Did SAP Overpay for Qualtrics?

In the enterprise software game, Germany-based SAP (SAP -1.58%) is a major player. Qualtrics International, by contrast, was a youngish upstart headquartered in Utah, but its cloud presence was strong, and SAP is pushing itself in that direction. So perhaps swooping in ahead of its upcoming IPO to buy it outright was a smart play.

But, as Market Foolery host Chris Hill and MFAM Funds' Bill Barker note in this podcast, the market apparently feels the $8 billion price tag was too high. Also in this episode, the guys give some credit to Comcast (CMCSA -5.82%), which had a profitable weekend at the box office thanks to the Universal Studios release of The Grinch. Yes, they made another one; yes, they released it this far ahead of Christmas, and yes, surprisingly, it crushed the competition with a $66 million take -- almost as much as the next five movies combined.

A full transcript follows the video.

This video was recorded on Nov. 12, 2018.

Chris Hill: It's Monday, Nov. 12. Welcome to Market Foolery. I'm Chris Hill. Joining me in studio today, from MFAM Funds, Bill Barker. Happy Veterans Day!

Bill Barker: Thank you! Is that the right way to introduce Veterans Day? "Happy Veterans Day?"

Hill: Um...

Barker: Try again.

Hill: I don't know. What is it supposed to be?

Barker: "Respectful," or something. [laughs] I mean, there's a little bit of a difference. It's not quite Fourth of July.

Hill: It's not Fourth of July. 

Barker: Try to respect the veterans, would you?

Hill: [laughs] I was really trying. Thank you to all our veterans out there listening.

Barker: Better.

Hill: So, yesterday, I was down -- don't worry. We're going to get to the news. Relax. Yesterday, I was down at Hains Point in Washington, D.C. I was running a Veterans Day 10K race. And as is often the case, the National Anthem was played before the race began. Then, after that, they played all of the songs for the different branches in the military. They had the Army song, the Navy song, Marine Corps, Air Force, Coast Guard, all the songs. I thought that was a really nice touch for Veterans Day. Because yesterday was actually Veterans Day. Today's the day we observe it.

Barker: Yeah. When I worked in the federal government for a period of time, and we got Veterans Day off, it was a surprise. You don't tend to get it off in the private sector in a lot of jobs.

Hill: Yeah. The market's open.

Barker: The first year it happened, I almost showed up to work, because it was on a Tuesday or something like that. It doesn't move around to land on a Monday, the way other holidays are frequently moved around. I hope everybody who should be taking the day off, is.

Hill: And with that, let's get to the news of the day. It's the Deal of the Day. SAP buying Qualtrics International for $8 billion. SAP is the enterprise software company based in Germany. Qualtrics, a young up-and-coming company based in Utah that had filed the necessary paperwork to go public. I guess SAP came in and said, "We hear you're looking to raise around $200 million in your IPO. Here's a check with a couple more zeros."

Barker: Yes. I think the second biggest acquisition for SAP ever, maybe, extends its ventures into the cloud. That's where it is attempting to position itself for the future, as it moves all of its businesses there. This is part of that. I don't know the Qualtrics numbers to know if this is a good price, but the market is certainly taking the opposite end of that.

Hill: Yeah, I was just going to say, SAP was down about 6% at one point this morning. Clearly, there's some thinking there that they probably could have gotten this for less.

Barker: Seems like it. I'm not going to say they could have. But that is the market's interpretation. And actually, not one that is different from the large majority of reactions to an acquisition, which is typically that the acquirer goes down because they've paid a premium, and for the most part, people don't think that's necessarily the best use of cash. A lot of times, it's not.

Hill: This is also a good day, and we see this play out in pretty much every industry, where either one company gets bought, and then other companies in that space rise a little bit as a result of that. Or, this company in the industry reports great earnings, so maybe that portends good things for other companies. In this case, it's SurveyMonkey, which certainly has a catchier name than Qualtrics International. SurveyMonkey shares are up a little bit. For those who bought into the IPO and have seen their shares of SurveyMonkey essentially do nothing but go down since the IPO just a couple of months ago, today, given a brief respite from that.

Barker: I'm not coming into contact with a lot of Survey Monkey results in my daily life, although I frequently check FiveThirtyEight to look at their data analytics work on things political. There are frequent SurveyMonkey polls that show up in their collection. It's given a very, very low ranking. It gets a grade of D-minus. 

Hill: [laughs] That's not as low as you can go, but it's pretty close. 

Barker: There are things that get Fs. But a D-minus is a bad, bad grade. In comparison to the way that other polls are done, which are more human-intensive, SurveyMonkey results are not, at least by Nate Silver and his crowd at FiveThirtyEight, deemed particularly reliable compared to the other frequent surveyors and poll-takers out there.

Hill: If you listen to our Industry Focus podcast, you may have heard Dylan Lewis, who hosts the Technology show on Fridays, recently did an episode about SurveyMonkey. I was going back and forth on Slack with Dylan this morning about SurveyMonkey and being up on the news. One of his comments was, "SurveyMonkey is the Blue Apron of tech." I don't completely understand it, but it certainly doesn't sound like a compliment.

Barker: No, it doesn't, especially given how Blue Apron has done as a public company. I don't think we're hearing a lot of compliments about SurveyMonkey out there. But you could help with their branding.

Hill: Yeah. When Dylan put out on Twitter, "We're going to be doing a show about SurveyMonkey. What questions do you have?" All of my questions were about the name. Why did they pick "monkey"? Why didn't they go with "dolphin"? Aren't dolphins supposed to be the smartest animal? Stuff like that. How many names did they go through before they said, "We'll go with monkey"?

Barker: You don't necessarily, when you're polling, want the smart animal. You just want the representative one. You're trying to get everybody to take your survey, not just the smart animals.

Hill: I think if you're a data analytics company, you want to demonstrate that you are smart. I'm just saying, dolphin strikes me as smarter than monkey.

Barker: There's debate about that.

Hill: Not a great debate.

Barker: [laughs] About whether dolphins are smarter than monkeys? I mean, we could debate. There are different ways of measuring their intelligence.

Hill: I guess so. I'm just saying that when I think about Flipper, Flipper had it all over whatever monkey was on. What's the biggest monkey in TV history? Is it B.J. and the Bear? That kind of thing?

Barker: That's an orangutan.

Hill: Was it?

Barker: It wasn't no monkey. What are you talking about?

Hill: Are they different? Are you saying monkeys and orangutans are different?

Barker: What kind of a primate are you? Let's get back to something vaguely related to the issues at hand, which is SAP, which is actually where we started this a while ago. Whenever we're talking about SAP, I'm reminded of the Arsta rule regarding investing in or alongside companies that do business with SAP. 

Hill: This is named for your colleague, Tony Arsta?

Barker: Yes.

Hill: I know Tony, but I'm unfamiliar with the Arsta rule.

Barker: I had to check with him to get the exact formulation of it. As Tony formulates it for my benefit, it is, "Sell any stock the moment a company announces that they are implementing SAP. The setup always takes longer and costs much more than originally projected. Meanwhile, they also tend to delay other improvement projects. Once they have the bugs ironed out, they will be a more efficient company, but that's probably at least two to three years out."

Hill: Safe to say Tony is bearish on SAP.

Barker: Not necessarily the company. Just on companies that end up utilizing them, or at least that the stock price will not be attractive. It will not move in the direction you want as a bull, for two to three years. That's for other people to look at. But it's been his experience that when a company utilizes SAP, it tends to be a little rockier than they hope, or at least than they tell people it's going to be.

Hill: I mentioned when I introduced you that you're from MFAM Funds, which may have given pause to at least some of our listeners, because I in the past have always introduced you as being from Motley Fool Asset Management or Fool Funds, that sort of thing. That's because there's been a little rebranding in your shop. The website is now mfamfunds.com. And I have to say, whoever did the website, kudos to them. It looks great.

Barker: Well, I would thank you, but I'll thank you on behalf of --

Hill: Oh, I didn't for one second think you had anything to do with the website.

Barker: [laughs] No. I didn't think that, either. But listeners may have mistakenly thought that I could have had anything to do with the quality work that's been done on the website by Matt Trogdon, and Carl Hendley and others. We will send them all your way to take a bow.

Hill: Kudos on the new site. When your colleague Charly Travers was here, he was talking about, among other things, you guys have a new ETF.

Barker: We do, for which Charly is doing all the important work. That's available out on the market to anybody that's interested in researching a small- and mid-cap growth ETF. We've got one.

Hill: We are taping this midday Monday. I can tell the dozens of listeners that if you want to get up Tuesday morning and tune your TV or viewing device over to CNBC, you can see Bill Barker in action. What are you going to be talking about? You're going to be on Squawk Box tomorrow morning. What time Eastern? A little after 6 a.m.?

Barker: 6:10 Eastern.

Hill: OK. So you'll be getting up early.

Barker: Yes. [laughs] Yes. I will.

Hill: What are you going to be talking about with Joe Kernan and Andrew Ross Sorkin and friend of Motley Fool Money, Becky Quick?

Barker: I don't know yet. They've given me a few questions, and I'm going to get back to them on which of those will make the best appearance, what I've got to say on them. I don't want to spoil any surprises. When you talk about dozens of listeners, it's possible that you are underselling. There may be hundreds. Who's to know? You're not going to break that news here.

Hill: Not going to break that news here.

Barker: But if you were to refer to the potential listeners out there and refer to tomorrow's viewers in the dozens, you'd be vastly overstating how many people -- 

Hill: For Squawk Box?

Barker: No. No, no. Of the listeners here, the Venn diagram of people listening to this podcast who will also be watching CNBC at 6:10 tomorrow morning. Do you think that gets into the dozens?

Hill: I think it gets into the dozens, but only because "dozens" technically means 24 or higher. So, yes, I think it does. For a second, I thought you were referring to the audience for Squawk Box.

Barker: No. No. Legendary.

Hill: Legendary. Let me ask you this. Are you hoping for any sort of breaking news? Are you hoping for, something breaks either late today in the business world or very early tomorrow morning, so that whatever else you plan on talking about, you get an email at 5:30 saying, "Well, of course we're going to ask you about this breaking news."

Barker: No, except that it might get me more sleep. I think if there was real breaking news, they'll go to somebody else. I mean, that's the way it works. It's unlikely that my expertise is on that breaking news, if it's true, serious breaking news that they need to cover with somebody who is especially qualified to do that. In fact, this is a rescheduling of an appearance that was postponed because something had come up with China. They went, understandably, with somebody who was more qualified to talk specifically about that issue. I mean, I can do stuff like that, and I've done TV and prepped with the associate producer. "All right, can you talk about where gas prices are headed?" And I'll say, "I can give you an answer to that, but it's not really worth airing." And I've found out that that's not enough of a flag not to be asked that question.

Hill: "We're here with oil and gas industry expert Bill Barker."

Barker: [laughs] The only time in my life that I've ever been referred to as an expert on anything is on global television. They always introduce you as an expert on things.

Hill: "Bill, you're an expert on this." One more news item from the weekend. It goes in the plus column for shareholders of Comcast, because Comcast is the parent company of Universal Studios. The box office winner of the weekend, inexplicably, was the animated movie Dr. Seuss' The Grinch. Took in north of $65 million domestically, and probably bodes well for the coming weeks, simply because we've got Thanksgiving coming up. That's typically a time for family movies and families looking to take their kids to the movies, that sort of thing. 

Our guest on Motley Fool Money this coming weekend is going to be Nell Minow. One of the things I want to talk to her about is the box office this year. I saw story this morning that it's turned out to be a better year than expected. It didn't specifically call out The Grinch, but it gave examples of movies that, The Grinch falls into the same category, which are essentially, there are expectations for not the tentpole movies, but one level below that. And those movies, particularly over the last four months, have ended up doing somewhere from slightly to significantly better than expected. I think The Grinch probably fell into that category. Going into this weekend, it's like, "It'll probably do pretty well." And this is better than people were thinking.

Barker: You're sort of an expert on movies. My question for you, and your expertise, is whether you would have opened this movie this early. It feels early to me to go Grinch.

Hill: I think it does. But typically, studios are positioning their movies as early as they can. In some cases, if you haven't decided on a release date, then you have to factor in what other studios have done. Disney has a Nutcracker movie coming out, The Nutcracker and the Four Realms.

Barker: I have breaking news, because my computer is on. In fact, I have been canceled for tomorrow.

Hill: [laughs] Really?

Barker: Yes. 

Hill: Wow!

Barker: In light of the market today. There'll be another rescheduling.

Hill: Wow.

Barker: Told you.

Hill: That's amazing.

Barker: And yet that's something that I could be considered kind of an expert on. The market is down. What's going on? I can do that. We could do that show right now. 

Hill: We're not going to. We've gone long enough. For anyone who listens to the show and has ever wondered, "How much editing do you guys do?" There you go. There's your answer. We're not editing any of this. 

My hunch is that Disney came out with their release date for The Nutcracker and the Four Realms. And Universal came out and said, "We can't open a family holiday movie the same weekend that Disney is. We have to go another weekend." And in their case, it's probably smarter to go earlier. I agree with you. It's a little early. It's probably a week earlier than they were intending to do it. But you can't look at the results over the weekend and say, "They really blew it."

Barker: And you're confused as to the success of this so far? You're surprised?

Hill: I shouldn't be.

Barker: You're not as big on the Grinch as you are on Rudolph and some other Christmas products. But a lot of us think that the Grinch is really what Christmas is all about.

Hill: I'm a huge fan of the original Grinch. I'm a massive fan of the original. 

Barker: Not as big as my family. 

Hill: I haven't named a pet after Max.

Barker: Nor do you own an original cell from the animation. 

Hill: Nice!

Barker: My dad does.

Hill: [laughs] Oh. So, when you said "family," you weren't referring to you and your wife and your children. You were referring to your extended family.

Barker: I don't think of my dad as my extended family. [laughs] 

Hill: To get back to the Grinch, huge fan of the original book and the original Boris Karloff-narrated animated TV special. The Jim Carrey live action remake, I am happy to say I have not spent one second watching.

Barker: Yeah, haven't seen that.

Hill: And I will not watch this one. But I'm not the target audience.

Barker: My original TMF was named after the Grinch's dog as well. TMFMax.

Hill: What's your TMF name now?

Barker: I guess it still is.

Hill: Oh, OK.

Barker: We don't really use that once we're in MFAM Funds.

Hill: Are you going to go see this movie? Huge Grinch fan that you are?

Barker: It's a good question. I'm a Benedict Cumberbatch fan, so it's possible. It'll depend on what the kids do with it. They haven't mentioned wanting to see it yet.

Hill: Don't you think that doing voiceover work is probably hands-down the sweetest gig in all of Hollywood?

Barker: I would think. it seems to be good money and not the hardest work.

Hill: And not the most time-consuming work.

Barker: This is something you could get on. Your voice is known by dozens.

Hill: Not that Benedict Cumberbatch is hurting for work. He's fine.

Barker: He's fine. No, they had to pay up for him. But I think it's a good choice.

Hill: Why?

Barker: Have you ever seen his work? 

Hill: Yeah, I've seen his work. Why do you think he's a good choice for The Grinch?

Barker: He's got a little bit of malevolence going on there. 

Hill: I mean, he's British. He probably has a lot of malevolence. I'm kidding. Come on.

Barker: An unnecessary attack on our friends across the pond.

Hill: I'm kidding.

Barker: Just going in with the times, huh? Why not take a swipe at them? [laughs] 

Hill: [laughs] I forget, was it Jaguar that had that fantastic Super Bowl commercial with Mark Strong, Tom Hiddleston, better-known as Loki in the Marvel Universe, and other British actors, basically talking about playing villains. I'm going to find the ad and post it on the Market Foolery Twitter account. Do you know the ad I'm talking about? It's a fantastic ad. It looks great, it sounds great, and they're winking at, "Yeah, we're British, and we play villains, and it's fun." It probably is.

Barker: I would think so.

Hill: We're very far afield, aren't we? 

Barker: We've gone pretty much into an Apropos of Nothing episode already.

Hill: Which will be coming soon. We're just a couple of weeks away. At our member event in Denver, there were a couple of members who asked, "By the way, when are you going to be doing another Apropos of Nothing?" And I said, "Soon."

Barker: Well, a little time just freed up for me. I could do 6:10 tomorrow morning. I could tape it for you. Thought I was going to be busy.

Hill: For those who are looking forward to our next Apropos of Nothing, you already know that there's no way in the world we would ever tape that at 6 in the morning. [laughs] 

Barker: [laughs] No, because we're drinking during the Apropos of Nothing.

Hill: Yeah. So no, that's not going to happen. Bill Barker from MFAM Funds, 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 the iron man, Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.