For "Big Retail," It's All About Inventory

In this podcast, Motley Fool senior analysts Emily Flippen and Ron Gross discuss:

• Expectations around more interest rate hikes in the near future.
• Inventory being the key story around big retailers like Walmart and Target.
• Deere's mixed 3rd-quarter results and potential for a bright future.
• The incredible roller coaster for Bed Bath and Beyond shareholders.
• Foot Locker's surprising 2nd-quarter results and new CEO.
• The latest from Home Depot, Lowe's, and Starbucks.

Motley Fool producer Ricky Mulvey talks with Bloomberg entertainment industry reporter Lucas Shaw about Warner Brothers Discovery and how the media conglomerate is consolidating and evolving.

Emily and Ron analyze the latest innovation from Papa John's and share two stocks on their radar: Rover Group and American Tower.

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 August 19, 2022.

Chris Hill: Wall Street tries to keep its winning streak intact, while one company deconstructs its signature product. 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, Emily Flippen and Ron Gross. Good to see you both.

Emily Flippen: Hey, Chris.

Ron Gross: How you doing, Chris?

Chris Hill: We've got the latest in retail restaurants and more. We've got some shake-ups in the executive ranks, and as always, we've got a couple of stocks on our radar. But we begin with the market in general. The recent rise of the stock market hit a speed bump this week after minutes from the Federal Reserve's July meeting indicated more interest rate hikes are coming in the near term. Ron, were you surprised by this? [laughs] Because I wasn't, but apparently some investors were.

Ron Gross: They shouldn't have been. I mean, the Fed has been signaling for quite some time now that higher interest rates are necessary to bring inflation down. In fact, the market is actually baking in at least another 50-basis-point hike in September, so the market as a whole should really have not been surprised. I think what the market reacted to in a good way is that officials said they would be cautious, acknowledging that too much tightening would be too big a risk to the economy.

Again, they're trying to engineer that so-called soft landing and not put us into a recession. I think investors cheered the fact that once again, the Fed's telling us all they get, it doesn't mean they'll be able to do it, but they get it and they have to try to just do this just right to get to their 2% inflation target were much higher than that now, but not throw us into recession. We do see some signs that the economy is weakening. We do see some signs that inflation is coming down. We got home-sale data that was weak recently and some other pockets of the economy are showing some weakness as well, job markets still strong though.

Emily Flippen: I think what the market likes is predictability and the good news is is that with each passing month, the Federal Reserve is becoming a bit more predictable. If you read through their minutes, the language is becoming more of what they've repeated in the past, which is exactly what Ron said, slowly rising interest rates. Trying to engineer that soft landing, we'll see if it's possible without a big recession, but the idea is that the market doesn't like when the economy and rates and such are unpredictable. We saw that in the first half of the year, so hopefully this means headed into the second half of the year, we just see a decrease in general volatility even if interest rates continue to rise.

Ron Gross: What's interesting is with this somewhat of a rebound in the market recently, stock market is once again not so cheap. This is going to depend on what earnings companies can put out in the face of things like inflation with some decreasing margins and some weakening economic numbers, so let's keep an eye on this because it's not a given that the market just go straight up from here.

Chris Hill: Speaking of earnings, let's start with big retail -- Walmart and Target both out with second-quarter reports this week. The headline for Walmart was a beat on the top and bottom lines with revenue of nearly $153 billion. Target's profits were nearly 90% lower than a year ago due to ongoing challenges with inventory and, Emily, both of these companies had lowered expectations heading into their earnings reports. What stood out to you?

Emily Flippen: Well, big retail to me this quarter is just a story about inventory. In fact, I think you can summarize which retailers performed relatively well and which did relatively poor simply by looking at how they managed inventory over the past year. If you take Target, for instance, Target's inventory has nearly doubled since its pre-pandemic average. They invested really heavily into things that consumers were buying -- a lot of discretionary items, electronics, and those are the things that were left sitting in these Target stores as consumers pulled back expectations for spending. Walmart also invested into inventory although not extreme the way Target did.

Well, they had more inventory than they've had in the past. It wasn't at the same level that Target experienced, so while they had somewhat disappointing guidance, it didn't quite come to that 90% cut back that we're looking at in terms of Target's expected profits. Those two businesses themselves, it just comes down to the quality of merchandising, and anytime I'm looking at a retailer, I want to know what's their merchandise strategy. Target's done really well in the past, but over the past year, they've admitted it, but they miss the mark with their merchandising, so I want to see how they're iterating on that moving forward. The good news is that discount retailers where I bought my outfit I'm wearing today from the Burlington and the TJ Maxx of the world. They'd benefit from these inventory write-downs.

Chris Hill: Target's CEO, Brian Cornell, in referring to their inventory and the levels are still where they were three months ago, but Cornell says we have a better mix now. Given his track record at the company, I'm inclined to give them the benefit of the doubt, but it seems like the statement that three months from now, we're going to find out whether or not he was right.

Emily Flippen: Definitely and you have to be super careful with guidance in this quarter, and that's what we're seeing companies do, and they're pointing to what could be a continued softening of the American economy and consumer spending, but at the same time, you don't want to be scaring off investors with really strong statements that we're going to continue to have inventory problems for foreseeable quarters. It's all about managing expectations but also being realistic; we're meeting the consumer where they may be in the second half of the year.

Chris Hill: From big retail to big home improvement, Home Depot's second-quarter report was stronger than Lowe's, but both companies saw their average ticket rise, and shares of both Home Depot and Lowe's are up a little bit this week, Ron.

Ron Gross: Yeah. Home Depot is definitely the stronger report. The stock is still off 23% from its 52-week high, but I don't think we shouldn't necessarily be surprised by that. But I did like specifically some of the metrics that Home Depot released: sales were up about 6.5 percent. Higher prices, that's important here, higher prices more than offset a drop in transactions. The average amount spent per transaction was up at 9.1%, but transactions fell 3%, and they've fallen in each of the past five quarters.

Something to keep an eye on because pricing can't fix problems forever, so we do want people coming into the stores and shopping. Same-store sales up 5.8%; Home Depot saw an 11.6% increase in transactions that were over $1,000 which is an indication that the professional customer -- not do-it- yourself for the schlub like me who look good in there looking for a wrench -- is actually an important part of Home Depot's business.

In fact, it's more important to Home Depot than it is to Lowe's, as we'll see in some of the numbers, because Home Depot's look strong, yields, 2.3% trading at 19 times forward earnings. I think Home Depot remains a nice company to own. Lowe's, not as strong, share still up about 18% from the 52 week high. Declining sales for the second quarter in a row, results were hurt by decreased demand from the nonprofessional customer base. Those do-it-yourself make up 75% of Lowe's customer base. Sales to professional customers were up 13%, so we do see some strength there. It's just not a big enough portion of Lowe's business the way Home Depot says, but the company didn't manage inventory well.

Interestingly, we saw that operating income was up a bit, but net income was down because taxes were too high, but earnings per share were up because this company is buying back so much stock. Don't be fooled sometimes by the numbers -- you got to look behind things like earnings per share to say, why is earnings per share up if net income was down and get a good understanding of why.

Chris Hill: I don't think any of us put Home Depot and Lowe's in the category of companies that have great pricing power, but it is interesting. As you indicated, both of them were able to see their average ticket rise due largely to inflation and essentially pass the inflationary costs on the customers without missing too much of a beat. In terms of Home Depot, that stat of traffic dropping five quarters in a row. How many more quarters does that happen before investors start to make that the No. 1 worry?

Ron Gross: It shouldn't probably be the No. 1 worry right now. Now to offset that the average transaction value has increased over the past five quarters, so there's your offset, but maybe that offset can't continue forever, and that is something we have to keep an eye on for sure.

Chris Hill: Shares of Deere down a bit on Friday after a mixed third-quarter report, the heavy equipment maker's revenue came in higher than expected, but profits were light and Deere also cut guidance for the full fiscal year. This doesn't make anybody's list of high-flying stocks, Emily, but interesting to see that Deere has held up relative to the market pretty nicely this year.

Emily Flippen: I was going to say maybe it should be on your list if you're looking for great businesses. While this quarter was somewhat disappointing, sales were still really incredibly strong. They rose 22% year over year, so if you're looking at this business as just a tractor business, you're probably evaluating it the wrong way. Now they did have to cut guidance though, but if you get into the details of the drivers behind why their guidance changed, it's not as concerning as the headline numbers.

They are continuing to struggle against supply chain disruptions. Nearly 50 percent of their business is outside North America, so they have very wide-ranging manufacturers across the world depending on lots of different supplies, and they're having to pay more to get those deliveries to meet backlogs for demand, so this is very much a narrative we've heard over the past couple of years, which is supply really just not meeting demand.

Demand outstripping the supply, and that's still the case for John Deere and their core tractors as well as other products, but that slowdown is expected to continue. But the backlog, like I said, still incredible for this business. I think the big question mark is where they bring their technology after this, because as I mentioned, they have incredible revenue growth, they're a really strong business that operates in some sense a monopoly on the technology that they own, which they put into things like AI, machine learning, big data collection.

If you want to automate your crop production process, excuse me, I'm not a farmer, [laughs] but my understanding is improvements that you want to make to your crop production. John Deere's meeting you there, but they have a very close ecosystem for this technology, so once you come in to the John Deere family, if you will, you are really stuck. It's great for business, but it does irritate some farmers.

Chris Hill: One restaurant is shaking up its executive team and one retailer took shareholders on the mother of all roller coaster rides this week. Details after the break, you're listening to Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill here in studio with Emily Flippen and Ron Gross. Quick word about FoolFest. Our annual investing conference is a two-day event, August 29th and 30th. We've got breakout sessions on different investing strategies. We've got a great lineup of speakers. Trex CEO Bryan Fairbanks, venture capitalist Jenny Abramson, best-selling author Morgan Housel just to name a few. FoolFest is free if you are a Motley Fool member, and if you're not yet a member, good news, you can sign up for our Stock Advisor service and get a complimentary digital pass to this two-day event. Just go to fool.com/foolfest for more details, fool.com/foolfest, Ron, I know we like to focus on the business, not the stock, but in the case of Bed Bath & Beyond this week we have to talk about this stuff.

Ron Gross: We make an exception.

Chris Hill: Yeah. Because shares of the challenged retailer started the week at $13 more than doubled due to the company's popularity among meme stock traders, and then shares plummeted on Friday after activist investor Ryan Cohen sold his entire stake more than 7 million shares. Ron, shares went from $13 to $29 and then down to $11 in the span of one week.

Ron Gross: [laughs] Where do I go at this, Chris? First, full disclosure, I was a shareholder, but I sold all my stock last Friday and Monday, August 12 and 15, thinking I was being given a gift by the Reddit folks and the meme stock people because the business is struggling. I originally purchased this company. My thesis being that Mark Tritton, who came over from Target, was going to transform this company in a major way. He did make some good moves, but he also made some stumbles, and that's where Ryan Cohen entered the picture and said, I want some board seats. Eventually, he was successful in getting Mark Tritton out. That was interesting to watch, and he owned quite a bit of stock as you said.

Then he came out and said he owned a call option where he would really only start to make money if the stock was $60 or above. Again, the stock is around $10, $15. That got some Reddit people really interested, and that's when we saw like a 75% increase in the stock in one day. Subsequent to that, he ends up selling everything.

Now there are calls for the SEC to investigate saying that this sounds like market manipulation where he made the stock rise significantly so he could unload. I don't have an opinion about whether that is the definition of manipulation or not. It certainly was a weird week, I'll say that for sure. But Bed Bath now does continue to struggle. The question really on my mind is, do they have the balance sheet to transform themselves once again? Do they have the time? They probably don't, unless they sell something like buybuy Baby or make some major changes.

Chris Hill: It's worth remembering. Ryan Cohen started Chewy. He affected some manner of turnaround at GameStop. It's reasonable to go back in time when he entered the picture for Bed Bath & Beyond and think, well, here's someone who has a pretty good track record with retailers. Maybe he can help this one. But as you said, in his wake is a business that is going to have to raise money one way or the other.

Ron Gross: For sure. What Tritton did when he came in is he started selling noncore businesses like the Christmas Tree Shops, and some real estate, and some other things. I said, OK, this is good. He wiped out the whole C-suite and put in new executives. I said, OK, now this is good. He's going to move to private label as he did with Target. I said, OK, this all makes sense. He went way too far. He went private label to the max and really hurt the business, and now they've got to a day [sic] off from under that.

Chris Hill: Starbucks Chief Operating Officer John Culver is leaving the company after more than 20 years with the coffee chain. Rather than replace him, Starbucks announced it is eliminating the position of Chief Operating Officer. Three-time CEO Howard Schultz has promised bold changes with more details expected on September 13 at Starbucks Investor Day, which Emily, fairly or unfairly, I feel like Starbucks is raising expectations for a lot of big news on September 13.

Emily Flippen: Yeah. I mean, here's what Starbucks promised on their Investor Day. They promised insight into Starbucks "reinvention plan," which includes elevating employees and the customer in-store experience, as well as "a very exciting new digital initiative that will build on the current experience."

They spent a lot of time in their most recent quarterly report building up excitement for this, but here's what the market heard. The market heard, we're going to get a new CEO. I think a lot of investors are sitting here on the edge of their seat thinking, OK, come Investor Day, we're going to be hearing about this new CEO, and with the departure of the COO role, it leads to a question of, OK, what is the new CEO going to do with the C-suite? Because I personally, when I see the departure of an important role at a big company like Chief Operating Officer, it's a little bit of a yellow flag for me. But if we have a CEO who's coming in and really sold on this reinvention plan and has a vision that extends beyond just doing more of what Starbucks has done in the past, then maybe it makes sense.

Chris Hill: Shares of Foot Locker up 20% on Friday after the second-quarter results for the athletic apparel retailer were better than expected. The company also announced that former Ulta Beauty CEO Mary Dillon will be taking over as CEO of Foot Locker on September 1. Ron, that is a huge get. That is a massive win in terms of hiring.

Ron Gross: Mary Dillon is probably one of the most respected retail CEOs out there right now. As you say, that is huge. Her experience with moving a retailer which is primarily brick and mortar to more of an online presence like she did with Ulta will bode well, I think, for Foot Locker shareholders and for the company. That is, I think, mostly what the market is reacting to with that stock being up so much.

The quarter was better than the expected, but it was a little bit blind. Sales were down 9%, comp sales down 10%. The company is in this transition right now, moving away from Nike as its primary supplier. Nike accounted for 70% of merchandise in 2021. It's essential that they move away and move toward people like Adidas to really right-size that business. Mary Dillon has her work cut out for her both going multichannel as well as moving away from Nike. If there's anyone that can do it, I think she's got a fighting chance. But this is a relatively struggling retailer, only trading at nine times. If you believe in Mary Dillon, it might be an interesting nibble to take.

Chris Hill: On the flip side, if someone with her track record of success can't turn this business around, I mean, that may be time to say goodbye to Foot Locker.

Emily Flippen: Let me play devil's advocate here because I'm a huge Mary Dillon fan, I'm an Ulta shareholder. But we've seen big executives come into struggling businesses in the past and really just get a nice paycheck and then move on. I think about Marvin Ellison at JCPenney as an example. You want to make sure this is not just a stepping stone for Dillon where she's going to get a pretty penny and then walk away, leaving shareholders holding the bag.

Ron Gross: Foot Locker, the next JCPenney. [laughs]

Chris Hill: Emily Flippen, Ron Gross, we will see you later on in the show. But up next, a closer look at the entertainment industry, Bloomberg reporter Lucas Shaw. Stay right here. You're listening to Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. Lucas Shaw is a reporter for Bloomberg. He covers the entertainment industry and writes a newsletter about Hollywood called "Screen Time." Ricky Mulvey caught up with Shaw to talk about Warner Brothers Discovery. The company's stock has been cut in half this year. The conversation focused on how Warner Brothers Discovery is consolidating and evolving.

Ricky Mulvey: Warner Brothers CEO David Zaslav isn't out here to make friends. He shut down the CNN Plus streaming service just weeks after its launch. More recently, he's axed $130 million worth of nearly finished films, and he's laying off workers at HBO Max. Lucas, what is Zaslav's strategy here -- is it just cutting and consolidating? I'm confused of what he's going for other than slashing and burning.

Lucas Shaw: Anytime you have a merger of two big companies that have a lot of overlapping businesses, you can expect there to be some cut sense, the layoffs and all of those synergies or redundancies or whatever language the corporate Chief likes to use. Zaslav promised a lot of them in this case -- I think he initially promised three billion that he could trim from the combined budget. He has since said there might even be more of that. There's a degree to which there's just a lot of cutting that was going to be inevitable. I also think look Zaslav historically run a very tight ship at Discovery, they make low-cost programming. They do so with a relatively small staff, Warner Media, which he's now merged and turned into Warner Brothers.

Discovery has historically been, it's much larger, it's like three or four times the size of Discovery. They make high-end programming, very expensive movies, and very expensive television shows. They have a lot of different projects in development, which is something that you have when you're doing scripted programming as opposed to unscripted. I think he just sees a lot of fat, if you will, a lot of things that he can cut. He's still figuring out the big-picture strategy. They have two different streaming services. There's HBO Max and Discovery. Plus he has made clear that he wants to push them together and then sell it at three different price points. Likely one that's free, one that's maybe ad-supported and cheaper, and then one that's premium and no ads, and he's in the process of figuring out what that looks like, and that means a lot of shuffling, and unfortunately people losing their jobs.

Ricky Mulvey: Projects are canceled all the time. Creators are then upset about that. The story feels a little different with some of the movies and cancellations at Warner Brothers Discovery -- is it because these projects were so close to completion or the relationship management that Zaslav has with a lot of these creators. I guess why does this story seem different than other cancellations?

Lucas Shaw: Why it is pretty unusual, in the case of a movie like a Bat Girl to have something that is almost done that you have already spent about $90 million on and decide to just eat it. You're not going to put it on. You're not going to release in theaters, you're not going to release it on the streaming service. I think there's a couple of things at play here. One is just a shift in strategy at the company. Jason Kilar, who had run Warner Media under AT&T, was a big believer in streaming. He was commissioning original movies for the streaming service. He was collapsing the window or the time between when a movie is released in theaters and then made available at home on streaming, Zaslav's taking the company in the other direction. He is reprioritizing the theatrical release and having a longer exclusive window and exclusive running theaters, and Bat Girl is in part a casualty of that.

It was a relatively expensive movie as far as streaming movies go, and he doesn't want to make movies at that budget there. There is also a tax benefit to releasing it or to cutting it in this way. He's just trying to write off as much as he can right after doing this deal because he can get some kind of tax break on it, and so that's why I think you're seeing something that is quite unusual in the case of those movies getting shelved.

You're also seeing TV shows and movies that were released being scrubbed from the platform and written down because they feel like there's not much of an audience for it, and those cases, it's pretty forgettable projects, projects that not a lot of people watch. There was a Seth Rogen movie, American Pickle. There was a couple of reality shows like Craftopia and Baketopia. I don't think that longer term you're going to see him do that with a bunch of projects. I think a lot of this is related to the fact that the merger was just completed.

Ricky Mulvey: In a recent "Screen Time" column: "It's common for executives to criticize their predecessors when they take over a new company, buy some time to deliver results, Zaslav has turned it into an art form, repudiating Jason Kilar at every opportunity." How is this so different and why does this repudiation stand out in your mind?

Lucas Shaw: Just how consistent and thorough they've been in saying how bad the people before them were. It's pretty common. But for example, Disney acquired a lot of assets from Fox. They acquired the Fox film and TV studio. They acquired Fox cable networks like FX. They acquired Fox's stake and Hulu, and most of the Fox movies have been dogs. They have not performed well. The CEO of Disney did acknowledge that there were some problems with that, but they didn't come out and be like, you know what, we just acquired a bunch of shitty movies, and the people we bought this from they didn't know what they're doing and we just have to clean it up. They were a little more diplomatic about it.

I think Zaslav and his team have a tendency to be pretty direct, but also they're trying to manage expectations. Look, they've taken on a much bigger challenge than they've ever had before. Jason Kilar had a very particular vision, and he comes from a tech background, Zaslav's the opposite. He comes from a cable network background, and so I think their views of the world are just opposed in a pretty fundamental way, and so that's leading to him coming out and talking about all the problems in the business that they did not anticipate.

Ricky Mulvey: Kilar did have some issues with talent, particularly under the same-day streaming release strategy, famously getting Christopher Nolan to leave Warner Brothers. Now with these cuts of movies and cancellations, do you think there's a longer-term threat for Warner Brothers in terms of alienating top-level talent?

Lucas Shaw: It's hard to say. There was a narrative that Kilar alienated talent, and he certainly pissed off some of their representatives, who then squawk to the press because agents, lawyers, managers, they tend to be pretty good sources for people like me. I will say I think a lot of that was overblown. If you look in the big picture, they ended up paying everyone a lot of money and treating every movie released in theaters and streaming at the same time like it was a hit, which most of them would not have been. In that case, the money can heal a lot of the wounds.

One of the issues was definitely around communication at the time that people didn't feel like they knew ahead of time. My understanding is that the folks at Warner Brothers started to reach out to people to talk to them about it, and it almost immediately started to leak, and it's not like they had a bunch, I mean, it's easier to communicate like that on a one-off project basis like, say, Disney did with some of its individual titles than a whole slate, and Disney still got in trouble with Scarlett Johansson on that movie.

Look, creative people are still happy to work at Warner Media. They have had no problem reupping and keeping people. There are a lot of talent relationships that the head of Warner Brothers television studio has at the head of HBO programming and content have. But there are people looking somewhat skeptically at David as I haven't, being like, are you just going to come in and cut costs, do you respect what we're doing? Do you understand what we're doing? I think that happens whenever a relative outsider, or even just a new boss comes into Hollywood, which is a very clubby community. If he is willing to spend money on projects, then people will be fine with him. If he developed a reputation as someone who micromanages, someone who doesn't want to spend money, someone who just meddles in the creative process, that could damage relationships long term.

Ricky Mulvey: It was interesting under Kilar's leadership when they were sharing statistics about movies coming out, particularly in 2020 and declaring every one of them being a hit when they weren't really sharing many statistics about why they were a hit. Looking at the whole streaming landscape, you've written about how these services are now no longer growing in the United States. The exception would be Paramount Plus probably. Streaming is only about 1/3 of TV viewing. Do you think that's the ceiling for it?

Lucas Shaw: No. I think you'll see the streaming share has been growing. I mean, it's not like a rocket ship anymore, but it's still picking up, and it's cyclical a little bit in that. The summer is a good time for streaming because it's got a lot of sports, and sports is really what people watch on pay-TV for the most part. I think in the fall, TV share will go up both because of sports and because of the midterm elections, which again, news people watch on linear but longer term, the number of people who pay for a TV service is going down, the amount of time people spend watching linear live TV is going down, and more and more of that will shift to the Internet.

The question is just how fast and also can these streaming services balance their investment with the growth? They were investing an insane amount of money because they expected this very rapid growth, which some of them have gotten. But we're now in a moment where investors want to see profit, and so people are being a little more rational about spending, and there'll be a balancing act. But I think streaming share of overall TV consumption will certainly get closer to 40 and 50%. It just a question of when.

Ricky Mulvey: Closing out. Your colleagues, Felix Gillette and allies are [sic] Ronald Hannon wrote a great feature on AMC and CEO Adam Aron. The piece discusses very much how Aaron understands loyalty management, building excitement. Do you think there are any lessons from the AMC story from Adam Aron about building customer loyalty that these streamers could learn from, especially when the switching costs are so low?

Lucas Shaw: Not really. Only because look, the AMC case is so unique. It was a business that was in deep trouble that where the leadership had not come up I think with the obvious answer. As much as I do think that Adam Aron has a decorated history of coming up with customer loyalty programs, they got failed out by this meme stock and retail investor movement that I don't think at the time, it's not like they were greasing the wheels for that. They were not ready for it to happen. It happened to them, and then they have managed to very ably ride that wave. But if you're one of these other media companies, would it be fun if a bunch of people decided to celebrate you and start buying your shares? Sure, but that's not something that you're going to plan for.

I mean, I think what they do have to think about is, are there ways to continue to reduce cancellations, or what's known as churn in the industry, and do you do that? That's one of the reasons you're seeing maybe lower-cost add tiers. It's one of the reasons that you're seeing people play around with the weights of bundling their service, whether it's with a phone product like your phone bill or your cable bill or anything like that. That consumer loyalty they want to look at, but I would actually argue that there's a lot of the new developments in streaming are less customer-friendly than they have been. Streaming has always been an incredibly consumer-friendly product. But now that there's more pressure to profit, there is experimentation with business practices better more about earnings on Wall Street than about the customer.

Ricky Mulvey: Are you specifically talking about ad tiers there in perspective?

Lucas Shaw: Ads cracking down on password sharing, raising prices. Some of the movement away from making movies available at home for streaming earlier. I just think that there's a lot of things that people are doing that are less consumer-friendly than they have been because streaming is still a better experience than cable. If you go back in time, there was a point at which pretty much anything you could want to watch was on either Netflix, Hulu, or Amazon, and the prices were pretty low, and then if you wanted, there were no ads. Now, content is fragmented and prices are going up and the experiences getting cluttered with other add-ons.

Ricky Mulvey: Bloomberg's Lucas Shaw. Thank you for your time.

Lucas Shaw: Thank you for having me.

Chris Hill: Up next, Emily Flippen and Ron Gross return with a couple of stocks on their radar. Stay right here. You're listening to 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. Don't buy or sell stocks based solely on what you hear.

Welcome back to Motley Fool Money. Chris Hill here in studio once again with Emily Flippen and Ron Gross. You can hear this show on radio stations across America every week, and you can find the podcast on your favorite podcast app: Apple, Spotify, Google Play, iHeart, Overcast. We're on all the podcast apps, people, and if you're an NFL fan, you're going to want to check out the episode we've got coming this Sunday. It's a conversation with ESPN's NFL analysts, Mina Kimes. Why is an NFL analyst on a show about business and investing, you may ask? Because Mina Kimes started her journalism career covering Wall Street, first for Fortune Magazine, then for Bloomberg. Follow Motley Fool Money on your favorite podcast app so you do not miss a single episode.

Shares of Papa John's are down 30% over the past year. But the pizza chain has a new innovation to turn things around. Introducing Papa bowls, a combination of pizza toppings baked together and served in a bowl instead of on a crust. Emily, I guess this is going after the low-carb market?

Emily Flippen: Here's the thing, Papa John's [laughs] needs to offer me a job because I fix this product for them. Here you go. First of all, don't call it pizza bowl. It sounds like rose bowl. I'm expecting some type of pizza-eating competition. It doesn't sound appealing. Here's what you do. You take the bowl, you serve it with breadsticks. You call it deconstructed pizza. Suddenly it's an elevated experience. Suddenly you have millennials, Gen Z, everybody wants their deconstructed pizza. There, fixed it for you, Papa John's.

Ron Gross: Wow, I'm speechless.

Chris Hill: Yeah, I don't have anything to add, do you?

Ron Gross: I was going to say this is no good. Pizza is the best thing ever created whether you're a calzone, a stromboli, or a pizza, the common element includes bread. Don't take my bread away.

Chris Hill: Let's go to our man behind the glass. Dan Boyd. Dan, I'm sure you have thoughts on this.

Dan Boyd: I want to point something out. In their press release for this abomination, [laughs] they said that they're trying to get people excited about pizza again, which is the stupidest thing I've ever heard, [laughs] because everybody is constantly excited about pizza the world over. [laughs]

Chris Hill: It's so true. I think Emily just solved this.

Ron Gross: She's a big thing.

Emily Flippen: I'm in the wrong industry clearly. I think too much about pizza, to Dan's points. Way too much time thinking about pizza, not enough time thinking about stocks.

Chris Hill: No, but I'll just build on Dan's comment because it reminds me of Dippin Dots, the horrific company that claims to have invented the future of ice cream. When really the future of ice cream is what we have right now. It's ice cream, ice cream's fine, don't try and fix it. Let's get to the Radar stocks. I'm all upset now. Ron Gross, what are you looking at?

Ron Gross: I'm looking at American Tower, AMT down only 9% from its 52-week high. We've seen a bit of a rebound here, 25% office, it's low. American Tower is a real estate investment trust. They own 220,000 communications towers in 20 countries. They lease space on those towers to wireless carriers. Think AT&T, Verizon, Sprint, T-Mobile, so those companies can place hardware needed to provide their services. They also operate 1,800 indoor and outdoor antenna systems, 27 datacenters in the US. Their expansion into datacenters, I think will lead to multiple expansion opportunities for this company. They are in a very strong position in the interconnected world we live in. Keep an eye on the balance sheet, $49 billion in debt. They're not afraid to make an acquisition, and that's important to keep an eye on. Stock has delivered 17% total annualized returns over the last decade. I still think it looks good from here.

Chris Hill: Dan, question about American Tower?

Dan Boyd: Numbers. How many towers do they have?

Ron Gross: 220,000.

Dan Boyd: How much debt do they have?

Ron Gross: 49 billion.

Dan Boyd: You had me here until you said debt of 49 billion. What's their revenue?

Ron Gross: It's significant. I don't have the exact number in front of me, I will admit, but let me throw one more number, 37 consecutive quarters of dividend increases, 2% yields at the moment, not too shabby.

Dan Boyd: Well, these numbers are wild. [laughs]

Chris Hill: Emily Flippen, what are you looking at this week?

Emily Flippen: Well, I'm looking at a company that will wake everybody up from that nice little nap they had. Well, Ron [laughs], I'm talking about AMT. I'm teasing, but it is a very exciting company. The company is Rover Group, that ticker is ROVR. Rover runs a marketplace for pet services like dog walking and cat sitting, and they had an amazing second-quarter results. Their revenue was up 77%, gross booking value, up nearly 60%, free cash flow margins of 35% in the quarter. But more importantly, they're also growing their market share. They are now 13 times larger than our next largest competitor. They're dominating this space. A really underappreciated company. Demand might fall depending on travel and such, but I think the company itself fundamentally is really strong.

Chris Hill: Dan, question about Rover Group?

Dan Boyd: I mean, I feel like Emily stepping on my toes here by roasting Ron in his morning stock picks. [laughs] I feel Rover sure, good company, whatever, who cares. Maybe Emily should stay in our lane though. [laughs]

Emily Flippen: Very good point if I can wake everybody up again. Let me put myself back in my lane here. There are questions about Rover that may make you less excited. One of them being the experience, you have one bad experience on Rover. You have a bad pet sitter. Something happens to your pet, that ruins this company for you, and I'll tell you what, the word of mouth that they have, it can also go in the opposite direction as well. You really want to make sure the quality is staying high.

Chris Hill: We've seen businesses like Airbnb benefit from word of mouth in that they don't have to spend a lot on advertising. Is that similar to Rover Group where they depend more on word of mouth and they're not paying a lot for marketing?

Emily Flippen: Exactly that. Their marketing expenses are extremely low, which allows them to generate a lot of cash flow. The vast majority of customers are gained via word of mouth. But again, one bad experience, that goes the other way in.

Dan Boyd: Which we had at the Fool.

Emily Flippen: Which we had at the Fool.

Dan Boyd: Everyone was up in arms.

Emily Flippen: Myself included.

Ron Gross: That's how the company came to my attention. Very interesting.

Chris Hill: Two very different businesses, Dan. You got a stock you want to add to your watchlist.

Dan Boyd: I tell you what, I think my brain is probably a little too smooth to figure out the numbers involved in AMT, [laughs] to be honest. I'm going to go with Rover. I do have pets at home, and whenever we leave for a vacation or something, getting care for them, it can be a pain in the neck. I think I'm interested in Rover.

Chris Hill: Emily Flippen, Ron Gross. Thanks so much for being here.

Emily Flippen: Thanks, Chris.

Ron Gross: Thanks, 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.