In this week's episode of Industry Focus: Consumer Goods, host Jason Moser and Motley Fool analyst Joey Solitro talk about the recent partnership between Target (TGT 0.15%) and Walt Disney (DIS -0.34%). Learn what the terms of the store-within-a-store deal are, why this is so exciting for both companies, what Disney's new streaming service will mean for the House of Mouse in the coming years, and more.
Also, the analysts talk about the most recent quarter out of Jumia Technologies (JMIA 8.11%), an e-commerce company that's been called "the Amazon (AMZN 0.54%) of Africa." Tune in to learn why this company is so hugely exciting for the long term, and some of the biggest risks that investors need to know before buying in. Plus, stick around to the end for some consumer-goods stocks you might want to put on your radar.
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. 27, 2019.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Tuesday, Aug. 27. I'm your host, Jason Moser, and on today's Consumer Goods show, we're going to talk about the latest quarter for the Amazon of Africa, Jumia. We're going to talk about Disney and Target tying up a little bit there on the store front. And we're going to go into a little bit more about what the Disney streaming services may hold for consumers.
As always, we will have One to Watch for you for the coming week. And as we get started here, I'd like to thank Mr. Joey Solitro from Motley Fool Canada for joining me in the studio today. Joey, how's it going?
Joey Solitro: It's going great! Thanks for having me!
Moser: Good! Well, thanks for being here! I was excited to get you in here for this week's show, because the first topic for discussion today is a company that you follow closely; you've been following it for a while. You talked about it here on the show a number of months ago. We wanted to go a little bit deeper into it this week, because Jumia just reported earnings recently. It's been a little bit of a tough go as a public company for Jumia thus far. I've talked with you a lot about this company; it sounds exciting. It sounds like there's a tremendous opportunity out there.
Sometimes the stock is a little bit detached from that opportunity, maybe, so you have to be able to look a little bit further down the line here. Given what you know today, going through the most recent quarter and seeing where the stock is today, do you feel like this is more of a geography thing? The market may be needing to take that leap of faith, and it's not ready to take that leap yet? Or, is this more of a business thing? Is Jumia running into some business problems that they're going to have to fix?
Solitro: With Jumia, as for the earnings reports, we saw gross merchandise volume jump over 60%. Revenue followed it, over 50%. When you look at the GMV volume, active consumers jumping 50% year over year, the key metrics are moving in the right direction.
Yes, they're losing more money, but I feel like a lot of what they're doing, and their success years out from now, will be consumers trusting the e-commerce process a lot more. We don't even think about it -- when we buy something online, we know it's going to get to us; we know if it doesn't, we can get our money back. But they don't really have that in Africa. They like the cash on delivery. They don't want their money to leave unless that good is physically in their hands. I think it's a lot of distrust about the process, especially on the payments side. So, as that continues to get more popular and people can trust that, I feel like this company, that's where the success will lay.
Moser: I think that makes sense. It makes me think of...back many, many years ago, when David Gardner had recommended Amazon here at The Fool, back when e-commerce was just becoming a thing. All of the skeptics out there were like: "There is no way anybody's going to put their credit card number on a website blindly, and just give it away, and let someone just promise they're going to ship them something. Who knows what's going to happen?" You fast-forward to today, and obviously, that's the only way business seems to be done.
So, I think you're right in that it's a market that's not used to that yet. It does take some getting used to it; it takes a little bit of faith to believe that that process is going to work out. Africa, clearly, [is] an economy that is somewhat behind ours developmentally speaking, but it doesn't mean it can't get to where we are today. Maybe this is one of those steps that'll really help them get there. To your point, it seems like the gross merchandise volume going through that network, that's a tremendous sign, right?
Solitro: I would say so. Africa in general reminds me of China in the late '80s and '90s. Same with the situation in China back then, less than 1% of total retail sales are done online in Africa right now. Where China got over that hump -- and I think that had a lot to do with the rise of companies like Alibaba and JD.com, and people trusting those names and trusting the payments side of that as well -- I feel like if Jumia can establish itself, and establish not only its website but Jumia Pay as the trusted place to go and actually have their payment information stored and be OK with paying for that up front, I feel like that's the driver for them.
Moser: So, trust sounds like a big factor in the equation today. Let's think five years down the line here. We could think 10 years down the line, if you want. But the basic idea here is five years from now, 10 years from now, Jumia is succeeding, it's doing well, it's gaining traction: What's going right? What's been the key for that? Why is it succeeding?
Solitro: I think as their economy continues to grow, I think as more people come into the working class, and as that trust grows for the actual online process, I feel like they're going to be opening more distribution facilities, expanding to more countries. And especially, I think Jumia Pay is in six countries now, and they operate in total in 13 or 14 countries, so expanding it to the rest of those countries.
I think, not even expanding its capabilities online, but I always go back to that trust factor. We don't even second-guess when we purchase something online. But there, you have to think they're not as connected as we are, where we can track a package so easily, know exactly when it's going to be delivered and by who. In most of their cities, you can't even deliver it to a specific address, because they don't have addresses and mailboxes like we do here. It might be that they have to go to a specific drop-off point and actually pick up their package from there. So, I think infrastructure will be a huge thing. Luckily, there's a lot of companies investing in infrastructure over in Africa.
So if it were to fail, I believe they just weren't able to get over those humps, and they weren't able to educate the consumers enough to trust the process, and investors just were not willing to put more money into this company, since they do burn quite a bit of cash and they're likely going to need to raise more capital down the line. It might come to a point where companies and investors just don't want to do that.
Moser: It takes a long view. To your point about some areas where it's not going to be delivered to your house, you had to go pick it up from a fulfillment center: We were in Costa Rica this summer, our family; Amazon, very much the same situation there. In most cases, Amazon was going to be shipped to a central location, and then you would have to make your way to get it. Now, if you've driven around Costa Rica, it's very spread out. Some places you have to go up mountains to get to.
Solitro: They have Amazon lockers.
Moser: Yeah, it's understandable why Amazon packages can't make it to every doorstep. But the investment in that infrastructure will continue to take place. You'll see Amazon lockers all over the place. So, yeah, that's definitely a solution there. It does sound like it's just the ultimate long-term view, though. You've got to be able to look at this thing and say, "You know what, it's going to take five to 10 years for this thing to really work out." But, hey, there could be some real potential upside there.
Solitro: Yeah, I think best-case scenario, you see this playing out in five years. I'm more of...I'm looking 10 years, 25 years out. This is kind of like finding MercadoLibre or Amazon in its infancy.
Moser: Is there a Pepsi[Co] to their [Coca-Cola]? We always try to talk about that competitor out there that's going to force their hand and keep them innovating. Is there another company doing what Jumia is doing in that market?
Solitro: I know there's one player within Egypt, and I think there's other single-country players. But there's no other player, at least that I've come across, that's in several countries, especially with their reach.
Moser: You've got to go big; you've got to go big early. When you have leadership that knows what they're doing, and they stick with the plan, it can work; it just takes some time to do. I guess we'll have to remain patient. But we'll certainly keep listeners updated here, quarter in and quarter out. Thankfully, we've got Joey here covering the business for us.
Let's pivot over to something a little bit more magical, a little bit more happy: We're talking a lot about Disney these days. We've seen a lot of news in regard to what's coming out on the streaming front for Disney. We're going to talk a little bit about that.
But also, wanted to talk for a minute about what Disney and Target are getting ready to do together. If you read through the Target press release here, then you'll see that essentially, you're going to start seeing Disney Stores in Target. It's going to essentially be a shop-in-a-shop location. It's going to start out with 25 select Target stores in October, 40 more opening by October 2020.
This is going to be something where Target is essentially integrating more of that Disney experience into their stores. Whether it's going to be places where you can go see all of the latest Disney toys, there are going to be certainly some exclusive toys in those areas where you won't be able to get them elsewhere. You'll be able to go see movie clips and whatnot. It does really sound like they're bringing a little bit of that Disney interactive experience into the Target footprint there, into the actual physical store. We've been talking so much here over the past several years about the death of physical retail, but clearly, there are some companies still prospering. Target's certainly one of them.
Solitro: Target is the go-to in my household. You've got The Happiest Place on Earth opening a store within the greatest store on Earth. I have to say, as a father of two daughters and a son on the way, I'm against this in every single way --
Moser: [laughs] Either that or you'd better ask for a raise.
Solitro: [laughs] That's what it comes down to. If Target didn't take enough of our money as it is, now you're going to open up a Disney shop? It's going to be impossible to tear the kids out of that store.
Moser: Well, I was thinking about this, too. I'm father of two daughters. My girls are a little bit older than your kids at this point. But I do remember when they were a lot younger, and it seemed like there was a birthday party every weekend. And in most cases, we were going to Target to grab that birthday present last second. I did find, after a while, the toy section became a little bit wanting. It didn't really have a whole heck of a lot of any one thing. It was just scattered, a little bit of this and a little bit of that. I have to believe that this is going to change that dynamic for the better.
Disney's always been very strong from a consumer-goods perspective. You would see a Disney Store at the mall, and obviously, they sell that stuff all over their parks. But, I think, to bring this store into Target, which is clearly doing well here domestically -- I don't think we're in a position where Target is going to be going away anytime soon. It feels like, to me, it's getting stronger. I feel like this just makes it even stronger. And for Disney, really, I don't see any downside for Disney doing this. Do you?
Solitro: No, definitely not. What gets me excited about this partnership is, Disney is very good at making the most out of small spaces. You go to their parks, some of those stores are very small, but they're pumping thousands, if not millions of people through there each day. So, I can only imagine what they're going to do with a couple of hundred square feet. I don't know how big these stores are going to be at this Target. I know there's one like an hour and 10 minutes from my house that I was actually wanting to go see, because it's one of the 25 stores. I think it's Leesburg, Virginia. It's definitely going to be exciting to see. I've had the same experience with the different toy sections of Target -- it's scattered all over the place. I feel like Disney is going to be pulling in all of their specific brands that were already within Target, and making more of an experience within a Target store.
Moser: Yeah. We talk about it a lot with these physical retailers. The key is driving traffic, figuring out any way that you can drive traffic, because there are those big fixed expenses that come with running a store. You pay that rent no matter what. You pay for the store to be open no matter what. So the more traffic you can push through those stores, then the more profitability you're going to see. You start to see some of that operating leverage play out.
And we see, quarter in and quarter out with Disney itself from the parks side, they're really good at demonstrating the power of that operating leverage. The parks have the same thing, essentially, as a retail store: You have to pay a lot of money to keep them open. So they want to drive as many people through there as they can. This seems like a great bet on engagement. I have to believe there's going to be some word of mouth. People are going to say, "That's pretty cool." They're going to go back. Maybe even, if it's a rainy day and you're looking for something to take the kids to go do for a few minutes that gets them out of the house. I can certainly see it spreading beyond just these 60 stores they're talking about here, and getting this thing started.
That takes us into the other story here with Disney, that to me it seems like every day is just becoming more and more impressive, what they're doing on this streaming front here. With Disney+ getting ready to hit the market here Nov. 12, [the] Disney+ streaming service is going to become available for consumers. They're going to charge $6.99 a month just for the Disney+. Now, if you do the bundle of Disney+, and ESPN+, and Hulu ad-supported, you get that for like $12.99. Again, to me, that bundle sounds like a no-brainer.
But given what we saw here recently at the D23 Expo, with all of the content that they rolled out, my Twitter feed didn't stop for like the whole day. It was something else. My daughters were pinging me about cool stuff that's coming out. I'm looking at some stuff that's coming out. The Mandalorian? I'm looking forward to seeing that. What struck me: Just a tip of the cap to the executive that came up with the idea of letting people go ahead and sign up in advance for the service at this D23 Expo. Apparently, that drove a lot of people to go ahead and sign up for a streaming service that isn't even live yet.
Solitro: Had they let us sign up the day it was announced, my family would have been signed up. The price point alone is just a no-brainer for any parent. I've got an almost-four-year-old, an almost-two-year-old, and a son being born in January, so I will likely be a customer of this Disney streaming service for the next, at least, 12 [to] 15 years. I don't know how long they're watching these days. But on top of that, the content they even have for adults with the Marvel Universe -- this is going to be a major player almost overnight.
Moser: Yeah. My girls are 13 and 14, and they're even still kind of excited about the stuff that's coming out. They've done a good job of giving a little bit of something for everyone there. One thing you mentioned, and I wanted to dig into this a little, in regard to the Marvel Universe, the superhero universe and all that content that has done so well for Disney for so long -- and not only Disney.
Really, if you think about a lot of this Marvel content, Disney is one of the first names that comes to mind. But really, so is Netflix (NFLX -1.65%), because Netflix for a long time really has capitalized on bringing a lot of that content into their universe. It seemed to me, at least, that's what Netflix is really known well for, was having a lot of that cool superhero content and Marvel stuff that people really enjoyed. Essentially all of that content is going to be disappearing. It's not going to happen overnight. But that's stuff that Netflix isn't going to get back. We talked about this before, the challenges that Netflix may witness from something like this. And it's not just Netflix -- other streaming services, of course. But I think Netflix is in a little bit of a unique situation there. They've been paying an arm and a leg for a lot of content; I'm not sure how much farther they can raise prices. What do you think about their competitive position today, in relation to what Disney's getting ready to launch?
Solitro: Yeah, Netflix, they definitely have problems ahead of them. I think they're going to have to develop a lot more original content. I remember when I first signed up, they had House of Cards as a go-to. Orange Is the New Black got pretty popular. But The Office is still probably what we watch the most. With them losing specific brands, losing this Marvel Universe of films, I feel like Netflix is definitely going to have to put out more movies like Bird Box or these one-offs.
That was the other angle I was thinking that Disney could take. If they take one of these Marvel movies that grosses $1 billion and says, "Hey, we're going to release it exclusively onto Disney+," I imagine they'd have a couple of hundred million people signing up overnight just to see the release of that film. So, if any company can launch into streaming and be an overnight success, my money's on Disney.
Moser: Yeah. They've proven time and time again, they are masters of taking one story and then spinning a lot of other stories from that story. I expect them to keep doing that. You have to love this opening price point at $6.99. It's way underpriced. It's tremendous value. I just would argue that until the cows come home. But that's going to give them a lot of room to raise prices down the road.
Solitro: Oh, absolutely! I thought that this was going to be more like $19.99 or $15, something like that. When they announced $6.99, I thought it was a typo, like they forgot one in front of the six. That's when I labeled this an absolute no-brainer for any parent to be signing up on this. And they could easily raise prices. You look at how often they raise ticket prices at their parks: Now I have to almost take out a second mortgage to take the family. I lived in Florida for a long time; that's one expense that got cut when I moved up here to Virginia. But I can only imagine with how they like to raise prices, how they'll handle their Disney+ streaming. You had mentioned to me where you're able to lock in a three-year, pay up front? Dear Disney, please offer a 10-year plan. Let me get that. Give me a discount. Lock me in long-term.
Moser: They're astute businesspeople there. I'm sure they probably kicked that idea around. Like I said, I think we'll be watching some of that stuff even long after our kids leave the house. Again, it seems like they're using this Disney+ platform as a way to get content for adults and kids and everyone in between. That's the most encouraging thing. And so yeah, it's going to be fascinating to watch how this plays out.
And I have to believe, at some point somewhere, Bob Iger was sitting in that boardroom thinking, "Yeah, we're going to price the thing at $6.99 and see if Reed Hastings wants to squirm a little bit with this price point," because I think even he knows that it's getting more competitive. It's certainly not to take anything away from Reed Hastings and Netflix. Again, I think that's one of the core streaming platforms that everyone's going to continue to have. It just makes you wonder how much they can raise prices, and what they're going to do on the content side. And hey, it's not to say that down the road, you won't see collaboration from those two powerhouses either. In a lot of cases, whether it's Disney teaming up with Target or whether it's Disney teaming up with toymakers, it's always nice to see two powerhouse companies partner together. We've seen great results from Disney and Netflix partnering before. It's not to say that can't happen again. But this is going to be a fun one to watch play out.
Before we wrap up here, let's just jump in really quick to a couple of stocks to keep on our listeners' radars this week. We've got Ones to Watch for you. Joey, what's the stock you are watching this week?
Solitro: I've been watching Pinterest (PINS 2.50%), PINS, lately. They had a fantastic earnings report. They had an over 60% jump in revenue. Monthly active users hit 300 million, which was a 30% increase year over year. And the average revenue per user is still less than $1 globally. I feel like with the growing number of monthly active users, and how people that use Pinterest actually have an intention to make a purchase, is where advertisers are just going to be falling over themselves to increase spend on this platform. I look at the market cap, I think it's around $20 billion, maybe even under that: I just see a major, major growth runway in front of these guys, and a clear path to profitability, that this could just be a massive company. I initiated a stake right after they came public, and this is one I'm just really excited about.
Moser: Cool. And the ticker?
Moser: OK. I'm going to be keeping an eye on Etsy (ETSY 7.43%), ETSY. You and I talk about Etsy a lot here at work. It's becoming, I think, a stock a lot of our analyst team is really becoming fond of, and for a lot of good reasons. Talk about earnings reports that were really impressive. The second-quarter earnings report came out for Etsy. It was another good one. Active sellers grew to over 2.3 million. Active buyers, better than 42.7 million. The network pushed through almost $1.1 billion in gross merchandise sales. Revenue up 37%. Earnings per share continued to grow. Gross margin was up.
This is a company that's really just identified a niche in that craft market, and it's become the go-to trusted network in that market. That's really what the business is. It's a network connecting buyers and sellers for craft goods. It maintains a fairly light balance sheet, which is nice. And to top it off, you have a leader, a CEO, in Josh Silverman who just is so forward-thinking and so in touch with, I think, the retail space. He has a perspective there on the retail space that I don't think a lot of others really have, and I think that's really benefited the business. It's one I personally own. I added a few more shares after this most recent earnings report. We'll continue to dig into it here. Ticker here is ETSY.
So, Pinterest and Etsy, guys. Keep eyes out on those stocks this week and beyond.
Joey Solitro, thanks for joining us this week!
Solitro: Thanks for having me!
Moser: 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. Today's show was produced by Austin Morgan. For Joey Solitro, I'm Jason Moser. Thanks for listening! And we'll see you next week!