The Wall Street Journal covers companies. Pirate Street Journal cover categories.
Each week, we pick three headlines worth paying attention to and break down the category underneath. Live every Tuesday at 7 am PST / 10 am EST. See the news through a different lens.
Dear Friend, Subscriber, and Category Pirate,
Here’s what we covered in this episode:
1. Is Google’s negative $6 billion free cash flow is good news?
Revenue of $119.8 billion, up 24%. Cloud up 82% with a $514 billion backlog, up from $460 billion in a single quarter. Free cash flow of negative $6 billion, the first negative quarter in company history. The Journal ran one great chart of the cliff and called it worrying.
Same filing shows $242 billion in cash and marketable securities. Trailing twelve month revenue of $446 billion. Trailing operating cash flow of $186 billion.
One chart cannot explain a company mid-transformation, and a quarter is the wrong unit of measurement when the thing you are measuring is a category migration.
Milking versus prosecuting.
Two kinds of companies exist. The ones milking a category king position they already own, and the ones prosecuting a future opportunity while the window is open. Buybacks are the tell for the first group. A buyback is a company admitting it has run out of ideas and would rather grow the stock than the business.
Cloud added $11 billion of incremental revenue. Search added $8.3 billion. The most perfect business ever built on the internet is now the slower half of its own company, in dollars, and that is the achievement.
Amazon. Incorporated 1994, no full year of profit until 2003, stock up roughly 300,000% since IPO.
NVIDIA. Still founder led, still prosecuting.
Microsoft. A CEO who acts like a founder, and the innovator’s dilemma refuted.
IBM. Read its most recent quarter for the alternative.
The Mag Seven are guiding to somewhere between $700 and $750 billion of CapEx this year because AI shows the greatest category potential ever exhibited. The press covered the cliff and missed the migration.
2. Does the man who built a $10 billion law firm need 5,000 people, or just 20?
Kirkland & Ellis became the first law firm in history to cross $10 billion in annual revenue. David Fox, 68, wrote that playbook. He just co-founded Irving, an AI-native firm running in stealth with fewer than 10 lawyers and engineers, already advising on real deals. Kirkland has set aside $500 million for its own AI platform.
Reject the premise.
Kirkland is going to light that money on fire, because the money is being spent to make thousands of people incrementally more productive inside a structure built for people.
When the movie camera arrived, the first thing anyone did with it was point it at a stage play. Movies only happened when someone built entertainment purpose-made for the camera. Most law firms, and most of the S&P 500, are still videotaping the play.
Fox is doing the other experiment. Firm with AI at the core, people bolted on. His own question: does he need 5,000 talented people, or 20.
All the value sits with the senior partner who has the context and the battle scars, plus the AI-native 20-year-old. The middle layer of associates and managers of managers has value in the old system only, and the old system needs to feed the middle to keep the machine running.
Knowledge worker to creator capitalist. Applying existing knowledge is the job AI takes. Creating net new things with AI is the job that survives. Make AI the co-founder of your career.
And the billable hour is over. McKinsey is already 25% outcome-based. Nobody cares how long it took.
3. What if doing the right thing paid 12x?
Optus Bank, founded 1921, and M&F Bank, founded 1907, just announced a merger creating the largest African American owned financial institution in the country. Ten locations, $1.27 billion in combined assets, a deal worth more than $105 million. Five years ago, right before we wrote about it in Harvard Business Review, M&F traded under $4 a share. It closed near $48.
That is a 12x return in a bank most of Wall Street has never heard of, and the merger happened by choice rather than distress.
Charitable investing over charitable giving. Giving is a transfer. Investing aligns the incentives, which means it compounds and it repeats. Justice deposits started as corporate treasury cash parked in minority depository institutions. The next level was buying the equity.
Netflix. 2% of global cash holdings, over $100 million.
PayPal. $500 million.
Block, JPMorgan, Bank of America, Wells Fargo, State Street, Moody’s. Deposits and stock.
Costco, Dick’s Sporting Goods, Aflac. In as well.
None of them wired that money out of sympathy. They wired it because these are legendary banks run by great operators. CEO James Sills grew the balance sheet, cut non-interest expense, originated SBA loan revenue, and bought back shares.
There is a category design question underneath. A Black-owned bank is a specialization built on a highly identifiable superconsumer, and niching down on your super works when you commit to it completely. The free market, not a mandate, is what fixed this one.
We’re publishing a mini-book on Charitable Investing this Friday.
3 conversations to have about the news with the Pirate Eddie Bot and Pirate Christopher Bot
The bots come with the founding tier and jam 24/7. Their job is to take this week’s moves and run them against your category, not ours.
Find out whether you are milking or prosecuting. Hand the bots your last three budget decisions and ask which future opportunity each one is prosecuting. If the honest answer is that you are defending a position you already hold, you are Alphabet’s critics, not Alphabet.
Ask what you are videotaping. Describe your core delivery model and ask the bots which parts exist only because humans used to do them. Fox found his answer and it was 5,000 people versus 20.
Convert one giving line into an investing line. Bring the bots a cause you already fund and ask them to design the version where the incentives align and the money comes back. M&F went from under $4 to $48 while doing exactly that.
The through-line: in all three stories, the people who look reckless are the ones building for the category that is arriving, and the people who look prudent are optimizing a category that is leaving.
Not a founding member yet? You can join here.
Recorded Friday, July 31. Every number above is as of that morning.
Piratey disclaimer: This is NOT financial advice. None of us have a Series 63, Series 7, Series 6, CPAs, CFAs, IUDs, IEDs, and hopefully not IBS (this makes DUDE Wipes sad).
Stay tuned for next week’s episode.
Arrrrrrr,
Category Pirates 🏴☠️
Eddie Yoon
Christopher Lochhead
