Food is tough business, and the vegetarian "meat" market is already pretty saturated. Fortunately for Beyond Meat, it's not competing in the meatless market -- it's going for a hunk of the $1.5 trillion global meat industry, with products that are engineered to appeal to vegetarians and meat eaters alike.
In this week's episode of Industry Focus: Consumer Goods, host Jason Moser and Motley Fool contributor Asit Sharma dive into the company's S-1 filing and explain why this potential IPO is so exciting for investors. Hear about the company's financials, competitive advantages, biggest threats, and more. Later in the show, the hosts update listeners about Sirius XM's (SIRI -1.21%) acquisition of Pandora. Plus they share what they'll be watching this earnings season out of Dunkin' Brands (DNKN) and TripAdvisor (TRIP -1.30%).
A full transcript follows the video.
This video was recorded on Feb. 5, 2019.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Tuesday, Feb. 5, and that means we're talking consumer goods. I'm your host, Jason Moser. Joining me in the studio via Skype, it's Mr. Asit Sharma. Asit, how's everything going?
Asit Sharma: Awesome! Jason, how are you?
Moser: I'm doing great! Just to peel it back a little bit for the listeners here, we were talking a little basketball. Asit, I didn't realize, is a UNC grad. I'm a Wofford grad. We were having fun talking about the last two years, some good games those two teams have played. Listen, basketball is a fun sport to watch. It's always fun to have good teams.
So, listen, we have a big show today. We're going to talk about Sirius XM's big Pandora acquisition. We're going to hit on a couple of earnings reports that we personally are looking forward to watching here in the coming weeks.
First we're going to jump into an upcoming IPO and a tweet we got from a loyal listener, Warren Kiesel. Warren said, "Beyond Meat. This company offers great products and will disrupt the beef industry the way that alternative dairy products are taking a bite out of the dairy industry. Changing consumption habits is essential in dealing with climate change, and their burgers are pretty damn good, too." Now, Warren, I can't speak to the burgers. I don't think I've ever tried one. But you know what? I do like a lot of what you're saying there. Asit definitely does, too. We both dug into this S-1 to learn more about the company and its road ahead, the challenges, the opportunities. Asit, I'm going to let you lead this off here. What struck you in learning more about this company, Beyond Meat?
Sharma: First of all, I want to thank Warren for bringing this to our attention. Warren also tweeted to me that his wife is interested in this IPO. I don't mean to draw any conclusions there, if, Warren, your wife has healthier eating habits than you do, but I'm excited about this company. Personally, I'm vegetarian every Tuesday. I started that many years ago as a health thing, and it's become habit. I know my wife and I on Tuesdays sometimes are looking for inspiration. I have to confess, I haven't tried any of the Beyond Meat products, but after reading through this S-1 statement -- that's the company's preliminary prospectus document -- I'm excited to go out and try some.
The company was started in 2009 by a man named Ethan Brown, who's still the CEO. It sells vegetarian meat substitutes. These are primarily from protein isolates, yeasts and other ingredients. These are sold under the Beyond Chicken, Beyond Beef, and Beyond Sausage brand names. They also have the Beyond Burger, which you'll find in restaurants, and the Beast, which I believe is found at ballparks, and I hope the price tag associated with that isn't beastly. Normally, if I get something really small at a ballpark, I find it's quadruple the price I'd pay for it otherwise.
The company has filed for an IPO listing under the symbol BYND. It's using a placeholder sum in its prospectus for $100 million. That simply means that for now, until those numbers get filled in closer to an IPO, the company expects to raise roughly $100 million.
The IPO market has been a little slow this year. That's partially because of the government shutdown. We've had very few issues to price. Not sure when this will price. My guess would be in the next couple of months.
With the name Beyond Meat, listeners, you might think that this is a company which is trying to market itself as a leader in vegetarian offerings. That isn't so. Beyond Meat actually sees itself as a competitor in the $1.5 trillion global meat industry. They have three core plant-based product platforms. These line up with the big three meat categories in the marketplace of beef, pork, and poultry.
Now, how is it different from your average veggie burger that you see in the freezer section of your grocery store? I'm going to read you this explanation from the company's S-1, because it says it a lot more clearly than I could if I tried to summarize it for you. "We create our plant-based products using proprietary scientific processes that determine the architecture of the animal-based meat we're seeking to replicate. Then we assemble it using plant-derived amino acids, lipids, trace minerals and water. We are focused on continually improving our products so that they are to the human sensory system indistinguishable from their animal-based counterparts." So if you think about this sensory level of taste, plus aroma, texture, and, enzymatically, how your body reacts to the product you're eating, this company is trying to replicate the whole experience of a meat serving on both a scientific basis but also in the human way that we react to that serving. Very impressive.
You can find these products in 28,000 distribution points across the U.S. and other countries. Right now, international is a small segment. It's about 3% of sales, but growing. That's led by this flagship Beyond Burger product, which is designed to look, taste, and cook like a traditional burger. Products are in many retail grocery stores, including Kroger, ... Safeway, Whole Foods, and Wegmans. The company is also partnered with big food service, hospitality companies like Marriott, Hilton, Hyatt, Disney World. You can find it in BurgerFi, TGI Fridays, and Carl's Jr.
I'll stop there and ask, you Jason, did you see the Carl's Jr. commercial that was in the Super Bowl on Sunday?
Moser: I had not seen it, but then you sent me the link and I watched it. It was clever. It's funny. It really keys in on a lot of the concerns that people have when they consider these types of offerings. Going back to something you were saying, going vegetarian every Tuesday, it's funny -- I've never been a vegetarian, never thought about it a whole lot. We have kids, and you try new things, your routines change. My younger daughter said at one point, she wanted to try, at least, going vegetarian, to see what it was like. I always encourage my kids to try those things, see how it works. I love vegetables, anyway, so for me, it was pretty easy to try to just make meals without a focus on meat.
You know what really took her over the edge, though, Asit, made her go back to not being a pure vegetarian? Chick-fil-A. There was a point in time where I said, "We're going to stop buy and grab some Chick-fil-A, I can get you a salad." And she said, "You know, I think I'm going to take a break tonight. I'm going to go with the Chick-fil-A."
I think you make a good point there ultimately. You don't have to be a pure vegetarian to benefit from something like this, to enjoy something like this. What Beyond Meat, I think, has done so well to this point, beyond just the science and coming up with the product that's apparently better than anything out there, based on what I'm reading, reviews and whatnot, is the branding. Beyond. That's something where they're able to basically use it for everything.
I was looking through that S-1, and there are some familiar names on the board here. A lot of our listeners will recognize the name Seth Goldman. Seth is the founder of Honest Tea. He's been able to take that Honest brand to other parts of that business as well. Also, Biz Stone and Ned Siegel from Twitter are on the board there. Interesting to see some of those familiar names on the board. That's always something I like to look at.
When I look through an S-1, I look for that number that you cited earlier, that market opportunity. $1.4 trillion is a large market opportunity. They're not trying to gather all of that, just some of it. And I think we're in a point in time now where people are focused more on the things that they're eating. They care more about this stuff. It gives a company like Beyond Meat the opportunity to go science it up and come up with some compelling offerings. It sounds like what they're doing.
You look through that S-1 to find out what they're going to be doing with these funds, the use of the proceeds. It's always scary when you see a company say, "These proceeds are going to be exclusively used to pay down debt for big equity partners," or whatever. But it looks like, in their case, they're really going to be using these proceeds to build out the business. That's encouraging. Building out more manufacturing, research and development. Certainly, it can go to paying down some debt, but it sounds like they have some productive uses earmarked for these funds. That's a good thing.
For me, I'd actually like to try the product. That would be something to make me feel a bit more compelled as an investment. Generally speaking, I like the trend. I think it's something that has tailwinds. It sounds like a company that's helping lead the way. I really do think having that branding, with the Beyond, is going to be something that will help them for many years to come, I would imagine.
Sharma: Yeah, it's so important, what you touched on. Oftentimes, branding makes or breaks a product. You can have a great product with poor branding, or you can have a really awesome product like this, which has, as you said, branding where you instantly get the concept.
This dovetails into the strategy, this whole idea of, "Let's market not necessarily to vegetarians, but to meat eaters." Now, on a more specific level to this thrust is how the company presents itself in grocery stores. Basically, they ask their retail grocery partners to put their products in the meat cases, right beside those really delicious looking cuts of beef and sausage. In the nine months that ended June 30 of 2018, the S-1 says that in Kroger, 93% of Beyond Burger buyers also purchased animal protein products. That tells you that this product is being purchased by a wide variety of eaters. Mostly, they're non-vegetarians. Again, that goes to the strategy.
I also was impressed by the roster of names that the company has which are supporting its advance. This executive chairman, Seth Goldman, to me, really stands out. Goldman took Honest Tea from a really small start-up into the powerhouse that it is today. He worked with the Venturing and Emerging Brands capital venture arm of Coca-Cola to grow that small brand into something that could generate hundreds of millions of dollars a year. So, he's a really wonderful person to have in that chairman seat, alongside the founder, Ethan Brown, to help guide rapid growth of this company.
That takes me to revenues. That's always the next question, listeners, that you have. What do the revenues look like? What are the numbers? Let me read a couple. I'll toss these out to you, Jason, and let you opine on what you see here.
The company did $8.8 million on its top line in 2015. That grew to $32.6 million by 2017, which represented a 92% compounded annual growth rate. In the first nine months that ended September 29th of 2018, revenues were $56.4 million. Still waiting on end-of-year numbers. That was a 167% increase from the comparable nine months in 2017. You see this really tremendous growth rate.
As for losses, they're actually not as steep as I expected. The company has generated losses every year since inception. That's to be expected. It's backed, for the time being, by private equity capital. Going public, so you, listener, may have a chance to be one of these backers who helps it fund losses until the point it becomes profitable. Losses in 2016, $25.1 million. In 2017, losses were roughly...I don't have that number. I think it was approximately the same, if I remember correctly. I'll put in a note after the show, but roughly $25 million. In the first nine months of 2018, though, the company, despite that huge spike in revenue, has only lost $22.4 million. That's because its gross margin is improving. The company generated negative gross margin in the most recently reported years. But in the first nine months of 2018, it's actually had a positive gross margin of 17.2%, or a dollar gross profit of $9.7 million. That's important to me. It shows that as the company is scaling that revenue, it'll have positive gross profit to help it get over that hump of fixed expenses and losses.
Having thrown those numbers out at you, Jason, what are your thoughts?
Moser: You look at it, and you think immediately, well, it's a small company. That's exciting, because small-caps are big opportunities, in some cases, to recognize some great investing gains early on. You get into some of those small companies early on, and you can hang on for long periods of time and be a part of that growth story.
The food business is tough. With that said, they're relying on a bit of a different supply chain. This is a science company, and I think they'll be able to do a good job of leveraging that research and development for years beyond the investments that they make in it. That's certainly a margin boost at some point. Given that brand, given the distribution at this point -- you listed off a lot of stores where their products are already available. That's really the key when it comes to food, is getting it out there to the biggest audience possible. When you're in stores from Kroger to Whole Foods and everywhere in between, you're really capturing the biggest part of the market there.
I'm going to be interested to see them go public. I'm going to be excited to learn more about the company. I think it's a unique one and they're doing something that is going to only grow in demand. For me as an investor, that's exciting. It sounds like they've got some pretty smart minds behind it.
Sharma: One of those expenses that will help it sustain its success that we should talk about which is more under the line, it's not gross margin or operating expense, is this thing you mentioned, Jason -- a number of scientists, engineers. It's got a whole innovation team that's composed of 40 scientists, engineers, researchers, technicians, and chefs. These people are all in charge of the innovation for the company, which it needs because it's got a host of competitors, obviously, with this huge market opportunity and a growing awareness among consumers that not only is this good for you, but this stuff tastes great, as well. Many players are trying to get into the market, so it's important for the company to keep investing in its R&D.
Let's talk about the competition. The company competes with Cargill, Hormel, JBS, Tyson Foods, WH Group, which you may not know, but they own the Smithfield Foods Group. They also compete with a host of smaller companies which are already on the grocery shelves, not as these huge manufacturers, but as well-known labels such as Boca Foods, Field Roast Grain Meat Company, Impossible Foods, which is another science-based plant-based manufacturer, LightLife, Morningstar Farms, and Tofurky, which I always thought was just a thing, but it's actually a brand. [laughs] It's crazy.
This is something that prospective investors need to be aware of. While the market opportunity, yes, is big, and Beyond Meat has made a number of important partnerships already both on the retail grocery side and, as I said, with food service and restaurants, it's an extremely competitive market.
I want to return to one more risk that Jason mentioned, which is the supply chain. At the outset, we talked about the main focus of this plant-based replication of meat which Beyond Meat uses, and that's pea protein. As of today, it has a single supplier for this all-important ingredient that's found in almost all of its products. Eighty percent of pea protein comes from a single supplier. In the coming years, Beyond Meat is going to really have to diversify that supply chain out, work with some other vendors. They're at risk if the company can't produce or has any production issues, bottlenecks, etc. That's going to hurt growth going forward. This is a young company. They're going to be subject to some possible growing pains even after going public in a few years. This is one risk that I see that's important. Thoughts on that, Jason?
Moser: No question, that's a red flag that goes up immediately. Pretty much any business, when you have a very limited supply chain, you need to take that in consideration because you're essentially saying that your success is not fully dependent on how you execute. You're putting part of your fate into someone else's hands, and the incentives might not necessarily align. Yeah, they'll be very wise to diversify that supply chain as quickly as possible, in my opinion.
Sharma: If I can work in one last risk, and then we can move on, and that's probably another implicit question listeners have -- what about the cash burn? I talked about losses, talked about fast-growing revenue. We see that right now, Beyond Meat is a net user of cash. What I mean by that is, when you generate enough cash to cover your operating expenses, you produce operating cash flow. When you need to borrow money or have investment capital to supply those operating expenses when you're in the young phase and you have a great product that needs to scale, then you're a user of cash. You can think of this as cash burn. The company, in the last two years, has negative cash flow of $23.5 million in 2016 and $25.3 million in 2017. That's operating cash. It's burned through about $24.4 million of operating cash in the first nine months of 2018.
I'm not as concerned with that for now because the company has positive working capital of about $40 million, and it's going to raise funds with this IPO. Management says that between what it can produce in operations, even though that's getting fully consumed, plus what it'll raise, that portion is not going to be allocated toward manufacturing, investment, etc. It thinks it's got enough in the kitty to last about 12 months, which should be enough time for it to, again, scale some more of its revenue. Also, it can issue debt, as we see many young companies do, or maybe a follow-on offering.
Jason, you looked at these financials, too. How does that cash burn look to you?
Moser: It's clearly something that has to change over time. You made an important point there with the positive net working capital. For listeners, remember, that's basically just more assets than liabilities, it puts the company in a good position because they have options. With a company like this, at this young stage, to have those options in regard to capital demands, that's all you can ask. Then it boils down to executing and coming up with products that people want. It appears that they have developed a nice portfolio of products that people want. I suspect that the cash burn situation won't be a problem for very long.
Sharma: My final thoughts on this before we move on is, I like what I see. We often talk about, on this show, when we discuss IPOs should you jump in now, maybe get in on the IPO, buy it shortly after, wait a few quarters? I'm excited by this. I'm still going to advise listeners, what I usually do is to wait a quarter or two. There's rarely the opportunity where you must get in and hang on. But this looks compelling to me. I'm really curious, Jason, I followed your analysis for a while, I know you've got a great handle on looking at a market opportunity and then looking at the management of a company plus its financials and getting a take on, is this worth your time to follow or your money to invest in? I was curious, given everything we've gone over today, how do you feel about this as an investment, pending it goes public in the next month or two?
Moser: It strikes me as one I'd be potentially interested in. It has the big market opportunity. It sounds like they have smart leaders. It sounds like they have proprietary technology, essentially, that is helping them make their products. And it sounds like they're in a market with tailwinds. I think this is a market that's going to continue to grow, and it'll be something that can really extend globally. This is beyond a domestic market, it can be a global company. We've seen the success that Honest Tea had ultimately until they became a part of the Coca-Cola family. I don't remember when that happened. It was probably a pretty shrewd move by Coca-Cola, in all honesty. It's neat to see that these guys are going to have the opportunity to go public before being acquired.
I'm like you, I want to see a quarter or two of some results. I want to understand how management is framing the story, how they're reporting, the metrics that matter and whatnot. But definitely one I'm going to be keeping my eye on as it makes its way to the public markets.
Sharma: Yeah, I'm going to put this on my radar screen, for sure, and take a look. I love to look at those first-quarter results, the first quarter after a company's gone public. Many times, you see a company putting its best face forward to get public, and afterwards is a sigh of relief, and "Now we really need cash," or "We're proving out the investment thesis, and the numbers we're showing you today, three months later, correlate with the projections that we made in that really nice, carefully prepared document." So I really love rolling up my sleeves and getting my hands into that first statement. I encourage listeners to do the same.
Moser: It sounds like one we'll revisit. Warren, thanks for the question! I hope we were able to provide you with some helpful information there. Of course, always reach out if we can help any further.
Let's talk about something a little bit less science-related and a bit more entertainment-related. We've talked about this before, Sirius XM, and we know that there was a big acquisition they were making with Pandora. It sounds like that acquisition has indeed gone through. This was a deal where a lot of people were trying to make full sense of why they were doing this. I'm a Sirius XM subscriber, and I had to think about it a little bit and understand a bit more of what management was thinking about doing with this deal. What strikes you with this deal? Do you think this is a good deal? Or do you think this is something that Sirius XM is probably wasting their time with? Any thoughts there?
Sharma: Not to throw a pun out there, but my first thought when they announced this was, "Are you serious?" But it's growing on me. I think this is a deal with potential. You get a much bigger subscriber base because now the combined company has over 100 million subscribers. Forty million of those are paying and 70 million-plus are trial-based. Both companies every year have a number of people that just have trials and fall off in the market, and they replenish those trials.
The CEO, James Meyer, talked about in the recent conference call the opportunity here. If I can start with the worst thing about Pandora, the opportunity in Pandora is to stem this decline of users which are dropping off and usage, which is also declining. Losing users, and people are listening less frequently. Sirius has a lot of expertise in this. It's actually a pretty decent company when it comes to keeping its users, subscribers engaged, throwing new stuff at them so that they will remain loyal. I think they see an opportunity to fix what's wrong with Pandora.
Then, of course, what they mentioned is these opportunities for cross-promotion. I'll just read listeners what they're up to starting this month. Target promotions are going to hit select Pandora listeners. They'll get an offer of a mostly news package for $5 a month in their satellite-equipped vehicle. Sirius XM subscribers will receive a 14-day trial of Pandora Premium. That makes sense.
The other thing that was mentioned on the most recent call which intrigued me was this ability to analyze and utilize the tremendous amount of data that there is in Pandora. Again, Sirius has been the more profitable company, the more stable company. Jason, you follow them, and I think you're a proponent of the way they operate. If they can bring some of that discipline to this smaller company, extract the data, see what's going on, expand the subscriber base, fix the financials, it probably will be a good deal. To be honest, I don't see the most transparent path to that happening, but I do see the potential.
Moser: Yeah, you're right. The deal is growing on me, I guess. I'm not really a Pandora user. I've been a very happy Sirius XM subscriber for some time now. I admit, my guilty pleasure is I'm a big Howard Stern fan, so for me, that's a way to get a laugh on the way to work in the mornings. The neat thing with Sirius, they've built out a very strong app on the phone. You can listen to Sirius in the car and out of the car. That's what made me think, "Hmm, do they really need Pandora?" But ultimately, what this was, was buying the audience. They're buying a big chunk of listeners that they probably didn't have otherwise. They're going to be able to open these listeners up to the potential that something like a Sirius XM has.
The neat thing about this is that they're looking at this base of vehicles. Over the next decade, there are going to be 200 million cars on the road here domestically that have that satellite capability already built into the car. The radio is actually going to be able to access Sirius XM at the touch of a button. And they're thinking, "Hey, why don't we at least open up some opportunities for people to subscribe to something perhaps that they want to listen to?" Maybe they don't want the full package, but maybe they'd like a talk package or a news package. We're getting ready to start up a pretty hectic political season here, it sounds like. A lot of people out there probably want to get access to the news stations or the talk stations that favor their political views and keep up to date there.
So, I think it's a great opportunity to slice and dice all of the offerings that Sirius XM has, to be able to offer catered packages to audiences that want a particular offering. I get that. I think this was an all-stock deal. At the end of the day, in theory, I understand, an all-stock deal, you're issuing more shares. There's a cost there. But it's not like they're writing some big check off their balance sheet. The investors in Sirius XM are the ones footing the bill for this deal because they're the ones feeling their shares get diluted by all of these new shares to fund this deal. Probably not a bad move by Sirius management there. I get why they did it. I don't know that it makes me feel all that much better about Sirius as a company. I think Sirius has executed pretty well. Howard has bought them a lot of time to be able to grow out a strong business so that Sirius XM can exist when Howard decides to hang things up. But, yeah, it was a deal I had to think about it for a while to come around to actually being OK with it.
Sharma: I think what you mentioned is so important, about this audience-buying. If you look at it, over the long term, there's two ways to grow your prime metrics. You can grow the time people are using your content device and your subscription service and then sell them on more services; you can also expand that audience. So why not buy it now, as you said, without a true cost except for this dilution issue? Their leverage remains the same. For listeners who are curious, I think that Sirius XM's current leverage ratio is about 3.5X. Without going into a lot of detail, let's call that moderate leverage. Not a huge amount of debt on their books. I like that.
One thing that you have to realize about Sirius XM is, they're really savvy in controlling the cost to acquire subscribers in general, this relationship that any content subscription company has between marketing expenses and the cost to acquire subscribers. They're already really good at that and have been able to -- of course, with Howard Stern's help, you make a great point. When you have that kind of impetus behind your top line, everything else becomes easier. But, they've shown a really good discipline at controlling the costs that lead to profitability for subscription services. That's something that, yes, we've seen Pandora's stock turn around in recent years, but never really came back to pre-IPO levels because they did not have the same economic structure. That's another reason why this deal appeals to me.
One last thought from my side, I want to read listeners something from Sirius' conference call last week. Again, this is CEO James Meyer. He thinks the biggest single problem with Pandora is the listening hours. He says, "But the one flashing light that you've got to worry about is the decline in listening hours. We're very focused on that. We believe, we believe" -- his repeating, not mine -- "deep into our gut that metric is fixable." So there you have it. To extrapolate that to what a publicly traded company looks at, in there, there's an economic proposition. They see that by having more compelling content offerings -- Pandora is a streaming music service, but they've launched podcasts -- again, this is one of Sirius' talents. Management sees that if they can make it a place where people want to return to, they'll be able to up the revenue at an effective cost, and it's going to eventually hit their bottom line.
Moser: OK, Asit, let's take a quick look here. We're running out of time. I want to jump into some earnings season stuff here. We've got earnings coming up. There were big earnings today, Alphabet. We're not going to cover those here, but make sure to check out today's MarketFoolery for the straight dope on what investors need to know. Big focus on YouTube there.
Speaking of YouTube, we've got a save-the-date for you here. This Thursday, February 7th at 4:30pm Eastern Standard Time, we're going to be doing a market wrap show live on YouTube. Andy Cross, I, Chris Hill, we will be talking stocks after the closing bell and taking your questions. I know your first question, Asit, is "How do I find this show?" I'm going to tell you. Go to our Motley Fool YouTube channel, youtube.com/themotleyfool. Go there, subscribe, we'll see you Thursday, Feb. 7 at 4:30 p.m. Eastern Standard Time. Make sure to check it out! We're just going to try something new here and see what you guys think.
OK, talking about earnings season. I want to get a couple of thoughts here on what you're looking for from a couple of companies that we like to follow. First up is going to be Dunkin'. Dunkin' Brands earnings are going to drop Thursday morning, Feb. 7. What are you going to be watching here for in Dunkin's earnings?
Sharma: For me, Jason, Dunkin' is a really big-picture thing. They're going to report on their fourth quarter. Everyone is looking at what the comparable sales will be. The company wants to finish out with a 1% growth in comps for the year. I think they'll hit that.
What I'm looking for is, what's the new comps number? Dunkin' has had a few major initiatives in the past year. They streamlined their menu, took a lot of the complexity out of it. They introduced their own version of McDonald's two-for-five, so they have a whole two-for platform, a limited-time offering that's been extremely successful. It's actually helped move beverages. Between these two big components and the new espresso rollout, which they had at the end of last year, it's time to be more ambitious. The stock has had a great run. I believe investors are looking for some growth on that comps number. For me, even if they set 2% to 4% for the year, that'll be a great goal. The company has done a good job of slowly but steadily expanding westward. We'll look to see how the new projections for restaurant openings come up.
If you follow Dunkin', you also know that its Baskin-Robbins brand has done OK in the last year. I'm looking for maybe a little bit more color on that. For me, it boils down to, what does the new comps number look like? Is it going to be, finally, a growth number that you can hang your hat on?
Moser: Yeah. You keyed in on something there. Streamlining that menu, there really is a lot to be said for that. It makes it easier to manage that inventory, makes it easier to order when you go in there as a consumer. They've also done a good job of embracing their mobile existence. That's something that will continue to shine through for that business. When you look at the size of the coffee industry, the size of the restaurant industry in the United States, and you see that Dunkin' is still a relatively small company in that space, a lot of growth opportunities there. Investors have every right to be at least a little bit excited there.
The following week, on Tuesday, Feb. 12, after the market closes, TripAdvisor's earnings are going to come out. They'll have a call the following morning. This is a company you and I both follow. It seems like their turnaround is starting to take a little bit of hold here. What are you going to be watching?
Sharma: I'm going to be looking for, basically, the hotel revenue. Hotel revenue has slowed in the past few years, while nonhotel revenue has been spectacular, growing very quickly. TripAdvisor, for a long time, Jason, it was like your Wofford Terriers. They were shooting threes and they couldn't miss. I hate to say that. You guys came into our house at Carolina last year and really whomped us. It was a great game! I think we got revenge.
Moser: You did.
Sharma: But, yeah, TripAdvisor then hit a rough patch. The stock gained 56% last year. That's the inflection point that Jason mentioned. For me, trends look good in the nonhotel revenues, but let's see a little bit more growth on the hotel side because that hotel side is still 2.5 times bigger in relation to the top line.
I will say that management has been emphasizing lately its growth in EBITDA -- earnings before interest, taxes, depreciation, and amortization -- and pointing to say, "Look, even if we don't grow this whole pie as quickly, we're getting more profitable as time goes on."
I am a follower of companies like Marriott, which are customers of the online travel agencies. The one wrinkle that I'm a bit concerned for TripAdvisor is, over the last year, Marriott and its competitors, they want more direct business. They want their loyalty customers coming through their own apps and bypassing companies like TripAdvisor because that's more a profitable sale for a huge company like Marriott. So this interplay between direct vs. indirect business for the hotels will bear on TripAdvisor's ability to have that hotel revenue start accelerating again.
I'm somewhat optimistic. They did a great job last year of getting their financial picture back on track. Your thoughts?
Moser: It was a bad bet, the instant-booking one that they made. Clearly it wasn't something that worked out as they hoped it would. But through all of it, the thing that leaves me encouraged with TripAdvisor, why I never actually sold my shares, is because the platform itself is still as engaging as ever. Those metrics are still as strong as ever. They're adding more users with more reviews, people spending more time on the site. There's clearly a value proposition there that travelers recognize.
To your point about hotel revenue, if they just get back to the days of yore, they've got this experiences side of the business that I think has a lot of potential. I think it's a bit more complementary, in all honesty, than the platform to begin with. As an example, when we went to Hawaii, I used TripAdvisor exclusively to find things to do. When we went to the Bahamas, same thing. We're going to Costa Rica this summer for the kids' vacation, and it's already starting, going through TripAdvisor to find the things to do. It's extremely complementary, I think, that experiences side of the business. I'm encouraged by that.
Through all of it, the platform has remained very engaging. That's something that they'll continue to benefit from for some time to come. So, yeah, definitely a rough patch. Some strategic blunders there. But maybe they're coming out of the other side of the storm in good shape.
Sharma: One last thing that I'll put in about TripAdvisor -- if you're not like Jason, and you're not going directly to TripAdvisor, if you put in a search for your vacation destination, this experiences and the whole TripAdvisor platform is so sticky online that it's going to come up in the top search results. Myself, while I don't use TripAdvisor natively to search for the things I'll do on my vacation, I'm going to the site because it's coming up in the search results. I'm on there anyway. I think that speaks to the value of this asset that they have. They've been able to grow this incredible trove of content that can help you have the best experience on your vacation. That's their edge. I really agree with that thought.
Moser: Absolutely. Asit, it's always great to talk with you, my friend! Have a great rest of the week!
Sharma: Absolutely! It was a pleasure! Take care!
Moser: As always, people on the program may have interest 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. For Asit Sharma, I'm Jason Moser. Thanks for tuning in! We'll see you next week!