Enlightenment - A Herold & Lantern Investments Podcast

Are Stock Buybacks Fueling a Hidden Market Bubble?

• Keith Lanton • Season 7 • Episode 28

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July 21, 2025 | Season 7 | Episode 28


The invisible forces of supply and demand are reshaping financial markets in ways that savvy investors need to understand. This deep dive explores how stock buybacks have overtaken dividends as the primary method companies return capital to shareholders—and why timing matters tremendously.

When companies repurchase shares, they reduce market supply, potentially boosting earnings per share and stock prices. But there's a crucial distinction between disciplined buyback strategies like Warren Buffett's (buying only when shares represent exceptional value) and the problematic pattern many corporations follow: buying high when flush with cash, then halting repurchases when prices fall. This "buy high, sell low" approach raises serious questions about corporate stewardship of shareholder capital.

The Treasury market faces its own supply-demand dynamics with approximately $36 trillion in debt structured across bills (one year or less), notes (1-10 years), and bonds (10+ years). With the average maturity around six years and interest rate at 3.3%, even significant Fed rate cuts would have less impact on government financing costs than sometimes claimed. Meanwhile, technology companies are benefiting from policy tailwinds, including immediate R&D expense deductions that particularly advantage the "Magnificent Seven" tech giants responsible for nearly half of all S&P 500 research spending.

In the streaming wars, YouTube has quietly surpassed Netflix with 12.8% market share versus Netflix's flat 8.3%. Despite Netflix's $556 billion market cap, analysts suggest YouTube could be worth over $700 billion as a standalone company, bolstered by its creator-based content model that keeps costs comparatively low.

For investors navigating today's complex markets, understanding these fundamental forces provides crucial context for making intelligent decisions. Whether evaluating a company's capital allocation strategy or assessing policy impacts on different sectors, recognizing how supply and demand drive valuations has never been more important.

Want to sharpen your investment edge? Subscribe to our podcast for more market insights that go beyond the headlines and help you see what others miss.

** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Alan Eppers:

And now introducing Mr Keith Lanton.

Keith Lanton:

Good morning. Everyone had a enjoyable summer weekend Going to get started this morning. Today is Monday, july 21st. We are just about one month and one day Not about, but one month and one day into summer. About two months left.

Keith Lanton:

Summer certainly has not been the typical quiet summer that some expect from financial markets, so we've got a lot to cover this morning, a lot to discuss.

Keith Lanton:

We're going to focus on a thesis having to do with supply and demand and how this supply and demand is being influenced by current market forces that are affecting both the stock and the bond markets.

Keith Lanton:

Specifically, we're going to talk about stock buybacks and recent discussions on the issuance of Treasury securities and the supply and demand of Treasury securities, which is significant because we've got a $36 trillion deficit. We've got a $36 trillion deficit, but there's been lots of talk, if you get into the plumbing of the Treasury market, having to do with where to issue securities and what effects and influences that could have on Treasury rates. So we will talk about those supply and demand factors. These are things that I believe that if you understand better, you will be a better investor and be able to make more intelligent investing decisions. Of course, we'll talk about the news flow this morning relatively quiet big earnings week. We did get a couple of earnings reports out so far this morning. So far the reports that we have gotten although it's still early have been good, so we've got a lot to talk about with respect to earnings.

Keith Lanton:

Then we'll talk a little bit about Barron's and a couple of the different stories that they had there, talking a little bit about the bond market and a story talking about counterfeit goods, which I think is something that we all could learn something about any of us who shop on the internet, which is probably almost everybody what to be aware of and what's taking place. One of the bottom lines there is if it's too good to be true, it very well may be. So let's start out here and let's talk about something that I mentioned, which is stock buybacks and the effect that stock buybacks can have on market values and PE price earnings ratios. So let's focus on that, and Barron's talked about the stock.

Keith Lanton:

Buybacks are replacing dividends as the biggest source of capital returns to investors. What do buybacks do? Well, when companies buy back shares, they are removing shares from the marketplace. Now, oftentimes they are replacing shares that they just recently issued to CEOs and other executives within the company, but the net effect is very often that there is a reduction in the supply of shares when companies issue buybacks, because those buybacks typically exceed the amount of shares that they are issuing. And when they do these buybacks, they do give remaining shareholders a larger stake, which means that when you calculate the profitability or earnings per share, if you have a smaller denominator, which is the number of shares outstanding, then you will have a better earnings per share amount. This also creates supply and demand potential effect. Right, because pricing is determined on the margin. If you are taking shares out of the marketplace and there is demand coming into the marketplace from things like folks purchasing exchange-traded funds, even passive funds, these funds need to put these shares to work, based on, very often, market capitalizations, and they need to buy stock in these companies. And if there's less shares outstanding, there is a greater chance that the marginal price will be higher. And this is perhaps one of the reasons that the market currently does trade at 22 times earnings. Yet the S&P 500 yields and this is the offset, the dividend factor the S&P is only yielding 1.2%. So we are seeing an elevated PE ratio, meaning price to earnings, yet we're seeing a very low earnings yield. Typically, historically, when the earnings yield on the markets in terms of dividends is low, then we expect potentially for the market to pull back. But we have this other phenomenon going on, which is the fact that companies are buying back stocks in significant amounts of numbers. Nvidia recently purchased last year, $40 billion of their stock. Now, this then begs the question on whether or not purchasing your stock, in a market that's arguably fairly high, should this be the best course or strategy to follow? Fairly high, should this be the best course or strategy to follow?

Keith Lanton:

Historically, stock buybacks were viewed as the investment that should be made by a company after they have exhausted all of their other options. So what does that mean? Well, when you invest in a company, you are asking company management to be the best steward of your capital, your investment, that they can possibly be. You're typically investing in a company because you believe that they are going to grow their sales and therefore grow their earnings. And how are they going to do that? Well, they're going to make intelligent acquisitions. So they are going to use their earnings, or their cash, to make acquisitions. They're going to use their earnings to invest in their businesses, perhaps by property, plant equipment, perhaps hire the best talent that there is out there, or perhaps they will pay dividends. Or perhaps, like Berkshire Hathaway does, they will sit on that cash and wait for the right opportunity at the right moment to either make an investment or just to have that cash in the event that things get worse in their business, and it's a safety cushion or perhaps to find the right opportune time to do things like stock buybacks.

Keith Lanton:

Now let's take a look at what the philosophy has been at Berkshire Hathaway, which is very often not the philosophy that we're seeing from lots of companies in corporate America today, which is that Warren Buffett and Berkshire Hathaway, when they do buybacks, they are doing those buybacks on a disciplined basis, and they are typically not doing buybacks when Warren Buffett and the management team at Berkshire Hathaway believes the stock is elevated. In fact, they stop their buybacks when the stock gets to a certain level of a price to book. Ratio is the metric that they have historically used at Berkshire Hathaway, and they will make buybacks when they feel that the stock is the single best opportunity for Berkshire shareholders. So that means that there's no great acquisitions out there. As you've heard Warren Buffett talk about looking for deals. There's no reason to invest in the company with that excess cash. They've already made the investments that they need to do. Berkshire Hathaway doesn't believe in paying dividends, at least not yet, and they therefore feel that investing in their stock and their company is the single best thing that they can do with their money. So they typically will sit on that cash and wait for the market to drop and then they will put the cash to work.

Keith Lanton:

But many companies today are typically flush with cash when times are good and they are going ahead with buybacks, just like we're seeing today. And then, when times are bad, what do they do? They get nervous, they get concerned, they shut off, they turn off those buybacks. So what are they doing? They are buying their stocks when they're high and they're sitting on their hands when the stocks are low. So you have to be mindful of this when you're making your investments. Is this the strategy that the management team is making? Because in this situation it's even possible, and we've seen this happen with companies recently. Intel is a recent example where they have bought back their stock, and let's take Intel's example and I'm using rough approximate numbers $40, $50, $55 a share and then they issued stock when the stock was trading at around $20 a share the exact opposite of what Warren Buffett would tell you that they should be doing with their buybacks. They're buying their stock high and they're selling their stock low. So this is obviously a strategy that would potentially not be successful.

Keith Lanton:

And what does this all lead to? Well, what this leads to is, if companies are consistently doing buybacks when they are flush with cash, you have to ask yourself is this the best thing they should be doing with their cash? And you have to also ask yourself what's going to happen when times are not as good, because this can potentially lead to booms and busts. In other words, high PE ratios, high stock prices. When things are good, companies are taking supply out, pushing up the share price. When times are bad, other buyers aren't stepping in. That's why prices drop. Business doesn't look as good, yet the company's not there to buy their own stock, because they have already used their bazooka, they have expended their bullets and now they do not have the opportunity to step up and buy their stock when times are low, and this can lead to lots of volatility.

Keith Lanton:

Which therefore leads the question you need to think of buybacks in combination with dividends, because dividends are considered more sacrosanct. Companies that pay dividends oftentimes will be a lot more mindful of reducing their dividends because of the signaling it sends to the shareholders. Also, they're mindful that their shareholders are often using those dividends to support their lifestyle and their living. So you got to be weighing buybacks, dividends, timing opportunities, best use of cash, what's the best way to go. So let's give some real life examples of what's taking place in the market today.

Keith Lanton:

If you take a look at some companies that have been aggressive buyers of stock, even though that their business has not necessarily been flush and successful recently, although historically these have been successful companies Barron's mentions Marathon Petroleum, boyd Gaming, kroger and Nike who have been heavy buyers of their own stock, they have bought back twice as much stock over the past 12 months than they are projected to earn over the past 12 months, than they are projected to earn over the next 12 months. So if these stocks were to lose buyback support, what does that mean for the share price? The share price potentially could be susceptible to some weakness. On the flip side, stocks like Royalty Pharma retailer, bath Body Works, bank, popular packagingaging Maker, sealed Air, insura, metlife and oil services provider Halliburton these stocks pay a dividend yield of 2.6% but are only paying about 25% of their net income projected over the next 12 months out in those dividends. So these are stocks that potentially could raise their dividends or potentially could do buybacks. Now, of course, fundamentals matter and appearing on this list doesn't justify buying or selling any given stock. But as buybacks continue to deplace dividends income, investors should be aware that all capital returns aren't necessarily created equally.

Keith Lanton:

All right, so let's shift gears and let's talk about the treasury market and the treasury market, supply and demand. Now, pretty much anyone who's been following financial markets is well aware that President Trump has been displeased let's call it with Fed Chair Powell and his approach to managing short-term interest rates. On July 9th, as part of his discussion against Fed Chair Jerome Powell's proclivity to keep interest rates where they are, trump posted on Truth Social our Fed rate is at least three points too high too late, which is a reference to Chairman Powell is costing the US $360 billion a year in refinancing costs. He said, and he said that figure. $360 billion in savings per percentage point drop in the Fed funds rate is about 1% of the debt here in the United States. But when you delve deeper into the structure and the plumbing of how the interest rates here are structured and the interest cost is structured, that $360 billion number while correct if you were to cut rates across the board by 1% that the government's paying absolutely correct.

Keith Lanton:

But the fact is is that the majority of the debt here in the United States, interestingly, is not currently structured as just being treasuries or T-bills. We'll get a little bit into that. A lot of it is into medium-term and longer-term borrowing, which are rates that the Federal Reserve has a lot less control over. But let's take a look at the breakdown of how and this has to do with supply and demand of how treasury bills are currently a component of the debt that the US issues and if the Fed were to cut rates, that component probably would be something that we'd see a lower interest cost on.

Keith Lanton:

Short-term treasury bills make up about $5.8 trillion of the publicly traded debt and that is dwarfed by the outstanding amount of treasury notes that are out there, which is just north of $15 trillion. Average interest rate currently is and it's also a missing big factor here numbers may not add up to you there's about $5 trillion of bonds, so bills one year or less about $6 trillion. Rounding up, taking a look at the notes one to 10 years we're looking at about 15 trillion and bonds which are 10 years or more, we're looking at about five trillion. The current interest rate on bills is north of 4%. The current rate on notes is 305. And the current rate on bonds is about 3.3. The average maturity of bonds that the government has issued is closer to six years and the average interest rate is about 3.3%.

Keith Lanton:

So if Chairman Powell woke up tomorrow morning and asked the rest of the Fed to cut rates which they may or may not do just because the Fed asked doesn't mean they'll do it. From its current rate down about 100 basis points, it probably wouldn't save taxpayers $360 billion a year because of the structure of the debt that's outstanding, but it might very well save somewhere in the neighborhood of $90 billion a year. But that then begs the question, and this all goes back to supply and demand. So if the Fed were to increase their issuance of Treasury bills which is something that the former Treasury Secretary Yellen did during COVID and interestingly at the time current Treasury Secretary Besant was critical of that Currently the Trump administration if they are going to follow through on President Trump's advice to lower short-term rates, if the Fed were to acquiesce to that, well, they would. In order to take advantage of the benefit of those lower rates, they would need to issue more short-term interest rates if that were to happen and that would produce that cost savings, at least in the short term on those short-term bills. Now the Treasury has kept its T-bill issuance to about 15% to 20% of T-bill issuance. Some are suggesting they should increase that if rates were to drop to 20% to 25%. The feeling is that there is enough demand to make up for that increased supply. If that were to happen and we will see if in fact this is something that takes place over the next six to 12 months Others are suggesting that if the Treasury were to issue more T-bills it would also in effect be a stealth quantitative easing.

Keith Lanton:

What does that mean? Well, quantitative easing is when the Federal Reserve buys back their own bonds, and that's not happening here. They buy back their own bonds and they push down interest rates. But some are suggesting that if the Treasury were to issue more short-term debt, well, what that means is they wouldn't be issuing or buying back long-term debt, but there would be less supply of long-term debt. So it is possible that the long-term debt yields would drop because, again back to supply and demand There'd be more supply on the short end. Argument is if there's more supply on the short end, well, that could cause short interest rates to rise, but the feeling is there's enough demand to meet the increased supply, but we would also be, at the same time, creating less supply on the long end, which potentially could cause interest rates to drop.

Keith Lanton:

Now, if you want to follow this back and forth between President Trump and Chairman Powell, well, circle July 30th on your calendar. That is the date that the Treasury is going to announce its quarterly financing plans, while the Financial Open Market Committee will announce its interest rate decision that afternoon. So we will, in effect, be getting a double whammy. We'll be getting interesting information with respect to where the issuance or the supply of those treasuries will be, and we'll also get some commentary from the Fed on interest rates, and perhaps the thinking at the moment is that rates won't change. But we'll get some insight into whether or not the Fed is thinking about cutting rates in the nearer term based on that meeting. So, with all that in the rearview mirror, let's talk.

Keith Lanton:

Let's take a look at the financial markets. This morning we are seeing equity markets starting the week on a positive note. This morning we have this week earnings coming out in force. We see the first of the MAG-7 coming out today, market coming off a relatively strong week that pushed the S&P 500 and the NASDAQ markets to fresh record highs. Dow futures are up about 100 points, nasdaq futures up about 50 points. Earnings are expected to be the main catalyst of this week's action. Economic data releases relatively light this week. We are seeing the 10-year Treasury yield down significantly this morning, down six basis points to about a 4.37. If you're looking at the commodity markets there we're seeing oil relatively flat, gold up modestly, silver rallying this morning. If you've been following silver, it has been breaking out of late.

Keith Lanton:

Tariff headlines have also been relatively calm. This morning Commerce Secretary Howard Lutnick expressed confidence that the US will make a trade deal with the EU as they prepare retaliatory measures. According to the Wall Street Journal, president Trump has recently spoken in favor of a 15% to 20% tariff on imports from Europe, and that's higher than reports of what the European Union has said they are willing to accept, which is 10%. President Trump will also announce an artificial intelligence action plan on Wednesday, which will call for reducing regulations and expanding energy development. We'll talk a little bit more about that.

Keith Lanton:

Some earnings that we've already gotten this morning We've got Domino's Pizza trading higher, even though they missed the earnings per share expectations and reported revenues in line Verizon Communications, symbol VZ. They beat earnings per share expectations. They beat on revenues, said that they're seeing strong demand from some of their more platinum plans, more data-hungry plans, and they raised both the bottom and the bottom. They raised the bottom end of their fiscal 2025 earnings per share guidance. They also upped the bottom end of their dividend targets in terms of increasing their dividends going forward.

Keith Lanton:

Markets in the Asia-Pacific region began the week on a mostly higher note. European stocks trading in the red, largely on concerns about the tariff discussions with the United States. Geopolitical news CNN reporting that Japan's Liberal Democratic Party will lose control of the upper house. Reports that President Trump could meet with Chinese President Xi at an APEC summit on October 30th. Reports perhaps this is what's helping the bond market that Treasury Secretary Besant advised President Trump against trying to fire Fed Chairman Powell. Wall Street Journal reporting that. Cnbc reporting that German Chancellor Merz does not consider the planned tariff countermeasures appropriate. Wall Street Journal saying the Trump administration reviewed SpaceX contracts but determined they were too critical to eliminate. Reports that Brazil is mulling retaliatory actions for the US tariffs. Wall Street Journal reporting that China's rare earth exports increased 200% last month. And Bloomberg reporting that the European Union is aiming to mandate car rental firms purchase electric vehicles only starting in 2030.

Keith Lanton:

So I mentioned earnings season kicking off in high gear. This morning we got earnings from Verizon. We also got earnings from Cleveland Cliffs. We will get earnings tomorrow from Coca-Cola, danaher, texas Instruments, alphabet, at&t, ibm, servicenow, tesla, t-mobile all releasing earnings on Wednesday. Blackstone, honeywell, intel on Thursday. Other economic reports we'll be getting this week. We've got the S&P Global releasing the Manufacturing and Services Purchasing Managers Index for July, looking for those to come in at 52.7 and 53.1 manufacturing and services respectively. That would be a slight drop for manufacturing, actually a slight increase in manufacturing and a slight drop for services from the previous month. And on Thursday we get new home sales for June, looking for that to tick up modestly from May, looking for 650,000 homes to be sold.

Keith Lanton:

A couple of statistics for you this morning, this courtesy of Hartford Funds. While the risk-on rally during the second quarter in the US markets were great for momentum stocks, interesting statistics here. The quarter which is last quarter was the second worst for low volatility stocks, the fifth worst for quality stocks and the 15th worst for value stocks since 1965. So clearly good for momentum stocks If you were invested in any of those other stocks that are more conservative. In general, they did not fare well in the second quarter.

Keith Lanton:

Let's talk energy. One of the impacts of the big beautiful bill may be that electric rates could rise significantly in certain states due to reduced clean energy incentives. So taking away some federal money for clean energy. Well, what does that mean? That means that with renewables, more expensive utilities may turn to fossil fuels, but they're still a lot more expensive than those renewables with those incentives that are disappearing. If those incentives are still in place anywhere from 30% plus you may see a rise in rates over the next decade there for electricity as those subsidies subside. Those states in particular have invested significantly in renewables and now will not see those incentive checks coming in and will have to make alternative plans, which could mean that consumers will see significantly higher prices.

Keith Lanton:

An interesting statistic having to do with the amount of people incarcerated here in the United States. In 2009, there were 1.6 million people in jail here in the United States. That was almost 3% of the population. Well, that number is falling. At the end of 2023, that 1.6 million went to 1.2 million, which is good news. People are out of jail and hopefully working, so 400,000 more potential workers, and reports suggest that that number is expected to fall to about 600,000 by the end of this year. So about a million less people incarcerated than was the case in 2009. So some interesting effects, certainly upon lives, but also on the economy. That's a significant change.

Keith Lanton:

Let's talk about technology stocks. Let's talk about artificial intelligence, which has certainly been something that the markets have been super hyper-focused on. Perhaps one of the reasons that artificial intelligence stocks have done so well is that smart investors saw early some of the reasons for the potential appreciation that's taken place and arguably, maybe there's more appreciation that could still take place. Barron suggesting that President Trump's policies could be helping technology stocks. They say perhaps blowing up a bubble. Time will tell.

Keith Lanton:

We spend a lot of time worrying about the negative impacts of some of the policies that the Trump administration has put into place, like how tariffs will drive up costs, how the tariffs will drive down margins for corporations, how immigration will create worker shortages, drive up wages, how defunding universities could damage scientific research. But a lot less time is spent on the beneficiaries for some of these policies, and Barron says that technology companies are perhaps the greatest beneficiaries, even though they are doing very well on their own. So recently we had President Trump talk about the relaxation of chip exports to China in the Big Beautiful Bill, as well as the Big Beautiful Bill treating research and development differently than the Biden administration. And last week in Pittsburgh, president Trump touted the $92 billion of investments that companies like Google and Blackstone have pledged to make in data infrastructure to boost artificial intelligence. And if you take a look at the technology sector last quarter, the technology spiders have gained 35% over the past three months and this boost may have some more gasoline to keep the fuel going.

Keith Lanton:

The tax and spend bill that was just approved by Congress, also known as the Big Beautiful Bill, allows companies to expense all of their domestic research and development costs in the year that they do the spending, rather than amortizing it over five years, as was the case before. This means that companies get all of the tax benefits at one time, lowering their taxable income, improving cash flow and they get to apply this new rule to spending that goes back to 2022. And if you think about who does the majority of the R&D spending here in the United States, well, it's the magnificent seven stocks, which account for 47% of the research and development by the S&P 500. For them, the windfall should be immediate and provide more cash to reinvest in growth or return money to shareholders. We just talked about those buybacks shareholders we just talked about those buybacks. Even tariffs, in a backhanded kind of way, have helped big tech because tariffs arguably have been a contributing factor to a weaker dollar, and a weaker dollar lifts earnings for companies that do business overseas. S&p 500 companies do about 30% of their business overseas, but those tech companies we just talked about do about 55%. And Raymond James strategist, edward Mills, knows that the Trump administration on July 23rd I mentioned this a few minutes ago is going to release their AI action plan and the plan will likely make it easier to build data centers and other AI infrastructure by easing the permitting process, expanding government research and training workers to do tasks that are not done in the United States. Training workers to do work that's not done in the United States to now do work here in the US. So all of those factors coalescing into one of the drivers for technology stocks. Certainly we can see the rearview mirror that they've been big beneficiaries. Technology stocks Certainly we can see the rearview mirror that they've been big beneficiaries and, looking forward out the dashboard, we may see some more still to come.

Keith Lanton:

All right, I mentioned earlier counterfeiters and what you need to be mindful of. Well, the internet has made shopping easier and perhaps more dangerous than it was when you were just going to the local mall. Interesting story a 31-year-old from Maryland ordered watches from Etsy last year to give as gifts for her wedding. She thought the watches looked nice for the price. It turns out that the price was too good to be true and customs officials seized the watches after determining that they were knockoffs. But interestingly, it got worse for this woman Not only did she not get her watches, but the government revoked her global entry, which is a program for low-risk travelers to clear customs quickly because of violations of customs laws and duties.

Keith Lanton:

So where do you need to be real mindful? Well, interestingly, companies like Amazon and Walmart have done a fairly good job of keeping counterfeiters off of their platform. But counterfeiters are very good at finding, I guess, the cracks in the system, and they have moved aggressively to a new place where people do lots of shopping, and that is to social media platforms like Facebook, reddit, tiktok and WhatsApp. So these social media platforms are seeing an increasing number of users and the shoppers there are unbeknownstly being susceptible to unsolicited merchants. Social media folks are scrolling and counterfeiters have jumped onto these traditional marketplaces and are taking advantage of infiltrating, perhaps, your user feed. And artificial intelligence there's that word again is making this problem worse. Generated of artificial intelligence is allowing counterfeiters to remove don't speak English, aren't familiar with US nomenclature to be able to adapt and to look like very legitimate US-based companies and to look like they are the authentic thing. Even more worrisome is that high-quality AI images can look indistinguishable from real photos.

Keith Lanton:

So individuals when they're scrolling through those feeds, they sound good, they look good, but they may not be good, so you need to be really careful. We got earnings from Netflix, nflx, the stock. Lots of folks have been watching Netflix shows and investors have been watching the stock move significantly higher. But what market participants haven't been paying as much attention to is the company that has the greatest share of streaming content, and it is not Netflix, it is, in fact, youtube. So perhaps one of the reasons that Alphabet, the owner of YouTube, is better known for its search and its challenges arguably in AI and its monopoly power, as the government has been seeking to get some concessions from Alphabet. But Alphabet has been having tremendous success in streaming and it's gone on not quietly but not quite as prominently. So right now, according to Nielsen, netflix has 8.3% of viewers of television-like content. That's almost twice as high as all of the Disney channels combined. The problem is that YouTube share of US viewers grew from 9.9% a year earlier to 12.8%, and that 8.3% at Netflix was flat year over year. So a year ago we had YouTube at 9 9.9 and Netflix at 8.3. Now we have Netflix at 8.3 and YouTube up to 12.8. So Netflix is increasingly squaring off against YouTube, while the rest of the streamers compete against one another.

Keith Lanton:

Now, netflix income comes largely from subscription sales. Youtube is predominantly an ad-based service, but they are sliding into each other's business models. Youtube now gets substantial subscription revenue from streaming cable channels on YouTube TV, the valuable NFL Sunday ticket package and other services. The financials tip even more in YouTube's favor Netflix sales last year $39 billion, expected to be $45 billion next year. Youtube sales last year $39 billion, expected to be $45 billion next year. Youtube sales next year expected to be $70 billion, versus $45 billion at Netflix, and of that, $70 billion at YouTube, $30 billion of it is coming from subscriptions.

Keith Lanton:

So while YouTube is not a standalone entity, netflix obviously is. Netflix has a market capitalization of $556 billion, some analysts suggesting that YouTube would have a market capitalization north of $700 billion as an independent company, or about one-third of the total value of Alphabet. Another factor favoring YouTube over Netflix is that Netflix content costs were about 52%. Youtube passes these expenses on to its creators, keeping it relatively asset-light and increasing profit margins. Of course, netflix is aware of this all and is seeking to emulate some of YouTube's business model to incorporate YouTube-style content into Netflix. So the story is not over, it's ongoing. But an interesting piece here of the alphabet pie that perhaps doesn't get the attention it deserves.

Keith Lanton:

That's everything I've got.

Alan Eppers:

Thank you for listening to Mr Keith Lanton. Thank you for listening to Mr. Keith Lantern. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at www. heraldlantern. com.

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