Market

Snap’s Struggles Set It Apart, and Streaming “Coopetition” | The Motley Fool

Motley Fool senior analysts Matt Argersinger and Jason Moser discuss:

  • Snap‘s incredible fall over the past year.
  • How worried shareholders of Alphabet and Meta Platforms should be.
  • Intuitive Surgical‘s latest results.
  • The latest from Twitter, Amazon, and Johnson & Johnson.
  • The latest results from Netflix.
  • A wide-ranging discussion of the connected-TV landscape.
  • The “coopetition” that exists among major players like Disney, Apple, The Trade Desk, and Roku.
  • Domino’s Pizza‘s streak of global growth is ending.
  • Whether Shopify is a buy.
  • Two stocks on their radar: Etsy and Berkshire Hathaway.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on July 22, 2022.

Chris Hill: Social media, streaming media, healthcare stocks. Investors, assemble. Motley Fool Money starts now.

It’s the Motley Fool Money radio show. I’m Chris Hill, joining me in studio Motley Fool Senior Analyst Jason Moser and Matt Argersinger. Good to see you as always, gentlemen.

Matt Argersinger: It’s great to be in.

Chris Hill: It’s great to be in the studio. We’ve got the latest headlines from Wall Street. We will dip into the Fool mailbag, and as always, we’ve got a couple of stocks on our radar.

But we begin with a chaotic end to the week for social media stocks. Shares of Snap fell nearly 40% on Friday after second-quarter results for the social media company came in lower than expected. Snap also said it plans to slow hiring. The reaction also sent shares of Pinterest, Meta Platforms, and Google lower.

Matt, we will get to the ripple effects in a minute. But first, how bad is this for Snap?

Matt Argersinger: Well, bad enough to send the stock down to the market cap of around $17 billion, and I think what’s remarkable is less than a year ago, September 2021, Snap’s market cap was over $130 billion. I think that just shows you some of the insanity we’re seeing in the market last year.

But I can’t argue with the market’s reaction. If you look at the earnings, user growth slowing, we know the ad market is softening. That tends to happen. But I think what I’m focusing on is that if you look at Snap’s five-year history as a public company, it’s never had positive earnings, not once, not in a single year, it’s never even had any meaningful cash flow, especially just for the stock-based compensation, which is out of this world egregious.

But it also worries me, I think in the second paragraph, they lay out the bad news. But the next thing they say is we’re going to do a $500 million share repurchase. I don’t think that’s a great use of capital. [laughs] I just think if you’re losing hundreds of millions dollars every quarter in earnings — and by the way, keep in mind, Jason actually pointed this out before the show, it’s not like they have $5 billion in cash. As they’ve stated, it’s $500 million, but they can cover it. They actually have over $4 billion in debt. Laying out all that cash to buy back shares when your business isn’t even on an even keel, especially after five years of being a public company, when your users are at the highest they’ve ever been and you still can’t make a profit, it has me concerned.

Jason Moser: Yeah, I think they explicitly stated, too, those repurchases are to offset that dilution. They frame it as “we’re trying to protect shareholders,” and I guess I appreciate their honesty. But the bottom line is, we talked about this I think last week maybe just we were talking about metrics that maybe fly under the radar. I had mentioned share repurchases looking one step further into the share count outstanding, because those repurchases are meant to bring that share count down.

In the case of Snap, that obviously isn’t going to be the case. It’s not like that’s unique to them. This is part and parcel for the tech industry, but still it’s worth noting. I agree that it just doesn’t feel like the most ideal use of that capital at this point when the company clearly have […].

Matt Argersinger: Well, yeah, exactly. That’s your go-to. Your go-to is, can we stop the bleeding? So let’s announce this what seemingly is a massive buyback. But even at the market cap today, again, around $17 billion, $500 million is not — and you just said it, it’s not going to be accretive to shareholders anyway. So it’s not going to move the needle really.

Jason Moser: Yeah.

Chris Hill: In fairness to Snap, we have seen much larger and much more profitable companies like Microsoft come out and say, hey, we’re slowing hiring. Let’s put that aside for a second.

I want to go back to something you said, Matt, about the ad market softening. We’re seeing so many companies pulling back on the marketing lever because that’s a lever they can control. Is it warranted that what we’re seeing with shares of Meta and Alphabet, if I’m a shareholder of either of those companies, how concerned should I be about a pullback in ad spending?

Matt Argersinger: I don’t think if you’re a long-term shareholder of those, you should be concerned at all. To me, Google especially — you made this point, Jason, earlier before the show, which is just search-based advertising is such a different model, I think. Meta, I could see, they’re going to have some ripple effects. But even then, beyond Snap, they’re so much more diversified. I think of Meta as with all the things they have going, it’s not just messaging like Snap. It’s Facebook, it’s Instagram, it’s Stories, Reels. It’s a wider ecosystem around social media that they can play into.

I tend to think Snap as a little unique. It’s a very narrow niche among users. It’s a very narrow experience as far as I know. I’m not a Snap user, but that seems to be the case. I can understand why it’s having a little bit of an effect on the other players, but it shouldn’t be meaningful in my view.

Jason Moser: You’re right. Snap, fairly niche. I think Twitter falls in that same category. Look at those two businesses — let’s just put the Musk Twitter drama side for a second. Twitter is just its own stand-alone business. You look at those as very niche plays that they’re going to be the first to go. Advertisers are going to say, we just don’t realize the same return on our investment that we do on something like a Google, for example.

I would put Google above Meta in this case just because I think search is so resilient and Meta is in a bit of transition. I see Meta down or I see Google down 5% today on this news. To me, that represents an opportunity, because while the ad market maybe softens, Google’s still going to get the lion’s share of the dollars going into that market, and when things do recover, they’re going to continue to get the lion’s share, and that price is going to recover.

Chris Hill: Later in the show, we’re going to get into the latest from Netflix and really dig into the connected-TV market. But do you think we are now entering a period of, let’s just call it the rest of 2022, where we as investors aren’t going to see the proverbial wheat separated from the chaff when it comes to advertising businesses? Because if companies across the board are cutting their marketing spends, then the competition becomes even fiercer across every platform, doesn’t it? Are we entering a period now where we’re just going to see the fight becomes much harsher?

Jason Moser: I think so. I think we talk about it often, when you enter these periods of tough times and headwinds or companies have to weigh investments they’re making, it feels to me like the strongest companies usually come out of these periods even stronger. You look to the market leaders in this case, again, going back to companies like Meta, Google, you could probably throw Microsoft in there to an extent of this point, given the investments they’re making in their advertising business. It really just feels like these are the times when the strongest businesses come out of these stretches even stronger. It’s just difficult to see at the time because everything is taking a shellacking. [laughs]

Matt Argersinger: I throw Amazon in there as well.

Jason Moser: Yeah, another one.

Matt Argersinger: Companies that obviously have sustainable business models, produce cash flow, all the companies you named, and that’s not Snap at all.

Chris Hill: Before we go to break, Jason, you mentioned Twitter. I should point out Twitter’s second-quarter results were lower than expected. The company blamed the drop in ad revenue on the “uncertainty” — I’m using air quotes because that’s the word they used — surrounding the company’s future regarding the takeover by Elon Musk. You think that’s bigger news? Or the fact that in the first round of the legal fight, round 1 went to Twitter? Because Elon Musk and his attorneys were looking to push the trial out to next year and the judge came out and said, nope, we’re doing an expedited trial starting in October, and it’s going to last five days.

Jason Moser: Yeah. Twitter just seems like a completely uninvestable company at this point, regardless of the outcome. I think it’s pretty fascinating that they’re really pushing hard for this acquisition to go through. That tells you they really see that as the best outcome. And I don’t disagree. I think we’ve seen enough of a track record here in regard to Twitter over the last several years to understand it’s hit its potential. As a matter of fact, I think its potential is way in the rearview mirror. Maybe if Musk ends up with this thing, perhaps there’s the opportunity to realize some unfulfilled potential there.

If I were a shareholder, which I’m not, I would be rooting for that, because I think that the status quo clearly isn’t cutting it there. To me, this is just such a mess in every regard. Investors are getting screwed, employees are getting it worse. Wow, hats off to the judge for kicking in this expedited trial, because it really does feel like this is something that doesn’t need to drag out any longer than it already has.

Matt Argersinger: Well, I am a Twitter shareholder, unfortunately, and I do view it as, unfortunately, the best outcome because this is a business that, its influences always belied its valuation. I always thought at some point that would connect a little bit.

Jason Moser: We all did, I think.

Matt Argersinger: They’d find the model, and they would create the value that I think their platform actually creates for a lot of people, for millions. But it hasn’t been the case. I think, unfortunately, this $54.20, I guess that’s what I’m rooting for, is probably the best outcome if that happens.

Chris Hill: It was a big week for the healthcare industry. We will break down the latest right after the break. Stay right here. You’re listening to Motley Fool Money. …

Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argersinger and Jason Moser. Shares of Intuitive Surgical up for the overall week but down a bit on Friday after second-quarter profits came in lower than expected for the surgical robot company.

Jason, what’s going on here? Are hospitals just not buying the da Vinci Surgical System as much as they used to?

Jason Moser: Well, yes and no. They continue to invest in the da Vinci, but they continue to invest in the latest iteration of the da Vinci. It feels like we’ve hit a saturation point there in that regard. That probably is contributing a little bit to these results. It’s another business that had a tough start to the year. I think shares are down close to 40%.

It is a much more competitive environment than ever before. So this is a company that continually needs to innovate. But the numbers, they were OK. Second-quarter revenue, $1.5 to $2 billion, was up 4% from a year ago. Earnings per share fell $0.16 from a year ago. When you look at the da Vinci setup there, they placed 279 surgical systems, which was down from 328 a year ago.

Now, it’s not because folks don’t like them. It’s just because as they said in the call, they say as our customers have standardized on generation-four da Vinci systems, the installed base of third-generation systems has declined. That’s lowering the trade-in population. Ultimately, a lot of people have already gone ahead and traded up to that new generation four system, which is a good thing. If you look at procedures, procedures grew 14% from a year ago. Now, if you compare that to a year ago, a year ago, that was 68%.

But it can be argued there was a coiled-spring effect there, given the headwinds in the healthcare space for obvious reasons. If you go back to 2019, that procedure growth was 17%. So a little bit more in line with what we just saw this most recent quarter.

And they are slowly but surely installing more of the Ion clinical bases there. That is the bronchoscopy system that helps in regard to lung cancer diagnoses. I think that’ll be something that continues to offer a little incremental growth.

The installed base totals 7,135 systems. That’s up 13% from a year ago. They actually did raise procedure guidance modestly for the year. That’s all pointing to signs that the business is doing well, but hospitals are absolutely facing headwinds on spending, and they’re tightening up a little bit there.

Chris Hill: Shares of Intuitive Surgical down 40% year to date. It’s obviously cheaper. How cheap is it? I’m wondering if this is a buying opportunity.

Jason Moser: I feel like it is given the market position this company holds today. That installed base is really difficult to combat when you’re a competitor. We go back to share repurchases, we were talking about Snap. I will ding them on this: They repurchased $500 million in shares for the quarter. Right, you know what? Share count is up since 2017. I don’t like seeing that.

Now the flip side, they’ve got a very strong balance sheet: $8 billion in cash and equivalents with no debt. This is a well-run business in a very resilient market. I think if you’re a long-term shareholder, you got to feel like the future looks pretty bright for these guys.

Chris Hill: Amazon is getting deeper into the healthcare industry. This week, the tech giant bought 1Life Healthcare, a primary-care practice that operates under the name One Medical. The price tag is $3.9 billion. It is an all-cash deal, Matty, and when you look at shares of Amazon rising this week, that seems like a nice thumbs-up from investors.

Matt Argersinger: I think there’s something to this. I mean, $3.9 billion, it’s not a small acquisition. But for Amazon, it’s a small bet. I think what it gives them, it gives them something that they haven’t had as they build out this approach to healthcare, which is 188 medical offices. It’s got that brick-and-mortar element that comes with it.

I’ll point out, they’re buying the business for less than what One Medical came public at in early 2020 and about a 70% discount to its high. So I feel like it’s Amazon being a little opportunistic here. They made the acquisition of PillPack several years ago, and I think a lot of us thought, wow, OK, Amazon’s big step here.

I don’t think that’s reached the potential yet. It hasn’t been a game changer a lot of us thought. They launched Amazon Care, but I think this is a bigger step. If you add all those three things together, you’ve got the pharmacy element. You’ve got this brick-and-mortar medical office, personal healthcare service, you’ve got Amazon Care, the telehealth, you start to see the makings of what is an ecosystem here. If they can test it out with their tens of thousands of employees, roll it out nationwide, small bet becomes a big bet.

This is a part of Amazon’s strategy, and maybe we’re not far off from a year or two now from Amazon Prime offering some kind of basic medical insurance plan or healthcare services you can subscribe to.

Chris Hill: I was just going to say, is that where this is going, whether it’s part of Amazon Prime or it becomes a subscription service from the company?

Matt Argersinger: I could see that. It’d be interesting to see if it’s all rolled into one Amazon Prime subscription. But I could see something like Amazon Prime Plus. Oh gosh, that sounds terrible. [laughs] Something beyond that where it’s greater and it includes healthcare and as well as maybe an NFL ticket, too.

Chris Hill: I was just going to say the waiting rooms only playing Amazon Prime Video.

Matt Argersinger: [laughs] There we go.

Jason Moser: How far are we? I’m the biggest advocate of the Amazon Prime, it’s the cost of living in our house. I cannot tell you everything you get with it. At this point, it just feels like they add something on. I just don’t know everything that you get with it anymore. It feels like you run that risk. You have this Prime benefit, but you don’t fully understand everything that you get for it. Maybe they could do a little bit of a better job of like [inaudible 00:16:09] front.

Matt Argersinger: If you’ve ordered from Amazon lately and you go to your orders in your account, the menu that you bring, drop-down menu, is like 30 things long.

Jason Moser: It’s like their earnings release. [laughs] It takes an hour to read just all their accomplishments. You’re like, wow, that’s great, but just give me the bottom line. [laughs]

Chris Hill: Business as usual for Johnson & Johnson. Third-quarter profits were higher than expected. They raised guidance for the full fiscal year.

Jason, nothing spectacular, just J&J doing what they’ve been doing for a while now.

Jason Moser: Slow and steady wins the race, Chris. This is exactly the thesis I think with a company like Johnson & Johnson. Been a very good performer this year in the face of a difficult market. Back in April, that marked their 60th consecutive year of a dividend increase. That makes them a Dividend King, not just a Dividend Aristocrat.

This is one I’ve said it before, it’s just the longer you own it, the more sense it makes. The performance for the business, operational sales, that excludes currency effects, were up 8%, earnings per share up 8.5%, and they maintained the midpoint of their guidance, which is encouraging. Saw strong performance in pharmaceutical division. That was up 12.3% for the quarter, but they saw growth in all three segments: consumer health, pharmaceutical, and MedTech.

I think the big story with Johnson & Johnson really, and we won’t know until this actually happens, is when this business actually splits out into two separate entities. They’re going to split the consumer side of the business out and let the pharmaceutical and MedTech do their own thing as the Johnson & Johnson brand. That is one of the main priorities here for a relatively new CEO Joaquin Duato.

You look at this business on the whole, you look at the MedTech side of the business, 11 MedTech platforms each delivered over $1 billion in revenue annually. You look at the consumer side of the business to their four segments of the business, they’re delivering $1 billion better in revenue. Altogether, very strong business. I feel like it will be a strong two businesses once they actually execute the separation, but that won’t happen until later on in 2023.

Chris Hill: What happens to the dividend next year?

Jason Moser: That’s the big question. I feel like if you’re the ongoing Johnson & Johnson business, that’s the MedTech and the pharmaceutical side, that’s, I feel like you have to maintain that dividend increase. You got to maintain that reputation. Who knows exactly what they’ll do with the consumer health side of business? But those are questions that we’ll have to ask as this gets closer.

Chris Hill: I feel like both sides want to keep that streak going.

Jason Moser: [laughs] Yeah, absolutely.

Chris Hill: Coming up after the break, we’ve got the latest from Netflix and a much closer look at the connected-TV landscape. Don’t go anywhere. You’re listening to Motley Fool Money. …

Later in the show, we’ve got radar stocks. But first, a message from our friends at BiggerPockets.

David Meyer: Real estate investing is one of the best ways to build long-term wealth. But to be a successful investor, you need to know what news and trends to pay attention to and what’s just noise. I’m Dave Meyer, real estate investor and VP of analytics at BiggerPockets.

In my new show, On the Market, a BiggerPockets podcast presented by Funrise, we bring you expert perspectives in a digestible format so you can make informed investing decisions, and we make it fun. I promise you, On the Market is definitely not another boring new show. Each week, I chat with a panel of experts about the latest news and trends affecting the real estate investing world. We touch on things like government policy, 3D-printed houses, investing in the metaverse, and more.

So join us every Monday for On the Market, the podcast designed to help you invest with confidence. Just search On the Market in your favorite podcast app. That’s On the Market.

Chris Hill: Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argersinger and Jason Moser.

Netflix had previously warned it would lose 2 million subscribers in the second quarter. But when Netflix reported after the closing bell on Tuesday, the streaming leader shared that it only lost 970,000 subscribers.

Jason, I’m poking fun at them. On a more serious side, shares of Netflix up 17% this week.

Jason Moser: Beat expectations, man.

Chris Hill: Yes, that all it takes.

Jason Moser: “Less bad” is the new good. Feels like we’ve hit a new chapter of the Netflix story here. I don’t think that’s necessarily a bad thing. We knew it was coming at some point. Subscribers just don’t grow to the moon, and they’re dealing with a much more competitive landscape than ever before. It is interesting to see the slowdown. If you exclude currency effects, they grew revenue 13% for the quarter.

I think more noteworthy, they’re forecasting just 4.7% growth for the current quarter and ultimately targeting getting subscribers back to where they were at the end of the first quarter this year. It remains to be seen exactly what kind of investment this is going forward. It is something to remember. Now, nearly 60% of their revenue comes from outside of the U.S. So they are going to be more subject to those exchange-related impacts as time goes on.

But really I think the big story is clearly the advertising tier. That is something that they’re going to be focused on here in the coming quarters, and they hope to roll that out in 2023. I’m torn here. It is for a long time — The key for them, and they mentioned this in the letter, in the near-term, a key priority to reaccelerate revenue is to evolve and improve their monetization, and they see doing that three different ways. One of them is the ad-supported tier. Fully agree with that.

Another one, they’re going to continue to work on figuring out how to crack down on password sharing. Fully agree with that too.

The one that I’m like, they better keep an eye on this. They want to keep an eye, they’re looking to figure out a way to keep the service simple. I agree, but I think the problem is that Netflix, as time goes on, is becoming less and less simple. That was a big selling point in the early days. It was just one pricing tier. Then it became three. Now it’s going to become who knows, three plus an ad-supported tier, and exactly how they roll that ad to your app remains to be seen.

I think they’re doing the right thing in actually rolling that tier out, but it is just worth remembering. I mean, Hastings, for the longest time, we viewed him as the smartest guy in the room when it comes to streaming. I think that’s spot-on. I think he is the smartest guy in the room when it comes to streaming. But that was a much different business than what we’re seeing going forward.

I don’t know that that necessarily applies when we’re talking about an ad-supported streaming service. He’s got a lot to learn, I think, in that regard. Hopefully that’s what they’re doing, is taking some notes and figuring this out because I think that’s going to be a point of uncertainty. We’re going to see a lot come of this in the next couple of years as to whether they can really execute.

Matt Argersinger: I think Netflix was really the only kid on the block, if you think about it, going back seven or eight years ago, and a competition … what I always felt, same with you, I like Netflix’s simplicity and something Reed Hastings talked about all the time. We’re simple and you pay us once a month. We’re delivering great content. Not many multiple tiers, not advertising, not live sports. We’re going to just focus on main content.

But the competition I think has pushed them. I think they’ve seen competition be successful with ad tiers. They’ve seen success with other platforms that roll-out content slower, episodes come out not all at once but over weeks or over months, and that’s pushed them to do some things.

But I want to go back to the very first thing you said, which is I think Netflix is the first notable earnings announcement, guidance, etc., for this earnings season. It really is about “just don’t disappoint me too much.” [laughs]

Like last quarter, you said it, Chris, before the show, last quarter was like any hint of like you could have had blowout earnings, didn’t matter; your stock was getting crushed. Now for every company it’s like, “Well, we understand things are bad. Investors know that, just don’t disappoint us anymore and we’ll reward the stock.” I think that might be the way going forward.

Jason Moser: But I think a good thing, too, for this business, just to note this, they expect to be free cash flow positive from here on out. I think that’s a big deal because we’ve been targeting this or a while, and when you look at the obligations this company has, they’ve got content obligations now of just under $23 billion, and they’ve got just under $18 billion worth of debt on the balance sheet.

That’s just fuel for this engine. That’s going to be in perpetuity, I think, for a business like this, to a degree, but that free cash flow should help them I think going forward. Not only improve their financial position, but also keep that content coming out.

Matt Argersinger: They should announce a buyback. I mean, come on.

Jason Moser: There’s the answer.

Chris Hill: We got a question from Bill in Seattle, who wrote, “Is there any concern about an ad-based system causing more Netflix subscribers to leave? If that happens, what will be the revenue impact, if any?”

A great question, but my assumption is that is front and center in their thinking is “we got to do this in a way that brings in more revenue and brings more people onto the platform, not less.”

Jason Moser: Yeah, it’s going to be interesting to see how that nets out because, in theory, it really does feel like it should bring more people into the fold than ever before. Now the counter to that is, there are likely going to be some subscribers that say, “You know what, we just don’t use Netflix as much as we used to. We have other services that we use now. So we downgrade our subscription from like the mid-tier down to the ad-supported tier.”

I think the good thing for Netflix, at least there, is they don’t see those subscribers leaving in full. You’re keeping the subscriber in your universe, and we know those acquisition costs are just really expensive over long periods of time. If it can ultimately enable them to just keep subscribers in their universe, even if they’re just downgrading to a cheaper subscription, I think that’s a net win for Netflix.

Chris Hill: Our email address is [email protected]

Related to all this, we got an email from Tsai, who writes, “I’m interested in the connected-TV and over-the-top advertising market, especially around The Trade Desk and Roku. My question is, how are they differentiated against the competition? How does Roku stack up against Amazon Fire and Apple TV? How does Trade Desk stack up against Google, Amazon, and Facebook?”

Great questions. And a reminder, among other things, of just how intertwined this entire industry is. When we talk about streaming entertainment, you have all of these businesses that are simultaneously competing with one another and, in a lot of cases, having to work with one another.

Jason Moser: There are a lot of dots to connect in space, and the word that always comes to mind here is “coopetition.” There are companies that are partnering up and yet competing with each other to a certain degree. You look at something like The Trade Desk, which is the industry leader in programmatic advertising and ultimately just an independent provider of that demand side platform, and that’s great. A very disruptive force in adtech.

You look at something like Roku, far more consumer facing, a streaming platform, and they’ve done a great job pivoting from being that hardware company that we knew so long ago to ultimately being more or less a software company. It’s about the operating system. You buy a TV, say, it doesn’t matter whether it’s a Samsung or LG or whatever, but it’s got that Roku operating system where you can then subscribe to all of your channels in that operating system. Roku’s getting a slice of the subscription revenue, but mostly, it’s the ad-supported revenue that Roku is benefiting from.

Two different businesses, but they play in the same sandbox, and it feels like there’s plenty of room to own both of those. Now, they’re higher-risk ideas when you put them in the context of your businesses like Microsoft, Amazon, and whatnot.

Matt Argersinger: I struggle with this, too, and it’s a great question by Tsai. I think there’s a lot to unpack. I have a question, though. Am I a dinosaur? I live on a farm now, and we recently got Xfinity finally. They dug the hole, so I have Internet, and it came with an Xfinity Flex device, which has basically given us all the connections to Netflix and Amazon and HBO that I had before, either via smart TV or some other device. I feel like there’s another player there.

You’re right. They all have to work together. I just feel like it comes down to what is the customer experience and what makes it easiest for someone to connect to all their different apps? I can’t tell you. They all seem really great and easy to me.

Chris Hill: Well, Comcast was not part of the question, but they’re absolutely a leader when it comes to cable. They own Xfinity. They have a lot of content. They’re the parent company of Peacock.

This is one of those things, we were talking about this before the show, that so often as investors, it’s almost like our brains are wired to think in terms of binary outcomes. It’s like, who’s the leader here? Who do I think is going to win? As much as any industry, this seems like one where I just want to say to anyone who’s asking these types of questions, like, please don’t try and pick one winner.

Jason Moser: Yeah.

Chris Hill: Which is one of the great things about being a stock investor. You can take a diversified-portfolio approach, not just to your portfolio but to individual industries, and this seems like one where like, I don’t know, I’m a Trade Desk shareholder. Are they going to be the big winner in this? Maybe. But I would hate to have 100% of my exposure in this industry just riding on one single company.

Jason Moser: I think you can really just adjust one word in what you just said there and say it’s going to be “a” big winner instead of “the” big winner. I would just encourage you to look at it from that perspective, because we mentioned a lot of companies in there that, interestingly enough, are also playing in this sandbox, as I said before.

I mean, NBC Universal, for example, they have their own adtech. NBC Universal was actually in the running as a potential partner for Netflix. Now, Netflix obviously chose Microsoft. Most people, if not everybody, never saw that coming, because most people don’t even realize the investments that Microsoft has been making in their advertising business until now, when we’ve been able to dig into it a little bit more.

So now you bring Microsoft into the fold. You see NBC Universal, which is owned by Comcast. They’ve got an adtech business. You see Disney, obviously, securing what a record $9 billion in advertising commitments here recently, 40% of those are devoted to streaming. Now, obviously, that is a big win for The Trade Desk, because The Trade Desk is going to be handling Disney’s advertising.

But it just goes to show you, as you said, there’s so many different companies out there serving so many different roles. It’s like the payments industry. It can be difficult to connect all of the dots and, Chris, you know we’re famous for talking about the war on cash here because it just doesn’t seem prudent to pick a winner when there are going to be so many.

Chris Hill: The last thing before we go to break, lost in all of this is early in the week, Disney comes out and says, “We’re raising the price of ESPN Plus,” and they really jacked it up. This was not, oh, “We’re bumping it up by a dollar a month.” They went from $7 a month to $10 a month, but they kept the price of the Disney bundle exactly the same. So you get Disney Plus, ESPN Plus, and Hulu for I think it’s $14 a month, which signals to me that they are completely focused on getting people into that basically saying, hey, we’re jacking up ESPN Plus, but for just a couple of bucks more, Matt, you can get an enormous amount of content. And it’ll be interesting to see how compelling that is because on the surface, it’s a strategy that seems like it should work.

Matt Argersinger: It should absolutely work. My only question with all this, though, is there are only a certain number of hours in a day that someone has to consume content. I know that, especially when I have a three-year-old son at home. They’re going to be, like I said, the basket approach is the right approach. There are going to be so many winners in this space, and it’s an exciting industry to watch.

Jason Moser: Amazon’s got their own demand-side platform that basically competes with The Trade Desk.

Matt Argersinger: See, Jason just keeps confusing me, because he keeps throwing out new companies in this space.

Jason Moser: Yet The Trade Desk has a partnership to some degree with Amazon. So again, back to that coopetition. I mean, it’s a really difficult one to parse, and that’s why you got to be willing to take a look at a lot of different names.

Chris Hill: This is why stock investing is not for everyone. [laughs]

Jason Moser: That’s also why it’s a lot of fun.

Chris Hill: Absolutely.

Up next, an impressive streak comes to an end for one of the best-performing stocks of the past decade. Plus, we’ve got a couple of stocks on our radar. Stay right here. This is Motley Fool Money. …

As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against. So don’t buy or sell stocks based solely on what you hear.

Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser and Matt Argersinger.

Second-quarter revenue for Domino’s Pizza came in higher than expected, but international same-store sales fell 2%, which is noteworthy, Jason, because it’s the first time international same-store sales have fallen since 1993.

Jason Moser: [laughs] Yes, that is a shame. I mean, they are in good company, because U.S. same-store sales fell as well, 2.9%, but just a difficult quarter all the way around for Domino’s, but not terribly surprising. Revenue up 3.2%, but earnings per share down 7.8% as they continue to witness inflationary costs. They saw an average of 6% price increases for the quarter, but labor remains a very difficult issue for the business. The carryout business actually performed very well; comps were up 14.6%. Delivery fell 11.7%. They’re just having some trouble locking down drivers.

Management set goals of hitting 25,000 stores and $25 billion in global retail sales by 2025, they’re just over 19,000 stores today. The trailing four quarters of store growth is just over 1,200. So I’m not sure they’ll be hitting those targets, but it is a very resilient business nonetheless. They’ve done a lot in building out the technology side of the business as well. So I suspect they’ll be OK.

Matt Argersinger: So it’s DiMaggio’s streak and then Domino’s streak. [laughs]

Chris Hill: There you go.

Once again, our email address is [email protected]

Question from Sean Williams: “Is it time to buy Shopify or wait? I would love to hear where the thesis stands on this one.”

What do you think, Matty?

Matt Argersinger: Yeah. If you look at Shopify, it’s down 75% from its highest, you’re thinking, there’s an opportunity her. But if you look at the, I’m just looking at consensus earnings estimates, not this year, let’s forget this year. Let’s look at next year: $0.25 a share. Even after the downturn, the split in the stock, and adjusting for all that, it still trades for about 150 times earnings. You can look at cash flow, and that’s great. They do about $500 million in operating cash flow, maybe normalized, but that’s still 90 times that based on their market cap.

Again, Shopify is an exciting business, growing like gangbusters. I’m actually a shareholder as well. You got to be fearful of the valuation even after this big downturn they’ve had this year.

Chris Hill: Let’s get to the stocks on our radar. Our man behind the glass, Dan Boyd, is actually behind the glass this week. He’s going to hit you with a question. Jason Moser, you’re up first. What are you looking at?

Jason Moser: Well, earning season is underway. So next week, Etsy reports on July 27th, ticker is ETSY. Business had benefited clearly from the stay-at-home stock mania that has since come back to Earth, but Etsy is doing OK. Last quarter, they acquired over 7 million new buyers, that was almost 60% up from Q1 2020. They also continue to see reactivation of lapsed buyers. They saw 5 million reactivations in the first quarter a year ago as well.

I think the big question for Etsy, the headline over the past couple of quarters here, has just been the fee change. They’re raising fees for their merchant customers, and we saw a vocal minority make a lot of noise about that. In reality, though, based on management’s comments from a quarter ago, they say they saw less than 1% of sellers actually go into temporary vacation mode and take a little bit of time off from the actual business. They saw active listings just drop a little bit less than 1% during that week as well, and that has returned back to previous levels.

Again, it seems like a vocal minority in regard to those increases, and it does sound like they’re using those increases to reinvest in the business and provide more for their merchant customers in the way of ads and payments and whatnot. But I’ll be paying attention to that language here in this call.

Chris Hill: Dan, question about Etsy?

Dan Boyd: Etsy is a terrifying business, Chris, because I’ll look at it and I’ll be like, I’ll spend $15 on hobby supplies or painting supplies or something, and then my wife looks at it and says, man, this $900 handmade wooden cabinet sure would be nice to have. It’s a terrifying business, Chris, which probably means it’s a good business.

Chris Hill: As a shareholder, I appreciate both of you contributing. It didn’t sound like there was actually a question in there, Jason.

Jason Moser: No. I’ll just wholeheartedly agree and move on to Matty. [laughs]

Chris Hill: Matty, what are you looking at?

Matt Argersinger: I’m actually looking at Berkshire Hathaway, ticker BRK.B, unless you’re Jason and can afford the A-share.

Jason Moser: [laughs] Fake news.

Matt Argersinger: But this is astounding to me. In less than three months, Berkshire’s stock price went from an all-time high of around $360 to a 52-week low in less than three months. For that size of a company and for Berkshire itself, that seemed remarkable to me. Now it’s up a bit over the past few weeks, but you can still buy the stock today at roughly one and a quarter times book value, which is right at the threshold where Warren Buffett has said in the past he’d be buying back the stock.

Other than Chevron, I think that’s where Buffett is probably buying these days. So it’s one of those few companies I think in the market right now that you can say, you know what, there’s probably limited downside to it.

Chris Hill: Dan, question about Berkshire Hathaway?

Dan Boyd: Does anybody have any A-shares they want to gift me? [laughs] My birthday is in September, but we could do it a little early. It’s cool.

Jason Moser: You could do a GoFundMe. Let’s all contribute to a GoFundMe.

Dan Boyd: You are going to buy one.

Chris Hill: Just one. Dan, two very different businesses. You got one you want to add to your watch list?

Dan Boyd: Well, interestingly enough, Chris, I am a Berkshire B shareholder already. So I’m going to be adding Etsy to the watchlist because I think it’s a very interesting stock. Terrifying.

Chris Hill: Terrifying in a good way though.

Dan Boyd: That’s right.

Chris Hill: Jason Moser, Matt Argersinger, great having you in the studio.

Jason Moser: Thanks.

Matt Argersinger: Thank you, Chris.

Chris Hill: That’s going to do it for this week’s Motley Fool Money radio show. The show is mixed by Dan Boyd. I’m Chris Hill. Thanks for listening. We’ll see you next time.



Most Related Links :
honestcolumnist Governmental News Finance News

Source link

Back to top button