On Motley Fool Money, analysts Chris Hill, Jason Moser, David Kretzmann, and Jeff Fischer hit on the biggest stories in the market this week. Shares of Disney (NYSE:DIS) hit a new all-time high after a sweet quarterly report and promising news about the company's soon-to-be streaming service. Activision Blizzard and Take-Two Interactive (NASDAQ:TTWO) both reported impressive quarters and then took a hit on the nose. Match Group (NASDAQ:MTCH) tumbled after disappointing guidance and a weird, uncomfortable special dividend. Yelp (NYSE:YELP), Zillow (NASDAQ:Z) (NASDAQ:ZG), and Skyworks Solutions (NASDAQ:SWKS) all hit 52-week lows, but some of these companies are more promising than the others. And, as always, the hosts give you an inside look at the stocks on their radar.
Also, tune in for an interview with Grand Canyon Education CEO Brian Mueller about innovation in higher education, how a university-adjacent company can make money without jacking up tuition the industry standard 2%-3%, and more.
A full transcript follows the video.
This video was recorded on Nov. 09, 2018.
Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio this week: senior analysts Jason Moser, Jeff Fischer, and David Kretzmann. Good to see you as always, gentlemen.
We've got the latest headlines from Wall Street. CEO Brian Mueller from Grand Canyon Education is our guest. And, as always, we'll give you an inside look at the stocks on our radar. But we begin this week down in the Magic Kingdom. Shares of Disney hitting a new high on Friday after its fourth-quarter report included highlights from the studio business and a name -- finally, Jason -- for the new streaming business. They're going with Disney+. Works for me.
Jason Moser: I know you're so disappointed it wasn't something like Tronc, given earlier conversations this week.
Hill: Tronc was available.
Moser: I like that. It's consistent with ESPN+. It takes advantage of a brand that everyone already knows.
Hill: What was your highlight from this quarter? There were a lot of good things in report.
Moser: I think the big-picture takeaway with Disney is that if content is king, then distribution is queen. Everybody knows that behind any strong king is an even stronger queen. With Disney, that's the beauty of this business. They have both parts of that equation. And there's some uncertainty making the move to that over-the-top, ESPN+, Disney+. We're going to know a lot more in a year, of course. But I think that the early signs point toward success. And I suspect that they'll do very well with the content built out on Disney+.
I like the Hulu platform, but we're in this age now where the cost justification -- remember, for a long time, cutting the cord made sense from a cost savings perspective. That's going away. Now you have to sign up for more apps to get all the content that you really like. So really, that disparity is shrinking. For Disney to have Hulu and ESPN+ and Disney+ and all of that IP, it puts them in a position of power for a long time to come. And Fox as well.
David Kretzmann: They've certainly been planning for this for a long time. Disney+ will be launching next year, which is 12 years after Netflix launched its online streaming service. Maybe a little bit behind. Better late than never, I suppose, in this case. Some of the exclusive original content that they're producing for Disney+ looks really compelling, will lure in new people to test out the service. I think Disney's library of content is robust enough and intriguing enough to keep people on the platform. Personally, I'm looking forward to the Star Wars live action show, directed by Jon Favreau. Maybe it can redeem how I feel about The Last Jedi. [laughs] I wasn't a fan of that movie, but maybe this Star Wars live action series will do it.
Moser: Sounds like they're going to capitalize on the previous success of High School Musical, too, Chris. We'll have a chance to go back and remember that.
Hill: Whatever your personal feelings are about The Last Jedi, as a shareholder, I appreciated what that thing did at the box office.
Kretzmann: It did OK.
Jeff Fischer: It upset a lot of diehard fans, though. Rest of the show, Star Wars? Let's just talk about Star Wars?
Kretzmann: Let's do it! Thirty minutes. Let's go!
Hill: Jeff, just to pivot off one thing David said there, in terms of the streaming app, yeah, they may be a little bit behind the curve. But I think, as we've talked about before, they're looking at this probably the right way in the sense that they want to nail it right out of the gate. They can't really afford to have a stumble, in terms of how the app works. Sure, there will be upgrades to the app. But they have to get it right next year.
Fischer: I agree. ESPN aside, they're targeting a lot of the younger audience and hope to grow with them. And they have the content to address everything, from little kids to supposed grownups like us. And the shares haven't really gone anywhere since 2015. As a result, they look very reasonably priced, at about 15.7 times expected earnings for the year ahead.
Moser: And a little side part of the business there with the parks and resorts. Makes a little bit of money.
Fischer: They employ 199,000 people. I should have asked everybody to make a guess.
Moser: It's a phenomenal part of the business year in and year out. The pricing power that they possess on those parks is really impressive. I'm sure there's a record here for how many years in a row they've been able to raise ticket prices. They continue to be able to do that because it's such a unique and compelling pull. Every parent, that's the goal -- get your kids to Disney World or Disneyland.
Hill: And forget about your money.
Moser: Of course! [laughs]
Hill: Shares of Twilio (NYSE:TWLO) up big this week. The cloud computing company crushed expectations for the third quarter. Shares of Twilio up more than 30%. Not bad, Jeff, when you consider this company still is not profitable.
Fischer: Awesome. It's a $9 billion market cap now. As Jason was talking about appification, baby, maybe, basically making content into apps, Twilio is making communication into apps. It lets programmers easily put communication capabilities into any software that's out there using an API. That's what they're doing. Their biggest customers are WhatsApp and Uber. Anytime you use them to communicate with the other party, you're using Twilio's cloud and software.
Revenue was up 68%. Almost even more impressive is dollar-based net expansion rate of revenue, which was 145%. That means where they earned $1 from a customer a year ago, they earned $1.45 this time, because usage is growing. They're offering more and more products on top of what they offer. It's a phenomenal story where they're growing customers, they're growing revenue because of that, but they're also growing revenue based on usage as well.
Hill: When you look at the cloud computing space, yes, this is impressive, the growth that Twilio has. It's close to $10 billion in market cap. That's a fraction of companies that they're competing against in Microsoft, Amazon with AWS, etc. Is this a company that you feel like has a little bit of a moat? Or is someone going to come in at some point and just make them a big offer?
Fischer: I do believe they have a good moat. The CEO, Jeff Lawson, worked at Amazon before Twilio, along with a few other start-ups that did well. Years ago, they set up a worldwide network of communications by signing agreements and whatnot so that you can use their services anywhere. That's tougher to do than it sounds like. And their software is years ahead of other people. It's really programmer-driven because it allows you to customize it exactly how you want it. That creates a stickiness, too. They're in a giant industry, and they have a great lead, and I think they could maintain much of it.
Hill: Two video game stocks in the spotlight this week. Activision Blizzard's third-quarter profits came in higher than expected. Second quarter revenue for Take-Two Interactive came in higher than expected. Despite those headlines, both of these stocks falling more than 10% this week.
Kretzmann: Well, Chris, I think we can go to a little poem here to maybe explain what's going on. When the valuation is lofty, and growth is lumpy, Wall Street will be grumpy. That's my analysis for the day. I'll hang my head up there. No, anyway, Activision --
Hill: Wait, you wrote a poem?
Kretzmann: I mean, I don't know if that counts as a poem.
Moser: But you came up with that?
Kretzmann: I came up with it.
Moser: Between that and "Twilification," there's some serious money being made by someone somewhere based on the IP that we're kicking out.
Fischer: Somewhere. And "appification." It's a really clumsy word, but ...
Kretzmann: If this thing at the Fool doesn't work out, I'll start writing some more poems.
Fischer: [laughs] Robert Frost!
Kretzmann: Follow me on Twitter, everyone. [laughs] Anyway, going on to Activision. The quarter was pretty strong, but I think their guidance for the next quarter and the rest the fiscal year was just slightly below Wall Street expectations. By "slightly," we're talking less than 5%. This quarter, they saw some key launches of their existing franchises, like Call of Duty with Black Ops 4, World of Warcraft, Candy Crush. Call of Duty. This latest version generated over $500 million in the opening weekend. That's a pretty strong release.
But going into this, like I mentioned in that poem, the company's valuation has been lofty over the past year or two. Now, after this drop, the stock is down about 13% or so, trading for around 21 times forward earnings. From a valuation perspective, it's finally starting to get back into that reasonable range.
Hill: We've talked before about this industry being, like the movie industry, a hits-driven business. Is there one franchise in either of these companies that you look at and think, "Boy, if they can produce a big hit in this franchise, whether it's this holiday quarter or in 2019, it's really going to juice the stock?"
Kretzmann: For Take-Two Interactive, Red Dead Redemption 2 is their latest release. That just did phenomenally well. In the first eight days, Red Dead Redemption 2, which launched in October, sold more than the first Red Dead Redemption did in its first eight years. Red Dead Redemption 2 brought in $725 million over the opening weekend. So far, it's already sold over 70 million units globally. Packing a powerful punch right up there along Grand Theft Auto V, which for a long time has been the main revenue generator for Take-Two.
But this is a lumpy business. It's based on the timing of these releases. At the end of the day for these companies going forward, it's about how recurring can they make these releases. But so far, these steady franchises continue to do really well.
Hill: Shares of Yelp down 30% on Friday, after a rough third-quarter report. Yelp also cut revenue guidance for the full fiscal year. And Zillow shareholders had a week that was almost as bad. Zillow lost a quarter of its market cap, after the online real estate platform's third quarter-report included a similar cutting of guidance for the full fiscal year.
Let's start with Yelp, Jason. How bad is this?
Moser: It's probably not as bad as the market is making it out to be. But a business built on selling ads based on its network effects, they need to be adding advertisers in order for the market to feel good about it. And unfortunately, they are not. What you have here is basically a resetting of expectations. I think the reaction, generally speaking, is the appropriate one. It may be a little overdone. Yelp is a profitable business. It does suffer, I think, from a little bit of an identity problem. Is it for restaurants? Is it for traveling? What is it really for? It's a little bit of all of that stuff. And there's some question as to the reliability of some of the reviews. But all of that considered, like I said, it is a profitable business, and things could be worse.
Hill: Speaking of which, how bad is Zillow?
Moser: I used to think this company had more potential than a slinky at the top of the stairs, Chris. I really did. I don't think that anymore. I've been bearish on this company for a while, internally, even here at the company. I think that anytime, as investors, when we hear the words "transformational innovation," we tend to get pretty excited. However, in this case, I think you need to be very, very concerned. That phrase was basically how they opened up the shareholder letter this quarter.
The problem is that they've been basically innovating forever. They've been trying to do this ever since they've been public. They've not yet recorded a profitable year, and that's in the face of a really good housing market. Now we're seeing the housing market starting to tighten up a little bit, and unfortunately, the go-to for this business, the premier agent side of it, is showing some signs of weakness. I'm not sold on the changes that they've made there. And then, the Zillow Offers side of the business that they're talking about growing out, totally not scalable, and I'm not sure it's going to be nearly as profitable as perhaps management wants it to be.
Hill: Is either one of these stocks of value play to you?
Moser: Personally, I would not invest in either one of them. I think they're probably more value traps. But again, at least Yelp is profitable. They can point to something there. Zillow really has to get its act together.
Hill: Skyworks Solutions, the maker of specialty semiconductors, having a rough week, as well. Fourth-quarter revenue for Skyworks looked pretty good, Jeff. Guidance, though, was weak. Shares hitting a 52-week low on Friday.
Fischer: A little weak on the guidance, Chris, but they still expect 2019, which is just beginning now for them, to be a record year, and to be their 10th year in a row of record revenue and record EPS. What happened in the year that just ended? Revenue was up 6%, earnings per share up 12%, margins continued to grow. As I just said, it's a ninth year running of records. They have great customers in BMW, Tesla, and Toyota, let alone most smartphone makers in the world. Apple is their biggest customer by far. And that is probably right to the point of why the stock fell. Everyone's talking about Apple iPhone sales units topping out -- at least for now, maybe. That looks to be the case in Skyworks' guidance as well, driving some of that flatness in revenue for the next quarter. That's the concern, along with China slowing as well.
That said, the stock is inexpensive. It trades at 10 times more or less expected earnings for the year ahead. That said again, it's been disappointing. Since 2014, shares haven't gone anywhere, even though business has executed superbly. This is one of the few semiconductor stocks that I really like. They have competitive advantages, growing margins, strong profits, great markets, including Internet of Things. They're in with all the major players as customers. I own shares. I continue to want to own shares. It just reminds you to be patient.
Hill: It's surprising that they put up record revenue every year, and the stock is basically flat since 2014.
Fischer: I think what happened is, a few years before 2014, the stock rose twofold or threefold, and then it's just flattened since then. But great management. We should be congratulating them. I look forward to their future. 5G is going to drive a lot more demand for their products, too.
Hill: Investors were swiping left on Match Group this week. The parent company of Tinder, match.com, and other dating platforms issued a third report that came with -- wait for it, David -- disappointing guidance. Also, a special dividend. What is that about?
Kretzmann: We'll get to the special dividend. On the surface, the underlying business looks to be performing really well. Match, across all its properties and apps, now has over 8 million global paying subscribers. Average revenue per user is also increasing. Tinder is especially driving a ton of revenue right now. Subscription revenue in the quarter doubled for Tinder. Tinder Gold subscriptions up 61%. Overall revenue was up 29%. Adjusted EBITDA up 38%. Those are strong profitable growth numbers.
But then, they're throwing in this special dividend, which is a bit of a head-scratcher. They're paying a $2-per-share a special dividend that'll cost about $560 million. This, mind you, is for a company that already has about $800 million in net debt. They'll probably be going into more debt to finance this special dividend. I think this might be kind of an underhanded way to pay back their parent company, InterActiveCorp, which still owns about 80% of Match Group's shares outstanding. InterActiveCorp will be receiving the bulk of that $560 million payout.
On the conference call, management was going through their capital allocation strategy. Most tech companies or software companies don't like to operate with debt. They have a lot of cash and no debt. Match tries to say that they fall into the group like Netflix and Amazon, which rely on debt to fuel expansion. I can get on board with that. But what sets this special dividend apart is that they're going into debt for a dividend. They're not going into debt to reinvest back in the business, which is what Netflix and Amazon are doing. A bit of a head-scratcher here. Something to keep an eye on.
Hill: Another restaurant being taken private. This week, Durational Capital Management bought Bojangles (NASDAQ:BOJA) for nearly $600 million in cash. Jason, how are you holding up?
Moser: Listen, it sounds like, at the end of the day, they're not going to be making any changes to the model there. So I'm OK. I mean, as long as I can swing through the Atlanta Airport every now and then, get my spicy chicken biscuit and sweet tea, I'm OK with it. We've never been all that high on this company as an investment. The restaurant business faces a lot of challenges.
Hill: Quick question from one of our listeners, Matt Riley, who writes, "As a Bojangles shareholder, what options do I have to minimize any tax impacts? Can I just reinvest the funds without being taxed?" It is an all-cash deal.
Moser: It sounds like they're going to be getting all cash for your shares, so you're pretty much stuck with that. Probably a nice problem to have, at the end of the day, if you're making a little bit of money on the investment. But yeah, they're offering all cash. It doesn't sound like there's another option, which is going to limit your tax strategy availability.
Hill: Next month, we'll be doing a show where we spend a little bit of time looking back at 2018. I feel like one of the things we're going to be talking about was, 2018 was the year where a whole lot of restaurants went private.
Moser: Yeah. I think that makes a lot of sense, though. We're seeing more and more that companies that have a collection of brands under their umbrella are the ones that are doing really well. Yum! Brands, Restaurant Brands International. That was one of the reasons why I thought maybe Wendy's might consider buying Bojangles. But it sounds like private equity got to it first.
Fischer: Private equity is pretty smart, too. Bojangles is being taken private well below its IPO price in 2015.
Kretzmann: Papa John's, still looking for a savior. I'm waiting.
Hill: Jason Moser, David Kretzmann, Jeff Fischer, guys, we'll see you a little bit later in the show. Coming up, we'll talk about the business of education with Brian Mueller, the CEO of Grand Canyon Education. Stay right here. You're listening to Motley Fool Money.
[...] Welcome back to Motley Fool Money. I'm Chris Hill. Brian Mueller is the CEO of Grand Canyon Education. The company provides educational services like marketing, technology, and curriculum development to Grand Canyon University, a nonprofit University in Phoenix, Arizona. At our recent Motley Fool member event in Denver, our chief investment officer, Andy Cross, interviewed Brian Mueller in front of a live audience. Here's part of that interview, starting with Mueller talking about the high price of higher education.
Brian Mueller: Depending upon who you believe, the cost of higher education has probably gone up four times the cost of living since the early '80s, and higher education has become unaffordable to many, many socioeconomic classes of Americans. Students are taking on $100,000, $150,000 worth of debt. They're not getting jobs appropriate to that amount of debt. Higher ed was ripe to be disrupted.
We went to Grand Canyon University in 2008, when it was a small private university with $20 million in debt and about to close. It had 900 students on its campus. We went there believing we could use getting access to the public markets and getting access to capital to invigorate a new financial model for higher ed.
Andy Cross: The stock came public at $12. It's now about $120. That's about a ten-bagger in about eight years. Well done. Tuition, on the other hand, has really been flat for, I think this is your 11th year now of flat tuition. How has Grand Canyon Education been able to do that in an environment when tuition prices on average are going up 2%-3% a year recently? How have you been able to maintain the discipline to not do that for students?
Mueller: It goes back to the two large markets. Traditionally in higher ed, the traditional universities wanted to serve the 18-year-old students. That's how they built their brand. But this huge other market developed in the early '70s, especially because of the ending of the Vietnam War. Soldiers were coming back, and they really didn't have skills. They couldn't access college the way a traditional student does. That market, since the middle '70s, grew very large. But it was serviced only by the for-profit companies, University of Phoenix primarily.
In 2008, the recession changed everything. State universities saw their subsidies cut in half by the states. Private universities saw their endowments shrink. They had to find other sources of revenue, because they weren't going to change their basic business model. What they did is decided to get in the business of teaching working adult students and delivering online. They basically stole the business from the for-profits in the last 10 years, which we predicted would happen in 2008.
Fortunately, we were out in front of the game. We developed this hybrid campus with 21,000 traditional students on our campus. We used that campus to drive the strength of our brand. But the 70,000 working adult students that are going online, those two campuses, leveraging a common infrastructure, produces huge efficiencies. Not only have we not raised tuition in 10 years, but we've invested $1 billion in our campus. Classrooms, laboratories, new programs, athletic facilities, 24 restaurants. We're in Phoenix, so, five pools, five fitness areas. We were just ranked the seventh nicest campus in the country. Last year, we were eighth. We have a brand-new campus with state-of-the-art facilities in a destination, city, and state -- at least in the fall; not necessarily in the summer. And students are finding that they can graduate with very little debt. They can complete their degrees in three to four years. And those are the things that families are looking for.
Cross: I'll note your default rates on the borrowers is somewhere in the 8%-10% range, which is far below the average, especially for for-profit universities, which do have a problem on that. Your largest client is Grand Canyon University. But you mentioned the excitement about being able to take your talents, services, experience to other partners. Talk a little bit about what that may look like over the next five or 10 years. I'll just mention that Grand Canyon is owned by The Motley Fool. We have more than $136,000 of Motley Fool capital invested into Grand Canyon, more than 1,000 shares, along with other shareholders here. Our perspective is, we're looking out for all of our investments for at least five years.
In that landscape, as you go out to expand beyond just Grand Canyon University, talk a little bit about the ability to go out there and take your company's skills and talents to other clients.
Mueller: We're looking for partners that have presidents that don't want to do something small. We want to look for partners that have a president and a board that wants to do something disruptive. Higher ed needs to be disrupted. We talked about the rising tuition, the lack of changing the business model, the loan debt that students are taking out. We're looking for a president that wants to take their programs and use us to convert them, so they can be delivered online to working adult students all over the world and wants to build sizable student body populations, so they can fundamentally change the value proposition for families and for students. We're very determined that, if you can make higher education affordable to all socioeconomic classes of Americans, you can build diverse student bodies, and you can provide opportunities for all kinds of students, but especially disadvantaged students. We are not looking to have 25 or 30 partners. We're looking to have a couple partners that want to scale, that are in geographic areas that will not interfere with what we're doing at Grand Canyon -- we're still going to grow at 7%-8% per year at Grand Canyon, grow revenues 8%-9% per year. But we're looking to add on to that with partners that have presidents that want to do something disruptive, and they want to scale their programs.
Cross: Is there an international opportunity as well?
Mueller: Possibly, but we're not focused on that right now. We think there's a huge opportunity in this country. People are really changing their attitudes about higher education. When families come to our campus now, we find they ask three questions, and none of them have to do with U.S. News and World Report rankings, which are not helpful and productive to universities and families. They want to know, "Do you have programs that can help my son or daughter get a job?" For example, there are 300,000 jobs available today in cybersecurity that pay, on average, $92,000. Most high school guidance counselors and families don't know about that. Having cutting-edge programs that are going to help students get jobs, parents are very focused on that. Secondly, they want to know, "Can you help my son or daughter graduate with minimum debt?" And thirdly, "Is your campus safe? Is it going to be safe for my son or daughter?" If you can answer those three questions, they get very excited about the value proposition that you have. We're looking for partners that want to help us in that.
We also have the advantage, interestingly enough, of being located, Grand Canyon University, in an inner-city neighborhood that is full of immigrants. We started five years ago on what we call a five-point plan to bring middle class status to that neighborhood again. A lot of universities are interested in what we're doing, because we're producing real results. We're one of the fastest-growing employers in the Phoenix area. We've planted a fast-growing employer in an inner-city neighborhood. We've spun eight businesses off our current one, the university, which creates an additional 350 jobs in just two years. We have the world's largest Habitat for Humanity program going on in our neighborhood. Our goal is to rehab 800 homes in five years. We're finishing our 200th home this weekend. We'll get to 800.
We have a safety initiative. And we have a tutoring program, where 1,200 of our kids offer tutoring to inner-city kids from 80 different schools every day between 3:00 and 8:00. A lot of people have become interested in us because of the outward reach that the university has made.
Cross: I want to pivot back to the investments you're making in technology and curriculum development, which you are handling for Grand Canyon University, and things like LoudCloud, to give you a chance to explain that. The development of curriculums and different styles of learning, what is Grand Canyon Education doing to innovate in that space?
Mueller: It's very important. I don't think there's ever been a time when the population in this country has been more open to how to educate our kids. That is true in preschool, it's true in K-12 education, and it's true in higher education. There's been an explosion of homeschooling in the K-12 world. There's an explosion of online learning in the university world. That's going to continue. Continuing to make investments in how we can create opportunities so that people can access education, especially higher education, in new and innovative ways is really important to us.
Right now, we have these two large markets, but there's another one emerging. The other one is 18-year-old students that graduate from high school and they're fine with staying at home. They're fine with keeping their part-time job. They want to access a higher-ed program from their local community. They want to complete it in three years. They want to complete it with minimum debt and they want to go to work. We're also helping high schools. There's a lot of private high schools who, in their 20-square-mile vicinity, have a huge number of homeschoolers. Parents, once the kids get to high school, they're starting to get a little sheepish about, "Can I teach him biology and calculus and all those things?" And they'd love to access the local private high school for half the tuition rate but do it online.
We're just in the beginning stages, I think, of an explosion of ideas. From the kindergarten-through-grade 12 and into higher education and even at the graduate level, people are willing to consider a multitude of options. Universities should be on the front end of that, not on the back end of that.
Cross: I did want to ask a question. Grand Canyon has a very rich Christian heritage. You even have a doctrinal statement and ethical positioning statement. As you think about expanding out your client base away from just Grand Canyon University, eventually, does the heritage that you have around Christianity, around some of the issues that you have in your doctrinal statements, and in your position statements around marriage, and homosexuality, will that be a challenge for you going out forward?
Mueller: We are a Christian university. About 65%-70% of the students come for that reason. They identify with our view of the world, and they want to be part of that. About 35% of our students come for a different reason. And we want them on our campus. We are not a church. We're a university. We want them to share their worldview in the classroom. We're a university of ideas. We're a very broad-based university of ideas. People are expecting us to take a political position because we're becoming a major player in the city of Phoenix and the state of Arizona. I say to them, "On the east side of town, all the Republicans think we're Republican because we're about the free markets and we're a Christian university. On the west side of town, all the Democrats think we're Democrats because we're about inner-city transformation and we're about immigration reform." I tell our students, "We've got them right where we want them. We're going to stay right there." We support people on both sides of the aisle, as long as they support policies that help disadvantaged populations. That's what we're about.
As we look for partners, we may have partners that are state institutions; we may have partners that are Jesuit institutions. If you as an institution want to grow your university by converting your curriculum so it can be delivered online to working adult students, we're happy to be your partner, regardless of what worldview you come from.
Cross: I have two young daughters, I'll end with this question. For anyone who has young kids, as we think over the next 10 years, and we're investing for education, what's your advice? You're an educator. You come from a family of educators, even though your parents weren't educators. Clearly, there's something in the water at the Mueller household many years ago that bred educators. What is your advice to me and to others about looking and thinking about college education over the next 10 years?
Mueller: Start early. Start when your sons or daughters are sophomores in high school. Start looking at institutions. Start looking at programs. One of the things we say is, we have to understand where the economy is going. We have to understand where the jobs are going to be. We have to build programs in conjunction with industry so that we're going to help our students get jobs. I think that's the most important thing. You're looking for a university that understands where the economy is going. We're adding 20 new programs on an annual basis. We want to add programs that are cutting-edge programs based on, are they going to help young people get access to the growing fields in the economy? I think that's really important.
Secondly, look for universities that are changing their business models so that they can make education affordable. You don't want your son or daughter going into $150,000 or $200,000 worth of debt, because many of them will never get out from under that. It has to be affordable. And the third thing is, look for universities who have or built communities that are safe, that are inclusive, and that you can feel good about dropping your son or daughter off at.
Hill: Welcome back to Motley Fool Money. Chris Hill here in studio once again with Jeff Fischer, David Kretzmann, and Jason Moser.
Quick shout out to our special guest this week, Ed Vesely and his family visiting from Motley Fool Australia.
Right here with his lovely wife, Justine, and their sons, Dominic and Nicholas.
We're going to get to the stocks on our radar. But by the way, for any listeners who are looking for a couple of Australian stocks that they want to put on their radar, check out the episode of Market Foolery that Ed Vesely and Andrew Leggett did earlier this week. I'm just saying, a couple of tickers, if you're interested in investing Down Under.
Let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Jason Moser, you're up first. What are you looking at this week?
Moser: We'll talk more about it on Monday's Industry Focus. Sorry for the shameless plug there, but you have to do what you have to do. Square (NYSE:SQ) reported this week, ticker SQ. Stock has sold off in the wake of what was on the surface a very good release. I think it's basically back to where it started this week. Let's just keep everything in perspective. Look to gross payments volume with a company like this to get an idea of how well they're doing. In Square's case, they're doing very well. Gross payments volume was up 29% from a year ago to $22.5 billion. To put that in context, as I always do with this company, PayPal's gross payments volume for the same quarter was $143 billion. You can see there is a tremendous opportunity there for Square to keep growing. They're 29% growth. PayPal was 25% growth. Sounds like someone's picking up a little share!
Biggest question with them, CFO Sarah Friar has taken off. Congratulations to her on the CEO job. That question hopefully will be answered soon. She's definitely an asset that they will be missing.
Hill: Steve, question about Square?
Steve Broido: When I think of Square, I think of that little square thing that plugs into your phone. Is there more to this business? Is that all that this is about? I just haven't followed the company that much.
Moser: I think it's a very good question. They've done such a good job of really branding the business. But it's really all about the software that they're building with that hardware. And it's just becoming a more compelling package for merchants in all different lines of work. Really, the software is the backbone of the company.
Hill: David Kretzmann, what are you looking at this week?
Kretzmann: I'm looking at 2U (NASDAQ:TWOU), TWOU, another stock that got hit after reporting what looks like pretty good earnings this week. They're behind a software platform to deliver online graduate programs at scale to students anywhere. They partner with big-name universities like Oxford, Cambridge, Harvard, and Yale. Altogether about 22 universities, with 64 total programs online and counting. It's an interesting business model. When they partner with one of these universities for one of those master's programs online, the shortest contract they have is 10 years, and some of their contracts are beyond 10 years. So they should be generating some steady, recurring revenue over the long run. This recent quarter, revenue was up 50%. Gross margin is strong at 80%. Still unprofitable on the bottom line. But a lot of things to like here.
Hill: Steve, question about 2U?
Broido: We hear about online education disrupting traditional colleges, but there are so many colleges still that don't seem to have been disrupted. Is this a wave that we should look closer at?
Kretzmann: 2U is not taking necessarily a disruption approach, but more a partnership approach. Recognizing that Harvard, Oxford, Yale, these are some of the most powerful brands and institutions in the world, helping them get online.
Hill: Jeff Fischer, what are you looking at?
Fischer: Veeva Systems (NYSE:VEEV), ticker VEEV. The company provides cloud solutions for the life sciences industry, anything from customer relationship management to R&D to regulation. That's the key word. They're an expert in making sure you're in compliance with all regulations. And now, they're moving beyond life sciences, where they really have a great leadership position, into other industries. That gives them a lot of potential. Earnings are out late this month.
Hill: Steve, question about Veeva Systems?
Broido: I hear the words "cloud" and "life sciences" and I'm confused already. How can an average shareholder follow this company and follow what they're doing?
Fischer: Great question, Steve. You can read their conference calls online free. They really spell it out clearly how they're providing software that helps biotech companies and pharmaceutical companies develop drugs, report correctly on the drugs, and manage their relationships with customers, among many other things.
Hill: Do you have a stock you want to add to your watch list, Steve?
Broido: I think 2U looks kind of cool.
Kretzmann: All right!
Hill: David Kretzmann, Jason Moser, Jeff Fischer, guys, thanks for being here. That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon, PayPal Holdings, and Walt Disney. David Kretzmann owns shares of Amazon, Apple, Match Group, Netflix, Papa John's International, PayPal Holdings, Skyworks Solutions, Square, Take-Two Interactive, Tesla, Twitter, Veeva Systems, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). Jason Moser owns shares of Apple, PayPal Holdings, Square, Twitter, and Walt Disney. Jeff Fischer owns shares of Amazon, Apple, Netflix, Skyworks Solutions, Square, Twitter, and Veeva Systems and has the following options: short November 2018 $81 puts on Twilio. The Motley Fool owns shares of and recommends 2U, Amazon, Apple, Netflix, PayPal Holdings, Skyworks Solutions, Square, Take-Two Interactive, Tesla, Twilio, Twitter, Veeva Systems, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of Microsoft. The Motley Fool is short shares of Papa John's International and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short January 2019 $82 calls on PayPal Holdings, long November 2018 $55 calls on Papa John's International, and short January 2019 $80 calls on Square. The Motley Fool recommends Match Group and Yelp. The Motley Fool has a disclosure policy.