Analysts: Please Stop Talking About "Fortnite"

Not every video game company lives and dies by the same MAUs as "Fortnite," and investors can take advantage of skewed perceptions here.

Chris Hill
Chris Hill
Feb 12, 2019 at 4:55PM
Other

On this week's Motley Fool Money, host Chris Hill, together with Motley Fool analysts Jason Moser, Ron Gross, and Aaron Bush, hits on the biggest business news. Jeff Bezos' National Enquirer blackmail drama has the media shook, but Amazon's (NASDAQ:AMZN) business shouldn't take a hit from this. EA (NASDAQ:EA) and Take-Two (NASDAQ:TTWO) both get trampled by Fortnite competition concerns, which isn't remotely reasonable. Transparency issues at Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) annoy analysts, but long-term investors should probably just try to trust the internet giant's business moves. Chipotle (NYSE:CMG) quietly pulled off its turnaround to the tune of 115% stock growth in the last year. And, as always, the guys share some stocks on their radar. Also, Chris Hill interviews tech journalist Mary Jo Foley about Satya Nadella and how he righted the ship at Microsoft (NASDAQ:MSFT).

A full transcript follows the video.

Check out all our earnings call transcripts.

This video was recorded on Feb. 8, 2019.

Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio this week, senior analysts Jason Moser, Aaron Bush, and Ron Gross. Good to see you as always, gentlemen! We've got the latest earnings from Wall Street, we will dip into the Fool mailbag, and as always, we'll give you an inside look at the stocks on our radar.

In two weeks, we'll celebrate the 10th anniversary of doing this show. In all these years, I'm not sure we've had a more unexpected lead story. On Thursday evening, Amazon founder and CEO Jeff Bezos published an open letter in a blog post. In it, Bezos accused AMI, the parent company of the National Enquirer, of attempting to blackmail him with graphic photographs including nude selfies. Guys, this was astonishing not just for the content, Ron, but for the fact that Bezos basically said to the National Enquirer, "Yes, this is personally embarrassing for me, but no, you are not going to blackmail me."

Ron Gross: Well, good for him for standing up and not being pushed around. How can you not admire that? I'm sure this wasn't an easy time for him and his family.

This story has a bit of everything for everyone. You've got politics, business, intrigue, media, sex. But what does it mean for Amazon? In this case, probably not too much. The business of Amazon remains exactly what it is. People continue to love it, use it, and I don't think this will have any impact, really.

Jason Moser: We always talk about it, we love to hitch our wagon to leaders like Bezos. I'm sure that people will figure out a way to make it political. But the bottom line is, most people can agree that rags like the Enquirer -- the world's probably better off without them anyway. This seems to be part and parcel of the way they do business based on what we've seen historically. I understand, perhaps, the concerns for investors saying, "People are going to they're going to choose Amazon or non-Amazon," but you have to remember, this is going to fade away from the public conversation very quickly. Humans are very predictable. Amazon is just too darn convenient and easy to use, people are going to keep on using Amazon. I don't think that's going to be a problem.


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Aaron Bush: Yeah, humans are just a bunch of gossiping monkeys.

Gross: [laughs] Present company excluded!

Moser: [laughs] Sure!

Bush: Honestly, publications like this should have learned their lesson from watching Peter Thiel just completely destroy Gawker a couple of years ago. But yeah, this tells us a bit about Bezos. It humanizes him. It partially proves he's a baller. Whatever the case, this doesn't affect Amazon.

The one concern I would have is if this somehow distracts Jeff Bezos. But this still seems less important than the larger divorce story.

Hill: Yeah, I agree with all of that, especially that last point. We've talked before about headline risk in so much as being a distraction for leadership, Ron. The longer this plays out, the more of a distraction it becomes, if only because it takes part of his time.

Gross: For sure, it's a distraction. How could it not be? This is a very big deal for him in his personal life, and it could go past his personal life into investigations and lawsuits and even, perhaps, the FBI or law enforcement getting involved. It will be a distraction. Let's hope it's not too big of a distraction.

Hill: Alphabet's fourth-quarter profits and revenue came in higher than expected, but shares of Alphabet are falling a bit this week because...you tell me, Aaron. It sounds like if nothing else, 2019 is going to be a year where Alphabets going to be spending more money.

Bush: I think so. The results themselves were pretty much everything to be expected. Revenue grew 22%, operating margins were down a little bit, but still they were 21%. Making tons of money, no surprise. Google is a monopoly. YouTube is a monopoly. Cloud and the Play Store are scaling. The growth makes sense.

But yeah, they are spending a lot a lot of money, and that's causing alarm for some people. My guess is that Alphabet's spending is completely valid. The problem that has analysts angsty is just how un-transparent it is. They don't break out YouTube from the business. They don't break out cloud. There's essentially no detail, other than a big negative number about Other Bets. So it's really hard to know exactly what's going on and where the money is flowing. For me as an investor in Alphabet, what I have to remind myself is that transparency is helpful, it helps us as analysts, but actually has very little to do with returns. What we know vs. what we don't know doesn't actually affect the outcome of the business. It's important for investors to not overthink, overlook the obvious. But it does require trust in management, and more than usual right now.

Hill: Wasn't that part of the rationale of going to the Alphabet structure? At the time, they said, "We're going to this new structure in part because we want to provide more transparency."

Bush: Maybe. I think it's just as much an internal decision as an external one. It helps them, dividing up into business units, be able to look internally at their own accounting and be able to push money around in a way that makes sense. But they don't have to be transparent with us, that doesn't matter to them as much.

Gross: Yeah, I like transparency, obviously, as an analyst. As an investor, too much transparency is not actually needed. The one thing I don't like is when public companies, public CEOs, start to operate their companies as if they are private. If you want it to be private, you should have stayed private. You owe a certain amount of information to your public shareholders.

Hill: Yeah, you can be private. You don't have to take the money.

Moser: [laughs] It's also worth remembering that regardless of the investment, every time we invest, we're taking a leap of faith. Some of those leaps are greater than others. It also goes back to why we focus so much on leadership, because we want to feel like that leap makes sense. Yeah, perhaps we don't get that level of transparency that we might like with Alphabet. I'm a shareholder, too. A happy one. But I do feel good about leadership and the things they are doing and the results of the business tell us that they're doing some good stuff, too.

Hill: Shares of Chipotle up more than 10% this week on a strong fourth quarter report. Ron, traffic is up and Chipotle's same-store sales continue to go in the right direction.

Gross: I knew peripherally that Chipotle had turned the corner from a stock perspective, but I had no idea the stock was up 115% over the last year.

Moser: Muy caliente!

Gross: [laughs] That's a lot of credit to CEO Brian Niccol, who came in and righted the ship here. This quarter was pretty strong. 6.1% comp growth. You saw an increase in average check, that includes a 3.3% benefit from menu price increases, a 2% increase in comparable restaurant transactions. You got both increased transactions and prices, which usually gives you a nice double whammy, lead to increasing margins.

Interestingly, digital sales, which are app and online orders, that includes delivery partners, was up 66% in the fourth quarter, now makes up 13% of total sales vs. 11%, which is where it was last year. This all led to stronger margins, which feeds to the bottom line. Profit up 11%, the company executing well.

Moser: Worth noting, this is a materially different story than the one we were telling three, four years ago. We were talking about the potential of things like ShopHouse and Pizzeria Locale and maybe even burgers. All that stuff is now off the table.

Gross: Thank goodness!

Moser: This is a Chipotle story. That's going to be the point of focus for this team for the next decade. At least we understand fully what the strategy is and how they're going to be making their decisions.

Hill: First quarter profits and revenue for Disney (NYSE:DIS) came in higher than expected, but that was not moving the needle for Disney's stock. Jason, they're growing subscribers on the ESPN+ app, but Bob Iger and his team continue to push off a launch date for the Disney streaming app that consumers and shareholders, especially this one, are waiting for. [laughs]

Moser: Mac always loves it when we lead with our strongest statements, so how about this? This is from Bob Iger himself on the call. "Direct-to-consumer video is Disney's No. 1 priority." Don't doubt that at all. We talked about it before on the show. They need to make sure they nail that. The Disney+ offering has a lot of potential. I think it's going to be a good one. But I also don't want to see them rush to market. There's no reason to rush it. They're already late to the game anyway, so they might as well make sure they get it right.

ESPN+, as you said, two million subs. Doubled from just five months ago. Disney+ out sometime later this year. They'll build that out slowly over time. It's all about just giving consumers options. They ultimately want to be able to give you the choice to subscribe to Disney+ or ESPN+ or some other offering, perhaps, with Hulu. And down the road, they'll probably offer an opportunity to bundle something and discount that relationship.

It's always worth remembering, along the way, all of this stuff that they're doing with video and media and content, they've got this little Parks and Experiences business that keeps on chugging along, brought in $2.2 billion in operating income for the quarter, up 10% from a year ago. That's the beauty of this company. Just so many different ways that they win. Investors should remain encouraged.

Hill: Shares of Skechers (NYSE:SKX) up 15% on Friday after the shoe company posted record revenue of just over $1 billion in the fourth quarter. 2018, a tough year for Skechers, Ron, so they kind of needed a hit.

Gross: They needed a hit because even with this pop, the stock is still down 20% over the last 12 months. This is an up-and-down story. We'll end with an up and we'll see what next quarter brings. As you said, sales were strong, up 11%. International wholesale sales up 18%. The story is about growing margins, which led to a 50% increase in operating income. That's what people are focusing on, that really will pop the stock. That's a very big number. Management highlighted strength in their D'Lites collection, their GOWalk, their new men slip-ons, which actually look rather intriguing to me, I might pick up a pair. They bought back some stock. Things look bright. But specialty retail footwear, it's so tough. One quarter's good, one quarter's bad, it's up and down. You have to buy the stock right.

Hill: Let's move to a tale of two toy makers. Mattel (NASDAQ:MAT) and Hasbro (NASDAQ:HAS) both reporting fourth-quarter results. Hasbro shares falling a bit on Friday after coming in a little lower than expected. Mattel's holiday quarter was certainly better than Wall Street was expecting, Jason. Mattel's stock up 22% on Friday.

Moser: This is a shining example to me of how silly the whole expectations age is, to be honest with you. If you see the headline out there that Mattel crushed it and Hasbro whiffed it, do yourself a favor and don't read it. They're both suffering from faulty expectations. Mattel has been a business in decline for so long. The hurdle was really low. It wasn't like it was a good quarter. It was just better than expected. It wasn't good.

Hasbro, maybe it wasn't quite what was expected, but there are still clear signs that Hasbro's a good business that continues to do well. It's not to say that Mattel can't see better days. Perhaps they will. They have some pretty strong properties with Barbie and Hot Wheels and things like that. But toys are a very tough business. Both companies have suffered from the demise of Toys R Us. But only one of these companies is well prepared to deal with life sans Toys R Us, and it's not Mattel.

When you look at it from the investor's perspective, if you're interested in this market, and it's an interesting one, for sure, you have to look at Hasbro. The risk-reward just doesn't make sense for Mattel. Good to see the stock having a good day, but don't get ahead of yourself.

Hill: It's interesting when you think about the home improvement industry and Home Depot and Lowe's and their competition. The past 15 years, there have been stretches of time where Lowe's was outperforming Home Depot, vice versa. There was a point in time when Mattel was a much bigger company than Hasbro. Hasbro is now at least two times as big and has never looked back.

Moser: It absolutely was. As a matter of fact, I had Mattel for a time in my Rising Stars portfolio on Fool.com years ago because the business was performing well. But they let the relationship with Disney deteriorate. A lot of these companies' success really comes from getting those partnerships with big content providers, and Disney is one of the best. And for whatever reason, Mattel let that relationship deteriorate. Then, they obviously had big-time trouble in the executive suite, which steered this company off course for a while.

Hill: From toys to video games. Electronic Arts and Take-Two Interactive both reporting third-quarter results this week. Both stocks getting hit. Aaron, Wall Street analysts seem to be placing the blame for both sets of results squarely at the feet of Fortnite.

Bush: Well, they're idiots, Chris. Straight up. EA unsurprisingly had poor results. They're going through several issues. Take-Two, though, beat expectations, raised guidance, but somehow that guidance still has people worried. I'm not. But people are stupid, because it seems like every analyst, every writer, is playing Fortnite for everyone's problems. Really, that's just a bunch of groupthink and it makes absolutely no sense when you dig into the numbers. If you take a step back, you have to realize that there are almost two and a half billion gamers in the world. That's a lot of people. Fortnite has about 70 to 80 monthly active gamers, which is incredible --

Hill: 70 to 80 million?

Bush: Yeah, 70 to 80 million, sorry. A little bit of a difference there. They're doing really cool things, but they're not the only ones that are doing this. League of Legends operates at the same scale. And if you look at those numbers, that's still a tiny slice of the overall gaming world. Activision, for example, serves about 350 million players. It's a big world. Now, if a publisher does want to go head-to-head in the battle royale realm, then yes, there's pretty steep competition. But the reality is, there are more gamers spending more time and money playing all sorts of games than ever before.

It's also important to keep in mind that Take-Two, at the same time as Fortnite is having its craze, just had the largest entertainment launch of all time. Red Dead Redemption 2 made about $750 million in its opening weekend. The moral of the story there is that great games will always find demand. What's important to publishers is that they continue to innovate and they continue to churn out incredible games. Those with the most money, the largest publishers, will be the ones to most regularly do this, even if not every game or quarter is a success.

That's not to say that Fortnite isn't causing competition. They are. EA's Battlefield franchise is performing poorly. They were always second fiddle to Activision's Call of Duty, anyways. Call of Duty has more competition than before. But I do think right now, we're at peak video game pessimism. Fortnite won't be No. 1 forever. Companies will probably solve their cultural issues. More people will continue to buy great games. This is how you beat the market -- when the masses are dumb, and you can just look at easy numbers and point to it, you can feel good. I feel particularly good about Take-Two right now.

Gross: I do want to say that EA and Respawn did just launch a battle royale game called Apex Legends, and it's popped up in my home, and that's why I know about it. Ten million players in only three days. It took Fortnite two weeks to get there.

Hill: Shares of Papa John's (NASDAQ:PZZA) up 10% this week after Starboard Value invested $200 million into the struggling pizza chain. You think John Schneider, the founder of Papa John's, is going to let this one go?

Gross: I think he's going to have no choice. He put out a competing bid, it wasn't accepted. Starboard has a great track record, even in restaurants. Back in the day, I did know these guys, we did a number of transactions together. I highly respect them. Jeff Smith of Starboard is now the chairman. CEO Steve Ritchie is now on the board, as well, and they brought in a third, so there's three new folks on the board now.

They're going to use half of that money to pay down some debt, the other half to revive the brand. I think we have a branding issue here, obviously, more than anything. Domino's back in the day had more of a food, taste issue. I think, actually, Starboard's going to be successful here.

Hill: Although, I think the bar is a little bit higher for this one just because when they went in on Darden Restaurants, they had more levers they could pull, one of which was selling off Red Lobster. They're just dealing with one restaurant chain here.

Gross: Correct. And there was a lot of cost-cutting they did on the Darden one. This is not about cost-cutting. This is about improving the brand, doubling down on their "fresh great ingredients" message, and seeing where that goes.

Hill: Twitter's (NYSE:TWTR) fourth-quarter revenue came in higher than expected, but are shares down 12% this week. Jason, you tell me, was it the guidance for 2019? Or was it something else?

Moser: Primarily it was the guidance. Guidance for the first quarter of 2019 was a little bit lighter than maybe Wall Street was expecting. I've already told you how I feel about that expectations game, Chris. It's nice to see, actually, this business make it to the stage where we can talk about it without that speculative tone that we've had to use over the past few years. That's because now it's a real business that's making money, it's profitable. There's a future there. They brought in almost $1 billion in revenue in the fourth quarter alone, which is really impressive. Jack Dorsey is doing a very good job of getting the talent there. He's splitting his time with Square and Twitter, but it seems like it's working.

The biggest change is going to be the metrics they're using to indicate success. They're getting away from that monthly user number and going to a daily user number, which I think makes more sense anyways, because Twitter is a daily platform. Case in point, Jeff Bezos' tweet last night that lit the whole internet up. He wasn't going to one publication to launch that. You tweet it and it's out in front of everyone immediately. That's the point here. Twitter is a network that's just too valuable at this point. It's not going away.

One last example here, stock-based compensation. That thing was around 25% of total revenues. Now, it's going to be around 10%, more in line with their peers. A promise that he made back in 2015, a promise fulfilled. I like where they're going.

__

Hill: It was this week in 2014 that Satya Nadella became only the third CEO in Microsoft's history. In the five years since then, Nadella has transformed not just Microsoft's business but its stock price as well. Tech journalist Mary Jo Foley has spent her career covering Microsoft. She joins me now from New York City. Mary Jo, thanks for being here!

Mary Jo Foley: Thanks for inviting me!

Hill: I want to get to the sense of Microsoft in a minute. Let's start with the underlying business. In pragmatic terms, what has Nadella done for Microsoft?

Foley: The biggest thing he's done is gotten them back on track. I feel like under Ballmer and a bit under Bill Gates, as well, they were trying to be a company that they weren't. Under Ballmer, they were trying to be Apple and they were trying to be Google. What Nadella did when he came in was say, "Hey, what are our strengths? What's our core business? It's productivity applications and services, and that's what we're going to focus on."

Hill: Are you at all surprised at what he's done? Five years ago, my recollection is that Nadella was largely seen as a good choice to replace Steve Ballmer as CEO. But he was also an insider. Nadella had been at Microsoft for more than 20 years. Some of the reaction was people saying, "They really should have picked an outsider."

Foley: I was surprised. I almost felt like he was the consolation prize at the beginning, like nobody else wanted the job because Microsoft was seen as a has-been at that point. I was surprised they went with an insider because everybody was telling them to go with an outsider to shake up the business. But instead, what happened was, he was an insider who ended up being able to shake up the business. I think they got the best of both worlds.

Hill: How do you think he was able to change the perception of Microsoft? For years when Bill Gates was running the company, people literally referred to Microsoft as the Evil Empire. When Ballmer took over around the turn of the century, it was still the Evil Empire, it also at some point became the boring empire. I'm wondering how Nadella changed all that.

Foley: I think it was a combination of things. One of the best things he did for Microsoft, right from the outset, was decide to be a partner instead of an enemy. A lot of the companies that Microsoft used to compete head to head with and talk about cutting off their air supply and wanting to make sure they wipe them out, they started partnering with them. They partnered with Red Hat, one of the Linux companies. They partnered with Adobe, SAP, they just started forging all these partnerships. And each one, everybody was like, "Wow, I thought they were their competitor, not their partner." I think that was a really smart move right from the beginning, to change the perception by being the nice guy instead of the bad guy.

Hill: I don't want to gloss over what you said there about Linux. For a lot of people, this is in the weeds, but for the sake of context, Linux was, I believe, once referred to by Steve Ballmer as cancer. He compared it to cancer.

So the fact that Nadella is out there saying, "No, we want to partner with all these different outfits," I have to believe that while that may have been a hit with people inside the company, the regular workers, at any point, did Nadella get blowback from the board of directors?

Foley: I don't know if the board was against doing that or not. Again, back to him being very pragmatic, he saw that many Microsoft customers, including some of their biggest customers, were using Linux in a very substantial way in commercial operations. Instead of just drawing the line in the sand and saying, "We're not going to work with open source, they're the cancer, they're the enemy," he instead said, "Hey, what do you customers out there want?" They wanted Linux to run on Microsoft's cloud. They wanted Microsoft to do more open-source application work. Developers, who are one of Microsoft's core constituencies, they said, "We need open-source tools." So, instead of just saying, "We've always been against Linux and we consider them the enemy," he embraced it. And now, it's not so surprising to see something like Microsoft buy GitHub, an open-source code repository. If that had happened under Steve Ballmer, people would have just freaked out. Instead, now it makes sense as part of Microsoft's strategy.

Hill: I'm curious, for people who are in your line of work, if Microsoft has also become a more open company. At least compared to the likes of Amazon, Apple and Alphabet, from a media and public relations standpoint, it does seem like under Nadella, Microsoft has become more open and less secretive. Or am I wrong about that?

Foley: Sadly, you're wrong. [laughs] I think they want people to think of them that way, and they want to look like they're being very open and showing all their cards. But I can tell you as a journalist, it's still business as usual.

Hill: To the extent that people are bearish on Nadella, what is the biggest criticism of him?

Foley: There's a group of people, and they're not Microsoft's biggest constituency but they're a sizable group, the people who consider themselves consumers as opposed to commercial customers. They feel abandoned right now, because under Nadella, there've been cuts to products that had a lot of enthusiast love. Things like Windows phones and Groove Music, the Microsoft Band, which is their competitor to Fitbit, even Cortana, which is their competitor to Alexa. All of these things either were cut outright or scaled way back. If you're a normal, average enthusiast/ consumer, you're feeling abandoned right now. And those people understand why they're focusing on the enterprise, but they also are against it because they feel like it's driving them into the arms of Apple and Google, and they feel like they can't be Microsoft fans.

Hill: The people who are big enthusiasts of the Zune, they're upset with Nadella?

Foley: Yes, exactly!

Hill: All nine of those people?

Foley: Right. All those Brown Zune users, they're really mad. [laughs] But, seriously, though, I used a lot of Microsoft consumer products. I had Windows Phone myself for a long time because I considered it the best phone. It makes me nervous now to think about buying any kind of a consumer product or service from Microsoft, because I'm not convinced they want to stay in that market.

Hill: Well, one area where they have legitimately succeeded with consumers is when it comes to gaming. There's been a lot of talk recently of companies looking to be the quote-unquote "Netflix of gaming." Do you think Microsoft has a shot at something like that? Or is that not a business that they're necessarily looking to pursue?

Foley: Contrary to everything I thought would happen when Nadella took over, they went all-in on gaming. I was in the camp that thought they were going to sell off Xbox and retreat from the gaming space. Instead, they've done the exact opposite. They've bought a ton of gaming studios, they've been assigning more people to work on different parts of Xbox services and the Xbox hardware platform. They're 100% in on gaming.

I think, of all the companies talking about becoming the Netflix of video games, they have maybe the best shot. The reason I say that is, they've got the experience in running streaming services on the cloud. That's what gaming will be when you talk about Netflix of video games. It'll be some kind of a gaming service like Xbox Live running on Microsoft Azure, streaming to devices of all types -- iPhones and iPads and Windows PCs, everything. They're actually in a really good place for that.

Hill: Over the next few years, what is one thing that you think investors should be watching to judge the health and the growth prospects of Microsoft's business?

Foley: Right now, they've done a really good job at managing this transition to the cloud. They somehow have found a way not to kill off all their products that are not cloud products, things like SQL Server and Windows Server and even Windows on PCs, they haven't killed those off, even though they've been stepping up their work to move more things to the cloud. I'm watching to see if they can keep going with that. At some point, you think they're going to cannibalize their own business by moving more things to the cloud. But so far, they've managed to keep the on-premises business growing and the cloud business growing at the same time.

Hill: Microsoft's stock has tripled in the past five years. Nadella is only 51 years old. If I'm a shareholder, I want this guy in the corner office for another 10 to 15 years. Do you have a sense of how much longer he wants to keep doing this?

Foley: No, I do not. But I would be very surprised if he retires anytime soon. I feel like he's having fun doing what he's doing, and he's been very successful at it. I don't see why he would quit.

Hill: She writes all about Microsoft on ZDNet. You can follow her on Twitter. Mary Jo Foley, thanks for being here!

Foley: Thank you very much!

__

Hill: Shares of Spotify (NYSE:SPOT) down a bit this week despite the company reporting its first quarterly profit. Spotify also announced it's spending a couple of hundred million dollars to acquire two podcast start-up companies, Anchor and Gimlet Media. Aaron, let's just put aside the fact that, if Spotify wants to get in touch with us about acquiring our podcasts, they can do so by emailing us. What do you think?

Bush: I think the acquisitions are the main part of the story here. It's a really big deal. Spotify itself is not that great of a business. It's in a tough industry, has little differentiation from Apple Music. Gross margins are slim, and scaling is hard when you have to pay per song that you play. These acquisitions could be pretty game changing. What this shows is that Spotify wants to become an audio company, not just a music company. To break it apart a little bit, this is a big deal for a couple of reasons. One, bringing exclusive podcasts, Gimlet Media will be the start, that will add differentiation. Differentiation is important because that should lead to gaining market share from players like Apple Music that just don't have their content. Exclusivity over time is what leads to pricing power, like we've seen with Netflix.

Second, podcasts are fixed costs, which means that you don't have to deal with labels. It means that as they scale, they'll be much more profitable than music. When you look at Anchor, which is a platform for anyone to make their own podcast, they'll be getting much more supply, and it'll be much more profitable than what the music business is.

Lastly, I'll just say that there's still a massive discrepancy between how much people listen to podcasts and how well they're monetized. The entire advertising podcast industry is about $300 million a year. If Spotify does this well, that's going to exponentially rise. Part of the issue is data. Apple, which is the king of podcasts, is not very helpful when it comes to data. However, the cornerstone of what Spotify is going to offer is data. That could accelerate their advertising revenues as they work on exclusivity, helping supply. Putting all this together, I think it's pretty game changing for Spotify's business.

Hill: It's going to be interesting to see, though, the pricing power piece that you mentioned, how that plays out. Unlike, say, we were talking earlier about the ESPN+ app, which is somewhere in the neighborhood of like $6.99 a month, Spotify right now is already in the mid-teens on a monthly basis. I feel like there are other monthly subscription fees that have more room to maneuver when it comes to pricing power than Spotify does at this moment, anyway.

Bush: Yeah. Keep in mind, over half of their user base is people who are listening without paying, they're being ad supported. I do think that how that mix could change with some of their moves could move the needle.

Hill: Earlier this week here at The Motley Fool, we did our first live Q&A on YouTube. We had a lot of fun. We did not have time to get all of the questions, and I wanted to kick one of them around here. Great question from David Strauss, who asks, "Jason Moser, I've heard you say if SpaceX went public, you would buy at the IPO price. Are there other IPOs that you're looking to buy?"

Moser: Normally, I'd like to give those companies a quarter or two at least to report to get an idea of how the business is run. I broke that rule recently, as I said on this show, with Eventbrite. That's a recent IPO. That was because of my familiarity with the leadership, and I like that market they're pursuing. A couple of IPOs coming up that I have on my radar. We talked earlier in the week on Industry Focus about Beyond Meat. That's a really interesting company --

Gross: [laughs] You made that up.

Moser: [laughs] No, I didn't! I swear! It's a fascinating company out there pursuing meatless alternatives, burgers, chicken, sausage. People that I've talked to that have had those products swear by them. They say they're really good. A neat business, a lot of interesting people on that board.

Another one that's coming down the pike here soon is going to be Slack. Slack is interesting from a number of angles, one of which is that we use Slack on a daily basis here at work, so we certainly see the value there. I'll be interested to see what kind of a business that turns out to be, though.

Hill: Ron, what about you?

Gross: A few that have gone public relatively recently, within the last 12 months, caught my eye. Not recommendations here, but maybe ones to dig into. DocuSign (NASDAQ:DOCU) looks interesting. Upwork. ADT is another one. And, finally, Tencent Music.

Hill: Aaron Bush?

Bush: For upcoming IPOs, the big ones I'd point to are Stripe and Airbnb. Stripe, massive payments platform. Airbnb, the largest hotel company that doesn't own hotels. But I think the hidden gems, some of the smaller companies that we're not talking about, could be the biggest winners.

Hill: I'm surprised none of you mentioned Uber, which for a couple of years now has been at or near the top of the list of anticipated IPOs.

Bush: Yeah, it'll certainly be interesting. But it's also going to be so big, coming out at over $100 billion. The upside there is probably not as big.

Moser: I think Lyft is probably the more compelling potential option there. Lyft is going to be going public as well at a much smaller valuation.

Bush: We'll see.

Hill: Subscribe to our YouTube channel at youtube.com/themotleyfool. We're going to be doing another Q&A live on YouTube next Wednesday, February 13th. We love getting your questions about stocks. Join us, go to the channel and subscribe.

A quick shout out, brand-new affiliate WLBR AM 1270 in Harrisburg, Pennsylvania.

[all applaud]

Joining The Motley Fool family of affiliates. Let's get to the stocks on our radar. Our man, Dan Boyd, producer of our Market Foolery podcast, is behind the glass this week. He's going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?

Gross: All right, Danny, I got NextEra Energy (NYSE:NEE), NEE. Operates the largest electric utility in Florida. It's the largest wind and solar operator in the world. Huge and fast-growing backlog of renewable-energy products, really strong management team. They're great capital allocators. Industry-leading margins. They aim for 12% to 14% growth rate in dividends through at least 2020, and that dividend yield is currently 2.5%. I like it a lot for income.

Hill: Dan, question about NextEra Energy?

Dan Boyd: That's interesting about their dividend there, Ron. My question is a little divergent. Do you think Florida will ever get their act together?

Gross: Just as a state in general?

Boyd: Yes.

Gross: It's a 50/50 proposition.

Hill: Jason Moser, what are you looking at?

Moser: Earnings season is in full tilt now. Ellie Mae (NYSE:ELLI), ELLI, their earnings coming out next Thursday. I'm going to be fascinated to hear the language in the call. Just a quarter ago, it was a pretty dull, not-so-cheery tone. The housing market was a little bit troublesome. Tight housing inventory, rising interest rates was fueling low home affordability. Everybody had refinanced, so there was no real volume on that side either. They pulled back on guidance. The stock got punished. But man, so far this year, the stock's up like 30%, so something has changed the market's mind about this thing. I think it might have something to do with that conversation we were having last week about interest rates possibly going back down. If we have a market where home affordability is a little bit more attractive, some options for refinancing come up, that's really Ellie Mae's business. It'll be a good quarter to see how the year is shaping up for them.

Hill: Dan, question about Ellie Mae?

Boyd: Which name do you like more, Ellie or Mae?

Moser: That's a very good question! I'd probably go with Ellie. If I got --

Gross: That's my mother's name.

Moser: -- another dog I'd probably go with Ellie as opposed to Mae, but they're both quality names, no doubt.

Hill: Aaron Bush, what are you looking at?

Bush: I'm looking at DocuSign, DOCU, which Ron just mentioned. We all know, this is the top dog in e-signatures. We use it for increasingly more types of paperwork. They have over 450,000 customers at this point. They're growing revenue well over 30%. Why I think it's interesting though, one, the market is big, but two, they just acquired a small company called SpringCM, which will get them into other aspects of document management, document generation, contract lifestyle management. When you piece all these pieces together, their brand, their scale, their new capabilities, it could be a much bigger company one day.

Hill: Dan, question about DocuSign?

Boyd: Aaron, what is the last document you signed via DocuSign?

Bush: When I bought my condo, I went through so much DocuSign. It worked very well. I probably read way less than I should.

Moser: I bet you there was an Ellie Mae-fueled document or two as well.

Bush: There probably was!

Hill: Three stocks there, Dan. You got one you want to add to your watch list?

Boyd: Certainly, Chris. Sorry, Ron, your losing streak continues. I like DocuSign. I end up using it all the time here at work and in my apartment complex. I like it.

Bush: Awesome!

Hill: Aaron Bush, Jason Moser, Ron Gross, guys, thanks for being here! That's going to do it for this week's edition of Motley Fool Money. Our engineer is Dan Boyd. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!