1 million in trailing annual revenue.
Approximately 250 customers generated at least $10 million.
Every Fortune 10 company and more than half of the Fortune 500 were customers spending at least $100,000 annually.
These are actual revenue thresholds. Anthropic has moved remarkably quickly from winning individual developers to becoming a meaningful vendor inside the world’s largest enterprises.
The business is also becoming less concentrated. Anthropic’s top five customers accounted for 21% of Q3 revenue, down from 36% in Q1, even as spending from each of those major customers hit new highs.
But one S-1 metric stands out: 900% net revenue retention.
Understanding what drives that expansion, whether it can last, and how much of it Anthropic can turn into profits is central to the investment case.
2026-10-24 22:00:57
Welcome to the Saturday PRO edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
📊 Monthly reports: 200+ companies visualized.
📩 Tuesday articles: Exclusive deep dives and insights.
📚 Access to our archive: Hundreds of business breakdowns.
📩 Saturday PRO reports: Timely insights on the latest earnings.
Today at a glance:
🕶️ Meta: AI Bet Takes Shape
🚖 Tesla: $5 Billion CapEx Reversal
🧴 P&G: Volume Returns
🧠 Lam Research: AI's Storage Problem
☁️ SAP: Backlog Redemption
⚙️ Texas Instruments: Industrial Breaks Out
🌐 IBM: Mainframe Comeback
💳 Amex: Premium Trade-Off
🧬 Abbott: A Leaner Future
📞 AT&T: Cost of Convergence
🦾 Intuitive Surgical: Cost of Expansion
🛰️ Lockheed Martin: $292 Billion Backlog
🎧 Spotify: Agentic Advantage
💼 Moody’s: AI Financing Boom
🚗 GM: Cash Over Growth
🛩️ United: Pricing Power Meets Its Limits
🛩️ Southwest: Fuel Squeeze
🦅 American Airlines: Fuel Trap
🏡 Appfolio: AI Goes to Work
Meta’s Q3 revenue rose 26% Y/Y to a record $64.6 billion ($1.2 billion beat), while adjusted EPS reached $7.40 ($0.60 beat). GAAP EPS of $3.83 included a $10 billion legal charge tied to its settlement of youth-safety lawsuits.
Shares fell 7% as investors looked past strong advertising growth and encouraging early traction for Muse, and focused instead on mounting AI spending and deteriorating free cash flow.
Ad revenue grew 26% Y/Y to $63.1 billion, with impressions up 10% and average price per ad rising 14%. That’s a shift from Q2, when impression growth (14%) outpaced pricing growth (12%). Meta is increasingly monetizing its existing audience more effectively rather than simply showing more ads. Family daily active people reached 3.64 billion (+3% Y/Y), while AI-powered recommendations and targeting continued to support engagement and conversion rates.
But the bigger story is Muse becoming a tangible business opportunity just six weeks after launch:
More than 10 million users have tried Muse in the US and Canada, with approximately 25% returning on a given day. That’s promising early engagement, although retention and monetization remain unproven at scale.
Shopping is the leading use case, with more than 25% of users engaging in commerce activities. Meta sees opportunities in subscriptions, transaction fees, and eventually advertising, extending its reach from influencing purchases to facilitating them.
Muse Wonder, Meta’s first family of frontier models, is already powering new capabilities. Management expects to improve Muse’s compute efficiency by more than 10x over the next year, an important step toward making the agent economically viable.
Zuck believes Muse could eventually serve billions of people and generate more revenue per user than Meta’s existing social platforms. The ambition is enormous, but so are the obstacles. Amazon and other websites have blocked Muse from shopping on their platforms, illustrating why Meta is developing a Personal Agent Protocol to enable structured interactions between agents and businesses. Winning the interface doesn’t automatically guarantee access to the transaction.
Meanwhile, the AI bill keeps growing:
Free cash flow turned negative for the first time, at -$2.1 billion, compared with $784 million in Q2 and $10.6 billion a year ago. Capital expenditures reached $34.9 billion, up from $31.1 billion in Q2.
Meta raised the floor of FY26 CapEx guidance again, to $135–145 billion (from $130–145 billion). Even excluding the legal charge, operating margin declined to roughly 35% from 40% a year ago as AI infrastructure depreciation and R&D spending increased.
Reality Labs lost another $4.1 billion. Management now expects annual losses of $18–19 billion for the segment in FY26 and approximately $15 billion in 2027 as resources shift toward AI.
Meta also announced a new class of non-voting shares, effectively creating a 2-for-1 stock split in January 2027. The Class C shares could fund acquisitions, employee compensation, or future capital raises without diluting Zuck’s voting control. It’s a notable move for a company that historically funded its ambitions through advertising cash flow.
More legal risks loom. Beyond the $10 billion Q3 charge, a New Mexico judge ordered Meta to pay $25 billion over alleged consumer deception related to privacy and content moderation. Meta plans to appeal, and the judgment is separate from the previously announced multistate settlement.
Meta guided Q4 revenue to $73–76 billion (midpoint above consensus) and raised FY26 expense guidance to $175–179 billion, incorporating the legal charge. Management still expects FY26 operating income, excluding that charge, to exceed last year’s level.
Takeaway: Meta’s ad business remains remarkably strong, and Muse offers a more tangible path toward a new revenue stream. But AI spending now exceeds operating cash flow. Can Muse become a meaningful business before infrastructure costs put further pressure on margins? Early adoption is encouraging, but monetization remains unproven.
Tesla’s Q3 offered a mixed picture. Automotive margins recovered, and FSD adoption accelerated. But vehicle sales remain stagnant, while heavy investment in AI and robotics continues to weigh on profitability.
The biggest surprise? Tesla returned to positive free cash flow after burning cash last quarter, helped by a significant slowdown in capital expenditures.
Revenue was flat Y/Y at $28.1 billion ($0.2 billion miss).
Gross margin reached 20% (+2pp Y/Y and +3pp Q/Q).
Operating margin fell to 3% (-3pp Y/Y).
Non-GAAP EPS was $0.48 ($0.03 beat).
Operating cash flow reached $6.3 billion, while free cash flow fell 62% Y/Y to $1.5 billion as CapEx declined Q/Q from $5.8 billion to $4.7 billion.
Tesla lowered its FY26 CapEx outlook from more than $25 billion to ~$20 billion. With $13 billion spent through September, that implies roughly $7 billion in Q4, still a meaningful acceleration from Q3.
Management expects spending to grow beyond 2026 as Tesla expands Robotaxi, Optimus, AI compute, solar, and semiconductor manufacturing. Tesla ended Q3 with $45.5 billion in cash and investments, plus about $30 billion in borrowing capacity it does not expect to draw on this year.
Now, here are the main insights from the call:
2026-10-23 20:03:42
Welcome to the Free edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
Netflix has proved that streaming can generate enormous profits. But can it sustain growth when viewers have more entertainment choices than ever?
Management admits recent execution has been hit or miss, and the company is replacing longtime content chief Bela Bajaria with former Disney executive Peter Rice, signaling a renewed push for watercooler hits.
The stock price has dropped more than 45% over the past year, and the company recently announced its largest round of layoffs since 2022, eliminating roughly 1,000 positions.
Netflix is on track to surpass $50 billion in annual revenue, generates billions in free cash flow, and remains the world's largest paid streaming platform. Yet its share of US television viewing has plateaued, while YouTube and other competitors continue to gain share on TV.
Alongside its core programming, Netflix is experimenting with new ways to capture consumer attention. Live sports, video podcasts, creator content, and partnerships with traditional broadcasters offer new ways to attract and retain subscribers.
Today at a glance:
🍿 Netflix Q3 FY26
📈 YouTube pulls away
📺 Not all viewing hours are equal
💬 Salesforce buys Braze for $5.7B
Revenue +12% Y/Y to $12.9 billion (in line).
Operating margin 35% (+6pp Y/Y).
EPS +49% Y/Y to $0.87 ($0.05 beat).
Cash and short-term investments: $8.2 billion.
Debt: $15.3 billion.
Revenue +13% to $51.1 billion (slightly below the prior midpoint).
Operating margin 31.5% (+2pp Y/Y, unchanged).
Free cash flow ~$12.0 billion (down from $12.5 billion).
📉 Growth keeps slowing: Revenue growth decelerated to 12%, its slowest pace in nearly three years, with Q4 guidance implying roughly the same rate. Operating margin surged 6 points to 35%, although the beat reflected favorable expense timing. Management reiterated its 31.5% full-year margin target despite restructuring costs in Q4. Subscription revenue is outperforming expectations, supported by price increases, membership growth, and improving churn. But margin expansion alone may no longer satisfy investors.
📢 Ads miss the mark: Netflix cut its 2026 advertising revenue forecast from ~$3 billion to ~$2.7 billion, blaming a slower-than-expected rollout of ad products. That represents a 10% cut, even though ad revenue is still expected to grow over 80% Y/Y. Netflix continues to expand programmatic access and measurement capabilities, with plans to introduce its ad tier in 15 additional countries in 2027. The opportunity remains substantial, but future growth will depend on technical execution and sustained viewer engagement.
🌍 Becoming an entertainment aggregator: Netflix is expanding beyond its own productions by integrating third-party programming directly into its service. Its partnership with French broadcaster TF1 is already generating incremental viewing, while a new Disney licensing agreement brings titles such as Ice Age to the platform. Management is open to additional integrations, potentially including subscriptions to other streaming services. The irony is that Disney is using Netflix to build awareness for its own upcoming theatrical releases. Even Hollywood's largest studios recognize Netflix's distribution value. Netflix may not always have the best original programming, but its distribution advantage is difficult to replicate. That could help the company expand its entertainment offering without continually increasing content spending.
💰 Record buybacks continue: Netflix repurchased another $4.8 billion of stock, its largest quarterly buyback ever, leaving $22.3 billion in remaining authorization. Free cash flow rose to $2.9 billion from $2.7 billion a year ago. Management reduced its full-year FCF forecast from $12.5 billion to about $12 billion, mainly because a real estate transaction is expected to close in Q4. Netflix continues to generate substantial cash and return it to shareholders, even as revenue growth moderates.
Streaming keeps taking share from traditional television, but Netflix isn’t keeping pace. According to Nielsen, streaming reached a record 49.0% of US TV viewing in July, up from 47.3% a year ago.
Netflix captured 7.8% of US TV time, down from 8.8% a year earlier. YouTube, meanwhile, reached a record 14.2%, widening its lead over Netflix from 4.6 to 6.4 percentage points in just 12 months. Americans now spend nearly twice as much time watching YouTube as Netflix on their TVs. And that doesn't even include YouTube TV.
Netflix had an unusually strong summer last year, when Squid Game and other hits dominated the charts. Monthly viewing fluctuates with release schedules, and Nielsen only measures US television screens (excluding mobile and laptop viewing). Still, the trend highlights how difficult it is to sustain engagement against free services and platforms built around seemingly endless creator content.
Netflix has acknowledged the challenge. Co-CEO Ted Sarandos said that engagement wasn’t growing as quickly as he wanted. New content chief Peter Rice previously oversaw Fox Searchlight, which delivered hits like Slumdog Millionaire, before taking senior leadership roles at Disney. His appointment suggests Netflix wants to improve its ability to produce breakout US hits that can travel internationally.
Yet Netflix’s own engagement data paints a more nuanced picture. Worldwide viewing hours rose 2% in H1 2026, up from 1.5% growth in 2025. Netflix hasn’t disclosed Q3 viewing hours, but management reported improving churn globally and in the US. Engagement continued to grow even as Netflix’s share of US television viewing declined. In short, subscriber retention remains healthy, but subscriber loyalty masks a gradual erosion of its share of screen time.
Netflix argues that viewing hours alone don’t capture the value of its programming. Its live events illustrate why. Live programming represents just over 5% of Netflix’s content spending but only about 1% of viewing hours. Yet live events drove six of its 10 biggest sign-up days over the past five years.
That makes sports potentially more valuable than their modest engagement contribution suggests. A major NFL game or boxing match can attract new subscribers, create premium advertising inventory, and generate cultural relevance. The economics depend less on how long viewers watch than on whether they remain subscribers afterward.
Netflix is also exploring lower-cost ways to become a daily entertainment destination. Its partnership with French broadcaster TF1 achieved the broadcaster’s 18-month audience targets in less than three weeks. TF1+ daily audiences increased 16% during launch week, while Netflix reported growing viewing hours for TF1 programming. The early results are encouraging, although they don’t yet establish how much incremental value Netflix captures.
Video podcasts and creator-led programming offer another way to expand viewing occasions without the production costs of premium scripted entertainment. Netflix is even experimenting with theatrical releases. Greta Gerwig’s upcoming Narnia adaptation will receive a wide theatrical release before arriving on the service, testing whether the big screen can help build a streaming franchise.
Still, management isn’t abandoning its core business. Roughly 95% of spending remains focused on its core streaming offering, including series, films, and live events. These newer initiatives complement the core business rather than represent a fundamental shift in strategy.
Netflix’s challenge is to capture more valuable viewing occasions, not necessarily the most viewing hours. A blockbuster can drive sign-ups, a licensed show can improve retention, and live sports can attract advertisers. Each serves a different purpose.
Management points to improving churn and successful price increases as evidence of healthy engagement. But churn could be a lagging indicator. Subscribers could gradually spend less time watching Netflix long before they consider canceling.
Netflix has proven it can raise prices and expand margins. Now it needs to show that it can grow without relying primarily on charging existing subscribers more.
Salesforce agreed to acquire customer engagement platform Braze for $5.7 billion in enterprise value, offering $47.50 per share in cash, a 58% premium to its previous closing price. The acquisition raises an obvious question: Why does Salesforce need Braze when it already owns Marketing Cloud?
Braze specializes in real-time customer engagement. Rather than relying on scheduled marketing campaigns, its software reacts to customer behavior across mobile apps, websites, email, and other channels. Think of an abandoned shopping cart triggering a personalized offer, or a streaming service reaching out to a subscriber showing signs of leaving. Customers include Canva, Instacart, and Venmo.
Braze’s Q2 FY27 results illustrate both the appeal and the challenges of the business:
Revenue grew 26% Y/Y to $227 million, with subscriptions accounting for 92%.
Dollar-based net retention reached 110%, indicating continued expansion among existing customers.
Sales and marketing consumed 41% of revenue, contributing to an $18 million operating loss despite a healthy 67% gross margin.
At roughly 6.2x annualized revenue, the acquisition isn’t outrageously expensive for a growing software business. Braze also generated $22 million in quarterly free cash flow, suggesting its underlying economics are improving despite its GAAP losses.
The strategic appeal is clear. Salesforce has customer data, enterprise relationships, and its Agentforce AI platform. Braze adds a specialized engagement engine that can translate those insights into personalized actions across consumer-facing channels. AI agents become more valuable when they can act on customer information. Salesforce could also accelerate Braze’s adoption through its massive enterprise distribution network.
But there are risks. Braze overlaps with Salesforce’s existing Marketing Cloud capabilities, creating potential integration challenges and product confusion. Its appeal as an independent platform could also suffer if customers fear being pushed into Salesforce’s broader ecosystem. And while cross-selling could improve margins, Salesforce must demonstrate that another acquisition actually accelerates organic growth.
The bigger picture is that Salesforce is trying to own more of the customer relationship, from data and AI-driven decisions to the interactions that follow. Braze could help close that loop. But can the integration deliver enough synergies and additional growth to justify the purchase price?
Disclosure: I own CRM and NFLX in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.