At The Motley Fool, we may be buy-and-hold, long-term investors, but before we can hold a stock, we have to pick the stock, so our analysts are always on the hunt for excellent investment ideas.
Every week, some businesses stand out from the crowd more than others, which is why every Motley Fool Money episode ends with a segment in which host Chris Hill asks his guests -- this time, senior analysts Jeff Fischer, David Kretzmann, and Jason Moser -- which companies they have their eyes on this week and why. For this episode, they're intrigued by digital-payments player Square (NYSE:SQ), online education platform 2U (NASDAQ:TWOU), and cloud-solutions specialist Veeva Systems (NYSE:VEEV).
A full transcript follows the video.
This video was recorded on Nov. 09, 2018.
Chris Hill: 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?
Jason 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 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?
David Kretzmann: I'm looking at 2U, 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 ten years, and some of their contracts are beyond ten 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?
Jeff Fischer: Veeva Systems, 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.
Chris Hill owns shares of PayPal Holdings. David Kretzmann owns shares of PayPal Holdings, Square, and Veeva Systems. Jason Moser owns shares of PayPal Holdings and Square. Jeff Fischer owns shares of Square and Veeva Systems. Steve Broido owns shares of Veeva Systems. The Motley Fool owns shares of and recommends 2U, PayPal Holdings, Square, and Veeva Systems. The Motley Fool has the following options: short January 2019 $82 calls on PayPal Holdings and short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.