It's been four years since Motley Fool co-founder David Gardner began hosting Rule Breaker Investing so he could share his ideas on investing, finances, life and much more with you. And during those years, one of the great constants of the podcast has been the five-stock sampler. Every 10 weeks or so, he has picked a new set of five stocks from among those that he actively recommends, and shared it with his listeners. But he doesn't just recommend and forget: He keeps careful score, annually measuring his mini-portfolios against the yardstick of the S&P 500.
Turns out, though, that once you've been doing that for four years, the anniversaries start to overlap. So for this episode he's reviewing the results of not one, not two, but three such samplers.
In this segment he's looking back one year, to a time when men gathered on the soccer pitch to vie for the one of sport's most prestigious trophies: the World Cup. For this sampler, Gardner picked international companies that he felt benefited from all the things that surround a worldwide sporting spectacle: Booking Holdings (BKNG +1.98%), Dassault Systemes (DASTY +3.60%), Electronic Arts (EA +0.08%), MercadoLibre (MELI +1.44%), and Yandex (YNDX 6.16%). Today, Gardner will tell us how they've done, and he's joined for his review by senior analyst Simon Erickson, who will talk about a couple of noteworthy developments at each of these companies, and one thing to watch for in their futures.
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: 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, 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 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!
