You win some, you lose some, but here on Rule Breaker Investing, you openly track them all and publish the results for the world to see. In this week's episode, Motley Fool co-founder David Gardner checks in on three sets of five-stock samplers he shared on this podcast one, two, and three years ago -- five companies inspired by Brexit, five highfliers riding a bull market, and five stocks to celebrate the 2018 World Cup.
Stock market nerds, listen in to learn more about the past, present, and future for a motley basket of companies: Alphabet (GOOG +1.99%) (GOOGL +1.71%), MercadoLibre (MELI +1.82%), Impinj (PI +1.67%), Booking Holdings (BKNG +4.04%), Dassault Systèmes (DASTY +3.87%), and many 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 July 3, 2019.
David Gardner: If you're going to pick five stocks at a time, and you're going to do that five times a year, and you're going to review how they do every year after that, and you're going to do a podcast every week and you're still doing that four years later, soon enough, you're going to have enough of these to review that you're going to have to dedicate entire podcasts sometimes just to review past stock picks. See how we did, close the loop, score things. And that's how the Reviewapalooza podcast series works. We did our first ever on February 20th of this year, reviewing three past five-stock samplers all at once. We're doing our next one, reviewing three others, this week on Rule Breaker Investing.
This episode of Rule Breaker Investing is brought to you by The Motley Fool. After all, it is The Motley Fool and talented producers like longtime Rule Breaker Investing podcast producer Rick Engdahl, or pinch hit talented producer Heather Horton, talented producers, the effort to put these up on a website, store them, let you know through social media, it takes a village to make Rule Breaker Investing happens. Thank you to our sponsor, The Motley Fool, for making Rule Breaker Investing possible
Welcome back to Rule Breaker Investing. Hi! Thanks so much for joining us. This is a special podcast. It's somewhere like number 211, but if you do the math, we're right on our four-year anniversary. It is the birthday, the birth date, of Rule Breaker Investing, the podcast. Four years ago this month, July 2015, we kicked it all off.
It's our birthday, and I'm really delighted. For those of you who've been with us for all four years, or three, or two, or one, or are just joining this week, welcome to Rule Breaker Investing. I love bringing this podcast to you and I've done so for four years now.
In fact, in celebration of our birthday, I thought it'd be fun to have a weekend extra this coming weekend. Stay tuned. Somewhere Saturday morning here on the East Coast of the United States of America, we'll rebroadcast our very first Rule Breaker Investing podcast. I think it's only like six minutes long. It's entitled You As a Rule Breaker. It's just speaking about breaking the rules, you and me. I hope you'll have fun with that and listen back. I'm sure my voice has changed a little bit. I'm sure I'm older. I'm definitely greyer. I'm probably not quite as interesting today as I was back then for that first podcast, but maybe not. Maybe things have gotten better. You and I can be the judge. You As a Rule Breaker, coming up. Just a few minutes of your weekend.
And that's about all the fanfare we have for you this podcast. What I want to say is, I'm really happy to think that our fourth birthday, we're spending time reviewing past stock picks made on this podcast, as I said at the top. This is a Reviewapalooza episode. I think that's so appropriate because I think a unique aspect of Rule Breaker Investing is, on this podcast, we literally pick stocks to beat the market. In a world where many people don't even think you can beat the market, we pick stocks directly. We do so in fun. We have different themes. Sometimes we're less serious than other times. But we're giving you a sample of what The Motley Fool does through Motley Fool Stock Advisor and Motley Fool Rule Breakers, two services, our most affordable services, arguably, some of our best performing services that I've worked on for 15-plus years in both cases. It's special that we pick stocks on this podcast. We don't do it every podcast. But when we do, we note the date, the time, we note where the stocks were, and then we follow and we score. I have my own homebrew spreadsheet, initially put together by my talented assistant, Molina Butler. Molina got me started with this spreadsheet. I've got all of our five-stock samplers in there. When that year comes up, that first-year anniversary, we go back and see, how have those stocks done over the last year, or two years later, or three years later? And that's exactly what we're doing this week.
Right around this time for each of the last three years, I picked a five-stock sampler. It'll be our pleasure -- and I say "our" because I have some talented guest stars -- our pleasure to review those with you, see how those stocks have done. We've had some good. Sorry to say, we've also had some bad. You'll be seeing Rule Breakers at its best and worst this week on Rule Breaker Investing.
Now, I should mention, this podcast is actually being taped ... well, last Friday, June 28th, end of the market close. So, all of the stock performance that you're going to hear is all keyed to the close of market last Friday, June 28th. For each of these five-stock samplers, the numbers will have changed by the time you hear this. For at least one of them, we'll be closing it out, sun-setting it, and we'll get the official numbers from that closing date. Because yes, I keep track of all of this in my homebrew spreadsheet.
All right, and why are we taping this several days before it's airing? Well, the answer is that I'm in China as you listen to this. For the first time, I'm going halfway across the world to mainland China, and also going to be visiting Hong Kong. Looking forward to hanging out with a couple of our Fool team in Hong Kong. Hayes and David, looking forward to having supper with you in our time in Hong Kong. But yes, both this week's podcast and next week's podcast have been pre-taped because I am half a world away.
By the way, before we really start it this week, let me mention, this is one of our longer podcasts. The reason is, we are reviewing three five-stock samplers. We're going deep on some of these companies. If you love the stock market, I hope you love all that we have for you this week. It is our fourth anniversary so we're blowing out the show a little bit. But of course, through most of our history, and most of our future, we won't go this long for Rule Breaker Investing. Thank you for suffering Fools gladly this week!
Now, for a Reviewapalooza, I've asked three of my favorite analysts, each of them working at Motley Fool Rule Breakers, to look over the five stocks. I've got all the numbers and stats, and I've got some thoughts for you. But in each case, I've got an analyst who spends additional time more seriously looking at each of these companies and helping us think about them -- make us smarter, happier, and richer about these companies. And what I've asked each of them to do is, for each of the five companies, present two developments of note -- like what has happened, two developments since we picked it on the podcast -- and then one thing to watch going forward. That's the simple format that we have for each of these five-stock sampler reviews. Two developments of note, and one thing to watch going forward.
All right, well, the first one up, we're going to go furthest back in time. Three years ago this month, Brexit had just recently happened. I thought about how that could open up Great Britain and its commerce. In general, I had a neutral to slightly positive view of Brexit. Now, I think the world since then has more and more turned against Brexit, it seems. I guess as an American who lives in a country where we went independent from the establishment, went out on our own, and had a pretty great commercial success in the succeeding centuries, I'm about economic freedom. At the same time, though, it's interesting now to look back three years later on what's happened. We won't be talking too much about Brexit. We'll be talking about the five stocks that I picked.
Joining me is longtime Motley Fool analyst, Karl Thiel. Karl, welcome back to Rule Breaker Investing.
Karl Thiel: All right, thank you. It's good to be here.
Gardner: Thank you. And Karl, you and I have worked together on both Stock Advisor and Rule Breakers for ... 15? 12?
Thiel: Yeah, I think 15 years.
Gardner: 15 years. I'm pretty sure that we decided, if we're going to launch another newsletter after Stock Advisor, which was a paper newsletter back then, we needed some more staff. And I think that's how you and I got to know each other, Karl. Am I right? Right from the start, Rule Breakers?
Thiel: That's right.
Gardner: And Karl, as many of you will know, because he was part of a Dream Team earlier this year on this podcast, Karl has specialized in biotechnology. But as I look over the five stocks picked three years ago this month, Karl, I'm not sure I see any biotech in this list of Brexit inspired stocks.
Thiel: No, indeed.
Gardner: Okay. I've already queued it up. Our listeners know, we're going to be talking about two developments of note and one thing to watch going forward for each of these five stocks. First one up, we always do alphabetical by company name, so first one up is Alphabet. Alphabet three years ago was somewhere around $717. Today, it's at $1,081 as we tape. The stock's up 51%. The market's up -- this is important, we're going to be using this throughout this sampler -- the market is up 36.3% from three years ago. 50.8% is greater than 36.3%. Karl, we're beating the market by, we'll say, 14% with this stock. Alphabet's a company most of use every day, I think it's fair to say. But maybe we don't follow the grander narrative sweep of three years and what's been happening. So Karl, as you looked over Alphabet, what do you see? Two developments of note in these past three years?
Thiel: I mean, it's a pretty sleepy company. Not much happens with Alphabet. Well, it turned 20 in 2018. It's now old enough to drink, I believe. But I really tried to narrow it down to two main things. One I just put under the broad category of political sensitivity, greater political sensitivity around the company. This wraps into the $2.7 billion fine they got from European regulators having to do with using the platform for unfair promotions back in 2017. A lot of attention they got about reentering China after they left China because they weren't willing to do some of the censorship involved. Suddenly became willing to do that again. They also got pressured into canceling their Project Maven, which was this government effort to use artificial intelligence to automatically process military drone footage. And it all came back to the oft-cited "Don't be evil" motto that they had, and whether they were really living up to this. I think that's a broad thing for not just Google, but some of the other very, very large companies that are so global and are now being increasingly questioned for the role they play in our lives.
The second one I'm going to pick is artificial intelligence, specifically the launch of its Home speaker back in 2016. They are not the leader in this field. That would be Amazon (AMZN +0.26%) with its Echo.
Gardner: I've heard of that company.
Thiel: But they are the No. 2 player, and they're actually gaining scale. I think this is interesting. Voice assistance, according to this statistic that I just saw -- and now I'm not quite sure where I got it from -- voice assistants are now supposedly handling an estimated 40% of all searches. They say that one in six Americans now have one of these speakers. And I think that's growing. That feeds right into their AI effort to deliver better information.
Gardner: Okay. Karl, thank you for filtering down so many things you could have talked about. I mean, Waymo, we didn't talk about that; YouTube. There's too much to talk about. But this is a quick review of a sampler, so I've also asked you to give us one thing to look at going forward. Among many choices, Karl, what do you want to focus some attention on here with Alphabet?
Thiel: I guess, for better or worse, the company still relies overwhelmingly on ad revenue. That's where the dollars and cents comes from. And, let's say competition. Facebook has emerged as a major competitor to them. And now Amazon has emerged as a No. 3. They've weathered it all pretty well. I don't think it's any sort of existential threat to them. I think Facebook has taken a lot of share from them, but the market has grown enough that they haven't suffered much. Probably the same with Amazon. But I think that's what I'm going to say we should look at going forward.
Gardner: Okay, great. Interestingly, all three of those companies are active selections of ours in Rule Breakers and Stock Advisor. And all of them have been winners. And yes, you're right, they're big companies, and they're under extreme scrutiny at this point by many people, in part just because they are so big, so relevant. They've also been so good for investors, people acting by definition for the long term. And we are shareholders. So, OK, Alphabet's a plus 14%.
Company No. 2 is Euronet Worldwide (EEFT +0.21%), a company not as well-known as Alphabet, I think it's safe to say, and yet a much better performer. This stock is up 133.5% as of market close this Friday, June 28th. That's a good performance against a 36% gain. So we're getting ourselves 97% in the plus column for Euronet Worldwide. Spoiler alert: this is the best performer in this five-stock sampler. Karl Thiel, two developments of note for Euronet Worldwide.
Thiel: I think the most interesting story for Euronet over the past few years is the thing that didn't happen. They made a hostile bid for MoneyGram back in 2017, outbidding Ant Financial. Ant Financial is the financial arm of Alibaba. They really went hard on this, claiming that Alibaba basically wasn't as safe on national security grounds to have access to some of this information. MoneyGram's often used by military personnel. And they actually managed to scuttle the deal, but then have not closed it themselves, either. To the best of my knowledge, it's just floating out there. They haven't officially said that they're not interested anymore.
Nevertheless, the company has done a lot of acquisitions. That leads into my second point about them, which is that this is a company that has three main lines of business. They have their EFT business, which is a bunch of ATMs --
Gardner: Yeah, ATMs across Europe and some in India, right? This is a global company.
Thiel: Absolutely, yeah, pay attention to the Worldwide part in Euronet Worldwide, not the Euro part. They have their money transfer business. And they have this epay business, which we singled out as being really interesting early on. Online transfer, it seems like it had the potential to maybe be a Venmo-type type thing. Epay has actually a little bit flatlined. It's really been the EFT business, the ATM business, and the money transfer businesses that have grown. That seems to be where they're really focusing their efforts and a lot of their acquisitions.
Gardner: Okay. Karl, any quick thought -- I mean, this stock more than doubled over the last three years, what's the big picture there? Why do you think that happened?
Thiel: I think some of it -- and this is kind of my point to look at going forward -- they have had tremendous growth in the Asia Pacific region, particularly India. Now, some of that is at lower margin. But I think there's a lot of enthusiasm about them really being able to keep a lot of new business in a lot of emerging economies.
Gardner: Okay. We'll leave it right there for Euronet Worldwide -- again, the best performer in this five-stock sampler. Coming right after it alphabetically is, yeah, it's fair to say it's the worst performer in this five-stock sampler, and one that badly harms the ability of this five-stock sampler to continue my record of market-beating five-stock samplers, because the third company we're talking about is Hain Celestial (HAIN 0.20%). The ticker symbol on this company is HAIN. Karl, you and I have watched this over the years. This is a company that in Motley Fool Stock Advisor, I picked years ago. We have since sold the stock from the service. It was a disappointing loser. Initially a great pick within the organic food space. Really loved Hain Celestial -- Celestial being the tea brands, Celestial Seasonings. Hain Celestial, kind of a conglomerate of healthier foods. But we sold it disconsolately last summer. It hasn't done much since. Karl, this is a look-back three years ago for this five-stock sampler, so we've kept it going for our scoring purposes here.
Hain Celestial, picked at $51.50 three years ago. It's down closer to $22 right now, down 57.5% against the market up 36.3%. So, we're going to give ourselves a minus 94% in the -- I wish I could say "win column -- loss column, pretty much wiping out any good that Euronet Worldwide has done for this five-stock sampler. Karl, two developments of note -- cough, cough, cough, splutter -- for Hain Celestial.
Thiel: To me, what stands out for Hain Celestial is what it hasn't been doing, which is acquiring companies. This is a business that was an acquisition engine. It went out and looked for small brands in the better-for-you food space. And to the best of my knowledge, their last significant acquisition was Better Bean better being back in 2017.
Gardner: Which is stunning. This was all about a growing portfolio of brands within the health food space.
Thiel: Right. I think in some sense, this is now a Beyond Meat world, right? Beyond Meat has no interest in being acquired by anybody. They're doing great on their own. I think related to that, Irwin Simon, the founder and CEO, stepped down after 25 years, replaced by Mark Schiller. There's been some other management turnover, and that may be related to the decision to slow down the acquisitions for now.
Gardner: Okay, yeah. For those who are still -- sometimes people hold onto the stocks that we recommend selling and keep hoping. And sometimes they're right, we'll see. What would be something to watch going forward for Hain Celestial?
Thiel: This is perhaps too vague, but an articulation of a new strategy. I haven't really heard that yet from them. I mean, it's not to go out and buy everything left and right, so what's it going to be? The company has a bunch of good brands, it's doing OK with that, but I'm not sure what their strategy is going forward. And that's what I'm waiting on.
Gardner: Okay. In this world of Beyond Meat and the Impossible Burger and the Awesome Burger and all of the new burgers, how about the Hain Burger? Could that be it?
Thiel: It's worth a try.
Gardner: Would you want to take a bite of the Hain Burger?
Thiel: I am anxious to try all of these new burgers, actually. We had a talk about this on our Rule Breakers podcast a while back.
Gardner: Right, for Rule Breakers members, yes.
Thiel: We are hungry for it.
Gardner: Okay, so, Hain Celestial, let's quickly sweep it off the stage because I don't want to see it anymore. And let's go to stock No. 4. Talk about change. This is a company that changed its name in between when I picked it three years ago this month and today. It used to be known as Priceline, but it's now called Booking Holdings. But we're going to keep it in original alphabetic order, so Priceline, now Booking Holdings. The ticker symbol now BKNG. Three years ago this month, it was at $1,338 and change. Today, it's at $1,874 and change. Good news for us, it's up 40%. Not quite as good news for us, the market's up 36%. We can give ourselves a plus 4%. So, this has mostly been treading water, although I don't think any of us is going to be disappointed holding our Priceline that we made 40% over the last three years.
Thiel: Yeah. I think one of the most interesting points about this company is that it is booking.com, not Priceline anymore. Just as a reminder, Priceline bought Booking for $135 million.
Gardner: That's astonishing.
Thiel: One of the greatest acquisitions in travel history. Just a reminder that mergers can be huge value builders. It's obviously been so powerful in this case that Priceline subsumed itself into the Booking brand. That also has come with some management turnover recently with a new CEO and a new CFO, as well.
That's certainly one point. The other one is alternative accommodations. Booking is in a dead heat with Airbnb for alternative bookings -- homes and overnight rentals. Which is not, at least if you're like me, that's not usually what I think of the booking.com brand as being. I think of it as being conventional hotels, and obviously, they have properties around rental cars and dining and everything else. But they said that 40% of their active customers booked alternative accommodation properties in 2018.
Gardner: Karl, have you used alternative accommodations in the last two years?
Thiel: Yes. I almost exclusively use Airbnb when I travel.
Gardner: Airbnb is a private company, Karl. That's not our stock pick. How about supporting the home team here?
Thiel: It's even worse than that, actually. We invested in HomeAway for a long time in Rule Breakers, which is not only a home team, but also based in Austin. Although I have used that before. I guess I've been pulled into the Airbnb brand. I will look at Booking next time I have to find a place.
Gardner: All right, it sounds like the wind is changing. Well, for this stock, what's one thing to look at going forward for Booking Holdings?
Thiel: At this point, obviously, online travel booking is not a new idea. It's a pretty penetrated market in terms of getting people to look online. It's really, can they continue to take market share? And to me, that also means moving into new verticals, so looking around their dining and their rental cars. But I would say keep an eye on alternative accommodations and how they keep going for the business.
Gardner: Okay, great. That brings us to stock No. 5 to close out this five-stock sampler from July 13th, 2016, Five Brexit-inspired stocks. The fifth company -- well, before I mention the company, if you're doing the math with me, if you're playing along at home, we're ahead right now. We're plus 21% when you sum up those four picks. We're up, we're up about 5% on the market. Stock No. 5 is Tesla (TSLA +3.01%), ticker TSLA. Tesla three years ago this month -- as of this taping, anyway -- we picked it at $220.53. Today, Friday, June 28th, closed $223.46, up less than $1 from where it was three years ago. That means it's flat. The market's up 36%. Karl, that plus 21% just went to a, womp womp womp, minus 36% overall, 15 alpha points divided by five, we are 3% points behind the market with this five-stock sampler.
Now, I'm frontloading all the math here to give the spoiler alert right then. We are losing as we're going to be closing out this Brexit-inspired stock list. But before talking about that, let's go right in on Tesla. Karl, a lot of people follow Tesla. Some people follow Elon Musk more than Tesla. It's almost like he's bigger than this multibillion dollar company. But Karl, two developments of note for Tesla over these last three years.
Thiel: Well, they both make my list. My first point has to be the Model 3. It was unveiled in 2016. It was launched into limited production in 2017. It really hit its stride in 2018, when they finally managed to start doing 5,000 cars a week. Got it down to that $35,000 price point earlier this year. That's been fantastic. I see them all over the place now.
Gardner: Yep. I have one and I love mine. In fact, I also have a Model S because we had some extra cars with kids that were no longer kids driving automobiles with their driving licenses. And eventually I sold a few of those and converted them over to Teslas. I have to admit, I enjoy driving my Model 3 more than my Model S in part because it's a little smaller, tighter. The parking spaces at Fool HQ are annoyingly tight. I think all of us here in Alexandria who come to Fool HQ to go to work all feel that way. So it's natural for me to take the smaller, slightly newer car. Anyway, I agree. That's a huge story for Tesla. And even though they haven't cranked out nearly as many as Elon said they would at this point, it is a spectacular car and a great achievement for this company.
What's the second development of note?
Thiel: I'm going to lump this together under the general rubric of Elon Musk's mental health. It was all good and fun back in February 2018, when he was launching Roadsters into outer space. Then in August, he put out the note about taking Tesla private, which launched off an SEC investigation.
Gardner: Funding secured, Karl. Funding secured.
Thiel: [laughs] And he was forbidden from tweeting without having it vetted. He went on Joe Rogan's show there and was smoking pot, and also gave an interview talking about his own struggles keeping it all together while nano-managing the company. I think that became a significant not just entertaining story to watch, but pretty significant for Tesla shareholders, to wonder what it meant for the company.
Gardner: Yeah. Sometimes big personalities and big people, especially if they're micro managers, which I sure hope Elon isn't, I hope he's not that much of one -- but if we are, and this is true of smaller companies, but usually, the more that person does, the slower that company moves. This is especially true of entrepreneurial, smaller companies. If you have somebody who's trying to do it all out there, it's really hard for that company to scale. Anyway, Tesla has still scaled pretty spectacularly over the time that's been in the public markets. But for this five-stock sampler, it is flat.
Now Karl, what's one thing to watch for Tesla going forward?
Thiel: I would put it down to financial health. Back in May, Elon Musk told Tesla employees that the company will run out of cash in about 10 months unless hardcore cost-cutting efforts were made. Now, obviously, the company is still burning through a lot of cash. It's got a fair bit of debt at this point. For a while, he was saying that he didn't think they were going to have to raise anymore. Obviously, that's not true. I'm guessing that Tesla is a little bit of a rough place to work right now. I think they are cutting everything and really, really pushing on the Model 3. The question is, is the Model 3 at extremely low margins cannibalizing Model S sales at better margins? And can they just get over the hump to break even? Because as you say, it's a great car. It's a great product. I think the world's better off if this company succeeds.
Gardner: Yep. Karl, we'll call that the $38 billion question, because that's the market cap as we record this podcast here in the end of June 2019. Well, I've already mentioned the overall performance. If you hear my tone a little down, that's because I'm a little disconsolate that this group of five stocks, which we patiently have followed, updated a few times, including today, this is a market loser from where it was July 13th, 2016. Now, there is a little bit of a silver lining here, because technically, this one's not over. This podcast comes out the first week of July. We won't actually end the horse race until July 13th, 2019. If we can just get a little oomph, a little giddy up here, we do have a chance to cross the finish line with a winner. But we probably won't spend much time reviewing it, we'll just put it back in the homebrew spreadsheet and move on. For now, we're going to say this was a loser. But Karl, you are a winner. Thank you for taking the time to update us on these five fascinating companies, at least several of which I still love. Hain Celestial. Karl Thiel, thank you.
Thiel: Thank you!
Gardner: All right. Time passes from July of 2016.
And it became 2017. We flipped the calendar year. But we're right back this time. In this case, it was June 21st, 2017. Five Stocks Riding the Bull Market. Two years ago, this June, the market had been great. We all remember how bad the stock market was in 2008 and 2009. And I'm not sure pundits expected a recovery in 2010. I can't quite remember. But I'm pretty sure nobody was predicting how great the stock market would be in the succeeding seven years. By the time we get, Rick Munarriz, to the summer of 2017, stocks were riding high. Am I right?
Rick Munarriz: Yes, definitely. It was a good time for at least these stocks that you see at the time. But, yes, definitely. The market was definitely holding up nicely.
Gardner: I want to welcome, that's the voice of longtime Motley Fool Rule Breakers analyst Rick Munarriz. One of my favorite Fools because even though we've worked together, Rick, on Motley Fool Rule Breakers since its inception in August of 2004, you and I first met in a Rainforest Cafe -- remember that brand? -- back in Orlando somewhere in the mid-1990s.
Munarriz: Yes, yes, we met there. It was the grand opening of the very first Rainforest Cafe in Disney World. Now there's like three between the Disneyland and Disney World parks. But yes.
Gardner: Wow! So it kept growing, but the stock didn't seem to keep up with that growth. At least I remember it as one of my poorer stock selections.
Munarriz: Yeah, didn't do well. Got bought out by Landry's, the seafood chain, and we've pretty much all forgotten about it now that it's all privately held.
Gardner: Well, all happy memories from the very first day I met you, Rick. Love you. Thank you much for all the great work that you've done. We've had much fun together. We've had many great winners and some great losers, too. We'll have a little bit of both on this list. The Five Stocks Riding the Bull Market. Now, what I remember saying about these is, we're going to intentionally pick stocks that are on fire. These are all stocks -- I'm pretty sure; I haven't gone back personally and listened to that podcast from two years ago, but I'm pretty sure these were all at 52-week highs, probably all at all-time highs. I know they're all sub-$10 billion companies. So, we were going for smaller companies that were on fire. I'm not sure whether I was being cocky and a little too cocksure or not, but I said, we're going to show that you can pick stocks that are on fire, let a few years pass, and you're going to beat the market. So, we're going to see whether or not Five Stocks Riding the Bull Market from June 21st, 2017, have been as a group a market beater or not.
Now, the first one up -- and Rick, this confuses me, because I usually try to do these alphabetical by company name, but for whatever reason, the first one was Zillow (Z +6.31%). So let's start with Zillow, ticker Z. Zillow Group. Two years ago, it was at $48.48 at market close on June 21st. Today, it's at $46.39, which means the stock is down 4.3%. Rick, the stock market since the summer of 2017, since the day we're talking about, was up 20.6%. So, this stock starts out as a minus 25%.
Rick, what are two things that have happened to Zillow and Zillow shareholders over the last two years?
Munarriz: Obviously, the biggest as far as the model change for Zillow is that they've now got into the home flipping business. They started angling that way two years ago. But now they're going all in with what they call Zillow Offers. You can sell your house to Zillow in a growing number of cities. If you remember those old We Sell Ugly Houses billboards, they are that billboard, and they'll sell your pretty houses, too. They'll buy your ugly houses, buy your pretty houses. They sold 414 homes in the first quarter of 2019. Generated $128 million in revenue doing that. It is moving the needle in revenue. The only reason that revenue grew 51% in the first quarter was because of this home flipping business. It's the lion's share of its growth.
But on the bottom line, it's just getting off the ground. Basically, its operating costs are matching the prices that it's selling it for. So, it's buying houses, it's fixing them up, it's reselling them, and it obviously has a lot of outlets to sell homes. But it's basically breaking even on that right now at this small scale. And it is taking a loss of about $4,000 on each home because each house does have to pay an interest expense while it's holding the houses, as any home flipper knows. But, that's clearly one big development for Zillow.
Gardner: Yeah, I'm pretty sure we were not talking about that two years ago. Not contemplating that Zillow would enter as a buyer within the business that it had primarily been receiving advertising dollars from people who were realtors who wanted to advertise on Zillow. That still happens, and that's still the bulk of this business, Rick. But that is a huge change for Zillow. I hope it works. We're going to see.
What's a second development of note in the last two years?
Munarriz: The second development is that the business that we fell in love with years ago, and you were talking about, two years ago, is obviously the Zillow online platform, the real estate agents that get to connect, people get the check what their houses are worth, they get to make connections, they get to daydream where they want to live. That business is actually slowing down. Online revenue rose just 6% in the first quarter. Premiere agent revenue, which was the big driver, the big, consistent source, even when the housing market was down, premier agent revenue was still growing because agents wanted to get noticed, they wanted to get leads even during soft housing markets. That segment only rose 2% over the past year. There has been a slowdown in the online business.
Gardner: All right. So, all of that taken together means that the stock is slightly lower than it was two years ago, which is disappointing because the market's up more than 20% over the same time. Rick, what are we watching going forward here for Zillow?
Munarriz: We've always been watching the housing market for Zillow because it matters. But now that it has so much weight -- not only is it a real estate market proxy, it actually holds real estate for several months sometimes. So, it is now more susceptible to any housing slowdown. If you're a shareholder, you could have ignored it in the past because it had been an all-weather housing play. But now it's basically based on what housing prices do because it's buying prices at one time, it's holding costs as it pays interest, it's fixing them up, and if the market housing market goes south on us, Zillow is going to take a bigger hit on these sales.
Gardner: As with Alphabet in that earlier stock sampler with Karl, this is one of those bigger, better known companies. Lots of developments. We didn't even talk about the change in CEO which happened at Zillow within the last two years. Rich Barton, now back as CEO. Very promising development for the company. We'll see. Do you own the stock personally? I own the stock.
Munarriz: I do not own it. I've owned it vicariously through The Motley Fool for so many years, but no, I do not own it.
Gardner: Sure, because you're the one who brought this to Rule Breakers, Rick. Your byline's on it from years ago. Even though it's been a disappointment these last two years, it has been a great stock pick for Motley Fool Rule Breakers members. I have a lot of hope because this is a three-year game we're playing. We're only two years in. Zillow's just a few percentage points behind the markets. It'll be fascinating to see what happens over the next 12 months for this company.
Well, let's keep moving. The next ticker -- did I ... yes, I think I did it in reverse alphabetical order. I decided A to Z is boring, so let's do Z to A with this particular stock list. It was by ticker. So, from Z, we next proceed to the letter W, another single-letter ticker symbol company. Experienced investors, longtime Rule Breakers, will probably recognize the ticker symbol W for Wayfair (W +5.20%), the online furniture retailer.
Rick, Wayfair, two years ago this month, was at about $75 a share. Today, it's at $146. Makes me and a lot of Rule Breakers really happy. Big smile The stock is up 94%. The market up 21%. So we're going to give ourselves a plus 73%, which really wipes out that minus 25% that Zillow started us with. Rick, two developments for Wayfair.
Munarriz: The first development, it's more of a trend development, is that people are getting more comfortable with buying furniture online. Even back to the old Amazon days two decades plus ago, when it was, do I trust buying something online, at the time was mostly media like some CDs and VHS and DVDs. Small media, albums and CDs. But now we get to the point where people are saying, "I don't mind a big ticket purchase. I don't mind buying a sofa, or something like a house fixture. I don't know how well it's going to look at my house. I'm willing to spend three, four digits on an online purchase." And Wayfair's gotten to do it. There were 16.4 million active customers at the end of March, which is 39% more than they had a year ago.
Gardner: Wow! All right, that's No. 1 for Wayfair. What's development No. 2?
Munarriz: One development is what hasn't developed, and that is buying furniture is still a big ticket, infrequent purchase. Even though the customer base has grown by 39%, that actually matches the revenue in its last quarter, up 39%. The order size, the order frequency, it hasn't intensified. This isn't like binge viewing, or let's say a meal delivery service, where you get hooked on it, like an Uber or something like that. You're not going to buy a sofa every month just because you love Wayfair. You're definitely just keeping things in check with Wayfair's growth. It's limited to, its audience growth right now is dictating its revenue.
Gardner: That does make sense. It would be a stronger company and even better stock -- again, having almost doubled in the last two years -- if not only were we buying from it regularly, but were increasing our amount of business we're doing. But yeah, how many different beds or sofas do we really need, Rick? So, there isn't that ramp up in terms of frequency from even big fans of Wayfair, and there are a lot out there.
All right, how about one thing to watch going forward for ticker symbol W?
Munarriz: I want to talk about Wayfair walkout. This is not going to be a political point. I just want to point out that we're recording this June 28th, Friday. Two days earlier, on Wednesday, hundreds of Wayfair employees walked out because Wayfair sold $200,000 of bedroom furniture to a Texas detention facility for migrant children. There was an issue where the employees told the CEO, "Hey, stop selling to the contractor that's doing this." The CEO said, "I can't control who buys our stuff." So they walked out in protest. Again, this isn't a matter of taking one side or the other. That has nothing to do with it. But at least short-term, you'll want to see how this situation plays out from a public relations standpoint. You don't Wayfair's reputation to take a hit. If you look up Wayfair walkout, you're seeing people basically blasting Wayfair, like, "I won't buy from you again." Normally, all these things pass over time. But it's something that you should definitely watch in the near-term, to make sure that Wayfair doesn't lose its great standing that it has right now with consumers.
Gardner: All right, really good point. I appreciate you mentioning that. I hope when we review this for one final time a year from today, that looks like something way back in the rearview mirror. But one never knows. It's worth noticing. I will say, like a lot of our best Rule Breakers, companies that are doing important things in the world and are growing and are being noticed tend to be the ones that get this extra scrutiny. Whether it's something much bigger like Facebook, but even something smaller, but a leader within what it does, people give it extra scrutiny, and they expect more from that company, even when it can't fully control who's buying its product, it ends up in the sights of our popular media. Thank you for pointing that out, Rick. Again, we're grateful for Wayfair overall. A big-time winner over the last two years.
That brings us to stock No. 3. Here's where, OK, sure, Heather, play a little bit of sad music.
Here's where, right after our best performer, we get our worst performer, which kind of like last stock sampler, basically wipes out the gains of our best performers. Stock No. 3, ticker PI. This company is Impinj, not even spelled properly. Maybe that was a dark sign I should have noticed two years ago. Impinj, two years ago, was about $54.50 at market close on June 21st. Today, $28 and change. We're going to call that minus 47.6% against the market's plus 20.6%. That's a swing of minus 68% in the loss column.
Rick, two things happening for Impinj and its shareholders?
Munarriz: Obviously, the biggest reason for the stock's setback is that mortality has set in. Revenue for 2016, which was the last full year before the podcast from two years ago, two summers ago, was up 43%. Then that slowed down to 11% in 2017. And it was a decline of 2% in 2018. Revenue turned negative at the tail end of 2017. Because of that, the fear with the RFID tags was always that it would become a heavily commoditized offering. That's pretty much what started to happen. The platform Impinj wasn't enough at that point.
Gardner: Yeah. Radio frequency identification, RFID. This technology where we put little tags on things. It might be a box that's being shipped, or it might be all of the chairs that you have at a large company. Anytime you want to put a little ID on something, those are the RFID tags. They were always commoditized. They were always pennies cheap. But Impinj, and part of the promise of the stock when I recommend it several years ago, disappointingly for Motley Fool Rule Breakers, was that it gave managers access to the data, and a better portal to see all of your assets out there, all of your RFID tags. Unfortunately, this company, which was growing like wildfire as I picked it as one of the Five Stocks Riding the Bull Market two years ago this month, Rick, unfortunately, when all of a sudden, sales growth doesn't just slow, it actually reverses, and the company has a sales decline, that's going to hurt most of our upstart Rule Breakers. This stock, cut in half over the last year.
All right, that wasn't a great development. Rick, the second development, is this a better development? Or is this another not-so-great development?
Munarriz: This will turn your frown upside down, and get you happy again with a pinch. It's all about the starting line here. The stock has actually almost doubled far in 2019. I know it's lost almost half its value in the past few years, but it lost almost three-quarters of its value at the start of 2019. And basically, revenue has bounced around. Its strongest quarter in two years happened in the first quarter of this year. We're at back-to-back quarters of double-digit percentage growth. Obviously, the company is starting to get things back on track. The only difference here is that it came off the double-digit declines from a year earlier, so we're pretty much 2-4% higher than were two years ago as far as revenue growth. So, the company's starting to claw its way back now.
Gardner: All right, yeah. A remarkable move this year. For any Rule Breakers members who bought Impinj for some reason, ticker PI, earlier this year, you are really happy. Rick, what's one thing to watch going forward?
Munarriz: Obviously, the challenge when you have sandbag growth from a year earlier, which is exactly what's happening with Impinj right now, and you've seen growth north of 30% in this latest quarter, you're thinking, "Wow, this is so sustainable," will it be sustainable a year from now when you're comparing against the 30% plus growth from a year earlier? I think that's what you need to watch here. See if the momentum you continue, if revenue will keep improving year over year, when the comparisons will get more challenging starting later this year.
Gardner: All right, thank you, Rick. That's three of our five stocks. Now, quickly, to recount here: Zillow, a minus 25%; Wayfair, a plus 73%; but Impinj, a minus 68%. Those who are quick at math will recognize that we're minus 30% overall as we hit the final two stocks. Can we get some performance here to make Five Stocks Riding the Bull Market a winner?
Stock No. 4, the ticker symbol is PEGA. The company is Pegasystems (PEGA +0.76%), the longtime but rather sleepy AI focused company in a world where AI seems to be heating up and increasingly interesting to us all. Alan Trefler, the CEO and founder, was doing AI years ago when it wasn't so cool. Rick, I picked this stock on this podcast two years ago, as mentioned, is one of the Five Stocks Riding the Bull Market, at $60. Today, it's about $71 and change. So we're giving ourselves a plus 19%. The bad news, rounding the market up, the market's up 21%. So, Pegasystems is a minus 2%. It doesn't help, but basically flat, a market performer.
Rick Munarriz, give us two developments for Pegasystems.
Munarriz: I could give you the two, one after the other, because they're sort of related in this case. The first one is that Pegasystems, they're transitioning to a cloud based subscription sales model. Obviously, we have a lot of cloud based companies --
Gardner: Yeah, I've heard of that concept before. Software-as-a-service, you're saying? Clouded?
Munarriz: Yes, yes, yes. It may ring a bell. But basically, with Pegasystems moving away from the old one-time legacy, you buy the software once, and then you upgrade, like the old Microsoft, with Microsoft Office versus 365, where everything is like, "Subscribe! We'll charge you monthly or annually," but they'll keep you tied to the subscription, and upgrades come with it. Pegasystems is moving to this cloud based subscription sales model. That is definitely a big shift in how it's doing its business.
That leads to the second development in this case, which is that the shift right now is impacting its revenue. If you look at the last quarter, and you saw a 10% decline in revenue in the first quarter of 2019, you would be freaking out, thinking, "Oh, no, the company's going the wrong way." And the company's projecting flat growth for all of 2019. But that's not the case, because actual sales, how you record sales with a subscription model, is different than the one-time sale that you're selling the software and that's a big ticket item. So, annual contract value, which is the metric that Pegasystems and a lot of these companies prefer to use, is actually up 20%. So you can ignore revenue for now. The more important thing is its backlog of business through the annual contract value, which is growing nicely for Pegasystems.
Gardner: Okay. Again, the stock has performed right about where the market's performed over the last couple of years. Rick, I'm hoping that your thing to look for going forward might be a bullish sign, might bring this stock up and bring this five-stock sampler up. But what should we look at for Pegasystems over the next year?
Munarriz: I think the key to Pegasystems right now is the Pega Cloud, which is the name of its cloud based subscription program. That's basically the future of Pegasus. It's obvious. A year ago, when it first started out, 50% of its new client commitments were fine with the cloud. The other half were saying, "No, we want the old way." Now it's up to 70%. As more of its clients adapt to the cloud, there'll be a lot of cost savings, the software itself will get more efficient, and we'll give them a predictable revenue stream, which is really what investors enjoy with some of these companies that are based on these enterprise software subscription programs, where it is steady revenue. That's where we're heading for, just as long as it takes off.
Gardner: Wow. So, yeah, Pega Cloud. I guess that makes sense as a brand. I'm hoping this works out like another Stock Advisor pick -- Adobe, back in the day, was not part of the cloud. Adobe as a traditional company, longer standing, like Pegasystems, made a conversion to the cloud, and the rest is history. It's been a great outperformer. So, I'm hoping this is a good sign for Pegasystems. I'm counting on it being a good sign. Let's hope Pegasystems rides higher here, riding the bull market that we hope materializes over the next year.
Okay, to our final fifth stock now. We're 32%, summed up, down with these four stocks. Will iRobot (IRBT +0.00%), ticker IRBT, be the rainmaker, will that be the Hail Mary pass, for this five-stock sampler? Well, iRobot two years ago this month was at $101 a share. Today it is at ... $91 and some a share. Rick, unfortunately, this stock's down about 9%. We're going to round it to a minus 30% against the market.
I'll do the final numbers in a sec, but Rick, iRobot, a company that you and I have followed for a long time. Two developments of note here the last two years?
Munarriz: The biggest development -- well, not the biggest, but a major development; I'm not going to judge which is the bigger of the two or three or the four or whatever -- I think is tariff concerns. Like many companies that make actual hardware products, actual products -- in this case, iRobot makes the Roomba vacuum cleaners, the Bravos and other items, other cleaners, everything -- some of these products are manufactured overseas, particularly in China. Last year, they paid $8 million, once the tariff war started, to get the Roombas back into the U.S. A small sum for iRobot, but it did shift the company's thinking earlier this year to move some of its production away from China. That's clearly a development that'll affect -- it may increase costs as far as production costs, and in general, setting stuff up somewhere else. But over the long haul, it'll make it less prone to any tariff fisticuffs that may happen.
Gardner: Well, I don't think anybody's rooting for the trade wars to last particularly long. It's going to affect iRobot if it does further. Rick, what is your second development of note for this company?
Munarriz: This development actually started before your pick, so we already knew this was going to happen. It happened back in 2016, early 2016. iRobot sold off their military robotics division, which used to be a big part of the story years ago when we first initially recommended this stock. Now, it's basically all robotic arms around their consumer products. There's a lot riding on this. And even though it's three years since they sold it off and two years since we mentioned it on the podcast, it definitely hasn't veered from this strategy. It's still consumer-centric. Basically, wants to clean your house, clean your gutters, clean everything it can, clean your pools, in a way that does not have to worry right now with going out and basically slipping out military bombs, defense areas.
Gardner: Yeah. So, again, the stock is 30% behind the market over these last two years. Rick going forward, what's something to watch? Maybe we can get back to even in the next year. We'll see.
Munarriz: This could be huge or could be a non-event, but clearly something to watch -- the Terra lawn mower. You're thinking, "I would want a robot boy mowing my lawn. Who wouldn't?" And we've been talking about this, dreaming about this, for years. It's finally happening. It's going to be released in Germany. iRobot will be releasing this in Germany later this year, and in beta in the U.S. So, maybe not by this year, but by next year, maybe by the third year, when we get to that point, your lawn will be mowed by a robot. Like Rosie the Robot, except it can actually trim a hedge and stuff like that. I think this is something that could be a very big product, especially with a lot of people wanting to reclaim their time. This is clearly a product that's been in demand for a while. It could be a game changer if it works, and if it works efficiently.
Gardner: All right. What an interesting group of stocks. Dynamic companies. Zillow changing its business model, Wayfair, a huge winner, Impinj, a huge comeback this year from a really dark place last year, the Pega Cloud, and iRobot and its Terra lawnmower. But take it all in all, this group of stocks averages a gain, so that's not bad. We're up 10.2% here. The problem is, the market's up 20.6% We're going to round that to a minus 10% deficit. This, ladies, gentlemen, Fools everywhere, this is the single worst five-stock sampler I have ever picked -- so far, anyway -- on Rule Breaker Investing. Rick, I'm really sorry that you had to present that to us. Thanks for slogging through with me.
Munarriz: Don't shoot the messenger David.
Gardner: I'm definitely not going to shoot the messenger. I'm the one who deserves to be shot, although don't shoot me yet, because we have another year. And look how dynamic some of these stocks are. Hope springs eternal, not just in the baseball world at this time of year in summer, but hope springs eternal always for patient investors and Fools looking for some of the game changers and Rule Breakers out there. We'll see if any one of these stocks can rise up and bring all the rest along with it, or what happens. I can't wait to review this a year from now. But, yeah, calling a spade a spade, this is a significant loser, this five-stock sampler. Rick Munarriz, thank you again.
Munarriz: Thank you.
Gardner: All right. Time creeps on at its petty pace. And there's ...
[angelic harps]
... the sound of time passing. Thank you again, Heather. We bring the production values for Rule Breaker Investing. You don't hear this on other podcasts! Not even on other radio shows, do you? Okay, you do? You mean we're kind of low production relative to a lot of NPR shows? Okay. Okay. All right.
So, about Independence Day last year, we picked this five-stock sampler -- Five Stocks Celebrating the 2018 World Cup. It was that time of year, or every four years. I was thinking about international company stocks, companies that benefit from travel and other things that surround the World Cup. My next guest, Simon Erickson, will help us understand what's happening with these companies and how we're doing. Simon, welcome!
Simon Erickson: David, it's a pleasure. Thanks very much for having me.
Gardner: Did you watch the World Cup, by the way? The Men's World Cup last year?
Erickson: I did not. I'm more of a football fan than a soccer fan. I admit I did not watch the World Cup.
Gardner: A lot of people think of soccer as football, but I realize, as Americans, we see an extreme difference. I have to admit, I'm more of a U.S. football than an international football fan myself, but I really do love the World Cup when it pops up every four years for the men and every four years for the women. The U.S. is much better at women's soccer, I've learned, than men's soccer. We didn't even appear, as you'll remember, in last year's World Cup. But these five stocks, they appeared in this five-stock sampler. Now, the actual airing date of this podcast was July 4th, 2018. However, we all know the stock market in the U.S. is not open on July 4th, so all of these prices and this scorecard is dated to the close of the market on July 3rd, 2018. Now, five companies here. Simon, yes, we're back to traditional alphabetical order with the company name. Let's kick it off.
Company No. 1 was Booking Holdings. Now, Booking Holdings was called Booking Holdings when I picked it as Booking Holdings last year. Earlier on the show, we talked about it as Priceline. I picked it for a separate sampler then, Simon. But Booking Holdings over the last year, the stock was at $2,060 one year ago. It's down to $1,874 now. So, it made me happier in that early, longer form stock sampler. This one, Simon, the company's down 9%, the market's up 8.2% since then, so we start with a minus 17%. The just losing continues. This hurts meat very badly. Simon, what's been happening? Two developments of note over the last year for Booking?
Erickson: Absolutely, David. And of course this has some international flavor with it, too -- even though Priceline is based here in the United States, booking.com is based over in the Netherlands. An interesting company. Got their name for themselves by first of all booking hotel rooms in Europe. Went on to have this all-inclusive vacation planning platform that also include airfare and even dining. They're getting you to wherever you want to be.
One of the first things that stands out as an investor for this company for me is that those travel bookings have been flat the last year, David. We saw travel bookings only up 2% in the most recent quarter, and revenue's only up about 6% over the same time, too. Investors are starting to wonder if vacationers are taking a little bit of a breather on this right now. Of course, it is a very mature platform. It's very profitable.
The second thing that I've been watching is, as they've continued to make more and more cash flow, management has been focusing that on buying back shares. They repurchased $8 billion worth of shares in the last year, reduced the share count by 7%, and they just authorized another $15 billion purchase plan for the next two to three years. This is a mature platform. Management is more than happy to return that capital right back to you and me as shareholders.
Gardner: Thank you, Simon. Earlier, Karl Thiel was talking about this company for the other sampler, talking some about the shift in the business toward competition with Airbnb. Now, not as big a name player within that space. That's one thing that we're watching going forward. Simon, what else do you want to point us to as we think about this company going forward from here?
Erickson: Well, this is a platform, David, that does a lot of business, and then it also takes a small cut of every one of those. That's what's known as the take rate, which is very important for investors to keep an eye on. That's the total amount of booking revenue divided by the gross travel bookings that actually take place over the platform. Five years ago, we go back to fiscal 2013, the company made $6.8 billion in revenue, but booked $39 billion of total travel booking. It took about 17% as its take rate five years ago. When we look at that in fiscal 2018, the take rate was about 15.6%. It's gone down a little bit, David, but that's to be expected as you start seeing this packaging those hotels with the airfare with the dining all together. You're getting a lump sum. You're expanding the whole pie, but you're taking a smaller piece of it. Something I've been keeping an eye on as an investor.
Gardner: Thank you, Simon. You're making us smarter. The take rate. I love simple ratios and a phrase that I can understand. That gives us a grip and a handle on this company going forward. It's been one of our big winners. Any Motley Fool Stock Advisor member of any vintage may well own Booking. If you haven't, then you've seen that it's been one of the great winners over the last 15, 20 years for stock market investors. Fingers crossed for Booking, but it started us with a minus 17% with this five-stock sampler.
Let's go to company No. 2, ticker DASTY, Dassault Systèmes. Yep, that's right, I took high school French so I can say Dassault Systèmes and know that I kind of have that nailed. I will say that the stock has kind of nailed it. It's been a winner over the last year, the stock up 15%, market up 8%. Simon, happy to say this is back in the plus column now, plus 7%. Not a mega winner, but a really good long-term hold, as we always hope for our services for, in this case, Motley Fool Stock Advisor members.
Simon, two develop some note here over the last year for Dassault Systèmes.
Erickson: Sure, David. Dassault Systèmes, which maybe I'll just call Dassault because my French is not as good as yours is --
Gardner: Just drop the L, Simon. Just go "Dassault." That's it. Dassault.
Erickson: I'll work on it. Dassault.
Gardner: That's it! Beautiful!
Erickson: They're doing simulation software for really complex projects. It's the world's most sustainable company. They got an award for being the world's most sustainable company. They're working on renewable energy projects, smart cities, personalized medicine, all this stuff that's progressive. They're taking all those inputs, simplifying the complexity, and locking in recurring revenue through this simulation software with their customers for decades.
The two things I'm watching for this one, David, is first of all, they've got this new business line called 3DEXPERIENCE. They have 200,000 customers that they work with. There's a lot of overlap between those companies. Some could be customers of other businesses that they're working with. So they're trying to create this centralized business hub that connects the dots between the companies that they're already providing the software for. That's something that saw revenue up 24% year over year when the rest of the company only grew 7%. Great new revenue stream for the company there.
The other thing that happened just last month was the acquisition of Metadata Solutions. They paid $5.7 billion for a software-as-a-service company that's working on helping companies get through clinical trials. David, that's very similar to Veeva Systems, which we have as a Rule Breaker recommendation. I think this is a great push as the world is pushing for personalized medicine.
Gardner: Wow, I missed that, Simon. A $5.7 billion acquisition. Now, for most companies, that's a big bite to take. Dassault Systèmes, the market cap around $41 billion, so I guess you can absorb $6 billion more easily at that size, but that's still a very significant development. Thank you, Simon!
All right. What about one development to watch going forward?
Erickson: You nailed it right there, David. This is a company that's made a lot of acquisitions over its history. Almost 50 different companies it's acquired over several decades in business. Of course, when you make a lot of acquisitions, you're holding a lot of goodwill from those acquisitions on your balance sheet. So, the investor in me is looking at this one, and one thing that I'm keeping an eye on is the percentage of total assets that is tied up in goodwill. Five years ago, in fiscal 2013, that number was 21%. Just last year -- which doesn't even include the Metadata Solutions acquisition --
Gardner: It's about to go higher, Simon, I think it's going higher.
Erickson: 27% off of a much larger asset base. So, David, we've got to be careful on this one. If they were to write down any of those acquisitions, it could impair the company's assets.
Gardner: All right. Now, look, I'm just checking. We've held the stock since September 18th, 2009 for Stock Advisor members. We're moving up on 10 years. It's up 497%. It's pretty much more than doubled up the market. It's been an awesome company. Really happy for this French company. But you surprised me. I didn't know about the sustainability and the awards and recognition that the company has not only achieved but clearly sought through its actions as a, in this case, French corporation -- it's our only French company on the Stock Advisor scorecard, and an impressive one at that. Well, thank you very much, Simon!
Now, it's nice to know the Dassault Systèmes has gotten us a plus 7%, but we're still in the losing column as we hit stock No. 3. Stock No. 3 in this sampler is Electronic Arts (EA +0.24%), ticker EA. Why was this a stock celebrating the World Cup? Well, that's because Electronic Arts has the most popular video game for soccer fans, the World Cup video game. This has been one of those longtime EA franchises, where it gets a sports game, like, let's say football, like Madden, or basketball, or other sports. And its soccer game is, I think, the front runner for its industry. Anyway, Electronic Arts was at $141 and change a year ago. Right now, I'm sorry to say, it's down to $101. So, the stock is down 28%. This is a really wonderful company that's been a spectacular winner in recent years, but not over the first year of this five-stock sampler. 36.5%, we'll make that minus 37% behind the market.
Simon, what is up? Two developments for EA?
Erickson: Right. David, it's kind of a neat company because they've got many of those sports franchises. As you know as well as anybody, sports teams change over year over year. They bring in new players that are rookies, they trade players from their existing lineups. To keep the game fresh, you want to have the most updated version, which is an advantage for a company like EA. They've got 500 million people across the entire world playing their games, which is a huge user base. But the thing that's interesting about this company is, they're playing it in different ways. It's no longer the age of buy the title upfront, one time sale, and then you play it as much as you possibly want to. Companies like EA are actually monetizing more and more over time because it's over high speed internet channels that are digital. That's been much more profitable for the company.
The things that I'm monitoring, to answer your question, is how have they been monetizing that recurring revenue stream? EA specifically has something called EA Access, which is where you can actually, for $5 a month, plug your Xbox into the internet, and download and play as many games as you want to, and also get 10% off of those in-game transactions. It keeps that money stream flowing, David. Just today -- talk about a fresh podcast --just today, they have now expanded that to also include the PlayStation 4, which should be launched within the next month. So, it's another revenue stream from that EA Access, continual money coming into the company, and continuing that recurring revenue stream.
Gardner: In-app purchases, really big part of the backdrop of the story for this industry over the last 10 years. Electronic Arts with it sports franchise games in particular have benefited. It's become a way of life for this company, a serious part of this business model. Certainly the FIFA franchise, FIFA '18 is the most recent version of this, Simon. I hope we'll both go out and buy it, even if we don't watch that much soccer, just to support the home team here, my friend. But tell me one thing we should watch going forward for EA here. Let's hope the next year gets better.
Erickson: Sure thing, David. Let's go back in time five years ago, fiscal 2013. The company was doing $1.7 billion of that digital revenue. This is stuff that you do over the internet rather than actually purchase at a retail location. 8% of its sales were being received as operating cash flow. The cash coming in the door was about 8% of total sales at that time. David, you look back this last year, fiscal 2018, the company has doubled its digital revenue. It's doing a lot more business over the internet. But get this -- now, 33% of sales translated to operating cash flow. The company is raking it in as it's gone digital, and that's really good news for shareholders.
Gardner: All right, so we'll trust that things will be better here for EA over the next year than the 28% decline over the past year. We're in the hole going to stock No. 4. Really happy to say, though, that stock No. 4, the ticker symbol is MELI. I picked MercadoLibre on this podcast a year ago this week. It was at $297 a share. Right now, Simon, tipping the scales here at $612. The stock is up 105.7%, way ahead of the market's 8.2%, so we're going to give ourselves a plus 98% in the win column and flip Five Stocks Celebrating the 2018 World Cup, at least through four, of them to a significant win.
Simon, what's up with MercadoLibre?
Erickson: David, first of all, I'll do much better with the pronunciation on this one, because my Spanish is better than my French. But the big deal for this one over the last here has been payment volumes. The company is now processing more off-platform payments than they are on-platform payments. Let me explain a little bit about what that means using eBay and PayPal as an example. In the early days, you could only use PayPal to buy things on eBay, right? That's an on-platform transaction. But a couple of weeks ago, I was in Toronto, and I was booking Lyfts on my mobile phone, and paying for it with PayPal. That's an off-platform transaction that's still processed by that company. MercadoLibre is doing exactly the same thing with Mercado Pago, which is now becoming the standard of digital payment processing for anything in Latin America. Payments were up 72% year over year. It's becoming the de facto standard. I think that's something that's really driving the stock.
The second thing that's really interesting that I'm watching is their own in-house logistics network that they're building out. David, sometimes it's really expensive to ship stuff around South America, especially in Brazil. MercadoLibre for a while was offering free shipping in Brazil. They had to back off on that because it was getting too expensive for them to do that. So, what they're doing is similar to what Amazon's doing here in the States, they're actually building out their own logistics infrastructure. They're owning their own trucks, they're hiring their own drivers. Now 20% of the shipments within Brazil are being done with MercadoLibre's own in-house logistics. That's something else on keeping a close eye on.
Gardner Both of those, very promising developments, as one would expect from a stock up 106% over the last year from $297 to $611. What a spectacular year this has been in the ongoing amazing story of MercadoLibre, the top-performing stock on the historic Rule Breakers scorecard. And yes, of course, an active recommendation as of now going forward, which means we like it as much today, probably even more today in terms of our confidence, than when it was first recommended years ago.
Simon, one thing to look at going forward for MercadoLibre.
Erickson: David, just like we looked at for Booking, I also want to look at the take rate for MercadoLibre. Because of that, we want to see, is it worth all the effort they put in for processing these payments, and all the effort they put in for doing their own logistics? We want to see what cut is MercadoLibre taking out of the total amount of activity that's taking place on their platform. Go back in time again five years ago, MercadoLibre captured $473 million of revenue off of $7.3 billion in gross merchandise volume. That's a 6.5% take rate in fiscal 2013. David, you can probably guess where that went over the last five years.
Gardner: I'm saying it went up.
Erickson: It definitely went up. The take rate for 2018 was 11.5%. MercadoLibre's getting a higher cut of everything that gets bought over that platform.
Gardner: All right. Thank you, Simon! A lot of people were worried when Amazon started rattling its sabers a little bit, saying, "We're going to enter Latin America." That remains something that Amazon has some commitment to. It's not like Amazon was never there before. But occasionally, that'll scare investors and hurt this stock. But if you've just bought and held, you're really happy. Amazon doesn't seem like it's going to win Latin America. Pretty sure MercadoLibre is. And when you win, you win for a long period of time. It's been an exciting stock.
Let's go to our final stock for this five-stock sampler. Appropriately enough, since the World Cup was in Russia, I picked Yandex (YNDX 5.02%) as the final stock for this five-stock sampler, ticker symbol YNDX. Yandex, up 8.2% over the past year. The market, up 8.2% over the past year. Dead even. We put a zero there. I'll do the final numbers in a sec. But Simon, give us two insights to what's happened to Yandex over the past year.
Erickson: The first bonus insight, David, also is how the company came up with its name. Yandex "yet another indexer." This is kind of Google translated to another country.
Gardner: [laughs] I keep forgetting that. I love that.
Erickson: That's a bonus insight. That's insight A before we get to 1. The first thing I'm looking at is the total number of clicks and the cost per click on their search engine increased over the last year. Cost per click was up 4%. The total number of clicks was up 20%. This is like, you get your cake and eat it, too. You get more volume and you get higher prices. That's a great sign for a company like Yandex that makes money off of that, that they've got organic growth coming from their core platform.
David, a fun one for you, too, is the self-driving taxi network they have over there in Russia. Yandex has basically teamed up with Uber and others to provide an autonomous vehicle that not only gives people rides around the country, but it's also delivering food, kind of like Uber Eats that we've gotten used to here in the States. They're still taking a loss in that division. But that was something that grew very quickly. Revenue from that division actually quadrupled in year over year comparisons, and it's now 15% of the company's top line. Something worth keeping an eye on, I think.
Gardner: Thank you, Simon! Yet another index, eh? That's too funny. I keep forgetting that every year, and then I'm reminded of it. So, what is one thing to watch going forward here? This stock sampler is picked for three years, of course, like the others, and we're through year one. This stock's up a little bit from a year ago. What are we watching going forward for Yandex?
Erickson: Sure. First thing is, companies like these, these search engine giants, tend to have a dominant market share. It's really hard to displace something like Google in the States. It's the same thing to replace Yandex in Russia. The market share was, five years ago, 62% of all search in Russia was being done on this platform. It's still at 57%. It's a little lower, but it's still, in my mind, very dominant, David. That's what you would want to see as an investor.
The second thing is traffic acquisition costs. How much is Yandex paying others to bring those clicks onto its site? This is something that five years ago was 20% of revenue. In this last year in fiscal 2018, it was only 16% of revenue. That's a really good sign that it's got enough brand recognition, and people are going directly to the site. That, of course, falls to the bottom line much more quickly. That's something you want to see as an investor for a search giant like a Yandex.
Gardner: Simon, thank you very much, not only for your excellent analysis, which it was, but for bringing some positivity to this podcast. It was pretty beleaguered up until now. The final numbers for Five Stocks Celebrating the World Cup, just one year in, these stocks on average up 18.3%; the market up 8.2%; so we're ahead of the market by 10%, which is about how much were down by for our previous five-stock sampler. Take it all in all, one out of three ain't good. I have to say, I'm disappointed by ... maybe it's the time of year. Maybe I'm not working as hard this time of year. I shouldn't blow off my five-stock samplers. I don't know what it is, but we're officially retiring with this podcast the 2016 Brexit inspired stock list that was probably a loser, but we'll see the final numbers by July 13th. We're holding out hope for Five Stocks Riding the Bull Market. We'll need more bull in that ride. But this group, Simon, if this set of companies just keeps treading water, we've got a winner a few years from now, Five Stocks Celebrating the 2018 World Cup.
Thank you very much, Simon Erickson!
Erickson: I had a lot of fun. Thanks for having me, David!
Gardner: All right, well, as advertised, one of our longer podcasts, but especially if you're a stock market investor, we put a lot of different company names and stories in play. For you, I hope you loved this podcast. I didn't love it as much as I wanted to because we didn't have all the winners that I'm used to or want. But we learned a lot. These horse races, except for one of them, ain't over yet, so we shall see.
Well, next week, it's going to be Where Were They Then? Yes, by one Rule Breaker listener's request, we're going to go back to some of our biggest winners and show how they were valued when we first picked them to settle some of the questions many of you will have about buying overvalued stocks. Does that work over the course of time? That'll be fun. I'll be with Jim Mueller, another longtime analyst here. We'll go through some of the best known best performers and see exactly how they were being valued when we first picked them.
In the meantime, happy July 4th if you're an American! Happy July to you everywhere! Fool on!
As always, people on this 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. Learn more about Rule Breaker Investing at rbi.fool.com.
