In today's episode of MarketFoolery, host Chris Hill chats with senior Motley Fool analyst Jason Moser about some company updates. GameStop (NYSE:GME) tanked a whopping 40% after releasing its quarterly report. Yes, it really was that bad, but investors shouldn't necessarily write this company off as 100% doomed just yet -- more enervated companies have survived worse. Meanwhile, Salesforce's (NYSE:CRM) earnings were much more hopeful and met with much more enthusiasm. Plus, Jason dives into some augmented reality updates from Apple's (NASDAQ:AAPL) recent developer conference, and explains what augmented reality could mean for the world and where Apple could fit in. Tune in to hear 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 June 5, 2019.
Chris Hill: It's Wednesday, June 5th. Welcome to MarketFoolery! I'm Chris Hill, and joining me in studio today, Jason Moser. Thanks for being here!
Jason Moser: It's always a pleasure to be here!
Hill: We are off tomorrow because of Fool Fest. If you're one of the dozens of listeners, this gives you a wonderful opportunity to check out our Industry Focus podcast, or any of our podcasts. They're all free. Check out Investing in Asia, which is our newest podcast, new weekly podcast.
We've got some earnings. I want to talk about the worldwide developer conference that Apple had earlier this week. We should probably start with GameStop because shares, holy cow, are they falling. They're down nearly 40%. This is the video game retailer. Same-store sales in the first quarter fell 10%. How bad was the rest of the report? That's pretty bad.
Moser: Yeah, I don't want to make light of it, it was bad. Sales were down, comps were down. Guidance is bad. They put the dividend on hold. That actually should be construed as a positive, really, because you don't want to see a company paying a dividend they can't really afford. And I think it's fair to say at this point that GameStop really can't afford it. I mean, sometimes things really are as they seem. We've been watching this company play out over the last several years, and with a few little glimpses of hope along the way, the chart really is just down and to the right. I mean, it has not been a good story. And it has been because of this move toward gaming as a digital distribution model. I don't like using absolutes. I mean, I don't feel like we're at a point where gaming is going to be all digital, and there is no hope for GameStop, and this is just a one-way ticket to zero. But with that said, I mean, you do have to ask yourself, is this a business in decline, or is it a business in transition? I tend to think it's more of the former. We've seen them trying to make some transitions recently; go back to the beginning of 2017, they were trying to diversify revenue beyond gaming into the technology brand segment. That's obviously not really paying off. It is a much different environment today in gaming. While it's not going to be all digital, it's going to be a lot digital. And what once was an asset for GameStop with this huge store base is now turning into a really big fat liability.
Hill: Well, I'm glad you mentioned the store base, because we've talked recently about the number of store closures across all manner of bricks-and-mortar retail so far in 2019. GameStop, according to their own website, has nearly 6,000 locations worldwide. If they're not thinking about making that dramatically smaller, they really need to.
Moser: I mean, I think they are. They have a new CEO in the executive suite. I think he is still in the process of assessing the whole situation. It's one of those things where I'm sure he comes in, he thinks, "Oh, man, OK. Let me try to get an idea of exactly how bad things are here." Because they are not good. And I mean, they definitely need to start letting some of those leases run out. I don't know that there really is a solution. I don't know that this is a company that is around in five years. But we were saying the same thing about JCPenney five years ago, and for some reason or another, the world still needs it, or still has it, at least. Gaming is the largest entertainment market opportunity. I mean, it is a phenomenal market opportunity. I have to believe there's something they can do here to pivot. It may a smaller business, but I think they can still exist, but it is no easy task.
Hill: Let's move to a company that's doing a little bit better, and that's Salesforce.com. Strong first-quarter report. This is the enterprise software company. They also came out with full-year guidance that I think was better than people expected. Marc Benioff and his team just continue to get it done.
Moser: Yeah, I mean, this is a good example of what building out a good product offering over time can ultimately do. I mean, as far as a competitive advantage goes. I mean, you build up switching costs, I think, with your customers as time goes on. And it's got that subscription model where, I mean, they can get some visibility into how many people are paying for their services, what contracts are coming up, and over time, when you build out a good offering, your customers, it just costs them more in not just money, but time and effort to leave and go use a competitor. And so ultimately, what we're seeing play out here is, Salesforce, I mean, when it comes to customer relationship management, I mean, this is the No. 1 company by far and away. I mean, their market share numbers as measured by IDC, based on revenue, they've got 16.8% market share. The next closest is Oracle at 5.7%. And then you've got SAP --
Hill: They have that much more market share than Oracle?
Moser: We're talking about customer relationship management. That's what this business does, and they just do it really well. You've got other players in there, Adobe and Microsoft, that are playing in that sandbox, but really, Salesforce is the company that is dictating that. And when you look at, we talk about market opportunities with gaming, I mean, Salesforce was a business built on this idea of digital commerce, of a digital economy. By 2022, industry analysts have pegged more than 60% of global GDP will be digitized. I mean, we are talking about the digital economy, the technology economy. Marc Benioff has built this business around that very premise, so they have all sorts of offerings that really cater to that. And if you are a business and you're looking for that customer relationship management offer, I mean, it's really hard to beat Salesforce. And they're at the point now where they've got a lot of testimonials from a lot of customers that have really enjoyed their services for a long period of time.
Now, I think Marc Benioff himself, I think we could say he's a vociferous leader. I mean, he likes to talk and you know where he stands. That can be good, and that can be bad. I think, generally speaking, he's a good person. You like investing in good people. And I think that his track record shows what matters to him. The fundamentals of this business are just so strong. I mean, the top line continues to grow at double-digit rates. I mean, we're talking 20%-plus rates. It's super profitable, and makes a ton of cash. I mean, it's a big company. So I mean, you probably have to ratchet back growth expectations a little bit. But I don't see any reason why they shouldn't continue winning.
Hill: Were they involved a few years ago in -- I want to say it was 2015, there was that summer where there were all these rumors and reports of, I want to say people looking to buy Twitter. Salesforce was one of them?
Moser: Salesforce was one of them.
Hill: I'm going to make a comparison that's not a great comparison, so, forgive me.
Moser: We'll make it great.
Hill: This was not Netflix and Qwikster. This was not the Qwikster debacle. But it was one point, in recent memory for me anyway, where I looked at Salesforce, and Marc Benioff, and I just thought to myself, "Wait a minute, what are you thinking about doing? Are you really thinking about...?" And I don't own shares of Salesforce, to my detriment. But I just thought, "Boy, I don't think that makes a lot of sense at all." And, obviously, they did not.
Moser: They didn't. I think at the end of the day, I agree with you, that wasn't really a sensible acquisition for a number of reasons. I'm ultimately glad it didn't happen. I mean, I've always thought I'd much rather just see Twitter live and die by its own decisions. I will say, I understood the sentiment. The reason why I say that is because having used Twitter as a customer service tool -- I'll use the post office as an example of what seemingly is just a black hole of nothingness when it comes to customer service and getting answers. Twitter made customer service extremely easy. You could direct-message the post office and you'd get an answer an hour later, and you're talking with an actual person. Verizon did very much the same thing. So I think he saw the potential that existed there based on the network and a lot of the data that they already had out there with customer service interactions, and seeing that network as something that could be another tool that plugs into their offering. Again, I mean, they didn't do it for a lot of reasons. I think that was the smart move. But I did at least understand the sentiment.
Hill: You've been doing a lot of digging lately into the world of augmented reality and the business opportunities, investing opportunities, in augmented reality. Apple had their worldwide developer conference earlier this week. Anything come out of that that caught your attention?
Moser: I really don't care a whole heck of a lot, typically, about this conference, because I'm not a big Apple guy. I mean, I've got an iPhone, but I don't use MacBooks or anything like that. But the thing that is catching my attention more and more is the development of their augmented reality business. They have what's called the ARKit, which is essentially their augmented reality development software. They just announced the third iteration, ARKit 3. That is going to throw in some additional tools called RealityKit and Reality Composer, which ultimately is just helping developers build even cooler augmented reality stuff. Frankly, Apple's augmented reality platform is the biggest augmented reality platform out there for developers today. It's material.
And yeah, you're right, I've been digging a lot into augmented reality and learning a lot about the market opportunity. And I think one of the biggest takeaways for me has been, virtual reality, that's the phrase that you hear people say that just fascinates them about the future, the future of virtual reality. But really, augmented reality is where it's at. I mean, that is the big market opportunity, because it's less about inventing this new universe where you can completely break from reality. Rather, in augmented reality, we're overlaying technology onto our physical world, and making it better and more useful in all sorts of different applications, from engineering to healthcare and consumer experiences.
I mean, with Apple, they've just rolled out these tools over time. The development tools that they have for folks to build out these neat offerings, they're going to incorporate it into their Apple Pay system. They have something called QuickLook where I think ultimately, it's going to use augmented reality technology to help facilitate their payments system in some way, shape, or form. Should be interesting to see how that plays out. And then, ultimately, what this all leads to is, at some point or another, they're going to be bringing some kind of headset or glasses-type of device to market. I think that's going to be really interesting, to see how they approach that. It may be something that initially is tethered to the phone, but I think ultimately, what we're looking at is something that's going to be its very own technology with its very own operating system, the ROS, reality operating system. Just a lot of neat things that they're doing in this ARKit 3. Really shows what they're capable of.
Hill: You looking forward to Fool Fest?
Moser: I'm very, very, very looking forward to Fool Fest!
Hill: Me too!
Moser: I'm always just taken back by the positive reception and the nice people and the good that we're actually doing. It's nice to see people that are happy with the stuff that we're telling them to do. [laughs] Any time you can help people, I think that feels really good!
Hill: And also just the general enthusiasm for stock investing. It's something that we're fired up about, obviously, because we work here, and this is what we do. But, let's face it, a lot of people that you encounter in your everyday life outside of work -- your friends from college, extended family -- they're not necessarily as into it.
Moser: Nope! They're not! We're nerds!
Hill: And that's fine. So, it's always great. So, yeah, I'm looking forward to it. You and I are both going to be busy.
Moser: Yeah, we're going to be very busy, it sounds like.
Hill: We've got some main stage panels, some interviews. You've actually got a breakout session you're doing. Can you share just a little bit about what all that is?
Moser: Sure thing. This is actually something that digs into the entertainment economy. It's trying to make sense of this massive market. I mean, I mentioned gaming as being the biggest opportunity out there in the world of entertainment. But we talk about entertainment itself a lot more than just gaming. So it's breaking it out into ultimately four pillars -- video, gaming, advertising, and music/podcasts/ events -- and trying to give investors exposure to this big entertainment economy in such a way that you don't have to invest in 50 different companies. I mean, I try to whittle this all down ultimately into 12 distinct companies that give you ideal exposure to a lot of the biggest opportunities in the entertainment world. Some of them are the usual suspects. Some of them are probably names that you maybe wouldn't have thought of. But all things told, I mean, I'm excited about the 12 names and being able to deliver them to -- it sounds like this is going to be the biggest Fool Fest audience we've ever had.
Hill: It is, actually. That's we're having it over at the Gaylord National Harbor. Usually, we just have it right over here across the street.
Moser: This is becoming like our Berkshire Hathaway annual meeting, I think. I mean, I could see in 10 years, this being an even bigger event, with more rabid Fool fans, just wanting to descend on Alexandria and Washington, D.C., for one period of time each year. Always really neat to see.
Hill: You think we could get David and Tom Gardner up on stage for six hours of them taking questions from people?
Moser: [laughs] I mean, listen, you've got channels. Reach out to Becky Quick, see if maybe she wouldn't be interested. I mean, listen, the Buffett thing isn't going to last forever.
Hill: None of us are going to last forever.
Moser: No, I reckon not.
Hill: Jason Moser, thanks for being here!
Moser: Thank you!
Hill: 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. That's going to do it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We are off tomorrow. We'll see you back here on Monday!