In this episode of MarketFoolery, host Chris Hill and Motley Fool Hidden Gems analyst Abi Malin discuss the market's biggest headlines.
TripAdvisor's (TRIP -2.32%) earnings report sent the stock higher, but the company still has a few questions to answer about its long-term strategy. Marriott International (MAR -1.07%) put up a good fourth quarter, and its integration with Starwood Hotels and Resorts seems to be paying off in spades. Shopify (SHOP -6.15%) reported a whopping 71% increase in revenue for its fourth quarter, but shares actually fell a little bit after the company's earnings went live.
A full transcript follows the video.
This video was recorded on Feb. 15, 2018.
Chris Hill: It's Thursday, February 15th. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, from Hidden Gems, Abi Malin. Thanks for being here!
Abi Malin: Thanks for having me!
Hill: We've got, I'm going to say broadly, travel. We have some travel earnings in the news.
Malin: We have some travel news.
Hill: And we have some Shopify earnings, and we'll get to that. Let's start with TripAdvisor, because I think that's the headline today.
Hill: Fourth quarter revenue looked good. It didn't really translate so much to the bottom line, but TripAdvisor's management is, I don't want to overstate it, but they're talking like 2018 is going to be a better year than 2017, and I think that's at least part of why we're seeing shares of TRIP higher today.
Malin: I think, for context, it's been a really rough two years for TripAdvisor. I was looking this morning, the stock was down almost 30% in the same time the S&P was up 40%, and that's this morning, after the gains.
Hill: That's after today's gains?!
Malin: After today's gains.
Hill: Oh, that's still bad.
Malin: Yeah, it's still bad. So, I think good is all relative, and I think 2018 being a good year for TripAdvisor is perhaps not the best, most optimistic statement you could ever make.
Hill: So, what should we expect? Just put aside what the market did in 2017, this stock fell 25%. You look at that difference between TripAdvisor's performance and the market's performance, is this a stock that you look at and you think, "Yeah, they haven't been performing well, but at least the stock's valuation is reflective of that?" Because, we have seen the case where, this stock isn't doing well, and it's still really pricey.
Malin: Definitely. This one is really interesting, because I think there's demonstrated value on this platform. Just for a little bit of context, they now have 600 million reviews and opinions that cover 1.2 million hotels and other lodging, 75,0000 vacation rentals, 4.6 million restaurants and 950,000 attractions. I mean, people definitely use this platform. Unique visitors on the website were up 17%. Average monthly unique hotel shoppers were up 3%. So, it's not like people aren't using this platform, and I think there's value there. It's just a matter of translating that into revenues and then the bottom line for TripAdvisor where they've struggled.
Hill: Am I the only one who finds the anthropomorphic owl on the television commercials kind of creepy?
Malin: I don't mind it. It's all-knowing. It's wise.
Hill: It is. Maybe it's the fact that, at least in the most recent commercial --
Malin: He takes flight.
Hill: He what?
Malin: He flies.
Hill: Yeah, the most recent commercial I saw, he's not flying, he's walking around in a bathrobe.
Malin: Oh, I have seen that. A little strange.
Hill: And it's like, why is the owl wearing a bathrobe? I'm not sure I get it. Let's stick with travel. Marriott putting up good results in the fourth quarter. I'll tell you what stood out to me, but first, what stood out to you in Marriott's fourth quarter?
Malin: Over a year ago, Marriott merged with Starwood Hotels and Resorts. I think we're really starting to see that their competitive position is sort of untouchable at this point. I think they've really gained strength, and I think it's definitely worked out well for them.
Hill: I'm glad you mentioned that acquisition. That was one at the time that you could look at and think, this kind of makes sense, but almost all of it hinges on the integration, and how well they're able to integrate it. Do you feel like, with this quarter, we can close the books on that and state unequivocally, they managed that merger perfectly? Or, if not perfectly, really well?
Malin: Yeah, I feel pretty confident in that. Management broke out this quarter, they said revenue per available room, RevPAR, which is a common metric for this industry --
Malin: RevPAR. It was up 4.6%. And that out-performed the North American average of about 3.9%. So, you see people paying more for these rooms. This is a more valuable platform, I think. Scale in this industry really matters, and I think they definitely have achieved that.
Hill: That's the thing that stood out to me, was management calling out fourth quarter increased booking volume at higher prices. So, not only are we booking more rooms, we're able to charge more for it.
Hill: We saw a little bit of that also with Hilton and their most recent results, which leads me to this question: how susceptible are companies like TripAdvisor and Marriott to the overall economy? I'm assuming directionally, when times are good, when the economy is doing well, not just here in the United States but in other major countries as well, people are traveling more, so, when times are good for the economy, times are good for companies like this. And I'm assuming the opposite is also the case. How much is it the case? How much ...
Malin: How cyclical.
Hill: Yeah. How much at risk are Marriott and TripAdvisor to, if the economy heads south, you really have to put the brakes on whatever you're expecting out of these stocks?
Malin: I think that's a good question. I don't know that I necessarily have a quantitative answer, but just from a qualitative standpoint, I think good management is aware of these challenges. You have the business traveler who's going to travel regardless, and it's that leisure traveler that's in flux. Hopefully, good management positions their portfolio and takes strategic opportunities like downturns to acquire at cheaper prices, or things like that. But I definitely think it's a concern to be aware of.
Hill: What do you use when you're traveling? When you're looking to book a hotel, how much do you use TripAdvisor? And to what extent, whether it's Marriott's platform or a general platform like Expedia, something like that, Priceline, where do you go as a consumer?
Malin: I use Airbnb, as a millennial.
Hill: Sorry, Marriott.
Malin: Sorry, Marriott. No, I mean, I think there's value. I definitely use TripAdvisor for reviews. I think that's really helpful. Not for restaurants, though. Restaurants, I use OpenTable. But, I think there's value across the platform. I'm just not sure that I'm necessarily their target consumer.
Hill: Is that a challenge for them, in particular for Marriott? Is part of the challenge for, not just Marriott, but Hilton, any major hotel chain, "We are targeting toward older people and we have to figure out how to get younger people in the door?"
Malin: Yeah, perhaps that's a challenge for them. I think their rewards membership programs, all of the major travel sites have those, and I think those are really important. If you're incentivized to use one, you're not going to look outside of that. My parents only use Marriott. So, I think it's valuable. It's just not necessarily my spot.
Hill: Given how much as a consumer and an analyst you favor GrubHub (GRUB), would a Marriott-GrubHub partnership get you in the door? If Marriott was like, "We have this new partnership, and now GrubHub is going to handle part of our room service?"
Malin: Funny you bring that up, because that's actually been talked about on GRUB calls.
Malin: Yeah. They want to outsource room service, late night. So, to keep kitchens open and staffed and have all the food in there that people might or might not want, that's pretty expensive for hotels, so they've talked about maybe outsourcing it, so GrubHub would provide the midnight to 06:00 AM food or whatever. I think it's interesting. I definitely like the idea. I think it's consumer-friendly.
Hill: Speaking of capitalism and shopping, Shopify's fourth quarter revenue grew 71%. I'm sure they reported other numbers, that's the one that leaped out to me. What stood out to you in Shopify's latest quarter?
Malin: In that revenue, they have Subscription revenue and Merchant Solutions revenue. Subscription revenues were up 67%, but Merchant Solutions revenue grew 74%. This was mainly due to an increase in gross merchandise volume, which increased 65%. So, this was their biggest holiday season yet, with Black Friday to Cyber Monday accounting for $1 billion of gross merchandise volume. Which, when you think about that scale, it's kind of ridiculous.
Hill: It is kind of ridiculous, considering we're not talking about a company of the size of Amazon, we're talking about a growing, but a $13 billion e-commerce company. Why is this stock down a little bit? Is that simply a function of the fact that it has been a hell of a great run for Shopify and Shopify shareholders over the last year? Because it's down 3% this morning. It's still up about 120% over the last year.
Malin: I think this one was just priced for beyond perfection. It was a good quarter for them, but maybe people wanted a little bit more.
Hill: Do you own shares? I do not.
Malin: I do not own shares.
Hill: To what extent, if any, are people still looking at Shopify and saying, "Yep, they're absolutely an acquisition target." And I know we've talked about different companies in different industries that are already significantly larger than Shopify that have been acquired, so it's not necessarily that no one can pony up somewhere between, I think if you're looking to buy Shopify today, you're probably paying at least $15 billion, may be upwards of $20 billion. But, it's not that someone can't buy that. Is that even a reason to buy this stock? Because it seems like the other companies that might make for likely candidates to buy a company like Shopify are the Amazons of the world, who are like, "No, we don't need that, we already do that."
Malin: I don't know that Shopify necessarily needs anyone else, to be fair, either. They currently serve about 600,000 businesses in 175 countries. They focus mostly on small and medium-sized business, but they do have some larger players. They have Red Bull, they have Rebecca Minkoff, they have Kylie Cosmetics. I mean, this is --
Hill: Sorry to interrupt, but of those three, I've only heard of one of them. Please, just in case anyone else listening is as ignorant as I am, I've heard of Red Bull.
Malin: Rebecca Minkoff is a clothing fashion retailer. Kylie Cosmetics is Kylie Kardashian's makeup brand.
Hill: Oh, OK. [laughs]
Malin: I guess my point there is, they serve such a variety of so many things that, to fit into an acquisition anywhere, it'd have to be a pretty large and diversified company to not have maybe competing or conflicting interests. So, I think an acquisition might actually be a little bit harder than just to maintain customer relations in a fair way.
Hill: Let's go back to the stock for a second. We've seen this movie before with other companies, where they get themselves in a position where only a perfect quarter is going to move the stock higher. When you look at this stock, how high are the expectations that are baked into Shopify? Because when you're growing revenue more than 70%, and the stock is, at least some investors on Wall Street are going, "No, we don't think so. Nice job, Shopify, we were actually looking for a little bit more out of you." How pricey is this stock?
Malin: I mean, they're not profitable yet, so I think maybe that's the key turning point for them. I think people are just looking for that transition, especially now that the market has been a little bit wonky these past couple of weeks. Maybe we're seeing a little bit more fear. And I think, especially something like this that's so, I would say, consumer-based and probably a little bit more cyclical, tied to the economy. You expect that if the economy downturns, their actual payment processing and things like that, and also all the businesses that they serve, struggle. So, maybe it's that that's scaring people. I'm not really sure.
Hill: I should also mention that our little Motley Fool podcast shop is on the Shopify platform. For anyone looking for a little bit of podcast swag, you can go to shop.fool.com. Actually, we met, producer Dan Boyd, who's out sick today -- shout-out to Austin Morgan, who's the producer on Industry Focus, who is once again pulling double duty. Thank you to Austin for that! Last week, when we were in San Francisco, Dan and I went to the headquarters of Social Imprints, which is the company that we work with on our podcast shop stuff. So great to meet with those folks. Just, getting a sense of their own business. They work with Facebook and Dropbox and Pinterest and eBay. So, it was really great to meet with them. And we did start talking about new products for our Motley Fool podcast shop, including, first up, coming very soon, women's cut T-shirts, which is some feedback I've gotten from a few listeners and a few people here in the office. That's coming soon, I promise. Did you have a good time in San Francisco?
Malin: I did. It was a fun event.
Hill: Very fun event on Friday for the investing conference. I noticed -- I didn't get a chance to talk to you at the podcast listener happy hour, because there was a big crowd around you. There were a lot of people, a lot of listeners, talking to you. But, did you have a good time there as well?
Malin: Yeah, it was interesting. It's fun to connect with people. Especially out there, everyone has these really cool jobs that they want to tell you about, and some things that you're like, "Oh, that's an inside perspective." So, definitely cool to hear everyone's opinions. I always love it.
Hill: It's great to hear how people are investing, where they are in terms of, some people are just starting out, I talked to one guy who was just starting out as an investor even though, and I'm just going to ballpark that the guy was maybe in his mid-to-late 30s, maybe. He's retired. He's had a successful career in Silicon Valley, so now he's looking at his money and starting to think, "What am I going to do with this? How am I going to manage it?" So, that was a great time. And as I said the other day, we're definitely going to be doing a similar meetup here in the D.C. area later this year when we have FoolFest, which is our big conference here. Anyway, Abi Malin, thanks so much for being here!
Hill: As always, people on the program may have interests 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. That's going to do it for this edition of Market Foolery. The show is mixed by Ironman Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you on Monday!