In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Tim Beyers to discuss the latest earnings news. First-quarter revenue for Apple (NASDAQ:AAPL) crossed the $100 billion mark. Facebook's (NASDAQ:FB) fourth-quarter results took a back seat to Mark Zuckerberg's comments about Apple. Tesla's (NASDAQ:TSLA) fourth-quarter revenue of nearly $11 billion was offset by lower-than-expected earnings. Tim analyzes those stories and weighs in on the hottest new soap opera: As the GameStop (NYSE:GME) Turns.

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This video was recorded on January 28, 2021.

Chris Hill: It's Thursday, January 28th. Welcome to MarketFoolery, I'm Chris Hill. With me today, the one and only, Tim Beyers. Thanks for being here.

Tim Beyers: Thanks for having me, Chris.

Hill: We've got a big day. We've got Tesla, Facebook, and Apple. But let's just spend a couple of minutes on the story of the day, which is of course the story of the week, and that is GameStop. As the GameStop turned the new soap opera early in the trading day, the shares were up nearly 40%. As of this moment, let's call it 11:35 in the morning on the East Coast, shares of GameStop down 60%. You and I were talking this morning, and we could spend the next 30 minutes talking about this. We're not going to, but this really is one of those real life -- it affects everyone in the sense that it is the story that absolutely everyone is talking about in the stock market. So, in that regard, it does affect all investors. The lesson here for everyone, unfortunately, like you and me, you don't own shares of GameStop and you're not shorted, you hopefully let the lesson soak in the easy way, which is please be careful out there.

Beyers: Yes. I love that. I love the Hill Street Blues callback there, please be careful out there. Absolutely. The thing I want to reiterate here, Chris, and you're right, we talked about this earlier. I fear that there is going to be some investors out there or traders, and hopefully none of our members, but I could see the temptation for this. That you look at a stock that you own or could own, say, this sucker is really heavily shorted. Well, this is gold buying. Don't I just want to buy stocks that are heavily shorted, because at some point, the short squeeze is coming and then I'm Scrooge McDucking my way into a new whatever? I would say, again, please be careful here, because history has a way of reminding us that the market always adjusts. As soon as that strategy works, I guarantee it will not work in a very short period of time. The only thing that's proven to be timeless is, if you stick in the market with quality companies for a long period of time, you are very likely to win and win really, really big.

Hill: Let's move on to companies' reporting earnings. Apple's first quarter report was full of superlatives, $111 billion in revenue. That's the biggest ever in percentage terms. Sales in every one of Apple's product categories rose double-digits, and yet shares of Apple fell a couple of percent today.

Beyers: Go figure, go figure. I mean, so much for the market being logical, rational, use whatever superlative you like here. I'll just say this is madness. Maybe the reason here, Chris, is that Apple has been on such a tear, and let's remember that it's a $2+ trillion market cap. Maybe you have some investors saying like, ''Okay, I'll take a breather here.'' But the numbers are incredible. The one that I really want to point out here, iPad revenue. iPad, that's the product that I think among all of the Apple products, we forgot. Yeah, they make these things called iPads, up 41%. 41%, that's incredible here.

Overall, I mean, the big driver here is still, and we should be clear about this, $65 billion in revenue, that was up 17% year over year for the iPhone. That's due to the iPhone 12. The iPhone 12, I think, is an unqualified hit here, Chris. But I'll also just mention the Mac revenue, which is by comparison only, let's call it $8.7 billion, but that was up 21% year over year. Apple getting into the business of making its own chips, the M1 chip here, that's a draw. That is clearly a draw to Apple's Macs. I think both laptop and desktop, I think they've given that line some new life here. So yeah, Apple overall with revenue up 21%. Here's something I didn't think I was going to be talking about today, Chris. You know Microsoft's revenue? Microsoft had a great quarter by all measures. Microsoft revenue was up 17%, and Microsoft has been blowing the doors off of Apple recently. Not this time, not this time. Apple up 21%. Give Tim Cook a lot of credit here. This was a blowout quarter for Apple.

Hill: Below the headlines, one of the things that stuck out to me is, and this I think speaks to, among other things, Tim Cook, his leadership and in part his patience. You look at the other product's segment line, and this is things like the Apple Watch, Beats, AirPods, that sort of thing. Revenue was just a couple of bucks short of $13 billion in the quarter. You think back a few years to the launch of the Apple Watch, let's just say there were mixed reviews. The first couple of quarters, Apple got dinged a little bit in the analyst community and financial commentary in terms of like, what are they doing here? It's all about the hot wire. They're just plowing more money into the iPhone. We've talked about this before. One of the things that Apple's enormous cash balance affords them is the ability to say, you know what, this doesn't need to be a hit right now. Yes, we would love it if everything we created was a hit right out of the gate. But the things that we believe in, we can afford to iterate, improve them, take our time a little bit. There was a point in time where the other product's segment was pretty meager, $13 billion in 90 days. That's not meager.

Beyers: No, it's definitely not, and it is now the No. 2 reporting segment for Apple, which is amazing. Let's just be clear about what that includes. That is iCloud, that is the Apple+ product family. This is like the Apple Fitness suite, it is Apple TV+. It's extraordinary in a way that what Apple has been trying to do, and it seems like they're having some success here. I mean, the numbers certainly suggested that if you are in on an Apple product, you are increasingly interested in adding more Apple products into your life and buying into the whole ecosystem. That's what that services business represents, and it being up 24% year over year means you've got, I mean, this is the next generation. If you were a big Mac user, you used to call yourself a Mac addict. There are some Apple addicts out there, Chris. I think it's happening.

Hill: On the face of it, Facebook's fourth quarter report was what you would want to see if you're a shareholder. Profits and revenue came in higher than expected for Facebook. That news is taking a back seat to CEO Mark Zuckerberg being very direct on the call about Facebook's relationship to Apple, and saying, in no uncertain terms, Apple is our primary competitor, talking about the privacy changes that Apple is implementing. Not that I thought he was being unduly cagey in the past, but I really like that Mark Zuckerberg is just being playing spoken and saying, yeah, now this is where we're going up against.

Beyers: Not only that, Tim Cook has been, I think we could say, fairly blunt with his assessment of privacy and lack of privacy when it comes to Facebook and other platforms. This is the first time I've heard Zuck say, look, I hear you Tim Cook, but can we talk a little bit about what you're doing here? Here's what he said, the quote is, "Apple may say they're doing this to help people, but the moves clearly track their competitive interest." In other words saying like, "Hey Tim, can we just call a spade a spade here? You're coming after us. You are increasing privacy controls in iOS 14, and that's because you don't want us to profit on ads the way we've been profiting on iPhones." He's not wrong. That's the thing. Zuckerberg is not entirely wrong here. Now, you could make a case that what Apple is doing with iOS 14 and how they're inserting some new privacy controls, you could say they're doing this for altruism's sake, but I think Zuckerberg is saying, let's call a spade a spade here. Apple wants to control their ecosystem and to say otherwise is to be disingenuous. I agree with you, Chris. I give them credit in this area.

Hill: One data point I wanted to ask you about, and this is the second quarter in a row that daily active users are a key metric for Facebook. Daily active users in the U.S. and Canada fell. This is not by a large amount, it went from 196 million daily active users last quarter to 195 million. Percentage terms, we're not talking about a big drop. It's the second quarter in a row. At what point does that become a legitimate concern?

Beyers: That's a really good question, because you want to be able to say like, wow, the growth has gone, this is problematic, except that it's really not. Facebook is still growing revenue. They're still getting more from the users who are there, and they're going to continue to find creative ways to get more from the users who are there, I have no doubt about that. When does it become a problem? I think it becomes a problem when Facebook is having real issues in new territories or it just can't find its way to get people more engaged. The thing that Zuckerberg called out is that, and I've seen this before, he talks about iMessage, Apple iMessage is its own social network. When he calls out Apple, he says, "Hey, look, man. Messaging is in its own way a social network, and Apple has an interest here, and it's digging on us as the creator of Facebook Messenger and WhatsApp." I think if the engagement numbers start to really fall off a cliff irrespective of the users, that's when we start to get concerned. I don't think it shows up in the daily active users. I think it probably starts to show up in the revenue per active user.

Hill: Tesla wrapped up the fiscal year with little bit of a mixed bag. Fourth quarter revenue was close to $11 billion, but earnings per se were solidly lower than expected. Shares down around 2%, which means in the past year shares of Tesla are only up 635%. [laughs] Yeah, let's pour one out for the Tesla shareholders today. What stood out to you in this report, or anything you heard out of Tesla in terms of guidance for 2021?

Beyers: Well, I think we already had the numbers around vehicle deliveries, and that's been very, very impressive. Tesla has a way of seating ground and saying, "Hey, look. Pay attention to this thing over here, our deliveries, and the delivery numbers we've already had, and they were very, very strong." It's very easy for Tesla to deflect and say, "Don't worry about those earnings. I know we missed the target here, but there are moving parts, and they're right." I mean, there's a lot of things that go into Tesla earnings, like credits, that impact what their earnings per share is going to be in any given quarter. The revenue number is legitimately slightly more important here. It doesn't surprise me that Tesla is down a little bit, but there were no glaring signals that Tesla is in trouble. I think that's interesting. Plus, it is refreshing, isn't it, Chris? When we look at Elon Musk's shenanigans, they're actually about other companies now, and not about Tesla. I mean, that more than anything else may be keeping Tesla's stock in a relative safe zone, like, only down 2%. Musk is aiming his shenanigans at other companies.

Hill: It's true. I mean, we're laughing about this. I think investors should take what we're saying very seriously about this. Do not discount Elon Musk's, I'll just call it, improved behavior.

Beyers: Yes.

Hill: On conference calls, on Twitter, do not discount. It doesn't show up in the balance sheet, but that is absolutely something that goes in the plus column for Tesla shareholders over the past year. No question.

Beyers: I guess this is the point I wanted to make here: it's not that he's the viewer shenanigans. There are still shenanigans. Except that now it's like, "Hey, I like Etsy." [laughs] When he's talking about GameStop, he throws out a tweet that says, "#gamestonk," and it rallies the community in a way that just creates absolute madness. There are still Elon Musk shenanigans. They just aren't connected to Tesla in the same way that they were.

Hill: Last thing on the business of Tesla, and we talked earlier about, in Apple's case, when they break out their revenue, one of the divisions is the "other products." You look at the way Tesla breaks out their revenue, it's overwhelmingly automotive, but they do have the energy generation and storage divisions. They do have services at all as a separate. Those two are tiny by comparison. Those two remind me of the much earlier days of the other products for Apple. Is that something shareholders should be, I don't want to say 'concerned,' because I don't think there's a reason to be concerned about that. I guess my question is, at what point does that start to become something that moves the needle for the overall business and therefore the stock?

Beyers: I think the thing that we want to watch as Tesla investors, or all Tesla investors are watching, is what are the areas? I'll use a Google term here, but Tesla is making a lot of other bets, and those other bets can have a material impact on the way that the business captures profit over time. For example, in the energy generation business, every material improvement in battery life or battery efficiency has a dramatic effect, not just on the car business, but it has a dramatic effect on the energy storage and transmission business. These are areas to watch, and little gains can really add meaningfully over time. But I feel like this is one of those classic hockey stick type businesses, Chris, where you're going to see lots of small improvements, but then we hit one major battery breakthrough and then it starts to spike. Now, we may never get there. That's the problem, right? We just may never get there. But we want to watch each of these every quarter, the little improvements that they're making and things like battery investments. This is why Tesla's Battery Day got so much attention a few months ago. We're going to see more of that. But is it going to make a big difference in the short term? No. I think this is like the 10-year opportunity for Tesla.

Hill: Tim Beyers, always great talking to you. Really appreciate it, thanks for being here.

Beyers: Thanks, Chris.

Hill: As always, people on the program may have interest in the stocks they talked about, and Bank CD rates may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you tomorrow.