In today's episode of Market Foolery, analysts Chris Hill, Ron Gross, and Emily Flippen hit on some of the market's biggest stories. Tesla's (TSLA +3.93%) earnings took a little bit of a haircut (just some $700 million). The fact that the stock jumped almost 10% probably has more to do with meeting production goals, or maybe a little something to do with Musk's apology.
Fitbit (FIT +0.00%) dropped a bit on its earnings and the future doesn't look any brighter than usual for the wearables maker. Square, on the other hand, continues to get it done, and Jack Dorsey somehow nails running two public companies at once. Tune in to find out more.
A full transcript follows the video.
This video was recorded on Aug. 2, 2018.
Chris Hill: It's Thursday, August 2nd. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, Emily Flippen and Ron Gross. Happy Thursday!
Ron Gross: How are you doing, Chris?
Hill: I'm doing fine because it's Thursday.
Gross: [laughs] Is that a big day for you?
Hill: It's a little bit closer to the weekend, that's all! We have earnings. We have some sad news from the world of retail. Maybe it's only sad for me and Ron, I don't know, we'll see.
Let's start with Tesla. Tesla had its worst quarterly loss ever. Tesla lost more than $700 million in the second quarter. Ron, the stock is up nearly 10%.
Gross: Don't give me details. I do want to go on record as saying at the top that I have asked for my $1,000 deposit back from Tesla. It was time for me to either give them a $2,500 additional deposit or take my money back, and I made an emotional, not analytical, decision to retrieve my $1,000. That's quite frankly because the whole thing is fatiguing me. I'm not a big fan of the way Elon Musk has handled the situation over the last year or two or more.
It's interesting that the stock is up today. In no particular order, investors are reacting to the fact that he did reach his 5,000 Model 3 goal, producing 5,000 Model 3 sedans in a single week. He reiterated his target of producing 6,000 Model 3 sedans per week by late August. He said in the second half, they would be profitable and cash flow positive. Get this, he expects Tesla will record a profit in all subsequent quarters. Nothing salesy about that!
I think investors are happy that he said they would not need to raise additional capital. It remains to be seen if that's actually going to bear fruit or not. But, he made the statement, they have $2 billion in the bank right now. He thinks that will be enough to get them where they need to be. They've cut costs. About 9% of the workforce was slashed. They're cutting back on some capex. They're building a huge facility in Shanghai that they're going to use debt that they'll get in China to fund that.
Investors, overall, are a little bit calmer than they were. Then, we get to the big part, which, he actually apologized for his rude remarks in the last call.
Hill: Emily, what did you think about that? As much as the actual results that Tesla put up, Elon Musk apologizing on the conference call is getting as many, if not more, headlines.
Emily Flippen: I always like to call Tesla's stock the Elon Sentiment Gauge, because it feels like it moves more depending on how people perceive Musk than the underlying business itself. I definitely think part of that pop was related to the apology.
I think he knew that it was a necessary apology. Even though he claims that they don't need to raise any more capital, I'd be surprised if that really ends up being the case. Tesla took a big hit, a lot of criticism, not just on Wall Street but from investors alike. That type of attitude coming from a CEO is not received well, especially in the capital markets. I think that apology was necessary. I personally appreciate the apology. But I don't think it was genuine, I think it was a calculated move on his part.
Hill: Yeah. I listened to a little bit of the apology, it was being played on CNBC this morning. I just thought to myself, "It's a smart move." For those who are wondering, "What is he apologizing for?" think back to the previous quarter, and his behavior on that conference call. That's essentially, as much as anything, what he was apologizing for.
Gross: Calling people boring and boneheaded.
Hill: Yeah, saying the questions were boring and insulting the analysts on the call, all that sort of thing. My takeaway from that call was not so much, "Boy, this is going to make it harder for him to raise money down the line if he needs to," because someone is going to lend him money. Maybe not on the greatest of terms, but you'll always find someone to lend you money. I just looked at it as, maybe he needs to stop doing these calls. Not all CEOs are on the conference call.
Gross: True. Listen, I believe in forgiveness. I like that he came out and said he's sorry. I don't like that he needed to do that. Something's not right there. Now, maybe he's a genius, maybe he's eccentric, maybe he's aggressive. I like to put my money behind people that are just a little bit more measured, a little bit calmer. Perhaps people will make trillions of dollars following him into battle. I'm not one of them.
Hill: In terms of this promise that he made, "We're going to be profitable for the rest of time."
Gross: [laughs] Unless there's a market downturn or a recession, he said.
Hill: OK. As much as anyone, this is a CEO who seems almost Teflon-coated, in terms of the things he says, in terms of moving the goalposts, in terms of, "These are the metrics we're going to hit," and then they don't hit them.
Gross: Does that remind you of anyone? [laughs]
Hill: I don't know.
Gross: Who's to say?
Hill: It just seems like, even if they don't put up the quarterly profits, I don't see the stock getting punished. Maybe I'm wrong.
Gross: I think, over time, if the production goals don't get met and they need to raise cash, there will be a hit. The thing they have going for them is something that's a little behind the scenes, which is, there is negative sentiment among the analytical communities, some pockets of the analytical community. That actually can be good for them. If all they need to do is put up some results that are contrary to what those analysts think, and all of the sudden the analysts flip from sell recommendations to either hold or buy, then you get a huge pop in the stock.
Hill: Let's move on to Fitbit. Fitbit's second quarter loss was smaller than expected. Shares down a little bit more than 6%. You tell me, Emily, what should I be thinking about Fitbit? This is one of those things where, I think, if I have this right, they reported after the close yesterday, and the stock actually popped a little bit because the loss was smaller than expected.
Flippen: And now it's back down.
Hill: Yeah, it came back to Earth. Was that due to the conference call? Or was it just the computer said, "It's smaller than expected," and then actual human beings looked at it and said, "I still don't think I want to be owning Fitbit."
Flippen: I think that's part of it. It wasn't a positive earnings call, but when you get down to the fundamentals, nothing has really changed here. Doom was spelled for Fitbit for a while. I'm a biased source, I'm sitting here wearing my Fitbit myself, and I have been a long-term Fitbit shareholder. But, looking at these earnings, it seems like they're relying on two things -- they're relying on the sale of their smart watches. That was over 50%, for the first time, of their total revenue, the sale of their smart watches, most notably their Versa smart watch. That's been great for them. And, this big data pile that they're sitting on, in terms of their trackers. They've really been unable to do anything with that, unfortunately.
They tried to go the way of the healthcare route, saying, "Look at these children," for example, "who are wearing these trackers, is there something we can do to sell that information and data to healthcare, insurance companies that can help lower people's premiums?" Or, something along those lines. I think the issue is, the technology is just not there yet to make that a viable alternative. But I think those two things are really going to define the future for Fitbit.
Gross: In the end, do you think this is just a consumer products company? Or, is there that other potential down the road, where they can monetize data, or be something other than the nice little gadget you wear on your wrist?
Flippen: I want there to be something there. Like I said, I wear my Fitbit, I have been holding onto those shares. But, as time goes on, the more I think they're not going to be able to reach those lofty goals, and this might be just a consumer goods company.
Gross: Do you think it gets acquired, if that's the case?
Flippen: I think there's a chance. I don't like to make bets on acquisitions, but I do think if ultimately, the most valuable thing about Fitbit is their data, an acquisition is their best opportunity.
Hill: It seems like we're probably a half-step closer to them being acquired. I say that only because of the stock. The stock is down about 6%. It's basically where it was a year ago. When I look at the stock chart, when I look at Fitbit's business, they seem like they're treading water a little bit. They're not drowning, but they're not really swimming to shore. I don't know, they seem to be in this in-between zone.
Flippen: Exactly. They've thrown out some ideas, but as far as concrete steps to make those ideas a reality, there haven't been any. That's why I think, ultimately, after this earnings call, the stock is relatively flat. There's a reason for that. Nothing has really changed here.
Hill: The war on cash continues. Square's (SQ +6.77%) second quarter results were good. Ron, there was a little bit of concern, or at least lip service being paid to a little bit of concern, about the forecast not being amazing. Maybe the underlying results trump that, because shares of Square are up about 6% today.
Gross: I'm actually happy to see that. I was a little concerned when I saw that the stock may trade down on this news. I thought that was a mistake. I think the strong revenue momentum, in the end, was more important to investors than the weaker than expected forecast, which really is not that big of a deal. They maintain their full year EBITDA guidance, they left their EPS forecast in place. Third quarter is just going to be a little wonky. It's a seasonally slow quarter for them, anyway.
This company, the growth and the momentum are really what's been driving this stock. That story is definitely intact. You have transaction-based revenue increasing by about 30%. Volume from large sellers are really driving these numbers, which is great to see, those becoming a larger portion of the company's volumes. That's not to say we don't want smaller folks as well, but these large folks can drive those numbers.
They've been seeking to diversify their revenue streams, providing more services. The three things of the omnichannel commerce, financial services, international expansion, is going to be big for them. Plenty of growth coming in the future.
I think the company is doing a great job. For a value investor like me, don't ask me about the stock, I can't make sense of the stock, but I can tell you that they're executing really well, and the growth is impressive.
Flippen: I couldn't agree with Ron more. The only thing I'd add there is, what's exciting about Square, and what some of the news might be moving toward, is that larger sellers are increasingly accounting for more and more of their revenue. They just reached 50% in overall volume accountable to larger sellers, which is a sign that Square maybe has some further room to run, and people are using the platform and growing using the platform.
Hill: I know it's early August, and we still basically have five months left of 2018, I'm going to go ahead right now and put my vote in for CEO of the year -- Jack Dorsey.
Gross: That's fair.
Hill: The fact that Jack Dorsey has executed the way that he has at Square and at Twitter is amazing to me. I say that as someone who was openly skeptical of him being CEO of these two companies at the same time. I think what he's done is remarkable. It says to me, among other things, that he's good at putting executive teams around him. He can't be managing every aspect of both Twitter and Square.
Gross: It's an impressive run. I think Nadella of Microsoft might give you a run for your money, and even Cook. As we tape this, Apple has hit $1 trillion in market cap. A lot of good CEOs executing out there.
Hill: Sad, but probably not surprising, news from the world of retail, and that is Brookstone is filing for bankruptcy. I should point out that Brookstone is filing for bankruptcy for the second time in four years.
Gross: [laughs] Is that a problem?
Hill: [laughs] For those unfamiliar, Brookstone is the specialty retailer. You might have seen them in an airport now and then. They have about a hundred locations in malls. They're closing all of those. I've seen conflicting reports about the airport locations. The initial report I saw was that they were closing everything. I saw another report that said that they are at least hoping to keep the airport locations going.
Gross: I kept seeing the words every store, all stores, it seemed pretty definitive to me. I don't know where I'll go for all my goods that vibrate and things that fly that are two inches in circumference. We're going to miss that store. That's the only place my son would go when we were in the mall and needed to kill some time.
Hill: Yeah. I mean, if you're looking for slightly expensive to very expensive gadgets that nobody actually needs, that are sort of fun impulse buys -- we all have that friend or family member in our life that we think, "I don't know what I'm going to buy them for their birthday or for this special occasion." Emily, you're not going to miss Brookstone.
Flippen: I'm not. Although, I will admit that I've spent more hours than I'd like to admit sitting in their chairs after spending a long day at the mall growing up. If American malls were doing better, I'd say they should subsidize Brookstone, but I think that ship has long sailed.
Gross: Recently, I bought my son one of those vibrating chair things. Not the actual chair, because that was too expensive --
Hill: I was going to say ...
Gross: The kind of thing you can place on a chair, and you sit down, and it vibrates. He's used it a total of once.
Hill: In the meantime, you can go to Brookstone's website. As you might imagine, for a company that's going into bankruptcy, they have some sales. So, if you want to check those out ...
By the way, speaking of shopping, I should mention our own Motley Fool Podcast Shop. We've been having the 25th anniversary sale at our shop. We're actually going to keep that going a little bit longer. It was for the entire month of July. We're going to keep it going for this reason -- the sale proved to be so successful that we've run out of a couple of things. I've got an email from a couple of the listeners saying, "Hey, I wanted to order this thing, you're out of my size of T-shirt," that sort of thing. We're working on it. I'm not good at running a store, Ron. That's what I'll say.
Gross: Inventory management is not your thing, clearly.
Hill: You know what? For all the times I've criticized retailers, "Why can't they get the inventory right?"
Gross: It's coming back around.
Hill: It's totally coming back around. In the meantime, you can go to shop.fool.com. The 25% off everything sale is still going on, and we're working on the inventory. By "we," I mean me, and I apologize profusely. Emily Flippen, Ron Gross, thanks so much for being here!
Gross: Thanks, Chris!
Flippen: Thank you!
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 Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!
