Earnings season continues apace, and Wall Street gave its version of a gold star to the reports that Roku (ROKU 0.85%), MercadoLibre (MELI 1.05%), and Jack in the Box (JACK -0.87%) just delivered. Roku reported a much smaller-than-expected loss, and it's growing its streaming platform and hardware business in all the right ways. MercadoLibre's revenue rose at a remarkable clip as it continued to dominate e-commerce, online payments, and mobile point-of-sale in Latin America. And fast-food chain Jack in the Box is growing its comp-store sales nicely -- though not quite as nicely as McDonald's or Chipotle.
In this MarketFoolery podcast, host Mac Greer and senior analyst Jim Mueller dig into the details about all three of these popular companies -- what's driving their successes, what's holding them back, and what it all means for investors.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on Aug. 8, 2019.
Mac Greer: It's Thursday, Aug. 8. Welcome to MarketFoolery! I'm Mac Greer and I am joined in studio by Motley Fool analyst Jim Mueller. Jim, it is just you and me. How are you feeling?
Jim Mueller: Feeling good, Mac! How are you?
Greer: I'm good. I'm good. And so are shareholders of MercadoLibre and Jack in the Box. We're going to talk about both of those companies.
Mueller: Imagine that!
Greer: Imagine that! What a world! But let's begin with the video streaming platformer, Roku. Shares up more than 20% today on I think what we can call, Jim, a better than expected quarterly loss. This company is still losing money. But revenues up 59% year over year, growing faster than expected. Roku now has 30.5 million active users for the quarter. That's up 39% from the same period last year. Jim Mueller, what do you make of Roku?
Mueller: They're doing pretty well, actually. $250 million in revenue, as you mentioned. That's ahead of analysts' $240 million estimate. They lost $0.08 per share. Analysts were estimating around $0.18 per share loss. So that was pretty good. Their ARPU, average revenue per user, is up a whopping 27% year over year to over $21 per user on average. That's from people buying movies and content to watch through the Roku platform.
Greer: Jim, we talk a lot about the battle for the living room. There are all these different players. Depending on how you slice it, when you look at Roku, what's their secret sauce? What's their moat for the next one, two, five years?
Mueller: I think their moat going forward is the fact that they are the largest provider of devices for streaming. Strategy & Analytics estimated about 41 million streaming platform devices out in the market in the U.S. right now. That's 36% higher than the No. 2, the Sony PlayStation, and much, much higher than the one I have, Google Chromecast, and the older version of the Apple TV. Kind of behind the times, I guess.
Greer: They have a huge installed base.
Mueller: Right, and that's only projected to go higher. They have thousands and thousands of channels, you can go through their channel store and add onto your devices, different apps. They have also the Roku channel. They have a home screen. They have better analytics on what you might want to watch next on their Roku channel, and be able to serve up new ideas to you. They get a fair amount of revenue from advertising through their Roku channel and the home screen. Knowing their users and knowing what people like to watch allows advertisers to do a better job at targeting, so advertisers are happier.
Apple is coming out with its new device, but it's going to be a walled garden. They're only really offering stuff that you have to subscribe to through that Apple device. For instance, Netflix is not on it at all. But if it were, you wouldn't be able to use your Netflix account outside, you'd have to buy it inside the Apple device. That may or may not work out for Apple. Google Chromecast is out there. The Amazon Fire Stick is out there. But those are the ones from the really big players.
As I said, I'm not sure what Apple is going to bring to the table. They're really insistent on revenue sharing for those subscriptions, which is why Netflix turned them down. But Roku, just from the sheer number, they're way ahead of anyone else there.
Greer: What about the stock? The stock has been on fire. When you look at the valuation -- now, the company's still losing money. Not near as much as they were expected to lose. That's the good news. But the valuation, pretty rich.
Mueller: Well, for a company losing money, certainly! And not generating a ton of cash flow, either. But one reason the stock is on fire, and as we were talking about before we taped, the stock was up 230% year to date before today. That's incredible. But part of the reason is because they've been steadily beating estimates, both top and bottom line, at least for the last six quarters. But on the other hand, they've only made a profit three of the seven quarters they've been public. And, they're not generating very much cash flow. Since they went public in September 2017, for instance, they've only managed to generate about $34 million in operating cash flow, $25 million of which was just this quarter alone. So, they've been burning money. They raised some more cash through a secondary offering recently. But I'd like to see them become cash flow positive on a consistent basis, and then hopefully net income positive on a consistent basis. Then it'd be easier to value them. [laughs]
Greer: We will keep an eye on it. A good day for MercadoLibre and MercadoLibre shareholders. The Latin America e-commerce giant up 11% on better than expected earnings. Now, Jim, their marketplace business is growing, as is the payments business.
Mueller: Yep, and as is their mobile point of sale business, which is what Square started off, with those little dongles you can plug into your iPhone or Android phone. It's common to call MercadoLibre the eBay or Amazon of Latin America, but with its payments business, it's like PayPal that way, and it's just like Square with its mobile payment point of sale of business. And all three of them are growing like crazy. This company is insane in its growth. 63% net revenue growth. 100% if you take out the effect of currency fluctuations. 100% net revenue growth year over year. That's crazy. Gross profit margins are about 50%, which is up from a year ago, a little under 48%. Unfortunately, this quarter, operating expenses were 52% of revenues, so they showed an operating loss. But operating expenses went in the right direction -- down from last year, where it was 56% of revenues.
The company has been very profitable in the past. They've really grown in the last year or two, which was, I believe, what has caused them to pull back on their profitability. But they're pumping out the cash that they can reinvest in the business. I have nothing but admiration for what they're doing, and love the company, and I'm glad I own shares today.
Greer: I do not own shares. Dang it!
Jim, let's close with a restaurant near and dear to my heart, Jack in the Box. Jack in the Box just flat-out getting it done. Shares up more than 13% on earnings at the time of our taping here. Same-store sales up 2.7%. They also increased full-year guidance. What do you think?
Mueller: I think they're managing a turnaround pretty well. The revenue was up 18%, $222 million, just ahead of estimates of $220 million. $1.07 in adjusted earnings per share, ahead of $1.00 on the estimates. As you said, 2.7% or 2.8% depending on which number you're looking at, comps growth. That was almost exclusively on ticket growth, which means people are buying more when they're visiting. Traffic was right around flat. Not much growth in the people coming into the store.
If you want to compare other quick service restaurants, McDonald's for instance, they reported 6.5% same-store sales growth. Chipotle, when they reported recently, a massive 10%. Jack in the Box has a way to go before they start knocking on the doors of those big guys there.
Greer: Did you do Jack in the Box as a kid? Did you eat at Jack in the Box?
Mueller: I did.
Greer: I love Jack in the Box! The tacos were just to die for.
Mueller: [laughs] I like their burgers. I wasn't enamored with their widely ranging menu and the quickness with which they turned over the menu items, trying different things.
Greer: They tried everything.
Mueller: Yeah, they tried a lot. And like Chipotle, they've had their own issues with food safety way back then. But, I like what I saw in the report. Restaurant level margins are getting a bit tighter, unfortunately. That's primarily due to things like wages going up. But they're hardly the only one seeing that in this industry. Both Chipotle and McDonald's have also called this out as a source of concern. Inflation is basically heating up a little bit in the restaurant industry. Food prices are going up, commodity costs going up. They can pass some of that along with higher menu prices, and all of them have done so, I believe. But with Jack in the Box, you mentioned they raised guidance. They went from 0% to 1% range for the year. Now they're saying 1% or better on comps on same-store sales. That's part of why I think the stock is up today.
Greer: OK, Jim, you mentioned food safety. As I was preparing for the show, I googled Jack in the Box, expecting to see the earnings story at the very top. It was not. Instead, it was this headline. And I want to bring Dan Boyd in for this as well. The headline, Jack in the Box Worker Caught Prepping Food While Barefoot. This is from Texas. We have a customer in Texas picking his food up at a Jack in the Box drive thru. He notices that the employee working the drive thru window was barefoot. The customer takes a picture, calls the corporate office, and complains. So, here's my question. Jack in the Box aside, if you pull up to a drive thru window and you notice that the person handing your food is barefoot, do you still eat the food? Take your time.
Mueller: I'd be really hesitant. A store management team that lets that happen might not be watching other things, like, are they washing their hands? Are they touching their faces and their hair and then not washing their hands before they start handling food? Do they go straight from the cash register to food prep? Cash is really dirty stuff to handle.
Greer: OK, you're really thinking this through. My first thought was, "They're not using their feet to prepare the food."
Mueller: Well, that's true, but it's possibly indicative of a bigger problem.
Greer: OK, Dan Boyd?
Dan Boyd: If I was going to a nice restaurant, maybe I'd care. But, like, you're going to Jack in the Box. You got to know what you're getting into. If they're barefoot, like, who cares? It's a Jack in the Box.
Greer: So you're eating the food.
Boyd: I'm eating the food, and I'm certainly not calling corporate to tattle-tale on somebody who's barefoot. Listen, there's only a few areas where barefoot is acceptable. The pool, the beach, somebody's home, or, I don't know, front yard, hanging out or something. Like, I don't think barefoot is acceptable at work. But I'm not about to call corporate about it. And if you don't want to eat there, just don't eat there. You know what I mean?
Greer: But you're saying, if you're going to eat there, then you have to accept the fact that --
Boyd: It's Jack in the Box! It's terrible for you! "Oh, there's going to be germs on my congealed grease! That's just terrible!"
Greer: OK, I am conflicted. To Jim's point, it makes me wonder what else could be going on. On the other hand, I love me some Jack in the Box, and if the food smells good -- I mean, if the food smells like feet, then forget it. I'm not eating it.
Boyd: If I'd already made the decision to eat at Jack in the Box, somebody having bare feet would not stop me from continuing to fulfill that decision.
Greer: OK, so, you're going to eat the food. Jim, it sounds like you probably are not eating the food.
Mueller: Probably not. But I really do have to wonder about that particular employee. Who wants to go ground barefoot in a fast food restaurant kitchen? I mean, I've worked in fast food in the kitchen, and the floors are not clean.
Greer: That's true.
Boyd: And there's hot grease spattered around.
Mueller: There's all kinds of potential problems with, as you say, hot grease or a dropped knife or something. That employee is just really dumb.
Greer: I agree with that. I also think that if the food smells good, I'm still probably going to power through it. Dan, I think I'm with you.
Boyd: I'm glad you agree.
Greer: We'll take Jim's food.
Mueller: You're a fan of Cinnabon, right?
Greer: [laughs] Absolutely! So, the desert island question here. Jim, you're on a desert island. You've got to own one of these stocks for the next five years. What are you going with? Roku, MercadoLibre, or Jack in the Box?
Mueller: I don't even have to think about it. MercadoLibre.
Greer: No hesitation.
Mueller: No hesitation.
Greer: The stock's had an incredible run. Can it keep it up?
Mueller: Oh, yeah! There's a lot that it can do. Latin America is a very large area. There's a lot of people living there. They can keep on growing for a long time down there.
Greer: OK, there you have it!
As always, people on the show 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. You can always email the show at [email protected] with your questions, with your comments. You can let us know whether you would eat the food if you're at a fast food drive thru and the worker is barefooted. It's not an easy question, or maybe it is, I'm not sure. [email protected]. Jim Mueller, thanks for joining me!
Mueller: Thanks, Mac!
Greer: That's it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening! And we will see you next week!