On this episode of MarketFoolery, host Chris Hill and Motley Fool Asset Management's Bill Barker hit on a few of the week's biggest stock market stories. Facebook (NASDAQ:FB) had yet another security breach this weekend, which you probably saw if you spent any time on the platform. Then, the company announced a new video-chatting device. But who's going to trust Facebook enough to put the Portal in their living room?
Meanwhile, despite awful reviews, Sony's (NYSE:SNE) Venom crushed the box office this weekend. Could this spell a comeback for the beleaguered film industry? Finally, Bill Barker explains why he will focus on margins this earnings season. Tune in to find out more.
A full transcript follows the video.
This video was recorded on Oct. 8, 2018.
Chris Hill: It's Monday, October 8th. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, from Motley Fool Asset Management, Bill Barker. Thanks for being here!
Bill Barker: Thanks for having me!
Hill: I thought you would be up in New York celebrating the Yankees' World Series victory.
Barker: You know, we only celebrate when there's a real-world series in hand. Which happens a lot, as you know, for Yankees fans.
Hill: Not this century. But the way they played in game two, it's like looking like you're going to get here. Are we a sports podcast? No, we're not, we're business. We're going to get to the movie business, which had kind of a surprising weekend. We're going to do an earnings preview.
Let's start with Facebook. I don't know if you've noticed, but Facebook has been in the headlines in 2018, largely for security reasons, or, I should say, lack of security reasons. I spent part of my weekend dealing with the latest email hack, which is people saying, "Hey, you may have been hacked, you may have gotten an email from me saying I'm looking for a friend request. Don't accept it, because it's this whole other thing."
For some reason, Facebook decided in the wake of this latest hack that today would be a good day to unveil a new device. The device is called Portal. It's essentially Facebook's way of competing with the Amazon Echo and the Google Home assistant. It is a Facebook-powered camera and microphone that I'm supposed to put in my home. And I'm sorry, but given all of the security problems that Facebook has had in the last 12 months, there's no way in the world I'm buying this thing.
Barker: Give me the downside.
Hill: The downside?!
Barker: The only downside I see is it Facebook knows a whole lot more about you all the time.
Barker: Everybody trusts Facebook with all their data. [laughs]
Hill: [laughs] This just seems surprisingly tone deaf for a business that has been built by someone who really seems to have been in touch with the way the world is going, in terms of online social media connections, and also with the acquisitions, with the acquisition of Instagram and WhatsApp, but particularly Instagram. And I don't know how much money they spent to make this thing. I'm not worried about Facebook's finances, because they basically print money. But this really seems like a misstep.
Barker: It seems like a misstep. I'll take the other side for a second, although I'm basically on the same side as you with this. This was a scheduled launch, I assume. Yeah, they've got yet another bad headline from last week. There'll be more in the future, I'm guessing. If they delay this until we can't quite remember when the last time Facebook was in the headlines for abusing our privacy, then they might have a very long wait. This will blow over, because news cycles are so short now. It's a bigger problem in the sense that Facebook is, for us anyway, becoming more and more synonymous with failing in what we would hope to be their protection of privacy and data and security.
Hill: Yes. And the difference with this latest hack is, it's not just the headlines out on news sites and on cable TV news. It's right there in your Facebook feed. I mean, my Facebook feed this weekend was a whole lot of people -- including myself, by the way -- posting a message saying, "Hey, if you got this thing for me, I was not actually sending you another friend request."
Barker: Ah, so you still go to Facebook? You still use it?
Hill: Yes. Every now and then.
Barker: OK, well, when you stop, then you won't be confronted with this as much.
Hill: [laughs] I guess that's true.
Barker: That's probably coming. Or is it? Are you so taken by what you get from Facebook that you're unlikely to walk away from it?
Hill: You and I have talked before about sports fandom. I'll just use you as an example, because you're sitting here.
Barker: No. Use a hypothetical me. Not me, just the guy who's a little bit like me, perhaps.
Hill: You are very much in New York Yankees fan. Which is odd, considering you're from Philadelphia, but that's a whole other thing. I'll leave that to the people of both New York and Philadelphia to judge you for. I'm not going to judge you for it. I'll let them do that.
Barker: Philadelphia's closer to New York than Maine is to Boston.
Hill: [laughs] We're talking about you. So, you're a New York Yankee fan. You've said before, when the Yankees aren't doing well, you suffer from that. You're an invested fan where. As opposed to, there are teams that you root for, that you only get good things from. If they're doing well, it's great, but you're not as emotionally invested as you are with the New York Yankees. True?
Hill: That's sort of my relationship with Facebook. In the same way that you're not emotionally invested in a professional hockey team, that's kind of how I am about Facebook. It's like, yeah, every once in a while, I'll get something good from it. If there's garbage on Facebook, I'm not that invested.
Barker: Do you check it daily?
Hill: No, I don't think I do.
Hill: I just am now curious to see where this device goes. What comes up on the next conference call or maybe the one after that, in terms of, "Hey, how many of those Portal devices have you sold?" Because it's hard for me to imagine it's going to be a lot.
Barker: I think it gets them in the game, right? Not necessarily that getting in the game is enough, because there are any number of times when one company, Facebook, Google, Amazon, Microsoft, is a laggard in one or another part of each other's markets, and makes an attempt to get in. Microsoft with the phone for instance, or Amazon with the phone. And it's just too late. So, the devices, and having the devices in the home, Amazon, Google, Apple, Facebook needs to be there in order to not miss out, perhaps, on what will be the next huge market. So, this gets them in there. Obviously, they're working with some disadvantages, in terms of their reputation for security and privacy. But it gets them in the game. It may be as much of a failure as Facebook getting into search. Time will tell.
Hill: Let's move on to the weekend box office, which surprisingly had the movie Venom, which had gotten terrible reviews. The Rotten Tomatoes rating for Venom is 31%. Venom not only had the biggest opening weekend at $80 million, it had the biggest opening weekend ever for a movie released in October. And October is one of those weird months for the movie industry, where the serious films that are vying for Academy Award nominations and Golden Globe nominations, that sort of thing, they're held off until really the last six weeks of the year. So, there's less competition in October. But I remember watching all of the previews for Venom and thinking, as someone who has enjoyed Marvel characters on the big screen, this looks like a movie I have no interest in whatsoever.
Barker: Well, I've turned to my daughter, who has the review that I'm relying upon. She saw it last night, which I guess is proof, to an extent, that the marketing worked. She was out there seeing it, despite the fact the reviews were already out that it was no good, she was going to see it. I could read her review, but I won't. I'll just skip to the part where, she thinks that they wasted too much time on the science behind symbiosis -- this is made up science -- and a romantic subplot. And I don't know why you need a romantic subplot for a monster.
Hill: [laughs] Beauty and the Beast, I mean, that seemed to work. I mean, that's kind of a tried and true model.
Barker: Yeah. At the end he goes back to being human or something. But I don't know that my perception of Venom is, "Ooh, I hope he's able to get the girl. That would be unfair, if a monster with teeth like that doesn't get a girl by the end of the movie."
Hill: I'm wondering if this actually portends good things, not just for Sony, because Sony is the studio that put this out. This is the weird relationship with Marvel characters. Even though Disney owns Marvel, Sony has the rights to some characters. So, this is a Marvel character that is actually not part of the Marvel Universe, as we think about with Iron Man, Thor, Hulk, Black Panther, etc. But I'm wondering if this means good things, not just for Sony, but also for movie studios. We've been hearing for a few years now that movie studios are going to be going out of business at some point. And certainly, in large part, you have not wanted to invest in publicly traded movie theater stocks. But for movie theaters, if they can pull a few surprises every year like this, I don't know, maybe it starts to get more attractive.
Barker: Well, it's an extension of the power of the franchise. I think absent Marvel's association here, nobody would see this. If it were just somebody's idea for a symbiote that comes from outer space and decides to wipe out the human race, but then decides not to in the middle of the film for some reason.
Hill: Because he can get the girl.
Barker: Right. You know, love conquers all is always a good turning point in a plot. It's all the Marvel brand. How far does that go? Marvel is cranking out -- as you say, this is Sony, and Fox has X-Men, and the rest of the Marvel Universe is with Disney. But that can only expand so much. If that is the future, more of that brand and more sequels to the things that are already known, it is going to squeeze out the independent stuff more and more into TV, which has not been a bad relationship for TV, to get so much of that work. For the movie theaters to just be spectacles and a couple of Oscar nominees at the end of the year. And everything else is kind of forgettable.
Hill: Earnings season kicks off in earnest later this week. The banks will be out Thursday and Friday, and that really kicks off the last quarter of the year. What is something that you and the folks at Motley Fool Asset Management are watching this quarter? It can be a company, it can be an industry, it can be a particular metric. What are you looking for?
Barker: Really, I'm looking at margins more than anything else, and the divergence, I suppose, in the profitability of companies. Of course, the economy has been very strong, and the top and bottom lines are exceptionally strong. I think earnings were up 26% on an earnings per share basis last quarter, which is remarkable growth and is something that is fueled to a large extent by tax cuts, and everybody knows that; but also to a very large extent by the improvement in margins. That is not distributed equally across all companies. The manufacturing and old economy companies are much more affected by increased transportation costs, and for some industries, increased human labor costs.
It's been the tech companies that have been fueling this margin growth, and been fueling the earnings growth. They're expected to have another phenomenal quarter of growth. But as you can tell, over the last couple of days, the market is beginning to look at growth companies a lot more cautiously than it did four or five days ago.
Hill: Is that a good thing? Because it kind of seems like it could be.
Barker: It's a good thing for future returns. Lower prices are better for future returns. It's a bad thing if you already own something that's down 10%, and you wanted to sell it in the near-term. It's a bad thing if you're speculating on the near-term price of stocks. I mean, interest rates are the biggest story out there right now. It'll be interesting to see how companies that do have a lot of debt -- which, again, is the more your old economy types of things than the tech companies -- what they're talking about, their expected costs, because interest rates have materially gone up, and are pointed higher. So, what do they have to say?
Hill: That was something we talked about, I think it was actually our lead story on Motley Fool Money last weekend. We were talking big macro stuff. One of the things that Ron Gross and Matt Argersinger keyed in on was specifically what you're talking about. Bonds being at a seven-year high, 10-year Treasuries being at a seven-year high. At some point, if they keep going in that direction, if they keep heading north, they start to become more attractive than certainly some stocks in a given person's portfolio.
Barker: Yeah. So, interest rates going up, is that a good thing or a bad thing, it all depends on where you are. For savers, getting actual returns in their bank accounts is a new thing. Over the last 10 years, it's been a forgotten experience for a lot of people. For bond investors, who have really only made money on the rates continuing to go lower and the way lowering rates increases the value of bonds you already hold, but decrease the rates that you expect to make going forward, the bond market now is beginning to be a place where you might consider putting money with an expected return more in the 3-4% range than had been the case for a decade.
Hill: The most recent episode of Motley Fool Money was our 500th episode. Later this week, we're going to be having our 1,500th episode of Market Foolery, which is kind of crazy to think about. We'd be a little shorter to that goal were it not for the occasional Apropos of Nothing episode.
Barker: Special episode.
Hill: [laughs] Special episodes where we talk about nothing related to investing. I've gotten a couple of emails and tweets from people over the last few months saying --
Barker: "Please don't do it again."
Hill: No, no. I'm sure those people --
Barker: The silent majority.
Hill: [laughs] I'm sure those people just immediately delete the episode if it shows up in their feed. No, a couple of people asked like, "Hey, it's been a while. The last time you did one was right before the Winter Olympics. Are you going to be doing another one soon?" I think we are. I think we're going to be doing at least one more before the end of the year, possibly two more.
Barker: Well, they take seven, eight months to prep.
Hill: [laughs] If by months, you mean minutes, then yeah, I think that's about how long they take.
Barker: What do you want to talk about this next apropos? I don't know, am I invited?
Hill: Yeah, of course! It depends on the timing. If we do it before Halloween, I think something related to Halloween would make sense, whether it's candy-related or costume-related.
Barker: I thought you spent every episode going into candy in the weeks leading up to Halloween.
Hill: No. I mean, we'll touch on it here and there. Certainly, Tim Hanson, in his last episode before departing The Motley Fool, we got into a surprisingly heated debate about fun-sized candy vs. regular-sized candy.
Barker: Were fisticuffs involved?
Hill: Fisticuffs were not involved.
Barker: Were weapons drawn?
Hill: I will just say, on one side of the debate was Tim Hanson, on the other side of the debate was Dan Boyd. If Dan and Tim came to fisticuffs -- I mean no disrespect to Tim, who's an incredibly athletic guy, but I think the way to bet in that situation is on Dan.
Barker: In a steel cage situation?
Hill: Steel cage, absolutely.
Barker: If Tim can run away... I'm not saying that he's a coward and he'd run away. I'm just saying that if, for some reason, that became the right strategy, your money's on Tim.
Hill: Yeah, more of a runner than Dan.
Barker: More of a runner than Dan. But in a steel cage, the betting's going to be on Dan.
Dan Boyd: If Tim runs away, doesn't that mean I automatically win?
Hill: A default situation? Like a forfeit?
Boyd: I'm not going to race Tim.
Hill: [laughs] Like the boxing match that happened recently, where the one boxer just walked out of the ring before the fight even started? He just looked at his opponent and said, "Oh, OK! I have to go!"
Boyd: Yeah, I think that's a victory for old DB over here, Barker.
Barker: I'm not here to instigate this particular fight, if only because Tim is not around to follow up on it. Otherwise, I'd be happy to instigate.
Hill: So, just to wrap up on Apropos of Nothing, if longtime listeners who actually enjoy the Apropos of Nothing have suggestions on non-investing topics for Bill and myself and one other person to discuss, to kick around, you can email us, email@example.com.
Barker: Do you have the third person locked down yet?
Hill: We have top men working on this.
Barker: My goodness!
Hill: Top men. Bill Barker, Motley Fool Asset Management, thanks for being here!
Barker: 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 tomorrow!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Bill Barker owns shares of GOOG, AAPL, and DIS. Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such. Chris Hill owns shares of AMZN and DIS. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, AAPL, Facebook, and DIS. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.