On this episode of Motley Fool Money, host Chris Hill and analysts Ron Gross, Andy Cross, and Jason Moser hit on the week's biggest market news. Does Uber's (UBER 3.70%) lackluster public debut mean IPO mania is finally calming down? Stamps.com (STMP +0.00%) loses half its market cap -- again -- and the future doesn't look much better. Huge growth days for Booking Holdings (BKNG 2.49%) might be over, but the business isn't done for. Also, the analysts discuss news from Match Group (MTCH +0.00%), Zillow (Z +1.16%) (ZG +0.85%), and The Trade Desk (TTD 6.72%); and, as always, they share some stocks on their radar this week. Also, Hill interviews Scott Galloway, best-selling author of The Four, about why the Big Four -- Apple (AAPL +0.06%), Amazon (AMZN 1.45%), Facebook (FB 1.84%), and Alphabet (GOOGL 3.85%) (GOOG 3.28%) -- should be broken up in the interest of healthy capitalism, why the ridesharing business stinks, why Amazon might spin off AWS, and much more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on May 10, 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, Andy Cross and Ron Gross. Good to see you as always, gentlemen! We've got the latest headlines from Wall Street. Scott Galloway is our guest. And as always, we'll give you an inside look at the stocks on our radar.
The U.S.-China trade talks continue to be in flux, gentlemen, so we're going to start with the most hotly anticipated IPO of 2019. Uber going public Friday morning. They set their price at $45 a share. That was the low end of the range, Ron. When shares began trading shortly before noon, the stock opened at $42.
Ron Gross: This one is interesting to me. The lower end of the range, as you say, was set, but the subscription was oversubscribed. The IPO was oversubscribed, indicating that there was demand. But what I think happened is that the bankers in the company decided to be conservative for a couple of reasons. One, they didn't want what happened to Lyft to happen to them. Lyft went public and shortly thereafter, really within a day or so, broke through the IPO price and never looked back and has continued to go down. Plus, as you mentioned, we have the China-U.S. trade negotiations going on. The market is rattled, the market is weak. It's actually a bad week to go public as a result. So we saw some conservatism in there. Now you see the company actually start to trade. It trades weak. I think, again, building on the fact that the market is just not having it this week.
Andy Cross: Yeah. And I just don't think they wanted to delay it any further. I mean, I was thinking, maybe they'll push it back again. But it's been out there so much in the media. They just don't want to push that off. And while it was a bad time, at least the stock is hovering around that price right now. The bankers and the day-to-day traders trying to find that price. At least it doesn't collapse, which I think was potentially some risk out there right now.
Gross: And I think there's a chance that people are fatiguing on the phrase "path to profitability." There may come a time where people want to see profits once again. To take a company public at an $82 billion valuation that is not profitable, and probably won't be profitable for five years-plus, is daunting. And up until now, you could get away with that. In certain periods of time throughout the stock market, you could get away with it, right up until you can't, and investors want to see good old profits once again.
Jason Moser: I think it's a pretty fair assumption, too, that both companies' cost structures are going to be nothing but going up in the near future and even the farther-out future. The drivers are going to want more money. I mean, I think that right now, it seems like the difference between contractor and employee is really playing out in the press. So I mean, these are just two good examples of companies where I think it really pays to be patient. There is no reason to rush in and buy shares of these businesses. They're probably going to still be around in five years. But I think the business models themselves, the economics are going to change significantly. I think that'll be something that to keep in mind.
Gross: Yeah. The take rate, which is the amount that Uber keeps after paying the drivers, has been declining. You do not want to see that because you need this business to really get profitable based on scale. Ninety-one million active monthly users is impressive. You need to continue to grow that but you need to continue to grow the profitability on a per-customer basis if this is ever going to turn into a profitable venture.
Hill: Well, and Ron, you mentioned the macro environment contributing to it not being a great week for Uber. Also not helping, probably, is the fact that this week, Lyft issued their first quarterly report as a public company. They lost over $1 billion in 90 days. That's amazing!
Gross: That's amazing!
Hill: And not the good kind!
Gross: Perhaps we shouldn't be too surprised, as we knew they were not profitable either. They're more of a pure play, right? Uber has Uber Eats, which is actually going to be probably a big deal in relation to it turning profitable. But Lyft is more of a pure play. 20 million active users in the quarter. Obviously much smaller than Uber, a more focused play on the rideshare industry. But you know what, we're going to autonomous vehicles at some point -- five years, 10 years, 20 years. Is Uber going to be profitable before that? If they are, then the whole thing changes again.
Hill: Shares of Disney (DIS 1.66%) down a bit this week, despite a strong second-quarter report. Jason, particularly the parks division.
Moser: Yeah. It was a strong quarter. I like to call this the Goldilocks quarter. I mean, it was nothing too terribly great, nothing terribly bad. I mean, it was really just kind of right up the middle. And with a company that has just finished pulling off a major acquisition, as Disney has, that's really all you want to see, is that they didn't completely screw something up. But the nice part about Disney is, they have the model that can make up for shortcomings in other segments.
Revenue $15 billion, was up 3% from a year ago. As you mentioned, the parks continued to get it done. The media division continues to get it done. The parks, they saw 5% revenue growth, but 15% operating profit growth. I think that really demonstrates that operating leverage we talk about in that model.
The headline, of course, is the Avengers: Endgame, over $2.3 billion box office receipts. That number will just grow. We always talk about the fact that those movies really aren't the biggest part of the business to begin with. But it doesn't hurt the cause. I think the real story for the coming quarters and years is going to be the burgeoning over-the-top department, the direct-to-consumer business that they're developing. That brought in revenue $955 million. Operating at a loss as they build out these services. But ESPN+ now has 2 million-plus subscribers, Hulu has 25 million-plus, they're forecasting Disney+ to have somewhere in the neighborhood of 60 to 90 million by 2024. Given the value in all of the IP that they have, I don't think those are too lofty a goal either. I mean, I can see a lot of different ways they could go with these services. And then we also saw, over the past couple of days, Netflix made the acquisition of some little children's entertainment provider. I think the fact that I can't really remember the name of it speaks to the value in the IP that we always talk about with Disney anyway. It's going to be a very interesting race here as we see Netflix and Disney build out these direct-to-consumer businesses. But I think Disney definitely has the leg up on the IP side.
Hill: Booking Holdings' first-quarter profits and revenue came in a bit light, but shares of Priceline's parent company still up a bit on Friday despite that. You tell me, Andy, what'd you think of the quarter?
Cross: Well, the hyper-growth days of booking.com, Priceline are over. It's OK, as long as investors understand that. Sales were up 6% if you back out the real strong dollar and the timing impact of Easter. Gross travel bookings up about 2%. That was down from up 14% of all of last year. The real high-growth days of booking.com and Priceline are down.
Interesting, they have 217 million worldwide rooms that were booked across their platform. That was up 10% ahead of their own guidance. And they now have almost 6 million alternative accommodations listed. That's up 13% as they go after the likes of Airbnb's market as well, too. Profits a little bit on the light side. It was a nice quarter, as long as you understand that the real heyday of high growth in booking.com and Priceline and their other businesses really isn't quite there. They bought back a lot of stock. They generate $4 [billion]-$5 billion of free cash flow per year. They're going to continue to buy back stock. It only sells at 16 or 17 times free cash flow. So, for a steady business, very profitable, it can be a nice investment in for investors, as long as you understand it's not going to be the huge growth story that it once was.
Hill: Although this does come in the same week where TripAdvisor shares sold off in the wake of their latest quarter. It does make me wonder if we're seeing a little bit of cooling off, not just with Priceline and booking.com, but maybe with travel in general.
Cross: Yeah, I think that might be true, Chris, when you just think about some of the wider macro concerns. You mentioned China at the top of the show. That just probably is playing a part. People are probably more careful with their dollars and how they spend it these days.
Hill: Zillow shares up 10% on Friday after first-quarter profits came in higher than expected. They raised guidance, too, Jason. It's been a rough stretch lately for Zillow. I'm wondering if you think they've turned a corner?
Moser: Maybe. Is that a good enough answer for you?
Hill: No, it's not a good answer.
Gross: [laughs] Try again!
Moser: I mean, the action of the share price after the earnings announcement has been pretty amazing to see. It was up 20% at one point after hours. I think the real story for this business going forward is homes. I mean in the homes business that they're trying to grow, the buying and selling of homes, that's the driver that investors want to follow closely in the coming quarters and years to get a gauge of whether or not Zillow, the company, the business, is growing. The home segment brought in revenue of about $130 million for the quarter. It's still operating at a loss, of course. To put that into context, they sold 414 homes, while purchasing 898.
The interesting thing I noted here, if you back out the homes revenue, then you get around $325 million in revenue there. That's only 8% growth from the same quarter a year ago, which is pretty meager. Looking at their guidance, that number actually is probably going to shrink even more in the second quarter. The premiere agent business is really just hitting a brick wall as they're trying to figure out how to change that, how to make it a little bit more valuable for the agents they have. So it does feel like the more things change, the more they stay the same with Zillow. But I do like the new CEO. I think that Rich Barton is the guy to get this done. If anybody's going to be able to pull it off, it's going to be him. But it really is going to hinge on that home segment. That's just going to take a lot of work and time. So that's what we'll want to pay attention to.
Hill: That doesn't sound like they've turned the corner.
Moser: [laughs] Well, they see the corner that they're trying to turn. How about that?
Hill: That's progress. In late February, shares of Stamps.com were cut in half in a single day. That happened again this Thursday, when the company cut its earnings guidance for 2019 as well as 2020 and 2021. Ron, in less than three months, this stock has gone from $200 to $38.
Gross: Brutal, and perhaps not getting any better anytime soon. They're claiming that the non-negotiable item for them was to no longer be the exclusive partner of the United States Postal Service, because they wanted ability to tap Amazon, FedEx, UPS. But that's just destroyed this business. Now, they're claiming that's a short-term pain, and once they can get into deals with those folks, they'll be able to offer multi different shipping arrangements to their customers, especially some of the smaller customers that use Stamps.com, and they'll be fine in the mid to longer term. That remains to be seen. The pain they're seeing now is due to the renegotiations with all these different customers. I think it's going to be painful for quite some time. I think perhaps they might never turn.
Hill: From a negotiating standpoint, shouldn't we be betting on all these other huge companies like FedEx and Amazon, now that Stamps.com is much smaller than it was three months ago?
Gross: It's a formidably competitive area.
Moser: I think that's a reasonable bet. I mean, you know that Overstock.com commercial where they spend the first 30 seconds trying to explain to you why their name is overstock.com, even though they don't really sell overstock goods? I mean, I feel like Stamps.com is running into that brick wall as well. I don't know why the company is called Stamps.com at this point, because they're not really in the business of selling you stamps. They're trying to figure out where to take this business. It'll be a big branding problem going forward.
Hill: Rough week for The Trade Desk. First-quarter revenue for the programmatic ad platform was not what analysts had come to expect, and shares of The Trade Desk were down 18% this weekend.
Cross: Oh, the challenge of high expectations, Chris! The Trade Desk is a programmatic company that serves up ads through algorithms and computers, mostly through online, although they're pushing more into connected TV with the likes of Hulu and Roku, as those businesses continue to do really well. Revenues were up 41%. That was a slowdown from 56% last quarter and 60% in the first quarter of 2018. $121 million in revenue. That was a little better than their management's guidance. But again, it wasn't just lights out as people had come to expect with The Trade Desk. Again, adjusted operating profits up 31%. Ahead of management's own guidance as well, too. The guidance was just a little bit, hey, it's great, but it's not super great. And with those expectations, with a stock price that sells at more than 20 times sales, Chris, if you're not continuing to really destroy your expectations game, it's just not going to do it for investors. And so the stock on that day sold off about 15%.
But, overall The Trade Desk story and why I like this business very much is, it continues to do very well, take market share in an exciting growing space as we think about consuming media in lots of different ways on lots of different devices. That's going to be driven by advertising over the next five, 10 years. And they're going to play right into that.
Hill: Yeah, even with the drop this week, this is a stock that has more than tripled over the past year. It's the proverbial good problem to have when you get into that range of, your earnings report needs to be perfect and your guidance needs to blow away Wall Street. But maybe this makes the stock a little bit more reasonable.
Cross: I think it does, Chris. I think for long-term owners of The Trade Desk or people who are interested in buying, this is a good opportunity now. It's only an $8 billion company competing in a very large market space. And they're profitable, and they're growing. I expect that to continue. I think ultimately The Trade Desk stock will do well for investors who will hold on for five years.
Hill: Shares of Match Group hitting an all-time high this week. The parent company of match.com, Tinder and other relationship sites posted really a great first quarter report, Jason. Basically everything was up.
Moser: Yeah. I liken what this company is doing in its space to what companies like Wayfair and Etsy have done in theirs. Emily and I were talking about this on MarketFoolery this week. You look at companies like this, you don't worry too much about the future because they've already faced their real tests. When we think about Wayfair and Etsy, the real test was, how are they going to exist in an Amazon world? They've passed that test, clearly. Match, I think the big question was Facebook saying they wanted to get into this line of work. Match has passed that test pretty well. We saw the same dynamic play out with LinkedIn and Facebook as well. People do actually want some separation in their lives when it comes to things like this. Match has been very good to build out that family of apps that center around that premise of meeting someone. It's a very singular focus.
It's a very powerful business model. It's a subscription business model, which is nice. Tinder is the crown jewel there with about 4.5 million subscribers now. It just plays into a big market opportunity. This is always going to be something in demand. People are always going to want to meet that someone in their life. Now they're able to pull back. Ad spend is becoming a smaller percentage of revenue, which means the business is scaling very nicely. That's going to work out really well for investors, for a company that already makes a lot of money and a ton of cash.
Hill: In the competitive risks section of their SEC documents, do they list marriage as one of them? If you think about it, someone who's going on to match.com, presumably, they meet someone, they get married, they're leaving match.com. The churn has got to be much higher than something like Tinder.
Moser: That's the sword that cuts both ways. It's the risk yet it's also the competitive advantage. You're going to find that person that you want to marry.
Hill: In all seriousness, though, Match Group is one of those businesses. You mentioned Facebook, but I suppose eHarmony is a direct competitor, but they really don't have competition in the way that other businesses do.
Moser: No, it is a very fragmented industry otherwise. That speaks to how smart management was to really roll up a lot of these valuable properties quickly. Because ultimately, the biggest networks do win.
Gross: Does anyone know how much a Tinder subscription costs? I'm asking for a friend.
Hill: No idea!
Moser: I won't even venture a guess because there's zero upside. Zero.
Hill: Boston Beer (SAM 2.27%) is buying rival Dogfish Head Brewery in a deal worth $300 million. Most of that is in stock, Andy. Back of the envelope math, it looks like this probably increases Boston Beer's annual sales by 10% to 15%.
Cross: The beer business, Chris, has really been struggling. I mean, most of Boston Beer's recent growth has been in their alternatives, things like Angry Orchard Hard Cider, Twisted Tea, the hard seltzer business as well. I mean, it's nice because it combines two legendary U.S. craft brewers. I think it's a nice deal. At $300 million, vs. a $3.8 billion market cap for Boston Beer, it's not huge for them. Sam Calagione will join the board. He and his wife will be the second-largest individual share owner behind Jim Koch, with $127 million worth of Sam Adams stock. You get a person who has a lot of passion into that market, hopefully sticks around. Often, when you join a larger company, when you're an entrepreneur, you don't really feel like sticking around a larger business.
Moser: Yeah, I don't know that it makes the business all that much more compelling. I mean, it's the consolidation that we expected. There's not a lot of overlap. They're two very different brands. But to Andy's point, the beer market itself has just been really challenging.
[...]
Hill: Scott Galloway is Professor of Marketing at NYU Stern, the founder of L2, the co-host of Pivot with Recode's Kara Swisher, and the author of The New York Times best-seller The Four: The Hidden DNA of Apple, Amazon, Facebook, and Google. Earlier this week, I caught up with Scott Galloway and began the conversation by asking about the future of big tech.
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Hill: Let's start with The Four. You've called for breaking up big tech, not because you think that they're evil or they destroy jobs or anything like that; you've specifically said, let's break them up because we're capitalists. Can you explain what you mean by that?
Scott Galloway: Sure. A normal part of the economic cycle here in the U.S. is, we realize that through luck, timing, incredible execution, occasionally, a firm becomes an invasive species. That is, it becomes so dominant that it's able to perform infanticide on small companies and prematurely euthanize larger companies which tend to be good employers and good taxpayers. We've done this on a regular basis since we broke up the railroads, AT&T (T +0.38%), aluminum companies. It seems as if we've lost the script. Basically, the FTC and the DOJ have decided to go dormant the last three years. I think the number of actual antitrust actions filed is literally a fraction, a shadow of itself. It's largely because of the Bork Chicago viewpoint of, the test is consumer harm. It's difficult to decide to break up a company whose products are free, oftentimes.
But, yeah, we're well beyond that point. When Amazon can take the value of a stock down 30% by announcing an acquisition in the same category, or Google and Facebook are responsible for two-thirds of all digital marketing growth, or Amazon controls 50% of the most valuable channel in the world, which is e-commerce, or can use a highly profitable group, AWS, to subsidize a retail platform at below cost, similar to what the Chinese did to the steel market, tried to do in the '80s. We called it dumping when the Chinese were pricing steel below cost. When Amazon does it, we call it innovation.
Great companies! Love them! Own their stocks. They hire my kids out of school. Tremendous respect for them. Great, congratulations! It's time for you to be broken up.
Hill: In terms of regulatory actions, Facebook with their most recent earnings report, it came out that they've essentially set aside $3 [billion]-$5 billion to pay for a fine from the FTC. I get the strong sense that you think that number should be doubled, and then possibly doubled again.
Galloway: Look, there's an algebra of deterrence. It's simple. You take the likelihood of getting caught doing something wrong times the potential penalty, and that amount is a deterrent such that that amount is greater than the upside of continuing to engage in that behavior. What we've done with big tech is we've put a parking meter in front of your house that costs $100 an hour. But if you get a parking ticket, you break the law, the ticket is $0.25. So when Facebook does the math, and they have, on if they continue to violate privacy or not, put in place safeguards such that their platform isn't weaponized by bad actors, they get fined $3 [billion]-$5 billion, which is seven days of income or seven weeks of cash flow. Any algebra is, the smart thing, the shareholder-driven thing, for these firms to do is to continue to break the law. It's not their fault. They're doing the smart thing. It's our fault for not electing leaders that hold these firms to the same scrutiny and standards as we've held every other company for the past century. I was with the CEO of Macy's last night, and we were talking about big tech. Let's talk about Elon Musk. Can you imagine the CEO of Macy's referring to somebody of upstanding, you know, saying, "Oh, this person's a pedophile"? What if the CEO of Macy's said, "We're taking Macy stock public at $50 a share," and it's at $30 a share, "Funding secured." He'd have been out the next day. But we have decided not only with the companies, but with the individuals -- we no longer worship at the altar of character and kindness in this country. We worship at the altar of innovators and billionaires. I really think we've lost the script here. We need to hold these companies to the same standards, we need to realize these companies are totally shareholder-driven, they're not going to take care of us when we get older, they're not going to comfort us when we're sick. And we need to apply the same standards we've applied to every other firm. And we are not doing that right now.
Hill: When you and I talked in the fall of 2017, one of the things we talked about was the potential for the Big Four -- Apple, Alphabet, Facebook, Amazon -- spinning off parts of their business to get the political and regulatory heat off of them. Do you think, now that we're two years hence, the likelihood is even greater that that's going to happen?
Galloway: I do. I think that Jeff Bezos is arguably the brightest mind in business. I think he'll prophylactically spin AWS, because that will be the way to stave off the wolves at the door around regulation and antitrust. Also, on the spin, AWS would be one of the 10 most valuable companies in the world. It would also open up a whole vein of customers that right now don't consider AWS because it's owned by Amazon. Walmart or Macy's or L Brands are never going to work with AWS because they see them as a competitor. I think it not only would be a prophylactic against antitrust, it would be a smart business move, accretive to shareholders.
I also think that Instagram or WhatsApp will be spun, but I think it'll be done under DOJ or FTC instruction. I think allowing Facebook to acquire Instagram was one of the greatest regulatory failures of the last 20 years. They should have never been allowed to acquire Instagram, much less WhatsApp.
Hill: I know that for your first book, one of the reasons Microsoft didn't really enter the equation is because Microsoft's really more of a B2B company. The four that you chose are much more business-to-consumer companies. That being said, Microsoft recently crossed the trillion-dollar mark in terms of its market cap. Doesn't really get the adulation from the media that the other four do. But I'm curious what you've observed in the last couple of years with the rise of Microsoft.
Galloway: My excuse that they're a B2B firm is mostly a way of covering up the fact that I just don't understand Microsoft that well. I feel as if I can talk a pretty good game about Amazon, Apple, Facebook and Google. Start talking Microsoft, and it's pretty clear I'm out of my depth pretty soon. So I came up with a rubric or construct to just make it these four firms. Quite frankly, I probably should have written about Alibaba and Tencent, but I don't understand those companies either. So, I was comfortable writing about those four.
But, the best way to build economic value in a household is through a monogamous relationship. Single people usually don't build that economic value. The marketplace has discovered the same thing with companies. It loves companies that are in monogamous relationship with their clients. That is, they've gone all in with this partner, the software company, the syndicated research company, Netflix, Prime, whatever. I'm going all in, I'm going to commit to you and I'm going to pay you this amount of money every year, and trust that the relationship works for both of us. The marketplace values recurring revenue companies with multiples of revenues, and non-recurring revenue companies, just general retail or consulting, at a multiple of EBITDA.
With Microsoft, you have the ultimate monogamous relationship in the history of the business world. That is the relationship between Microsoft Office and the corporate world. The markets just love that. Also, you have a CEO who came in, and, to Ballmer's, who gets probably an unfair share of the blame, he did set the company up for success in a lot of ways. He actually groomed and picked Satya. But Satya killed a lot of their mobile stuff, got out of things that weren't working, and said, "We're going to focus on what we're really good at." But the renaissance there is just literally nothing short of remarkable. The only thing that probably rivals it is the renaissance of Apple, and maybe you could argue IBM's renaissance in the '80s. But Microsoft is just an incredible firm. Satya Nadella would be on any shortlist for CEO of the decade.
Hill: Last time we talked, you mentioned Netflix and Amazon being on a collision course with one another. Since then, Disney has come out and announced that later this fall, they're going to be launching Disney+, which is their video-streaming service. Do you see that as more disruptive to Netflix than it is to Amazon, simply because of all the other things Amazon has going for it?
Galloway: That's a really interesting question! First of all, as far as I can tell, the only two legacy firms that are really landing counter blows on the big tech guys are: one, Walmart; two, Disney. I think the only retailer that Amazon ever talks about in a board meeting is Walmart. They've done grocery and they're doing pretty well online. Pretty aggressive at acquisitions, but mostly click and collect groceries. And then Disney is one of the few content firms that has the leadership with Bob Iger, the capital, and the brands to legitimately take on Netflix.
Is it more disruptive to Netflix than Amazon? One-hundred percent. Amazon's retail platform could go away and they'd still be one of the most valuable companies in the world. Their cloud business could go away and it could be one of the most valuable companies in the world. Amazon isn't a retailer. They're really a disruption platform. That is, they find an industry where they say, "Our skills, our data set, our access to cheap capital, our incredible consumer trust, mean we could go after this category and be a player overnight." Cloud, originally developed it for their own storage capacity. Now they're adding that amount every day and they're in an amazing business, the leader in what is arguably the most profitable, fastest-growing part of technology. The second-largest spender now on original scripted TV, Amazon. Probably the most innovative hardware manufacturer in the world right now is no longer Apple. It's Amazon. I would argue the Echo is more transformative than the AirPods or Apple Watch.
Disney is an existential threat to Netflix. Could cut its market cap in half. If Disney+ is a huge hit, and Amazon media never really takes off, it hurts Amazon, but it doesn't cut its market cap in half. So absolutely, Disney is a bigger threat to Netflix than to Amazon.
Hill: I'm curious what you think about the current state of the ridesharing industry. Now that Lyft is a public company and has already had a rough ride in its relatively short ride as a public company, and by the time this interview gets published, Uber will join Lyft in the public markets, what do you see when you look at the ridesharing industry?
Galloway: I think ridesharing is the tobacco of the gig economy. We've figured out a way for the lords to take revenge on the surface. That is, we have actually figured out a way, and we blessed it, that we can sequester the 20,000 mostly white, mostly college-educated professionals at headquarters for Uber. And they get to split the value of, I don't know, Airbus, Home Depot, a $90 billion company, with their investors. Meanwhile, the four and a half million driver partners -- which is Latin for someone who doesn't have health insurance, minimum wage protection, and also doesn't get to share in the spoils of the IPO -- those mostly non-white, mostly non-college-educated people, literally get a dime a ride. That's what Uber and Lyft have decided to give the drivers as spoils for their loyalty and benefit from the IPO. They're getting a bonus of anywhere between $0.10 and $1.00 per ride.
I talk to Uber drivers, and to be blunt, they like their job, there's a lot of flexibility. But offering someone flexibility isn't an excuse for not giving them health insurance. It isn't an excuse for not sharing more of this absolutely torrential windfall of capital. The notion that we have legally and culturally figured out a way to separate the workers from the nice people at HQ is, in my view, obscene. It is literally the 3 million lords in the United States taking revenge on the 350 million serfs. If you want to look at income inequality in our economy, look at ride hailing.
Now, let's talk about the companies. Lyft, full stop, is just a sh---y business. Ride hailing is a difficult, unprofitable business. They'll talk about autonomous, they'll talk about network effects. Autonomous is not coming anytime soon in my view. It's a vastly overrated technology. Ride hailing is a difficult, unprofitable business. Lyft makes no sense. I predicted that it would touch $100 on the day of the IPO and be at $50 within six months. I was wrong. It touched $90, it's almost at $50. I think it's going to $10. I think it's literally a ridiculously overvalued company and a sh---y business.
Uber is a sh---y business, ride hailing, but it's got a global brand, and it's demonstrated that all-elusive, all-important flywheel effect. That is, it brings people into the franchise through ride hailing, which is nothing but a transfer of wealth from drivers and investors to the rider. If you take a $20 ride, it costs them $25. But they've managed to get some legitimacy around this flywheel effect. Uber Eats is a really good business. And it's a profitable business. They do have the assets to get into some sort of freight and logistics. This is a company that is the first and last brand you touch -- or, the global affluent touch -- whether they're in Kuala Lumpur, London, or Cincinnati. There is a lot of opportunity there in terms of marketing. Uber is no Lyft. Uber is a real business that will survive and be worth tens of billions of dollars. I think Lyft could feasibly go to zero, whereas Uber's different.
Now, is it worth $90 billion? Originally, we were talking about $120 billion. They've lowered expectations to $90 billion. I think it's such an incredible global brand that they're probably going to pop on the first day and flatline to go down. Dara Khosrowshahi is, I think, a great CEO, but he's effectively Sheryl Sandberg. He's lipstick on cancer. That is, he's the fabric softener around some dynamics in a business that is really, really obscene and disturbing. I'll wrap up here, because I know I'm joining. At General Motors, a floor shop worker who just started their job in the '70s made $28 an hour plus healthcare. An Uber driver makes between $8 and $15 an hour. While we have unbelievable prosperity at Uber and Lyft, it's been sequestered for a few and we have almost no progress as a society. These firms are the tobacco of the gig economy.
[...]
Hill: Time to get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron Gross, you're up first. What are you looking at?
Gross: This one's a little different for me. I have Xilinx, XLNX. Reprogrammable semiconductor chips known as field-programmable gate arrays. Selling into the artificial intelligence market is huge. The cloud data center market is huge. The company has been 150-bagger since it went public in 1990. Raised their dividend every year for the past 14 years, currently around 1.2% yield, so not knocking it out of the park but pretty good. Plus, I think we've got some nice appreciation potential. I think this would be a good total return play.
Hill: Steve, question about Xilinx?
Steve Broido: When will I have a robot in my home? That's a serious question! I'm not kidding! I want a robot!
Gross: Do you have the iRobot vacuum?
Broido: No, I'm talking about a robot, like Twiki from Buck Rogers.
Gross: [laughs] I think in your lifetime, you will.
Hill: Jason Moser, what are you looking at?
Moser: I've told you before I'm working on this augmented reality report. Lot of different companies I've been looking through. Integra LifeSciences is one of them, ticker AIRT. I'm finding a lot of data to support the notion that AR is going to be a big part of the future of surgery. Integra is a diversified medical technology company supporting a lot of verticals that utilize that AR, including neurosurgery and orthopedics, among others. This is a smaller company, $4.5 billion market cap. That could also be seen as an opportunity really to grow. That's what I'm digging into for the report.
Hill: Steve, question about Integra Life Sciences?
Broido: How important is the FDA to all these businesses that are doing medical kind of stuff? It seems critical.
Moser: It's utterly critical. The FDA does wield a lot of power in those relationships.
Hill: I don't know about any of our listeners, but I'm really hoping after those two high-tech companies, Andy comes up with Potbelly. Just something like, "Yep, I've got a stock on my radar. They make sandwiches." Andy Cross, what are you looking at?
Cross: Not quite. Steve, if you're looking to build your website, look at Wix. They report earnings next week. It provides services for individuals, more than 140 million registered users, to create websites. They have an ad business. They also have a subscription business as well. Registered users were up 19% last quarter. Premium subscribers grew 24%. I'm looking for that to continue to drive the revenue growth more than 25% in the quarter.
Hill: Steve, question about Wix?
Broido: Who is their biggest competitor right now?
Cross: What's really interesting is, they're more on the low-end side.
Gross: My son used it last week for a project!
Cross: There we go, Ron, yes! Whereas Shopify and Shopify+ are much higher-end, with a little bit higher tools that shop owners can use to provide commerce services. Wix is starting to play more and more into that business, but they're a little bit more in the lower end with their ad business and their subscription business.
Hill: Steve, three very different businesses. Wix, Xilinx, Integra Life Sciences. You have one you want to add your watchlist?
Broido: The only one I actually understand is Wix.
Gross: [laughs] That's fair!
Cross: [laughs] Perfect!
Hill: Is your son looking to sell stuff through this website? Or is it just for school?
Gross: It was a school project. We needed to rebrand something, so he rebranded the Washington Redskins, and had to create a new website around that.
Hill: Nice! He should expect a call from Tribune Media Services so that they don't have a redux of what happened with Tronc.
Gross: [laughs] Understood!
Hill: All right, Ron Gross, Jason Moser, Andy Cross, guys, thanks for being here! That'll do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido, our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!
