On this special holiday episode of Industry Focus, hosts from all the shows come together for a roundtable discussion. On the first half: Is it news or noise? For example, is self-driving car tech actually coming in the next 10 years, or has it gone the way of 3D printing? Or when will the China trade war calm down? On the second half of the show, a look at some of the many frothy recent IPOs -- Uber (NYSE:UBER)/ Lyft (NASDAQ:LYFT), Beyond Meat (NASDAQ:BYND), Pinterest (NYSE:PINS), Slack (NYSE:WORK), Zoom (NASDAQ:ZM). Hear more about which are probably worth the hype and which aren't, why investors have to be careful about assuming any new IPO has Amazon.com (NASDAQ:AMZN)-like potential, and what to make of nosebleed valuations in companies you really like.
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 27, 2019.
Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's July 4 week, and this is Part 2 of our roundtable discussion with our Industry Focus hosts. I'm your host, Nick Sciple, and today I'm joined in studio by Industry Focus hosts Shannon Jones, Dylan Lewis, and Jason Moser. How's it doing, folks?
Dylan Lewis: Hey there!
Shannon Jones: Hey!
Jason Moser: Hey!
Sciple: Great to have you all here, again! We're on for another segment. This segment is going to be called "News or Noise." We're going to be looking at some of the news stories that have been around the stock market and the world in these past six months, what they might mean, and whether they're important to investors. The first one we want to talk about is something going on with Iran these past few weeks. A couple of weeks ago, there was an oil tanker in the Strait of Hormuz that was attacked, and led to conflicts with Iran. The next day after that, Iran shot down a U.S. drone, which has led to increased tensions. President Trump has announced that he's going to drastically ramp up sanctions against the country. That's led to increases in oil prices. Is this news or noise? Should investors be paying attention?
Jones: Totally noise! If it's not North Korea in vogue, then it's Iran or Russia. So, noise for me.
Lewis: It feels like news, but this is admittedly a story that I haven't followed super closely. We've talked in editorial quite a bit about oil dependency and oil independence. I think this is a situation where it's probably good that the energy industry in the United States has ramped up over the last couple of years.
Moser: Yeah. Geopolitical risk is a very good reason why I don't invest much of anything into the energy industry anymore. With that said, typically I look at these things and see them as nothing more than noise because the bottom line is that Iran needs the world way more than the world needs Iran. When you look at it from that perspective, it's just noise.
Sciple: I think I'm in the middle with everybody else. I would tend to say that it's noise. You look at a lot of these countries in the Middle East, they benefit from higher oil. What pushes oil prices higher? Conflict and uncertainty. These sorts of behaviors do foster that. However, I will say, when it comes to us pulling out of the nuclear deal with Iran and those increasing tensions in the region, it could be news down the line. I think today, probably noise.
All right, next topic. This has been in the news, [laughs] it seems like forever, but maybe it's only a little over a year. It's tariff negotiations between the U.S. and China. We have seen in the past few weeks or months that Trump increased the tariff rates on China up to 25%. We saw a news report out this week that, hey, we're 90% of the way there to reaching a deal with China. But six months ago, officials were saying we were 95% of the way there with China. News or noise, these ongoing tariff negotiations with China and how they're affecting the economy globally?
Jones: Definitely news. It impacts a lot of American businesses here. But I will say, we are not 90% of the way there. I'm going to also classify this as noise because I just don't believe that.
Lewis: I think this is the most impactful kind of noise because it's created so many problems and headaches for American businesses, and they're not really sure how to prepare for the next foreseeable future, because you're making all these supply decisions and trying to make sure that you're adhering to the rules, but also not crippling your business at the same time. Getting ahead of that means that you're doing things on speculation, which we know is a bad thing to do. But it is news. It impacts people.
Moser: Yeah, it does affect the psychology of the markets regardless, and I think that is newsworthy. Generally, tariffs, like taxes, most people don't want to pay them. Tariffs clearly raise the cost of doing business over the long haul for everyone involved. Nobody can dispute that. I mean, you can, but you'll be wrong. The bottom line is, I think D.C. is doing a very clever job of stretching this out. Ultimately, they're going to make it a very big political win as we approach reelection season. It'll be interesting to see how that shakes out. But it's no question something you have to at least keep an eye on.
Sciple: I'm sensing a little bit of skepticism here from you, Jason. Yeah, I would say this is news as well, particularly for folks in the agricultural part of the economy that have been really affected by China's retaliatory tariffs. Those have caused some real issues. The U.S. government has started to up subsidies, try to help those folks out, but that those folks have really been hurt. Some businesses may not be nearly as affected, but have been hurt by the by the volatility in the market. But it's definitely news. Hopefully you can get resolved soon. Calmer heads may prevail. I don't know.
Sciple: We'll see how things shake out. [laughs] Yeah, we've been saying that for a year. We can keep saying that long enough. But sooner or later, things have to change.
OK, third story. This has been hot in the news this past week, Facebook's (NASDAQ:FB) Libra cryptocurrency. News or noise?
Jones: Libra. I'm going to actually go with news on this. One because it's actually potentially backed by real financial assets, which none of the other cryptocurrencies are. I will give it a slight ding just on the noise end because Facebook is trying to empower the disenfranchised with their Libra cryptocurrency. I don't necessarily see that working out. When I think about the poor, the elderly, people who don't have access to modern means of commerce, I do worry about, if they're able to launch this and have their own currency, what that actually means for those.
Lewis: Yeah. I think the appeal of crypto is pretty clear if you're in an area that has wild currency swings, if your ability to purchase things can shift pretty dramatically. I remember visiting the Ukraine maybe three years ago. I was staying with a friend's family. And they were talking about how, if you get paid in Rivne, you're basically spending that money as soon as you can because very often, the object that you will purchase will retain its value better than the currency will. And if you're paid in U.S. dollars, that's as good as gold, if you're a remote contractor or something like that. When you have that type of environment, it makes sense that you want something that is not controlled by a central bank that is doing things that are potentially damaging, and something that is easily transferable across borders.
I'm not sure that Facebook is the group that I want to trust with this, so I'm going to call this noise. I do see the value in crypto long-term. I'm not sure if they're the ones who are going to be doing it, though.
Moser: Yeah, I generally agree with what you're saying there. You can't ignore the potential that crypto in general has globally speaking. There are problems that it solves. Generally, payments is not one of those problems. We've already solved that problem. It's very easy to pay for anything you want, anywhere you want, pretty much anytime you want. I understand the transaction costs for wiring money to Nigeria. My sympathies go out for folks trying to wire money to Nigeria, or wherever it may be. Those costs, I'm sure, will come down in time. Maybe crypto will be part of the solution to that problem.
I don't know that I want Facebook to be the one controlling this destiny, either. It does sound like Facebook proper is going to be independent of this. That's encouraging. And to see companies like Visa and PayPal making investments, I feel like there's no downside for them to do that. They invest like $10 million, if doesn't work out, great, they can write that off and move on with life. But, yeah, when I think about the unbanked or the underbanked, again, companies like Square and PayPal and Stripe are lightyears ahead of anything that Facebook could possibly be doing. I think really, this does depend more on the partnerships that Facebook is able to create with Libra. Certainly something to keep in mind there. But I generally look at Facebook and crypto and think, eh, noise.
Sciple: I'm going to go news on this one. I think I agree with everybody's points. Broadly, the idea that a company with the size and global reach of Facebook is making a crypto product adds legitimacy to crypto as an asset class that just couldn't have been there previously to this move. Like Dylan had mentioned, for folks, particularly internationally, that have a lot of fluctuation in their currency -- we've seen a lot of that in South America -- something like this, that you have some stability to purchasing power and really preserve value, could have some value to those folks. But if you look at the way this Facebook cryptocurrency is going to be backed, there are some questions over whether they can allow people who have currencies that are going to be this volatile, exchange for the Facebook crypto, and how that's going to affect the backing of that cryptocurrency. I think most of the currencies they're backing them with are the euro, the U.S. dollar -- currencies that don't fluctuate that much. So, if you're taking people that are exchanging super volatile currencies for your stable currency, does Facebook really want to hold that super volatile asset? How is that going to work? That's a question I have. I think there's clear utility for folks that live in those countries that have highly fluctuating currencies, but the logistics of how that's going to work, I have some questions about. But, definitely news.
The next story, it's another story that's been in the news the past several years -- self-driving cars. We've seen just yesterday, Drive.ai, a start-up that was acquired by Apple for less than their paid-in capital. So, we've started to see some valuations come down in the self-driving car space. However, we've seen some really big promises be put out. Cruise last year were saying they'd have their product ready by the end of the year. Waymo started testing their driverless service in Arizona at the end of December. Tesla's announced that they're going to be having their autonomous taxi service ready to run by the end of the year. When you look at all the news floating around with self-driving cars, do you think it's news or noise today?
Jones: Before we dive into this, let's define self-driving. There are a lot of different definitions floating out there, Tesla having its own definition with its Autopilot functioning. Holistically, you have a lot of promises, but not a whole lot of delivery on those promises as of right now. For me, I consider this more noise until I actually see what I believe real self-driving cars will be, which is when someone doesn't literally have to take hold of the wheel to make sure it doesn't crash into a pickup truck.
Lewis: Yeah, I think for this trend in general, we get so excited by the idea of not having a driver in front of a wheel, but the reality is, for most people, to have something like that in their driveway, we're probably at least a decade out from that. I get excited when I see news like Waymo partnering up with Lyft in Phoenix to get people in cars to make that stuff happen. I think a lot of the other news that we see around this is incremental. Unfortunately for a lot of the companies like Lyft, Uber, Tesla, Alphabet, this is something that plays into the larger thesis about, how sustainable is this business? It's particularly true for Lyft and Uber because without autonomy, the economics of those businesses are just absolutely decimated.
Moser: Yeah. I don't deny the technology's there. Clearly, they make self-driving car technology. That's there. But anybody who thinks this is going to be widespread in less than 10 years is just deluded. There's no way. Think about this -- every year that Ford and GM sell 15 million new cars, that's 15 million new cars that are going to be on the road for at least the next decade, if not the next two decades. If you think that people are just going to say, "Oh, wow, now they've got self-driving cars. I'm going to sell the car I've got and buy a self-driving one," that's crazy, too. It's there, the technology exists. Maybe there will be pockets where they serve a better purpose. But that's going to be very hit or miss, very isolated. Meaningfully for investors, I don't see this being anything worth looking at over the course of the next decade. To your point about Uber and Lyft and whatnot, that will help their business models. But we're going to sit here and deliberate self-driving cars for the next 10 years as we wonder when they're actually going to get on the road.
Lewis: Yeah, to your point, JMo, think about how hard it is for Apple to get people to upgrade their iPhones to the newest, latest, greatest model that has all this great functionality. You have people that have iPhone 5s or something like that. Imagine, instead, something that people buy maybe every eight years, and loses value over time, so they're trying to get as much value out of it as possible. They're not going to be racing out to the stores -- the early adopters might -- to be getting autonomous vehicles. The average person, it'll probably be fairly expensive, and the upgrade cycles on cars are pretty slow.
Moser: We saw a lot of data that recently was telling us, there are a lot of people out there that are falling way behind on their car loans. And this apparently is a good economy! When the you-know-what hits the fan, these things face an uphill battle.
Jones: And let's not forget the consumer trust that has to be there for this to have widespread adoption. It ain't there now. You can see it with the headlines that come out every time one of these vehicles crashes. It's not there. Insurance companies have to figure out how to build their models around this. That's also another 10 years out plus. So, yeah, I don't see this happening anytime soon.
Moser: Anybody in here enjoy driving? I actually like it. I don't mind it. Now, granted, I've grown up driving my own car. But I don't mind getting behind the wheel and driving my car. It's a nice freedom to have.
Jones: Are you in the D.C. area, Jason?
Moser: No, admittedly. I'm in more of the country region, Fairfax.
Jones: There we go!
Moser: Not quite as busy.
Lewis: Maybe they will develop a hybrid, which will not be the energy efficient hybrid, but it will be drivable/autonomous hybrid. The JMo model.
Moser: I have an Explorer, and I was talking to Seth Jayson the other day, it is self-driving to the degree that if my car is drifting out of the lane, the steering wheel, the haptics on the wheel, vibrate a little bit, and it shows you that you're getting out of your lane. There's that stuff that's really helpful. It's augmented driving, if you want to call it that. But self-driving, that's a big leap of faith that I just don't think a lot of people are going to be happy to take for a very, very long time. Would you put your kid in one of those cars? I know I wouldn't.
Moser: I wouldn't put them in there if they were 40 years old!
Sciple: Yeah, to your point, the number that comes to my mind, every 15 years, that's on average how long it takes for the automotive supply to turn over. Even if we have autonomous vehicles tomorrow and they were 100% of deliveries, it takes about 15 years for the market to turn over. The other thing to think about as well is, the sensor suite and durability of those products have to come down over time. LIDAR, which most people in the autonomy space view as essential to reach level four or level five self-driving -- the kind of thing where you're going to sit in the back of your car and take a nap while you drive to work -- the cost of that machinery has come down significantly over the past few years. It used to be, one array was $80,000 or $90,000. Now it's only $10,000 for one. However, the durability of this equipment is still not ready for primetime. For these LIDARs, you have actual mirrors and lasers spinning around. When you're driving a car around, you have to be able to go over speed bumps and those sorts of things without messing up the telemetry of those sorts of things. They're still not there yet. Both the cost and the durability of the equipment necessary for full self-driving isn't there.
To y'all's point, I think this advanced driver assistance systems, lane keeping, the types, super cruise control, those are going to be standard in cars here in the next four or five years. Toyota is poised to bring that across their lineup. It depends how you define self-driving, like you said. The idea of you sleeping in the back of your car and it driving you to work -- a friend of mine who's working on her PhD in autonomy, I've spent some time talking to her about it. She said, "I'll be in the AARP before that ever happens." That's what the folks who are working in the space feel like. A couple of years ago, I was convinced that I would never have to drive a car again by 2020. As I've looked more into this space, I think you're going to see more and more driver assistance systems; but the idea that you'll be sleeping in the back of your car, with the car driving you everywhere you need to go without restriction, it's a dream right now. Even among the industry, the expectations have come down in a really significant way over the past year. Folks have hit technological walls. Every company that's come out and put a deadline by which they'll have full self-driving has made a clear mistake. The ones who have cashed out like Cruise, it's worked out for them. The ones who haven't, liked Drive.ai, who just got acquired, they're getting acquired for less than they're paid-in capital. So, ...
Lewis: To some degree, this is what you expect with the hype cycle. We saw this with 3D printing, and we're seeing it again with self-driving cars. There is much enthusiasm around something, and then the reality of actually making it happen sets in, and you're stuck with having to make it happen, which is not nearly as fun.
Jones: Throw gene editing into that class as well.
Sciple: And there's an argument to be made that you need these times of inflated expectations for large amounts of capital to throw to these very difficult problems. Otherwise, if we were, from the very beginning, not to have inflated expectations, we would never invest capital in these huge emerging industries, and they might not ever get off the ground. We needed the .com bubble to create the circumstances that allowed the internet to grow over the past 20 years. It could be the same case.
Moser: Speaking of getting off the ground, I would much rather see them devote these dollars toward space, figuring out that problem, vs. stupid self-driving cars. Just stop surfing your phone and drive your car. Human judgment still works from time to time.
Lewis: Anyone that has spent any time at Fool HQ knows that Jamo is all about space exploration these days. [laughs]
Moser: Yeah, man! Bezos wants to take us out there and bring industrialization out there. The forecasts are crazy. At one point or another, there'll be one trillion human beings in existence. This planet ain't going to take them all, so you have to do something, right?
Jones: Send them to space!
Moser: Solve the bigger problems. I just don't see self-driving cars as one of the bigger problems to solve.
Sciple: What are your thoughts on the internet satellites arrays being put out by SpaceX and those guys? What are your thoughts on how that's going to play out moving forward? News or noise there?
Moser: It sure seems like a really tough thing to map out. It's amazing those things aren't colliding into each other up there all the time. But I like love the nature of the solution, trying to bring that wireless connectivity to all corners of the globe. Seems like the most practical solution.
Lewis: There have been a lot of interesting efforts to make that happen. There's Project Loon, there was the internet.org initiative from Facebook. It seems like anyone who's got a little bit of money on the side and can throw it after something a little charitable has taken a swing at it. I don't know who has the best solution there.
Jones: I can at least get behind that. It's something that's not only practical, but really does mean connecting the world vs. self-driving cars.
Sciple: Right, it's making the pie bigger for everybody globally, vs., self-driving cars are probably going to accrue to the global 1% or 2%, at least in the near-term.
Last story, I wanted to throw by you guys, another one that's been fun, has blown up in the past year, is the whole scooters, micromobility trend. Particularly in D.C., we saw a huge number of these explode maybe last summer. It seems like they've backed off a little bit, although they're still all over the streets. Do you think this is a trend that is news or noise?
Jones: Two thoughts there. I think, as an investment, definitely noise. I just don't see the economics working out. As an avid scooter user, I will say, having an alternate means of transportation, particularly in urban areas, is really compelling. I will say, though, a scooter is not for everyone. Sometimes you go by and you see people that are really shaky on these scooters, people that should not be on these scooters over a certain age. These are the people that need to stay off the road. I will say, it's very similar to like when bicycles were invented. There was a lot of angst about it, thoughts about safety. I see scooters ultimately becoming the next bicycle.
Lewis: Yeah, I'm totally with you on the investing side. As a consumer, I love it! I took one the other day, it cost me maybe $2 to go from my neighborhood in Columbia Heights over to Adams Morgan to meet up with friends in a bar. It would have taken me probably 30 minutes, 40 minutes to walk that, and there's no easy bus route to make that happen. Took me 15 minutes and $2. You can't beat that. It solves that last-mile issue that we see much with transportation and with logistics.
But, yeah, you ride those scooters, you pay $2 for them. [laughs] You don't treat them like you laid out $400. On my bike rides to HQ, because I'm dealing with that because the Metros are closed, a long gravelly point where you can watch those planes take off and everything like that, there is a very nice bike trail. Along that bike trail, in the high grass, are scooters everywhere. People ride them out there and they ditch them. And this is one of the problems that these companies have to deal with, is the redistribution, the charging and accounting for their fleet. That's an expensive problem to fix.
Moser: Yeah. I think it's awesome from the perspective of personal transportation, but I couldn't imagine the sinking a nickel into it from an investor's perspective.
Sciple: Yeah, I think we'll make it all around the board. Same thing. From an investing point of view, the Information maybe six or nine months ago put up a write-up on the economics of Bird and those scooter companies. At least at the amount of life they're getting out of a scooter at that time, the unit economics on a per scooter basis were not profitable. We'll see how things have changed. They've introduced some new hardware. But the economics of it from an investing point of view don't seem to be there, even though those valuations have really been bid up.
I will say, from a transportation point of view and an efficiency point of view, it's a super interesting opportunity. You think about with Uber and Lyft, as they've pushed into the cities, traffic actually got worse because we put more cars in for these short trips. Micromobility solves those short trip problems, makes the ride sharing industry a little bit more efficient. As well, if you think about it from an emissions point of view, there's so much more efficiency of using a scooter that has 100% utilization, light, small battery transportation mechanism vs. using a multi-ton car that has a usually 25% utilization rate and takes up a massive amount of space and causes congestion. So, as a practical solution to mobility problems that actually probably brings down emissions on a net basis, it's a great opportunity. But the economics still don't seem to be there.
Lewis: Speaking of economics not being there, want to talk about IPOs?
Sciple: [laughs] Yeah! That's a great segue, Dylan! We'll keep you around here for those!
Moser: That was all right!
Lewis: All right!
Sciple: We're going to call this segment IPO Yeah or IPO No. We're going to talk about some of the biggest IPOs we got this year and whether you think it's oh, yeah or oh, no.
First one we'll do off the top: Uber. Probably the most anticipated IPO this year. They were expected to come out at $100 billion. They came out what is 30% lower than that. When you take a look at Uber, is it an oh, yeah or an oh, no IPO?
Jones: I'm going to go with oh, no. I think it's safe to say they completely revolutionized the ride sharing space, without a doubt. I think, though, this is a space that continues to get increasingly competitive. We talked a little bit about the economics just in terms of profitability for an Uber and Lyft. Ultimately, over time, you've got low barriers to entry, low switching costs. I don't care if I get an Uber vs. a Lyft. You've got well established players that are better capitalized. There are these low-cost alternatives even outside of the ride sharing space, too. So, for me, I'm just not feeling it on Uber. I'm an IPO no.
Lewis: Yeah, I'm an IPO no as well, and I'm going to use the same commentary here for Lyft. I know we're planning hitting them as well. I look at this, and I say, the strength is that they built out this great network of both riders and drivers. But because they have contractors, there is nothing keeping them to one of these services. Uber went out and basically built the market for this place. And then Lyft was able to be like, "OK, cool! We'll just hop in there, too!" And anyone that launches a platform that has very attractive driver incentives will be able to leverage that huge network. There's nothing that's keeping people in there, and that just makes it tough. You're constantly trying to acquire customers. It's an IPO no for me.
Moser: Yeah. It feels like the barriers to entry are really low. I love the concept! As a consumer, it's great! With both Uber and Lyft, it's about figuring out ways to leverage that network to do more than getting people from point A to point B, whether it's food delivery, or other stuff. But that is still a ways off, and these companies are immensely unprofitable. I feel like I've got better places for my investment dollars than these two.
Sciple: Yeah. I'll square that one off as well. It's an oh, no for me, as well. As you mentioned, they're losing tons of money, while drivers, it's well documented, have been paid well below what could be considered a market rate for their services, especially when you take into account the wear and tear on the vehicle, it can even amount to negative income. So, to be operating in a business where you're paying your employees or contractors such a low rate, and you're still burning money at an incredible clip, it seems to me that they'll get hit on two sides. They'll have to pay their drivers more, which is going to cut their profitability even further; and sooner or later, they'll have to increase the cost of their rides, which is going to make people less willing to take the service, and it's going to hurt their scale. When you're already unprofitable, and those are the two levers you have to pull to get to profitability, it just seems difficult. We talked about Eats and the restaurant side of the business as an opportunity for them. It may be, but when a big part of your business is skimming off margin from restaurants that are notoriously low-margin, I just don't see how that scales in a way that justifies an $80 billion business. Could be wrong, but we'll see how it goes. It sounded like everybody's thoughts were about the same for Lyft. It's Uber, but only in the U.S., and without an Eats business. Any special thoughts there for Lyft?
Lewis: No. It's Uber, but pink.
Jones: Until you remove the drivers, the economics don't make sense there. This ties in with our self-driving conversation as well. There has to be that technology in place before it becomes compelling as an investment first.
Sciple: And a question I have, too, is, snap your fingers, self-driving is here tomorrow -- what does Uber's and Lyft's business model have to look like to make that work? You go from a variable cost model where you don't own the cars, you just pay your contractors; to, if you're doing a self-driving model, you have to own a fleet, and you move to a fixed cost model. You'll have to totally reposition the way the business is from a balance sheet point of view, and have to do that a time where you're burning cash like it's your job. I don't know how you make these investments in fixed assets when you're not manufacturing the cars. I don't know how that happens. Although, if you can get there, the economics make more sense. But it's not an easy shift to make, even if you assume the technology's there. We'll see.
Lewis: Nick, you're a big fan of the expression "too hard."
Sciple: [laughs] Yeah.
Lewis: I think that this is a case where it's a tough business, and there are easier ones out there.
Sciple: For sure. Next one we want to talk about is Pinterest. Pinterest went public earlier this year. Platform, visual search, very popular among folks to find different ideas for projects. They came out at a valuation that was below their previous private valuation. Had not a huge positive reception as they've come to the market. When you take a look at Pinterest, is it an IPO yeah or an IPO no?
Jones: This one is growing on me. At first, I was a little hesitant. But with their visual search discovery engine, and with the way that they're investing in the machine learning and AI, it becomes a much more compelling investment for me. It's still very early on in their monetization efforts, trying to get advertisers on their platform. But compared to the other big social media players/ advertisers, Pinterest is driving purchase intent much more than these other players. Granted, it's much smaller. I don't think it'll ever get to the size of a Facebook. But when it comes to purchase intent, I can't think of any other business right now that fills that niche like Pinterest. They've also got international opportunities that they haven't even started to tap into. This, overall, as I see average revenue per user going up, as I see the economics of the business starting to come into play, this one becomes so much more compelling. I'm going to go with IPO yeah on this one.
Lewis: I think I'm probably an IPO yeah, too. I don't know that'll be buying shares anytime soon. But this model has worked. It works particularly well when people are trying to either get ideas, inspiration. We see that with Instagram ads, it's almost exactly the same thing.
My biggest concern is, Facebook is 'move fast and break things.' Pinterest is 'let's move slow and deliberately.' I think that's kept them from getting the collective ire of society, because they haven't run into a lot of issues that Facebook has. But Facebook's proven that they are happy to go out there and take functionality from players like Snap and integrate it into their platforms. Does that happen with them? I don't know.
Moser: Yeah, that's the question. Can Facebook go in there and just copy it and send Pinterest users fleeing? I feel like at this point, it hasn't happened yet, so I don't think it will. Your point about purchase intent is a really good one. The data out there's very clear that it affects people's purchasing behavior far more than any other social platform. I think that's where the real gold mine is for this company. I do think it's an IPO yeah. I don't think it's something that gets to be as big as Facebook or anything like that. But that's not the point. You identify what could be an attractive valuation for the stock. It's proven itself as a resilient platform. If it's a platform that's going to affect commerce in purchasing intent there, then you have to at least give it some consideration.
Sciple: Yeah, I think y'all said the main points there. With Pinterest, one other thing I wanted to call out is, you look at a lot of the social media, with Facebook, Twitter, there's a lot of negative connotations folks have about going on there. "I always get angry when I go on XYZ social media platform." Pinterest doesn't seem to have that relationship with its users.
Moser: There's no Pinterest trolls.
Jones: Not yet!
Sciple: I think, when you've got something that has a clear utility for folks, when they find projects and those sorts of things, that clearly can drive purchase intent, and folks actually want to come back and use it, that sets them apart a little bit from the other social media players.
I will say, one concern folks have called out is AWS is their cloud provider. That is taking a big chunk out of their revenue, whether they might be able to invest in their own data centers or something where they can get a bigger chunk of the revenue that's coming down to them. But the core utility of Pinterest makes a lot of sense. There's always that threat there that Facebook is going to copycat them, again. But it's an IPO yeah for me. I wouldn't say it's a resounding one, but it's a company I want to keep following and see how things play out.
OK, the next one has been a super discussed IPO, Zoom Technologies, the video conferencing software. Went public earlier this year, and has really exploded. They more than doubled since they came out.
Lewis: It's now a $24 billion company. Let that sink in for a second.
Sciple: Yeah. It's staggering. Fifty-seven times trailing sales when I looked at today on Capital IQ this morning. But it was a profitable IPO. These days, it's hard to find those, they're few and far between. When y'all take a look at Zoom Technologies, is it an IPO yeah or IPO no for you?
Jones: I'm going to say IPO curious on this one. I do like the founder, Eric Yuan. He came from Cisco. I do like that he was able to build this company. I will say, in terms of ease of use, Zoom video conferencing is probably the best platform out there right now. My concern, though, is the competition. How easy is it to put together a video conferencing platform and do exactly what Zoom did? I don't know that I see a sustainable competitive advantage. Then again, I don't know. But I'd say I'm IPO curious. Really interesting platform, ease of use. You mentioned how it's trading in terms of price to sales, like 67 times sales?
Sciple: Fifty-seven is what I have down, but yeah, it's nosebleed.
Jones: That's astronomical.
Lewis: Yeah, people are treating it like a profitable IPO, in this situation where we have all these companies where, "We'll figure out how to make money later," this is a business that has proven there's something profitable there. Investors are putting a huge premium on it. I need to see some conference calls. I want to wait until the lockup period passes before I'm even considering this one because of the nosebleed valuation that it's at.
Moser: Yeah. For me, it's an IPO yeah, with the caveat that it's one of those businesses that falls into the category of, I like everything about it, it checks all the boxes for me, except for the valuation. Typically, with a company like that, I'll say, I can hold off, I don't need to buy stock in it now. Sometimes, they make for great opportunities to buy in thirds, buy a little bit at a time and be opportunistic with it. I appreciate the point there in regard to the competitive advantage. The nice thing about Zoom, it's a great product, it's easy to use. I think we can all agree with that. We use it here at Fool HQ, we use it a lot. There are still places that use Skype a lot as well. There are other competitors out there that do this thing. If Zoom closed its doors tomorrow, what would happen? Commerce wouldn't shut down. People would just use another video conference provider. They may not like it as much, or they may think it's a little bit buggier or whatever. But that's what they would do. So, I think that what Zoom has done has fired in on that simple platform, easy to use, it just works. You hear that time and time again in their calls and S-1 and 10-K, it just works. And it does. My question is, what happens at some point when technology continues to evolve, when it just doesn't work? What if there is a point where it is a little buggy? I don't know. If you're selling me on the fact that it just works, well, what happens when it just doesn't? I'm not saying it will, but it's possible, right? Technology is known to do that from time to time. My bet is that CEO Eric Yuan would figure out a way to fix it, because his devotion to the customer is Bezos-like. So, all in all, like the business, don't like the valuation, but I think it's one that stands to do very well over time.
Sciple: Yeah, I think y'all said it. The business, really easy to use, never had any issues using Zoom's products. The valuation is where the stickiness is. I think the business is a really quality business, but it's priced essentially for perfection, that they're going to accomplish everything that they say they're going to do, and they're going to reach all the scale. I don't think that the reality reflects that certainty, that they're going to accomplish those goals. That's the concern today. I like that the founder's super concerned with the quality of the product. Another concern I have, though, is that in the enterprise, the best product doesn't always win. I am concerned with paying this valuation for the hoops they have to jump through to justify it. But it's a company I'm going to continue to watch. And if the valuation comes down, I don't think I would hesitate to buy it at all.
Another company along those same lines, also IPO-ed very recently -- I guess DPO-ed -- that's Slack. That's another one we use here at The Fool, another enterprise software company trading with a pretty high valuation. I think it's about 40 times sales today. When you look at Slack -- obviously, just came out, we haven't even seen an earnings report from them yet -- is it an IPO yeah or an IPO no for you today?
Jones: I think we can probably go lightning round through these other ones here. I'd say Slack, I'll go IPO yeah. It is replacing the use of email; granted, you've got now 50 little mini email inboxes. But I do like where it's positioned within the workplace.
Lewis: Yeah. They're an $18 billion company right now. It's a super rich valuation, 40X sales. But I think it's very easy to see this becoming a $40 billion, $50 billion company down the road. They have a cult-like following with their product. They have the advantage that I don't think Zoom has, where the more you use the product, the stickier the product becomes. We have all this information on Slack at HQ that people have shared, and the value of the platform is that it's readily accessible. It's really hard to ditch an enterprise product like that once you're using it.
Moser: Yeah. I put Slack and Zoom in the same ballpark there. I find them to be extremely easy to use, productive. I do hate the fact that I've got like 50 mini inboxes now. It's starting to bother me a little bit. You have to delete those every once in a while. I think I want to see a little bit more proof from this company that they can make this work. But I definitely like where they're headed.
Sciple: Yeah. Same thing with Slack, similar to Zoom. It's maybe the best product for the service that they provide; however, in the enterprise, the best product doesn't necessarily always win. You can look at some of their numbers when Microsoft has come out with a copycat product called Teams, and you can see, when Microsoft Teams came into the market, some of Slack's growth numbers slowed. Again, Slack, the enterprises they grab are going to be very sticky. But it's a question of, how much can other competitors ward off their continued expansion? How do those relationships that other competitors like Microsoft already have in the enterprise help them do that?
Last IPO I want to talk about, because it's probably gotten the most coverage, and everyone has an opinion on it, it's Beyond Meat. Another very high valuation company. I think I pulled out 80 times trailing sales this morning. When you look at Beyond Meat, IPO yeah or IPO no?
Lewis: [laughs] Is that all you've got, Shannon?
Jones: There's no competitive advantage I see here with Beyond Meat. The valuation is astronomical in relation to their total addressable market. I think you've got better products out there, and you still have competitors that haven't even started to get in this space. I don't see the fanfare with Beyond Meat.
Lewis: Yeah, I'm a no, too. I think this is kind of like Tilray. You don't have a lot of shares available, low float, and it is the only way to pure play invest in a space that people are really excited about. That means that you're going to have a crazy valuation. I think we're going to see this thing come down over time.
Moser: This one's for Austin back there. I'm going to give it the old Letterkenny hard no. I just don't understand how this company earns this kind of a valuation without some clarity into its actual supply chain. As it stands right now, they can't supply -- these big national dreams of Burger King and McDonald's all adopting this stuff into their menu, that's fine, I'm sure they probably will over time. Beyond Meat can't supply those. They don't have the supply chain yet figured out. It's not like the stuff is great for you. It's really actually not that good for you.
Jones: And it doesn't taste good!
Lewis: Oh, I'll fight you on that!
Moser: I've not eaten it. I love the idea that we have meat substitutes out there. I'm all for that. I don't know what the competitive advantage is. I don't understand why the valuation is what it is. It is utterly bizarre. Maybe this works out to be a good business over time. But I wouldn't touch the thing with a 10 foot pole right now. No way!
Sciple: Yeah, I think the Tilray comparison is apt. It's an emerging industry that people are very excited about for various reasons, there's low float, and there's not an opportunity to invest in it. That's pushed up the valuation. About a third of the stock is held by private equity and corporate investors. As we see those lockups come away, there can be some folks that are burned as those folks cash out. We shall see.
Lewis: One thing before we wrap on this that I want to talk about with the IPOs, a lot of people look at these newly public businesses, and they say, "This has Amazon-like return potential." We talked about the valuations that a lot of these companies are going public at, and it's tens of billions. In the case of Uber, it's a $73 billion company. Amazon wasn't a billion-dollar company when it went public. You need to keep in mind that because they've stayed private quite a bit longer than a lot of businesses normally have, and they are already quite large, you may not see these 10 or 20 times returns that you've seen with some of the other major tech companies, because the landscape was so different. You have to keep that in mind.
Sciple: Yeah. I think the other thing is, you look at Amazon, I don't think Amazon raised additional capital after their IPO. They funded out of their operations moving forward after that. You look at some of these IPOs like Uber and Lyft, that have been perpetually raising money and burning it out the door, the comparison to Amazon, which IPO-ed and has been able to fund their operations from their internal cash flow instead of being dependent on the generosity of investors for their continued existence, it's a fundamental difference in how you compare these businesses. But I think there's a lot of people chasing the Amazons and the Facebooks of the world, being unprofitable for a long period of time, and then capturing a dominant monopoly market share in a global market. But I don't know that necessarily these businesses fall into the same opportunity set that those companies had.
Lewis: Even if you look at a company like Facebook, this was the first big unicorn-ish company to go public. They went public at like $100 billion valuation, something like that. They are now one of the largest companies in the world, and they're [at 4 or 5 times] from where they went public. That's a wildly successful business, and a lot of people would be thrilled with those returns. But it's a far cry from the expectations of an Amazon-like company. Just keep that stuff in mind. I think that context is important.
Sciple: All right, folks, this is going to wrap up our roundtable discussion for today! I hope you'll join us the rest of this week as we do more segments and discuss more of what's going on in the stock market. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass! For the Industry Focus crew, I'm Nick Sciple. Thanks for listening and Fool on!