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Earnings Anticipation: Verizon, Zillow and Ellie Mae Need Good News

By Motley Fool Staff – Apr 21, 2017 at 3:31PM

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Some changes and evolutionary pressures are likely to make these companies' quarterly reports interesting reading.

In this segment from the Market Foolery podcast, host Chris Hill asks Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman what companies most need a solid win in this quarter's earnings season. Muckerman picks Verizon (VZ -0.77%), which has had to correct its course on a lot of moves it made back when it felt more secure. Moser, after noting that retailers, in general, need some good news, shifts over to Zillow (Z -2.12%) (ZG -2.41%), which he feels is less in need of a great report and more of a business expansion, and mortgage processor Ellie Mae (ELLI), which could face issues as interest rates climb. Plus, the guys consider what Under Armor (UA -0.54%) (UAA -0.94%) really needs.

A full transcript follows the video.

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This video was recorded on April 17, 2017.

Chris Hill: Who needs a hit, Taylor? There are a bunch that need a hit. In your view, who needs a hit?

Taylor Muckerman: I'm looking at Verizon, and not because, people are probably going to ask why did they call AOL and Yahoo Oath, but because --

Hill: Oh, God ...

Muckerman: -- in February, they announced that they're going back to unlimited data. I was a Verizon customer years ago and left because they stopped grandfathering people into unlimited data that had it previously. I jumped to T-Mobile, loved it. I'm with Google Fi now, love it. So, there's other options out there. And then you see AT&T jump on the unlimited data bandwagon shortly after. You look at T-Mobile over the last year, shares are up 64%. Verizon is down 5% over the last year. They have a lot going on, and I just want to hear them concentrating on what got them to where they are, and that's the mobile market. T-Mobile added a million customers in the fourth quarter, versus 200,000 for Verizon. I want to see what they're doing this quarter and how they're going to handle the increased data demand now that people can use unlimited data. They obviously have one of the largest networks and infrastructure, but they have to pay for that somehow. And if people are using more data without the increased cost, I want to see what analysts and CEOs have to say there.

Hill: All of these companies are spending so much money on television advertising. And maybe it's just the television that I'm watching. But I can't go one or two commercial breaks unless I'm seeing Sprint, Verizon, AT&T, T-Mobile.

Muckerman: And they're ever unimaginative. You see Sprint taking Verizon's old spokesman, the can-you-hear-me-now guy, and being their spokesperson wearing a different colored t-shirt. And they both drop the mics now. It's silly.

Jason Moser: I just don't know how loyal customers are to any of those. I think, generally speaking, you have what you have, and you have it for whatever reason, when you bought your phone, or however that worked out. But, at some point, it's kind of like a bank account. You just don't want to go through having to deal with switching stuff over. It's really a nightmare dealing with any of those people at any level, because they're so big, the service suffers, customer service, I mean.

Hill: What about you, J-Mo?

Moser: I'm looking, there are a lot. Any retailer not named Amazon, [laughs] I think, needs a hit. When you look at the numbers today, at least, by the beginning of April, there were nine retail brands, at least, that had already filed for bankruptcy this year alone, which was --

Hill: Equal to all of last year.

Moser: Which is really amazing. And then, if you go driving around, and you see the landscape that these strip malls or any kind of big shopping mall, you recognize that the world really doesn't need a lot of these retailers. They just don't. It really, again, goes to show the work that Amazon has done, the bets that Amazon placed early on, and how those are paying off. I think the one retailer that we continue to follow, that is about as close to Amazon-proof as I can imagine, is Home Depot. They don't need a hit, because I think they keep on knocking it out of the park.

Muckerman: Yeah, they're more than just a single out of that company, every quarter.

Moser: Right. It's a retailer and a wholesaler rolled into one. I think professional contractors make up about 3% of their actual customer base, but represent about 40% of overall revenue. That's to say, you go to Home Depot on a weekend and get something, that's fine. But if you're hiring some contractor to come do some stuff at your house, they're likely getting their stuff from Home Depot, as well. This all leads me back to housing. I've had a lot to do with the housing market this past quarter, Chris.

Hill: America thanks you.

Moser: Yes. I look at Zillow and I still can't figure out what their ultimate plan is. I feel like they need to step up and turn that business into something more than just a real estate advertising business, because that, at its core, is what it is today.

Muckerman: And there's more of those out there today online.

Moser: There are. And it's OK, you can exist just fine that way. But your growth is going to be very capped, because the real money is in the transaction, in the process, in all the little points from A to B to C and connecting that transaction and getting it all completed. I'd like to see, at some point, maybe Zillow taking that business a little bit deeper and becoming more than just a real estate advertising platform. On the flip side of that, Ellie Mae, another business we follow, we own it in MDP, I own it personally, it's been a phenomenal performer, it's the mortgage software side. Ellie Mae has been on a tear recently and the big question there is, with interest rates going up, slowly, but they're still going up, and with the fact that maybe the housing market has hit this point where, I don't know how much volume we can expect, at least, on the purchase side, compared to the refinancing that Ellie Mae has witnessed over the past seven to ten years, are they going to be able to make up for that lost refinancing volume? I don't know. The stock price today is indicating that maybe the market thanks it will, or maybe that's just accounting for the fact that it's a very quality business with an awesome competitive position. Either way, those are two companies that I'll be watching this quarter.

Hill: Any thoughts on Under Armour? Because that's the one that I look at and say holy cow, do they need a hit.

Muckerman: I would love to see a hit from them.

Moser: I thought about that, and the reason why I say they don't need a hit is, I think they pretty much got everything out of the way these past couple of quarters. I don't expect a hit from them immediately. I think we know, it's going to take a few quarters for them to reset expectations and paint a realistic picture of what we should expect from this company in the coming years. So, I don't think they're in need of a hit. What I think they're in need of is, I feel like they've thrown everything plus the kitchen sink at us, and we just don't need them to throw another kitchen sink. If they go in there and say, "All of these investments in digital technology, we're just writing that whole thing off. $750 million wasted," that would be a big problem.

Muckerman: That's MapMyFitness and all those.

Moser: Right. I don't expect that to happen. If that did happen, I think that would be a crisis of epic proportions for that business. But I think they've gotten most of the problem out in front of investors, where we shouldn't really expect any kind of surprise on that front. I think it's just going to be a bit of a road to get back to the performer that we have come to know and love.

Hill: It was over a year ago, it was March of 2016 that Sports Authority announced they were shutting down. Was it this quarter last year, or the summer quarter where Under Armour came out and said -- I want to say it was the summer quarter -- they said, "Actually, the Sports Authority thing was worse than we originally thought it would be."

Muckerman: "That means something to us," yeah, I can't remember exactly when.

Hill: I remember it hit them in this upcoming quarter that they're going to report in a few weeks.

Moser: Yeah, I'm not sure about the timing. To that point, they've just recently started this new deal with Kohl's, where they're going to have more Under Armour gear, selling through more retail channels like that. That's good. But then, also, Kohl's is one of those physical retailers that, I would put that in the group of, does the world really need a Kohl's? I don't know, maybe. But, I think Nike and Under Armour continue to invest a lot of money in their direct-to-consumer businesses. And I think that's good. I think the Under Armour app, which you can use to order directly from Under Armour, is pretty sharp. I just used it the other day to get a pair of golf shorts for the upcoming member guest, Chris, just about a month away now, I'm getting kind of excited. But yeah, I think, when you look at retail in general, the businesses that are still investing in those direct-to-consumer operations are doing the right thing by doing that, and I think Under Armour will continue to do that for the foreseeable future.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Under Armour (C Shares). Jason Moser owns shares of Ellie Mae, Nike, Under Armour (A Shares), and Under Armour (C Shares). Taylor Muckerman owns shares of Alphabet (C shares), Amazon, Home Depot, and Under Armour (C Shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Ellie Mae, Nike, Under Armour (A Shares), Under Armour (C Shares), Verizon Communications, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Home Depot, T-Mobile US, and Yahoo. The Motley Fool has a disclosure policy.

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