In this episode of MarketFoolery, host Chris Hill and Motley Fool analyst Abi Malin shed light on some of the latest market news.
Shares of Estee Lauder (EL -2.51%) popped on a fantastic earnings report, and the long-term picture looks bright for the company. The negative press around Uber (UBER -2.66%) and Lyft (LYFT -4.76%) were soft sighs compared to the news around the soon-to-be-public WeWork. Is there anything of value for retail investors in this remarkably inflated IPO? Where does this real-estate-but-somehow-tech IPO fit into the tapestry of 2019's massive and many IPOs? And Abi weighs in on a listener question about teaching investing to girls versus boys. Tune in to find out 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 Aug. 19, 2019.
Chris Hill: It's Monday, Aug. 19. Welcome to MarketFoolery! I'm Chris Hill. With me in studio today to kick off the week is Abi Malin. Thanks for being here!
Abi Malin: Thanks for having me!
Hill: We're going to talk WeWork because everyone in our office and seemingly in the financial media can't seem to stop talking about WeWork. So we're going to join in that conversation. We're also going to dip into the Fool mailbag.
Let's start, though, with a company I think we've talked about maybe once or twice before in all the years we've been doing this show, and that's Estee Lauder. Looking at what Estee Lauder is doing, it seems like a stock we should be following more closely because shares are up 9% today, hitting a new all-time high. Fourth quarter results for Estee Lauder look good, and their guidance for the new fiscal year was also pretty impressive.
Malin: Yeah, I think that's true. Sales were up 9%. This is known to be a pretty conservative management team so anytime they tend to be pretty bullish, everyone tends to take notice because they tend to outperform that. Definitely worth watching.
Hill: For those unfamiliar, Estee Lauder, all manner of cosmetics, skincare --
Malin: More than 25 prestige brands across 150 countries and territories.
Hill: Wow! I didn't realize the footprint was that big. A company that we do talk about in this space is Ulta. Clearly, I'm showing my ignorance here -- is it safe to assume that Estee Lauder is selling into Ulta? Is it one of those things where they're retailer agnostic?
Hill: So, is this a stock that has ever been on your radar? We were chatting right before we started taping, and I realized, I don't think this has ever been recommended in any service that The Motley Fool has. And the stock's just been a monster, particularly the last few years.
Malin: It has. I think it's a really interesting company. I talk about LVMH a lot. I like following that company.
Hill: What is that name?
Malin: LVMH. It's a French conglomerate -- Louis Vuitton Moet Hennessy. A bunch of the very high-end fashion, food, and beauty products. I think this is a really interesting company. I'm surprised it actually doesn't get more traction. I think everyone acknowledges that there's a lot of growth in this beauty space and within beauty, particularly in skincare, and also within the Chinese region, or Asia Pacific more broadly. But I think this is one that has been missed a lot by analysts around here, and I would like to see it covered in more places. It just doesn't really fit into where I tend to look.
Hill: Last thing before we move on. You mentioned the management being pretty conservative. All things being equal, is that something you prefer to see as an analyst? Management being conservative, even if it's just in terms of their guidance?
Malin: I think they are conservative because they're so geopolitically diverse that they have a lot of risks that they're always taking into account. I think anytime the market comes to expect something, you're going to see a surprise at one point or another. This time, it was to the upside. There's probably a reason that they're conservative, and there's probably going to be some time that they're going to miss. When you set market expectations, it's always a little bit hard. With that being said, I think conservative management in this business makes a lot of sense.
Hill: When I think about the end of 2019, and on Motley Fool Money, we'll do an episode where we look back at the year, and what are the dominant storylines, I think it's safe to say that one of the dominant storylines of 2019 is going to be the IPOs. Coming into this year, we, not only are we going to have some high-profile IPOs, we knew that they were going to be essentially front-loaded to the first half of the year because there was concern among, not the companies themselves, but also among the venture capital folks that were taking them public --
Malin: That we're at peak valuation.
Hill: [laughs] Yeah. "We're at peak valuations, let's get out in the market." Airbnb, Uber, Lyft, Slack, Pinterest, Zoom. Now we've got WeWork. I'm curious what you think. I think we're now at the end. I think the WeWork IPO, if they in fact go public in September, and that is reportedly what they are targeting, I think that's going to be it, basically, for IPOs for 2019. I have never seen such negative coverage about a company getting to go public.
Malin: Yeah. I think it's multifaceted in this case. Something really funny -- I think it was Bill Mann, but it might have been Tom Gardner. Someone around the office coined this "The We Won't Work Company." They're talking about coming public at almost a $50 billion valuation. We've seen this happen with Uber and with Lyft and some of the other ones that have already come public. When you're talking about numbers that big, a lot of the growth and the potential and the runway has already been used. Investors aren't necessarily feeling like they're getting in at the ground level. This is a just late stage. So, for one case, that's a little bit unattractive on the size perspective.
The second thing here, they raised $11.8 billion in cumulative debt and equity funding, according to CrunchBase data, so it's actually one of the most well-funded private companies in the market, ever. And when you think about what's behind that, that's a ton of venture capital money. That alone in and of itself is saying something. That's bigger than most companies tend to even come public historically. There's a lot at stake here. And I think layering on top of that, the business is a little bit flawed. In 2018, revenues were about $1.8 billion, and they had a loss of $1.6 billion. I mean, there's something to be said for using capital while you have it and spurring growth, but I don't think that real estate is necessarily quite the market that these founders would want you to believe it is.
Hill: Add in the fact that, as we talk about from time to time, when a company files to go public, and they're pulling together their S-1 filing for the SEC, they are doing it with the mindset of, "We've got to make our numbers look as good as possible." So, for whatever one thinks about WeWork, just know this is WeWork's public document saying, "This is as good as it gets right now." And there are a lot of people, including folks like you, who are looking at this and saying, "Really? This is as good as it gets? This isn't very good." And then, throw in on top of that, the management team... and the fact that there are going to be three share classes, right out of the gate. I think you can go with multiple share classes when you're a proven business, when you have proven leadership --
Malin: I mean, Snap did it too, and they also got a little bit of flack for it.
Hill: Oh, yeah. Including on this show. [laughs] WeWork didn't invent this.
Malin: Just, you don't necessarily need to be a proven business. That's my point in bringing that up.
Hill: That's true. Good point!
Malin: The thing that's actually pretty jaw-dropping in this case, even in comparison to Snap, which I would say had similar questions when they came public, similar management friction -- although I would say this is much more grounded in numbers and facts than the Snap concerns were -- WeWork has three share classes, as you mentioned. The B and C class are essentially owned primarily by Adam Neumann.
Malin: Yes. Founder, CEO. And those shares give him 20 votes per share. That gives him more than 50% of the total voting power. In comparison, a lot of other dual or even triple class structures, those shares have about 10 votes per share. So, he actually doubled the power in each share. As a shareholder you want to have a voice, and while maybe as a retail investor, you don't expect to have a huge voice, there's a clear strong message with that. This is his business, and he's running it the way he's going to want to run it.
Hill: Dylan Lewis said this on last Friday's Industry Focus when they were talking about WeWork, and I'm going to say the same thing -- we're not trying to hate on them. Just as someone who watches the financial media, I'm marveling at the overwhelming negative response to this filing. By all means, if anyone listening has a strong bull case for why they think this is an IPO worth buying into, or the business in general, please email us, [email protected].
Malin: We have to give credit where credit is due. This is an inventive idea. The idea of renting space the way that they've presented it actually makes a lot of sense for a lot of start-ups, a lot of small businesses. I think this is a cool concept. They pioneered it -- at least, they get credit for bringing it to the main stage. I just don't know that this business with this leadership team is the best execution of it.
Hill: It sounds like a "not with my money" situation.
Malin: Yeah. I guess what I'm saying is, I don't hope against them, but I struggle to see... even with Uber, where I was a little bit negative, I felt like there was optionality there. And I still feel like there's potential with a couple of aspects of that business. With this one, I feel like maybe even less clarity on how exactly we make this.
Hill: Our email address, as I mentioned, is [email protected]. Great question from Baiju Meda in Santa Ana, California. He writes, "I have two girls, ages eight and 10. I primarily invest in passive index funds. My two girls are not super interested in investing or stocks. We've talked about it and we tell them that we are investing for college, but it's not something they ask much about. I use index funds because they are cheap and easy and I don't have the time to research individual stocks. How do I explain that to children and get them excited about it? Even for adults, they're pretty boring investments." Well, he's right about that. "Do you think the way you should teach your kids about investing should differ between boys and girls? I would love to hear Emily Flippen's response to this as a millennial female. Thanks for all you do." Thanks for a great question! I've got another millennial female here in the studio with me in Abi Malin. I love the recognition that index funds, being a wonderful investment vehicle that we love here at The Motley Fool, and always have, for the low cost, for the diversification that you get, and the recognition that yeah, that's incredibly boring.
Malin: Yeah, I don't think the idea of an index fund at age eight is going to get you super excited. But I do think the idea of compounding interest, and the idea that saving today can lead to increased purchasing power in the future, is the fundamental reason why people invest, whether that's an investment in individual equities, index funds, or even bonds. I think for kids, particularly, you really want to teach that concept. So, start on a micro level with just one company, talking about how you build wealth by investing in this one share today, because it will be worth more in the future. And then, once they grasp the idea of opportunity, I would teach the second hand, which is risk. Learning one's own risk tolerance, and then balancing that risk and rewards opportunity, is really the name of the game. The sooner you get kids thinking about both big opportunities and big downsides, you can get them a little bit more excited.
Hill: I want to come back to the companies in a second. What do you think of his second question? As someone with two daughters and one son, the way I've talked to my kids about investing has not differed among them. But, we were talking before we started taping, and you had a different take. Not necessarily that you should teach differently boys vs. girls, but how we're in the environment that we're in.
Malin: Right. I think this question is probably stemming because, when you look at the job market, there are so many fewer females in these financial roles in comparison to men. I think that's due to a couple of reasons. The first is that finance is math-based, and research shows that girls start to doubt themselves in math and science-based subjects by middle school. There's a lot of initiatives being made to correct this inherent bias. The second is that finance and stock markets and equity analysis, these particular subjects require a level of conviction that girls society are not taught the same way that we teach boys. There's this really interesting book by Deborah Tannen called Talking from 9 to 5, and it's about how girls are socialized to present ideas differently than men. Long story short, the research shows that women are actually better investors because they tend to be less reactive and hold through turbulent times. So, what that says to me is that women are more confident in the ideas after they pick them, it just takes a little bit longer and more research for them to get there in comparison to men, generally speaking.
So, if you want to get girls invested, I think you need to tackle both of those problems, and I think that comes down to a confidence issue. Teaching your girls that it's OK to be wrong, here's how you do good research, here's how you build conviction, everyone makes mistakes, and giving them the leeway to do that, specifically targeted toward those gender issues, maybe.
Hill: Every investor makes mistakes.
Malin: Every investor makes mistakes.
Hill: To go back to the companies, my experience, I know Jason Moser has talked about this as well, my experience in investing with my kids is finding something they're already interested in. Once you start to look at, if your kids are interested in sports, or video games, or whatever, chances are, there's a public company that is making the products and services that they use every day, or that they and their friends are talking about. I'm not saying, "Hey, dump the index funds, go all-in on individual stocks based on what your eight year old says," but maybe take, I don't know, $50, $100, buy a couple of shares of a single company.
Malin: I think teaching them what's in that index fund, because index is a weird finance term anyway that's a little bit general. But if they understand, Nike's in the index fund, and Mattel, and McDonald's, maybe it gets a little bit more curiosity.
Hill: Abi Malin, thanks for being here!
Malin: Thanks for having me!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery! The show is mixed by Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!